Oppenheimer
Tax-Free Bond Fund
Prospectus dated August 29, 1995
Oppenheimer Tax-Free Bond Fund (the "Fund") is a mutual fund that
seeks as high a level of current interest income 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.
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
August 29, 1995 Statement of Additional Information. For a free copy,
call Oppenheimer Shareholder Services, the Fund's Transfer Agent, at
1-800-525-7048, or write to the Transfer Agent at the address on the back
cover. The Statement of Additional Information has been filed with the
Securities and Exchange Commission and is incorporated into this
Prospectus by reference (which means that it is legally part of this
Prospectus).
(logo) OppenheimerFunds
Shares of the Fund are not deposits or obligations of any bank, are not
guaranteed by any bank, are not insured by the F.D.I.C. or any other
agency, and involve investment risks including the possible loss of the
principal amount invested.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
Contents
3 ABOUT THE FUND
3 Expenses
5 A Brief Overview of the Fund
7 Financial Highlights
9 Investment Objective and Policies
16 How the Fund is Managed
18 Performance of the Fund
21 ABOUT YOUR ACCOUNT
21 How to Buy Shares
Class A Shares
Class B Shares
Class C Shares
32 Special Investor Services
AccountLink
Automatic Withdrawal and Exchange Plans
Reinvestment Privilege
33 How to Sell Shares
By Mail
By Telephone
Checkwriting
36 How to Exchange Shares
37 Shareholder Account Rules and Policies
39 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 subtracted from the Fund's assets to calculate the Fund's net
asset value per share. All shareholders therefore pay those expenses
indirectly. Shareholders pay other expenses directly, such as sales
charges. The following tables are provided to help you understand your
direct expenses of investing in the Fund and your share of the Fund's
business operating expenses that you will expect to bear indirectly. The
numbers below are based on the Fund's expenses during its last fiscal year
ended December 31, 1994.
- Shareholder Transaction Expenses are charges you pay when you buy or
sell shares of the Fund. Please refer to "About Your Account," from pages
21 through 36 for an explanation of how and when these charges apply.
<TABLE>
<CAPTION>
Class A Class B Class C
Shares Shares Shares
<S> <C> <C> <C>
Maximum Sales Charge
on Purchases (as a %
of offering price) 4.75% None None
- --------------------------------------------------------------
Sales Charge on
Reinvested Dividends None None None
- --------------------------------------------------------------
Deferred Sales Charge
(as a % of the lower of
the original purchase
price or redemption
proceeds) None(1) 5% in the first 1% if shares
year, declining are redeemed
to 1% in the within 12 months
sixth year and of purchase(2)
eliminated
thereafter(2)
- --------------------------------------------------------------
Exchange Fee None None None
<FN>
- -------------------------
(1) If you invest more than $1 million in Class A shares, you may have to
pay a sales charge of up to 1% if you sell your shares within 18 calendar
months from the end of the calendar month during which you purchased those
shares. See "How to Buy Shares - Class A Shares," below.
(2) See "How to Buy Shares - Class B Shares" and "How to Buy Shares -
Class C Shares," below, for information on contingent deferred sales
charges.
</TABLE>
- 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 (referred to in this Prospectus as the "Manager").
The rates of the Manager's fees are set forth in "How the Fund Is
Managed," below. The Fund has other regular expenses for services, such
as transfer agent fees, custodial fees paid to the bank that holds its
portfolio securities, audit fees and legal expenses. These expenses are
detailed in the Fund's Financial Statements in the Statement of Additional
Information.
The numbers in the table below are projections of the Fund's business
expenses based on the Fund's expenses in its last fiscal year. These
amounts are shown as a percentage of the average net assets of each class
of the Fund's shares for that year. The 12b-1 Plan Fees for Class A
shares are service fees. For Class B and Class C shares the 12b-1 Plan
Fees are a service fee (0.25% of average annual net assets of that class)
and the asset-based sales charge. The service fee for each class is 0.25%
of average annual net assets of the class and the asset-based sales charge
is 0.75% of average annual net assets of the class. These plans are
described in greater detail in "How to Buy Shares."
<TABLE>
<CAPTION>
Class A Class B Class C
Shares Shares Shares
- -------------------------------------------------------------------------
<S> <C> <C> <C>
Management Fees 0.53% 0.53% 0.53%
- -------------------------------------------------------------------------
12b-1 Plan Fees 0.21% 1.00% 1.00%
- -------------------------------------------------------------------------
Other Expenses 0.14% 0.16% 0.16%
- -------------------------------------------------------------------------
Total Fund Operating Expenses 0.88% 1.69% 1.69%
</TABLE>
The actual expenses for each class of shares in future years may be
more or less than the numbers in the table, depending on a number of
factors, including the actual value of the Fund's assets represented by
each class of shares. Class C shares were not publicly offered during the
Fund's fiscal year ended December 31, 1994; therefore, the Annual Fund
Operating Expenses for Class C shares are estimates of the amounts that
would have been payable if Class C shares had been outstanding during this
period.
- 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 Annual Fund
Operating Expenses table above. If you were to redeem your shares at the
end of each period shown below, your investment would incur the following
expenses by the end of 1, 3, 5 and 10 years:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years*
<S> <C> <C> <C> <C>
Class A Shares $56 $74 $ 94 $151
Class B Shares $67 $83 $112 $158
Class C Shares $22 $53 $92 $200
If you did not redeem your investment, it would incur the following expenses:
1 year 3 years 5 years 10 years*
Class A Shares $56 $74 $94 $151
Class B Shares $17 $53 $92 $158
Class C Shares $17 $53 $92 $200
<FN>
__________________________
* 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. Because of the effect of the
asset-based sales charge and the contingent deferred sales charge on Class
B and Class C shares, long-term Class B and Class C shareholders could pay
the economic equivalent of more than the maximum front-end sales charge
allowed under applicable regulatory requirements. For Class B
shareholders, the automatic conversion of Class B shares to Class A shares
is designed to minimize the likelihood that this will occur. Please refer
to "Buying Class B Shares" on pages 28-31 for more information.
These examples show the effect of the current level of expenses on
the return of a hypothetical investment, but are not meant to state or
predict actual or expected expenses or investment returns of the Fund, all
of which will vary.
<PAGE>
A Brief Overview of the Fund
Some of the important facts about the Fund are summarized below, with
references to the section of this Prospectus where more complete
information can be found. You should carefully read the entire Prospectus
before making a decision about investing in the Fund. Keep the Prospectus
for reference after you invest, particularly for information about your
account, such as how to sell or exchange shares.
- What Is The Fund's Investment Objective? The Fund's investment
objective is to seek as high a level of current interest income which is
exempt from Federal income taxes as is available from Municipal
Securities, while attempting to preserve capital.
- What Does the Fund Invest In? Under normal market conditions, the
Fund will invest at least 80% of its assets in "Municipal Securities,"
which 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, the interest from
which is not subject to Federal individual income tax. The Fund may
invest up to 20% of its assets in investments the income from which may
be taxable. The Fund may also use hedging instruments and some derivative
investments in an effort to protect against market risks. These
investments are more fully explained in "Investment Objective and
Policies," starting on page 9.
- Who Manages the Fund? The Fund's investment adviser (the
"Manager") is Oppenheimer Management Corporation, which (including a
subsidiary) manages investment company portfolios having over $35 billion
in assets at June 30, 1995. The Fund has a portfolio manager, Robert E.
Patterson, who is employed by the Manager. He is primarily responsible
for the selection of the Fund's securities. The Manager is paid an
advisory fee by the Fund, based on its net assets. The Fund's Board of
Trustees, elected by shareholders, oversees the investment adviser.
Please refer to "How the Fund is Managed," starting on page 16 for more
information about the Manager and its fees.
- How Risky is the Fund? All investments carry risks to some degree.
The Fund's bond investments are subject to changes in their value from a
number of factors such as changes in general bond market movements, the
change in value of particular bonds because of an event affecting the
issuer, or changes in interest rates. These changes affect the value of
the Fund's investments and its price per share. The Fund may invest in
"inverse floater" variable rate bonds, a type of derivative investment
whose yields move in the opposite direction as short-term interest rates
change. In the OppenheimerFunds spectrum, the Fund is more conservative
than high yield bond funds but more aggressive than money market funds.
While the Manager tries to reduce risks by diversifying investments
and by carefully researching securities before they are purchased for the
portfolio, and in some cases by using hedging techniques, there is no
guarantee of success in achieving the Fund's objective and your shares may
be worth more or less than their original cost when you redeem them.
Please refer to "Investment Objective and Policies" starting on page 9 for
a more complete discussion of the Fund's investment risks.
- How Can I Buy Shares? You can buy shares through your dealer or
financial institution, or you can purchase shares directly through the
Distributor by completing an Application or by using an Automatic
Investment Plan under AccountLink. Please refer to "How To Buy Shares"
on page 21 for more details.
- Will I Pay a Sales Charge to Buy Shares? The Fund has three
classes of shares. All three classes have the same investment portfolio
but have different expenses. Class A shares are offered with a front-end
sales charge, starting at 4.75%, and reduced for larger purchases. Class
B shares and Class C shares are offered without a front-end sales charge,
but may be subject to a contingent deferred sales charge if redeemed
within 6 years or 12 months, respectively, of purchase. There are also
annual asset-based sales charges on Class B and Class C shares. Please
review "How To Buy Shares" starting on page 21 for more details, including
a discussion about factors you and your financial adviser should consider
in determining which class may be appropriate for you.
- How Can I Sell My Shares? Shares can be redeemed by mail or by
telephone call to the Transfer Agent on any business day, or through your
dealer or by using Checkwriting. Please refer to "How To Sell Shares" on
page 33. The Fund also offers exchange privileges to other
OppenheimerFunds, described in "How to Exchange Shares" on page 36.
- How Has the Fund Performed? The Fund measures its performance by
quoting its yield, tax-equivalent yield, average annual total return and
cumulative total return, which measure historical performance. Those
yields and returns can be compared to the yields and returns (over similar
periods) of other funds. Of course, other funds may have different
objectives, investments, and levels of risk. The Fund's performance can
also be compared to a broad market index, which we have done on page 20.
Please remember that past performance does not guarantee future results.
Financial Highlights
The table on the following pages presents selected financial
information about the Fund, including per share data and expense ratios
and other data based on the Fund's average net assets. This information
has been audited by KPMG Peat Marwick LLP, the Fund's independent
auditors, whose report on the Fund's financial statements for the fiscal
year ended December 31, 1994, is included in the Statement of Additional
Information. Class C shares of the Fund were not publicly offered during
the periods shown. Accordingly, no information on Class C shares is
included in the table or in the Fund's financial statements for the year
ended December 31, 1994.
</TABLE>
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------
Financial Highlights
------------------------------------------------------------------------------------------------------
Class A Class B
-------------------------------------------------------------------------------------- ---------------
Year Year Period
Ended Ended Ended
December 31, Dec. 31, Dec. 31,
1994 1993 1992 1991 1990 1989 1988 1987 1986 1985 1994 1993(1)
==========================================================
==========================================================
=============
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
<C> <C> <C>
Per Share Operating Data:
Net asset value, beginning
of period $10.44 $ 9.94 $ 9.77 $ 9.33 $ 9.45 $ 9.27 $ 9.12 $ 9.81 $ 8.80 $ 7.87 $ 10.43 $10.22
- ---------------------------------------------------------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .57 .59 .62 .64 .66 .65(2) .77(2) .69 .69 .70 .50 .41
Net realized and unrealized
gain (loss) on investments (1.52) .74 .25 .45 (.12) .20 .07 (.70) .99 .91 (1.52) .43
------ ------ ------ ------- ------ ------ ------- ------ ------ ------ ------- ------
Total income (loss) from
investment operations (.95) 1.33 .87 1.09 .54 .85 .84 (.01) 1.68 1.61 (1.02) .84
- ---------------------------------------------------------------------------------------------------------------------------------
Dividends and distributions
to shareholders:
Dividends from net
investment income (.56) (.62) (.58) (.65) (.66) (.67) (.69) (.68) (.67) (.68) (.49) (.42)
Distributions from net
realized gain on
investments -- (.21) (.12) -- -- -- -- -- -- -- -- (.21)
Distributions in excess
of net realized gain
on investments --(3) -- -- -- -- -- -- -- -- -- --(3) --
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total dividends and
distributions
to shareholders (.56) (.83) (.70) (.65) (.66) (.67) (.69) (.68) (.67) (.68) (.49) (.63)
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $ 8.93 $10.44 $ 9.94 $ 9.77 $ 9.33 $ 9.45 $ 9.27 $ 9.12 $ 9.81 $ 8.80 $ 8.92 $10.43
====== ====== ====== ====== ====== ====== ======
====== ====== ====== ====== ======
==========================================================
==========================================================
=============
Total Return,
at Net Asset Value(4) (9.19)% 13.79% 9.20% 12.11% 5.93% 9.42% 10.03% .00% 19.75% 21.38%
(9.91)% 8.49%
==========================================================
==========================================================
=============
Ratios/Supplemental Data:
Net assets,
end of period,
(in thousands) $541,161 $608,128 $496,628 $394,115 $256,542 $223,904 $172,227 $133,508 $132,234 $93,993 $53,245
$33,024
- ---------------------------------------------------------------------------------------------------------------------------------
Average net assets
(in thousands) $582,038 $567,777 $438,684 $319,081 $238,224 $202,216 $150,901 $135,052 $112,189 $80,974 $46,548
$16,444
- ---------------------------------------------------------------------------------------------------------------------------------
Number of shares
outstanding at
end of period
(in thousands) 60,634 58,277 49,964 40,356 27,505 23,699 18,581 14,633 13,480 10,681 5,972
3,166
- ---------------------------------------------------------------------------------------------------------------------------------
Ratios to average net
assets:
Net investment income 5.94% 5.71% 6.34% 6.70% 7.08% 7.18% 7.48% 7.41% 7.33% 8.36%
5.11% 4.54%(5)
Expenses .88% .88% .94% .89% .89% .82%(2) .72%(2) .78% .78% .82% 1.69%
1.74%(5)
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(6) 21.7% 30.2% 34.2% 23.5% 29.3% 57.2% 22.9% 29.4% 27.8% 210.7% 21.7%
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. Less than .005 per share.
4. 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.
5. Annualized.
6. The lesser of purchases or sales of portfolio securities for a period, divided by the monthly
average of the market value of portfolio securities owned during the period. Securities with a
maturity or expiration date at the time of acquisition of one year or less are excluded from the
calculation. Purchases and sales of investment securities (excluding short-term securities) for the
year ended December 31, 1994 were $156,047,252 and $135,336,771, respectively.
</FN>
</TABLE>
<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. Municipal Securities are municipal bonds
and municipal notes, tax-exempt commercial paper and other debt
obligations issued by or on behalf of the states, the District of
Columbia, their political subdivisions or any commonwealths, territories
or possessions of the United States, or their respective 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 Statement of Additional
Information 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, Capital Gains 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 in the next paragraph); (ii) hedging
instruments (described in "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 "Taxes,"
below, and "Private Activity Municipal Securities" in the Statement of
Additional Information).
In times of unstable economic or market conditions, the Manager may
determine that it is appropriate for the Fund to assume a temporary
"defensive" position by investing some or all of its assets (there is no
limit on the amount) in short-term money market instruments. These
include the taxable obligations described above, U.S. government
securities, bank obligations, commercial paper, corporate obligations and
other instruments approved by the Fund's Board of Trustees. This strategy
would be implemented to attempt to reduce fluctuations in the value of the
Fund's assets. The Fund may hold temporary investments pending the
investment of proceeds from the sale of Fund shares or portfolio
securities, pending settlement of purchases of Municipal Securities, or
to meet anticipated redemptions. To the extent the Fund assumes a
temporary defensive position, a portion of the Fund's distributions may
be subject to Federal and state income taxes and the Fund may not achieve
its objective.
- Can the Fund's Investment Objective and Policies Change? The Fund
has an investment objective, 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 investment policies. The Fund's investment policies and practices
are not "fundamental" unless this Prospectus or the Statement of
Additional Information says that a particular policy is "fundamental."
The Fund's investment objective is a fundamental policy.
Fundamental policies are those that cannot be changed without the
approval of a "majority" of the Fund's outstanding voting shares. The term
"majority" is defined in the Investment Company Act to be a particular
percentage of outstanding voting shares (and this term is explained in the
Statement of Additional Information). The Fund's Board of Trustees may
change non-fundamental policies without shareholder approval, although
significant changes will be described in amendments to this Prospectus.
- 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 the issuers of such securities
to meet interest and principal payments. Such values will also change in
response to changes in prevailing 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 values of Municipal Securities owned by the Fund
arising from these or other factors will not affect interest income
derived from those securities but will affect the Fund's net asset value
per share.
- Municipal Lease Obligations. Municipal leases may take the form
of a lease or an installment purchase contract issued by state and local
government authorities to obtain funds to acquire a wide variety of
equipment and facilities. 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. Certain
of these securities may be deemed to be "illiquid" securities and the
purchase 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 Investments. The Fund may
invest in certain municipal "derivative investments." The Fund may use
some derivative investments for hedging purposes, and may invest in others
because they offer the potential for increased income and principal value.
In general, a "derivative investment" is a specially-designed investment
whose performance is linked to the performance of another investment or
security, such as an option, future or index. In the broadest sense,
derivative investments include exchange-traded options and futures
contracts (please refer to "Hedging," below).
The Fund may invest in "inverse floater" variable rate bonds, a type
of derivative investment whose yields move in the opposite direction as
short-term interest rates change. As interest rates rise, inverse
floaters produce less current income. Their price may be more volatile
than the price of a comparable fixed-rate security. Some inverse floaters
have a "cap" whereby if interest rates rise above the "cap," the security
pays additional interest income. If rates do not rise above the "cap,"
the Fund will have paid an additional amount for a feature that proves
worthless. The Fund may also invest in municipal securities that pay
interest that depends on an external pricing mechanism, also a type of
derivative investment. Examples of external pricing mechanisms are
interest rate swaps or caps and municipal bond or swap indices. The Fund
anticipates that under normal circumstances it will invest no more than
10% of its net assets in inverse floaters.
The risks of investing in derivative investments include not only the
ability of the issuer of the derivative investment to pay the amount due
on the maturity of the investment, but also the risk that the underlying
security or investment might not perform the way the Manager expected it
to perform. That can mean that the Fund will realize less income than
expected. Another risk of investing in derivative investments is that
their market value could be expected to vary to a much greater extent than
the market value of municipal securities that are not derivative
investments but have similar credit quality, redemption provisions and
maturities.
- Ratings of Municipal Securities. No more than 25% of the Fund's
total assets will be invested in Municipal Securities that at the time of
purchase are not "investment-grade," that is, rated below the four highest
rating categories of Moody's Investors Service, Inc. ("Moody's), Standard
& Poor's Corporation ("S&P"), or Fitch Investors Service, Inc. ("Fitch"),
or, if unrated, are not judged by the Manager to be comparable quality to
Municipal Securities rated within such grades. (See Appendix B to the
Statement of Additional Information for a description of these ratings.
A reduction in the rating of a security after its purchase by the Fund
will not require the Fund to dispose of such security.
Lower-grade Municipal Securities (sometimes called "municipal junk
bonds") may be subject to greater market fluctuations and are subject to
greater risks of loss of income and principal than higher-rated Municipal
Securities, and may be considered to have some speculative
characteristics. Securities that are or that have fallen below investment
grade entail a greater risk that the ability of the issuers of such
securities to meet their debt obligations will be impaired. There may be
less of a market for lower-grade Municipal Securities and therefore they
may be harder to sell at an acceptable price. These risks mean that the
Fund may not achieve the expected income from lower-grade Municipal
Securities, and that the Fund's income and net asset value per share may
be affected by declines in value of these securities. However, the Fund's
limitations on investment in non-investment grade Municipal Securities may
reduce some of these risks.
- 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.
Other Investment Techniques and Strategies. The Fund may also use the
investment techniques and strategies described below. These techniques
involve certain risks. The Statement of Additional Information contains
more information about these practices, including limitations on their use
that are designed to reduce some of the risks.
- 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. These terms refer
to securities that have been created 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. In a repurchase transaction, the Fund buys a security and
simultaneously sells it to the vendor for delivery at a future date.
Repurchase agreements must be fully collateralized. However, if the
vendor fails to pay the resale price on the delivery date, the Fund may
incur costs in disposing of the collateral and may experience losses if
there is any delay in its ability to do so. The Fund will not enter into
a repurchase agreement that causes more than 10% of its net assets to be
subject to repurchase agreements having a maturity beyond seven days.
There is no limit on the amount of the Fund's net assets that may be
subject to repurchase agreements of seven days or less.
- Illiquid and Restricted Securities. Under the policies and
procedures established by the Fund's Board of Trustees, the Manager
determines the liquidity of certain of the Fund's investments.
Investments may be illiquid because of the absence of an active trading
market, making it difficult to value them or dispose of them promptly at
an acceptable price. A restricted security is one that has a contractual
restriction on its resale. Over-the-counter options held by the Fund, a
portion of 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 will not
invest more than 10% of its net assets in illiquid or restricted
securities (that limit may increase to 15% if certain state laws are
changed or the Fund's shares are no longer sold in those states). The
Fund may not invest any portion of its assets in securities the public
sale of which would require registration under the Securities Act of 1933.
- 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 net 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.
- Hedging. As described below, the Fund may purchase and sell
certain kinds of futures contracts, put and call options, and options on
futures and broadly-based municipal bond indices, or enter into interest
rate swap agreements. These are all referred to as "hedging instruments."
The Fund does not use hedging instruments for speculative purposes, and
has limits on the use of them, described below. The hedging instruments
the Fund may use are described below and in greater detail in "Other
Investment Techniques and Strategies" in the Statement of Additional
Information.
The Fund may buy and sell options and futures for a number of
purposes. It may do so to try to manage its exposure to the possibility
that the prices of its portfolio securities may decline, or to establish
a position in the securities market as a temporary substitute for
purchasing individual securities. It may do so to try to manage its
exposure to changing interest rates. Some of these strategies, such as
selling futures, buying puts and writing covered calls, hedge the Fund's
portfolio against price fluctuations.
Other hedging strategies, such as buying futures and call options,
tend to increase the Fund's exposure to the securities market. Writing
covered call options may also provide income to the Fund for liquidity
purposes or to raise cash to distribute to shareholders.
- Futures. The Fund may buy and sell futures contracts that relate
to (1) broadly-based municipal bond indices (these are referred to as
Municipal Bond Index Futures) and (2) interest rates (these are referred
to as Interest Rate Futures). These types of Futures are described in
"Hedging" in the Statement of Additional Information.
- Put and Call Options. The Fund may buy and sell certain kinds of
put options (puts) and call options (calls).
The Fund may buy calls only on securities, broadly-based municipal
bond indices, Municipal Bond Index Futures or Interest Rate Futures, or
to terminate its obligation on a call the Fund previously wrote. The Fund
may write (that is, sell) covered call options. When the Fund writes a
call, it receives cash (called a premium). The call gives the buyer the
ability to buy the investment on which the call was written from the Fund
at the call price during the period in which the call may be exercised.
If the value of the investment does not rise above the call price, it is
likely that the call will lapse without being exercised, while the Fund
keeps the cash premium (and the investment).
The Fund may purchase puts. Buying a put on an investment gives the
Fund the right to sell the investment at a set price to a seller of a put
on that investment. The Fund can buy only those puts that relate to (1)
securities that the Fund owns, (2) broadly-based municipal bond indices,
(3) Municipal Bond Index Futures or (4) Interest Rate Futures. The Fund
can buy a put on a Municipal Bond Index Future or Interest Rate Future
whether or not the Fund owns the particular Future in its portfolio. The
Fund may not sell a put other than a put that it previously purchased.
The Fund may buy and sell puts and calls only if certain conditions
are met: (1) after the Fund writes a call, not more than 25% of the Fund's
total assets may be subject to calls; (2) calls the Fund buys or sells
must be listed on a securities or commodities exchange, or quoted on the
Automated Quotation System of the National Association of Securities
Dealers, Inc. (NASDAQ), or traded in the over-the-counter market; (3) each
call the Fund writes must be "covered" while it is outstanding: that means
the Fund must own the investment on which the call was written or it must
own other securities that are acceptable for the escrow arrangements
required for calls; (4) the Fund may write calls on Futures contracts it
owns, but these calls must be covered by securities or other liquid assets
the Fund owns and segregates to enable it to satisfy its obligations if
the call is exercised; (5) a call or put option may not be purchased if
the value of all of the Fund's put and call options would exceed 5% of the
Fund's total assets.
- Interest Rate Swaps. In an interest rate swap, the Fund and
another party exchange their right to receive or their obligation to pay
interest on a security. For example, they may swap a right to receive
floating rate payments for fixed rate payments. The Fund enters into
swaps only on securities it owns. The Fund may not enter into swaps with
respect to more than 25% of its total assets. Also, the Fund will
segregate liquid assets (such as cash or U.S. Government securities) to
cover any amounts it could owe under swaps that exceed the amounts it is
entitled to receive, and it will adjust that amount daily, as needed.
Income from interest rate swaps may be taxable.
- Hedging instruments can be volatile investments and may involve
special risks. The use of hedging instruments requires special skills and
knowledge of investment techniques that are different than what is
required for normal portfolio management. If the Manager uses a hedging
instrument at the wrong time or judges market conditions incorrectly,
hedging strategies may reduce the Fund's return. The Fund could also
experience losses if the prices of its futures and options positions were
not correlated with its other investments or if it could not close out a
position because of an illiquid market for the future or option. Such
losses might cause previously distributed short-term capital gains to be
re-characterized as a non-taxable return of capital to shareholders.
Options trading involves the payment of premiums and has special tax
effects on the Fund. There are also special risks in particular hedging
strategies. If a covered call written by the Fund is exercised on an
investment that has increased in value, the Fund will be required to sell
the investment at the call price and will not be able to realize any
profit if the investment has increased in value above the call price.
Interest rate swaps are subject to credit risks (if the other party fails
to meet its obligations) and also to interest rate risks. The Fund could
be obligated to pay more under its swap agreements than it receives under
them, as a result of interest rate changes. These risks are described in
greater detail in the Statement of Additional Information.
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:
- invest in securities or any other investment other than Municipal
Securities, Temporary Investments, repurchase agreements, covered calls,
Private Activity Municipal Securities and Hedging Instruments described
in "Investment Objective and Policies," above;
- 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 in "Loans of Portfolio Securities";
- 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;
- invest more than 5% of the value of its total assets in the
securities of any one issuer (see "Diversification" in the Statement of
Additional Information) 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
- concentrate investments to the extent of 25% of its total assets
in any industry (see "Diversification" in the Statement of Additional
Information); 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 and in the Statement of Additional Information, apply only
at the time the Fund purchases a security, and the Fund need not dispose
of a security merely because the 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 officers of the Fund and provides more
information about them. Although the Fund is not required by law to hold
annual meetings, it may hold shareholder meetings from time to time on
important matters, and shareholders have the right to call a meeting to
remove a Trustee or to take other action described in the Fund's
Declaration of Trust.
The Board of Trustees has the power, without shareholder approval,
to divide unissued shares of the Fund into two or more classes. The Board
has done so, and the Fund currently has three classes of shares, Class A,
Class B and Class C. All classes invest in the same investment portfolio.
Each class has its own dividends and distributions, and pays certain
expenses which may be different for each class. Each class may have a
different net asset value. Each share has one vote at shareholder
meetings, with fractional shares voting proportionally. Only shares of
a particular class vote together on matters that affect that class alone.
Shares are freely transferable.
The Manager and its Affiliates. The Fund is managed by the Manager,
Oppenheimer Management Corporation, which is responsible for selecting the
Fund's investments and handles its day-to-day business. The Manager
carries out its duties, subject to the policies established by the Board
of Trustees, under an Investment Advisory Agreement which states the
Manager's responsibilities. The Agreement sets forth the fees paid by the
Fund to the Manager and describes the expenses that the Fund pays to
conduct its business.
The Manager has operated as an investment adviser since 1959. The
Manager and its affiliates currently manage investment companies,
including other OppenheimerFunds, with assets of more than $35 billion as
of June 30, 1995, and with more than 2.6 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.
- 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 the person principally responsible
for the day-to-day management of the Fund's portfolio since November,
1985, and is 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 ended December 31, 1994
was 0.53% of average annual net assets for Class A shares and 0.53% for
Class B shares.
The Fund pays expenses related to its daily operations, such as
custodian fees, Trustee's fees, transfer agency fees, and legal and
auditing costs. Those expenses are paid out of the Fund's assets and are
not paid directly by shareholders. However, those expenses reduce the net
asset value of shares, and therefore are indirectly borne by shareholders
through their investment. More information about the investment advisory
agreement and the other expenses paid by the Fund is contained in the
Statement of Additional Information.
There is also information about the Fund's brokerage policies and
practices in "Brokerage Policies of the Fund" in the Statement of
Additional Information. Because the Fund purchases most of its portfolio
securities directly from the sellers and not through brokers, it incurs
relatively little expense for brokerage. From time to time, however, it
may use brokers when buying portfolio securities. When deciding which
brokers to use, the Manager is permitted by the Investment Advisory
Agreement to consider whether brokers have sold shares of the Fund or any
other funds for which the Manager serves as investment adviser.
- The Distributor. The Fund's shares are sold through dealers and
brokers that have a sales agreement with Oppenheimer Funds Distributor,
Inc., a subsidiary of the Manager that acts as the Distributor for the
Fund. 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 number shown
elsewhere in this Prospectus and on the back cover.
Performance of the Fund
Explanation of Performance Terminology. The Fund uses the terms "total
return," "average annual total return," and "yield" to illustrate its
performance. The performance of each class of shares is shown separately,
because the performance of each class 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 your investment
has done and to compare it to other funds or to a market index, 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 other ways to measure
and compare the Fund's performance. The Fund's investment performance will
vary over time, depending on market conditions, the composition of the
portfolio, expenses and the 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, normally they
include the payment of the current maximum initial sales charge. When
total returns are shown for Class B shares, they include the effect of the
contingent deferred sales charge that applies to the period for which
total return is shown. When total returns are shown for Class C shares,
they also include the effect of the contingent deferred sales charge.
Total returns may also be quoted "at net asset value," without considering
the effect of the sales charge, and those returns would be reduced if
sales charges were deducted. They may also be shown based on the change
in net asset value, without considering 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; those returns would be reduced if sales charges were
deducted.
- Yield. Each Class of shares calculates its yield by dividing the
annualized net investment income per share from 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
borne by each Class of shares. The yield data represents a hypothetical
investment return on the portfolio, and does not measure an investment
return based on dividends actually paid to shareholders. To show that
return, a dividend yield may be calculated. Dividend yield is calculated
by dividing the dividends of a Class derived from net investment income
during a stated period by the maximum offering price on the last day of
the period. Yields and dividend yields for Class A shares reflect the
deduction of the maximum initial sales charge, but may also be shown based
on the Fund's net asset value per share. Yields for Class B and Class C
shares do not reflect the deduction of the contingent deferred sales
charge.
How Has the Fund Performed? Below is a discussion by the Manager of the
Fund's performance during its last fiscal year ended December 31, 1994,
followed by a graphical comparison of the Fund's performance to an
appropriate broad-based market index.
- Management's Discussion of Performance. During the Fund's fiscal
year ended December 31, 1994, the Fund's performance was affected by
aggressive increases in short-term interest rates by the Federal Reserve
Board. Because the Manager kept the Fund's duration, a technical measure
of a bond portfolio's sensitivity to interest rate changes, slightly
longer than those of many other funds, the Fund's net asset value declined
more than some other funds. To position the Fund's portfolio more
defensively, the Manager reduced the Fund's average maturity which made
the Fund's portfolio less sensitive to changing interest rates than
longer-maturity bonds. The Manager reduced the Fund's exposure to issues
supported by investor-owned utilities which are sensitive to an
increasingly competitive operating environment and increased the Fund's
holdings of insured and prerefunded issues which provide high credit
quality and above-market yields.
- Comparing the Fund's Performance to the Market. The graphs below
show the performance of a hypothetical $10,000 investment in each Class
of shares of the Fund held until December 31, 1994. In the case of Class
A shares, performance is measured over a ten-year period, and in the case
of Class B shares, from the inception of the Class on March 16, 1993, with
all dividends and capital gains distributions reinvested in additional
shares. The graphs reflect the deduction of the 4.75% maximum initial
sales charge on Class A shares and the 4% contingent deferred sales charge
for Class B shares. Class C shares were not publicly offered during the
fiscal year ended December 31, 1994; accordingly, no information on Class
C shares is presented in the graphs below.
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 Index, an unmanaged index of a broad range of investment
grade municipal bonds that is widely regarded as a measure of the
performance of the general municipal bond market.
Index performance reflects the 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 the Lehman Brothers Municipal Bond Index. Moreover,
the index performance data does not reflect any assessment of the risk of
the investments included in the index.
Comparison of Change
In Value of $10,000
Hypothetical Investments in
Class A and Class B Shares of Oppenheimer Tax-Free Bond
Fund and Lehman Brothers Municipal Bond Index
Avg. Annual Total Return of Class A and Class B Shares of the Fund at
12/31/94(1)
<TABLE>
<CAPTION>
A Shares 1-Year 5-Year 10-Year
<S> <C> <C> <C>
- --------------------------------------------------------
-13.50% 4.84% 8.28%
- --------------------------------------------------------
B Shares 1-Year Life(2)
- --------------------------------------------------------
-14.18% -3.25%
<FN>
- ------------------------------
(1) The inception date of the Fund (Class A shares) was 10/27/76. The
average annual total returns and the ending account value in the graph
reflect reinvestment of all dividends and capital gains distributions and
are shown net of the applicable 4.75% maximum initial sales charge.
(2) Class B shares of the Fund were first publicly offered on 3/16/93.
The average annual total returns reflect reinvestment of all dividends and
capital gains distributions and are shown net of the applicable 5%
contingent deferred sales charges, respectively, for the 1-year period and
the life of the class. The ending account value in the graph is net of
the applicable 5% contingent deferred sales charge.
Past performance is not predictive of future performance.
Graphs are not drawn to same scale.
</TABLE>
ABOUT YOUR ACCOUNT
How to Buy Shares
Classes of Shares. The Fund offers investors three different classes of
shares. The different classes of shares represent investments in the same
portfolio of securities but are subject to different expenses and will
likely have different share prices.
- Class A Shares. If you buy Class A shares, you pay an initial sales
charge (on investments up to $1 million). If you purchase Class A shares
as part of an investment of at least $1 million in shares of one or more
OppenheimerFunds, you will not pay an initial sales charge, but if you
sell any of those shares within 18 months after your purchase, you may pay
a contingent deferred sales charge, which will vary depending on the
amount you invested. Sales charges are described below in "Class A
Shares."
- 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, as described below.
- Class C Shares. When you buy Class C shares, you pay no sales
charges at the time of purchase, but if you sell your shares within 12
months of buying them, you will normally pay a contingent deferred sales
charge of 1%. Please refer to "Class C Shares," below.
Which Class of Shares Should You Choose? Once you decide that the Fund
is an appropriate investment for you, 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 adviser. The Fund's operating
costs that apply to a class of shares and the effect of the different
types of sales charges on your investment will vary your investment
results over time. The most important factors are how much you plan to
invest, how long you plan to hold your investment, and whether you
anticipate exchanging your shares for shares of other OppenheimerFunds
(not all of which currently offer Class B shares). If your goals and
objectives change over time and you plan to purchase additional shares,
you should re-evaluate those factors to see if you should consider another
class of shares.
In the following discussion, to help provide you and your financial
advisor with a framework in which to choose a class, we have made some
assumptions using a hypothetical investment in the Fund. We used the
sales charge rates that apply to each class, and considered the effect of
the annual asset-based sales charge on Class B and Class C expenses
(which, like all expenses, will affect your investment return). For the
sake of comparison, we have assumed that there is a 10% rate of
appreciation in the investment each year. Of course, the actual
performance of your investment cannot be predicted and will vary, based
on the Fund's actual investment returns and the operating expenses borne
by each class of shares, and which class you invest in.
The factors discussed below are not intended to be investment advice
or recommendations, because each investor's financial considerations are
different. The assumptions we have made in assessing the factors to
consider in purchasing a particular class of shares assume that you will
purchase only one class of shares, and not a combination of shares of
different classes.
- How Long Do You Expect to Hold Your Investment? While future
financial needs cannot be predicted with certainty, knowing how long you
expect to hold your investment will assist you in selecting the
appropriate class of shares. For example, the reduced sales charge
available for larger purchases of Class A shares, may, over time, offset
the effect of paying an initial sales charge on your investment (which
reduces the amount of your investment dollars used to buy shares for your
account), compared to the effect, over time of higher class-based expenses
on shares of Class B or Class C for which no initial sales charge is paid.
The effect of class-based expenses will also depend on how much you
invest.
- Investing for the Short Term. If you have a short-term investment
horizon (that is, you plan to hold your shares less than six years), you
should probably consider purchasing Class C shares rather than Class A or
Class B shares. This is because there is no initial sales charge on Class
C shares, and the contingent deferred sales charge does not apply to
amounts you sell after holding them one year.
However, if you plan to invest more than $250,000 for a period of
less than six years, Class C shares might not be as advantageous as Class
A shares. This is because the annual asset-based sales charge on Class
C shares (and the contingent deferred sales charge that applies if you
redeem Class C shares within a year of purchase) might have a greater
economic impact on your account during that period than the initial sales
charge that would apply if Class A shares were purchased instead at the
applicable reduced Class A sales charge rate.
And for most investors who invest $500,000 or more, in most cases
Class A shares will be the more advantageous choice than Class B shares,
no matter how long you intend to hold your shares. For that reason, the
Distributor normally will not accept purchase orders of $500,000 or more
of Class B shares or orders of $1 million or more of Class C shares from
a single investor.
- Investing for the Longer Term. If you are investing for the longer
term, for example, for retirement, and do not expect to need access to
your money for six years or more, Class A shares will likely be more
advantageous than Class B or Class C shares. This is because of the
effect of expected lower expenses for Class A shares and the reduced
initial sales charges available for larger investments in Class A shares
under the Fund's Right of Accumulation. Class B shares may be appropriate
for smaller investments held for the longer term because there is no
initial sales charge on Class B shares, and Class B shares held six years
following their purchase convert into Class A shares.
Of course all of these examples are based on approximations of the
effect of current sales charges and expenses on a hypothetical investment
over time, using the assumed annual performance return stated above, and
you should analyze your options carefully.
- Are There Differences in Account Features That Matter to You?
Because some account features such as Checkwriting may not be available
to Class B or Class C shareholders, or other features (such as Automatic
Withdrawal Plans) might not be advisable (because of the effect of the
contingent deferred sales charge for Class B and Class C shareholders),
you should carefully review how you plan to use your investment account
before deciding which class of shares is better for you. Also, because
not all OppenheimerFunds currently offer Class B and/or Class C shares,
and because exchanges are permitted only to the same class of shares in
other OppenheimerFunds, you should consider how important the exchange
privilege is likely to be for you. Share certificates are not available
for Class B and Class C shares and if you are considering using your
shares as collateral for a loan, that may be a factor to consider.
- How Does It Affect Payments to My Broker? A salesperson, such as
a broker, or any other person who is entitled to receive compensation for
selling Fund shares may receive different compensation for selling one
class rather than 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 and for Class C shares is the
same as the purpose of the front-end sales charge on sales of Class A
shares: to compensate the Distributor for commissions it pays to dealers
and financial institutions for selling shares.
How Much Must You Invest? You can open a Fund account with a minimum
initial investment of $1,000 and make additional investments at any time
with as little as $25. There are reduced minimum investments under special
investment plans.
- With Asset Builder Plans, Automatic Exchange Plans and military
allotment plans, you can make initial and subsequent investments of as
little as $25; and subsequent purchases of at least $25 can be made by
telephone through AccountLink.
- There is no minimum investment requirement if you are buying shares
by reinvesting dividends from the Fund or other OppenheimerFunds (a list
of them appears in the Statement of Additional Information, or you can ask
your dealer or call the Transfer Agent), or by reinvesting distributions
from unit investment trusts that have made arrangements with the
Distributor.
- How Are Shares Purchased? You can buy shares several ways: through
any dealer, broker or financial institution that has a sales agreement
with the Distributor, or directly through the Distributor, or
automatically through an Asset Builder Plan under the OppenheimerFunds
AccountLink service. When you buy shares, be sure to specify Class A,
Class B or Class C shares. If you do not choose, your investment will be
made in Class A shares.
- Buying Shares Through Your Dealer. Your dealer will place your
order with the Distributor on your behalf.
- Buying Shares Through the Distributor. Complete an
OppenheimerFunds New Account Application and return it with a check
payable to "Oppenheimer Funds Distributor, Inc." Mail it to P.O. Box 5270,
Denver, Colorado 80217. If you don't list a dealer on the application,
the Distributor will act as your agent in buying the shares. However, we
recommend that you discuss your investment first with a financial advisor,
to be sure it is appropriate for you.
- Buying Shares Through OppenheimerFunds AccountLink. You can use
AccountLink to link your Fund account with an account at a U.S. bank or
other financial institution that is an Automated Clearing House (ACH)
member. You can then transmit funds electronically to purchase shares,
to send redemption proceeds, and to transmit dividends and distributions.
Shares are purchased for your account on AccountLink on the regular
business day the Distributor is instructed by you to initiate the ACH
transfer to buy shares. You can provide those instructions automatically,
under an Asset Builder Plan, described below, or by telephone instructions
using OppenheimerFunds PhoneLink, also described below. You should
request AccountLink privileges on the application or dealer settlement
instructions used to establish your account. Please refer to
"AccountLink," below for more details.
- Asset Builder Plans. You may purchase shares of the Fund (and up
to four other OppenheimerFunds) automatically each month from your account
at a bank or other financial institution under an Asset Builder Plan with
AccountLink. Details are on the Application and in the Statement of
Additional Information.
- At What Price Are Shares Sold? Shares are sold at the public
offering price based on the net asset value (and any initial sales charge
that applies) that is next determined after the Distributor receives the
purchase order in Denver. In most cases, to enable you to receive that
day's offering price, the Distributor must receive your order by the time
of day The New York Stock Exchange closes, which is normally 4:00 P.M.,
New York time, but may be earlier on some days (all references to time in
this Prospectus mean "New York time"). The net asset value of each class
of shares is determined as of that time on each day The New York Stock
Exchange is open (which is a "regular business day").
If you buy shares through a dealer, the dealer must receive your
order by the close of the New York Stock Exchange on a regular business
day and transmit it to the Distributor so that it is received before the
Distributor's close of business that day, which is normally 5:00 P.M. The
Distributor may reject any purchase order for the Fund's shares, in its
sole discretion.
Buying Class A Shares. Class A shares are sold at their offering price,
which is normally net asset value plus an initial sales charge. However,
in some cases, described below, purchases are not subject to an initial
sales charge, and the offering price will be the net asset value. In some
cases, reduced sales charges may be available, as described below. Out
of the amount you invest, the Fund receives the net asset value to invest
for your account. The sales charge varies depending on the amount of your
purchase. A portion of the sales charge may be retained by the
Distributor and allocated to your dealer as commission. 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 4.50% 4.71% 4.00%
less than $100,000
- -------------------------------------------------------------------------
$100,000 or more but 3.50% 3.63% 3.00%
less than $250,000
- -------------------------------------------------------------------------
$250,000 or more but 2.50% 2.56% 2.25%
less than $500,000
- -------------------------------------------------------------------------
$500,000 or more but 2.00% 2.04% 1.80%
less than $1 million
</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. Shares of any
OppenheimerFunds that offer only one class of shares that has no
designation are considered "Class A Shares" for this purpose. There is
no initial sales charge on purchases of Class A shares of any one or more
OppenheimerFunds aggregating $1 million or more. However, the Distributor
pays dealers of record commissions on such purchases in an amount equal
to the sum of 1.0% of the first $2.5 million, plus 0.50% of the next $2.5
million, plus 0.25% of share purchases over $5 million. That commission
will be paid only on the amount of those purchases in excess of $1 million
that were not previously subject to a front-end sales charge and dealer
commission.
If you redeem any of those shares within 18 months of the end of the
calendar month of their purchase, a contingent deferred sales charge
(called the "Class A contingent deferred sales charge") will be deducted
from the redemption proceeds. That sales charge will be equal to 1.0% of
the aggregate net asset value of either (1) the redeemed shares (not
including shares purchased by reinvestment of dividends or capital gain
distributions) or (2) the original cost of the shares, whichever is less.
However, the Class A contingent deferred sales charge will not exceed the
aggregate amount of the commissions the Distributor paid to your dealer
on all Class A shares of all OppenheimerFunds you purchased subject to the
Class A contingent deferred sales charge.
In determining whether a contingent deferred sales charge is payable,
the Fund will first redeem shares that are not subject to the sales
charge, including shares purchased by reinvestment of dividends and
capital gains, and then will redeem other shares in the order that you
purchased them. The Class A contingent deferred sales charge is waived
in certain cases described in "Waivers of Class A Sales Charges" below.
No Class A contingent deferred sales charge is charged on exchanges
of shares under the Fund's Exchange Privilege (described below). However,
if the shares acquired by exchange are redeemed within 18 months of the
end of the calendar month of the purchase of the exchanged shares, the
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.
Reduced Sales Charges for Class A Share Purchases. You may be eligible
to buy Class A shares at reduced sales charge rates in one or more of the
following ways:
- Right of Accumulation. To qualify for the lower sales charge rates
that apply to larger purchases of Class A shares, you and your spouse can
add together Class A and Class B shares you purchase for your individual
accounts, or jointly, or on behalf of your children who are minors, under
trust or custodial accounts. A fiduciary can count all shares purchased
for a trust, estate or other fiduciary account (including one or more
employee benefit plans of the same employer) that has multiple accounts.
Additionally, you can add together current purchases of Class A and
Class B shares of the Fund and other OppenheimerFunds to reduce the sales
charge rate that applies to current purchases of Class A shares. You can
also count Class A and Class B shares of OppenheimerFunds you previously
purchased subject to an initial or contingent deferred sales charge to
reduce the sales charge rate for current purchases of Class A shares,
provided that you still hold 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
Distributor. 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, if you purchase Class
A or Class A and Class B shares of the Fund and other OppenheimerFunds
during a 13-month period you can reduce the Class A sales charge rate that
applies to your purchases of Class A shares. The total amount of your
intended purchases of both Class A and Class B shares will determine the
reduced sales charge for the Class A shares purchased during that period.
This can include purchases made up to 90 days before the date of the
Letter. More information is contained in the Application and in "Reduced
Sales Charges" in the Statement of Additional Information.
- Waivers of Class A Sales Charges. The Class A sales charges are
not imposed in the circumstances described below. There is an explanation
of this policy in "Reduced Sales Charges" in the Statement of Additional
Information.
Waivers of Initial and Contingent Deferred Sales Charges for Certain
Purchasers. Class A shares purchased by the following investors are not
subject to any Class A sales charges:
- - the Manager or its affiliates;
- - 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;
- - registered management investment companies, or separate accounts of
insurance companies having an agreement with the Manager or the
Distributor for that purpose;
- - dealers or brokers that have a sales agreement with the Distributor, if
they purchase shares for their own accounts or for retirement plans for
their employees;
- - employees and registered representatives (and their spouses) of dealers
or brokers described above or financial institutions that have entered
into sales arrangements with such dealers or brokers (and 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);
- - 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; or
- - dealers, brokers or registered investment advisers that have entered
into an agreement with the Distributor to sell shares of defined
contribution employee retirement plans for which the dealer, broker, or
investment adviser provides administration services.
Waivers of Initial and Contingent Deferred Sales Charges in Certain
Transactions. Class A shares issued or purchased in the following
transactions are not subject to Class A sales charges:
- - shares issued in plans of reorganization, such as mergers, asset
acquisitions and exchange offers, to which the Fund is a party,
- - shares purchased by the reinvestment of dividends or other distributions
reinvested from the Fund or other OppenheimerFunds (other than Oppenheimer
Cash Reserves) or unit investment trusts for which reinvestment
arrangements have been made with the Distributor, or
- - shares purchased and paid for with the proceeds of shares redeemed in
the prior 12 months from a mutual fund (other than a fund managed by the
Manager of any of its affiliates) on which an initial sales charge or
contingent deferred sales charge was paid; this waiver must be requested
when the purchase order is placed for your shares of the Fund, and the
Distributor may require evidence of your qualification for this waiver.
There is a further discussion of this policy in "Reduced Sales Charges"
in the Statement of Additional Information.
Waivers of the Class A Contingent Deferred Sales Charge for Certain
Redemptions. The Class A contingent deferred sales charge does not apply
to purchases of Class A shares at net asset value without sales charge as
described in the two sections above. It is also waived if shares that
would otherwise be subject to the contingent deferred sales charge are
redeemed in the following cases:
- to make Automatic Withdrawal Plan payments that are limited
annually to no more than 12% of the original account value; or
- involuntary redemptions of shares by operation of law or
involuntary redemptions of small accounts (see "Shareholder Account Rules
and Policies," below); or
- if, at the time a purchase order is placed for Class A shares that
would otherwise be subject to the Class A contingent deferred sales
charge, the dealer agrees to accept the dealer's portion of the commission
payable on the sale in installments of 1/18th of the commission per month
(and no further commission will be payable if the shares are redeemed
within 18 months of purchase).
- 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.
Buying 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:
<TABLE>
<CAPTION>
Years Since Beginning of Contingent Deferred Sales Charge
Month in which Purchase On Redemptions in That Year
Order Was Accepted (As % of Amount Subject to Charge)
<S> <C>
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
- ------------------------------------------------------------
</TABLE>
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 not be applied to shares purchased in certain types of
transactions nor will it apply to Class B shares redeemed in certain
circumstances as described below. The reasons for this policy are in
"Reduced Sales Charges" in the Statement of Additional Information.
Waivers for Redemptions in Certain Cases. The Class B contingent
deferred sales charge will be waived for redemptions of shares in the
following cases:
- Following the death or disability of the last surviving shareholder
(the death or disability must have occurred after the account was
established, and for disability you must provide evidence of a
determination of disability by the Social Security Administration);
- shares sold to the Manager or its affiliates;
- shares sold to registered management investment companies or
separate accounts of insurance companies having an agreement with the
Manager or the Distributor for that purpose;
- shares issued in plans of reorganization to which the Fund is a
party; and
- shares redeemed in involuntary redemptions as described below.
Further details about this policy are contained in "Reduced Sales Charges"
in the Statement of Additional Information.
- Automatic Conversion of Class B Shares. 72 months after you
purchase Class B shares, those shares will automatically convert to Class
A shares. This conversion feature relieves Class B shareholders of the
asset-based sales charge that applies to Class B shares under the Class
B Distribution and Service Plan, described below. The conversion is based
on the relative net asset value of the two classes, and no sales load or
other charge is imposed. When Class B shares convert, any other Class B
shares that were acquired by the reinvestment of dividends and
distributions on the converted shares will also convert to Class A shares.
The conversion feature is subject to the continued availability of a tax
ruling described in "Alternative Sales Arrangements - Class A, Class B and
Class C 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 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 up to 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 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
the financing costs.
The Distributor's actual expenses in selling Class B shares may be
more than the payments it receives from contingent deferred sales charges
collected on redeemed shares and from the Fund under the Distribution and
Service Plan for Class B shares. Therefore, those expenses may be carried
over and paid in future years. At December 31, 1994, the Distributor had
incurred unreimbursed expenses under the Plan of $2,313,528 (equal to 4.9%
of the Fund's net assets represented by Class B shares on that date),
which have been carried over into the present Plan year. If the Plan is
terminated by the Fund, the Board of Trustees may allow the Fund to
continue payments of the asset-based sales charge to the Distributor for
certain expenses it incurred before the Plan was terminated.
Buying Class C Shares. Class C shares are sold at net asset value per
share without an initial sales charge. However, if Class C shares are
redeemed within 12 months of their purchase, a contingent deferred sales
charge of 1.0% will be deducted from the redemption proceeds. That sales
charge will not apply to shares purchased by the reinvestment of dividends
or capital gains distributions. The charge will be assessed on the lesser
of the net asset value of the shares at the time of redemption or the
original purchase price. The contingent deferred sales charge is not
imposed on the amount of your account value represented by the increase
in net asset value over the initial purchase price (including increases
due to the reinvestment of dividends and capital gains distributions). The
Class C contingent deferred sales charge is paid to the Distributor to
reimburse its expenses of providing distribution-related services to the
Fund in connection with the sale of Class C shares.
To determine whether the contingent deferred sales charge applies to
a redemption, the Fund redeems shares in the following order: (1) shares
acquired by reinvestment of dividends and capital gains distributions, (2)
shares held for over 12 months, and (3) shares held the longest during the
12-month period.
- Waivers of Class C Sales Charge. The Class C contingent deferred
sales charge will be waived if the shareholder requests it for any of the
redemptions or circumstances described above under "Waivers of Class B
Sales Charge."
- Distribution and Service Plan for Class C Shares. The Fund has
adopted a Distribution and Service Plan for Class C shares to compensate
the Distributor for its services and costs in distributing Class C shares
and servicing accounts. Under the Plan, the Fund pays the Distributor an
annual "asset-based sales charge" of 0.75% per year on Class C shares.
The Distributor also receives a service fee of 0.25% per year. Both fees
are computed on the average annual net assets of Class C shares,
determined as of the close of each regular business day. The asset-based
sales charge allows investors to buy Class C shares without a front-end
sales charge while allowing the Distributor to compensate dealers that
sell Class C shares.
The Distributor uses the service fee to compensate dealers for
providing personal services for accounts that hold Class C shares. Those
services are similar to those provided under the Class A Service Plan,
described above. The asset-based sales charge and service fees increase
Class C expenses by 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 C shares have been sold by the dealer. After
the shares have been held for a year, the Distributor pays the fee on a
quarterly basis. The Distributor pays sales commissions of 0.75% of the
purchase price to dealers from its own resources at the time of sale. The
Distributor retains the asset-based sales charge during the first year
shares are outstanding to recoup the sales commissions it pays, the
advances of service fee payments it makes, and its financing costs. The
Distributor plans to pay the asset-based sales charge as an ongoing
commission to the dealer on Class C shares that have been outstanding for
a year or more.
Because the Distributor's actual expenses in selling Class C 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 C shares, those expenses may be
carried over and paid in future years. If the Plan is terminated by the
Fund, the Board of Trustees may allow the Fund to continue payments of the
asset-based sales charge to the Distributor for 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. These include purchases of shares by telephone
(either through a service representative or by PhoneLink, described
below), automatic investments under Asset Builder Plans, and sending
dividends and distributions or Automatic Withdrawal Plan payments directly
to your bank account. Please refer to the Application for details or call
the Transfer Agent for more information.
AccountLink privileges may be requested on the Application you use
to buy shares, or on your dealer's settlement instructions if you buy your
shares through your dealer. After your account is established, you can
request AccountLink privileges on signature-guaranteed instructions to the
Transfer Agent. AccountLink privileges will apply to each shareholder
listed in the registration on your account as well as to your dealer
representative of record unless and until the Transfer Agent receives
written instructions terminating or changing those privileges. After you
establish AccountLink for your account, any change of bank account
information must be made by signature-guaranteed instructions to the
Transfer Agent signed by all shareholders who own the account.
- Using AccountLink to Buy Shares. Purchases may be made by
telephone only after your account has been established. To purchase shares
in amounts up to $250,000 through a telephone representative, call the
Distributor at 1-800-852-8457. The purchase payment will be debited from
your bank account.
- PhoneLink. PhoneLink is the OppenheimerFunds automated telephone
system that enables shareholders to perform a number of account
transactions automatically using a touch-tone phone. PhoneLink may be
used on already-established Fund accounts after you obtain a Personal
Identification Number (PIN), by calling the special PhoneLink number,
1-800-533-3310.
- Purchasing Shares. You may purchase shares in amounts up to
$100,000 by phone, by calling 1-800-533-3310. You must have established
AccountLink privileges to link your bank account with the Fund, to pay for
these purchases.
- Exchanging Shares. With the OppenheimerFunds exchange privilege,
described below, you can exchange shares automatically by phone from your
Fund account to another OppenheimerFunds account you have already
established by calling the special PhoneLink number. Please refer to "How
to Exchange Shares," below, for details.
- Selling Shares. You can redeem shares by telephone automatically
by calling the PhoneLink number and the Fund will send the proceeds
directly to your AccountLink bank account. Please refer to "How to Sell
Shares," below for details.
Automatic Withdrawal and Exchange Plans. The Fund has several plans that
enable you to sell shares automatically or exchange them to another
OppenheimerFunds account on a regular basis:
- Automatic Withdrawal Plans. If your Fund account is worth $5,000
or more, you can establish an Automatic Withdrawal Plan to receive
payments of at least $50 on a monthly, quarterly, semi-annual or annual
basis. The checks may be sent to you or sent automatically to your bank
account on AccountLink. You may even set up certain types of withdrawals
of up to $1,500 per month by telephone. You should consult the
Application and Statement of Additional Information for more details.
- Automatic Exchange Plans. You can authorize the Transfer Agent to
automatically exchange an amount you establish in advance for shares of
up to five other OppenheimerFunds on a monthly, quarterly, semi-annual or
annual basis under an Automatic Exchange Plan. The minimum purchase for
each 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 Class A or
Class B Fund shares, you have up to 6 months to reinvest all or part of
the redemption proceeds in Class A shares of the Fund or other
OppenheimerFunds without paying sales charge. This privilege applies only
to Class A shares that you purchased subject to an initial sales charge
and to Class B shares on which you paid a contingent deferred sales charge
when you redeemed them. It does not apply to Class C shares. 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 net asset value next 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 Checkwriting
or by telephone. You can also set up an Automatic Withdrawal Plan 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 redemption check is not payable to all shareholders listed on the
account statement
- - the redemption check is not sent to the address of record on your
statement
- - shares are being transferred to a Fund account with a different owner
or name
- - shares are redeemed by someone other than the owners (such as an
Executor)
- Where Can I Have My Signature Guaranteed? The Transfer Agent will
accept a guarantee of your signature by a number of financial
institutions, including: a U.S. bank, trust company, credit union or
savings association, or by a foreign bank that has a U.S. correspondent
bank, or by a U.S. registered dealer or broker in securities, municipal
securities or government securities, or by a U.S. national securities
exchange, a registered securities association or a clearing agency. If
you are signing 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 account statement)
- the dollar amount or number of shares to be redeemed
- any special payment instructions
- any share certificates for the shares you are selling, and
- any special requirements or documents requested by the Transfer
Agent to assure proper authorization of the person asking to sell shares.
Use the following address for requests by mail:
Oppenheimer Shareholder Services
P.O. Box 5270, Denver, Colorado 80217
Send courier or Express Mail requests to:
Oppenheimer Shareholder Services
10200 E. Girard Avenue, Building D
Denver, Colorado 80231
Selling Shares by Telephone. You and your dealer representative of record
may also sell your shares by telephone. To receive the redemption price
on a regular business day, your call must be received by the Transfer
Agent by the close of The New York Stock Exchange that day, which is
normally 4:00 P.M., but may be earlier on some days. 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 statement, or, if you have linked your Fund account to your
bank account on AccountLink, you may have the proceeds wired to that bank
account.
- Telephone Redemptions Paid by Check. Up to $50,000 may be redeemed
by telephone in any 7-day period. The check must be payable to all owners
of record of the shares and must be sent to the address on the account
statement. This service is not available within 30 days of changing the
address on an account.
- Telephone Redemptions Through AccountLink. There are no dollar
limits on telephone redemption proceeds sent to a bank account designated
when you establish AccountLink. Normally the ACH wire to your bank is
initiated on the business day after the redemption. You do not receive
dividends on the proceeds of the shares you redeemed while they are
waiting to be wired.
Checkwriting. To be able to write checks against your Fund account, you
may request that privilege on your account Application or you can contact
the Transfer Agent for signature cards, which must be signed (with a
signature guarantee) by all owners of the account and returned to the
Transfer Agent so that checks can be sent to you to use. Shareholders with
joint accounts can elect in writing to have checks paid over the signature
of one owner. If you previously signed a signature cared to establish
Checkwriting in another OppenheimerFund, simply call 1-800-525-7048 to
request Checkwriting for an account in this Fund with the same
registration as the previous Checkwriting account.
- - Checks can be written to the order of whomever you wish, but may not
be cashed at the Fund's bank or custodian.
- - Checkwriting privileges are not available for accounts holding Class
B or Class C shares or Class A shares that are subject to a
contingent deferred sales charge.
- - Checks must be written for at least $100.
- - Checks cannot be paid if they are written for more than your account
value. Remember: your shares fluctuate in value and you should not
write a check close to the total account value.
- - You may not write a check that would require the Fund to redeem
shares that were purchased by check or Asset Builder Plan payments
within the prior 10 days.
- - Don't use your checks if you changed your Fund account number.
Selling Shares Through Your Dealer. The Distributor has made arrangements
to repurchase Fund shares from dealers and brokers on behalf of their
customers. Brokers or dealers may charge for that service. Please refer
to "Special Arrangements for Repurchase of Shares from Dealers and
Brokers" in the Statement of Additional Information for more details.
How to Exchange Shares
Shares of the Fund may be exchanged for shares of certain OppenheimerFunds
at net asset value per share at the time of exchange, without sales
charge. To exchange shares, you must meet several conditions:
- - Shares of the fund selected for exchange must be available for sale
in your state of residence
- - The prospectuses of this Fund and the fund whose shares you want to
buy must offer the exchange privilege
- - You must hold the shares you buy when you establish your account for
at least 7 days before you can exchange them; after the account is
open 7 days, you can exchange shares every regular business day
- - You must meet the minimum purchase requirements for the fund you
purchase by exchange
- - Before exchanging into a fund, you should obtain and read its
prospectus
Shares of a particular class may be exchanged only for shares of the
same class in the other OppenheimerFunds. For example, you can exchange
Class A shares of this Fund only for Class A shares of another fund. At
present, not all of the OppenheimerFunds offer the same classes of shares.
If a fund has only one class of shares that does not have a class
designation, they are "Class A" shares for exchange purposes. 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 "How to Exchange Shares" in 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 name(s) and address. Shares held under certificates may not
be exchanged by telephone.
You can find a list of OppenheimerFunds currently available for
exchanges in the Statement of Additional Information or obtain one by
calling a service representative at 1-800-525-7048. Exchanges of shares
involve a redemption of the shares of the fund you own and a purchase of
shares of the other fund.
There are certain exchange policies you should be aware of:
- Shares are normally redeemed from one fund and purchased from the
other fund in the exchange transaction on the same regular business day
on which the Transfer Agent receives an exchange request that is in proper
form by the close of The New York Stock Exchange that day, which is
normally 4:00 P.M., but may be earlier on some days. However, either fund
may delay the purchase of shares of the fund you are exchanging into up
to 7 days if it determines it would be disadvantaged by a same-day
transfer of the proceeds to buy shares. For example, the receipt of
multiple exchange requests from a dealer in a "market-timing" strategy
might require the disposition of portfolio securities at a time or price
disadvantageous to the Fund.
- Because excessive trading can hurt fund performance and harm
shareholders, the Fund reserves the right to refuse any exchange request
that will disadvantage it, or to refuse multiple exchange requests
submitted by a shareholder or dealer.
- The Fund may amend, suspend or terminate the exchange privilege at
any time. Although the Fund will attempt to provide you notice whenever
it is reasonably able to do so, it may impose these changes at any time.
- For tax purposes, exchanges of shares involve a redemption of the
shares of the Fund you own and a purchase of shares of the other Fund,
which may result in a capital gain or loss. For more information about
taxes affecting exchanges, please refer to "How to Exchange Shares" in the
Statement of Additional Information.
- 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.
The Distributor has entered into agreements with certain dealers and
investment advisers permitting them to exchange their clients' shares by
telephone. These privileges are limited under those agreements and the
Distributor has the right to reject or suspend those privileges. As a
result, those exchanges may be subject to notice requirements, delays and
other limitations that do not apply to shareholders who exchange their
shares directly by calling or writing to the Transfer Agent.
Shareholder Account Rules and Policies
- Net Asset Value Per Share is determined for each class of shares
as of the close of The New York Stock Exchange on each regular business
day by dividing the value of the Fund's net assets attributable to a class
by the number of shares of that class that are outstanding. The Fund's
Board of Trustees has established procedures to value the Fund's
securities to determine net asset value. In general, securities values
are based on market value. There are special procedures for valuing
illiquid and restricted securities and obligations for which market values
cannot be readily obtained. These procedures are described more
completely in the Statement of Additional Information.
- The offering of shares may be suspended during any period in which
the determination of net asset value is suspended, and the offering may
be suspended by the Board of Trustees at any time the Board believes it
is in the Fund's best interest to do so.
- Telephone Transaction Privileges for purchases, redemptions or
exchanges may be modified, suspended or terminated by the Fund at any
time. If an account has more than one owner, the Fund and the Transfer
Agent may rely on the instructions of any one owner. Telephone privileges
apply to each owner of the account and the dealer representative of record
for the account unless and until the Transfer Agent receives cancellation
instructions from an owner of the account.
- The Transfer Agent will record any telephone calls to verify data
concerning transactions and has adopted other procedures to confirm that
telephone instructions are genuine, by requiring callers to provide tax
identification numbers and other account data or by using PINs, and by
confirming such transactions in writing. If the Transfer Agent does not
use reasonable procedures it may be liable for losses due to unauthorized
transactions, but otherwise neither it nor the Fund will be liable for
losses or expenses arising out of telephone instructions reasonably
believed to be genuine. If you are unable to reach the Transfer Agent
during periods of unusual market activity, you may not be able to complete
a telephone transaction and should consider placing your order by mail.
- Redemption or transfer requests will not be honored until the
Transfer Agent receives all required documents in proper form. From time
to time, the Transfer Agent in its discretion may waive certain of the
requirements for redemptions stated in this Prospectus.
- Dealers that can perform account transactions for their clients by
participating in NETWORKING through the National Securities Clearing
Corporation are responsible for obtaining their clients' permission to
perform those transactions, and are responsible to their clients who are
shareholders of the Fund if the dealer performs any transaction
erroneously or improperly.
- The redemption price for shares will vary from day to day because
the value of the securities in the Fund's portfolio fluctuates, and the
redemption price, which is the net asset value per share, will normally
be different for Class A, Class B and Class C 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. For accounts registered
in the name of a broker-dealer, payment will be forwarded within 3
business days. The Transfer Agent may delay forwarding a check or
processing a payment via AccountLink for recently purchased shares, but
only until the purchase payment has cleared. That delay may be as much
as 10 days from the date the shares were purchased. That delay may be
avoided if you purchase shares by certified check or arrange with your
bank provide telephone or written assurance to the Transfer Agent that
your purchase payment has cleared.
- Involuntary redemptions of small accounts may be made by the Fund
if the account value has fallen below $200 for reasons other than the fact
that the market value of shares has dropped, and in some cases involuntary
redemptions may be made to repay the Distributor for losses from the
cancellation of share purchase orders.
- Under unusual circumstances, shares of the Fund may be redeemed "in
kind," which means that the redemption proceeds will be paid with
securities from the Fund's portfolio. Please refer to "How to Sell Shares"
in the Statement of Additional Information for more details.
- "Backup Withholding" of Federal income tax may be applied at the
rate of 31% from taxable dividends, distributions and redemption proceeds
(including exchanges) if you fail to furnish the Fund a certified Social
Security or Employer Identification Number when you sign your application,
or if you violate Internal Revenue Service regulations on tax reporting
of dividends.
- The Fund does not charge a redemption fee, but if your dealer or
broker handles your redemption, they may charge a fee. That fee can be
avoided by redeeming your Fund shares directly through the Transfer Agent.
Under the circumstances described in "How To Buy Shares," you may be
subject to a contingent deferred sales charges when redeeming certain
Class A, Class B and Class C shares.
- To avoid sending duplicate copies of materials to households, the
Fund will mail only one copy of each annual and semi-annual report to
shareholders having the same last name and address on the Fund's records.
However, each shareholder may call the Transfer Agent at 1-800-525-7048
to ask that copies of those materials be sent personally to that
shareholder.
Dividends, Capital Gains and Taxes
Dividends. The Fund declares dividends separately for Class A, Class B and
Class C shares from net tax-exempt income and/or 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
and Class C shares because expenses allocable to Class B and Class C
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 in December. The Fund may make supplemental distributions of
dividends and capital gains following the end of its fiscal year (which
ends December 31st). Long-term capital gains will be separately
identified in the tax information the Fund sends you after the end of the
year. Short-term capital gains are treated as dividends for tax purposes.
There can be no assurance that the Fund will pay any capital gains
distributions in a particular year.
Distribution Options. When you open your account, specify on your
application how you want to receive your distributions. You have four
options:
- Reinvest All Distributions in the Fund. You can elect to reinvest
all dividends and long-term capital gains distributions in additional
shares of the Fund.
- Reinvest Long-Term Capital Gains Only. You can elect to reinvest
long-term capital gains in the Fund while receiving dividends by check or
sent to your bank account on AccountLink.
- Receive All Distributions in Cash. You can elect to receive a
check for all dividends and long-term capital gains distributions or have
them sent to your bank on AccountLink.
- Reinvest Your Distributions in Another OppenheimerFunds Account.
You can reinvest all distributions in another OppenheimerFunds account you
have established.
Taxes. Long-term capital gains are taxable as long-term capital gains
when distributed to shareholders for Federal income tax purposes. It does
not matter how long you hold your shares. 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 the alternative minimum tax. Certain distributions
are subject to federal income tax and may be subject to state or local
taxes. Such distributions are taxable when paid, whether you reinvest
them in additional shares or take them in cash. Every year the Fund will
send you and the IRS a statement showing the amount of 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, or just before the Fund declares a
capital gain distribution, you will pay the full price for the shares and
then receive a portion of the price back as a taxable 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. A non-taxable return of capital may reduce your tax basis
in your Fund shares.
This information is only a summary of certain federal tax information
about your investment. More information is contained in the Statement of
Additional Information, and in addition you should consult with your tax
adviser about the effect of an investment in the Fund on your particular
tax situation.
<PAGE>
APPENDIX TO PROSPECTUS OF
OPPENHEIMER TAX-FREE BOND FUND
Graphic material included in Prospectus of Oppenheimer Tax-Free Bond
Fund: "Comparison of Change in Value of $10,000 Hypothetical Investments
in Oppenheimer Tax-Free Bond Fund and the Lehman Bros. Municipal Bond
Index.
Linear graphs will be included in the Prospectus of Oppenheimer Tax-
Free Bond Fund (the "Fund") depicting the initial account value and
subsequent account value of a hypothetical $10,000 investment in (i) Class
A shares of the Fund for each of the Fund's ten most recently completed
fiscal years, and (ii) Class B shares of the Fund for the period March 16,
1993 (commencement of class) to December 31, 1994, and comparing such
values with the same investments over the same time periods in the Lehman
Brothers Municipal Bond Index. Since no Class C shares were outstanding
until after December 31, 1994, no figures are included for this class.
Set forth below are the relevant data points that will appear on the
linear graph. Additional information with respect to the foregoing,
including a description of the Lehman Brothers Municipal Bond Index, is
set forth in the Prospectus under "Fund Information - Management's
Discussion of Performance."
<TABLE>
<CAPTION>
Oppenheimer
Tax-Free Lehman
Bond Fund Brothers
Fiscal Year Class A Municipal
(Period) Ended Shares Bond Index
<S> <C> <C>
12/31/84 $ 9,525 $11,055
12/31/85 $11,561 $13,269
12/31/86 $13,844 $15,832
12/31/87 $13,844 $16,071
12/31/88 $15,161 $17,703
12/31/89 $16,596 $19,614
12/31/90 $17,569 $21,043
12/31/91 $19,702 $23,598
12/31/92 $21,443 $25,680
12/31/93 $24,334 $28,833
12/31/94 $22,162 $27,342
Oppenheimer
Tax-Free Lehman
Bond Fund Brothers
Fiscal Year Class B Municipal
(Period) Ended Shares Bond Index
03/16/93 $10,000 $10,000
12/31/93 $10,821 $10,826
12/31/94 $ 9,424 $10,266
</TABLE>
Oppenheimer Tax-Free Bond Fund
Two World Trade Center
New York, New York 10048-0203
Investment Adviser
Oppenheimer Management Corporation
Two World Trade Center
New York, New York 10048-0203
Distributor
Oppenheimer Funds Distributor, Inc.
Two World Trade Center
New York, New York 10048-0203
Transfer Agent
Oppenheimer Shareholder Services
P.O. Box 5270
Denver, Colorado 80217
1-800-525-7048
Custodian of Portfolio Securities
Citibank, N.A.
399 Park Avenue
New York, New York 10043
Independent Auditors
KPMG Peat Marwick LLP
707 Seventeenth Street
Denver, Colorado 80202
Counsel
Gordon Altman Butowsky
Weitzen Shalov & Wein
114 West 47th Street
New York, New York 10036
No dealer, broker, salesperson or any other person has been authorized to
give any information or to make any representations other than those
contained in this Prospectus or the Statement of
Additional Information, and if given or made, such information and
representations must not be relied upon as having been authorized by the
Fund, Oppenheimer Management Corporation, Oppenheimer Funds Distributor,
Inc., or any affiliate thereof. This Prospectus does not constitute an
offer to sell or a solicitation of an offer to buy any of the securities
offered hereby in any state to any person to whom it is unlawful to make
such an offer in such state.
(OppenheimerFunds Logo)
PR0310.001.0595* 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 August 29, 1995
This Statement of Additional Information is not a Prospectus. This
document contains additional material about the Fund and supplements
information in the Prospectus dated August 29, 1995. It should be read
together with the Prospectus, which may be obtained by writing to the
Fund's Transfer Agent, Oppenheimer Shareholder Services, at P.O. Box 5270,
Denver, Colorado 80217 or by calling the Transfer Agent at the toll-free
number shown above.
Contents
Page
About the Fund 2
Investment Objective and Policies 2
Investment Policies and Strategies 2
Other Investment Techniques and Strategies 8
Other Investment Restrictions 14
How the Fund is Managed 15
Organization and History 15
Trustees and Officers of the Fund 16
The Manager and Its Affiliates 20
Brokerage Policies of the Fund 22
Performance of the Fund 23
Distribution and Services Plans 27
About Your Account 28
How To Buy Shares 28
How To Sell Shares 34
How to Exchange Shares 37
Dividends, Capital Gains and Taxes 39
Additional Information About the Fund 41
Financial Information About the Fund
Independent Auditors' Report 42
Financial Statements 43
Appendix A: Tax-Equivalent Yield Table A-1
Appendix B: Description of Ratings Categories B-1
Appendix C: Industry Classifications C-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. Certain 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 those 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 "Investment
Objective and Policies - Illiquid Securities" in the Prospectus. There
is otherwise no limit on the amount of the Fund's assets that may be
invested in floating rate and variable rate obligations.
- When-Issued and Delayed Delivery Transactions. As stated in the
Prospectus, the Fund may purchase securities on a "when-issued" basis, and
may purchase or sell such securities on a "delayed delivery" basis.
Although the Fund will enter into such transactions for the purpose of
acquiring securities for its portfolio or for delivery pursuant to options
contracts it has entered into, the Fund may dispose of a commitment prior
to settlement. "When-issued" or "delayed delivery" refers to securities
whose terms and indenture are available and for which a market exists, but
which are not available for immediate delivery. When such transactions
are negotiated the price (which is generally expressed in yield terms) is
fixed at the time the commitment is made, but delivery and payment for the
securities take place at a later date. During the period between
commitment by the Fund and settlement (generally within two months but not
to exceed 120 days), no payment is made for the securities purchased by
the purchaser, and no interest accrues to the purchaser from the
transaction. Such securities are subject to market fluctuation; the value
at delivery may be less than the purchase price. The Fund will maintain
a segregated account with its Custodian, consisting of cash, U.S.
Government securities or other high grade debt obligations at least equal
to the value of purchase commitments until payment is made.
The Fund will engage in when-issued transactions in order to secure
what is considered to be an advantageous price and yield at the time of
entering into the obligation. When the Fund engages in when-issued or
delayed delivery transactions, it relies on the buyer or seller, as the
case may be, to consummate the transaction. Failure to do so may result
in the Fund losing the opportunity to obtain a price and yield considered
to be advantageous. If the Fund chooses to (i) dispose of the right to
acquire a when-issued security prior to its acquisition or (ii) dispose
of its right to deliver or receive against a forward commitment, it may
incur a gain or loss. At the time the Fund makes a commitment to purchase
or sell a security on a when-issued or forward commitment basis, it
records the transaction and reflects the value of the security purchased,
or if a sale, the proceeds to be received in determining its net asset
value.
To the extent the Fund engages in when-issued and delayed delivery
transactions, it will do so for the purpose of acquiring or selling
securities consistent with its investment objective and policies and not
for the purposes of investment leverage. The Fund enters into such
transactions only with the intention of actually receiving or delivering
the securities, although (as noted above), when-issued securities and
forward commitments may be sold prior to settlement date. In addition,
changes in interest rates in a direction other than that expected by the
Manager before settlement will affect the value of such securities and may
cause loss to the Fund.
When-issued transactions and forward commitments can be used by the
Fund as a defensive technique to use against anticipated changes in
interest rates and prices. For instance, in periods of rising interest
rates and falling prices, the Fund might sell securities in its portfolio
on a forward commitment basis to attempt to limit its exposure to
anticipated falling prices. In periods of falling interest rates and
rising prices, the Fund might sell portfolio securities and purchase the
same or similar securities on a when-issued or forward commitment basis,
thereby obtaining the benefit of currently higher cash yields.
- 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 must, on each business day, be at least equal the market value
of the loaned securities and must consist of cash, bank letters of credit,
securities of the U.S. Government (or its agencies or instrumentalities)
or other cash equivalents in which the Fund is permitted to invest. To
be acceptable as collateral, letters of credit must obligate a bank to pay
amounts demanded by the Fund if the demand meets the terms of the letter.
Such terms and the issuing bank must be satisfactory to the Fund. When
it lends securities, the Fund receives an amount 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, or
(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 certain 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. Income from
securities loans is not included in the exempt-interest dividends paid by
the Fund.
- Inverse Floaters and Other Derivative Securities. 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.
Investing in inverse floaters that have interest rate caps might be
a 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
may be used to hedge a portion of the Fund's exposure to rising interest
rates. When interest rates exceed the "strike" price 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 strike price, the cap
(which is purchased for additional cost) will not provide additional cash
flows and will expire worthless.
- Municipal Lease Obligations. From time to time the Fund may invest
5% in municipal lease obligations, some of which may be illiquid and
others which the Manager has determined to be liquid under guidelines set
by the Board of Trustees. Those guidelines require the Manager to
evaluate: (1) the frequency of trades and price quotations for such
securities; (2) the number of dealers or other potential buyers willing
to purchase or sell such securities; (3) the availability of market-
makers; and (4) the nature of the trades for such securities. The Manager
will also evaluate the likelihood of a continuing market for such
securities throughout the time they are held by the Fund, and the credit
quality of the instrument. 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.
- 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 state or municipal 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. If the Fund should
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, S&P's and Fitch's
ratings (see Appendix B) 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,
the U.S. branch of a foreign bank or a broker-dealer that 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 resale price exceeds the
purchase price by an amount that reflects an agreed-upon interest rate
effective for the period during which the repurchase agreement is in
effect. The majority of these transactions run from day to day, and
delivery pursuant to resale typically will occur within one to five days
of the purchase. Repurchase agreements are considered "loans" under the
Investment Company Act, collateralized by the underlying security. The
Fund's repurchase agreements require that at all times while the
repurchase agreement is in effect, the collateral's value must equal or
exceed the repurchase price to fully collateralize the repayment
obligation. Additionally, the Manager will impose creditworthiness
requirements to confirm that the vendor is financially sound 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 must, on each business day, be at least equal to the value of
the loaned securities and must consist of cash, bank letters of credit or
securities of the U.S. Government (or its agencies or instrumentalities).
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. Income from securities loans is not included in the exempt-
interest dividends paid by the Fund. The Fund will not enter into any
securities loans having a duration of more than one year.
- Hedging. As described in the Prospectus, the Fund may employ one
or more types of hedging instruments. 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). Covered calls may also be
written on debt securities to attempt to increase the Fund's income. 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 investment activities in the underlying
cash market. In the future, the Fund may employ hedging instruments and
strategies that are not presently contemplated but which may be developed,
to the extent such investment methods are consistent with the Fund's
investment objective and are legally permissible and disclosed in the
Prospectus. Additional information about the hedging instruments the Fund
may use is provided below.
- Writing Covered Call Options. 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 on the same security
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
security) regardless of market price changes during the call period. The
Fund has retained the risk of loss should the price of the underlying
security decline during the call period, which may be offset to some
extent by the premium.
To terminate its obligation on a call it has written, the Fund may
purchase a corresponding call in a "closing purchase transaction." A
profit or loss will be realized, depending upon whether the net of the
amount of the option transaction costs and the premium received on the
call written was more or less than the price of the call subsequently
purchased. A profit may also be realized if the call lapses unexercised,
because the Fund retains the underlying investment and the premium
received. Any such profits are considered short-term capital gains for
Federal tax purposes, as are premiums on lapsed calls, and when
distributed by the Fund are taxable as ordinary income. An option
position may be closed out only on a market that provides secondary
trading for options of the same series, and there is no assurance that a
liquid secondary market will exist for a particular
option. If the Fund could not effect a closing purchase transaction due
to a lack of a market, it would have to hold the callable investment until
the call lapsed or were exercised.
- 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).
An Interest Rate Future obligates the seller to deliver and the purchaser
to take the related debt securities at a specified price on a specified
date. No amount is paid or received upon the purchase or sale of an
Interest Rate Future.
The Fund may concurrently buy and sell Futures contracts in the
expectation that the Future purchased will outperform the Future sold.
For example, the Fund might simultaneously buy Municipal Bond Futures and
sell U.S. Treasury Bond Futures. This type of transaction would be
profitable to the Fund if municipal bonds, in general, outperform U.S.
Treasury bonds. Risks of this type of Futures strategy include the
possibility that the Manager does not correctly assess the relative
durations of the investments underlying the Futures, with the result that
the strategy changes the overall duration of the Fund's portfolio in a
manner that increases the volatility of the Fund's price per share.
Duration is a volatility measure that refers to the expected percentage
change in the value of a bond resulting from a change in general interest
rates (measured by each 1% change in the rates on U.S. Treasury
securities). For example, if a bond has an effective duration of three
years, a 1% increase in general interest rates would be expected to cause
the bond to decline about 3%.
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. Any gain or loss is then realized.
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. A "municipal bond index" assigns
relative values to the municipal bonds in the index, and is used as the
basis for trading long-term municipal bond futures contracts. 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 exercise 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 on 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 purchases 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."
- Additional Information about Hedging Instruments and Their Use.
The Fund's Custodian, or a securities depository acting for the Custodian,
will act as the Fund's escrow agent through the facilities of the Options
Clearing Corporation ("OCC"), as to the investments on which the Fund has
written calls traded on exchanges, or as to other acceptable escrow
securities, so that no margin will be required for such transactions. OCC
will release the securities on the expiration of the calls or upon the
Fund's entering into a closing purchase transaction. An option position
may be closed out only on a market which provides secondary trading for
options of the same series and there is no assurance that a liquid
secondary market will exist for any particular option.
When the Fund writes an over-the-counter("OTC") option, it intends
to into an arrangement with a primary U.S. Government securities dealer,
which would establish a formula price at which the Fund would have the
absolute right to repurchase that OTC option. This formula price would
generally be based on a multiple of the premium received for the option,
plus the amount by which the option is exercisable below the market price
of the underlying security ("in-the-money"). For any OTC option the Fund
writes, it will treat as illiquid (for purposes of its restriction on
illiquid securities, stated in the Prospectus) the mark-to-market value
of any OTC option held by it. The Securities and Exchange Commission is
evaluating the general issue of whether or not OTC options should be
considered as liquid securities, and the procedure described above could
be affected by the outcome of that evaluation.
The Fund's option activities may affect its portfolio turnover rate
and brokerage commissions. The exercise of calls written by the Fund may
cause the Fund to sell related portfolio securities, thus increasing its
portfolio turnover rate. The exercise by the Fund of puts on securities
will cause the sale of related investments, increasing portfolio turnover.
Although such exercise is within the Fund's control, holding a put might
cause the Fund to sell the related investments for reasons which would not
exist in the absence of the put. The Fund will pay a brokerage commission
each time it buys a call or put, sells a call, or buys or sells an
underlying investment in connection with the exercise of a call or put.
Such commissions may be higher on a relative basis than those which would
apply to direct purchases or sales of such underlying investments.
Premiums paid for options as to underlying investments are small in
relation to the market value of such investments and consequently, put and
call options offer large amounts of leverage. The leverage offered by
trading in options could result in the Fund's net asset value being more
sensitive to changes in the value of the underlying investment.
- Regulatory Aspects of Hedging Instruments. The Fund is required
to operate within certain guidelines and restrictions with respect to its
use of futures and options on futures as established by the Commodity
Futures Trading Commission ("CFTC"). In particular, the Fund is exempted
from registration with the CFTC as a "commodity pool operator" if the Fund
complies with the requirements of Rule 4.5 adopted by the CFTC. The Rule
does not limit the percentage of the Fund's assets that may be used for
Futures margin and related options premiums for a bona fide hedging
position. However, under the Rule the Fund must limit its aggregate
Futures margin and related options premiums to no more than 5% of the
Fund's net assets for hedging strategies that are not considered bona fide
hedging strategies under the Rule. Under the Rule the Fund will not, as
to any positions, whether long, short or a combination thereof, enter into
Futures transactions and options thereon for which the aggregate initial
margins and premiums exceed 5% of the fair market value of the Fund's
assets, with certain exclusions as defined in the Rule. Under the Rule,
the Fund also must use short futures and options on futures positions
solely for bona fide hedging purposes within the meaning and intent of the
applicable provisions of the Commodity Exchange Act.
Transactions in options by the Fund are subject to limitations
established by the Option Exchanges governing the maximum number of
options that may be written or held by a single investor or group of
investors acting in concert, regardless of whether the options were
written or purchased on the same or different exchanges or are held in one
or more accounts or through one or more different exchanges or through
one or more brokers. Thus, the number of options which the Fund may write
or hold may be affected by options written or held by other entities,
including other investment companies having the same adviser as the Fund
(or an adviser that is an affiliate of the Fund's adviser). The exchanges
also impose position limits on futures transaction. 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,
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 (although it reserves the right not to qualify). 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. To comply with this 30%
cap, the Fund will limit the extent to which it engages in the following
activities, but will not be precluded from them: (i) selling investments,
including 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.
- Possible Risk Factors in Hedging. In addition to the risks
associated with hedging discussed in the Prospectus and above, there is
a risk in using short hedging by selling Interest Rate Futures and
Municipal Bond Index Futures 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 markets are subject to margin deposit and
maintenance requirements. Rather than meeting additional margin deposit
requirements, investors may close out futures contracts through offsetting
transactions which could distort the normal relationship between the cash
and futures markets. Second, the liquidity of the futures markets depends
on participants entering into offsetting transactions rather than making
or taking delivery. To the extent participants decide to make or take
delivery, liquidity in the futures markets could be reduced, thus
producing distortion. Third, from the point of view of speculators, the
deposit requirements in the futures markets are less onerous than margin
requirements in the securities markets. Therefore, increased
participation by speculators in the futures markets may cause temporary
price distortions.
The risk of imperfect correlation increases as the composition of the
Fund's portfolio diverges from the securities included in the applicable
index. To compensate for the imperfect correlation of movements in the
price of 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 if 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 that 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 most significant investment restrictions that apply to the Fund
are described in the Prospectus. The following investment restrictions
are also fundamental policies of the Fund and, together with the Fund's
investment objective and fundamental policies, can be changed only by the
vote of a "majority" of the Fund's outstanding voting securities. Under
the Investment Company Act, such a "majority" vote is defined as the vote
of the holders of the lesser of (i) 67% or more of the shares present or
represented by proxy at a shareholder meeting, if the holders of more than
50% of the outstanding shares are present or represented by proxy, or (ii)
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 a
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 total assets of the Fund in
securities of issuers located in the same state, or in securities paying
interest 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 Statement of Additional
Information will be supplemented to reflect the change.
For purposes of the Fund's policy not to concentrate its assets,
described under investment restriction number (4) in the Prospectus, the
Fund has adopted the industry classifications set forth in Appendix C to
this Statement of Additional Information. This is not a fundamental
policy.
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 set forth 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 Growth
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 Emerging Growth Fund, Oppenheimer Global Growth &
Income Fund, Oppenheimer Discovery 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 June 26, 1995, all of the
Trustees and officers of the Fund as a group owned of record or
beneficially less than 1% of each class of shares of the Fund. The
foregoing statement does not reflect shares held of record by an employee
benefit plan for employees of the Manager for which an officer of the Fund
(Andrew J. Donohue) is a Trustee, other than the shares beneficially owned
under that plan by the officers of the Fund listed above.
Leon Levy, Chairman of the Board of Trustees; Age: 69
31 West 52nd Street, New York, New York 10019
General Partner of Odyssey Partners, L.P. (investment partnership)
and Chairman of Avatar Holdings Inc. (real estate development).
Leo Cherne, Trustee; Age: 82
122 East 42nd Street, New York, New York 10168
Chairman Emeritus of the International Rescue Committee
(philanthropic organization); formerly Executive Director of The
Research Institute of America.
Robert G. Galli, Trustee; Age: 62
Vice Chairman of the Manager; Vice President and General Counsel of
Oppenheimer Acquisition Corp., the Manager's parent holding company;
formerly he held the following positions: a director of the Manager
and Oppenheimer Funds Distributor, Inc. (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; Age: 72
591 Breezy Hill Road, Hillsdale, New York 12529
Professor Emeritus of Marketing, Stern Graduate School of Business
Administration, New York University; a director of Sussex
Publications, Inc. (publishers of Psychology Today and Mother Earth
News) and of Spy Magazine, L.P.
Elizabeth B. Moynihan, Trustee; Age: 65
801 Pennsylvania Avenue, Washington, DC 20004
Author and architectural historian; a trustee of the Institute of
Fine Arts (New York University), the Freer Gallery of Art
(Smithsonian Institution) and the National Building Museum; a member
of the Trustees Council, Preservation League of New York State and
the Indo-U.S. Sub-Commission on Education and Culture.
Kenneth A. Randall, Trustee; Age: 68
6 Whittaker's Mill, Williamsburg, VA 23185
A director of Dominion Resources, Inc. (electric utility holding
company), Dominion Energy, Inc. (electric power and oil & gas
producer), Enron-Dominion Cogen Corp. (cogeneration company), Kemper
Corporation (insurance and financial services company), Fidelity Life
Association (mutual life insurance company); formerly Chairman of the
Board of ICL, Inc. (information systems), and President and Chief
Executive Officer of The Conference Board, Inc. (international
economic and business research).
Edward V. Regan, Trustee; Age: 65
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 trustee, New
York State and Local Retirement Fund.
Russell S. Reynolds, Jr., Trustee; Age: 63
200 Park Avenue, New York, New York 10166
Founder and Chairman of Russell Reynolds Associates, Inc. (executive
recruiting); Chairman of Directors Publication, Inc. (consulting and
publishing); a trustee of Mystic Seaport Museum, International House,
Greenwich Historical Society and Greenwich Hospital.
Sidney M. Robbins, Trustee; Age: 83
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.
(a closed-end investment company); 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; Age: 69
Chairman Emeritus and a director of the Manager; formerly Chairman
of the Manager and the Distributor.
Pauline Trigere, Trustee; Age: 82
498 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; Age: 64
1325 Merrie Ridge Road, McLean, Virginia 22101
Of 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), Farmers
Insurance Company (insurance), FMC Corp. (chemicals and machinery),
Lindsay Manufacturing Co. (irrigation equipment), Texas Instruments,
Inc. (electronics) and The Vigoro Corporation (Fertilizer
manufacturer); formerly (in descending chronological order)
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.
Robert E. Patterson, Vice President and Portfolio Manager; Age: 51
Senior Vice President of the Manager; an officer of other
OppenheimerFunds.
Andrew J. Donohue, Secretary; Age: 45
Executive Vice President and General Counsel of the Manager and the
Distributor; an officer of other OppenheimerFunds; formerly Senior
Vice President and Associate General Counsel of the Manager and the
Distributor, partner in Kraft & McManimon (a law firm), an officer
of First Investors Corporation (a broker-dealer) and First Investors
Management Company, Inc. (broker-dealer and investment adviser) and
a director and officer of First Investors Family of Funds and First
Investors Life Insurance Company.
George C. Bowen, Treasurer; Age: 58
3410 South Galena Street Denver, Colorado 80231
Senior Vice President and Treasurer of the Manager; Vice President
and Treasurer of the Distributor and HarbourView; Senior Vice
President, Treasurer, Assistant Secretary and a director of
Centennial; Vice President, Treasurer and Secretary of SSI, SFSI; an
officer of other OppenheimerFunds.
Robert G. Zack, Assistant Secretary; Age: 47
Senior Vice President and Associate General Counsel of the Manager;
Assistant Secretary of SSI and SFSI; an officer of other
OppenheimerFunds.
Robert Bishop, Assistant Treasurer; Age: 36
3410 South Galena Street, Denver, Colorado 80231
Assistant Vice President of the Manager/Mutual Fund Accounting; an
officer of other OppenheimerFunds; previously a Fund Controller for
the Manager, prior to which he was an Accountant for Yale &
Seffinger, P.C., an accounting firm, and an Accountant and
Commissions Supervisor for Stuart James Company Inc., a broker-
dealer.
Scott Farrar, Assistant Treasurer; Age: 29
3410 South Galena Street, Denver, Colorado 80231
Assistant Vice President of the Manager/Mutual Fund Accounting; an
officer of other OppenheimerFunds; previously a Fund Controller for
the Manager, prior to which he was an International Mutual Fund
Supervisor for Brown Brothers Harriman & Co., a bank, and previously
a Senior Fund Accountant for State Street Bank & Trust Company,
before which he was a sales representative for Central Colorado
Planning.
- Remuneration of Trustees. The officers of the Fund are affiliated
with the Manager; they and the Trustees of the Fund who are affiliated
with the Manager (Messrs. Galli and Spiro; Mr. Spiro is also an officer)
receive no salary or fee from the Fund. The Trustees of the Fund
(including Mr. Delaney, a former Trustee, but excluding Messrs. Galli and
Spiro) received the total amounts shown below (i) from the Fund during its
fiscal year ended December 31, 1994, and (ii) from all 17 of the New York-
based OppenheimerFunds (including the Fund) listed in the first paragraph
of this section (and from Oppenheimer Global Environment Fund, Oppenheimer
Mortgage Income Fund and Oppenheimer Time Fund, former New York-based
OppenheimerFunds), for services in the positions shown:
<TABLE>
<CAPTION>
Retirement
Benefits Total Compensation
Aggregate Accrued as From All
Compensation Part of New York-based
Name and Position From Fund Fund Expenses OppenheimerFunds1
<S> <C> <C> <C>
Leon Levy, Chairman and Trustee $13,500 $684 $141,000.00
Leo Cherne, Audit Committee $6,590 $334 68,800.00
Member and Trustee
Benjamin Lipstein, $8,255 $684 $ 86,200.00
Study Committee
Member and Trustee
Elizabeth B. Moynihan, $5,804 $294 $ 60,625.00
Study Committee
Member and2 Trustee
Kenneth A. Randall, $7,508 $380 $ 78,400.00
Audit Committee Member
and Trustee
Edward V. Regan, $5,385 $273 $ 56,275.00
Audit Committee
Member2 and Trustee
Russell S. Reynolds, Jr.,Trustee $4,992 $253 $ 52,100.00
Sidney M. Robbins, Study $11,697 $593 $122,100.00
Committee Chairman, Audit
Committee Vice-Chairman
and Trustee
Pauline Trigere, Trustee $4,992 $253 $ 52,100.00
Clayton K. Yeutter, Trustee $4,992 $253 $ 52,100.00
______________________
1 For the 1994 calendar year.
2 Committee position held during a portion of the period shown.
</TABLE>
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 to be eligible for the
maximum payment. Because each Trustee's retirement benefits will depend
on the amount of the Trustee's future compensation and length of service,
the amount of those benefits cannot be determined at this time, nor can
we estimate the number of years of credited service that will be used to
determine those benefits. No payments have been made by the Fund under
the plan as of September 30, 1994.
- Major Shareholders. As of August 23, 1995, 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 Class A, Class B or Class C shares.
The Manager and Its Affiliates
The Manager is owned by Oppenheimer Acquisition Corp., a holding
company controlled by Massachusetts Mutual Life Insurance Company, and
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 Manager and the Fund have a Code of Ethics. It is designed to
detect and prevent improper personal trading by certain employees,
including portfolio managers, that would compete with or take advantage
of the Fund's portfolio transactions. Compliance with the Code of Ethics
is carefully monitored and strictly enforced by the Manager.
- The Investment Advisory Agreement. A management fee is payable
monthly to the Manager under the terms of the investment advisory
agreement between the Manager and the Fund, and is computed on the
aggregate net assets of the Fund as of the close of business each day.
The investment advisory agreement 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, 1992, 1993 and 1994, the
management fees paid by the Fund to the Manager were $2,443,445,
$3,113,588 and $3,329,317, respectively.
The advisory agreement contains no expense limitation. 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, Class B and Class C
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, 1992, 1993 and 1994, the aggregate sales charges on
sales of the Fund's Class A shares were $3,542,900, $4,020,669 and
$1,907,642, respectively, of which the Distributor and an affiliated
broker-dealer retained in the aggregate $1,077,669, $1,150,057 and
$543,625 in those respective years. During the fiscal year ended December
31, 1994, the contingent deferred sales charges collected on Class B
shares totaled $110,160, all of which the Distributor retained. Class C
shares were not publicly offered during this fiscal year, and no
contingent deferred sales charges were collected. 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 such 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 that the commission is fair and
reasonable in relation to the services provided. Subject to the foregoing
considerations, the Manager may also consider sales of shares of the Fund
and other investment companies managed by the Manager or its affiliates
as a factor in the selection of brokers for the Fund's portfolio
transactions.
Description of Brokerage Practices Followed by the Manager. Subject to
the provisions of the advisory agreement and the procedures and rules
described above, allocations of brokerage are generally made by the
Manager's portfolio traders based on recommendations from the Manager's
portfolio managers. In certain instances, portfolio managers may directly
place trades and allocate brokerage, also subject to the provisions of the
advisory agreement and the procedures and rules described above. In each
case, brokerage is allocated under the supervision of the Manager's
executive officers. As most purchases made by the Fund are principal
transactions at net prices, the Fund incurs little or no brokerage costs.
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 Board has also
permitted the Manager to use stated commissions on secondary fixed-income
agency trades to obtain research where the broker has represented to the
Manager that: (i) the trade is not from broker's own inventory, (ii) the
trade was not executed by the broker on an agency basis at the stated
commission, and (iii) the trade is not a riskless principal transaction.
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 and Service 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.
Other Funds advised by the Manager have investment objectives and
policies similar to those of the Fund. Such other funds may purchase or
sell the same securities at the same time as the Fund, which could affect
the supply and price of such securities. If two or more of such funds
purchase the same security on the same day from the same dealer, the
Manager may average the price of the transactions and allocate the average
among such funds.
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 yields and total returns are calculated for each class, and the
components of those calculations, is set forth below. No total return
calculations are presented below for Class C shares because no shares of
that class were publicly issued during the fiscal year ended December 31,
1994.
Yield and total return information may be useful to investors in
reviewing the Fund's performance. The Fund's advertisement of its
performance must, under applicable SEC rules, include the average annual
total returns for each class of shares of the Fund for the 1, 5 and 10-
year period (or the life of the class, if less) as of the most recently
ended calendar quarter. This enables an investor to compare the Fund's
performance to the performance of other funds for the same periods.
However, a number of factors should be considered before using such
information as a basis for comparison with other investments. An
investment in the Fund is not insured; its yield and total return are not
guaranteed and normally will fluctuate on a daily basis. When redeemed,
an investor's shares may be worth more or less than their original cost.
Yield and total return for any given past period are not a prediction or
representation by the Fund of future yields or rates of return on its
shares. The yield and total returns of each class of shares of the Fund
are affected by portfolio quality, portfolio maturity, the type of
investments the Fund holds and its operating expenses.
- 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 the class on the
last day of the period, adjusted for undistributed net
investment income.
The standardized yield of a class of shares for a 30-day period may
differ from its yield for any other period. The SEC formula assumes that
the standardized yield for a 30-day period occurs at a constant rate for
a six-month period and is annualized at the end of the six-month period.
This standardized yield is not based on actual distributions paid by the
Fund to shareholders in the 30-day period, but is a hypothetical yield
based upon the net investment income from the Fund's portfolio investments
calculated for that period. The standardized yield may differ from the
"dividend yield" of that class, described below. Additionally, because
each class of shares is subject to different expenses, it is likely that
the standardized yields of the Fund's classes of shares will differ. For
the 30-day period ended December 31, 1994, the standardized yields for the
Fund's Class A and Class B shares were 5.66% and 5.14%, respectively.
- Tax-Equivalent Yield. The "tax-equivalent yield" of a class of
shares 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, 1994, the Fund's tax-equivalent yield
for an individual in the 39.6% Federal tax bracket was 9.37% for an
investment in Class A shares of the Fund and 8.51% 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, Class B or Class C 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
- ----------------------------------------------------
Max Offering Price of the Class (last day of period)
Divided by number of days (accrual period) x 365
The maximum offering price for Class A shares includes the maximum
front-end sales charge. For Class B and Class C 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, 1994,
were 5.99% and 6.29% when calculated at maximum offering price and at net
asset value, respectively. The dividend yield on Class B shares for the
30-day period ended December 31, 1994 was 5.54% 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:
( ERV ) 1/n
(-----) -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, 1994
were -13.5%, 4.84% and 8.28%, respectively. The "average annual total
returns" on an investment in Class B shares of the Fund for the period
from March 16, 1993 (commencement of offering) through December 31, 1994,
and the year ended December 31, 1994 were -3.25% and -14.18%,
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 the 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 to the investment result for the
period shown (unless the total return is shown at net asset value, as
described below). For Class C shares, the payment of the 1.0% contingent
deferred sales charge is applied to the investment result for the one-year
(or less) period. 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, 1994 was
121.62%. 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, 1994 was
- -5.76%.
- 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, Class B or Class
C shares. Each is based on the difference in net asset value per share
at the beginning and the end of the period for a hypothetical investment
in that class of shares (without considering front-end or contingent
deferred sales charges) and takes into consideration the reinvestment of
dividends and capital gains distributions. The cumulative total return
at net asset value of the Fund's Class A shares for the fiscal year ended
December 31, 1994 was -9.19%. The cumulative total return at net asset
value of the Fund's Class B shares for the fiscal year ended December 31,
1994 was -9.91%.
Other Performance Comparisons. From time to time the Fund may publish the
ranking of its Class A, Class B or Class C shares by Lipper Analytical
Services, Inc. ("Lipper"), a widely-recognized independent mutual fund
monitoring service. Lipper monitors the performance of regulated
investment companies, including the Fund, and ranks their performance for
various periods based on categories relating to investment objectives.
The performance of the Fund's classes is ranked against (1) all other bond
funds, other than 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 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, Class B or Class C shares by Morningstar, Inc., an
independent mutual fund monitoring service that ranks the performance of
mutual funds, including the Fund, monthly in broad investment categories
(equity, taxable bond, municipal bond and hybrid) based upon risk-adjusted
investment returns. Investment return measures a fund's three, five and
ten-year average annual total returns (when available) in excess of 90-day
U.S. Treasury bill returns after considering sales charges and expenses.
Risk measures fund performance below 90-day U.S. Treasury bill returns.
Risk and return are combined to produce star rankings reflecting
performance relative to the average fund in a given fund's category. Five
stars is the "highest" ranking (top 10%), four stars is "above average"
(next 22.5%), three stars is "average" (next 35%), two stars is "below
average" (next 22.5%) and one star is "lowest" (bottom 10%). Morningstar
ranks the Fund's Class A, Class B and Class C shares in relation to other
rated municipal bond funds. Rankings are subject to change.
Investors may also wish to compare the Fund's Class A, Class B or
Class C 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,
Class B and Class C 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.
From time to time, the Fund's Manager may publish rankings or ratings
of the Manager (or the Transfer Agent), by independent third-parties, on
the investor services provided by them to shareholders of the
OppenheimerFunds, other than the performance rankings of the
OppenheimerFunds themselves. Those ratings or rankings of
shareholder/investor services may compare the OppenheimerFunds' services
to those of other mutual fund families selected by the rating or ranking
services, and may be based upon the opinions of the rating or ranking
service itself, using its own research or judgment, or based upon surveys
of investors, brokers, shareholders or others.
Distribution and Service Plans
The Fund has adopted a Service Plan for Class A shares, a
Distribution and Service Plan for Class B shares and a Distribution and
Service Plan for Class C shares under Rule 12b-1 of the Investment Company
Act, pursuant to which the Fund makes payments to the Distributor 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 Plans for Class B shares and for Class C shares,
that vote was cast by the Manager as the then-sole initial holder of Class
B shares and of Class C shares of the Fund.
In addition, under the Plans the Manager and the Distributor, in
their sole discretion from time to time may use their own resources
(which, in the case of the Manager, may include profits from the advisory
fee it receives from the Fund) to make payments to brokers, dealers or
other financial institutions (each is referred to as a "Recipient" under
the Plans) for distribution and administrative services they perform. The
Distributor and the Manager may, in their sole discretion, increase or
decrease the amount of payments they make from their own resources to
Recipients.
Unless terminated as described below, each Plan continues in effect
from year to year but only as long as 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. Any 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. In addition, because Class B
shares of the Fund automatically convert Class A shares after six years,
the Fund is required by an exemptive order issued by the Securities and
Exchange Commission to obtain the approval of Class B as well as Class A
shareholders for a proposed amendment to the Class A Plan that would
materially increase the amount to be paid by Class A shareholders under
the Class A Plan. Such approval must be by a "majority" of the Class A
and Class B shares (as defined in the Investment Company Act) voting
separately by class. None of the Plans 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 and Class C
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, 1994, payments under the Class
A Plan totaled $1,185,792, all of which was paid by the Distributor to
Recipients, including $104,014 paid to an affiliate of the Distributor.
For the same period, payments made under the Class B Plan totaled
$465,406. Since no Class C shares were outstanding during the fiscal year
ended December 31, 1994, no payments were made under the Class C Plan.
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 and the Class C Plan permit the Distributor
to retain both the asset-based sales charges and the service fees on Class
B shares and Class C shares, respectively, 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 and the Class C Plan by the Board.
Initially, the Board has set no minimum holding period. All payments
under the Class B Plan and the Class C 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 and the Class C Plan allow 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 and the Class C 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 and Class C 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, Class B and Class C Shares. The
availability of three classes of shares permits an investor to choose the
method of purchasing shares that is more beneficial to the investor
depending on the amount of the purchase, the length of time the investor
expects to hold shares and other relevant circumstances. Investors should
understand that the purpose and function of the deferred sales charge and
asset-based sales charge with respect to Class B and Class C shares are
the same as those of the initial sales charge with respect to Class A
shares. Any salesperson or other person entitled to receive compensation
for selling Fund shares may receive different compensation with respect
to one class of shares than the other. The Distributor will not accept
any order for $500,000 or more of Class B shares or $1 million or more of
Class C shares on behalf of a single investor (not including dealer
"street name" or omnibus accounts) because generally it will be more
advantageous for that investor to purchase Class A shares of the Fund
instead.
The three classes of shares each represent an interest in the same
portfolio investments of the Fund. However, each class has different
shareholder privileges and features. The net income attributable to Class
B and Class C shares and the dividends payable on such shares will be
reduced by incremental expenses borne solely by those classes, including
the asset-based sales charge to which both classes are subject.
The conversion of Class B shares to Class A shares after six years
is subject to the continuing availability of a private letter ruling from
the Internal Revenue Service, or an opinion of counsel or tax adviser, to
the effect that the conversion of Class B shares does not constitute a
taxable event for the holder under Federal income tax law. If such a
revenue ruling or opinion is no longer available, the automatic conversion
feature may be suspended, in which event no further conversions of Class
B shares would occur while such suspension remained in effect. Although
Class B shares could then be exchanged for Class A shares on the basis of
relative net asset value of the two classes, without the imposition of a
sales charge or fee, such exchange could constitute a taxable event for
the holder, and absent such exchange, Class B shares might continue to be
subject to the asset-based sales charge for longer than six years.
The methodology for calculating the net asset value, dividends and
distributions of the Fund's Class A, Class B and Class C shares recognizes
two types of expenses. General expenses that do not pertain specifically
to a 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 Independent Trustees, (v) custodian
expenses, (vi) share issuance costs, (vii) organization and start-up
costs, (viii) interest, taxes and brokerage commissions, and (ix) non-
recurring expenses, such as litigation costs. Other expenses that are
directly attributable to a class are allocated equally to each outstanding
share within that class. Such expenses include (i) Distribution Plan
fees, (ii) incremental transfer and shareholder servicing agent fees and
expenses, (iii) registration fees and (iv) shareholder meeting expenses,
to the extent that such expenses pertain to a specific class rather than
to the Fund as a whole.
Determination of Net Asset Value Per Share. The net asset values per
share of Class A, Class B and Class C shares of the Fund are determined
as of the close of business of The New York Stock Exchange (the "NYSE")
on each day the NYSE is open, 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 normally closes at 4:00 P.M., New York time,
but may close earlier on some days (for example, in case of weather
emergencies or on days falling before a holiday). The NYSE's most recent
annual holiday schedule 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 value will not be calculated on those days, the net asset
values per Class A, Class B and Class C shares of the Fund may be
significantly affected at times when shareholders cannot purchase or
redeem shares.
The Fund's Board of Trustees has established procedures for the
valuation of the Fund's securities, generally as follows: (i) equity
securities traded on a U.S. securities exchange or on NASDAQ for which
last sale information is regularly reported are valued at the last
reported sale price on their primary exchange or NASDAQ that day (or, in
the absence of sales that day, at values based on the last sales prices
of the preceding trading day, or closing bid and asked prices); (ii)
securities actively traded on a foreign securities exchange are valued at
the last sales price available to the pricing service approved by the
Fund's Board of Trustees or to the Manager as reported by the principal
exchange on which the security is traded; (iii) unlisted foreign
securities or listed foreign securities not actively traded are valued as
in (i) above, if available, or at the mean between "bid" and "asked"
prices obtained from active market makers in the security on the basis of
reasonable inquiry; (iv) long-term debt securities having a remaining
maturity in excess of 60 days are valued at the mean between the "bid" and
"asked" prices determined by a portfolio pricing service approved by the
Fund's Board of Trustees or obtained from active market makers in the
security on the basis of reasonable inquiry; (v) debt instruments having
a maturity of more than one year when issued, and non-money market type
instruments having a maturity of one year or less when issued, which have
a remaining maturity of 60 days or less are valued at the mean between the
"bid" and "asked" prices determined by a pricing service approved by the
Fund's Board of Trustees or obtained from active market makers in the
security on the basis of reasonable inquiry; (vi) money market-type debt
securities having a maturity of less than one year when issued that having
a remaining maturity of 60 days or less are valued at cost, adjusted for
amortization of premiums and accretion of discounts; and (vii) securities
(including restricted securities) not having readily-available market
quotations are valued at fair value under the Board's procedures.
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, or on NASDAQ, as applicable. 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.
When the Fund writes an option, an amount equal to the premium
received by the Fund is included in the Fund's Statement of Assets and
Liabilities as an asset, and an equivalent deferred credit is included in
the liability section. The deferred credit is adjusted ("marked-to-
market") to reflect the current market value of the option. In determining
the Fund's gain on investments, if a call written by the Fund is
exercised, the proceeds are increased by the premium received. If a call
or put written by the Fund expires, the Fund has a gain in the amount of
the premium; if the Fund enters into a closing purchase transaction, it
will have a gain or loss depending on whether the premium was more or less
than the cost of the closing transaction. If the Fund exercises a put it
holds, the amount the Fund receives on its sale of the underlying
investment is reduced by the amount of the premium paid by the Fund.
AccountLink. When shares are purchased through AccountLink, each purchase
must be at least $25.00. Shares will be purchased on the regular business
day the Distributor is instructed to initiate the Automated Clearing House
("ACH") 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 the close of the NYSE that day, 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 the close of the NYSE that day, 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 Fund
Oppenheimer Insured Tax-Exempt Fund
Oppenheimer Main Street California Tax-Exempt Fund
Oppenheimer Florida Tax-Exempt Fund
Oppenheimer Pennsylvania Tax-Exempt Fund
Oppenheimer Fund
Oppenheimer Discovery Fund
Oppenheimer Target Fund
Oppenheimer Growth Fund
Oppenheimer Equity Income Fund
Oppenheimer Value Stock Fund
Oppenheimer Asset Allocation Fund
Oppenheimer Total Return Fund, Inc.
Oppenheimer Main Street Income & Growth Fund
Oppenheimer New Jersey Tax-Exempt Fund
Oppenheimer High Yield Fund
Oppenheimer Champion High Yield Fund
Oppenheimer Bond Fund
Oppenheimer International Bond Fund
Oppenheimer U.S. Government Trust
Oppenheimer Limited-Term Government Fund
Oppenheimer Global Fund
Oppenheimer Global Emerging Growth Fund
Oppenheimer Global Growth & Income Fund
Oppenheimer Gold & Special Minerals Fund
Oppenheimer Strategic Income Fund
Oppenheimer Strategic Income & Growth Fund
and, the following "Money Market Funds":
Oppenheimer Money Market Fund, Inc.
Oppenheimer Cash Reserves
Centennial Money Market Trust
Centennial Tax Exempt Trust
Centennial Government Trust
Centennial New York Tax Exempt Trust
Centennial California Tax Exempt Trust
Centennial America Fund, L.P.
Daily Cash Accumulation Fund, Inc.
There is an initial sales charge on the purchase of Class A shares
of each of the OppenheimerFunds except Money Market Funds (under certain
circumstances described herein, redemption proceeds of Money Market Fund
shares may be subject to a contingent deferred sales charge).
- Letters of Intent. A Letter of Intent (referred to as a "Letter")
is an investor's statement in writing to the Distributor of the intention
to purchase Class A shares or Class A and Class B shares of the Fund (and
other OppenheimerFunds during a 13-month period (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 of shares
which, when added to the investor's holdings of shares of those funds,
will equal or exceed the amount specified in the Letter. Purchases made
by reinvestment of dividends or distributions of capital gains and
purchases made at net asset value without sales charge do not count toward
satisfying the amount of the Letter. A Letter enables an investor to
count the Class A and Class B shares purchased under the Letter to obtain
the reduced sales charge rate on purchases of Class A shares of the Fund
(and other OppenheimerFunds) that applies under the Right of Accumulation
to current purchases of Class A shares. Each purchase of Class A shares
under the Letter will be made at the public offering price (including the
sales charges) that applies to a single lump-sum purchase of shares in the
amount intended to be purchased under the Letter.
In submitting a Letter, the investor makes no commitment to purchase
shares, but if the investor's purchases of shares within the Letter of
Intent period, when added to the value (at offering price) of the
investor's holdings of shares on the last day of that period, do not equal
or exceed the intended purchase amount, the investor agrees to pay the
additional amount of sales charge applicable to such purchases, as set
forth in "Terms of Escrow," below (as those terms may be amended from time
to time). The investor agrees that shares equal in value to 5% of the
intended purchase amount will be held in escrow by the Transfer Agent
subject to the Terms of Escrow. Also, the investor agrees to be bound by
the terms of the Prospectus, this Statement of Additional Information and
the Application used for such Letter of Intent, and if such terms are
amended, as they may be from time to time by the Fund, that those
amendments will apply automatically to existing Letters of Intent.
If the total eligible purchases made during the Letter of Intent
period do not equal or exceed the intended purchase amount, the
commissions previously paid to the dealer of record for the account and
the amount of sales charge retained by the Distributor will be adjusted
to the rates applicable to actual total purchases. If total eligible
purchases during the Letter of Intent period exceed the intended purchase
amount and exceed the amount needed to qualify for the next sales charge
rate reduction set forth in the applicable prospectus, the sales charges
paid will be adjusted to the lower rate, but only if and when the dealer
returns to the Distributor the excess of the amount of commissions allowed
or paid to the dealer over the amount of commissions that apply to the
actual amount of purchases. The excess commissions returned to the
Distributor will be used to purchase additional shares for the investor's
account at the net asset value per share in effect on the date of such
purchase, promptly after the Distributor's receipt thereof.
In determining the total amount of purchases made under a Letter,
shares redeemed by the investor prior to the termination of the Letter of
Intent period will be deducted. It is the responsibility of the dealer
of record and/or the investor to advise the Distributor about the Letter
in placing any purchase orders for the investor during the Letter of
Intent period. All of such purchases must be made through the
Distributor.
- Terms of Escrow That Apply to Letters of Intent.
1. Out of the initial purchase (or subsequent purchases if necessary)
made pursuant to a Letter, shares of the Fund equal in value to 5% of the
intended purchase amount specified in the Letter shall be held in escrow
by the Transfer Agent. For example, if the intended purchase amount is
$50,000, the escrow shall be shares valued in the amount of $2,500
(computed at the public offering price adjusted for a $50,000 purchase).
Any dividends and capital gains distributions on the escrowed shares will
be credited to the investor's account.
2. If the intended purchase amount specified under the Letter is
completed within the thirteen-month Letter of Intent period, the escrowed
shares will be promptly released to the investor.
3. If, at the end of the thirteen-month Letter of Intent period the
total purchases pursuant to the Letter are less than the intended 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 a Letter) include (a) Class
A shares sold with a front-end sales charge or subject to a Class A
contingent deferred sales charge, (b) Class B shares acquired subject to
a contingent deferred sales charge, and (c) Class A or B shares acquired
by reinvestment of dividends and distributions or acquired in exchange for
either (i) Class A shares of one of the other OppenheimerFunds that were
acquired subject to a Class A initial or contingent deferred sales charge
or (ii) Class B shares of one of the other OppenheimerFunds that were
acquired subject to a contingent deferred sales charge.
6. Shares held in escrow hereunder will automatically be exchanged
for shares of another fund to which an exchange is requested, as described
in the section of the Prospectus entitled "Exchange Privilege," and the
escrow will be transferred to that other fund.
Asset Builder Plans. To establish an Asset Builder Plan from a bank
account, a check (minimum $25) for the initial purchase must accompany the
application. Shares purchased by Asset Builder Plan payments from bank
accounts are subject to the redemption restrictions for recent purchases
described in "How To Sell Shares," in the Prospectus. Asset Builder Plans
also enable shareholders of Oppenheimer Cash Reserves to use those
accounts for monthly automatic purchases of shares of up to four other
OppenheimerFunds.
There is a front-end sales charge on the purchase of certain
OppenheimerFunds, or a contingent deferred sales charge may apply to
shares purchased by Asset Builder payments. An application should be
obtained from the Distributor, completed and returned, and a prospectus
of the selected fund(s) should be obtained from the Distributor or your
financial adviser, 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, the Board
of Trustees of the Fund may determine that it would be detrimental to the
best interests of the remaining shareholders of the Fund to make payment
of a redemption order wholly or partly in cash, 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 B contingent
deferred sales charge when redeemed. The reinvestment may be made without
sales charge only in Class A shares of the Fund or any of the other
OppenheimerFunds into which shares of the Fund are exchangeable as
described below, at the net asset value next computed after the Transfer
Agent receives the reinvestment order. The shareholder must ask the
Distributor for that privilege at the time of reinvestment. Any capital
gain that was realized when the shares were redeemed is taxable, and
reinvestment will not alter any capital gains tax payable on that gain.
If there has been a capital loss on the redemption, some or all of the
loss may not be tax deductible, depending on the timing and amount of the
reinvestment. Under the Internal Revenue Code, if the redemption proceeds
of Fund shares on which a sales charge was paid are reinvested in shares
of the Fund or another of the OppenheimerFunds within 90 days of payment
of the sales charge, the shareholder's basis in the shares of the Fund
that were redeemed may not include the amount of the sales charge paid.
That would reduce the loss or increase the gain recognized from the
redemption. However, in that case the sales charge would be added to the
basis of the shares acquired by the reinvestment of the redemption
proceeds. The Fund may amend, suspend or cease offering this reinvestment
privilege at any time as to shares redeemed after the date of such
amendment, suspension or cessation.
Transfer of Shares. Shares are not subject to the payment of a contingent
deferred sales charge of any class at the time of transfer to the name of
another person or entity (whether the transfer occurs by absolute
assignment, gift or bequest, not involving, directly or indirectly, a
public sale). The transferred shares will remain subject to the
contingent deferred sales charge, calculated as if the transferee
shareholder had acquired the transferred shares in the same manner and at
the same time as the transferring shareholder. If less than all shares
held in an account are transferred, and some but not all shares in the
account would be subject to a contingent deferred sales charge if redeemed
at the time of transfer, the priorities described in the Prospectus under
"How to Buy Shares" for the imposition of the Class B or the Class C
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 per share will be the
net asset value next computed after the Distributor receives the order
placed by the dealer or broker, except that if the Distributor receives
a repurchase order from a dealer or broker after the close of the New York
Stock Exchange on a regular business day, it will be processed at that
day's net asset value if the order was received by the dealer or broker
from its customer prior to the time the Exchange closed (normally that is
4:00 P.M. but may be earlier some days) and the order was transmitted to
and received by the Distributor prior to its close of business that day
(normally 5:00 P.M.). Payment ordinarily will be made within three days
after the Distributor's receipt of the required redemption documents, with
signature(s) guaranteed as described in the Prospectus.
Automatic Withdrawal and Exchange Plans. Investors owning shares of the
Fund valued at $5,000 or more can authorize the Transfer Agent to redeem
shares (minimum $50) automatically on a monthly, quarterly, semi-annual
or annual basis under an Automatic Withdrawal Plan. Shares will be
redeemed three business days prior to the date requested by the
shareholder for receipt of the payment. Automatic withdrawals of up to
$1,500 per month may be requested by telephone if payments are to be made
by check payable to all shareholders of record and sent to the address of
record for the account (and if the address has not been changed within the
prior 30 days). Required minimum distributions from OppenheimerFunds-
sponsored retirement plans may not be arranged on this basis. Payments
are normally made by check, but shareholders having AccountLink privileges
(see "How To Buy Shares") may arrange to have Automatic Withdrawal Plan
payments transferred to the bank account designated on the
OppenheimerFunds New Account Application or signature-guaranteed
instructions. The Fund cannot guarantee receipt of 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 share purchases while participating in an
Automatic Withdrawal Plan. Class B and Class C shareholders should not
establish withdrawal plans, because of the imposition of the contingent
deferred sales charge on such withdrawals (except where the Class B or the
Class C contingent deferred sales charge is waived as described in the
Prospectus under "Class B Contingent Deferred Sales Charge" or "Class C
Contingent Deferred Sales Charge").
By requesting an Automatic Withdrawal or Exchange Plan, the
shareholder agrees to the terms and conditions applicable to such plans,
as stated below and in the provisions of the OppenheimerFunds Application
relating to such Plans, as well as the Prospectus. These provisions may
be amended from time to time by the Fund and/or the Distributor. When
adopted, such amendments will automatically apply to existing Plans.
- Automatic Exchange Plans. Shareholders can authorize the Transfer
Agent (on the OppenheimerFunds Application or signature-guaranteed
instructions) to exchange a pre-determined amount of shares of the Fund
for shares (of the same class) of other OppenheimerFunds automatically on
a monthly, quarterly, semi-annual or annual basis under an Automatic
Exchange Plan. The minimum amount that may be exchanged to each other
fund account is $25. Exchanges made under these plans are subject to the
restrictions that apply to exchanges as set forth in "How to Exchange
Shares" in the Prospectus and below in this Statement of Additional
Information.
- Automatic Withdrawal Plans. Fund shares will be redeemed as
necessary to meet withdrawal payments. Shares acquired without a sales
charge will be redeemed first and thereafter shares acquired with
reinvested dividends and capital gains distributions will be redeemed
next, followed by shares acquired with a sales charge, to the extent
necessary to make withdrawal payments. Depending upon the amount
withdrawn, the investor's principal may be depleted. Payments made under
withdrawal plans should not be considered as a yield or income on your
investment.
The Transfer Agent will administer the investor's Automatic
Withdrawal Plan (the "Plan") as agent for the investor (the "Planholder")
who executed the Plan authorization and application submitted to the
Transfer Agent. The Transfer Agent shall incur no liability to the
Planholder for any action taken or omitted by the Transfer Agent in good
faith to administer the Plan. Certificates will not be issued for shares
of the Fund purchased for and held under the Plan, but the Transfer Agent
will credit all such shares to the account of the Planholder on the
records of the Fund. Any share certificates held by a Planholder may be
surrendered unendorsed to the Transfer Agent with the Plan application so
that the shares represented by the certificate may be held under the Plan.
For accounts subject to Automatic Withdrawal Plans, distributions of
capital gains must be reinvested in shares of the Fund, which will be done
at net asset value without a sales charge. Dividends on shares held in
the account may be paid in cash or reinvested.
Redemptions of shares needed to make withdrawal payments will be made
at the net asset value per share determined on the redemption date.
Checks or AccountLink payments of the proceeds of Plan withdrawals will
normally be transmitted three business days prior to the date selected for
receipt of the payment (receipt of payment on the date selected cannot be
guaranteed), according to the choice specified in writing by the
Planholder.
The amount and the interval of disbursement payments and the address
to which checks are to be mailed or AccountLink payments are to be sent
may be changed at any time by the Planholder by writing to the Transfer
Agent. The Planholder should allow at least two weeks' time in mailing
such notification for the requested change to be put in effect. The
Planholder may, at any time, instruct the Transfer Agent by written notice
(in proper form in accordance with the requirements of the then-current
Prospectus of the Fund) to redeem all, or any part of, the shares held
under the Plan. In that case, the Transfer Agent will redeem the number
of shares requested at the net asset value per share in effect in
accordance with the Fund's usual redemption procedures and will mail a
check for the proceeds to the Planholder.
The Plan may be terminated at any time by the Planholder by writing
to the Transfer Agent. A Plan may also be terminated at any time by the
Transfer Agent upon receiving directions to that effect from the Fund.
The Transfer Agent will also terminate a Plan upon receipt of evidence
satisfactory to it of the death or legal incapacity of the Planholder.
Upon termination of a Plan by the Transfer Agent or the Fund, shares that
have not been redeemed from the account will be held in uncertificated
form in the name of the Planholder, and the account will continue as a
dividend-reinvestment, uncertificated account unless and until proper
instructions are received from the Planholder or his or her executor or
guardian, or other authorized person.
To use shares held under the Plan as collateral for a debt, the
Planholder may request issuance of a portion of the shares in certificated
form. Upon written request from the Planholder, the Transfer Agent will
determine the number of shares for which a certificate may be issued
without causing the withdrawal checks to stop because of exhaustion of
uncertificated shares needed to continue payments. However, should such
uncertificated shares become exhausted, Plan withdrawals will terminate.
If the Transfer Agent ceases to act as transfer agent for the Fund,
the Planholder will be deemed to have appointed any successor transfer
agent to act as agent in administering the Plan.
How to Exchange Shares
As stated in the Prospectus, shares of a particular class of
OppenheimerFunds having more than one class of shares may be exchanged
only for shares of the same class of other OppenheimerFunds. Shares of
OppenheimerFunds that have a single class of shares without a class
designation are deemed "Class A" shares for this purpose. All of the
OppenheimerFunds offer Class A shares, but only the following other
OppenheimerFunds offer Class B shares:
Oppenheimer Bond Fund
Oppenheimer Strategic Income Fund
Oppenheimer Strategic Income & Growth Fund
Oppenheimer New York Tax-Exempt Fund
Oppenheimer Tax-Free Bond Fund
Oppenheimer California Tax-Exempt Fund
Oppenheimer Pennsylvania Tax-Exempt Fund
Oppenheimer New Jersey Tax-Exempt Fund
Oppenheimer Florida Tax-Exempt Fund
Oppenheimer Insured Tax-Exempt Fund
Oppenheimer Main Street California Tax-Exempt Fund
Oppenheimer Main Street Income & Growth Fund
Oppenheimer Total Return Fund, Inc.
Oppenheimer Value Stock Fund
Oppenheimer Limited-Term Government Fund
Oppenheimer High Yield Fund
Oppenheimer Cash Reserves (Class B shares are only available by
exchange)
Oppenheimer Growth Fund
Oppenheimer Equity Income Fund
Oppenheimer Global Fund
Oppenheimer Discovery Fund
Oppenheimer U.S. Government Trust
Oppenheimer Asset Allocation Fund
Oppenheimer Strategic Short-Term Income Fund
Oppenheimer International Bond Fund
Only the following other OppenheimerFunds offer Class C shares:
Oppenheimer Fund
Oppenheimer Global Growth & Income Fund
Oppenheimer Champion High Yield Fund
Oppenheimer U.S. Government Trust
Oppenheimer Intermediate Tax-Exempt Bond Fund
Oppenheimer Main Street Income & Growth Fund
Oppenheimer Cash Reserves (Class C shares available only by
exchange)
Oppenheimer Strategic Income Fund
Oppenheimer Limited-Term Government Fund
Oppenheimer Asset Allocation Fund
Oppenheimer Tax-Free Bond Fund
Oppenheimer Target Fund
Oppenheimer Bond Fund
Oppenheimer Value Stock Fund
Oppenheimer Total Return Fund, Inc.
Oppenheimer New Jersey Tax-Exempt Fund
Oppenheimer Florida Tax-Exempt Fund
Oppenheimer Pennsylvania Tax-Exempt Fund
Oppenheimer New York Tax-Exempt Fund
Oppenheimer International Bond Fund
Class A shares of OppenheimerFunds may be exchanged at net asset
value for shares of any Money Market Fund. Shares of any Money Market
Fund purchased without a sales charge may be exchanged for shares of
OppenheimerFunds offered with a sales charge upon payment of the sales
charge (or, if applicable, may be used to purchase shares of
OppenheimerFunds subject to a contingent deferred sales charge). However,
if the Distributor receives, at the time of purchase, notice that shares
of Oppenheimer Money Market Fund, Inc. are being purchased with the
redemption proceeds of other mutual funds (other than other money market
funds) that are not part of the OppenheimerFunds family, those shares of
Oppenheimer Money Market Fund, Inc. may be exchanged for shares of other
OppenheimerFunds at net asset value without paying a sales charge.
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, shares of Oppenheimer Money Market Fund,
Inc. purchased with the redemption proceeds of shares of other mutual
funds (other than funds managed by the Manager or its subsidiaries)
redeemed within the 12 months prior to that purchase may subsequently be
exchanged for shares of other OppenheimerFunds without being subject to
an initial or contingent deferred sales charge, whichever is applicable.
To qualify for that privilege, the investor or the investor's dealer must
notify the Distributor of eligibility for this privilege at the time the
shares of Oppenheimer Money Market Fund, Inc. are purchased, and, if
requested, must supply proof of entitlement to this privilege. The Class
C contingent deferred sales charge is imposed on Class C shares acquired
by exchange if they are redeemed within 12 months of the initial purchase
of Class C shares.
The Fund reserves the right to reject telephone or written exchange
requests submitted in bulk by anyone on behalf of 10 or more accounts. The
Fund may accept requests for exchanges of up to 50 accounts per day from
representatives of authorized dealers that qualify for this privilege. In
connection with any exchange request, the number of shares exchanged may
be less than the number requested if the exchange or the number requested
would include shares subject to a restriction cited in the Prospectus or
this Statement of Additional Information, or would include shares covered
by a share certificate that is not tendered with the request. In those
cases, only the shares available for exchange without restriction will be
exchanged.
When Class B or Class C shares are redeemed to effect an exchange,
the priorities described in "How To Buy Shares" in the Prospectus for the
imposition of the Class B or the Class C contingent deferred sales charge
will be followed in determining the order in which the shares are
exchanged. 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 more than one class must specify
whether they intend to exchange Class A, Class B or Class C shares.
When exchanging shares by telephone, the shareholder must either have
an existing account in, or obtain and acknowledge receipt of a prospectus
of, the fund to which the exchange is to be made. For full or partial
exchanges of an account made by telephone, any special account features
such as Asset Builder Plans, Automatic Withdrawal Plans and retirement
plan contributions will be switched to the new account unless the Transfer
Agent is instructed otherwise. If all telephone lines are busy (which
might occur, for example, during periods of substantial market
fluctuations), shareholders might not be able to request exchanges by
telephone and would have to submit written exchange requests.
Shares to be exchanged are redeemed on the regular business day the
Transfer Agent receives an exchange request in proper form (the
"Redemption Date"). Normally, shares of the fund to be acquired are
purchased on the Redemption Date, but such purchases may be delayed by
either fund up to five business days if it determines that it would be
disadvantaged by an immediate transfer of the redemption proceeds. The
Fund reserves the right, in its discretion, to refuse any exchange request
that may disadvantage it (for example, if the receipt of multiple exchange
requests from a dealer might require the disposition of portfolio
securities at a time or at a price that might be disadvantageous to the
Fund).
The different OppenheimerFunds available for exchange have different
investment objectives, policies and risks, and a shareholder should assure
that the Fund selected is appropriate for his or her investment and should
be aware of the tax consequences of an exchange. For federal income tax
purposes, an exchange transaction is treated as a redemption of shares of
one fund and a purchase of shares of another. "Reinvestment Privilege,"
above, discusses some of the tax consequences of reinvestment of
redemption proceeds in such cases. The Fund, the Distributor, and the
Transfer Agent are unable to provide investment, tax or legal advice to
a shareholder in connection with an exchange request or any other
investment transaction.
Dividends, Capital Gains and Taxes
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 gains
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. Shares purchased through dealers or brokers
normally are paid for by the third business day following the placement
of the purchase order. Shares redeemed through the regular redemption
procedure will be paid dividends through and including the day on which
the redemption request is received by the Transfer Agent in proper form.
Dividends will be declared on shares repurchased by a dealer or broker for
three business days following the trade date (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, Class B and Class
C 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 and Class C shares are expected to be lower as a result of the
asset-based sales charge on Class B and Class C shares, and such dividends
will also differ in amount as a consequence of any difference in net asset
value between Class A, Class B and Class C shares.
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 values of Class A, Class B and Class C 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 1994 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. 10.1% of the Fund's dividends (excluding distributions) paid during
1994 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. At December 31, 1994, the Fund had available for
federal income tax purposes on unused capital loss carryover of
approximately $193,000 which will expire in 2002.
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.
While it is presently anticipated that the Fund will meet those
requirements, the Board of Trustees and 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
and Class C shareholders should be aware that as of the date of this
Statement of Additional Information, only certain of the OppenheimerFunds
offer Class B or Class C shares. To elect this option, a shareholder must
notify the Transfer Agent in writing and either have an existing account
in the fund selected for reinvestment or must obtain a prospectus for that
fund and an application from the Distributor to establish an account. The
investment will be made at the net asset value per share in effect at the
close of business on the payable date of the dividend or distribution.
Dividends and/or distributions from 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.
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 Oppenheimer Tax-Free Bond Fund as of December 31, 1994, 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. Our procedures included confirmation of securities owned as of
December 31, 1994, by correspondence with the custodian. 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, 1994, 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.
KPMG Peat Marwick LLP
Denver, Colorado
January 23, 1995
<PAGE>
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------
Statement of Investments December 31, 1994
-----------------------------------------------------------------------------------------------------
Ratings:
Moody's/
S&P's/Fitch's Face Market Value
(Unaudited) Amount See Note 1
==========================================================
==========================================================
===============
Municipal Bonds and Notes--98.5%
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Alabama--1.2% Huntsville, Alabama Health Care Authority
Health Care Facilities Revenue Bonds, Series B,
MBIA Insured, 6.625%, 6/1/23 Aaa/AAA $ 7,235,000 $ 7,012,480
- -----------------------------------------------------------------------------------------------------------------------------------
Arizona--0.3% Arizona State Transportation Board Highway
Revenue Bonds, Prerefunded, Sub. Lien,
Series B, 6.50%, 7/1/07 Aaa/AA 1,330,000 1,389,889
-----------------------------------------------------------------------------------------------------
Central Arizona Irrigation and Drainage District
General Obligation Refunding Bonds, 7%, 6/1/98(2) NR/D 1,385,000 661,157
------------
2,051,046
- -----------------------------------------------------------------------------------------------------------------------------------
California--9.3% California Health Facilities Financing Authority
Revenue Bonds, Episcopal Homes Project,
Series A, OSHPD Insured, 7.80%, 7/1/15 NR/A 1,000,000 1,047,599
-----------------------------------------------------------------------------------------------------
California Housing Finance Agency Revenue
Bonds, Home Mtg., Series C, 6.75%, 2/1/25 Aa/AA- 5,000,000 4,777,335
-----------------------------------------------------------------------------------------------------
California Housing Finance Agency Revenue
Bonds, Series C, 6.65%, 8/1/14 Aa/AA- 5,000,000 4,753,374
-----------------------------------------------------------------------------------------------------
California State Public Works Board Lease
Revenue Bonds, University of California Project,
Series A, AMBAC Insured, 6.40%, 12/1/16 Aaa/AAA/AAA 8,700,000
8,343,951
-----------------------------------------------------------------------------------------------------
Los Angeles County, California Transportation
Revenue Bonds, Commission Sales Tax,
Prerefunded, Series A, FGIC Insured, 6.75%, 7/1/18 Aaa/AAA/AAA 5,000,000
5,328,835
-----------------------------------------------------------------------------------------------------
Redding, California Electric System Revenue
Certificates of Participation, FGIC Insured,
6.279%, 6/1/19(1) Aaa/AAA/AAA 6,000,000 4,368,563
-----------------------------------------------------------------------------------------------------
San Joaquin Hills, California Transportation
Corridor Agency Toll Road Revenue Bonds, Sr.
Lien, 6.75%, 1/1/32 NR/NR/BBB 12,700,000 10,445,190
-----------------------------------------------------------------------------------------------------
South Orange County, California Public Financing
Authority Special Tax Revenue Bonds, Sr. Lien,
Series A, MBIA Insured, 6%, 9/1/18 Aaa/AAA/NR 10,500,000 9,415,401
-----------------------------------------------------------------------------------------------------
Southern California Public Power Authority Power
Project Revenue Bonds, Prerefunded, 6%, 7/1/18 Aaa/AAA 6,500,000 6,590,993
------------
55,071,241
- -----------------------------------------------------------------------------------------------------------------------------------
Colorado--1.3% Colorado Health Facilities Authority Revenue Bonds,
Kaiser Permanente Medical Care Project, 9%, 8/1/03 NR/AA 1,000,000 1,044,501
-----------------------------------------------------------------------------------------------------
Colorado Health Facilities Authority Revenue Bonds,
Kaiser Permanente Medical Care Project, 9.125%, 8/1/15 NR/AA 2,000,000 2,090,372
-----------------------------------------------------------------------------------------------------
Colorado Health Facilities Authority Revenue
Bonds, Rocky Mountain Adventist Health System,
6.625%, 2/1/22 Baa/BBB 5,000,000 4,445,514
------------
7,580,387
6 Oppenheimer Tax-Free Bond Fund
<PAGE>
-----------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------
Ratings:
Moody's/
S&P's/Fitch's Face Market Value
(Unaudited) Amount See Note 1
- -----------------------------------------------------------------------------------------------------------------------------------
Delaware--3.5% Delaware Transportation Authority Revenue
Bonds, Transportation System, Prerefunded, Sr. Lien,
6.75%, 7/1/10 Aaa/AAA $ 5,000,000 $ 5,315,960
-----------------------------------------------------------------------------------------------------
Delaware Transportation Authority Revenue Bonds,
Transportation System, Sr. Lien, 5.50%, 7/1/16 A1/AA 18,440,000 15,825,778
------------
21,141,738
- -----------------------------------------------------------------------------------------------------------------------------------
Florida--5.5% Broward County, Florida Resource Recovery
Revenue Bonds, Broward Waste Energy-LP North
Project, 7.95%, 12/1/08 A/A 2,425,000 2,600,551
-----------------------------------------------------------------------------------------------------
Broward County, Florida Resource Recovery
Revenue Bonds, Ses Broward Co. LP South
Project, 7.95%, 12/1/08 A/A 6,415,000 6,879,394
-----------------------------------------------------------------------------------------------------
Broward County, Florida School District General
Obligation Bonds, Prerefunded, 7.125%, 2/15/08 Aaa/AAA 1,750,000 1,873,812
-----------------------------------------------------------------------------------------------------
Clay County, Florida Utilities System Revenue Bonds,
Prerefunded, Series A, FGIC Insured, 5.75%, 11/1/09 Aaa/AAA/AAA 2,585,000
2,591,871
-----------------------------------------------------------------------------------------------------
Florida State Board of Education Capital Outlay
Public Education General Obligation Bonds,
Prerefunded, Series A, 7.25%, 6/1/23 Aaa/AAA 1,000,000 1,085,593
-----------------------------------------------------------------------------------------------------
Florida State Board of Education Capital Outlay
Public Education Refunding Bonds, 8.40%, 6/1/07 Aa/AA 750,000 895,009
-----------------------------------------------------------------------------------------------------
Florida State Board of Education Capital Outlay
Public Education Refunding Bonds, Series D,
5.125%, 6/1/18 Aa/AA/AA 10,000,000 8,257,410
-----------------------------------------------------------------------------------------------------
Florida State Division of Finance Department
Revenue Bonds, Department of Natural Resource
Preservation, Series 2000-A, FSA Insured, 5.80%, 7/1/13 Aaa/AAA/A 9,250,000 8,465,969
------------
32,649,609
- -----------------------------------------------------------------------------------------------------------------------------------
Georgia--1.7% Georgia State Municipal Electric Authority Special
Obligation Bonds, Fifth Crossover Series, Project One,
6.50%, 1/1/17 A/A+ 10,750,000 10,420,319
- -----------------------------------------------------------------------------------------------------------------------------------
Hawaii--0.2% Hawaii State Revenue Bonds, Prerefunded,
Series BS, 7%, 9/1/02 Aaa/AA 1,000,000 1,068,892
- -----------------------------------------------------------------------------------------------------------------------------------
Illinois--0.2% Regional Transportation Authority Illinois Revenue
Bonds, Series A, AMBAC Insured, 7.20%, 11/1/20 Aaa/AAA/AAA 1,000,000
1,040,753
- -----------------------------------------------------------------------------------------------------------------------------------
Indiana--2.5% Indiana Health Facilities Financing Authority
Hospital Revenue Bonds, CGIC Insured, 5.50%, 8/15/22 Aaa/AAA 5,500,000
4,497,097
-----------------------------------------------------------------------------------------------------
Indianapolis, Indiana Airport Authority Revenue
Bonds, 9%, 7/1/15 A1/A 1,000,000 1,049,893
-----------------------------------------------------------------------------------------------------
Indianapolis, Indiana Airport Authority Revenue
Bonds, Special Facilities-Federal Express Corp.
Project, 7.10%, 1/15/17 Baa2/BBB 10,000,000 9,489,099
------------
15,036,089
7 Oppenheimer Tax-Free Bond Fund
<PAGE>
-----------------------------------------------------------------------------------------------------
Statement of Investments (Continued)
-----------------------------------------------------------------------------------------------------
Ratings:
Moody's/
S&P's/Fitch's Face Market Value
(Unaudited) Amount See Note 1
- -----------------------------------------------------------------------------------------------------------------------------------
Kansas--2.5% Kansas State Department of Transportation
Highway Revenue Refunding Bonds, Series A,
5.375%, 3/1/12 Aa/AA/AA $17,500,000 $ 15,144,867
- -----------------------------------------------------------------------------------------------------------------------------------
Kentucky--0.2% Kentucky State Turnpike Authority Economic
Development Road Revenue Bonds, Revitalization
Projects, Prerefunded, 7.375%, 5/15/07 Aaa/AAA/A+ 1,000,000 1,086,897
- -----------------------------------------------------------------------------------------------------------------------------------
Louisiana--1.7% Louisiana Public Facilities Authority Revenue
Bonds, Multifamily Housing, One Lakeshore,
9.25%, 7/20/20 NR/AAA 940,000 988,418
-----------------------------------------------------------------------------------------------------
New Orleans, Louisiana Home Mtg. Authority
Special Obligation Refunding Bonds, Escrowed
to Maturity, 6.25%, 1/15/11 Aaa/AAA 9,500,000 9,074,276
------------
10,062,694
- -----------------------------------------------------------------------------------------------------------------------------------
Maryland--0.1% Baltimore County, Maryland Mtg. Revenue Bonds,
Loch Raven Village Apts., GNMA Collateralized,
10.10%, 11/20/20 NR/AAA 500,000 515,577
- -----------------------------------------------------------------------------------------------------------------------------------
Massachusetts--8.6% Massachusetts Bay Transportation Authority
Revenue Refunding Bonds, Transportation System,
Series A, 5.50%, 3/1/12 A1/A+/A+ 12,000,000 10,509,490
-----------------------------------------------------------------------------------------------------
Massachusetts Municipal Wholesale Electric Co.
Revenue Bonds, Power Supply Systems,
Prerefunded, Series B, 6.75%, 7/1/17 Aaa/BBB+ 6,985,000 7,426,696
-----------------------------------------------------------------------------------------------------
Massachusetts State General Obligation Refunding
Bonds, Series A, 5.50%, 2/1/11 A1/A+/A+ 20,000,000 17,838,238
-----------------------------------------------------------------------------------------------------
Massachusetts State Health & Educational Facilities
Authority Revenue Bonds, Baystate Medical Center,
Prerefunded, Series C, 7.50%, 7/1/20 A1/A+ 2,500,000 2,726,787
-----------------------------------------------------------------------------------------------------
Massachusetts State Housing Finance Agency
Revenue Bonds, Multifamily Mtg., GNMA
Collateralized, Series A, FHA Insured, 9.125%, 12/1/20 Aaa/AAA 975,000 1,016,539
-----------------------------------------------------------------------------------------------------
Massachusetts State Water Resource Authority
Revenue Bonds, Series A, 6.50%, 7/15/19 A/A/A 12,225,000 11,747,467
------------
51,265,217
- -----------------------------------------------------------------------------------------------------------------------------------
Michigan--5.5% Detroit, Michigan Revenue Refunding Bonds,
Water Supply System, FGIC Insured, 8.41%, 7/1/22(1) Aaa/AAA 1,500,000 1,285,639
-----------------------------------------------------------------------------------------------------
Detroit, Michigan Revenue Refunding Bonds,
Water Supply System, Prerefunded, FGIC Insured,
8.41%, 7/1/22(1) Aaa/AAA 3,700,000 3,858,138
-----------------------------------------------------------------------------------------------------
Detroit, Michigan Sewage Disposal System Revenue
Refunding Bonds, FGIC Insured, 6.908%, 7/1/23(1) Aaa/AAA/AAA 13,200,000
8,935,461
-----------------------------------------------------------------------------------------------------
Greater Detroit, Michigan Resource Recovery
Authority Revenue Bonds, Series A, 9.25%, 12/13/08 NR/BBB- 1,500,000 1,575,909
-----------------------------------------------------------------------------------------------------
Greater Detroit, Michigan Resource Recovery
Authority Revenue Bonds, Series H, 9.25%, 12/13/08 NR/BBB- 500,000 525,303
8 Oppenheimer Tax-Free Bond Fund
<PAGE>
-----------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------
Ratings:
Moody's/
S&P's/Fitch's Face Market Value
(Unaudited) Amount See Note 1
- -----------------------------------------------------------------------------------------------------------------------------------
Michigan (continued) Michigan State Building Authority Revenue
Refunding Bonds, Series I, MBIA Insured,
6.25%, 10/1/20 A/AA-/AA- $10,000,000 $ 9,232,100
-----------------------------------------------------------------------------------------------------
Michigan State Hospital Finance Authority Revenue
Refunding Bonds, FSA Insured, 7.348%, 2/15/22(1) NR/AAA/AAA 5,000,000
4,133,275
-----------------------------------------------------------------------------------------------------
Michigan State Hospital Finance Authority Revenue
Refunding Bonds, Sisters of Mercy Hospital,
Series H, MBIA Insured, 7.50%, 8/15/13 Aaa/AAA 1,000,000 1,052,758
-----------------------------------------------------------------------------------------------------
Royal Oak, Michigan Hospital Finance Authority
Revenue Bonds, William Beaumont Hospital,
Prerefunded, Series C, 7.375%, 1/1/20 Aaa/NR 2,000,000 2,156,693
------------
32,755,276
- -----------------------------------------------------------------------------------------------------------------------------------
Minnesota--0.2% Minnesota State Revenue Bonds, Prerefunded,
7%, 8/1/08 Aaa/AAA/AAA 1,300,000 1,379,161
- -----------------------------------------------------------------------------------------------------------------------------------
Missouri--0.2% Missouri State Environmental Improvement &
Energy Resource Authority Pollution Control
Revenue Bonds, Associates Electric 84G-4,
8.25%, 11/15/14 Aa3/AA- 1,390,000 1,463,108
- -----------------------------------------------------------------------------------------------------------------------------------
New Jersey--4.2% 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 6,000,000
-----------------------------------------------------------------------------------------------------
Mercer County, New Jersey Improvement Authority
Revenue Bonds, Custodial Receipts-Justice
Complex, 6.05%, 1/1/11 Aa/AA- 750,000 706,786
-----------------------------------------------------------------------------------------------------
New Jersey Economic Development Authority
Revenue Bonds, Sr. Lien, Series A, MBIA Insured,
5.875%, 7/1/11 Aaa/AAA 1,250,000 1,171,001
-----------------------------------------------------------------------------------------------------
New Jersey Health Care Facilities Finance Authority
Revenue Bonds, Prerefunded, Series C, 8.60%, 7/1/17 Aaa/AAA 1,100,000 1,200,362
-----------------------------------------------------------------------------------------------------
New Jersey State Housing & Mtg. Finance Agency
Multifamily Housing Revenue Bonds, Series C,
9.75%, 11/1/27 NR/A+ 1,000,000 1,058,367
-----------------------------------------------------------------------------------------------------
New Jersey State Turnpike Authority Revenue
Bonds, Series C, 6.50%, 1/1/16 A/A/A 15,150,000 15,098,398
------------
25,234,914
- -----------------------------------------------------------------------------------------------------------------------------------
New York--14.5% City of New York General Obligation Bonds,
6.113%, 8/1/15(1) Baa1/A- 3,050,000 1,982,134
-----------------------------------------------------------------------------------------------------
City of New York General Obligation Bonds,
Prerefunded, Series D, 8%, 8/1/15 Baa1/A- 10,780,000 12,268,190
-----------------------------------------------------------------------------------------------------
City of New York General Obligation Bonds,
Series A, 7.75%, 8/15/16 Baa1/A- 2,500,000 2,631,130
-----------------------------------------------------------------------------------------------------
City of New York General Obligation Bonds,
Series D, 8%, 8/1/15 Baa1/A- 220,000 236,840
9 Oppenheimer Tax-Free Bond Fund
<PAGE>
-----------------------------------------------------------------------------------------------------
Statement of Investments (Continued)
-----------------------------------------------------------------------------------------------------
Ratings:
Moody's/
S&P's/Fitch's Face Market Value
(Unaudited) Amount See Note 1
- -----------------------------------------------------------------------------------------------------------------------------------
New York (continued) City of New York Industrial Development Agency
Revenue Bonds, Terminal One Group Assn., 6%, 1/1/19 A/A/A- $ 6,000,000 $
5,313,539
-----------------------------------------------------------------------------------------------------
City of New York Municipal Water Finance
Authority Revenue Bonds, Water & Sewer
System Project, Series A, 6%, 6/15/17 A/A-/A 7,800,000 6,995,882
-----------------------------------------------------------------------------------------------------
City of New York Municipal Water Finance
Authority Revenue Bonds, Water & Sewer System
Project, Series F, MBIA Insured, 5.75%, 6/15/20 Aaa/AAA/A 6,800,000 6,045,900
-----------------------------------------------------------------------------------------------------
Dormitory Authority of the State of New York
Revenue Bonds, City University System,
Prerefunded, Series A, 7.625%, 7/1/20 Aaa/BBB 9,325,000 10,362,900
-----------------------------------------------------------------------------------------------------
Dormitory Authority of the State of New York
Revenue Bonds, State University Educational
Facilities, Prerefunded, Series A, 6.75%, 5/15/18 NR/AAA 8,415,000 8,831,717
-----------------------------------------------------------------------------------------------------
Municipal Assistance Corp. for the City of New
York Revenue Bonds, Series 58, 7.375%, 7/1/08 Aa/AA-/AA 2,500,000 2,615,957
-----------------------------------------------------------------------------------------------------
Municipal Assistance Corp. for the City of New
York Revenue Bonds, Series 60, 6%, 7/1/08 Aa/AA-/AA 700,000 683,573
-----------------------------------------------------------------------------------------------------
New York State Dormitory Authority Revenue
Bonds, State University Educational Facilities,
Prerefunded, Series A, 7.625%, 5/15/05 NR/AAA 3,000,000 3,328,155
-----------------------------------------------------------------------------------------------------
New York State Dormitory Authority Revenue
Bonds, State University Educational Facilities,
Series B, 6.25%, 5/15/14 A/BBB+ 6,000,000 5,579,994
-----------------------------------------------------------------------------------------------------
New York State Housing Finance Agency Revenue
Refunding Bonds, New York City Health Facility,
Series A, 7.90%, 11/1/99 Baa/A- 7,000,000 7,553,342
-----------------------------------------------------------------------------------------------------
New York State Medical Care Facilities Finance
Agency Revenue Bonds, Saint Lukes Hospital,
Prerefunded, Series B, 7.40%, 2/15/09 Aaa/AAA 1,400,000 1,534,524
-----------------------------------------------------------------------------------------------------
New York State Mtg. Agency Revenue Bonds, Ninth
Series B, Verex Pool Insured, 8.30%, 10/1/17 Aa/NR 1,715,000 1,756,136
-----------------------------------------------------------------------------------------------------
New York State Power Authority Revenue Bonds,
Series V, 7.875%, 1/1/07 Aa/AA- 3,000,000 3,227,172
-----------------------------------------------------------------------------------------------------
Port Authority of New York and New Jersey
Consolidated Bond Certificates, Series Fifty-One E,
7%, 12/1/14 A1/NR 2,000,000 2,059,796
-----------------------------------------------------------------------------------------------------
Suffolk County, New York General Obligation
Refunding Bonds, Southwest Sewer District,
Escrowed to Maturity, Series B, 22.875%, 2/1/95 NR/AAA 1,075,000 1,091,782
-----------------------------------------------------------------------------------------------------
Triborough Bridge & Tunnel Authority of New York
General Purpose Revenue Bonds, Prerefunded,
Series R, 7.375%, 1/1/10 Aaa/AAA 1,220,000 1,329,200
-----------------------------------------------------------------------------------------------------
Triborough Bridge & Tunnel Authority of New York
General Purpose Revenue Bonds, Series A, 5%, 1/1/12 Aa/A+ 1,000,000 832,568
------------
86,260,431
10 Oppenheimer Tax-Free Bond Fund
<PAGE>
-----------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------
Ratings:
Moody's/
S&P's/Fitch's Face Market Value
(Unaudited) Amount See Note 1
- -----------------------------------------------------------------------------------------------------------------------------------
Ohio--2.3% Franklin County, Ohio Hospital Revenue Refunding
Bonds, Riverside United Methodist, Series A,
5.75%, 5/15/20 Aa/NR $10,000,000 $ 8,556,400
-----------------------------------------------------------------------------------------------------
Ohio Housing Finance Agency Single Family Mtg.
Revenue Bonds, GNMA Mtg.-Backed Security,
Series B, 9.213%, 3/1/31(1) Aaa/AAA 5,800,000 5,392,508
------------
13,948,908
- -----------------------------------------------------------------------------------------------------------------------------------
Pennsylvania--5.3% Delaware County, Pennsylvania Industrial
Development Authority Revenue Refunding Bonds,
Resource Recovery Project, Series A, 8.10%, 12/1/13 Aa3/A+ 3,890,000 4,125,407
-----------------------------------------------------------------------------------------------------
Pennsylvania State General Obligation Refunding
Bonds, Fst. Series, 5%, 4/15/13 A1/AA-/AA- 9,165,000 7,552,024
-----------------------------------------------------------------------------------------------------
Pennsylvania State Higher Education Assistance
Agency Student Loan Revenue Bonds, Series B,
AMBAC Insured, 7.316%, 3/1/22(1) Aaa/AAA/AAA 17,500,000 13,406,047
-----------------------------------------------------------------------------------------------------
Pennsylvania State Industrial Development
Authority Economic Development Revenue
Bonds, Prerefunded, Series A, 7%, 1/1/11 NR/A-/AAA 2,000,000 2,157,188
-----------------------------------------------------------------------------------------------------
Philadelphia, Pennsylvania Municipal Authority
Justice Lease Revenue Bonds, Prerefunded,
Series B, FGIC Insured, 7.125%, 11/15/18 Aaa/AAA/AAA 1,255,000 1,363,910
-----------------------------------------------------------------------------------------------------
Schuylkill County, Pennsylvania Industrial
Development Authority Resource Recovery
Revenue Refunding Bonds, Schuylkill Energy
Resources, Inc., 6.50%, 1/1/10 NR/NR/BBB- 3,000,000 2,712,546
------------
31,317,122
- -----------------------------------------------------------------------------------------------------------------------------------
South Carolina--1.8% South Carolina State Public Service Authority
Revenue Bonds, Santee Cooper, Series D, AMBAC
Insured, 6.50%, 7/1/24 Aaa/AAA/AAA 10,000,000 10,482,590
- ----------------------------------------------------------------------------------------------------------------------------------
Texas--17.5% Alliance Airport Authority, Inc., Texas Special
Facility Revenue Bonds, American Airlines, Inc.
Project, 7%, 12/1/11 Baa2/BB+ 3,000,000 2,765,799
-----------------------------------------------------------------------------------------------------
Alliance Airport Authority, Inc., Texas Special
Facility Revenue Bonds, American Airlines, Inc.
Project, 7.50%, 12/1/29 Baa2/BB+ 12,500,000 11,781,886
-----------------------------------------------------------------------------------------------------
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 1,605,135
-----------------------------------------------------------------------------------------------------
Cypress-Fairbanks, Texas Independent School
District General Obligation Capital Appreciation
Refunding Bonds, Series A, 0%, 2/15/14 Aaa/AAA 15,710,000 4,372,863
-----------------------------------------------------------------------------------------------------
Cypress-Fairbanks, Texas Independent School
District General Obligation Capital Appreciation
Refunding Bonds, Series A, 0%, 2/15/15 Aaa/AAA 15,000,000 3,905,173
11 Oppenheimer Tax-Free Bond Fund
<PAGE>
-----------------------------------------------------------------------------------------------------
Statement of Investments (Continued)
-----------------------------------------------------------------------------------------------------
Ratings:
Moody's/
S&P's/Fitch's Face Market Value
(Unaudited) Amount See Note 1
- -----------------------------------------------------------------------------------------------------------------------------------
Texas (continued) Cypress-Fairbanks, Texas Independent School
District General Obligation Capital Appreciation
Refunding Bonds, Series A, 0%, 2/15/16 Aaa/AAA $16,240,000 $ 3,954,520
-----------------------------------------------------------------------------------------------------
Dallas-Fort Worth, Texas International Airport
Facilities Improvement Corp. Revenue Bonds,
American Airlines, Inc., 7.25%, 11/1/30 Baa2/BB+ 8,000,000 7,390,383
-----------------------------------------------------------------------------------------------------
Harris County, Texas Revenue Refunding Bonds,
Toll Road Project, Sub. Lien, 6.75%, 8/1/14 Aa/AA+ 8,000,000 8,077,079
-----------------------------------------------------------------------------------------------------
North Central Texas Health Facility Development
Corp. Hospital Revenue Bonds, Baylor Health
Care Project, Series B, 8.459%, 5/15/06(1) Aa/AA 3,000,000 2,879,922
-----------------------------------------------------------------------------------------------------
North Central Texas Health Facility Development
Corp. Hospital Revenue Bonds, Baylor Health Care
Project, Series B, 8.559%, 5/15/08(1) Aa/AA 5,000,000 4,758,305
-----------------------------------------------------------------------------------------------------
Northside Texas Independent School District
Revenue Bonds, PSFG Insured, 6.70%, 2/1/06 Aaa/AAA 1,400,000 1,438,503
-----------------------------------------------------------------------------------------------------
San Antonio, Texas Electric & Gas Improvement
Revenue Refunding Bonds, 5%, 2/1/14 Aa1/AA/AA+ 13,150,000 10,615,706
-----------------------------------------------------------------------------------------------------
San Antonio, Texas Electric & Gas Improvement
Revenue Refunding Bonds, Series B, 6%, 2/1/14 Aa1/AA/AA+ 18,500,000
17,322,916
-----------------------------------------------------------------------------------------------------
San Antonio, Texas Water Revenue Refunding
Bonds, MBIA Insured, 6%, 5/15/16 Aaa/AAA/A+ 7,000,000 6,491,667
-----------------------------------------------------------------------------------------------------
Texas Municipal Power Agency Capital
Appreciation Revenue Refunding Bonds,
MBIA Insured, 0%, 9/1/14 Aaa/AAA/A+ 17,500,000 4,670,224
-----------------------------------------------------------------------------------------------------
Texas Municipal Power Agency Capital
Appreciation Revenue Refunding Bonds,
MBIA Insured, 0%, 9/1/15 Aaa/AAA/A+ 10,000,000 2,495,360
-----------------------------------------------------------------------------------------------------
Texas Municipal Power Agency Capital
Appreciation Revenue Refunding Bonds,
MBIA Insured, 0%, 9/1/16 Aaa/AAA/A+ 39,990,000 9,330,742
------------
103,856,183
- -----------------------------------------------------------------------------------------------------------------------------------
Utah--0.3% Intermountain Power Agency of Utah Special
Obligation Bonds, Second Crossover Series,
7.50%, 7/1/16 Aa/AA 1,435,000 1,489,653
- -----------------------------------------------------------------------------------------------------------------------------------
Washington--3.8% Washington State General Obligation Bonds,
Series A & AT-6, 5.75%, 2/1/17 Aa/AA/AA 12,500,000 11,113,949
-----------------------------------------------------------------------------------------------------
Washington State Public Power Supply System
Revenue Refunding Bonds, 6.776%, 7/1/12(1) Aa/AA/AA 15,000,000 9,807,255
-----------------------------------------------------------------------------------------------------
Washington State Public Power Supply System
Revenue Refunding Bonds, Nuclear Project No. 1,
Series A, 7.50%, 7/1/15 Aa/AAA 1,500,000 1,555,240
------------
22,476,444
- -----------------------------------------------------------------------------------------------------------------------------------
West Virginia--0.5% West Virginia State Parkways Economic
Development & Tourism Authority Revenue Bonds,
7.17%, 5/16/19(1) Aaa/AAA 3,600,000 2,720,826
12 Oppenheimer Tax-Free Bond Fund
<PAGE>
-----------------------------------------------------------------------------------------------------
Statement of Investments (Continued)
-----------------------------------------------------------------------------------------------------
Ratings:
Moody's/
S&P's/Fitch's Face Market Value
(Unaudited) Amount See Note 1
- -----------------------------------------------------------------------------------------------------------------------------------
Wisconsin--0.1% Wisconsin Housing Finance Authority Revenue
Bonds, 9.875%, 11/1/03 NR/A $ 560,000 $ 577,241
- -----------------------------------------------------------------------------------------------------------------------------------
U.S. Possessions--3.5% Puerto Rico Commonwealth Highway
& Transportation Authority Revenue Bonds,
Prerefunded, Series S, 6.625%, 7/1/18 NR/AAA 5,000,000 5,307,954
-----------------------------------------------------------------------------------------------------
Puerto Rico Commonwealth Highway
& Transportation Authority Revenue Bonds,
Prerefunded, Series T, 6.625%, 7/1/18 NR/AAA 1,500,000 1,592,386
-----------------------------------------------------------------------------------------------------
Puerto Rico Commonwealth Highway
& Transportation Authority Revenue Bonds,
Series T, 6.625%, 7/1/18 Baa1/A 6,000,000 5,929,583
-----------------------------------------------------------------------------------------------------
Puerto Rico Commonwealth Highway
& Transportation Authority Revenue Bonds,
Series Q, 7.75%, 7/1/10 NR/AAA 1,000,000 1,117,393
-----------------------------------------------------------------------------------------------------
Puerto Rico Electric Power Authority Revenue
Bonds, Prerefunded, Series 0, 7.125%, 7/1/14 Baa1/AAA 4,000,000 4,308,992
-----------------------------------------------------------------------------------------------------
Puerto Rico Electric Power Authority Revenue
Bonds, Series 0, 7.125%, 7/1/14 Baa1/A- 2,350,000 2,418,601
------------
20,674,909
- -----------------------------------------------------------------------------------------------------------------------------------
Total Investments, at Value (Cost $627,366,744) 98.5% 585,784,572
- -----------------------------------------------------------------------------------------------------------------------------------
Other Assets Net of Liabilities 1.5 8,620,733
----- ------------
Net Assets 100.0% $594,405,305
===== ============
<FN>
1. Represents the current interest rate for a variable rate bond. These variable rate bonds known as
"inverse floaters" pay interest at a rate that varies inversely with short-term interest rates. As
interest rates rise, inverse floaters produce less current income. Their price may be more volatile
than the price of a comparable fixed-rate security. Inverse floaters amount to $63,528,073 or 10.7%
of the Fund's net assets at December 31, 1994.
2. Non-income producing--issuer is in default of interest payment.
</FN>
</TABLE>
See accompanying Notes to Financial Statements.
13 Oppenheimer Tax-Free Bond Fund
<PAGE>
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------
Statement of Assets and Liabilities December 31, 1994
-----------------------------------------------------------------------------------------------------
<S> <C> <C>
==========================================================
==========================================================
===============
Assets Investments, at value (cost $627,366,744)--see accompanying statement $ 585,784,572
-----------------------------------------------------------------------------------------------------
Cash 598,070
-----------------------------------------------------------------------------------------------------
Receivables:
Interest 12,484,886
Shares of beneficial interest sold 1,523,519
-----------------------------------------------------------------------------------------------------
Other 37,835
-------------
Total assets 600,428,882
==========================================================
==========================================================
===============
Liabilities Payables and other liabilities:
Shares of beneficial interest redeemed 3,183,448
Dividends 2,187,922
Distribution and service plan fees--Note 4 326,358
Other 325,849
-------------
Total liabilities 6,023,577
==========================================================
==========================================================
===============
Net Assets $ 594,405,305
=============
==========================================================
==========================================================
===============
Composition of Paid-in capital $ 637,227,054
Net Assets -----------------------------------------------------------------------------------------------------
Undistributed (overdistributed) net investment income (922,046)
-----------------------------------------------------------------------------------------------------
Accumulated net realized gain (loss) from investment transactions (317,531)
Net unrealized appreciation (depreciation) on investments--Note 3 (41,582,172)
-------------
Net assets $ 594,405,305
=============
==========================================================
==========================================================
===============
Net Asset Value Class A Shares:
Per Share Net asset value and redemption price per share (based on net
assets of $541,160,566 and 60,633,597 shares of beneficial
interest outstanding) $8.93
Maximum offering price per share (net asset value plus sales
charge of 4.75% of offering price) $9.38
-----------------------------------------------------------------------------------------------------
Class B Shares:
Net asset value, redemption price and offering price per
share (based on net assets of $53,244,739 and 5,971,980 shares
of beneficial interest outstanding) $8.92
</TABLE>
See accompanying Notes to Financial Statements.
14 Oppenheimer Tax-Free Bond Fund
<PAGE>
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------
Statement of Operations For the Year Ended December 31, 1994
-----------------------------------------------------------------------------------------------------
<S> <C> <C>
==========================================================
==========================================================
===============
Investment Income Interest $ 42,814,615
==========================================================
==========================================================
===============
Expenses Management fees--Note 4 3,329,317
-----------------------------------------------------------------------------------------------------
Distribution and service plan fees:
Class A--Note 4 1,185,792
Class B--Note 4 465,406
-----------------------------------------------------------------------------------------------------
Transfer and shareholder servicing agent fees--Note 4 443,291
-----------------------------------------------------------------------------------------------------
Shareholder reports 187,976
-----------------------------------------------------------------------------------------------------
Trustees' fees and expenses 86,123
-----------------------------------------------------------------------------------------------------
Legal and auditing fees 54,706
-----------------------------------------------------------------------------------------------------
Custodian fees and expenses 17,260
-----------------------------------------------------------------------------------------------------
Registration and filing fees:
Class A 6,544
Class B 9,402
-----------------------------------------------------------------------------------------------------
Other 89,927
-------------
Total expenses 5,875,744
==========================================================
==========================================================
===============
Net Investment Income (Loss) 36,938,871
==========================================================
==========================================================
===============
Realized and Net realized gain (loss) on investments (507,588)
Unrealized Gain (Loss) -----------------------------------------------------------------------------------------------------
On Investments Net change in unrealized appreciation or depreciation
on investments (97,929,896)
-------------
Net realized and unrealized gain (loss) on investments (98,437,484)
==========================================================
==========================================================
===============
Net Increase (Decrease) in Net Assets Resulting From Operations $ (61,498,613)
=============
</TABLE>
See accompanying Notes to Financial Statements.
15 Oppenheimer Tax-Free Bond Fund
<PAGE>
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------
Statements of Changes in Net Assets
-----------------------------------------------------------------------------------------------------
Year Ended December 31,
1994 1993
<S> <C> <C> <C>
==========================================================
==========================================================
===============
Operations Net investment income (loss) $ 36,938,871 $ 33,032,955
-----------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments (507,588) 12,029,869
-----------------------------------------------------------------------------------------------------
Net change in unrealized appreciation or depreciation
on investments (97,929,896) 28,597,626
------------- -------------
Net increase (decrease) in net assets resulting from operations (61,498,613) 73,660,450
==========================================================
==========================================================
===============
Dividends and Dividends from net investment income:
Distributions to Class A ($.561 and $.624 per share, respectively) (34,265,091) (34,167,307)
Shareholders Class B ($.487 and $.42 per share, respectively) (2,383,056) (627,087)
-----------------------------------------------------------------------------------------------------
Distributions from net realized gain on investments:
Class A ($.211 per share) -- (12,053,200)
Class B ($.211 per share) -- (624,908)
-----------------------------------------------------------------------------------------------------
Distributions in excess of gain on investments:
Class A ($.004 per share) (261,506) --
Class B ($.004 per share) (19,061) --
==========================================================
==========================================================
===============
Beneficial Interest Net increase (decrease) in net assets resulting from Class A
Transactions beneficial interest transactions--Notes 2 and 5 24,534,984 85,361,641
-----------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from Class B
beneficial interest transactions--Note 2 27,145,605 32,973,976
==========================================================
==========================================================
===============
Net Assets Total increase (decrease) (46,746,738) 144,523,565
-----------------------------------------------------------------------------------------------------
Beginning of period 641,152,043 496,628,478
------------- -------------
End of period [including undistributed (overdistributed) net
investment income of $(922,046) and $239,794, respectively] $ 594,405,305 $ 641,152,043
=============
=============
</TABLE>
See accompanying Notes to Financial Statements.
16 Oppenheimer Tax-Free Bond Fund
<PAGE>
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------
Financial Highlights
------------------------------------------------------------------------------------------------------
Class A Class B
-------------------------------------------------------------------------------------- ---------------
Year Year Period
Ended Ended Ended
December 31, Dec. 31, Dec. 31,
1994 1993 1992 1991 1990 1989 1988 1987 1986 1985 1994 1993(1)
==========================================================
==========================================================
=============
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
<C> <C> <C>
Per Share Operating Data:
Net asset value, beginning
of period $10.44 $ 9.94 $ 9.77 $ 9.33 $ 9.45 $ 9.27 $ 9.12 $ 9.81 $ 8.80 $ 7.87 $ 10.43 $10.22
- ---------------------------------------------------------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .57 .59 .62 .64 .66 .65(2) .77(2) .69 .69 .70 .50 .41
Net realized and unrealized
gain (loss) on investments (1.52) .74 .25 .45 (.12) .20 .07 (.70) .99 .91 (1.52) .43
------ ------ ------ ------- ------ ------ ------- ------ ------ ------ ------- ------
Total income (loss) from
investment operations (.95) 1.33 .87 1.09 .54 .85 .84 (.01) 1.68 1.61 (1.02) .84
- ---------------------------------------------------------------------------------------------------------------------------------
Dividends and distributions
to shareholders:
Dividends from net
investment income (.56) (.62) (.58) (.65) (.66) (.67) (.69) (.68) (.67) (.68) (.49) (.42)
Distributions from net
realized gain on
investments -- (.21) (.12) -- -- -- -- -- -- -- -- (.21)
Distributions in excess
of net realized gain
on investments --(3) -- -- -- -- -- -- -- -- -- --(3) --
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total dividends and
distributions
to shareholders (.56) (.83) (.70) (.65) (.66) (.67) (.69) (.68) (.67) (.68) (.49) (.63)
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $ 8.93 $10.44 $ 9.94 $ 9.77 $ 9.33 $ 9.45 $ 9.27 $ 9.12 $ 9.81 $ 8.80 $ 8.92 $10.43
====== ====== ====== ====== ====== ====== ======
====== ====== ====== ====== ======
==========================================================
==========================================================
=============
Total Return,
at Net Asset Value(4) (9.19)% 13.79% 9.20% 12.11% 5.93% 9.42% 10.03% .00% 19.75% 21.38%
(9.91)% 8.49%
==========================================================
==========================================================
=============
Ratios/Supplemental Data:
Net assets,
end of period,
(in thousands) $541,161 $608,128 $496,628 $394,115 $256,542 $223,904 $172,227 $133,508 $132,234 $93,993 $53,245
$33,024
- ---------------------------------------------------------------------------------------------------------------------------------
Average net assets
(in thousands) $582,038 $567,777 $438,684 $319,081 $238,224 $202,216 $150,901 $135,052 $112,189 $80,974 $46,548
$16,444
- ---------------------------------------------------------------------------------------------------------------------------------
Number of shares
outstanding at
end of period
(in thousands) 60,634 58,277 49,964 40,356 27,505 23,699 18,581 14,633 13,480 10,681 5,972
3,166
- ---------------------------------------------------------------------------------------------------------------------------------
Ratios to average net
assets:
Net investment income 5.94% 5.71% 6.34% 6.70% 7.08% 7.18% 7.48% 7.41% 7.33% 8.36%
5.11% 4.54%(5)
Expenses .88% .88% .94% .89% .89% .82%(2) .72%(2) .78% .78% .82% 1.69%
1.74%(5)
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(6) 21.7% 30.2% 34.2% 23.5% 29.3% 57.2% 22.9% 29.4% 27.8% 210.7% 21.7%
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. Less than .005 per share.
4. 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.
5. Annualized.
6. The lesser of purchases or sales of portfolio securities for a period, divided by the monthly
average of the market value of portfolio securities owned during the period. Securities with a
maturity or expiration date at the time of acquisition of one year or less are excluded from the
calculation. Purchases and sales of investment securities (excluding short-term securities) for the
year ended December 31, 1994 were $156,047,252 and $135,336,771, respectively.
</FN>
</TABLE>
See accompanying Notes to Financial Statements.
17 Oppenheimer Tax-Free Bond Fund
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements
- --------------------------------------------------------------------------------
==========================================================
======================
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 and/or service plan, expenses directly
attributable to a particular class and exclusive voting rights with respect to
matters affecting a single class. Class B shares will automatically convert to
Class A shares six years after the date of purchase. The following is a summary
of significant accounting policies consistently followed by the Fund.
- --------------------------------------------------------------------------------
Investment Valuation. Portfolio securities are valued at 4:00 p.m. (New York
time) on each trading day. Listed and unlisted securities for which such
information is regularly reported are valued at the last sale price of the day
or, in the absence of sales, at values based on the closing bid or asked price
or the last sale price on the prior trading day. Long-term debt securities are
valued by a portfolio pricing service approved by the Board of Directors.
Long-term debt securities which cannot be valued by the approved portfolio
pricing service are valued using dealer-supplied valuations provided the Manager
is satisfied that the firm rendering the quotes is reliable and that the quotes
reflect current market value, or under consistently applied procedures
established by the Board of Directors to determine fair value in good faith.
Short-term debt securities having a remaining maturity of 60 days or less are
valued at cost (or last determined market value) adjusted for amortization to
maturity of any premium or discount.
- --------------------------------------------------------------------------------
Allocation of Income, Expenses and Gains and Losses. Income, expenses (other
than those attributable to a specific class) and gains and losses are allocated
daily to each class of shares based upon the relative proportion of net assets
represented by such class. Operating expenses directly attributable to a
specific class are charged against the operations of that class.
- --------------------------------------------------------------------------------
Federal Income Taxes. The Fund intends to continue to comply with provisions of
the Internal Revenue Code applicable to regulated investment companies and to
distribute all of its taxable income, including any net realized gain on
investments not offset by loss carryovers, to shareholders. Therefore, no
federal income tax provision is required. At December 31, 1994, the Fund had
available for federal income tax purposes an unused capital loss carryover of
approximately $193,000 which will expire in 2002.
- --------------------------------------------------------------------------------
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. During the year ended
December 31, 1994, a provision of $4,153 was made for the Fund's projected
benefit obligations, resulting in an accumulated liability for the Fund's
projected benefit obligations was $103,524 at December 31, 1994. 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 day the New York
Stock Exchange is open for business and pay such dividends monthly.
Distributions from net realized gains on investments, if any, will be declared
at least once each year.
- --------------------------------------------------------------------------------
Change in Accounting Classification of Distributions to Shareholders. Net
investment income (loss) and net realized gain (loss) may differ for financial
statement and tax purposes primarily because of premium amortization. The
character of the distributions made during the year from net investment income
or net realized gains may differ from their ultimate characterization for
federal income tax purposes. Also, due to timing of dividend distributions, the
fiscal year in which amounts are distributed may differ from the year that the
income or realized gain (loss) was recorded by the Fund. Effective January 1,
1994, the Fund adopted Statement of Position 93-2: Determination, Disclosure,
and Financial Statement Presentation of Income, Capital Gain, and Return of
Capital Distributions by Investment Companies. As a result, the Fund changed the
classification of distributions to shareholders to better disclose the
differences between financial statement amounts and distributions determined in
accordance with income tax regulations. Accordingly, subsequent to December 31,
1993, amounts have been reclassified to reflect a decrease in paid-in capital of
$678,494, a decrease in undistributed net investment income of $1,270,564, and a
decrease in accumulated net realized loss on investments of $1,949,058. During
the year ended December 31, 1994, in accordance with Statement of Position 93-2,
undistributed net investment income was decreased by $182,000 and accumulated
net realized loss on investments was decreased by $182,000.
18 Oppenheimer Tax-Free Bond Fund
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
==========================================================
======================
1. Significant Accounting
Policies (continued)
Other. Investment transactions are accounted for on the date the investments are
purchased or sold (trade date). Original issue 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. For bonds
acquired after April 30, 1993, accrued market discount is recognized at maturity
or disposition as taxable ordinary income. Taxable ordinary income is realized
to the extent of the lesser of gain or accrued market discount.
==========================================================
======================
2. Shares of
Beneficial Interest
The Fund has authorized an unlimited number of no par value shares of beneficial
interest of each class. Transactions in shares of beneficial interest were as
follows:
<TABLE>
<CAPTION>
Year Ended December 31, 1994 Year Ended December 31, 1993(1)
---------------------------- ------------------------------
Shares Amount Shares Amount
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A:
Sold 11,090,618 $ 105,903,608 16,347,891 $ 168,337,919
Issued in connection with the
acquisition of MI Fund, Inc.--Note 5 3,087,731 29,920,109 -- --
Dividends and distributions reinvested 2,417,816 22,986,092 3,051,532 31,643,836
Redeemed (14,239,737) (134,274,825) (11,086,654) (114,620,114)
----------- ------------- ----------- -------------
Net increase 2,356,428 $ 24,534,984 8,312,769 $ 85,361,641
=========== =============
=========== =============
-----------------------------------------------------------------------------------------------------
Class B:
Sold 3,851,883 $ 36,866,795 3,182,952 $ 33,155,886
Dividends and distributions reinvested 167,254 1,573,591 85,584 893,967
Redeemed (1,213,330) (11,294,781) (102,363) (1,075,877)
----------- ------------- ----------- -------------
Net increase 2,805,807 $ 27,145,605 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.
</FN>
</TABLE>
==========================================================
======================
3. Unrealized Gains and
Losses on Investments
At December 31, 1994, net unrealized depreciation on investments of $41,582,172
was composed of gross appreciation of $9,747,982, and gross depreciation of
$51,330,154.
==========================================================
======================
4. Management Fees and
Other Transactions
With Affiliates
Management fees paid to the Manager were in accordance with the investment
advisory agreement with the Fund which provides for an annual fee of .60% on the
first $200 million of net assets, .55% on 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.
19 Oppenheimer Tax-Free Bond Fund
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (Continued)
- --------------------------------------------------------------------------------
==========================================================
======================
4. Management Fees and
Other Transactions
With Affiliates
(continued)
For the year ended December 31, 1994, commissions (sales charges paid by
investors) on sales of Class A shares totaled $1,907,642, of which $543,625 was
retained by Oppenheimer Funds Distributor, Inc. (OFDI), a subsidiary of the
Manager, as general distributor, and by an affiliated broker/dealer. During the
year ended December 31, 1994, OFDI received contingent deferred sales charges of
$110,160 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, each class may expend up to .25% of its net
assets annually to reimburse OFDI for costs incurred in connection with the
personal service and maintenance of accounts that hold shares of the Fund,
including amounts paid to brokers, dealers, banks and other financial
institutions. In addition, Class B shares are subject to an asset-based sales
charge of .75% of net assets annually, to reimburse OFDI for sales commissions
paid from its own resources at the time of sale and associated financing costs.
In the event of termination or discontinuance of the Class B plan, the Board of
Trustees may allow the fund to continue payment of the asset-based sales charge
to OFDI for distribution expenses incurred on Class B shares sold prior to
termination or discontinuance of the plan. During the year ended December 31,
1994, OFDI paid $104,014 and $2,274, respectively, to an affiliated
broker/dealer as reimbursement for Class A and Class B personal service and
maintenance expenses and retained $437,276 as reimbursement for Class B sales
commissions and service fee advances, as well as financing costs.
==========================================================
======================
5. Acquisition of
MI Fund, Inc.
On March 31, 1994, Oppenheimer Tax-Free Bond Fund acquired all of the net assets
of MI Fund, Inc. (MI Fund), pursuant to an Agreement and Plan of Reorganization
approved by the MI shareholders on March 18, 1994. The Fund issued 3,087,731
shares of beneficial interest, valued at $29,920,109, in exchange for the net
assets, resulting in combined net assets of $636,205,208 on March 31, 1994. The
net assets acquired included net unrealized appreciation of $1,808,741. The
exchange was tax-free.
<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 1995. 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 Effective An Oppenheimer Tax-Free Bond Fund Yield of:
Taxable Tax 3.5% 4.0% 4.5% 5.0% 5.5% 6.0% 6.5%
Income Bracket Is Approximately Equivalent To a Taxable Yield of:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
JOINT RETURN
Over Not over
$ 0 $ 39,000 15.00% 4.12% 4.71% 5.29% 5.88% 6.47% 7.06% 7.65%
$ 39,000 $ 94,250 28.00% 4.86% 5.56% 6.25% 6.94% 7.64% 8.33% 9.03%
$ 94,250 $143,600 31.00% 5.07% 5.80% 6.52% 7.25% 7.97% 8.70% 9.42%
$143,600 $256,500 36.00% 5.47% 6.25% 7.03% 7.81% 8.59% 9.38% 10.16%
$256,500 and above 39.60% 5.79% 6.62% 7.45% 8.28% 9.11% 9.93% 10.76%
SINGLE RETURN
Over Not over
$ 0 $ 23,350 15.00% 4.12% 4.71% 5.29% 5.88% 6.47% 7.06% 7.65%
$ 23,350 $ 56,550 28.00% 4.86% 5.56% 6.25% 6.94% 7.64% 8.33% 9.03%
$ 56,550 $117,950 31.00% 5.07% 5.80% 6.52% 7.25% 7.97% 8.70% 9.42%
$117,950 $256,500 36.00% 5.47% 6.25% 7.03% 7.81% 8.59% 9.38% 10.16%
$256,500 and above 39.60% 5.79% 6.62% 7.45% 8.28% 9.11% 9.93% 10.76%
</TABLE>
<PAGE>
APPENDIX B
DESCRIPTIONS OF MUNICIPAL BOND RATINGS CATEGORIES
Municipal Bonds
- - Moody's Investor Services, Inc. The ratings of Moody's Investors
Service, Inc. ("Moody's") for Municipal Bonds are Aaa, Aa, A, Baa, Ba,
B, Caa, Ca and C. Municipal Bonds rated "Aaa" are judged to be of the
"best quality." The rating of 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 Bonds. The "Aaa" and "Aa" rated bonds comprise what are
generally known as "high grade bonds." Municipal Bonds 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 A rated bonds are considered adequate, but elements may
be present which suggest a susceptibility to impairment at some time in
the future. Municipal Bonds 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. Such bonds
lack outstanding investment characteristics and in fact have speculative
characteristics as well. Bonds which are rated "Ba" are judged to have
speculative elements; their future cannot be considered as well assured.
Often the protection of interest and principal payments may be very
moderate and thereby not well safeguarded during both good and bad times
over the future. Uncertainty of position characterizes bonds in this
class. Bonds which are rated "B" generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time
may be small. Bonds which are rated "Caa" are of poor standing. Such
issues may be in default or there may be present elements of danger with
respect to principal or interest. Bonds which are rated "Ca" represent
obligations which are speculative in a high degree. Such issues are
often in default or have other marked shortcomings. Bonds which are rated
"C" are the lowest rated class of bonds, and issues so rated can be
regarded as having extremely poor prospects of ever attaining any real
investment standing. Those bonds in the Aa, A, Baa, Ba and B groups
which Moody's believes possess the strongest investment attributes are
designated Aa1, A1, Baa1, Ba1 and B1 respectively.
In addition to the alphabetic rating system described above,
Municipal Bonds rated by Moody's which have a demand feature that provides
the holder with the ability to periodically 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 ratings of Standard & Poor's
Corporation ("S&P") for Municipal Bonds are AAA (Prime), AA (High Grade),
A (Good Grade), BBB (Medium Grade), BB, B, CCC, CC, and C (speculative
grade). Bonds rated in the top four categories (AAA, AA, A, BBB) are
commonly referred to as "investment grade." Municipal Bonds rated AAA are
"obligations of the highest quality." The rating of AA is accorded
issues with investment characteristics "only slightly less marked than
those of the prime quality issues." The rating of 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 obligations 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, 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. Bonds rated "BB"
have less near-term vulnerability to default than other speculative
issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which would lead to
inadequate capacity to meet timely interest and principal payments. Bonds
rated "B" have a greater vulnerability to default, but currently has the
capacity to meet interest payments and principal repayments. Adverse
business, financial, or economic conditions will likely impair capacity
or willingness to pay interest and repay principal. Bonds rated "CCC"
have a current identifiable vulnerability to default, and is dependent
upon favorable business, financial, and economic conditions to meet timely
payment of interest and repayment of principal. In the event of adverse
business, financial, or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. Bonds noted "CC" typically
are debt subordinated to senior debt which is assigned on actual or
implied "CCC" debt rating. Bonds rated "C" typically are debt
subordinated to senior debt which is assigned an actual or implied "CCC-"
debt rating. The "C" rating may be used to cover a situation where a
bankruptcy petition has been filed, but debt service payments are
continued. Bonds rated "D" are in payment default. The "D" rating
category is used when interest payments or principal payments are not made
on the date due even if the applicable grace period has not expired,
unless S&P believes that such payments will be made during the grace
period. The "D" rating also will be used upon the filing of a bankruptcy
petition if debt service payments are jeopardized.
The ratings from AA to CCC may be modified by the addition of a plus or
minus sign to show relative standing within the major rating categories.
- - Fitch. The ratings of Fitch Investors Service, Inc. for Municipal Bonds
are AAA, AA, A, BBB, BB, B, CCC, CC, C, DDD, DD, and D. Municipal Bonds
rated AAA are judged to be of the "highest credit quality." The rating
of AA is assigned to bonds of "very high credit quality." Municipal Bonds
which are rated A by Fitch are considered to be of "high credit quality."
The rating of BBB is assigned to bonds of "satisfactory credit quality."
The A and BBB rated bonds are more vulnerable to adverse changes in
economic conditions than bonds with higher ratings. Bonds rated AAA, AA,
A and BBB are considered to be of investment grade quality. Bonds rated
below BBB are considered to be of speculative quality. The ratings of
"BB" is assigned to bonds considered by Fitch to be "speculative." The
rating of "B" is assigned to bonds considered by Fitch to be "highly
speculative." Bonds rated "CCC" have certain identifiable characteristics
which, if not remedied, may lead to default. Bonds rated "CC" are
minimally protected. Default in payment of interest and/or principal
seems probable over time. Bonds rated "C" are in imminent default in
payment of interest or principal. Bonds rated "DDD", "DD" and "D" are in
default on interest and/or principal payments. DDD represents the highest
potential for recovery on these bonds, and D represents the lowest
potential for recovery.
Municipal Notes
- 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 as large as notes rated "MIG." 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.
- S&P's rating for Municipal Notes due in three years or less are
SP-1, SP-2, and SP-3. SP-1 describes issues with a very strong capacity
to pay principal and interest and compares with bonds rated A by S&P; if
modified by a plus sign, it compares with bonds rated AA or AAA by S&P.
SP-2 describes issues with a satisfactory capacity to pay principal and
interest, and compares with bonds rated BBB by S&P. SP-3 describes issues
that have a speculative capacity to pay principal and interest.
- Fitch's rating for Municipal Notes due in three years or less
are F-1+, F-1, F-2, F-3, F-S and D. F-1+ describes notes with an
exceptionally strong credit quality and the strongest degree of assurance
for timely payment. F-1 describes notes with a very strong credit quality
and assurance of timely payment is only slightly less in degree than
issues rated F-1+. F-2 describes notes with a good credit quality and a
satisfactory assurance of timely payment, but the margin of safety is not
as great for issues assigned F-1+ or F-1 ratings. F-3 describes notes
with a fair credit quality and an adequate assurance of timely payment,
but near-term adverse changes could cause such securities to be rated
below investment grade. F-S describes notes with weak credit quality.
Issues rated D are in actual or imminent payment default.
Corporate Debt
The "other debt securities" included in the definition of
temporary investments are corporate (as opposed to municipal) debt
obligations. The Moody's, S&P and Fitch corporate debt ratings shown do
not differ materially from those set forth above for Municipal Bonds.
Commercial Paper
- Moody's The ratings of commercial paper by Moody's are Prime-1,
Prime-2, Prime-3 and Not Prime. Issuers rated Prime-1 have a superior
capacity for repayment of short-term promissory obligations. Issuers
rated Prime-2 have a strong capacity for repayment of short-term
promissory obligations. Issuers rated Prime-3 have an acceptable capacity
for repayment of short-term promissory obligations. Issuers rated Not
Prime do not fall within any of the Prime rating categories.
- S&P The ratings of commercial paper by S&P are A-1, A-2, A-3,
B, C, and D. A-1 indicates that the degree of safety regarding timely
payment is strong. A-2 indicates capacity for timely payment is
satisfactory. However, the relative degree of safety is not as high as
for issues designated A-1. A-3 indicates an adequate capacity for timely
payments. They are, however, more vulnerable to the adverse effects of
changes in circumstances than obligations carrying the higher
designations. B indicates only speculative capacity for timely payment.
C indicates a doubtful capacity for payment. D is assigned to issues in
default.
- Fitch The ratings of commercial paper by Fitch are similar to
its ratings of Municipal Notes, above.
<PAGE>
Appendix C
Industry Classifications
Aerospace/Defense
Air Transportation
Auto Parts Distribution
Automotive
Bank Holding Companies
Banks
Beverages
Broadcasting
Broker-Dealers
Building Materials
Cable Television
Chemicals
Commercial Finance
Computer Hardware
Computer Software
Conglomerates
Consumer Finance
Containers
Convenience Stores
Department Stores
Diversified Financial
Diversified Media
Drug Stores
Drug Wholesalers
Durable Household Goods
Education
Electric Utilities
Electrical Equipment
Electronics
Energy Services & Producers
Entertainment/Film
Environmental
Food
Gas Transmission
Gas Utilities*
Gold
Health Care/Drugs
Health Care/Supplies & Services
Homebuilders/Real Estate
Hotel/Gaming
Industrial Services
Insurance
Leasing & Factoring
Leisure
Manufacturing
Metals/Mining
Nondurable Household Goods
Oil - Integrated
Paper
Publishing/Printing
Railroads
Restaurants
Savings & Loans
Shipping
Special Purpose Financial
Specialty Retailing
Steel
Supermarkets
Telecommunications - Technology
Telephone - Utility
Textile/Apparel
Tobacco
Toys
Trucking
_______________________
* For purposes of the Fund's investment policy not to concentrate in
securities of issuers in the same industry, gas utilities and gas
transmission utilities each will be considered as separate industry.
<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
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 LLP
707 Seventeenth Street
Denver, Colorado 80202
Counsel
Gordon Altman Butowsky Weitzen
Shalov & Wein
114 West 47th Street
New York, New York 10036
