Oppenheimer
Tax-Free Bond Fund
Prospectus dated April 20, 1996
Oppenheimer Tax-Free Bond 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 this Prospectus carefully and
keep it for future reference. You can find more detailed
information about the Fund in the April 20, 1996 Statement of
Additional Information. For a free copy, call OppenheimerFunds
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 ("SEC") 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
ABOUT THE FUND
3 Expenses
5 A Brief Overview of the Fund
7 Financial Highlights
10 Investment Objective and Policies
17 How the Fund is Managed
19 Performance of the Fund
ABOUT YOUR ACCOUNT
23 How to Buy Shares
Class A Shares
Class B Shares
Class C Shares
34 Special Investor Services
AccountLink
Automatic Withdrawal and Exchange Plans
Reinvestment Privilege
35 How to Sell Shares
By Mail
By Telephone
By Checkwriting
37 How to Exchange Shares
39 Shareholder Account Rules and Policies
41 Dividends, Capital Gains and Taxes
A-1 Appendix A: Special Sales Charge Arrangements for
Certain Persons<PAGE>
<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 and account
transaction charges. The following tables are provided to help you
understand your direct expenses of investing in the Fund and your
share of the Fund's business operating expenses that you will
expect to bear indirectly. The numbers below are based on the
Fund's expenses during its last fiscal year ended December 31,
1995.
Shareholder Transaction Expenses are charges you pay when
you buy or sell shares of the Fund. Please refer to "About Your
Account," from pages 23 through 44 for an explanation of how and
when these charges apply.
<TABLE>
<CAPTION>
Class A Class B Class C
Shares Shares Shares
Maximum Sales Charge
on Purchases (as a %
of offering price)
<S> <C> <C> <C>
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
- -----------------------------------------------------------------------------
</TABLE>
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 - Buying
Class A Shares," below.
2. See "How to Buy Shares - Buying Class B Shares" and "How to Buy
Shares - Buying Class C Shares," below, for more information on the
contingent deferred sales charges.
Annual Fund Operating Expenses are paid out of the Fund's
assets and represent the Fund's expenses in operating its business.
For example, the Fund pays management fees to its investment
adviser, OppenheimerFunds, Inc. (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 the Fund's portfolio securities, audit
fees and legal expenses. Those expenses are detailed in the Fund's
Financial Statements in the Statement of Additional Information.
Annual Fund Operating Expenses as a Percentage of Average Net
Assets
Class A Class B Class C
Shares Shares Shares
- -----------------------------------------------------------------
Management Fees 0.53% 0.53% 0.53%
- -----------------------------------------------------------------
12b-1 Plan Fees 0.21% 1.00% 1.00%
- -----------------------------------------------------------------
Other Expenses 0.14% 0.15% 0.15%
- -----------------------------------------------------------------
Total Fund Operating Expenses 0.88% 1.68% 1.68%
The numbers in the table above are based upon the Fund's
expenses in its last fiscal year ended December 31, 1995. 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 Distribution
Plan Fees for Class A shares are Service Plan Fees (the maximum fee
is 0.25% of average annual net assets of that class), and for Class
B and Class C shares are the Distribution and Service Plan Fees
(the maximum service fee is 0.25% of average annual net assets of
that class) and the asset-based sales charge of 0.75%. These plans
are described in greater detail in "How to Buy Shares," below.
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 sold before August 29, 1995. Therefore, the Annual Fund
Operating Expenses for Class C shares are estimates based on
expenses that would have been payable if Class C shares had been
outstanding during the entire fiscal year.
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:
1 year 3 years 5 years 10 years*
Class A Shares $56 $74 $ 94 $151
Class B Shares $67 $83 $111 $158
Class C Shares $27 $53 $ 91 $199
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 $91 $158
Class C Shares $17 $53 $91 $199
* 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, long-term Class B and Class C shareholders
could pay the economic equivalent of more than the maximum front-
end sales charge allowed under applicable regulations. 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 "How to Buy Shares - Buying Class B Shares"
for more information.
These examples show the effect of expenses on an investment,
but are not meant to state or predict actual or expected expenses
or investment returns of the Fund, all of which may be more or less
than those shown.
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 exempt from Federal income taxes as is available from
investing in Municipal Securities, while attempting to preserve
capital.
What Does the Fund Invest In? To seek its objective, the
Fund primarily invests in municipal securities the interest from
which is exempt from Federal individual income tax. The Fund may
also use hedging instruments and certain derivative investments to
try to manage investment risks. These investments are more fully
explained in "Investment Objective and Policies," starting on page
10.
Who Manages the Fund? The Fund's investment adviser (the
"Manager") is OppenheimerFunds, Inc. Prior to January 5, 1996,
OppenheimerFunds, Inc. was known as Oppenheimer Management
Corporation. The Manager (including a subsidiary) manages
investment company portfolios having over $50 billion in assets at
March 1, 1996. The Manager is paid an advisory fee by the Fund,
based on its net assets. The Fund's portfolio managers, who are
employed by the Manager, are Robert E. Patterson and Jerry Webman.
They are primarily responsible for the selection of the Fund's
securities. The Fund's Board of Trustees, elected by shareholders,
oversees the investment adviser and the portfolio managers.
Please refer to "How the Fund is Managed," starting on page __ for
more information about the Manager and its fees.
How Risky is the Fund? All investments carry risks to some
degree. The Fund's investments in municipal bonds 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 that can affect bond prices. 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 10 for a more
complete discussion of the Fund's investment risks.
How Can I Buy Shares? You can buy shares through your
dealer or financial institution, or you can purchase shares
directly through the Distributor by completing an Application or by
using an Automatic Investment Plan under AccountLink. Please refer
to "How to Buy Shares" beginning on page 23 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 different expenses. Class A shares are offered with
a front-end sales charge, starting at 4.75%, and reduced for larger
purchases. Class B and Class C shares are offered without a front-
end sales charge, but may be subject to a contingent deferred sales
charge if redeemed within 6 years or 12 months, respectively, of
purchase. There are also annual asset-based sales charge on Class
B and Class C shares. Please review "How to Buy Shares" starting
on page 23 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 writing a check against your Fund
account (available for Class A shares only). Please refer to "How
to Sell Shares" on page 35. The Fund also offers exchange
privileges to other Oppenheimer funds, described in "How to
Exchange Shares" on page 37.
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 pages 21 and 22.
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, 1995, is included
in the Statement of Additional Information. Class C shares were
only offered during a portion of the fiscal year ended December 31,
1995, commencing on August 29, 1995.
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CLASS A
----------------------------------------------------
YEAR ENDED DECEMBER 31,
1995 1994 1993 1992 1991
============================================================================================================
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING DATA:
Net asset value, beginning of period $8.93 $10.44 $9.94 $9.77 $9.33
- ------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .54 .57 .59 .62 .64
Net realized and unrealized
gain (loss) 1.06 (1.52) .74 .25 .45
-------- -------- -------- -------- --------
Total income (loss) from
investment operations 1.60 (.95) 1.33 .87 1.09
- ------------------------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net
investment income (.54) (.56) (.62) (.58) (.65)
Dividends in excess of net
investment income (.01) -- -- -- --
Distributions from net realized gain -- -- (.21) (.12) --
Distributions in excess of
net realized gain -- --(4) -- -- --
-------- -------- -------- -------- --------
Total dividends and distributions
to shareholders (.55) (.56) (.83) (.70) (.65)
- ------------------------------------------------------------------------------------------------------------
Net asset value, end of period $9.98 $8.93 $10.44 $9.94 $9.77
======== ======== ======== ======== ========
============================================================================================================
TOTAL RETURN, AT NET ASSET VALUE(5) 18.28% (9.19)% 13.79% 9.20% 12.11%
============================================================================================================
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(in thousands) $634,473 $541,161 $608,128 $496,628 $394,115
- ------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $569,859 $582,038 $567,777 $438,684 $319,081
- ------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income 5.65% 5.94% 5.71% 6.34% 6.70%
Expenses .88% .88% .88% .94% .89%
- ------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(7) 25.1% 21.7% 30.2% 34.2% 23.5%
</TABLE>
1. For the period from August 29, 1995 (inception of offering) to
December 31, 1995.
2. For the period from March 16, 1993 (inception of offering) to December 31,
1993.
3. 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.
4. Less than $.005 per share.
5. Assumes a hypothetical initial investment on the business day before the
first day of the fiscal period, with all dividends and distributions reinvested
in additional shares on the reinvestment date, and redemption at the net asset
value calculated on the last business day of the fiscal period. Sales charges
are not reflected in the total returns. Total returns are not annualized for
periods of less than one full year.
<PAGE>
<TABLE>
<CAPTION>
CLASS A
------------------------------------------------------------
YEAR ENDED DECEMBER 31,
1990 1989 1988 1987 1986
===================================================================================================================
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING DATA:
Net asset value, beginning of period $ 9.45 $ 9.27 $ 9.12 $ 9.81 $ 8.80
- -------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .66 .65(3) .77(3) .69 .69
Net realized and unrealized
gain (loss) (.12) .20 .07 (.70) .99
-------- -------- -------- -------- --------
Total income (loss) from
investment operations .54 .85 .84 (.01) 1.68
- -------------------------------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net
investment income (.66) (.67) (.69) (.68) (.67)
Dividends in excess of net
investment income -- -- -- -- --
Distributions from net realized gain -- -- -- -- --
Distributions in excess of
net realized gain -- -- -- -- --
-------- -------- -------- -------- --------
Total dividends and distributions
to shareholders (.66) (.67) (.69) (.68) (.67)
- -------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 9.33 $ 9.45 $ 9.27 $ 9.12 $ 9.81
======== ======== ======== ======== ========
===================================================================================================================
TOTAL RETURN, AT NET ASSET VALUE(5) 5.93% 9.42% 10.03% 0.00% 19.75%
===================================================================================================================
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(in thousands) $256,542 $223,904 $172,227 $133,508 $132,234
- -------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $238,224 $202,216 $150,901 $135,052 $112,189
Ratios to average net assets:
Net investment income 7.08% 7.18% 7.48% 7.41% 7.33%
Expenses .89% .82%(3) .72%(3) .78% .78%
- -------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(7) 29.3% 57.2% 22.9% 29.4% 27.8%
</TABLE>
<TABLE>
<CAPTION>
CLASS B CLASS C
------------------------------- --------
PERIOD
ENDED
YEAR ENDED DECEMBER 31, DEC. 31,
1995 1994 1993(2) 1995(1)
===================================================================================================
<S> <C> <C> <C> <C>
PER SHARE OPERATING DATA:
Net asset value, beginning of period $ 8.92 $ 10.43 $ 10.22 $ 9.58
- ---------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .47 .50 .41 .15
Net realized and unrealized
gain (loss) 1.05 (1.52) .43 .39
------- ------- ------- ------
Total income (loss) from
investment operations 1.52 (1.02) .84 .54
- ---------------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net
investment income (.47) (.49) (.42) (.15)
Dividends in excess of net
investment income (.01) -- -- (.01)
Distributions from net realized gain -- -- (.21) --
Distributions in excess of
net realized gain -- --(4) -- --
------- ------- ------- ------
Total dividends and distributions
to shareholders (.48) (.49) (.63) (.16)
- ---------------------------------------------------------------------------------------------------
Net asset value, end of period $ 9.96 $ 8.92 $ 10.43 $ 9.96
======= ======= ======= ======
===================================================================================================
TOTAL RETURN, AT NET ASSET VALUE(5) 17.30% (9.91)% 8.49% 5.64%
===================================================================================================
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(in thousands) $72,488 $53,245 $33,024 $1,975
- ---------------------------------------------------------------------------------------------------
Average net assets (in thousands) $63,669 $46,548 $16,444 $1,506
- ---------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income 4.84% 5.11% 4.54%(6) 4.49%(6)
Expenses 1.68% 1.69% 1.74%(6) 1.64%(6)
- ---------------------------------------------------------------------------------------------------
Portfolio turnover rate(7) 25.1% 21.7% 30.2% 25.1%
</TABLE>
6. Annualized.
7. The lesser of purchases or sales of portfolio securities for a
period, divided by the monthly average of the market value of portfolio
securities owned during the period. Securities with a maturity or expiration
date at the time of acquisition of one year or less are excluded from the
calculation. Purchases and sales of investment securities (excluding short-term
securities) for the period ended December 31, 1995 were $156,853,184 and
$193,822,382, respectively. See accompanying Notes to Financial Statements.
<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 investing 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.
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.
Municipal Securities. Municipal Securities are municipal
bonds and municipal notes, tax-exempt commercial paper,
certificates of participation 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, in
the opinion of bond counsel to the respective issuer at the time of
issue, not subject to Federal individual income tax. 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.
Interest Rate Risks. In addition to credit risks, described
below, Municipal Securities are subject to changes in value due to
changes in prevailing interest rates. When prevailing interest
rates fall, the values of outstanding Municipal Securities
generally rise and (if purchased at principal amount) would sell at
a premium. Conversely, when interest rates rise, the values of
outstanding Municipal Securities generally decline and (if
purchased at principal amount) would sell at a discount. The
magnitude of these fluctuations will be greater when the average
maturity of the portfolio is longer.
Credit Risks. Municipal Securities are also subject to
credit risks. Credit risk relates to the ability of the issuer of
a Municipal Security to make interest or principal payments on the
security as they become due. The economic and other factors that
can affect that ability are summarized in the Statement of
Additional Information under "Special Investment Considerations-
California Municipal Securities." However, many factors affect an
issuer's ability to make timely payments, and there can be no
assurance that the credit risks of a particular security will not
change over time.
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. Projects financed with certificates
of participation generally are not subject to state constitutional
debt limitations or other statutory requirements that may be
applicable to Municipal Securities. Payments by the public entity
on the obligation underlying the certificates are derived from
available revenue sources; such revenue may be diverted to the
funding of other municipal service projects. Payments of interest
and/or principal with respect to the certificates are not
guaranteed. While some municipal lease securities may be deemed to
be "illiquid" securities (the purchase of which would be limited as
described below in "Illiquid and Restricted Securities"), from time
to time the Fund may invest more than 5% of its net assets in
municipal lease obligations that the Manager has determined to be
liquid under guidelines set by the Board of Trustees.
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 "Dividends, Capital
Gains and Taxes," below, and "Private Activity Municipal
Securities" in the Statement of Additional Information).
For temporary defensive purposes, the Fund may invest up to
100% of its total assets in "Temporary Investments," including: (i)
obligations issued or guaranteed by the U.S. Government or its
agencies or instrumentalities; (ii) corporate debt securities rated
within the three highest grades by Moody's, S&P, Fitch or another
nationally recognized rating agency; (iii) commercial paper rated
"A-1" by S&P, "Prime-1" by Moody's, "F-1" by Fitch or a comparable
rating by another nationally recognized rating agency; and (iv)
certificates of deposit of domestic banks with assets of $1 billion
or more. The Fund may hold Temporary Investments pending the
investment of proceeds from the sale of Fund shares or portfolio
securities, or to meet anticipated redemptions.
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 variable rate bonds known as "inverse floaters."
These bonds pay interest at a rate that varies as the yields
generally available on short-term tax-exempt bonds change.
However, the yields on inverse floaters move in the opposite
direction of yields on short-term bonds in response to market
changes. When the yields on short-term tax-exempt bonds go up, the
interest rate on the inverse floater goes down. When the yields on
short-term tax-exempt bonds go down, the interest rate on the
inverse floater goes up. As interest rates rise, inverse floaters
produce less current income. Inverse floaters are a type of
"derivative security," which is a specially designed investment
whose performance is linked to the performance of another security
or investment. 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 anticipates that it would invest no more than
10% of its total assets in inverse floaters. The Fund may also
invest in municipal derivative securities that pay interest that
depends on an external pricing mechanism. Examples of external
pricing mechanisms are interest rate swaps, municipal bond indices
or swap indices.
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; Special Risks of Lower-
Rated 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." "Investment grade" are those rated
within the four highest rating categories of Moody's, S&P, or Fitch
or another nationally recognized rating agency. If the securities
are not rated, the Manager will determine the equivalent rating
category for the purposes of this limitation. Municipal securities
that are "pre-refunded" generally are collateralized by U.S.
government securities placed in an escrow account, causing such
pre-refunded issue to have essentially the same low risks of
default as a triple-A rated security. (See Appendix A 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 ordinarily does
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
to accomplish the Fund's investment objective. The "Financial
Highlights," above, show the Fund's portfolio turnover rate during
the past fiscal years. While short-term trading increases
portfolio turnover and may increase the Fund's transaction costs,
the Fund incurs little or no brokerage costs because most of the
Fund's portfolio transactions are principal trades without
brokerage commissions.
Can the Fund's Investment Objective and Policies Change?
The Fund has an investment objective, 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.
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.
Puts and Stand-By Commitments. The Fund may acquire "stand-
by commitments" or "puts" with respect to municipal obligations
held in its portfolio. Under a stand-by commitment or put option,
the Fund would have the right to sell specified securities at a
specific price on demand to the issuing broker-dealer or bank. The
Fund will acquire stand-by commitments or puts solely to facilitate
portfolio liquidity and does not intend to exercise its rights
thereunder for trading purposes.
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. Repurchase agreements having a maturity beyond
seven days are subject to the limitation on investments by the Fund
in illiquid or restricted securities. 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. The Fund will
not invest more than 10% of its net assets in illiquid or
restricted securities. The Fund's percentage limitation on these
investments does not apply to certain restricted securities that
are eligible for resale to qualified institutional buyers. As a
matter of fundamental policy, 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 attempt to raise income or
raise cash for liquidity purposes, the Fund may lend its portfolio
securities to brokers, dealers and other financial institutions.
The Fund must receive collateral for a loan. These loans are
limited to not more than 25% of the value of the Fund's total
assets. There are some risks in connection with securities
lending. The Fund might experience a delay in receiving additional
collateral to secure a loan, or a delay in recovery of the loaned
securities. The Fund presently does not intend to engage in loans
of securities that will exceed 5% of the value of the Fund's total
assets in the coming year.
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, for defensive reasons, 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). The Fund may buy
and sell futures contracts in an attempt to benefit from any
performance of the future purchased relative to the performance of
the future sold. 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, and (3) Municipal Bond Index Futures
and Interest Rate Futures 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
("NASDAQ") of The NASDAQ Stock Market, Inc., 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); (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 the Statement of Additional
Information, other than those that apply to borrowing, apply only
at the time the Fund purchases a security, and the Fund need not
dispose of a security merely because the Fund's assets have changed
or the security has increased in value relative to the size of the
Fund. There are other fundamental policies discussed in the
Statement of Additional Information.
How the Fund is Managed
Organization and History. The Fund was originally incorporated in
Maryland in 1976 but was reorganized in 1987 as a Massachusetts
business trust. The Fund is an open-end, diversified management
investment company with an unlimited number of authorized shares of
beneficial interest.
The Fund is governed by a Board of Trustees, which is
responsible for protecting the interests of shareholders under
Massachusetts law. The Trustees meet periodically throughout the
year to oversee the Fund's activities, review its performance, and
review the actions of the Manager. "Trustees and Officers of the
Fund" in the Statement of Additional Information names the Trustees
and provides more information about them and the officers of the
Fund. Although the Fund will not normally hold annual meetings of
its shareholders, 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 the different classes. Each class may have a
different net asset value. Each share has one vote at shareholder
meetings, with fractional shares voting proportionally. Only
shares of a particular class vote as a class on matters that affect
that class alone. Shares are freely transferable. Please refer to
"How the Fund is Managed" in the Statement of Additional
Information on voting of shares.
The Manager and its Affiliates. The Fund is managed by the
Manager, OppenheimerFunds, Inc., which is responsible for selecting
the Fund's investments and handles its day-to-day business. The
Manager carries out its duties, subject to the policies established
by the Board of Trustees, under an Investment Advisory Agreement
which states the Manager's responsibilities. The Agreement sets
forth the fees paid by the Fund to the Manager and describes the
expenses that the Fund is responsible to pay to conduct its
business.
The Manager has operated as an investment adviser since 1959.
The Manager (including a subsidiary) currently manages investment
companies, including other Oppenheimer funds, with assets of more
than $50 billion as of March 1, 1996, and with more than 2.8
million shareholder accounts. The Manager is owned by Oppenheimer
Acquisition Corp., a holding company that is owned in part by
senior officers of the Manager and controlled by Massachusetts
Mutual Life Insurance Company.
Portfolio Manager. The Portfolio managers of the Fund are
Robert E. Patterson and Jerry Webman, Senior Vice Presidents of the
Manager. Mr. Patterson and Mr. Webman are the persons principally
responsible for the day-to-day management of the Fund's portfolio,
and have had this responsibility since November, 1985 and April,
1996, respectively. Mr. Patterson and Mr. Webman also serve as
officers and portfolio managers for other Oppenheimer funds.
Previously, Mr. Webman was an officer and analyst with Prudential
securities.
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, 1995 was 0.53% of average
annual net assets for Class A, Class B and Class C 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. That section discussed how brokers and
dealers are selected for the Fund's portfolio transactions.
Because the Fund purchases most of its portfolio securities
directly from the sellers and not through brokers, it incurs
relatively little expense for brokerage. 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 OppenheimerFunds
Distributor, Inc., a subsidiary of the Manager that acts as the
Fund's Distributor. The Distributor also distributes the shares of
other Oppenheimer funds and is sub-distributor for funds managed by
a subsidiary of the Manager.
The Transfer Agent. The Fund's Transfer Agent is
OppenheimerFunds Services, a division of the Manager, which acts as
the shareholder servicing agent for the Fund on an "at-cost" basis.
It also acts as the shareholder servicing agent for other
Oppenheimer funds. Shareholders should direct inquiries about
their accounts to the Transfer Agent at the address and toll-free
number shown below in this Prospectus and on the back cover.
Performance of the Fund
Explanation of Performance Terminology. The Fund uses the terms
"total return," "average annual total return," "standardized
yield," "dividend yield," "yield" and "tax-equivalent 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. These returns and yields
measure the performance of a hypothetical account in the Fund over
various periods, and do not show the performance of each
shareholder's account (which will vary if dividends are received in
cash, or shares are sold or purchased). The Fund's performance may
help you see how well your Fund has done over time and to compare
it to other funds or to a market index.
It is important to understand that the Fund's yields and total
returns represent past performance and should not be considered to
be predictions of future returns or performance. This performance
data is described below, but more detailed information about how
total returns and yields are calculated is contained in the
Statement of Additional Information, which also contains
information about indices and other ways to measure and compare the
Fund's performance. The Fund's investment performance will vary
over time, depending on market conditions, the composition of the
portfolio, expenses and which class of shares you purchase.
Total Returns. There are different types of "total returns"
used to measure the Fund's performance. "Total return" is the
change in value of a hypothetical investment in the Fund over a
given period, assuming that all dividends and capital gains
distributions are reinvested in additional shares. The cumulative
total return measures the change in value over the entire period
(for example, ten years). An average annual total return shows the
average rate of return for each year in a period that would produce
the cumulative total return over the entire period. However,
average annual total returns do not show the Fund's actual year-by-
year performance.
When total returns are quoted for Class A shares, normally the
current maximum initial sales charge has been deducted. When total
returns are shown for Class B or Class C shares, normally the
contingent deferred sales charge that applies to the period for
which total return is shown has been deducted. However, total
returns may also be quoted at "net asset value," without including
the effect of the sales charge, and those returns would be less 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, 1995, 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, 1995, the Fund's performance was
affected by several economic and market factors. Long-term
interest rates declined and the values of outstanding municipal
bonds generally appreciated in value. The Fund sold certain par
bonds and bonds purchased at a discount to take advantage of the
price increases of those bonds. The portfolio manager focused new
investments in revenue bonds (for example, transportation
projects) in lieu of general obligation bonds. In response to the
possibility of federal tax reform that may affect the tax status of
municipal securities, the Fund emphasized investments in issues
with shorter maturities and pre-refunded issues, because their
prices are generally less sensitive to changes in interest rates
than longer-term bonds.
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, 1995. In
each case, all dividends and capital distributions were reinvested
in additional shares. The graphs reflect the deduction of the
4.75% maximum initial sales charge on Class A shares, the
applicable 3% contingent deferred sales charge for Class B shares,
and the 1% contingent deferred sales charge on Class C shares
during the first year.
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
Oppenheimer Tax-Free Bond Fund (Class A) and
Lehman Brothers Municipal Bond Index
[Graph with Class A shares of the Fund]
Avg Annual Total Return of the Fund at 12/31/951
A Shares 1 Year 5 Year Life
12.66% 7.17% 8.00%
Comparison of Change
In Value of $10,000
Hypothetical Investments in:
Oppenheimer Tax-Free Bond Fund (Class B) and
Lehman Brothers Municipal Bond Index
[Graph with Class B shares of the Fund]
Average Annual Total Return of the Fund at 12/31/952
B Shares 1 Year Life
12.30% 4.05%
Comparison of Change
In Value of $10,000
Hypothetical Investments in:
Oppenheimer Tax-Free Bond Fund (Class C) and
Lehman Brothers Municipal Bond Index
[Graph with Class C shares of the Fund]
Cumulative Total Return of the Fund at 12/31/953
C Shares Life
14.31%
1. The average annual total returns reflect reinvestment of all
dividends and capital gains distributions. 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 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 are shown net of the
applicable 5% and 3% 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 3%
contingent deferred sales charge.
Past performance is not predictive of future performance.
3. Class C shares of the Fund were first publicly offered on August
29, 1995. The cumulative total return and the ending account value
in the graph are shown net of the 1% contingent deferred sales
charge for the period.
Graphs are not drawn to same scale.
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 Oppenheimer funds, 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 charge rates are described in "Buying Class A
Shares," below.
Class B Shares. If you buy Class B shares, you pay no sales
charge at the time of purchase, but if you sell your shares within
six years of buying them, you will normally pay a contingent
deferred sales charge. That sales charge varies depending on how
long you own your shares, as described in "Buying Class B Shares,"
below.
Class C Shares. If you buy Class C shares, you pay no sales
charge at the time of purchase, but if you sell your shares within
12 months of buying them, you will normally pay a contingent
deferred sales charge of 1%, as described in "Buying 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 and how long you plan to
hold your investment. If your goals and objectives change over
time and you plan to purchase additional shares, you should re-
evaluate those factors to see if you should consider another class
of shares.
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 of shares you invest in.
The factors discussed below are not intended to be investment
advice guidelines or recommendations, because each investor's
financial considerations are different. The discussion below of
the factors to consider in purchasing a particular class of shares
assumes that you will purchase only one class of shares, and not a
combination of shares of different classes.
How Long Do You Expect to Hold Your Investment? While
future financial needs cannot be predicted with certainty, knowing
how long you expect to hold your investment will assist you in
selecting the appropriate class of shares. The effect of the sales
charge over time, using our assumptions, will generally depend on
the amount invested. Because of the effect of class-based
expenses, your choice will also depend on how much you plan to
invest. For example, the reduced sales charges available for
larger purchases of Class A shares may, over time, offset the
effect of paying an initial sales charge on your investment (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.
Investing for the Short Term. If you have a short-term
investment horizon (that is, you plan to hold your shares for not
more than six years), you should probably consider purchasing Class
A or Class C shares rather than Class B shares, because of the
effect of the Class B contingent deferred sales charge if you
redeem in less than 7 years, as well as the effect of the Class B
asset-based sales charge on the investment return for that class in
the short-term. Class C shares might be the appropriate choice
(especially for investments of less than $100,000), because there
is no initial sales charge on Class C shares, and the contingent
deferred sales charge does not apply to amounts you sell after
holding them one year.
However, if you plan to invest more than $100,000 for the
shorter term, then the more you invest and the more your investment
horizon increases toward six years, Class C shares might not be as
advantageous as Class A shares. That is because the annual asset-
based sales charge on Class C shares will have a greater economic
impact on your account over the longer term than the reduced front-
end sales charge available for larger purchases of Class A shares.
For example, Class A might be more advantageous than Class C (as
well as Class B) for investments of more than $100,000 expected to
be held for 5 or 6 years (or more). For investments over $250,000
expected to be held 4 to 6 years (or more), Class A shares may
become more advantageous than Class C (and Class B). If investing
$500,000 or more, Class A may be more advantageous as your
investment horizon approaches 3 years or more.
And for investors who invest $1 million or more, in most cases
Class A shares will be the most advantageous choice, no matter how
long you intend to hold your shares. For that reason, the
Distributor normally will not accept purchase orders of $500,000 or
more of Class B shares or $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 seven years or more, Class B shares may be
an appropriate consideration, if you plan to invest less than
$100,000. If you plan to invest more than $100,000 over the long
term, Class A shares will likely be more advantageous than Class B
shares or C shares, as discussed above, because of the effect of
the 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.
Of course, these examples are based on approximations of the
effect of current sales charges and expenses on a hypothetical
investment over time, using the assumed annual performance return
stated above, and therefore you should analyze your options
carefully.
Are There Differences In Account Features That Matter To
You? Because some account features may not be available for Class
B or 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. For example, share certificates are not
available for Class B or Class C shares and if you are considering
using your shares as collateral for a loan, that may be a factor to
consider. Also, checkwriting privileges are not available for
Class B or Class C shares. Additionally, the dividends payable to
Class B and Class C shareholders will be reduced by the additional
expenses borne solely by that class, such as the asset-based sales
charge, as described below and in the Statement of Additional
Information.
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
Class B and Class C contingent deferred sales charge and asset-
based sales charge is the same as the purpose of the front-end
sales charge on sales of Class A shares, that is, 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 Oppenheimer
funds (a list of them appears in the Statement of Additional
Information, or you can ask your dealer or call the Transfer
Agent), or by reinvesting distributions from unit investment trusts
that have made arrangements with the Distributor.
How Are Shares Purchased? You can buy shares several ways --
through any dealer, broker or financial institution that has a
sales agreement with the Distributor, or directly through the
Distributor, or automatically from your bank account through an
Asset Builder Plan under the Oppenheimer funds 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 "OppenheimerFunds Distributor, Inc." Mail it to P.O. Box
5270, Denver, Colorado 80217. If you don't list a dealer on the
application, the Distributor will act as your agent in buying the
shares. However, we recommend that you discuss your investment
first with a financial advisor, to be sure it is appropriate for
you.
Buying Shares Through OppenheimerFunds AccountLink. You can
use AccountLink to link your Fund account with an account at a U.S.
bank or other financial institution that is an Automated Clearing
House (ACH) member. You can then transmit funds electronically to
purchase shares, or to have the Transfer Agent send redemption
proceeds, or 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 Oppenheimer funds) 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, Colorado. 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, in its sole discretion, may
reject any purchase order for the Fund's shares.
Special Sales Charge Arrangements for Certain Persons. Appendix A
to this Prospectus sets forth conditions for the waiver of, or
exemption from, sales charges or the special sales charge rates
that apply to purchases of shares of the Fund (including purchases
by exchange) by a person who was a shareholder of one of the Former
Quest for Value Funds (as defined in that Appendix).
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:
Front-End Sales Charge Commission as
As a Percentage of: Percentage of
Offering Amount Offering
Amount of Purchase Price Invested Price
- -------------------------------------------------------------------
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
- -------------------------------------------------------------------
The Distributor reserves the right to reallow the entire commission
to dealers. If that occurs, the dealer may be considered an
"underwriter" under Federal securities laws.
Class A Contingent Deferred Sales Charge. There is no
initial sales charge on purchases of Class A shares of any one or
more Oppenheimer funds aggregating $1 million or more. The
Distributor pays dealers of record commissions on those purchases
in an amount equal to the sum of 1.0% of the first $2.5 million,
plus 0.50% of the next $2.5 million, plus 0.25% of purchases over
$5 million. That commission will be paid only on the amount of
those purchases in excess of $1 million 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 either (1) the aggregate net asset
value of the redeemed shares (not including shares purchased by
reinvestment of dividends or capital gain distributions) or (2) the
original cost of the shares, whichever is less. However, the Class
A contingent deferred sales charge will not exceed the aggregate
commissions the Distributor paid to your dealer on all Class A
shares of all Oppenheimer funds 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 for trust or
custodial 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 Oppenheimer funds to
reduce the sales charge rate to current purchases of Class A
shares. You can also count Class A and Class B shares of
Oppenheimer funds 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 Oppenheimer funds. 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
Oppenheimer funds 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 shares or Class A and Class B shares of the Fund and other
Oppenheimer funds during a 13-month period, you can reduce the
sales charge rate that applies to your purchases of Class A shares.
The total amount of your intended purchases of both Class A and
Class B shares will determine the reduced sales charge rate for the
Class A shares purchased during that period. 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;
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 (those clients
may be charged a transaction fee by their dealer, broker or advisor
for the purchase or sale of Fund shares);
directors, trustees, officers or full-time employees of
OpCap Advisors or its affiliates, their relatives or any trust,
pension, profit sharing or other benefit plan which beneficially
owns shares for those persons;
accounts for which Oppenheimer Capital is the investment
adviser (the Distributor must be advised of this arrangement) and
persons who are directors or trustees of the company or trust which
is the beneficial owner of such accounts; or
any unit investment trust that has entered into an
appropriate agreement with the Distributor.
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 Oppenheimer funds
(other than Oppenheimer Cash Reserves) or unit investment trusts
for which reinvestment arrangements have been made with the
Distributor;
shares purchased and paid for with the proceeds of shares
redeemed in the prior 12 months from a mutual fund (other than a
fund managed by the Manager or any of its subsidiaries) on which an
initial sales charge or contingent deferred sales charge was paid
(this waiver also applies to shares purchased by exchange of shares
of Oppenheimer Money Market Fund, Inc. that were purchased and paid
for in this manner); this waiver must be requested when the
purchase order is placed for your shares of the Fund, and the
Distributor may require evidence of your qualification for this
waiver; or
purchased with the proceeds of maturing principal of units
of any Qualified Unit Investment Liquid Trust Series.
Waivers of the Class A Contingent Deferred Sales Charge for
Certain Redemptions. The Class A contingent deferred sales charge
is also waived if shares that would otherwise be subject to the
contingent deferred sales charge are redeemed in the following
cases:
to make Automatic Withdrawal Plan payments that are limited
annually to no more than 12% of the original account value;
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 in writing 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. The Class B contingent
deferred sales charge is paid to compensate the Distributor for its
expenses of providing distribution-related services to the Fund in
connection with the sale of Class B shares.
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 contingent
deferred sales charge is not imposed in the circumstances described
below in "Waivers of Class B and Class C Sales Charges."
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:
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)
0-1 5.0%
- ------------------------------------------------------------
1-2 4.0%
- ------------------------------------------------------------
2-3 3.0%
- ------------------------------------------------------------
3-4 3.0%
- ------------------------------------------------------------
4-5 2.0%
- ------------------------------------------------------------
5-6 1.0%
- ------------------------------------------------------------
6 and following None
- ------------------------------------------------------------
In the table, a "year" is a 12-month period. All purchases are
considered to have been made on the first regular business day of
the month in which the purchase was made.
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.
Waivers of Class B Sales Charges. The Class B contingent
deferred sales charge will not apply to shares purchased in certain
types of transactions, nor will it apply to shares redeemed in
certain circumstances, as described below under "Buying Class C
Shares - Waivers of Class B and Class C Sales Charges."
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. This Plan is described below under "Buying
Class C Shares - Distribution and Service Plans for Class B and
Class C Shares."
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. The Class C
contingent deferred sales charge is paid to compensate the
Distributor for its expenses of providing distribution-related
services to the Fund in connection with the sale of Class C shares.
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 B and Class C Sales Charges. The Class B
and Class C contingent deferred sales charges will not be applied
to shares purchased in certain types of transactions nor will it
apply to shares redeemed in certain circumstances as described
below. The reasons for this policy are in "Reduced Sales Charges"
in the Statement of Additional Information.
Waivers for Redemptions of Shares in Certain Cases. The Class
B and Class C contingent deferred sales charges will be waived for
redemptions of shares in the following cases:
redemptions from accounts following the death or disability
of the last surviving shareholder, including a trustee of a
"grantor" trust or revocable living trust for which the trustee is
also the sole beneficiary (the death or disability must have
occurred after the account was established, and for disability you
must provide evidence of a determination of disability by the
Social Security Administration); or
shares redeemed involuntarily, as described in "Shareholder
Account Rules and Policies," below.
Waivers for Shares Sold or Issued in Certain Transactions.
The contingent deferred sales charge is also waived on Class B and
Class C shares sold or issued in the following cases:
shares sold to the Manager or its affiliates;
shares sold to registered management investment companies or
separate accounts of insurance companies having an agreement with
the Manager or the Distributor for that purpose; or
shares issued in plans of reorganization to which the Fund
is a party.
Distribution and Service Plans for Class B and Class C
Shares. The Fund has adopted Distribution and Service Plans for
Class B and Class C shares to compensate the Distributor for its
services and costs in distributing Class B and Class C shares and
servicing accounts. Under the Plans, the Fund pays the Distributor
an annual "asset-based sales charge" of 0.75% per year on Class B
shares that are outstanding for 6 years or less and on Class C
shares. The Distributor also receives a service fee of 0.25% per
year under each plan.
Under each Plan, both fees are computed on the average of the
net asset value of shares in the respective class, determined as
of the close of each regular business day during the period. The
asset-based sales charge and service fees increase Class B and
Class C expenses by up to 1.00% of the net assets per year of the
respective class.
The Distributor uses the service fees to compensate dealers
for providing personal services for accounts that hold Class B or
Class C shares. Those services are similar to those provided under
the Class A Service Plan, described above. The Distributor pays
the 0.25% service fees to dealers in advance for the first year
after Class B or Class C shares have been sold by the dealer.
After the shares have been held for a year, the Distributor pays
the service fees to dealers on a quarterly basis.
The asset-based sales charge allows investors to buy Class B
or Class C shares without a front-end sales charge while allowing
the Distributor to compensate dealers that sell those shares. The
Fund pays the asset-based sales charge to the Distributor for its
services rendered in distributing Class B and Class C shares.
Those payments are at a fixed rate that is not related to the
Distributor's expenses. The services rendered by the Distributor
include paying and financing the payment of sales commissions,
service fees and other costs of distributing and selling Class B
and Class C shares.
The Distributor currently pays sales commission of 3.75% of
the purchase price of Class B shares to dealers from its own
resources at the time of sale. Including the advance of the
service fee, the total amount paid by the Distributor to the dealer
at the time of sales of Class B shares is therefore 4.00% of the
purchase price. The Distributor retains the Class B asset-based
sales charge.
The Distributor currently pays sales commissions of 0.75% of
the purchase price of Class C shares to dealers from its own
resources at the time of sale. Including the advance of the
service fee, the total amount paid by the Distributor to the dealer
at the time of sale of Class C shares is therefore 1.00% of the
purchase price. 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.
The Distributor's actual expenses in selling Class B and 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 Plans for Class B and Class
C shares. If either Plan is terminated by the Fund, the Board of
Directors may allow the Fund to continue payments of the asset-
based sales charge to the Distributor for distributing shares
before the Plan was terminated. At December 31, 1995, the end of
the class B and Class C Plan year, the Distributor had incurred
unreimbursed expenses under the Class B Plan of $2,467,348 (equal
to 3.40% of the Fund's net assets represented by Class B shares on
that date), and unreimbursed expenses under the Class C Plan of
$46,280 (equal to 2.34% of the Fund's net assets represented by
Class C shares on that date) which have been carried over into the
present Plan year.
Special Investor Services
AccountLink. OppenheimerFunds AccountLink links your Fund account
to your account at your bank or other financial institution to
enable you to send money electronically between those accounts to
perform a number of types of account transactions. These include
purchases of shares by telephone (either through a service
representative or by PhoneLink, described below), automatic
investments under Asset Builder Plans, and sending dividends and
distributions or Automatic Withdrawal Plan payments directly to
your bank account. Please refer to the Application for details or
call the Transfer Agent for more information.
AccountLink privileges should be requested on the Application
you use to buy shares, or on your dealer's settlement instructions
if you buy your shares through your dealer. After your account is
established, you can request AccountLink privileges by sending
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 Oppenheimer fund 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 Oppenheimer fund 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. Automatic Withdrawal Plans are not
advisable for Class B and Class C shares to a contingent deferred
sales charge ("CDSC") unless waivers of the CDSC apply. 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 Oppenheimer funds on a monthly,
quarterly, semi-annual or annual basis under an Automatic Exchange
Plan. The minimum purchase for each other Oppenheimer fund 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 shares of the Fund, you have up to 6 months to reinvest
all or part of the redemption proceeds in Class A shares of the
Fund or other Oppenheimer fund without paying sales charge. This
privilege applies only to Class A shares that you purchased subject
to an initial sales charge and to Class A or Class B shares on
which you paid a contingent deferred sales charge when you redeemed
them. This privilege 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 by selling
(redeeming) some or all of your shares on any regular business day.
Your shares will be sold at the next net asset value calculated
after your order is received and accepted by the Transfer Agent.
The Fund offers you a number of ways to sell your shares: in
writing, by using the Fund's checkwriting privilege or by
telephone. You can also set up Automatic Withdrawal Plans to
redeem shares on a regular basis, as described above. If you have
questions about any of these procedures, and especially if you are
redeeming shares in a special situation, such as due to the death
of the owner, please call the Transfer Agent first, at 1-800-525-
7048, for assistance.
Certain Requests Require a Signature Guarantee. To protect
you and the Fund from fraud, certain redemption requests must be in
writing and must include a signature guarantee in the following
situations (there may be other situations also requiring a
signature guarantee):
You wish to redeem more than $50,000 worth of shares and
receive a check
The 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 account statement
Shares are being transferred to a Fund account with a
different owner or name
Shares are redeemed by someone other than the owners (such
as an Executor)
Where Can I Have My Signature Guaranteed? The Transfer
Agent will accept a guarantee of your signature by a number of
financial institutions, including: a U.S. bank, trust company,
credit union or savings association, or by a foreign bank that has
a U.S. correspondent bank, or by a U.S. registered dealer or broker
in securities, municipal securities or government securities, or by
a U.S. national securities exchange, a registered securities
association or a clearing agency. If you are signing on behalf of
a corporation, partnership or other business or as a fiduciary, you
must also include your title in the signature.
Selling Shares by Mail. Write a "letter of instructions" that
includes:
Your name
The Fund's name
Your Fund account number (from your account statement)
The dollar amount or number of shares to be redeemed
Any special payment instructions
Any share certificates for the shares you are selling
The signatures of all registered owners exactly as the
account is registered, and
Any special requirements or documents requested by the
Transfer Agent to assure proper authorization of the person asking
to sell shares.
Use the following address for requests by mail:
OppenheimerFunds Services
P.O. Box 5270, Denver, Colorado 80217
Send courier or Express Mail requests to:
OppenheimerFunds 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. Please call your dealer representative for more
information about this procedure. 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 transfer to your bank is initiated on the business day after
the redemption. You do not receive dividends on the proceeds of
the shares you redeemed while they are waiting to be transferred.
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 card to establish
Checkwriting in another Oppenheimer fund, 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
Oppenheimer funds 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 of the Fund may be exchanged only
for shares of the same class in the other Oppenheimer funds. For
example, you can exchange Class A shares of this Fund only for
Class A shares of another fund. At present, Oppenheimer Money
Market Fund, Inc. offers only one class of shares, which are
considered Class A shares for this purpose. In some cases, sales
charges may be imposed on exchange transactions. Please refer to
"How to Exchange Shares" in the Statement of Additional Information
for more details.
Exchanges may be requested in writing or by telephone:
Written Exchange Requests. Submit an OppenheimerFunds
Exchange Request form, signed by all owners of the account. Send
it to the Transfer Agent at the addresses listed in "How to Sell
Shares."
Telephone Exchange Requests. Telephone exchange requests may
be made either by calling a service representative at
1-800-852-8457, or by using PhoneLink for automated exchanges by
calling 1-800-533-3310. Telephone exchanges may be made only
between accounts that are registered with the same name(s) and
address. Shares held under certificates may not be exchanged by
telephone.
You can find a list of Oppenheimer funds currently available
for exchanges in the Statement of Additional Information or obtain
one by calling a service representative at 1-800-525-7048. That
list can change from time to time.
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 the 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, which is
normally 4:00 P.M. but may be earlier on some days, on each day the
Exchange is open by dividing the value of the Fund's net assets
attributable to a class by the number of shares of that class that
are outstanding. The Fund's Board of Trustees has established
procedures to value the Fund's securities to determine net asset
value. In general, securities values are based on market value.
There are special procedures for valuing illiquid and restricted
securities 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 the Transfer Agent 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 to have your
bank provide telephone or written assurance to the Transfer Agent
that your purchase payment has cleared.
Involuntary redemptions of small accounts may be made by the
Fund if the account value has fallen below $200 for any reason
other than 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 income.
The Fund does not charge a redemption fee, but if your
dealer or broker handles your redemption, they may charge a fee.
That fee can be avoided by redeeming your Fund shares directly
through the Transfer Agent. Under the circumstances described in
"How to Buy Shares," you may be subject to a contingent deferred
sales charges when redeeming certain Class A, 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.
Transfer Agent and Shareholder Servicing Agent. The transfer
agent and shareholder servicing agent is OppenheimerFunds Services.
Unified Management Corporation (1-800-346-4601) is the shareholder
servicing agent for former shareholders of the AMA Family of Funds
and clients of AMA Investment Advisers, L.P. who owned shares of
the Former Quest For Value Fund when it merged into the Fund on
November 24, 1995.
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
or about the tenth business day of each month, but the Board of
Trustees can change that date. It is expected that distributions
paid with respect to Class A shares will generally be higher than
for Class B and Class C shares because expenses allocable to Class
B and Class C shares will generally be higher.
The Fund has adopted the practice, to the extent consistent
with the amount of the Fund's net investment income and other
distributable income, of attempting to pay dividends on Class A
shares at a constant level, although the amount of such dividends
may be subject to change from time to time depending on market
conditions, the composition of the Fund's portfolio and expenses
borne by the Fund or borne separately by that Class. The practice
of attempting to pay dividends on Class A shares at a constant
level requires the Manager, consistent with the Fund's investment
objective and investment restrictions, to monitor the Fund's
portfolio and select higher yielding securities when deemed
appropriate to maintain necessary net investment income levels.
The Fund anticipates paying dividends at the targeted dividend
level from net investment income and other distributable income
without any impact on the Fund's net asset value per share. The
Board of Trustees may change the Fund's targeted dividend level at
any time, without prior notice to shareholders; the Fund does not
otherwise have a fixed dividend rate and there can be no assurance
as to the payment of any dividends or the realization of any
capital gains.
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 Oppenheimer fund
Account. You can reinvest all distributions in another Oppenheimer
fund 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. Whether you reinvest your distributions in additional
shares or take them in cash, the tax treatment is the same. Every
year the Fund will send you and the IRS a statement showing the
amount of any taxable distribution you received in the previous
year as well as the amount of your tax-exempt income.
"Buying a Dividend". When a fund goes ex-dividend, its
share price is reduced by the amount of the distribution. If you
buy shares on or just before the ex-dividend date, 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. Share redemptions, including
redemptions for exchanges, are subject to capital gains tax. 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
received when you sold them. Any capital gain is subject to
capital gains tax.
Returns of Capital. In certain cases, distributions made
by the Fund may be considered a non-taxable return of capital to
shareholders. If that occurs, it will be identified in notices to
shareholders. A non-taxable return of capital may reduce your tax
basis in your Fund shares.
This information is only a summary of certain federal tax
information about your investment. More information is contained
in the Statement of Additional Information, and in addition you
should consult with your tax adviser about the effect of an
investment in the Fund on your particular tax situation.
<PAGE>
<PAGE>
APPENDIX A
Special Sales Charge Arrangements for Shareholders of the Fund
Who Were Shareholders of the Former Quest for Value Funds
The initial and contingent deferred sales charge rates and waivers
for Class A, Class B and Class C shares of the Fund described
elsewhere in this Prospectus are modified as described below for
those shareholders of (i) Quest for Value Fund, Inc., Quest for
Value Growth and Income Fund, Quest for Value Opportunity Fund,
Quest for Value Small Capitalization Fund and Quest for Value
Global Equity Fund, Inc. on November 24, 1995, when
OppenheimerFunds, Inc. became the investment adviser to those
funds, and (ii) Quest for Value U.S. Government Income Fund, Quest
for Value Investment Quality Income Fund, Quest for Value Global
Income Fund, Quest for Value New York Tax-Exempt Fund, Quest for
Value National Tax-Exempt Fund and Quest for Value California Tax-
Exempt Fund when those funds merged into various Oppenheimer funds
on November 24, 1995. The funds listed above are referred to in
this Prospectus as the "Former Quest for Value Funds." The waivers
of initial and contingent deferred sales charges described in this
Appendix apply to shares of the Fund (i) acquired by such
shareholder pursuant to an exchange of shares of one of the
Oppenheimer funds that was one of the Former Quest for Value Funds
or (ii) received by such shareholder pursuant to the merger of any
of the Former Quest for Value Funds into an Oppenheimer fund on
November 24, 1995.
Class A Sales Charges
Reduced Class A Initial Sales Charge Rates for Certain Former
Quest Shareholders
Purchases by Groups and Associations. The following table
sets forth the initial sales charge rates for Class A shares
purchased by members of "Associations" formed for any purpose other
than the purchase of securities if that Association purchased
shares of any of the Former Quest for Value Funds or received a
proposal to purchase such shares from OCC Distributors prior to
November 24, 1995.
<PAGE>
Front-End Front-End Commission
Sales Charge Sales Charge as
as a as a Percentage
Number of Percentage Percentage of
Eligible Employees of Offering of Amount Offering
or Members Price Invested Price
- -----------------------------------------------------------------
9 or fewer 2.50% 2.56% 2.00%
- -----------------------------------------------------------------
At least 10 but not
more than 49 2.00% 2.04% 1.60%
For purchases by Associations having 50 or more eligible
employees or members, there is no initial sales charge on purchases
of Class A shares, but those shares are subject to the Class A
contingent deferred sales charge described on pages 28 and 29 of
this Prospectus.
Purchases made under this arrangement qualify for the lower of
the sales charge rate in the table based on the number of members
of an Association or the sales charge rate that applies under the
Rights of Accumulation described above in the Prospectus.
Individuals who qualify under this arrangement for reduced sales
charge rates as members of Associations also may purchase shares
for their individual or custodial accounts at these reduced sales
charge rates, upon request to the Fund's Distributor.
Special Class A Contingent Deferred Sales Charge Rates. The
contingent deferred sales charge applicable to Class A shares of
the Fund has been waived with respect to those shares of the Fund
issued in the reorganization on November 24, 1995 for shares of
Quest for Value National Tax-Exempt Fund. Class A shares of the
Fund purchased by exchange of shares of other Oppenheimer funds
that were acquired as a result of the merger of Former Quest for
Value Funds into those Oppenheimer funds, and which shares were
subject to a Class A contingent deferred sales charge prior to
November 24, 1995 will be subject to a contingent deferred sales
charge at the following rates: if they are redeemed within 18
months of the end of the calendar month in which they were
purchased, at a rate equal to 1.0% if the redemption occurs within
12 months of their initial purchase and at a rate of 0.50 of 1.0%
if the redemption occurs in the subsequent six months. Class A
shares of any of the Former Quest for Value Funds purchased without
an initial sales charge on or before November 22, 1995 will
continue to be subject to the applicable contingent deferred sales
charge in effect as of that date as set forth in the then-current
prospectus for such fund.
Waiver of Class A Sales Charges for Certain Shareholders. Class
A shares of the Fund purchased by the following investors are not
subject to any Class A initial or contingent deferred sales
charges:
Shareholders of the Fund who were shareholders of the AMA
Family of Funds on February 28, 1991 and who acquired shares of any
Former Quest for Value Fund by merger of a portfolio of the AMA
Family of Funds.
Shareholders of the Fund who acquired shares of any Former
Quest for Value Fund by merger of any of the portfolios of the
Unified Funds.
Waiver of Class A Contingent Deferred Sales Charge in Certain
Transactions. The Class A contingent deferred sales charge will
not apply to redemptions of Class A shares of the Fund purchased by
the following investors who were shareholders of any Former Quest
for Value Fund:
Investors who purchased Class A shares from a dealer that is
or was not permitted to receive a sales load or redemption fee
imposed on a shareholder with whom that dealer has a fiduciary
relationship under the Employee Retirement Income Security Act of
1974 and regulations adopted under that law.
Class A, Class B and Class C Contingent Deferred Sales Charge
Waivers
Waivers for Redemptions of Shares Purchased Prior to March 6,
1995. In the following cases, the contingent deferred sales charge
will be waived for redemptions of Class A, Class B or Class C
shares of the Fund acquired by merger of a Former Quest for Value
Fund into the Fund or by exchange from an Oppenheimer fund that was
a Former Quest for Value Fund or into which such fund merged, if
those shares were purchased prior to March 6, 1995 in connection
with: (i) withdrawals under an automatic withdrawal plan holding
only either Class B or Class C shares if the annual withdrawal does
not exceed 10% of the initial value of the account, and
(ii) liquidation of a shareholder's account if the aggregate net
asset value of shares held in the account is less than the required
minimum value of such accounts.
Waivers for Redemptions of Shares Purchased on or After March 6,
1995 but Prior to November 24, 1995. In the following cases, the
contingent deferred sales charge will be waived for redemptions of
Class A, Class B or Class C shares of the Fund acquired by merger
of a Former Quest for Value Fund into the Fund or by exchange from
an Oppenheimer fund that was a Former Quest For Value Fund or into
which such fund merged, if those shares were purchased on or after
March 6, 1995, but prior to November 24, 1995: (1) redemptions
following the death or disability of the shareholder(s) (as
evidenced by a determination of total disability by the U.S. Social
Security Administration); (2) withdrawals under an automatic
withdrawal plan (but only for Class B or C shares) where the annual
withdrawals do not exceed 10% of the initial value of the account;
and (3) liquidation of a shareholder's account if the aggregate net
asset value of shares held in the account is less than the required
minimum account value. A shareholder's account will be credited
with the amount of any contingent deferred sales charge paid on the
redemption of any Class A, Class B or Class C shares of the Fund
described in this section if within 90 days after that redemption,
the proceeds are invested in the same Class of shares in this Fund
or another Oppenheimer fund.
<PAGE>
<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, (ii) Class B
shares of the Fund for the period March 16, 1993 (commencement of
class) to December 31, 1995, and (iii) Class C shares of the Fund
for the period August 29, 1995 (commencement of the class) to
December 31, 1995, and comparing such values with the same
investments over the same time periods in the Lehman Brothers
Municipal Bond Index. Set forth below are the relevant data points
that will appear on the linear graph. Additional information with
respect to the foregoing, including a description of the Lehman
Brothers Municipal Bond Index, is set forth in the Prospectus under
"Fund Information - Management's Discussion of Performance."
Oppenheimer Lehman Brothers
Fiscal Year Tax-Free Bond Fund Municipal Bond Index
(Period) Ended Class A Shares Bond Index
12/31/85 $ 9,525 $10,000
12/31/86 $11,406 $11,932
12/31/87 $11,406 $12,112
12/31/88 $12,492 $13,343
12/31/89 $13,674 $14,782
12/31/90 $14,476 $15,860
12/31/91 $16,232 $17,786
12/31/92 $17,667 $19,352
12/31/93 $20,048 $21,729
12/31/94 $18,196 $20,606
12/31/95 $21,596 $24,203
Oppenheimer Lehman Brothers
Fiscal Year Tax-Free Bond Fund Municipal Bond Index
(Period) Ended Class B Shares Bond Index
03/16/93 $10,000 $10,000
12/31/93 $10,821 $10,826
12/31/94 $ 9,744 $10,266
12/31/95 $11,171 $12,058
Oppenheimer Lehman Brothers
Fiscal Year Tax-Free Bond Fund Municipal Bond Index
(Period) Ended Class C Shares Bond Index
08/29/95 $10,000 $10,000
12/31/95 $10,464 $10,478
<PAGE>
Oppenheimer Tax-Free Bond Fund
Two World Trade Center
New York, New York 10048-0203
Investment Adviser
OppenheimerFunds, Inc.
Two World Trade Center
New York, New York 10048-0203
Distributor
OppenheimerFunds Distributor, Inc.
Two World Trade Center
New York, New York 10048-0203
Transfer Agent
OppenheimerFunds 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, OppenheimerFunds, Inc., OppenheimerFunds 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.
PR0310.001.0496 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 April 20, 1996
This Statement of Additional Information is not a Prospectus.
This document contains additional information about the Fund and
supplements information in the Prospectus dated April 20, 1996. It
should be read together with the Prospectus, which may be obtained
by writing to the Fund's Transfer Agent, OppenheimerFunds Services,
at P.O. Box 5270, Denver, Colorado 80217 or by calling the Transfer
Agent at the toll-free number shown above.
Contents
Page
About the Fund
Investment Objective and Policies. . . . . . . . . . . . . . . . . . . . .2
Investment Policies and Strategies. . . . . . . . . . . . . . . . . . .2
Other Investment Techniques and Strategies. . . . . . . . . . . . . . .7
Other Investment Restrictions . . . . . . . . . . . . . . . . . . . . 15
How the Fund is Managed. . . . . . . . . . . . . . . . . . . . . . . . . 17
Organization and History. . . . . . . . . . . . . . . . . . . . . . . 17
Trustees and Officers of the Fund . . . . . . . . . . . . . . . . . . 18
The Manager and Its Affiliates. . . . . . . . . . . . . . . . . . . . 23
Brokerage Policies of the Fund . . . . . . . . . . . . . . . . . . . . . 24
Performance of the Fund. . . . . . . . . . . . . . . . . . . . . . . . . 26
Distribution and Services Plans. . . . . . . . . . . . . . . . . . . . . 31
About Your Account
How To Buy Shares. . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
How To Sell Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
How to Exchange Shares . . . . . . . . . . . . . . . . . . . . . . . . . 43
Dividends, Capital Gains and Taxes . . . . . . . . . . . . . . . . . . . 46
Additional Information About the Fund. . . . . . . . . . . . . . . . . . 48
Financial Information About the Fund
Independent Auditors' Report . . . . . . . . . . . . . . . . . . . . . . 49
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Appendix A: Municipal Bond Ratings . . . . . . . . . . . . . . . . . . .A-1
Appendix B: Tax-Equivalent Yield Table . . . . . . . . . . . . . . . . .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 may invest, 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 used in the
Prospectus.
The Fund will not make investments with the objective of
seeking capital growth. However, the value of the securities held
by the Fund may be affected by changes in general interest rates.
Because the current value of debt securities varies inversely with
changes in prevailing interest rates, if interest rates increase
after a security is purchased, that security would normally decline
in value. Conversely, should interest rates decrease after a
security is purchased, normally its value would rise. However,
those fluctuations in value will not generally result in realized
gains or losses to the Fund since the Fund does not usually intend
to dispose of securities prior to their maturity. A debt security
held to maturity is redeemable by its issuer at full principal
value plus accrued interest. To a limited degree, the Fund may
engage in short-term trading to attempt to take advantage of short-
term market variations, or may dispose of a portfolio security
prior to its maturity if, on the basis of a revised credit
evaluation of the issuer or other considerations, the Fund believes
such disposition advisable or it needs to generate cash to satisfy
redemptions. In such cases, the Fund may realize a capital gain or
loss. The annual rate of portfolio turnover is not expected to
exceed 100%.
There are, of course, variations in the security of Municipal
Securities, both within a particular classification and between
classifications, depending on numerous factors. The yields of
Municipal Securities depend on, among other things, general
conditions of the Municipal Securities market, size of a particular
offering, the maturity of the obligation and rating of the issue.
Municipal Securities. The types of Municipal Securities in which
the Fund may invest are described in the Prospectus under "The Fund
and its Investment Policies." A discussion of the general
characteristics of types of Municipal Securities follows below.
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 other 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.
Municipal Lease Obligations. While some municipal lease
obligations purchased by the Fund may be deemed to be illiquid
securities (the purchases of which will be limited as described in
the Prospectus), 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. 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. Projects financed with certificates of participation
generally are not subject to state constitutional debt limitations
or other statutory requirements that may be applicable to Municipal
Securities. Payments by the public entity on the obligation
underlying the certificates are derived from available revenue
sources; such revenue may be diverted to the funding of other
municipal service projects. Payments of interest and/or principal
with respect to the certificates are not guaranteed and do not
constitute an obligation of a state or any of its political
subdivisions.
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.
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 Fund's investment manager, OppenheimerFunds, Inc. (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.
Inverse Floaters and Other Derivative Investments. Some
inverse floaters have a feature known as an interest rate "cap" as
part of the terms of the investment. Investing in inverse floaters
that have interest rate caps might be part of a portfolio strategy
to try to maintain a high current yield for the Fund when the Fund
has invested in inverse floaters that expose the Fund to the risk
of short-term interest rate fluctuation. Embedded caps hedge a
portion of the Fund's exposure to rising interest rates. When
interest rates exceed the pre-determined rate, the cap generates
additional cash flows that offset the decline in interest rates on
the inverse floater, and the hedge is successful. However, the
Fund bears the risk that if interest rates do not rise above the
pre-determined rate, the cap (which is purchased for additional
cost) will not provide additional cash flows and will expire
worthless.
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 does 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. Ratings by Moody's, S&P
and Fitch (see Appendix A) represent their respective opinions of
the quality of the Municipal Securities they undertake to rate.
However, such ratings are general and are not absolute standards of
quality. Consequently, Municipal Securities with the same maturity,
coupon and rating may have different yields, while Municipal
Securities of the same maturity and coupon with different ratings
may have the same yield. Investment in lower quality securities
may produce a higher yield than securities rated in the higher
rating categories described in the Prospectus (or judged by the
Manager to be of comparable quality). However, the added risk of
lower quality securities might not be consistent with a policy of
preservation of capital.
Subsequent to its purchase by the Fund, a Municipal Security
may cease to be rated or its rating may be reduced below the
minimum required for purchase by the Fund. Neither event requires
the Fund to sell the security, but the Manager will consider such
events in determining whether the Fund should continue to hold the
security. To the extent that ratings given by Moody's, Standard &
Poor's, or Fitch change as a result of changes in such
organizations or their rating systems, the Fund will attempt to use
comparable ratings as standards for investments in accordance with
the Fund's investment policies.
Other Investment Techniques and Strategies
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 identify to its Custodian 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.
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.
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.
Illiquid and Restricted Securities. The Fund has percentage
limitations that apply to purchases of restricted and illiquid
securities, as stated in the Prospectus. Those percentage
restrictions do not limit purchases of restricted securities that
are eligible for sale to qualified institutional purchasers
pursuant to Rule 144A under the Securities Act of 1933, provided
that those securities have been determined to be liquid by the
Board of Trustees of the Fund or by the Manager under Board-
approved guidelines. Those guidelines take into account the
trading activity for such securities and the availability of
reliable pricing information, among other factors. If there is a
lack of trading interest in a particular Rule 144A security, the
Fund's holding of that security may be deemed to be illiquid.
Loans of Portfolio Securities. The Fund may lend its
portfolio securities subject to the restrictions stated in the
Prospectus. Under applicable regulatory requirements (which are
subject to change), the loan collateral 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, 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 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 pay
reasonable finder's, administrative or other 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.
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.
The Fund may also write calls on Futures without owning a
futures contract or deliverable securities, provided that at the
time the call is written, the Fund covers the call by segregating
in escrow an equivalent dollar value of liquid assets. The Fund
will segregate additional liquid assets if the value of the
escrowed assets drops below 100% of the current value of the
Future. In no circumstances would an exercise notice as to that
Future put the Fund in a short futures position.
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 a specific type of debt security or cash
to settle the futures transaction, or to enter into an offsetting
contract. Upon entering into a Futures transaction, the Fund will
be required to deposit an initial margin payment in cash or U.S.
Treasury bills, with the futures commission merchant (the "futures
broker"). Initial margin payments will be deposited with the
Fund's Custodian in an account registered in the futures broker's
name; however, the futures broker can gain access to that account
only under certain specified conditions. As the Future is marked
to market to reflect changes in its market value, (that is, its
value on the Fund's books is changed) subsequent margin payments,
called variation margin, will be paid to or by the futures broker
on a daily basis.
The Fund may concurrently buy and sell Futures contracts in an
attempt to benefit from any outperformance of the Future purchased
relative to the performance of the Future sold. For example, the
Fund might buy Municipal Bond Futures and sell U.S. Treasury Bond
Futures (a type of Interest Rate Future). This type of transaction
would generally be profitable to the Fund if municipal bonds
outperform U.S. Treasury bonds after duration has been considered.
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%. Risks of
this type of Futures transaction, using the example above, would
include (1) outperformance of U.S. Treasuries relative to municipal
bonds, on a duration-adjusted basis, and (2) duration mismatch,
with duration of municipal bonds relative to U.S. Treasuries being
greater than anticipated.
Upon entering into a Futures transaction, the Fund will be
required to deposit an initial margin payment, in cash or U.S.
Treasury bills, with the futures commission merchant (the "futures
broker"). Initial margin payments will be deposited with the
Fund's Custodian in an account registered in the future broker's
name; however, the futures broker can gain access to that account
only under certain specified conditions. As the Future is marked
to market (that is, its value on the Fund's books is changed) to
reflect changes in its market value, subsequent margin payments,
called variation margin, will be paid to or by the futures broker
on a daily basis.
At any time prior to the expiration of the Future, the Fund
may elect to close out its position by taking an opposite position
at which time a final determination of variation margin is made and
additional cash is required to be paid by or released to the Fund.
Any gain or loss is then realized by the Fund on the Future for tax
purposes. Although Interest Rate Futures by their terms call for
settlement by the delivery of debt securities, in most cases the
obligation is fulfilled without such delivery by entering into an
offsetting transaction. All futures transactions are effected
through a clearing house associated with the exchange on which the
contracts are traded.
The Fund's option activities may affect its portfolio turnover
rate and brokerage commissions. The exercise of calls written by
the Fund may cause the Fund to sell related portfolio securities,
thus increasing its turnover rate. The exercise by the Fund of
puts on securities will cause the sale of underlying investments,
increasing portfolio turnover. Although the decision whether to
exercise a put it holds is within the Fund's control, holding a put
might cause the Fund to sell the related investments for reasons
that would not exist in the absence of the put. The Fund will pay
a brokerage commission each time it buys or sell a call, or an
underlying investment in connection with the exercise of a put or
call. Those commissions may be higher than the commissions for
direct purchases or sales of the underlying investments.
Premiums paid for options are small in relation to the market
value of the underlying investments and, consequently, put and call
options offer large amounts of leverage. The leverage offered by
trading in options could result in the Fund's net asset value being
more sensitive to changes in the value of the underlying
investments.
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).
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.
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.
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 initial 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 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 Covered Calls and Hedging Instruments. The
Fund intends to qualify as a "regulated investment company" under
the Internal Revenue Code (although it reserves the right not to
qualify). One of the tests for such qualification is that less
than 30% of its gross income must be derived from gains realized on
the sale of securities held for less than three months. To comply
with this 30% cap, the Fund will limit the extent to which it
engages in the following activities, but will not be precluded from
them: (i) selling investments, including Interest Rate Futures and
Municipal Bond Index Futures, held for less than three months,
whether or not they were purchased on the exercise of a call held
by the Fund; (ii) writing calls on investments held less than three
months; (iii) purchasing calls or puts which expire in less than
three months; (iv) effecting closing transactions with respect to
calls or puts purchased less than three months previously; and (v)
exercising puts or calls held by the Fund for less than three
months.
Risks of Hedging with Options and Futures. In addition to
the risks associated with hedging discussed in the Prospectus and
above, there is a risk in using short hedging by (i) selling
Interest Rate Futures and Municipal Bond Index Futures of (ii)
purchasing puts on municipal bond indices or Futures to attempt to
protect against declines in the value of the Fund's securities.
The risk is that the prices of such Futures or the applicable index
will correlate imperfectly with the behavior of the cash (i.e.,
market value) prices of the Fund's securities. The ordinary
spreads between prices in the cash and futures markets are subject
to distortions due to differences in the natures of those markets.
First, all participants in the futures 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 Fund's most significant investment restrictions are
described in the Prospectus. The following investment restrictions
are fundamental policies of the Fund. Fundamental policies,
including the Fund's investment objective, 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 do any of
the following:
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;
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;
make short sales of securities;
underwrite securities or invest in securities subject to
restrictions on resale;
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;
invest in securities of any other investment company, except
in connection with a merger with another investment company; or
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 the restrictions on investing in any
"issuer" above and 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.
For purposes of the Fund's policy not to concentrate its
assets, described in the Prospectus, the Fund has adopted the
industry classifications set forth in Appendix C to this Statement
of Additional Information. These industry classifications are not
a fundamental policy. In applying the Fund's policy not to
concentrate its assets, 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. Neither of these are fundamental policies, and
therefore, either 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.
How the Fund Is Managed
Organization and History. As a Massachusetts business trust, the
Fund is not required to hold, and does not plan to hold, regular
annual meetings of shareholders. The Fund will hold meetings when
required to do so by the Investment Company Act or other applicable
law, or when a shareholder meeting is called by the Trustees or
upon proper request of the shareholders. Shareholders have the
right, upon the declaration in writing or vote of two-thirds of the
outstanding shares of the Fund, to remove a Trustee. The Trustees
will call a meeting of shareholders to vote on the removal of a
Trustee upon the written request of the record holders of 10% of
its outstanding shares. In addition, if the Trustees receive a
request from at least 10 shareholders (who have been shareholders
for at least six months) holding shares of the Fund valued at
$25,000 or more or holding at least 1% of the Fund's outstanding
shares, whichever is less, stating that they wish to communicate
with other shareholders to request a meeting to remove a Trustee,
the Trustees will then either make the Fund's shareholder list
available to the applicants or mail their communication to all
other shareholders at the applicants' expense, or the Trustees may
take such other action as set forth under Section 16(c) of the
Investment Company Act.
The Fund's Declaration of Trust contains an express disclaimer
of shareholder or Trustee liability for the Fund's obligations, and
provides for indemnification and reimbursement of expenses out of
its property for any shareholder held personally liable for its
obligations. The Declaration of Trust also provides that the Fund
shall, upon request, assume the defense of any claim made against
any shareholder for any act or obligation of the Fund and satisfy
any judgment thereon. Thus, while Massachusetts law permits a
shareholder of a business trust (such as the Fund) to be held
personally liable as a "partner" under certain circumstances, the
risk of a Fund shareholder incurring financial loss on account of
shareholder liability is limited to the relatively remote
circumstances in which the Fund would be unable to meet its
obligations described above. Any person doing business with the
Trust, and any shareholder of the Trust, agrees under the Trust's
Declaration of Trust to look solely to the assets of the Trust for
satisfaction of any claim or demand which may arise out of any
dealings with the Trust, and the Trustees shall have no personal
liability to any such person, to the extent permitted by law.
Trustees and Officers of the Fund. The Fund's Trustees and
officers and their principal occupations and business affiliations
during the past five years are listed below. The address of each
Trustee and officer is Two World Trade Center, New York, New York
10048-0203, unless another address is listed below. All of the
Trustees are also trustees or directors of Oppenheimer Fund,
Oppenheimer Money Market Fund, Inc., Oppenheimer Enterprise Fund,
Oppenheimer Growth Fund, Oppenheimer New York Tax-Exempt Fund,
Oppenheimer California Tax-Exempt Fund, Oppenheimer Multi-State
Tax-Exempt Trust, Oppenheimer Global Fund, Oppenheimer U.S.
Government Trust, Oppenheimer Gold & Special Minerals Fund,
Oppenheimer Target Fund, Oppenheimer Asset Allocation Fund,
Oppenheimer International Growth 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 Oppenheimer funds"). Ms. Macaskill and Messrs. Spiro,
Donohue, Bowen, Zack, Bishop and Farrar respectively, hold the same
offices with the other New York-based Oppenheimer funds as with the
Fund. As of April 1, 1996, 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 plan one the Trustees of the
Fund listed below, Ms. Macaskill, and one of the officers, Mr.
Donohue, are trustees of that plan), 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: 70
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).
Robert G. Galli, Trustee*; Age: 62
Vice Chairman of OppenheimerFunds, Inc. (the "Manager") and
Vice President and Counsel of Oppenheimer Acquisition Corp.
("OAC"), the Manager's parent holding company; formerly he
held the following positions: Executive Vice President and
General Counsel of the Manager and OppenheimerFunds
Distributor, Inc. (the "Distributor"), a director of the
Manager and the Distributor, Vice President and a director of
HarbourView Asset Management Corporation ("HarbourView") and
Centennial Asset Management Corporation ("Centennial"),
investment adviser subsidiaries of the Manager, a director of
Shareholder Financial Services, Inc. ("SFSI") and Shareholder
Services, Inc. ("SSI"), transfer agent subsidiaries of the
Manager and an officer of other Oppenheimer funds.
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.
Bridget A. Macaskill, President and Trustee*; Age: 47
President, Chief Executive Officer and a Director of the
Manager, Chairman and a Director of SSI, Vice President and a
Director of OAC and HarbourView; a Director of Oppenheimer
Partnership Holdings, Inc., a holding company subsidiary of
the Manager; formerly an Executive Vice President of the
Manager.
Elizabeth B. Moynihan, Trustee; Age: 66
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; a member of 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
Chairman of Municipal Assistance Corporation for the city of
New York; Senior Fellow 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: 64
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: 84
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, Vice Chairman and Trustee*; Age: 70
Chairman Emeritus and a director of the Manager; formerly
Chairman of the Manager and the Distributor.
Pauline Trigere, Trustee; Age: 83
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: 65
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), and Texas Instruments,
Inc. (electronics); 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: 52
Senior Vice President of the Manager; an officer of other
Oppenheimer funds.
Jerry Webman, Vice President and Portfolio Manager; Age: 46
Senior Vice President of the Manager; an officer of other
Oppenheimer funds; previously an officer and analyst with
Prudential Mutual Funds -- Investment Management, Inc..
Andrew J. Donohue, Secretary; Age: 45
Executive Vice President and General Counsel of the Manager
and the Distributor; President and a director of Centennial;
an officer of other Oppenheimer funds; 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: 59
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 Oppenheimer funds.
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 Oppenheimer funds.
Robert Bishop, Assistant Treasurer; Age: 37
3410 South Galena Street, Denver, Colorado 80231
Assistant Vice President of the Manager/Mutual Fund
Accounting; an officer of other Oppenheimer funds; 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: 30
3410 South Galena Street, Denver, Colorado 80231
Assistant Vice President of the Manager/Mutual Fund
Accounting; an officer of other Oppenheimer funds; previously
a Fund Controller for the Manager, prior to which he was an
International Mutual Fund Supervisor for Brown Brothers
Harriman & Co., a bank, and previously a Senior Fund
Accountant for State Street Bank & Trust Company.
[FN]
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*A Trustee who is an "interested person" of the Fund as defined in
the Investment Company Act.
Remuneration of Trustees. The officers of the Fund are
affiliated with the Manager; they and the Trustees of the Fund who
are affiliated with the Manager (Ms. Macaskill and Messrs. Galli
and Spiro; Ms. Macaskill and Mr. Spiro are also an officers)
receive no salary or fee from the Fund. The Trustees of the Fund
(including Mr. Cherne, a former Trustee but excluding Ms. Macaskill
and Messrs. Galli and Spiro) received the total amounts shown below
(i) from the Fund during its fiscal year ended December 31, 1995,
and (ii) from all 18 of the New York-based Oppenheimer funds
(including the Fund) listed in the first paragraph of this section
(and from Oppenheimer Time Fund and Oppenheimer Mortgage Income
Fund which ceased operations following the acquisition of their
assets by certain other Oppenheimer funds), 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 Oppenheimer funds1
<S> <C> <C> <C>
Leon Levy, Chairman and Trustee $12,822 $24,568 $141,000.00
Benjamin Lipstein, $7,839 $15,020 $ 86,200.00
Study Committee
Member and Trustee
Elizabeth B. Moynihan, $7,839 $15,020 $ 86,200.00
Study Committee
Member and Trustee
Kenneth A. Randall, $7,130 $13,661 $ 78,400.00
Audit Committee Member
and Trustee
Edward V. Regan, $6,257 $11,988 $ 68,800.00
Audit Committee
Member2 and Trustee
Russell S. Reynolds, Jr., Trustee $4,738 $9,078 $ 52,100.00
Sidney M. Robbins, Study $11,104 $21,275 $122,100.00
Committee Chairman, Audit
Committee Vice-Chairman
and Trustee
Pauline Trigere, Trustee $4,738 $9,078 $ 52,100.00
Clayton K. Yeutter, Trustee $4,738 $9,078 $ 52,100.00
</TABLE>
[FN]
- ----------------------------
1For the 1995 calendar year.
2Committee position held during a portion of the period shown. The
Study and Audit Committees meet for all of the New York-based
Oppenheimer Funds and the fees are allocated among the funds by the
Board.
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 Oppenheimer funds
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. During the fiscal year ended
December 31, 1995, $49,149 was accrued for the Fund's projected
retirement benefit obligations. A payment of $2,280 was made by
the Fund to retired Trustees during the fical year ended December
31, 1995.
Major Shareholders. As of April 1, 1996, 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, except Merrill Lynch Pierce Fenner & Smith Inc.,
4800 Deer Lake Drive East, Floor 3, Jacksonville, Florida 32246,
which owned of record 478,888.261 Class B shares (approximately
6.15% of the Class B shares then outstanding) and 204,923 Class C
shares (approximately 70.91% of the Class C shares then
outstanding) and Marian F. Wilkie, 2821 Ellis Street, Bellingham,
Washington 98225-2624 who owned 16,800.869 Class C shares
(approximately 5.81% of the Class C shares then outstanding).
The Manager and Its Affiliates
The Manager is wholly-owned by Oppenheimer Acquisition Corp.
("OAC"), a holding company controlled by Massachusetts Mutual Life
Insurance Company. OAC is also owned in part by certain of the
Manager's directors and officers, some of whom may also serve as
officers of the Fund, and three of whom (Ms. Macaskill and Messrs.
Galli and Spiro) serve as Trustees 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 between the
Fund and the Manager requires the Manager, at its expense, to
provide the Fund with adequate office space, facilities and
equipment, and to provide and supervise the activities of all
administrative and clerical personnel required to provide effective
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
Investment Advisory Agreement or by the Distributor under the
General Distributor's Agreement are paid by the Fund. The
Investment 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.
The Investment Advisory Agreement contains no provision
limiting the Fund's expenses. However, independently of the
Investment Advisory Agreement, the Manager has voluntarily
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. For the fiscal
years ended December 31, 1993, 1994 and 1995, the management fees
paid by the Fund to the Manager were $3,113,588, $3,329,317 and
$3,351,982, respectively.
The Investment 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
Investment Advisory Agreement permits the Manager to act as
investment adviser for any other person, firm or corporation and to
use the name "Oppenheimer" in connection with other investment
companies for which it may act as investment adviser or general
distributor. If the Manager shall no longer act as investment
adviser to the Fund, the right of the Fund to use the name
"Oppenheimer" as part of its name may be withdrawn.
The 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, excluding payments under the Distribution and Service Plans
but including advertising and the cost of printing and mailing
prospectuses (other than those furnished to existing shareholders),
are borne by the Distributor. During the fiscal years ended
December 31, 1993, 1994 and 1995, the aggregate sales charges on
sales of the Fund's Class A shares were $4,020,669, $1,907,642 and
$997,010, respectively, of which the Distributor and an affiliated
broker-dealer retained in the aggregate $1,150,057, $543,625 and
$303,595 in those respective years. During the fiscal year ended
December 31, 1995, the contingent deferred sales charges collected
on Class B shares totaled $252,678, all of which the Distributor
retained. Class C shares were publicly offered only during a
portion of the fiscal year end December 31, 1995, commencing August
29, 1995. The contingent deferred sales charge collected during
such period totaled $1,167, all of which was retained by the
Distributor. 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. The Fund's Transfer Agent,
OppenheimerFunds Services, a division of the Manager, 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 Investment Investment Advisory
Agreement is to arrange the portfolio transactions for the Fund.
The Investment 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 Investment 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 Investment 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 Investment 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
Investment 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 or for broker's own inventory, (ii)
the trade was executed by the broker on an agency basis at the
stated commission, and (iii) the trade is not a riskless principal
transaction.
The 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 Investment 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
Yield and Total Return Information. 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.
The Fund's advertisement of its performance must, under
applicable SEC rules, include the average annual total returns for
each advertised 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 returns 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
allocated to a particular class.
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, 1995,
the standardized yields for the Fund's Class A, Class B and Class
C shares were 4.50%, 3.93% and 3.91%, 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 B 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, 1995, the Fund's tax-equivalent yield for an
individual in the 39.6% Federal tax bracket for its Class A, Class
B and Class C shares was 7.45%, 6.51% and 6.47%, respectively.
Dividend Yield and Distribution Return. From time to time
the Fund may quote a "dividend yield" or a "distribution return"
for each class. Dividend yield is based on the Class A, 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, 1995, were 5.17% and 5.43% when calculated at
maximum offering price and at net asset value, respectively. The
dividend yield on Class B and Class C shares for the 30-day period
ended December 31, 1995 were 4.69% and 4.66% when calculated at net
asset value, respectively.
Total Return Information.
Average Annual Total Returns. The "average annual total
return" of each class is an average annual compounded rate of
return for each year in a specified number of years. It is the
rate of return based on factors which include a hypothetical
initial investment of $1,000 ("P" in the formula below) held for a
number of years ("n") with an Ending Redeemable Value ("ERV") of
that investment, according to the following formula:
1/n
(ERV)
(---) -1 = Average Annual Total Return
( P )
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, payment of the 1.0%
contingent deferred sales charge is applied for the first year, as
described in the Prospectus. Total returns also assume that all
dividends and capital gains distributions during the period are
reinvested to buy additional shares at net asset value per share,
and that the investment is redeemed at the end of the period.
The "average annual total returns" on an investment in Class
A shares of the Fund for the one, five and ten year periods ended
December 31, 1995 were 12.66%, 7.17% and 8.00%, respectively. The
"average annual total returns" on an investment in Class B shares
of the Fund for the one year period ended December 31, 1995 and for
the period from March 16, 1993 (commencement of offering) through
December 31, 1995 were 12.30% and 4.05%, respectively.
The cumulative "total return" on Class A shares for the ten
year period ended December 31, 1995 was 115.97%. 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 public offering of the shares) through December
31, 1995 was 11.72%. The cumulative total return on Class C shares
for the period from August 29, 1995 (the commencement of the public
offering of shares) through December 31, 1995 was 4.64%.
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 and Class B shares for the fiscal year
ended December 31, 1995 was 18.28% and 17.30%, respectively. The
cumulative total return at net asset value of the Fund's Class C
shares for the period from August 29, 1995 through December 31,
1995 was 5.64%.
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 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.
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. The performance of the Fund's Class A,
Class B or Class C shares may be compared in publications to (i)
the performance of various market indices or other investments for
which reliable performance data is available, and (ii) averages,
performance rankings or other benchmarks prepared by recognized
mutual fund statistical services.
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 Oppenheimer funds, other than the performance
rankings of the Oppenheimer funds themselves. Those ratings or
rankings of shareholder/investor services may compare the
Oppenheimer funds' 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 and
Distribution and Service Plans for Class B and Class C shares under
Rule 12b-1 of the Investment Company Act, pursuant to which the
Fund will make payments to the Distributor for all or a portion of
its costs incurred in connection with the distribution and/or
servicing of the shares of that class as described in the
Prospectus. Each Plan has been approved by a vote of (i) the Board
of Trustees of the Fund, including a majority of the Independent
Trustees, cast in person at a meeting called for the purpose of
voting on that Plan, and (ii) the holders of a "majority" (as
defined in the Investment Company Act) of the shares of each class.
For the Distribution and Service Plan for Class C shares, that vote
was cast by the Manager as the sole initial holder of Class C
shares.
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 at no cost to the Fund. The
Distributor and the Manager may, in their sole discretion, increase
or decrease the amount of payments they make to Recipients from
their own resources.
Unless terminated as described below, each Plan continues in
effect from year to year but only as long as its continuance is
specifically approved at least annually by the Fund's Board of
Trustees and its Independent Trustees by a vote cast in person at
a meeting called for the purpose of voting on such continuance.
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. No Plan may be amended to
increase materially the amount of payments to be made unless such
amendment is approved by shareholders of the class affected by the
amendment. In addition, because Class B shares of the Fund
automatically convert into Class A shares after six years, the Fund
is required 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 payments under the Plan. Such approval
must be by a "majority" of the Class A and Class B shares (as
defined in the Investment Company Act), voting separately by class.
All material amendments must be approved by the Independent
Trustees.
While the Plans are in effect, the Treasurer of the Fund shall
provide separate written reports to the Fund's Board of Trustees at
least quarterly on the amount of all payments made pursuant to each
Plan, the purpose for which the payments were made and the identity
of each Recipient that received any such payment. The report for
the Class B and Class C Plans shall also include the Distributor's
distribution costs for that quarter, and such costs for previous
fiscal periods that have been carried forward ("excess distribution
expenses"). The Board may consider whether to permit the
Distributor to recover the excess distribution expenses plus
financing costs from future payments of the asset-based sales
charge or service fee following termination of the Plan. Those
reports, including the allocations on which they are based, will be
subject to the review and approval of the Independent Trustees in
the exercise of their fiduciary duty.
Each Plan further provides that while it is in effect, the
selection and nomination of those Trustees of the Fund who are not
"interested persons" of the Fund is committed to the discretion of
the Independent Trustees. This does not prevent the involvement of
others in such selection and nomination if the final decision on
selection or nomination is approved by a majority of the
Independent Trustees.
Under the Plans, no payment will be made to any Recipient in
any quarter if the aggregate net asset value of all Fund shares
held by the Recipient for itself and its customers did not exceed
a minimum amount, if any, that may be determined from time to time
by a majority of the Fund's Independent Trustees. Initially, the
Board of Trustees has set the fees at the maximum rate allowed
under the Plans and set no minimum amount.
For the fiscal year ended December 31, 1995, payments under
the Plan for Class A shares totaled $1,216,878, all of which was
paid by the Distributor to Recipients, including $109,107 paid to
an affiliate of the Distributor. Any unreimbursed expenses by the
Distributor incurred with respect to Class A shares for any fiscal
year by the Distributor may not be recovered in subsequent fiscal
years. Payments received by the Distributor under the Plan for
Class A shares will not be used to pay any interest expense,
carrying charges, or other financial costs, or allocation of
overhead by the Distributor.
The Class B and Class C Plans allow the service fee payment to
be paid by the Distributor to Recipients in advance for the first
year such shares are outstanding, and thereafter on a quarterly
basis, as described in the Prospectus. The advance payment is
based on the net assets of shares sold. An exchange of shares does
not entitle the Recipient to an advance service fee payment. In
the event 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. Payments made
under the Class B Plan for the fiscal year ended December 31, 1995,
totalled $636,220, (including $7,883 paid to an affiliate of the
Distributor), of which $525,736 was retained by the Distributor.
Payments made under the Class C Plan for the fiscal year ended
December 31, 1995 totaled $5,096, of which $4,913 was retained by
the Distributor.
Although the Class B and Class C Plans permit the Distributor
to retain both the asset-based sales charges and the service fee on
such shares, or to pay Recipients the service fee on a quarterly
basis, without payment in advance, the Distributor presently
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 and the Class C Plans by the Board.
Initially, the Board has set no minimum holding period. All
payments under the Class B plan are subject to the limitations
imposed by the Rules of Fair Practice of the National Association
of Securities Dealers, Inc. on payments of asset-based sales
charges and service fees.
The Class B and Class C Plans provide for the Distributor to
be compensated at a flat rate, whether the Distributor's
distribution expenses are more or less than the amounts paid by the
Fund during that period. The Distributor retains the asset-based
sales charge on Class B shares. As to Class C shares, the
Distributor retains the asset-based sales charge during the first
year shares are outstanding, and pays the asset-based sales charge
as an ongoing commission to the dealer on Class C shares
outstanding for a year or more. Such payments are made to the
Distributor under the Plan in recognition that the Distributor (i)
pays sales commissions to authorized brokers and dealers at the
time of sale and pays service fees as described in the Prospectus,
(ii) may finance such commissions and/or the advance of the service
fee payment to Recipients under those Plans, or may provide such
financing from its own resources or from an affiliate, (iii)
employs personnel to support distribution of shares, and (iv) may
bear the costs of sales literature, advertising and prospectuses
(other than those furnished to current shareholders) and state
"blue sky" registration fees and certain other distribution
expenses.
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 (a) Distribution Plan fees, (b)
incremental transfer and shareholder servicing agent fees and
expenses, (c) registration fees and (d) shareholder meeting
expenses, to the extent that such expenses pertain to a specific
class rather than to the Fund as a whole.
Determination of Net Asset Values Per Share. The net asset values
per share of Class A, Class B and Class C shares of the Fund are
determined as of the close of business of The New York Stock
Exchange (the "Exchange") on each day the Exchange 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
Exchange normally closes at 4:00 P.M., New York time, but may close
earlier on some days (for example, in case of weather emergencies
or on days falling before a holiday). The Exchange's most recent
annual 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 Exchange members may conduct
trading in Municipal Securities on certain days on which the
Exchange is closed (including weekends and holidays) or after 4:00
P.M. on a regular business day. Because the Fund's net asset 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)
long-term debt securities having a remaining maturity in excess of
60 days are valued based on the mean between the "bid" and "asked"
prices determined by a portfolio pricing service approved by the
Fund's Board of Trustees or obtained from active market makers in
the security on the basis of reasonable inquiry; (ii) debt
instruments having a maturity of more than 397 days when issued,
and non-money market type instruments having a maturity of 397 days
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; (iii) money market-type debt
securities having a maturity of less than 397 days when issued that
have a remaining maturity of 60 days or less are valued at cost,
adjusted for amortization of premiums and accretion of discounts;
and (iv) 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.
Puts, calls, 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, as
determined by a pricing service approved by the Board of Trustees
or by the Manager. If there were no sales that day, value shall be
the last sale price on the preceding trading day if it is within
the spread of the closing bid and asked prices on the principal
exchange or on NASDAQ on the valuation date, or if not, the closing
bid price on the principal exchange or on NASDAQ on the valuation
date. If the put, call or future is not traded on an exchange or
on NASDAQ, it shall be valued at the mean between bid and ask
prices from active market makers (which in certain cases may be the
bid price if no ask price is available). When the Fund writes an
option, an amount equal to the premium received is included in the
Fund's Statement of Assets and Liabilities as an asset, 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 call.
AccountLink. When shares are purchased through AccountLink, each
purchase must be at least $25.00. Shares will be purchased on the
regular business day the Distributor is instructed to initiate the
Automated Clearing House transfer to buy the shares. Dividends
will begin to accrue on shares purchased by the proceeds of ACH
transfers on the business day the Fund receives Federal Funds for
the purchase through the ACH system before the close of the New
York Stock Exchange. The Exchange normally closes at 4:00 P.M.,
but may close earlier on certain days. If Federal Funds are
received after the close of the Exchange, the shares will be
purchased and dividends will begin to accrue on the next regular
business day. The proceeds of ACH transfers are normally received
by the Fund 3 days after the transfers are initiated. The
Distributor and the Fund are not responsible for any delays in
purchasing shares from delays in ACH transmissions.
Reduced Sales Charges. As discussed in the Prospectus, a reduced
sales charge rate may be obtained for Class A shares under Right of
Accumulation and Letters of Intent because of the economies of
sales efforts and reduction in expenses realized by the
Distributor, dealers and brokers making such sales. No sales
charge is imposed in certain 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, a spouse's siblings, aunts, uncles, nieces and nephews.
The Oppenheimer funds. The Oppenheimer funds 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 Income Fund
Oppenheimer 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
Oppenheimer International Bond Fund
Oppenheimer Enterprise Fund
Oppenheimer International Growth Fund
Oppenheimer Quest Growth & Income Value Fund
Oppenheimer Quest Officers Value Fund
Oppenheimer Quest Opportunity Value Fund
Oppenheimer Quest Small Cap Value Fund
Oppenheimer Quest Value Fund, Inc.
Oppenheimer Quest Global Value Fund, Inc.
Oppenheimer Bond Fund for Growth
Rochester Fund Municipals*
Rochester Portfolio Series - Limited-Term New York Municipal
Fund*
Oppenheimer Disciplined Value Fund
Oppenheimer Disciplined Allocation Fund
Oppenheimer LifeSpan Balanced Fund
Oppenheimer LifeSpan Income Fund
Oppenheimer LifeSpan Growth Fund
[FN]
- ------------
*Shares of the Fund are not presently exchangeable for shares of
these funds.
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 Oppenheimer funds 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 Oppenheimer funds 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 Oppenheimer funds) that
applies under the Right of Accumulation to current purchases of
Class A shares. This enables the investor to obtain the reduced
sales charge rate (as set forth in the Prospectus) applicable to
purchases of shares in that amount (the "intended purchases
amount"). Each purchase of Class A shares under the Letter will be
made at the public offering price applicable 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 in exchange for either (i) Class
A shares of one of the other Oppenheimer funds that were acquired
subject to a Class A initial or contingent deferred sales charge or
(ii) Class B shares of one of the other Oppenheimer funds that were
acquired subject to a contingent deferred sales charge.
6. Shares held in escrow hereunder will automatically be
exchanged for shares of another fund to which an exchange is
requested, as described in the section of the Prospectus entitled
"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
Oppenheimer funds.
There is a front-end sales charge on the purchase of certain
Oppenheimer funds, 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. In that case, the Fund may pay the
redemption proceeds in whole or in part by a distribution "in kind"
of securities from the portfolio of the Fund, in lieu of cash, in
conformity with applicable rules of the Securities and Exchange
Commission. The Fund has elected to be governed by Rule 18f-1 under
the Investment Company Act, pursuant to which the Fund is obligated
to redeem shares solely in cash up to the lesser of $250,000 or 1%
of the net assets of the Fund during any 90-day period for any one
shareholder. If shares are redeemed in kind, the redeeming
shareholder might incur brokerage or other costs in selling the
securities for cash. The method of valuing securities used to make
redemptions in kind will be the same as the method the Fund uses to
value its portfolio securities described above under "Determination
of Net Asset Values 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
Class A shares or Class B shares that you purchased by reinvesting
dividends or distributions, or on which you paid an initial sales
charge when you purchased them, or on which you paid a contingent
deferred sales charge when you redeemed them. The reinvestment may
be made without sales charge only in Class A shares of the Fund or
any of the other Oppenheimer funds 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.
This reinvestment privilege does not apply to Class C shares. 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 Oppenheimer
funds within 90 days of payment of the sales charge, the
shareholder's basis in the shares of the Fund that were redeemed
may not include the amount of the sales charge paid. 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 on behalf of their
customers. The shareholder should contact the broker or dealer to
arrange this type of redemption. The repurchase price per share
will be the net asset value next computed after the Distributor
receives 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.). Ordinarily, for accounts redeemed by a
broker-dealer under this procedure, payment will be made within
three business days after the shares have been redeemed upon the
Distributor's receipt of the required redemption document in proper
form, with the signature(s) of the registered owners guaranteed on
the redemption document 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 that would require the redemption of
shares purchased subject to a contingent deferred sales charge and
held less than 6 years or 12 months, respectively, because of the
imposition of the 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 "Waivers of Class B and Class C Sales Charges").
By requesting an Automatic Withdrawal or Exchange Plan, the
shareholder agrees to the terms and conditions applicable to such
plans, as stated below and in the provisions of the
OppenheimerFunds Application relating to such Plans, as well as the
Prospectus. These provisions may be amended from time to time by
the Fund and/or the Distributor. When adopted, such amendments
will automatically apply to existing Plans.
Automatic Exchange Plans. Shareholders can authorize the
Transfer Agent (on the OppenheimerFunds Application or signature-
guaranteed instructions) to exchange a pre-determined amount of
shares of the Fund for shares (of the same class) of other
Oppenheimer funds automatically on a monthly, quarterly, semi-
annual or annual basis under an Automatic Exchange Plan. The
minimum amount that may be exchanged to each other fund account is
$25. Exchanges made under these plans are subject to the
restrictions that apply to exchanges as set forth in "How to
Exchange Shares" in the Prospectus and below in this Statement of
Additional Information.
Automatic Withdrawal Plans. Fund shares will be redeemed
as necessary to meet withdrawal payments. Shares acquired without
a sales charge will be redeemed first and thereafter shares
acquired with reinvested dividends and capital gains distributions
will be redeemed next, followed by shares acquired with a sales
charge, to the extent necessary to make withdrawal payments.
Depending upon the amount withdrawn, the investor's principal may
be depleted. Payments made under withdrawal plans should not be
considered as a yield or income on your investment.
The Transfer Agent will administer the investor's Automatic
Withdrawal Plan (the "Plan") as agent for the investor (the
"Planholder") who executed the Plan authorization and application
submitted to the Transfer Agent. The Transfer Agent and the Fund
shall incur no liability to the Planholder for any action taken or
omitted by the Transfer Agent in good faith to administer the Plan.
Certificates will not be issued for shares of the Fund purchased
for and held under the Plan, but the Transfer Agent will credit all
such shares to the account of the Planholder on the records of the
Fund. Any share certificates held by a Planholder may be
surrendered unendorsed to the Transfer Agent with the Plan
application so that the shares represented by the certificate may
be held under the Plan.
For accounts subject to Automatic Withdrawal Plans,
distributions of capital gains must be reinvested in shares of the
Fund, which will be done at net asset value without a sales charge.
Dividends on shares held in the account may be paid in cash or
reinvested.
Redemptions of shares needed to make withdrawal payments will
be made at the net asset value per share determined on the
redemption date. Checks or AccountLink payments of the proceeds of
Plan withdrawals will normally be transmitted three business days
prior to the date selected for receipt of the payment (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
Oppenheimer funds having more than one class of shares may be
exchanged only for shares of the same class of other Oppenheimer
funds. Shares of Oppenheimer funds that have a single class of
shares without a class designation are deemed "Class A" shares for
this purpose. All of the Oppenheimer funds offer Class A, Class B
and Class C shares except Oppenheimer Money Market Fund, Inc.,
Centennial Tax Exempt Trust, Centennial Government Trust,
Centennial New York Tax Exempt Trust, Centennial California Tax
Exempt Trust, Centennial America Fund, L.P. and Daily Cash
Accumulation Fund Inc., which only offer Class A shares and
Oppenheimer Main Street California Tax Exempt Fund which only
offers Class A and Class B shares (Class B and Class C shares of
Oppenheimer Cash reserves are generally available only by exchange
from the same class of shares of other Oppenheimer funds or through
OppenheimerFunds sponsored 401 (k) plans). A current list showing
which funds offer which classes of shares can be obtained by
calling the Distributor at 1-800-525-7048. Prior to May 1, 1996,
Oppenheimer Disciplined Value Fund, Oppenheimer Disciplined Allocation Fund,
Oppenheimer LifeSpan Balanced Fund, Oppenheimer LifeSpan Income Fund and
Oppenheimer LifeSpan Growth Fund offer only Class A and Class B shares and are
not eligible for exchange to or from other Oppenheimer funds.
For accounts established on or before March 8, 1996 holding
Class M shares of Oppenheimer Bond Fund for Growth, Class M shares
can be exchanged only for Class A shares of other Oppenheimer
funds, including Rochester Fund Municipals and Limited Term New
York Municipal Fund. Class A shares of Rochester Fund Municipals
or Limited Term New York Municipal Fund acquired on the exchange of
Class M shares of Oppenheimer Bond Fund for Growth may be exchanged
for Class M shares of that fund. For accounts of Oppenheimer Bond
Fund for Growth established after March 8, 1996, Class M shares may
be exchanged for Class A shares of other Oppenheimer funds except
Rochester Fund Municipals and Limited Term New York Municipals.
Exchanges to Class M shares of Oppenheimer Bond Fund for Growth are
permitted from Class A shares of Oppenheimer Money Market Fund,
Inc. or Oppenheimer Cash Reserves that were acquired by exchange
from Class M shares. Otherwise no exchanges of any class of any
Oppenheimer fund into Class M shares are permitted.
Class A shares of Oppenheimer funds may be exchanged for
shares of any Money Market Fund. Shares of any Money Market Fund
purchased without a sales charge may be exchanged for shares of
Oppenheimer funds offered with a sales charge upon payment of the
sales charge (or, if applicable, may be used to purchase shares of
Oppenheimer funds 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 Oppenheimer funds without being
subject to an initial or contingent deferred sales charge,
whichever is applicable. To qualify for this 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.
Shares of the Fund acquired by reinvestment of dividends or
distributions from any other of the Oppenheimer funds (except
Oppenheimer Cash Reserves) or from any unit investment trust for
which reinvestment arrangements have been made with the Distributor
may be exchanged at net asset value for shares of any of the
Oppenheimer funds. No contingent deferred sales charge is imposed
on exchanges of shares of either class purchased subject to a
contingent deferred sales charge. However, when Class A shares
acquired by exchange of Class A shares of other Oppenheimer funds
purchased subject to a Class A contingent deferred sales charge are
redeemed within 18 months of the end of the calendar month of the
initial purchase of the exchanged Class A shares, the Class A
contingent deferred sales charge is imposed on the redeemed shares
(see "Class A Contingent Deferred Sales Charge" in the Prospectus).
The Class B contingent deferred sales charge is imposed on Class B
shares acquired by exchange if they are redeemed within 6 years of
the initial purchase of the exchanged Class B shares. The Class C
contingent deferred sales charge is imposed on Class C shares
acquired by exchange if they are redeemed within 12 months of the
initial purchase of the exchanged Class C shares.
When Class B or Class C shares are redeemed to effect an
exchange, the priorities described in "How To Buy Shares" in the
Prospectus for the imposition of the Class B or 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.
The Fund reserves the right to reject telephone or written
exchange requests submitted in bulk by anyone on behalf of more
than one account. The Fund may accept requests for exchanges of up
to 50 accounts per day from representatives of authorized dealers
that qualify for this privilege. In connection with any exchange
request, the number of shares exchanged may be less than the number
requested if the exchange or the number requested would include
shares subject to a restriction cited in the Prospectus or this
Statement of Additional Information, or would include shares
covered by a share certificate that is not tendered with the
request. In those cases, only the shares available for exchange
without restriction will be exchanged.
When exchanging shares by telephone, 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
and Automatic Withdrawal Plans 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 Oppenheimer funds 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."
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.
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 1995 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; 15.4% 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.
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. For
example, if the Fund derives 30% or more of its gross income from
the sale of securities held less than three months, it may fail to
qualify (see "Tax Aspects of Covered Calls and Hedging
Instruments," above). 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, the
Fund must distribute 98% of its taxable investment income earned
from January 1 through December 31 of that year and 98% of its
capital gains realized in the period from November 1 of the prior
year through October 31 of the current year, or else the Fund must
pay an excise tax on the amounts not distributed. While it is
presently anticipated that the Fund will meet those requirements,
the Fund's Board of Trustees and the Manager might determine in a
particular year that it would be in the best interests of the
shareholders not to make such distributions at the required levels
and to pay the excise tax on the undistributed amounts. That 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.
At December 31, 1995, the Fund had available for federal
income tax purposes on unused capital loss carryover of
approximately $9,627,000 which will expire between 2001 and 2003.
Dividend Reinvestment in Another Fund. Shareholders of the Fund
may elect to reinvest all dividends and/or capital gains
distributions in shares of the same class of any of the other
Oppenheimer funds listed in "Reduced Sales Charges," above, at net
asset value without sales charge. 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 Oppenheimer funds 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. The Fund's cash balances
in excess of $100,000 are not protected by Federal Deposit
Insurance. Such uninsured balances may at times be substantial.
Independent Auditors. The independent auditors of the Fund audit
the Fund's financial statements and perform other related audit
services. They also act as auditors for certain other funds
advised by the Manager and its affiliates.
<PAGE>
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, 1995, 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, 1995, by correspondence with the custodian and brokers; and where
confirmations were not received from brokers, we performed other auditing
procedures. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the financial
position of Oppenheimer Tax-Free Bond Fund as of December 31, 1995, the results
of its operations for the year then ended, the changes in its net assets for
each of the years in the two-year period then ended, and the financial
highlights for each of the years in the ten-year period then ended, in
conformity with generally accepted accounting principles.
/s/ KPMG PEAT MARWICK LLP
KPMG PEAT MARWICK LLP
Denver, Colorado
January 22, 1996
<PAGE>
STATEMENT OF INVESTMENTS December 31, 1995
<TABLE>
<CAPTION>
RATINGS: MOODY'S/
S&P'S/FITCH'S FACE MARKET VALUE
(UNAUDITED) AMOUNT SEE NOTE 1
==========================================================================================================
<S> <C> <C> <C>
MUNICIPAL BONDS AND NOTES--99.4%
==========================================================================================================
ALABAMA--1.3%
Huntsville, Alabama Health Care Authority
Health Care Facilities Revenue Bonds, Series B,
MBIA Insured, 6.625%, 6/1/23 Aaa/AAA $ 7,235,000 $ 7,912,991
- ----------------------------------------------------------------------------------------------------------
University of Alabama Revenue Refunding Bonds,
Birmingham Hospital, MBIA Insured, 5%, 10/1/14 Aaa/AAA 1,000,000 964,535
-----------
8,877,526
==========================================================================================================
ARIZONA--0.1%
Arizona State Health Facilities Authority Hospital
System Revenue Refunding Bonds, Phoenix
Memorial Hospital, 8.20%, 6/1/21 NR/BBB 300,000 330,568
- ----------------------------------------------------------------------------------------------------------
Central Arizona Irrigation & Drainage District
General Obligation Refunding Bonds, 7%, 6/1/98(1) NR/D 1,385,000 718,949
-----------
1,049,517
==========================================================================================================
CALIFORNIA--10.7%
California Health Facilities Financing Authority
Revenue Bonds, Episcopal Homes Project,
Series A, 7.80%, 7/1/15 NR/A 1,000,000 1,088,533
- ----------------------------------------------------------------------------------------------------------
California Health Facilities Financing Authority
Revenue Refunding Bonds, Hospital of the
Good Samaritan, 7%, 9/1/21 A/A- 1,315,000 1,417,837
- ----------------------------------------------------------------------------------------------------------
California Housing Finance Agency Home Mtg.
Revenue Bonds, Series C, 6.65%, 8/1/14 Aa/AA- 5,000,000 5,287,814
- ----------------------------------------------------------------------------------------------------------
California Housing Finance Agency Home Mtg.
Revenue Bonds, Series C, 6.75%, 2/1/25 Aa/AA- 5,000,000 5,294,450
- ----------------------------------------------------------------------------------------------------------
California State General Obligation Bonds,
FGIC Insured, 7%, 11/1/12 Aaa/AAA/AAA 725,000 841,412
- ----------------------------------------------------------------------------------------------------------
California State Public Works Board Lease Revenue
Bonds, Regents of the University of California,
Series A, AMBAC Insured, 6.40%, 12/1/16 Aaa/AAA/AAA 8,700,000 9,411,363
- ----------------------------------------------------------------------------------------------------------
California Statewide Communities Development
Authority Revenue Certificates of Participation,
Salk Institute, 6.10%, 7/1/14 NR/AAA 750,000 783,718
- ----------------------------------------------------------------------------------------------------------
Foothill/Eastern Transportation Corridor Agency
California Toll Road Revenue Bonds, Sr. Lien,
Series A, 6.50%, 1/1/32 Baa/BBB-/BBB 10,500,000 10,790,724
- ----------------------------------------------------------------------------------------------------------
Industry, California Urban Development Agency
Tax Allocation Bonds, Transportation Distribution
Project No. 3, 6.90%, 11/1/07 NR/A- 500,000 541,023
- ----------------------------------------------------------------------------------------------------------
Los Angeles County, California Certificates
of Participation, Correctional Facilities Project,
MBIA Insured, 6.50%, 9/1/13 Aaa/AAA 740,000 790,389
- ----------------------------------------------------------------------------------------------------------
Los Angeles County, California Transportation
Commission Sales Tax Revenue Bonds, Prerefunded,
Series A, FGIC Insured, 6.75%, 7/1/18 Aaa/AAA/AAA 5,000,000 5,673,994
- ----------------------------------------------------------------------------------------------------------
Redding, California Electric System Revenue
Certificates of Participation, FGIC Insured,
Inverse Floater, 7.13%, 6/1/19(2) Aaa/AAA/AAA 6,000,000 6,104,838
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RATINGS: MOODY'S/
S&P'S/FITCH'S FACE MARKET VALUE
(UNAUDITED) AMOUNT SEE NOTE 1
==========================================================================================================
<S> <C> <C> <C>
CALIFORNIA--(CONTINUED)
Sacramento, California Municipal Utility
District Electric Revenue Bonds, Prerefunded,
Series W, 7.50%, 8/15/18 Aaa/AAA/A- $ 2,500,000 $ 2,722,557
- ----------------------------------------------------------------------------------------------------------
San Francisco, California Bay Area Rapid
Transit District Sales Tax Revenue Bonds,
FGIC Insured, 5.50%, 7/1/20 Aaa/AAA/AAA 500,000 503,170
- ----------------------------------------------------------------------------------------------------------
San Joaquin Hills, California Transportation
Corridor Agency Toll Road Revenue
Bonds, Sr. Lien, 6.75%, 1/1/32 NR/NR/BBB 12,700,000 13,355,369
- ----------------------------------------------------------------------------------------------------------
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 10,920,745
-----------
75,527,936
==========================================================================================================
COLORADO--1.2%
Colorado Health Facilities Authority Revenue
Bonds, Rocky Mountain Adventist Health System,
6.625%, 2/1/22 Baa/BBB 5,000,000 5,136,899
- ----------------------------------------------------------------------------------------------------------
Colorado Student Obligation Bond Authority
Student Loan Revenue Bonds, Series C, 7.15%, 9/1/06 A/NR 1,000,000 1,119,540
- ----------------------------------------------------------------------------------------------------------
Denver, Colorado City & County Airport Revenue
Bonds, Series A, MBIA Insured, 8.75%, 11/15/23 Aaa/AAA 1,525,000 1,848,018
- ----------------------------------------------------------------------------------------------------------
Jefferson County, Colorado School District
No. R-001, AMBAC Insured, 6.25%, 12/15/12 Aaa/AAA/AAA 500,000 538,369
-----------
8,642,826
==========================================================================================================
CONNECTICUT--0.2%
Connecticut State Special Tax Revenue Bonds,
FGIC Insured, 6.25%, 10/1/14 Aaa/AAA/AAA 1,000,000 1,074,998
==========================================================================================================
DELAWARE--0.8%
Delaware Transportation Authority Transportation
System Revenue Bonds, Prerefunded, 6.75%, 7/1/10 Aaa/AAA 5,000,000 5,581,654
==========================================================================================================
FLORIDA--4.8%
Broward County, Florida Resource Recovery
Revenue Bonds, Broward Waste Energy-LP North
Project, 7.95%, 12/1/08 A/A 5,680,000 6,445,130
- ----------------------------------------------------------------------------------------------------------
Broward County, Florida Resource Recovery
Revenue Bonds, Ses Broward Co.-LP South Project,
7.95%, 12/1/08 A/A- 5,810,000 6,592,642
- ----------------------------------------------------------------------------------------------------------
Broward County, Florida School District General
Obligation Bonds, Prerefunded, 7.125%, 2/15/08 Aaa/AAA 1,250,000 1,382,089
- ----------------------------------------------------------------------------------------------------------
Dade County, Florida General Obligation Bonds,
FGIC Insured, 6.125%, 8/1/11 Aaa/AAA/AAA 1,000,000 1,066,002
- ----------------------------------------------------------------------------------------------------------
Dade County, Florida Industrial Development
Authority Revenue Bonds, Miami Cerebral
Palsy Services Project, 8%, 6/1/22 NR/NR 1,000,000 1,059,288
- ----------------------------------------------------------------------------------------------------------
Florida Housing Finance Agency Revenue Refunding
Bonds, Single Family Mtg., Series A, 6.35%, 7/1/14 Aa1/AA 970,000 1,022,457
- ----------------------------------------------------------------------------------------------------------
Florida State Board of Education Capital Outlay
General Obligation Refunding Bonds, 8.40%, 6/1/07 Aa/AA 750,000 980,582
- ----------------------------------------------------------------------------------------------------------
Florida State Board of Education Capital
Outlay Public Education Refunding Bonds,
Series D, 5.125%, 6/1/18 Aa/AA/AA 10,000,000 9,777,869
</TABLE>
<PAGE>
STATEMENT OF INVESTMENTS (Continued)
<TABLE>
<CAPTION>
RATINGS: MOODY'S/
S&P'S/FITCH'S FACE MARKET VALUE
(UNAUDITED) AMOUNT SEE NOTE 1
==========================================================================================================
<S> <C> <C> <C>
FLORIDA--(CONTINUED)
Florida State Turnpike Authority Revenue Bonds,
Department of Transportation, Series A, FGIC Insured,
5.50%, 7/1/21 Aaa/AAA/AAA $ 1,000,000 $ 1,017,563
- ----------------------------------------------------------------------------------------------------------
Hillsborough County, Florida Industrial
Development Authority Pollution Control Revenue
Refunding Bonds, Tampa Electric Co. Project, 8%, 5/1/22 Aa3/AA 4,000,000 4,904,847
-----------
34,248,469
==========================================================================================================
GEORGIA--1.9%
Municipal Electric Authority of Georgia
Special Obligation Bonds, Fifth Crossover Series,
Project One, 6.50%, 1/1/17 A/A/A 10,750,000 12,079,204
- ----------------------------------------------------------------------------------------------------------
Municipal Electric Authority of Georgia
Special Obligation Bonds, Fifth Crossover
Series, Project One, MBIA Insured, 6.50%, 1/1/17 Aaa/AAA 1,000,000 1,146,798
- ----------------------------------------------------------------------------------------------------------
Municipal Electric Authority of Georgia Special
Obligation Bonds, Fourth Crossover Series, Project One,
MBIA Insured, 6.50%, 1/1/12 Aaa/AAA 500,000 567,106
-----------
13,793,108
==========================================================================================================
HAWAII--0.4%
Hawaii State Revenue Bonds, Prerefunded,
Series BS, 7%, 9/1/02 Aaa/AA 1,000,000 1,121,755
- ----------------------------------------------------------------------------------------------------------
Honolulu, Hawaii City & County General
Obligation Bonds, Series B, 6.10%, 6/1/11 Aa/AA 500,000 538,560
- ----------------------------------------------------------------------------------------------------------
Honolulu, Hawaii City & County General
Obligation Refunding Bonds, Series B, 5%, 10/1/13 Aa/AA 1,000,000 978,051
-----------
2,638,366
==========================================================================================================
ILLINOIS--1.4%
Chicago, Illinois O'Hare International Airport
Revenue Refunding Bonds, Series A, MBIA Insured,
5.60%, 1/1/18 Aaa/AAA 1,000,000 998,741
- ----------------------------------------------------------------------------------------------------------
Du Page County, Illinois Revenue Bonds, Stormwater
Project, Prerefunded, 6.55%, 1/1/21 Aaa/AAA/AAA 5,115,000 5,742,641
- ----------------------------------------------------------------------------------------------------------
Hoffman Estates, Illinois Tax Increment Revenue Bonds,
Economic Development Project, 7.625%, 11/15/09 Aaa/AAA 825,000 934,279
- ----------------------------------------------------------------------------------------------------------
Illinois Health Facilities Authority Revenue Bonds,
Unrefunded Balance, Hinsdale Hospital Project,
Series C, 9.50%, 11/15/19 Baa1/BBB 970,000 1,167,339
- ----------------------------------------------------------------------------------------------------------
Regional Transportation Authority of Illinois Revenue
Bonds, Series A, AMBAC Insured, 7.20%, 11/1/20 Aaa/AAA/AAA 1,000,000 1,225,541
-----------
10,068,541
==========================================================================================================
INDIANA--3.9%
Indiana Health Facilities Financing Authority
Hospital Revenue Bonds, Columbus Regional Hospital,
CGIC Insured, 5.50%, 8/15/22 Aaa/AAA 5,500,000 5,514,927
- ----------------------------------------------------------------------------------------------------------
Indianapolis, Indiana Airport Authority
Revenue Bonds, 9%, 7/1/15 A1/A 1,000,000 1,041,951
- ----------------------------------------------------------------------------------------------------------
Indianapolis, Indiana Airport Authority Revenue
Bonds, Special Facilities-Federal Express Corp. Project,
7.10%, 1/15/17 Baa2/BBB 10,000,000 10,728,709
- ----------------------------------------------------------------------------------------------------------
Indianapolis, Indiana Airport Authority Revenue
Bonds, Special Facilities-United Airlines Project,
Series A, 6.50%, 11/15/31 Baa2/BB 10,500,000 10,455,564
-----------
27,741,151
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RATINGS: MOODY'S/
S&P'S/FITCH'S FACE MARKET VALUE
(UNAUDITED) AMOUNT SEE NOTE 1
===========================================================================================================
<S> <C> <C> <C>
KENTUCKY--0.6%
Kenton County, Kentucky Airport Board Airport
Revenue Bonds, Special Facilities-Delta Air Lines
Project, Series A, 6.125%, 2/1/22 Ba1/BB $ 2,790,000 $ 2,782,598
- -----------------------------------------------------------------------------------------------------------
Kentucky State Turnpike Authority Economic
Development Road Revenue Bonds, Revitalization
Projects, Prerefunded, 7.375%, 5/15/07 Aaa/AAA/A+ 1,000,000 1,134,132
-----------
3,916,730
===========================================================================================================
LOUISIANA--1.7%
Louisiana Public Facilities Authority Gtd. Student
Loan Revenue Refunding Bonds, Series A-2, 6.75%, 9/1/06 Aa/NR 1,000,000 1,084,020
- -----------------------------------------------------------------------------------------------------------
Louisiana Public Facilities Authority
Multifamily Housing
Revenue Bonds, One Lakeshore Project, 9.25%, 7/20/20 NR/AAA 930,000 980,186
- -----------------------------------------------------------------------------------------------------------
New Orleans, Louisiana Home Mtg. Authority
Special Obligation Refunding Bonds, Escrowed
to Maturity, 6.25%, 1/15/11 Aaa/AAA 9,500,000 10,334,641
-----------
12,398,847
===========================================================================================================
MAINE--0.1%
Maine Educational Loan Marketing Corp.
Student Loan Revenue Refunding Bonds, 6.90%, 11/1/03 A/NR/A+ 500,000 561,977
===========================================================================================================
MARYLAND--0.1%
University of Maryland System Auxiliary Facilities &
Tuition Revenue Refunding Bonds, Series A,
5.90%, 2/1/03 Aa/AA+/AA 500,000 538,761
===========================================================================================================
MASSACHUSETTS--6.8%
Massachusetts Bay Transportation Authority
Revenue Refunding Bonds, General Transportation
Systems, Series A, 5.50%, 3/1/12 A1/A+/A+ 12,000,000 12,244,427
- -----------------------------------------------------------------------------------------------------------
Massachusetts Municipal Wholesale Electric Co.
Revenue Bonds, Power Supply Systems, Prerefunded,
Series B, 6.75%, 7/1/17 Aaa/BBB+ 6,985,000 7,971,708
- -----------------------------------------------------------------------------------------------------------
Massachusetts State General Obligation Refunding
Bonds, Series A, 5.50%, 2/1/11 A1/A+/A+ 10,000,000 10,099,159
- -----------------------------------------------------------------------------------------------------------
Massachusetts State General Obligation Refunding
Bonds, Series B, MBIA Insured, 6.50%, 8/1/11 Aaa/AAA/AAA 1,000,000 1,080,852
- -----------------------------------------------------------------------------------------------------------
Massachusetts State Health & Educational Facilities
Authority Revenue Bonds, Baystate Medical Center,
Prerefunded, Series C, 7.50%, 7/1/20 A1/A+ 2,500,000 2,812,170
- -----------------------------------------------------------------------------------------------------------
Massachusetts State Water Resource Authority
Revenue Bonds, Series A, 6.50%, 7/15/19 A/A/A 12,225,000 13,792,722
-----------
48,001,038
===========================================================================================================
MICHIGAN--7.0%
Charter County of Wayne, Michigan Special Airport
Facilities Revenue Refunding Bonds, Northwest
Airlines, Inc. Facilities, Series 1995, 6.75%, 12/1/15 NR/NR 9,500,000 9,797,720
- -----------------------------------------------------------------------------------------------------------
Detroit, Michigan General Obligation Refunding
Bonds, Series B:
6.25%, 4/1/09 Ba1/BBB 4,065,000 4,180,356
6.375%, 4/1/06 Ba1/BBB 2,000,000 2,105,938
6.375%, 4/1/07 Ba1/BBB 500,000 522,841
- -----------------------------------------------------------------------------------------------------------
Detroit, Michigan Sewage Disposal Revenue
Bonds, FGIC Insured, Inverse Floater, 7.116%, 7/1/23(2) Aaa/AAA/AAA 13,200,000 13,250,449
</TABLE>
<PAGE>
STATEMENT OF INVESTMENTS (Continued)
<TABLE>
<CAPTION>
RATINGS: MOODY'S/
S&P'S/FITCH'S FACE MARKET VALUE
(UNAUDITED) AMOUNT SEE NOTE 1
==========================================================================================================
<S> <C> <C> <C>
MICHIGAN (CONTINUED)
Detroit, Michigan Water Supply System
Revenue Bonds, Prerefunded, FGIC Insured,
Inverse Floater, 8.467%, 7/1/22(2) Aaa/AAA/AAA $3,700,000 $ 4,520,515
- ----------------------------------------------------------------------------------------------------------
Detroit, Michigan Water Supply System Revenue
Bonds, Unrefunded Balance, FGIC Insured,
Inverse Floater, 8.466%, 7/1/22(2) Aaa/AAA 1,500,000 1,680,162
- ----------------------------------------------------------------------------------------------------------
Greater Detroit, Michigan Resource Recovery
Authority Revenue Bonds, Series A, 9.25%, 12/13/08 NR/BBB- 1,500,000 1,563,933
- ----------------------------------------------------------------------------------------------------------
Greater Detroit, Michigan Resource Recovery
Authority Revenue Bonds, Series H, 9.25%, 12/13/08 NR/BBB- 500,000 521,311
- ----------------------------------------------------------------------------------------------------------
Jackson County, Michigan Hospital Finance
Authority Revenue Refunding Bonds, W.A. Foote
Memorial Hospital, Series A, FGIC Insured,
4.75%, 6/1/15 Aaa/AAA/AAA 750,000 695,168
- ----------------------------------------------------------------------------------------------------------
Michigan Municipal Bond Authority Revenue
Refunding Bonds, Local Government Loan
Program, Series A, FGIC Insured, 6%, 12/1/13 Aaa/AAA/AAA 1,000,000 1,059,987
- ----------------------------------------------------------------------------------------------------------
Michigan State Hospital Finance Authority
Revenue Refunding Bonds, Bay Medical Center,
Series A, 8.25%, 7/1/12 Baa1/NR 455,000 504,341
- ----------------------------------------------------------------------------------------------------------
Michigan State Hospital Finance Authority
Revenue Refunding Bonds, FSA Insured, Inverse
Floater, 7.42%, 2/15/22(2) Aaa/AAA 5,000,000 5,488,930
- ----------------------------------------------------------------------------------------------------------
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 1,086,690
- ----------------------------------------------------------------------------------------------------------
Royal Oak, Michigan Hospital Finance Authority
Revenue Bonds, William Beaumont Hospital,
Prerefunded, Series C, 7.375%, 1/1/20 Aaa/NR 2,000,000 2,213,168
-----------
49,191,509
==========================================================================================================
MINNESOTA--0.3%
State of Minnesota General Obligation Bonds,
Prerefunded, 7%, 8/1/08 Aaa/AAA/AAA 1,300,000 1,445,272
- ----------------------------------------------------------------------------------------------------------
Western Minnesota Municipal Power Agency
Revenue Refunding Bonds, Series A, 7%, 1/1/13 A1/A 1,000,000 1,043,635
-----------
2,488,907
==========================================================================================================
MISSOURI--0.2%
Missouri State Environmental Improvement &
Energy Resource Authority Pollution Control
Revenue Bonds, Associated Electric Co-op 84G-4,
8.25%, 11/15/14 Aaa/AAA 1,370,000 1,431,144
==========================================================================================================
NEW HAMPSHIRE--0.1%
New Hampshire State Housing Finance Authority
Revenue Bonds, Single Family Mtg., Series C,
6.90%, 7/1/19 Aa/NR 1,000,000 1,051,874
==========================================================================================================
NEW JERSEY--4.5%
Bergen County, New Jersey Utilities Authority
Water Pollution Control Revenue Bonds,
Series A, FGIC Insured, 6.50%, 12/15/12(3) Aaa/AAA/AAA 5,600,000 6,072,203
- ----------------------------------------------------------------------------------------------------------
New Jersey Health Care Facilities Financing Authority
Revenue Bonds, Prerefunded, Series C, 8.60%, 7/1/17 Aaa/AAA 1,100,000 1,194,963
- ----------------------------------------------------------------------------------------------------------
New Jersey State Government Revenue
Refunding Bonds, Series D, 8%, 2/15/07 Aa1/AA+ 3,100,000 3,938,029
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RATINGS: MOODY'S/
S&P'S/FITCH'S FACE MARKET VALUE
(UNAUDITED) AMOUNT SEE NOTE 1
===========================================================================================================
<S> <C> <C> <C>
NEW JERSEY (CONTINUED)
New Jersey State Housing & Mtg. Finance
Agency Multifamily Housing Revenue Bonds,
Series C, 9.75%, 11/1/27 NR/A+ $ 1,000,000 $ 1,043,408
- -----------------------------------------------------------------------------------------------------------
New Jersey State Turnpike Authority Revenue
Bonds, Series C, 6.50%, 1/1/16 Baa1/BBB+/A- 16,150,000 18,242,716
- -----------------------------------------------------------------------------------------------------------
New Jersey State Turnpike Authority Revenue
Refunding Bonds, Series C, MBIA Insured, 6.50%, 1/1/16 Aaa/AAA 1,100,000 1,284,080
-----------
31,775,399
===========================================================================================================
NEW YORK--16.0%
City of New York General Obligation Bonds:
Inverse Floater, 6.873%, 8/1/15(2) Baa1/BBB+ 3,050,000 2,761,009
Prerefunded, Series D, 8%, 8/1/15 Aaa/BBB+ 10,780,000 12,905,383
Series A, 7.75%, 8/15/16 Baa1/BBB+ 2,500,000 2,810,710
Series B, 6.20%, 8/15/06 Baa1/BBB+/A- 10,000,000 10,361,378
Series D, 6%, 2/15/15 Baa1/BBB+ 1,200,000 1,212,516
Unrefunded Balance, Series D, 8%, 8/1/15 Baa1/BBB+ 220,000 253,922
Series E, 5.625%, 8/1/12 Baa1/BBB+/A- 1,000,000 979,885
- -----------------------------------------------------------------------------------------------------------
City of New York General Obligation Refunding
Bonds, Series G, 7.625%, 2/1/15 Baa1/BBB+ 945,000 1,057,074
- -----------------------------------------------------------------------------------------------------------
City of New York Industrial Development Agency
Special Facility Revenue Bonds, Terminal One
Group Assn. Project, 6%, 1/1/19 A/A/A- 6,000,000 6,076,476
- -----------------------------------------------------------------------------------------------------------
City of New York Municipal Water Finance
Authority Water & Sewer System Revenue Bonds,
Prerefunded, Series A, 9%, 6/15/17 Aaa/AAA 5,000,000 5,459,904
- -----------------------------------------------------------------------------------------------------------
Dormitory Authority of the State of New York
Revenue Bonds, City University System Consolidated,
Prerefunded, Series A, 7.625%, 7/1/20 Aaa/BBB 9,500,000 10,995,641
- -----------------------------------------------------------------------------------------------------------
Dormitory Authority of the State of New York
Revenue Bonds, City University System, Prerefunded,
Series F, 7.875%, 7/1/07 Aaa/BBB 3,005,000 3,508,674
- -----------------------------------------------------------------------------------------------------------
Dormitory Authority of the State of New York
Revenue Bonds, State University Educational Facilities,
Prerefunded, Series A, 6.75%, 5/15/18 NR/AAA/A 8,415,000 9,122,288
- -----------------------------------------------------------------------------------------------------------
Dormitory Authority of the State of New York
Revenue Bonds, State University Educational Facilities,
Prerefunded, Series A, 7.625%, 5/15/05 NR/AAA/A 3,000,000 3,466,668
- -----------------------------------------------------------------------------------------------------------
Dormitory Authority of the State of New York
Revenue Refunding Bonds, State University
Educational Facilities, Series A, 5.50%, 5/15/07 Baa1/BBB+/A 1,000,000 1,014,298
- -----------------------------------------------------------------------------------------------------------
New York State General Obligation Bonds,
6.875%, 3/1/12 A/A- 1,000,000 1,106,720
- -----------------------------------------------------------------------------------------------------------
New York State Housing Finance Agency
Revenue Refunding Bonds, New York City Health
Facility, Series A, 7.90%, 11/1/99 Baa2/BBB+ 7,000,000 7,690,157
- -----------------------------------------------------------------------------------------------------------
New York State Local Government Assistance Corp.
Revenue Bonds, Prerefunded, Series A, 7%, 4/1/16 Aaa/AAA 10,000,000 11,437,439
- -----------------------------------------------------------------------------------------------------------
New York State Local Government Assistance Corp.
Revenue Bonds, Prerefunded, Series B, 7.375%, 4/1/12 Aaa/AAA/AAA 3,750,000 4,353,742
- -----------------------------------------------------------------------------------------------------------
New York State Local Government Assistance Corp.
Revenue Bonds, Series A, 7.125%, 4/1/11 A/A/A+ 745,000 838,951
</TABLE>
<PAGE>
STATEMENT OF INVESTMENTS (Continued)
<TABLE>
<CAPTION>
RATINGS: MOODY'S/
S&P'S/FITCH'S FACE MARKET VALUE
(UNAUDITED) AMOUNT SEE NOTE 1
==========================================================================================================
<S> <C> <C> <C>
NEW YORK (CONTINUED)
New York State Local Government Assistance Corp.
Revenue Bonds, Series D, 7%, 4/1/11 A/A/A+ $ 900,000 $ 1,015,540
- ----------------------------------------------------------------------------------------------------------
New York State Medical Care Facilities Finance
Agency Revenue Bonds, St. Luke's Hospital,
Prerefunded, Series B, 7.40%, 2/15/09 Aaa/AAA 1,400,000 1,593,945
- ----------------------------------------------------------------------------------------------------------
New York State Mtg. Agency Revenue Bonds,
Ninth Series B, 8.30%, 10/1/17 Aa/NR 1,715,000 1,773,776
- ----------------------------------------------------------------------------------------------------------
New York State Power Authority Revenue Bonds,
Series V, 7.875%, 1/1/07 Aa/AA 3,000,000 3,259,995
- ----------------------------------------------------------------------------------------------------------
New York State Thruway Authority Highway &
Bridge Trust Fund Revenue Bonds,
Series A, MBIA Insured, 5.50%, 4/1/15 Aaa/AAA/AAA 4,000,000 4,063,415
- ----------------------------------------------------------------------------------------------------------
Port Authority of New York & New Jersey Consolidated
Revenue Bonds, Series Fifty-One E, 7%, 12/1/14 A1/NR 2,000,000 2,096,736
- ----------------------------------------------------------------------------------------------------------
Triborough Bridge & Tunnel Authority of
New York General Purpose Revenue Bonds,
Prerefunded, Series R, 7.375%, 1/1/10 Aaa/AAA 1,220,000 1,378,641
-----------
112,594,883
==========================================================================================================
OHIO--1.6%
Cleveland, Ohio Public Power System First Mtg.
Revenue Bonds, Series A, MBIA Insured, 7%, 11/15/16 Aaa/AAA 2,000,000 2,252,640
- ----------------------------------------------------------------------------------------------------------
Northeast Ohio Regional Sewer District Wastewater
Revenue Bonds, AMBAC Insured, 6.50%, 11/15/16 Aaa/AAA/AAA 1,000,000 1,115,957
- ----------------------------------------------------------------------------------------------------------
Ohio Housing Finance Agency Single Family Mtg.
Revenue Bonds, Series B, Inverse Floater,
9.477%, 3/1/31(2) Aaa/AAA 5,680,000 6,181,027
- ----------------------------------------------------------------------------------------------------------
Ohio State Building Authority Revenue Bonds,
Juvenile Correctional Projects, Series A,
AMBAC Insured, 6.60%, 10/1/14 Aaa/AAA/AAA 500,000 546,971
- ----------------------------------------------------------------------------------------------------------
Summit County, Ohio General Obligation Revenue
Bonds, 6.625%, 12/1/12 Aaa/AAA/AAA 1,200,000 1,300,347
-----------
11,396,942
==========================================================================================================
OKLAHOMA--0.7%
McGee Creek Authority of Oklahoma Water
Revenue Bonds, MBIA Insured, 6%, 1/1/23 Aaa/AAA 1,000,000 1,074,326
- ----------------------------------------------------------------------------------------------------------
Muskogee, Oklahoma Industrial Trust Pollution
Control Revenue Bonds, Oklahoma Gas &
Electric Co., Series A, 7%, 3/1/17 A1/AA- 1,575,000 1,646,275
- ----------------------------------------------------------------------------------------------------------
Oklahoma State Industrial Authority Revenue
Refunding Bonds, Baptist Medical Center,
Prerefunded, Series A, AMBAC Insured, 7%, 8/15/14 Aaa/AAA/AAA 1,400,000 1,494,582
- ----------------------------------------------------------------------------------------------------------
Oklahoma State Industrial Authority Revenue
Refunding Bonds, Sisters of Mercy,
Series A, 5%, 6/1/18 Aa/AA 1,000,000 928,685
-----------
5,143,868
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RATINGS: MOODY'S/
S&P'S/FITCH'S FACE MARKET VALUE
(UNAUDITED) AMOUNT SEE NOTE 1
==========================================================================================================
<S> <C> <C> <C>
PENNSYLVANIA--7.6%
Delaware County, Pennsylvania Industrial
Development Authority Revenue Refunding Bonds,
Resource Recovery Project, Series A, 8.10%, 12/1/13 Aa3/AA- $ 3,320,000 $ 3,505,302
- ----------------------------------------------------------------------------------------------------------
Pennsylvania Economic Development Financing
Authority Resource Recovery Revenue Bonds,
Colver Project, Series D, 7.15%, 12/1/18 NR/BBB- 3,000,000 3,270,891
- ----------------------------------------------------------------------------------------------------------
Pennsylvania State General Obligation Bonds,
Second Series A, 6.60%, 11/1/11 A1/AA-/AA- 810,000 889,581
- ----------------------------------------------------------------------------------------------------------
Pennsylvania State General Obligation
Refunding Bonds, First Series, 5%, 4/15/13 A1/AA-/AA- 9,165,000 8,916,105
- ----------------------------------------------------------------------------------------------------------
Pennsylvania State Higher Education Assistance
Agency Student Loan Revenue Bonds, AMBAC
Insured, Inverse Floater, 8.025%, 3/1/22(2) Aaa/AAA/AAA 17,500,000 18,219,931
- ----------------------------------------------------------------------------------------------------------
Pennsylvania State Higher Education Assistance
Agency Student Loan Revenue Bonds,
Series C, AMBAC Insured, 7.15%, 9/1/21 Aaa/AAA/AAA 500,000 562,678
- ----------------------------------------------------------------------------------------------------------
Pennsylvania State Industrial Development Authority
Economic Development Revenue Bonds, Prerefunded,
Series A, 7%, 1/1/11 NR/A-/AAA 2,000,000 2,288,572
- ----------------------------------------------------------------------------------------------------------
Pennsylvania State Turnpike Commission Revenue
Refunding Bonds, Series N, 6.50%, 12/1/13 Aaa/AAA 750,000 819,831
- ----------------------------------------------------------------------------------------------------------
Philadelphia, Pennsylvania Municipal Authority
Justice Lease Revenue Bonds, Prerefunded,
Series B, FGIC Insured, 7.125%, 11/15/18 Aaa/AAA/AAA 1,255,000 1,450,169
- ----------------------------------------------------------------------------------------------------------
Philadelphia, Pennsylvania Water &
Sewer Revenue Refunding Bonds,
Escrowed to Maturity, Tenth Series, 7.35%, 9/1/04 Aaa/AAA 2,230,000 2,601,736
- ----------------------------------------------------------------------------------------------------------
Philadelphia, Pennsylvania Water &
Wastewater Revenue Bonds, FGIC Insured, 10%, 6/15/05 Aaa/AAA/AAA 6,100,000 8,382,260
- ----------------------------------------------------------------------------------------------------------
Schuylkill County, Pennsylvania Industrial Development
Authority Resource Recovery Revenue Refunding Bonds,
Schuylkill Energy Resources, Inc., 6.50%, 1/1/10 NR/NR 3,000,000 3,116,184
-----------
54,023,240
==========================================================================================================
SOUTH CAROLINA--1.9%
Piedmont, South Carolina Municipal Power
Agency Electrical Revenue Refunding Bonds,
Series A, FGIC Insured, 6.50%, 1/1/16 Aaa/AAA/AAA 2,000,000 2,259,160
- ----------------------------------------------------------------------------------------------------------
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 11,266,869
-----------
13,526,029
==========================================================================================================
SOUTH DAKOTA--0.1%
South Dakota State Housing Development
Authority Revenue Bonds, Homeowner Mtg.
Project, Series D-2, 6.15%, 5/1/26 Aa1/AA+ 1,000,000 1,012,646
</TABLE>
<PAGE>
STATEMENT OF INVESTMENTS (Continued)
<TABLE>
<CAPTION>
RATINGS: MOODY'S/
S&P'S/FITCH'S FACE MARKET VALUE
(UNAUDITED) AMOUNT SEE NOTE 1
===========================================================================================================
<S> <C> <C> <C>
TEXAS--13.3%
Alliance Airport Authority, Inc.,
Texas Special Facility Revenue Bonds,
American Airlines, Inc. Project, 7%, 12/1/11 Baa2/BB+ $ 3,000,000 $ 3,317,874
- -----------------------------------------------------------------------------------------------------------
Alliance Airport Authority, Inc., Texas Special
Facility Revenue Bonds, American Airlines, Inc.
Project, 7.50%, 12/1/29 Baa2/BB+ 12,500,000 13,387,199
- -----------------------------------------------------------------------------------------------------------
Brazos River Authority, Texas Pollution Control
Revenue Bonds, Texas Utilities Electric Co. Project,
Series A, 8.25%, 1/1/19 Baa2/BBB+/BBB 1,500,000 1,651,054
- -----------------------------------------------------------------------------------------------------------
Cypress-Fairbanks, Texas Independent School
District General Obligation Capital Appreciation
Refunding Bonds, Series A, Zero Coupon:
6.09%, 2/15/14(4) Aaa/AAA 15,710,000 5,937,688
5.85%, 2/15/15(4) Aaa/AAA 15,000,000 5,373,058
7.90%, 2/15/16(4) Aaa/AAA 16,240,000 5,545,748
- -----------------------------------------------------------------------------------------------------------
Dallas-Fort Worth, Texas International Airport
Facility Improvement Corp. Revenue Bonds,
American Airlines, Inc., 7.25%, 11/1/30 Baa2/BB+ 8,000,000 8,558,767
- -----------------------------------------------------------------------------------------------------------
Harris County, Texas General Obligation Revenue
Refunding Bonds, Toll Road Project, 6.75%, 8/1/14 Aa/AA 1,000,000 1,090,313
- -----------------------------------------------------------------------------------------------------------
Harris County, Texas General Obligation
Revenue Refunding Bonds, Toll Road Project,
Series A, 6.50%, 8/15/15 Aa/AA 1,000,000 1,080,979
- -----------------------------------------------------------------------------------------------------------
Houston, Texas Airport System Revenue Bonds,
Sub Lien, Series B, FGIC Insured, 6.625%, 7/1/22 Aaa/AAA/AAA 1,000,000 1,084,307
- -----------------------------------------------------------------------------------------------------------
Houston, Texas Water & Sewer System Revenue
Refunding Bonds, Prior Lien, Series B, 6.40%, 12/1/09 A/A/A 1,000,000 1,081,159
- -----------------------------------------------------------------------------------------------------------
Houston, Texas Water & Sewer System Revenue
Refunding Bonds, Prior Lien, Series B, 6.75%, 12/1/08 A/A/A 500,000 543,216
- -----------------------------------------------------------------------------------------------------------
North Central Texas Health Facility Development Corp.
Hospital Revenue Bonds, Baylor Health Care Project,
Series B, Inverse Floater, 7.45%, 5/15/06(2) Aa/AA 3,000,000 3,196,443
- -----------------------------------------------------------------------------------------------------------
North Central Texas Health Facility Development Corp.
Hospital Revenue Bonds, Baylor Health Care Project,
Series B, Inverse Floater, 7.55%, 5/15/08(2) Aa/AA 5,000,000 5,326,075
- -----------------------------------------------------------------------------------------------------------
San Antonio, Texas Electric & Gas Improvement
Revenue Refunding Bonds, 5%, 2/1/14 Aa1/AA/AA+ 13,150,000 12,783,377
- -----------------------------------------------------------------------------------------------------------
Texas Municipal Power Agency Capital Appreciation
Revenue Refunding Bonds, MBIA Insured, Zero Coupon:
5.93%, 9/1/14(4) Aaa/AAA/A+ 17,500,000 6,447,138
5.85%, 9/1/15(4) Aaa/AAA/A+ 10,000,000 3,498,929
7.91%, 9/1/16(4) Aaa/AAA/A+ 39,990,000 13,318,386
- -----------------------------------------------------------------------------------------------------------
Texas State General Obligation Bonds, Veterans
Housing Assistance Fund II, Series A, 6.80%, 12/1/10 Aa/AA 1,000,000 1,060,891
-----------
94,282,601
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RATINGS: MOODY'S/
S&P'S/FITCH'S FACE MARKET VALUE
(UNAUDITED) AMOUNT SEE NOTE 1
==========================================================================================================
<S> <C> <C> <C>
UTAH--0.2%
Intermountain Power Agency of Utah Power
Supply Revenue Bonds, Series 86 C, 7.50%, 7/1/16 Aa/AA- $ 1,435,000 $ 1,489,345
===========================================================================================================
VERMONT--0.2%
Vermont Housing Finance Agency Home Mtg.
Purchase Revenue Bonds, Series A, 7.85%, 12/1/29 A1/NR 1,570,000 1,665,658
===========================================================================================================
VIRGINIA--0.7%
Richmond, Virginia General Obligation
Refunding Bonds, Public Improvement Project,
Series B, 6.25%, 1/15/18 A1/AA 2,250,000 2,364,793
- -----------------------------------------------------------------------------------------------------------
Southeastern Public Service Authority of Virginia
Revenue Bonds, Regional Solid Waste System, 6%, 7/1/13 Baa1/A- 1,000,000 1,003,586
- -----------------------------------------------------------------------------------------------------------
Virginia State Housing Development Authority
Commonwealth Mtg. Revenue Bonds,
Subseries B-4, 6.55%, 1/1/27 Aa1/A+ 1,000,000 1,033,274
- -----------------------------------------------------------------------------------------------------------
Virginia State Transportation Board Contract
Revenue Bonds, Northern Virginia Transportation
District Program, Series C, 5.25%, 5/15/19 Aa/AA 1,000,000 987,999
-----------
5,389,652
===========================================================================================================
WASHINGTON--4.3%
Washington State Public Power Supply System
Revenue Bonds, Nuclear Project No. 1, 5.26%, 7/1/12 Aa/AA/AA- 30,000,000 28,723,585
- -----------------------------------------------------------------------------------------------------------
Washington State Public Power Supply System
Revenue Refunding Bonds, Nuclear Project No. 1,
Series A, 7.50%, 7/1/15 Aa/AA 1,500,000 1,650,561
------------
30,374,146
===========================================================================================================
WEST VIRGINIA--0.7%
Braxton County, West Virginia Solid Waste Disposal
Revenue Bonds, Weyerhaeuser Co. Project, 6.50%, 4/1/25 A2/A 1,000,000 1,052,931
West Virginia State Parkways Economic
Development & Tourism Authority Revenue Bonds,
Inverse Floater, 7.281%, 5/16/19(2) Aaa/AAA 3,600,000 3,746,879
-----------
4,799,810
===========================================================================================================
WISCONSIN--0.2%
Wisconsin Housing & Economic Development
Authority Home Ownership Revenue Refunding Bonds,
Series A, 7.10%, 3/1/23 Aa/AA 740,000 782,595
- -----------------------------------------------------------------------------------------------------------
Wisconsin State Health & Educational Facilities
Authority Revenue Refunding Bonds,
Sisters Services, Inc., 5.25%, 6/1/10 Aaa/AAA 750,000 748,465
-----------
1,531,060
</TABLE>
<PAGE>
STATEMENT OF INVESTMENTS (Continued)
<TABLE>
<CAPTION>
RATINGS: MOODY'S/
S&P'S/FITCH'S FACE MARKET VALUE
(UNAUDITED) AMOUNT SEE NOTE 1
=============================================================================================================
<S> <C> <C> <C>
U.S. POSSESSIONS--3.8%
Puerto Rico Commonwealth Highway &
Transportation Authority Revenue Bonds,
Prerefunded, Series S, 6.625%, 7/1/18 NR/AAA $ 5,000,000 $ 5,696,844
- -------------------------------------------------------------------------------------------------------------
Puerto Rico Commonwealth Highway &
Transportation Authority Revenue Bonds,
Unrefunded Balance, Series T, 6.625%, 7/1/18 Baa1/A 6,000,000 6,426,575
- -------------------------------------------------------------------------------------------------------------
Puerto Rico Commonwealth Highway Authority
Revenue Bonds, Series Q, 7.75%, 7/1/10 NR/AAA 1,000,000 1,163,626
- -------------------------------------------------------------------------------------------------------------
Puerto Rico Electric Power Authority Revenue
Bonds, Prerefunded, Series O, 7.125%, 7/1/14 Baa1/AAA 3,000,000 3,338,319
- -------------------------------------------------------------------------------------------------------------
Puerto Rico Electric Power Authority Revenue
Bonds, Series X, 6%, 7/1/15 Baa1/A- 4,000,000 4,155,000
- -------------------------------------------------------------------------------------------------------------
Puerto Rico Electric Power Authority Revenue
Bonds, Unrefunded Balance, Series O,
7.125%, 7/1/14 Baa1/A- 2,350,000 2,553,045
- -------------------------------------------------------------------------------------------------------------
Puerto Rico Electric Power Authority Revenue
Refunding Bonds, Series Z, 5.50%, 7/1/16 Baa1/A- 3,500,000 3,500,000
------------
26,833,409
=============================================================================================================
TOTAL INVESTMENTS, AT VALUE (COST $661,791,657) 99.4% 704,663,567
=============================================================================================================
OTHER ASSETS NET OF LIABILITIES 0.6 4,272,438
----------- ------------
NET ASSETS 100.0% $708,936,005
=========== ============
</TABLE>
1. Non-income producing--issuer is in default of interest payment.
2. Represents the current interest rate for a variable rate bond. 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
$70,476,258 or 9.94% of the Fund's net assets at December 31, 1995.
3. Securities with an aggregate market value of $2,076,611 are held in
collateralized accounts to cover initial margin requirements on open futures
sales contracts. See Note 7.
4. For zero coupon bonds, the interest rate shown is the effective yield on the
date of purchase.
As of December 31, 1995, securities subject to the alternative minimum tax
amounted to $114,158,148 or 16.10% of the Fund's net assets.
See accompanying Notes to Financial Statements.
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES December 31, 1995
<TABLE>
<S> <C>
====================================================================================================
ASSETS
Investments, at value (cost $661,791,657)--see accompanying statement $704,663,567
- ----------------------------------------------------------------------------------------------------
Receivables:
Interest 12,626,996
Shares of beneficial interest sold 782,881
- ----------------------------------------------------------------------------------------------------
Other 50,348
------------
Total assets 718,123,792
====================================================================================================
LIABILITIES
Bank overdraft 81,129
- ----------------------------------------------------------------------------------------------------
Payable for daily variation on futures contracts--Note 7 206,250
- ----------------------------------------------------------------------------------------------------
Payables and other liabilities:
Investments purchased 4,026,301
Dividends 2,250,832
Shares of beneficial interest redeemed 1,987,127
Distribution and service plan fees 361,447
Trustees' fees 178,058
Transfer and shareholder servicing agent fees 11,636
- ----------------------------------------------------------------------------------------------------
Other 85,007
------------
Total liabilities 9,187,787
====================================================================================================
NET ASSETS $708,936,005
============
====================================================================================================
COMPOSITION OF
NET ASSETS
Paid-in capital $675,555,740
- ----------------------------------------------------------------------------------------------------
Undistributed net investment income 591,821
- ----------------------------------------------------------------------------------------------------
Accumulated net realized loss on investments (9,314,716)
- ----------------------------------------------------------------------------------------------------
Net unrealized appreciation on investments--Note 3 42,103,160
------------
Net assets $708,936,005
============
====================================================================================================
NET ASSET VALUE
PER SHARE
Class A Shares:
Net asset value and redemption price per share (based on net assets of
$634,472,582 and 63,603,708 shares of beneficial interest outstanding) $ 9.98
Maximum offering price per share (net asset value plus sales
charge of 4.75% of offering price) $10.48
- ----------------------------------------------------------------------------------------------------
Class B Shares:
Net asset value, redemption price and offering price per share
(based on net assets of $72,488,220 and 7,276,506 shares of
beneficial interest outstanding) $ 9.96
- ----------------------------------------------------------------------------------------------------
Class C Shares:
Net asset value, redemption price and offering price per share
(based on net assets of $1,975,203 and 198,247 shares of
beneficial interest outstanding) $ 9.96
</TABLE>
See accompanying Notes to Financial Statements.
<PAGE>
STATEMENT OF OPERATIONS For the Year Ended December 31, 1995
<TABLE>
<S> <C>
====================================================================================================
INVESTMENT INCOME
Interest $41,392,406
====================================================================================================
EXPENSES
Management fees--Note 4 3,351,982
- ----------------------------------------------------------------------------------------------------
Distribution and service plan fees--Note 4:
Class A 1,216,878
Class B 636,220
Class C 5,096
- ----------------------------------------------------------------------------------------------------
Transfer and shareholder servicing agent fees--Note 4 390,854
- ----------------------------------------------------------------------------------------------------
Shareholder reports 202,087
- ----------------------------------------------------------------------------------------------------
Custodian fees and expenses 97,981
- ----------------------------------------------------------------------------------------------------
Trustees' fees and expenses 78,493
- ----------------------------------------------------------------------------------------------------
Legal and auditing fees 60,278
- ----------------------------------------------------------------------------------------------------
Insurance expenses 37,705
- ----------------------------------------------------------------------------------------------------
Registration and filing fees:
Class A 11,418
Class B 3,762
Class C 10
- ----------------------------------------------------------------------------------------------------
Other 27,680
-----------
Total expenses 6,120,444
Less reimbursement of expenses by OppenheimerFunds, Inc.--Note 4 (8,207)
-----------
Net expenses 6,112,237
====================================================================================================
NET INVESTMENT INCOME 35,280,169
====================================================================================================
REALIZED AND
UNREALIZED GAIN (LOSS)
Net realized gain (loss) on:
Investments 3,082,001
- ----------------------------------------------------------------------------------------------------
Closing of futures contracts (13,142,188)
------------
Net realized loss (10,060,187)
- ----------------------------------------------------------------------------------------------------
Net change in unrealized appreciation or depreciation on investments 79,929,069
-----------
Net realized and unrealized gain 69,868,882
====================================================================================================
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $105,149,051
============
</TABLE>
See accompanying Notes to Financial Statements.
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1995 1994
==============================================================================================================
<S> <C> <C>
OPERATIONS
Net investment income $ 35,280,169 $ 36,938,871
- --------------------------------------------------------------------------------------------------------------
Net realized loss (10,060,187) (507,588)
- --------------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation or depreciation 79,929,069 (97,929,896)
------------- -------------
Net increase (decrease) in net assets resulting from operations 105,149,051 (61,498,613)
==============================================================================================================
DIVIDENDS AND
DISTRIBUTIONS TO
SHAREHOLDERS
Dividends from net investment income:
Class A (31,334,557) (34,265,091)
Class B (3,003,846) (2,383,056)
Class C (19,720) --
- --------------------------------------------------------------------------------------------------------------
Distributions in excess of net investment income:
Class A (1,231,760) --
Class B (140,728) --
Class C (3,835) --
- --------------------------------------------------------------------------------------------------------------
Distributions in excess of net realized gain:
Class A -- (261,506)
Class B -- (19,061)
==============================================================================================================
BENEFICIAL INTEREST
TRANSACTIONS
Net increase in net assets resulting from
beneficial interest transactions--Note 2:
Class A--Notes 5 and 6 30,679,725 24,534,984
Class B 12,510,842 27,145,605
Class C 1,925,528 --
==============================================================================================================
NET ASSETS
Total increase (decrease) 114,530,700 (46,746,738)
- --------------------------------------------------------------------------------------------------------------
Beginning of period 594,405,305 641,152,043
------------ ------------
End of period [including undistributed (overdistributed) net
investment income of $591,821 and $(922,046), respectively] $708,936,005 $594,405,305
============ ============
</TABLE>
See accompanying Notes to Financial Statements.
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CLASS A
----------------------------------------------------
YEAR ENDED DECEMBER 31,
1995 1994 1993 1992 1991
============================================================================================================
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING DATA:
Net asset value, beginning of period $8.93 $10.44 $9.94 $9.77 $9.33
- ------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .54 .57 .59 .62 .64
Net realized and unrealized
gain (loss) 1.06 (1.52) .74 .25 .45
-------- -------- -------- -------- --------
Total income (loss) from
investment operations 1.60 (.95) 1.33 .87 1.09
- ------------------------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net
investment income (.54) (.56) (.62) (.58) (.65)
Dividends in excess of net
investment income (.01) -- -- -- --
Distributions from net realized gain -- -- (.21) (.12) --
Distributions in excess of
net realized gain -- --(4) -- -- --
-------- -------- -------- -------- --------
Total dividends and distributions
to shareholders (.55) (.56) (.83) (.70) (.65)
- ------------------------------------------------------------------------------------------------------------
Net asset value, end of period $9.98 $8.93 $10.44 $9.94 $9.77
======== ======== ======== ======== ========
============================================================================================================
TOTAL RETURN, AT NET ASSET VALUE(5) 18.28% (9.19)% 13.79% 9.20% 12.11%
============================================================================================================
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(in thousands) $634,473 $541,161 $608,128 $496,628 $394,115
- ------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $569,859 $582,038 $567,777 $438,684 $319,081
- ------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income 5.65% 5.94% 5.71% 6.34% 6.70%
Expenses .88% .88% .88% .94% .89%
- ------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(7) 25.1% 21.7% 30.2% 34.2% 23.5%
</TABLE>
1. For the period from August 29, 1995 (inception of offering) to
December 31, 1995.
2. For the period from March 16, 1993 (inception of offering) to December 31,
1993.
3. 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.
4. Less than $.005 per share.
5. Assumes a hypothetical initial investment on the business day before the
first day of the fiscal period, with all dividends and distributions reinvested
in additional shares on the reinvestment date, and redemption at the net asset
value calculated on the last business day of the fiscal period. Sales charges
are not reflected in the total returns. Total returns are not annualized for
periods of less than one full year.
<PAGE>
<TABLE>
<CAPTION>
CLASS A
------------------------------------------------------------
YEAR ENDED DECEMBER 31,
1990 1989 1988 1987 1986
===================================================================================================================
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING DATA:
Net asset value, beginning of period $ 9.45 $ 9.27 $ 9.12 $ 9.81 $ 8.80
- -------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .66 .65(3) .77(3) .69 .69
Net realized and unrealized
gain (loss) (.12) .20 .07 (.70) .99
-------- -------- -------- -------- --------
Total income (loss) from
investment operations .54 .85 .84 (.01) 1.68
- -------------------------------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net
investment income (.66) (.67) (.69) (.68) (.67)
Dividends in excess of net
investment income -- -- -- -- --
Distributions from net realized gain -- -- -- -- --
Distributions in excess of
net realized gain -- -- -- -- --
-------- -------- -------- -------- --------
Total dividends and distributions
to shareholders (.66) (.67) (.69) (.68) (.67)
- -------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 9.33 $ 9.45 $ 9.27 $ 9.12 $ 9.81
======== ======== ======== ======== ========
===================================================================================================================
TOTAL RETURN, AT NET ASSET VALUE(5) 5.93% 9.42% 10.03% 0.00% 19.75%
===================================================================================================================
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(in thousands) $256,542 $223,904 $172,227 $133,508 $132,234
- -------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $238,224 $202,216 $150,901 $135,052 $112,189
Ratios to average net assets:
Net investment income 7.08% 7.18% 7.48% 7.41% 7.33%
Expenses .89% .82%(3) .72%(3) .78% .78%
- -------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(7) 29.3% 57.2% 22.9% 29.4% 27.8%
</TABLE>
<TABLE>
<CAPTION>
CLASS B CLASS C
------------------------------- --------
PERIOD
ENDED
YEAR ENDED DECEMBER 31, DEC. 31,
1995 1994 1993(2) 1995(1)
===================================================================================================
<S> <C> <C> <C> <C>
PER SHARE OPERATING DATA:
Net asset value, beginning of period $ 8.92 $ 10.43 $ 10.22 $ 9.58
- ---------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .47 .50 .41 .15
Net realized and unrealized
gain (loss) 1.05 (1.52) .43 .39
------- ------- ------- ------
Total income (loss) from
investment operations 1.52 (1.02) .84 .54
- ---------------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net
investment income (.47) (.49) (.42) (.15)
Dividends in excess of net
investment income (.01) -- -- (.01)
Distributions from net realized gain -- -- (.21) --
Distributions in excess of
net realized gain -- --(4) -- --
------- ------- ------- ------
Total dividends and distributions
to shareholders (.48) (.49) (.63) (.16)
- ---------------------------------------------------------------------------------------------------
Net asset value, end of period $ 9.96 $ 8.92 $ 10.43 $ 9.96
======= ======= ======= ======
===================================================================================================
TOTAL RETURN, AT NET ASSET VALUE(5) 17.30% (9.91)% 8.49% 5.64%
===================================================================================================
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(in thousands) $72,488 $53,245 $33,024 $1,975
- ---------------------------------------------------------------------------------------------------
Average net assets (in thousands) $63,669 $46,548 $16,444 $1,506
- ---------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income 4.84% 5.11% 4.54%(6) 4.49%(6)
Expenses 1.68% 1.69% 1.74%(6) 1.64%(6)
- ---------------------------------------------------------------------------------------------------
Portfolio turnover rate(7) 25.1% 21.7% 30.2% 25.1%
</TABLE>
6. Annualized.
7. The lesser of purchases or sales of portfolio securities for a
period, divided by the monthly average of the market value of portfolio
securities owned during the period. Securities with a maturity or expiration
date at the time of acquisition of one year or less are excluded from the
calculation. Purchases and sales of investment securities (excluding short-term
securities) for the period ended December 31, 1995 were $156,853,184 and
$193,822,382, respectively. See accompanying Notes to Financial Statements.
<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 objective is to seek the maximum
current income exempt from federal income taxes for individual investors that
is consistent with preservation of capital. The Fund's investment advisor is
OppenheimerFunds, Inc. (the Manager). The Fund offers Class A, Class B and
Class C shares. Class A shares are sold with a front-end sales charge. Class B
and Class C shares may be subject to a contingent deferred sales charge. All
three classes of shares have identical rights to earnings, assets and voting
privileges, except that each class has its own distribution and/or service
plan, expenses directly attributable to a particular class and exclusive voting
rights with respect to matters affecting a single class. Class B shares will
automatically convert to Class A shares six years after the date of purchase.
The following is a summary of significant accounting policies consistently
followed by the Fund.
- -------------------------------------------------------------------------------
INVESTMENT VALUATION. Portfolio securities are valued at the close of the New
York Stock Exchange on each trading day. Listed and unlisted securities for
which such information is regularly reported are valued at the last sale price
of the day or, in the absence of sales, at values based on the closing bid or
asked price or the last sale price on the prior trading day. Long-term and
short-term ``non-money market'' debt securities are valued by a portfolio
pricing service approved by the Board of Trustees. Such securities which cannot
be valued by the approved portfolio pricing service are valued using
dealer-supplied valuations provided the Manager is satisfied that the firm
rendering the quotes is reliable and that the quotes reflect current market
value, or are valued under consistently applied procedures established by the
Board of Trustees to determine fair value in good faith. Short-term ``money
market type'' debt securities having a remaining maturity of 60 days or less
are valued at cost (or last determined market value) adjusted for amortization
to maturity of any premium or discount.
- -------------------------------------------------------------------------------
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 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 or excise tax provision is required. At December 31, 1995, the
Fund had available for federal income tax purposes an unused capital loss
carryover of approximately $9,627,000, which expires between 2001 and 2003.
- -------------------------------------------------------------------------------
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, 1995, a provision of $49,149 was made for the Fund's projected
benefit obligations, and a payment of $2,280 was made to a retired trustee,
resulting in an accumulated liability of $150,393 at December 31, 1995.
- -------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS. The Fund intends to declare dividends separately
for Class A, Class B and Class C shares from net investment income each day the
New York Stock Exchange is open for business and pay such dividends monthly.
Distributions from net realized gains on investments, if any, will be declared
at least once each year.
- -------------------------------------------------------------------------------
CLASSIFICATION OF DISTRIBUTIONS TO SHAREHOLDERS. Net investment income (loss)
and net realized gain (loss) may differ for financial statement and tax
purposes primarily because of premium amortization. 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.
During the year ended December 31, 1995, 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, during the year ended
December 31, 1995, amounts have been reclassified to reflect a decrease in
overdistributed net investment income of $1,968,144, a decrease in paid-in
capital of $3,031,146, and a decrease in accumulated net realized loss on
investments of $1,063,002.
<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. For bonds acquired after April
30, 1993, on disposition or maturity, taxable ordinary income is recognized to
the extent of the lesser of gain or market discount that would have accrued
over the holding period. 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.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of income and expenses during the reporting
period. Actual results could differ from those estimates.
===============================================================================
2. SHARES OF
BENEFICIAL INTEREST
The Fund has authorized an unlimited number of no par value shares of
beneficial interest of each class. Transactions in shares of beneficial
interest were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995(1) YEAR ENDED DECEMBER 31, 1994
---------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A:
Sold 7,178,151 $ 68,805,897 11,090,618 $ 105,903,608
Issued in connection with the
acquisition of MI Fund, Inc.--Note 5 -- -- 3,087,731 29,920,109
Issued in connection with the
acquisition of Quest National Tax-
Exempt Fund--Note 6 7,276,353 71,599,310 -- --
Dividends and distributions reinvested 2,221,310 21,323,241 2,417,816 22,986,092
Redeemed (13,705,703) (131,048,723) (14,239,737) (134,274,825)
----------- -------------- ----------- --------------
Net increase 2,970,111 $ 30,679,725 2,356,428 $ 24,534,984
=========== ============== =========== ==============
- ---------------------------------------------------------------------------------------------------------
Class B:
Sold 2,306,017 $ 22,148,575 3,851,883 $ 36,866,795
Dividends and distributions reinvested 219,509 2,106,903 167,254 1,573,591
Redeemed (1,221,000) (11,744,636) (1,213,330) (11,294,781)
----------- -------------- ----------- --------------
Net increase 1,304,526 $ 12,510,842 2,805,807 $ 27,145,605
=========== ============== =========== ==============
- ---------------------------------------------------------------------------------------------------------
Class C:
Sold 223,883 $ 2,176,098 -- $ --
Dividends and distributions reinvested 553 5,492 -- --
Redeemed (26,189) (256,062) -- --
----------- -------------- ----------- --------------
Net increase 198,247 $ 1,925,528 -- $ --
=========== ============== =========== ==============
</TABLE>
1. For the year ended December 31, 1995 for both Class A and B shares and for
the period from August 29, 1995 (inception of offering) to December 31, 1995
for Class C shares.
===============================================================================
3. UNREALIZED GAINS AND
LOSSES ON INVESTMENTS
At December 31, 1995, net unrealized appreciation on investments of $42,103,160
was composed of gross appreciation of $45,337,315, and gross depreciation of
$3,234,155.
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Continued)
===============================================================================
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 a fee of .60% on the first
$200 million of average annual 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.
The Manager has agreed to reimburse the Fund for SEC fees incurred in
connection with the acquisition of Quest National Tax Exempt Fund.
For the year ended December 31, 1995, commissions (sales charges paid
by investors) on sales of Class A shares totaled $997,010, of which $303,595
was retained by OppenheimerFunds Distributor, Inc. (OFDI), a subsidiary of the
Manager, as general distributor, and by an affiliated broker/dealer. Sales
charges advanced to broker/dealers by OFDI on sales of the Fund's Class B and
Class C shares totaled $545,411 and $19,995, of which $34,419 and $308,
respectively, was paid to an affiliated broker/dealer. During the year ended
December 31, 1995, OFDI received contingent deferred sales charges of $252,678
and $1,167, respectively, upon redemption of Class B and Class C shares as
reimbursement for sales commissions advanced by OFDI at the time of sale of
such shares.
OppenheimerFunds Services (OFS), a division of the Manager, is the
transfer and shareholder servicing agent for the Fund, and for other registered
investment companies. OFS'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 compensate OFDI for costs incurred in connection with
the personal service and maintenance of accounts that hold shares of the Fund,
including amounts paid to brokers, dealers, banks and other institutions. In
addition, Class B and Class C shares are subject to an asset-based sales charge
of .75% of net assets annually, to compensate 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 or Class C 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 or Class C
shares sold prior to termination or discontinuance of the plan. At December 31,
1995, OFDI had incurred unreimbursed expenses of $2,467,348 for Class B and
$46,280 for Class C. During the year ended December 31, 1995, OFDI paid
$109,107 and $7,883, respectively, to an affiliated broker/dealer as
compensation for Class A and Class B personal service and maintenance expenses,
and retained $525,736 and $4,913, respectively, as compensation for Class B and
Class C 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.
===============================================================================
6. ACQUISITION OF
QUEST NATIONAL
TAX-EXEMPT FUND
On November 24, 1995, Oppenheimer Tax-Free Bond Fund acquired all of the net
assets of Quest National Tax-Exempt Fund, pursuant to an Agreement and Plan of
Reorganization approved by the Quest National Tax-Exempt Fund shareholders on
November 16, 1995. The Fund issued 7,276,353 shares of beneficial interest,
valued at $71,599,310, in exchange for the net assets, resulting in combined
net assets of $711,397,113 on November 24, 1995. The net assets acquired
included net unrealized appreciation of $3,756,263. The exchange was tax-free.
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Continued)
===============================================================================
7. FUTURES CONTRACTS
The Fund may buy and sell interest rate futures contracts in order to gain
exposure to or protect against changes in interest rates. The Fund may also
buy or write put or call options on these futures contracts.
The Fund generally sells futures contracts to hedge against increases
in interest rates and the resulting negative effect on the value of fixed rate
portfolio securities. The Fund may also purchase futures contracts to gain
exposure to changes in interest rates as it may be more efficient or cost
effective than actually buying fixed income securities.
Upon entering into a futures contract, the Fund is required to deposit
either cash or securities in an amount (initial margin) equal to a certain
percentage of the contract value. Subsequent payments (variation margin) are
made or received by the Fund each day. The variation margin payments are equal
to the daily changes in the contract value and are recorded as unrealized gains
and losses. The Fund recognizes a realized gain or loss when the contract is
closed or expires.
Securities held in collateralized accounts to cover initial margin
requirements on open futures contracts are noted in the Statement of
Investments where applicable. The Statement of Assets and Liabilities reflects
a receivable or payable for the daily mark to market for variation margin.
Risks of entering into futures contracts (and related options) include
the possibility that there may be an illiquid market and that a change in the
value of the contract or option may not correlate with changes in the value of
the underlying securities.
At December 31, 1995, the Fund had outstanding futures contracts to sell debt
securities as follows:
<TABLE>
<CAPTION>
EXPIRATION NUMBER OF VALUATION AS OF UNREALIZED
DATE FUTURES CONTRACTS DECEMBER 31, 1995 DEPRECIATION
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury Bonds 3/96 600 $72,881,250 $(768,750)
</TABLE>
<PAGE>
Appendix A
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 B
Tax Exempt/Tax Equivalent Yields
The equivalent yield table below compares tax-free income with
taxable income under Federal income tax rates effective in 1996.
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% 7.00% 7.50%
Income Bracket Is Approximately Equivalent To a Taxable Yield of:
JOINT RETURN
Over Not over
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 0 $ 40,100 15.00% 4.12% 4.71% 5.29% 5.88% 6.47% 7.06% 7.65% 8.24% 7.82%
$ 40,100 $ 96,900 28.00% 4.86% 5.56% 6.25% 6.94% 7.64% 8.33% 9.03% 9.72% 10.42%
$ 96,900 $147,700 31.00% 5.07% 5.80% 6.52% 7.25% 7.97% 8.70% 9.42% 10.14% 10.87%
$147,700 $263,750 36.00% 5.47% 6.25% 7.03% 7.81% 8.59% 9.38% 10.16% 10.94% 11.72%
$263,750 and above 39.60% 5.79% 6.62% 7.45% 8.28% 9.11% 9.93% 10.76% 11.59% 12.42%
</TABLE>
<TABLE>
SINGLE RETURN
Over Not over
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 0 $ 24,000 15.00% 4.12% 4.71% 5.29% 5.88% 6.47% 7.06% 7.65% 8.24 8.82%
$ 24,000 $ 56,150 28.00% 4.86% 5.56% 6.25% 6.94% 7.64% 8.33% 9.03% 9.72% 10.42%
$ 56,150 $121,300 31.00% 5.07% 5.80% 6.52% 7.25% 7.97% 8.70% 9.42% 10.14% 10.87%
$121,300 $263,750 36.00% 5.47% 6.25% 7.03% 7.81% 8.59% 9.38% 10.16% 10.94% 11.72%
$263,750 and above 39.60% 5.79% 6.62% 7.45% 8.28% 9.11% 9.93% 10.76% 11.59% 12.42%
</TABLE>
<PAGE>
Appendix C
Municipal Bond Industry Classifications
General Obligation Bonds
Special Tax Bonds
Lease/Rental
Revenue
Education
Hospitals
Housing
Transportation
Utilities
Student Loans
Corporate Backed Municipals
Industrial Development
Pollution Control
<PAGE>
<PAGE>
Investment Adviser
OppenheimerFunds, Inc.
Two World Trade Center
New York, New York 10048-0203
Distributor
OppenheimerFunds Distributor, Inc.
Two World Trade Center
New York, New York 10048-0203
Transfer Agent
OppenheimerFunds 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 10154
Independent Auditors
KPMG Peat Marwick LLP
707 Seventeenth Street
Denver, Colorado 80202
Legal Counsel
Gordon Altman Butowsky Weitzen Shalov & Wein
114 West 47th Street
New York, New York 10036
