<PAGE>
Registration No. 2-57116
File No. 811-2668
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 / X /
PRE-EFFECTIVE AMENDMENT NO. ___ / /
POST-EFFECTIVE AMENDMENT NO. 32 / X /
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 / X /
Amendment No. 21 / X /
OPPENHEIMER TAX-FREE BOND FUND
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(Exact Name of Registrant as Specified in Charter)
Two World Trade Center, New York, New York 10048-0203
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(Address of Principal Executive Offices)
212-323-0200
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(Registrant's Telephone Number)
ANDREW J. DONOHUE, ESQ.
Oppenheimer Management Corporation
Two World Trade Center, New York, New York 10048-0203
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(Name and Address of Agent for Service)
It is proposed that this filing will become effective:
/ / Immediately upon filing pursuant to paragraph (b)
/ X / On May 1, 1994 pursuant to paragraph (b)
/ / 60 days after filing pursuant to paragraph (a)
/ / On _______ pursuant to paragraph (a)
of Rule 485.
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The Registrant has registered an indefinite number of shares under the
Securities Act of 1933 pursuant to Rule 24f-2 promulgated under the
Investment Company Act of 1940. A Rule 24f-2 Notice for the Registrant's
fiscal year ended December 31, 1993, was filed on February 25, 1994.
<PAGE>
FORM N-1A
OPPENHEIMER TAX-FREE BOND FUND
Cross Reference Sheet
Part A of
Form N-1A
Item No. Prospectus Heading
1 Cover Page
2 Expenses
3 Financial Highlights; Performance of the Fund
4 Cover Page; Investment Objectives and Policies
5 Expenses; How the Fund is Managed; Back Cover
5A Performance of the Fund
6 Dividends, Capital Gains and Taxes;
7 How to Exchange Shares; Special Investor Services; Service
Plan for Class A shares; Distribution and Service Plan for
Class B Shares; How to Buy Shares; How to Sell Shares
8 How to Sell Shares; How to Exchange Shares; Special Investor
Services
9 *
Part B of
Form N-1A
Item No. Heading in Statement of Additional Information
10 Cover Page
11 Cover Page
12 *
13 Investment Objective and Policies; Additional Investment
Restrictions
14 Trustees and Officers of the Fund; How the Fund is Managed
15 Trustees and Officers of the Fund - Major Shareholders; How
the Fund is Managed
16 How the Fund is Managed; Additional Information about the
Fund; Distribution and Service Plans; Back Cover
17 How the Fund is Managed
18 Additional Information about the Fund
19 Your Investment Account
20 Dividends, Capital Gains and Taxes
21 How the Fund is Managed; Additional Information about the
Fund - The Distributor; Distribution and Service Plans
22 Performance of the Fund
23 Financial Statements
_____________
* Not applicable or negative answer.
<PAGE>
OPPENHEIMER TAX-FREE BOND FUND
Supplement dated May 1, 1994
to the Prospectus dated May 1, 1994
The Prospectus is amended as follows:
The following is added immediately following the Class A sales charge
table on page 15:
In addition to paying dealers the regular commission for
sales of Class A shares stated in the sales charge table in "Class
A Shares," and the commission for sales of Class B shares described
in the second paragraph of "Distribution and Service Plan for Class
B Shares," below, the Distributor will pay the following additional
commission for shares of the Fund sold in "qualifying transactions"
from March 1, 1994, through May 31, 1994: (i) 1.00% of the offering
price of Class A and/or Class B shares sold by a representative of
a broker or dealer at a branch not in a "financial institution,"
such as a bank, savings and loan association or credit union; and
(ii) .50% of the offering price of Class B shares, and the
Distributor's entire retained commission on Class A shares, sold by
a sales representative of a financial institution or by a
representative or a broker or dealer firm at a branch in a financial
institution. "Qualifying transactions" are sales by a registered
representative of a broker or dealer at a branch not in a financial
institution of $200,000 or more (calculated at offering price), and
sales in any amount by a sales representative of a financial
institution or registered representative of a broker or dealer at
a branch in a financial institution, of Class A and/or Class B
shares of any one or more of the following OppenheimerFunds: the
Fund, Oppenheimer Insured Tax-Exempt Bond Fund, Oppenheimer New York
Tax-Exempt Fund, Oppenheimer California Tax-Exempt Fund, Oppenheimer
Pennsylvania Tax-Exempt Fund, Oppenheimer Florida Tax-Exempt Fund,
and Oppenheimer New Jersey Tax-Exempt Fund. "Qualifying
transactions" do not include sales of Class A shares (1) at net
asset value without sales charge, (2) subject to a contingent
deferred sales charge, or (3) intended under a Letter of Intent.
May 1, 1994 PS310
<PAGE>
Oppenheimer Tax-Free Bond Fund
Prospectus dated May 1, 1994
Oppenheimer Tax-Free Bond Fund is a mutual fund that seeks as high a
level of current income which is exempt from Federal income taxes as is
available from investing in Municipal Securities, while attempting to
preserve capital. Under normal market conditions, the Fund invests at
least 80% of its assets in Municipal Securities. However, in times of
unstable economic or market conditions, the Fund's investment manager may
deem it advisable to temporarily invest an unlimited amount of the Fund's
total assets in certain taxable instruments. The Fund also uses "hedging"
instruments, to seek to reduce the risks of market fluctuations that
affect the value of the securities the Fund holds. You should carefully
review the risks associated with an investment in the Fund. Please refer
to "Investment Policies and Strategies" for more information about the
types of securities the Fund invests in and the risks of investing in the
Fund.
The Fund offers two classes of shares: (1) Class A shares sold at a
public offering price that includes a front-end sales charge, and (2)
Class B shares, which are sold without a front-end sales charge, although
you may pay a sales charge when you redeem your shares, depending on how
long you own them. Class B shares are also subject to an annual "asset-
based sales charge." Each class of shares bears different expenses. In
deciding which class of shares to buy, you should consider how much you
plan to purchase, how long you plan to keep your shares, and other factors
discussed in "How to Buy Shares" on page ____.
This Prospectus explains concisely what you should know before
investing in the Fund. Please read it carefully and keep it for future
reference. You can find more detailed information about the Fund in the
May 1, 1994, Statement of Additional Information. For a free copy, call
Oppenheimer Shareholder Services, the Fund's Transfer Agent, at 1-800-525-
7048, or write to the Transfer Agent at the address on the back cover.
The Statement has been filed with the Securities and Exchange Commission
and is incorporated into this Prospectus by reference (which means that
it is legally part of this Prospectus).
Shares of the Fund are not deposits or obligations of any bank, nor are
they guaranteed by any bank or insured by the F.D.I.C. or any other
agency, and involve investment risks including possible loss of principal.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
Contents
Page
ABOUT THE FUND
Expenses
Financial Highlights
Investment Objective and Policies
How the Fund is Managed
Performance of the Fund
ABOUT YOUR ACCOUNT
How to Buy Shares
Class A Shares
Class B Shares
Special Investor Services
AccountLink
Automatic Withdrawal and Exchange
Plans
Reinvestment Privilege
Retirement Plans
How to Sell Shares
By Mail
By Telephone
Checkwriting
How to Exchange Shares
Shareholder Account Rules and Policies
Dividends, Capital Gains and Taxes
<PAGE>
ABOUT THE FUND
Expenses
The Fund pays a variety of expenses directly for management of its
assets, administration, distribution of its shares and other services, and
those expenses are reflected in the Fund's net asset value per share. As
a shareholder, you pay those expenses indirectly. Shareholders pay other
expenses directly, such as sales charges. The following tables are
provided to help you understand your direct expenses of investing in the
Fund and your share of the Fund's operating expenses that you might expect
to bear indirectly. The calculations are based on the Fund's expenses
during its fiscal year ended December 31, 1993.
-- Shareholder Transaction Expenses are charges you pay when you buy
or sell shares of the Fund. Please refer to pages ____ through _____ for
an explanation of how and when these charges apply.
Class A Class B
Shares Shares
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Maximum Sales
Charge on Purchases
(as a % of offering price) 4.75% None
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Sales Charge on
Reinvested Dividends None None
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Deferred Sales Charge 5% in the first year,
(as a % of the lower of the declining to 1% in
original purchase price or the sixth year and
redemption proceeds) None(1) eliminated thereafter
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Exchange Fee $5.00(2) $5.00(2)
(1)If you invest more than $1 million in Class A shares, you may have to
pay a sales charge of up to 1% if you sell your shares within 18 calendar
months from the end of the calendar month during which you purchased those
shares. See "How to Buy Shares - Class A Shares," below.
(2)Fee is waived for automated exchanges on PhoneLink, described in "How
to Buy Shares."
-- Annual Fund Operating Expenses are paid out of the Fund's assets
and represent the Fund's expenses in operating its business. For example,
the Fund pays management fees to its investment adviser, Oppenheimer
Management Corporation (the "Manager") and other regular expenses for
services, such as transfer agent fees, custodial fees paid to the bank
that holds its portfolio securities, audit fees and legal and other
expenses. The following numbers are projections of the Fund's business
expenses based on the Fund's expenses in its last fiscal year. These
amounts are shown as a percentage of the average net assets of each class
of the Fund's shares for that year. The "12b-1 Service and/or Distribution
Plan Fees" for Class A shares are the Service Plan Fees (which are a
maximum of 0.25% of average annual net assets of that class), and for
Class B shares are the Service Plan Fee (maximum of 0.25%) and the asset-
based sales charge of 0.75%. The actual expense numbers for each class of
shares in future years may be more or less, depending on a number of
factors, including the actual amount of the assets represented by each
class of shares.
Class A Class B
Shares Shares
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Management Fees 0.54% 0.54%
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12b-1 Service and/or
Distribution Plan Fees 0.20% 1.00%
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Other Expenses 0.14% 0.20%
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Total Fund Operating Expenses 0.88% 1.74%
-- Examples. To try to show the effect of these expenses on an
investment over time, we have created the hypothetical examples shown
below. Assume that you make a $1,000 investment in each class of shares
of the Fund, and that the Fund's annual return is 5%, and that its
operating expenses for each class are the ones shown in the chart above.
If you were to redeem your shares at the end of each period shown below,
your investment would incur the following expenses by the end of each
period shown:
1 year 3 years 5 years 10 years(1)
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Class A Shares $56 $74 $ 94 $151
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Class B Shares $68 $85 $114 $161
If you did not redeem your investment, it would incur the following
expenses:
1 year 3 years 5 years 10 years(1)
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Class A Shares $56 $74 $94 $151
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Class B Shares $18 $55 $94 $161
(1)The Class B expenses in years 7 through 10 are based on the Class A
expenses shown above, because the Fund automatically converts your Class
B shares into Class A shares after 6 years. Long-term Class B shareholders
could pay the economic equivalent of more than the maximum front-end sales
charge allowed under applicable regulations, because of the effect of the
asset-based sales charge and contingent deferred sales charge. The
automatic conversion is designed to minimize the likelihood that this will
occur. Please refer to "How to Buy Shares - Class B Shares" for more
information.
These examples show the effect of expenses on an investment, but are
not meant to state or predict actual or expected costs or investment
returns of the Fund, all of which will vary.
<PAGE>
Financial Highlights
The table on this page presents selected financial information about
the Fund, including per share data and expense ratios and other data based
on the Fund's average net assets. This information has been audited by
KPMG Peat Marwick, the Fund's independent auditors, whose report on the
Fund's financial statements for the fiscal year ended December 31, 1993,
is included in the Statement of Additional Information. Class B shares
were publicly offered only during a portion of that period, commencing
March 16, 1993.
<TABLE>
<CAPTION>
Class A Class B
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Year Ended Period Ended
December 31, December 31,
1993 1992 1991 1990 1989 1988 1987 1986 1985 1984 1993(1)
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<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
<C>
PER SHARE OPERATING DATA:
Net asset value, beginning of period $9.94 $9.77 $9.33 $9.45 9.27 $9.12 $9.81 $8.80 $7.87 $7.77 $10.22
- -----------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment
operations:
Net investment income .59 .62 .64 .66 .65(2) .77(2) .69 .69 .70 .68 .41
Net realized and unrealized gain
(loss) on investments .74 .25 .45 (.12) .20 .07 (.70) .99 .91 .10 .43
-------- ------- ------- -------- ------- -------- ------- ------- ------- ------- --------
Total income (loss) from investment
operations 1.33 .87 1.09 .54 .85 .84 (.01) 1.68 1.61 .78 .84
- -----------------------------------------------------------------------------------------------------------------------------------
Dividends and distributions
to shareholders:
Dividends from net investment income (.62) (.58) (.65) (.66) (.67) (.69) (.68) (.67) (.68) (.68) (.42)
Distributions from net realized gain
on investments (.21) (.12) -- -- -- -- -- -- -- -- (.21)
-------- ------- -------- -------- ------- ------ -------- ------ ------- ------ ----------
Total dividends and distributions
to shareholders (.83) (.70) (.65) (.66) (.67) (.69) (.68) (.67) (.68) (.68) (.63)
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $10.44 $9.94 $9.77 $9.33 $9.45 $9.27 $9.12 $9.81 $8.80 $7.87 $10.43
-------- ------- -------- ------ ------ ------ ------ ----- ------ ------ ----------
-------- ------- -------- ------ ------ ------ ------ ----- ------ ------ ----------
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE(3) 13.79% 9.20% 12.11% 5.93% 9.42% 10.03% .00% 19.75% 21.38%
10.60% 8.49%
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RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(in thousands) $608,128 $496,628 $394,115 $256,542 $223,904 $172,227 $133,508 $132,234 $93,993 $70,103 $33,024
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Average net assets (in thousands) $567,777 $438,684 $319,081 $238,224 $202,216 $150,901 $135,052 $112,189 $80,974 $64,474 $16,444
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Number of shares outstanding at
end of period (in thousands) 58,277 49,964 40,356 27,505 23,699 18,581 14,633 13,480 10,681 8,910 3,166
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Ratios to average net assets:
Net investment income 5.71% 6.34% 6.70% 7.08% 7.18% 7.48% 7.41% 7.33% 8.36% 8.91% 4.54%(4)
Expenses .88% .94% .89% .89% .82%(2) .72%(2) .78% .78% .82% .86% 1.74%(4)
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Portfolio turnover rate(5) 30.2% 34.2% 23.5% 29.3% 57.2% 22.9% 29.4% 27.8% 210.7% 385.6% 30.2%
</TABLE>
[FN]
1. For the period from March 16, 1993 (inception of offering) to December
31, 1993.
2. Net investment income would have been $.64 and $.76 absent the
voluntary assumption of expenses, resulting in an expense ratio of .84%
and .80% for 1989 and 1988, respectively.
3. Assumes a hypothetical initial investment on the business day before
the first day of the fiscal period, with all dividends and distributions
reinvested in additional shares on the reinvestment date, and redemption
at the net asset value calculated on the last business day of the fiscal
period. Sales charges are not reflected in the total returns.
4. Annualized.
5. The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities
owned during the period. Securities with a maturity or expiration date at
the time of acquisition of one year or less are excluded from the
calculation. Purchases and sales of investment securities (excluding
short-term securities) for the year ended December 31, 1993 were
$258,922,750 and $173,216,958, respectively.
<PAGE>
Investment Objective and Policies
Objective. The Fund's objective is to seek as high a level of current
interest income exempt from Federal income taxes as is available from
investment in Municipal Securities (defined below), while attempting to
preserve capital. The Fund is not intended to be a complete investment
program, and there is no assurance that it will achieve its objective.
Investment Policies and Strategies. Under normal market conditions, the
Fund attempts to invest 100% of its assets and, as a matter of fundamental
policy, to invest at least 80% of its assets, in Municipal Securities.
Municipal Securities are municipal bonds and municipal notes, tax-exempt
commercial paper and other debt obligations issued by or on behalf of
states, the District of Columbia, any commonwealths, territories or
possessions of the United States, or their respective political
subdivisions, agencies, instrumentalities or authorities, the interest
from which is not subject to Federal individual income tax in the opinion
of bond counsel to the respective issuer at the time of issue. No
independent investigation has been made by the Manager as to the users of
proceeds of bond offerings or the application of such proceeds.
"Municipal Bonds" are Municipal Securities that have a maturity when
issued of one year or more, and "Municipal Notes" are Municipal Securities
that have a maturity when issued of less than one year.
The two principal classifications of Municipal Securities are
"general obligations" (secured by the issuer's pledge of its full faith,
credit and taxing power for the payment of principal and interest) and
"revenue obligations" (payable only from the revenues derived from a
particular facility or class of facilities, or a specific excise tax or
other revenue source). The Fund may invest in Municipal Securities of
both classifications. See "Investment Objective and Policies" in the
Additional Statement for further information about the Fund's investment
policies and about Municipal Securities.
Dividends paid by the Fund derived from interest attributable to
Municipal Securities will be exempt from Federal individual income taxes.
Any dividends derived from net interest income on taxable investments will
be taxable as ordinary income (and any capital gains distributions will
be taxable as capital gains) when distributed to shareholders (See
"Dividends, Distributions and Taxes," below).
-- Investments in Taxable Securities and Temporary Defensive
Investment Strategy. Under normal market conditions, the Fund may invest
up to 20% of its assets in taxable investments, including (i) certain
"Temporary Investments" (described immediately below); (ii) covered call
options and Hedging Instruments (described in "Covered Calls and Hedging"
below); (iii) repurchase agreements (explained below); and (iv) municipal
securities issued to benefit a private user ("Private Activity Municipal
Securities"), the interest from which may be subject to Federal
alternative minimum tax (see "Dividends, Distributions and Taxes," below,
and "Private Activity Municipal Securities" in the Additional
Statement).
For temporary defensive purposes, the Fund may invest up to 100% of
its total assets in "Temporary Investments," including: (i) obligations
issued or guaranteed by the U.S. Government or its agencies or
instrumentalities; (ii) corporate debt securities rated within the three
highest grades by Moody's or Standard & Poor's; (iii) commercial paper
rated "A-1" by Standard & Poor's or "Prime-1" by Moody's; and (iv)
certificates of deposit of domestic banks with assets of $1 billion or
more. The Fund may hold Temporary Investments pending the investment of
proceeds from the sale of Fund shares or portfolio securities, or to meet
anticipated redemptions.
-- Credit Risk and Interest Rate Risk. The values of Municipal
Securities will vary as a result of changing evaluations by rating
services and investors of the ability of issuers of such securities to
meet interest and principal payments. Such values will also change in
response to changes in interest rates. Should interest rates rise, the
values of outstanding Municipal Securities will probably decline and (if
purchased at principal amount) would sell at a discount. If interest
rates fall, the values of outstanding Municipal Securities will probably
increase and (if purchased at principal amount) would sell at a premium.
Changes in the value of Municipal Securities held in the Fund's portfolio
arising from these or other factors will not affect income derived from
those securities but will affect the Fund's net asset value per share.
-- Municipal Lease Obligations. The Fund may invest in certificates
of participation that represent a proportionate interest in or right to
the lease-purchase payment made under municipal lease obligations. While
some municipal lease securities may be deemed to be "illiquid" securities
(the purchase of which would be limited as described below in "Illiquid
and Restricted Securities"), from time to time the Fund may invest more
than 5% of its net assets in municipal lease obligations that the Manager
has determined to be liquid under guidelines set by the Board of Trustees.
-- Floating Rate/Variable Rate Obligations. Some of the Municipal
Securities the Fund may purchase may have variable or floating interest
rates. Variable rates are adjustable at stated periodic intervals.
Floating rates are automatically adjusted according to a specified market
rate for such investments, such as the percentage of the prime rate of a
bank, or the 91-day U.S. Treasury Bill rate. Such obligations may be
secured by bank letters of credit or other credit support
arrangements.
-- Inverse Floaters and Other Derivative Securities. From time to
time the Fund may invest in variable rate bonds having an interest rate
that varies inversely with movements in short-term tax-exempt yields.
Such bonds are known as "inverse floaters" and are also generally known
as derivative securities. As short-term rates rise, inverse floaters
produce less current income. The Fund may also invest in municipal
securities for which the coupon payments are a function of an external
pricing mechanism embedded with the security, such as an interest rate
swap or cap, or a municipal bond or swap index. These municipal
securities are also generally known as derivative securities. A risk of
derivative securities is that their market value could be expected to vary
to a much greater extent than the market value of municipal securities
with similar credit quality, redemption provisions and maturities.
Inverse floaters with embedded caps may be appropriate if the Manager
has purchased inverse floaters in an attempt to maintain high current
yield and believes it has taken on more short-term interest rate risk than
it would like to bear. Embedded caps hedge a portion of the Fund's
exposure to rising short-term interest rates when interest rates exceed
the strike price. The risk is that if interest rates do not rise above
the strike price, then the cap - purchased at a certain cost - will never
provide additional cash flows and expires worthless.
-- Ratings of Municipal Securities. Municipal Securities purchased
by the Fund must be rated within the four highest rating categories of
Moody's Investor Services, Inc. ("Moody's") or Standard & Poor's
Corporation ("Standard & Poor's") or, if unrated, judged by the Manager
to be of comparable quality to Municipal Securities rated within such
grades. (See Appendix A of the Additional Statement for a description of
those rating categories). Investments in unrated Municipal Securities
will not exceed 20% of the Fund's total assets. Not more than 25% of the
Fund's total assets will be invested in Municipal Securities that are
rated either "Baa" or "MIG2" by Moody's or "BBB" or "SP-2" by Standard &
Poor's or, if unrated, judged by the Manager to be of comparable quality
to Municipal Securities in those categories. Although such securities are
investment grade, they may be subject to greater market fluctuations and
risks of loss of income and principal than higher-rated Municipal
Securities, and may be considered to have speculative characteristics.
A subsequent reduction in its rating will not require the disposition of
a security. Securities which have fallen below investment grade have a
greater risk that the ability of the issuers of such securities to meet
their debt obligations will be impaired.
-- Portfolio Turnover. A change in the securities held by the Fund
is known as "portfolio turnover." The Fund generally will not engage in
the trading of securities for the purpose of realizing short-term gains,
but the Fund may sell securities as the Manager deems advisable to take
advantage of differentials in yield. The "Financial Highlights," above,
show the Fund's portfolio turnover rate during past fiscal years. While
short-term trading increases portfolio turnover, the Fund incurs little
or no brokerage costs because most of the Fund's portfolio transactions
are principal trades without brokerage commissions.
-- Can the Fund's Investment Objective and Policies Change? The Fund
has an investment objective, which is described above, as well as
investment policies that it follows to try to achieve its objective.
Additionally, the Fund uses certain investment techniques and strategies
in carrying out those policies. The Fund's investment policies and
practices are not "fundamental" unless the Prospectus or Statement of
Additional Information says that a particular policy is "fundamental."
Fundamental policies are those that cannot be changed without the
approval of a "majority" of the Fund's outstanding voting shares. The term
"majority" is defined in the Investment Company Act to be a particular
vote of outstanding voting shares (and this term is explained in the
Statement of Additional Information). The Fund's investment objective is
a "fundamental policy." The Fund's Board of Trustees may change non-
fundamental policies without shareholder approval, although significant
changes will be described in amendments to this Prospectus.
Other Investment Techniques and Strategies. The Fund may also use the
investment techniques and strategies described below, which involve
certain risks. The Statement of Additional Information contains more
information about these practices, including limitations designed to
reduce some of the risks.
-- When-Issued and Delayed Delivery Transactions. The Fund may
purchase Municipal Securities on a "when-issued" basis, and may purchase
or sell such securities on a "delayed delivery" basis. "When-issued" or
"delayed delivery" refer to securities whose terms and indenture are
available and for which a market exists, but which are not available for
immediate delivery. The Fund does not intend to make such purchases for
speculative purposes. During the period between the purchase and
settlement, no payment is made for the security and no interest accrues
to the buyer from the investment. The commitment to purchase a security
for which payment will be made on a future date may be deemed a separate
security and involve a risk of loss if the value of the security declines
prior to the settlement date.
-- Repurchase Agreements. The Fund may enter into repurchase
agreements. There is no limit on the amount of the Fund's net assets that
may be subject to repurchase agreements of seven days or less. Repurchase
agreements must be fully collateralized. However, if the vendor of the
securities under a repurchase agreement fails to pay the resale price on
the delivery date, the Fund may incur costs in disposing of the collateral
and may experience losses if there is any delay in its ability to do so.
The Fund will not enter into a repurchase agreement which causes more than
10% of its net assets to be subject to repurchase agreements having a
maturity beyond seven days.
-- Illiquid and Restricted Securities. Under the policies and
procedures established by the Fund's Board of Trustees, the Manager
determines the liquidity of the Fund's investments. Investments may be
illiquid because of the absence of an active trading market, making it
difficult to value them or dispose of them promptly at an acceptable
price. A restricted security is one that has a contractual restriction
on its resale. Over-the-counter options held by the Fund, the assets used
to cover over-the-counter options, repurchase transactions having a
maturity beyond seven days, and certain municipal lease obligations are
considered illiquid securities. The Fund may not invest any portion of
its assets in securities the public sale of which would require
registration under the Securities Act of 1933. The Fund will not invest
more than 10% of its net assets in illiquid or restricted securities (that
limit may increase to 15% if certain state laws are changed or the Fund's
shares are no longer sold in those states). Certain restricted
securities, eligible for resale to qualified institutional purchasers, are
not subject to that limit.
-- Loans of Portfolio Securities. To raise cash for liquidity
purposes, the Fund may lend its portfolio securities to certain types of
eligible borrowers approved by the Board of Trustees. Each loan must be
collateralized in accordance with applicable regulatory requirements.
After any loan, the value of the securities loaned must not exceed 25% of
the value of the Fund's total assets. There are some risks in connection
with securities lending. The Fund might experience a delay in receiving
additional collateral to secure a loan, or a delay in recovery of the
loaned securities. The Fund presently does not intend to engage in loans
of securities that will exceed 5% of the value of the Fund's total assets
in the coming year.
-- Writing Covered Calls. The Fund may write (i.e., sell) call
options (calls) to raise cash for liquidity purposes (for example, to meet
redemptions requirements) or for defensive reasons. The Fund may write
calls only if certain conditions are met: (1) after writing any call, not
more than 25% of the Fund's total assets are subject to calls; (2) the
calls are listed on a domestic securities exchange or quoted on the
automatic quotation system of the National Association of Securities
Dealers, Inc. (NASDAQ); and (3) each call must be "covered" while it is
outstanding, that is, the Fund must own the securities on which the call
is written or it must own other securities that are acceptable for the
escrow arrangements required for calls. If a covered call written by the
Fund is exercised on a security that has increased in value, the Fund will
be required to sell the security at the call price and will not be able
to realize any profit on the security above the call price.
-- Hedging with Options and Futures Contracts. The Fund may buy and
sell options and futures contracts and engage in interest rate swap
transactions to try to manage its exposure to declining prices on its
portfolio securities or to establish a position in the securities market
as a temporary substitute for purchasing individual securities. Some of
these strategies, such as selling futures, buying puts and writing covered
calls, hedge the Fund's portfolio against price fluctuations. Other
hedging strategies, such as buying futures, writing puts and buying call
options, tend to increase the Fund's exposure to the market.
The Fund may purchase certain kinds of put and call options, Interest
Rate Futures and Municipal Bond Index Futures (described below), financial
futures and options on Interest Rate Futures and Municipal Bond Index
Futures. These are all referred to as "Hedging Instruments." The Fund
does not use Hedging Instruments for speculative purposes. The Hedging
Instruments the Fund may use are described below and in greater detail in
"Covered Calls and Hedging" in the Additional Statement.
The Fund may purchase put options ("puts") which relate to (1)
securities that the Fund owns, (2) Interest Rate Futures or Municipal Bond
Index Futures, whether or not the Fund owns the particular Future in its
portfolio, or (3) broadly-based municipal bond indices. Writing puts
requires the segregation of liquid assets to cover the put. The Fund will
not write a put if it will require more than 50% of the Fund's net assets
to be segregated to cover the put obligation. The Fund may purchase calls
only on debt securities, broadly-based municipal bond indices or Interest
Rate Futures or Municipal Bond Index Futures, or to terminate its
obligation on a call the Fund previously wrote. A call or put may not be
purchased if the value of all of the Fund's put and call options would
exceed 5% of the Fund's total assets. The Fund may buy and sell futures
contracts only if they relate to debt securities (referred to as Interest
Rate Futures) or to municipal bond indices (referred to as Municipal Bond
Index Futures"), as described in the Statement of Additional
Information.
Hedging instruments can be volatile investments and may involve
special risks. If the Manager uses a hedging instrument at the wrong time
or judges market conditions incorrectly, hedging strategies may reduce the
Fund's return. The Fund could also experience losses if the prices of its
futures and options positions were not correlated with its other
investments or if it could not close out a position because of an illiquid
market for the future or option.
Options trading involves the payment of premiums and has special tax
effects on the Fund. There are also special risks in particular hedging
strategies. For example, in writing puts, there is a risk that the Fund
may be required to buy the underlying security at a disadvantageous price.
Interest rate swaps are subject to credit risks (if the other party fails
to meet its obligations) and also to interest rate risks, because the Fund
could be obligated to pay more under its swap agreements than it receives
under them, as a result of interest rate changes. These risks and the
hedging strategies the Fund may use are described in greater detail in the
Statement of Additional Information.
Other Investment Restrictions. The Fund has other investment restrictions
that are fundamental policies.
Under these fundamental policies, the Fund cannot do any of the
following: (1) invest in securities or any other investment other than
Municipal Securities, Temporary Investments, repurchase agreements,
covered calls, Private Activity Municipal Securities and Hedging
Instruments (see "The Fund and its Investment Policies" above); (2) lend
any of its assets (repurchase agreements or the purchase of debt
securities in accordance with the Fund's investment policies and
restrictions are permitted); the Fund may also lend its portfolio
securities as described under "Loans of Portfolio Securities"; (3) borrow
money in excess of 10% of the value of its total assets; the Fund may
borrow only from banks as a temporary measure for extraordinary or
emergency purposes (not for the purpose of leveraging its investments);
no assets of the Fund may be pledged, mortgaged or otherwise encumbered,
transferred or assigned to secure a debt, however, escrow or other
collateral arrangements in connection with Hedging Instruments are not
prohibited hereby; (4) invest more than 5% of the value of its total
assets in the securities of any one issuer (see "Diversification" in the
Additional Statement) nor acquire more than 10% of the total value of all
outstanding securities of any one issuer (in both cases, this restriction
does not apply to securities of the U.S. Government or its agencies or
instrumentalities); or (5) concentrate investments to the extent of 25%
of its total assets in any industry (see "Diversification" in the
Additional Statement); however, there is no limitation as to investment
in Municipal Securities or in obligations issued by the U.S. Government
and its agencies or instrumentalities.
All of the percentage limitations described above and elsewhere in
this Prospectus, other than those that apply to borrowing, apply only at
the time the Fund purchases a security, and the Fund need not dispose of
a security merely because the Fund's assets have changed or the security
has increased in value relative to the size of the Fund. There are other
fundamental policies discussed in the Statement of Additional
Information.
How the Fund is Managed
Organization and History. The Fund was originally incorporated in
Maryland in 1976 but was reorganized in 1987 as a Massachusetts business
trust. The Fund is an open-end, diversified management investment company
with an unlimited number of authorized shares of beneficial interest.
The Fund is governed by a Board of Trustees, which is responsible for
protecting the interests of shareholders under Massachusetts law. The
Trustees meet periodically throughout the year to oversee the Fund's
activities, review its performance, and review the actions of the Manager.
"Trustees and Officers of the Fund" in the Statement of Additional
Information names the Trustees and provides more information about them
and the officers of the Fund. Although the Fund is not required by law
to hold annual meetings, it may hold shareholder meetings from time to
time on important matters, and shareholders have the right to call a
meeting to remove a Trustee or to take other action described in the
Fund's Declaration of Trust.
The Board of Trustees has the power, without shareholder approval,
to divide unissued shares of the Fund into two or more classes. Each
class has its own dividends and distributions, and pays certain expenses
which may be different for the different classes. Each class may have a
different net asset value. The Board has done so, and the Fund currently
has two classes of shares, Class A and Class B. Each share has one vote
at shareholder meetings, with fractional shares voting proportionally.
Only shares of a class vote together on matters that affect that class
alone. Shares are freely transferrable.
The Manager and its Affiliates. The Fund is managed by the Manager, which
chooses the Fund's investments and handles its day-to-day business. The
Manager carries out its duties, subject to the policies established by the
Board of Trustees, under an Investment Advisory Agreement which states the
Manager's responsibilities and its fees, and describes the expenses that
the Fund pays to conduct its business.
The Manager has operated as an investment adviser since April 30,
1959. The Manager and its affiliates currently manage investment
companies, including other OppenheimerFunds, with assets of more than $27
billion as of March 31, 1994, and with more than 1.8 million shareholder
accounts. The Manager is owned by Oppenheimer Acquisition Corp., a
holding company that is owned in part by senior officers of the Manager
and controlled by Massachusetts Mutual Life Insurance Company, a mutual
life insurance company.
-- Portfolio Manager. The Portfolio Manager of the Fund (who is also
a Vice President of the Fund), is Robert E. Patterson, a Senior Vice
President of the Manager He has been responsible for the day-to-day
management of the Fund's portfolio since November, 1988. He also serves
as an officer and portfolio manager for other OppenheimerFunds.
-- Fees and Expenses. Under the Investment Advisory Agreement, the
Fund pays the Manager the following annual fees, which decline on
additional assets as the Fund grows: 0.60% of the first $200 million of
the Fund's average annual net assets, 0.55% of the next $100 million,
0.50% of the next $200 million, 0.45% of the next $250 million, 0.40% of
the next $250 million, and 0.35% of net assets in excess of $1 billion.
The Fund's management fee for its last fiscal year was 0.54% of average
annual net assets for Class A shares and 0.54% for Class B shares.
The Fund pays expenses related to its daily operations, such as
custodian fees, Trustee's fees, transfer agency fees, legal and auditing
costs. Those expenses are paid out of the Fund's assets and are not paid
directly by shareholders. However, those expenses reduce the net asset
value of shares, and therefore are indirectly borne by shareholders
through their investment. More information about the investment advisory
agreement and the other expenses paid by the Fund is contained in the
Statement of Additional Information.
There is also information about the Fund's brokerage policies and
portfolio transactions in "Brokerage Policies of the Fund" in the
Statement of Additional Information. Because the Fund purchases most of
its portfolio securities directly from the sellers and not through
brokers, it therefore incurs relatively little expense for brokerage.
From time to time it may use brokers when buying portfolio securities.
When deciding which brokers to use in those cases, the Manager is
permitted by the investment advisory agreement to consider whether brokers
have sold shares of the Fund or any other funds for which the Manager also
serves as investment adviser.
-- The Distributor. The Fund's shares are sold through dealers or
brokers that have a sales agreement with Oppenheimer Funds Distributor,
Inc., a subsidiary of the Manager that acts as the Distributor. The
Distributor also distributes the shares of other mutual funds managed by
the Manager (the "OppenheimerFunds") and is sub-distributor for funds
managed by a subsidiary of the Manager.
-- The Transfer Agent. The Fund's transfer agent is Oppenheimer
Shareholder Services, a division of the Manager, which acts as the
shareholder servicing agent for the Fund and the other OppenheimerFunds
on an "at-cost" basis. Shareholders should direct inquiries about their
accounts to the Transfer Agent at the address and toll-free numbers shown
elsewhere in this Prospectus or on the back cover.
Performance of the Fund
Explanation of Performance Terminology. The Fund uses certain terms to
illustrate its performance: "total return" and "yield." These terms are
used to show the performance of each class of shares separately, because
the performance of each class of shares will usually be different, as a
result of the different kinds of expenses each class bears. This
performance information may be useful to help you see how well your
investment has done and to compare it to other funds or market indices,
as we have done below.
It is important to understand that the Fund's yields and total
returns represent past performance and should not be considered to be
predictions of future returns or performance. This performance data is
described below, but more detailed information about how total returns and
yields are calculated is contained in the Statement of Additional
Information, which also contains information about indices and other ways
to measure and compare the Fund's performance. The Fund's investment
performance will vary, depending on market conditions, the composition of
the portfolio, expenses and which class of shares you purchase.
-- Total Returns. There are different types of "total returns" used
to measure the Fund's performance. Total return is the change in value
of a hypothetical investment in the Fund over a given period, assuming
that all dividends and capital gains distributions are reinvested in
additional shares. The cumulative total return measures the change in
value over the entire period (for example, ten years). An average annual
total return shows the average rate of return for each year in a period
that would produce the cumulative total return over the entire period.
However, average annual total returns do not show the Fund's actual year-
by-year performance.
When total returns are quoted for Class A shares, they reflect the
payment of the maximum initial sales charge. Total returns may be quoted
"at net asset value," without considering the effect of the sales charge,
and those returns would be reduced if sales charges were deducted. When
total returns are shown for Class B shares, they reflect the effect of the
contingent deferred sales charge. They may also be shown based on the
change in net asset value, without considering the effect of the
contingent deferred sales charge.
-- Yield. Each Class of shares calculates its yield by dividing the
annualized net investment income per share on the portfolio during a
30-day period by the maximum offering price on the last day of the period.
Tax-equivalent yield is the equivalent yield that would be earned in the
absence of taxes. It is calculated by dividing that portion of the yield
that is tax-exempt by a factor equal to one minus the applicable tax rate.
The yield of each Class will differ because of the different expenses of
each Class of shares. The yield data represents a hypothetical investment
return on the portfolio, and does not measure an investment return based
on dividends actually paid to shareholders. To show that return, a
dividend yield may be calculated. Dividend yield is calculated by
dividing the dividends of a Class derived from net investment income
during a stated period by the maximum offering price on the last day of
the period. Yields and dividend yields for Class A shares reflect the
deduction of the maximum initial sales charge, but may also be shown based
on the Fund's net asset value per share. Yields for Class B shares do not
reflect the deduction of the contingent deferred sales charge.
How Has the Fund Performed? Below is a discussion by the Manager of the
Fund's performance during its last fiscal year ended December 31, 1993,
followed by a graphical comparison of the Fund's performance to an
appropriate broad-based market index.
Management's Discussion of Performance
During the twelve months ended December 31, 1993, the performance of
the municipal bond market was favorably affected by low interest rates,
Federal tax increases and gradual economic growth. The Fund continued to
maintain a strong position in higher quality bonds that the Manager
considered to be related to essential services and projects that benefit
the entire community, such as utilities, toll roads and hospitals. Recent
additions to the portfolio followed this basic strategy as the Fund sought
attractive yield opportunities among undervalued investment grade
municipal bonds. The Fund also sought to lock-in attractive rates with
call protection, which prevents the issuer of the bond from calling or
redeeming it before maturity. In the opinion of the Manager, the Fund is
well diversified both by geographic location and by market sector.
-- Comparing the Fund's Performance to the Market. The chart below
shows the performance of a hypothetical $10,000 investment in each Class
of shares of the Fund from the inception of the Class held through
December 31, 1993, with all dividends and capital gains distributions
reinvested in additional shares. The graph reflects the deduction of the
4.75% maximum initial sales charge on Class A shares and the maximum 5%
contingent deferred sales charge for Class B shares.
Because the Fund invests in a variety of Municipal Securities, the
Fund's performance is compared to the performance of the Lehman Brothers
Municipal Bond Fund Index. The Lehman Brothers Municipal Bond Index is
an unmanaged index of a broad range of investment grade municipal bonds,
widely regarded as a measure of the performance of the general municipal
bond market.
Index performance reflects reinvestment of income but does not
consider the effect of capital gains or transaction costs, and none of the
data below shows the effect of taxes. Also, the Fund's performance data
reflects the effect of Fund business and operating expenses. While index
comparisons may be useful to provide a benchmark for the Fund's
performance, it must be noted that the Fund's investments are not limited
to the securities in any one index and the index data does not reflect any
assessment of the risk of the investments included in the index.
Comparison of Change
In Value of $10,000
Hypothetical Investment in
Oppenheimer Tax-Free Bond
Fund and Lehman Brothers
Municipal Bond Index
Average Annual Total Return of the Fund at 12/31/93
A Shares 1 Year 5 Years 10 Years
8.39% 8.82% 10.44%
Cumulative Total Return of the Fund at 12/31/93
B Shares Inception*
3.49%
- ---------------
*Reflects cumulative total return for the period from inception of the
class (3/16/93) and is not annualized.
<TABLE>
<CAPTION>
Oppenheimer Oppenheimer
Tax-Free Lehman Tax-Free Lehman
Bond Bros. Muni Bond Bros. Muni
Fund A Bond Index Fund B Bond Index
<S> <C> <C> <C> <C>
12/31/83 $ 9,525 $10,000
12/31/84 $10,525 $11,055
12/31/85 $12,787 $13,269
12/31/86 $15,312 $15,832
12/31/87 $15,312 $16,071
12/31/88 $16,769 $17,703
12/31/89 $18,355 $19,614
12/31/90 $19,432 $21,043
12/31/91 $21,791 $23,598
12/31/92 $23,717 $25,680
12/31/93 $26,992 $28,833
03/16/93 $10,000 $10,000
12/31/93 $10,348 $10,826
</TABLE>
Past Performance is not predictive of future performance.
ABOUT YOUR ACCOUNT
How to Buy Shares
The Fund offers investors two different classes of shares. The
different classes of shares represent investments in the same portfolio
of securities but are subject to different expenses and will likely have
different share prices.
-- Class A Shares. If you buy Class A shares, you pay an initial
sales charge (on investments up to $1 million). If you purchase Class A
shares as part of an investment of at least $1 million in shares of one
or more OppenheimerFunds, and you sell any of those shares within 18
months of the end of the calendar month of your purchase, you will pay a
contingent deferred sales charge, which will vary depending on the amount
you invested.
-- Class B Shares. If you buy Class B shares, you pay no sales
charge at the time of purchase, but if you sell your shares within six
years, you will normally pay a contingent deferred sales charge that
varies depending on how long you own your shares.
-- Which Class of Shares Should You Choose? Once you decide that the
Fund is an appropriate investment for you, the decision as to which class
of shares is better suited to your needs depends on a number of factors
which you should discuss with your financial advisors:
-- How much do you plan to invest? If you plan to invest a
substantial amount, the reduced sales charges available for larger
purchases of Class A shares may be more beneficial to you, and for
purchases over $1 million, the contingent deferred sales charge on Class
A shares may be more beneficial. The Distributor will not accept any order
for $1 million or more for Class B shares on behalf of a single investor
for that reason.
-- How long do you expect to hold your investment? While future
financial needs cannot be predicted with certainty, investors who prefer
not to pay an initial sales charge and who plan to hold their shares for
more than 6 years might consider Class B shares. Investors who plan to
redeem shares within 7 years might prefer consider whether the front-end
sales charge on Class A shares would result in higher net expenses after
redemption.
-- Are there differences in account features that matter to you?
Because some account features may not be available for Class B
shareholders, such as checkwriting, you should carefully review how you
plan to use your investment account before deciding which class of shares
is better for you. Additionally, the dividends payable to Class B
shareholders will be reduced by the additional expenses borne solely by
that class, such as the asset-based sales charge to which Class B shares
are subject, as described below and in the Statement of Additional
Information.
-- How does it affect payments to my broker? A salesperson or any
other person who is entitled to receive compensation for selling Fund
shares may receive different compensation for selling one class than for
selling another class. It is important that investors understand that the
purpose of the contingent deferred sales charge and asset-based sales
charge for Class B shares is the same as the purpose of the front-end
sales charge on sales of Class A shares.
-- How Much Must You Invest? You can open a Fund account with a
minimum initial investment of $1,000 and make additional investments at
any time with as little as $25. There are reduced minimum investments
under special investment plans:
-- With Asset Builder Plans, Automatic Exchange Plans and military
allotment plans, you can make initial and subsequent investments for as
little as $25; and subsequent purchases of at least $25 can be made by
telephone through AccountLink.
-- There is no minimum investment requirement if you are buying
shares by reinvesting dividends from the Fund or other OppenheimerFunds
(a list of them appears in the Statement of Additional Information, or you
can ask your dealer or call the Transfer Agent), or by reinvesting
distributions from unit investment trusts that have made arrangements with
the Distributor.
-- How Are Shares Purchased? You can buy shares several ways --
through any dealer, broker or financial institution that has a sales
agreement with the Distributor, or directly through the Distributor, or
automatically from your bank account through an Asset Builder Plan under
the OppenheimerFunds AccountLink service. When you buy shares, be sure to
specify Class A or Class B shares. If you do not choose, your investment
will be made in Class A shares.
-- Buying Shares Through Your Dealer. Your dealer will place your
order with the Distributor on your behalf.
-- Buying Shares Through the Distributor. Complete an
OppenheimerFunds New Account Application and return it with a check
payable to "Oppenheimer Funds Distributor, Inc." Mail it to P.O. Box 5270,
Denver, Colorado 80217. If you don't list a dealer on the application,
the Distributor will act as your agent in buying the shares.
-- Buying Shares Through OppenheimerFunds AccountLink. You can use
AccountLink to link your Fund account with an account at a U.S. bank or
other financial institution that is an Automated Clearing House (ACH)
member, to transmit funds electronically to purchase shares, to send
redemption proceeds, and to transmit dividends and distributions. Shares
are purchased for your account on the regular business day the Distributor
is instructed by you to initiate the ACH transfer to buy shares. You can
provide those instructions automatically, under an Asset Builder Plan,
described below, or by telephone instructions using OppenheimerFunds
PhoneLink, also described below. You must request AccountLink privileges
on the application or dealer settlement instructions used to establish
your account. Please refer to "AccountLink," below for more details.
-- Asset Builder Plans. You may purchase shares of the Fund (and up
to four other OppenheimerFunds) automatically each month from your account
at a bank or other financial institution under an Asset Builder Plan with
AccountLink. Details are on the Application and in the Statement of
Additional Information.
-- At What Price Are Share Sold? Shares are sold at the public
offering price based on the net asset value that is next determined after
the Distributor receives the purchase order in Denver. In most cases, to
receive that day's offering price, the Distributor must receive your order
by 4:00 P.M., New York time (all references to time in this Prospectus
mean "New York time."). The net asset value of each class of shares is
determined as of that time on each day The New York Stock Exchange is open
(which is a "regular business day"). If you buy shares through a dealer,
the dealer must receive your order by 4:00 P.M. on a regular business day
and transmit it to the Distributor so that it is received before the
Distributor's close of business that day, which is normally 5:00 P.M. The
Distributor may reject any purchase order for the Fund's shares, in its
sole discretion.
Class A Shares. Class A shares are sold at their offering price, which
is normally net asset value plus an initial sales charge. However, in
some cases, described below, where purchases are not subject to an initial
sales charge, the offering price may be net asset value. In some cases,
reduced sales charges may be available, as described below. When you
invest, the Fund receives the net asset value for your account. The sales
charge varies depending on the amount of your purchase and a portion may
be retained by the Distributor and allocated to your dealer. The current
sales charge rates and commissions paid to dealers and brokers are as
follows:
- -------------------------------------------------------------------------
<TABLE>
<CAPTION>
Front-End Sales Charge Commission as
As a Percentage of: Percentage of
Amount of Purchase Offering Price Amount Invested Offering Price
- -------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $50,000 4.75% 4.98% 4.00%
- -------------------------------------------------------------------------
$50,000 or more but
less than $100,000 4.50% 4.71% 4.00%
- -------------------------------------------------------------------------
$100,000 or more but
less than $250,000 3.50% 3.63% 3.00%
- -------------------------------------------------------------------------
$250,000 or more but
less than $500,000 2.50% 2.56% 2.25%
- -------------------------------------------------------------------------
$500,000 or more but
less than $1 million 2.00% 2.04% 1.80%
- -------------------------------------------------------------------------
</TABLE>
The Distributor reserves the right to reallow the entire commission to
dealers. If that occurs, the dealer may be considered an "underwriter"
under Federal securities laws.
-- Class A Contingent Deferred Sales Charge. There is no initial
sales charge on purchases of Class A shares of any one or more
OppenheimerFunds aggregating $1 million or more. However, the Distributor
pays dealers of record commissions on such purchases in an amount equal
to the sum of 1.0% of the first $2.5 million, plus 0.50% of the next $2.5
million, plus 0.25% of share purchases over $5 million. However, that
commission will be paid only on the amount of those purchases in excess
of $1 million that were not previously subject to a front-end sales charge
and dealer commission.
If you redeem any of those shares within 18 months of the end of the
calendar month of their purchase, a contingent deferred sales charge
(called the "Class A contingent deferred sales charge") will be deducted
from the redemption proceeds. That sales charge will be equal to 1.0% of
the aggregate net asset value of either (1) the redeemed shares (not
including shares purchased by reinvestment of dividends or capital gain
distributions) or (2) the original cost of the shares, whichever is less.
However, the Class A contingent deferred sales charge will not exceed the
aggregate commissions the Distributor paid to your dealer on all Class A
shares of all OppenheimerFunds you purchased subject to the Class A
contingent deferred sales charge. In determining whether a contingent
deferred sales charge is payable, the Fund will first redeem shares that
are not subject to the sales charge, including shares purchased by
reinvestment of dividends and capital gains, and then will redeem other
shares in the order that you purchased them. The Class A contingent
deferred sales charge is waived in certain cases described in "Waivers of
Class A Sales Charges" below.
No Class A contingent deferred sales charge is charged on exchanges
of shares under the Fund's Exchange Privilege (described below). However,
if the shares acquired by exchange are redeemed within 18 months of the
end of the calendar month of the purchase of the exchanged shares, the
sales charge will apply.
-- Special Arrangements With Dealers. The Distributor may advance
up to 13 months' commissions to dealers that have established special
arrangements with the Distributor for Asset Builder Plans for their
clients. The Distributor sponsors an annual sales conference to which a
dealer firm is eligible to send, with a guest, a registered representative
who sells more than $2.5 million of Class A shares of OppenheimerFunds
(other than money market funds) in a calendar year, or the dealer may, at
its option, receive the equivalent cash value of that award as additional
commission.
-- Reduced Sales Charges for Class A Share Purchases. You may be
eligible to buy Class A shares at reduced sales charge rates in one or
more of the following ways:
-- Right of Accumulation. You and your spouse can cumulate Class A
shares you purchase for your own accounts, or jointly, or on behalf of
your children who are minors, under trust or custodial accounts. A
fiduciary can cumulate shares purchased for a trust, estate or other
fiduciary account (including one or more employee benefit plans of the
same employer) that has multiple accounts.
Additionally, you can cumulate current purchases of Class A shares
of the Fund and other OppenheimerFunds with Class A shares of
OppenheimerFunds you previously purchased subject to a sales charge,
provided that you still hold your investment in one of the
OppenheimerFunds; the value of those shares will be based on the greater
of the amount you paid for the shares or their current value (at offering
price). The OppenheimerFunds are listed in "Reduced Sales Charges" in the
Statement of Additional Information, or a list can be obtained from the
Transfer Agent. The reduced sales charge will apply only to current
purchases and must be requested when you buy your shares.
-- Letter of Intent. Under a Letter of Intent, you may purchase
Class A shares of the Fund and other OppenheimerFunds during a 13-month
period at the reduced sales charge rate that applies to the aggregate
amount of the intended purchases, including purchases made up to 90 days
before the date of the Letter. More information is contained in the
Application and in "Reduced Sales Charges" in the Statement of Additional
Information.
-- Waivers of Class A Sales Charges. No sales charge is imposed on
sales of Class A shares to the following investors: (1) the Manager or its
affiliates; (2) present or former officers, directors, trustees and
employees (and their "immediate families" as defined in "Reduced Sales
Charges" in the Statement of Additional Information) of the Fund, the
Manager and its affiliates, and retirement plans established by them for
their employees; (3) registered management investment companies, or
separate accounts of insurance companies having an agreement with the
Manager or the Distributor for that purpose; (4) dealers or brokers that
have a sales agreement with the Distributor, if they purchase shares for
their own accounts or for retirement plans for their employees; (5)
employees and registered representatives (and their spouses) of dealers
or brokers described above or financial institutions that have entered
into sales arrangements with such dealers or brokers (and are identified
to the Distributor) or with the Distributor; the purchaser must certify
to the Distributor at the time of purchase that the purchase is for the
purchaser's own account (or for the benefit of such employee's spouse or
minor children); (6) dealers, brokers or registered investment advisers
that have entered into an agreement with the Distributor providing
specifically for the use of shares of the Fund in particular investment
products made available to their clients.
Additionally, no sales charge is imposed on shares that are (a)
issued in plans of reorganization, such as mergers, asset acquisitions and
exchange offers, to which the Fund is a party, or (b) purchased by the
reinvestment of dividends or other distributions reinvested from the Fund
or other OppenheimerFunds (other than the Cash Reserves Funds) or unit
investment trusts for which reinvestment arrangements have been made with
the Distributor. There is a further discussion of this policy in "Reduced
Sales Charges" in the Statement of Additional Information.
The Class A contingent deferred sales charge is also waived if shares
are redeemed in the following cases: (1) Automatic Withdrawal Plan
payments that are limited to no more than 12% of the original account
value annually, and (2) involuntary redemptions of shares by operation of
law or under the procedures set forth in the Fund's Declaration of Trust
or adopted by the Board of Trustees.
-- Service Plan for Class A Shares. The Fund has adopted a Service
Plan for Class A shares to reimburse the Distributor for a portion of its
costs incurred in connection with the personal service and maintenance of
accounts that hold Class A shares. Reimbursement is made quarterly at an
annual rate that may not exceed 0.25% of the average annual net assets of
Class A shares of the Fund. The Distributor uses all of those fees to
compensate dealers, brokers, banks and other financial institutions
quarterly for providing personal service and maintenance of accounts of
their customers that hold Class A shares and to reimburse itself (if the
Fund's Board of Trustees authorizes such reimbursements, which it has not
yet done) for its other expenditures under the Plan.
Services to be provided include, among others, answering customer
inquiries about the Fund, assisting in establishing and maintaining
accounts in the Fund, making the Fund's investment plans available and
providing other services at the request of the Fund or the Distributor.
Payments are made by the Distributor quarterly at an annual rate not to
exceed 0.25% of the average annual net assets of Class A shares held in
accounts of the dealer or its customers. The payments under the Plan
increase the annual expenses of Class A shares. For more details, please
refer to "Distribution and Service Plans" in the Statement of Additional
Information.
Class B Shares. Class B shares are sold at net asset value per share
without an initial sales charge. However, if Class B shares are redeemed
within 6 years of their purchase, a contingent deferred sales charge will
be deducted from the redemption proceeds. That sales charge will not
apply to shares purchased by the reinvestment of dividends or capital
gains distributions. The charge will be assessed on the lesser of the net
asset value of the shares at the time of redemption or the original
purchase price. The contingent deferred sales charge is not imposed on the
amount of your account value represented by the increase in net asset
value over the initial purchase price (including increases due to the
reinvestment of dividends and capital gains distributions). The Class B
contingent deferred sales charge is paid to the Distributor to reimburse
its expenses of providing distribution-related services to the Fund in
connection with the sale of Class B shares.
To determine whether the contingent deferred sales charge applies to
a redemption, the Fund redeems shares in the following order: (1) shares
acquired by reinvestment of dividends and capital gains distributions, (2)
shares held for over 6 years, and (3) shares held the longest during the
6-year period.
The amount of the contingent deferred sales charge will depend on the
number of years since you invested and the dollar amount being redeemed,
according to the following schedule:
Contingent Deferred Sales Charge
Years Since Purchase On Redemptions in That Year
Payment Was Made (As % of Amount Subject to Charge)
0-1 5.0%
- ------------------------------------------------------------
1-2 4.0%
- ------------------------------------------------------------
2-3 3.0%
- ------------------------------------------------------------
3-4 3.0%
- ------------------------------------------------------------
4-5 2.0%
- ------------------------------------------------------------
5-6 1.0%
- ------------------------------------------------------------
6 and following None
- ------------------------------------------------------------
In the table, a "year" is a 12-month period. All purchases are considered
to have been made on the first regular business day of the month in which
the purchase was made.
-- Waivers of Class B Sales Charge. The Class B contingent deferred
sales charge will be waived if the shareholder requests it for a
redemption following the death or disability of the shareholder (as
evidenced by a determination of disability by the Social Security
Administration).
The contingent deferred sales charge is also waived on Class B shares
in the following cases: (i) shares sold to the Manager or its affiliates;
(ii) shares sold to registered management investment companies or separate
accounts of insurance companies having an agreement with the Manager or
the Distributor for that purpose; (iii) shares issued in plans of
reorganization to which the Fund is a party; and (iv) shares redeemed in
involuntary redemptions as described above. Further details about this
policy are contained in "Reduced Sales Charges" in the Statement of
Additional Information.
-- Automatic Conversion of Class B Shares. 72 months after you
purchase Class B shares, those shares will automatically convert to Class
A shares. This conversion feature relieves Class B shareholders of the
asset-based sales charge that applies to Class B shares under the Class
B Distribution Plan, described below. The conversion is based on the
relative net asset value of the two classes, and no sales load or other
charge is imposed. When Class B shares convert, any other Class B shares
that were acquired by the reinvestment of dividends and distributions on
the converted shares will also convert to Class A shares. The conversion
feature is subject to the continued availability of a tax ruling described
in "Alternative Sales Arrangements - Class A and Class B Shares" in the
Statement of Additional Information.
-- Distribution and Service Plan for Class B Shares. The Fund has
adopted a Distribution and Service Plan for Class B shares to compensate
the Distributor for its services and costs in distributing Class B shares
and servicing accounts. Under the Plan, the Fund pays the Distributor an
annual "asset-based sales charge" of 0.75% per year on Class B shares that
are outstanding for 6 years or less. The Distributor also receives a
service fee of 0.25% per year. Both fees are computed on the average
annual net assets of Class B shares, determined as of the close of each
regular business day. The asset-based sales charge allows investors to buy
Class B shares without a front-end sales charge while allowing the
Distributor to compensate dealers that sell Class B shares.
The Distributor uses the service fee to compensate dealers for
providing personal service for accounts that hold Class B shares. Those
services are similar to those provided under the Class A Service Plan,
described above. The asset-based sales charge and service fees increase
Class B expenses by up to 1.00% of average net assets per year.
The Distributor pays the 0.25% service fee to dealers in advance for
the first year after Class B shares have been sold by the dealer. After
the shares have been held for a year, the Distributor pays the fee on a
quarterly basis. The Distributor pays sales commissions of 3.75% of the
purchase price to dealers from its own resources at the time of sale. The
Distributor retains the asset-based sales charge to recoup the sales
commissions it pays, the advances of service fee payments it makes, and
its financing costs.
Because the Distributor's actual expenses in selling Class B shares
may be more than the payments it receives from contingent deferred sales
charges collected on redeemed shares and from the Fund under the
Distribution and Service Plan for Class B shares, those expenses may be
carried over and paid in future years. At December 31, 1993, the end of
the Plan year, the Distributor had incurred unreimbursed expenses under
the Plan of $1,351,486 (equal to 4.09% of the Fund's net assets
represented by Class B shares on that date), which have been carried over
into the present Plan year. If the Plan is terminated by the Fund, the
Board of Trustees may allow the Fund to continue payments of the net
asset-based sales charge to the Distributor for certain expenses it
incurred before the Plan was terminated.
Special Investor Services
AccountLink. OppenheimerFunds AccountLink links your Fund account to your
account at your bank or other financial institution to enable you to send
money electronically between those accounts to perform a number of types
of account transactions, including purchases of shares by telephone
(either through a service representative or by PhoneLink, described
below), automatic investments under Asset Builder Plans, and sending
dividends and distributions or Automatic Withdrawal Plan payments directly
to your bank account. Please refer to the Application for details or call
the Transfer Agent for more information.
AccountLink privileges must be requested on the Application you use
to buy shares, or on your dealer's settlement instructions if you buy your
shares through your dealer. After your account is established, you can
request AccountLink privileges on signature-guaranteed instructions to the
Transfer Agent. AccountLink privileges will apply to each shareholder
listed in the registration on your account as well as to your dealer
representative of record unless and until the Transfer Agent receives
written instructions terminating or changing those privileges. After you
establish AccountLink for your account, any change of bank account
information must be made by signature-guaranteed instructions to the
Transfer Agent signed by all shareholders who own the account.
-- Using AccountLink to Buy Shares. Purchases may be made by
telephone only after your account has been established. To purchase shares
in amounts up to $250,000 through a telephone representative, call the
Distributor at 1-800-852-8457. The purchase payment will be debited from
your bank account.
-- PhoneLink. PhoneLink is the OppenheimerFunds automated telephone
system that enables shareholders to perform a number of account
transactions automatically using a touch-tone phone. PhoneLink may be
used on already-established Fund accounts after you obtain a Personal
Identification Number (PIN), by calling the special PhoneLink number:
1-800-533-3310.
- Purchasing Shares. You may purchase shares in amounts up to
$100,000 by phone, by calling 1-800-533-3310. You must have established
AccountLink privileges to link your bank account with the Fund, to pay for
these purchases.
- Exchanging Shares. With the OppenheimerFunds Exchange Privilege,
described below, you can exchange shares automatically by phone from your
Fund account to another OppenheimerFunds account you have already
established by calling the special PhoneLink number. Please refer to
"Exchange Privilege," below, for details.
- Selling Shares. You can redeem shares by telephone automatically
by calling the PhoneLink number and the Fund will send the proceeds
directly to your AccountLink bank account. Please refer to "How to Sell
Shares," below for details.
Automatic Withdrawal and Exchange Plans. The Fund has several plans that
enable you to sell shares automatically or exchange them to another
OppenheimerFunds account on a regular basis:
-- Automatic Withdrawal Plans. If your Fund account is $5,000 or
more, you can establish an Automatic Withdrawal Plan to receive payments
of at least $50 on a monthly, quarterly, semi-annual or annual basis. The
checks may be sent to you or sent automatically to your bank account on
AccountLink. You may even set up certain types of Withdrawals of up to
$1,500 per month by telephone. You should consult the Application and
Statement of Additional Information for more details.
-- Automatic Exchange Plans. You can authorize the Transfer Agent
to exchange an amount you establish in advance automatically for shares
of up to five other OppenheimerFunds on a monthly, quarterly, semi-annual
or annual basis under an Automatic Exchange Plan. The minimum purchase
for each other OppenheimerFunds account is $25. These exchanges are
subject to the terms of the Exchange Privilege, described below.
Reinvestment Privilege. If you redeem some or all of your Fund shares,
you have up to 6 months to reinvest all or part of the redemption proceeds
in Class A shares of the Fund or other OppenheimerFunds without paying
sales charge. This privilege applies to Class A shares that you sell, and
Class B shares on which you paid a contingent deferred sales charge when
you redeemed them. You must be sure to ask the Distributor for this
privilege when you send your payment. Please consult the Statement of
Additional Information for more details.
How to Sell Shares
You can arrange to take money out of your account on any regular
business day by selling (redeeming) some or all of your shares. Your
shares will be sold at the next net asset value calculated after your
order is received and accepted by the Transfer Agent. The Fund offers you
a number of ways to sell your shares: in writing, by using the Fund's
Checkwriting privilege or by telephone. You can also set up Automatic
Withdrawal Plans to redeem shares on a regular basis, as described above.
If you have questions about any of these procedures, and especially if you
are redeeming shares in a special situation, such as due to the death of
the owner, please call the Transfer Agent first, at 1-800-525-7048, for
assistance.
-- Certain Requests Require a Signature Guarantee. To protect you
and the Fund from fraud, certain redemption requests must be in writing
and must include a signature guarantee in the following situations (there
may be other situations also requiring a signature guarantee):
- You wish to redeem more than $50,000 worth of shares and receive
a check
- The check is not payable to all shareholders listed on the account
statement
- The check is not sent to the address of record on your statement
- Shares are being transferred to a Fund account with a different
owner or name
- Shares are redeemed by someone other than the owners (such as an
Executor)
-- Where Can I Have My Signature Guaranteed? The Transfer Agent will
accept a guarantee of your signature by a number of financial
institutions, including: a U.S. bank, trust company, credit union or
savings association, or by a foreign bank that has a U.S. correspondent
bank, or by a U.S. registered dealer or broker in securities, municipal
securities or government securities, or by a U.S. national securities
exchange, a registered securities association or a clearing agency. If
you are signing as a fiduciary or on behalf of a corporation, partnership
or other business, you must also include your title in the signature.
Selling Shares by Mail. Write a "letter of instructions" that includes:
- Your name
- The Fund's name
- Your Fund account number (from your statement)
- The dollar amount or number of shares to be redeemed
- Any special payment instructions
- Any share certificates for the shares you are selling, and
- Any special requirements or documents requested by the Transfer
Agent to assure proper authorization of the person asking to sell
shares.
Use the following address for requests by mail:
Oppenheimer Shareholder Services
P.O. Box 5270, Denver, Colorado 80217
Send courier or Express Mail requests to:
Oppenheimer Shareholder Services
10200 E. Girard Avenue, Building D
Denver, Colorado 80231
Selling Shares by Telephone. You and your dealer representative of record
may also sell your shares by telephone. To receive the redemption price
on a regular business day, your call must be received by the Transfer
Agent by 4:00 P.M. You may not redeem shares held under a share
certificate by telephone.
- To redeem shares through a service representative, call
1-800-852-8457
- To redeem shares automatically on PhoneLink, call 1-800-533-3310
Whichever method you use, you may have a check sent to the address
on the account, or, if you have linked your Fund account to your bank
account on AccountLink, you may have the proceeds wired to that account.
-- Telephone Redemptions Paid by Check. Up to $50,000 may be redeemed
by telephone, once in each 7-day period. The check must be payable to all
owners of record of the shares and must be sent to the address on the
account. This service is not available within 30 days of changing the
address on an account.
-- Telephone Redemptions Through AccountLink. There are no dollar
limits on telephone redemption proceeds sent to a bank account designated
when you establish AccountLink. Normally the ACH wire to your bank is
initiated on the business day after the redemption. You do not receive
dividends on the proceeds of the shares you redeemed while they are
waiting to be wired.
CheckWriting. To be able to write checks against your Fund account, you
may request that privilege on your account Application or you can contact
the Transfer Agent for signature cards, which must be signed (with a
signature guarantee) by all owners of the account and returned to the
Transfer Agent so that checks can be sent to you to use. Shareholders with
joint accounts can elect in writing to have checks paid over the signature
of one owner.
- Checks can be written to the order of whomever you wish, but may
not be cashed at the Fund's bank or custodian.
- Checkwriting privileges are not available for accounts holding
Class B shares or Class A shares that are subject to a contingent deferred
sales charge.
- Checks must be written for at least $100.
- Checks cannot be paid if they are written for more than your
account value.
Remember: your shares fluctuate in value and you should not write a
check close to the total account value.
- You may not write a check that would require the Fund to redeem
shares that were purchased by check or Asset Builder Plan payments within
the prior 15 days.
- Don't use your checks if you changed your Fund account number.
The Fund will charge a $10 fee for any check that is not paid because
(1) the owners of the account told the Fund not to pay the check, or (2)
the check was for more than the account balance, or (3) the check did not
have the proper signatures, or (4) the check was written for less than
$100.
How to Exchange Shares
Shares of the Fund may be exchanged for shares of certain
OppenheimerFunds at net asset value per share at the time of exchange,
without sales charge. A $5 service fee will be deducted from the fund
account you are exchanging into to help defray administrative costs. That
charge is waived for automated exchanges between existing accounts on
PhoneLink described below. To exchange shares, you must meet several
conditions:
- Shares of the fund selected for exchange must be available for
sale in your state of residence
- The prospectuses of this Fund and the fund whose shares you want
to buy must offer the exchange privilege
- You must hold the shares you buy when you establish your account
for at least 7 days before you can exchange them; after the account is
open 7 days, you can exchange shares every regular business day
- You must meet the minimum purchase requirements for the fund you
purchase by exchange
- Before exchanging into a fund, you should obtain and read its
prospectus
Shares of a particular class may be exchanged only for shares of the
same class in the other OppenheimerFunds. For example, you can exchange
Class A shares of this Fund only for Class A shares of another fund. At
present, not all of the OppenheimerFunds offer the same two classes of
shares. If a fund has only one class of shares that does not have a class
designation, they are "Class A" shares for exchange purposes. In some
cases, sales charges may be imposed on exchange transactions. Certain
OppenheimerFunds offer Class A, Class B and/or Class C shares, and a list
can be obtained by calling the Distributor at 1-800-525-7048. Please
refer to the Statement of Additional Information for more details about
this policy.
Exchanges may be requested in writing or by telephone:
-- Written Exchange Requests. Submit an OppenheimerFunds Exchange
Request form, signed by all owners of the account. Send it to the
Transfer Agent at the addresses listed in "How to Sell Shares."
-- Telephone Exchange Requests. Telephone exchange requests may be
made either by calling a service representative at 1-800-852-8457 or by
using PhoneLink for automated exchanges, by calling 1-800-533-3310.
Telephone exchanges may be made only between accounts that are registered
with the same names and address. Shares held under certificates may not
be exchanged by telephone.
You can obtain a list of eligible OppenheimerFunds in the Statement
of Additional Information or by calling the Transfer Agent at 1-800-525-
7048. Exchanges of shares involve a redemption of the shares of the fund
you own and a purchase of shares of the other fund.
There are certain exchange policies you should be aware of:
- Shares are normally redeemed from one fund and purchased from the
other fund in the exchange transaction on the same regular business day
on which the Transfer Agent receives an exchange request by 4:00 P.M. that
is in proper form, but either fund may delay the purchase of shares of the
fund you are exchanging into if it determines it would be disadvantaged
by a same-day transfer of the proceeds to buy shares. For example, the
receipt of multiple exchange requests from a dealer in a "market-timing"
strategy might require the disposition of securities at a time or price
disadvantageous to the Fund.
- Because excessive trading can hurt fund performance and harm
shareholders, the Fund reserves the right to refuse any exchange request
that will disadvantage it, or to refuse multiple exchange requests
submitted by a shareholder or dealer.
- The Fund may amend, suspend or terminate the exchange privilege at
any time. Although the Fund will attempt to provide you notice whenever
it is reasonably able to do so, it may impose these changes at any time.
- If the Transfer Agent cannot exchange all the shares you request
because of a restriction cited above, only the shares eligible for
exchange will be exchanged.
Shareholder Account Rules and Policies
-- Net Asset Value Per Share is determined for each class of shares
as of 4:00 P.M. each day The New York Stock Exchange is open by dividing
the value of the Fund's net assets attributable to a class by the number
of shares of that class that are outstanding. The Fund's Board of
Trustees has established procedures to value the Fund's securities to
determine net asset value. In general, securities values are based on
market value. There are special procedures for valuing illiquid and
restricted securities, obligations for which market values cannot be
readily obtained, and call options and hedging instruments. These
procedures are described more completely in the Statement of Additional
Information.
-- The offering of shares may be suspended during any period in which
the determination of net asset value is suspended, and the offering may
be suspended by the Board of Trustees at any time the Board believes it
is in the Fund's best interest to do so.
-- Telephone Transaction Privileges for purchases, redemptions or
exchanges may be modified, suspended or terminated by the Fund at any
time. If an account has more than one owner, the Fund and the Transfer
Agent may rely on the instructions of any one owner. Telephone privileges
apply to each owner of the account and the dealer representative of record
for the account unless and until the Transfer Agent receives cancellation
instructions from an owner of the account.
-- The Transfer Agent will record any telephone calls to verify data
concerning transactions and has adopted other procedures to confirm that
telephone instructions are genuine, by requiring callers to provide tax
identification numbers and other account data or by using PINs, and by
confirming such transactions in writing. If the Transfer Agent does not
use reasonable procedures it may be liable for losses due to unauthorized
transactions, but otherwise it will not be liable for losses or expenses
arising out of telephone instructions reasonably believed to be genuine.
If you are unable to reach the Transfer Agent during periods of unusual
market activity, you may not be able to complete a telephone transaction
and should consider placing your order by mail.
-- Redemption or transfer requests will not be honored until the
Transfer Agent receives all required documents in proper form. From time
to time, the Transfer Agent in its discretion may waive certain of the
requirements for redemptions stated in this Prospectus.
-- Dealers that can perform account transactions for their clients
by participating in NETWORKING through the National Securities Clearing
Corporation are responsible for obtaining their clients' permission to
perform those transactions and are responsible to their clients who are
shareholders of the Fund if the Dealer performs any transaction
erroneously.
-- The redemption price for shares will vary from day to day because
the value of the securities in the Fund's portfolio fluctuates, and the
redemption price, which is the net asset value per share, will normally
be different for Class A and Class B shares. Therefore, the redemption
value of your shares may be more or less than their original cost.
-- Payment for redeemed shares is made ordinarily in cash and
forwarded by check or through AccountLink (as elected by the shareholder
under the redemption procedures described above) within 7 days after the
Transfer Agent receives redemption instructions in proper form, except
under unusual circumstances determined by the Securities and Exchange
Commission delaying or suspending such payments. The Transfer Agent may
delay forwarding a check or processing a payment via AccountLink for
recently purchased shares, but only until the purchase payment has
cleared. That delay may be as much as 15 days from the date the shares
were purchased. That delay may be avoided if you arrange with your bank
to provide telephone or written assurance to the Transfer Agent that your
purchase payment has cleared.
-- Involuntary redemptions of small accounts may be made by the Fund
if the account value has fallen below $200 for reasons other than the fact
that the market value of shares has dropped, and in some cases involuntary
redemptions may be made to repay the Distributor for losses from the
cancellation of share purchase orders.
-- Under unusual circumstances, shares of the Fund may be redeemed
"in kind," which means that the redemption proceeds will be paid with
securities from the Fund's portfolio. Please refer to the Statement of
Additional Information for more details.
-- "Backup Withholding" of Federal income tax may be applied at the
rate of 31% from dividends, distributions and redemption proceeds
(including exchanges) if you fail to furnish the Fund a certified Social
Security or taxpayer identification number when you sign your application,
or if you violate Internal Revenue Service regulations on tax reporting
of dividends.
-- The Fund does not charge a redemption fee, but if your dealer or
broker handles your redemption, they may charge a fee. That fee can be
avoided by redeeming your Fund shares directly through the Transfer Agent.
Under the circumstances described in "How To Buy Shares," you may be
subject to a contingent deferred sales charges when redeeming certain
Class A and Class B shares.
-- To avoid sending duplicate copies of materials to households, the
Fund will mail only one copy of each annual and semi-annual report and
updated prospectus to shareholders having the same address on the Fund's
records. However, each shareholder may call the Transfer Agent at 1-800-
525-7048 to ask that copies of those materials be sent personally to that
shareholder.
Dividends, Capital Gains and Taxes
Dividends. The Fund declares dividends separately for Class A and Class
B shares from net investment income each regular business day and pays
those dividends to shareholders monthly. Normally, dividends are paid on
the tenth business day of each month, but the Board of Trustees can change
that date. However, the amount of dividends and distributions may vary
from time to time, depending upon market conditions, the composition of
the Fund's portfolio, and expenses borne by that Class. It is expected
that distributions paid with respect to Class A shares will generally be
higher than for Class B shares because expenses allocable to Class B
shares will generally be higher.
Capital Gains. Although the Fund does not seek capital gains, it may
realize capital gains on the sale of portfolio securities. If it does,
it may make distributions out of any net short-term or long-term capital
gains on December. The Fund may make supplemental distributions of
dividends and capital gains following the end of its fiscal year. Long-
term capital gains will be separately identified in the tax information
the Fund sends you after the end of the year. Short-term capital gains
are treated as dividends.
Distribution Options. When you open your account, specify on your
application how you want to receive your distributions. For
OppenheimerFunds retirement accounts, all distributions are reinvested.
For other accounts, you have four options:
- Reinvest all distributions in the Fund. You can elect to reinvest
all dividends and long-term capital gains distributions in additional
shares of the Fund.
- Reinvest capital gains only. You can elect to reinvest long-term
capital gains in the Fund while receiving dividends by check or sent to
your bank account on AccountLink.
- Receive all distributions in cash. You can elect to receive a
check for all dividends and long-term capital gains distributions or have
them sent to your bank on AccountLink.
- Reinvest your distributions in another OppenheimerFunds account.
You can reinvest all distributions in another OppenheimerFunds account you
have established.
Taxes. Long-term capital gains are taxable as long-term capital gains
when distributed to shareholders. Dividends paid from short-term capital
gains are taxable as ordinary income. Dividends paid from net investment
income earned by the Fund on Municipal Securities will be excludable from
your gross income for Federal income tax purposes. A portion of the
dividends paid by the Fund may be an item of tax preference if you are
subject to alternative minimum tax. Distributions are subject to federal
income tax and may be subject to state or local taxes. Whether you
reinvest your distributions in additional shares or take them in cash, the
tax treatment is the same. Every year the Fund will send you and the IRS
a statement showing the amount of any taxable distribution you received
in the previous year as well as the amount of your tax-exempt income.
- "Buying a Dividend": When a fund goes ex-dividend, its share price
is reduced by the amount of the distribution. If you buy shares on or
just before the ex-dividend date, you will pay the full price for the
shares and then receive a portion of the price back as a dividend or a
taxable capital gain.
- Taxes on transactions: Even though the Fund seeks tax-exempt
income for distribution to shareholders, you may have a capital gain or
loss when you sell or exchange your shares. A capital gain or loss is the
difference between the price you paid for the shares and the price you
receive when you sell them. Any capital gain is subject to capital gains
tax.
-- Returns of Capital. In certain instances, distributions made by
the Fund may be considered a non-taxable return of capital to
shareholders. If that occurs, it will be identified in notices to
shareholders.
This information is only a summary of certain federal tax information
about your investment. More information is contained in the Statement of
Additional Information, and in addition you should consult with your tax
advisor about the effect of an investment in the Fund on your particular
tax situation.
<PAGE>
Oppenheimer Tax-Free Bond Fund Prospectus
Two World Trade Center
New York, New York 10048-0203
1-800-525-7048
Investment Adviser
Oppenheimer Management Corporation
Two World Trade Center
New York, New York 10048-0203
Distributor
Oppenheimer Funds Distributor, Inc.
Two World Trade Center
New York, New York 10048-0203
Transfer and Shareholder Servicing Agent
Oppenheimer Shareholder Services OPPENHEIMER
P.O. Box 5270 Tax-Free
Denver, Colorado 80217 Bond Fund
1-800-525-7048
Effective May 1, 1994
Custodian of Portfolio Securities
Citibank, N.A.
One Citicorp Center
New York, New York 10154
Independent Auditors
KPMG Peat Marwick
707 Seventeenth Street
Denver, Colorado 80202
Counsel
Gordon Altman Butowsky
Weitzen Shalov & Wein
114 West 47th Street
New York, New York 10036
No dealer, salesperson or any other person has
been authorized to give any information or to make
any representations other than those contained in
this Prospectus or the Additional Statement, and
if given or made, such information and
representations must not be relied upon as having
been authorized by the Fund, Oppenheimer
Management Corporation, Oppenheimer Funds
Distributor, Inc., or any affiliate thereof. This
Prospectus does not constitute an offer to sell or
a solicitation of an offer to buy any of the
securities offered hereby in any state to any
person to whom it is unlawful to make such offer
in such state.
[OppenheimerFunds Logo]
PR310 (5/94) <>Printed on recycled paper
<PAGE>
Oppenheimer Tax-Free Bond Fund Prospectus and
Two World Trade Center New Account Application
New York, New York 10048-0203
1-800-525-7048
Investment Adviser
Oppenheimer Management Corporation
Two World Trade Center
New York, New York 10048-0203
Distributor
Oppenheimer Funds Distributor, Inc.
Two World Trade Center
New York, New York 10048-0203
Transfer and Shareholder Servicing Agent
Oppenheimer Shareholder Services OPPENHEIMER
P.O. Box 5270 Tax-Free
Denver, Colorado 80217 Bond Fund
1-800-525-7048
Effective May 1, 1994
Custodian of Portfolio Securities
Citibank, N.A.
One Citicorp Center
New York, New York 10154
Independent Auditors
KPMG Peat Marwick
707 Seventeenth Street
Denver, Colorado 80202
Counsel
Gordon Altman Butowsky
Weitzen Shalov & Wein
114 West 47th Street
New York, New York 10036
No dealer, salesperson or any other person has
been authorized to give any information or to make
any representations other than those contained in
this Prospectus or the Additional Statement, and
if given or made, such information and
representations must not be relied upon as having
been authorized by the Fund, Oppenheimer
Management Corporation, Oppenheimer Funds
Distributor, Inc., or any affiliate thereof. This
Prospectus does not constitute an offer to sell or
a solicitation of an offer to buy any of the
securities offered hereby in any state to any
person to whom it is unlawful to make such offer
in such state.
[OppenheimerFunds Logo]
PR310 (5/94) <>Printed on recycled paper
<PAGE>
Oppenheimer Tax-Free Bond Fund
Two World Trade Center, New York, New York 10048-0203
1-800-525-7048
Statement of Additional Information dated May 1, 1994
This Statement of Additional Information is not a Prospectus. This
document contains additional material about the Fund and supplements
information in the Prospectus dated May 1, 1994. It should be read
together with the Prospectus, which may be obtained by writing to the
Fund's Transfer Agent, Oppenheimer Shareholder Services, at P.O. Box 5270,
Denver, Colorado 80217 or by calling the Transfer Agent at the toll-free
number shown above.
Contents
Page
About the Fund . . . . . . . . . . . . . . . . . . . . . . .
Investment Objective and Policies. . . . . . . . . . . . . .
Investment Policies and Strategies . . . . . . . . . . .
Other Investment Techniques and Strategies . . . . . . .
Other Investment Restrictions. . . . . . . . . . . . . .
How the Fund is Managed. . . . . . . . . . . . . . . . . . .
Organization and History . . . . . . . . . . . . . . . .
Trustees and Officers of the Fund. . . . . . . . . . . .
The Manager and Its Affiliates . . . . . . . . . . . . .
Brokerage Policies of the Fund . . . . . . . . . . . . . . .
Performance of the Fund. . . . . . . . . . . . . . . . . . .
Distribution and Services Plans. . . . . . . . . . . . . . .
About Your Account . . . . . . . . . . . . . . . . . . . . .
How To Buy Shares. . . . . . . . . . . . . . . . . . . . . .
How To Sell Shares . . . . . . . . . . . . . . . . . . . . .
How to Exchange Shares . . . . . . . . . . . . . . . . . . .
Dividends, Capital Gains and Taxes . . . . . . . . . . . . .
Additional Information About the Fund. . . . . . . . . . . .
Financial Information About the Fund . . . . . . . . . . . .
Independent Auditors' Report . . . . . . . . . . . . . . . .
Financial Statements of the Fund . . . . . . . . . . . . . .
Appendix A: Equivalent Yield Chart . . . . . . . . . . . . .A-1
Appendix B: Municipal Bond Ratings . . . . . . . . . . . . .B-1
<PAGE>
ABOUT THE FUND
Investment Objective and Policies
Investment Policies and Strategies. The investment objective and
policies of the Fund are described in the Prospectus. Set forth below is
supplemental information about those policies and the types of securities
in which the Fund invests, as well as the strategies the Fund may use to
try to achieve its objective. Capitalized terms used in this Statement
of Additional Information have the same meaning as those terms have in the
Prospectus.
Municipal Securities. The types of Municipal Securities in which the Fund
may invest are described in "The Fund and its Investment Policies" in the
Prospectus. Below is a discussion of the general characteristics of types
of Municipal Securities.
-- Municipal Bonds. The principal classifications of long-term
municipal bonds are "general obligation" and "revenue" or "industrial
development" bonds.
- General Obligation Bonds. Issuers of general obligation bonds
include states, counties, cities, towns, and regional districts. The
proceeds of these obligations are used to fund a wide range of public
projects, including construction or improvement of schools, highways and
roads, and water and sewer systems. The basic security behind general
obligation bonds is the issuer's pledge of its full faith and credit and
taxing power for the payment of principal and interest. The taxes that
can be levied for the payment of debt service may be limited or unlimited
as to the rate or amount of special assessments.
- Revenue Bonds. The principal security for a revenue bond is
generally the net revenues derived from a particular facility, group of
facilities, or, in some cases, the proceeds of a special excise or other
specific revenue source. Revenue bonds are issued to finance a wide
variety of capital projects including: electric, gas, water and sewer
systems; highways, bridges, and tunnels; port and airport facilities;
colleges and universities; and hospitals. Although the principal security
behind these bonds may vary, many provide additional security in the form
of a debt service reserve fund whose money may be used to make principal
and interest payments on the issuer's obligations. Housing finance
authorities have a wide range of security, including partially or fully
insured mortgages, rent subsidized and/or collateralized mortgages, and/or
the net revenues from housing or other public projects. Some authorities
provide further security in the form of a state's ability (without
obligation) to make up deficiencies in the debt service reserve fund.
- Industrial Development Bonds. Industrial development bonds,
which are considered municipal bonds if the interest paid is exempt from
federal income tax, are issued by or on behalf of public authorities to
raise money to finance various privately operated facilities for business
and manufacturing, housing, sports, and pollution control. These bonds
are also used to finance public facilities such as airports, mass transit
systems, ports, and parking. The payment of the principal and interest
on such bonds is dependent solely on the ability of the facility's user
to meet its financial obligations and the pledge, if any, of real and
personal property so financed as security for such payment.
-- Municipal Notes. Municipal Securities having a maturity when
issued of less than one year are generally known as municipal notes.
Municipal notes generally are used to provide for short-term working
capital needs and include:
- Tax Anticipation Notes. Tax anticipation notes are issued to
finance working capital needs of municipalities. Generally, they are
issued in anticipation of various seasonal tax revenue, such as income,
sales, use or business taxes, and are payable from these specific future
taxes.
- Revenue Anticipation Notes. Revenue anticipation notes are
issued in expectation of receipt of other types of revenue, such as
Federal revenues available under the Federal revenue-sharing programs.
- Bond Anticipation Notes. Bond anticipation notes are issued
to provide interim financing until long-term financing can be arranged.
In most cases, the long-term bonds then provide the money for the
repayment of the notes.
- Construction Loan Notes. Construction loan notes are sold to
provide construction financing. After successful completion and
acceptance, many projects receive permanent financing through the Federal
Housing Administration.
- Tax-Exempt Commercial Paper. Tax-exempt commercial paper is
a short-term obligation with a stated maturity of 365 days or less. It
is issued by state and local governments or their agencies to finance
seasonal working capital needs or as short-term financing in anticipation
of longer-term financing.
-- Floating Rate/Variable Rate Obligations. Floating rate and
variable rate demand notes are tax-exempt obligations which may have a
stated maturity in excess of one year, but may include 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 such notes normally has a
corresponding right, after a given period, to prepay in its discretion the
outstanding principal amount of the note plus accrued interest upon a
specified number of days notice to the holder. The interest rate on a
floating rate demand note is based on a stated prevailing market rate,
such as a bank's prime rate, the 90-day U.S. Treasury Bill rate, or some
other standard, and is adjusted automatically each time such rate is
adjusted. The interest rate on a variable rate demand note is also based
on a stated prevailing market rate but is adjusted automatically at
specified intervals of no 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 the Fund's quality standards.
Floating rate or variable rate obligations which do not provide for
recovery of principal and interest within seven days will be subject to
the limitations applicable to illiquid securities described in "The Fund
and Its Investment Policies - Repurchase Agreements" in the Prospectus.
There is no limit on the amount of the Fund's assets that may be invested
in floating rate and variable rate obligations.
-- Inverse Floaters and Other Derivative Instruments. The Fund will
invest in inverse floaters in the expectation that they will provide
higher expected tax-exempt yields than are available for fixed-rate bonds
having comparable credit ratings and maturity. In certain instances, the
holder of an inverse floater may have an option to convert it into a
fixed-rate bond pursuant to a "rate lock option." Inverse floaters may
produce relatively high current income, reflecting the spread between
short-term and long-term tax-exempt interest rates. As long as the
municipal yield curve remains relatively steep and short-term rates remain
relatively low, owners of inverse floaters will continue to earn above-
market interest rates because they are receiving the higher long-term
rates and have paid for bonds with lower short-term rates. If the yield
curve flattens and shifts upward, an inverse floater will lose value more
quickly than conventional long-term municipal bonds.
-- Municipal Lease Obligations. From time to time the Fund may
invest more than 5% of its net assets in municipal lease obligations that
the Manager has determined to be liquid under guidelines set by the Board
of Trustees. Municipal leases may take the form of a lease or an
installment purchase contract issued by a state or local government
authority to obtain funds to acquire a wide variety of equipment and
facilities. Although lease obligations do not constitute general
obligations of the municipality for which the municipality's taxing power
is pledged, a lease obligation is ordinarily backed by the municipality's
covenant to budget for, appropriate and make the payments due under the
lease obligation. However, certain lease obligations contain "non-
appropriation" clauses which provide that the municipality has no
obligation to make lease or installment purchase payments in future years
unless money is appropriated for such purpose on a yearly basis. In
addition to the risk of "non-appropriation," municipal lease securities
do not yet have a highly developed market to provide the degree of
liquidity of conventional municipal bonds. Municipal leases, like other
municipal debt obligations, are subject to the risk of non-payment. The
ability of issuers of municipal leases to make timely lease payments may
be adversely affected in general economic downturns and as relative
governmental cost burdens are reallocated among federal, state and local
governmental units. Such non-payment would result in a reduction of
income to the Fund, and could result in a reduction in the value of the
municipal lease experiencing non-payment and a potential decrease in the
net asset value of the Fund.
-- Puts and Standby Commitments. When the Fund buys Municipal
Securities, it may obtain a standby commitment to repurchase the
securities that entitles it to achieve same-day settlement from the
purchaser and to receive an exercise price equal to the amortized cost of
the underlying security plus accrued interest, if any, at the time of
exercise. A put purchased in conjunction with a Municipal Security
enables the Fund to sell the underlying security within a specified period
of time at a fixed exercise price. The Fund may pay for a standby
commitment or put either separately in cash or by paying a higher price
for the securities acquired subject to the standby commitment or put. The
Fund will enter into these transactions only with banks and dealers which,
in the Manager's opinion, present minimal credit risks. The Fund's
ability to exercise a put or standby commitment will depend on the ability
of the bank or dealer to pay for the securities if the put or standby
commitment is exercised. If the bank or dealer should default on its
obligation, the Fund might not be able to recover all or a portion of any
loss sustained from having to sell the security elsewhere. Puts and
standby commitments are not transferrable by the Fund, and therefore
terminate if the Fund sells the underlying security to a third party. The
Fund intends to enter into these arrangements to facilitate portfolio
liquidity, although such arrangements may enable the Fund to sell a
security at a pre-arranged price which may be higher than the prevailing
market price at the time the put or standby commitment is exercised.
However, the Fund might refrain from exercising a put or standby
commitment if the exercise price is significantly higher than the
prevailing market price, to avoid imposing a loss on the seller which
could jeopardize the Fund's business relationships with the seller. Any
consideration paid by the Fund for the put or standby commitment (which
increases the cost of the security and reduces the yield otherwise
available from the security) will be reflected on the Fund's books as
unrealized depreciation while the put or standby commitment is held, and
a realized gain or loss when the put or commitment is exercised or
expires. Interest income received by the Fund from Municipal Securities
subject to puts or stand-by commitments may not qualify as tax exempt in
its hands if the terms of the put or stand-by commitment cause the Fund
not to be treated as the tax owner of the underlying Municipal
Securities.
-- Inverse Floaters and Other Derivative Instruments. Investing in
inverse floaters that have interest rate caps might be part of a portfolio
strategy to try to maintain a high current yield for the Fund when the
Fund has invested in inverse floaters that expose the Fund to the risk of
short-term interest rate fluctuation. Embedded caps hedge a portion of
the Fund's exposure to rising interest rates. When interest rates exceed
the a pre-determined rate, the cap generates additional cash flows that
offset the decline in interest rates on the inverse floater, and the hedge
is successful. However, the Fund bears the risk that if interest rates
do not rise above the pre-determined rate, the cap (which is purchased for
additional cost) will not provide additional cash flows and will expire
worthless.
-- When-Issued and Delayed Delivery Transactions. The Fund may
purchase Municipal Securities on a "when-issued" basis, and may purchase
or sell such securities on a "delayed delivery" basis. Payment for and
delivery of the securities generally settles within sixty days of the date
the offer is accepted. The purchase price and yield are fixed at the
time the buyer enters into the commitment. During the period between
purchase and settlement, no payment is made by the Fund to the issuer and
no interest accrues to the Fund from this investment. However, the Fund
intends to be as fully invested as possible and will not invest in when-
issued securities if its income or net asset value will be materially
adversely affected. At the time the Fund makes the commitment to purchase
a Municipal Security on a when-issued basis, it will record the
transaction on its books and reflect the value of the security in
determining its net asset value. It will also segregate cash or other
high quality liquid Municipal Securities equal in value to the commitment
for the when-issued securities. While when-issued securities may be sold
prior to settlement date, the Fund intends to acquire the securities upon
settlement unless a prior sale appears desirable for investment reasons.
There is a risk that the yield available in the market when delivery
occurs may be higher than the yield on the security acquired.
-- Private Activity Municipal Securities. The Tax Reform Act of 1986
(the "Tax Reform Act") reorganized, as well as amended, the rules
governing tax exemption for interest on Municipal Securities. The Tax
Reform Act generally did not change the tax treatment of bonds issued in
order to finance governmental operations. Thus, interest on obligations
issued by or on behalf of state or local government, the proceeds of which
are used to finance the operations of such governments (e.g., general
obligation bonds) continues to be tax-exempt. However, the Tax Reform Act
further limited the use of tax-exempt bonds for non-governmental (private)
purposes. More stringent restrictions were placed on the use of proceeds
of such bonds. Interest on certain private activity bonds (other than
those specified as "qualified" tax-exempt private activity bonds, (e.g.,
exempt facility bonds including certain industrial development bonds,
qualified mortgage bonds, qualified Section 501(c)(3) bonds, qualified
student loan bonds, etc.) is taxable under the revised rules.
Interest on certain private activity bonds issued after August 7,
1986, which continues to be tax-exempt, will be treated as a tax
preference item subject to the alternative minimum tax (discussed below)
to which certain taxpayers are subject. Further, a private activity bond
which would otherwise be a qualified tax-exempt private activity bond will
not, under Internal Revenue Code Section 147(a), be a qualified bond for
any period during which it is held by a person who is a "substantial user"
of the facilities or by a "related person" of such a substantial user.
This "substantial user" provision is applicable primarily to exempt
facility bonds, including industrial development bonds. The Fund may not
be an appropriate investment for entities which are "substantial users"
(or persons related thereto) of such exempt facilities, and such persons
should consult their own tax advisers before purchasing shares. A
"substantial user" of such facilities is defined generally as a "non-
exempt person who regularly uses part of a facility" financed from the
proceeds of exempt facility bonds. Generally, an individual will not be
a "related person" under the Internal Revenue Code unless such investor
or the investor's immediate family (spouse, brothers, sisters and
immediate descendants) own directly or indirectly in the aggregate more
than 50% in value of the equity of a corporation or partnership which is
a "substantial user" of a facility financed from the proceeds of exempt
facility bonds. In addition, limitations as to the amount of private
activity bonds which each state may issue were revised downward by the Tax
Reform Act, which will reduce the supply of such bonds. The value of the
Fund's portfolio could be affected if there is a reduction in the
availability of such bonds. That value may also be affected by a 1988
U.S. Supreme Court decision upholding the constitutionality of the
imposition of a Federal tax on the interest earned on Municipal Securities
issued in bearer form.
A Municipal Security is treated as a taxable private activity bond
under a test for: (a) a trade or business use and security interest, or
(b) a private loan restriction. Under the trade or business use and
security interest test, an obligation is a private activity bond if: (i)
more than 10% of bond proceeds are used for private business purposes and
(ii) 10% or more of the payment of principal or interest on the issue is
directly or indirectly derived from such private use or is secured by the
privately used property or the payments related to the use of the
property. For certain types of uses, a 5% threshold is substituted for
this 10% threshold. (The term "private business use" means any direct or
indirect use in a trade or business carried on by an individual or entity
other than a governmental unit.) Under the private loan restriction, the
amount of bond proceeds which may be used to make private loans is limited
to the lesser of 5% or $5.0 million of the proceeds. Thus, certain issues
of Municipal Securities could lose their tax-exempt status retroactively
if the issuer fails to meet certain requirements as to the expenditure of
the proceeds of that issue or use of the bond-financed facility. The Fund
makes no independent investigation of the users of such bonds or their use
of proceeds. Should a Fund hold a bond that loses its tax-exempt status
retroactively, there might be an adjustment to the tax-exempt income
previously paid to shareholders.
The Federal alternative minimum tax is designed to ensure that all
taxpayers pay some tax, even if their regular tax is zero. This is
accomplished in part by including in taxable income certain tax preference
items in arriving at alternative minimum taxable income. The Tax Reform
Act made tax-exempt interest from certain private activity bonds a tax
preference item for purposes of the alternative minimum tax on individuals
and corporations. Any exempt-interest dividend paid by a regulated
investment company will be treated as interest on a specific private
activity bond to the extent of its proportionate share of the interest on
such bonds received by the regulated investment company. The U.S.
Treasury is authorized to issue regulations implementing this provision.
In addition, corporate taxpayers subject to the alternative minimum tax
may, under some circumstances, have to include exempt-interest dividends
in calculating their alternative minimum taxable income in situations
where the "adjusted current earnings" of the corporation exceeds its
alternative minimum taxable income. The Fund may hold Municipal
Securities the interest on which (and thus a proportionate share of the
exempt-interest dividends paid by the Fund) will be subject to the Federal
alternative minimum tax on individuals and corporations. The Fund
anticipates that under normal circumstances it will not purchase any such
securities in an amount greater than 20% of the Fund's total assets.
-- Ratings of Municipal Securities. Moody's and S&P's ratings (see
Appendix A) represent their respective opinions of the quality of the
Municipal Securities they undertake to rate. However, such ratings are
general and are not absolute standards of quality. Consequently, Municipal
Securities with the same maturity, coupon and rating may have different
yields, while Municipal Securities of the same maturity and coupon with
different ratings may have the same yield. Investment in lower quality
securities may produce a higher yield than securities rated in the higher
rating categories described in the Prospectus (or judged by the Manager
to be of comparable quality). However, the added risk of lower quality
securities might not be consistent with a policy of preservation of
capital.
Subsequent to its purchase by the Fund, a Municipal Security may
cease to be rated or its rating may be reduced below the minimum required
for purchase by the Fund. Neither event requires the Fund to sell the
security, but the Manager will consider such events in determining whether
the Fund should continue to hold the security. To the extent that ratings
given by Moody's, Standard & Poor's, or Fitch change as a result of
changes in such organizations or their rating systems, the Fund will
attempt to use comparable ratings as standards for investments in
accordance with the Fund's investment policies.
Other Investment Techniques and Strategies
-- Repurchase Agreements. The Fund may acquire securities subject
to repurchase agreements for liquidity purposes to meet anticipated
redemptions, or pending the investment of the proceeds from sales of Fund
shares, or pending the settlement of portfolio securities.
In a repurchase transaction, the Fund acquires a security from, and
simultaneously resells it to an approved vendor (a U.S. commercial bank,
U.S. branch of a foreign bank or a broker-dealer which has been designated
a primary dealer in government securities, which must meet the credit
requirements set by the Fund's Board of Trustees from time to time) for
delivery on an agreed upon future date. The sale price exceeds the
purchase price by an amount that reflects an agreed-upon interest rate
effective for the period during which the repurchase agreement is in
effect. The majority of these transactions run from day to day, and
delivery pursuant to resale typically will occur within one to five days
of the purchase. Repurchase agreements are considered "loans" under the
Investment Company Act, collateralized by the underlying security. The
Fund's repurchase agreements require that at all times while the
repurchase agreement is in effect, the collateral's value must equal or
exceed the repurchase price to collateralize the loan fully.
Additionally, the Manager will impose creditworthiness requirements to
confirm that the vendor is financially sound and will continuously monitor
the collateral's value.
-- Loans of Portfolio Securities. The Fund may lend its portfolio
securities subject to the restrictions stated in the Prospectus. Under
applicable regulatory requirements (which are subject to change), the loan
collateral on each business day must at least equal the value of the
loaned securities and must consist of cash, bank letters of credit or
securities of the U.S. Government (or its agencies or instrumentalities).
To be acceptable as collateral, letters of credit must obligate a bank to
pay amounts demanded by the Fund if the demand meets the terms of the
letter. Such terms and the issuing bank must be satisfactory to the Fund.
When it lends securities, the Fund receives amounts equal to the dividends
or interest on loaned securities and also receives one or more of (a)
negotiated loan fees, (b) interest on securities used as collateral, and
(c) interest on short-term debt securities purchased with such loan
collateral. Either type of interest may be shared with the borrower. The
Fund may also pay reasonable finder's, custodian and administrative fees.
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.
- Writing Covered Calls. As described in the Prospectus, the Fund
may write covered calls. When the Fund writes a call on a security, it
receives a premium and agrees to sell the underlying investment to a
purchaser of a corresponding call during the call period (usually not more
than nine months) at a fixed exercise price (which may differ from the
market price of the underlying investment) regardless of market price
changes during the call period. To terminate its obligation on a call it
has written, the Fund may purchase a corresponding call in a "closing
purchase transaction." A profit or loss will be realized, depending upon
whether the net of the option transaction costs and the premium received
on the call written was more or less than the price of the call
subsequently purchased. A profit may also be realized if the call lapses
unexercised, because the Fund retains the underlying investment and the
premium received. Any such profits are considered short-term gains for
Federal tax purposes, as are premiums on lapsed calls, and when
distributed by the Fund are taxable as ordinary income. If the Fund could
not effect a closing purchase transaction due to a lack of a market, it
would have to hold the underlying investment until the call lapsed or were
exercised.
The Fund may also write calls on Futures without owning a futures
contract or deliverable securities, provided that at the time the call is
written, the Fund covers the call by segregating in escrow an equivalent
dollar value of liquid assets. The Fund will segregate additional liquid
assets if the value of the escrowed assets drops below 100% of the current
value of the Future. In no circumstances would an exercise notice as to
that Future put the Fund in a short futures position.
The Fund's Custodian, or a securities depository acting for the
Custodian, will act as the Fund's escrow agent through the facilities of
the Options Clearing Corporation ("OCC"), as to the investments on which
the Fund has written options traded on exchanges, or as to other
acceptable escrow securities, so that no margin will be required for such
transactions. OCC will release the securities covering a call on the
expiration of the call or when the Fund enters into a closing purchase
transaction. Call writing affects the Fund's turnover rate and the
brokerage commissions it pays. Commissions are payable on writing or
purchasing a call.
Hedging with Options and Futures Contracts. The Fund may use hedging
instruments for the purposes described in the Prospectus. When hedging
to attempt to protect against declines in the market value of the Fund's
portfolio, to permit the Fund to retain unrealized gains in the value of
portfolio securities which have appreciated, or to facilitate selling
securities for investment reasons, the Fund may: (i) sell Interest Rate
Futures or Municipal Bond Index Futures, (ii) buy puts on such Futures or
securities, or (iii) write covered calls on securities, Interest Rate
Futures or Municipal Bond Index Futures (as described in the Prospectus).
When hedging to permit the Fund to establish a position in the debt
securities market as a temporary substitute for purchasing individual debt
securities (which the Fund will normally purchase, and then terminate that
hedging position), the Fund may: (i) buy Interest Rate Futures or
Municipal Bond Index Futures, or (ii) buy calls on such Futures or on
securities.
The Fund's strategy of hedging with Futures and options on Futures
will be incidental to the Fund's activities in the underlying cash market.
In the future, the Fund may employ hedging instruments and strategies that
are not presently contemplated but which may be developed, to the extent
such investment methods are consistent with the Fund's investment
objective, and are legally permissible and disclosed in the Prospectus.
Additional information about the covered calls and hedging instruments the
Fund may use is provided below.
- Interest Rate Futures. The Fund may buy and sell futures contracts
relating to debt securities ("Interest Rate Futures") and municipal bond
indices ("Municipal Bond Index Futures," discussed below). Interest Rate
Futures obligates the seller to deliver and the purchaser to take a
specific debt security at a specified price on a specified date. No price
is paid or received upon the purchase or sale of an Interest Rate Future.
Upon entering into a Futures transaction, the Fund will be required to
deposit an initial margin payment, equal to a specified percentage of the
contract amount, with the futures commission merchant (the "futures
broker"). The initial margin will be deposited with the Fund's Custodian
in an account registered in the futures broker's name; however, the
futures broker can gain access to that account only under specified
conditions. As the Future is marked to market to reflect changes in its
market value, subsequent margin payments, called variation margin, will
be made to and from the futures broker on a daily basis.
At any time prior to the expiration of the Future, the Fund may elect
to close out its position by taking an opposite position, at which time
a final determination of variation margin is made and additional cash is
required to be paid by or released to the Fund and any gain or loss is
then realized for tax purposes. Although Interest Rate Futures by their
terms call for settlement by the delivery of debt securities, in most
cases the obligation is fulfilled by entering into an offsetting
transaction. All futures transactions are effected through a
clearinghouse associated with the exchange on which the contracts are
traded.
- Municipal Bond Index Futures. Municipal Bond Index Futures are
similar to Interest Rate Futures except that settlement is made in cash.
The obligation under such contracts may also be satisfied by entering into
an offsetting contract to close out the futures position. Net gain or
loss on options on Municipal Bond Index Futures depends on the price
movements of the securities included in the index. The strategies which
the Fund employs regarding Municipal Bond Index Futures are similar to
those described above with regard to Interest Rate Futures.
- Purchasing Calls and Puts. When the Fund purchases a call (other
than in a closing purchase transaction), it pays a premium and, except as
to calls on Municipal Bond Index Futures, has the right to buy the
underlying investment from a seller of a corresponding call on the same
investment during the call period at a fixed exercise price. The Fund
benefits only if the call is sold at a profit or if, during the call
period, the market price of the underlying investment is above the sum of
the call price plus the transaction costs and premium paid for the call,
and the call is exercised. If the call is not exercised or sold (whether
or not at a profit), it will become worthless at its expiration date and
the Fund will lose its premium payment and the right to purchase the
underlying investment. When the Fund purchases a call or put a municipal
bond index, Municipal Bond Index Future or Interest Rate 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 debt securities
market generally) rather than on price movements in individual futures
contracts.
When the Fund buys a put, it pays a premium and, except as to puts
on municipal bond indices, has the right to sell the underlying investment
to a seller of a corresponding put on the same investment during the put
period at a fixed exercise price. Buying a put on a debt security,
Interest Rate Future or Municipal Bond Index Future the Fund owns enables
the Fund to protect itself during the put period against a decline in the
value of the underlying investment below the exercise price by selling
such underlying investment at the exercise price to a seller of a
corresponding put. If the market price of the underlying investment is
equal to or above the exercise price and as a result the put is not
exercised or resold, the put will become worthless at its expiration date
and the Fund will lose its premium payment and the right to sell the
underlying investment. The put may, however, be sold prior to expiration
(whether or not at a profit).
An option position may be closed out only on a market which provides
secondary trading for options of the same series, and there is no
assurance that a liquid secondary market will exist for any particular
option. The Fund's option activities may affect its turnover rate and
brokerage commissions. The exercise of calls written by the Fund may
cause it to sell underlying investments, thus increasing its turnover rate
in a manner beyond its control. The exercise by the Fund of puts may also
cause the sale of underlying investments, also causing turnover, since the
underlying investment might be sold for reasons which would not exist in
the absence of the put. The Fund will pay a brokerage commission each
time it buys a call or a put or sells a call. Premiums paid for options
are small in relation to the market value of the related investments and,
consequently, put and call options offer large amounts of leverage. The
leverage offered by trading in options could cause the Fund's net asset
value to be more sensitive to changes in the value of the underlying
investments.
- Interest Rate Swap Transactions. Swap agreements entail both
interest rate risk and credit risk. There is a risk that, based on
movements of interest rates in the future, the payments made by the Fund
under a swap agreement will have been greater than those received by it.
Credit risk arises from the possibility that the counterparty will
default. If the counterparty to an interest rate swap defaults, the
Fund's loss will consist of the net amount of contractual interest
payments that the Fund has not yet received. The Manager will monitor the
creditworthiness of counterparties to the Fund's interest rate swap
transactions on an ongoing basis. The Fund will enter into swap
transactions with appropriate counterparties pursuant to master netting
agreements. A master netting agreement provides that all swaps done
between the Fund and that counterparty under the master agreement shall
be regarded as parts of an integral agreement. If on any date amounts are
payable in the same currency in respect of one or more swap transactions,
the net amount payable on that date in that currency shall be paid. In
addition, the master netting agreement may provide that if one party
defaults generally or on one swap, the counterparty may terminate the
swaps with that party. Under such agreements, if there is a default
resulting in a loss to one party, the measure of that party's damages is
calculated by reference to the average cost of a replacement swap with
respect to each swap (i.e., the mark-to-market value at the time of the
termination of each swap). The gains and losses on all swaps are then
netted, and the result is the counterparty's gain or loss on termination.
The termination of all swaps and the netting of gains and losses on
termination is generally referred to as "aggregation."
- Regulatory Aspects of Hedging Instruments. The Fund must operate
within certain restrictions as to its long and short positions in Futures
and options thereon under a rule ("CFTC Rule") adopted by the Commodity
Futures Trading Commission ("CFTC") under the Commodity Exchange Act (the
"CEA"), which exempts the Fund from registration with the CFTC as a
"commodity pool operator" (as defined under the CEA), if it complies with
the CFTC Rule. Under these restrictions, the Fund will not, as to any
positions, whether long, short or a combination thereof, enter into
Futures and options thereon for which the aggregate initial margins and
premiums exceed 5% of the fair market value of its net assets, with
certain exclusions as defined in the CFTC Rule. Under the restrictions,
the Fund also must, as to its short positions, use Futures and options
thereon solely for bona fide hedging purposes within the meaning and
intent of the applicable provisions under the CEA.
Transactions in options by the Fund are subject to limitations
established by each of the exchanges governing the maximum number of
options which may be written or held by a single investor or group of
investors acting in concert, regardless of whether the options were
written or purchased on the same or different exchanges or are held in one
or more accounts or through one or more exchanges or brokers. Thus, the
number of options which the Fund may write or hold may be affected by
options written or held by other entities, including other investment
companies having the same adviser as the Fund or an affiliated investment
adviser. Position limits also apply to Futures. An exchange may order
the liquidation of positions found to be in violation of those limits and
may impose certain other sanctions. Due to requirements under the
Investment Company Act, when the Fund purchases an Interest Rate Future
or Municipal Bond Index Future, the Fund will maintain, in a segregated
account or accounts with its custodian bank, cash or readily marketable
short-term (maturing in one year or less) debt instruments in an amount
equal to the market value of the investments underlying such Future, less
the margin deposit applicable to it.
- Tax Aspects of Hedging Instruments and Covered Calls. The Fund
intends to qualify as a "regulated investment company" under the Internal
Revenue Code. One of the tests for such qualification is that less than
30% of its gross income (irrespective of losses) must be derived from
gains realized on the sale of securities held for less than three months.
Due to this limitation, the Fund will limit the extent to which it engages
in the following activities, but will not be precluded from them: (i)
selling investments, including Interest Rate Futures and Municipal Bond
Index Futures, held for less than three months, whether or not they were
purchased on the exercise of a call held by the Fund; (ii) writing calls
on investments held less than three months; (iii) purchasing calls or puts
which expire in less than three months; (iv) effecting closing
transactions with respect to calls or puts purchased less than three
months previously; and (v) exercising puts or calls held by the Fund for
less than three months.
- Risks of Hedging with Options and Futures. In addition to the
risks with respect to hedging discussed in the Prospectus and above, there
is a risk in using short hedging by (i) selling Interest Rate Futures and
Municipal Bond Index Futures or (ii) purchasing puts on municipal bond
indices or Futures to attempt to protect against declines in the value of
the Fund's securities. The risk is that the prices of such Futures or the
applicable index will correlate imperfectly with the behavior of the cash
(i.e., market value) prices of the Fund's securities. The ordinary
spreads between prices in the cash and futures markets are subject to
distortions due to differences in the natures of those markets. First,
all participants in the futures market are subject to margin deposit and
maintenance requirements. Rather than meeting additional margin deposit
requirements, investors may close out futures contracts through offsetting
transactions which could distort the normal relationship between the cash
and futures markets. Second, the liquidity of the futures 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 market. Therefore, increased participation
by speculators in the futures market may cause temporary price
distortions.
The risk of imperfect correlation increases as the composition of the
Fund's portfolio diverges from the securities included in the applicable
index. To compensate for the imperfect correlation of movements in the
price of debt securities being hedged and movements in the price of the
Hedging Instruments, the Fund may use Hedging Instruments in a greater
dollar amount than the dollar amount of debt securities being hedged if
the historical volatility of the prices of such debt securities being
hedged is more than the historical volatility of the applicable index.
It is also possible that where the Fund has used Hedging Instruments in
a short hedge, the market may advance and the value of debt securities
held in the Fund's portfolio may decline. If this occurred, the Fund
would lose money on the Hedging Instruments and also experience a decline
in value of its debt 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 debt securities will tend to move in the same
direction as the indices upon which the Hedging Instruments are based.
If the Fund uses Hedging Instruments to establish a position in the
debt securities markets as a temporary substitute for the purchase of
individual debt securities (long hedging) by buying Interest Rate Futures,
Municipal Bond Index Futures and/or calls on such Futures or debt
securities, it is possible that the market may decline; if the Fund then
concludes not to invest in such securities at that time because of
concerns as to possible further market decline or for other reasons, the
Fund will realize a loss on the Hedging Instruments that is not offset by
a reduction in the price of the debt securities purchased.
Other Investment Restrictions
The Fund's significant investment restrictions are set forth in the
Prospectus. There are additional investment restrictions that the Fund
must follow that are also fundamental policies. Fundamental policies and
the Fund's investment objective cannot be changed without the vote of a
"majority" of the Fund's outstanding voting securities. Under the
Investment Company Act, such a "majority" vote is defined as the vote of
the holders of the lesser of (1) 67% or more of the shares present or
represented by proxy at a shareholder meeting, if the holders of more than
50% of the outstanding shares are present, or (2) more than 50% of the
outstanding shares.
Under these additional restrictions, the Fund cannot: (1) invest in
real estate, but this shall not prevent the Fund from investing in
Municipal Securities or other permitted securities secured by real estate
or interests therein; (2) purchase securities on margin, but the Fund may
obtain such short-term credits as may be necessary for the clearance of
purchases and sales of securities; and furthermore, the Fund may make
margin deposits in connection with the use of Hedging Instruments as
permitted by any of its other fundamental policies; (3) make short sales
of securities; (4) underwrite securities or invest in securities subject
to restrictions on resale; (5) invest in or hold securities of any issuer
(see "Diversification," below) if those officers and Trustees of the Fund
or the Manager beneficially owning individually more than 1/2 of 1% of the
securities of such issuer together own more than 5% of the securities of
such issuer; (6) invest in securities of any other investment company,
except in connection with a merger with another investment company; or (7)
issue any bonds, debentures or senior equity securities.
In connection with the qualification of its shares in certain states,
the Fund has undertaken that in addition to the above, it will not (1)
invest in oil, gas or other mineral leases, or (2) purchase or sell real
property including real estate limited partnership interest. In the event
that the Fund's shares cease to be qualified under such laws or if such
undertakings otherwise cease to be operative, the Fund would not be
subject to such restrictions.
-- Diversification. For purposes of diversification under the
Investment Company Act and investment restriction (4) in the Prospectus,
the identification of the issuer of a Municipal Security depends on the
terms and conditions of the security. When the assets and revenues of an
agency, authority, instrumentality or other political subdivision are
separate from those of the government creating the subdivision and the
security is backed only by the assets and revenues of the subdivision,
such subdivision would be deemed to be the sole issuer. Similarly, in the
case of an industrial development bond, if that bond is backed only by the
assets and revenues of the nongovernmental user, then such
nongovernmental user would be deemed to be the sole issuer. However, if
in either case the creating government or some other entity guarantees the
security, such guarantee would be considered a separate security and would
be treated as an issue of such government or other agency.
In applying restriction (5) in the Prospectus, the Manager will
consider a nongovernmental user of facilities financed by industrial
development bonds as being in a particular industry, despite the fact
that such bonds are Municipal Securities as to which there is no industry
concentration limitation. Although this application of the restriction
is not technically a fundamental policy of the Fund, it will not be
changed without shareholder approval. The Manager has no present
intention of investing more than 25% of the Fund's total assets in
securities of issuers located in the same state, or in securities the
interest on which is paid from revenues of similar types of projects, or
in industrial development bonds. None of these are fundamental policies,
and therefore, any of them may be changed without shareholder approval.
Should any such change be made, the Prospectus and/or this Additional
Statement will be supplemented to reflect the change.
How the Fund Is Managed
Organization and History. As a Massachusetts business trust, the Fund is
not required to hold, and does not plan to hold, regular annual meetings
of shareholders. The Fund will hold meetings when required to do so by the
Investment Company Act or other applicable law, or when a shareholder
meeting is called by the Trustees or upon proper request of the
shareholders. Shareholders have the right, upon the declaration in
writing or vote of two-thirds of the outstanding shares of the Fund, to
remove a Trustee. The Trustees will call a meeting of shareholders to
vote on the removal of a Trustee upon the written request of the record
holders of 10% of its outstanding shares. In addition, if the Trustees
receive a request from at least 10 shareholders (who have been
shareholders for at least six months) holding shares of the Fund valued
at $25,000 or more or holding at least 1% of the Fund's outstanding
shares, whichever is less, stating that they wish to communicate with
other shareholders to request a meeting to remove a Trustee, the Trustees
will then either make the Fund's shareholder list available to the
applicants or mail their communication to all other shareholders at the
applicants' expense, or the Trustees may take such other action as set
forth under Section 16(c) of the Investment Company Act.
The Fund's Declaration of Trust contains an express disclaimer of
shareholder or Trustee liability for the Fund's obligations, and provides
for indemnification and reimbursement of expenses out of its property for
any shareholder held personally liable for its obligations. The
Declaration of Trust also provides that the Fund shall, upon request,
assume the defense of any claim made against any shareholder for any act
or obligation of the Fund and satisfy any judgment thereon. Thus, while
Massachusetts law permits a shareholder of a business trust (such as the
Fund) to be held personally liable as a "partner" under certain
circumstances, the risk of a Fund shareholder incurring financial loss on
account of shareholder liability is limited to the relatively remote
circumstances in which the Fund would be unable to meet its obligations
described above. Any person doing business with the Trust, and any
shareholder of the Trust, agrees under the Trust's Declaration of Trust
to look solely to the assets of the Trust for satisfaction of any claim
or demand which may arise out of any dealings with the Trust, and the
Trustees shall have no personal liability to any such person, to the
extent permitted by law.
Trustees and Officers of the Fund. The Fund's Trustees and officers and
their principal occupations and business affiliations during the past five
years are listed below. The address of each Trustee and officer is Two
World Trade Center, New York, New York 10048-0203, unless another address
is listed below. All of the Trustees are also trustees or directors of
Oppenheimer Fund, Oppenheimer Money Market Fund, Inc., Oppenheimer Time
Fund, Oppenheimer Special Fund, Oppenheimer New York Tax-Exempt Fund,
Oppenheimer California Tax-Exempt Fund, Oppenheimer Pennsylvania Tax-
Exempt Fund, Oppenheimer Florida Tax-Exempt Fund, Oppenheimer New Jersey
Tax-Exempt Fund, Oppenheimer Global Fund, Oppenheimer U.S. Government
Trust, Oppenheimer Gold & Special Minerals Fund, Oppenheimer Target Fund,
Oppenheimer Asset Allocation Fund, Oppenheimer Global Bio-Tech Fund,
Oppenheimer Global Environment Fund, Oppenheimer Global Growth & Income
Fund, Oppenheimer Discovery Fund, Oppenheimer Mortgage Income Fund,
Oppenheimer Multi-Sector Income Trust and Oppenheimer Multi-Government
Trust (collectively, the "New York-based OppenheimerFunds"). Messrs.
Spiro, Donohue, Bowen, Zack, Bishop and Farrar respectively, hold the
same offices with the other New York-based OppenheimerFunds as with the
Fund. As of March 29, 1994, all of the Trustees and officers as a group
beneficially owned less than 1% of the outstanding shares of the Fund.
Leon Levy, Chairman of the Board of Trustees
General Partner of Odyssey Partners, L.P. (investment partnership)
and Chairman of Avatar Holdings Inc. (real estate development).
Leo Cherne, Trustee
386 Park Avenue South, New York, New York 10016
Chairman Emeritus of the International Rescue Committee
(philanthropic organization); formerly Executive Director of The
Research Institute of America.
Edmund T. Delaney, Trustee
5 Gorham Road, Chester, Connecticut 06412
Attorney-at-Law; formerly a member of the Connecticut State
Historical Commission and Counsel to Copp, Berall & Hempstead (a law
firm).
Robert G. Galli, Trustee*
Vice Chairman of the Manager; Vice President and General Counsel of
Oppenheimer Acquisition Corp. ("OAC"), the Manager's parent holding
company; formerly he held the following positions: a director of the
Manager and the Distributor, Vice President and a director of
HarbourView Asset Management Corporation ("HarbourView") and
Centennial Asset Management Corporation ("Centennial"), investment
adviser subsidiaries of the Manager, a director of Shareholder
Financial Services, Inc. ("SFSI") and Shareholder Services, Inc.
("SSI"), transfer agent subsidiaries of the Manager, an officer of
other OppenheimerFunds and Executive Vice President and General
Counsel of the Manager and the Distributor.
Benjamin Lipstein, Trustee
591 Breezy Hill Road, Hillsdale, New York 12529
Professor Emeritus of Marketing, Stern Graduate School of Business
Administration, New York University.
Elizabeth B. Moynihan, Trustee
801 Pennsylvania Avenue, Washington, DC 20004
Author and architectural historian; a trustee of the American Schools
of Oriental Research, the Institute of Fine Arts (New York
University), the Freer Gallery of Art (Smithsonian Institution) and
the Preservation League of New York State.; a member of the Indo-U.S.
Sub-Commission on Education and Culture.
Kenneth A. Randall, Trustee
6 Whittaker's Mill, Williamsburg, VA 23185
A director of Northeast Bancorp, Inc. (bank holding company),
Dominion Resources, Inc. (electric utility holding company) and
Kemper Corporation (insurance and financial services company);
formerly Chairman of the Board of ICL, Inc. (information systems).
Edward V. Regan, Trustee
40 Park Avenue, New York, New York 10016
President of Jerome Levy Economics Institute; a member of the U.S.
Competitiveness Policy Council; a director of GranCare, Inc. (health
care provider); formerly New York State Comptroller and a trustee,
New York State and Local Retirement Fund.
Russell S. Reynolds, Trustee
200 Park Avenue, New York, New York 10166
Founder and Chairman of Russell Reynolds Associates, Inc. (executive
recruiting); a trustee of Mystic Seaport Museum, International House,
Greenwich Historical Society and Greenwich Hospital.
Sidney M. Robbins, Trustee
50 Overlook Road, Ossining, NY 10562
Chase Manhattan Professor Emeritus of Financial Institutions,
Graduate School of Business, Columbia University; Visiting Professor
of Finance, University of Hawaii; a director of The Korea Fund, Inc.
and The Malaysia Fund, Inc. (closed-end investment companies); member
of the Board of Advisors of Olympus Private Placement Fund, L.P.;
Professor Emeritus of Finance, Adelphi University.
Donald W. Spiro, President and Trustee*
Chairman Emeritus and a Director of the Manager; formerly Chairman
of the Manager and the Distributor.
Pauline Trigere, Trustee
550 Seventh Avenue, New York, NY 10018
Chairman and Chief Executive Officer of Trigere, Inc. (design and
sale of women's fashions).
Clayton K. Yeutter, Trustee
1325 Merrie Ridge Road, McLean, Virginia 22101
Counsel to Hogan & Hartson (a law firm); a director of B.A.T.
Industries, Ltd. (tobacco and financial services), Caterpillar, Inc.
(machinery), ConAgra, Inc. (food and agricultural products), FMC
Corp. (chemicals and machinery), Lindsay Manufacturing Co. and Texas
Instruments, Inc. (electronics); formerly (in descending
chronological order) Deputy Chairman, Bush/Quayle Presidential
Campaign, Counsellor to the President (Bush) for Domestic Policy,
Chairman of the Republican National Committee, Secretary of the U.S.
Department of Agriculture, and U.S. Trade Representative, Executive
Office of the President.
Robert E. Patterson, Vice President and Portfolio Manager
Senior Vice President of the Manager; an officer of other
OppenheimerFunds.
Andrew J. Donohue, Secretary
Executive Vice President and General Counsel of the Manager and the
Distributor; an officer of other OppenheimerFunds; formerly Senior
Vice President and General Counsel of the Manager and the
Distributor, partner in Kraft & McManimon (a law firm), an officer
of First Investors Corporation (a broker-dealer) and First Investors
Management Company, Inc. (broker-dealer and investment adviser) and
director and an officer of First Investors Family of Funds and First
Investors Life Insurance Company.
George C. Bowen, Treasurer
3410 South Galena Street Denver, Colorado 80231
Senior Vice President and Treasurer of the Manager; Vice President
and Treasurer of the Distributor and HarbourView; Senior Vice
President, Treasurer, Assistant Secretary and a director of
Centennial; Vice President, Treasurer and Secretary of SSI, SFSI, and
the OppenheimerFunds; formerly Senior Vice President/Comptroller and
Secretary of Oppenheimer Asset Management Corporation, a former
investment advisory subsidiary of the Manager.
Robert G. Zack, Assistant Secretary
Senior Vice President and Associate General Counsel of the Manager;
Assistant Secretary of SSI, SFSI and other OppenheimerFunds.
Robert Bishop, Assistant Treasurer
Assistant Vice President of the Manager/Mutual Fund Accounting; an
officer of other OppenheimerFunds; previously a Fund Controller for
the Manager, prior to which he was an Accountant for Resolution Trust
Corporation and previously an Accountant and Commissions Supervisor
for Stuart James Company Inc., a broker-dealer.
Scott Farrar, Assistant Treasurer
Assistant Vice President of the Manager/Mutual Fund Accounting; an
officer of other OppenheimerFunds; previously a Fund Controller for
the Manager, prior to which he was an International Mutual Fund
Supervisor for Brown Brothers Harriman Co., a bank, and previously
a Senior Fund Accountant for State Street Bank & Trust Company,
before which he was a sales representative for Central Colorado
Planning.
[FN]
- --------------------
*A Trustee who is an "interested person" of the Fund as defined in the
Investment Company Act.
-- Remuneration of Trustees. The officers of the Fund are affiliated
with the Manager. They and the Trustees of the Fund who are affiliated
with the Manager (Mr. Galli and Mr. Spiro, who is both an officer and
Trustee) receive no salary or fee from the Fund. During the Fund's fiscal
year ended December 31, 1993, the remuneration (including expense
reimbursements) paid to all Trustees of the Fund (excluding Mr. Galli and
Spiro) as a group for services as trustees and as members of one or more
committees of the Board, totaled $65,316. 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 New York-based OppenheimerFunds for
at least 15 years in order to be eligible for the maximum payment. No
Trustee has retired since the adoption of the plan and no payments have
been made by the Fund under the plan. The accumulated liability for the
Fund's projected benefit obligation under the Plan was $___________ as of
December 31, 1993.
-- Major Shareholders. As of March 29, 1994, no person owned of
record or was known by the management of the Fund to own beneficially 5%
or more of the Fund's outstanding shares.
The Manager and Its Affiliates
The Manager is wholly-owned by Oppenheimer Acquisition Corp. ("OAC"),
a holding company controlled by Massachusetts Mutual Life Insurance
Company. OAC is also owned in part by certain of the Manager's directors
and officers, some of whom may also serve as officers of the Fund, and two
of whom (Messrs. Galli and Spiro) serve as a Trustee of the Fund.
-- The Investment Advisory Agreement. The investment advisory
agreement between the Manager and the Fund requires the Manager, at its
expense, to provide the Fund with adequate office space, facilities and
equipment, and to provide and supervise the activities of all
administrative and clerical personnel required to provide effective
administration for the Fund, including the compilation and maintenance of
records with respect to its operations, the preparation and filing of
specified reports, and composition of proxy materials and registration
statements for continuous public sale of shares of the Fund.
Expenses not expressly assumed by the Manager under the advisory
agreement or by the Distributor under the General Distributor's Agreement
are paid by the Fund. The advisory agreement lists examples of expenses
paid by the Fund, the major categories of which relate to interest, taxes,
fees to certain Trustees, legal and audit expenses, custodian and transfer
agent expenses, share issuance costs, certain printing and registration
costs, brokerage commissions, and non-recurring expenses, including
litigation. For the fiscal years ended December 31, 1991, 1992 and 1993,
the management fees paid by the Fund to the Manager were $1,841,215,
$2,443,445 and 3,113,588, respectively.
The advisory agreement contains no provision limiting the Fund's
expenses. However, independently of the advisory agreement, the Manager
has undertaken that the total expenses of the Fund in any fiscal year
(including the management fee but excluding taxes, interest, brokerage
commissions, distribution plan payments and extraordinary expenses such
as litigation costs), shall not exceed the most stringent expense
limitation imposed under state law applicable to the Fund. Currently, the
most stringent state expense limitation is imposed by California, and
limits the Fund's expenses (with specified exclusions) to 2.5% of the
first $30 million of average annual net assets, 2% of the next $70
million, and 1.5% of average annual net assets in excess of $100 million.
The Manager reserves the right to terminate or amend the undertaking at
any time. Any assumption of the Fund's expenses under this limitation
would lower the Fund's overall expense ratio and increase its total return
during any period in which expenses are limited.
The advisory agreement provides that in the absence of willful
misfeasance, bad faith, gross negligence in the performance of its duties,
or reckless disregard for its obligations thereunder, the Manager shall
not be liable for any loss sustained by reason of good faith errors or
omissions in connection with any matters to which the Agreement relates.
The advisory agreement permits the Manager to act as investment adviser
for any other person, firm or corporation and to use the name
"Oppenheimer" in connection with other investment companies for which it
may act as investment adviser or general distributor. If the Manager or
one of its affiliates shall no longer act as investment adviser to the
Fund, the right of the Fund to use the name "Oppenheimer" as part of its
name may be withdrawn.
-- The Distributor. Under its General Distributor's Agreement with
the Fund, the Distributor acts as the Fund's principal underwriter in the
continuous public offering of the Fund's Class A and Class B shares but
is not obligated to sell a specific number of shares. Expenses normally
attributable to sales, including advertising and the cost of printing and
mailing prospectuses (other than those furnished to existing
shareholders), are borne by the Distributor. During the fiscal years
ended December 31, 1991, 1992 and 1993, the aggregate sales charges on
sales of the Fund's shares were $2,419,747, $3,542,900 and $4,020,669,
respectively, of which the Distributor and an affiliated broker-dealer
retained in the aggregate $672,336, $1,077,669 and $1,150,057 in those
respective years. The Distributor advanced sales charges of $1,297,614
on Class B shares to broker-dealers, including $109,446 paid to an
affiliated broker-dealer. For additional information about distribution
of the Fund's shares and the expenses connected with such activities,
please refer to "Distribution and Service Plans," below.
-- The Transfer Agent. Oppenheimer Shareholder Services, the Fund's
transfer agent, is responsible for maintaining the Fund's shareholder
registry and shareholder accounting records, and for shareholder servicing
and administrative functions.
Brokerage Policies of the Fund
Brokerage Provisions of the Investment Advisory Agreement. One of the
duties of the Manager under the advisory agreement is to arrange the
portfolio transactions for the Fund. The advisory agreement contains
provisions relating to the employment of broker-dealers ("brokers") to
effect the Fund's portfolio transactions. In doing so, the Manager is
authorized by the advisory agreement to employ broker-dealers, including
"affiliated" brokers, as that term is defined in the Investment Company
Act, as may, in its best judgment based on all relevant factors,
implement the policy of the Fund to obtain, at reasonable expense, the
"best execution" (prompt and reliable execution at the most favorable
price obtainable) of such transactions. The Manager need not seek
competitive commission bidding but is expected to minimize the commissions
paid to the extent consistent with the interest and policies of the Fund
as established by its Board of Trustees.
Under the advisory agreement, the Manager is authorized to select
brokers that provide brokerage and/or research services for the Fund
and/or the other accounts over which the Manager or its affiliates have
investment discretion. The commissions paid to such brokers may be higher
than another qualified broker would have charged if a good faith
determination is made by the Manager and the commission is fair and
reasonable in relation to the services provided. Subject to the foregoing
considerations, the Manager may also consider sales of shares of the Fund
and other investment companies managed by the Manager or its affiliates
as a factor in the selection of brokers for the Fund's portfolio
transactions.
Description of Brokerage Practices Followed by the Manager. Subject to
the provisions of the advisory agreement, the procedures and rules
described above, allocations of brokerage are made by portfolio managers
of the Manager under the supervision of the Manager's executive officers.
As most purchases made by the Fund are principal transactions at net
prices, the Fund incurs little or no brokerage costs. The Fund usually
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 better price or execution may be obtained by
utilizing 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. The Fund seeks to obtain prompt execution of orders at
the most favorable net price. When the Fund engages in an option
transaction, ordinarily the same broker will be used for the purchase or
sale of the option and any transaction in the securities to which the
option relates. When possible, concurrent orders to purchase or sell the
same security by more than one of the accounts managed by the Manager or
its affiliates are combined. The transactions effected pursuant to such
combined orders are averaged as to price and allocated in accordance with
the purchase or sale orders actually placed for each account.
The research services provided by a particular broker may be useful
only to one or more of the advisory accounts of the Manager and its
affiliates, and investment research received for the commissions of those
other accounts may be useful both to the Fund and one or more of such
other accounts. Such research, which may be supplied by a third party at
the instance of a broker, includes information and analyses on particular
companies and industries as well as market or economic trends and
portfolio strategy, receipt of market quotations for portfolio
evaluations, information systems, computer hardware and similar products
and services. If a research service also assists the Manager in a non-
research capacity (such as bookkeeping or other administrative functions),
then only the percentage or component that provides assistance to the
Manager in the investment decision-making process may be paid in
commission dollars. The Board of Trustees has permitted the Manager to
use concessions on fixed-price offerings to obtain research, in the same
manner as is permitted for agency transactions.
The research services provided by brokers broadens the scope and
supplement the research activities of the Manager, by making available
additional views for consideration and comparisons, and enabling the
Manager to obtain market information for the valuation of securities held
in the Fund's portfolio or being considered for purchase. The Board of
Trustees, including the "independent" Trustees of the Fund (those Trustees
of the Fund who are not "interested persons" as defined in the Investment
Company Act, and who have no direct or indirect financial interest in the
operation of the advisory agreement or the Distribution Plans described
below) annually reviews information furnished by the Manager as to the
commissions paid to brokers furnishing such services so that the Board may
ascertain whether the amount of such commissions was reasonably related
to the value or benefit of such services.
Performance of the Fund
As described in the Prospectus, from time to time the "standardized
yield," "tax-equivalent yield," "dividend yield," "average annual total
return," "total return" and "total return at net asset value" of an
investment in each class of Fund shares may be advertised. An explanation
of how standardized yield, tax-equivalent yield, average annual total
return and total return are calculated for each class and the components
of those calculations are set forth below.
-- Standardized Yields
- Yield. The Fund's "yield" (referred to as the "standardized
yield") for a given 30-day period for a class of shares is calculated
using the following formula set forth in the rules adopted by the
Securities and Exchange Commission that apply to all funds that quote
yields:
a-b 6
Standardized Yield = 2 [( --- + 1) - 1]
cd
The symbols above represent the following factors:
a = dividends and interest earned during the 30-day period.
b = expenses accrued for the period (net of any expense
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 of a class of shares for a 30-day period may
differ from its yield for any other period. The SEC formula assumes that
the standardized yield for a 30-day period occurs at a constant rate for
a six-month period and is annualized at the end of the six-month period.
This standardized yield is not based on actual distributions paid by the
Fund to shareholders in the 30-day period, but is a hypothetical yield
based upon the net investment income from the Fund's portfolio investments
calculated for that period. The standardized yield may differ from the
"dividend yield" of that class, described below. Additionally, because
each class of shares is subject to different expenses, it is likely that
the standardized yields of the Fund's classes of shares will differ. For
the 30-day period ended December 31, 1993, the standardized yields for the
Fund's Class A and Class B shares were 5.21% and 4.60%, respectively.
- Tax-Equivalent Yield. The Fund's "tax-equivalent yield" adjusts
the Fund's current yield, as calculated above, by a stated Federal tax
rate. The tax-equivalent yield is based on a 30-day period, and is
computed by dividing the tax-exempt portion of the Fund's yield (as
calculated above) by one minus a stated income tax rate and adding the
result to the portion (if any) of the Fund's yield that is not tax-exempt.
The tax-equivalent yield may be used to compare the tax effects of income
derived from the Fund with income from taxable investments at the tax
rates stated. Appendix A includes a tax-equivalent yield table, based on
various effective tax brackets for individual taxpayers. Such tax
brackets are determined by a taxpayer's Federal taxable income (the net
amount subject to Federal income tax after deductions and exemptions).
The tax-equivalent yield table assumes that the investor is taxed at the
highest bracket, regardless of whether a switch to non-taxable investments
would cause a lower bracket to apply. For taxpayers with income above
certain levels, otherwise allowable itemized deductions are limited. For
the 30-day period ended December 31, 1993, the Fund's tax-equivalent yield
for an individual in the 39.6% Federal tax bracket was 8.63 for an
investment in Class A shares of the Fund and 7.62 for an investment in
Class B shares of the Fund.
- Dividend Yield and Distribution Return. From time to time the Fund
may quote a "dividend yield" or a "distribution return" for each class.
Dividend yield is based on the Class A or Class B dividends derived from
net investment income during a stated period. Distribution return
includes dividends derived from net investment income and from realized
gains declared during a stated period. Under those calculations, the
dividends and/or distributions for that class declared during a stated
period of one year or less (for example, 30 days) are added together, and
the sum is divided by the Fund's maximum offering price per share of that
class on the last day of the period. When the result is annualized for
a period of less than one year, the "dividend yield" is calculated as
follows:
Dividend Yield of the Class =
Dividends of the Class
---------------------------------------------------- divided by
Max. Offering Price of the Class (las day of period)
Number of days (accrual period) x 365
The maximum offering price for Class A shares includes the maximum
front-end sales charge. For Class B shares, the maximum offering price
is the net asset value per share, without considering the effect of
contingent deferred sales charges.
From time to time similar yield or distribution return calculations
may also be made using the Class A net asset value (instead of its
respective maximum offering price) at the end of the period. The dividend
yields on Class A shares for the 30-day period ended December 31, 1993,
were 5.18% and 5.44% when calculated at maximum offering price and at net
asset value, respectively. The dividend yield on Class B shares for the
30-day period ended December 31, 1993 was 4.65% when calculated at net
asset value.
-- Total Return Information.
- Average Annual Total Returns. The "average annual total return"
of each class is an average annual compounded rate of return for each year
in a specified number of years. It is the rate of return based on factors
which include a hypothetical initial investment of $1,000 ("P" in the
formula below) held for a number of years ("n") with an Ending Redeemable
Value ("ERV") of that investment, according to the following formula:
1/n
(ERV)
(---) -1 = Average Annual Total Return
( P )
The "average annual total returns" on an investment in Class A shares
of the Fund for the one, five and ten year periods ended December 31, 1993
were 8.39%, 8.82% and 10.44%, respectively.
- 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
In calculating total returns for Class A shares, the current maximum
sales charge of 4.75% (as a percentage of the offering price) is deducted
from the initial investment ("P") (unless the return is shown at net asset
value, as described below). For Class B shares, payment of contingent
deferred sales charge of 5% for the first year, 4.0% for the second year,
3.0% for the third and fourth years, 2.0% for the fifth year, 1.0% in the
sixth year and none thereafter is applied, as described in the Prospectus.
Total returns also assume that all dividends and capital gains
distributions during the period are reinvested to buy additional shares
at net asset value per share, and that the investment is redeemed at the
end of the period. The cumulative "total return" on Class A shares for
the ten year period ended December 31, 1993 was 169.92%. During a portion
of the periods for which total returns are shown for Class A shares, the
Fund's maximum initial sales charge rate was higher; as a result,
performance returns on actual investments during those periods may be
lower than the results shown. The cumulative total return on Class B
shares for the period from March 16, 1993 (the commencement of the
offering of the shares) through December 31, 1993 was 3.49%.
- Total Returns at Net Asset Value. From time to time the Fund may
also quote an average annual total return at net asset value or a
cumulative total return at net asset value for Class A or Class B shares.
Each is based on the difference in net asset value per share at the
beginning and the end of the period for a hypothetical investment in that
class of shares (without considering front-end or contingent deferred
sales charges) and takes into consideration the reinvestment of dividends
and capital gains distributions. The cumulative total return at net asset
value of the Fund's Class A shares for the fiscal year ended December 31,
1993 was 13.79%. The cumulative total return at net asset value of the
Fund's Class B shares for the period from March 16, 1993 (commencement of
the offering) through December 31, 1993 was 8.49%.
Other Performance Comparisons. From time to time the Fund may publish the
ranking of its Class A or Class B shares by Lipper Analytical Services,
Inc. ("Lipper"), a widely-recognized independent service. Lipper monitors
the performance of regulated investment companies, including the Fund, and
ranks their performance for various periods based on categories relating
to investment objectives. The performance of the Fund is ranked against
(1) all other funds (excluding money market funds), and (2) all general
municipal bond funds. The Lipper performance rankings are based on total
returns that include the reinvestment of capital gain distributions and
income dividends but do not take sales charge or taxes into consideration.
From time to time the Fund may include in its advertisements and sales
literature performance information about the Fund cited in other
newspapers and periodicals, such as The New York Times, which may include
performance quotations from other sources, including Lipper and
Morningstar.
From time to time the Fund may publish the ranking of the performance
of its Class A or Class B shares by Morningstar, Inc., an independent
mutual fund monitoring service that ranks mutual funds, including the
Fund, monthly in broad investment categories (equity, taxable bond,
municipal bond and hybrid) based upon the funds' three, five and ten-year
average annual total returns (when available) and a risk adjustment factor
that reflects fund performance relative to three-month U.S. Treasury bill
monthly returns. Such returns are adjusted for fees and sales loads.
There are five ranking categories, with a corresponding number of stars:
highest (5), above average (4), neutral (3), below average (2) and lowest
(1). The top ten percent of the funds, series or classes in an investment
category receive five stars; 22.5% receive four stars; 35% receive three
stars; 22.5% receive two stars; and the bottom 10% receive one star.
Morningstar ranks the Fund in relation to other rated municipal bond
funds.
Investors may also wish to compare the Fund's Class A or Class B
return to the return on fixed income investments available from banks and
thrift institutions, such as certificates of deposit, ordinary interest-
paying checking and savings accounts, and other forms of fixed or variable
time deposits, and various other instruments such as Treasury bills.
However, the Fund's returns and share price are not guaranteed and will
fluctuate daily, while bank depository obligations may be insured by the
FDIC and may provide fixed rates of return, and Treasury bills are
guaranteed as to principal and interest by the U.S. government. When
redeemed, an investor's shares may be worth more or less than their
original cost. Returns for any given past period are not a prediction or
representation by the Fund of future returns. The returns of Class A and
Class B shares of the Fund are affected by portfolio quality, the type of
investments the Fund holds and its operating expenses allocated to a
particular class.
Distribution and Service Plans
The Fund has adopted a Service Plan for Class A Shares and a
Distribution and Service Plan for Class B Shares under Rule 12b-1 of the
Investment Company Act pursuant to which the Fund will reimburse the
Distributor quarterly for all or a portion of its costs incurred in
connection with the distribution and/or servicing of the shares of that
class, as described in the Prospectus. Each Plan has been approved by a
vote of (i) the Board of Trustees of the Fund, including a majority of the
Independent Trustees, cast in person at a meeting called for the purpose
of voting on that Plan, and (ii) the holders of a "majority" (as defined
in the Investment Company Act) of the shares of each class. For the
Distribution and Service Plan for the Class B shares, that vote was cast
by the Manager as the sole initial holder of Class B shares of the
Fund.
In addition, under the Plans the Manager and the Distributor, in
their sole discretion from time to time may use their own resources
(which, in the case of the Manager, may include profits from the advisory
fee it receives from the Fund) to make payments to brokers, dealers or
other financial institutions (each is referred to as a "Recipient" under
the Plans) for distribution and administrative services they perform. The
Distributor and the Manager may, in their sole discretion, increase or
decrease the amount of payments they make to Recipients from their own
resources.
Unless terminated as described below, each Plan continues in effect
from year to year but only as long as such continuance is specifically
approved at least annually by the Fund's Board of Trustees and its
Independent Trustees by a vote cast in person at a meeting called for the
purpose of voting on such continuance. Either Plan may be terminated at
any time by the vote of a majority of the Independent Trustees or by the
vote of the holders of a "majority" (as defined in the Investment Company
Act) of the outstanding shares of that class. Neither Plan may be amended
to increase materially the amount of payments to be made unless such
amendment is approved by shareholders of the class affected by the
amendment. All material amendments must be approved by the Independent
Trustees.
While the Plans are in effect, the Treasurer of the Fund shall
provide separate written reports to the Fund's Board of Trustees at least
quarterly on the amount of all payments made pursuant to each Plan, the
purpose for which the payment was made and the identity of each Recipient
that received any such payment. The report for the Class B Plan shall
also include the distribution costs for that quarter, and such costs for
previous fiscal periods that are carried forward, as explained in the
Prospectus and below. Those reports, including the allocations on which
they are based, will be subject to the review and approval of the
Independent Trustees in the exercise of their fiduciary duty. Each Plan
further provides that while it is in effect, the selection and nomination
of those Trustees of the Fund who are not "interested persons" of the Fund
is committed to the discretion of the Independent Trustees. This does not
prevent the involvement of others in such selection and nomination if the
final decision on any such selection or nomination is approved by a
majority of such Independent Trustees.
Under the Plans, no payment will be made to any broker, dealer or
other financial institution under the Plan (each is referred to as a
"Recipient") in any quarter if the aggregate net asset value of all Fund
shares held by the Recipient for itself and its customers did not exceed
a minimum amount, if any, that may be determined from time to time by a
majority of the Fund's Independent Trustees. Initially, the Board of
Trustees has set the fee at the maximum rate allowed under the Plans and
set no minimum amount. For the fiscal year ended December 31, 1993,
payments under the Class A Plan totaled $1,117,086, all of which was paid
by the Distributor to Recipients, including $121,448 paid to an affiliate
of the Distributor. For the period March 16, 1993 (commencement of
operations) through December 31, 1993, payments made under the Class B
Plan totalled $130,628.
Any unreimbursed expenses incurred with respect to Class A shares for
any fiscal year by the Distributor may not be recovered in subsequent
years. Payments received by the Distributor under the Plan for Class A
shares will not be used to pay any interest expense, carrying charges, or
other financial costs, or allocation of overhead by the Distributor. The
Class B Plan allows the service fee payment to be paid by the Distributor
to Recipients in advance for the first year Class B shares are
outstanding, and thereafter on a quarterly basis, as described in the
Prospectus. The advance payment is based on the net assets of the Class
B shares sold. An exchange of shares does not entitle the Recipient to
an advance service fee payment. In the event Class B shares are redeemed
during the first year such shares are outstanding, the Recipient will be
obligated to repay a pro rata portion of such advance payment to the
Distributor.
Although the Class B Plan permits the Distributor to retain both the
asset-based sales charges and the service fee on Class B shares, or to pay
Recipients the service fee on a quarterly basis, without payment in
advance, the Distributor intends to pay the service fee to Recipients in
the manner described above. A minimum holding period may be established
from time to time under the Class B Plan by the Board. Initially, the
Board has set no minimum holding period. All payments under the Class B
Plan become subject to the limitations imposed by the Rules of Fair
Practice of the National Association of Securities Dealers, Inc. on
payments of asset-based sales charges and service fees.
The Class B Plan allows for the carry-forward of distribution
expenses, to be recovered from asset-based sales charges in subsequent
fiscal periods, as described in the Prospectus. The asset-based sales
charge paid to the Distributor by the Fund under the Class B Plan is
intended to allow the Distributor to recoup the cost of sales commissions
paid to authorized brokers and dealers at the time of sale, plus financing
costs, as described in the Prospectus. Such payments may also be used to
pay for the following expenses in connection with the distribution of
Class B shares: (i) financing the advance of the service fee payment to
Recipients under the Class B Plan, (ii) compensation and expenses of
personnel employed by the Distributor to support distribution of Class B
shares, and (iii) costs of sales literature, advertising and prospectuses
(other than those furnished to current shareholders) and state "blue sky"
registration fees.
ABOUT YOUR ACCOUNT
How to Buy Shares
Alternative Sales Arrangements - Class A and Class B Shares. The
Alternative Sales Arrangements permit an investor to choose the method of
purchasing shares that is more beneficial to the investor depending on the
amount of the purchase, the length of time the investor expects to hold
shares and other relevant circumstances. Investors should understand that
the purpose and function of the deferred sales charge and asset-based
sales charge with respect to Class B shares are the same as those of the
initial sales charge with respect to Class A shares. Any salesperson or
other person entitled to receive compensation for selling Fund shares may
receive different compensation with respect to one class of shares than
the other. The Distributor will not accept any order for $1 million or
more of Class B shares on behalf of a single investor (not including
dealer "street name" or omnibus accounts) because generally it will be
more advantageous for that investor to purchase Class A shares of the Fund
instead.
The two classes of shares each represent an interest in the same
portfolio investments of the Fund. However, each class has different
shareholder privileges and features. The net income attributable to Class
B shares and the dividends payable on Class B shares will be reduced by
incremental expenses borne solely by that class, including the asset-based
sales charge to which Class B shares are subject.
The conversion of Matured Class B shares to Class A shares is subject
to the continuing availability of a private letter ruling from the
Internal Revenue Service, or an opinion of counsel or tax adviser, to the
effect that the conversion of Matured Class B shares does not constitute
a taxable event for the holder under Federal income tax law. If such a
revenue ruling or opinion is no longer available, the automatic conversion
feature may be suspended, in which event no further conversions of Matured
Class B shares would occur while such suspension remained in effect.
Although Matured Class B shares could then be exchanged for Class A shares
on the basis of relative net asset value of the two classes, without the
imposition of a sales charge or fee, such exchange could constitute a
taxable event for the holder, and absent such exchange, Class B shares
might continue to be subject to the asset-based sales charge for longer
than six years.
The methodology for calculating the net asset value, dividends and
distributions of the Fund's Class A and Class B shares recognizes two
types of expenses. General expenses that do not pertain specifically to
either class are allocated pro rata to the shares of each class, based on
the percentage of the net assets of such class to the Fund's total net
assets, and then equally to each outstanding share within a given class.
Such general expenses include (i) management fees, (ii) legal, bookkeeping
and audit fees, (iii) printing and mailing costs of shareholder reports,
Prospectuses, Statements of Additional Information and other materials for
current shareholders, (iv) fees to unaffiliated Trustees, (v) custodian
expenses, (vi) share issuance costs, (vii) organization and start-up
costs, (viii) interest, taxes and brokerage commissions, and (ix) non-
recurring expenses, such as litigation costs. Other expenses that are
directly attributable to a class are allocated equally to each outstanding
share within that class. Such expenses include (i) Distribution Plan
fees, (ii) incremental transfer and shareholder servicing agent fees and
expenses, (iii) registration fees and (iv) shareholder meeting expenses,
to the extent that such expenses pertain to a specific class rather than
to the Fund as a whole.
Determination of Net Asset Value Per Share. The net asset values per
share of Class A and Class B shares of the Fund are determined each day
the New York Stock Exchange (the "NYSE") is open (a "regular business
day"), as of 4:00 P.M. New York time, that day, by dividing the value of
the Fund's net assets attributable to that class by the total number of
shares of that class outstanding. The NYSE's most recent annual holiday
schedule (which is subject to change) states that it will close on New
Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day and Christmas Day. It may also close on other
days. Dealers other than NYSE members may conduct trading in Municipal
Securities on certain days on which the NYSE is closed (including weekends
and holidays) or after 4:00 P.M. on a regular business day. Because the
Fund's net asset values will not be calculated on those days, the Fund's
net asset value per share may be significantly affected on such days when
shareholders may not purchase or redeem shares.
The Fund's Board of Trustees has established procedures for the
valuation of the Fund's securities as follows: (i) long-term debt
securities, and short-term securities having a remaining maturity in
excess of 60 days, are valued at the mean between the asked and bid prices
determined by a portfolio pricing service approved by the Fund's Board of
Trustees or obtained from active market makers in the security on the
basis of reasonable inquiry; (ii) short-term debt securities having a
remaining maturity of 60 days or less when purchased or which currently
have maturities of 60 days or less are valued at cost, adjusted for
amortization of premiums and accretion of discounts; and (iii) securities
are valued at fair value under procedures established by the Fund's the
Board of Trustees.
In the case of Municipal Securities, when last sale information is
not generally available, such pricing procedures may include "matrix"
comparisons to the prices for comparable instruments on the basis of
quality, yield, maturity, and other special factors involved (such as the
tax-exempt status of the interest paid by Municipal Securities). The
Fund's Board of Trustees has authorized the Manager to employ a pricing
service, bank or broker-dealer experienced in such matters to price any
of the types of securities described above. The Trustees will monitor the
accuracy of such pricing services by comparing prices used for portfolio
evaluation to actual sales prices of selected securities.
Calls, puts, Interest Rate Futures and Municipal Bond Index Futures
are valued at the last sales price on the principal exchange on which they
are traded. If there were no sales on the principal exchange, the last
sale on any exchange is used. In the absence of any sales that day, value
shall be the last reported sales price on the prior trading day or closing
bid or asked prices on the principal exchange closest to the last reported
sales price. When the Fund writes an option, an amount equal to the
premium received by the Fund is included in its Statement of Assets and
Liabilities as an asset, and an equivalent deferred credit is included in
the liability section. The deferred credit is adjusted ("marked-to-
market") to reflect the current market value of the option.
AccountLink. When shares are purchased through AccountLink, each purchase
must be at least $25.00. Shares will be purchased on the regular business
day the Distributor is instructed to initiate the Automated Clearing House
transfer to buy the shares. Dividends will begin to accrue on such shares
on the day the Fund receives Federal Funds for such purchase through the
ACH system before 4:00 P.M., which is normally 3 days after the ACH
transfer is initiated. The Distributor and the Fund are not responsible
for any delays. If the Federal Funds are received after 4:00 P.M.,
dividends will begin to accrue on the next regular business day after such
Federal Funds are received.
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 circumstances
described in the Prospectus because the Distributor incurs little or no
selling expenses. The term "immediate family" refers to one's spouse,
children, grandchildren, grandparents, parents, parents-in-law, brothers
and sisters, sons- and daughters-in-law, a sibling's spouse and a spouse's
siblings.
-- The OppenheimerFunds. The OppenheimerFunds are those mutual funds
for which the Distributor acts as the distributor or the sub-Distributor
and include the following:
Oppenheimer Tax-Free Bond Fund
Oppenheimer New York Tax-Exempt Fund
Oppenheimer California Tax-Exempt Fund
Oppenheimer Intermediate Tax-Exempt Bond Fund
Oppenheimer Insured Tax-Exempt Bond Fund
Oppenheimer Main Street California Tax-Exempt Fund
Oppenheimer Florida Tax-Exempt Fund
Oppenheimer Pennsylvania Tax-Exempt Fund
Oppenheimer Fund
Oppenheimer Discovery Fund
Oppenheimer Time Fund
Oppenheimer Target Fund
Oppenheimer Special Fund
Oppenheimer Equity Income Fund
Oppenheimer Value Stock Fund
Oppenheimer Asset Allocation Fund
Oppenheimer Total Return Fund, Inc.
Oppenheimer Main Street Income & Growth Fund
Oppenheimer New Jersey Tax-Exempt Fund
Oppenheimer High Yield Fund
Oppenheimer Champion High Yield Fund
Oppenheimer Investment Grade Bond Fund
Oppenheimer U.S. Government Trust
Oppenheimer Government Securities Fund
Oppenheimer Mortgage Income Fund
Oppenheimer Global Fund
Oppenheimer Global Bio-Tech Fund
Oppenheimer Global Environment Fund
Oppenheimer Global Growth & Income Fund
Oppenheimer Gold & Special Minerals Fund
Oppenheimer Strategic Income Fund
Oppenheimer Strategic Investment Grade Bond Fund
Oppenheimer Strategic Short-Term Income Fund
Oppenheimer Strategic Income & Growth Fund
Oppenheimer Strategic Diversified Income Fund
the following "Money Market Funds":
Oppenheimer Money Market Fund, Inc.
Oppenheimer Cash Reserves
Oppenheimer Tax-Exempt Cash Reserves
Centennial Money Market Trust
Centennial Tax Exempt Trust
Centennial Government Trust
Centennial New York Tax Exempt Trust
Centennial California Tax Exempt Trust
Centennial America Fund, L.P.
Daily Cash Accumulation Fund, Inc.
There is an initial sales charge on the purchase of Class A shares
of each of the OppenheimerFunds except Money Market Funds (under certain
circumstances described herein, redemption proceeds of Money Market Fund
shares may be subject to a contingent deferred sales charge).
-- Letters of Intent. A Letter of Intent ("Letter") is the
investor's statement of intention to purchase Class A shares of the Fund
(and other eligible OppenheimerFunds) sold with a front-end sales charge
during the 13-month period from the investor's first purchase pursuant to
the Letter (the "Letter of Intent period"), which may, at the investor's
request, include purchases made up to 90 days prior to the date of the
Letter. The Letter states the investor's intention to make the aggregate
amount of purchases (excluding any purchases made by reinvestments of
dividends or distributions or purchases made at net asset value without
sales charge), which together with the investor's holdings of such funds
(calculated at their respective public offering prices calculated on the
date of the Letter) will equal or exceed the amount specified in the
Letter to obtain the reduced sales charge rate (as set forth in the
Prospectus) applicable to purchases of shares in that amount (the
"intended amount"). Each purchase under the Letter will be made at the
public offering price applicable to a single lump-sum purchase of shares
in the intended amount, as described in the Prospectus.
In submitting a Letter, the investor makes no commitment to purchase
shares, but if the investor's purchases of shares within the Letter of
Intent period, when added to the value (at offering price) of the
investor's holdings of shares on the last day of that period, do not equal
or exceed the intended amount, the investor agrees to pay the additional
amount of sales charge applicable to such purchases, as set forth in
"Terms of Escrow," below (as those terms may be amended from time to
time). The investor agrees that shares equal in value to 5% of the
intended amount will be held in escrow by the Transfer Agent subject to
the Terms of Escrow. Also, the investor agrees to be bound by the terms
of the Prospectus, this Statement of Additional Information and the
Application used for such Letter of Intent, and if such terms are amended,
as they may be from time to time by the Fund, that those amendments will
apply automatically to existing Letters of Intent.
If the total eligible purchases made during the Letter of Intent
period do not equal or exceed the intended amount, the commissions
previously paid to the dealer of record for the account and the amount of
sales charge retained by the Distributor will be adjusted to the rates
applicable to actual total purchases. If total eligible purchases during
the Letter of Intent period exceed the intended amount and exceed the
amount needed to qualify for the next sales charge rate reduction set
forth in the applicable prospectus, the sales charges paid will be
adjusted to the lower rate, but only if and when the dealer returns to the
Distributor the excess of the amount of commissions allowed or paid to the
dealer over the amount of commissions that apply to the actual amount of
purchases. The excess commissions returned to the Distributor will be
used to purchase additional shares for the investor's account at the net
asset value per share in effect on the date of such purchase, promptly
after the Distributor's receipt thereof.
In determining the total amount of purchases made under a Letter,
shares redeemed by the investor prior to the termination of the Letter of
Intent period will be deducted. It is the responsibility of the dealer
of record and/or the investor to advise the Distributor about the Letter
in placing any purchase orders for the investor during the Letter of
Intent period. All of such purchases must be made through the
Distributor.
- Terms of Escrow That Apply to Letters of Intent.
1. Out of the initial purchase (or subsequent purchases if necessary)
made pursuant to a Letter, shares of the Fund equal in value to 5% of the
intended amount specified in the Letter shall be held in escrow by the
Transfer Agent. For example, if the intended amount specified under the
Letter is $50,000, the escrow shall be shares valued in the amount of
$2,500 (computed at the public offering price adjusted for a $50,000
purchase). Any dividends and capital gains distributions on the escrowed
shares will be credited to the investor's account.
2. If the total minimum investment specified under the Letter is
completed within the thirteen-month Letter of Intent period, the escrowed
shares will be promptly released to the investor.
3. If, at the end of the thirteen-month Letter of Intent period the
total purchases pursuant to the Letter are less than the intended amount
specified in the Letter, the investor must remit to the Distributor an
amount equal to the difference between the dollar amount of sales charges
actually paid and the amount of sales charges which would have been paid
if the total amount purchased had been made at a single time. Such sales
charge adjustment will apply to any shares redeemed prior to the
completion of the Letter. If such difference in sales charges is not paid
within twenty days after a request from the Distributor or the dealer, the
Distributor will, within sixty days of the expiration of the Letter,
redeem the number of escrowed shares necessary to realize such difference
in sales charges. Full and fractional shares remaining after such
redemption will be released from escrow. If a request is received to
redeem escrowed shares prior to the payment of such additional sales
charge, the sales charge will be withheld from the redemption proceeds.
4. By signing the Letter, the investor irrevocably constitutes and
appoints the Transfer Agent as attorney-in-fact to surrender for
redemption any or all escrowed shares.
5. The shares eligible for purchase under the Letter (or the holding
of which may be counted toward completion of the Letter) do not include
any shares sold without a front-end sales charge or without being subject
to a Class A contingent deferred sales charge unless (for the purpose of
determining completion of the obligation to purchase shares under the
Letter) the shares were acquired in exchange for shares of one of the
OppenheimerFunds whose shares were acquired by payment of a sales charge.
6. Shares held in escrow hereunder will automatically be exchanged
for shares of another fund to which an exchange is requested, as described
in the section of the Prospectus entitled "Exchange Privilege," and the
escrow will be transferred to that other fund.
Asset Builder Plans. To establish an Asset Builder Plan from a bank
account, a check (minimum $25) for the initial purchase must accompany the
application. Shares purchased by Asset Builder Plan payments from bank
accounts are subject to the redemption restrictions for recent purchases
described in "How To Sell Shares," in the Prospectus. Asset Builder Plans
also enable shareholders of Oppenheimer Tax-Exempt Cash Reserves or
Oppenheimer Cash Reserves to use those accounts for monthly automatic
purchases of shares of up to four other Eligible Funds.
There is a sales charge on the purchase of certain Eligible Funds.
An application should be obtained from the Transfer Agent, completed and
returned, and a prospectus of the selected fund(s) (available from the
Distributor) should be obtained before initiating Asset Builder payments.
The amount of the Asset Builder investment may be changed or the automatic
investments may be terminated at any time by writing to the Transfer
Agent. A reasonable period (approximately 15 days) is required after the
Transfer Agent's receipt of such instructions to implement them. The Fund
reserves the right to amend, suspend, or discontinue offering such plans
at any time without prior notice.
Cancellation of Purchase Orders. Cancellation of purchase orders for the
Fund's shares (for example, when a purchase check is returned to the Fund
unpaid) causes a loss to be incurred when the net asset value of the
Fund's shares on the cancellation date is less than on the purchase date.
That loss is equal to the amount of the decline in the net asset value per
share multiplied by the number of shares in the purchase order. The
investor is responsible for that loss. If the investor fails to
compensate the Fund for the loss, the Distributor will do so. The Fund
may reimburse the Distributor for that amount by redeeming shares from any
account registered in that investor's name, or the Fund or the Distributor
may seek other redress.
Checkwriting. When a check is presented to the Bank for clearance, the
Bank will ask the Fund to redeem a sufficient number of full and
fractional shares in the shareholder's account to cover the amount of the
check. This enables the shareholder to continue receiving dividends on
those shares until the check is presented to the Fund. Checks may not be
presented for payment at the offices of the Bank or the Fund's Custodian.
This limitation does not affect the use of checks for the payment of bills
or to obtain cash at other banks. The Fund reserves the right to amend,
suspend or discontinue offering checkwriting privileges at any time
without prior notice.
How to Sell Shares
Information on how to sell shares of the Fund is stated in the
Prospectus. The information below supplements the terms and conditions for
redemptions set forth in the Prospectus.
-- Payments "In Kind". The Prospectus states that payment for shares
tendered for redemption is ordinarily made in cash. However, if the Board
of Trustees of the Fund determines 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, the Fund may pay the
redemption proceeds in whole or in part by a distribution "in kind" of
securities from the portfolio of the Fund, in lieu of cash, in conformity
with applicable rules of the Securities and Exchange Commission. The Fund
has elected to be governed by Rule 18f-1 under the Investment Company Act,
pursuant to which the Fund is obligated to redeem shares solely in cash
up to the lesser of $250,000 or 1% of the net assets of the Fund during
any 90-day period for any one shareholder. If shares are redeemed in kind,
the redeeming shareholder might incur brokerage or other costs in selling
the securities for cash. The method of valuing securities used to make
redemptions in kind will be the same as the method the Fund uses to value
it portfolio securities described above under "Determination of Net Asset
Value Per Share" and such 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 such shares is less than $200
or such lesser amount as the Board may fix. The Board of Trustees will
not cause the involuntary redemption of shares in an account if the
aggregate net asset value of such shares has fallen below the stated
minimum solely as a result of market fluctuations. Should the Board elect
to exercise this right, it may also fix, in accordance with the Investment
Company Act, the requirements for any notice to be given to the
shareholders in question (not less than 30 days), or may set requirements
for permission to increase the investment, and other terms and conditions
so that the shares would not be involuntarily redeemed.
Reinvestment Privilege. Within six months of a redemption, a shareholder
may reinvest all or part of the redemption proceeds of (i) Class A shares,
or (ii) Class B shares that were subject to the Class C contingent
deferred sales charge when redeemed, in Class A shares of the Fund or any
of the other OppenheimerFunds into which shares of the Fund are
exchangeable as described below, at the net asset value next computed
after receipt by the Transfer Agent of the reinvestment order. The
shareholder must ask the Distributor for such privilege at the time of
reinvestment. Any capital gain that was realized when the shares were
redeemed is taxable, and reinvestment will not alter any capital gains tax
payable on that gain. If there has been a capital loss on the redemption,
some or all of the loss may not be tax deductible, depending on the timing
and amount of the reinvestment. Under the Internal Revenue Code, if the
redemption proceeds of Fund shares on which a sales charge was paid are
reinvested in shares of the Fund or another of the OppenheimerFunds within
90 days of payment of the sales charge, the shareholder's basis in the
shares of the Fund that were redeemed may not include the amount of the
sales charge paid. That would reduce the loss or increase the gain
recognized from the redemption. However, in that case the sales charge
would be added to the basis of the shares acquired by the reinvestment of
the redemption proceeds. The Fund may amend, suspend or cease offering
this reinvestment privilege at any time as to shares redeemed after the
date of such amendment, suspension or cessation.
Transfers of Shares. Shares are not subject to the payment of a
contingent deferred sales charge of either class at the time of transfer
to the name of another person or entity (whether the transfer occurs by
absolute assignment, gift or bequest, not involving, directly or
indirectly, a public sale). The transferred shares will remain subject
to the contingent deferred sales charge, calculated as if the transferee
shareholder had acquired the transferred shares in the same manner and at
the same time as the transferring shareholder. If less than all shares
held in an account are transferred, and some but not all shares in the
account would be subject to a contingent deferred sales charge if redeemed
at the time of transfer, the priorities described in the Prospectus under
"How to Buy Shares" for the imposition of the Class B contingent deferred
sales charge will be followed in determining the order in which shares are
transferred.
Special Arrangements for Repurchase of Shares from Dealers and Brokers.
The Distributor is the Fund's agent to repurchase its shares from
authorized dealers or brokers. The repurchase price will be the net asset
value next computed after the receipt of an order placed by such dealer
or broker, except that orders received from dealers or brokers after 4:00
P.M. on a regular business day will be processed at that day's net asset
value if such orders were received by the dealer or broker from its
customers prior to 4:00 P.M., and were transmitted to and received by the
Distributor prior to its close of business that day (normally 5:00 P.M.).
Payment ordinarily will be made within seven days after the Distributor's
receipt of the required documents, with signature(s) guaranteed as
described in the Prospectus.
Automatic Withdrawal and Exchange Plans. Investors owning shares of the
Fund valued at $5,000 or more can authorize the Transfer Agent to redeem
shares (minimum $50) automatically on a monthly, quarterly, semi-annual
or annual basis under an Automatic Withdrawal Plan. Shares will be
redeemed three business days prior to the date requested by the
shareholder for receipt of the payment. Automatic withdrawals of up to
$1,500 per month may be requested by telephone if payments are by check
payable to all shareholders of record and sent to the address of record
for the account (and if the address has not been changed within the prior
30 days). Required minimum distributions from OppenheimerFunds-sponsored
retirement plans may not be arranged on this basis. Payments are normally
made by check, but shareholders having AccountLink privileges (see "How
To Buy Shares") may arrange to have Automatic Withdrawal Plan payments
transferred to the bank account designated on the OppenheimerFunds New
Account Application or signature-guaranteed instructions. The Fund cannot
guarantee receipt of the payment on the date requested and reserves the
right to amend, suspend or discontinue offering such plans at any time
without prior notice. Because of the sales charge assessed on Class A
share purchases, shareholders should not make regular additional Class A
purchases while participating in an Automatic Withdrawal Plan. Class B
shareholders should not establish withdrawal plans, because of the
imposition of the Class B contingent deferred sales charge on such
withdrawals (except where the Class B contingent deferred sales charge is
waived as described in "Class B Contingent Deferred Sales Charge").
By requesting an Automatic Withdrawal or Exchange Plan, the
shareholder agrees to the terms and conditions applicable to such plans,
as stated below and in the provisions of the OppenheimerFunds Application
relating to such Plans, as well as the Prospectus. These provisions may
be amended from time to time by the Fund and/or the Distributor. When
adopted, such amendments will automatically apply to existing Plans.
-- Automatic Exchange Plans. Shareholders can authorize the Transfer
Agent (on the OppenheimerFunds Application or signature-guaranteed
instructions) to exchange a pre-determined amount of shares of the Fund
for shares (of the same class) of other OppenheimerFunds automatically on
a monthly, quarterly, semi-annual or annual basis under an Automatic
Exchange Plan. The minimum amount that may be exchanged to each other
fund account is $25. Exchanges made under these plans are subject to the
restrictions that apply to exchanges as set forth in "Exchange Privilege"
in the Prospectus and "How to Exchange Shares" below in this Statement of
Additional Information.
-- Automatic Withdrawal Plans. Fund shares will be redeemed as
necessary to meet withdrawal payments. Shares acquired without a sales
charge will be redeemed first and thereafter shares acquired with
reinvested dividends and capital gains distributions will be redeemed
next, followed by shares acquired with a sales charge, to the extent
necessary to make withdrawal payments. Depending upon the amount
withdrawn, the investor's principal may be depleted. Payments made under
such plans should not be considered as a yield or income on your
investment.
The transfer agent will administer the investor's Automatic
Withdrawal Plan (the "Plan") as agent for the investor (the "Planholder")
who executed the Plan authorization and application submitted to the
Transfer Agent. The Transfer Agent shall incur no liability to the
Planholder for any action taken or omitted by the Transfer Agent in good
faith to administer the Plan. Certificates will not be issued for shares
of the Fund purchased for and held under the Plan, but the Transfer Agent
will credit all such shares to the account of the Planholder on the
records of the Fund. Any share certificates held by a Planholder may be
surrendered unendorsed to the Transfer Agent with the Plan application so
that the shares represented by the certificate may be held under the Plan.
For accounts subject to Automatic Withdrawal Plans, distributions of
capital gains must be reinvested in shares of the Fund, which will be done
at net asset value without a sales charge. Dividends on shares held in
the account may be paid in cash or reinvested.
Redemptions of shares needed to make withdrawal payments will be made
at the net asset value per share determined on the redemption date.
Checks or AccountLink payments of the proceeds of Plan withdrawals will
normally be transmitted three business days prior to the date selected for
receipt of the payment (receipt of payment on the date selected cannot be
guaranteed), according to the choice specified in writing by the
Planholder.
The amount and the interval of disbursement payments and the address
to which checks are to be mailed or AccountLink payments are to be sent
may be changed at any time by the Planholder by writing to the Transfer
Agent. The Planholder should allow at least two weeks' time in mailing
such notification for the requested change to be put in effect. The
Planholder may, at any time, instruct the Transfer Agent by written notice
(in proper form in accordance with the requirements of the then-current
Prospectus of the Fund) to redeem all, or any part of, the shares held
under the Plan. In that case, the Transfer Agent will redeem the number
of shares requested at the net asset value per share in effect in
accordance with the Fund's usual redemption procedures and will mail a
check for the proceeds to the Planholder.
The Plan may be terminated at any time by the Planholder by writing
to the Transfer Agent. A Plan may also be terminated at any time by the
Transfer Agent upon receiving directions to that effect from the Fund.
The Transfer Agent will also terminate a Plan upon receipt of evidence
satisfactory to it of the death or legal incapacity of the Planholder.
Upon termination of a Plan by the Transfer Agent or the Fund, shares that
have not been redeemed from the account will be held in uncertificated
form in the name of the Planholder, and the account will continue as a
dividend-reinvestment, uncertificated account unless and until proper
instructions are received from the Planholder or his or her executor or
guardian, or other authorized person.
To use shares held under the Plan as collateral for a debt, the
Planholder may request issuance of a portion of the shares in certificated
form. Upon written request from the Planholder, the Transfer Agent will
determine the number of shares for which a certificate may be issued
without causing the withdrawal checks to stop because of exhaustion of
uncertificated shares needed to continue payments. However, should such
uncertificated shares become exhausted, Plan withdrawals will terminate.
If the Transfer Agent ceases to act as transfer agent for the Fund,
the Planholder will be deemed to have appointed any successor transfer
agent to act as agent in administering the Plan.
How to Exchange Shares
As stated in the Prospectus, shares of a particular class of
OppenheimerFunds having more than one class of shares may be exchanged
only for shares of the same class of other OppenheimerFunds. All of the
OppenheimerFunds offer Class A shares, but only the following other
OppenheimerFunds offer Class B shares:
Oppenheimer Strategic Income & Growth Fund
Oppenheimer Strategic Investment Grade Bond Fund
Oppenheimer Strategic Short-Term Income Fund
Oppenheimer New York Tax-Exempt Fund
Oppenheimer Tax-Free Bond Fund
Oppenheimer California Tax-Exempt Fund
Oppenheimer Pennsylvania Tax-Exempt Fund
Oppenheimer Florida Tax-Exempt Fund
Oppenheimer Insured Tax-Exempt Bond Fund
Oppenheimer Main Street California Tax-Exempt Fund
Oppenheimer Total Return Fund, Inc.
Oppenheimer Investment Grade Bond Fund
Oppenheimer Value Stock Fund
Oppenheimer Government Securities Fund
Oppenheimer High Yield Fund
Oppenheimer Mortgage Income Fund
Oppenheimer Cash Reserves (Class B shares are only
available by exchange)
Oppenheimer Special Fund
Oppenheimer Equity Income Fund
Oppenheimer Global Fund
Oppenheimer Discovery Fund
Class A shares of OppenheimerFunds may be exchanged for shares of any
Money Market Fund; shares of any Money Market Fund purchased without a
sales charge may be exchanged for shares of OppenheimerFunds offered with
a sales charge upon payment of the sales charge (or, if applicable, may
be used to purchase shares of OppenheimerFunds subject to a contingent
deferred sales charge); and shares of this Fund acquired by reinvestment
of dividends or distributions from any other of the OppenheimerFunds or
from any unit investment trust for which reinvestment arrangements have
been made with the Distributor may be exchanged at net asset value for
shares of any of the OppenheimerFunds. No contingent deferred sales
charge is imposed on exchanges of shares of either class purchased subject
to a contingent deferred sales charge. However, when Class A shares
acquired by exchange of Class A shares purchased subject to a Class A
contingent deferred sales charge are redeemed within 18 months of the end
of the calendar month of the initial purchase of the exchanged Class A
shares, the Class A contingent deferred sales charge is imposed on the
redeemed shares (see "Class A Contingent Deferred Sales Charge" in the
Prospectus), and the Class B contingent deferred sales charge is imposed
on Class B shares redeemed within six years of the initial purchase of the
exchanged Class B shares.
The Fund reserves the right to reject telephone or written exchange
requests submitted in bulk by anyone on behalf of 10 or more accounts. The
Fund may accept requests for exchanges of up to 50 accounts per day from
representatives of authorized dealers that qualify for this privilege. In
connection with any exchange request, the number of shares exchanged may
be less than the number requested if the exchange or the number requested
would include shares subject to a restriction cited in the Prospectus or
this Statement of Additional Information or shares covered by a share
certificate that is not tendered with the request. In those cases, only
the shares available for exchange without restriction will be exchanged.
When Class B shares are redeemed to effect an exchange, the
priorities described in "How To Buy Shares" in the Prospectus for the
imposition of the Class B contingent deferred sales charge will be
followed in determining the order in which the shares are exchanged.
Shareholders should take into account the effect of any exchange on the
applicability and rate of any contingent deferred sales charge that might
be imposed in the subsequent redemption of remaining shares. Shareholders
owning shares of both classes must specify whether they intend to exchange
Class A or Class B shares.
When exchanging shares by telephone, the shareholder must either have
an existing account in, or acknowledge receipt of a prospectus of, the
fund to which the exchange is to be made. For full or partial exchanges
of an account made by telephone, any special account features such as
Asset Builder Plans, Automatic Withdrawal Plans and retirement plan
contributions will be switched to the new account unless the Transfer
Agent is instructed otherwise. If all telephone lines are busy (which
might occur, for example, during periods of substantial market
fluctuations), shareholders might not be able to request exchanges by
telephone and would have to submit written exchange requests.
Shares to be exchanged are redeemed on the regular business day the
Transfer Agent receives an exchange request in proper form (the
"Redemption Date"). Normally, shares of the fund to be acquired are
purchased on the Redemption Date, but such purchases may be delayed by
either fund up to five business days if it determines that it would be
disadvantaged by an immediate transfer of the redemption proceeds. The
Fund reserves the right, in its discretion, to refuse any exchange request
that may disadvantage it (for example, if the receipt of multiple exchange
requests from a dealer might require the disposition of portfolio
securities at a time or at a price that might be disadvantageous to the
Fund).
The different OppenheimerFunds available for exchange have different
investment objectives, policies and risks, and a shareholder should assure
that the Fund selected is appropriate for his or her investment and should
be aware of the tax consequences of an exchange. For federal 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
transaction.
Dividends, Capital Gains and Taxes
Dividends and Distributions Dividends will be payable on shares held of
record at the time of the previous determination of net asset value, or
as otherwise described in "How to Buy Shares." An investor purchasing
shares immediately prior to the declaration of a capital gins
distribution, which has the effect of reducing the Fund's net asset value
per share by the amount of the distribution, should consider the tax
consequences of receiving such distribution. Daily dividends on newly
purchased shares will not be declared or paid until such time as Federal
Funds (funds credited to a member bank's account at the Federal Reserve
Bank) are available from the purchase payment for such shares. Normally,
purchase checks received from investors are converted to Federal Funds on
the next business day. Dividends will be declared on shares repurchased
by a dealer or broker for four business days following the trade date
(i.e., to and including the day prior to settlement of the repurchase).
If all shares in an account are redeemed, all dividends accrued on shares
of the same class in the account will be paid together with the redemption
proceeds.
Dividends, distributions and the proceeds of the redemption of Fund
shares represented by checks returned to the Transfer Agent by the Postal
Service as undeliverable will be invested in shares of Oppenheimer Money
Market Fund, Inc., as promptly as possible after the return of such checks
to the Transfer Agent, to enable the investor to earn a return on
otherwise idle funds.
The amount of a class's distributions may vary from time to time
depending on market conditions, the composition of the Fund's portfolio,
and expenses borne by the Fund or borne separately by a class, as
described in "Alternative Sales Arrangements -- Class A and Class B
Shares," above. Dividends are calculated in the same manner, at the same
time and on the same day for shares of each class. However, dividends on
Class B shares are expected to be lower as a result of the asset-based
sales charge on Class B shares, and Class B dividends will also differ in
amount as a consequence of any difference in net asset value between Class
A and Class B shares.
Distributions may be made annually in December out of any net short-
term or long-term capital gains realized from the sale of securities,
premiums from expired calls written by the Fund and net profits from
Hedging Instruments and closing purchase transactions realized in the
twelve months ending on October 31 of the current year. Any difference
between the net asset value of Class A and Class B shares will be
reflected in such distributions. Distributions from net short-term
capital gains are taxable to shareholders as ordinary income and when paid
by the Fund are considered "dividends." The Fund may make a supplemental
distribution of capital gains and ordinary income following the end of its
fiscal year. Long-term capital gains distributions, if any, are taxable
as long-term capital gains whether received in cash or reinvested and
regardless of how long Fund shares have been held. There is no fixed
dividend rate (although the Fund may have a targeted dividend rate for
Class A shares) and there can be no assurance as to the payment of any
dividends or the realization of any capital gains.
Tax Status of the Fund's Dividends and Distributions. The Fund intends
to qualify under the Internal Revenue Code during each fiscal year to pay
"exempt-interest dividends" to its shareholders. Exempt-interest
dividends which are derived from net investment income earned by the Fund
on Municipal Securities will be excludable from gross income of
shareholders for Federal income tax purposes. Net investment income
includes the allocation of amounts of income from the Municipal Securities
in the fund's portfolio which are free from Federal income taxes. This
allocation will be made by the use of one designated percentage applied
uniformly to all income dividends made during the Fund's tax year. Such
designation will normally be made following the end of each fiscal year
as to income dividends paid in the prior year. The percentage of income
dividends paid in the prior year. The percentage of income designated as
tax-exempt may substantially differ from the percentage of the Fund's
income that was tax-exempt for a given period. A portion of the exempt-
interest dividends paid by the Fund may be an item of tax preference for
shareholders subject to the alternative minimum tax. All of the fund's
dividends (excluding capital gains distributions) paid during 1993 were
exempt from Federal income taxes. The amount of any dividends
attributable to tax preference items for purposes of the alternative
minimum tax will be identified when tax information is distributed by the
Fund. ____% of the Fund's dividends (excluding distributions) paid during
1993 were a tax preference item for shareholders subject to alternative
minimum tax.
A shareholder receiving a dividend from income earned by the Fund
from one or more of: (1) certain taxable temporary investments (such as
certificates of deposit, repurchase agreements, commercial paper and
obligations of the U.S. government, its agencies and instrumentalities);
(2) income from securities loans; (3) income or gains from options or
Futures; or (4) an excess of net short-term capital gain over net long-
term capital loss from the Fund, treats the dividend as a receipt of
either ordinary income or long-term capital gain in the computation of
gross income, regardless of whether the dividend is reinvested. The
Fund's dividends will not be eligible for the dividends-received deduction
for corporations. Shareholders receiving Social Security benefits should
be aware that exempt-interest dividends are a factor in determining
whether such benefits are subject to Federal income tax. Losses realized
by shareholders on the redemption of Fund shares within six months of
purchase (which period may be shortened by regulation) will be disallowed
for Federal income tax purposes to the extent of exempt-interest dividends
received on such shares.
If the Fund qualifies as a "regulated investment company" under the
Internal Revenue Code, it will not be liable for Federal income taxes on
amounts paid by it as dividends and distributions. The Fund qualified as
a regulated investment company in its last fiscal year and intends to
qualify in future years, but reserves the right not to qualify. The
Internal Revenue Code contains a number of complex tests to determine
whether the Fund will qualify, and the Fund might not meet those tests in
a particular year. In order to qualify as a "regulated investment
company," at the end of each quarter of its taxable year, at least 50% of
the aggregate value of the Fund's total assets must consist of cash, cash
items, government securities and other securities, limited with respect
to each issuer at the time of purchase to not more than 5% of the Fund's
total assets. If it does not qualify, the Fund will be treated for tax
purposes as an ordinary corporation and will receive no tax deduction for
payments of dividends and distributions made to shareholders.
Under the Internal Revenue Code, by December 31 each year, 98% of the
Fund's taxable investment income earned from January 1 through December 31
of that year and 98% of its capital gains realized in the period from the
prior November 1 of the prior year through October 31 of that year, or
else the Fund must pay an excise tax on the amounts not distributed. The
Manager might determine that in a particular year it would be in the best
interests of the shareholders not to make such distributions at the
required levels and to pay the excise tax on the undistributed amounts,
which would reduce the amount available for distribution to shareholders.
The Internal Revenue Code requires that a holder (such as the Fund)
of a zero coupon security accrue as income each year a portion of the
discount at which the security was purchased 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 or be subject to excise taxes, as described
above. Accordingly, when the Fund holds zero coupon securities, it 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 during that year. Such distributions will be made from the cash
assets of the Fund or by liquidation of portfolio securities, if
necessary. The Fund may realize a gain or loss from such sales. In the
event the Fund realizes net capital gains from such transactions, its
shareholders may receive a larger capital gain distribution than they
would have had in the absence of such transactions.
Dividend Reinvestment in Another Fund. Shareholders of the Fund may elect
to reinvest all dividends and/or capital gains distributions in shares of
the same class of any of the other OppenheimerFunds listed in "Reduced
Sales Charges," above, at net asset value without sales charge. Class B
shareholders should be aware that as of the date of this Statement of
Additional Information, not all of the OppenheimerFunds offer Class B
shares. The names of the funds that do as of the date of this document
can be obtained by referring to "How To Exchange Shares," above or by
calling the Distributor at 1-800-525-7048. To elect this option, a
shareholder must notify the Transfer Agent in writing and either have an
existing account in the fund selected for reinvestment or must obtain a
prospectus for that fund and an application from the Distributor to
establish an account. The investment will be made at the net asset value
per share in effect at the close of business on the payable date of the
dividend or distribution. Dividends and/or distributions from certain of
the OppenheimerFunds may be invested in shares of this Fund on the same
basis.
Additional Information About the Fund
The Custodian. Citibank, N.A. is the Custodian of the Fund's assets. The
Custodian's responsibilities include safeguarding and controlling the
Fund's portfolio securities, collecting income on the portfolio securities
and handling the delivery of such securities to and from the Fund. The
Manager has represented to the Fund that the banking relationships between
the Manager and the Custodian have been and will continue to be unrelated
to and unaffected by the relationship between the Fund and the Custodian.
It will be the practice of the Fund to deal with the Custodian in a manner
uninfluenced by any banking relationship the Custodian may have with the
Manager and its affiliates.
Independent Auditors. The independent auditors of the Fund audit the
Fund's financial statements and perform other related audit services.
They also act as auditors for certain other funds advised by the Manager
and its affiliates.
<PAGE>
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INDEPENDENT AUDITORS' REPORT
- -------------------------------------------------------------------------------
The Board of Trustees and Shareholders of
Oppenheimer Tax-Free Bond Fund:
We have audited the accompanying statements of
investments and assets and liabilities of
Openheimer Tax-Free Bond Fund as of
December 31, 1993, and the related statement of
operations for the year then ended, the
statements of changes in net assets for each of
the years in the two-year period then ended and
the financial highlights for each of the years
in the ten-year period then ended. These
financial statements and financial highlights
are the responsibility of the Fund's management.
Our responsibility is to express an opinion on
these financial statements and financial
highlights based on our audits.
We conducted our audits in accordance
with generally accepted auditing standards.
Those standards require that we plan and perform
the audit to obtain reasonable assurance about
whether the financial statements and financial
highlights are free of material misstatement. An
audit includes examining, on a test basis,
evidence supporting the amounts and disclosures
in the financial statements and financial
highlights. Our procedures included confirmation
of securities owned as of December 31, 1993, by
correspondence with the custodian and brokers;
and where confirmations were not received from
brokers, we performed other auditing procedures.
An audit also includes assessing the accounting
principles used and significant estimates made
by management, as well as evaluating the overall
financial statement presentation. We believe
that our audits provide a reasonable basis for
our opinion.
In our opinion, the financial statements
and financial highlights referred to above
present fairly, in all material respects, the
financial position of Oppenheimer Tax-Free Bond
Fund as of December 31, 1993, the results of its
operations for the year then ended, the changes
in its net assets for each of the years in the
two-year period then ended, and the financial
highlights for each of the years in the ten-year
period then ended, in conformity with generally
accepted accounting principles.
/s/ KPMG Peat Marwick
---------------------
KPMG PEAT MARWICK
Denver, Colorado
January 21, 1994
<PAGE>
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------
STATEMENT OF INVESTMENTS December 31, 1993
RATINGS:
MOODY'S/
S&P'S/FITCH'S FACE MARKET VALUE
(UNAUDITED) AMOUNT SEE NOTE 1
<C> <S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
MUNICIPAL BONDS AND NOTES--98.5%
- -----------------------------------------------------------------------------------------------------------------------------------
ARIZONA--0.3% Central Arizona Irrigation and Drain District General
Obligation Refunding Bonds, 7%, 6/1/98 NR/B $ 1,630,000 $ 1,616,489
- -----------------------------------------------------------------------------------------------------------------------------------
CALIFORNIA--5.5% California Health Facilities Financing Authority
Revenue Bonds:
Episcopal Homes Project, Series A, California
Mortgage Insured, 7.80%, 7/1/15 NR/A+ 1,000,000 1,145,484
Unihealth America Project, Series A, AMBAC Insured:
Prerefunded, 7.625%, 10/1/15 Aaa/AAA 1,160,000 1,362,135
7.625%, 10/1/15 Aaa/AAA 65,000 75,426
---------------------------------------------------------------------------------------------------
Los Angeles, California Department of Water and
Power Electric Plant Revenue Refunding Bonds,
5.375%, 9/1/23 Aa/AA 11,000,000 10,854,469
---------------------------------------------------------------------------------------------------
Paramount, California Redevelopment Agency Tax
Allocation Revenue Refunding Bonds,
Redevelopment Project No. 1, Series A, 9.65%, 6/1/16 NR/AAA/BBB 2,295,000 2,545,049
---------------------------------------------------------------------------------------------------
Redding, California Electric System Revenue
Certificates of Participation, Registered Residual
Interest Certificates, FGIC Insured, 8.348%, 6/1/19(1) Aaa/AAA/AAA 6,000,000 6,193,032
---------------------------------------------------------------------------------------------------
San Joaquin Hills, California Transportation
Corridor Agency Toll Road Revenue Bonds,
Sr. Lien, 6.75%, 1/1/32 NR/NR/BBB 12,700,000 13,107,973
-----------
35,283,568
- -----------------------------------------------------------------------------------------------------------------------------------
COLORADO--1.3% Colorado Health Facilities Authority Revenue Bonds:
Kaiser Permanente Medical Care Project:
9%, 8/1/03 NR/AA 1,000,000 1,107,098
9.125%, 8/1/15 NR/AA 2,000,000 2,217,870
Rocky Mountain Adventist Health System,
6.625%, 2/1/22 Baa/BBB 5,000,000 5,166,199
-----------
8,491,167
- -----------------------------------------------------------------------------------------------------------------------------------
DELAWARE--2.9% Delaware Transportation Authority Transportation
System Senior Revenue Bonds, 5.50%, 7/1/16 A1/AA- 18,440,000 18,575,090
- -----------------------------------------------------------------------------------------------------------------------------------
FLORIDA--3.9% Broward County, Florida Resource Recovery
Revenue Bonds:
Broward Waste Energy-LP North Project, 7.95%, 12/1/08 A/A- 2,500,000 2,865,505
Ses Broward Co. LP South Project, 7.95%, 12/1/08 A/A 6,605,000 7,559,785
---------------------------------------------------------------------------------------------------
Florida State Board of Education Capital Outlay
Public Education Unlimited Refunding Bonds:
Series A, 7.25%, 6/1/23 Aa/AA 3,240,000 3,725,442
Series D, 5.125%, 6/1/18 Aa/AA/AA 10,000,000 9,781,399
8.40%, 6/1/07 Aa/AA 750,000 970,331
-----------
24,902,462
- -----------------------------------------------------------------------------------------------------------------------------------
GEORGIA--1.9% Georgia State Municipal Electric Authority:
Revenue Bonds, Prerefunded, 7.875%, 1/1/06 A1/AA- 1,000,000 1,101,639
Special Obligation Bonds, Fifth Crossover Series
Project One, 6.50%, 1/1/17 A1/AA- 9,750,000 11,181,124
-----------
12,282,763
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------
RATINGS:
MOODY'S/
S&P'S/FITCH'S FACE MARKET VALUE
(UNAUDITED) AMOUNT SEE NOTE 1
<C> <S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
ILLINOIS--0.2% Regional Transportation Authority Illinois Revenue
Bonds, Series A, AMBAC Insured, 7.20%, 11/1/20 Aaa/AAA $ 1,000,000 $ 1,263,519
- -----------------------------------------------------------------------------------------------------------------------------------
INDIANA--1.0% Indiana Health Facilities Financing Authority
Hospital Revenue Bonds, CGIC Insured, 5.50%, 8/15/22 Aaa/AAA 5,500,000 5,468,215
---------------------------------------------------------------------------------------------------
Indianapolis, Indiana Airport Authority Revenue
Bonds, 9%, 7/1/15 A1/A 1,000,000 1,095,476
-----------
6,563,691
- -----------------------------------------------------------------------------------------------------------------------------------
KANSAS--2.8% Kansas State Department of Transportation Highway
Revenue Refunding Bonds, Series 1993A, 5.375%, 3/1/12 Aa/AA/AA 17,500,000 17,630,232
- -----------------------------------------------------------------------------------------------------------------------------------
KENTUCKY--1.5% Kentucky State Turnpike Authority Toll Road Revenue
Bonds, Series A, 8.50%, 7/1/04 A/A 3,010,000 3,336,482
---------------------------------------------------------------------------------------------------
Louisville, Kentucky Hospital Revenue Bonds,
Alliant Health System, Inc. Project, MBIA Insured,
10.261%, 10/1/14(1) Aaa/AAA 5,000,000 6,017,454
-----------
9,353,936
- -----------------------------------------------------------------------------------------------------------------------------------
LOUISIANA--1.6% New Orleans, Louisiana Home Mortgage Authority
Special Obligation Refunding Bonds, Escrowed to
Maturity, 6.25%, 1/15/11 Aaa/AAA 9,500,000 10,572,426
- -----------------------------------------------------------------------------------------------------------------------------------
MARYLAND--0.1% Baltimore County, Maryland Mortgage Revenue Bonds,
Loch Raven Village Apartments, GNMA Collateralized,
10.10%, 11/20/20 NR/AAA 500,000 526,761
- -----------------------------------------------------------------------------------------------------------------------------------
MASSACHUSETTS--12.2% Massachusetts Bay Transportation Authority
Transportation System:
Revenue Bonds, Series C, 6.10%, 3/1/23 A/A+/A+ 7,300,000 7,625,405
Revenue Refunding Bonds:
General Transportation Systems, Series A, 5.50%, 3/1/12 A/A+/A+ 12,000,000 12,109,103
Series B, 5.50%, 3/1/21 A/A+/A+ 9,250,000 9,223,351
---------------------------------------------------------------------------------------------------
Massachusetts Municipal Wholesale Electric Co. Power
Supply Systems Revenue Bonds, Series B, 6.75%, 7/1/17 Baa1/BBB+/A- 10,000,000 10,972,969
---------------------------------------------------------------------------------------------------
Massachusetts State General Obligation Refunding
Bonds, Series A, 5.50%, 2/1/11 A/A+/A+ 20,000,000 20,465,799
---------------------------------------------------------------------------------------------------
Massachusetts State Health and Educational
Facilities Authority Revenue Bonds, Baystate
Medical Center, Series C, Prerefunded, 7.50%, 7/1/20 A1/A+ 2,500,000 2,948,720
---------------------------------------------------------------------------------------------------
Massachusetts State Housing Finance Agency
Revenue Bonds, Multifamily Mortgage, GNMA
Collateralized, Series A, FHA Insured, 9.125%, 12/1/20 Aaa/AAA 975,000 1,083,599
---------------------------------------------------------------------------------------------------
Massachusetts State Water Resource Authority Revenue
Bonds, Series A, 6.50%, 7/15/19 A/A/A 12,225,000 13,854,751
-----------
78,283,697
- -----------------------------------------------------------------------------------------------------------------------------------
MICHIGAN--7.6% Detroit, Michigan Sewage Disposal System Revenue
Bonds, FGIC Insured, 8.379%, 7/1/23(1) Aaa/AAA/AAA 13,200,000 13,694,708
---------------------------------------------------------------------------------------------------
Detroit, Michigan Water Supply System Revenue Bonds,
FGIC Insured, Prerefunded, 9.864%, 7/1/22(1) Aaa/AAA 5,200,000 6,449,351
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------
STATEMENT OF INVESTMENTS (Continued)
RATINGS:
MOODY'S/
S&P'S/FITCH'S FACE MARKET VALUE
(UNAUDITED) AMOUNT SEE NOTE 1
<C> <S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
MICHIGAN (CONTINUED)
Greater Detroit Resource Recovery Authority, Michigan
Revenue Bonds:
Series A, 9.25%, 12/13/08 NR/BBB- $ 1,500,000 $ 1,638,093
Series H, 9.25%, 12/13/08 NR/BBB- 500,000 546,031
---------------------------------------------------------------------------------------------------
Michigan State Building Authority Revenue Refunding
Bonds, Series I, 6.25%, 10/1/20 A/AA-/AA- 16,050,000 17,235,661
---------------------------------------------------------------------------------------------------
Michigan State Hospital Finance Authority Revenue
Refunding Bonds:
FSA Insured, 10.012%, 2/15/22(1) Aaa/AAA 5,000,000 5,628,069
Sisters of Mercy Hospital, Series H, MBIA Insured,
7.50%, 8/15/13 Aaa/AAA 1,000,000 1,132,650
---------------------------------------------------------------------------------------------------
Royal Oak, Michigan Hospital Finance Authority
Revenue Bonds, William Beaumont Hospital, Series C,
Prerefunded, 7.375%, 1/1/20 Aa/AA 2,000,000 2,322,654
-----------
48,647,217
- -----------------------------------------------------------------------------------------------------------------------------------
MISSOURI--0.2% Missouri State Environmental Improvement and Energy
Resource Authority Pollution Control Revenue Bonds,
Associates Electric 84 G-4, 8.25%, 11/15/14 Aa3/A+ 1,410,000 1,567,694
- -----------------------------------------------------------------------------------------------------------------------------------
NEW JERSEY--1.2% Bergen County, New Jersey Utilities Authority Water
Pollution Control Revenue Bonds, Series A, FGIC
Insured, 6.50%, 12/15/12 Aaa/AAA/AAA 6,000,000 6,671,274
---------------------------------------------------------------------------------------------------
New Jersey State Housing and Mortgage Finance
Agency Multifamily Housing Revenue Bonds, Series C,
9.75%, 11/1/27 NR/A+ 1,000,000 1,093,159
-----------
7,764,433
- -----------------------------------------------------------------------------------------------------------------------------------
NEW MEXICO--0.2% Albuquerque, New Mexico Gross Receipts Tax Revenue
Bonds, Various Airport Sub-Tendered, 8.25%, 7/1/14 A1/AA 1,000,000 1,092,645
- -----------------------------------------------------------------------------------------------------------------------------------
NEW YORK--9.6% City of New York General Obligation Bonds:
Series A, 7.75%, 8/15/16 Baa1/A- 2,500,000 2,932,477
Series D, 8%, 8/1/15 Baa1/A- 11,000,000 13,089,725
7.946%, 8/1/15(1) Baa1/A- 3,050,000 3,013,714
---------------------------------------------------------------------------------------------------
Dormitory Authority of the State of New York State
University Educational Facilities Revenue Bonds:
City University, Series A, Prerefunded, 7.625%, 7/1/20 Baa1/BBB 4,500,000 5,422,365
Series A, Prerefunded, 6.75%, 5/15/18 Baa1/BBB+ 10,415,000 11,707,418
---------------------------------------------------------------------------------------------------
Municipal Assistance Corp. for the City of New York
Revenue Bonds, Series 58, 7.375%, 7/1/08 Aa/AA-/AA 2,500,000 2,752,665
---------------------------------------------------------------------------------------------------
New York State Housing Finance Agency
Revenue Bonds, New York City Health Facility,
Series A, 7.90%, 11/1/99 Baa/A- 7,000,000 8,026,878
---------------------------------------------------------------------------------------------------
New York State Mortgage Agency Revenue Bonds,
Ninth Series B, 8.30%, 10/1/17 Aa/NR 1,980,000 2,111,395
---------------------------------------------------------------------------------------------------
New York State Power Authority Revenue Bonds,
Series V, 7.875%, 1/1/07 Aa/AA- 3,000,000 3,448,746
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------
RATINGS:
MOODY'S/
S&P'S/FITCH'S FACE MARKET VALUE
(UNAUDITED) AMOUNT SEE NOTE 1
<C> <S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
NEW YORK (CONTINUED) Port Authority of New York and New Jersey
Consolidated Bonds:
Interest Certificates, Series Fifty-One E, 5%, 6/1/94 A1/NR $ 1,100,000 $ 233,200
Series Fifty-One E, 7%, 12/1/18 A1/NR 2,000,000 2,114,606
---------------------------------------------------------------------------------------------------
Suffolk County, New York General Obligation
Refunding Bonds, Southwest Sewer District, Series B,
Escrowed to Maturity, 22.875%, 2/1/95 NR/AAA 1,075,000 1,294,243
---------------------------------------------------------------------------------------------------
United Nations Development Corp. of New York Revenue
Refunding Bonds, Sr. Lien, Series A, 6%, 7/1/26 A/NR/A+ 5,210,000 5,457,016
-----------
61,604,448
- -----------------------------------------------------------------------------------------------------------------------------------
NORTH CAROLINA--0.8% North Carolina Municipal Power Agency Revenue
Refunding Bonds, No. 1 Catawba Electric, 6.25%, 1/1/17 A/A/A 5,000,000 5,327,699
- -----------------------------------------------------------------------------------------------------------------------------------
OHIO--2.8% Franklin County, Ohio Hospital Revenue Refunding
Bonds, Riverside United Methodist, Series A,
5.75%, 5/15/20 Aa/NR 10,000,000 10,259,610
---------------------------------------------------------------------------------------------------
Ohio Housing Finance Agency Single Family Mortgage
Regular Residual Interest Revenue Bonds, GNMA
Mortgage-Backed Security, Series B, 10.906%, 3/1/31(1) Aaa/AAA 5,900,000 6,764,343
---------------------------------------------------------------------------------------------------
Ohio State Higher Educational Facility Revenue Bonds,
Commission Case Western Reserve University, Series B,
6.50%, 10/1/20 Aa/AA- 750,000 873,053
-----------
17,897,006
- -----------------------------------------------------------------------------------------------------------------------------------
PENNSYLVANIA--6.8% Delaware County, Pennsylvania Industrial Development
Authority Revenue Refunding Bonds, Resource
Recovery Project, Series A, 8.10%, 12/1/13 NR/A+ 5,890,000 6,536,521
---------------------------------------------------------------------------------------------------
Pennsylvania State General Obligation Refunding
Bonds, First Series, 5%, 4/15/13 A1/AA-/AA- 9,165,000 8,910,121
---------------------------------------------------------------------------------------------------
Pennsylvania State Higher Education Assistance
Agency Student Loan Residual Interest Revenue
Bonds, Series 1992B, AMBAC Insured, 9.172%, 3/1/22(1) Aaa/AAA 17,500,000 18,648,961
---------------------------------------------------------------------------------------------------
Pennsylvania State Industrial Development Authority
Economic Development Revenue Bonds, Series A,
7%, 1/1/11 A/A-/A 2,000,000 2,210,280
---------------------------------------------------------------------------------------------------
Philadelphia, Pennsylvania Gas Works Revenue Bonds,
14th Series, 6.375%, 7/1/26 Baa1/BBB/A- 3,200,000 3,348,800
---------------------------------------------------------------------------------------------------
Philadelphia, Pennsylvania Hospitals and Higher
Educational Facilities Authority Hospital Revenue Bonds,
Temple University Hospital, Series A, 6.625%, 11/15/23 Baa1/BBB+ 2,200,000 2,337,524
---------------------------------------------------------------------------------------------------
Philadelphia, Pennsylvania Municipal Authority Justice
Lease Revenue Bonds, Series B, FGIC Insured,
Prerefunded, 7.125%, 11/15/18 Aaa/AAA/AAA 1,255,000 1,502,564
-----------
43,494,771
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------
Statement of Investments (Continued)
RATINGS:
MOODY'S/
S&P's/FITCH'S FACE MARKET VALUE
FACE AMOUNT SEE NOTE 1
(UNAUDITED)
<C> <S> <C> <C> <C>
-----------------------------------------------------------------------------------------------------------------------------------
SOUTH CAROLINA--3.4% South Carolina State Public Service Authority:
Revenue Bonds, Santee Cooper, Series D, AMBAC
Insured, 6.50%, 7/1/24 Aaa/AAA/A+ $10,000,000 $11,576,320
Revenue Refunding Bonds, Series A, MBIA Insured,
5.50%, 7/1/21 Aaa/AAA/A+ 10,200,000 10,258,558
-----------
21,834,878
-----------
- ----------------------------------------------------------------------------------------------------------------------------------
TEXAS--21.7% Alliance Airport Authority, Inc., Texas Special Facility
Revenue Bonds, American Airlines, Inc. Project:
7%, 12/1/11 Baa2/BB+ 3,000,000 3,322,977
7.50%, 12/1/29 Baa2/BB+ 12,500,000 13,522,224
-------------------------------------------------------------------------------------------------
Brazos River Authority, Texas:
Pollution Control Revenue Collateral Bonds, Texas
Utilities Electric Co. Project, Series A, 8.25%, 1/1/19 Baa2/BBB/BBB 1,500,000 1,730,275
Revenue Refunding Collateral Bonds,
Houston Light & Power, Series A, 6.70%, 3/1/17 Aaa/AAA 5,000,000 5,502,895
-------------------------------------------------------------------------------------------------
Cypress-Fairbanks, Texas Independent School
District General Obligation Capital Appreciation
Refunding Bonds, Series A, 0%:
2/15/14 Aaa/AAA 15,710,000 5,262,267
2/15/15 Aaa/AAA 15,000,000 4,758,630
2/15/16 Aaa/AAA 16,240,000 4,827,210
-------------------------------------------------------------------------------------------------
Dallas-Fort Worth, Texas International Airport Facilities
Improvement Corp. Revenue Bonds, American
Airlines, Inc., 7.25%, 11/1/30 Baa2/BB+ 8,000,000 8,582,992
-------------------------------------------------------------------------------------------------
Harris County, Texas Revenue Refunding Bonds,
Toll Road Subordinated Lien, 6.75%, 8/1/14 Aa/AA+ 9,940,000 10,983,312
-------------------------------------------------------------------------------------------------
Lower Colorado River Authority, Texas Revenue
Refunding Bonds, Jr. Lien, AMBAC Insured, 6%, 1/1/17 Aaa/AAA/A 15,000,000 15,687,403
-------------------------------------------------------------------------------------------------
Matagorda County, Texas Navigation District No. 1
Revenue Refunding Collateral Bonds, Houston Light &
Power, Series A, AMBAC Insured, 6.70%, 3/1/27 Aaa/AAA 8,000,000 8,832,664
-------------------------------------------------------------------------------------------------
North Central Texas Health Facility Development Corp.
Hospital Revenue Bonds, Baylor Health Care Project:
Series B, 8.41%, 5/15/06(1) Aa/AA 3,000,000 3,501,858
Series B, 8.51%, 5/15/08(1) Aa/AA 5,000,000 5,813,384
-------------------------------------------------------------------------------------------------
San Antonio, Texas Electric and Gas Systems Revenue
Improvement Refunding Bonds, Series B, 6%, 2/1/14 Aa1/AA/AA+ 18,500,000 19,366,648
-------------------------------------------------------------------------------------------------
San Antonio, Texas Water Revenue Refunding Bonds,
MBIA Insured, 6%, 5/15/16 Aaa/AAA/A+ 7,000,000 7,332,170
-------------------------------------------------------------------------------------------------
Texas Municipal Power Agency Capital Appreciation
Revenue Refunding Bonds, MBIA Insured, 0%:
9/1/14 Aaa/AAA/A+ 17,500,000 5,668,074
9/1/15 Aaa/AAA/A+ 10,000,000 3,022,029
9/1/16 Aaa/AAA/A+ 39,990,000 11,486,245
-----------
139,203,257
-----------
- ---------------------------------------------------------------------------------------------------------------------------------
UTAH--0.2% Intermountain Power Agency of Utah Special Obligation
Bonds, Second Crossover Series, 7.50%, 7/1/16 Aa/AA 1,435,000 1,556,777
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
-----------------------------------------
RATINGS:
MOODY'S/
S&P's/FITCH'S FACE MARKET VALUE
(UNAUDITED) AMOUNT SEE NOTE 1
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
WASHINGTON--5.5% Washington State General Obligation Bonds,
Series A and AT-6, 5.75%, 2/1/17 Aa/AA/AA $12,500,000 $12,823,999
---------------------------------------------------------------------------------------------------
Washington State Public Power Supply System
Revenue Refunding Bonds:
Nuclear Project No. 1, Series A, Prerefunded, 7.50%,
7/1/15 Aa/AA 3,800,000 4,426,332
Nuclear Project No. 3, Series A, 6.50%, 7/1/18 Aa/AA/AA 3,750,000 4,008,075
7.57%, 7/1/12(1) Aa/AA/AA 15,000,000 14,208,433
-----------
35,466,839
- ----------------------------------------------------------------------------------------------------------------------------------
WEST VIRGINIA--0.6% West Virginia State Parkways Economic Development
& Tourism Authority Registered Residual Interest Bonds,
8.661%, 5/16/19(1) Aaa/AAA 3,600,000 3,886,949
- ----------------------------------------------------------------------------------------------------------------------------------
U. S. POSSESSIONS--2.7% Puerto Rico Commonwealth Highway &
Transportation Authority Highway Revenue Bonds,
Series T, 6.625%, 7/1/18 Baa1/AAA 7,500,000 8,390,332
--------------------------------------------------------------------------------------------------
Puerto Rico Commonwealth Highway Authority
Revenue Bonds, Series Q, 7.75%, 7/1/10 NA/AAA 1,000,000 1,219,220
--------------------------------------------------------------------------------------------------
Puerto Rico Electric Power Authority Revenue
Bonds, Series O, 7.125%, 7/1/14 Baa1/A- 6,655,000 7,463,655
-----------
17,073,207
-----------
Total Municipal Bonds and Notes (Cost $577,224,638) 631,763,621
- ----------------------------------------------------------------------------------------------------------------------------------
SHORT-TERM TAX-EXEMPT OBLIGATIONS--0.1%
- ----------------------------------------------------------------------------------------------------------------------------------
Seneca County, New York Industrial Development Agency
Civic Facilities Revenue Bonds, New York Chiropractic
College, 2.95%(2) (Cost $300,000) 300,000 300,000
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS, AT VALUE (COST $577,524,638) 98.6% 632,063,621
- ----------------------------------------------------------------------------------------------------------------------------------
OTHER ASSETS NET OF LIABILITIES 1.4 9,088,422
---------- -----------
NET ASSETS 100.0% $641,152,043
---------- ------------
---------- ------------
<FN>
1. Represents the current interest rate for a variable rate security.
2. Floating or variable rate obligation maturing in more than one year. The interest rate, which is
based on specific, or an index of, market interest rates, is subject to change periodically and
is the effective rate on December 31, 1993. A demand feature allows the recovery of principal at
any time, or at specified intervals not exceeding one year, on up to 30 days' notice.
See accompanying Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES December 31, 1993
<S> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
ASSETS Investments, at value (cost $577,524,638)--see accompanying statement $632,063,621
---------------------------------------------------------------------------------------------------
Cash 966,300
---------------------------------------------------------------------------------------------------
Receivables:
Interest 11,424,817
Shares of beneficial interest sold 69,609
---------------------------------------------------------------------------------------------------
Other 43,907
------------
Total assets 644,568,254
- -----------------------------------------------------------------------------------------------------------------------------------
LIABILITIES Payables and other liabilities:
Dividends and distributions 2,247,957
Distribution assistance--Note 4 322,253
Investments purchased 300,511
Shares of beneficial interest redeemed 219,982
Other 325,508
-----------
Total liabilities 3,416,211
- -----------------------------------------------------------------------------------------------------------------------------------
NET ASSETS $641,152,043
------------
------------
- -----------------------------------------------------------------------------------------------------------------------------------
COMPOSITION OF Paid-in capital $588,033,700
NET ASSETS ---------------------------------------------------------------------------------------------------
Undistributed net investment income 239,794
---------------------------------------------------------------------------------------------------
Distributions in excess of net realized gain from investment transactions (1,660,434)
---------------------------------------------------------------------------------------------------
Net unrealized appreciation on investments--Note 3 54,538,983
------------
Net assets $641,152,043
------------
------------
- -----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE Class A Shares:
PER SHARE Net asset value and redemption price per share (based on net assets of $608,128,031
and 58,277,169 shares of beneficial interest outstanding) $10.44
Maximum offering price per share (net asset value plus sales charge of
4.75% of offering price) $10.96
---------------------------------------------------------------------------------------------------
Class B Shares:
Net asset value, redemption price and offering price per share (based on net assets
of $33,024,012 and 3,166,173 shares of beneficial interest outstanding) $10.43
</TABLE>
See accompanying Notes to Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------
STATEMENT OF OPERATIONS For the Year Ended December 31, 1993
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME Interest $38,267,644
- -----------------------------------------------------------------------------------------------------------------------------------
EXPENSES Management fees--Note 4 3,113,588
---------------------------------------------------------------------------------------------------
Distribution assistance:
Class A--Note 4 1,117,086
Class B--Note 4 130,628
---------------------------------------------------------------------------------------------------
Transfer and shareholder servicing agent fees--Note 4 390,817
---------------------------------------------------------------------------------------------------
Custodian fees and expenses 153,170
---------------------------------------------------------------------------------------------------
Shareholder reports 125,952
---------------------------------------------------------------------------------------------------
Trustees' fees and expenses 65,316
---------------------------------------------------------------------------------------------------
Legal and auditing fees 37,998
---------------------------------------------------------------------------------------------------
Registration and filing fees:
Class A 30,246
Class B 10,959
----------------------------------------------------------------------------------------------------
Other 58,929
----------
Total expenses 5,234,689
- -----------------------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME 33,032,955
- -----------------------------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED Net realized gain on investments 12,029,869
GAIN ON INVESTMENTS ---------------------------------------------------------------------------------------------------
Net change in unrealized appreciation on investments:
Beginning of year 25,941,357
End of year--Note 3 54,538,983
------------
Net change 28,597,626
------------
Net realized and unrealized gain on investments 40,627,495
- -----------------------------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $73,660,450
------------
------------
</TABLE>
See accompanying Notes to Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
YEAR ENDED DECEMBER 31,
-----------------------------
1993 1992
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATIONS Net investment income $33,032,955 $27,816,036
---------------------------------------------------------------------------------------------------
Net realized gain on investments 12,029,869 4,466,310
---------------------------------------------------------------------------------------------------
Net change in unrealized appreciation or depreciation on investments 28,597,626 7,195,094
----------- -----------
Net increase in net assets resulting from operations 73,660,450 39,477,440
- -----------------------------------------------------------------------------------------------------------------------------------
DIVIDENDS AND Dividends from net investment income:
DISTRIBUTIONS TO Class A ($.624 and $.579 per share, respectively) (34,167,307) (25,768,009)
SHAREHOLDERS Class B ($.420 per share) (627,087) --
----------------------------------------------------------------------------------------------------
Distributions from net realized gain on investments:
Class A ($.211 and $.118 per share, respectively) (12,053,200) (5,526,051)
Class B ($.211 per share) (624,908) --
- ------------------------------------------------------------------------------------------------------------------------------------
Beneficial Interest Net increase in net assets resulting from Class A beneficial interest
Transactions transactions--Note 2 85,361,641 94,330,238
-----------------------------------------------------------------------------------------------------
Net increase in net assets resulting from Class B beneficial interest
transactions--Note 2 32,973,976 --
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSETS Total increase 144,523,565 102,513,618
-----------------------------------------------------------------------------------------------------
Beginning of year 496,628,478 394,114,860
------------ ------------
End of year (including undistributed net investment income of
$239,794 and $2,001,233, respectively) $641,152,043 $496,628,478
------------ ------------
------------ ------------
</TABLE>
See accompanying Notes to Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
Class A Class B
--------------------------------------------------------------------------------------------
Year Ended Period Ended
December 31, December 31,
1993 1992 1991 1990 1989 1988 1987 1986 1985 1984 1993(1)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
<C>
PER SHARE OPERATING DATA:
Net asset value, beginning of period $9.94 $9.77 $9.33 $9.45 9.27 $9.12 $9.81 $8.80 $7.87 $7.77 $10.22
- -----------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment
operations:
Net investment income .59 .62 .64 .66 .65(2) .77(2) .69 .69 .70 .68 .41
Net realized and unrealized gain
(loss) on investments .74 .25 .45 (.12) .20 .07 (.70) .99 .91 .10 .43
-------- ------- ------- -------- ------- -------- ------- ------- ------- ------- --------
Total income (loss) from investment
operations 1.33 .87 1.09 .54 .85 .84 (.01) 1.68 1.61 .78 .84
- -----------------------------------------------------------------------------------------------------------------------------------
Dividends and distributions
to shareholders:
Dividends from net investment income (.62) (.58) (.65) (.66) (.67) (.69) (.68) (.67) (.68) (.68) (.42)
Distributions from net realized gain
on investments (.21) (.12) -- -- -- -- -- -- -- -- (.21)
-------- ------- -------- -------- ------- ------ -------- ------ ------- ------ ----------
Total dividends and distributions
to shareholders (.83) (.70) (.65) (.66) (.67) (.69) (.68) (.67) (.68) (.68) (.63)
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $10.44 $9.94 $9.77 $9.33 $9.45 $9.27 $9.12 $9.81 $8.80 $7.87 $10.43
-------- ------- -------- ------ ------ ------ ------ ----- ------ ------ ----------
-------- ------- -------- ------ ------ ------ ------ ----- ------ ------ ----------
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE(3) 13.79% 9.20% 12.11% 5.93% 9.42% 10.03% .00% 19.75% 21.38%
10.60% 8.49%
- -----------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(in thousands) $608,128 $496,628 $394,115 $256,542 $223,904 $172,227 $133,508 $132,234 $93,993 $70,103 $33,024
- -----------------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $567,777 $438,684 $319,081 $238,224 $202,216 $150,901 $135,052 $112,189 $80,974 $64,474 $16,444
- -----------------------------------------------------------------------------------------------------------------------------------
Number of shares outstanding at
end of period (in thousands) 58,277 49,964 40,356 27,505 23,699 18,581 14,633 13,480 10,681 8,910 3,166
- -----------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income 5.71% 6.34% 6.70% 7.08% 7.18% 7.48% 7.41% 7.33% 8.36% 8.91% 4.54%(4)
Expenses .88% .94% .89% .89% .82%(2) .72%(2) .78% .78% .82% .86% 1.74%(4)
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(5) 30.2% 34.2% 23.5% 29.3% 57.2% 22.9% 29.4% 27.8% 210.7% 385.6% 30.2%
<FN>
1. For the period from March 16, 1993 (inception of offering) to December
31, 1993.
2. Net investment income would have been $.64 and $.76 absent the
voluntary assumption of expenses, resulting in an expense
ratio of .84% and .80% for 1989 and 1988, respectively.
3. Assumes a hypothetical initial investment on the business day before
the first day of the fiscal period, with all dividends and distributions
reinvested in additional shares on the reinvestment date, and redemption
at the net asset value calculated on the last business day of the fiscal
period. Sales charges are not reflected in the total returns.
4. Annualized.
5. The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities
owned during the period. Securities with a maturity or expiration date at
the time of acquisition of one year or less are excluded from the
calculation. Purchases and sales of investment securities (excluding
short-term securities) for the year ended December 31, 1993 were
$258,922,750 and $173,216,958, respectively.
See accompanying Notes to Financial Statements.
</TABLE>
<PAGE>
-----------------------------------------------
NOTES TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
<S> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
1. Significant
Accounting Policies
Oppenheimer Tax-Free Bond Fund (the Fund) is registered under the Investment Company Act of 1940,
as amended, as a diversified, open-end management investment company. The Fund's investment
advisor is Oppenheimer Management Corporation (the Manager). The Fund offers both Class A and
Class B shares. Class A shares are sold with a front-end sales charge. Class B shares may be
subject to a contingent deferred sales charge. Both classes of shares have identical rights to
earnings, assets and voting privileges, except that each class has its own distribution plan,
expenses directly attributable to a particular class and exclusive voting rights with respect
to matters affecting a single class. Class B shares will automatically convert to Class A shares
six years after the date of purchase. The following is a summary of significant accounting
policies consistently followed by the Fund.
--------------------------------------------------------------------------------------------------
INVESTMENT VALUATION. Portfolio securities are valued at 4:00 p.m. (New York time) on each trading
day. Long-term debt securities are valued by a portfolio pricing service approved by the Board of
Trustees. Long-term debt securities which cannot be valued by the approved portfolio pricing
service are valued by averaging the mean between the bid and asked prices obtained from two
active market makers in such securities. Short-term debt securities having a remaining
maturity of 60 days or less are valued at cost (or last determined market value) adjusted for
amortization to maturity of any premium or discount. Securities for which market quotes are not
readily available are valued under procedures established by the Board of Trustees to determine
fair value in good faith.
--------------------------------------------------------------------------------------------------
ALLOCATION OF INCOME, EXPENSES AND GAINS AND LOSSES. Income, expenses (other than those
attributable to a specific class) and gains and losses are allocated daily to each class of shares
based upon the relative proportion of net assets represented by such class. Operating expenses
directly attributable to a specific class are charged against the operations of that class.
--------------------------------------------------------------------------------------------------
FEDERAL INCOME TAXES. The Fund intends to continue to comply with provisions of the Internal
Revenue Code applicable to regulated investment companies and to distribute all of its taxable
income, including any net realized gain on investments not offset by loss carryovers, to
shareholders. Therefore, no federal income tax provision is required.
------------------------------------------------------------------------------------------------
TRUSTEES' FEES AND EXPENSES. The Fund has adopted a nonfunded retirement plan for the Fund's
independent trustees. Benefits are based on years of service and fees paid to each trustee
during the years of service. The accumulated liability for the Fund's projected benefit
was $99,371 at December 31, 1993. No payments have been made under the plan.
--------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS. The Fund intends to declare dividends separately for Class A and
Class B shares from net investment income each regular business day and pay such dividends monthly.
Distributions from net realized gains on investments, if any, will be declared at least once each
year.
--------------------------------------------------------------------------------------------------
OTHER. Investment transactions are accounted for on the date the investments are purchased or sold
(trade date). Discount on securities purchased is amortized over the life of the respective
securities, in accordance with federal income tax requirements. Realized gains and losses on
investments and unrealized appreciation and depreciation are determined on an identified cost
basis, which is the same basis used for federal income tax purposes.
</TABLE>
<PAGE>
-----------------------------------------------
- -------------------------------------------------------------------------------
2. SHARES OF The Fund has authorized an unlimited number of
BENEFICIAL INTEREST no par value shares of beneficial interest of
each class. Transactions in shares of beneficial
interest were as follows:
<TABLE>
<CAPTION>
Year Ended December 31, 1993(1) Year Ended December 31, 1992
------------------------------- ----------------------------
Shares Amount Shares Amount
--------------------------------------------------------------------------------------------------
Class A:
<S> <C> <C> <C> <C>
Sold 16,347,891 $168,337,919 16,325,099 $160,197,278
Dividends and distributions
reinvested 3,051,532 31,643,836 2,233,560 21,978,434
Issued in connection with the
acquisition of Main Street
Tax-Free Income Fund--Note 5 -- -- 85,627 842,569
Redeemed (11,086,654) (114,620,114) (9,036,199) (88,688,043)
------------ ------------ ----------- -----------
Net increase 8,312,769 $85,361,641 9,608,087 $94,330,238
------------ ------------ ----------- -----------
------------ ------------ ----------- ----------
--------------------------------------------------------------------------------------------------
Class B:
Sold 3,182,952 $33,155,886 -- $ --
Dividends and distributions
reinvested 85,584 893,967 -- --
Redeemed (102,363) (1,075,877) -- --
---------- ---------- ---------- ----------
Net increase 3,166,173 $32,973,976 -- $ --
---------- ----------- ---------- ----------
---------- ----------- ---------- ----------
<FN>
1. For the year ended December 31, 1993 for Class A shares and for the period from March 16, 1993
(inception of offering) to December 31, 1993 for Class B shares.
- -----------------------------------------------------------------------------------------------------------------------------------
3. UNREALIZED GAINS AND At December 31, 1993, net unrealized appreciation of investments of $54,538,983 was composed
of
LOSSES ON INVESTMENTS gross appreciation of $56,350,198, and gross depreciation of $1,811,215.
- -----------------------------------------------------------------------------------------------------------------------------------
4. MANAGEMENT FEES AND Management fees paid to the Manager were in accordance with the investment advisory agreement
with
OTHER TRANSACTIONS WITH the Fund which provides for an annual fee of .60% on the first $200 million of net assets, .55%
on
AFFILIATES the next $100 million, .50% on the next $200 million, .45% on the next $250 million, .40% on the
next $250 million and .35% on net assets in excess of $1 billion. The Manager has agreed to assume
Fund expenses (with specified exceptions) in excess of the most stringent applicable regulatory
limit on Fund expenses.
For the year ended December 31, 1993, commissions (sales charges paid by
investors) on sales of Class A shares totaled $4,020,669, of which $1,150,057 was retained by
Oppenheimer Funds Distributor, Inc. (OFDI), a subsidiary of the Manager, as general distributor,
and by an affiliated broker/dealer. During the year ended December 31, 1993, OFDI received
contingent deferred sales charges of $24,041 upon redemption of Class B shares.
Oppenheimer Shareholder Services (OSS), a division of the Manager,
is the transfer and shareholder servicing agent for the Fund, and for other registered
investment companies. OSS's total costs of providing such services are allocated ratably to these
companies.
Under separate approved plans of distribution, each class may expend up
to .25% of its net assets annually to reimburse OFDI for costs incurred in distributing shares
of the Fund (sold subsequent to March 31, 1988 for Class A), including amounts paid to brokers,
dealers, banks and other financial institutions. In addition, Class B shares are subject to an
asset-based sales charge of .75% of net assets annually, to reimburse OFDI for sales commissions
paid from its own resources at the time of sale and associated financing costs. In the event of
termination or discontinuance of the Class B plan of distribution, the Fund would be contractually
obligated to pay OFDI for any expenses not previously reimbursed or recovered through contingent
deferred sales charges. During the year ended December 31, 1993, OFDI paid $121,448 to an
affiliated broker/dealer as reimbursement for Class A distribution-related expenses and retained
$130,628 as reimbursement for Class B distribution-related expenses and sales commissions.
- ----------------------------------------------------------------------------------------------------------------------------------
5. ACQUISITION OF MAIN STREET On October 16, 1992, the Fund acquired all of the net assets of Main Street Tax-Free Income Fund
TAX-FREE INCOME FUND (MSTFIF), pursuant to an Agreement and Plan of Reorganization approved by the MSTFIF
shareholders
on October 9, 1992. The Fund issued 85,627 shares of beneficial interest, valued at $842,569,
in exchange for the net assets, resulting in combined net assets of $465,396,049 on
October 16, 1992. The net assets acquired included net unrealized appreciation of $27,124 and
capital loss carryovers for federal income tax purposes of $3,847. The exchange was tax-free.
</TABLE>
<PAGE>
Appendix A
TAX EXEMPT/TAX EQUIVALENT YIELDS
The equivalent yield table below compares tax-free income with taxable
income under Federal income tax rates effective in 1994. The tables
assume that an investor's highest tax bracket applies to the change in
taxable income resulting from a switch between taxable and non-taxable
investments, that the investor is not subject to the Alternative Minimum
Tax, and that the state income tax payments are fully deductible for
Federal income tax purposes. The income tax brackets are subject to
indexing in future years to reflect changes in the Consumer Price Index.
Example: Assuming a 4% tax-free yield, the equivalent taxable yield would
be 5.80% of a person in the 31% tax bracket.
<TABLE>
<CAPTION>
Federal EffectiveOppenheimer Tax-Free Bond Fund Yield of:
Taxable Tax 3.0% 3.5% 4.0% 4.5% 5.0% 5.5% 6.0%
Income BracketIs Approximately Equivalent To a Taxable Yield of:
JOINT RETURN
Over Not over
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 0$ 38,00015.00% 3.53% 4.12% 4.71% 5.29% 5.88% 6.47% 7.06%
$ 38,000 $ 91,850 28.00% 4.17% 4.86% 5.56% 6.25% 6.94% 7.64% 8.33%
$ 91,850 $140,000 31.00% 4.35% 5.07% 5.80% 6.52% 7.25% 7.97% 8.70%
$140,000 $250,000 36.00% 4.69% 5.47% 6.25% 7.03% 7.81% 8.59% 9.38%
$250,000 and above39.60% 4.97% 5.79% 6.62% 7.45% 8.28% 9.11% 9.93%
SINGLE RETURN
Over Not over
$ 0$ 22,75015.00% 3.53% 4.12% 4.71% 5.29% 5.88% 6.47% 7.06%
$ 22,750 $ 55,100 28.00% 4.17% 4.86% 5.56% 6.25% 6.94% 7.64% 8.33%
$ 55,100 $115,000 31.00% 4.35% 5.07% 5.80% 6.52% 7.25% 7.97% 8.70%
$115,000 $250,000 36.00% 4.69% 5.47% 6.25% 7.03% 7.81% 8.59% 9.38%
$250,000 and above39.60% 4.97% 5.79% 6.62% 7.45% 8.28% 9.11% 9.93%
</TABLE>
<PAGE>
APPENDIX B
Description of Ratings Categories
Municipal Bond Ratings.
Moody's Investor Services Inc. The four highest ratings of Moody's
for Municipal Securities are "Aaa," "Aa," "A" and "Baa." Moody's basis
of such ratings is as follows. Municipal Securities rated "Aaa" are
judged to be of the "best quality." The rating "Aa" is assigned to bonds
which are of "high quality by all standards," but as to which margins of
protection or other elements make long-term risks appear somewhat larger
than "Aaa" rated Municipal Securities. The "Aaa" and "Aa" rated bonds
comprise what are generally known as "high grade bonds." Municipal
Securities which are rated "A" by Moody's possess many favorable
investment attributes and are considered "upper medium grade obligations."
Factors giving security to principal and interest of bonds rated "A" are
considered adequate, but elements may be present which suggest a
susceptibility to impairment at some time in the future. Municipal
Securities rated "Baa" are considered "medium grade" obligations. 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. Those bonds in the "Aa," "A" and "Baa" groups which
Moody's believes possess the strongest attributes are designated "Aa1,"
"A1" and "Baa1."
In addition to the alphabetical rating system described above,
Municipal Securities rated by Moody's which have a demand feature that
provides the holder with the ability periodically to tender (put) the
portion of the debt covered by the demand feature, may also have a short-
term rating assigned to such demand feature. The short-term rating uses
the symbol "VMIG" to distinguish characteristics which include payment
upon periodic demand rather than fund or scheduled maturity dates and
potential reliance upon external liquidity, as well as other factors. The
highest investment quality is designated by the "VMIG 1" rating and the
lowest by "VMIG 4."
Standard & Poor's Corporation. The four highest ratings of Standard
& Poor's for Municipal Securities are "AAA" (Prime), "AA" (High Grade),
"A" (Good Grade), and "BBB" (Medium Grade). Standard & Poor's basis of
such ratings is as follows. Municipal Securities rated "AAA" are
"obligations of the highest quality." The rating "AA" is accorded issues
with investment characteristics "only slightly less marked than those of
the prime quality issues." The rating "A" describes "the third strongest
capacity for payment of debt service." Principal and interest payments
on bonds in this category are regarded as safe. It differs from the two
higher ratings because, with respect to general obligation bonds, there
is some weakness, either in the local economic base, in debt burden, in
the balance between revenues and expenditures, or in quality of
management. Under certain adverse circumstances, any one such weakness
might impair the ability of the issuer to meet debt obligations at some
future date. With respect to revenue bonds rated "A," debt service
coverage is good, but not exceptional. Stability of the pledged revenues
could show some variations because of increased competition or economic
influences on revenues. Basic security provisions, while satisfactory,
are less stringent. Management performance appears adequate. The "BBB"
rating is the lowest "investment grade" security rating. The difference
between "A" and "BBB" ratings is that the latter shows more than one
fundamental weakness, or one very substantial fundamental weakness,
whereas the former shows only one deficiency among the factors considered.
With respect to revenue bonds, debt coverage is only fair. Stability of
the pledged revenues could show variations, with the revenue flow possibly
being subject to erosion over time. Basic security provisions are no more
than adequate. Management performance could be stronger. The ratings
"AA," "A," and "BBB" may be modified by the addition of a plus or minus
sign to show relative standing within the major rating categories.
Municipal Note Ratings.
Moody's. Moody's ratings for state and Municipal Notes and other
short-term loans are designated "Moody's Investment Grade" ("MIG"). Notes
bearing the designation "MIG 1" are of the best quality, enjoying strong
protection from established cash flows of funds for their servicing or
from established and broad-based access to the market for financing.
Notes bearing the designation "MIG 2" are of high quality, with ample
margins of protection, although not so large as notes rated "MIG 1." Such
short-term notes which have demand features may also carry a rating using
the symbol "VMIG" as described above, with the designation "MIG 1/VMIG 1"
denoting best quality, with superior liquidity support in addition to
those characteristics attributable to the designation "MIG 1."
Standard & Poor's. Standard & Poor's ratings for Municipal Notes due
in three years or less are "SP1" and "SP2." "SP1" describes issues with
a very strong or strong capacity to pay principal and interest and
compares with bonds rated "A" by Standard & Poor's; if modified by a plus
sign, it compares with bonds rated "AA" or "AAA" by Standard & Poor's.
"SP2" describes issues with a satisfactory capacity to pay principal and
interest, and compares with bonds rated "BBB" by Standard & Poor's.
Corporate Bond Ratings
Moody's Investors Service, Inc. Bonds which are rated "Aaa" by
Moody's are judged to be the best quality. They carry the smallest degree
of investment risk and are generally referred to as "gilt edge." Interest
payments are protected by a large or by an exceptionally stable margin and
principal is deemed secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong positions of such issues. Bonds which are
rated "Aa" are judged to be of high quality by all standards. Together
with the "Aaa" group they comprise what are generally known as "high
grade" bonds. Bonds rated "Aa" are rated lower than the best bonds
because margins of protection may not be as large as in "Aaa" bonds or
fluctuations of protective elements may be of greater amplitude, or there
may be other elements present which make the long-term risks appear
somewhat larger than with "Aaa" bonds. Bonds which are rated "A" possess
many favorable investment attributes and are to be considered as upper
medium grade obligations. Factors giving security to principal and
interest are considered adequate but elements may be present which suggest
a susceptibility to impairment sometime in the future. Bonds which are
rated "Baa" are considered medium grade obligations, i.e., they are
neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present, but certain protective
elements may be lacking or may be characteristically unreliable over any
great length of time. Such bonds lack outstanding investment
characteristics and have speculative characteristics as well.
Moody's applies numerical modifiers "1," "2" and "3" in each generic
rating classification from "Aa" through "B" in its corporate bond rating
system. The modifier "1" indicates that the security ranks in the higher
end of its generic rating category; the modifier "2" indicates a mid-range
ranking; and the modifier "3" indicates that the issue ranks in the lower
end of its generic rating category.
In addition to the alphabetical rating system described above,
Municipal Bonds rated by Moody's which have a demand feature that provides
the holder with the ability periodically to tender (put) the portion of
the debt covered by the demand feature, may also have a short-term rating
assigned to such demand feature. The short-term rating uses the symbol
"VMIG" to distinguish characteristics which include payment upon periodic
demand rather than fund or scheduled maturity dates and potential reliance
upon external liquidity, as well as other factors. The highest investment
quality is designated by the "VMIG 1" rating and the lowest by "VMIG 4."
Standard and Poor's Corporation. Bonds rated "AAA" by Standard &
Poor's have the highest rating assigned by this rating service. Capacity
to pay interest and repay principal is deemed extremely strong. Bonds
rated "AA" have a strong capacity to pay interest and repay principal and
differ from "AAA" issues only in small degrees. Bonds rated "A" have a
strong capacity to pay interest and repay principal although they are
somewhat more susceptible to the adverse effect of changes in
circumstances and economic conditions than bonds in higher rated
categories. Bonds rated "BBB" are regarded as having an adequate capacity
to pay principal and interest. Whereas they normally exhibit protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay principal and interest for
bonds in this capacity than for bonds in the "A" category. The ratings
from "AA" to "BB" may be modified by the addition of a plus or minus sign
to show relative standing within the major rating categories.
Commercial Paper
Moody's. Moody's commercial paper ratings are opinions of the
ability of issuers to repay punctually promissory obligations. Moody's
employs the following three designations, all judged to be investment
grade, to indicate the relative repayment capacity of rated issuers:
Prime 1 - Highest Quality; Prime 2 - Higher Quality; Prime 3 - High
Quality.
Standard & Poor's. A Standard & Poor's commercial paper rating is
a current assessment of the likelihood of timely payment. Ratings are
graded into four categories, ranging from "A" for the highest quality
obligations to "D" for the lowest. Issues assigned the highest rating,
"A," are regarded as having the greatest capacity for timely payment.
Issues in this category are delineated with the numbers 1, 2, and 3 to
indicate the relative degree of safety. The designation "A1" indicates
that the degree of safety regarding timely payment is either overwhelming
or very strong. The "+" designation is applied to those issues rated "A1"
which possess safety characteristics. Capacity for timely payment on
issues with the designation "A2" is strong. However, the relative degree
of safety is not as high as for issuers designated "A1." Issues carrying
the designation "A3" have a satisfactory capacity for timely payment.
They are, however, somewhat more vulnerable to the adverse effect of
changes in circumstances than obligations carrying the higher
designations.
<PAGE>
Investment Adviser
Oppenheimer Management Corporation
Two World Trade Center
New York, New York 10048-0203
Distributor
Oppenheimer Funds Distributor, Inc.
Two World Trade Center
New York, New York 10048-0203
Transfer Agent and Shareholder Servicing Agent
Oppenheimer Shareholder Services
P.O. Box 5270
Denver, Colorado 80217
1-800-525-7048
Custodian of Portfolio Securities
Citibank, N.A.
One Citicorp Center
New York, New York 10154
Independent Auditors
KPMG Peat Marwick
707 Seventeenth Street
Denver, Colorado 80202
Counsel
Gordon Altman Butowsky Weitzen
Shalov & Wein
114 West 47th Street
New York, New York 10036
<PAGE>
OPPENHEIMER TAX-FREE BOND FUND
FORM N-1A
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements
(1) Condensed Financial Information (See Part A): Filed
herewith.
(2) Independent Auditors' Report (See Part B): Filed herewith.
(3) Statement of Investments (See Part B): Filed herewith.
(4) Statement of Assets and Liabilities (See Part B): Filed
herewith.
(5) Statement of Operations (See Part B): Filed herewith.
(6) Statements of Changes in Net Assets (See Part B): Filed
herewith.
(7) Per Share Data and Ratios (See Part B): Filed herewith.
(8) Notes to Financial Statements (See Part B): Filed
herewith.
(b) Exhibits
(1) (i) Declaration of Trust dated February 25, 1987:
Filed with Post-Effective Amendment No. 22 to its
Registrant's Registration Statement and
incorporated herein by reference.
(ii) Amended and Restated Declaration of Trust dated
March 11, 1993: Filed with Post-Effective
Amendment No. 30 to Registrant's Registration
Statement, 3/16/93, and incorporated herein by
reference.
(2) (i) Amended By-Laws of Registrant as of May 1, 1987:
Filed with Post-Effective Amendment No. 22 to its
Registrant's Registration Statement and
incorporated herein by reference.
(ii) Amended By-Laws of Registrant as of August 6,
1987: Filed with Form SE to Registrant's Form N-
SAR for the fiscal year ended 12/31/87 and
incorporated herein by reference.
(3) Not applicable
(4) (i) Specimen Class A Share Certificate: Filed with
Post-Effective Amendment No. 22 to Registrant's
Registration Statement, 5/1/87, and incorporated
herein by reference.
(ii) Specimen Class B Share Certificate: Filed with
Post-Effective Amendment No. 31 to Registrant's
Registration Statement, 3/1/94, and incorporated
herein by reference.
(5) Investment Advisory Agreement dated October 22, 1990:
Filed with Post-Effective Amendment No. 27 to Registrant's
Registration Statement, 3/1/91, and incorporated herein by
reference.
(6) (i) General Distributor's Agreement dated December 10,
1992: Filed with Post-Effective Amendment No. 30
to Registrant's Registration Statement, 3/16/93,
and incorporated herein by reference.
(ii) Form of Oppenheimer Fund Management, Inc. Dealer
Agreement: Filed with Post-Effective Amendment No.
12 to the Registration Statement of Oppenheimer
Government Securities Fund (Reg. No. 33-02769),
12/2/92, and incorporated herein by reference.
(iii) Form of Oppenheimer Fund Management, Inc. Broker
Agreement: Filed with Post-Effective Amendment No.
12 to the Registration Statement of Oppenheimer
Government Securities Fund (Reg. No. 33-02769),
12/2/92, and incorporated herein by reference.
(iv) Form of Oppenheimer Fund Management, Inc. Agency
Agreement: Filed with Post-Effective Amendment No.
12 to the Registration Statement of Oppenheimer
Government Securities Fund (Reg. No. 33-02769),
12/2/92, and incorporated herein by reference.
(v) Broker Agreement between Oppenheimer Fund
Management, Inc. and Newbridge Securities, Inc.
dated October 1, 1986: Previously filed with Post-
Effective Amendment No. 25 to the Registration
Statement of Oppenheimer Special Fund (File No. 2-
45272), 11/1/86, and incorporated herein by
reference.
(7) Retirement Plan for Non-Interested Trustees or Directors
(adopted 6/7/90): Filed with Post-Effective Amendment No.
97 of Oppenheimer Fund (Reg. No. 2-14586), and
incorporated herein by reference.
(8) (i) Custodian Agreement dated October 7, 1976: Filed
with Post-Effective Amendment No.2 to Registrant's
Registration Statement and incorporated herein by
reference.
(ii) Assignment and Amendment dated May 1, 1987 of
Custody Agreement dated October 7, 1976 among
Oppenheimer Tax-Free Bond Fund, Inc., Citibank,
N.A., and Oppenheimer Tax-Free Bond Fund: Filed
with Post-Effective Amendment No. 22 to
Registrant's Registration Statement and
incorporated herein by reference.
(iii) Amendment dated as of March, 1978 to Custody
Agreement of Oppenheimer Tax-Free Bond Fund, Inc.:
Filed with Post-Effective Amendment No. 24 to
Registrant's Registration Statement, 4/29/88, and
incorporated herein by reference.
(iv) Amendment dated as of August 13, 1980 to Custody
Agreement of Oppenheimer Tax-Free Bond Fund, Inc.:
Filed with Post-Effective Amendment No. 24 to
Registrant's Registration Statement, 4/29/88, and
incorporated herein by reference.
(v) Amendment dated September 28, 1984 to Custody
Agreement of Oppenheimer Tax-Free Bond Fund, Inc.:
Filed with Post-Effective Amendment No. 24 to
Registrant's Registration Statement, 4/29/88, and
incorporated herein by reference.
(vi) Amendment dated June 16, 1986 to Custody Agreement
of Oppenheimer Tax-Free Bond Fund, Inc.: Filed
with Post-Effective Amendment No. 24 to
Registrant's Registration Statement, 4/29/88, and
incorporated herein by reference.
(9) (i) Agreement and Plan of Reorganization and
Liquidation dated 2/12/87 by and between
Registrant and Oppenheimer Tax-Free Bond Fund,
Inc.: Filed with Post-Effective Amendment No. 24
to Registrant's Registration Statement, 4/29/88,
and incorporated herein by reference.
(ii) Articles of Transfer dated 4/30/87 of the
Registrant and Oppenheimer Tax-Free Bond Fund,
Inc.: Filed with Post-Effective Amendment No. 24
to Registrant's Registration Statement, 4/29/88,
and incorporated herein by reference.
(iii) Agreement and Plan of Reorganization dated 2/28/91
between Registrant and MassMutual Tax-Exempt Bond
Fund: Filed with Post-Effective Amendment No. 29
to Registrant's Registration Statement, 5/1/92,
and incorporated herein by reference.
(iv) Agreement and Plan of Reorganization dated 8/5/91
between Registrant and Advance America Funds, Inc.
on behalf of Tax-Free Income Fund: Filed with
Post-Effective Amendment No. 29 to Registrant's
Registration Statement, 5/1/92, and incorporated
herein by reference.
(v) Agreement and Plan of Reorganization dated 6/18/92
between Registrant and Main Street Funds, Inc. on
behalf of Tax-Free Income Fund: Filed herewith.
(vi) Agreement and Plan of Reorganization dated
10/22/93 between Registrant and M I Fund, Inc.:
Filed herewith.
(10) Opinion and Consent of Counsel dated 5/1/87: Filed with
Post-Effective Amendment No. 22 to Registrant's
Registration Statement and incorporated herein by
reference.
(11) Consent of Independent Auditor: Filed herewith.
(12) Not applicable.
(13) Investment Letter dated 12/23/83 from Oppenheimer
Management Corporation to Registrant: Filed with Post-
Effective Amendment No.2 to Registrant's Registration
Statement and incorporated herein by reference.
(14) Not applicable.
(15) (i) Service Plan and Agreement for Class A shares
dated 6/10/93 pursuant to Rule 12b-1 under the
Investment Company Act of 1940: Filed with Post-
Effective Amendment No. 31 to Registrant's
Registration Statement 3/1/94, and incorporated
herein by reference.
(ii) Distribution and Service Plan and Agreement for
Class B shares under Rule 12b-1 dated 6/10/93:
Filed with Post-Effective Amendment No. 31 to
Registrant's Registration Statement 3/1/94, and
incorporated herein by reference.
(16) Performance computation schedule: Filed herewith.
-- Powers of Attorney, including Certified Board Resolutions:
Filed with Post-Effective Amendment No. 31 to Registrant's
Registration Statement 3/1/94, and incorporated herein by
reference.
Item 25. Persons Controlled by or under Common Control with Registrant
None
Item 26. Number of Holders of Securities
Number of
Record Holders as
Title of Class of March 29, 1994
Class A Shares of Beneficial Interest 19,484
Class B Shares of Beneficial Interest 1,543
Item 27. Indemnification
Reference is made to paragraphs (c) through (g) of Section 12 of
Article SEVENTH of Registrant's Declaration of Trust filed as Exhibit
24(b)(1) to this Registration Statement.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to Trustees, officers and
controlling persons of Registrant pursuant to the foregoing provisions or
otherwise, Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act of 1933 and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by Registrant of expenses incurred or
paid by a Trustee, officer or controlling person of Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
Trustee, officer or controlling person, Registrant will, unless in the
opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question
whether such indemnification by it is against public policy as expressed
in the Securities Act of 1933 and will be governed by the final
adjudication of such issue.
Item 28. Business and Other Connections of Investment Adviser
(a) Oppenheimer Management Corporation is the investment adviser of
the Registrant; it and certain subsidiaries act in the same
capacity for other registered investment companies as described
in Parts A and B hereof.
(b) For information as to the business, profession, vocation or
employment of a substantial nature of each of the officers and
directors of Oppenheimer Management Corporation, reference is
made to Part B of this Registration Statement and to the
registration on Form ADV filed by Oppenheimer Management
Corporation under the Investment Advisers Act of 1940, which
filing is incorporated herein by reference.
Item 29. Principal Underwriter
(a) Oppenheimer Fund Management, Inc. is the Distributor of
Registrant's shares. It is also the Distributor of certain of
the other registered open-end investment companies for which
Oppenheimer Management Corporation is the investment adviser,
as described in Parts A and B of this Registration Statement.
(b) The information contained in the registration on Form BD of
Oppenheimer Fund Management, Inc., filed under the Securities
Exchange Act of 1934, is incorporated herein by reference.
(c) Not applicable.
Item 30. Location of Accounts and Records
The accounts, books and other documents required to be maintained by
Registrant pursuant to Section 31(a) of the Investment Company Act and
rules promulgated thereunder are in possession of Oppenheimer Management
Corporation at its offices at 3410 South Galena Street, Denver, Colorado
80231.
Item 31. Management Services
Not applicable.
Item 32. Undertakings
(a) Not applicable.
(b) Not applicable.
(b) Not applicable.
<PAGE>
OPPENHEIMER TAX-FREE BOND
Registration No. 2-57116
Post-Effective Amendment No. 32
Index to Exhibits
Exhibit No. Description
24(b)(9)(v) Agreement and Plan of Reorganization dated 6/18/92
between Registrant and Main Street Funds, Inc.
24(b)(9)(vi) Agreement and Plan of Reorganization dated 10/22/93
between Registrant and M I Fund, Inc.
24(b)(11) Independent Auditors' Consent
24(b)(16) Performance Data Computation Schedule
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and/or the
Investment Company Act of 1940, the Registrant certifies that it meets all
the requirements for effectiveness of this Registration Statement pursuant
to Rule 485(b) under the Securities Act of 1933 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of New York and State of New York
on the 28th day of April, 1994.
OPPENHEIMER TAX-FREE BOND FUND
By: /s/ Donald W. Spiro*
------------------------------
Donald W. Spiro, President
Attest:
/s/ Andrew J. Donohue*
- ----------------------------
Andrew J. Donohue, Secretary
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in
the capacities on the dates indicated:
Signatures Title Date
- ---------- ----- ----
/s/ Leon Levy* Chairman of the
- -------------- Board of Trustees April 28, 1994
Leon Levy
/s/ Donald W. Spiro* President, Principal
- -------------------- Executive Officer
Donald W. Spiro and Trustee April 28, 1994
/s/ George Bowen* Treasurer and
- ----------------- Principal Financial
George Bowen and Accounting
Officer April 28, 1994
/s/ Leo Cherne* Trustee April 28, 1994
- ---------------
Leo Cherne
/s/ Edmund T. Delaney* Trustee April 28, 1994
- ----------------------
Edmund T. Delaney
/s/ Robert G. Galli* Trustee April 28, 1994
- -------------------
Robert G. Galli
/s/ Benjamin Lipstein* Trustee April 28, 1994
- ----------------------
Benjamin Lipstein
/s/ Kenneth A. Randall* Trustee April 28, 1994
- -----------------------
Kenneth A. Randall
/s/ Sidney M. Robbins* Trustee April 28, 1994
- ----------------------
Sidney M. Robbins
/s/ Russell S. Reynolds, Jr.* Trustee April 28, 1994
- -----------------------------
Russell S. Reynolds, Jr.
/s/ Pauline Trigere* Trustee April 28, 1994
- --------------------
Pauline Trigere
/s/ Elizabeth B. Moynihan* Trustee April 28, 1994
- --------------------------
Elizabeth B. Moynihan
/s/ Clayton K. Yeutter* Trustee April 28, 1994
- -----------------------
Clayton K. Yeutter
/s/ Edward V. Regan* Trustee April 28, 1994
- --------------------
Edward V. Regan
*By: /s/ Robert G. Zack
- --------------------------------
Robert G. Zack, Attorney-in-Fact
<PAGE>
OPPENHEIMER TAX-FREE BOND
Registration No. 2-57116
Post-Effective Amendment No. 32
Index to Exhibits
Exhibit No. Description
24(b)(9)(v) Agreement and Plan of Reorganization dated 6/18/92
between Registrant and Main Street Funds, Inc.
24(b)(9)(vi) Agreement and Plan of Reorganization dated 10/22/93
between Registrant and M I Fund, Inc.
24(b)(11) Independent Auditors' Consent
24(b)(16) Performance Data Computation Schedule
<PAGE>
Exhibit 24(b)(9)(v)
AGREEMENT AND PLAN OF REORGANIZATION
AGREEMENT AND PLAN OF REORGANIZATION dated this 18th day of June,
1992, by and between Main Street Funds, Inc. ("Main Street"), a Maryland
corporation, for and on behalf of its Tax-Free Income Fund portfolio (the
"Fund"), and Oppenheimer Tax-Free Bond Fund ("Tax-Free Bond Fund"), a
Massachusetts business trust.
W I T N E S S E T H:
WHEREAS, the parties are each open-end investment companies of the
management type; and
WHEREAS, the parties hereto desire to provide for the reorganization
pursuant to Section 368(a)(1) of the Internal Revenue Code of 1986, as
amended (the "Code") of the Fund through the acquisition by Tax-Free Bond
Fund of substantially all of the assets of the Fund in exchange for the
shares of beneficial interest ("shares") of Tax-Free Bond Fund and the
assumption by Tax-Free Bond Fund of certain liabilities of the Fund, which
shares of Tax-Free Bond Fund are thereafter to be distributed by the Fund
pro rata to its shareholders in complete liquidation of the Fund and
complete cancellation of its shares;
NOW, THEREFORE, in consideration of the mutual promises herein
contained, the parties hereto agree as follows:
1. The parties hereto hereby adopt a Plan of Reorganization
pursuant to Section 368(a)(1) of the Code as follows: The reorganization
will be comprised of the acquisition of substantially all of the
properties and assets of the Fund in exchange for shares of Tax-Free Bond
Fund and the assumption by Tax-Free Bond Fund of certain liabilities of
the Fund, followed by the distribution of such Tax-Free Bond Fund shares
to the shareholders of the Fund in exchange for their shares of the Fund,
all upon and subject to the terms of the Agreement hereinafter set forth.
The share transfer books of the Fund will be permanently closed
at the close of business on the Valuation Date (as hereinafter defined)
and only redemption requests received in proper form on or prior to the
close of business on the Valuation Date shall be fulfilled by the Fund;
redemption requests received by the Fund after that date shall be treated
as requests for the redemption of the shares of Tax-Free Bond Fund to be
distributed to the shareholder in question as provided in Section 5.
2. On the Closing Date (as hereinafter defined), all of the assets
of the Fund on that date (including any amount necessary to cover declared
but unpaid dividends), excluding a cash reserve (the "Cash Reserve") to
be retained by the Fund sufficient in its discretion for the payment of
the expenses of the Fund's dissolution and its liabilities, but not in
excess of the amount contemplated by Section 10E, shall be delivered as
provided in Section 8 to Tax-Free Bond Fund, in exchange for and against
delivery to the Fund on the Closing Date of a number of shares of Tax-Free
Bond Fund having an aggregate net asset value equal to the value of the
assets of the Fund so transferred and delivered.
3. The net asset value of shares of Tax-Free Bond Fund and the
value of the assets of the Fund to be transferred shall in each case be
determined as of the close of business of the New York Stock Exchange on
the Valuation Date. The computation of the net asset value of the shares
of Tax-Free Bond Fund and the Fund shall be done in the manner used by
Tax-Free Bond Fund and the Fund, respectively, in the computation of such
net asset value per share as set forth in their respective prospectuses.
The methods used by Tax-Free Bond Fund in such computation shall be
applied to the valuation of the securities of the Fund to be transferred
to Tax-Free Bond Fund.
The Fund shall declare and pay, immediately prior to the
Valuation Date, a dividend or dividends which, together with all previous
such dividends, shall have the effect of distributing to the Fund's
shareholders all of the Fund's investment company taxable income for
taxable years ending on or prior to the Closing Date (computed without
regard to any dividends paid) and all of its net capital gain, if any,
realized in taxable years ending on or prior to the Closing Date (after
reduction for any capital loss carry-forward).
4. The closing shall be at the office of Oppenheimer Management
Corporation (the "Agent"), Two World Trade Center, Suite 3400, New York,
New York 10048, at 4:00 P.M. New York time on October 16, 1992, or at such
other time or place as the parties may designate or as provided below (the
"Closing Date"). The business day preceding the Closing Date is herein
referred to as the "Valuation Date."
In the event that on the Valuation Date either party has,
pursuant to the Investment Company Act of 1940 (the "Act") or any rule,
regulation or order thereunder, suspended the redemption of its shares or
postponed payment therefor, the Closing Date shall be postponed until the
first business day after the date when both parties have ceased such
suspension or postponement; provided, however, that if such suspension
shall continue for a period of 60 days beyond the Valuation Date, then the
other party to this Agreement shall be permitted to terminate this
Agreement without liability to either party for such termination.
5. As soon as practicable after the closing, the Fund shall
distribute on a pro rata basis: to the shareholders of the Fund on the
Valuation Date the shares of Tax-Free Bond Fund received by the Fund on
the Closing Date in exchange for the assets of the Fund in liquidation and
cancellation of the outstanding shares of the Fund; for the purpose of the
distribution by the Fund of such shares of Tax-Free Bond Fund to its
shareholders, Tax-Free Bond Fund will promptly cause the Agent to: (a)
credit an appropriate number of shares of Tax-Free Bond Fund on the books
of Tax-Free Bond Fund to each shareholder of the Fund in accordance with
a list (the "Shareholder List") of its shareholders received from the
Fund; and (b) confirm an appropriate number of shares of Tax-Free Bond
Fund to each shareholder of the Fund; certificates for shares of Tax-Free
Bond Fund will be issued upon written request of a former shareholder of
the Fund but only for whole shares with fractional shares credited to the
name of the shareholder on the books of Tax-Free Bond Fund.
The Shareholder List shall indicate, as of the close of business
on the Valuation Date, the name and address of each shareholder of the
Fund, indicating his or her share balance. The Fund agrees to supply the
Shareholder List to Tax-Free Bond Fund not later than the Closing Date.
Shareholders of the Fund holding certificates representing their shares
shall not be required to surrender their certificates to anyone in
connection with the reorganization. After the reorganization, however,
it will be necessary for such shareholders to surrender their certificates
in order to redeem the shares of Tax-Free Bond Fund which they received.
6. Within one year after the closing, the Fund shall (a) either pay
or make provision for payment of all of its liabilities and taxes, and
(b) either (i) transfer any remaining amount of the Cash Reserve to Tax-
Free Bond Fund, if such remaining amount (as reduced by the estimated cost
of distributing it to shareholders) is not material (as defined below) or
(ii) distribute such remaining amount to the shareholders of the Fund on
the Valuation Date. Such remaining amount shall be deemed to be material
if the amount to be distributed, after deduction of the estimated expenses
of the distribution, equals or exceeds one cent per share of the Fund
outstanding on the Valuation Date.
7. Prior to the Closing Date, there shall be coordination between
the parties as to their respective portfolios so that, after the closing,
Tax-Free Bond Fund will be in compliance with all of its investment
policies and restrictions. At the closing, the Fund shall deliver to Tax-
Free Bond Fund two copies of a list setting forth the securities then
owned by the Fund and the respective federal income tax bases thereof.
8. Portfolio securities or written evidence acceptable to Tax-Free
Bond Fund of record ownership thereof by The Depository Trust Company or
through the Federal Reserve Book Entry System or any other depository
approved by the Fund pursuant to Rule 17f-4 under the Act shall be
endorsed and delivered, or transferred by appropriate transfer or
assignment documents, by the Fund on the Closing Date to Tax-Free Bond
Fund, or at its direction, to its custodian bank, in proper form for
transfer in such condition as to constitute good delivery thereof in
accordance with the custom of brokers and shall be accompanied by all
necessary state transfer stamps, if any, or a check for the appropriate
purchase price thereof. The cash delivered shall be in the form of
certified or bank cashiers' checks, by bank wire or other method of
transfer acceptable to the Fund and Tax-Free Bond Fund payable to the
order of Tax-Free Bond Fund for the account of Tax-Free Bond Fund. Shares
of Tax-Free Bond Fund representing the number of shares of Tax-Free Bond
Fund being delivered against the securities and cash of the Fund,
registered in the name of the Fund, shall be transferred to the Fund on
the Closing Date. Such shares shall thereupon be assigned by the Fund to
its shareholders so that the shares of Tax-Free Bond Fund may be
distributed as provided in Section 5.
If, at the Closing Date, the Fund is unable to make delivery
under this Section 8 to Tax-Free Bond Fund of any of its portfolio
securities or cash for the reason that any of such securities purchased
by the Fund, or the cash proceeds of a sale of portfolio securities, prior
to the Closing Date have not yet been delivered to it or the Fund's
custodian, then the delivery requirements of this Section 8 with respect
to said undelivered securities or cash will be waived and the Fund will
deliver to Tax-Free Bond Fund by or on the Closing Date and with respect
to said undelivered securities or cash executed copies of an agreement or
agreements of assignment in a form reasonably satisfactory to Tax-Free
Bond Fund, together with such other documents, including a due bill or due
bills and brokers' confirmation slips as may reasonably be required by
Tax-Free Bond Fund.
9. Tax-Free Bond Fund shall not assume the liabilities (except for
portfolio securities purchased which have not settled and for shareholder
redemption and dividend checks outstanding) of the Fund, but the Fund
will, nevertheless, use its best efforts to discharge all known
liabilities, so far as may be possible, prior to the Closing Date. The
cost of printing and mailing the proxies and proxy statements associated
with this reorganization will be paid by the Fund. Any documents such as
existing prospectuses or annual reports that are included in that mailing
will be a cost of the fund issuing the document. Any other out-of-pocket
expenses of the Fund associated with this reorganization, including legal,
accounting and tax, and transfer agent expenses, will be borne by the Fund
and Tax-Free Bond Fund, respectively.
10. The obligations of Tax-Free Bond Fund hereunder shall be subject
to the following conditions:
A. The Board of Directors of Main Street shall have authorized
the execution of this Agreement, and the shareholders of the Fund shall
have approved the Agreement and the transactions contemplated herein, and
Main Street shall have furnished to Tax-Free Bond Fund copies of
resolutions to that effect certified by the Secretary or an Assistant
Secretary of Main Street; such shareholder approval shall have been by the
vote of the holders of a majority (as defined in the Investment Company
Act of 1940, as amended) of the outstanding voting securities of the Fund
at a meeting for which proxies have been solicited by the Proxy Statement
and Prospectus.
B. Tax-Free Bond Fund shall have received an opinion dated the
Closing Date of counsel to Main Street, to the effect that (i) Main Street
is a corporation duly organized, validly existing and in good standing
under the laws of the State of Maryland with full corporate powers to
carry on its business as then being conducted and to enter into and
perform this Agreement; and (ii) that all corporate action necessary to
make this Agreement, according to its terms, valid, binding and
enforceable on Main Street and to authorize effectively the transactions
contemplated by this Agreement have been taken by Main Street.
C. The representations and warranties of Main Street on behalf
of the Fund contained herein shall be true and correct at and as of the
Closing Date, and Tax-Free Bond Fund shall have been furnished with a
certificate of the President, or the Vice President, or the Secretary or
the Assistant Secretary or the Treasurer of Main Street, dated the Closing
Date, to that effect.
D. On the Closing Date, Main Street shall have furnished to
Tax-Free Bond Fund a certificate of the Treasurer or Assistant Treasurer
of Main Street as to the amount of the capital loss carry-over and net
unrealized appreciation or depreciation, if any, with respect to the Fund
as of the Closing Date.
E. The Cash Reserve shall not exceed 10% of the value of the
net assets, nor 30% in value of the gross assets, of the Fund at the close
of business on the Valuation Date.
F. A Registration Statement filed by Tax-Free Bond Fund under
the Securities Act of 1933 on Form N-14 and containing a preliminary form
of the Proxy Statement and Prospectus shall have become effective under
that Act not later than December 31, 1992.
G. On the Closing Date, Tax-Free Bond Fund shall have received
a letter of Robert G. Galli, attorney-at-law, or Andrew J. Donohue,
attorney-at-law, or other counsel acceptable to Tax-Free Bond Fund,
stating that nothing has come to his attention which in his judgment would
indicate that as of the Closing Date there were any material actual or
contingent liabilities of the Fund arising out of litigation brought
against the Fund or claims asserted against it, or pending or to the best
of his knowledge threatened litigation not reflected in or apparent by the
most recent audited financial statements and footnotes thereto of the Fund
delivered to Tax-Free Bond Fund. Such letter may also include such
additional statements relating to the scope of the review conducted by
such counsel and his responsibilities and liabilities as are not
unreasonable under the circumstances.
H. Tax-Free Bond Fund shall have received an opinion, dated
the Closing Date, of Deloitte & Touche, to the same effect as the opinion
contemplated by Section 11 E of this Agreement.
I. Tax-Free Bond Fund shall have received at the closing all
of the assets of the Fund to be conveyed hereunder, which assets shall be
free and clear of all liens, encumbrances, security interests,
restrictions and limitations whatsoever.
11. The obligations of the Fund hereunder shall be subject to the
following conditions:
A. The Board of Trustees of Tax-Free Bond Fund shall have
authorized the execution of this Agreement, and the transactions
contemplated hereby, and Tax-Free Bond Fund shall have furnished to the
Fund copies of resolutions to that effect certified by the Secretary or
an Assistant Secretary of Tax-Free Bond Fund.
B. The Fund's shareholders shall have approved this Agreement
and the transactions contemplated hereby, by an affirmative vote of the
holders of a majority (as defined in the Investment Company Act of 1940,
as amended) of the outstanding voting securities of the Fund, and the Fund
shall have furnished Tax-Free Bond Fund copies of resolutions to that
effect certified by the Secretary or an Assistant Secretary of Main
Street.
C. The Fund shall have received an opinion dated the Closing
Date of counsel to Tax-Free Bond Fund, to the effect that (i) Tax-Free
Bond Fund is a validly existing Massachusetts business trust with full
power to carry on its business as then being conducted and to enter into
and perform this Agreement; (ii) all action necessary to make this
Agreement, according to its terms, valid, binding and enforceable upon
Tax-Free Bond Fund and to authorize effectively the transactions
contemplated thereby have been taken by Tax-Free Bond Fund, and (iii) the
shares of Tax-Free Bond Fund to be issued hereunder are duly authorized
and when issued will be validly issued, fully-paid and non-assessable.
D. The representations and warranties of Tax-Free Bond Fund
contained herein shall be true and correct at and as of the Closing Date,
and the Fund shall have been furnished with a certificate of the President
or the Secretary or the Treasurer of Tax-Free Bond Fund to that effect
dated the Closing Date.
E. The Fund shall have received an opinion of Deloitte &
Touche to the effect that the Federal tax consequences of the transaction,
if carried out in the manner outlined in this Plan of Reorganization and
in accordance with (i) the Fund's representation that there is no plan or
intention by any Fund shareholder who owns 5% or more of the Fund's
outstanding shares, and, to the Fund's best knowledge, there is no plan
or intention on the part of the remaining Fund shareholders, to redeem,
sell, exchange or otherwise dispose of a number of Tax-Free Bond Fund
shares received in the transaction that would reduce the Fund
shareholders' ownership of Tax-Free Bond Fund shares to a number of shares
having a value, as of the Closing Date, of less than 50% of the value of
all of the formerly outstanding Fund shares as of the same date, and (ii)
the representation by each of the Fund and Tax-Free Bond Fund that, as of
the Closing Date, the Fund and Tax-Free Bond Fund will qualify as
regulated investment companies or will meet the diversification test of
Section 368(a)(2)(F)(ii) of the Code; will be as follows:
1. The transactions contemplated by the Reorganization Plan will
qualify as a tax-free "reorganization" within the meaning of
Section 368(a)(1) of the Internal Revenue Code of 1986, as
amended, and under the regulations promulgated thereunder.
2. The Fund and Tax-Free Bond Fund will each qualify as a "party
to a reorganization" within the meaning of Section 368(b)(2).
3. No gain or loss will be recognized by the shareholders of the
Fund upon the distribution of shares of beneficial interest in
Tax-Free Bond Fund to the shareholders of the Fund pursuant to
Section 354.
4. Under Section 361(a) no gain or loss will be recognized by the
Fund by reason of the transfer of its assets solely in exchange
for shares of Tax-Free Bond Fund.
5. Under Section 1032 no gain or loss will be recognized by Tax-
Free Bond Fund by reason of the transfer of the Fund's assets
solely in exchange for shares of Tax-Free Bond Fund.
6. The stockholders of the Fund will have the same tax basis and
holding period for the shares of beneficial interest in Tax-Free
Bond Fund that they receive as they had for the Fund stock that
they previously held, pursuant to Sections 358(a) and 1223(1),
respectively.
7. The securities transferred by the Fund to Tax-Free Bond Fund
will have the same tax basis and holding period in the hands of
Tax-Free Bond Fund as they had for the Fund, pursuant to
Sections 362(b) and 1223(1), respectively.
F. The Cash Reserve shall not exceed 10% of the value of the
net assets, nor 30% in value of the gross assets, of the Fund at the close
of business on the Valuation Date.
G. A Registration Statement filed by Tax-Free Bond Fund under
the Securities Act of 1933 on Form N-14, containing a preliminary form of
the Proxy Statement and Prospectus shall have become effective under that
Act not later than December 31, 1992.
H. On the Closing Date, the Fund shall have received a letter
of Robert G. Galli, attorney-at-law, or Andrew J. Donohue, attorney-at-
law, or other counsel acceptable to the Fund, stating that nothing has
come to his attention which in his judgment would indicate that as of the
Closing Date there were any material actual or contingent liabilities of
Tax-Free Bond Fund arising out of litigation brought against Tax-Free Bond
Fund or claims asserted against it, or pending or, to the best of his
knowledge, threatened litigation not reflected in or apparent by the most
recent audited financial statements and footnotes thereto of Tax-Free Bond
Fund delivered to the Fund. Such letter may also include such additional
statements relating to the scope of the review conducted by such counsel
and his responsibilities and liabilities as are not unreasonable under the
circumstances.
I. The Fund shall acknowledge receipt of the shares of Tax-
Free Bond Fund.
12. Main Street hereby represents and warrants that:
(a) The financial statements of the Fund as at June 30, 1992
(audited) and December 31, 1991 (unaudited) heretofore furnished to Tax-
Free Bond Fund, present fairly the financial position, results of
operations, and changes in net assets of the Fund as of that date, in
conformity with generally accepted accounting principles applied on a
basis consistent with the preceding year; and that from June 30, 1992
through the Closing Date there will not be, any material adverse change
in the business or financial condition of the Fund, it being agreed that
a decrease in the size of the Fund due to a diminution in the value of its
portfolio and/or redemption of its shares shall not be considered a
material adverse change;
(b) Contingent upon approval of this Agreement by the Fund's
shareholders, Main Street has authority to transfer all of the assets of
the Fund to be conveyed hereunder free and clear of all liens,
encumbrances, security interests, restrictions and limitations whatsoever;
(c) The prospectus as amended and supplemented contained in
Main Street's Registration Statement under the Securities Act of 1933, as
amended, is true, correct and complete, conforms to the requirements of
the Securities Act of 1933 and does not contain any untrue statement of
a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading. The
Registration Statement, as amended, was, as of the date of the filing of
the last Post-Effective Amendment, true, correct and complete, conformed
to the requirements of the Securities Act of 1933 and did not contain any
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein
not misleading;
(d) There is no material contingent liability of Main Street
and no material legal, administrative or other proceedings pending or, to
the knowledge of Main Street, threatened against Main Street, not
reflected in such prospectus;
(e) There are no material contracts outstanding to which Main
Street is a party other than those ordinary in the conduct of its
business;
(f) Main Street is a duly organized, validly existing and in
good standing under the laws of the State of Maryland;
(g) All Federal and other tax returns and reports of Main
Street required by law to be filed have been filed, and all Federal and
other taxes shown due on said returns and reports have been paid or
provision shall have been made for the payment thereof and to the best of
the knowledge of Main Street no such return is currently under audit and
no assessment has been asserted with respect to such returns and to the
extent such tax returns with respect to the taxable year of the Fund ended
June 30, 1992 have not been filed, such returns will be filed when
required and the amount of tax shown as due thereon shall be paid when
due; and
(h) The Fund has elected to be treated as a regulated
investment company and, for each fiscal year of its operations, the Fund
has met the requirements of Subchapter M of the Code for qualification
and treatment as a regulated investment company and the Fund intends to
meet such requirements with respect to its current taxable year.
13. Tax-Free Bond Fund hereby represents and warrants that:
(a) The financial statements of Tax-Free Bond Fund as at June
30, 1991 (unaudited) and December 31, 1991 (audited) heretofore furnished
to the Fund, present fairly the financial position, results of operations,
and changes in net assets of Tax-Free Bond Fund, as of that date, in
conformity with generally accepted accounting principles applied on a
basis consistent with the preceding year; and that from December 31, 1991
through the date hereof there have not been, and through the Closing Date
there will not be, any material adverse changes in the business or
financial condition of Tax-Free Bond Fund, it being understood that a
decrease in the size of Tax-Free Bond Fund due to a diminution in the
value of its portfolio and/or redemption of its shares shall not be
considered a material or adverse change;
(b) The prospectus as amended and supplemented contained in
Tax-Free Bond Fund's Registration Statement under the Securities Act of
1933, as amended, is true, correct and complete, conforms to the
requirements of the Securities Act of 1933 and does not contain any untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not
misleading. The Registration Statement, as amended, was, as of the date
of the filing of the last Post-Effective Amendment, true, correct and
complete, conformed to the requirements of the Securities Act of 1933 and
did not contain any untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary to make the
statements therein not misleading;
(c) There is no material contingent liability of Tax-Free Bond
Fund and no material, legal, administrative or other proceedings pending
or, to the knowledge of Tax-Free Bond Fund, threatened against Tax-Free
Bond Fund, not reflected in such prospectus;
(d) There are no material contracts outstanding to which Tax-
Free Bond Fund is a party other than those ordinary in the conduct of its
business;
(e) Tax-Free Bond Fund is a validly existing Massachusetts
business trust; has all necessary and material Federal, state and local
authorizations to own all its properties and assets and to carry on its
business as now being conducted; the shares which it issues to the Fund
pursuant to this Agreement will be duly authorized, validly issued, fully-
paid and non-assessable, except as otherwise set forth in Tax-Free Bond
Fund's Registration Statement; will conform to the description thereof
contained in Tax-Free Bond Fund's Registration Statement, and will be duly
registered under the Securities Act of 1933 and in the states where
registration is required; and Tax-Free Bond Fund is duly registered under
the Investment Company Act of 1940 and such registration has not been
revoked or rescinded and is in full force and effect;
(f) All Federal and other tax returns and reports of Tax-Free
Bond Fund required by law to be filed have been filed, and all Federal and
other taxes shown due on said returns and reports have been paid or
provision shall have been made for the payment thereof and to the best of
the knowledge of Tax-Free Bond Fund no such return is currently under
audit and no assessment has been asserted with respect to such returns and
to the extent such tax returns with respect to the taxable year of Tax-
Free Bond Fund ended December 31, 1991 have not been filed, such returns
will be filed when required and the amount of tax shown as due thereon
shall be paid when due;
(g) Tax-Free Bond Fund has elected to be treated as a regulated
investment company and, for each fiscal year of its operations, Tax-Free
Bond Fund has met the requirements of Subchapter M of the Code for
qualification and treatment as a regulated investment company and Tax-Free
Bond Fund intends to meet such requirements with respect to its current
taxable year;
(h) Tax-Free Bond Fund has no plan or intention (i) to dispose
of any of the assets transferred by the Fund, other than in the ordinary
course of business, or (ii) to redeem or reacquire any of the shares
issued by it in the reorganization other than pursuant to valid requests
of shareholders; and
(i) After consummation of the transactions contemplated by the
Agreement, Tax-Free Bond Fund intends to operate its business in a
substantially unchanged manner.
14. Each party hereby represents to the other that no broker or
finder has been employed by it with respect to this Agreement or the
transactions contemplated hereby. Each party also represents and warrants
to the other that the information concerning it in the Proxy Statement and
Prospectus will not as of its date contain any untrue statement of a
material fact or omit to state a fact necessary to make the statements
concerning it therein not misleading and that the financial statements
concerning it will present the information shown fairly in accordance with
generally accepted accounting principles applied on a basis consistent
with the preceding year. Each party also represents and warrants to the
other that this Agreement is valid, binding and enforceable in accordance
with its terms and that the execution, delivery and performance of this
Agreement will not result in any violation of, or be in conflict with, any
provision of any charter, by-laws, contract, agreement, judgment, decree
or order to which it is subject or to which it is a party. Tax-Free Bond
Fund hereby represents to and covenants with the Fund that, if the
reorganization becomes effective, Tax-Free Bond Fund will treat each
shareholder of the Fund who received any of its shares as a result of the
reorganization as having made the minimum initial purchase of shares of
Tax-Free Bond Fund received by such shareholder for the purpose of making
additional investments in shares of such series, regardless of the value
of the shares of Tax-Free Bond Fund received.
15. Tax-Free Bond Fund agrees that it will prepare and file a
Registration Statement under the Securities Act of 1933 on Form N-14 and
which shall contain a preliminary form of proxy statement and prospectus
contemplated by Rule 145 under the Securities Act of 1933. The final form
of such proxy statement and prospectus is referred to in this Agreement
as the "Proxy Statement and Prospectus" and that term shall include any
prospectus to shareholders of Tax-Free Bond Fund which is included in the
material mailed to the shareholders of the Fund. Each party agrees that
it will use its best efforts to have such Registration Statement declared
effective and to supply such information concerning itself for inclusion
in the Proxy Statement and Prospectus as may be necessary or desirable in
this connection.
16. The obligations of the parties under this Agreement shall be
subject to the right of either party to abandon and terminate this
Agreement without liability if the other party breaches any material
provision of this Agreement or if any material legal, administrative or
other proceeding shall be instituted or threatened between the date of
this Agreement and the Closing Date (i) seeking to restrain or otherwise
prohibit the transactions contemplated hereby and/or (ii) asserting a
material liability of either party, which proceeding has not been
terminated or the threat thereof removed prior to the Closing Date.
17. This Agreement may be executed in several counterparts, each of
which shall be deemed an original, but all taken together shall constitute
one Agreement. The rights and obligations of each party pursuant to this
Agreement shall not be assignable.
18. All prior or contemporaneous agreements and representations are
merged into this Agreement, which constitutes the entire contract between
the parties hereto. No amendment or modification hereof shall be of any
force and effect unless in writing and signed by the parties and no party
shall be deemed to have waived any provision herein for its benefit unless
it executes a written acknowledgement of such waiver.
19. Main Street understands that the obligations of Tax-Free Bond
Fund under this Agreement are not binding upon any Trustee or shareholder
of Tax-Free Bond Fund personally, but bind only Tax-Free Bond Fund and
Tax-Free Bond Fund's property. Main Street represents that it has notice
of the provisions of the Declaration of Trust of Tax-Free Bond Fund
disclaiming shareholder and Trustee liability for acts or obligations of
Tax-Free Bond Fund.
IN WITNESS WHEREOF, each of the parties has caused this Agreement to
be executed and attested by its officers thereunto duly authorized on the
date first set forth above.
MAIN STREET FUNDS, INC.
Attest: /s/ Robert G. Zack By: /s/ Jon S. Fossel
- -------------------------- -----------------------------
Robert G. Zack Jon S. Fossel, President
OPPENHEIMER TAX-FREE BOND FUND
Attest: /s/ Robert G. Zack By: /s/ Robert G. Galli
- -------------------------- -------------------------------
Robert G. Zack Robert G. Galli, Secretary
<PAGE>
Exhibit 24(b)(9)(vi)
AGREEMENT AND PLAN OF REORGANIZATION
AGREEMENT AND PLAN OF REORGANIZATION dated this 22nd day of October,
1993, by and between M I Fund, Inc. (the "Fund"), a New York corporation,
and Oppenheimer Tax-Free Bond Fund ("OTFBF"), a Massachusetts business
trust.
W I T N E S S E T H:
WHEREAS, the Fund is a closed-end investment company and OTFBF is an open-
end investment company, each of the management type and registered under
the Investment Company Act of 1940, as amended (the "1940 Act"); and
WHEREAS, the parties hereto desire to provide for the reorganization
pursuant to Section 368(a)(1) of the Internal Revenue Code of 1986, as
amended (the "Code"), of the Fund through the acquisition by OTFBF of
substantially all of the assets of the Fund solely in exchange for Class
A shares of beneficial interest of OTFBF ("Class A Shares"), and the
subsequent distribution by the Fund of those Class A Shares pro rata to
its shareholders in complete liquidation of the Fund;
NOW, THEREFORE, in consideration of the mutual promises herein
contained, the parties hereto agree as follows:
1. The parties hereto hereby adopt a Plan of Reorganization
pursuant to Section 368(a)(1)(C) of the Code as follows: The
reorganization will be comprised of the acquisition of substantially all
of the assets (as hereinafter described) of the Fund solely in exchange
for a certain number (to be determined in accordance with Section 2,
Section 3 and Section 5 hereof) of Class A Shares (the number of Class A
Shares so determined, the "Consideration Shares") followed by the
distribution of the Consideration Shares to the shareholders of the Fund
at the Valuation Time (as defined in Section 3 hereof) who have not
elected dissenter's rights as set forth in Section 5 hereof (the
"Shareholders") in complete liquidation of the Fund, all upon and subject
to the terms of this agreement and plan of reorganization (the
"Agreement") hereinafter set forth.
2. On the Closing Date (as hereinafter defined), (i) the Fund shall
transfer and deliver (or cause to be so transferred and delivered) to
OTFBF, free and clear of all liens, encumbrances, restrictions and claims
(other than Permitted Liens (defined in Section 8 hereof)), the assets of
the Fund consisting of portfolio securities, cash (excluding the Cash
Reserve as defined below) and receivables (other than any unpaid portion
of the $35,000 referred to in Section 8 hereof validly due and owing to
the Fund) as the same shall exist on that date (the "Assets") and (ii)
OTFBF shall deliver to the Fund (in accordance with Section 5 hereof) in
exchange therefor, the Consideration Shares. The Assets shall exclude a
cash reserve (the "Cash Reserve") which shall be retained by the Fund for
the payment by it in respect of Dissenting Shares (as discussed in Section
5 hereof), and the Liabilities (as hereinafter defined) of the Fund, if
any, and which Cash Reserve shall not exceed the amount contemplated by
Section 10E. The aggregate number of Consideration Shares to be delivered
by OTFBF at the closing shall be such number as shall have, as of the
Valuation Time, an aggregate net asset value equal to the value of the
Assets so transferred and delivered. The issuance of Consideration
Shares to the Fund pursuant to this Agreement shall be without any sales
charge or sales load.
3. The net asset value of the Consideration Shares of OTFBF and the
value of the Assets shall in each case be determined as of the close of
business of the New York Stock Exchange on the business day immediately
preceding the Closing Date (the "Valuation Time"). The foregoing
valuation shall be prepared using the method consistently used by OTFBF
in the ordinary course prior to the date of this Agreement to compute the
net asset value of its shares and shall be based on information extracted
from Interactive Data, an independent portfolio pricing service
("Interactive"). OTFBF agrees that, promptly after receipt of a listing
of the Fund's portfolio securities and cusip or ticket numbers therefor,
which listing shall be delivered by the Fund at the Valuation Time and
contain information as of such time, OTFBF shall obtain from Interactive
the market value for each such portfolio security; the Fund acknowledges
that OTFBF shall take such action as a convenience to the Fund only at the
Fund's request, and that OTFBF makes no representation or warranty as to
the accuracy or completeness of any such information. In accordance with
the foregoing, OTFBF and the Fund shall each respectively prepare a report
setting forth, as of the Valuation Time, its respective total net assets,
the number of its shares outstanding, the net asset value of the Class A
shares or the net asset value of the Fund's shares, respectively, and as
to each of its portfolio securities, the cusip or ticket number,
description thereof, units held and market value determined as aforesaid
(the "Valuation Report"). A Valuation Report shall be delivered by each
of OTFBF and the Fund to the other on the Closing Date.
The Fund shall declare and pay, at least one but not more than
20 business days prior to the Closing Date, a dividend or dividends which,
together with all previous such dividends, shall have the effect of
distributing to the Fund's shareholders all of the Fund's investment
company taxable income for all periods since 1979 through and including
the Closing Date (computed without regard to any dividends paid
deduction), all of the Fund's net capital gain, if any, realized in such
periods (after reduction for any capital loss carry-forward) and at least
90% of the excess, if any, of the Fund's interest income excludable from
gross income under Section 103(a) of the Code over its deductions
disallowed under Section 265 or Section 171(a)(2) of the Code for the
period from January 1, 1993 through the Closing Date.
4. The closing shall be held at the offices of Oppenheimer
Management Corporation, Two World Trade Center, Suite 3400, New York, New
York 10048, at 2:00 P.M. (New York time) on the 20th business day
following the later to occur of: (i) the receipt of favorable rulings
from the Internal Revenue Service as to the matters set forth in Items 1
through 10 under "Rulings Requested" in the private letter ruling request
by the Fund, a copy of which is attached hereto as Exhibit 4 (the "IRS
Rulings"); and (ii) the receipt of the requisite approval by the
shareholders of the Fund of the Agreement and the transactions
contemplated hereby, or at such other time or place as the parties may
designate (the "Closing Date").
In the event that, as of the Valuation Time scheduled pursuant
to the prior paragraph, the valuation referred to in Section 3 cannot be
effected for any reason beyond the control of the affected party,
including, but not limited to, a suspension in trading or if OTFBF has,
pursuant to the 1940 Act or any rule, regulation or order thereunder,
suspended the redemption of its shares or postponed payment therefor, the
Closing Date shall be postponed until the third business day after the
date when the affected party shall have notified the other that a
valuation can be effected or that, as to OTFBF, it has ceased such
suspension or postponement; provided, however, that if such condition
preventing the valuation, or such suspension, shall continue for a period
of 60 days beyond the Valuation Time, then the non-affected party shall
be permitted to terminate this Agreement without liability to the other
for such termination.
5. As soon as practicable after the closing, the Fund shall
distribute on a pro rata basis to its Shareholders the Consideration
Shares in liquidation of the Fund. For the purpose of the distribution
by the Fund of the Consideration Shares to the Shareholders, OTFBF will
promptly cause its transfer and shareholder servicing agent (the "Agent")
to: (a) credit an appropriate number of shares of OTFBF on the books of
OTFBF to each Shareholder of the Fund in accordance with a list (the
"Shareholder List") of the Shareholders received at or prior to closing
from the Fund; and (b) confirm the issuance of an appropriate number of
shares of OTFBF to each Shareholder; certificates for shares of OTFBF will
be issued only upon written request of a Shareholder but only for whole
shares with fractional shares credited to the name of the Shareholder on
the books of OTFBF.
The Shareholder List shall indicate, as of the Valuation Time,
the name, address and taxpayer I.D. number of each Shareholder, indicating
his or her share balance and whether such shares are represented by
certificates and, if so, the certificate numbers thereof and such other
information as the Agent may reasonably request. The Fund agrees to
supply the Shareholder List to OTFBF not later than the Closing Date. The
Fund further agrees to deliver to OTFBF on or before the Closing Date all
such other information and documents available to the Fund relating to
Shareholders as may be necessary for OTFBF and the Agent to perform all
necessary shareholder accounting, communication and related services
subsequent to the reorganization. No Shareholder holding certificates
representing shares in the Fund shall be required to surrender his, her
or its certificates to anyone in connection with the reorganization.
After the reorganization, however, it will be necessary for such
Shareholders to surrender such certificates (or provide indemnities
reasonably acceptable to OTFBF in respect of lost certificates) in order
to receive certificates representing Class A Shares or to redeem, transfer
or exchange the Class A Shares which they received.
Notwithstanding anything in this Agreement to the contrary,
holders of shares of the Fund outstanding at the Valuation Time who have
not voted in favor of this Agreement and the transactions contemplated
hereby, including the reorganization, and who have elected to receive
payment with respect thereto under Section 910 and in accordance with
Section 623 of the New York Business Corporation Law (the "NYBCL") shall
not be considered Shareholders and shall not be entitled to receive shares
of OTFBF as provided above, but shall only be entitled to receive from the
Fund payment of the "fair value" of the shares of the Fund held on the
Valuation Date as to which they have dissented (the "Dissenting Shares")
in accordance with the provisions of such Section 623; except that each
Dissenting Share held by a shareholder who shall thereafter withdraw such
election to receive payment or otherwise lose the right to receive payment
(such event, the "Loss of Payment Right") as provided in Section 623,
shall thereupon be deemed to have been converted into the right to receive
(promptly following receipt of the payment referred to in the second
following sentence) and OTFBF shall thereupon issue the number of Class
A Shares determined by dividing the Deemed Value of a Dissenting Share (as
defined below) by the net asset value of one Class A Share at the close
of business on the day of the Loss of Payment Right (or, if such day shall
not be a business day, the next succeeding business day) and such
shareholder shall thereafter have the rights of a "Shareholder" for the
purposes of this Agreement. The term "Deemed Value of a Dissenting Share"
means the quotient determined by dividing the value of the Assets
transferred at the Closing by the number of outstanding shares of the Fund
(excluding the number of Dissenting Shares) on the Valuation Date. A
portion of the Cash Reserve equal to the Deemed Value of a Dissenting
Share shall be paid by the Fund to OTFBF in consideration of the issuance
of such shares for each share of the Fund subject to a Loss of Payment
Right. Any amounts determined to be payable for Dissenting Shares shall
be paid by the Fund out of the Cash Reserve. Except for any issuance of
additional Class A Shares in respect of Dissenting Shares subject to a
Loss of Payment Right, OTFBF shall not be liable for any obligations,
claims or liabilities incurred in connection with the subject matter of
this paragraph. The Fund shall give OTFBF prompt notice of any elections
to receive payment, withdrawals or attempted withdrawals of such
elections, of amounts determined to be payable for Dissenting Shares
subject to a Loss of Payment Right and the bases therefor and any other
instruments served pursuant to the NYBCL or otherwise received by the Fund
relating to shareholders' rights under Sections 910 and 623 of the NYBCL.
6. Within one year after the closing, the Fund shall (a) pay or
make provision for payment of all of its Liabilities and (b) distribute
any remaining amount of the Cash Reserve (after paying or making
provisions for such Liabilities and the estimated cost of making the
distribution) to the Shareholders. If the foregoing cannot be effectuated
within one year after the closing, despite good faith efforts of the Fund,
the Fund will, at the end of such one-year period, transfer the remaining
amount of the Cash Reserve to a liquidating trust upon terms reasonably
acceptable to OTFBF.
7. Portfolio securities or written evidence acceptable to OTFBF of
record ownership thereof by The Depository Trust Company or through the
Federal Reserve Book Entry System or any other depository approved by the
Fund pursuant to Rule 17f-4 under the 1940 Act shall be endorsed and
delivered, or transferred by appropriate transfer or assignment documents,
by the Fund on the Closing Date to OTFBF, or at its direction, to OTFBF's
custodian bank, in proper form for transfer and in such condition as to
constitute good delivery thereof in accordance with the custom of brokers
and shall be accompanied by all necessary state transfer stamps, if any,
or funds for the appropriate purchase price thereof. Prior to the Closing
Date, the Fund shall make the portfolio securities available for
inspection by the custodian. Any cash included in the Assets shall, at
the Fund's option, be delivered in the form of certified or bank cashiers'
checks, by bank wire or other method of transfer acceptable to OTFBF
payable to the order of OTFBF for the account of OTFBF. The Consideration
Shares registered in the name of the Fund, shall be transferred to the
Fund on the Closing Date and shall thereupon be assigned and distributed
by the Fund to its shareholders as provided in Section 5 hereof.
If, at the Closing Date, the Fund is unable to make delivery
under this Section 7 to OTFBF of any of its portfolio securities or cash
for the reason that any of such securities purchased by the Fund, or the
cash proceeds of a sale of portfolio securities, prior to the Closing Date
have not yet been delivered to it or the Fund's custodian, then the
delivery requirements of this Section 7 with respect to said undelivered
securities or cash will be waived and the Fund will deliver to OTFBF by
or on the Closing Date and with respect to said undelivered securities or
cash executed copies of an agreement or agreements of assignment of such
securities or cash to OTFBF in a form satisfactory to OTFBF, together with
such other documents, including a due bill or due bills and brokers'
confirmation slips as may reasonably be required by OTFBF.
8. OTFBF shall not assume and shall not otherwise be responsible
for any liabilities (except the obligations, if any, to pay the purchase
price of portfolio securities purchased by the Fund which have not settled
("Permitted Liens")), taxes, obligations, expenses, contracts,
commitments, agreements and arrangements relating to (i) the Assets or
(ii) the Fund, the Fund's predecessors and the Fund's affiliates,
directors, officers, employees and agents, in each case, whether fixed,
contingent, accrued or otherwise ("Liabilities"). The Fund expressly
agrees to remain liable for and discharge all its Liabilities whether
incurred prior to or subsequent to the Closing Date. The cost of filing,
printing and mailing the Proxy Statement and Prospectus (as defined in
Section 14) and related solicitation material associated with this
reorganization will be paid by the Fund. Any documents such as existing
prospectuses or annual reports that are included in that mailing will be
a cost of the fund issuing the document. Any other out-of-pocket expenses
associated with this reorganization, including legal, accounting and tax,
and transfer agent expenses, will be borne by the party that incurred such
expense. Notwithstanding the foregoing, at the closing OTFBF shall cause
one of its affiliates to pay to the Fund on behalf of OTFBF, promptly
after receipt by OTFBF of reasonably detailed vouchers therefor, the
Fund's reasonable and necessary expenses which are solely and directly
related to this reorganization in an aggregate amount not to exceed
$35,000; provided, that, if for any reason the reorganization shall not
be consummated, any of such expenses previously reimbursed to the Fund
shall be repaid to OTFBF on behalf of its affiliate and any further right
of the Fund to reimbursement under this Section 8 shall cease.
9. The obligations of OTFBF hereunder shall be subject to the
following conditions, unless waived in writing by OTFBF, and the Fund
shall use its best efforts to cause the following conditions to be
satisfied in a timely manner:
A. The Board of Directors of the Fund shall have authorized
the execution of this Agreement and the transactions contemplated hereby,
and the shareholders of the Fund shall have approved the Agreement and the
transactions contemplated herein; such shareholder approval shall have
been by the vote of the holders of two-thirds of the outstanding shares
of the Fund in conformity with the provisions of the NYBCL at a meeting
for which proxies have been solicited by the Proxy Statement and
Prospectus; and the Fund shall have furnished to OTFBF copies of
resolutions with respect to each of the foregoing certified by the
Secretary or an Assistant Secretary of the Fund.
B. OTFBF shall have received an opinion dated the Closing Date
of counsel to the Fund, to the effect that: (i) the Fund is a corporation
duly organized, validly existing and in good standing under the laws of
the State of New York with full corporate power to enter into and perform
this Agreement; (ii) all corporate action necessary to make this
Agreement, according to its terms, valid, binding and enforceable on the
Fund and to authorize the transactions contemplated by this Agreement have
been taken by the Fund; (iii) the Agreement has been duly executed and
delivered by the Fund and constitutes a valid and binding obligation of
the Fund, enforceable against the Fund in accordance with its terms,
subject to applicable bankruptcy, insolvency, reorganization, fraudulent
conveyance, moratorium and similar laws affecting creditors rights and
remedies generally and subject, as to enforceability, to general
principles of equity (regardless of whether enforcement is sought in a
proceeding at law or in equity (the "Bankruptcy Exception")); and (iv) the
execution and delivery of this Agreement does not, and the consummation
of the transactions contemplated by the Agreement will not, conflict with,
or result in any violation of, or constitute a default (with or without
notice or lapse of time, or both) under (a) the Certificate of
Incorporation or By-Laws of the Fund, or (b) any loan, credit agreement,
note, bond, mortgage, indenture, lease or contract applicable to the Fund,
its assets and properties as identified to such counsel by the Fund (other
than any such conflicts, violations or defaults that individually or in
the aggregate would not have a material adverse effect on the Fund or
prevent consummation of the transactions contemplated hereby), or (c) any
judgment, order or decree known to such counsel to which the Fund is
subject or any state or federal law or regulation applicable to the Fund
or its assets and properties.
C. The representations and warranties of the Fund contained
herein shall be true and correct in all material respects at and as of the
Closing Date and the Fund shall have performed, in all material respects,
each of the covenants required to be performed by the Fund at or prior to
closing, and OTFBF shall have been furnished with a certificate of the
President or the Vice President of the Fund, dated the Closing Date, to
that effect.
D. On the Closing Date, the Fund shall have furnished to OTFBF
a certificate of the Treasurer or Assistant Treasurer of the Fund as to
the amount of the capital loss carry-over and net unrealized appreciation
or depreciation, if any, with respect to the Fund as of the Closing Date.
E. The Cash Reserve shall not exceed 5% of the value of the
net assets, nor 5% in value of the gross assets, of the Fund at the
Valuation Time.
F. A Registration Statement filed by OTFBF under the
Securities Act of 1933, as amended (the "Securities Act"), on Form N-14
and containing a preliminary form of the Proxy Statement and Prospectus
shall have become effective under the Securities Act not later than
December 31, 1993 and shall remain in effect through to the Closing Date
with no stop order being issued thereon.
G. OTFBF shall have received a letter of an executive officer
of the Fund in form reasonably acceptable to OTFBF stating that between
the date hereof and the Closing Date there has been no material adverse
change in the Assets, the operations or the financial condition of the
Fund (it being understood that a decrease in the size of the Fund due to
a diminution in the value of its portfolio shall not be considered a
material adverse change) and that nothing has come to his attention which
would indicate that as of the Closing Date there were any Liabilities of
the Fund not fully covered by the Cash Reserve or expected not to be so
covered or litigation with respect to the Fund not set forth on Exhibit
11.M.
H. OTFBF shall have received a copy of the IRS Rulings.
I. OTFBF shall have received at the closing all of the Assets
to be conveyed hereunder, free and clear of all liens, encumbrances,
security interests, restrictions and limitations whatsoever except the
Permitted Liens.
J. No temporary restraining order, preliminary or permanent
injunction or other order issued by any court of competent jurisdiction
or other legal restraint or prohibition preventing the consummation of the
reorganization shall be in effect.
K. At or prior to the Closing Date, the Fund shall have
delivered to OTFBF two copies of a list setting forth the securities then
owned by the Fund and the respective federal income tax bases thereof.
10. The obligations of the Fund hereunder shall be subject to the
following conditions, unless waived in writing by the Fund, and OTFBF
shall use its best efforts to cause the following conditions (excluding
Section 11B, 11E and 11F) to be satisfied in a timely manner:
A. The Board of Trustees of OTFBF shall have authorized the
execution of this Agreement, and the transactions contemplated hereby, and
OTFBF shall have furnished to the Fund copies of resolutions to that
effect certified by the Secretary or an Assistant Secretary of OTFBF.
B. The Fund's shareholders shall have approved this Agreement
and the transactions contemplated hereby, by an affirmative vote of the
holders of two-thirds of the outstanding voting shares of the Fund.
C. The Fund shall have received an opinion dated the Closing
Date of counsel to OTFBF, to the effect that: (i) OTFBF is a Massachusetts
business trust duly organized, validly existing and in good standing under
the laws of the Commonwealth of Massachusetts; (ii) all action necessary
to make this Agreement, according to its terms, valid, binding and
enforceable upon OTFBF and to authorize effectively the transactions
contemplated thereby have been taken by OTFBF; (iii) except as otherwise
set forth in the Proxy Statement and Prospectus under "Additional
Information - Description of the Fund and its Shares" and the Statement
of Additional Information under "Additional Information" for OTFBF, the
Consideration Shares to be issued hereunder are duly authorized and when
issued will be validly issued, fully-paid and non-assessable; and (iv) the
Agreement has been duly executed and delivered by OTFBF and constitutes
a valid and binding obligation of OTFBF, enforceable against OTFBF in
accordance with its terms, subject to the Bankruptcy Exception.
D. The representations and warranties of OTFBF contained
herein shall be true and correct in all material respects at and as of the
Closing Date and OTFBF shall have performed, in all material respects,
each of the covenants required to be performed by OTFBF at or prior to the
closing, and the Fund shall have been furnished with a certificate of the
President or the Vice President of OTFBF to that effect dated the Closing
Date.
E. The Fund shall have received the IRS Rulings.
F. The Cash Reserve shall not exceed 5% of the value of the
net assets, nor 5% in value of the gross assets, of the Fund at the
Valuation Time.
G. A Registration Statement filed by OTFBF under the
Securities Act on Form N-14, containing a preliminary form of the Proxy
Statement and Prospectus shall have become effective under the Securities
Act not later than December 31, 1993 and shall remain in effect through
to the Closing Date with no stop order being issued thereon.
H. No temporary restraining order, preliminary or permanent
injunction or other order issued by any court of competent jurisdiction
or other legal restraint or prohibition preventing the consummation of the
reorganization shall be in effect.
11. The Fund hereby represents and warrants that:
A. The financial statements of the Fund as at December 31,
1992 (audited), March 31, 1993 (unaudited) and June 30, 1993 (unaudited)
heretofore furnished to OTFBF, present fairly the financial position,
results of operations, and changes in net assets of the Fund as of their
respective dates and for their respective periods, as applicable, in
conformity with generally accepted accounting principles applied on a
basis consistent with the preceding year; and from December 31, 1992
through the date hereof there has not been, and through the Closing Date
there will not be, any material adverse change in the business or
financial condition of the Fund, it being agreed that a decrease in the
size of the Fund due to a diminution in the value of its portfolio shall
not be considered a material adverse change.
B. Exhibit 11.B. sets forth the assets of the Fund as of the
date hereof including, with respect to the Fund's portfolio securities,
a description thereof, the number of units held and the corresponding
cusip or ticket number. Contingent upon approval of this Agreement by the
Fund's shareholders, the Fund has authority to transfer all of the assets
of the Fund to be conveyed hereunder free and clear of all liens,
encumbrances, security interests, restrictions and limitations whatsoever
excluding the Permitted Liens.
C. The Registration Statement of the Fund on Form N-2, as
amended, was, as of the date of the filing of the last Post-Effective
Amendment, true, correct and complete, conformed to the requirements of
the Securities Act and the 1940 Act and did not contain any untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in light
of the circumstances under which they were made, not misleading.
D. Except as set forth on Exhibit 11.D., there are no
Liabilities in existence as of the date hereof.
E. Except as set forth on Exhibit 11.E., there are no
contracts, agreements or commitments in existence, whether written or
oral, to which the Fund (or a predecessor) is a party or has succeeded to
a party by assumption or assignment or in which it has a beneficial
interest other than those entered into by the Fund in the ordinary conduct
of its business and the Fund has delivered or made available to OTFBF, as
to each such contract, agreement or other commitment, a true and complete
copy or description thereof and as to any oral contract, agreement or
other commitment, a true and complete description thereof.
F. The Fund is a corporation duly organized, validly existing
and in good standing under the laws of the State of New York, with the
requisite corporate power and authority to enter into and perform this
Agreement and, subject to approval of its shareholders, to consummate the
transactions contemplated hereby; all corporate action necessary to make
this Agreement, according to its terms, valid, binding and enforceable on
the Fund and to authorize the transactions contemplated by this Agreement
have been taken by the Fund subject to approval of this Agreement by the
shareholders of the Fund; the Agreement has been duly executed and
delivered by the Fund and constitutes a valid and binding obligation of
the Fund, enforceable against the Fund in accordance with its terms,
subject to the approval of its shareholders and the Bankruptcy Exception;
the execution and delivery of this Agreement does not, and the
consummation of the transactions contemplated by the Agreement will not,
conflict with, or result in any violation of, or constitute a default
(with or without notice or lapse of time, or both) under (a) the
Certificate of Incorporation or By-Laws of the Fund, or (b) any loan,
credit agreement, note, bond, mortgage, indenture, lease or contract
applicable to the Fund, its assets and properties (other than any such
conflicts, violations or defaults that individually or in the aggregate
would not have a material adverse effect on the Fund or prevent
consummation of the transactions contemplated hereby), or (c) any
judgment, order or decree to which the Fund is subject or any state or
federal law or regulation applicable to the Fund or its assets and
properties; and the Fund is duly registered under the 1940 Act (and such
registration has not been revoked or rescinded and is in full force and
effect).
G. All Federal and other tax returns and reports of the Fund
required by law to be filed have been filed, and all Federal and other
taxes shown to be due on said returns and reports have been paid or
provision shall have been made for the payment thereof and to the best of
the knowledge of the Fund no such return is currently under audit and no
assessment has been asserted with respect to such returns and to the
extent such tax returns with respect to the taxable year of the Fund ended
December 31, 1992 have not been filed, such returns will be filed when
required and the amount of tax shown as due thereon shall be paid when
due.
H. The Fund has elected to be treated as a regulated
investment company and, since its election in 1980 to the present, the
Fund has met the requirements of Subchapter M of the Code for
qualification and treatment as a regulated investment company and the
Fund intends to meet such requirements with respect to its current taxable
year.
I. There are 1,626,594 shares of common stock of the Fund, par
value $.10 per share, issued and outstanding, which shares constitute the
only outstanding shares of the Fund. There are no outstanding rights,
options, warrants, conversion rights, preemptive rights or agreements with
respect to shares of the Fund. Set forth on Exhibit 11.I. hereto are the
names, addresses and share ownership amounts of each shareholder of the
Fund that beneficially (as that term is defined under the federal
securities laws) owns 1% or more of the Fund's outstanding shares.
J. The copies of the Certificate of Incorporation and By-laws
of the Fund, and all amendments thereto, previously delivered to OTFBF are
true, complete and correct.
K. There is no plan or intention by any Fund shareholder who
owns 1% or more of the Fund's outstanding shares, and, to the Fund's best
knowledge, there is no plan or intention on the part of the remaining Fund
shareholders, to redeem, sell, exchange or otherwise dispose of a number
of Consideration Shares received in the transaction that would reduce the
Fund shareholders' ownership of OTFBF shares to a number of shares having
a value, as of the Closing Date, of less than 50% of the value of all of
the formerly outstanding Fund shares as of the same date. With respect
to the foregoing representation, attached hereto as Exhibit 11.K. are true
and complete copies of representation letters signed by each such 1% or
greater shareholder.
L. No consent, approval, governmental filing, authorization
or permit from any person or entity is necessary for the execution and
delivery of this Agreement and the consummation of the transactions
contemplated by this Agreement.
M. Except as set forth on Exhibit 11.M., there are no claims,
actions, suits, proceedings or investigations pending, or, to the best of
the Fund's knowledge, threatened, by or against or involving the Fund or
any predecessor or affiliate of the Fund, or any director, officer,
employee or agent of the Fund.
12. OTFBF hereby represents and warrants that:
A. The financial statements of OTFBF as at December 31, 1992
(audited) and June 30, 1993 (unaudited) heretofore furnished to the Fund,
present fairly the financial position, results of operations, and changes
in net assets of OTFBF, as of their respective dates and for their
respective periods, as applicable, in conformity with generally accepted
accounting principles applied on a basis consistent with the preceding
year; and from December 31, 1992 through the date hereof there have not
been, and through the Closing Date there will not be, any material adverse
changes in the business or financial condition of OTFBF, it being
understood that a decrease in the size of OTFBF due to a diminution in the
value of its portfolio and/or redemption of its shares shall not be
considered a material or adverse change.
B. The prospectus of OTFBF contained in the most recent Post-
Effective Amendment to its Registration Statement on Form N-1A under the
Securities Act, as subsequently amended or supplemented, is true, correct
and complete, conforms to the requirements of the Securities Act and does
not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading. The Registration Statement of OTFBF
under the Securities Act was, as of the date of the filing of the last
Post-Effective Amendment, true, correct and complete, conformed to the
requirements of the Securities Act and did not contain any untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in light
of the circumstances under which they were made, not misleading.
C. OTFBF is a Massachusetts business trust duly organized,
validly existing and in good standing under the laws governing
Massachusetts business trusts with the requisite power and authority
granted to business trusts to enter into and perform this Agreement and
consummate the transactions contemplated hereby; all necessary action
necessary to make this Agreement, according to its terms, valid, binding
and enforceable on OTFBF and to authorize the transactions contemplated
by this Agreement have been taken by OTFBF; the Agreement has been duly
executed and delivered by OTFBF and constitutes a valid and binding
obligation of OTFBF, enforceable against OTFBF in accordance with its
terms, subject to the Bankruptcy Exception; the execution and delivery of
this Agreement does not, and the consummation of the transactions
contemplated by the Agreement will not, conflict with, or result in any
violation of, or constitute a default (with or without notice or lapse of
time, or both) under (a) the Declaration of Trust or By-Laws of OTFBF, or
(b) any loan, credit agreement, note, bond, mortgage, indenture, lease or
contract applicable to OTFBF, its assets and properties (other than any
such conflicts, violations or defaults that individually or in the
aggregate would not have a material adverse effect on the Fund or prevent
consummation of the transactions contemplated hereby), or (c) any
judgment, order or decree to which OTFBF is subject or any state or
federal law or regulation applicable to OTFBF or its assets and
properties; the Consideration Shares which it issues to the Fund pursuant
to this Agreement will be duly authorized, validly issued, fully-paid and
non-assessable, except as otherwise set forth in the Prospectus of OTFBF
dated March 16, 1993, supplemented May 1, 1993, under "Additional
Information - Description of the Fund and its Shares" and the Statement
of Additional Information of OTFBF dated March 16, 1993 under "Additional
Information"; will conform to the description thereof contained in OTFBF's
Registration Statement on Form N-1A (except that the Consideration Shares
will be issued pursuant to this Agreement without any sales load or sales
charge), and will be duly registered under the Securities Act and in the
states where registration is required; and OTFBF is duly registered under
the 1940 Act (and such registration has not been revoked or rescinded and
is in full force and effect).
D. All Federal and other tax returns and reports of OTFBF
required by law to be filed have been filed, and all Federal and other
taxes shown due on said returns and reports have been paid or provision
shall have been made for the payment thereof and to the best of the
knowledge of OTFBF no such return is currently under audit and no
assessment has been asserted with respect to such returns and to the
extent such tax returns with respect to the taxable year of OTFBF ended
December 31, 1992 have not been filed, such returns will be filed when
required and the amount of tax shown as due thereon shall be paid when
due.
E. OTFBF has elected to be treated as a regulated investment
company and, for each fiscal year of its operations, OTFBF has met the
requirements of Subchapter M of the Code for qualification and treatment
as a regulated investment company and OTFBF intends to meet such
requirements with respect to its current taxable year.
F. OTFBF has no plan or intention to reacquire any shares of
its capital stock issued in the transaction, other than pursuant to a
valid request of a shareholder in accordance with OTFBF's normal
redemption policy.
G. OTFBF has no plan or intention to sell or otherwise dispose
of any of the Assets acquired in the reorganization contemplated by this
Agreement, except for dispositions made in the ordinary course of
business.
H. Following the transactions contemplated by this Agreement,
OTFBF will continue the historic business of the Fund or use a significant
portion of the Fund's historic business assets in a business.
I. There is no intercorporate indebtedness existing between
OTFBF and the Fund that was issued or acquired, or will be settled, at a
discount.
J. OTFBF does not own, directly or indirectly, nor has it
owned during the past five years, directly or indirectly, any shares of
the capital stock of the Fund.
13. Each party hereby represents and warrants to the other that the
information concerning it in the Proxy Statement and Prospectus will not
as of its date or at any time thereafter and through the Closing Date
contain any untrue statement of a material fact or omit to state a fact
necessary to make the statements concerning it therein not misleading and
that the financial statements concerning it will present the information
shown fairly in accordance with generally accepted accounting principles
applied on a basis consistent with the preceding year. OTFBF hereby
represents to and covenants with the Fund that, if the reorganization
becomes effective, OTFBF will treat each shareholder of the Fund who
received any of its shares as a result of the reorganization as having
made the minimum initial investment of shares of OTFBF for the purpose of
making additional investments in shares of OTFBF, regardless of the value
of the shares of OTFBF received.
14. OTFBF agrees that it will prepare and file a Registration
Statement under the Securities Act on Form N-14 and which shall contain
a preliminary form of proxy statement and prospectus contemplated by Rule
145 under the Securities Act. The final form of such proxy statement and
prospectus is referred to in this Agreement as the "Proxy Statement and
Prospectus" and that term shall include any prospectus to shareholders of
OTFBF which is included in the material mailed to the shareholders of the
Fund. Each party agrees that it will use its best efforts to have such
Registration Statement declared effective and to supply such information
concerning itself for inclusion in the Proxy Statement and Prospectus as
may be necessary or desirable in this connection.
15. (a) The Fund covenants and agrees to afford to OTFBF, its
counsel, accountants and other representatives reasonable access, during
normal business hours throughout the period prior to the Closing Date, to
the books, records, employees and representatives of the Fund.
Simultaneously with the execution of this Agreement, the parties shall
execute a confidentiality agreement in the form of Exhibit 15(a) hereto.
(b) The Fund represents and warrants that set forth on Exhibit
15(b) hereto is a true and complete description of its investment
objectives, investment policies and investment restrictions, all of which
are in full force and effect as of the date hereof, and the Fund covenants
and agrees that during the period from the date hereof until the Closing
Date such investment objectives, investment policies and investment
restrictions will not be changed in any manner whatsoever except pursuant
to a statutory amendment or regulatory requirement during such time.
(c) The Fund covenants that during the period from the date
hereof until the Closing Date, except as otherwise consented to, or
approved in writing by OTFBF or expressly provided for in this Agreement,
the Fund (i) will not conduct its business other than in the ordinary
course substantially in the manner heretofore conducted and consistent
with the Fund's investment objectives, policies and restrictions as set
forth on Exhibit 15(b) hereto, (ii) will not permit or allow any of the
Assets to be subjected to any encumbrance other than Permitted Liens,
(iii) will not enter into any material transaction or otherwise incur any
material Liability other than in the normal course of business consistent
with past practice, (iv) will not declare, set aside or pay any dividend
or make any other distribution except for payment of its regular quarterly
dividends consistent with past practice, and (v) will not agree, whether
in writing or otherwise, to do any of the foregoing. Notwithstanding the
foregoing, the Fund covenants that (x) between the date of this Agreement
and the Closing Date, promptly following any transaction involving an
acquisition or disposition by the Fund of portfolio securities, the Fund
shall provide to OTFBF a written report detailing such transaction and (y)
upon the request of OTFBF, to promptly sell one or more portfolio
securities acquired by the Fund between the date of this Agreement and the
Closing Date and (z) to transfer to OTFBF on the Closing Date only those
Assets the acquisition of which will permit OTFBF to be in compliance with
all of its investment policies and restrictions.
(d) Each of the parties covenants and agrees to use its best
efforts (which will not include the payment of money or expenditures in
excess of nominal amounts) to obtain at the earliest practicable date and
prior to the closing all notices, consents, approvals, governmental
filings, authorizations and permits and to take all other action necessary
to the consummation of the transactions contemplated by this Agreement;
the Fund covenants and agrees to use its best efforts to cause as of the
Closing Date the discharge and satisfaction of such Liabilities and other
obligations as may reasonably be discharged as of such date.
(e) The Fund covenants and agrees to comply with the provisions
of Sections 910 and 623 of the NYBCL.
(f) The Fund covenants and agrees to maintain in the ordinary
course consistent with past practice its books and records through to the
date of its dissolution and liquidation and to prepare and file all
documents, reports and instruments and take such action, including,
without limitation, under the federal securities laws and state laws, that
is required or appropriate to be filed or taken by it prior to, and/or in
connection with, its dissolution and liquidation.
16. The obligations of the parties under this Agreement shall be
subject to the right of either party to abandon and terminate this
Agreement without liability, including pursuant to Section 8 hereof, if
(i) the other party breaches any material provision of this Agreement and
fails to cure such breach within a reasonable period of time after
reasonable notice, (ii) if any legal, administrative or other proceeding
shall be instituted or threatened between the date of this Agreement and
the Closing Date (a) seeking to restrain or otherwise prohibit the
transactions contemplated hereby and/or (b) asserting a material liability
of either party, which proceeding or liability has not been terminated or
the threat thereof removed prior to the Closing Date or (c) the Closing
Date shall not have occurred by March 31, 1994 as a result of a failure
to obtain requisite shareholder approval or a favorable IRS Ruling.
17. This Agreement may be executed in several counterparts, each of
which shall be deemed an original, but all taken together shall constitute
one Agreement. The rights and obligations of each party pursuant to this
Agreement shall not be assignable.
18. All prior or contemporaneous agreements and representations are
merged into this Agreement, which constitutes the entire contract between
the parties hereto. No amendment or modification hereof shall be of any
force and effect unless in writing and signed by the parties and no party
shall be deemed to have waived any provision herein for its benefit unless
it executes a written acknowledgement of such waiver.
19. The Fund understands that the obligations of OTFBF under this
Agreement are not binding upon any Trustee or shareholder of OTFBF
personally, but bind only OTFBF and OTFBF's property. The Fund represents
that it has notice of the provisions of the Declaration of Trust of OTFBF
disclaiming shareholder and Trustee liability for acts or obligations of
OTFBF.
20. Neither of the parties shall make any press release of the
transactions contemplated by this Agreement, or any discussion in
connection therewith, without the prior written consent of the other
party. The preceding sentence shall not apply to any disclosures required
to be made by applicable laws, as determined by counsel; however, the
applicable party shall consult with the other party concerning the timing
and content of such disclosure before making it.
21. The representations, warranties and covenants set forth in this
Agreement shall survive the closing.
IN WITNESS WHEREOF, each of the parties has caused this Agreement to
be executed and attested by its officers thereunto duly authorized on the
date first set forth above.
M I FUND, INC.
Attest: /s/ Harvey Silverman By: /s/ Steven Meltzer
- ---------------------------- ------------------------
Name: Harvey Silverman Name: Steven Meltzer
Title: Secretary Title: President
OPPENHEIMER TAX-FREE
BOND FUND
Attest: /s/ Andrew J. Donohue By: /s/ Robert E. Patterson
- ----------------------------- ---------------------------
Name: Andrew J. Donohue Name: Robert E. Patterson
Title: Secretary Title: Vice President
<PAGE>
Exhibit 24(b)(11)
INDEPENDENT AUDITORS' CONSENT
The Board of Trustees
Oppenheimer Tax-Free Bond Fund:
We consent to the use of our report dated January 21, 1994 included herein
and to the reference to our firm under the heading "Financial Highlights"
in the Prospectus.
/s/ KPMG Peat Marwick
---------------------
KPMG Peat Marwick
Denver, Colorado
April 25, 1994
<PAGE>
Exhibit 24(B)(16)
Oppenheimer Tax-Free Bond Fund
Performance Data Computation Schedule
The Fund's average annual total returns and total returns are calculated
as described below, on the basis of the Fund's distributions for the past
10 years, which are as follows:
Distribution Amount From Amount From
Reinvestment Investment Long or Short Term Reinvestment
(Ex) Date Income Capital Gains Price
Class A Shares
01/19/84 0.0550 0.0000 7.840
02/16/84 0.0525 0.0000 7.870
03/22/84 0.0650 0.0000 7.730
04/19/84 0.0500 0.0000 7.750
05/17/84 0.0500 0.0000 7.560
06/21/84 0.0600 0.0000 7.480
07/19/84 0.0500 0.0000 7.580
08/16/84 0.0500 0.0000 7.770
09/20/84 0.0680 0.0000 7.750
10/18/84 0.0560 0.0000 7.600
11/21/84 0.0670 0.0000 7.660
12/20/84 0.0560 0.0000 7.770
01/24/85 0.0720 0.0000 8.040
02/21/85 0.0550 0.0000 7.990
03/21/85 0.0530 0.0000 7.940
04/25/85 0.0670 0.0000 8.120
05/23/85 0.0510 0.0000 8.400
06/20/85 0.0520 0.0000 8.490
07/25/85 0.0640 0.0000 8.490
08/22/85 0.0500 0.0000 8.360
09/19/85 0.0500 0.0000 8.230
10/24/85 0.0650 0.0000 8.320
11/21/85 0.0520 0.0000 8.560
12/19/85 0.0510 0.0000 8.690
01/23/86 0.0670 0.0000 8.950
02/20/86 0.0570 0.0000 9.290
03/20/86 0.0530 0.0000 9.430
04/24/86 0.0650 0.0000 9.470
05/22/86 0.0520 0.0000 9.240
06/19/86 0.0550 0.0000 9.130
07/24/86 0.0650 0.0000 9.230
08/21/86 0.0540 0.0000 9.480
09/18/86 0.0520 0.0000 9.560
10/16/86 0.0500 0.0000 9.610
11/13/86 0.0520 0.0000 9.710
12/11/86 0.0520 0.0000 9.770
01/08/87 0.0520 0.0000 9.790
02/05/87 0.0530 0.0000 9.900
03/05/87 0.0520 0.0000 10.000
04/02/87 0.0520 0.0000 9.830
04/30/87 0.0530 0.0000 9.150
<PAGE>
Oppenheimer Tax-Free Bond Fund
April 12, 1994
Page 2
Distribution Amount From Amount From
Reinvestment Investment Long or Short Term Reinvestment
(Ex) Date Income Capital Gains Price
Class A Shares
05/28/87 0.0530 0.0000 9.030
06/25/87 0.0520 0.0000 9.260
07/22/87 0.0520 0.0000 9.270
08/19/87 0.0520 0.0000 9.250
09/16/87 0.0520 0.0000 8.950
10/14/87 0.0520 0.0000 8.580
11/11/87 0.0520 0.0000 8.980
12/09/87 0.0520 0.0000 8.980
01/06/88 0.0530 0.0000 9.120
02/03/88 0.0530 0.0000 9.370
03/02/88 0.0530 0.0000 9.400
03/30/88 0.0530 0.0000 9.160
04/27/88 0.0530 0.0000 9.170
05/25/88 0.0530 0.0000 9.100
06/22/88 0.0530 0.0000 9.180
07/20/88 0.0530 0.0000 9.150
08/17/88 0.0530 0.0000 9.110
09/14/88 0.0530 0.0000 9.250
10/12/88 0.0530 0.0000 9.280
11/09/88 0.0530 0.0000 9.300
12/07/88 0.0530 0.0000 9.210
01/04/89 0.0530 0.0000 9.260
02/01/89 0.0520 0.0000 9.340
03/01/89 0.0520 0.0000 9.210
03/29/89 0.0520 0.0000 9.140
04/26/89 0.0520 0.0000 9.280
05/24/89 0.0520 0.0000 9.410
06/21/89 0.052018 0.0000 9.440
07/19/89 0.0520 0.0000 9.470
08/16/89 0.0500 0.0000 9.420
09/13/89 0.0500 0.0000 9.380
10/11/89 0.0500 0.0000 9.360
11/08/89 0.0500 0.0000 9.350
12/06/89 0.0500 0.0000 9.460
01/03/90 0.0500 0.0000 9.420
01/31/90 0.0500 0.0000 9.290
02/28/90 0.0500 0.0000 9.330
03/28/90 0.0500 0.0000 9.310
04/25/90 0.0500 0.0000 9.210
05/23/90 0.0500 0.0000 9.280
06/20/90 0.0500 0.0000 9.300
07/18/90 0.0500 0.0000 9.370
08/15/90 0.0500 0.0000 9.350
09/19/90 0.0624999 0.0000 9.180
10/10/90 0.0374997 0.0000 9.100
11/07/90 0.0500 0.0000 9.240
12/05/90 0.0500 0.0000 9.360
<PAGE>
Oppenheimer Tax-Free Bond Fund
April 12, 1994
Page 3
Distribution Amount From Amount From
Reinvestment Investment Long or Short Term Reinvestment
(Ex) Date Income Capital Gains Price
Class A Shares
01/02/91 0.0500 0.0000 9.330
01/30/91 0.0500 0.0000 9.350
02/27/91 0.0500 0.0000 9.380
03/27/91 0.0500004 0.0000 9.360
04/24/91 0.0499996 0.0000 9.420
05/22/91 0.0500 0.0000 9.450
06/19/91 0.0500 0.0000 9.360
07/17/91 0.0500 0.0000 9.440
08/14/91 0.0500 0.0000 9.550
09/11/91 0.0500 0.0000 9.560
10/09/91 0.0499996 0.0000 9.650
11/06/91 0.0500000 0.0000 9.640
12/04/91 0.0500000 0.0000 9.590
01/02/92 0.0497143 0.0000 9.770
01/29/92 0.0462857 0.0000 9.700
02/26/92 0.0480000 0.0000 9.620
03/25/92 0.0480000 0.0000 9.600
04/22/92 0.0480000 0.0000 9.680
05/20/92 0.0480000 0.0000 9.780
06/17/92 0.0480000 0.0000 9.790
07/15/92 0.0480000 0.0000 10.000
08/12/92 0.0480000 0.0000 10.120
09/09/92 0.0000000 0.0880 9.990
10/07/92 0.0480000 0.0000 9.890
11/04/92 0.0480000 0.0000 9.720
12/02/92 0.0480000 0.0000 9.890
12/30/92 0.0480000 0.0304657 9.930
01/27/93 0.0480000 0.0000 9.970
02/24/93 0.0480000 0.0000 10.260
<PAGE>
Oppenheimer Tax-Free Bond Fund
April 12, 1994
Page 4
Distribution Amount From Amount From
Reinvestment Investment Long or Short Term Reinvestment
(Ex) Date Income Capital Gains Price
Class B Shares
03/24/93 0.0480000 0.0000 10.210
04/21/93 0.0480000 0.0000 10.210
05/19/93 0.0480000 0.0000 10.180
06/10/93 0.0521000 0.0000 10.220
07/09/93 0.0521000 0.0000 10.390
08/10/93 0.0521000 0.0000 10.400
09/10/93 0.0521000 0.0880 10.670
10/08/93 0.0521000 0.0000 10.710
11/10/93 0.0482567 0.0000 10.500
12/10/93 0.0467000 0.2107286 10.440
03/24/93 0.0112506 0.0000 10.210
04/21/93 0.0386165 0.0000 10.210
05/19/93 0.0386203 0.0000 10.180
06/10/93 0.0461132 0.0000 10.210
07/09/93 0.0440752 0.0000 10.380
08/10/93 0.0447820 0.0000 10.400
09/10/93 0.0443316 0.0880 10.660
10/08/93 0.0452110 0.0000 10.700
11/10/93 0.0408275 0.0000 10.500
12/10/93 0.0394105 0.2107286 10.410
<PAGE>
Oppenheimer Tax-Free Bond Fund
April 12, 1994
Page 5
1. AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED 12/31/93:
The formula for calculating average annual total return is as
follows:
1 ERV n
--------------- = n (---) - 1 = average annual total return
number of years P
Where: ERV = ending redeemable value of a hypothetical $1,000
payment made at the beginning of the period
P = hypothetical initial investment of $1,000
Class A Shares
Examples, assuming a maximum sales charge of 4.75%:
One Year Five Year
$1,083.88 1 $1,526.06 .2
(---------) - 1 = 8.39% (---------) - 1 = 8.82%
$1,000 $1,000
Ten Year
$2,699.23 .1
(---------) - 1 = 10.44%
$1,000
Examples at NAV:
One Year Five Year
$1,137.93 1 $1,602.16 .2
(---------) - 1 = 13.79% (---------) - 1 = 9.89%
$1,000 $1,000
Ten Year
$2,833.84 .1
(---------) - 1 = 10.98%
$1,000
Class B Shares
Example, assuming a maximum contingent deferred sales charge of
5.00% for the first year:
Inception (03/16/93)
$1,034.85 1.2625
(---------) - 1 = 4.42%
$1,000
Example at NAV:
Inception (03/16/93)
$1,084.85 1.2625
(---------) - 1 = 10.83%
$1,000
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Oppenheimer Tax-Free Bond Fund
April 29, 1994
Page 6
2. CUMULATIVE TOTAL RETURNS FOR THE PERIODS ENDED 12/31/93:
The formula for calculating cumulative total return is as follows:
ERV - P
------- = Cumulative Total Return
P
Class A Shares
Examples, assuming a maximum sales charge:
One Year Five Year
$1,083.88 - 1,000 $1,526.06 0 1,000
----------------- = 8.39% ----------------- = 52.61%
$1,000 $1,000
Ten Year
$2,699.23 - 1,000
----------------- = 169.92%
$1,000
Examples at NAV:
One Year Five Year
$1,137.93 - 1,000 $1,602.16 - 1,000
----------------- = 13.79% ----------------- = 60.22%
$1,000 $1,000
Ten Year
$2,833.84 - 1,000
----------------- = 183.38%
$1,000
Class B Shares
Inception (03/16/93)(at Maximum Contingent Deferred Sales Charge of 5.00%)
$1,034.85 - $1,000
-------------------- = 3.49%
$1,000
Inception (03/16/93)(at NAV)
$1,084.85 - $1,000
-------------------- = 8.49%
$1,000
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Oppenheimer Tax-Free Bond Fund
April 29, 1994
Page 7
3. STANDARDIZED YIELDS FOR THE 30-DAY PERIOD ENDED 12/31/93:
The Fund's standarized yield is calculated using the following formula
set
forth in the SEC rules:
a - b 6
Standarized Yield = 2{(------- + 1) - 1}
cd or e
The symbols above represent the following factors:
a = Dividends and interest earned during the 30-day period.
b = Expenses accrued for the period (net of any expense
reimbursements).
c = The average daily number of Fund shares outstanding during
the 30-day period that were entitled to receive dividends.
d = The Fund's maximum offering price (including sales charge)
per share on the last day of the period.
e = The Fund's net asset value (including sales charge)
per share on the last day of the period.
Class A Shares
Example, assuming a maximum sales charge of 4.75%:
$3,166,397.05 - $447,086.71 6
2{(--------------------------- + 1) - 1} = 5.21%
57,814,531 x $10.96
Class B Shares
Example at NAV:
$ 164,548.72 - $ 45,579.43 6
2{(--------------------------- + 1) - 1} = 4.60%
3,001,867 x $10.43
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Oppenheimer Tax-Free Bond Fund
April 29, 1994
Page 8
4. TAX-EQUIVALENT STANDARIZED YIELDS FOR THE 30-DAY PERIOD ENDED
12/31/93:
The Fund's tax-equivalent standarized yield is calculated using the
following formula:
a
----- + b = Tax-Equivalent Standarized Yield
1 - c
The symbols above represent the following factors:
a = 30-day SEC yield of tax-exempt security positions in the portfolio.
b = 30-day SEC yield of taxable security positions in the portfolio.
c = Combined stated tax rate (e.g., federal income tax rate for an
individual in the 39.6% federal tax bracket filing singly).
Class A Shares
Example, assuming a maximum sales charge of 4.75%:
.0521
----------- + 0 = 8.63%
1 - .3960
Class B Shares
Example at NAV:
.0460
----------- + 0 = 7.62%
1 - .3960
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Oppenheimer Tax-Free Bond Fund
April 29, 1994
Page 9
5. DIVIDEND YIELDS FOR THE 30-DAY PERIOD ENDED 12/31/93:
The Fund's dividend yields are calculated using the following
formula:
a/30 x 365
Dividend Yield = ----------
b or c
The symbols above represent the following factors:
a = The accrual dividend earned during the period.
b = The Fund's maximum offering price (including sales charge)
per share on the last day of the period.
c = The Fund's Net Asset Value (excluding sales charge)per share
on the last day of the period.
Examples:
Class A Shares
Dividend Yield $.0466483/30 x 365
at Maximum Offer ------------------ = 5.18%
$10.96
Dividend Yield $.0466483/30 x 365
at Net Asset Value ------------------ = 5.44%
$10.44
Class B Shares
Dividend Yield $.0398486/30 x 365
at Net Asset Value ------------------ = 4.65%
$10.43
