Oppenheimer
Municipal Bond Fund
Prospectus dated November 24, 1997
Oppenheimer Municipal 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 refer to "Investment Risks" for
a discussion of 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 November
24, 1997 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 NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
-1-
<PAGE>
Contents
ABOUT THE FUND
Expenses
A Brief Overview of the Fund
Financial Highlights
Investment Objective and Policies
Investment Risks
Investment Techniques and Strategies
How the Fund is Managed
Performance of the Fund
ABOUT YOUR ACCOUNT
How to Buy Shares
Class A Shares
Class B Shares
Class C Shares
Special Investor Services
AccountLink
Automatic Withdrawal and Exchange Plans
Reinvestment Privilege
How to Sell Shares
By Mail
By Telephone
By Checkwriting
How to Exchange Shares
Shareholder Account Rules and Policies
Dividends, Capital Gains and Taxes
Appendix A: Special Sales Charge Arrangements for
Certain Persons
-2-
<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 the fiscal year ended July 31,
1997.
o Shareholder Transaction Expenses are charges you pay when you buy or
sell shares of the Fund. Please refer to "About Your Account," starting on page
__ for an explanation of how and when
these charges apply.
Class A Class B Class C
Shares Shares Shares
Maximum Sales Charge
on Purchases (as a %
of offering price) 4.75% None None
- ---------------------------------------------------------------------------
Maximum Deferred Sales Charge
(as a % of the lower of
the original offering
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)
- -----------------------------------------------------------------------------
Maximum Sales Charge on
Reinvested Dividends None None None
- -----------------------------------------------------------------------------
Exchange Fee None None None
- -----------------------------------------------------------------------------
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 12 calendar months (18
months for shares purchased prior to May 1, 1997) 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.
o 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 0.52% 0.52% 0.52%
- -----------------------------------------------------------------
12b-1 Plan Fees 0.22% 1.00%
1.00%
- -----------------------------------------------------------------
Other Expenses 0.13%
0.13% 0.15%
- -----------------------------------------------------------------
Total Fund Operating Expenses 0.87%
1.65% 1.67%
The numbers in the table above are based upon the Fund's expenses in its
last fiscal year ended July 31, 1997. These amounts are shown as a percentage of
the average net assets of each class of the Fund's shares for that year. The
"12b-1 Plan Fees" for Class A shares are Service Plan Fees . The "12b-1 Plan
Fees" for Class B and Class C shares are Service Plan Fees and asset-based sales
charges. The service fee for Class A shares is approximately 0.25% and for Class
B and Class C shares is 0.25% of average annual net assets of that class and the
asset-based sales charge for Class B and Class C shares is 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 changes in the actual value of the Fund's assets represented by each
class of shares.
o 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 $ 93
$150
Class B Shares $67 $82 $110
$156
Class C Shares $27 $53
$ 91 $198
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 $93
$150
Class B Shares $17 $52 $90
$156
Class C Shares $17 $53 $91
$198
* In the first example, expenses include the Class A initial sales charge and
the applicable Class B or Class C contingent deferred sales charge. In the
second example, Class A expenses include the initial sales charge, but Class B
and Class C expenses do not include contingent deferred sales charges. 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 imposed on Class B and Class C shares,
long-term holders of Class B and Class C shares 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 costs 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.
o 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.
o 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
__.
o Who Manages the Fund? The Fund's investment advisor (the "Manager") is
OppenheimerFunds, Inc. which (including subsidiaries) manages investment company
portfolios currently having over $75 billion in assets. The Manager is paid an
advisory fee by the Fund, based on its 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 advisor and
the portfolio managers. Please refer to "How the Fund is Managed," starting on
page __ for more information about the Manager and its fees.
o 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, 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 Risks"
starting on page __ for a more complete discussion.
o How Can I Buy Shares? You can buy shares through your dealer or
financial institution, or you can purchase shares directly through the
Distributor by completing an Application or by using an Automatic Investment
Plan under AccountLink. Please refer to "How to Buy Shares" on page __ for more
details.
o 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 shares and Class C shares are
offered without a front-end sales charge, but if you sell your shares within six
years, you will normally pay a contingent deferred sales charge that varies
depending on how long you owned your shares. There is also an annual asset-based
sales charge on Class B and Class C shares. Please review "How to Buy Shares"
starting on page __ for more details, including a discussion about factors you
and your financial advisor should consider in determining which class may be
appropriate for you.
o 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 __. The Fund also offers exchange
privileges to other Oppenheimer funds, described in "How to Exchange Shares" on
page __.
o 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 __ and __. 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 July 31, 1997 is included in the
Statement of Additional Information.
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
CLASS A
-----------------------------------------------------------
YEAR ENDED JULY 31, YEAR ENDED DECEMBER 31,
1997 1996(2) 1995 1994
=================================================================================================================
<S> <C> <C> <C> <C>
PER SHARE OPERATING DATA:
Net asset value, beginning of period $ 9.74 $9.98 $8.93 $10.44
- -----------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .55 .32 .54 .57
Net realized and unrealized gain (loss) .49 (.25) 1.06 (1.52)
------ ----- ----- ------
Total income (loss) from investment operations 1.04 .07 1.60 (.95)
- -----------------------------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income (.54) (.31) (.54) (.56)
Dividends in excess of net investment income -- -- (.01) --
Distributions from net realized gain -- -- -- --
Distributions in excess of net realized gain -- -- -- --(5)
------ ----- ----- ------
Total dividends and distributions to shareholders (.54) (.31) (.55) (.56)
- -----------------------------------------------------------------------------------------------------------------
Net asset value, end of period $10.24 $9.74 $9.98 $ 8.93
====== ===== ===== ======
=================================================================================================================
TOTAL RETURN, AT NET ASSET VALUE(6) 10.97% 0.77% 18.28% (9.19)%
=================================================================================================================
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) $586,546 $590,299 $634,473 $541,161
- -----------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $582,624 $606,509 $569,859 $582,038
- -----------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income 5.55% 5.58%(7) 5.65% 5.94%
Expenses 0.87% 0.92%(7) 0.88% 0.88%
- -----------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(8) 23.8% 23.9% 25.1% 21.7%
</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. Net investment income would
have been $0.64 and $0.76 absent the voluntary assumption of expenses, resulting
in an expense ratio of 0.84% and 0.80% for 1989 and 1988, respectively. 5. Less
than $0.005 per share.
8
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
1993 1992 1991 1990 1989 1988 1987
===========================================================================================================
<S> <C> <C> <C> <C> <C> <C>
$ 9.94 $9.77 $9.33 $9.45 $9.27 $9.12 $9.81
- -----------------------------------------------------------------------------------------------------------
.59 .62 .64 .66 .65(4) .77(4) .69
.74 .25 .45 (.12) .20 .07 (.70)
------ ----- ----- ----- ----- ----- -----
1.33 .87 1.09 .54 .85 .84 (.01)
- -----------------------------------------------------------------------------------------------------------
(.62) (.58) (.65) (.66) (.67) (.69) (.68)
-- -- -- -- -- -- --
(.21) (.12) -- -- -- -- --
-- -- -- -- -- -- --
------ ----- ----- ----- ----- ----- -----
(.83) (.70) (.65) (.66) (.67) (.69) (.68)
- -----------------------------------------------------------------------------------------------------------
$10.44 $9.94 $9.77 $9.33 $9.45 $9.27 $9.12
====== ===== ===== ===== ===== ===== =====
===========================================================================================================
13.79% 9.20% 12.11% 5.93% 9.42% 10.03% 0.00%
===========================================================================================================
$608,128 $496,628 $394,115 $256,542 $223,904 $172,227 $133,508
- -----------------------------------------------------------------------------------------------------------
$567,777 $438,684 $319,081 $238,224 $202,216 $150,901 $135,052
- -----------------------------------------------------------------------------------------------------------
5.71% 6.34% 6.70% 7.08% 7.18% 7.48% 7.41%
0.88% 0.94% 0.89% 0.89% 0.82%(4) 0.72%(4) 0.78%
- -----------------------------------------------------------------------------------------------------------
30.2% 34.2% 23.5% 29.3% 57.2% 22.9% 29.4%
</TABLE>
6. 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.
7. Annualized.
9
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS (CONTINUED) CLASS B
----------------------------------------------
YEAR ENDED
YEAR ENDED JULY 31, DECEMBER 31,
1997 1996(2) 1995
====================================================================================================
<S> <C> <C> <C>
PER SHARE OPERATING DATA:
Net asset value, beginning of period $9.73 $9.96 $8.92
- ----------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .47 .27 .47
Net realized and unrealized gain (loss) .48 (.23) 1.05
------ ----- -----
Total income (loss) from investment operations .95 .04 1.52
- ----------------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income (.46) (.27) (.47)
Dividends in excess of net investment income -- -- (.01)
Distributions from net realized gain -- -- --
Distributions in excess of net realized gain -- -- --
------ ----- -----
Total dividends and distributions to shareholders (.46) (.27) (.48)
- ----------------------------------------------------------------------------------------------------
Net asset value, end of period $10.22 $9.73 $9.96
====== ===== =====
====================================================================================================
TOTAL RETURN, AT NET ASSET VALUE(6) 10.05% 0.43% 17.30%
====================================================================================================
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) $83,897 $74,055 $72,488
- ----------------------------------------------------------------------------------------------------
Average net assets (in thousands) $77,881 $73,047 $63,669
- ----------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income 4.76% 4.79%(7) 4.84%
Expenses 1.65% 1.70%(7) 1.68%
- ----------------------------------------------------------------------------------------------------
Portfolio turnover rate(8) 23.8% 23.9% 25.1%
</TABLE>
8. 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.
10
<PAGE>
<TABLE>
<CAPTION>
CLASS C
- ---------------------------------- -------------------------------------------------------
PERIOD ENDED
YEAR ENDED DECEMBER 31, YEAR ENDED JULY 31, DECEMBER 31,
1994 1993(3) 1997 1996(2) 1995(1)
============================================================================================
<S> <C> <C> <C> <C>
$10.43 $10.22 $ 9.73 $9.96 $9.58
- --------------------------------------------------------------------------------------------
.50 .41 .46 .27 .15
(1.52) .43 .49 (.23) .39
------ ------ ------ ----- -----
(1.02) .84 .95 .04 .54
- --------------------------------------------------------------------------------------------
(.49) (.42) (.46) (.27) (.15)
-- -- -- -- (.01)
-- (.21) -- -- --
--(5) -- -- -- --
------ ------ ------ ----- -----
(.49) (.63) (.46) (.27) (.16)
- --------------------------------------------------------------------------------------------
$ 8.92 $10.43 $10.22 $9.73 $9.96
====== ====== ====== ===== =====
============================================================================================
(9.91)% 8.49% 10.03% 0.40% 5.64%
============================================================================================
$53,245 $33,024 $8,648 $4,210 $1,975
- --------------------------------------------------------------------------------------------
$46,548 $16,444 $5,724 $3,105 $1,506
- --------------------------------------------------------------------------------------------
5.11% 4.54%(7) 4.72% 4.72%(7) 4.49%(7)
1.69% 1.74%(7) 1.67% 1.75%(7) 1.64%(7)
- --------------------------------------------------------------------------------------------
21.7% 30.2% 23.8% 23.9% 25.1%
</TABLE>
11
-3-
<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.
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. Although exempt
interest dividends will not be subject to federal income tax for Fund
shareholders, a portion of such dividend which is derived from interest on
certain "private activity" bonds may be an item of tax preference if you are
subject to the federal alternative minimum tax. 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.
o 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.
o 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.
Investment Risks.
All investments carry risks to some degree, whether they are risks that
market prices of the investment will fluctuate (this is known as "market risk")
or that the underlying issuer will experience financial difficulties and may
default on its obligation under a fixed-income investment to pay interest and
repay principal (this is referred to as "credit risk"). These general investment
risks, and the special risks of certain types of investments that the Fund may
hold are described below. They affect the value of the Fund's investments, its
investment performance, and the prices of its shares. These risks collectively
form the risk profile of the Fund.
Because of the types of securities the Fund invests in and the investment
techniques the Fund uses, the Fund is designed for investors who are investing
for the long term. It is not intended for investors seeking assured income.
While the Manager tries to reduce risks by diversifying investments, by
carefully researching securities before they are purchased, and in some cases by
using hedging techniques, changes in overall market prices can occur at any
time, and because the income earned on securities is subject to change, there is
no assurance that the Fund will achieve its investment objective. When you
redeem your shares, they may be worth more or less than what you paid for them.
o 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 duration of the portfolio is
longer.
o 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. While the
Manager may rely to some extent on credit ratings by nationally recognized
rating agencies, such as Standard & Poor's Corporation ("S&P"), Moody's Investor
Services, Inc. ("Moody's") or Fitch Investor Services, Inc. ("Fitch") in
evaluating the credit risk of securities selected for the Fund's portfolio, it
may also use its own research and analysis. 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.
o There are special risks in investing in derivative investments. 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 on
which the derivative is based, and the derivative itself, may 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.
o 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.
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.
o 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.
o 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); and (iii) repurchase agreements (explained below).
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.
o 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.
o 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.
o 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.
o 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, Fitch or Duff's & Phelps or another nationally recognized
statistical rating organization. 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.
o 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. There may be a risk of loss if the value of the security declines
prior to the settlement date.
o 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.
o 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.
o Illiquid and Restricted Securities. Under the policies and procedures
established by the Fund's Board of Trustees, the Manager determines the
liquidity of the Fund's investments. Investments may be illiquid because of the
absence of an active trading market, making it difficult to value them or
dispose of them promptly at an acceptable price. A restricted security is one
that has a contractual restriction on its resale. The Fund will not invest more
than 10% of its net assets in illiquid or restricted securities (the Board may
increase that limit to 15%). 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. The
Manager monitors holdings of illiquid securities on an ongoing basis to
determine whether to sell any holdings to maintain adequate liquidity. Illiquid
securities include repurchase agreements maturing in more than seven days, or
certain participation interests other than those with puts exercisable within
seven days.
o 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.
o 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.
o 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.
o 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.
o 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.
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:
o 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;
o 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";
o 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;
o 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
o 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.
Unless the prospectus states that a percentage restriction applies on an
ongoing basis, it applies only at the time the Fund makes an investment, and the
Fund need not sell securities to meet the percentage limits if the value of the
investment increases in proportion to the size of the Fund. Other investment
restrictions are listed in "Investment Restrictions" 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 on matters submitted to the vote of shareholders. Shares
of each class may have separate voting rights on matters in which the interests
of one class are different from the interests of another class, and only shares
of a particular class vote as a class on matters that affect that class alone.
Shares are freely transferable.
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 advisor since 1959. The Manager
(including subsidiaries) currently manages investment companies, including other
Oppenheimer funds, with assets of more than $75 billion as of September 30,
1997, and with more than 3 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.
o 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
Mutual Funds Investment Management, Inc.
o 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 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 average annual
net assets in excess of $1 billion. The Fund's management fee for its last
fiscal year ended July 31, 1997 was 0.52% 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, Trustees' fees, transfer agency fees, legal fees and auditing costs. Those
expenses are paid out of the Fund's assets and are not paid directly by
shareholders. However, those expenses reduce the net asset 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 discusses 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 therefore
incurs relatively little expense for brokerage. From time to time it may use
brokers when buying portfolio securities. When deciding which brokers to use,
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 advisor.
o The Distributor. The Fund's shares are sold through dealers, brokers and
financial institutions that have a sales agreement with OppenheimerFunds
Distributor, Inc., a subsidiary of the Manager that acts as the Fund's
Distributor. The Distributor also distributes the shares of the other
Oppenheimer funds and is sub-distributor for funds managed by a subsidiary of
the Manager.
o 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 the 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.
o 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. Total
returns may also be quoted at "net asset value," without considering the effect
of the sales charge, and those returns would be less if sales charges were
deducted.
o Yield. Different types of yields may be quoted to show performance. Each
class of shares calculates its standardized 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. The yield of each class
will differ because of the different expenses of each class of shares. The yield
data represents a hypothetical investment return on the portfolio, and does not
measure an investment return based on dividends actually paid to shareholders.
To show that return, a dividend yield may be calculated. Dividend yield is
calculated by dividing the dividends of a class paid for a stated period by the
maximum offering price on the last day of the period and annualizing the result.
Yields for Class A shares normally reflect the deduction of the maximum initial
sales charge, but may also be shown without deducting sales charge. Yields for
Class B and Class C shares do not reflect the deduction of the contingent
deferred sales charge. Tax-equivalent yield is the equivalent yield that would
be earned in the absence of income 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.
How Has the Fund Performed? Below is a discussion by the Manager of the Fund's
performance during its last fiscal year ended July 31, 1997, followed by a
graphical comparison of the Fund's performance to an appropriate broad-based
market index.
o Management's Discussion of Performance. During the Fund's fiscal year
ended July 31, 1997, the Fund's performance was affected by several economic and
market factors. Yields on municipal bonds generally followed the trends
established over the past twelve months by taxable bonds. However, during the
twelve month period, taxable and tax-exempt bond markets experienced some
volatility. Bond yields rose and fell with investors changing outlook for
economic growth, inflation and federal monetary policy. The Fund continued to
follow the strategy of holding a diversified portfolio of good-quality
securities that provide competitive levels of income and attractive relative
values. The Fund's portfolio holdings, allocations and strategies are subject to
change.
o 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 from inception of the class through July 31, 1997 with all
dividends and capital gains distributions reinvested in additional shares. The
graphs reflect the deduction of the 4.75% maximum initial sales charge on Class
A shares, 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 Municipal 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 7/31/971
A Shares 1 Year 5 Year Life of Class
5.70% 5.63%
7.51%
Comparison of Change
In Value of $10,000
Hypothetical Investments in:
Oppenheimer Municipal 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 7/31/972
B Shares 1 Year Life of Class
5.05% 5.18%
Comparison of Change
In Value of $10,000
Hypothetical Investments in:
Oppenheimer Municipal 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 7/31/973
C Shares 1 Year Life of Class
9.03% 8.36%
Total returns and the ending account values in the graphs show change in
share value and include reinvestment of all dividends and
capital gains distributions.
1. Class A returns are shown net of the current applicable 4.75% maximum initial
sales charge. The inception of the Fund (Class A shares) was 10/27/76. 2. Class
B shares of the Fund were first publicly offered on 3/16/93. The average annual
total returns reflect reinvestment of all dividends and capital gains
distributions and are shown net of the applicable 5% and 2% 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 2% sales charge.
3. Class C shares of the Fund were first publicly offered on August 29, 1995.
The one year period is shown net of the applicable 1% contingent deferred sales
charge.
Past performance is not predictive of future performance. 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.
o 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 12 months of buying them (18 months if the shares were purchased
prior to May 1, 1997), you may pay a contingent deferred sales charge. The
amount of that sales charge value will vary depending on the amount you
invested. Sales charge rates are described in "Buying Class A Shares," below.
o 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.
o 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 decisions as to which class of shares is
best suited to your needs depends on a number of factors which you should
discuss with your financial advisor. 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 to consider 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 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.
o 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.
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.
o 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 within six 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 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 shares might be more advantageous than Class C shares (as well as Class
B shares) 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 shares (and
Class B shares). If investing $500,000 or more, Class A shares 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.
o 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 Class 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.
o Are There Differences In Account Features That Matter To You? Because
some account features (such as checkwriting) may not be available to Class B or
Class C shareholders, or other features (such as Automatic Withdrawal Plans) may
not be advisable (because of the effect of the contingent deferred sales charge)
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 to buy.
Additionally, the dividends payable to Class B and Class C shareholders will be
reduced by the additional expenses borne by those classes that are not borne by
Class A shares, such as the Class B and Class C asset-based sales charge
described below and in the Statement of Additional Information. Share
certificates are not available for Class B and Class C shares and if you are
considering using your shares as collateral for a loan, that may be a factor to
consider.
o 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 of shares
than for selling 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 charges 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.
The Distributor may pay additional periodic compensation from its own resources
to securities dealers or financial institutions based upon the value of shares
of the Fund owned by the dealer or financial institution for its own account or
for its customers.
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.
o With Asset Builder Plans, Automatic Exchange Plans and military allotment
plans, you can make initial and subsequent investments for as little as $25; and
subsequent purchases of at least $25 can be made by telephone through
AccountLink.
o 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.
o 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, directly through the Distributor, or automatically from your bank
account through an Asset Builder Plan under the OppenheimerFunds AccountLink
service. The Distributor may appoint certain servicing agents as the
Distributor's agent to accept purchase (and redemption) orders. 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.
o Buying Shares Through Your Dealer. Your dealer will place your order with
the Distributor on your behalf.
o 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, it is recommended that you discuss your
investment first with a financial advisor to be sure that it is appropriate for
you.
o Payment by Federal Funds Wire. Shares may be purchased by Federal Funds wire.
The minimum investment is $2,500. You must first call the Distributor's Wire
Department at 1-800-525-7041 to notify the Distributor of the wire, and to
receive further instructions.
o Buying Shares Through OppenheimerFunds AccountLink. You can use
AccountLink to link your Fund account with an account at a U.S. bank or other
financial institution that is an Automated Clearing House (ACH) member to
transmit funds electronically to purchase shares, to have the Transfer Agent
send redemption proceeds, or to transmit dividends and distributions to your
bank account.
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.
o 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 in the Statement of Additional Information.
o At What Price Are Shares Sold? Shares are sold at the public offering
price based on the net asset value (plus any initial sales charge that applies)
. That price is 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 or its designated agent 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 referred to in this Prospectus as 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 in this
Prospectus sets forth conditions for the waiver of, or exemption from sales
charge or the special sales charges 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.
o Class A Contingent Deferred Sales Charge. There is no initial sales
charge on purchases of Class A shares of any one or more of the Oppenheimer
funds aggregating $1 million or more. The Distributor pays dealers of record
commissions on those non- retirement plan purchases in an amount equal to the
sum of 1.0%. That commission will be paid only on the amount of those purchases
that were not previously subject to a front-end sales charge and dealer
commission.
If you redeem any of those shares purchased prior to May 1, 1997, 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")
may be deducted from the redemption proceeds. A Class A contingent deferred
sales charge may be deducted from the redemption proceeds of any of those shares
purchased on or after May 1, 1997, that are redeemed within 12 months of the end
of the calendar month of their purchase. That sales charge will be equal to 1.0%
of the lesser of (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
offering price (which is the original net asset value) of the redeemed shares.
However, the Class A contingent deferred sales charge will not exceed the
aggregate amount of the commissions the Distributor paid to your dealer on all
Class A shares of all 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 12 calendar months (18 months
for shares purchased prior to May 1, 1997) of the end of the calendar month of
the purchase of the exchanged shares, the sales charge will apply.
o 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:
o 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 accounts on behalf of your children who
are minors. 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
that applies to current purchases of Class A shares. You can also include 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 Distributor will add the value,
at current offering price, of the shares you previously purchased and currently
own to the value of current purchases to determine the sales charge rate that
applies. The 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.
o 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.
o 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. In
order to receive a waiver of the Class A contingent deferred sales charge, you
must notify the Transfer Agent which conditions apply.
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:
o the Manager or its affiliates;
o present or former officers, directors, trustees and employees (and their
"immediate families" as defined in "Reduced Sales Charges" in the Statement of
Additional Information) of the Fund, the Manager and its affiliates, and
retirement plans established by them for their employees;
o registered management investment companies, or separate accounts of
insurance companies having an agreement with the Manager or the Distributor for
that purpose;
o 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;
o 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);
o dealers, brokers, banks or registered investment advisers advisors that
have entered into an agreement with the Distributor providing specifically for
the use of shares of the Fund in particular investment products made available
to their clients (those clients may be charged a transaction fee by their
dealer, broker, bank or advisor for the purchase or sale of Fund shares);
o (1) investment advisors and financial planners who have entered into an
agreement for this purpose with the Distributor and who charge an advisory,
consulting or other fee for their services and buy shares for their own accounts
or the accounts of their clients, (2) "rabbi trusts" that buy shares for their
own accounts, in each case if those purchases are made through a broker or agent
or other financial intermediary that has made special arrangements with the
Distributor for those purchases; and (3) clients of such investment advisors or
financial planners (that have entered into an agreement for this purpose with
the Distributor) who buy shares for their own accounts may also purchase shares
without sales charge but only if their accounts are linked to a master account
of their investment advisor or financial planner on the books and records of the
broker, agent or financial intermediary with which the Distributor has made such
special arrangements (each of these investors may be charged a fee by the
broker, agent or financial intermediary for purchasing shares);
o 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;
o accounts for which Oppenheimer Capital is the investment advisor (the
Distributor must be advised of this arrangement) and persons who are directors
or trustees of the company or trust which
is the beneficial owner of such accounts; or
o 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:
o shares issued in plans of reorganization, such as mergers, asset
acquisitions and exchange offers, to which the Fund is a party;
o 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;
o shares purchased and paid for with the proceeds of shares redeemed in
the prior 30 days 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
o shares purchased with the proceeds of maturing principal 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:
o to make Automatic Withdrawal Plan payments that are limited annually to
no more than 12% of the original account value;
o involuntary redemptions of shares by operation of law or involuntary
redemptions of small accounts (see "Shareholder Account
Rules and Policies," below);
o if, at the time of purchase of shares (prior to May 1, 1997) the dealer
agreed in writing to accept the dealer's portion of the sales commission 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);
o if, at the time of purchase of shares (on or after May 1, 1997) the
dealer agrees in writing to accept the dealer's portion of the sales commission
in installments of 1/12th of the commission per month (and no further commission
will be payable if the shares are redeemed within 12 months of purchase);
o 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 service providers or
their 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 contingent deferred sales charge
will be based on the lesser of the net asset value of the redeemed shares at the
time of redemption or the original offering price (which is the original net
asset value). 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.
o 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.
o 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."
o 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 "Waivers of Class B and Class C Sales Charges."
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 contingent deferred sales charge will be based on the lesser
of the net asset value of the redeemed shares at the time of redemption or the
original offering price (which is the original net asset value). 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.
o 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 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. If a dealer has a special agreement with the Distributor, the
Distributor will pay the Class B service fee and the asset-based sales charge to
the dealer quarterly in lieu of paying the sales commission and service fee
advance at the time of purchase.
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. If a dealer has a special agreement with the
Distributor, the Distributor shall pay the Class C service fee and asset-based
sales charge to the dealer quarterly in lieu of paying the sales commission and
service fee advance at the time of purchase.
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 Plan for Class B and Class C shares. At July 31, 1997, the end of the
Class B and Class C Plan year, the Distributor had incurred unreimbursed
expenses in connection with sales of Class B shares of $2,373,061 (equal to
2.83% of the Fund's net assets represented by Class B shares on that date), and
unreimbursed expenses in connection with sales of Class C shares of $127,728
(equal to 1.48% of the Fund's net assets represented by Class C shares on that
date). 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.
o 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 Class B and Class C shares
redeemed in certain circum-stances as described below. The reasons for this
policy are in "Reduced Sales Charges" in the Statement of Additional
Information. In order to receive a waiver of the Class B and Class C contingent
deferred sales charge, you must notify the Transfer Agent which conditions
apply.
Waivers for Redemptions in Certain Cases. The Class B and Class C
contingent deferred sales charges will be waived for redemptions of shares in
the following cases:
o 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
o 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:
o shares sold to the Manager or its affiliates;
o 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
o shares issued in plans of reorganization to which the Fund is a party.
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 call the Transfer
Agent for more information.
AccountLink privileges should be requested 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.
o 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.
o 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.
o 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.
o Exchanging Shares. With the OppenheimerFunds Exchange Privilege,
described below, you can exchange shares automatically by phone from your Fund
account to another Oppenheimer funds account you have already established by
calling the special PhoneLink number. Please refer to "How to Exchange Shares,"
below, for details.
o 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.
Shareholder Transactions by Fax. Beginning May 30, 1997, requests for certain
account transactions may be sent to the Transfer Agent by fax (telecopier).
Please call 1-800-525-7048 for information about which transactions are
included. Transaction requests submitted by fax are subject to the same rules
and restrictions as written and telephone requests described in this Prospectus.
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:
o Automatic Withdrawal Plans. If your Fund account is worth $5,000 or
more, you can establish an Automatic Withdrawal Plan to receive payments of at
least $50 on a monthly, quarterly, semi-annual or annual basis. The checks may
be sent to you or sent automatically to your bank account on AccountLink. You
may even set up certain types of withdrawals of up to $1,500 per month by
telephone. You should consult the Statement of Additional Informa-tion for more
details.
o 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
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 funds
without paying a 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.
o 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):
o You wish to redeem more than $50,000 worth of shares and receive a check
o The redemption check is not payable to all shareholders
listed on the account statement
o The redemption check is not sent to the address of
record on your account statement
o Shares are being transferred to a Fund account with a
different owner or name
o Shares are redeemed by someone other than the owners
(such as an Executor)
o 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:
o Your name
o The Fund's name
o Your Fund account number (from your account statement) o The dollar
amount or number of shares to be redeemed o Any special payment
instructions o Any share certificates for the shares you are selling o The
signatures of all registered owners exactly as the
account is registered, and
o 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. You may not redeem shares held under a share certificate
by telephone.
o To redeem shares through a service representative, call
1-800-852-8457
o 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 sent to that bank account.
o 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.
o 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.
o Checks can be written to the order of whomever you wish, but may not be
cashed at the Fund's bank or custodian.
o Checkwriting privileges are not available for accounts holding Class B
shares or Class C shares, or Class A shares that are subject to a contingent
deferred sales charge.
o Checks must be written for at least $100.
o 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.
o You may not write a check that would require the Fund to redeem shares
that were purchased by check or Asset Builder Plan payments within the prior 15
days.
o 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:
o Shares of the fund selected for exchange must be available for sale in
your state of residence.
o The prospectuses of this Fund and the fund whose shares you want to buy
must offer the exchange privilege.
o 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.
o You must meet the minimum purchase requirements for the fund you
purchase by exchange.
o 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 to be "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:
o 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."
o 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:
o 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 seven 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 sale of portfolio securities at a time or price
disadvantageous to the Fund.
o 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.
o 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.
o 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.
o If the Transfer Agent cannot exchange all the shares you request because
of a restriction cited above, only the shares eligible for exchange will be
exchanged.
Shareholder Account Rules and Policies
o Net Asset Value Per Share is determined for each class of shares as of
the close of The New York Stock Exchange that day, 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.
o 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.
o 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.
o 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.
o 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.
o 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.
o 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.
o 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 seven 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 three 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 Federal Funds Wire, certified check or arrange with your bank
to provide telephone or written assurance to the Transfer Agent that your
purchase payment has cleared.
o Involuntary redemptions of small accounts may be made by the Fund if the
account value has fallen below $500 for reasons other than the fact that the
market value of shares has dropped, and in some cases involuntary redemptions
may be made to repay the Distributor for losses from the cancellation of share
purchase orders.
o 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.
o "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.
o 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 charge when redeeming certain Class A, Class B and
Class C shares.
o To avoid sending duplicate copies of materials to households, the Fund
will mail only one copy of each annual and semi-annual report to shareholders
having the same last name and address on the Fund's records. However, each
shareholder may call the Transfer Agent at 1-800-525-7048 to ask that copies of
those materials be sent personally to that shareholder.
Dividends, Capital Gains and Taxes
Dividends. The Fund declares dividends separately for Class A, Class B and Class
C shares from net tax-exempt income and/or net investment income each regular
business day and pays those dividends to shareholders monthly on a date selected
by the Board of Trustees. Daily dividends will not be declared or paid on newly
purchased shares until Federal Funds (funds credited to a member's bank account
at the Federal Reserve Bank) are available from the purchase payment for such
shares. The amount of dividends and distributions may vary from time to time,
depending upon market conditions, the composition of the Fund's portfolio, and
expenses borne by that class. It is expected that distributions paid with
respect to Class A shares will generally be higher than for Class B and Class C
shares because expenses allocable to Class B and Class C shares will generally
be higher.
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
of each year. The Fund may make supplemental distributions of dividends and
capital gains following the end of its fiscal year. Long-term capital gains will
be separately identified in the tax information the Fund sends you after the end
of the calendar year. Short-term capital gains are treated as taxable 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 dividends and
distributions. You have four options:
o 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.
o 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.
o 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.
o Reinvest Your Distributions in Another Oppenheimer Funds Account. You
can reinvest all distributions in the same class of shares of another
Oppenheimer fund account you have established.
Taxes. Long-term capital gains are taxable as long-term capital gains when
distributed to shareholders. It does not matter how long you have held your
shares. Dividends paid from short-term capital gains and net investment income
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.
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.
o "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.
o Taxes on Transactions. Even though the
Fund seeks tax-
exempt income for distribution to shareholders, you may have a capital gain or
loss when you sell or exchange your shares. A capital gain or loss is the
difference between the price you paid for the shares and the price you received
when you sold them. Any capital gain is subject to capital gains tax.
o 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.
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.
-4-
<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) Oppenheimer Quest
Value Fund,
Inc.,
Oppenheimer Quest Growth & Income Fund, Oppenheimer Quest Opportunity Value
Fund, Oppenheimer Quest Small Cap Value Fund and Oppenheimer Quest Global Value
Fund, Inc. on November 24, 1995, when OppenheimerFunds, Inc. became the
investment advisor 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) purchased by such
shareholder by exchange of other Oppenheimer funds that were acquired 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
o Reduced Class A Initial Sales Charge Rates for Certain Former
Quest Shareholders
o 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.
A-1
<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 __ 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.
o 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:
o Shareholders of the Fund who were shareholders of the AMA Family of
Funds on February 28, 1991 and who acquired shares of any of the Former Quest
for Value Funds by merger of a portfolio of the AMA Family of Funds.
o Shareholders of the Fund who acquired shares of any Former Quest for
Value Fund by merger of any of the portfolios of the Unified Funds.
o 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:
o 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
o 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 the
merger of a Former Quest for Value Fund into the Fund or by exchange from an
Oppenheimer fund that was a Former Quest for Value Fund or into which such fund
merged, 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.
o 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 the merger of a Former Quest for Value Fund into
the Fund or by exchange from an Oppenheimer fund that was a Former Quest For
Value Fund or into which such fund merged, 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 Class 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.
A-2
<PAGE>
APPENDIX TO PROSPECTUS OF
OPPENHEIMER MUNICIPAL BOND FUND
Graphic material included in Prospectus of Oppenheimer
Municipal Bond Fund: "Comparison of Change in Value of $10,000
Hypothetical Investments in Oppenheimer Municipal Bond Fund and
the
Lehman Bros. Municipal Bond Index.
Linear graphs will be included in the Prospectus of Oppenheimer Municipal
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
July 31, 1997, and (iii) Class C shares of the Fund for the period August 29,
1995 (commencement of the class) to July 31, 1997, 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 Municipal Bond Fund Municipal Bond Index
(Period) Ended Class A Shares Bond Index
7/31/87(1) $ 9,525 $10,000
7/31/88 $10,188 $10,702
7/31/89 $11,394 $12,006
7/31/90 $12,075 $12,838
7/31/91 $13,055 $13,959
7/31/92 $14,940 $15,877
7/31/93 $16,278 $17,280
7/31/94 $16,308 $17,604
7/31/95 $17,347 $18,993
7/31/96 $18,592 $20,245
7/31/97 $20,629 $22,323
Oppenheimer Lehman Brothers
Fiscal Year Municipal Bond Fund Municipal Bond Index
(Period) Ended Class B Shares Bond Index
03/16/93 $10,000 $10,000
12/31/93 $10,848 $10,826
12/31/94 $ 9,774 $10,266
12/31/95 $11,464 $12,060
7/31/96(2) $11,514 $12,114
7/31/97 $12,471 $13,358
Oppenheimer Lehman Brothers
Fiscal Year Municipal Bond Fund Municipal Bond Index
(Period) Ended Class C Shares Bond Index
08/29/95 $10,000 $10,000
12/31/95 $10,564 $10,478
7/31/96 (2) $10,606 $10,525
7/31/97 $11,669 $11,606
(1) Plotting points history is greater than 10 years, all plotting points have
been reset to the new fiscal year end 7/31. (2) The Fund changed its fiscal year
end from December 31 to July
31.
Oppenheimer Municipal Bond Fund
Two World Trade Center
New York, New York 10048-0203
Investment Advisor
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 and Shareholder Servicing 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
Legal 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.
PR0310.001.1197 Printed on recycled paper
Oppenheimer Municipal Bond Fund
Two World Trade Center, New York, New York 10048-0203
1-800-525-7048
Statement of Additional Information dated November 24,
1997
This Statement of Additional Information is not a Prospectus. This
document contains additional information about the Fund and supplements
information in the Prospectus dated November 24, 1997. 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.................................
Investment Policies and Strategies............................
Other Investment Techniques and Strategies....................
Other Investment Restrictions................................
How the Fund is Managed..........................................
Organization and History.....................................
Trustees and Officers of the Fund............................
The Manager and Its Affiliates...............................
Brokerage Policies of the Fund...................................
Performance of the Fund..........................................
Distribution and Services Plans..................................
About Your Account
How To Buy Shares................................................
How To Sell Shares...............................................
How to Exchange Shares...........................................
Dividends, Capital Gains and Taxes...............................
Additional Information About the Fund............................
Financial Information About the Fund
Independent Auditors' Report.....................................
Financial Statements ............................................
Appendix A: Municipal Bond Ratings..............................A-1
Appendix B: Tax-Equivalent Yield Table..........................B-1
Appendix C: Industry Classifications............................C-1
-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.
|X| Municipal Bonds. The principal classifications of
long-term municipal bonds are "general obligation" and "revenue"
or "industrial development" bonds.
o 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.
o 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.
o 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.
|X| 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:
o 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.
o 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.
o 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.
o 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.
o 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.
|X| 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.
o 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.
|X| 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.
|X| 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.
|X| 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
|X| 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. Normally the
settlement date occurs within six months of the purchase of municipal bonds and
notes. However, the Fund may, from time to time, purchase municipal securities
whose settlement extends beyond six months and possibly as long as two years or
more beyond trade date. 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.
|X| 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.
|X| 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.
o 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.
|X| 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.
|X| 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.
o 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.
o 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.
o 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.
o 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.
o 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."
o 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, unless the
option is subject to a buy-back agreement by the executing broker. 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.
o 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.
o 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.
o 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:
o 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;
o 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;
o make short sales of securities;
o underwrite securities or invest in securities subject to
restrictions on resale;
o 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;
o invest in securities of any other investment company, except in
connection with a merger with another investment company; or
o 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.
|X| 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 and occupations 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 (except Ms.
Macaskill who is not a director of
Oppenheimer Money Market Fund, Inc.) are also trustees or directors of
Oppenheimer Growth Fund, Oppenheimer Global Fund, Oppenheimer Money Market Fund,
Inc., Oppenheimer U.S. Government Trust, Oppenheimer Gold & Special Minerals
Fund, Oppenheimer Discovery Fund, Oppenheimer Enterprise Fund, Oppenheimer
Capital Appreciation Fund, Oppenheimer Multiple Strategies Fund, Oppenheimer
Global Growth & Income Fund, Oppenheimer International Growth Fund, Oppenheimer
California Municipal Fund, Oppenheimer New York Municipal Fund, Oppenheimer
Multi-State Municipal Trust, Oppenheimer Multi-Sector Income Trust, Oppenheimer
World Bond Fund , Oppenheimer Series Fund, Inc. and Oppenheimer Developing
Markets Fund (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 October 27, 1997, the Trustees and officers of the
Fund as a group owned of record or beneficially less than 1% of each class of
shares of the Fund. The foregoing statement does not reflect ownership of shares
held of record by an employee benefit plan for employees of the Manager (for
which plan one of the Trustees and an officer listed below, Ms. Macaskill, and
one of the officers, Mr. Donohue, are trustees), other than the shares
beneficially owned under the plan by the officers of the Fund listed above.
LEON LEVY, Chairman of the Board of Trustees, Age 72 31 West 52nd Street, New
York, NY 10019 General Partner of Odyssey Partners, L.P. (investment
partnership)(since 1982) and Chairman of Avatar Holdings, Inc. (real estate
development).
ROBERT G. GALLI, Trustee*, Age 64
Vice Chairman of OppenheimerFunds, Inc. (the "Manager") (since
October 1995); formerly he held
the following positions: Vice President and Counsel of Oppenheimer
Acquisition Corp. ("OAC"), the
Manager's parent holding company; Executive Vice President ,
General Counsel and a director of the
Manager and OppenheimerFunds Distributor, Inc. (the
"Distributor"), Vice President and a director
of HarbourView Asset Management Corporation ("HarbourView") and
Centennial Asset
Management Corporation ("Centennial"), investment adviser
subsidiaries of the Manager, a director
of Shareholder Financial Services, Inc. ("SFSI") and Shareholder
Services, Inc. ("SSI"), transfer agent
subsidiaries of the Manager and an officer of other Oppenheimer
funds.
BENJAMIN LIPSTEIN, Trustee, Age 74
591 Breezy Hill Road, Hillsdale, N.Y. 12529
Professor Emeritus of Marketing, Stern Graduate School of Business
Administration, New York
University; a director of Sussex Publishers, Inc
(Publishers of Psychology Today and Mother Earth
News) and of Spy Magazine, L.P.
BRIDGET A. MACASKILL, President and Trustee*, Age 49 President (since June
1991), Chief Executive Officer (since September 1995) and a Director (since
December 1994) of the Manager and Chief Executive Officer (since September
1995); President and director (since June 1991) of HarbourView; Chairman and a
director of SSI (since August 1994), and SFSI (September 1995); President (since
September 1995) and a director (since October 1990) of OAC; President (since
September 1995) and a director (since November 1989) of Oppenheimer Partnership
Holdings, Inc., a holding company subsidiary of the Manager; a director of
Oppenheimer Real Asset Management, Inc. (since July 1996); President and a
director (since October 1997) of OppenheimerFunds International Ltd., an
offshore fund manager subsidiary of the Manager ("OFIL") and Oppenheimer
Millennium Funds plc (since October 1997); President and a director of other
Oppenheimer funds; a director of the NASDAQ Stock Market, Inc. and of Hillsdown
Holdings plc (a U.K. food company); formerly an Executive Vice President of the
Manager.
- --------------------
* A Trustee who is an "interested person" of the Fund as defined in the
Investment Company Act.
ELIZABETH B. MOYNIHAN, Trustee, Age 68
801 Pennsylvania Avenue, N.W., Washington, D.C. 20004 Author and architectural
historian; a trustee of the Freer Gallery of Art (Smithsonian Institution), the
Institute of Fine Arts (New York University), National
Building Museum; a member of the Trustees
Council, Preservation League of New York State, and of the
Indo-U.S. Sub-Commission on Education and
Culture.
KENNETH A. RANDALL, Trustee, Age 70 6 Whittaker's Mill, Williamsburg, Virginia
23185 A director of Dominion Resources, Inc. (electric utility holding company),
Dominion Energy, Inc. (electric power and oil & gas producer), Texan
Cogeneration Company (cogeneration company), Prime Retail, Inc. (real estate
investment trust); formerly President and Chief Executive Officer of The
Conference Board, Inc. (international economic and business research) and a
director of Lumbermens Mutual Casualty Company, American Motorists Insurance
Company and American Manufacturers Mutual Insurance Company.
EDWARD V. REGAN, Trustee, Age 67
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, Bard College; a member of the U.S.
Competitiveness Policy Council; a director of GranCare, Inc. (health care
provider); a director of River Bank America (real estate manager); Trustee,
Financial Accounting Foundation (FASB and GASB); formerly New York State
Comptroller and trustee, New York State and Local Retirement Fund.
RUSSELL S. REYNOLDS,
JR., Trustee, Age 65
8 Sound Shore Drive,
Greenwich, Connecticut 06830
Founder Chairman of Russell Reynolds Associates, Inc.
(executive recruiting); Chairman of Directorship
Inc. (corporate governance consulting); a director of
Professional Staff Limited
(U.K); a trustee of
Mystic Seaport Museum, International House and Greenwich
Historical Society .
DONALD W. SPIRO, Vice Chairman and Trustee*, Age 71
Chairman Emeritus (since August 1991) and a director (since
January 1969) of the Manager; formerly
Chairman of the Manager and the Distributor.
PAULINE TRIGERE, Trustee, Age 85
498 Seventh Avenue, New York, New York 10018
Chairman and Chief Executive Officer of Trigere, Inc. (design and
sale of women's fashions).
CLAYTON K. YEUTTER, Trustee, Age 66
1325 Merrie Ridge Road, McLean, Virginia 22101
Of Counsel, 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) IMC Global Inc.
(chemicals and animal feed), 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.
- --------------------
* A Trustee who is an "interested person" of the Fund as defined in the
Investment Company Act. ANDREW J. DONOHUE, Secretary, Age 47
Executive Vice President (since January 1993), General Counsel (since October
1991) and a Director (since September 1995) of the Manager; Executive Vice
President (since September 1993), and a director (since January 1992) of the
Distributor; Executive Vice President, General Counsel and a director of
HarbourView, SSI, SFSI and Oppenheimer Partnership Holdings, Inc. since
(September 1995) and MultiSource Services, Inc. (a broker-dealer) (since
December 1995); President and a director of Centennial (since September 1995);
President and a director of Oppenheimer Real Asset Management, Inc. (since July
1996); General Counsel (since May 1996) and Secretary (since April 1997) of OAC;
Vice President of OFIL and Oppenheimer Millennium Funds plc (since October
1997); an officer of other Oppenheimer funds.
ROBERT E. PATTERSON, Vice President and Portfolio
Manager, Age 54
Senior Vice President of the Manager (since February 1993); an
officer of other Oppenheimer funds.
JERRY A. WEBMAN - Vice President and Portfolio Manager, Age 47 Senior Vice
President of the Manager (since February 1996); an officer of other Oppenheimer
funds; previously an officer and portfolio manager with Prudential Mutual Funds
- -- Investment Management
Inc.
GEORGE C. BOWEN, Treasurer, Age 61
6803 South Tucson Way, Englewood, Colorado 80112
Senior Vice President (since September 1987) and Treasurer (since March 1985) of
the Manager; Vice President (since June 1983) and Treasurer (since March 1985)
of the Distributor; Vice President (since October 1989) and Treasurer (since
April 1986) of HarbourView; Senior Vice President (since February 1992),
Treasurer (since July 1991) and a director (since December 1991) of Centennial;
President, Treasurer and a director of Centennial Capital Corporation (since
June 1989); Vice President and Treasurer (since August 1978) and Secretary
(since April 1981)
of SSI; Vice President, Treasurer and Secretary of SFSI OAC(since November
1989); Treasurer of OAC (since June 1990); Treasurer of Oppenheimer Partnership
Holdings, Inc. (since November 1989); Vice President and Treasurer of
Oppenheimer Real Asset Management, Inc. (since July 1996); Chief Executive
Officer, Treasurer and a director of MultiSource Services, Inc., a broker-dealer
(since December 1995); an officer of other Oppenheimer funds.
ROBERT G. ZACK, Assistant Secretary, Age 49
Senior Vice President (since May 1985) and Associate General Counsel (since May
1981) of the Manager, Assistant Secretary of SSI (since May 1985), and SFSI
(since November 1989); Assistant Secretary of Oppenheimer Millennium Funds plc
(since October 1997); an officer
of other Oppenheimer funds.
ROBERT J. BISHOP, Assistant Treasurer, Age 39
6803 South Tucson Way, Englewood,
Colorado 80112
Vice President of the Manager/Mutual Fund Accounting (since May 1996); an
officer of other Oppenheimer funds; formerly an Assistant Vice President of the
Manager/Mutual Fund Accounting (April 1994-May 1996), and a Fund Controller for
the Manager .
SCOTT T. FARRAR,
Assistant Treasurer, Age 32
6803 South Tucson Way, Englewood, Colorado 80112 Vice President of the
Manager/Mutual Fund Accounting (since May 1996); Assistant Treasurer of
Oppenheimer Millennium Funds plc (since October 1997); an officer of other
Oppenheimer funds; formerly an Assistant Vice President of the Manager/Mutual
Fund Accounting (April 1994-May 1996), and a Fund Controller for the Manager .
o Remuneration of Trustees. The officers of the Fund and certain Trustees
of the Fund (Ms. Macaskill and Messrs. Galli and Spiro) who are affiliated with
the Manager receive no salary or fee from the Fund. The remaining Trustees of
the Fund received the compensation shown below. The compensation from the Fund
was paid during its fiscal year ended July 31, 1997. The compensation from all
of the New
York-based Oppenheimer funds includes the Fund and is compensation received as a
director, trustee or member of a committee of the Board during the calendar year
1996.
Aggregate Retirement BenefTotal
Compensation
Compensation Accrued as Part From All
Name and from of Fund New York-based
Position Fund Expenses Oppenheimer
funds
Leon Levy $3,680 $(6,945)
$152,750
Chairman and
Trustee
Benjamin Lipstein $2,201 $(4,153)
$ 91,350
Study Committee
Chairman, Audit
Committee Member
and Trustee
Elizabeth B. Moynihan $2,201 $(4,153)
$ 91,350
Study
Committee
Member and
Trustee
Kenneth A. Randall $2,010 $(3,794)
$ 83,450
Audit
Committee
Chairman and
Trustee
Edward V. Regan $1,883 $(3,553)
$ 78,150
Proxy Committee
Chairman,
Audit
Committee
Member and
Trustee1
Aggregate Retirement BenefTotal
Compensation
Compensation Accrued as Part From All
Name and from of Fund New York-based
Position Fund Expenses Oppenheimer
funds
Russell S.
Reynolds, Jr. $1,416 $(2,673)
$ 58,800
Proxy Committee
Member and
Trustee1
Pauline$1,332re
$(2,514) $ 55,300
Trustee
Clayton K. Yeutter $1,416 $(2,673)
$ 58,800
Proxy Committee
Member and
Trustee
- ----------------------------
1 For the 1996 calendar year.
2 Committee position held during a portion of the period shown.
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. For the fiscal year ended
July 31, 1997, a reduction of $30,458 was accrued for the Fund's projected
retirement benefit obligations. A payment of $11,314 was made for the fiscal
period August 1, 1996 through July 31, 1997.
o Deferred Compensation Plan. The Board of Trustees has adopted a Deferred
Compensation Plan for disinterested trustees that enables them to elect to defer
receipt of all or a portion of the annual fees they are entitled to receive from
the Fund. Under the plan, the compensation deferred by a Trustee is periodically
adjusted as though an equivalent amount had been invested in shares of one or
more Oppenheimer funds selected by the Trustee. The amount paid to the Trustee
under the plan will be determined based upon the performance of the selected
funds. Deferral of Trustees' fees under the plan will not materially affect the
Fund's assets, liabilities and net income per share. The plan will not obligate
the Fund to retain the services of any Trustee or to pay any particular level of
compensation to any Trustee. Pursuant to an Order issued by the Securities and
Exchange Commission, the Fund may invest in the funds selected by the Trustee
under the plan without shareholder approval for the limited purpose of
determining the value of the Trustee's deferred fee account.
o Major Shareholders. As of October 27, 1997, no person owned of record or
was known by 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., For The Sole Benefit of Its Customers, 4800 Deer Lake Drive East, Floor 3,
Jacksonville, Florida 32246, which owned of record 696,355.688 Class B shares
(approximately 8.21% of the Class B shares then outstanding) and 211,212.000
Class C shares (approximately 23.61% of the Class C shares then outstanding) and
Robert A. Chernow, 4 Fox Run Lane, Westport, CT 06880, which owned of record
71,934.256 Class C shares (approximately 8.04% 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.
o The Investment Advisory Agreement. The Investment Advisory Agreement
between the Manager and the Fund requires the Manager, at its expense, to
provide the Fund with adequate office space, facilities and equipment, and to
provide and supervise the activities of all administrative and clerical
personnel required to provide effective corporate administration for the Fund,
including the compilation and maintenance of records with respect to its
operations, the preparation and filing of specified reports, and the composition
of proxy materials and registration statements for continuous public sale of
shares of the Fund.
Expenses not expressly assumed by the Manager under the advisory agreement
or by the Distributor under the General Distributor's Agreement are paid by the
Fund. The advisory agreement lists examples of expenses paid by the Fund, the
major categories of which relate to interest, taxes, fees to certain Trustees,
legal and audit expenses, custodian and transfer agent expenses, share issuance
costs, certain printing and registration costs, brokerage commissions, and
non-recurring expenses, including litigation cost.
For the fiscal years ended December 31, 1995 , July 31, 1996 and July 31, 1997,
there were no assumption of expenses, and the management fees paid by the Fund
to the Manager were $3,351,982, $2,079,375 and $3,493,873, respectively.
The Investment Advisory Agreement contains no expense limitation. However,
because of state regulations limiting fund expenses that previously applied, the
Manager had voluntarily undertaken that the Fund's total expenses in any fiscal
year (including the investment advisory fee but exclusive of taxes, interest,
brokerage commissions, distribution plan payments and any extraordinary
non-recurring expenses, including litigation) would not exceed the most
stringent state regulatory limitation applicable to the Fund. Due to changes in
federal securities laws, such state regulations no longer apply and the
Manager's undertaking is therefore inapplicable and has been withdrawn. During
the Fund's last fiscal year, the Fund's expenses did not exceed the most
stringent state regulatory limit and the voluntary undertaking was not invoked.
The advisory agreement provides that in the absence of willful
misfeasance, bad faith, gross negligence in the performance of its duties, or
reckless disregard for its obligations and duties under the investment advisory
agreement, the Manager is not liable for any loss sustained by reason of any
investment of the Fund assets made with due care and in good faith. The advisory
agreement permits the Manager to act as investment adviser for any other person,
firm or corporation and to use the name "Oppenheimer" in connection with other
investment companies for which it may act as investment adviser or general
distributor. If the Manager 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.
o 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
Fund's fiscal years ended December 31, 1995 , July 31, 1996 and July 31, 1997,
the aggregate sales charges on sales of the Fund's Class A shares were $997,010
, $519,750 and $829,188, respectively, of which the Distributor and an
affiliated broker-dealer retained $303,595 , $161,377 and $210,262 in those
respective years. During the fiscal year ended December 31, 1995 , the fiscal
period ended July 31, 1996 and the fiscal year ended July 31, 1997, the
contingent deferred sales charges collected on Class B shares totaled $252,678 ,
$123,046 and $166,272, all of which the Distributor retained. Class C shares
were publicly offered only during a portion of the fiscal year ended 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 the seven month period ended July 31, 1996, the contingent
deferred sales charge collected for Class C shares was $0. For the fiscal year
ended July 31, 1997, the contingent deferred sales charge collected for Class C
shares was $1,308. 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.
o 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 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 advisory agreement, the Manager is authorized to select brokers
that provide brokerage and/or research services for the Fund and/or the other
accounts over which the Manager or its affiliates have investment discretion.
The commissions paid to such brokers may be higher than another qualified broker
would have charged if a good faith determination is made by the Manager that the
commission is fair and reasonable in relation to the services provided. Subject
to the foregoing considerations, the Manager may also consider sales of shares
of the Fund and other investment companies managed by the Manager or its
affiliates as a factor in the selection of brokers for the Fund's portfolio
transactions.
Description of Brokerage Practices Followed by the Manager. Subject to the
provisions of the advisory agreement and the procedures and rules described
above, allocations of brokerage are generally made by the Manager's portfolio
traders upon 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 either 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 does not
incur substantial 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 a 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 prices. 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 the broker's
own inventory, (ii) the trade was executed by the broker on an agency basis at
the stated commission, and (iii) the trade is not a riskless principal
transaction.
The research services provided by brokers broadens the scope and
supplement the research activities of the Manager, by making available
additional views for consideration and by 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 Manager provides information as
to the commissions paid to brokers furnishing such services , together with the
Manager's representation that the amount of such commissions was reasonably
related to the value or benefit of such services.
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," "cumulative total return," "average annual total
return at net asset value" and "total return at net asset value" of an
investment in a 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 advertisements of its performance data must, under applicable
rules of the Securities and Exchange Commission, include the average annual
total returns for each advertised class of shares of the Fund for the 1, 5 and
10-year periods (or the life of the class, if less) ending as of the most
recently ended calendar quarter prior to the publication of the advertisement.
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 returns for any given past period are not a prediction or
representation by the Fund of future yields or rates of return. 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 the particular class.
o Yield
o Standardized
Yield. The "standardized yield" (referred to as "yield") is shown for a class of
shares for a stated 30-day period. It is not based on actual distributions paid
by the Fund to shareholders in the 30-day period, but is a hypothetical yield
based upon the net investment income from the Fund's portfolio investments for
that period. It may therefore differ from the "dividend yield" for the same
class of shares, described below. It is calculated using the following formula
set forth in rules adopted by the Securities and Exchange Commission , designed
to assure uniformity in the way that all funds calculate their yields:
Standardized ~ Yield ~ = ~ 2~ [~ (~ {a-b} over cd ~ +~ 1~ ) SUP 6~ -~ 1~ ]
The symbols above represent the following factors:
a =dividends and interest earned during the 30-day period.
b =expenses accrued for the period (net of any expense
assumptions).
c =the average daily number of shares of that class outstanding during
the 30-day period that were entitled to receive dividends.
d =the maximum offering price per share of that class on the last day of
the period, adjusted for undistributed net investment income.
The standardized yield for a 30-day period may differ from the yield for
other periods.
The
SEC formula assumes that the standardized yield for a 30-day period occurs at a
constant rate for a six-month period and is annualized at the end of the six
- -month period. Additionally, because each class of shares is subject to
different expenses, it is likely that the standardized yields of the Fund's
classes of shares will differ for any 30-day period. For the 30-day period ended
July 31, 1997, the standardized yields for the Fund's classes of shares were as
follows:
Without Deducting Sales Charge With Sales Charge
Deducted
Class A: 4.43% 4.66%
Class B: 3.88% N/A
Class C: 3.87% N/A
o 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 current 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 current 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 July 31, 1997, the Fund's tax-equivalent
yield for an investor in the 39.6% federal tax bracket for its Class A, Class B
and Class C shares was 7.33%, 6.42% and 6.41%, respectively.
o Dividend Yield . The Fund may quote a "dividend yield" for each class of
its shares. Dividend yield is based on the dividends paid on shares of a class
during the actual dividend period. To calculate dividend yield, the dividends of
a class declared during a stated period are added together, and the sum is
multiplied by 12 (to annualize the yield) and divided by the maximum offering
price on the last day of the dividend period. The formula is shown below:
Dividend Yield = dividends paid x 12/maximum offering
price (payment date)
The maximum offering price for Class A shares includes the current maximum
initial sales charge. The maximum offering price for Class B and Class C shares
is the net asset value per share, without considering the effect of contingent
deferred sales charges. The Class A dividend yield may also be quoted without
deducting the maximum initial sales charge.
The dividend yields for the 30-day period ended July 31, 1997 were as
follows:
Without Deducting Sales Charge With Sales Charge
Deducted
Class A: 5.05% 5.30%
Class B: 4.57% N/A
Class C: 4.58% N/A
o Total Return Information.
o 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 the change in value
of a hypothetical initial investment of $1,000 ("P" in the formula below) held
for a number of years ("n") to achieve an Ending Redeemable Value ("ERV") of
that investment, according to the following formula:
LEFT ( {~ERV~} OVER P~ right) SUP
{1/n}~-1~=~Average~Annual~Total~ Return
-2-
<PAGE>
o Cumulative Total Returns. 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:
ALIGNC {ERV~-~ P~} over P~ =~Total~ Return
In calculating total returns for Class A shares, the current maximum sales
charge of 4.75% (as a percentage of the offering price) is deducted from the
initial investment ("P") (unless the return is shown at net asset value, as
described below). For Class B shares, payment of contingent deferred sales
charge of 5.0% for the first year, 4.0% for the second year, 3.0% for the third
and fourth years, 2.0% in the fifth year, 1.0% in the sixth year and none
thereafter is applied as described in the Prospectus. For Class C shares, the
payment of the 1% contingent deferred sales charge for the first 12 months is
applied, as described in the Prospectus. Total returns also assume that all
dividends and capital gains distributions during the period are reinvested to
buy additional shares at net asset value per share, and that the investment is
redeemed at the end of the period.
The "average annual total returns" on an investment in Class A shares of
the Fund for the one, five and ten year periods ended July 31, 1997 were 5.70%,
5.63% and 7.51%, respectively. The "average annual total returns" on an
investment in Class B shares of the Fund for the one year period ended July 31,
1997 and for the period from March 16, 1993 (commencement of offering) through
July 31, 1997 were 5.05% and 5.18%, respectively.
The average annual total returns on an
investment in Class C shares for the one year period ended July 31, 1997 and for
the period August 29, 1995 through July 31, 1997 were 9.03% and 8.36%,
respectively.
The cumulative "total return" on Class A shares for the ten year period
ended July 31, 1997, was 106.29%. 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 July 31, 1997 was 24.70%. The
cumulative total return on Class C shares for the period from August 29, 1995
(the commencement of the public offering of shares) through July 31, 1997 was
16.69%.
o 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
average annual total returns at net asset value for Class A shares of the Fund
for the one, five and ten year periods ended July 31, 1997 were 10.97%, 6.66%
and 8.03%, respectively. The average annual total returns at net asset value for
Class B shares of the Fund for the one year period ended July 31, 1997 and for
the period from March 16, 1993 (commencement of offering) through July 31, 1997
were 10.05% and 5.56%, respectively. The average annual total returns at net
asset value for the Fund's Class C shares for the one year period ended July 31,
1997 and for the period from August 29, 1995 6.37%(commencement of offering)
through July 31, 1997 were 10.05% and 8.39%, respectively. The cumulative total
return at net asset value of the Fund's Class C shares for the period from
August 29, 1995 through July 31, 1997 was 16.69%.
Total return information may be useful to investors in reviewing the
performance of the Fund's Class A, Class B or Class C shares. However, when
comparing total return of an investment in Class A, Class B or Class C shares of
the Fund, a number of factors should be considered before using such information
as a basis for comparison before using such information with other investments.
Other Performance Comparisons. From time to time the Fund may publish the
ranking of the performance 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 is ranked
against (I) all other bond funds, other than money market funds, and (ii) 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 charges or taxes into consideration.
From time to time the Fund may publish the star ranking of the performance
of its Class A, Class B or Class C shares by Morningstar, Inc., an independent
mutual fund monitoring service . Morningstar ranks mutual funds monthly in broad
investment categories: domestic stock funds, international stock funds, taxable
bond funds and municipal bond funds, based on risk-adjusted total investment
return. The Fund is ranked among the municipal bond funds. Investment return
measures a fund's or class's one, three, five and ten-year average annual total
returns (depending on the inception of the fund or class) in excess of 90-day
U.S. Treasury bill returns after considering the fund's sales charges and
expenses. Risk measures a fund's or class's performance below 90-day U.S.
Treasury bill returns. Risk and investment return are combined to produce star
rankings reflecting performance relative to the average fund in a 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%). The current star
ranking is the fund's or class's 3-year ranking or its combined 3- and 5-year
ranking (weighted 60%/40% respectively, or its combined 3-. 5- and 10-year
ranking (weighted 40%, 30% and 30%, respectively), depending on the inception of
the fund or class. Rankings are subject to change monthly.
The Fund may also compare its performance to that of other funds in its
Morningstar Category. In addition to its star rankings, Morningstar also
categorizes and compares a fund's 3-year performance based on Morningstar's
classification of the fund's investments and investment style, rather than how a
fund defines its investment objective. Morningstar's four broad categories
(domestic equity, international equity, municipal bond and taxable bond) are
each further subdivided into categories based on types of investments and
investment styles. Those comparisons by Morningstar are based on the same risk
and return measurements as its star rankings but do not consider the effect of
sales charges.
From time to time the Fund may include in its advertisements and sales
literature performance information about the Fund cited in newspapers and other
periodicals such as The New York Times, 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.
Total return information may be useful to investors in reviewing the
performance of the Fund's Class A, Class B or Class C shares. However, when
comparing total return of an investment in Class A, Class B or Class C shares of
the Fund, a number of factors should be considered before using such information
as a basis for comparison before using such information with other investments.
For example, 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 or insured by the
FDIC or any other agency and will fluctuate daily, while bank depository
obligations may be insured by the FDIC and may provide fixed rates of return,
and Treasury bills are guaranteed as to principal and interest by the U.S.
government.
From time to time, the Fund's Manager may publish rankings or ratings of
the Manager (or Transfer Agent), of the investor services provided by them to
shareholders of the Oppenheimer funds, other than performance rankings of the
Oppenheimer funds themselves. Those ratings or rankings of shareholder/investor
services by a third party may compare the OppenheimerFunds' services to those of
other mutual fund families selected by the rating or ranking services, and may
be based upon the opinions of the rating or ranking service itself, based on its
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 of the Fund under Rule 12b-1 of
the Investment Company Act, pursuant to which the Fund makes payments to the
Distributor in connection with the distribution and/or servicing of the shares
of that class as described in the Prospectus. Each Plan has been approved by a
vote of (I) the Board of Trustees of the Fund, including a majority of the
Independent Trustees, cast in person at a meeting called for the purpose of
voting on that Plan, and (ii) the holders of a "majority" (as defined in the
Investment Company Act) of the shares of each class. For the Distribution and
Service 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. Each 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 by a Securities and
Exchange Commission rule to obtain the approval of Class B as well as Class A
shareholders for a proposed amendment to the Class A Plan that would materially
increase the amount to be paid by Class A shareholders under that Class A Plan.
Such approval must be by a "majority" of the Class A and Class B shares (as
defined in the Investment Company Act), voting separately by Class. All material
amendments must be approved by the Board and 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 for
its review, detailing 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, as explained
in the Prospectus and below. Those reports, including the allocations on which
they are based, will be subject to the review and approval of the Independent
Trustees in the exercise of their fiduciary duty.
Each Plan further provides that while it is in effect, the selection or
replacement 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 as to any such 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 July 31, 1996 1997, payments under the Plan for
Class A shares totaled $1,274,123, all of which was paid by the Distributor to
Recipients, including $109,056 paid to an affiliate of the Distributor. Any
unreimbursed expenses by the Distributor incurred with respect to Class A shares
for any fiscal year may not be recovered in subsequent years. Payments received
by the Distributor under the Plan for Class A shares will not be used to pay any
interest expense, carrying charges, or other financial costs, or allocation of
overhead by the Distributor. At July 31, 1997, the Distributor had incurred
unreimbursed expenses under the Plan of $2,373,061 (equal to 2.83% of the Fund's
net assets represented by Class B shares on that date). At July 31, 1997, the
Distributor had incurred unreimbursed expenses under the Plan of $127,728 (equal
to 1.48% of the Fund's net assets represented by Class C shares on that date).
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 asset value of shares sold.
An exchange of shares does not entitle the Recipient to an advance service fee
payment. In the event Class B and Class C 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 July 31, 1997, totalled $777,675
(including $10,127 paid to an affiliate of the Distributor), of which $268,815
was retained by the Distributor. Payments made under the Class C Plan for the
fiscal year ended July 31, 1997 totaled $57,060, of which $17,513 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 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 Conduct Rules 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 Plans 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 Class B and Class C shares will be
reduced by incremental expenses borne solely by that class, 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 any
class are allocated pro rata to the shares of each class, based on the
percentage of the net assets of such class to the Fund's total net assets, and
then equally to each outstanding share within a given class. Such general
expenses include (I) management fees, (ii) legal, bookkeeping and audit fees,
(iii) printing and mailing costs of shareholder reports, Prospectuses,
Statements of Additional Information and other materials for current
shareholders, (iv) fees to unaffiliated Trustees, (v) custodian expenses, (vi)
share issuance costs, (vii) organization and start-up costs, (viii) interest,
taxes and brokerage commissions, and (ix) non-recurring expenses, such as
litigation costs. Other expenses that are directly attributable to a class are
allocated equally to each outstanding share within that class. Such expenses
include (a) Distribution and/or Service 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 that the
Exchange is open, by dividing the value of the Fund's net assets attributable to
that class by the 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 other
days (for example, in case of weather emergencies or on days falling before a
holiday). The Exchange's most recent annual announcement (which is subject to
change) states that it will close on New Year's Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day. It may also close on other days. Dealers other than 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 Fund's net asset value per share may be significantly
affected on such days when shareholders may not purchase or redeem shares.
The Fund's Board of Trustees has established procedures for the valuation
of the Fund's securities, 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 by the Manager from two
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 by the Manager from two
active market makers in the security on the basis of reasonable inquiry; (iii)
money market debt securities held by a non-money market fund that had a maturity
of less than 397 days when issued that have a remaining maturity of 60 days or
less , and debt instruments held by a money market fund that have a remaining
maturity of 397 days or less, shall be 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 determined under the Board's procedures. If the Manager is unable
to locate two market makers willing to give quotes (see (I) and (ii) above), the
security may be priced at the mean between the "bid" and "asked" prices provided
by a single active market maker (which in certain cases may be the "bid" price
if no "asked" price is available).
In the case of 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 Manager may use pricing services
approved by the Board of Trustees to price any of the types of securities
described above. The Manager will monitor the accuracy of such pricing services,
which may include 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 value shall be 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 by
the mean between "bid" and ask"asked" prices obtained by the Manager from two
active market makers (which in certain cases may be the "bid" price if no
"asked" price is available). When the Fund writes an option, an amount equal to
the premium received is included in the Fund's Statement of Assets and
Liabilities as an asset, and an equivalent credit is included in the liability
section. The credit is adjusted ("marked--to--market") to reflect the current
market value of the option. In determining the Fund's gain on investments, if a
call or put written by the Fund is exercised, the proceeds are increased by the
premium received. If a call or put written by the Fund expires, the Fund has a
gain in the amount of the premium; if the Fund enters into a closing purchase
transaction, it will have a gain or loss, depending on whether the premium
received was more or less than the cost of the closing transaction. If the Fund
exercises a put it holds, the amount the Fund receives on its sale of the
underlying investment is reduced by the amount of premium paid by the Fund.
AccountLink. When shares are purchased through AccountLink, each purchase must
be at least $25. Shares will be purchased on the regular business day the
Distributor is instructed to initiate the Automated Clearing House ("ACH")
transfer to buy the shares. Dividends will begin to accrue on shares purchased
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 on a business day after the close
of the Exchange, the shares will be purchased and dividends will begin to accrue
on the next regular business day. The proceeds of ACH transfers are normally
received by the Fund 3 days after the transfers are initiated. The Distributor
and the Fund are not responsible for any delays in purchasing shares resulting
from delays in ACH transmissions.
Reduced Sales Charges. As discussed in the Prospectus, a reduced sales charge
rate may be obtained for Class A shares under Right of Accumulation and Letters
of Intent because of the economies of sales efforts and reduction in expenses
realized by the Distributor, dealers and brokers making such sales. No sales
charge is imposed in certain other circumstances described in the Prospectus
because the Distributor or dealer or broker 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. Relatives by virtue of a remarriage (step-children,
step-parents, etc.) are included.
o 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 Municipal Bond Fund
Oppenheimer New York Municipal Fund
Oppenheimer California Municipal Fund
Oppenheimer Intermediate Municipal Fund
Oppenheimer Insured Municipal Fund
Oppenheimer Main Street California Municipal Fund
Oppenheimer Florida Municipal Fund
Oppenheimer Pennsylvania Municipal Fund
Oppenheimer Discovery Fund
Oppenheimer Capital Appreciation Fund
Oppenheimer Growth Fund
Oppenheimer Equity Income Fund
Oppenheimer Multiple Strategies
Fund
Oppenheimer Total Return Fund, Inc.
Oppenheimer Main Street Income & Growth Fund
Oppenheimer New Jersey Municipal 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 Growth & Income Fund
Oppenheimer Gold & Special Minerals Fund
Oppenheimer Strategic Income Fund
Oppenheimer International Bond Fund
Oppenheimer Enterprise Fund
Oppenheimer International Growth Fund
Oppenheimer Developing Markets Fund
Oppenheimer Real Asset 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 Quest Capital Value Fund, Inc.
Oppenheimer Bond Fund for Growth
Rochester Fund Municipals*
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
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.
- -------------------
* Shares of the Fund are not presently exchangeable for shares of
these funds.
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).
o 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. Each purchase of Class A shares under the Letter
will be made at the public offering price (including the sales charge) that
applies to a single lump-sum purchase of shares in the amount intended to be
purchased under the Letter.
In submitting a Letter, the investor makes no commitment to purchase
shares, 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.
o Terms of Escrow That Apply to Letters of Intent.
1. Out of the initial purchase (or subsequent purchases if necessary) made
pursuant to a Letter, shares of the Fund equal in value up to 5% of the intended
purchase amount specified in the Letter shall be held in escrow by the Transfer
Agent. For example, if the intended purchase amount is $50,000, the escrow shall
be shares valued in the amount of $2,500 (computed at the public offering price
adjusted for a $50,000 purchase). Any dividends and capital gains distributions
on the escrowed shares will be credited to the investor's account.
2. If the total minimum investment specified under the Letter is completed
within the thirteen-month Letter of Intent period, the escrowed shares will be
promptly released to the investor.
3. If, at the end of the thirteen-month Letter of Intent period the total
purchases pursuant to the Letter are less than the intended purchase amount
specified in the Letter, the investor must remit to the Distributor an amount
equal to the difference between the dollar amount of sales charges actually paid
and the amount of sales charges which would have been paid if the total amount
purchased had been made at a single time. 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 of other Oppenheimer funds acquired subject to
a contingent deferred sales charge, and (C) Class A or Class B shares acquired
in exchange for either (I) Class A shares sold with a front-end sales charge or
Class B 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 "How to Exchange Shares" 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. If you make payments from your
bank account to purchase shares of the Fund, your bank account will be
automatically debited normally four to five business days prior to the
investment dates selected in the Account Application. Neither the Distributor,
the Transfer Agent nor the Fund shall be responsible for any delays in
purchasing shares resulting from delays in ACH transmission.
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 advisor 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.
By choosing the Checkwriting privilege, whether you do so by signing the
Account Application or by completing a Checkwriting card, the individuals
signing (1) represent that they are either the registered owner(s) of the shares
of the Fund, or are an officer, general partner, trustee or other fiduciary or
agent, as applicable, duly authorized to act on behalf of such registered
owner(s); (2) authorize the Fund, its Transfer Agent and any bank through which
the Fund's drafts ("checks") are payable (the "Bank"), to pay all checks drawn
on the Fund account of such person(s) and to effect a redemption of sufficient
shares in that account to cover payment of such checks; (3) specifically
acknowledge(s) that if you choose to permit a single signature on checks drawn
against joint accounts, or accounts for corporations, partnerships, trusts or
other entities, the signature of any one signatory on a check will be sufficient
to authorize payment of that check and redemption from an account even if that
account is registered in the names of more than one person or even if more than
one authorized signature appears on the Checkwriting card or the Application, as
applicable; and (4) understand(s) that the Checkwriting privilege may be
terminated or amended at any time by the Fund and/or the Bank and neither shall
incur any liability for such amendment or termination or for effecting
redemptions to pay checks reasonably believed to be genuine, or for returning or
not paying checks which have not been accepted for any reason.
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.
o 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 that valuation will be made as
of the time the redemption price is determined.
o Involuntary Redemptions. The Fund's Board of Trustees has the right to
cause the involuntary redemption of the shares held in any account if the
aggregate net asset value of those shares is less than $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 the Board
may set requirements for the shareholder to increase the investment, and set
other terms and conditions so that the shares would not be involuntarily
redeemed.
Reinvestment Privilege. Within six months of a redemption, a shareholder may
reinvest all or part of the redemption proceeds of (I) Class A shares that you
purchase subject to an initial sales charge or Class A contingent deferred sales
charge which was paid, or (ii) Class B shares that were subject to the Class B
contingent deferred sales charge when redeemed. This privilege does not apply to
Class C shares. The reinvestment may be made without sales charge only in Class
A shares of the Fund or any of the other Oppenheimer funds into which shares of
the Fund are exchangeable as described in "How to Exchange Shares" below, at the
net asset value next computed after the Transfer Agent receives the reinvestment
order. The shareholder must ask the Distributor for that privilege at the time
of reinvestment. Any capital gain that was realized when the shares were
redeemed is taxable, and reinvestment will not alter any capital gains tax
payable on that gain. If there has been a capital loss on the redemption, some
or all of the loss may not be tax deductible, depending on the timing and amount
of the reinvestment. Under the Internal Revenue Code, if the redemption proceeds
of Fund shares on which a sales charge was paid are reinvested in shares of the
Fund or another of the Oppenheimer funds within 90 days of payment of the sales
charge, the shareholder's basis in the shares of the Fund that were redeemed may
not include the amount of the sales charge paid. That would reduce the loss or
increase the gain recognized from the redemption. However, in that case the
sales charge would be added to the basis of the shares acquired by the
reinvestment of the redemption proceeds. The Fund may amend, suspend or cease
offering this reinvestment privilege at any time as to shares redeemed after the
date of such amendment, suspension or cessation.
Transfers of Shares. Shares are not subject to the payment of a contingent
deferred sales charge of 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 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
an 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 customers prior
to the time the Exchange closes (normally, that is 4:00 P.M., but may be earlier
on 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 documents in proper form, with
the signature(s) of the registered owners guaranteed on the redemption documents
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. Shares are
normally redeemed pursuant to an Automatic Withdrawal Plan three business days
before the date you select in the Account Application. If a contingent deferred
sales charge applies to the redemption, the amount of the check or payment will
be reduced accordingly. The Fund cannot guarantee receipt of a payment on the
date requested and reserves the right to amend, suspend or discontinue offering
such plans at any time without prior notice. Because of the sales charge
assessed on Class A share purchases, shareholders should not make regular
additional Class A share purchases while participating in an Automatic
Withdrawal Plan. Class B and Class C shareholders should not establish
withdrawal plans, because of the imposition of the contingent deferred sales
charge on such withdrawals (except where the 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 ,
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.
o 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.
o 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 shares acquired with reinvested dividends and capital gains
distributions will be redeemed next, followed by shares acquired with a sales
charge, to the extent necessary to make withdrawal payments. Depending upon the
amount withdrawn, the investor's principal may be depleted. Payments made under
such plans should not be considered as a yield or income on your investment.
The Transfer Agent will administer the investor's Automatic Withdrawal
Plan (the "Plan") as agent for the investor (the "Planholder") who executed the
Plan authorization and application submitted to the Transfer Agent. Neither the
Fund nor the Transfer Agent shall incur any 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 without a class designation are deemed "Class A" shares for this
purpose. All of the Oppenheimer funds offer Class A, B and C shares except
Oppenheimer Money Market Fund, Inc., 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. and
Daily Cash Accumulation Fund Inc., which only offer Class A shares and
Oppenheimer Main Street California Municipal 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 can be obtained by calling
the Distributor at 1-800-525-7048.
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 . 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 at net asset value
for shares of any Money Market Fund. Shares of any Money Market Fund purchased
without a sales charge may be exchanged for shares of 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 that privilege, the investor or the
investor's dealer must notify the Distributor of eligibility for this privilege
at the time the shares of Oppenheimer Money Market Fund, Inc. are purchased,
and, if requested, must supply proof of entitlement to this privilege.
Shares of the Fund acquired by reinvestment of dividends or distributions
from any of the other Oppenheimer funds or from any unit investment trust for
which reinvestment arrangements have been made with the Distributor may be
exchanged at net asset value for shares of any of the Oppenheimer funds. No
contingent deferred sales charge is imposed on exchanges of shares of any 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 12 months of the end of the calendar month of the initial purchase of the
exchanged Class A shares (18 months if the shares were initially purchased prior
to May 1, 1997), 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, a 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 will not be declared or paid
on newly purchased shares 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,
in order 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 divide0nds (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 interest of 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 of income or capital gains 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 July 31, 1996, the Fund had available for federal income tax purposes
on unused capital loss carryover of approximately $114,000 which will expire in
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, the
shareholder must notify the Transfer Agent in writing and must either have an
existing account in the fund selected for reinvestment or must obtain a
prospectus for that fund and an application from the Transfer Agent 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 with the Custodian 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.
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.
/s/ KPMG PEAT MARWICK LLP
KPMG PEAT MARWICK LLP
Denver, Colorado
August 21, 1997
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
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
<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
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
<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
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
<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
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
- --------------------------------------------------------------------------------
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
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
<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
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
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
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
<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
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
================================================================================
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
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
================================================================================
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
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
================================================================================
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
-3-
<PAGE>
Appendix A
Descriptions of Municipal Bond Ratings Categories
Municipal Bonds
o 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.
o 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 ratingBonds 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.
o 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.
o Duff & Phelps. The ratings of Duff & Phelps are as follows: AAA which
are judged to be the "highest credit quality". The risk factors are negligible,
being only slightly more than for risk-free US Treasury debt. AA+, AA & AA- High
credit quality protection factors are strong. Risk is modest but may vary
slightly from time to time because of economic conditions. A+, A & A--Protection
factors are average but adequate. However, risk factors are more variable and
greater in periods of economic stress. BBB+, BBB & BBB- Below average protection
factors but still considered sufficient for prudent investment. Considerable
variability in risk during economic cycles. BB+, BB & BB- Below investment grade
but deemed to meet obligations when due. Present or prospective financial
protection factors fluctuate according to industry conditions or company
fortunes. Overall quality may move up or down frequently within the category.
B+, B & B- Below investment grade and possessing risk that obligations will not
be met when due. Financial protection
factors will fluctuate widely according to economic cycles, industry conditions
and/or company fortunes. Potential exists for frequent changes in the rating
within this category or into a higher of lower rating grade. CCC Well below
investment grade securities. Considerable uncertainty exists as to timely
payment of principal interest or preferred dividends. Protection factors are
narrow and risk can be substantial with unfavorable economic industry
conditions, and/or with unfavorable company developments. DD Defaulted debt
obligations issuer failed to meet scheduled principal and/or interest payments.
DP Preferred stock with dividend arreages.
Municipal Notes
o 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.
o 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.
o 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
o 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.
o 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 payD is assigned to issues in default.
o Fitch The ratings of commercial paper by Fitch are similar to its
ratings of Municipal Notes, above.
A-1
<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 1997. 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.
Federal EffectiveAn Oppenheimer Municipal Bond Fund Yield of:
Taxable Tax 33.50% 3.87%3.88% 4.00%
4.43% 4.50% 5.00% 5.50%
Income Bracket Is Approximately Equivalent To a Taxable Yield of:
JOINT RETURN
Over Not over
$ $ 41,200 15.00% 34.12% 4.55% 4.56% 4.71% 5.21% 5.29% 5.88% 6.47% $ 41,200 $
99,600 28.00% 4.17%4.86% 5.58% 5.35.39% 5.56% 6.15% 6.25% 6.94% 7.64% $ 99,600
$151,750 31.00% 4.35%5.07% .61% 55.62% 5.80% 6.42% 6.52%7.25% 7.97% $151,750
$271,050 36.00% 4.69%5.47% .05% 66.06% 6.25% 6.92% 7.03%7.81% 8.59% $271,050 and
abo39.60% 45.79% 6.41% 6.42% 6.62% 7.33% 7.45% 8.28% 9.11%
6.00% 6.50% 7.00% 7.50%
7.07.65% 8.24% 8.82%
8.3 9.03% 9.72% 10.42%
8.7 9.42% 10.14% 10.87%
9.310.16% 10.94% 11.72%
9.910.76% 11.59% 12.42%
SINGLE RETURN
Over Not over
$ $ 24,65015.00%3.53% 4.12% 4.55%4.56% 4.71% 5.21% 5.29%
5.88% 6.47%
$ 24,650 $ 59,75028.00% 4.17% 4.86% 5.38% 5.39%5.56% 6.15% 6.25%6.94%
7.64%
$ 59,750 $124,65031.00% 4.35% 5.07% 5.61% 5.62%5.80% 6.42% 6.52%7.25%
7.97%
$124,650 $271,05036.00% 4.69% 5.47% 6.05% 6.06%6.25% 6.92% 7.03%7.81%
8.59%
$271,050 and abov39.60% 4.97% 5.79% 6.41% 6.42%6.62% 7.33% 7.45%8.28%
9.11%
6.00% 6.50% 7.00% 7.50%
7.07.65% 8.24% 8.82%
8.3 9.03% 9.72% 10.42%
8.7 9.42% 10.14% 10.87%
9.310.16% 10.94% 11.72%
9.910.76% 11.59% 12.42%
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APPENDIX C
Municipal Bond Industry Classifications
Electric Resource Recovery
Gas
Water Higher Education
Sewer Education
Telephone
Lease Rental
Adult Living Facilities
Hospital
Non Profit Organization
General Obligation Highways
Special Assessment Marine/Aviation Facilities
Sales Tax
Multi Family Housing
Manufacturing, Non Durables Single Family Housing
Manufacturing, Durables
Pollution Control
C-1
<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 and Shareholder Servicing 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
Legal Counsel
Gordon Altman Butowsky Weitzen Shalov & Wein
114 West 47th Street
New York, New York 10036
