<PAGE> 1
ANNUAL REPORT JULY 31, 1997
OPPENHEIMER
MUNICIPAL
BOND FUND
[PHOTO]
[OPPENHEIMERFUNDS LOGO]
THE RIGHT WAY TO INVEST
<PAGE> 2
CONTENTS
3 President's Letter
4 Fund Performance
6 An Interview
with the Fund's
Managers
11 Statement of
Investments
20 Statement of
Assets &
Liabilities
22 Statement of
Operations
23 Statements of
Changes in
Net Assets
24 Financial Highlights
26 Notes to Financial
Statements
32 Independent
Auditors' Report
33 Federal
Income Tax
Information
34 Officers & Trustees
36 Information &
Services
REPORT HIGHLIGHTS
- --------------------------------------------------------------------------------
- - TOP QUARTILE RANKING: We outperformed many of our peers in the municipal bond
fund category for the one-year period ended July 31, 1997, according to Lipper
Analytical Services.(1)
- - STRONG ECONOMIC CONDITIONS throughout the United States led us to find
creditworthy investments in virtually every state and territory of the nation.
- - WE FOCUSED ON HIGHER-QUALITY BONDS, because investors weren't being
compensated for taking higher risks associated with lower-rated bonds.
TOTAL RETURNS
For the Year Ended 7/31/97(2)
CLASS A
1 year
10.97%
CLASS B
1 year
10.05%
CLASS C
1 year
10.03%
Total returns include changes in share price and reinvestment of dividends and
capital gains distributions in a hypothetical investment for the periods shown.
IN REVIEWING PERFORMANCE AND RANKINGS, PLEASE REMEMBER THAT PAST PERFORMANCE
DOES NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE OF AN
INVESTMENT IN THE FUND WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN
REDEEMED, MAY BE WORTH MORE OR LESS THAN THE ORIGINAL COST.
1. Source: Lipper Analytical Services, Inc., 7/31/97. Based on the comparisons
between changes in net asset value without considering sales charges, with
dividends and capital gains distributions of the Fund's Class A shares
reinvested. The Fund's Class A shares were ranked 43 of 226 (1-year), 36 of 109
(5-year) and 32 of 68 (10-year) among Municipal Bond funds for the period ended
7/31/97. Past performance does not guarantee future results.
2. Includes changes in net asset value per share without deducting any sales
charges. Such performance would have been lower if sales charges were taken
into account.
2 Oppenheimer Municipal Bond Fund
<PAGE> 3
[PHOTO]
BRIDGET A. MACASKILL
President
Oppenheimer
Municipal Bond Fund
DEAR SHAREHOLDER,
- --------------------------------------------------------------------------------
I'd like to welcome you to the premier issue of our newly redesigned
shareholder reports. As you can see, we've changed the format to allow easier
access to the information you need to monitor your investments. Some notable
additions are "at-a-glance" report highlights and charts that let you quickly
assess how your Fund has performed.
On the following pages, your portfolio team discuss their current
investment thinking, your Fund's strategies, and performance. Before these
commentaries, I'd like to share a few global observations.
As we consider the world's financial markets over the past twelve months,
some global trends emerge. For example, inflation has hit its lowest level in
three decades worldwide, which has helped spur many bullish financial markets.
The United States has been a beneficiary of this low-inflation environment, as
well as of a strong dollar, robust corporate earnings and a healthy economy.
However, many financial analysts are now concerned that the United States has
reached a point in the business cycle where earnings could decline because
companies are unable to further reduce costs.
On the other hand, a wave of corporate restructuring throughout Europe
has resulted in some exciting changes and opportunities. Because a similar
restructuring took place in the United States ten years ago, European companies
have been able to enjoy the benefit of hindsight by following our footsteps.
Latin America, too, has begun to shift its economies more toward the U.S.
capitalist model and has reported positive earnings growth along the way.
With major changes occurring in today's economies around the globe, it's
more important than ever to maintain a diversified portfolio across different
countries and market sectors. Now is the time to speak to your financial
adviser to ensure that your assets are allocated properly, so you have the
opportunity to benefit from investments in both domestic and international
funds. It's important to remember that investing abroad can involve greater
risk and expenses--including political and economic uncertainties--and should
be undertaken with a long-term approach in mind.
To keep in touch with our views on the markets, visit our website,
WWW.OPPENHEIMERFUNDS.COM, where you can access your account information and
fund performance data, 24 hours a day. The site also features prospectuses,
timely market updates and insightful commentaries. Our new shareholder reports
and presence on the Internet are just two examples of our commitment to keeping
you well informed.
Thank you for your confidence in OppenheimerFunds, The Right Way to
Invest. We look forward to helping you reach your investment goals in the
future.
Sincerely,
/s/ BRIDGET A. MACASKILL
Bridget A. Macaskill August 21, 1997
3 Oppenheimer Municipal Bond Fund
<PAGE> 4
AVG ANNUAL TOTAL RETURNS
For the Period Ended 6/30/97(1)
<TABLE>
<CAPTION>
CLASS A
1 year 5 year 10 year
<S> <C> <C>
4.09% 5.79% 7.29%
</TABLE>
<TABLE>
<CAPTION>
CLASS B
Since
1 year 5 year Inception
<S> <C> <C>
3.48% N/A 4.61%
</TABLE>
<TABLE>
<CAPTION>
CLASS C
Since
1 year 5 year Inception
<S> <C> <C>
7.46% N/A 7.15%
</TABLE>
PERFORMANCE UPDATE
- --------------------------------------------------------------------------------
Oppenheimer Municipal Bond Fund has performed very well over the past twelve
months, outperforming many of its competitors. The Fund's positive returns can
largely be attributed to successful management of the portfolio's average
duration, as well as focusing on those states and municipalities whose bonds
offered the most competitive income and best values.(2)
<TABLE>
<CAPTION>
GROWTH OF $10,000
Over five years
(without sales charges)(3)
Oppenheimer Municipal Bond Fund Lehman Brothers Municipal
Class A shares Bond Index
<S> <C>
$ 1,000 $ 1,000
10,216 10,266.1
10,440 10,452.7
10,823 10,840.5
11,197 11,195.2
11,705 11,573.4
11,847 11,735.9
11,066 11,091.6
11,001 11,214.4
11,023 11,291.2
10,752 11,129
11,674 11,915.9
11,893 12,203.7
12,124 12,554.6
12,723 13,072.4
12,611 12,914.8
12,657 13,013.8
13,018 13,313.4
13,384 13,652.6
13,374 13,620.8
13,833 14,090.4
</TABLE>
1. These returns are provided as of the most recent quarter end to facilitate
comparisons. Total returns include changes in share price and reinvestment of
dividends and capital gains distributions in a hypothetical investment for the
periods shown. Class A returns include the current initial sales charge of
4.75%. Class A shares were first publicly offered on 10/27/76. The Fund's
maximum sales charge for Class A shares was lower prior to 5/1/86, so actual
performance may have been higher. Class B returns include the applicable
contingent deferred sales charge of 5% (1-year) and 2% (since inception on
3/16/93). Class C returns include the contingent deferred sales charge of 1%
for the 1-year result. Class C shares were first offered on 8/29/95. An
explanation of the different performance calculations is in the Fund's
prospectus. Class B and C shares are subject to an annual 0.75% asset-based
sales charge.
2. Duration is a measure of the portfolio's sensitivity to interest rates.
4 Oppenheimer Municipal Bond Fund
<PAGE> 5
CREDIT ALLOCATION(4)
<TABLE>
<S> <C>
- - AAA 42.8%
- - AA 13.4
- - A 14.8
- - BBB 22.7
- - Not Rated 6.3
</TABLE>
PORTFOLIO REVIEW
- --------------------------------------------------------------------------------
Oppenheimer Municipal Bond Fund is for investors looking for a source of income
exempt from federal taxes.
WHAT WE LOOK FOR
- - Securities that provide HIGH INCOME.
- - Diversification among a WIDE RANGE OF SECURITIES NATIONWIDE.
- - Sectors and regions that offer RELATIVE VALUE.
<TABLE>
<CAPTION>
TOP FIVE SECTORS(5)
............................................................
<S> <C>
Electric Utilities 15.5%
............................................................
Corporate Backed 15.4
............................................................
General Obligation 14.4
............................................................
Hospital/Healthcare 10.1
............................................................
Highways 8.2
............................................................
</TABLE>
3. Results of a hypothetical $10,000 investment in Class A shares on June 30,
1992. Lehman Brothers Municipal Bond Index includes a broad range of municipal
bonds. It is an unmanaged index, including reinvestment of income, and cannot
be purchased directly by investors. Past performance does not guarantee future
results.
4. Portfolio data are dollar-weighted based on total investments at value and
are subject to change. The Fund may invest up to 25% of its assets in
below-investment-grade securities which carry greater risk that an issuer may
default on repayment of principal or interest. Securities rated by any rating
organization are included in the equivalent Standard & Poor's rating category.
Average credit quality and allocation include rated securities and those not
rated by a national rating organization (currently 6.3% of total investments)
but to which the ratings given above have been assigned by the Manager for
internal purposes as being comparable, in the Manager's judgment, to securities
rated by a rating agency in the same category.
5. Sector weightings are as of 7/31/97, represent a percentage of total
investments at value, and are subject to change.
5 Oppenheimer Municipal Bond Fund
<PAGE> 6
"WE'VE HAD A VERY POSITIVE VIEW ON INFLATION RECENTLY."
AN INTERVIEW WITH YOUR FUND'S MANAGERS
- --------------------------------------------------------------------------------
HOW HAS THE FUND PERFORMED DURING THE FISCAL YEAR ENDED JULY 31, 1997?
Oppenheimer Municipal Bond Fund's Class A shares have provided a total rate of
return, before sales charges, of 10.97%, for the one-year period ended July 31,
1997.(1) This competitive return helped the Fund outperform many of its peers,
and rank in the top quartile in the municipal bond fund category, for the
one-year period ended July 31, 1997, as measured by Lipper Analytical
Services.(2)
WHAT INFLUENCES AND EVENTS HAD THE GREATEST EFFECT ON THE MUNICIPAL MARKET?
Yields on municipal bonds generally followed the trends established over the
past twelve months by taxable bonds, such as U.S. Treasury securities. However,
during the twelve-month period, taxable and tax-exempt bond markets experienced
a relatively high level of volatility. Bond yields rose and fell with
investors' changing outlooks for economic growth, inflation and federal
monetary policy. When the economy appeared to be growing quickly, investors
became concerned about a resurgence of inflation and a more restrictive
monetary policy. During April, long-term interest rates peaked, then declined
by the end of July to the lowest rates during the period. When the economy
appeared to be slowing, investors seemed confident that inflation would not be
a problem.
1. Includes changes in net asset value per share without deducting any sales
charges. Such performance would have been lower if sales charges were taken
into account.
2. Source: Lipper Analytical Services, Inc., 7/31/97. Based on the comparisons
between changes in net asset value without considering sales charges, with
dividends and capital gains distributions of the Fund's Class A shares
reinvested. The Fund's Class A shares were ranked 43 of 226 (1-year), 36 of 109
(5-year) and 32 of 68 (10-year) among Municipal Bond funds for the period ended
7/31/97. Past performance does not guarantee future results.
6 Oppenheimer Municipal Bond Fund
<PAGE> 7
[PHOTO]
PORTFOLIO MANAGEMENT
TEAM (L TO R)
Jerry Webman
Bob Patterson
(Fund Manager)
HOW DID YOU MANAGE THE FUND IN THIS ENVIRONMENT?
We continued to follow the time-tested investment strategies we have used for
years. Regardless of market conditions, we prefer to keep our shareholders'
assets fully invested in a diversified portfolio of good-quality securities
that provide competitive levels of income and attractive relative values.
Within that fully invested position, we attempt to boost returns and reduce
risks.
One of the ways we do this is by actively managing the portfolio's
effective average duration--a measure of the portfolio's sensitivity to changes
in interest rates. By changing the portfolio's average duration relative to the
Fund's investment benchmark, we have been able to benefit when interest rates
are falling and protect ourselves when rates rise. For example, we've had a
very positive view on inflation recently, and that's caused us to keep the
portfolio's average duration relatively long in order to be exposed to
declining interest rates. When interest rates are rising, we try to keep our
average duration relatively short. For example, when interest rates went up
over 7% this past spring, our average duration was relatively short, and that
helped us capture higher yields as they became available.
7 Oppenheimer Municipal Bond Fund
<PAGE> 8
"BY CHANGING THE FUND'S AVERAGE DURATION, WE BENEFITED WHEN INTEREST RATES WERE
FALLING..."
AN INTERVIEW WITH YOUR FUND'S MANAGERS
- --------------------------------------------------------------------------------
ISN'T TRYING TO PREDICT INTEREST RATES A RELATIVELY RISKY STRATEGY?
Our goal in this Fund is to add incrementally to returns and subtract
incrementally from risk, so we tend not to take large bets on interest rates.
However, when we believe interest rates will move, we will modestly adjust the
Fund's average duration, up or down, to make funds available more quickly to
take advantage of higher yielding securities or to protect the Fund by holding
higher yielding securities that can add yield for a longer period.
WHAT MARKET SECTORS DID YOU FIND ATTRACTIVE AND WHICH DID YOU AVOID?
Because of strong economic conditions throughout the United States, we were
able to find creditworthy investments in virtually every state and territory of
the nation. We focused on those states and municipalities whose bonds offered
the most competitive income and best values. For example, when California and
New York City bonds were selling at prices we considered low, we bought
positions and held them while their prices appreciated. On the other hand, we
found only a relatively few good values in bonds issued to finance the
operations of hospitals and other healthcare facilities. That's because these
bonds were negatively affected by uncertainty regarding Medicare and Medicaid
payment levels. We also tended to avoid bonds issued by electric utilities
currently facing the challenges of deregulation.
8 Oppenheimer Municipal Bond Fund
<PAGE> 9
"...AND PROTECTED OURSELVES WHEN RATES WERE RISING."
HOW DID THE FUND'S CREDIT QUALITY CHANGE DURING THE PERIOD?
The Fund consistently maintained an average credit rating within the A to AA
(or Aa) range. Strong economic conditions helped produce adequate tax revenues
for municipal borrowers, reducing their need to finance deficits in the public
markets. In addition, the difference in yields between investment-grade and
below-investment-grade bonds narrowed considerably as more investors reached
for higher yields in the low-supply environment. When "spreads" narrow, we tend
to focus on higher quality bonds because our shareholders are not adequately
compensated for assuming the higher risks associated with lower-rated bonds.
WHAT IS YOUR OUTLOOK FOR THE MUNICIPAL BOND MARKET?
We are cautiously optimistic. Our optimism is rooted in the nation's economy,
which is in its seventh year of expansion. This economy is unusual because it
has been characterized by moderate growth without an acceleration of inflation.
As long as inflationary pressures remain benign, our outlook for interest rates
and the bond market should be positive. On the other hand, we are tempering our
optimism with caution because no market or economy moves in a straight line. In
our view, the risk for the foreseeable future is that the economy will grow
faster than is currently expected, causing inflation fears to surface among
bond investors. While we do not expect these fears to persist, they may cause
volatility over the short term. Therefore, we intend to remain vigilant when it
comes to protecting our shareholders from the brunt of market declines, while
enabling them to participate in the bulk of the market's gains.
9 Oppenheimer Municipal Bond Fund
<PAGE> 10
FINANCIALS
------------------------------------------------------------------------------
10 Oppenheimer Municipal Bond Fund
<PAGE> 11
STATEMENT OF INVESTMENTS July 31, 1997
<TABLE>
<CAPTION>
RATINGS:
MOODY'S/
S&P/FITCH FACE MARKET VALUE
(UNAUDITED) AMOUNT SEE NOTE 1
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
MUNICIPAL BONDS AND NOTES--99.2%
- ----------------------------------------------------------------------------------------------------------------
ALABAMA--1.2%
Huntsville, AL HCF Authority RB, Series B,
MBIA Insured, 6.625%, 6/1/23 Aaa/AAA $ 7,235,000 $ 8,226,195
- ----------------------------------------------------------------------------------------------------------------
ALASKA--0.6%
Anchorage, AK EU RB, Sr. Lien, Series B,
5.50%, 2/1/26 Aaa/AAA 4,000,000 4,050,920
- ----------------------------------------------------------------------------------------------------------------
ARIZONA--0.1%
Central AZ Irrigation & Drainage District GORB,
Series A, 6%, 6/1/13 NR/NR 1,081,150 936,665
- ----------------------------------------------------------------------------------------------------------------
CALIFORNIA--12.0%
Anaheim, CA PFAU Lease RB, Sr. Public
Improvements Project, Series A, FSA Insured,
5%, 3/1/37 Aaa/AAA/BBB+ 5,250,000 5,040,315
- ----------------------------------------------------------------------------------------------------------------
CA HFA Home Mtg. RB, Series C:
6.65%, 8/1/14 Aa2/AA- 5,000,000 5,298,350
6.75%, 2/1/25 Aa2/AA- 4,905,000 5,214,015
6.75%, 2/1/25 Aa2/AA- 75,000 75,000
- ----------------------------------------------------------------------------------------------------------------
CA HFFAU RB, Episcopal Homes Project,
Series A, 7.80%, 7/1/15 NR/A+ 1,000,000 1,054,600
- ----------------------------------------------------------------------------------------------------------------
CA PWBL RB, University of California Regents,
Prerefunded, Series A, AMBAC Insured,
6.40%, 12/1/16 Aaa/AAA/AAA 2,500,000 2,820,125
- ----------------------------------------------------------------------------------------------------------------
CA SCDAU Revenue Refunding COP,
Cedars-Sinai Medical Center,
5.40%, 11/1/15 A1/NR 3,000,000 2,972,280
- ----------------------------------------------------------------------------------------------------------------
Foothill/Eastern Transportation Corridor
Agency CA Toll Road RB, Sr. Lien, Series A,
6.50%, 1/1/32 Baa/BBB-/BBB 10,500,000 11,372,655
- ----------------------------------------------------------------------------------------------------------------
Industry, CA UDA Tax Allocation Bonds,
Transportation Distribution Project No. 3,
6.90%, 11/1/07 NR/A- 500,000 553,300
- ----------------------------------------------------------------------------------------------------------------
Los Angeles, CA Regional AIC Lease RRB,
Facilities Sublease-International Airport Project,
6.35%, 11/1/25 Baa3/BB+ 8,930,000 9,607,340
- ----------------------------------------------------------------------------------------------------------------
Perris, CA SFM RB, Escrowed to Maturity,
Series A, 8.30%, 6/1/13 Aaa/AAA 7,000,000 9,464,490
- ----------------------------------------------------------------------------------------------------------------
Pomona, CA SFM RRB, Escrowed to Maturity,
Series A, 7.60%, 5/1/23 Aaa/AAA 6,000,000 7,941,480
- ----------------------------------------------------------------------------------------------------------------
Redding, CA Electric System Revenue COP, FGIC
Insured, Inverse Floater, 7.312%, 6/1/19(1) Aaa/AAA/AAA 6,000,000 6,255,000
- ----------------------------------------------------------------------------------------------------------------
San Joaquin Hills, CA Transportation Corridor
Agency Toll Road RB, Sr. Lien, 6.75%, 1/1/32 NR/NR/BBB 12,700,000 13,760,323
------------
81,429,273
</TABLE>
11 Oppenheimer Municipal Bond Fund
<PAGE> 12
STATEMENT OF INVESTMENTS (Continued)
<TABLE>
<CAPTION>
RATINGS:
MOODY'S/
S&P/FITCH FACE MARKET VALUE
(UNAUDITED) AMOUNT SEE NOTE 1
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COLORADO--0.8%
CO HFAU RB, Rocky Mountain Adventist
Health System, 6.625%, 2/1/22 Baa2/BBB $ 5,000,000 $ 5,288,450
- ----------------------------------------------------------------------------------------------------------------
Jefferson Cnty., CO School District No. R-001
GOB, AMBAC Insured, 6.25%, 12/15/12 Aaa/AAA/AAA 500,000 544,500
------------
5,832,950
- ----------------------------------------------------------------------------------------------------------------
CONNECTICUT--2.4%
Mashantucket, CT Western Pequot Tribe
Special RB, Series A, 6.40%, 9/1/11(2) Baa/BBB 15,000,000 16,237,950
- ----------------------------------------------------------------------------------------------------------------
FLORIDA--7.3%
Broward Cnty., FL GORB, 12.50%, 1/1/06 Aa/AA 3,000,000 4,631,430
- ----------------------------------------------------------------------------------------------------------------
Broward Cnty., FL RR RB:
Broward Waste Energy-LP North Project,
7.95%, 12/1/08 A/A- 5,735,000 6,294,851
Ses Broward Co.-LP South Project, 7.95%, 12/1/08 A/A- 9,450,000 10,363,626
- ----------------------------------------------------------------------------------------------------------------
Dade Cnty., FL IDAU RB, Miami Cerebral Palsy
Services Project, 8%, 6/1/22 NR/NR 2,890,000 3,053,112
- ----------------------------------------------------------------------------------------------------------------
Escambia Cnty., FL HFAU RB, Azalea Trace, Inc.,
6%, 1/1/15 NR/NR/BBB- 4,500,000 4,579,020
- ----------------------------------------------------------------------------------------------------------------
FL BOE Capital Outlay GORB, 8.40%, 6/1/07 Aa2/AA+ 750,000 971,250
- ----------------------------------------------------------------------------------------------------------------
FL HFA SFM RRB, Series A, 6.35%, 7/1/14 Aaa/AAA 885,000 936,772
- ----------------------------------------------------------------------------------------------------------------
Grand Haven, FL CDD Special Assessment RB,
Series A, 6.30%, 5/1/02 NR/NR 1,500,000 1,530,585
- ----------------------------------------------------------------------------------------------------------------
Hillsborough Cnty., FL IDAU PC RRB, Tampa
Electric Co. Project, Series 92, 8%, 5/1/22 Aa3/AA/AA- 4,000,000 4,683,800
- ----------------------------------------------------------------------------------------------------------------
Pinellas Cnty., FL HFAU RB, Sun Coast Health
System, Prerefunded, 8.50%, 3/1/20 NR/AAA 5,000,000 5,631,750
- ----------------------------------------------------------------------------------------------------------------
Tampa, FL Water & Sewer RRB, Prerefunded
6.60%, 10/1/14 Aaa/AAA 6,000,000 6,723,900
------------
49,400,096
- ----------------------------------------------------------------------------------------------------------------
GEORGIA--2.1%
GA MEAU Special Obligation Bonds:
Fifth Crossover Series, Project One, 6.50%, 1/1/17 A3/A 10,750,000 12,430,547
Fifth Crossover Series, Project One, MBIA
Insured, 6.50%, 1/1/17 Aaa/AAA 1,000,000 1,176,680
Series, Project One, MBIA
Insured, 6.50%, 1/1/12 Aaa/AAA 500,000 589,410
------------
14,196,637
</TABLE>
12 Oppenheimer Municipal Bond Fund
<PAGE> 13
<TABLE>
<CAPTION>
RATINGS:
MOODY'S/
S&P/FITCH FACE MARKET VALUE
(UNAUDITED) AMOUNT SEE NOTE 1
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
HAWAII--0.1%
Honolulu, HI City & Cnty. GOB, Series B,
6.10%, 6/1/11 Aa/AA $ 500,000 $ 540,155
- ----------------------------------------------------------------------------------------------------------------
ILLINOIS--1.7%
Hoffman Estates, IL Tax Increment RB,
ED Project, 7.625%, 11/15/09 Aaa/AA+ 825,000 899,522
- ----------------------------------------------------------------------------------------------------------------
IL HFAU RB, Hinsdale Hospital Project,
Unrefunded Balance, Series C, 9.50%, 11/15/19 Baa1/BBB 935,000 1,131,855
- ----------------------------------------------------------------------------------------------------------------
IL Regional Transportation Authority RB,
AMBAC Insured, 7.20%, 11/1/20 Aaa/AAA/AAA 7,500,000 9,521,250
------------
11,552,627
- ----------------------------------------------------------------------------------------------------------------
INDIANA--5.0%
IN HFFAU Hospital RB, Clarian Health
Partners, Inc., 5.50%, 2/15/16 Aa3/AA/A 5,000,000 5,042,400
- ----------------------------------------------------------------------------------------------------------------
Indianapolis, IN Airport Authority RB,
Special Facilities:
Federal Express Corp. Project, 7.10%, 1/15/17 Baa2/BBB 15,500,000 17,473,150
United Airlines Project, Series A, 6.50%, 11/15/31 Baa2/BB+ 10,500,000 11,289,915
------------
33,805,465
- ----------------------------------------------------------------------------------------------------------------
KENTUCKY--0.4%
Kenton Cnty., KY AB RB, Special Facilities-Delta
Airlines Project, Series A, 6.125%, 2/1/22 Baa3/BB+ 2,790,000 2,846,442
- ----------------------------------------------------------------------------------------------------------------
Louisiana--2.4%
LA GOB, Series A, AMBAC Insured, 6.50%, 5/1/11 Aaa/AAA 5,000,000 5,531,100
- ----------------------------------------------------------------------------------------------------------------
New Orleans, LA Home Mtg. Authority
Special Obligation Refunding Bonds,
Escrowed to Maturity, 6.25%, 1/15/11 Aaa/AAA 9,500,000 10,642,755
------------
16,173,855
- ----------------------------------------------------------------------------------------------------------------
MARYLAND--0.1%
MD University System Auxiliary Facilities &
Tuition RRB, Series A, 5.90%, 2/1/03 Aa3/AA+/AA 500,000 535,540
- ----------------------------------------------------------------------------------------------------------------
MASSACHUSETTS--2.2%
MA GOB, Unrefunded Balance, Series B,
MBIA Insured, 6.50%, 8/1/11 Aaa/AAA/AAA 430,000 470,183
- ----------------------------------------------------------------------------------------------------------------
MA Water Resource Authority RB, Series A,
6.50%, 7/15/19 A/A/A 12,225,000 14,344,081
------------
14,814,264
</TABLE>
13 Oppenheimer Municipal Bond Fund
<PAGE> 14
STATEMENT OF INVESTMENTS (Continued)
<TABLE>
<CAPTION>
RATINGS:
MOODY'S/
S&P/FITCH FACE MARKET VALUE
(UNAUDITED) AMOUNT SEE NOTE 1
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
MICHIGAN--7.1%
Detroit, MI GORB, Series B:
6.25%, 4/1/09 Baa2/BBB/BBB- $ 4,065,000 $ 4,375,159
6.375%, 4/1/06 Baa2/BBB/BBB- 2,000,000 2,198,940
6.375%, 4/1/07 Baa2/BBB/BBB- 500,000 547,725
- ----------------------------------------------------------------------------------------------------------------
Detroit, MI Sewage Disposal RB, FGIC Insured,
Inverse Floater, 7.314%, 7/1/23(1) Aaa/AAA/AAA 13,200,000 13,926,000
- ----------------------------------------------------------------------------------------------------------------
Detroit, MI Water Supply System RB:
Prerefunded, FGIC Insured, Inverse Floater,
8.664%, 7/1/22(1) Aaa/AAA/AAA 3,700,000 4,541,750
Unrefunded Balance, FGIC Insured, Inverse
Floater, 8.664%, 7/1/22(1) Aaa/AAA 1,500,000 1,756,875
- ----------------------------------------------------------------------------------------------------------------
MI Hospital FAU RRB, FSA Insured, Inverse
Floater, 8.54%, 2/15/22(1) Aaa/AAA 5,000,000 5,737,500
- ----------------------------------------------------------------------------------------------------------------
MI Strategic Fund SWD RRB, Genesee Power
Station Project, 7.50%, 1/1/21 NR/NR 3,650,000 3,881,045
- ----------------------------------------------------------------------------------------------------------------
Wayne Cnty., MI Special Airport Facilities RRB,
Northwest Airlines, Inc. Facilities, Series 1995,
6.75%, 12/1/15 NR/NR 10,490,000 11,427,701
------------
48,392,695
- ----------------------------------------------------------------------------------------------------------------
NEW HAMPSHIRE--0.1%
NH Housing FAU SFM RB, Series C, 6.90%, 7/1/19 Aa/NR 1,000,000 1,060,680
- ----------------------------------------------------------------------------------------------------------------
NEW JERSEY--4.6%
Bergen Cnty., NJ MUAU Water PC RB,
Prerefunded, Series A, FGIC Insured,
6.50%, 12/15/12(3) Aaa/AAA/AAA 5,600,000 6,259,904
- ----------------------------------------------------------------------------------------------------------------
NJ GOB, Series D, 8%, 2/15/07 Aa1/AA+/AA+ 3,100,000 3,933,900
- ----------------------------------------------------------------------------------------------------------------
NJ Mtg. & HFA MH RB, Series C, 9.75%, 11/1/27 NR/AA 1,000,000 1,053,750
- ----------------------------------------------------------------------------------------------------------------
NJ Turnpike Authority RRB, Series C:
6.50%, 1/1/16 Baa1/BBB+/A- 16,150,000 18,617,881
MBIA Insured, 6.50%, 1/1/16 Aaa/AAA 1,100,000 1,299,980
------------
31,165,415
- ----------------------------------------------------------------------------------------------------------------
NEW YORK--8.6%
NYC GOB:
Inverse Floater, 6.873%, 8/1/15(1) Baa1/BBB+ 3,050,000 3,164,375
Prerefunded, Series D, 8%, 8/1/15 Aaa/BBB+ 10,780,000 12,460,494
Prerefunded, Series G, 7.625%, 2/1/15 Aaa/BBB+/A- 15,000 17,323
Series H, 6.125%, 8/1/25 Baa1/BBB+/A- 5,000,000 5,318,600
Unrefunded Balance, Series A, 7.75%, 8/15/16 Baa1/BBB+ 152,500 172,284
Unrefunded Balance, Series D, 8%, 8/1/15 Baa1/BBB+ 220,000 250,316
Unrefunded Balance, Series G, 7.625%, 2/1/15 Baa1/BBB+/A- 75,000 84,914
</TABLE>
14 Oppenheimer Municipal Bond Fund
<PAGE> 15
<TABLE>
<CAPTION>
RATINGS:
MOODY'S/
S&P/FITCH FACE MARKET VALUE
(UNAUDITED) AMOUNT SEE NOTE 1
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NYC GORB, Series B, MBIA Insured, 6.20%, 8/15/06 Aaa/AAA $10,000,000 $11,184,300
- ----------------------------------------------------------------------------------------------------------------
NYC IDA Special Facilities RB, Terminal One
Group Assn. Project, 6%, 1/1/19 A/A/A- 6,000,000 6,294,360
- ----------------------------------------------------------------------------------------------------------------
NYS GOB, 6.875%, 3/1/12 A2/A- 1,000,000 1,107,480
- ----------------------------------------------------------------------------------------------------------------
NYS HFA RRB, NYC HF, Series A:
6%, 11/1/06 Baa/BBB+ 4,000,000 4,333,040
6%, 5/1/08 Baa/BBB+ 2,000,000 2,159,640
- ----------------------------------------------------------------------------------------------------------------
NYS HFA RRB, Unrefunded Balance,
7.90%, 11/1/99 Baa2/BBB+ 4,625,000 4,891,493
- ----------------------------------------------------------------------------------------------------------------
NYS MAG RB, Ninth Series B, 8.30%, 10/1/17 Aa2/NR 1,715,000 1,751,341
- ----------------------------------------------------------------------------------------------------------------
NYS PAU RB, Series V, 7.875%, 1/1/07 Aa/AA- 3,000,000 3,112,770
- ----------------------------------------------------------------------------------------------------------------
PAUNYNJ Consolidated RB, Series Fifty-One E,
7%, 12/1/14 A1/AA- 2,000,000 2,057,320
------------
58,360,050
- ----------------------------------------------------------------------------------------------------------------
NORTH CAROLINA--1.0%
NC Medical Care Commission HCF RB,
Carolina Medicorp Project, 5.25%, 5/1/26 Aa3/AA/AA 7,000,000 6,907,320
- ----------------------------------------------------------------------------------------------------------------
OHIO--2.7%
Cleveland, OH PPS First Mtg. RB, Series A,
MBIA Insured, 7%, 11/15/16 Aaa/AAA 2,000,000 2,304,480
- ----------------------------------------------------------------------------------------------------------------
OH Building Authority RB, Juvenile Correctional
Projects, Series A, AMBAC Insured, 6.60%, 10/1/14 Aaa/AAA/AAA 500,000 566,330
- ----------------------------------------------------------------------------------------------------------------
OH HFA SFM RB, Series B, Inverse Floater,
9.669%, 3/1/31(1) Aaa/AAA 5,130,000 5,777,663
- ----------------------------------------------------------------------------------------------------------------
OH Solid Waste RB, Republic Engineered
Steels, Inc. Project, 9%, 6/1/21 NR/NR 7,800,000 8,110,206
- ----------------------------------------------------------------------------------------------------------------
Summit Cnty., OH GOB, AMBAC Insured,
6.625%, 12/1/12 Aaa/AAA/AAA 1,200,000 1,332,636
------------
18,091,315
- ----------------------------------------------------------------------------------------------------------------
OKLAHOMA--1.8%
Muskogee, OK Industrial Trust PC RB, Oklahoma
Gas & Electric Co., Series A, 7%, 3/1/17 A1/AA- 1,575,000 1,608,359
- ----------------------------------------------------------------------------------------------------------------
Tulsa, OK Municipal Airport Trust RB,
American Airlines Project, 6.25%, 6/1/20 Baa2/BB+ 9,820,000 10,403,406
------------
12,011,765
</TABLE>
15 Oppenheimer Municipal Bond Fund
<PAGE> 16
STATEMENT OF INVESTMENTS (Continued)
<TABLE>
<CAPTION>
RATINGS:
MOODY'S/
S&P/FITCH FACE MARKET VALUE
(UNAUDITED) AMOUNT SEE NOTE 1
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PENNSYLVANIA--8.9%
Delaware Cnty., PA Authority Health Care RB,
Mercy Health Corp. Southeastern, Series B,
6%, 11/15/07 NR/BBB+/BBB+ $ 1,000,000 $ 1,055,980
- ----------------------------------------------------------------------------------------------------------------
PA EDFAU RR RB, Colver Project, Series D,
7.15%, 12/1/18 NR/BBB-/BBB- 3,000,000 3,302,490
- ----------------------------------------------------------------------------------------------------------------
PA HEAA Student Loan RB, Series B, AMBAC
Insured, Inverse Floater, 8.158%, 3/1/22(1) Aaa/AAA/AAA 17,500,000 19,337,500
- ----------------------------------------------------------------------------------------------------------------
PA Turnpike Commission RRB, Series N,
6.50%, 12/1/13 Aaa/AAA 750,000 817,358
- ----------------------------------------------------------------------------------------------------------------
Philadelphia, PA Water & Sewer RRB,
Escrowed to Maturity, Tenth Series, 7.35%, 9/1/04 Aaa/AAA/BBB+ 2,465,000 2,854,741
- ----------------------------------------------------------------------------------------------------------------
Philadelphia, PA Water & Wastewater RB,
FGIC Insured, 10%, 6/15/05 Aaa/AAA/AAA 17,600,000 23,829,696
- ----------------------------------------------------------------------------------------------------------------
Schuylkill Cnty., PA IDAU RR RRB, Schuylkill
Energy Resources, Inc., 6.50%, 1/1/10 NR/NR/BBB 9,030,000 9,186,038
------------
60,383,803
- ----------------------------------------------------------------------------------------------------------------
SOUTH CAROLINA--2.0%
Piedmont, SC MPA RRB:
Escrowed to Maturity, Series A, FGIC Insured,
6.50%, 1/1/16 Aaa/AAA 285,000 333,213
Unrefunded Balance, Series A, FGIC Insured,
6.50%, 1/1/16 Aaa/AAA 1,715,000 2,029,102
- ----------------------------------------------------------------------------------------------------------------
SC Public Service Authority RB, Santee Cooper,
Prerefunded, Series D, AMBAC Insured,
6.50%, 7/1/24 Aaa/AAA/AAA 10,000,000 11,177,100
------------
13,539,415
- ----------------------------------------------------------------------------------------------------------------
TEXAS--13.7%
AAAU TX Special Facilities RB:
American Airlines, Inc. Project, 7%, 12/1/11 Baa2/BB+ 3,000,000 3,485,220
Federal Express Corp. Project, 6.375%, 4/1/21 Baa2/BBB 11,640,000 12,284,158
- ----------------------------------------------------------------------------------------------------------------
Cypress-Fairbanks, TX Independent School
District CAP GORB, Series A, Zero Coupon:
5.886%, 2/15/14(4) Aaa/AAA 15,710,000 6,667,167
5.85%, 2/15/15(4) Aaa/AAA 15,000,000 5,992,950
5.908%, 2/15/16(4) Aaa/AAA 16,240,000 6,157,721
</TABLE>
16 Oppenheimer Municipal Bond Fund
<PAGE> 17
<TABLE>
<CAPTION>
RATINGS:
MOODY'S/
S&P/FITCH FACE MARKET VALUE
(UNAUDITED) AMOUNT SEE NOTE 1
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Dallas-Fort Worth, TX International Airport
Facilities Improvement Corp. RB,
American Airlines, Inc., 7.25%, 11/1/30 Baa2/BB+ $ 8,000,000 $ 8,855,840
- ----------------------------------------------------------------------------------------------------------------
Harris Cnty., TX GORRB, Toll Road Project,
Sub. Lien:
6.75%, 8/1/14 Aa2/AA 1,000,000 1,100,980
Series A, 6.50%, 8/15/15 Aa2/AA 1,000,000 1,103,800
- ----------------------------------------------------------------------------------------------------------------
Houston, TX WSS RB, Prior Lien, Unrefunded
Balance, Series B:
6.40%, 12/1/09 A3/A/A 995,000 1,080,570
6.75%, 12/1/08 A3/A/A 440,000 483,243
- ----------------------------------------------------------------------------------------------------------------
North Central TX HFDC Hospital RB, Baylor Health
Care Project, Series B, Inverse Floater:
7.72%, 5/15/06(1) Aa2/AA 3,000,000 3,338,580
7.82%, 5/15/08(1) Aa2/AA 5,000,000 5,540,500
- ----------------------------------------------------------------------------------------------------------------
Retama, TX Development Corp. Special Facilities
RRB, Retama Racetrack, Escrowed to Maturity,
Series A, 10%, 12/15/19 Aaa/AAA 4,880,000 7,960,158
- ----------------------------------------------------------------------------------------------------------------
TX MPA CAP RRB, MBIA Insured, Zero Coupon:
5.95%, 9/1/13(4) Aaa/AAA/A+ 6,900,000 3,017,163
5.93%, 9/1/14(4) Aaa/AAA/A+ 17,500,000 7,220,32
5.85%, 9/1/15(4) Aaa/AAA/A+ 10,000,000 3,883,200
5.985%, 9/1/16(4) Aaa/AAA/A+ 39,990,000 14,737,115
------------
92,908,690
- ----------------------------------------------------------------------------------------------------------------
VERMONT--0.2%
VT HFA Home Mtg. Purchase RB, Series A,
7.85%, 12/1/29 A1/A- 1,570,000 1,647,134
- ----------------------------------------------------------------------------------------------------------------
WASHINGTON--4.3%
WA Public Power Supply System RRB, Nuclear
Project No. 1, 5.40%, 7/1/12 Aa1/AA-/AA- 30,000,000 29,635,800
- ----------------------------------------------------------------------------------------------------------------
WEST VIRGINIA--0.6%
WV Parkways ED & Tourism Authority RB, FGIC
Insured, Inverse Floater, 7.484%, 5/16/19(1) Aaa/AAA 3,600,000 3,852,000
- ----------------------------------------------------------------------------------------------------------------
WISCONSIN--1.1%
WI Health & Educational Facilities Authority RB,
Sinai Samaritan Medical Center, Inc., MBIA
Insured, 5.75%, 8/15/16 Aaa/AAA 6,250,000 6,493,188
- ----------------------------------------------------------------------------------------------------------------
WI Housing & EDAU Home Ownership RRB,
Series A, 7.10%, 3/1/23 Aa2/AA 710,000 754,702
------------
7,247,890
</TABLE>
17 Oppenheimer Municipal Bond Fund
<PAGE> 18
STATEMENT OF INVESTMENTS (Continued)
<TABLE>
<CAPTION>
RATINGS:
MOODY'S/
S&P/FITCH FACE MARKET VALUE
(UNAUDITED) AMOUNT SEE NOTE 1
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. POSSESSIONS--4.1%
PR Commonwealth GOB:
5.375%, 7/1/25 Baa1/A $ 5,450,000 $ 5,438,010
6.50%, 7/1/14 Baa1/A 6,690,000 7,792,646
6.50%, 7/1/15 Baa1/A 3,310,000 3,854,131
- ----------------------------------------------------------------------------------------------------------------
PR Commonwealth HTAU RB, Prerefunded,
Series T, 6.625%, 7/1/18 Aaa/AAA 5,200,000 5,851,612
- ----------------------------------------------------------------------------------------------------------------
PR EPAU RB, Unrefunded Balance, Series O,
7.125%, 7/1/14 Baa1/BBB+ 2,350,000 2,522,655
- ----------------------------------------------------------------------------------------------------------------
PR Industrial Tourist Educational Medical &
Environmental Control Facilities RB,
Teachers Retirement System, Series B:
5.50%, 7/1/16 NR/AAA 1,150,000 1,186,145
5.50%, 7/1/21 NR/AAA 1,500,000 1,532,040
------------
28,177,239
- ----------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS, AT VALUE (COST $624,230,277) 99.2% 673,960,245
- ----------------------------------------------------------------------------------------------------------------
OTHER ASSETS NET OF LIABILITIES 0.8 5,130,299
---------- ------------
NET ASSETS 100.0% $679,090,544
========== ============
</TABLE>
18 Oppenheimer Municipal Bond Fund
<PAGE> 19
- --------------------------------------------------------------------------------
To simplify the listings of securities abbreviations are used per the table
below:
<TABLE>
<S> <C> <C> <C>
AAAU --Alliance Airport Authority, Inc. HTAU --Highway & Transportation Authority
AB --Airport Board IDA --Industrial Development Agency
AIC --Airports Improvement Corporation IDAU --Industrial Development Authority
BOE --Board of Education MAG --Mortgage Agency
CAP --Capital Appreciation MEAU --Municipal Electric Authority
CDD --Community Development District MH --Multifamily Housing
COP --Certificates of Participation MPA --Municipal Power Agency
ED --Economic Development MUAU --Municipal Utilities Authority
EDAU --Economic Development Authority NYC --New York City
EDFAU --Economic Development Finance NYS --New York State
Authority PAUNYNJ --Port Authority of New York & New Jersey
EPAU --Electric Power Authority PAU --Power Authority
EU --Electric Utilities PC --Pollution Control
FAU --Finance Authority PFAU --Public Finance Authority
GOB --General Obligation Bonds PPS --Public Power System
GORB --General Obligation Refunding Bonds PWBL --Public Works Board Lease
GORRB --General Obligation Revenue RB --Revenue Bonds
Refunding Bond RR --Resource Recovery
HCF --Health Care Facilities RRB --Revenue Refunding Bonds
HEAA --Higher Education Assistance Agency SCDAU --Statewide Communities Development
HF --Health Facilities Authority
HFA --Housing Finance Agency SFM --Single Family Mortgage
HFAU --Health Facilities Authority SWD --Solid Waste Disposal
HFDC --Health Facilities Development Corp. UDA --Urban Development Agency
HFFAU --Health Facilities Finance Authority WSS --Water & Sewer System
</TABLE>
1. Represents the current interest rate for a variable rate bond known as an
"inverse floater" which pays 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 $73,227,743 or
10.78% of the Fund's net assets at July 31, 1997.
2. Represents securities sold under Rule 144A, which are exempt from
registration under the Securities Act of 1933, as amended. These securities
have been determined to be liquid under guidelines established by the Board of
Trustees. These securities amount to $16,237,950 or 2.39% of the Fund's net
assets, at July 31, 1997.
3. Securities with an aggregate market value of $2,710,762 are held in
collateralized accounts to cover initial margin requirements on open futures
sales contracts. See Note 5 of Notes to Financial Statements.
4. For zero coupon bonds, the interest rate shown is the effective yield on the
date of purchase.
As of July 31, 1997, securities subject to the alternative minimum tax amount
to $136,635,036 or 20.12% of the Fund's net assets.
See accompanying Notes to Financial Statements.
19 Oppenheimer Municipal Bond Fund
<PAGE> 20
STATEMENT OF ASSETS AND LIABILITIES July 31, 1997
<TABLE>
<S> <C>
================================================================================================================
ASSETS
Investments, at value (cost $624,230,277)--see accompanying statement $673,960,245
- ----------------------------------------------------------------------------------------------------------------
Cash 290,897
- ----------------------------------------------------------------------------------------------------------------
Receivables:
Interest 7,423,323
Shares of beneficial interest sold 510,724
- ----------------------------------------------------------------------------------------------------------------
Other 15,410
------------
Total assets 682,200,599
================================================================================================================
LIABILITIES
Payables and other liabilities:
Dividends 1,962,702
Shares of beneficial interest redeemed 407,078
Daily variation on futures contracts--Note 5 216,532
Trustees' fees--Note 1 203,719
Distribution and service plan fees 128,010
Transfer and shareholder servicing agent fees 47,535
Other 144,479
------------
Total liabilities 3,110,055
================================================================================================================
NET ASSETS $679,090,544
============
================================================================================================================
COMPOSITION OF NET ASSETS
Paid-in capital $630,073,667
- ----------------------------------------------------------------------------------------------------------------
Undistributed net investment income 837,200
- ----------------------------------------------------------------------------------------------------------------
Accumulated net realized gain on investment transactions 1,977,053
- ----------------------------------------------------------------------------------------------------------------
Net unrealized appreciation on investments--Notes 3 and 5 46,202,624
------------
Net assets $679,090,544
============
</TABLE>
20 Oppenheimer Municipal Bond Fund
<PAGE> 21
<TABLE>
<S> <C>
================================================================================================================
NET ASSET VALUE PER SHARE
Class A Shares:
Net asset value and redemption price per share (based on net assets of $586,546,059
and 57,276,303 shares of beneficial interest outstanding) $10.24
Maximum offering price per share (net asset value plus sales charge of 4.75% of offering price) $10.75
- ----------------------------------------------------------------------------------------------------------------
Class B Shares:
Net asset value, redemption price (excludes applicable contingent deferred sales charge)
and offering price per share (based on net assets of $83,896,822 and 8,207,387 shares
of beneficial interest outstanding) $10.22
- ----------------------------------------------------------------------------------------------------------------
Class C Shares:
Net asset value, redemption price (excludes applicable contingent deferred sales charge)
and offering price per share (based on net assets of $8,647,663 and 846,254 shares
of beneficial interest outstanding) $10.22
</TABLE>
See accompanying Notes to Financial Statements.
21 Oppenheimer Municipal Bond Fund
<PAGE> 22
STATEMENT OF OPERATIONS For the Year Ended July 31, 1997
<TABLE>
<S> <C>
================================================================================================================
INVESTMENT INCOME
Interest $42,750,567
================================================================================================================
EXPENSES
Management fees--Note 4 3,493,873
- ----------------------------------------------------------------------------------------------------------------
Distribution and service plan fees--Note 4:
Class A 1,274,123
Class B 777,675
Class C 57,060
- ----------------------------------------------------------------------------------------------------------------
Transfer and shareholder servicing agent fees--Note 4 489,232
- ----------------------------------------------------------------------------------------------------------------
Shareholder reports 186,164
- ----------------------------------------------------------------------------------------------------------------
Legal and auditing fees 55,299
- ----------------------------------------------------------------------------------------------------------------
Custodian fees and expenses 53,916
- ----------------------------------------------------------------------------------------------------------------
Trustees' fees and expenses--Note 1 19,674
- ----------------------------------------------------------------------------------------------------------------
Insurance expenses 18,778
- ----------------------------------------------------------------------------------------------------------------
Registration and filing fees:
Class B 1,601
Class C 1,201
- ----------------------------------------------------------------------------------------------------------------
Other 18,958
-----------
Total expenses 6,447,554
================================================================================================================
NET INVESTMENT INCOME 36,303,013
================================================================================================================
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) on:
Investments 4,670,916
Closing of futures contracts (3,412,777)
-----------
Net realized gain 1,258,139
- ----------------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation or depreciation on investments 31,244,641
-----------
Net realized and unrealized gain 32,502,780
================================================================================================================
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $68,805,793
===========
</TABLE>
See accompanying Notes to Financial Statements.
22 Oppenheimer Municipal Bond Fund
<PAGE> 23
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED
YEAR ENDED JULY 31, DECEMBER 31,
1997 1996(1) 1995
===============================================================================================================
<S> <C> <C> <C>
OPERATIONS
Net investment income $ 36,303,013 $ 21,806,993 $ 35,280,169
- ---------------------------------------------------------------------------------------------------------------
Net realized gain (loss) 1,258,139 10,273,043 (10,060,187)
- ---------------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation
or depreciation 31,244,641 (27,145,177) 79,929,069
------------ ------------ ------------
Net increase in net assets resulting from
operations 68,805,793 4,934,859 105,149,051
===============================================================================================================
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
Dividends from net investment income:
Class A (31,577,223) (19,338,196) (31,334,557)
Class B (3,635,315) (2,010,127) (3,003,846)
Class C (266,953) (84,287) (19,720)
- ---------------------------------------------------------------------------------------------------------------
Distributions in excess of net investment income:
Class A -- -- (1,231,760)
Class B -- -- (140,728)
Class C -- -- (3,835)
===============================================================================================================
BENEFICIAL INTEREST TRANSACTIONS
Net increase (decrease) in net assets resulting
from beneficial interest transactions--Note 2:
Class A (32,746,596) (29,466,037) 30,679,725
Class B 5,873,351 3,308,384 12,510,842
Class C 4,073,296 2,283,590 1,925,528
===============================================================================================================
NET ASSETS
Total increase (decrease) 10,526,353 (40,371,814) 114,530,700
- ---------------------------------------------------------------------------------------------------------------
Beginning of period 668,564,191 708,936,005 594,405,305
------------ ------------ ------------
End of period (including undistributed
net investment income of $837,200, $744,031
and $591,821, respectively) $679,090,544 $668,564,191 $708,936,005
============ ============ ============
</TABLE>
1. For the seven months ended July 31, 1996. The Fund changed its fiscal year
end from December 31 to July 31.
See accompanying Notes to Financial Statements.
23 Oppenheimer Municipal Bond Fund
<PAGE> 24
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CLASS A
---------------------------------------------------------
YEAR ENDED JULY 31, YEAR ENDED DECEMBER 31,
1997 1996(2) 1995 1994 1993
================================================================================================================
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING DATA:
Net asset value, beginning of period $9.74 $9.98 $8.93 $10.44 $9.94
- ----------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .55 .32 .54 .57 .59
Net realized and unrealized gain (loss) .49 (.25) 1.06 (1.52) .74
-------- -------- -------- -------- --------
Total income (loss) from investment operations 1.04 .07 1.60 (.95) 1.33
- ----------------------------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income (.54) (.31) (.54) (.56) (.62)
Dividends in excess of net
investment income -- -- (.01) -- --
Distributions from net realized gain -- -- -- -- (.21)
Distributions in excess of net
realized gain -- -- -- --(4) --
-------- -------- -------- -------- --------
Total dividends and distributions
to shareholders (.54) (.31) (.55) (.56) (.83)
- ----------------------------------------------------------------------------------------------------------------
Net asset value, end of period $10.24 $9.74 $9.98 $8.93 $10.44
======== ======== ======== ======== ========
================================================================================================================
TOTAL RETURN, AT NET ASSET VALUE(5) 10.97% 0.77% 18.28% (9.19)% 13.79%
================================================================================================================
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) $586,546 $590,299 $634,473 $541,161 $608,128
- ----------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $582,624 $606,509 $569,859 $582,038 $567,777
- ----------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income 5.55% 5.58%(6) 5.65% 5.94% 5.71%
Expenses 0.87% 0.92%(6) 0.88% 0.88% 0.88%
- ----------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(7) 23.8% 23.9% 25.1% 21.7% 30.2%
</TABLE>
1. For the period from August 29, 1995 (inception of offering) to December 31,
1995.
2. For the seven months ended July 31, 1996. The Fund changed its fiscal year
end from December 31 to July 31.
3. For the period from March 16, 1993 (inception of offering) to
December 31, 1993.
4. Less than $.005 per share.
5. Assumes a hypothetical initial investment on the business day before the
first day of the fiscal period (or inception of offering), 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.
24 Oppenheimer Municipal Bond Fund
<PAGE> 25
<TABLE>
<CAPTION>
CLASS B CLASS C
- -------- ---------------------------------------------------------- ---------------------------------
PERIOD
ENDED
YEAR ENDED JULY 31, YEAR ENDED DECEMBER 31, YEAR ENDED JULY 31, DEC. 31,
1992 1997 1996(2) 1995 1994 1993(3) 1997 1996(2) 1995(1)
===============================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$9.77 $9.73 $9.96 $8.92 $10.43 $10.22 $9.73 $9.96 $9.58
- ---------------------------------------------------------------------------------------------------------------
.62 .47 .27 .47 .50 .41 .46 .27 .15
.25 .48 (.23) 1.05 (1.52) .43 .49 (.23) .39
- -------- ------- ------- ------- ------- ------- ------ ------ ------
.87 .95 .04 1.52 (1.02) .84 .95 .04 .54
- ---------------------------------------------------------------------------------------------------------------
(.58) (.46) (.27) (.47) (.49) (.42) (.46) (.27) (.15)
-- -- -- (.01) -- -- -- -- (.01)
(.12) -- -- -- -- (.21) -- -- --
-- -- -- -- --(4) -- -- -- --
- -------- ------- ------- ------- ------- ------- ------ ------ ------
(.70) (.46) (.27) (.48) (.49) (.63) (.46) (.27) (.16)
- ---------------------------------------------------------------------------------------------------------------
$9.94 $10.22 $9.73 $9.96 $8.92 $10.43 $10.22 $9.73 $9.96
======== ======= ======= ======= ======= ======= ====== ====== ======
===============================================================================================================
9.20% 10.05% 0.43% 17.30% (9.91)% 8.49% 10.03% 0.40% 5.64%
===============================================================================================================
$496,628 $83,897 $74,055 $72,488 $53,245 $33,024 $8,648 $4,210 $1,975
- ---------------------------------------------------------------------------------------------------------------
$438,684 $77,881 $73,047 $63,669 $46,548 $16,444 $5,724 $3,105 $1,506
- ---------------------------------------------------------------------------------------------------------------
6.34% 4.76% 4.79%(6) 4.84% 5.11% 4.54%(6) 4.72% 4.72%(6) 4.49%(6)
0.94% 1.65% 1.70%(6) 1.68% 1.69% 1.74%(6) 1.67% 1.75%(6) 1.64%(6)
- ---------------------------------------------------------------------------------------------------------------
34.2% 23.8% 23.9% 25.1% 21.7% 30.2% 23.8% 23.9% 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 July 31, 1997 were $156,931,511 and $178,300,173,
respectively.
See accompanying Notes to Financial Statements.
26 Oppenheimer Municipal Bond Fund
<PAGE> 26
NOTES TO FINANCIAL STATEMENTS
================================================================================
1. SIGNIFICANT ACCOUNTING POLICIES
Oppenheimer Municipal 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 as is
available from municipal securities that is consistent with preservation of
capital. The Fund's investment adviser 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 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 that class
and exclusive voting rights with respect to matters affecting that 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
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 an
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 July 31, 1997 the Fund
had available for federal income purposes an unused capital loss carryover of
$1,147,000, which expires between 2003 and 2005.
26 Oppenheimer Municipal Bond Fund
<PAGE> 27
================================================================================
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
July 31, 1997, a credit of $37,131 was made for the Fund's projected benefit
obligations, and payments of $11,314 were made to retired trustees, resulting
in an accumulated liability of $198,560 at July 31, 1997.
- --------------------------------------------------------------------------------
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 on long-term bonds for tax
purposes. The character of the distributions made during the year from net
investment income or net realized gains may differ from its 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 fiscal year in which the income or realized gain was recorded
by the Fund.
During the year ended July 31, 1997, the Fund adjusted the
classification of distributions to shareholders to reflect the differences
between financial statement amounts and distributions determined in accordance
with income tax regulations. Accordingly, during the year ended July 31, 1997,
amounts have been reclassified to reflect a decrease in paid-in capital of
$11,664, a decrease in undistributed net investment income of $730,353, and an
increase in accumulated net realized gain on investments of $742,017.
- --------------------------------------------------------------------------------
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 using the
effective yield method, in accordance with federal income tax requirements. For
bonds acquired after April 30, 1993, accrued market discount is recognized at
maturity or disposition as taxable ordinary income. Taxable ordinary income is
realized to the extent of the lesser of gain or accrued market discount.
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.
27 Oppenheimer Municipal Bond Fund
<PAGE> 28
NOTES TO FINANCIAL STATEMENTS (Continued)
===============================================================================
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 PERIOD ENDED YEAR ENDED
JULY 31, 1997 JULY 31, 1996(1) DECEMBER 31, 1995(2)
----------------------------- -------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Class A:
Sold 4,946,747 $ 48,948,803 4,747,849 $ 46,379,774 7,178,151 $ 68,805,897
Issued in connection
with the acquisition
of Quest National
Tax-Exempt Fund
- --Note 6 -- -- -- -- 7,276,353 71,599,310
Dividends and
distributions
reinvested 2,089,594 20,654,651 1,312,265 12,765,106 2,221,310 21,323,241
Redeemed (10,346,905) (102,350,050) (9,076,955) (88,610,917) (13,705,703) (131,048,723)
----------- ------------- ---------- ------------ ----------- -------------
Net increase
(decrease) (3,310,564) $ (32,746,596) (3,016,841) $(29,466,037) 2,970,111 $ 30,679,725
=========== ============= ========== ============ =========== =============
- ---------------------------------------------------------------------------------------------------------------
Class B:
Sold 1,596,575 $ 15,764,185 1,143,171 $ 11,161,707 2,306,017 $ 22,148,575
Dividends and
distributions
reinvested 233,176 2,301,877 136,205 1,322,907 219,509 2,106,903
Redeemed (1,234,381) (12,192,711) (943,865) (9,176,230) (1,221,000) (11,744,636)
----------- ------------- ---------- ------------ ----------- -------------
Net increase 595,370 $ 5,873,351 335,511 $ 3,308,384 1,304,526 $ 12,510,842
=========== ============= ========== ============ =========== =============
- ---------------------------------------------------------------------------------------------------------------
Class C:
Sold 519,375 $ 5,132,628 241,982 $ 2,355,795 223,883 $ 2,176,098
Dividends and
distributions
reinvested 17,317 171,212 4,841 46,807 553 5,492
Redeemed (123,236) (1,230,544) (12,272) (119,012) (26,189) (256,062)
----------- ------------- ---------- ------------ ----------- -------------
Net increase 413,456 $ 4,073,296 234,551 $ 2,283,590 198,247 $ 1,925,528
=========== ============= ========== ============ =========== =============
</TABLE>
1. The Fund changed its fiscal year end from December 31 to July 31.
2. 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.
28 Oppenheimer Municipal Bond Fund
<PAGE> 29
================================================================================
3. UNREALIZED GAINS AND LOSSES ON INVESTMENTS
At July 31, 1997, net unrealized appreciation on investments of $49,729,968 was
composed of gross appreciation of $50,319,216, and gross depreciation of
$589,248.
================================================================================
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 0.60% on the first
$200 million of average annual net assets, 0.55% on the next $100 million,
0.50% on the next $200 million, 0.45% on the next $250 million, 0.40% on the
next $250 million and 0.35% on net assets in excess of $1 billion.
For the year ended July 31, 1997, commissions (sales charges
paid by investors) on sales of Class A shares totaled $829,188, of which
$210,262 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 $505,653 and $49,122, respectively, of which $26,194
was paid to an affiliated broker/dealer for Class B. During the year ended July
31, 1997, OFDI received contingent deferred sales charges of $166,272 and
$1,308, 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.
The Fund has adopted a Service Plan for Class A shares to
reimburse OFDI for a portion of its costs incurred in connection with the
personal service and maintenance of shareholder 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. OFDI uses
the service fee to reimburse brokers, dealers, banks and other financial
institutions quarterly for providing personal service and maintaining accounts
of their customers that hold Class A shares. During the year ended July 31,
1997, OFDI paid $109,056 to an affiliated broker/dealer as reimbursement for
Class A personal service and maintenance expenses.
29 Oppenheimer Municipal Bond Fund
<PAGE> 30
NOTES TO FINANCIAL STATEMENTS (Continued)
===============================================================================
4. MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES (CONTINUED)
The Fund has adopted Distribution and Service Plans for Class B and Class C
shares to compensate OFDI for its services and costs in distributing Class B and
Class C shares and servicing accounts. Under the Plans, the Fund pays OFDI an
annual asset-based sales charge of 0.75% per year on Class B and Class C shares,
as compensation for sales commissions paid from its own resources at the time of
sale and associated financing costs. OFDI also receives a service fee of 0.25%
per year as compensation for costs incurred in connection with the personal
service and maintenance of accounts that hold shares of the Fund, including
amounts paid to brokers, dealers, banks and other financial institutions. Both
fees are computed on the average annual net assets of Class B and Class C
shares, determined as of the close of each regular business day. During the
year ended July 31, 1997, OFDI paid $10,127 to an affiliated broker/dealer as
compensation for Class B personal service and maintenance expenses and retained
$268,815 and $17,513, respectively, as compensation for Class B and Class C
sales commissions and service fee advances, as well as financing costs. If
either Plan is terminated by the Fund, the Board of Trustees may allow the Fund
to continue payments of the asset-based sales charge to OFDI for distributing
shares before the Plan was terminated. At July 31, 1997, OFDI had incurred
unreimbursed expenses of $2,373,061 for Class B and $127,728 for Class C.
================================================================================
5. 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 (initial margin) in an amount equal to a
certain percentage of the contract value. Subsequent payments (variation
margin) are made or received by the Fund each day. The variation margin
payments are equal to the daily changes in the contract value and are recorded
as unrealized gains and losses. The Fund recognizes a realized gain or loss
when the contract is closed or expires.
Securities held in collateralized accounts to cover initial
margin requirements on open futures contracts are noted in the Statement of
Investments. The Statement of Assets and Liabilities reflects a receivable 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.
30 Oppenheimer Municipal Bond Fund
<PAGE> 31
================================================================================
At July 31, 1997, the Fund had outstanding futures contracts to sell debt
securities as follows:
<TABLE>
<CAPTION>
EXPIRATION NUMBER OF VALUATION AS OF UNREALIZED
DATE FUTURES CONTRACTS JULY 31, 1997 DEPRECIATION
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury Bonds 9/97 575 $67,131,250 $3,527,344
</TABLE>
================================================================================
6. ACQUISITION OF QUEST NATIONAL TAX-EXEMPT FUND
On November 24, 1995, the 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.
31 Oppenheimer Municipal Bond Fund
<PAGE> 32
INDEPENDENT AUDITORS' REPORT
================================================================================
The Board of Trustees and Shareholders
of Oppenheimer Municipal Bond Fund:
We have audited the accompanying statements of investments and assets and
liabilities of Oppenheimer Municipal Bond Fund (formerly Oppenheimer Tax-Free
Bond Fund) as of July 31, 1997, the related statement of operations for the
year then ended, the statements of changes in net assets for the year then
ended, the seven-month period ended July 31, 1996 and the year ended December
31, 1995, and the financial highlights for the year ended July 31, 1997, the
seven-month period ended July 31, 1996 and for each of the years in the
four-year period ended December 31, 1995. 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 July 31, 1997, by correspondence with the custodian. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the financial
position of Oppenheimer Municipal Bond Fund as of July 31, 1997, the results
of its operations for the year then ended, the changes in its net assets for
the year then ended, the seven-month period ended July 31, 1996 and the year
ended December 31, 1995, and the financial highlights for the year ended July
31, 1997, the seven-month period ended July 31, 1996 and for each of the years
in the four-year period ended December 31, 1995, in conformity with generally
accepted accounting principles.
KPMG PEAT MARWICK LLP
Denver, Colorado
August 21, 1997
32 Oppenheimer Municipal Bond Fund
<PAGE> 33
FEDERAL INCOME TAX INFORMATION (Unaudited)
================================================================================
In early 1998, shareholders will receive information regarding all dividends
and distributions paid to them by the Fund during calendar year 1997.
Regulations of the U.S. Treasury Department require the Fund to report this
information to the Internal Revenue Service.
None of the dividends paid by the Fund during the fiscal year
ended July 31, 1997 are eligible for the corporate dividend-received deduction.
The dividends were derived from interest on municipal bonds and are not subject
to federal income tax. To the extent a shareholder is subject to any state or
local tax laws, some or all of the dividends received may be taxable.
The foregoing information is presented to assist shareholders in
reporting distributions received from the Fund to the Internal Revenue Service.
Because of the complexity of the federal regulations which may affect your
individual tax return and the many variations in state and local tax
regulations, we recommend that you consult your tax adviser for specific
guidance.
33 Oppenheimer Municipal Bond Fund
<PAGE> 34
OPPENHEIMER MUNICIPAL BOND FUND
================================================================================
OFFICERS AND TRUSTEES Leon Levy, Chairman of the Board of Trustees
Donald W. Spiro, Vice Chairman of the Board of
Trustees
Bridget A. Macaskill, Trustee and President
Robert G. Galli, Trustee
Benjamin Lipstein, Trustee
Elizabeth B. Moynihan, Trustee
Kenneth A. Randall, Trustee
Edward V. Regan, Trustee
Russell S. Reynolds, Jr., Trustee
Pauline Trigere, Trustee
Clayton K. Yeutter, Trustee
Robert E. Patterson, Vice President
Jerry A. Webman, Vice President
George C. Bowen, Treasurer
Robert J. Bishop, Assistant Treasurer
Scott T. Farrar, Assistant Treasurer
Andrew J. Donohue, Secretary
Robert G. Zack, Assistant Secretary
================================================================================
INVESTMENT ADVISER OppenheimerFunds, Inc.
================================================================================
DISTRIBUTOR OppenheimerFunds Distributor, Inc.
================================================================================
TRANSFER AND SHAREHOLDER OppenheimerFunds Services
SERVICING AGENT
================================================================================
CUSTODIAN OF Citibank, N.A.
PORTFOLIO SECURITIES
================================================================================
INDEPENDENT AUDITORS KPMG Peat Marwick LLP
================================================================================
LEGAL COUNSEL Gordon Altman Butowsky Weitzen Shalov & Wein
This is a copy of a report to shareholders of
Oppenheimer Municipal Bond Fund. This report
must be preceded or accompanied by a
Prospectus of Oppenheimer Municipal Bond Fund.
For material information concerning the Fund,
see the Prospectus.
Shares of Oppenheimer funds are not deposits
or obligations of any bank, are not
guaranteed by any bank, and are not insured
by the FDIC or any other agency, and involve
investment risks, including possible loss
of the principal amount invested.
34 Oppenheimer Municipal Bond Fund
<PAGE> 35
OPPENHEIMERFUNDS FAMILY
<TABLE>
<S> <C> <C>
=======================================================================================================
REAL ASSET FUNDS
- -------------------------------------------------------------------------------------------------------
Real Asset Fund Gold & Special Minerals Fund
=======================================================================================================
STOCK FUNDS
- -------------------------------------------------------------------------------------------------------
Developing Markets Fund Quest Small Cap Value Fund Global Fund
Enterprise Fund Capital Appreciation Fund(1) Quest Global Value Fund
International Growth Fund Quest Capital Value Fund Disciplined Value Fund
Discovery Fund Growth Fund Quest Value Fund
=======================================================================================================
STOCK & BOND FUNDS
- -------------------------------------------------------------------------------------------------------
Main Street Income & Quest Growth & Income Disciplined Allocation Fund
Growth Fund Value Fund Multiple Strategies Fund(2)
Quest Opportunity Value Fund Global Growth & Income Fund Bond Fund for Growth
Total Return Fund Equity Income Fund
=======================================================================================================
BOND FUNDS
- -------------------------------------------------------------------------------------------------------
International Bond Fund Champion Income Fund U.S. Government Trust
High Yield Fund Strategic Income Fund Limited-Term Government Fund
Bond Fund
=======================================================================================================
MUNICIPAL FUNDS
- -------------------------------------------------------------------------------------------------------
California Municipal Fund(3) Pennsylvania Municipal Fund(3) Rochester Division:
Florida Municipal Fund(3) Municipal Bond Fund Rochester Fund Municipals
New Jersey Municipal Fund(3) Insured Municipal Fund Limited Term New York
New York Municipal Fund(3) Intermediate Municipal Fund Municipal Fund
=======================================================================================================
MONEY MARKET FUNDS(4)
- -------------------------------------------------------------------------------------------------------
Money Market Fund Cash Reserves
=======================================================================================================
LIFESPAN
- -------------------------------------------------------------------------------------------------------
Growth Fund Balanced Fund Income Fund
</TABLE>
1. On 12/18/96, the Fund's name was changed from "Target Fund."
2. On 3/16/97, the Fund's name was changed from "Asset Allocation Fund."
3. Available only to investors in certain states.
4. An investment in money market funds is neither insured nor guaranteed by
the U.S. government and there can be no assurance that a money market fund will
be able to maintain a stable net asset value of $1.00 per share. Oppenheimer
funds are distributed by OppenheimerFunds Distributor, Inc., Two World Trade
Center, New York, NY 10048-0203.
(C) Copyright 1997 OppenheimerFunds, Inc. All rights reserved.
35 Oppenheimer Municipal Bond Fund
<PAGE> 36
INTERNET
24-hr access to account
information
WWW.OPPENHEIMERFUNDS.COM
GENERAL INFORMATION
Mon-Fri 8:30am-9pm ET
Sat 10am-4pm ET
1-800-525-7048
ACCOUNT TRANSACTIONS
Mon-Fri 8:30am-9pm ET
Sat 10am-4pm ET
1-800-852-8457
PHONELINK
24-hr automated information
and automated transactions
1-800-533-3310
TELECOMMUNICATION DEVICE
FOR THE DEAF (TDD)
Mon-Fri 8:30am-2pm ET
1-800-843-4461
OPPENHEIMERFUNDS
INFORMATION HOTLINE
24 hours a day, timely and
insightful messages on the
economy and issues that
affect your investments
1-800-835-3104
INFORMATION AND SERVICES
- ----------------------------------------------------------------------------
As an Oppenheimer fund shareholder, you have some special privileges. Whether
it's automatic investment plans, informative newsletters and hotlines, or
ready account access, you can benefit from services designed to make investing
simple.
And when you need help, our Customer Service Representatives are only a
toll-free phone call away. They can provide information about your account and
handle administrative requests. You can reach them at our General Information
number.
When you want to make a transaction, you can do it easily by calling our
toll-free Telephone Transactions number. And, by enrolling in AccountLink, a
convenient service that "links" your Oppenheimer funds accounts and your bank
checking or savings account, you can use the Telephone Transactions number to
make investments.
For added convenience, you can get automated information with
OppenheimerFunds PhoneLink service, available 24 hours a day, 7 days a week.
PhoneLink gives you access to a variety of fund, account, and market
information. Of course, you can always speak with a Customer Service
Representative during the General Information hours shown at the left.
You can count on us whenever you need assistance. That's why the
International Customer Service Association, an independent, nonprofit
organization made up of over 3,200 customer service management professionals
from around the country, honored the Oppenheimer funds' transfer agent,
OppenheimerFunds Services, with their Award of Excellence in 1993.
So call us today, or visit us at our website at
www.oppenheimerfunds.com--we're here to help.
[OPPENHEIMERFUNDS LOGO]
RA0310.001.0797 September 30, 1997
