[logo] OppenheimerFunds (R)
Oppenheimer
Municipal Bond Fund
Prospectus Dated November 27, 1998
Oppenheimer Municipal Bond Fund is a mutual fund. It seeks current income
exempt from federal income taxes by investing in municipal securities, while
attempting to preserve capital.
This Prospectus contains important information about the Fund's
objective, its investment policies, strategies and risks. It also contains
important information about how to buy and sell shares of the Fund and other
account features. Please read this Prospectus carefully before you invest and
keep it for future reference about your account.
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved the Fund's securities nor has it determined that this
Prospectus is accurate or complete. It is a criminal offense to represent
otherwise.
<PAGE>
Contents
ABOUT THE FUND
3 The Fund's Objective and Investment Strategies
3 Main Risks of Investing in the Fund
6 The Fund's Past Performance
7 Fees and Expenses of the Fund
9 About the Fund's Investments
13 How the Fund is Managed
ABOUT YOUR ACCOUNT
14 How to Buy Shares
Class A Shares
Class B Shares
Class C Shares
21 Special Investor Services
AccountLink
PhoneLink
OppenheimerFunds Web Site
23 How to Sell Shares
By Mail
By Telephone
By Checkwriting
25 How to Exchange Shares
26 Shareholder Account Rules and Policies
28 Dividends and Tax Information
Financial Highlights
<PAGE>
About the Fund
The Fund's Objective and Investment Strategies
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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.
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What Does the Fund Invest In? The Fund invests mainly in municipal securities
that pay interest exempt from federal individual income tax. These primarily
include municipal bonds (which are long term obligations), municipal notes
(short term obligations), interests in municipal leases, and tax-exempt
commercial paper. Most of the securities the Fund buys must be "investment
grade" (the four highest rating categories of national rating organizations
such as Moody's).
The Fund does not limit its investments to securities of a particular
maturity range, but currently focuses on longer-term securities. The Fund may
also use hedging instruments and certain derivative investments to a limited
extent to try to manage investment risks. These investments are more fully
explained in "About the Fund's Investments," below.
|X| How Does the Manager Decide What Securities to Buy or Sell? In
selecting securities for the Fund, the Manager currently looks nationwide for
municipal securities using a variety of factors which may change over time
and may vary in particular cases:
|_| Securities that provide high income
|_| The goal of diversification among a wide range of securities
|_| Issues with favorable credit characteristics
|_| Special situations among issuers that provide opportunities for
value
Who Is the Fund Designed For? The Fund is designed for investors who are
seeking income exempt from federal income taxes. It does not seek capital
gains or growth. Because it invests in tax-exempt securities, the Fund is not
appropriate for retirement plan accounts or for investors who want to pursue
capital growth.
Main Risks of Investing in the Fund
All investments carry risks to some degree. For bond funds one risk is
that the market prices of the fund's investments will fluctuate when general
interest rates change (this is known as "interest rate risk"). Another risk
is that the issuer of the bond will experience financial difficulties and
may default on its obligation 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.
These risks collectively form the risk profile of the Fund and can
affect the value of the Fund's investments, its investment performance, and
the prices of its shares. These risks mean that you can lose money by
investing in the Fund. When you redeem your shares, they may be worth more or
less than what you paid for them.
The Fund's investment Manager, OppenheimerFunds, Inc., tries to reduce
risks by diversifying investments, by carefully researching securities before
they are purchased and in some cases by using hedging techniques. However,
changes in the overall market prices of municipal securities and the income
they pay can occur at any time. The yield and share price of the Fund will
change daily based on changes in interest rates and market conditions, and in
response to other economic events. There is no assurance that the Fund will
achieve its investment objective.
How Risky Is the Fund Overall? The value of the Fund's investments in
municipal securities will change over time due to a number of factors. They
include 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 overall. These changes can affect
the value of the Fund's investments and its price per share. The Fund may
invest in derivative investments. These have additional risks and can cause
fluctuations in the Fund's share prices. In the OppenheimerFunds spectrum,
the Fund is more conservative than some types of taxable bond funds, such as
high yield bond funds, but more aggressive than money market funds.
An investment in the Fund is not a deposit of any bank, and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other
government agency.
|X| Credit Risk. Municipal securities are subject to credit risk.
Credit risk relates to the ability of the issuer of a municipal security to
make interest and principal payments on the security as they become due. If
the issuer fails to pay interest, the Fund's income may be reduced and if the
issuer fails to repay principal, the value of that bond and of the Fund's
shares may be reduced. Because the Fund can invest as much as 25% of its
assets in municipal securities below investment grade to seek higher income,
the Fund's credit risks are greater than those of funds that buy only
investment grade bonds.
|X| Interest Rate Risks. In addition to credit risks, municipal
securities are subject to changes in value when prevailing interest rates
change. When interest rates fall, the values of outstanding municipal
securities generally rise, and the bonds may sell for more than their face
amount. When interest rates rise, the values of outstanding municipal
securities generally decline, and the bonds may sell at a discount from their
face amount. The magnitude of these price changes is generally greater for
bonds with longer maturities. The Fund currently focuses on longer term
securities to seek higher income. Therefore, when the average maturity of the
Fund `s portfolio is longer, its share price may fluctuate more when interest
rates change.
|X| There are Special Risks in Using Derivative Investments. The Fund
may use derivatives to seek increased returns or to try to hedge investment
risks. In general terms, a derivative investment is an investment contract
whose value depends on (or is derived from) the value of an underlying asset,
interest rate or index. Options, futures, "inverse floaters" and variable
rate obligations are examples of derivatives.
If the issuer of the derivative investment does not pay the amount due,
the Fund can lose money on its investment. Also, 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. If that happens, the
Fund will get less income than expected or its share price could decline. To
try to preserve capital, the Fund has limits on the amount of particular
types of derivatives it can hold. However, using derivatives can cause the
Fund to lose money on its investments and/or increase the volatility of its
share prices.
The Fund's Past Performance
The bar chart and table below show one measure of the risks of investing in
the Fund, by showing changes in the Fund's performance (for its Class A
shares) from year to year for the past ten calendar years and by showing how
the average annual total returns of the Fund's shares compare to those of a
broad-based market index. The Fund's past investment performance is not
necessarily an indication of how the Fund will perform in the future.
(BAR CHART)
[see appendix to the prospectus]
For the period from 1/1/98 through 9/30/98, the cumulative return (not
annualized) for Class A shares was 5.63%. Sales charges are not included in
the calculations of return in this bar chart, and if those charges were
included, the returns would be less than those shown.
During the 10-year period shown in the bar chart, the highest return (not
annualized) for a calendar quarter was 8.58% (1Q'95) and the lowest return
for a calendar quarter was -6.51% (1Q'94).
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Average Annual Total Past 5 Years
Returns for the periods (or life of
ending December 31, 1997 Past 1 Year class, Past 10 years
if less)
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Oppenheimer Municipal 4.18% 6.02% 7.66%
Bond Fund
(Class A Shares)
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Oppenheimer Municipal 3.58% 5.26%* N/A
Bond Fund
(Class B Shares)
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Oppenheimer Municipal 7.56% 7.98%* N/A
Bond Fund
(Class C Shares)
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Lehman Brothers 9.19% 7.36% 8.58%*
Municipal Bond Index
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*Inception dates of classes: Class A: 10/27/76; Class B: 3/16/93; Class C:
8/29/95. The index performance is shown from 12/31/87.
The Fund's average annual total returns in the table include the applicable
sales charge: for Class A, the current maximum initial sales charge of 4.75%;
for Class B, the applicable contingent deferred sales charges of 5% (1-year)
and 2% (life of class); for Class C, the 1% contingent deferred sales charge
for the 1-year period.
The returns measure the performance of a hypothetical account and assume that
all dividends and capital gains distributions have been reinvested in
additional shares. Because the Fund invests in a variety of municipal
securities, the Fund's performance is compared to the Lehman Brothers
Municipal Bond Index, an unmanaged index of a broad range of investment grade
municipal bonds that is a measure of the performance of the general municipal
bond market. However, it must be remembered that the index performance does
not consider the effects of capital gains or transaction costs, and that the
Fund's investments are not limited to the securities in the index.
Fees and Expenses of the Fund
The Fund pays a variety of expenses directly for management of its
assets, administration, distribution of its shares and other services. 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 the fees and expenses you may pay if you buy and hold shares
of the Fund. The numbers below are based on the Fund's expenses during the
fiscal year ended July 31, 1998.
Shareholder Fees (charges paid directly from your investment):
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Class A Class B Class C
Shares Shares Shares
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Maximum Sales Charge (Load) on 4.75% None None
purchases (as a % of offering
price)
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Maximum Deferred Sales Charge None1 5%2 1%3
(Load) (as % of the lower of
the
original offering price or
redemption proceeds)
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1 A 1% contingent deferred sales charge may apply to redemptions of
investments of $1 million or more of Class A shares. See "How to Buy
Shares" for details.
2 Applies to redemptions in first year after purchase. The contingent
deferred sales charge declines to 1% in the sixth year and is eliminated
after that.
3 Applies to shares redeemed within 12 months of purchase.
Annual Fund Operating Expenses (deducted from Fund assets):
(% of average daily net assets)
-----------------------------------------------------------------------------
Class A Class B Class C
Shares Shares Shares
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Management Fees 0.52% 0.52% 0.52%
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Distribution and/or Service (12b-1) 0.22% 1.00% 1.00%
Fees
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Other Expenses 0.13% 0.13% 0.12%
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Total Annual Operating Expenses 0.87% 1.65% 1.64%
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Numbers in the table are based on the Fund's expenses in the last fiscal
year, ended 7/31/98. Expenses may vary in future years. "Other expenses"
include transfer agent fees, custodial fees, and accounting and legal
expenses the Fund pays.
Examples. These examples are intended to help you compare the cost of
investing in the Fund with the cost of investing in other mutual funds.
The examples assume that you invest $10,000 in a class of shares of the
Fund for the time periods indicated, and reinvest your dividends and
distributions. The first example assumes that you redeem all of your shares
at the end of those periods. The second example assumes you keep your shares.
Both examples also assume that your investment has a 5% return each year and
that the class's operating expenses remain the same. Your actual costs may be
higher or lower because expenses will vary over time. Based on these
assumptions your expenses would be as follows:
-----------------------------------------------------------------------------
If shares are redeemed: 1 year 3 years 5 years 10 years1
-----------------------------------------------------------------------------
Class A Shares $560 $739 $934 $1,497
-----------------------------------------------------------------------------
Class B Shares $668 $820 $1,097 $1,555
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Class C Shares $267 $517 $892 $1,944
-----------------------------------------------------------------------------
If shares are not redeemed: 1 year 3 years 5 years 10 years1
-----------------------------------------------------------------------------
Class A Shares $560 $739 $934 $1,497
-----------------------------------------------------------------------------
Class B Shares $168 $520 $897 $1,555
-----------------------------------------------------------------------------
Class C Shares $167 $517 $892 $1,944
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In the first example, expenses include the initial sales charge for Class A
and the applicable Class B or Class C contingent deferred sales charges. In
the second example, the Class A expenses include the sales charge, but Class
B and Class C expenses do not include contingent deferred sales charges.
1. Class B expense for years 7 through 10 are based on Class A expenses,
since Class B shares automatically convert to Class A after 6 years.
About the Fund's Investments
The Fund's Principal Investment Policies. The Fund's goal is to seek a high
level of interest income that is exempt from federal income taxes by
investing in municipal securities, while trying to preserve capital. Under
normal market conditions, the Fund attempts to invest 100% of its assets in
municipal securities. As a matter of fundamental policy, the Fund invests at
least 80% of its assets in municipal securities. The Statement of Additional
Information contains more detailed information about the Fund's investment
policies and risks.
|X| What Municipal Securities Does the Fund Invest In? The Fund buys
municipal bonds and notes, tax-exempt commercial paper, certificates of
participation in municipal leases and other debt obligations. These debt
obligations are issued by the governments of states, as well as their
political subdivisions (such as cities, towns and counties), or by the
District of Columbia and their agencies and authorities. The Fund may also
buy securities issued by any commonwealths, territories or possessions of the
United States, or their respective agencies, instrumentalities or
authorities, if the interest paid on the security is not subject to federal
individual income tax (in the opinion of bond counsel to the issuer at the
time the security is issued).
The Fund can buy both long-term and short-term municipal securities.
Long-term securities have a maturity of more than one year. The Fund
generally focuses on longer-term securities, to seek higher income. In
general, the values of longer-term bonds are more affected by changes in
interest rates than are short-term bonds. Therefore, the longer the average
maturity of the Fund's portfolio, the more its share prices generally will be
affected by changes in interest rates.
Municipal securities are issued to raise money for a variety of public
or private purposes, including financing state or local governments,
financing specific projects or public facilities. The Fund can invest in
municipal securities that are "general obligations," secured by the issuer's
pledge of its full faith, credit and taxing power for the payment of
principal and interest.
The Fund can also buy "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. Some of these revenue
obligations are private activity bonds that pay interest that may be a tax
preference for investors subject to alternative minimum tax.
|X| Ratings of Municipal Securities the Fund Buys. Most of the
municipal securities the Fund buys are "investment grade" at the time of
purchase. The Fund limits its investments in municipal securities that at the
time of purchase are not "investment-grade" to not more than 25% of its total
assets. "Investment grade" securities are those rated within the four
highest rating categories of Moody's, Standard & Poor's, Fitch or Duff &
Phelps or another nationally recognized rating organization, or (if unrated)
judged by the Manager to be investment grade. Rating categories are described
in the Statement of Additional Information. If the securities are not rated,
the Manager will use its judgment to assign a rating category equivalent to
that of a rating agency. A reduction in the rating of a security after its
purchase by the Fund will not automatically require the Fund to dispose of
that security. However, the Manager will evaluate those securities to
determine whether to keep them in the Fund's portfolio.
The Manager may rely to some extent on credit ratings by nationally
recognized rating agencies in evaluating the credit risk of securities
selected for the Fund's portfolio. It may also use its own research and
analysis. Many factors affect an issuer's ability to make timely payments,
and the credit risks of a particular security may change over time.
|_| Special Credit Risks of Lower-Grade Securities. Lower-grade
municipal securities may be subject to greater market fluctuations and
greater risks of loss of income and principal than higher-rated municipal
securities. Securities that are (or that have fallen) below investment grade
entail a greater risk that the issuers of such securities may not meet their
debt obligations. However, by limiting its investments in non-investment
grade municipal securities to not more than 25% of its assets, the Fund may
reduce the effect of some of these risks on its share price and income.
|X| Municipal Lease Obligations. Municipal leases are used by state
and local government authorities to obtain funds to acquire land, equipment
or facilities. The Fund may invest in certificates of participation that
represent a proportionate interest in payments made under municipal lease
obligations. If the government stops making payments or transfers its payment
obligations to a private entity, the obligation could lose value or become
taxable.
|X| Can the Fund's Investment Objective and Policies Change? The Fund's
Board of Trustee may change non-fundamental policies without shareholder
approval, although significant changes will be described in amendments to
this Prospectus. Fundamental policies are those that cannot be changed
without the approval of a majority of the Fund's outstanding voting shares.
The Fund's investment objective is a fundamental policy. An investment policy
or technique is not fundamental unless this Prospectus or the Statement of
Additional Information says that the particular policy is fundamental.
Other Investment Strategies. To seek its objective, the Fund may also use
the investment techniques and strategies described below. These techniques
involve certain risks or are designed to help reduce some of the risks.
|X| Floating Rate/Variable Rate Obligations. Some of the municipal
securities the Fund can purchase 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. These obligations may be secured by bank
letters of credit or other credit support arrangements.
Certain types of variable rate bonds known as "inverse floaters" pay
interest at rates that vary 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. As interest rates rise, inverse floaters produce less current
income, and their market value can become volatile. Inverse floaters are a
type of "derivative security." Some have a "cap," so that 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 will invest
not more than 10% of its total assets in inverse floaters.
|X| Other Derivatives. 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.
|X| 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 is a risk of loss to the
Fund if the value of the security declines prior to the settlement date.
|X| Puts and Stand-By Commitments. The Fund may acquire "stand-by
commitments" or "puts" with respect to municipal securities. The Fund would
have the right to sell specified securities at a set price on demand to the
issuing broker-dealer or bank. However, this feature may result in a lower
interest rate on the security. The Fund will acquire stand-by commitments or
puts solely to enhance portfolio liquidity.
|X| Illiquid 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. The Fund will not invest more than 10% of
its net assets in illiquid securities (the Board may increase that limit to
15%). The Manager monitors holdings of illiquid securities on an ongoing
basis to determine whether to sell any holdings to maintain adequate
liquidity. The Fund cannot buy a security that has a restriction on its
resale.
|X| Hedging. 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. The
Fund does not use hedging instruments to a substantial degree and is not
required to use them in seeking its goal.
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 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.
If the Manager uses a hedging instrument at the wrong time or judges
market conditions incorrectly, the strategy may reduce the Fund's return. The
Fund could also experience losses if the prices of its futures and options
positions were not correlated with its other investments or if it could not
close out a position because of an illiquid market for the future or option.
Options trading involves the payment of premiums and has special tax
effects on the Fund. There are also special risks in particular hedging
strategies. For example, 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. The Fund
may not enter into swaps with respect to more than 25% of its total assets.
Temporary Defensive Investments. The Fund may invest up to 100% of its total
assets in temporary defensive investments from time to time. This may happen
during periods of unusual market conditions. Generally they would be
short-term municipal securities but could be U.S. government securities or
highly-rated corporate debt securities. The income from some of those
temporary defensive investments may not be tax-exempt, and therefore when
making those investments the Fund may not achieve its objective. The Fund may
also hold these types of investments pending the investment of proceeds from
the sale of Fund shares or portfolio securities, or to meet anticipated
redemptions of Fund shares.
Year 2000 Risks. Because many computer software systems in use today cannot
distinguish the year 2000 from the year 1900, the markets for securities in
which the Fund invests could be detrimentally affected by computer failures
beginning January 1, 2000. Failure of computer systems used for securities
trading could result in settlement and liquidity problems for the Fund and
other investors. That failure could have a negative impact on handling
securities trades, pricing and accounting services. Data processing errors by
government issuers of securities could result in economic uncertainties, and
those issuers may incur substantial costs in attempting to prevent or fix
such errors, all of which could have a negative effect on the Fund's
investments and returns.
The Manager, the Distributor and the Transfer Agent have been working
on necessary changes to their computer systems to deal with the year 2000 and
expect that their systems will be adapted in time for that event, although
there cannot be assurance of success. Additionally, the services they
provide depend on the interaction of their computer systems with those of
brokers, information services, the Fund's Custodian and other parties.
Therefore, any failure of the computer systems of those parties to deal with
the year 2000 may also have a negative affect on the services they provide to
the Fund. The extent of that risk cannot be ascertained at this time.
How the Fund is Managed
The Manager. The Fund's investment adviser is 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 $85 billion as of
September 30, 1998, and with more than 4 million shareholder accounts. The
Manager is located at Two World Trade Center, 34th Floor, New York, New York
10048-0203.
|X| Portfolio Managers. 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 18, 1985 and April 20, 1996, respectively. Mr.
Patterson and Mr. Webman also serve as officers and portfolio managers for
other Oppenheimer funds. Prior to joining OppenheimerFunds, Mr. Webman was
an officer and portfolio manager with Prudential Mutual Funds Investment
Management, Inc.
|X| Advisory Fees. Under the Investment Advisory Agreement, the Fund
pays the Manager an advisory fee at an annual rate which declines 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, 1998, was 0.52% of
average annual net assets for Class A, Class B and Class C shares.
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About Your Account
- ------------------------------------------------------------------------------
How to Buy Shares
How Are Shares Purchased? You can buy shares several ways -- through any
dealer, broker or financial institution that has a sales agreement with the
Fund's Distributor, directly through the Distributor, or automatically
through an Asset Builder Plan under the OppenheimerFunds AccountLink
service. The Distributor may appoint certain servicing agents to accept
purchase (and redemption) orders. The Distributor, in its sole discretion,
may reject any purchase order for the Fund's shares.
|X| Buying Shares Through Your Dealer. Your dealer will place your
order with the Distributor on your behalf.
|X| Buying Shares Through the Distributor. Complete an OppenheimerFunds
New Account Application and return it with a check payable to
"OppenheimerFunds Distributor, Inc." Mail it to P.O. Box 5270, Denver,
Colorado 80217. If you don't list a dealer on the application, the
Distributor will act as your agent in buying the shares. However, we
recommend that you discuss your investment with a financial advisor before
your make a purchase to be sure that the Fund is appropriate for you.
|X| Buying Shares by Federal Funds Wire. Shares purchased through the
Distributor may be paid for by Federal Funds wire. The minimum investment is
$2,500. Before sending a wire, call the Distributor's Wire Department at
1-800-525-7048 to notify the Distributor of the wire, and to receive further
instructions.
|X| Buying Shares Through OppenheimerFunds AccountLink. With
AccountLink, shares are purchased for your account on the regular business
day the Distributor is instructed by you to initiate the Automated Clearing
House (ACH) transfer to buy the shares. You can provide those instructions
automatically, under an Asset Builder Plan, described below, or by telephone
instructions using OppenheimerFunds PhoneLink, also described below. Please
refer to "AccountLink," below for more details.
|X| Buying Shares Through 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 Asset Builder Application
and the Statement of Additional Information.
How Much Must You Invest? You can open a Fund account with a minimum initial
investment of $1,000 and make additional investments at any time with as
little as $25. There are reduced minimum investments under special investment
plans.
|_| With Asset Builder Plans, Automatic Exchange Plans and military
allotment plans, you can make initial and subsequent investments for as
little as $25. Subsequent purchases of at least $25 can be made by telephone
through AccountLink.
|_| The minimum investment requirement does not apply to 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 reinvesting distributions from unit investment trusts
that have made arrangements with the Distributor.
At What Price Are Shares Sold? Shares are sold at their offering price (the
net asset value per share plus any initial sales charge that applies). The
offering price that applies to a purchase order is based on the next
calculation of the net asset value per share that is made after the
Distributor receives the purchase order at its offices in Denver, Colorado,
or after any agent appointed by the Distributor receives the order and sends
it to the Distributor.
|_| The net asset value of each class of shares is determined as of the
close of The New York Stock Exchange, on each day the Exchange is open for
trading (referred to in this Prospectus as a "regular business day"). The
Exchange normally closes at 4:00 P.M., New York time, but may close earlier
on some days. (All references to time in this Prospectus mean "New York
time").
The net asset value per share is determined 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. To determine net asset value, the Fund's Board
of Trustees has established procedures to value the Fund's securities, in
general based on market value. The Board has adopted special procedures for
valuing illiquid securities and obligations for which market values cannot be
readily obtained.
|_| To receive the offering price for a particular day, in most cases
the Distributor or its designated agent must receive your order by the time
of day The New York Stock Exchange closes that day. If your order is received
on a day when the Exchange is closed or after it has closed, the order will
receive the next offering price that is determined after your order is
received.
|_| If you buy shares through a dealer, your dealer must receive the
order by the close of The New York Stock Exchange and transmit it to the
Distributor so that it is received before the Distributor's close of business
on a regular business day (normally 5:00 P.M.) to receive that day's offering
price. Otherwise, the order will receive the next offering price that is
determined.
- ------------------------------------------------------------------------------
What Classes of Shares Does the Fund Offer? The Fund offers investors three
different classes of shares. The different classes of shares represent
investments in the same portfolio of securities, but the classes are subject
to different expenses and will likely have different share prices. When you
buy shares, be sure to specify Class A, Class B or Class C shares. If you do
not choose a class, your investment will be made in Class A shares.
|X| Class A Shares. If you buy Class A shares, you pay an initial
sales charge (on investments up to $1 million). The amount of that sales
charge will vary depending on the amount you invest. The sales charge rates
are listed in "How Can I Buy Class A Shares?" below.
|X| Class B Shares. If you buy Class B shares, you pay no sales charge
at the time of purchase, but you will pay an annual asset-based sales charge,
and 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 "How Can I Buy
Class B Shares?" below.
|X| Class C Shares. If you buy Class C shares, you pay no sales charge
at the time of purchase, but you will pay an annual asset-based sales charge,
and 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 "How
Can I Buy Class C Shares?" below.
- ------------------------------------------------------------------------------
Which Class of Shares Should You Choose? Once you decide that the Fund is an
appropriate investment for you, the decision as to which class of shares is
best suited to your needs depends on a number of factors that you should
discuss with your financial advisor. Some 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. 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 discussion below is not intended to be investment advice or a
recommendation, because each investor's financial considerations are
different. You should review these factors with your financial advisor. The
discussion below assumes that you will purchase only one class of shares, and
not a combination of shares of different classes.
|X| 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,
compared to the effect over time of higher class-based expenses on shares of
Class B or Class C .
|_| Investing for the Short Term. If you have a relatively 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. That is 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 as 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.
And for investors who invest $1 million or more, in most cases Class A
shares will be the most advantageous choice, no matter how long you intend to
hold your shares. For that reason, the Distributor normally will not accept
purchase orders of $500,000 or more of Class B shares or $1 million or more
of Class C shares from a single investor.
|_| Investing for the Longer Term. If you are investing less than
$100,000 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
appropriate.
Of course, these examples are based on approximations of the effect of
current sales charges and expenses projected over time, and do not detail all
of the considerations in selecting a class of shares. You should analyze your
options carefully with your financial advisor before making that choice.
|X| Are There Differences in Account Features That Matter to You? Some
account features (such as checkwriting) may not be available to Class B or
Class C shareholders. 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. Therefore, 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.
|X| How Does It Affect Payments to My Broker? A salesperson, such as a
broker, may receive different compensation for selling one class of shares
than for selling another class. It is important to remember that Class B and
Class C contingent deferred sales charges and asset-based sales charges have
the same purpose as the front-end sales charge on sales of Class A shares: to
compensate the Distributor for commissions and expenses it pays to dealers
and financial institutions for selling shares. The Distributor may pay
additional 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.
Special Sales Charge Arrangements and Waivers. The Statement of Additional
Information details the conditions for the waiver of sales charges that apply
in certain cases, and the special sales charge rates that apply to purchases
of shares of the Fund by certain groups, or under specified retirement plan
arrangements or in other special types of transactions.
How Can I Buy 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
other cases, reduced sales charges may be available, as described below or in
the Statement of Additional Information. 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 or allocated
to your dealer as commission. The Distributor reserves the right to reallow
the entire commission to dealers. The current sales charge rates and
commissions paid to dealers and brokers are as follows:
------------------------------------------------------------------------------
Front-end Sales Front End Sales Commission as
Charge As a Charge As a Percentage
Percentage of Percentage of of Offering
Amount of Purchase Offering Price Net Price
Amount Invested
------------------------------------------------------------------------------
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
------------------------------------------------------------------------------
|X| 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 in an amount equal to 1.0% of purchases of $1
million or more other than by retirement accounts. That commission will be
paid only on purchases that were not previously subject to a front-end sales
charge and dealer commission.
If you redeem any of those shares within 18 months of the end of the
calendar month of their purchase, a contingent deferred sales charge (called
the "Class A contingent deferred sales charge") may be deducted from the
redemption proceeds. That sales charge will be equal to 1.0% of the lesser
of (1) the aggregate net asset value of the redeemed shares at the time of
redemption (excluding shares purchased by reinvestment of dividends or
capital gain distributions) or (2) 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 purchases of Class A shares of all Oppenheimer funds you
made that were subject to the Class A contingent deferred sales charge.
In determining whether a contingent deferred sales charge is payable
when shares are redeemed, the Fund will first redeem shares that are not
subject to the sales charge, including shares purchased by reinvestment of
dividends and capital gains. Then the Fund will redeem other shares in the
order in which you purchased them. The Class A contingent deferred sales
charge is waived in certain cases described in "Waivers of Class A Sales
Charges" in the Statement of Additional Information.
The Class A contingent deferred sales charge is not charged on
exchanges of shares under the Fund's Exchange Privilege (described below).
However, if the shares acquired by exchange are redeemed within 18 calendar
months of the end of the calendar month in which the exchanged shares were
originally purchased, then the sales charge will apply.
How Can I Reduce Sales Charges for Class A Share Purchases? You may be
eligible to buy Class A shares at reduced sales charge rates under the Fund's
"Right of Accumulation" or a Letter of Intent, as described in "Reduced Sales
Charges" in the Statement of Additional Information.
|X| Waivers of Class A Sales Charges. The Class A initial and
contingent deferred sales charges are not imposed in the circumstances
described 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 when purchasing shares
whether any of the special conditions apply.
How Can I Buy 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. 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.
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 net asset value. The contingent deferred sales charge is not
imposed on:
|_| the amount of your account value represented by an increase in
net asset value over the initial purchase price,
|_| shares purchased by the reinvestment of dividends or capital
gains distributions, or
|_| shares redeemed in the special circumstances described in the
Appendix in the Statement of Additional Information.
To determine whether the contingent deferred sales charge applies to a
redemption, the Fund redeems shares in the following order:
(1) shares acquired by reinvestment of dividends and capital gains
distributions,
(2) shares held for over 6 years, and
(3) shares held the longest during the 6-year period.
The amount of the contingent deferred sales charge will depend on the
number of years since you invested and the dollar amount being redeemed,
according to the following schedule:
------------------------------------------------------------------------------
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. In applying the sales charge,
all purchases are considered to have been made on the first regular business
day of the month in which the purchase was made.
|X| Automatic Conversion of Class B Shares. Class B shares
automatically convert to Class A shares 72 months after you purchase them.
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 the Statement of
Additional Information.
How Can I Buy 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. 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.
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 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,
shares purchased by the reinvestment of dividends or capital gains
distributions, or
o shares redeemed in the special circumstances described in the Appendix
to the Statement of Additional Information.
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.
Distribution and Service (12b-1) Plans.
|X| Service Plan for Class A Shares. The Fund has adopted a Service
Plan for Class A shares. It reimburses the Distributor for a portion of its
costs incurred for services provided to accounts that hold Class A shares.
Reimbursement is made quarterly at an annual rate of up to 0.25% of the
average annual net assets of Class A shares of the Fund that were acquired on
or after April 1, 1991. The rate is 0.15% of average annual net assets
represented by shares acquired before that date. The Distributor currently
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.
|X| 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.
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. Because these fees are paid out of the Fund's assets on an on-going
basis, over time these fees will increase the cost of your investment and may
cost you more than other types of sales charges.
The Distributor uses the service fees to compensate dealers for
providing personal services for accounts that hold Class B or Class C
shares. The Distributor pays the 0.25% service fees to dealers in advance
for the first year after the shares were 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 Distributor currently pays sales commission of 3.75% of the
purchase price of Class B shares to dealers from its own resources at the
time of sale. Including the advance of the service fee, the total amount
paid by the Distributor to the dealer at the time of sales of Class B shares
is therefore 4.00% of the purchase price. The Distributor retains the Class
B asset-based sales charge.
The Distributor currently pays sales commissions of 0.75% of the
purchase price of Class C shares to dealers from its own resources at the
time of sale. Including the advance of the service fee, the total amount
paid by the Distributor to the dealer at the time of sale of Class C shares
is therefore 1.00% of the purchase price. The Distributor plans to pay the
asset-based sales charge as an ongoing commission to the dealer on Class C
shares that have been outstanding for a year or more.
Special Investor Services
AccountLink. You can use our AccountLink feature to link your Fund account
with an account at a U.S. bank or other financial institution. It must be an
Automated Clearing House (ACH) member. AccountLink lets you:
|_| transmit funds electronically to purchase shares by telephone
(through a service representative or by PhoneLink) or automatically
under Asset Builder Plans, or
|_| have the Transfer Agent send redemption proceeds or to transmit
dividends and distributions directly to your bank account. Please call
the Transfer Agent for more information.
You may purchase shares 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.
AccountLink privileges should be requested on your Application or your
dealer's settlement instructions if you buy your shares through a 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.
PhoneLink. PhoneLink is the OppenheimerFunds automated telephone system that
enables shareholders to perform a number of account transactions
automatically using a touch-tone phone. PhoneLink may be used on
already-established Fund accounts after you obtain a Personal Identification
Number (PIN), by calling the special PhoneLink number, 1-800-533-3310.
|_| Purchasing Shares. You may purchase shares in amounts up to
$100,000 by phone, by calling 1-800-533-3310. You must have established
AccountLink privileges to link your bank account with the Fund to pay for
these purchases.
|_| Exchanging Shares. With the OppenheimerFunds Exchange Privilege,
described below, you can exchange shares automatically by phone from your
Fund account to another Oppenheimer funds account you have already
established by calling the special PhoneLink number.
|_| 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.
Can I Submit Transaction Requests by Fax? You may send requests for certain
types of account transactions to the Transfer Agent by fax (telecopier).
Please call 1-800-525-7048 for information about which transactions may be
handled this way. Transaction requests submitted by fax are subject to the
same rules and restrictions as written and telephone requests described in
this Prospectus.
OppenheimerFunds Internet Web Site. You can obtain information about the
Fund, as well as your account balance, on the OppenheimerFunds Internet web
site, at http://www.oppenheimerfunds.com. Additionally, shareholders listed
in the account registration (and the dealer of record) may request certain
account transactions through a special section of that web site. To perform
account transactions, you must first obtain a personal identification number
(PIN) by calling the Transfer Agent at 1-800-533-3310. If you do not want to
have Internet account transaction capability for your account, please call
the Transfer Agent at 1-800-525-7048.
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. Please call the Transfer Agent
or consult the Statement of Additional Information for details.
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.
How to Sell Shares
You can sell (redeem) 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 in proper form (which means that it
must comply with the procedures described below) and is accepted by the
Transfer Agent. The Fund lets you sell your shares by writing a letter, 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. 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.
|X| Certain Requests Require a Signature Guarantee. To protect you and
the Fund from fraud, the following redemption requests must be in writing and
must include a signature guarantee (although there may be other situations
that also require a signature guarantee):
|_| You wish to redeem $50,000 or more and receive a check
|_| The redemption check is not payable to all shareholders listed on
the account statement
|_| The redemption check is not sent to the address of record on your
account statement
|_| Shares are being transferred to a Fund account with a different
owner or name
|_| Shares are being redeemed by someone (such as an Executor) other
than the owners
|X| 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.
How Do I Sell Shares by Mail? Write a "letter of instructions" that
includes:
|_| Your name
|_| The Fund's name
|_| Your Fund account number (from your account statement)
|_| The dollar amount or number of shares to be redeemed
|_| Any special payment instructions
|_| Any share certificates for the shares you are selling
|_| The signatures of all registered owners exactly as the account is
registered, and
|_| Any special documents requested by the Transfer Agent to assure
proper authorization of the person asking to sell the shares.
- ------------------------------------------------------------------------------
Use the following address for requests by mail:
OppenheimerFunds Services
P.O. Box 5270, Denver, Colorado 80217-5270
- ------------------------------------------------------------------------------
Send courier or express mail requests to:
OppenheimerFunds Services
10200 E. Girard Avenue, Building D
Denver, Colorado 80231
How Do I Sell Shares by Telephone? You and your dealer representative of
record may also sell your shares by telephone. To receive the redemption
price on a regular business day, your call must be received by the Transfer
Agent by the close of The New York Stock Exchange that day, which is normally
4:00 P.M., but may be earlier on some days. You may not redeem shares held
under a share certificate by telephone.
|_| To redeem shares through a service representative, call
1-800-852-8457
|_| To redeem shares automatically on PhoneLink, call 1-800-533-3310
Whichever method you use, you may have a check sent to the address on
the account statement, or, if you have linked your Fund account to your bank
account on AccountLink, you may have the proceeds sent to that bank
account.
Are There Limits on Amounts Redeemed by Telephone?
|X|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.
|X| 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 Against Your Account. To write checks against your Fund
account, request that privilege on your account Application, or contact the
Transfer Agent for signature cards. They 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 other account.
|_| Checks can be written to the order of whomever you wish, but may
not be cashed at the Fund's bank or Custodian.
|_| Checkwriting privileges are not available for accounts holding
Class B shares or Class C shares, or Class A shares that are subject to a
contingent deferred sales charge.
|_| Checks must be written for at least $100.
|_| Checks cannot be paid if they are written for more than your
account value. Remember: your shares fluctuate in value and you should not
write a check close to the total account value.
|_| You may not write a check that would require the Fund to redeem
shares that were purchased by check or Asset Builder Plan payments within the
prior 10 days.
|_| Don't use your checks if you changed your Fund account number,
until you receive new checks.
Can I Sell Shares Through My 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. If your shares
are held in the name of your dealer, you must redeem them through your dealer.
How to Exchange Shares
Shares of the Fund may be exchanged for shares of certain Oppenheimer funds
at net asset value per share at the time of exchange, without sales charge.
To exchange shares, you must meet several conditions:
|_| Shares of the fund selected for exchange must be available for sale
in your state of residence.
|_| The prospectuses of this Fund and the fund whose shares you want to
buy must offer the exchange privilege.
|_| You must hold the shares you buy when you establish your account
for at least 7 days before you can exchange them. After the account is open 7
days, you can exchange shares every regular business day.
|_| You must meet the minimum purchase requirements for the fund you
purchase by exchange.
|_| Before exchanging into a fund, you should obtain and read its
prospectus.
Shares of a particular class of the Fund may be exchanged only for
shares of the same class in the other Oppenheimer funds. For example, you
can exchange Class A shares of this Fund only for Class A shares of another
fund. In some cases, sales charges may be imposed on exchange transactions.
For tax purposes, exchanges of shares involve a sale 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. Please refer to "How to Exchange Shares" in the
Statement of Additional Information for more details.
How Do I Submit Exchange Requests? Exchanges may be requested in writing or
by telephone:
|X| Written Exchange Requests. Submit an OppenheimerFunds Exchange
Request form, signed by all owners of the account. Send it to the Transfer
Agent at the address on the Back Cover.
|X| 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.
Are There Limitations on Exchanges? There are certain exchange policies you
should be aware of:
|_| Shares are normally redeemed from one fund and purchased from the
other fund in the exchange transaction on the same regular business day on
which the Transfer Agent receives an exchange request that conforms to the
policies described above. It must be received 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 exchange. For example, the receipt of multiple
exchange requests from a "market timer" might require the Fund to sell
securities at a disadvantageous time and/or price.
|_| Because excessive trading can hurt fund performance and harm
shareholders, the Fund reserves the right to refuse any exchange request that
it believes will disadvantage it, or to refuse multiple exchange requests
submitted by a shareholder or dealer.
|_| The Fund may amend, suspend or terminate the exchange privilege at
any time. Although the Fund will attempt to provide you notice whenever it
is reasonably able to do so, it may impose these changes at any time.
|_| If the Transfer Agent cannot exchange all the shares you request
because of a restriction cited above, only the shares eligible for exchange
will be exchanged.
Shareholder Account Rules and Policies
|X| 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.
|X| 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 the Transfer Agent receives cancellation instructions from an owner of
the account.
|X| 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. The Transfer Agent and the Fund will
not be liable for losses or expenses arising out of telephone instructions
reasonably believed to be genuine.
|X| 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.
|X| 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.
|X| The redemption price for shares will vary from day to day because
the value of the securities in the Fund's portfolio fluctuates. The
redemption price, which is the net asset value per share, will normally
differ for Class A, Class B and Class C shares. The redemption value of your
shares may be more or less than their original cost.
|X| Payment for redeemed shares ordinarily is made in cash. It is
forwarded by check or through AccountLink (as elected by the shareholder)
within seven days after the Transfer Agent receives redemption instructions
in proper form. However, under unusual circumstances determined by the
Securities and Exchange Commission, payment may be delayed or suspended. For
accounts registered in the name of a broker-dealer, payment will normally be
forwarded within three business days after redemption.
|X| 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 or certified check, or arrange with your bank to
provide telephone or written assurance to the Transfer Agent that your
purchase payment has cleared.
|X| 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. In some cases involuntary
redemptions may be made to repay the Distributor for losses from the
cancellation of share purchase orders.
|X| Shares may be "redeemed in kind" under unusual circumstances (such
as a lack of liquidity in the Fund's portfolio to meet redemptions). This
means that the redemption proceeds will be paid with securities from the
Fund's portfolio.
|X| "Backup Withholding" of Federal income tax may be applied against
taxable dividends, distributions and redemption proceeds (including
exchanges) if you fail to furnish the Fund your correct, certified Social
Security or Employer Identification Number when you sign your application, or
if you under-report your income to the Internal Revenue Service.
|X| 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 and Tax Information
Dividends. The Fund intends to declare 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 to pay 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 are
available to the Fund from the purchase payment for such shares.
The Fund attempts to pay dividends on Class A shares at a constant
level. There is no assurance that it will be able to do so. The Board of
Trustees may change the targeted dividend level at any time, without prior
notice to shareholders. Additionally, the amount of those dividends and the
distributions paid on Class B and C shares may vary over time, depending on
market conditions, the composition of the Fund's portfolio, and expenses
borne by the particular class of shares. Dividends and distributions paid on
Class A shares will generally be higher than for Class B and Class C shares,
which normally have higher expenses than Class A. The Fund cannot guarantee
that it will pay any dividends or distributions.
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.
What Choices Do I Have for Receiving Distributions? When you open your
account, specify on your application how you want to receive your dividends
and distributions. You have four options:
|X| 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.
|X| Reinvest Long-Term Capital Gains Only. You can elect to reinvest
long-term capital gains distributions in the Fund while receiving dividends
by check or having them sent to your bank account through AccountLink.
|X| 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 through AccountLink.
|X| Reinvest Your Distributions in Another OppenheimerFunds Account.
You can reinvest all distributions in the same class of shares of another
Oppenheimer fund account you have established.
Taxes. Dividends paid from net investment income earned by the Fund on
municipal securities will be excludable from gross income for Federal income
tax purposes. A portion of a dividend that is derived from interest paid on
certain "private activity bonds" may be an item of tax preference if you are
subject to the alternative minimum tax. If the Fund earns interest on taxable
investments, any dividends derived from those earnings will be taxable as
ordinary income to shareholders.
Dividends and capital gains distributions may be subject to state or
local taxes. Long-term capital gains are taxable as long-term capital gains
when distributed to shareholders, and may be taxable at different rates
depending on how long the Fund holds the asset. It does not matter how long
you have held your shares. Dividends paid from short-term capital gains are
taxable as ordinary income. 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.
|X| Remember There May be Taxes on Transactions. Even though the Fund
seeks to distribute tax-exempt income 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.
|X| Returns of Capital Can Occur. 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. You should consult with your tax adviser about the
effect of an investment in the Fund on your particular tax situation.
<PAGE>
Financial Highlights
The Financial Highlights Table is presented to help you understand the Fund's
financial performance for the past 5 fiscal years. Certain information
reflects financial results for a single Fund share. The total returns in the
table represent the rate that an investor would have earned[or lost] on an
investment in the Fund (assuming reinvestment of all dividends and
distributions). This information has been audited by KPMG Peat Marwick LLP,
the Fund's independent auditors, whose report, along with the Fund's
financial statements, is included in the Statement of Additional Information,
which is available on request.
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS CLASS A
----------------------------------------------------------------
YEAR ENDED JULY 31, YEAR ENDED DECEMBER 31,
1998 1997 1996(/2/) 1995 1994 1993
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING DATA
Net asset value,
beginning of period $10.24 $ 9.74 $9.98 $8.93 $10.44 $ 9.94
- -------------------------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .51 .55 .32 .54 .57 .59
Net realized and
unrealized gain (loss) .04 .49 (.25) 1.06 (1.52) .74
------ ------ ----- ----- ------ ------
Total income (loss) from
investment operations .55 1.04 .07 1.60 (.95) 1.33
- -------------------------------------------------------------------------------------------------
Dividends and
distributions to shareholders:
Dividends from net
investment income (.52) (.54) (.31) (.54) (.56) (.62)
Dividends in excess of
net investment income -- -- -- (.01) -- --
Distributions from net
realized gain -- -- -- -- -- (.21)
----- ----- ---- ---- ----- ------
Total dividends and
distributions
to shareholders (.52) (.54) (.31) (.55) (.56) (.83)
- -------------------------------------------------------------------------------------------------
Net asset value, end of
period $10.27 $10.24 $9.74 $9.98 $ 8.93 $10.44
====== ====== ===== ===== ====== ======
- -------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET
ASSET VALUE(/4/) 5.55% 10.97% 0.77% 18.28% (9.19)% 13.79%
- -------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of
period (in thousands) $579,570 $586,546 $590,299 $634,473 $541,161 $608,128
- -------------------------------------------------------------------------------------------------
Average net assets (in
thousands) $581,630 $582,624 $606,509 $569,859 $582,038 $567,777
- -------------------------------------------------------------------------------------------------
Ratios to average net
assets:
Net investment income 5.00% 5.55% 5.58%(/5/) 5.65% 5.94% 5.71%
Expenses 0.87% 0.87% 0.92%(/5/) 0.88% 0.88% 0.88%
- -------------------------------------------------------------------------------------------------
Portfolio turnover
rate(/6/) 20.8% 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. 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.
5. Annualized.
6. The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities
owned during the period. Securities with a maturity or expiration date at the
time of acquisition of one year or less are excluded from the calculation.
Purchases and sales of investment securities (excluding short-term securities)
for the period ended July 31, 1998 were $140,458,511 and $142,158,107,
respectively.
4
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS CLASS B
----------------------------------------------------------------
YEAR ENDED JULY 31, YEAR ENDED DECEMBER 31,
1998 1997 1996(/2/) 1995 1994 1993(/3/)
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING DATA
Net asset value,
beginning of period $10.22 $ 9.73 $9.96 $8.92 $10.43 $10.22
- ------------------------------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .43 .47 .27 .47 .50 .41
Net realized and
unrealized gain (loss) .04 .48 (.23) 1.05 (1.52) .43
------ ------ ----- ----- ------ ------
Total income (loss) from
investment operations .47 .95 .04 1.52 (1.02) .84
- ------------------------------------------------------------------------------------------------------
Dividends and
distributions to shareholders:
Dividends from net
investment income (.44) (.46) (.27) (.47) (.49) (.42)
Dividends in excess of
net investment income -- -- -- (.01) -- --
Distributions from net
realized gain -- -- -- -- -- (.21)
----- ----- ---- ---- ----- ------
Total dividends and
distributions
to shareholders (.44) (.46) (.27) (.48) (.49) (.63)
- ------------------------------------------------------------------------------------------------------
Net asset value, end of
period $10.25 $10.22 $9.73 $9.96 $ 8.92 $10.43
====== ====== ===== ===== ====== ======
- ------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET
ASSET VALUE(/4/) 4.75% 10.05% 0.43% 17.30% (9.91)% 8.49%
- ------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of
period (in thousands) $91,677 $83,897 $74,055 $72,488 $53,245 $33,024
- ------------------------------------------------------------------------------------------------------
Average net assets (in
thousands) $88,531 $77,881 $73,047 $63,669 $46,548 $16,444
- ------------------------------------------------------------------------------------------------------
Ratios to average net
assets:
Net investment income 4.21% 4.76% 4.79%(/5/) 4.84% 5.11% 4.54%(/5/)
Expenses 1.65% 1.65% 1.70%(/5/) 1.68% 1.69% 1.74%(/5/)
- ------------------------------------------------------------------------------------------------------
Portfolio turnover
rate(/6/) 20.8% 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. 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.
5. Annualized.
6. The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities
owned during the period. Securities with a maturity or expiration date at the
time of acquisition of one year or less are excluded from the calculation.
Purchases and sales of investment securities (excluding short-term securities)
for the period ended July 31, 1998 were $140,458,511 and $142,158,107,
respectively.
5
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS CLASS C
-----------------------------------------------
PERIOD ENDED
YEAR ENDED JULY 31, DECEMBER 31,
1998 1997 1996(/2/) 1995(/1/)
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING DATA
Net asset value,
beginning of period $10.22 $ 9.73 $9.96 $9.58
- -------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .43 .46 .27 .15
Net realized and
unrealized gain (loss) .04 .49 (.23) .39
------ ------ ----- -----
Total income (loss) from
investment operations .47 .95 .04 .54
- -------------------------------------------------------------------------------
Dividends and
distributions to
shareholders:
Dividends from net
investment income (.44) (.46) (.27) (.15)
Dividends in excess of
net investment income -- -- -- (.01)
Distributions from net
realized gain -- -- -- --
----- ----- ---- ----
Total dividends and
distributions to
shareholders (.44) (.46) (.27) (.16)
- -------------------------------------------------------------------------------
Net asset value, end of
period $10.25 $10.22 $9.73 $9.96
====== ====== ===== =====
- -------------------------------------------------------------------------------
TOTAL RETURN, AT NET
ASSET VALUE(/4/) 4.75% 10.03% 0.40% 5.64%
- -------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of
period (in thousands) $12,857 $8,648 $4,210 $1,975
- -------------------------------------------------------------------------------
Average net assets (in
thousands) $10,655 $5,724 $3,105 $1,506
- -------------------------------------------------------------------------------
Ratios to average net
assets:
Net investment income 4.30% 4.72% 4.72%(/5/) 4.49%(/5/)
Expenses 1.64% 1.67% 1.75%(/5/) 1.64%(/5/)
- -------------------------------------------------------------------------------
Portfolio turnover
rate(/6/) 20.8% 23.8% 23.9% 25.1%
</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. 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.
5. Annualized.
6. The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities
owned during the period. Securities with a maturity or expiration date at the
time of acquisition of one year or less are excluded from the calculation.
Purchases and sales of investment securities (excluding short-term securities)
for the period ended July 31, 1998 were $140,458,511 and $142,158,107,
respectively.
6
<PAGE> 95
For More Information:
The following additional information about the Fund is available without
charge upon request:
Statement of Additional Information
This document includes additional information about the Fund's investment
policies, risks, and operations. It is incorporated by reference into this
Prospectus (which means it is legally part of this Prospectus).
Annual and Semi-Annual Reports
Additional information about the Fund's investments and performance is
available in the Fund's Annual and Semi-Annual Reports to shareholders. The
Annual Report includes a discussion of market conditions and investment
strategies that significantly affected the Fund's performance during its last
fiscal year.
How to Get More Information:
You can request the Statement of Additional Information, the Annual and
Semi-Annual Reports, and other information about the Fund or your account:
By Telephone:
Call OppenheimerFunds Services toll-free: 1-800-525-7048
By Mail:
Write to:
OppenheimerFunds Services
P.O. Box 5270
Denver, Colorado 80217-5270
On the Internet:
You can read or down-load documents on the OppenheimerFunds web site:
http://www.oppenheimerfunds.com
You can also obtain copies of the Statement of Additional Information and
other Fund documents and reports by visiting the SEC's Public Reference Room
in Washington, D.C. (Phone 1-800-SEC-0330) or the SEC's Internet web site at
http://www.sec.gov. Copies may be obtained upon payment of a duplicating fee
by writing to the SEC's Public Reference Section, Washington, D.C. 20549-6009.
No one has been authorized to provide any information about the Fund or to
make any representations about the Fund other than what is contained in this
Prospectus. This Prospectus is not an offer to sell shares of the Fund, nor a
solicitation of an offer to buy shares of the Fund, to any person in any
state or other jurisdiction where it is unlawful to make such an offer.
SEC File No. 811-2668 The Fund's shares are
distributed by:
PR0310.001.1198 [logo]
Printed on recycled paper. OppenheimerFunds Distributor,
Inc.
- ------------------------------------------------------------------------------
<PAGE>
APPENDIX TO PROSPECTUS OF
OPPENHEIMER MUNICIPAL BOND FUND
Graphic material included in Prospectus of Oppenheimer Municipal Bond
Fund: "Annual Total Returns (Class A) % as of 12/31 each year (Class A)."
A bar chart will be included in the Prospectus of Oppenheimer Municipal
Bond Fund (the "Fund") depicting the annual total returns of a hypothetical
$10,000 investment in Class A shares of the Fund for each of the ten most
recent calendar years without deducting sales charges. Set forth below are
the relevant data points that will appear on the bar chart.
Calendar Oppenheimer
Year Municipal Bond Fund
Ended Class A Shares
12/31/88 10.03%
12/31/89 9.43%
12/31/90 5.93%
12/31/91 12.11%
12/31/92 9.20%
12/31/93 13.79%
12/31/94 -9.19%
12/31/95 18.28%
12/31/96 5.17%
12/31/97 9.38%
<PAGE>
Oppenheimer Municipal Bond Fund
- ------------------------------------------------------------------------------
Two World Trade Center, New York, New York 10048-0203
1-800-525-7048
Statement of Additional Information dated November 27, 1998
- ------------------------------------------------------------------------------
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, 1998. 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 or
by downloading it from the OppenheimerFunds Internet web site at
www.oppenheimerfunds.com.
Contents
Page
About the Fund
Additional Information About the Fund's Investment Policies and Risks........2
The Fund's Investment Policies..........................................2
Municipal Securities....................................................3
Other Investment Techniques and Strategies..............................7
Investment Restrictions................................................19
How the Fund is Managed.....................................................21
Organization and History...............................................21
Trustees and Officers of the Fund......................................22
The Manager ...........................................................27
Brokerage Policies of the Fund..............................................28
Distribution and Service Plans..............................................30
Performance of the Fund.....................................................33
About Your Account
How To Buy Shares...........................................................39
How To Sell Shares..........................................................46
How to Exchange Shares......................................................51
Dividends, Capital Gains and Taxes..........................................53
Additional Information About the Fund.......................................55
Appendix A: Municipal Bond Ratings.........................................A-1
Appendix B: Industry Classifications.......................................B-1
Appendix C: Special Sales Charge Arrangements and Waivers C-1
- ------------------------------------------------------------------------------
Financial Information About the Fund
Independent Auditors' Report..................................................
Financial Statements .........................................................
- ------------------------------------------------------------------------------
<PAGE>
ABOUT THE FUND
- ------------------------------------------------------------------------------
Additional Information About the Fund's Investment Policies and Risks
The investment objective and the principal investment policies of the
Fund are described in the Prospectus. This Statement of Additional
Information contains supplemental information about those policies and the
types of securities that the Fund's investment Manager, OppenheimerFunds,
Inc., will select for the Fund. Additional explanations are also provided
about the strategies the Fund may use to try to achieve its objective.
The Fund's Investment Policies. The Fund does not make investments with the
objective of seeking capital growth, since that would generally be
inconsistent with its goal of seeking tax-exempt income. 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 increased after
a security was purchased, that security would normally decline in value.
Conversely, should interest rates decrease after a security was purchased,
normally its value would rise.
However, those fluctuations in value will not generally result in
realized gains or losses to the Fund unless the Fund sells the security prior
to maturity. A debt security held to maturity is redeemable by its issuer at
full principal value plus accrued interest. The Fund does not usually intend
to dispose of securities prior to their maturity, but may do so for
liquidity, or because of other factors affecting the issuer that cause the
Manager to sell the particular security. In that case, the Fund could
experience a capital gain or loss on the sale.
There are variations in the credit quality of municipal securities,
both within a particular rating classification and between classifications.
These variations depend on numerous factors. The yields of municipal
securities depend on a number of factors, including general conditions in the
municipal securities market, the size of a particular offering, the maturity
of the obligation and rating (if any) of the issue. These factors are
discussed in greater detail below.
Portfolio Turnover. A change in the securities held by the Fund from
buying and selling investments is known as "portfolio turnover." Short-term
trading increases the rate of portfolio turnover and could increase the
Fund's transaction costs. However, the Fund ordinarily incurs little or no
brokerage expense because most of the Fund's portfolio transactions are
principal trades that do not require payment of brokerage commissions.
The Fund ordinarily does not trade securities to achieve short-term
capital gains, because they would not be tax-exempt income. To a limited
degree, the Fund may engage in short-term trading to attempt to take
advantage of short-term market variations. It may also do so to dispose of a
portfolio security prior to its maturity. That might be done 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 requests to redeem Fund shares. In those cases, the Fund may realize
a capital gain or loss on its investments. The Fund's annual portfolio
turnover rate normally is not expected to exceed 100%.
Municipal Securities. The types of municipal securities in which the Fund
may invest are described in the Prospectus under "About the Fund's
Investments." Municipal securities are generally classified as general
obligation bonds, revenue bonds and notes. A discussion of the general
characteristics of these principal types of municipal securities follows
below.
|X| Municipal Bonds. We have classified longer term municipal
securities as "municipal bonds." The principal classifications of long-term
municipal bonds are "general obligation" and "revenue" (including "industrial
development") bonds. They may have fixed, variable or floating rates of
interest, as described below.
Some bonds may be "callable," allowing the issuer to redeem them before
their maturity date. To protect bondholders, callable bonds may be issued
with provisions that prevent them from being called for a period of time.
Typically, that is 5 to 10 years from the issuance date. When interest rates
decline, if the call protection on a bond has expired, it is more likely that
the issuer may call the bond. If that occurs, the Fund might have to
reinvest the proceeds of the called bond in bonds that pay a lower rate of
return.
|_| General Obligation Bonds. The basic security behind general
obligation bonds is the issuer's pledge of its full faith and credit and
taxing power, if any, for the repayment of principal and the payment of
interest. 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
rate of taxes that can be levied for the payment of debt service on these
bonds may be limited or unlimited. Additionally, there may be limits as to
the rate or amount of special assessments that can be levied to meet these
obligations.
|_| 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 tax or other
specific revenue source. Revenue bonds are issued to finance a wide variety
of capital projects. Examples include electric, gas, water and sewer systems;
highways, bridges, and tunnels; port and airport facilities; colleges and
universities; and hospitals.
Although the principal security for these types of bonds may vary
from bond to bond, many provide additional security in the form of a debt
service reserve fund that may be used to make principal and interest payments
on the issuer's obligations. Housing finance authorities have a wide range
of security, including partially or fully insured mortgages, rent subsidized
and/or collateralized mortgages, and/or the net revenues from housing or
other public projects. Some authorities provide further security in the form
of a state's ability (without obligation) to make up deficiencies in the debt
service reserve fund.
|_| Industrial Development Bonds. Industrial development bonds
are considered municipal bonds if the interest paid is exempt from federal
income tax. They 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 may also
be 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
financed by the bond as security for those payments.
|_| 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 certain types of municipal
securities. The Tax Reform Act generally did not change the tax treatment of
bonds issued in order to finance governmental operations. Thus, interest on
general obligation bonds issued by or on behalf of state or local
governments, the proceeds of which are used to finance the operations of such
governments, continues to be tax-exempt. However, the Tax Reform Act 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 is taxable under the revised
rules. There is an exception for "qualified" tax-exempt private activity
bonds, for example, exempt facility bonds including certain industrial
development bonds, qualified mortgage bonds, qualified Section 501(c)(3)
bonds, and qualified student loan 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.
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. 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 Federal alternative minimum tax is designed to ensure that all
persons who receive income pay some tax, even if their regular tax is zero.
This is accomplished in part by including in taxable income certain tax
preference items that are used to calculate 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 the proportionate relationship the
interest the investment company receives on such bonds bears to all its
exempt interest dividends.
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. That could occur in
situations where the "adjusted current earnings" of the corporation exceeds
its alternative minimum taxable income.
To determine whether a municipal security is treated as a taxable
private activity bond, it is subject to 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 the 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 that 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 the use of the bond-financed facility. The Fund
makes no independent investigation of the users of such bonds or their use of
proceeds of the bonds. 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 distributed to shareholders.
Additionally, a private activity bond that 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 applies primarily to exempt facility bonds, including industrial
development bonds. The Fund may invest in industrial development bonds and
other private activity bonds. Therefore, the Fund may not be an appropriate
investment for entities which are "substantial users" (or persons related to
"substantial users") of such exempt facilities. Those entities and persons
should consult their tax advisers before purchasing shares of the Fund.
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 individual or
the individual'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.
|X| Municipal Notes. Municipal securities having a maturity (when the
security is 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. Some of the types of municipal notes the Fund can invest in
are described below.
|_| Tax Anticipation Notes. These are issued to finance working
capital needs of municipalities. Generally, they are issued in anticipation
of various seasonal tax revenue, such as income, sales, use or other business
taxes, and are payable from these specific future taxes.
|_| Revenue Anticipation Notes. These are notes issued in
expectation of receipt of other types of revenue, such as Federal revenues
available under Federal revenue-sharing programs.
|_| Bond Anticipation Notes. Bond anticipation notes are issued
to provide interim financing until long-term financing can be arranged. The
long-term bonds that are issued typically also provide the money for the
repayment of the notes.
|_| Construction Loan Notes. These are sold to provide project
construction financing until permanent financing can be secured. After
successful completion and acceptance of the project, it may receive permanent
financing through public agencies, such as the Federal Housing Administration.
|X| Tax Exempt Commercial Paper. This type of short-term obligation
(usually having a maturity of 270 days or less) is issued by a municipality
to meet current working capital needs.
|X| Municipal Lease Obligations. The Fund's investments in municipal
lease obligations may be through certificates of participation that are
offered to investors by public entities. 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.
Some municipal lease securities may be deemed to be "illiquid"
securities. Their purchase by the Fund would be limited as described below in
"Illiquid 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. Those guidelines
require the Manager to evaluate:
|_| the frequency of trades and price quotations for such securities;
|_| the number of dealers or other potential buyers willing to purchase
or sell such securities;
|_| the availability of market-makers; and
|_| the nature of the trades for such securities.
While the Fund holds such securities, the Manager will also evaluate
the likelihood of a continuing market for these securities and their credit
quality.
Municipal leases have special risk considerations. 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 that purpose on a yearly
basis. While the obligation might be secured by the lease, it might be
difficult to dispose of that property in case of a default.
Projects financed with certificates of participation generally are not
subject to state constitutional debt limitations or other statutory
requirements that may apply to other municipal securities. Payments by the
public entity on the obligation underlying the certificates are derived from
available revenue sources. That revenue might 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 have as highly liquid a market as conventional municipal
bonds. Municipal leases, like other municipal debt obligations, are subject
to the risk of non-payment of interest or repayment of principal by the
issuer. 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. A default in payment of income would result in a
reduction of income to the Fund. It could also result in a reduction in the
value of the municipal lease and that, as well as a default in repayment of
principal, could result in a decrease in the net asset value of the Fund.
|X| Ratings of Municipal Securities. Ratings by ratings organizations
such as Moody's Investors Service, Standard & Poor's Corporation and Fitch
IBCA, Inc. represent the respective rating agency's opinions of the credit
quality of the municipal securities they undertake to rate. However, their
ratings are general opinions and are not guarantees of quality. Municipal
securities that have the same maturity, coupon and rating may have different
yields, while other municipal securities that have the same maturity and
coupon but different ratings may have the same yield.
Lower grade securities may have a higher yield than securities rated in
the higher rating categories. In addition to having a greater risk of default
than higher-grade, securities, there may be less of a market for these
securities. As a result they may be harder to sell at an acceptable price.
The additional risks mean that the Fund may not receive the anticipated level
of income from these securities, and the Fund's net asset value may be
affected by declines in the value of lower-grade securities. However, because
the added risk of lower quality securities might not be consistent with the
Fund's policy of preservation of capital, the Fund limits its investments in
lower quality securities.
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 those
rating 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.
The Fund may buy municipal securities that are "pre-refunded." The
issuer's obligation to repay the principal value of the security is generally
collateralized with U.S. government securities placed in an escrow account.
This causes the pre-refunded security to have essentially the same risks of
default as a AAA-rated security.
A list of the rating categories of Moody's, S&P and Fitch for municipal
securities is contained in Appendix A to this Statement of Additional
Information. Because the Fund may purchase securities that are unrated by
nationally recognized rating organizations, the Manager will make its own
assessment of the credit quality of unrated issues the Fund buys. The Manager
will use criteria similar to those used by the rating agencies, and assigning
a rating category to a security that is comparable to what the Manager
believes a rating agency would assign to that security. However, the
Manager's rating does not constitute a guarantee of the quality of a
particular issue.
Other Investment Techniques and Strategies. In seeking its objective, the
Fund may from time to time employ the types of investment strategies and
investments described below.
|X| Floating Rate and Variable Rate Obligations. Variable rate demand
obligations have a demand feature that allows the Fund to tender the
obligation to the issuer or a third party prior to its maturity. The tender
may be at par value plus accrued interest, according to the terms of the
obligation.
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 91-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 not less than one year. Generally, the changes in
the interest rate on such securities reduce the fluctuation in their market
value. As interest rates decrease or increase, the potential for capital
appreciation or depreciation is less than that for fixed-rate obligations of
the same maturity. The Manager may determine that an unrated floating rate or
variable rate demand obligation meets the Fund's quality standards by reason
of being backed by a letter of credit or guarantee issued by a bank that
meets those quality standards.
Floating rate and variable rate demand notes that have a stated
maturity in excess of one year may have features that permit the holder to
recover the principal amount of the underlying security at specified
intervals not exceeding one year and upon not more than 30 days' notice. The
issuer of that type of note normally has a corresponding right in its
discretion, after a given period, to prepay the outstanding principal amount
of the note plus accrued interest. Generally the issuer must provide a
specified number of days' notice to the holder.
|X| Inverse Floaters and Other Derivative Investments. Inverse
floaters may offer relatively high current income, reflecting the spread
between long-term and short-term tax exempt interest rates. As long as the
municipal yield curve remains relatively steep and short-term rates remain
relatively low, owners of inverse floaters will have the opportunity to earn
interest at above-market rates because they receive interest at the higher
long-term rates but have paid for bonds with lower short-term rates. If the
yield curve flattens and shifts upward, an inverse floater will lose value
more quickly than a conventional long-term bond. The Fund will invest in
inverse floaters to seek higher tax-exempt yields than are available from
fixed-rate bonds that have comparable maturities and credit ratings. In some
cases the holder of an inverse floater may have an option to convert the
floater to a fixed-rate bond, pursuant to a "rate-lock option."
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
fluctuations. "Embedded" caps can be used to hedge a portion of the Fund's
exposure to rising interest rates. When interest rates exceed a
pre-determined rate, the cap generates additional cash flows that offset the
decline in interest rates on the inverse floater, and the hedge is
successful. However, the Fund bears the risk that if interest rates do not
rise above the pre-determined rate, the cap (which is purchased for
additional cost) will not provide additional cash flows and will expire
worthless.
Inverse floaters are a form of derivative investment. Certain
derivatives, such as options, futures, indexed securities and entering into
swap agreements, can be used to increase or decrease the Fund's exposure to
changing security prices, interest rates or other factors that affect the
value of securities. However, these techniques could result in losses to the
Fund, if the Manager judges market conditions incorrectly or employs a
strategy that does not correlate well with the Fund's other investments.
These techniques can cause losses if the counterparty does not perform its
promises. An additional risk of investing in municipal securities that are
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.
|X| When-Issued and Delayed Delivery Transactions. The Fund can
purchase securities on a "when-issued" basis, and may purchase or sell such
securities on a "delayed delivery" basis. "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.
Delivery and payment for the securities take place at a later date. Normally
the settlement date is within six months of the purchase of municipal bonds
and notes. However, the Fund may, from time to time, purchase municipal
securities having a settlement date more than six months and possibly as long
as two years or more after the trade date. The securities are subject to
change in value from market fluctuation during the settlement period. The
value at delivery may be less than the purchase price. For example, 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.
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 complete the transaction. Their failure to do so may cause the
Fund to lose the opportunity to obtain the security at a price and yield it
considers advantageous.
When the Fund engages in when-issued and delayed delivery transactions,
it does so for the purpose of acquiring or selling securities consistent with
its investment objective and policies for its portfolio or for delivery
pursuant to options contracts it has entered into, and not for the purposes
of investment leverage. Although the Fund will enter into when-issued or
delayed-delivery purchase transactions to acquire securities, the Fund may
dispose of a commitment prior to settlement. If the Fund chooses to dispose
of the right to acquire a when-issued security prior to its acquisition or to
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 on
its books and reflects the value of the security purchased. In a sale
transaction, it records the proceeds to be received, in determining its net
asset value. 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 the Fund pays for the investment.
When-issued transactions and forward commitments can be used by the
Fund as a defensive technique to hedge 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, to obtain the
benefit of currently higher cash yields.
|X| Zero-Coupon Securities. The Fund may buy zero-coupon and delayed
interest municipal securities. Zero-coupon securities do not make periodic
interest payments and are sold at a deep discount from their face value. The
buyer recognizes a rate of return determined by the gradual appreciation of
the security, which is redeemed at face value on a specified maturity date.
This discount depends on the time remaining until maturity, as well as
prevailing interest rates, the liquidity of the security and the credit
quality of the issuer. In the absence of threats to the issuer's credit
quality, the discount typically decreases as the maturity date approaches.
Some zero-coupon securities are convertible, in that they are zero-coupon
securities until a predetermined date, at which time they convert to a
security with a specified coupon rate.
Because zero-coupon securities pay no interest and compound
semi-annually at the rate fixed at the time of their issuance, their value is
generally more volatile than the value of other debt securities. Their value
may fall more dramatically than the value of interest-bearing securities when
interest rates rise. When prevailing interest rates fall, zero-coupon
securities tend to rise more rapidly in value because they have a fixed rate
of return.
The Fund's investment in zero-coupon securities may cause the Fund to
recognize income and make distributions to shareholders before it receives
any cash payments on the zero-coupon investment. To generate cash to satisfy
those distribution requirements, the Fund may have to sell portfolio
securities that it otherwise might have continued to hold or to use cash
flows from other sources such as the sale of Fund shares.
|X| Puts and Standby Commitments. When the Fund buys a municipal
security subject to a standby commitment to repurchase the security, the Fund
is entitled to same-day settlement from the purchaser. The Fund receives an
exercise price equal to the amortized cost of the underlying security plus
any accrued interest 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 might purchase a standby commitment or put separately in cash
or it might acquire the security subject to the standby commitment or put (at
a price that reflects that additional feature). The Fund will enter into
these transactions only with banks and securities dealers that, 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 transferable by the Fund. They
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 might enable the Fund to sell a
security at a pre-arranged price that 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 that could jeopardize the
Fund's business relationships with the seller.
A put or standby commitment increases the cost of the security and
reduces the yield otherwise available from the security. Any consideration
paid by the Fund for the put or standby commitment 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. It may do so for liquidity purposes to meet
anticipated redemptions of Fund shares, 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 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. Approved vendors include U.S.
commercial banks, U.S. branches of foreign banks or broker-dealers that have
been designated a primary dealer in government securities, which meet the
credit requirements set by the Fund's Board of Trustees from time to time.
The majority of these transactions run from day to day. Delivery
pursuant to resale typically will occur within one to five days of the
purchase. Repurchase agreements having a maturity beyond seven days are
subject to the Fund's limits on holding illiquid investments. There is no
limit on the amount of the Fund's assets that may be subject to repurchase
agreements of seven days or less.
Repurchase agreements, considered "loans" under the Investment Company
Act, are 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.
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.
|X| Illiquid Securities. The Fund has percentage limitations that
apply to purchases of illiquid securities, as stated in the Prospectus. The
Fund's fundamental policies prohibit it from purchasing any restricted
security that would require registration with the Securities and Exchange
Commission before it could be sold publicly.
|X| 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. These loans are limited to
not more than 25% of the value of the Fund's total assets. There are 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. Income from securities loans does not constitute
exempt-interest income for the purpose of paying tax-exempt dividends.
The Fund must receive collateral for a loan. Under current applicable
regulatory requirements (which are subject to change), on each business day
the loan collateral must be at least equal to the value of the loaned
securities. It 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. The terms of the
letter of credit and the issuing bank both must be satisfactory to the Fund.
When it lends securities, the Fund receives amounts equal to the
dividends or interest on the loaned securities, It 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 the loan
collateral. Either type of interest may be shared with the borrower. The
Fund may pay reasonable finder's, administrative or other fees in connection
with these loans. 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. The Fund may use hedging to attempt to protect against
declines in the market value of its portfolio, to permit the Fund to retain
unrealized gains in the value of portfolio securities that have appreciated,
or to facilitate selling securities for investment reasons. To do so the Fund
may:
|_| sell interest rate futures or municipal bond index futures,
|_| buy puts on such futures or securities, or
|_| write covered calls on securities, interest rate futures or
municipal bond index futures. Covered calls may also be written on debt
securities to attempt to increase the Fund's income, but that income
would not be tax-exempt. Therefore it is unlikely that the Fund would
write covered calls for that purpose.
The Fund may also use hedging to establish a position in the debt
securities market as a temporary substitute for purchasing individual debt
securities. In that case the Fund will normally seek to purchase the
securities, and then terminate that hedging position. For this type of
hedging, the Fund may:
|_| buy interest rate futures or municipal bond index futures, or
|_| buy calls on such futures or on securities.
The Fund is not obligated to use hedging instruments, even though it is
permitted to use them in the Manager's discretion, as described below. 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.
The particular hedging instruments the Fund can use are described below. The
Fund may employ new hedging instruments and strategies when they are
developed, if those investment methods are consistent with the Fund's
investment objective and are permissible under applicable regulations
governing the Fund.
|_| Futures. The Fund may buy and sell futures contracts relating to
debt securities (these are called "interest rate futures") and municipal bond
indices (these are referred to as "municipal bond index futures").
An interest rate future obligates the seller to deliver (and the
purchaser to take) cash or a specific type of debt security to settle the
futures transaction. Either party could also enter into an offsetting
contract to close out the futures position.
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 only in cash. The obligation under
the contract may also be satisfied by entering into an offsetting contract.
The strategies which the Fund employs in using municipal bond index futures
are similar to those with regard to interest rate futures.
Upon entering into a futures transaction, the Fund will be required to
deposit an initial margin payment in cash or U.S. government securities 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 (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 daily.
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 may concurrently buy and sell futures contracts in a strategy
anticipating that the future the Fund purchased will perform better than the
future the Fund sold. For example, the Fund might buy municipal bond futures
and concurrently sell U.S. Treasury Bond futures (a type of interest rate
future). The Fund would benefit if municipal bonds outperform U.S. Treasury
Bonds on a duration-adjusted basis.
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 value of
the bond to decline about 3%. There are risks that this type of futures
strategy will not be successful. U.S. Treasury bonds might perform better on
a duration-adjusted basis than municipal bonds, and the assumptions about
duration that were used might be incorrect (in this case, the duration of
municipal bonds relative to U.S. Treasury Bonds might have been greater than
anticipated).
|_| Put and Call Options. The Fund may buy and sell certain kinds of
put options (puts) and call options (calls). These strategies are described
below.
|_| Writing Covered Call Options. The Fund may write (that is, sell)
call options. The Fund's call writing is subject to a number of restrictions:
(1) After the Fund writes a call, not more than 25% of the Fund's total
assets may be subject to calls.
Calls the Fund sells must be listed on a securities or commodities
exchange or quoted on NASDAQ, the automated quotation system of The
Nasdaq Stock Market, Inc. or traded in the over-the-counter market.
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.
The Fund may write calls on futures contracts that it owns, but these
calls must be covered by securities or other liquid assets that the
Fund owns and segregates to enable it to satisfy its obligations if
the call is exercised.
When the Fund writes a call on a security, it receives cash (a
premium).The Fund agrees to sell the underlying investment to a purchaser of
a corresponding call on the same security during the call period at a fixed
exercise price regardless of market price changes during the call period. The
call period is usually not more than nine months. The exercise price may
differ from the market price of the underlying security. The Fund has
retained the risk of loss that the price of the underlying security may
decline during the call period. That risk may be offset to some extent by the
premium the Fund receives. If the value of the investment does not rise above
the call price, it is likely that the call will lapse without being
exercised. In that case the Fund would keep the cash premium and the
investment.
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. In that way, 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.
When the Fund writes an over-the-counter ("OTC") option, it will enter
into an arrangement with a primary U.S. Government securities dealer which
will establish a formula price at which the Fund will have the absolute right
to repurchase that OTC option. The 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
(that is, the option is "in-the-money"). When the Fund writes an OTC option,
it will treat as illiquid (for purposes of its restriction on illiquid
securities) 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 whether OTC options should
be considered liquid securities. The procedure described above could be
affected by the outcome of that evaluation.
To terminate its obligation on a call it has written, the Fund may
purchase a corresponding call in a "closing purchase transaction." The Fund
will then realize a profit or loss, depending upon whether the net of the
amount of the option transaction costs and the premium received on the call
the Fund wrote was more or less than the price of the call the Fund purchased
to close out the transaction. 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. When
distributed by the Fund they are taxable as ordinary income.
The Fund may also write calls on futures contracts without owning the
futures contract or securities deliverable under the contract. To do so, at
the time the call is written, the Fund must cover 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. Because of this escrow requirement, in
no circumstances would the Fund's receipt of an exercise notice as to that
future put the Fund in a "short" futures position.
|_| Purchasing Calls and Puts. The Fund may buy calls only on
securities, broadly-based municipal bond indices, municipal bond index
futures and interest rate futures. It may also buy calls to close out a call
it has written, as discussed above. Calls the Fund buys must be listed on a
securities or commodities exchange, or quoted on NASDAQ, or traded in the
over-the-counter market. A call or put option must not be purchased if the
purchase would cause the value of all the Fund's put and call options to
exceed 5% of its total assets.
When the Fund purchases a call (other than in a closing purchase
transaction), it pays a premium. For calls on securities that the Fund buys,
it 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 (1) the call is sold at a profit or
(2) the call is exercised when 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. If the call is not either exercised or sold (whether or
not at a profit), it will become worthless at its expiration date. In that
case the Fund will lose its premium payment and the right to purchase the
underlying investment.
Calls on municipal bond indices, interest rate futures and municipal
bond index futures are settled in cash rather than by delivering the
underlying investment. Gain or loss depends on changes in the securities
included in the index in question (and thus on price movements in the debt
securities market generally) rather than on changes in price of the
individual futures contract.
The Fund may buy only those puts that relate to securities that the
Fund owns, broadly-based municipal bond indices, municipal bond index futures
or interest rate futures (whether or not the Fund owns the futures). The Fund
may not sell puts other than puts it has previously purchased.
When the Fund purchases a put, it pays a premium. The Fund then 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. Puts on
municipal bond indices are settled in cash. Buying a put on a debt security,
interest rate future or municipal bond index future the Fund owns enables it
to protect itself during the put period against a decline in the value of the
underlying investment below the exercise price. 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. In that case the Fund will lose its premium payment and the
right to sell the underlying investment. A put may be sold prior to
expiration (whether or not at a profit).
|_| Risks of Hedging with Options and Futures. 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 returns.
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 may 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 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. 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.
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. It will not be able to realize any profit if the
investment has increased in value above the call price.
There is a risk in using short hedging by selling interest rate futures
and municipal bond index futures or 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 (that is,
market) prices of the Fund's securities. It is possible for example, that
while 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 over a 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.
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. It might do so if the
historical volatility of the prices of the debt securities being hedged is
greater than the historical volatility of the applicable index.
The ordinary spreads between prices in the cash and futures markets are
subject to distortions due to differences in the natures of those markets.
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. 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 Fund may use hedging instruments to establish a position in the
municipal securities markets as a temporary substitute for the purchase of
individual securities (long hedging). It is possible that the market may
decline. If the Fund then concludes not to invest in such securities because
of concerns that there may be 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 purchase price of the securities.
An option position may be closed out only on a market that provides
secondary trading for options of the same series. 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 was
exercised.
|_| Interest Rate Swap Transactions. 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.
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 under one or more swap
transactions, the net amount payable on that date 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 master netting agreements, if there is a default resulting in a
loss to one party, that party's damages are calculated by reference to the
average cost of a replacement swap with respect to each swap. The gains and
losses on all swaps are then netted, and the result is the counterparty's
gain or loss on termination. The termination of all swaps and the netting of
gains and losses on termination is generally referred to as "aggregation."
|_| Regulatory Aspects of Hedging Instruments. When using futures and
options on futures, the Fund is required to operate within certain guidelines
and restrictions established by the Commodity Futures Trading Commission (the
"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. That 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. The exchanges limit the maximum number
of options that may be written or held by a single investor or group of
investors acting in concert. Those limits apply 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 that 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 transactions. An exchange may order the
liquidation of positions found to be in violation of those limits and may
impose certain other sanctions.
Under the Investment Company Act, when the Fund purchases an interest
rate future or municipal bond index future, it must maintain cash or readily
marketable short-term debt instruments in an amount equal to the market value
of the investments underlying the future, less the margin deposit applicable
to it. The account must be a segregated account or accounts held by its
custodian bank.
|X| Temporary Defensive Investments. The securities the Fund may invest
in for temporary defensive purposes include the following:
|_| short-term municipal securities;
|_| obligations issued or guaranteed by the U.S. Government or its
agencies or instrumentalities;
|_| corporate debt securities rated within the three highest grades
by a nationally recognized rating agency;
|_| commercial paper rated "A-1" by S&P, or a comparable rating by
another nationally recognized rating agency; and
|_| certificates of deposit of domestic banks with assets of $1
billion or more.
|X| Taxable Investments. While the Fund can invest up to 20% of its
total assets in investments that generate income subject to income taxes, it
does not anticipate investing substantial amounts of its assets in taxable
investments under normal market conditions or as part of its normal trading
strategies and policies. To the extent it invests in taxable securities, the
Fund would not be able to met its objective of providing tax exempt income to
its shareholders. Taxable investments include, for example, hedging
instruments, repurchase agreements, and the types of securities it would buy
for temporary defensive purposes.
Investment Restrictions
|X| What Are "Fundamental Policies?" Fundamental policies are those
policies that the Fund has adopted to govern its investments that 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:
|_| 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
|_| more than 50% of the outstanding shares.
The Fund's investment objective is a fundamental policy. Other policies
described in the Prospectus or this Statement of Additional Information are
"fundamental" only if they are identified as such. The Fund's Board of
Trustees can change non-fundamental policies without shareholder approval.
However, significant changes to investment policies will be described in
supplements or updates to the Prospectus or this Statement of Additional
Information, as appropriate. The Fund's most significant investment policies
are described in the Prospectus.
|X| Does the Fund Have Additional Fundamental Policies? The following
investment restrictions are fundamental policies of the Fund:
|_| The Fund cannot invest in securities or other investments other than
municipal securities, the temporary investments described in its Prospectus,
repurchase agreements, covered calls, private activity municipal securities
and hedging instruments described in "About the Fund" in the Prospectus or
this Statement of Additional Information.
|_| The Fund cannot lend any of its assets. However, repurchase
agreements and the purchase of debt securities in accordance with the Fund's
other investment policies and restrictions are permitted. The Fund may also
lend its portfolio securities as described in "Loans of Portfolio Securities.
|_| The Fund cannot 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, and 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, the use of
escrow or other collateral arrangements in connection with hedging
instruments is permitted.
|_| The Fund cannot invest more than 5% of the value of its total
assets in the securities of any one issuer. The Fund cannot 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.
|_| The Fund cannot concentrate its investments to the extent of 25% of
its total assets in any industry. However, there is no limitation as to the
Fund's investments in municipal securities or in obligations issued by the
U.S. Government and its agencies or instrumentalities.
|_| The Fund cannot invest in real estate. This restriction shall not
prevent the Fund from investing in Municipal Securities or other permitted
securities that are secured by real estate or interests in real estate.
|_| The Fund cannot purchase securities on margin. However, the Fund
may obtain such short-term credits that may be necessary for the clearance of
purchases and sales of securities. Furthermore, the Fund may make margin
deposits in connection with the use of hedging instruments as permitted by
any of its other fundamental policies.
|_| The Fund cannot sell securities short.
|_| The Fund cannot underwrite securities or invest in securities that
are subject to restrictions on resale.
|_| The Fund cannot invest in or hold securities of any issuer if
officers and Trustees of the Fund or the Manager individually beneficially
own more than 1/2 of 1% of the securities of that issuer and together own
more than 5% of the securities of that issuer.
|_| The Fund cannot invest in securities of any other investment
company, except in connection with a merger with another investment company.
|_| The Fund cannot issue any bonds, debentures or senior equity
securities.
The Fund currently has an operating policy (which is not a fundamental
policy but will not be changed without the approval of a shareholder vote)
that prohibits the Fund from issuing senior securities. However, that policy
does not prohibit certain activities that are permitted by the Fund's other
policies, including borrowing money for emergency purposes as permitted by
its other investment policies and applicable regulations, entering into
delayed-delivery and when-issued arrangements for portfolio securities
transactions, and entering into contracts to buy or sell derivatives, hedging
instruments, options, futures and the related margin, collateral or escrow
arrangements permitted under its other investment policies.
Unless the Prospectus or Statement of Additional Information states
that a percentage restriction applies on an ongoing basis, it applies only at
the time the Fund makes an investment. In that case 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.
Diversification. The Fund intends to be "diversified" as defined in the
Investment Company Act and to satisfy the restrictions against investing too
much of its assets in any "issuer" as set forth in the restrictions above. In
implementing this policy, 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 it
and the security is backed only by the assets and revenues of the
subdivision, agency, authority or instrumentality, the latter would be deemed
to be the sole issuer. Similarly, if an industrial development bond is backed
only by the assets and revenues of the non-governmental user, then that user
would be deemed to be the sole issuer. However, if in either case the
creating government or some other entity guarantees a security, the guarantee
would be considered a separate security and would be treated as an issue of
such government or other entity.
Applying the Restriction Against Concentration. To implement its policy not
to concentrate its investments, the Fund has adopted the industry
classifications set forth in Appendix B to this Statement of Additional
Information. Those industry classifications are not a fundamental policy.
In implementing the Fund's policy not to concentrate its investments,
the Manager will consider a non-governmental user of facilities financed by
industrial development bonds as being in a particular industry. That is done
even though the bonds are municipal securities, as to which the Fund has no
concentration limitation. Although this application of the concentration
restriction is not 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 derived from revenues of similar types of
projects. Neither of these is a fundamental policy, and therefore, either of
them may be changed without shareholder approval. Should any such change
occur, the Prospectus and/or this Statement of Additional Information will be
supplemented or revised to reflect the change.
How the Fund Is Managed
Organization and History. The Fund is an open-end, diversified management
investment company with an unlimited number of authorized shares of
beneficial interest. The Fund was originally incorporated in Maryland in 1976
but was reorganized in 1987 as a Massachusetts business trust.
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.
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.
|_| Classes of Shares. 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. Shares are freely transferable. Each share has one vote
at shareholder meetings, with fractional shares voting proportionally on
matters submitted to the vote of shareholders. Each class of shares:
|_| has its own dividends and distributions,
|_| pays certain expenses which may be different for
the different classes,
|_| may have a different net asset value,
|_| may have separate voting rights on matters in which
the interests of one class are different from the interests of
another class, and
|_| votes as a class on matters that affect that class alone.
|_| Meetings of Shareholders. 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. It will also do so
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. If the Trustees receive a request from at least 10
shareholders 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. The
shareholders making the request must have been shareholders for at least six
months and must hold shares of the Fund valued at $25,000 or more or
constituting at least 1% of the Fund's outstanding shares, whichever is
less. The Trustees may also take other action as permitted by the Investment
Company Act.
|_| Shareholder and Trustee Liability. The Fund's Declaration of Trust
contains an express disclaimer of shareholder or Trustee liability for the
Fund's obligations. It also provides for indemnification and reimbursement of
expenses out of the Fund's property for any shareholder held personally
liable for its obligations. The Declaration of Trust also states that upon
request, the Fund shall assume the defense of any claim made against a
shareholder for any act or obligation of the Fund and shall satisfy any
judgment on that claim. Massachusetts law permits a shareholder of a
business trust (such as the Fund) to be held personally liable as a "partner"
under certain circumstances. However, the risk that a Fund shareholder will
incur financial loss from being held liable as a "partner" of the Fund is
limited to the relatively remote circumstances in which the Fund would be
unable to meet its obligations.
The Fund's contractual arrangements state that any person doing
business with the Fund (and each shareholder of the Fund) agrees under its
Declaration of Trust to look solely to the assets of the Fund for
satisfaction of any claim or demand that may arise out of any dealings with
the Fund. The contracts further state that 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. Trustees denoted with an asterisk (*)
below are deemed to be "interested persons" of the Fund under the Investment
Company Act. All of the Trustees are Trustees or Directors of the following
New York-based Oppenheimer funds1:
Oppenheimer Growth Fund Oppenheimer International Growth Fund
Oppenheimer Global Fund Oppenheimer California Municipal Fund
Oppenheimer Money Market Fund, Inc. Oppenheimer New York Municipal Fund
Oppenheimer U.S. Government Trust Oppenheimer Multi-State Municipal
Oppenheimer Gold & Special Minerals Trust
Fund Oppenheimer Multi-Sector Income Trust
Oppenheimer Discovery Fund Oppenheimer World Bond Fund
Oppenheimer Enterprise Fund Oppenheimer Series Fund, Inc.
Oppenheimer Capital Appreciation Fund Oppenheimer Developing Markets Fund
Oppenheimer Multiple Strategies Fund Oppenheimer International Small
Oppenheimer Global Growth & Income Fund Company Fund
Oppenheimer Municipal Bond Fund
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 November 2, 1998, 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 of the Fund held of record by an employee benefit plan
for employees of the Manager, other than the shares beneficially owned under
the plan by the officers of the Fund listed above. Ms. Macaskill and Mr.
Donohue are trustees of that plan.
Leon Levy, Chairman of the Board of Trustees, Age 73
280 Park Avenue, New York, NY 10017
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 65
19750 Beach Road, Jupiter Island, FL 33469
A Trustee or Director of other Oppenheimer funds. Formerly he held the
following positions: Vice Chairman of the Manager, OppenheimerFunds, Inc.
(October 1995 to December 1997); Vice President (June 1990 to March 1994) and
General Counsel of Oppenheimer Acquisition Corp., the Manager's parent
holding company; Executive Vice President (December 1977 to October 1995),
General Counsel and a director (December 1975 to October 1993) of the
Manager; Executive Vice President and a director (July 1978 to October 1993)
and General Counsel of the Distributor, OppenheimerFunds Distributor, Inc.;
Executive Vice President and a director (April 1986 to October 1995) of
HarbourView Asset Management Corporation; Vice President and a director
(October 1988 to October 1993) of Centennial Asset Management Corporation,
(HarbourView and Centennial are investment adviser subsidiaries of the
Manager); and an officer of other Oppenheimer funds.
Benjamin Lipstein, Trustee, Age 75
591 Breezy Hill Road, Hillsdale, N.Y. 12529
Professor Emeritus of Marketing, Stern Graduate School of Business
Administration, New York University.
Bridget A. Macaskill, President and Trustee*, Age 50
Two World Trade Center, 34th Floor, New York, NY 10048-0203
President (since June 1991), Chief Executive Officer (since September 1995)
and a Director (since December 1994) of the Manager; President and director
(since June 1991) of HarbourView Asset Management Corp.; Chairman and a
director of Shareholder Services, Inc. (since August 1994), and Shareholder
Financial Services, Inc. (since September 1995) (both are transfer agent
subsidiaries of the Manager); President (since September 1995) and a
director (since October 1990) of Oppenheimer Acquisition Corp.; President
(since September 1995) and a director (since November 1989) of Oppenheimer
Partnership Holdings, Inc., a holding company subsidiary of the Manager; a
director (since July 1996) of Oppenheimer Real Asset Management, Inc., an
investment advisory subsidiary of the Manager; President and a director
(since October 1997) of OppenheimerFunds International Ltd., an offshore fund
management subsidiary of the Manager, and of Oppenheimer Millennium Funds
plc, an offshore investment company; President and a director or trustee of
other Oppenheimer funds; a director of Hillsdown Holdings plc (a U.K. food
company); formerly an Executive Vice President of the Manager and a director
(until 1998) of NASDAQ Stock Market, Inc.
Elizabeth B. Moynihan, Trustee, Age 69
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), and the 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 71
6 Whittaker's Mill, Williamsburg, Virginia 23185
A director of Dominion Resources, Inc. (electric utility holding company),
Dominion Energy, Inc. (electric power and oil and gas producer), Texan
Cogeneration Company (cogeneration company), and 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 68
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 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 66
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 72
Two World Trade Center, 34th Floor, New York, NY 10048-0203
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 86
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 67
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) Counselor to the
President (Bush) for Domestic Policy, Chairman of the Republican National
Committee, Secretary of the U.S. Department of Agriculture, and U.S. Trade
Representative.
Robert E. Patterson, Vice President and Portfolio Manager, Age 55
Two World Trade Center, 34th Floor, New York, NY 10048-0203
Senior Vice President of the Manager (since February 1993); an officer of
other Oppenheimer funds.
Jerry A. Webman - Vice President and Portfolio Manager, Age 49
Two World Trade Center, 34th Floor, New York, NY 10048-0203
Senior Vice President of the Manager (since February 1996); an officer of
other Oppenheimer funds; previously (until February 1996) an officer and
portfolio manager with Prudential Mutual Funds -- Investment Management Inc.
Andrew J. Donohue, Secretary, Age 48
Two World Trade Center, 34th Floor, New York, NY 10048-0203
Executive Vice President (since January 1993), General Counsel (since October
1991) and a Director (since September 1995) of the Manager; Executive Vice
President and General Counsel (since September 1993) and a director (since
January 1992) of the Distributor; Executive Vice President, General Counsel
and a director of HarbourView Asset Management Corp., Shareholder Services,
Inc., Shareholder Financial Services, Inc. and Oppenheimer Partnership
Holdings, Inc. (since September 1995); President and a director of
Centennial Asset Management Corp. (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
Oppenheimer Acquisition Corp.; Vice President of OppenheimerFunds
International Ltd. and Oppenheimer Millennium Funds plc (since October
1997); an officer of other Oppenheimer funds.
George C. Bowen, Treasurer, Age 62
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 Asset Management Corp.; Senior Vice
President (since February 1992), Treasurer (since July 1991) and a director
(since December 1991) of Centennial Asset Management Corp.; Vice President
and Treasurer (since August 1978) and Secretary (since April 1981) of
Shareholder Services, Inc.; Vice President, Treasurer and Secretary of
Shareholder Financial Services, Inc. (since November 1989); Assistant
Treasurer of Oppenheimer Acquisition Corp. (since March 1998); Treasurer of
Oppenheimer Partnership Holdings, Inc. (since November 1989); Vice President
and Treasurer of Oppenheimer Real Asset Management, Inc. (since July 1996);
Treasurer of OppenheimerFunds International Ltd. and Oppenheimer Millennium
Funds plc (since October 1997); a trustee or director and an officer of other
Oppenheimer funds; formerly Treasurer of Oppenheimer Acquisition Corp. (June
1990 - March 1998).
Robert G. Zack, Assistant Secretary, Age 50
Two World Trade Center, 34th Floor, New York, NY 10048-0203
Senior Vice President (since May 1985) and Associate General Counsel (since
May 1981) of the Manager; Assistant Secretary of Shareholder Services, Inc.
(since May 1985), and Shareholder Financial Services, Inc. (since November
1989); Assistant Secretary of OppenheimerFunds International Ltd. and
Oppenheimer Millennium Funds plc (since October 1997); an officer of other
Oppenheimer funds.
Robert J. Bishop, Assistant Treasurer, Age 40
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 33
6803 South Tucson Way, Englewood, Colorado 80112
Vice President of the Manager/Mutual Fund Accounting (since May 1996);
Assistant Treasurer of OppenheimerFunds International Ltd. and 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.
|X| Remuneration of Trustees. The officers of the Fund and certain
Trustees of the Fund (Ms. Macaskill and Mr. 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, 1998. The compensation
from all of the New York-based Oppenheimer funds (including the Fund) was
received as a director, trustee or member of a committee of the boards of
those funds during the calendar year 1997.
<PAGE>
----------------------------------------------------------------------------
Total
Retirement Compensation
Benefits from all
Trustee's Name Aggregate Accrued New York-Based
and Committee Compensation as Fund Oppenheimer Funds
Position from Fund Expenses (20 Funds)1
----------------------------------------------------------------------------
Leon Levy $28,540 $16,200 $158,500
Chairman
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Robert G. Galli $4,162 None None
Study Committee Member2
----------------------------------------------------------------------------
Benjamin Lipstein $34,715 $24,050 $137,000
Study Committee Chairman
Audit Committee Member
----------------------------------------------------------------------------
Elizabeth B. Moynihan $7,513 None $96,500
Study Committee Member
----------------------------------------------------------------------------
Kenneth A. Randall $17,825 $10,934 $88,500
Audit Committee Chairman
----------------------------------------------------------------------------
Edward V. Regan $6,815 None $87,500
Proxy Committee Chairman,
Audit Committee Member3
----------------------------------------------------------------------------
Russell S. Reynolds, Jr. $8,019 $2,919 $65,500
Proxy Committee Member3
----------------------------------------------------------------------------
Pauline Trigere $12,575 $8,022 $58,500
----------------------------------------------------------------------------
Clayton K. Yeutter $5,1004 None $65,500
Proxy Committee Member
----------------------------------------------------------------------------
(1) For the 1997 calendar year.
(2) Reflects fees from 1/1/98 to 7/31/98.
Committee position held during a portion of the period shown.
(4) Includes $609 deferred under Deferred Compensation Plan described below.
|X| Retirement Plan for Trustees. The Fund has adopted a retirement
plan that provides for payments to retired Trustees. Payments are up to 80%
of the average compensation paid during a Trustee's five years of service in
which the highest compensation was received. A Trustee must serve as trustee
for any of the New York-based Oppenheimer funds for at least 15 years to be
eligible for the maximum payment. Each Trustee's retirement benefits will
depend on the amount of the Trustee's future compensation and length of
service.
|X| Deferred Compensation Plan for Trustees. 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 or 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.
|X| Major Shareholders. As of November 1, 1998, the only person who
owned of record or who was known by the Fund to own beneficially 5% or more
of the Fund's outstanding Class A, Class B or Class C shares was:
Merrill Lynch Pierce Fenner & Smith Inc. (which advised the Fund that
such shares were held beneficially for its customers)
4800 Deer Lake Drive East, Floor 3, Jacksonville, Florida 32246
638,576.857 Class B shares (approximately 6.81% of the Class B shares
then outstanding) 275,762.273 Class C shares (approximately 17.87% of
the Class C shares then outstanding)
The Manager. The Manager is wholly-owned by Oppenheimer Acquisition Corp., a
holding company controlled by Massachusetts Mutual Life Insurance Company.
The Manager and the Fund have a Code of Ethics. It is designed to detect and
prevent improper personal trading by certain employees, including portfolio
managers, that would compete with or take advantage of the Fund's portfolio
transactions. Compliance with the Code of Ethics is carefully monitored and
strictly enforced by the Manager.
The portfolio managers of the Fund are principally responsible for the
day-to-day management of the Fund's investment portfolio. Other members of
the Manager's fixed-income portfolio department, particularly security
analysts, traders and other portfolio managers have broad experience with
fixed-income securities. They provide the Fund's portfolio managers with
research and support in managing the Fund's investments.
|X| The Investment Advisory Agreement. The Manager provides investment
advisory and management services to the Fund under an investment advisory
agreement between the Manager and the Fund. The Manager selects securities
for the Fund's portfolio and handles its day-to day business. That agreement
requires the Manager, at its expense, to provide the Fund with adequate
office space, facilities and equipment. It also requires the Manager to
provide and supervise the activities of all administrative and clerical
personnel required to provide effective corporate administration for the
Fund. Those responsibilities include the compilation and maintenance of
records with respect to the Fund's 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 are paid by the Fund. The investment advisory agreement lists
examples of expenses paid by the Fund. The major categories relate to
interest, taxes, fees to disinterested 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. The management fees paid by the Fund to the
Manager are calculated at the rates described in the Prospectus, which are
applied to the assets of the Fund as a whole. The fees are allocated to each
class of shares based upon the relative proportion of the Fund's net assets
represented by that class. The management fees paid by the Fund to the
Manager during its last three fiscal years are listed below.
------------------------------------------------------------
Fiscal Year Management Fee Paid to
Ending 7/31 OppenheimerFunds, Inc.
------------------------------------------------------------
1996 (7 months) $2,079,375
------------------------------------------------------------
1997 $3,493,873
------------------------------------------------------------
1998 $3,563,611
------------------------------------------------------------
The investment advisory agreement contains an indemnity of the Manager.
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 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 Manager may withdraw the
Fund's right to use the name "Oppenheimer" as part of its name.
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 buy and sell
portfolio securities for the Fund. The investment advisory agreement allows
the Manager to use broker-dealers to effect the Fund's portfolio
transactions. Under the agreement, the Manager may employ those
broker-dealers (including "affiliated" brokers, as that term is defined in
the Investment Company Act) that, in the Manager's best judgment based on all
relevant factors, will implement the Fund's policy to obtain, at reasonable
expense, the "best execution" of portfolio transactions. "Best execution"
refers to prompt and reliable execution at the most favorable price
obtainable. The Manager need not seek competitive commission bidding.
However, the Manager is expected to minimize the commissions paid to the
extent consistent with the interest and policies of the Fund as established
by its Board of Trustees.
Under the investment advisory agreement, the Manager may 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 charge, if the Manager makes a good faith
determination that the commission is fair and reasonable in relation to the
services provided. Subject to those other considerations, as a factor in
selecting brokers for the Fund's portfolio transactions, the Manager may also
consider sales of shares of the Fund and other investment companies managed
by the Manager or its affiliates.
Brokerage Practices Followed by the Manager. The Manager allocates brokerage
for the Fund subject to the provisions of the investment advisory agreement
and the procedures and rules described above. Generally the Manager's
portfolio traders allocate brokerage upon recommendations from the Manager's
portfolio managers. In certain instances, portfolio managers may directly
place trades and allocate brokerage. In either case, the Manager's executive
officers supervise the allocation of brokerage.
Most securities purchases made by the Fund are in principal
transactions at net prices. 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 the Manager determines that a
better price or execution may be obtained by using the services of a broker.
Therefore, the Fund does not incur substantial brokerage costs. Portfolio
securities purchased from underwriters include a commission or concession
paid by the issuer to the underwriter in the price of the security. Portfolio
securities purchased 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. In an option transaction, the Fund ordinarily uses the
same broker for the purchase or sale of the option and any transaction in the
investment to which the option relates. When possible, the Manager tries to
combine concurrent orders to purchase or sell the same security by more than
one of the accounts managed by the Manager or its affiliates. The
transactions under those combined orders are averaged as to price and
allocated in accordance with the purchase or sale orders actually placed for
each account.
The investment advisory agreement permits the Manager to allocate
brokerage for research services. 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. Investment research received by the
Manager for the commissions paid by those other accounts may be useful both
to the Fund and one or more of the Manager's other accounts. Investment
research services may be supplied to the Manager by a third party at the
instance of a broker through which trades are placed. Investment research
services include information and analyses on particular companies and
industries as well as market or economic trends and portfolio strategy,
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
if the broker represents 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 broaden the scope and
supplement the research activities of the Manager. That research provides
additional views and comparisons for consideration and helps the Manager to
obtain market information for the valuation of securities that are either
held in the Fund's portfolio or are being considered for purchase. The
Manager provides information to the Board of the Fund about the commissions
paid to brokers furnishing research 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. Those other funds may purchase or
sell the same securities as the Fund at the same time as the Fund, which
could affect the supply and price of the securities. If two or more of funds
advised by the Manager 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 the funds.
Distribution and Service Plans
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. The Distributor
is not obligated to sell a specific number of shares. Expenses normally
attributable to sales are borne by the Distributor. They exclude payments
under the Distribution and Service Plans but include advertising and the cost
of printing and mailing prospectuses (other than those furnished to existing
shareholders).
The compensation paid to (or retained by) the Distributor from the sale
of shares or on the redemption of shares is discussed in the table below:
------------------------------------------------------------------------------
Aggregate Class A Commissions Commissions Commissions
Fiscal Front-End Front-End on Class A on Class B on Class C
Year Sales Sales Shares Shares Shares
Ended Charges on Charges Advanced by Advanced by Advanced by
7/31: Class A Retained by Distributor1 Distributor1 Distributor1
Shares Distributor
------------------------------------------------------------------------------
19962 $519,750 $161,377 N/A $358,053 $23,062
------------------------------------------------------------------------------
1997 $829,188 $210,262 N/A $505,653 $49,122
------------------------------------------------------------------------------
1998 $896,039 $197,524 $135,952 $675,133 $62,750
------------------------------------------------------------------------------
1. The Distributor advances commission payments to dealers for certain
sales of Class A shares and for sales of Class B and Class C shares from
its own resources at the time of sale.
2. Fiscal period of seven months.
------------------------------------------------------------------------------
Class A Contingent Class B Contingent Class C Contingent
Fiscal Deferred Sales Deferred Sales Deferred Sales
Year Ended Charges Retained by Charges Retained by Charges Retained by
7/31: Distributor Distributor Distributor
------------------------------------------------------------------------------
1998 $0 $206,602 $4,920
------------------------------------------------------------------------------
For additional information about distribution of the Fund's shares,
including fees and expenses, please refer to "Distribution and Service
Plans."
Distribution and Service Plans. The Fund has adopted a Service Plan for its
Class A shares and Distribution and Service Plans for its Class B and Class C
shares under Rule 12b-1 of the Investment Company Act. Under those plans, the
Fund makes payments to the Distributor in connection with the distribution
and/or servicing of the shares of the particular class.
Each plan has been approved by a vote of 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. Each plan has also
been approved by a vote of the holders of a "majority" (as defined in the
Investment Company Act) of the shares of each class. The Manager cast the
vote to approve the Class C plan as the sole initial holder of Class C shares.
Under the plans the Manager and the Distributor, in their sole
discretion, from time to time may use their own resources to make payments to
brokers, dealers or other financial institutions for distribution and
administrative services they perform at no cost to the Fund. The Manager may
use profits from the advisory fee it receives from the Fund. The Distributor
and the Manager may, in their sole discretion, increase or decrease the
amount of payments they make to plan recipients from their own resources.
Unless a plan is terminated as described below, the plan continues in
effect from year to year, but only if the Fund's Board of Trustees and its
Independent Trustees specifically vote annually to approve its continuance.
Approval must be by a vote cast in person at a meeting called for the purpose
of voting on continuing the plan. A 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.
The Board and the Independent Trustees must approve all material
amendments to a plan. An amendment to increase materially the amount of
payments to be made under the plan must be approved by shareholders of the
class affected by the amendment. Because Class B shares automatically
convert into Class A shares after six years, the Fund must obtain the
approval of both Class A and Class B shareholders for an amendment to the
Class A plan that would materially increase the amount to be paid under that
plan. That approval must be by a "majority" (as defined in the Investment
Company Act) of the shares of each class, voting separately by Class.
While the plans are in effect, the Treasurer of the Fund shall provide
separate written reports on the plans to the Fund's Board of Trustees at
least quarterly for its review. The reports shall detail the amount of all
payments made under a plan, the purpose for which the payments were made and
the identity of each recipient of a payment. The report on the Class B and
Class C plans shall also include the Distributor's distribution costs for the
quarter, and any costs for previous fiscal periods that have been carried
forward. Those reports are subject to the review and approval of the
Independent Trustees in the exercise of their fiduciary duty.
Each plan states 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 provision does not prevent the involvement of
others in the selection and nomination process as long as the final decision
as to 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 in which the aggregate net asset value of all Fund shares held by the
recipient for itself and its customers does not exceed a minimum amount, if
any, that may be set 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 has set no minimum asset amount
needed to qualify for payments.
|_| Class A Service Plan Fees. Under the Class A service plan, the
Distributor currently uses the fees it receives from the Fund to pay brokers,
dealers and other financial institutions (they are referred to as
"recipients") for personal services and account maintenance services they
provide for their customers who hold Class A shares. The services 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. The Distributor makes payments to plan recipients
quarterly at an annual rate not to exceed 0.25% of the average annual net
assets of Class A shares acquired on or after April 1, 1991, held in accounts
of the service providers or their customers. The rate is 0.15% for average
annual net assets represented by Class A shares acquired before April 1, 1991.
For the fiscal year ended July 31, 1998, payments under the Plan for
Class A shares totaled $1,268,439, all of which was paid by the Distributor
to recipients. That included $104,770 paid to an affiliate of the
Distributor. Any unreimbursed expenses the Distributor incurs with respect to
Class A shares for any fiscal year may not be recovered in subsequent years.
The Distributor may not use payments received under the Class A plan to pay
any of its interest expenses, carrying charges, other financial costs, or
allocation of overhead.
|_| Class B and Class C Service and Distribution Plan Fees. Under each
plan, service fees and distribution 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 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 under the plans during that period. The Class B and Class C plans
permit the Distributor to retain both the asset-based sales charges and the
service fee on shares or to pay recipients the service fee on a quarterly
basis, without payment in advance.
The Distributor presently intends to pay recipients the service fee on
Class B and Class C shares in advance for the first year the shares are
outstanding. After the first year shares are outstanding, the Distributor
makes payments quarterly on those shares. The advance payment is based on the
net asset value of shares sold. Shares purchased by exchange do not qualify
for an advance service fee payment. If Class B or Class C shares are
redeemed during the first year after their purchase, the recipient of the
service fees on those shares will be obligated to repay the Distributor a pro
rata portion of the advance payment made on those shares.
The Distributor retains the asset-based sales charge on Class B
shares. The Distributor retains the asset-based sales charge on Class C
shares during the first year the shares are outstanding. It pays the
asset-based sales charge as an ongoing commission to the dealer on Class C
shares outstanding for a year or more. If a dealer has a special agreement
with the Distributor, the Distributor will pay the Class B and/or Class C
service fees and the asset-based sales charge to the dealer quarterly in lieu
of paying the sales commission and service fee in advance at the time of
purchase.
The asset-based sales charge on Class B and Class C shares allows
investors to buy shares without a front-end sales charge while allowing the
Distributor to compensate dealers that sell those shares. 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 plans. The Fund pays the
asset-based sales charge to the Distributor for its services rendered in
distributing Class B and Class C shares. The payments are made to the
Distributor in recognition that the Distributor:
|_| pays sales commissions to authorized brokers and dealers at the
time of sale and pays service fees as described in the Prospectus,
|_| may finance payment of sales commissions and/or the advance of
the service fee payment to recipients under the plans, or may
provide such financing from its own resources or from the resources
of an affiliate,
|_| employs personnel to support distribution of shares, and
|_| bears 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.
Payments made under the Class B plan for the fiscal year ended July 31,
1998, totaled $885,087 (including $702,663 paid to an affiliate of the
Distributor). The Distributor retained $10,399 of the total paid. Payments
made under the Class C Plan for the fiscal year ended July 31, 1998 totaled
$106,441 (including $68,271 paid to an affiliate by the Distributor). The
Distributor retained $2,611 of the total paid. At July 31, 1998, the
Distributor had incurred unreimbursed expenses under the Class B plan in the
amount of $2,314,524 (equal to 2.52% of the Fund's net assets represented by
Class B shares on that date). At July 31, 1998, the Distributor had incurred
unreimbursed expenses under the Class C plan of $168,663 (equal to 1.31% 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 Trustees may allow the Fund to
continue payments of the asset-based sales charge to the Distributor for
distributing shares before the plan was terminated.
All payments under the Class B and Class C plans 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 to NASD members.
Performance of the Fund
Explanation of Performance Terminology. The Fund uses a variety of terms to
illustrate its performance. These terms include "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." An explanation of how yields and total
returns are calculated is set forth below. The charts below show the Fund's
performance during its most recent fiscal year end. You can obtain current
performance information by calling the Fund's Transfer Agent at
1-800-525-7048 or by visiting the OppenheimerFunds Internet web site at
http://www.oppenheimerfunds.com.
The Fund's illustrations of its performance data in advertisements must
comply with rules of the Securities and Exchange Commission. Those rules
describe the types of performance data that may be used and how it is to be
calculated. In general, any advertisement by the Fund of its performance data
must include the average annual total returns for the advertised class of
shares of the Fund. Those returns must be shown 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 (or its
submission for publication). Certain types of yields may also be shown,
provided that they are accompanied by standardized average annual total
returns.
Use of standardized performance calculations 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 the
Fund's performance information as a basis for comparison with other
investments:
|_| Yields and total returns measure the performance of a hypothetical
account in the Fund over various periods and do not show the performance of
each shareholder's account. Your account's performance will vary from the
model performance data if your dividends are received in cash, or you buy or
sell shares during the period, or you bought your shares at a different time
and price than the shares used in the model.
|_| The Fund's performance returns do not reflect the effect of taxes
on distributions.
|_| An investment in the Fund is not insured by the FDIC or any other
government agency.
|_| The principal value of the Fund's shares, and its yields and total
returns are not guaranteed and normally will fluctuate on a daily basis.
|_| When an investor's shares are redeemed, they may be worth more or
less than their original cost.
|_| Yields and total returns for any given past period represent
historical performance information and are not, and should not be considered,
a prediction of future yields or returns.
The performance of each class of shares is shown separately, because
the performance of each class of shares will usually be different. That is
because of the different kinds of expenses each class bears. The yields and
total returns of each class of shares of the Fund are affected by market
conditions, the quality of the Fund's investments, the maturity of those
investments, the types of investments the Fund holds, and its operating
expenses that are allocated to the particular class.
|X| Yields. The Fund uses a variety of different yields to illustrate
its current returns. Each class of shares calculates its yield separately
because of the different expenses that affect each class.
|_| Standardized Yield. The "standardized yield" (sometimes referred
to just 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.
Standardized yield 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:
(a-b) 6
Standardized Yield = 2 ((--- + 1) - 1)
( cd)
The symbols above represent the following factors:
a = dividends and interest earned during the 30-day period.
b = expenses accrued for the period (net of any expense assumptions).
c = the average daily number of shares of that class outstanding
during the 30-day period that were entitled to receive dividends.
d = the maximum offering price per share of that class on the last day
of the period, adjusted for undistributed net investment income.
The standardized yield for a particular 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.
|_| Dividend Yield. The Fund may quote a "dividend yield" for each
class of its shares. Dividend yield is based on the dividends paid on a class
of shares 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.
|_| Tax-Equivalent Yield. The "tax-equivalent yield" of a class of
shares is the equivalent yield that would have to be earned on a taxable
investment to achieve the after-tax results represented by the Fund's
tax-equivalent yield. It adjusts the Fund's standardized yield, as calculated
above, by a stated Federal tax rate. Using different tax rates to show
different tax equivalent yields shows investors in different tax brackets the
tax equivalent yield of the Fund based on their own tax bracket.
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. The result is added 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. Your tax bracket is determined by your 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.
----------------------------------------------------------------------------
The Fund's Yields for the 30-Day Periods Ended 7/31/98
----------------------------------------------------------------------------
Tax-Equivalent Yield
Standardized Yield Dividend Yield (39.6% Fed. Tax
Bracket)
Class of
Shares
----------------------------------------------------------------------------
Without After Without After Without After
Sales Sales Sales Sales Sales Sales
Charge Charge Charge Charge Charge Charge
----------------------------------------------------------------------------
Class A 4.57% 4.35% 5.02% 4.78% 7.57% 7.20%
----------------------------------------------------------------------------
Class B 3.79% N/A 4.21% N/A 6.27% N/A
----------------------------------------------------------------------------
Class C 3.78% N/A 4.21% N/A 6.26% N/A
----------------------------------------------------------------------------
|X| Total Return Information. There are different types of "total
returns" 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 and that the investment is redeemed at the end of the
period. Because of differences in expenses for each class of shares, the
total returns for each class are separately measured. 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 actual
year-by-year performance. The Fund uses standardized calculations for its
total returns as prescribed by the SEC. The methodology is discussed below.
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 without sales
charge, as described below). For Class B shares, payment of the applicable
contingent deferred sales charge is applied, depending on the period for
which the return is shown: 5.0% in the first year, 4.0% in the second year,
3.0% in the third and fourth years, 2.0% in the fifth year, 1.0% in the sixth
year and none thereafter. For Class C shares, the 1% contingent deferred
sales charge is deducted for returns for the 1-year period.
|_| Average Annual Total Return. 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" in the formula) of that investment, according to the following formula:
1/n
(ERV)
(---) -1 = Average Annual Total Return
( P )
|_| Cumulative Total Return. The "cumulative total return" calculation
measures the change in value of a hypothetical investment of $1,000 over an
entire period of years. Its calculation uses some of the same factors as
average annual total return, but it does not average the rate of return on an
annual basis. Cumulative total return is determined as follows:
ERV - P
------- = Total Return
P
|_| Total Returns at Net Asset Value. From time to time the Fund may
also quote a cumulative or an average annual total return "at net asset
value" (without deducting sales charges) 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 Fund's Total Returns for the Periods Ended 7/31/98
------------------------------------------------------------------------------
Cumulative Average Annual Total Returns
Total Returns
(10 years or
life of class)
Class of
Shares
------------------------------------------------------------------------------
5-Year 10-Year
1-Year (or life of (or life of
class) class)
------------------------------------------------------------------------------
After Without After Without After Without After Without
Sales Sales Sales Sales Sales Sales Sales Sales
Charge Charge Charge Charge Charge Charge Charge Charge
------------------------------------------------------------------------------
Class A 103.57% 113.72% 0.53% 5.55% 4.96% 5.99% 7.37% 7.89%
------------------------------------------------------------------------------
Class B 31.60% 32.60% (0.25%) 4.75% 4.82% 5.15% 5.24%* 5.39%*
------------------------------------------------------------------------------
Class C 22.23% 22.23% 3.75% 4.75% 7.11%** 7.11%** N/A %
------------------------------------------------------------------------------
Inception of Class A: 10/27/76
*Inception of Class B: 3/16/93
**Inception of Class C: 8/29/95
Other Performance Comparisons. The Fund compares its performance annually to
that of an appropriate broadly based market index in its Annual Report to
shareholders. You can obtain that information by contacting the Transfer
Agent at the addresses or telephone numbers shown on the cover of this
Statement of Additional Information. The Fund may also compare its
performance to that of other investments, including other mutual funds, or
use rankings of its performance by independent ranking entities. Examples of
these performance comparisons are set forth below.
|_| Lipper Rankings. 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"). Lipper is 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 by Lipper against all
other bond funds, other than money market funds, and 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. Lipper also
publishes "peer-group" indices of the performance of all mutual funds in a
category that it monitors and averages of the performance of the funds in
particular categories.
|_| Morningstar Rankings. 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 in broad investment categories: domestic stock
funds, international stock funds, taxable bond funds and municipal bond
funds. The Fund is ranked among municipal bond funds.
Morningstar star rankings are based on risk-adjusted total investment
return. 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% of funds in a category), 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
date 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.
|_| Performance Rankings and Comparisons by Other Entities and
Publications. 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, The Wall Street
Journal, Barron's, or similar publications. That information 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 the performance of various market indices or
other investments, and averages, performance rankings or other benchmarks
prepared by recognized mutual fund statistical services.
Investors may also wish to compare the Fund's Class A, Class B or Class
C returns to the return on fixed-income investments available from banks and
thrift institutions. Those include 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.
Repayment of principal and payment of interest on Treasury securities is
backed by the full faith and credit of the U.S. government.
From time to time, the Fund may publish rankings or ratings of the
Manager or Transfer Agent, and 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 and
investor services by third parties may include comparisons of their services
to those provided by other mutual fund families selected by the rating or
ranking services. They may be based upon the opinions of the rating or
ranking service itself, using its research or judgment, or based upon surveys
of investors, brokers, shareholders or others.
ABOUT YOUR ACCOUNT
How to Buy Shares
Additional information is presented below about the methods that can be
used to buy shares of the Fund. Appendix C contains more information about
the special sales charge arrangements offered by the Fund, and the
circumstances in which sales charges may be reduced or waived for certain
classes of investors.
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 with 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 Appendix C to this Statement of Additional Information because the
Distributor or dealer or broker incurs little or no selling expenses.
|X| 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 for your joint accounts, or for trust or custodial
accounts on behalf of your children who are minors, and
|_| 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, and
|_| 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.
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. 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 reduced sales charge will apply only to current purchases. You
must request it when you buy shares.
|X| The Oppenheimer Funds. The Oppenheimer funds are those mutual
funds for which the Distributor acts as the distributor or the
sub-distributor and currently include the following:
Oppenheimer Municipal Bond Fund Oppenheimer Global Growth & Income
Oppenheimer New York Municipal Fund Fund
Oppenheimer California Municipal Fund Oppenheimer Gold & Special Minerals
Oppenheimer Intermediate Municipal Fund
Fund Oppenheimer Strategic Income Fund
Oppenheimer Insured Municipal Fund Oppenheimer International Bond Fund
Oppenheimer Main Street California Oppenheimer Enterprise Fund
Municipal Fund Oppenheimer International Growth Fund
Oppenheimer Florida Municipal Fund Oppenheimer Developing Markets Fund
Oppenheimer New Jersey Municipal Fund Oppenheimer Real Asset Fund
Oppenheimer Pennsylvania Municipal Oppenheimer International Small
Fund Company Fund
Oppenheimer Discovery Fund Oppenheimer Quest Balanced Value Fund
Oppenheimer Capital Appreciation Fund Oppenheimer Quest Opportunity Value
Oppenheimer Growth Fund Fund
Oppenheimer Equity Income Fund Oppenheimer Quest Small Cap
Oppenheimer Multiple Strategies Fund Value Fund
Oppenheimer Total Return Fund, Inc. Oppenheimer Quest Value Fund, Inc.
Oppenheimer Main Street Income & Oppenheimer Quest Global Value Fund,
Growth Fund Inc.
Oppenheimer High Yield Fund Oppenheimer Quest Capital Value
Oppenheimer Champion Income Fund Fund, Inc.
Oppenheimer Bond Fund Oppenheimer MidCap Fund
Oppenheimer U.S. Government Trust Oppenheimer Convertible Securities Fund
Oppenheimer Limited-Term Rochester Fund Municipals
Government Fund Limited-Term New York Municipal Fund
Oppenheimer Global Fund Oppenheimer Disciplined Value Fund
Oppenheimer Disciplined Allocation
Fund
Oppenheimer World Bond Fund
and the following money market Funds:
Oppenheimer Money Market Fund, Inc. Centennial Government Trust
Oppenheimer Cash Reserves Centennial New York Tax Exempt Trust
Centennial Money Market Trust Centennial California Tax Exempt Trust
Centennial Tax Exempt Trust Centennial America Fund, L.P.
There is an initial sales charge on the purchase of Class A shares of
each of the Oppenheimer funds except the money market funds. Under certain
circumstances described in this Statement of Additional Information,
redemption proceeds of certain money market fund shares may be subject to a
contingent deferred sales charge.
Letters 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. You can include
purchases made up to 90 days before the date of the Letter.
A Letter of Intent 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"). At the investor's request, this may 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. However, 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. That amount is described in "Terms
of Escrow," below (those terms may be amended by the Distributor 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 a Letter of Intent. If those terms are amended, as they may be from time
to time by the Fund, the investor agrees to be bounded by the amended terms
and 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 Prospectus, the sales charges paid will be adjusted to the lower rate.
That adjustment will be made only if and when the dealer returns to the
Distributor the excess of the amount of commissions allowed or paid to the
dealer over the amount of commissions that apply to the actual amount of
purchases. The excess commissions returned to the Distributor will be used
to purchase additional shares for the investor's account at the net asset
value per share in effect on the date of such purchase, promptly after the
Distributor's receipt thereof.
In determining the total amount of purchases made under a Letter,
shares redeemed by the investor prior to the termination of the Letter of
Intent period will be deducted. It is the responsibility of the dealer of
record and/or the investor to advise the Distributor about the Letter in
placing any purchase orders for the investor during the Letter of Intent
period. All of such purchases must be made through the Distributor.
|_| Terms of Escrow That Apply to Letters of Intent.
1. Out of the initial purchase (or subsequent purchases if necessary)
made pursuant to a Letter, shares of the Fund equal in value 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. That sales charge
adjustment will apply to any shares redeemed prior to the completion of the
Letter. If the 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 by exchange of either (1) Class A
shares of one of the other Oppenheimer funds that were acquired
subject to a Class A initial or contingent deferred sales charge
or (2) 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 to buy shares
directly from a bank account, you must enclose a check (minimum $25) for the
initial purchase with your application. Shares purchased by Asset Builder
Plan payments from bank accounts are subject to the redemption restrictions
for recent purchases described in the Prospectus. Asset Builder Plans also
enable shareholders of Oppenheimer Cash Reserves to use their fund account to
make 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 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.
Before initiating Asset Builder payments, obtain a prospectus of the
selected fund(s) from the Distributor or your financial advisor and request
an application from the Distributor, complete it and return it. 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. The Transfer
Agent requires a reasonable period (approximately 15 days) after receipt of
such instructions to implement them. The Fund reserves the right to amend,
suspend, or discontinue offering Asset Builder 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.
Classes of Shares. Each class of shares of the Fund represents an interest in
the same portfolio of investments of the Fund. However, each class has
different shareholder privileges and features. The net income attributable
to Class B or Class C shares and the dividends payable on Class B or Class C
shares will be reduced by incremental expenses borne solely by that class.
Those expenses include the asset-based sales charges to which Class B and
Class C are subject.
The availability of three classes of shares permits an investor to
choose the method of purchasing shares that is more appropriate for the
investor. That may depend on the amount of the purchase, the length of time
the investor expects to hold shares, and other relevant circumstances. Class
A shares in general are sold subject to an initial sales charge. While Class
B and Class C shares have no initial sales charge, the purpose of the
deferred sales charge and asset-based sales charge on Class B and Class C
shares is the same as that of the initial sales charge on Class A shares - to
compensate the Distributor and brokers, dealers and financial institutions
that sell shares of the Fund. A salesperson who is entitled to receive
compensation for selling Fund shares may receive different levels of
compensation for selling to one class of shares than another.
The Distributor will not accept any order in the amount of $500,000 or
more for Class B shares or $1 million or more for Class C shares on behalf of
a single investor (not including dealer "street name" or omnibus accounts).
That is because generally it will be more advantageous for that investor to
purchase Class A shares of the Fund.
|_| Class B Conversion. 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.
|_| Allocation of Expenses. 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.
The methodology for calculating the net asset value, dividends and
distributions of the Fund's share classes recognizes two types of expenses.
General expenses that do not pertain specifically to any one class are
allocated pro rata to the shares of all classes. The allocation is based on
the percentage of the Fund's total assets that is represented by the assets
of each class, and then equally to each outstanding share within a given
class. Such general expenses include management fees, legal, bookkeeping and
audit fees, printing and mailing costs of shareholder reports, Prospectuses,
Statements of Additional Information and other materials for current
shareholders, fees to unaffiliated Trustees, custodian expenses, share
issuance costs, organization and start-up costs, interest, taxes and
brokerage commissions, and non-recurring expenses, such as litigation costs.
Other expenses that are directly attributable to a particular class are
allocated equally to each outstanding share within that class. Examples of
such expenses include distribution and service plan (12b-1) fees, transfer
and shareholder servicing agent fees and expenses, share registration fees
and shareholder meeting expenses (to the extent that such expenses pertain
only to a specific class).
Determination of Net Asset Values Per Share. The net asset values per share
of each class of shares of the Fund are determined as of the close of
business of The New York Stock Exchange on each day that the Exchange is
open. It is done by dividing the value of the Fund's net assets attributable
to that class by the number of shares of that class that are 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, Martin Luther King, Jr. 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 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 values will not be calculated on those days, the Fund's net asset
values per share may be significantly affected on such days when shareholders
may not purchase or redeem shares.
|X| Securities Valuation. The Fund's Board of Trustees has established
procedures for the valuation of the Fund's securities. In general those
procedures are as follows:
|_| 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.
|_| The following securities 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:
(1) debt instruments that have a maturity of more than 397 days when
issued,
(2) debt instruments that had a maturity of 397 days or less when issued
and have a remaining maturity of more than 60 days, and
(3) non-money market debt instruments that had a maturity of 397 days or
less when issued and which have a remaining maturity of 60 days or
less.
|_| The following securities are valued at cost, adjusted for
amortization of premiums and accretion of discounts:
(1) 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
(2) debt instruments held by a money market fund that have a remaining
maturity of 397 days or less.
|_| 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, a 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, the Manager may use pricing services approved by the
Board of Trustees. The pricing service may use "matrix" comparisons to the
prices for comparable instruments on the basis of quality, yield, maturity.
Other special factors may be involved (such as the tax-exempt status of the
interest paid by municipal securities). The Manager will monitor the
accuracy of the pricing services. That monitoring may include comparing
prices used for portfolio valuation to actual sales prices of selected
securities.
Puts, calls, interest rate futures and municipal bond index futures are
valued at the last sale 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, they shall be valued at 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. 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
"asked" prices obtained by the Manager from two active market makers. In
certain cases that may be at 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. 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.
How to Sell Shares
The information below supplements the terms and conditions for
redeeming shares set forth in the Prospectus.
Checkwriting. When a check is presented to the Fund's 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 to receive 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 listed on the check or at
the Fund's custodian bank. That 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.
In choosing to take advantage of the Checkwriting privilege by signing
the Account Application or by completing a Checkwriting card, each individual
who signs:
(1) for individual accounts, represents that they are the registered
owner(s) of the shares of the Fund in that account;
(2) for accounts for corporations, partnerships, trusts and other entities,
represents that they are an officer, general partner, trustee or
other fiduciary or agent, as applicable, duly authorized to act on
behalf of such registered owner(s);
(3) authorizes the Fund, its Transfer Agent and any bank through which the
Fund's drafts (checks) are payable to pay all checks drawn on the
Fund account of such person(s) and to redeem a sufficient amount of
shares from that account to cover payment of each check;
(4) specifically acknowledges that if they choose to permit checks to be
honored if there is 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
the account, even if that account is registered in the names of more
than one person or more than one authorized signature appears on the
Checkwriting card or the Application, as applicable;
(5) understands that the Checkwriting privilege may be terminated or
amended at any time by the Fund and/or the Fund's bank; and
acknowledges and agrees that neither the Fund nor its bank shall incur
any liability for that amendment or termination of checkwriting
privileges or for redeeming shares to pay checks reasonably believed
by them to be genuine, or for returning or not paying checks that
have not been accepted for any reason.
Reinvestment Privilege. Within six months of a redemption, a shareholder may
reinvest all or part of the redemption proceeds of:
|_| Class A shares that you purchased subject to an initial sales
charge or Class A shares on which a contingent deferred sales charge
was paid, or
|_| Class B shares that were subject to the Class B contingent deferred
sales charge when redeemed.
The reinvestment may be made without sales charge only in Class A
shares of the Fund or any of the other Oppenheimer funds into which shares of
the Fund are exchangeable as described in "How to Exchange Shares" below.
Reinvestment will be at the net asset value next computed after the Transfer
Agent receives the reinvestment order. The shareholder must ask the Transfer
Agent for that privilege at the time of reinvestment. This privilege does not
apply to Class C shares. 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.
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.
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.
The Fund has elected to be governed by Rule 18f-1 under the Investment
Company Act. Under that rule, 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 Fund will value securities used to pay
redemptions in kind using the same method the Fund uses to value its
portfolio securities described above under "Determination of Net Asset Values
Per Share." That valuation will be made as of the time the redemption price
is determined.
Involuntary Redemptions. The Fund's Board of Trustees has the right to cause
the involuntary redemption of the shares held in any account if the aggregate
net asset value of 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. If the Board exercises this right, it may also fix the
requirements for any notice to be given to the shareholders in question (not
less than 30 days). The Board may alternatively set requirements for the
shareholder to increase the investment, or set other terms and conditions so
that the shares would not be involuntarily redeemed.
Transfers of Shares. A transfer of shares to a different registration is not
an event that triggers the payment of sales charges. Therefore, 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. It does not
matter whether the transfer occurs by absolute assignment, gift or bequest,
as long as it does not involve, directly or indirectly, a public sale of the
shares. When shares subject to a contingent deferred sales charge are
transferred, the transferred shares will remain subject to the contingent
deferred sales charge. It will be 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. Shareholders should contact
their 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. However, 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, the Exchange closes at 4:00 P.M., but may do so earlier on some
days. Additionally, the order must have been 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. The signature(s) of the registered owners on the
redemption documents must be guaranteed as described in the Prospectus.
Automatic Withdrawal and Exchange Plans. Investors owning shares of the Fund
valued at $5,000 or more can authorize the Transfer Agent to redeem shares
(having a value of at least $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. Payments must also be sent to
the address of record for the account and the address must not have 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 Account
Application or by signature-guaranteed instructions sent to the Transfer
Agent. Shares are normally redeemed pursuant to an Automatic Withdrawal Plan
three business days before the payment transmittal 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.
The Fund reserves the right to amend, suspend or discontinue offering these
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 "Waivers of Class B and Class C Sales Charges" below).
By requesting an Automatic Withdrawal or Exchange Plan, the shareholder
agrees to the terms and conditions that apply to such plans, as stated
below. These provisions may be amended from time to time by the Fund and/or
the Distributor. When adopted, any amendments will automatically apply to
existing Plans.
|X| Automatic Exchange Plans. Shareholders can authorize the Transfer
Agent 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.
Instructions should be provided on the OppenheimerFunds Application or
signature-guaranteed instructions. 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.
|X| Automatic Withdrawal Plans. Fund shares will be redeemed as
necessary to meet withdrawal payments. Shares acquired without a sales
charge will be redeemed first. 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 these plans should not be considered as a
yield or income on your investment.
The Transfer Agent will administer the investor's Automatic Withdrawal
Plan as agent for the shareholder(s) (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 not taken by the Transfer Agent in good faith to
administer the Plan. Share 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.
Shares will be redeemed to make withdrawal payments at the net asset
value per share determined on the redemption date. Checks or AccountLink
payments representing the proceeds of Plan withdrawals will normally be
transmitted three business days prior to the date selected for receipt of the
payment, according to the choice specified in writing by the Planholder.
Receipt of payment on the date selected cannot be guaranteed.
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 after 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 to redeem
all, or any part of, the shares held under the Plan. That notice must be in
proper form in accordance with the requirements of the then-current
Prospectus of the Fund. In that case, the Transfer Agent will redeem the
number of shares requested at the net asset value per share in effect and
will mail a check for the proceeds to the Planholder.
The Planholder may terminate a Plan at any time by writing to the
Transfer Agent. The Fund may also give directions to the Transfer Agent to
terminate a Plan. The Transfer Agent will also terminate a Plan upon its
receipt of evidence satisfactory to it that the Planholder has died or is
legally incapacitated. Upon termination of a Plan by the Transfer Agent or
the Fund, shares that have not been redeemed will be held in uncertificated
form in the name of the Planholder. The account will continue as a
dividend-reinvestment, uncertificated account unless and until proper
instructions are received from the Planholder, his or her executor or
guardian, or another 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. 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. You can obtain a current list
showing which funds offer which classes by calling the Distributor at
1-800-525-7048.
|_| All of the Oppenheimer funds currently 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, and
Centennial America Fund, L.P., which only offer Class A shares.
|_| Oppenheimer Main Street California Municipal Fund currently offers
only 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.
|_| Class Y shares of Oppenheimer Real Asset Fund are not exchangeable.
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. They may
also be used to purchase shares of Oppenheimer funds subject to a contingent
deferred sales charge.
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 30 days 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. 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. If requested, they must
supply proof of entitlement to this privilege.
For accounts established on or before March 8, 1996 holding Class M
shares of Oppenheimer Convertible Securities Fund, Class M shares can be
exchanged only for Class A shares of other Oppenheimer funds. Exchanges to
Class M shares of Oppenheimer Convertible Securities Fund are permitted from
Class A shares of Oppenheimer Money Market Fund, Inc. or Oppenheimer Cash
Reserves that were acquired by exchange of Class M shares. No other
exchanges may be made to Class M shares.
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.
|_| How Exchanges Affect Contingent Deferred Sales Charges. 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 18 months of the end of the calendar month of the initial
purchase of the exchanged Class A shares, the Class A contingent deferred
sales charge is imposed on the redeemed shares. 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.
Before exchanging shares, shareholders should take into account how the
exchange may affect 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.
|_| Limits on Multiple Exchange Orders. 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.
|_| Telephone Exchange Requests. When exchanging shares by telephone, a
shareholder must have an existing account in the fund to which the exchange
is to be made. Otherwise, the investors must obtain a Prospectus of that fund
before the exchange request may be submitted. 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.
|_| Processing 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 Fund may refuse the request.
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.
The different Oppenheimer funds available for exchange have different
investment objectives, policies and risks. 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 (that is, up 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.
The Fund's practice of attempting to pay dividends on Class A shares at
a constant level requires the Manager to monitor the Fund's portfolio and, if
necessary, to select higher-yielding securities when it is deemed appropriate
to seek income at the level needed to meet the target. Those securities must
be within the Fund's investment parameters, however. The Fund expects to pay
dividends at a targeted level from its net investment income and other
distributable income without any impact on the net asset values per share.
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. Reinvestment will be made as promptly as possible after
the return of such checks to the Transfer Agent, to enable the investor to
earn a return on otherwise idle funds. Unclaimed accounts may be subject to
state escheatment laws, and the Fund and the Transfer Agent will not be
liable to shareholders or their representatives for compliance with those
laws in good faith.
The amount of a distribution paid on a class of shares 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.
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 than dividends on Class A shares. That is due
to the effect of the asset-based sales charge on Class B and Class C shares.
Those dividends will also differ in amount as a consequence of any difference
in net asset value among 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
that 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 that are free from Federal
income taxes. This allocation will be made by the use of one designated
percentage applied uniformly to all income dividends paid during the Fund's
tax year. That 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 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. 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.
A shareholder receiving a dividend from income earned by the Fund from
one or more of the following sources 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:
(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.
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. That qualification
enables the Fund to "pass through" its income and realized capital gains to
shareholders without having to pay tax on them. 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
qualifies. The Fund might not meet those tests in a particular year. 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. If
it does not, the Fund must pay an excise tax on the amounts not distributed.
It is presently anticipated that the Fund will meet those requirements.
However, 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 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.
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 above. Reinvestment
will be made at net asset value without sales charge. To elect this option,
the shareholder must notify the Transfer Agent in writing and must have an
existing account in the fund selected for reinvestment. Otherwise the
shareholder must first 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 other Oppenheimer funds may be invested in shares of this
Fund on the same basis.
Additional Information About the Fund
The Transfer Agent. The Fund's Transfer Agent, OppenheimerFunds Services,
is a division of the Manager. It is responsible for maintaining the Fund's
shareholder registry and shareholder accounting records, and for paying
dividends and distributions to shareholders of the Fund. It also handles
shareholder servicing and administrative functions. It is paid on an
"at-cost" basis.
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
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 and handling the delivery of such securities to and from
the Fund. 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. Those
uninsured balances may at times be substantial.
Independent Auditors. KPMG Peat Marwick LLP are the independent auditors of the
Fund. They audit the Fund's financial statements and perform other related audit
services. They also act as auditors for certain other funds advised by the
Manager and its affiliates.
<PAGE>
A-1
Appendix A
- ------------------------------------------------------------------------------
Descriptions of Municipal Bond Ratings Categories
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Of Principal Rating Agencies
- ------------------------------------------------------------------------------
Municipal Bonds
- ------------------------------------------------------------------------------
Moody's Investor Services, Inc. The ratings of Moody's Investors Service,
Inc. ("Moody's") for municipal bonds are Aaa, Aa, A, Baa, Ba, B, Caa, Ca and
C. 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.
|_| Aaa. Municipal bonds rated "Aaa" are judged to be of the "best
quality."
|_| Aa. The rating "Aa" is assigned to bonds which are judged 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. "Aaa" and "Aa" rated bonds are generally known as "high
grade bonds."
|_| A. Municipal bonds 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.
|_| Baa. 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. These bonds
lack outstanding investment characteristics and have speculative
characteristics as well.
|_| Ba. Bonds 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.
|_| B. Bonds 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.
|_| Caa. Bonds rated "Caa" are in poor standing. Such issues may be in
default or there may be present elements of danger with respect to
principal or interest.
|_| Ca. Bonds rated "Ca" represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked
shortcomings.
|_| C. Bonds rated "C" are the lowest rated class of bonds. Issues so rated
can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Municipal bonds rated by Moody's that 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 that include payment upon
periodic demand rather than fund or scheduled maturity dates and potential
reliance upon external liquidity, as well as other factors. The highest
investment quality is designated by the VMIG 1 rating and the lowest by VMIG
4.
Standard & Poor's Corporation. Bonds rated in the top four categories
(AAA, AA, A, BBB) are commonly referred to as "investment grade." 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. Ratings of BB, B,
CCC and CC are regarded as having significant speculative characteristics.
o AAA. Obligors of municipal bonds rated AAA have "extremely strong
capacity" to meet financial commitments.
|_| AA. The rating AA is given to obligors with "very strong
capacity" to meet financial commitments.
A. The rating A is given to obligors with a "strong capacity to meet
financial commitments but is somewhat more susceptible to adverse effects
of changes in circumstances and economic conditions than obligors in
higher categories.
o BBB. The BBB rating is given to an obligor that has "adequate
capacity" to meet its financial commitments. However, adverse economic
conditions or changing circumstances are more likely to lead to a weakened
capacity of the obligor to meet its financial commitments.
BB. Obligors rated BB are less vulnerable in the near-term than other
lower-rated obligations to default than other speculative issues. However,
the obligor faces major ongoing uncertainties or exposure to adverse
business, financial, or economic conditions which would lead to inadequate
capacity to meet financial commitments.
B. Obligors rated B have a greater vulnerability than obligors rated BB, but
currently has the capacity to meet its financial commitments. Adverse
business financial or economic conditions will likely impair the obligor's
capacity or willingness to meet its financial commitments.
CCC. Obligors rated CCC are currently vulnerable, and are dependent upon
favorable business, financial, and economic conditions to meet financial
commitments.
|_| CC. Obligors rated CC are currently highly vulnerable.
|_| C. Bonds rated C typically are debt subordinated to senior debt
that 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.
|_| D. 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.
Fitch. The ratings of Fitch IBCA, Inc. for municipal bonds are AAA, AA, A,
BBB, BB, B, CCC, CC, C, DDD, DD, and D. 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.
|_| AAA. Municipal Bonds rated AAA are judged to be of the "highest credit
quality."
|_| AA. The rating of AA is assigned to bonds of "very high credit
quality."
|_| A. Municipal bonds rated A are considered to be of "high credit
quality."
|_| BBB. The rating BBB is assigned to bonds of "satisfactory credit
quality." A and BBB rated bonds are more vulnerable to adverse changes in
economic conditions than bonds with higher ratings.
|_| BB. The rating BB is assigned to bonds considered to be
"speculative."
|_| B. The rating B is assigned to bonds considered to be "highly
speculative."
|_| CCC. Bonds rated CCC have certain identifiable characteristics which,
if not remedied, may lead to default.
|_| CC. Bonds rated CC are considered minimally protected. Default in
payment of interest and/or principal seems probable over time.
|_| C. Bonds rated C are in imminent default in payment of interest or
principal.
|_| DDD and below. 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.
Duff & Phelps. The ratings of Duff & Phelps are as follows:
|_| AAA. These are judged to be the "highest credit quality". The risk
factors are negligible, being only slightly more than for risk-free U.S.
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-. These have below average protection factors but are
still considered sufficient for prudent investment. They have
considerable variability in risk during economic cycles.
|_| BB+, BB & BB-. These are below investment grade but are deemed to be
able 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-. These are below investment grade and possess 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. These are defaulted debt obligations. The issuer failed to meet
scheduled principal and/or interest payments.
Municipal Notes
Moody's. Moody's ratings for state and municipal notes and other short-term
loans are designated Moody's Investment Grade ("MIG"). Notes bearing the
designation MIG-1 are of the best quality, enjoying strong protection from
established cash flows of funds for their servicing or from established and
broad-based access to the market for financing. Notes bearing the
designation "MIG-2" are of high quality with ample margins of protection,
although not as large as notes rated "MIG-1." Such short-term notes that
have demand features may also carry a rating using the symbol VMIG as
described above, with the designation MIG-1/VMIG 1 denoting best quality,
with superior liquidity support in addition to those characteristics
attributable to the designation MIG-1.
Standard & Poor's. S&P's ratings for municipal notes due in three years or
less are SP-1, SP-2, and SP-3. SP-1 describes issues with a very strong
capacity to pay principal and interest and compares with bonds rated A by
S&P. If modified by a plus sign, it compares with bonds rated AA or AAA by
S&P. SP-2 describes issues with a satisfactory capacity to pay principal and
interest, and compares with bonds rated BBB by S&P. SP-3 describes issues
that have a speculative capacity to pay principal and interest.
Fitch. 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
defensive investments the Fund may hold are corporate (as opposed to
municipal) debt obligations. The Moody's, S&P and Fitch corporate debt
ratings do not differ materially from those set forth above for municipal
bonds.
Commercial Paper
Moody's. The ratings of commercial paper by Moody's are Prime-1, Prime-2,
Prime-3 and Not Prime. Issuers rated Prime-1 have a superior capacity for
repayment of short-term promissory obligations. Issuers rated Prime-2 have a
strong capacity for repayment of short-term promissory obligations. Issuers
rated Prime-3 have an acceptable capacity for repayment of short-term
promissory obligations. Issuers rated Not Prime do not fall within any of
the Prime rating categories.
S&P. The ratings of commercial paper by S&P are A-1, A-2, A-3, B, C, and D.
A-1 indicates that the degree of safety regarding timely payment is strong.
A-2 indicates capacity for timely payment is satisfactory. However, the
relative degree of safety is not as high as for issues designated A-1. A-3
indicates an adequate capacity for timely payments. These issues are,
however, more vulnerable to the adverse effects of changes in circumstances
than obligations carrying the higher designations. B indicates only
speculative capacity for timely payment. C indicates a doubtful capacity for
payment. D is assigned to issues in default.
Fitch. The ratings of commercial paper by Fitch are similar to its ratings
of Municipal Notes, above.
<PAGE>
Appendix B
C-12
- ------------------------------------------------------------------------------
Municipal Bond Industry Classifications
- ------------------------------------------------------------------------------
Electric
Resource Recovery
Gas
Water
Higher Education
Sewer
Education
Telephone
Lease Rental
Adult Living Facilities
Hospital
General Obligation
Highways
Special Assessment
Marine/Aviation Facilities
Sales Tax
Multi Family Housing
Manufacturing, Non Durables
Single Family Housing
Manufacturing, Durables
Pollution Control
<PAGE>
Appendix C
- ------------------------------------------------------------------------------
OppenheimerFunds Special Sales Charge Arrangements and Waivers
- ------------------------------------------------------------------------------
In certain cases, the initial sales charge that applies to purchases of
Class A shares of the Oppenheimer funds or the contingent deferred sales
charge that may apply to Class A, Class B or Class C shares may be waived.
That is because of the economies of sales efforts realized by the Distributor
or the dealers or other financial institutions offering those shares to
certain classes of investors or in certain transactions.
Not all waivers apply to all funds. For example, waivers relating to
Retirement Plans do not apply to Oppenheimer municipal funds, because shares
of those funds are not available for purchase by or on behalf of retirement
plans. Other waivers apply only to shareholders of certain funds that were
merged into or became Oppenheimer funds.
For the purposes of some of the waivers described below and in the
Prospectus and Statement of Additional Information of the applicable
Oppenheimer funds, the term "Retirement Plan" refers to the following types
of plans:
(1) plans qualified under Sections 401(a) or 401(k) of the Internal
Revenue Code,
(2) non-qualified deferred compensation plans,
(3) employee benefit plans1
(4) Group Retirement Plans2
(5) 403(b)(7) custodial plan accounts
(6) SEP-IRAs, SARSEPs or SIMPLE plans
The interpretation of these provisions as to the applicability of a
waiver in a particular case is determined solely by the Distributor or the
Transfer Agent of the fund. These waivers and special arrangements may be
amended or terminated at any time by the applicable Fund and/or the
Distributor. Waivers that apply at the time shares are redeemed must be
requested by the shareholder and/or dealer in the redemption request.
- --------------
1. An "employee benefit plan" means any plan or arrangement, whether or
not it is "qualified" under the Internal Revenue Code, under which Class A
shares of an Oppenheimer fund or funds are purchased by a fiduciary or
other administrator for the account of participants who are employees of a
single employer or of affiliated employers. These may include, for
example, medical savings accounts, payroll deduction plans or similar
plans. The fund accounts must be registered in the name of the fiduciary
or administrator purchasing the shares for the benefit of participants in
the plan.
2. The term "Group Retirement Plan" means any qualified or non-qualified
retirement plan for employees of a corporation or sole proprietorship,
members and employees of a partnership or association or other organized
group of persons (the members of which may include other groups), if the
group has made special arrangements with the Distributor and all members
of the group participating in (or who are eligible to participate in) the
plan purchase Class A shares of an Oppenheimer fund or funds through a
single investment dealer, broker or other financial institution designated
by the group. Such plans include 457 plans, SEP-IRAs, SARSEPs, SIMPLE
plans and 403(b) plans other than plans for public school employees. The
term "Group Retirement Plan" also includes qualified retirement plans and
non-qualified deferred compensation plans and IRAs that purchase Class A
shares of an Oppenheimer fund or funds through a single investment dealer,
broker or other financial institution that has made special arrangements
with the Distributor enabling those plans to purchase Class A shares at
net asset value but subject to the Class A contingent deferred sales
charge.
<PAGE>
- ------------------------------------------------------------------------------
Applicability of Class A Contingent Deferred Sales Charges in Certain Cases
- ------------------------------------------------------------------------------
Purchases of Class A Shares of Oppenheimer Funds That Are Not Subject to
Initial Sales Charge but May Be Subject to the Class A Contingent Deferred
Sales Charge (unless a waiver applies).
There is no initial sales charge on purchases of Class A shares of any
of the Oppenheimer funds in the cases listed below. However, these purchases
may be subject to the Class A contingent deferred sales charge if redeemed
within 18 months of the end of the calendar month of their purchase, as
described in the Prospectus (unless a waiver described elsewhere in this
Appendix applies to the redemption). Additionally, on these purchases the
Distributor will pay the applicable commission described in the Prospectus
under "Class A Contingent Deferred Sales Charge":
|_| Purchases of Class A shares aggregating $1 million or more.
Purchases by a Retirement Plan that:
(1) buys shares costing $500,000 or more, or
(2) has, at the time of purchase, 100 or more eligible participants or
total plan assets of $500,000 or more, or
(3) certifies to the Distributor that it projects to have annual plan
purchases of $200,000 or more.
Purchases by an OppenheimerFunds-sponsored Rollover IRA, if the
purchases are made:
(1) through a broker, dealer, bank or registered investment adviser that
has made special arrangements with the Distributor for those
purchases, or
(2) by a direct rollover of a distribution from a qualified Retirement Plan
if the administrator of that Plan has made special arrangements
with the Distributor for those purchases.
Purchases of Class A shares by Retirement Plans that have any of the
following record-keeping arrangements:
(1) The record keeping is performed by Merrill Lynch Pierce Fenner & Smith,
Inc. ("Merrill Lynch") on a daily valuation basis for the
Retirement Plan. On the date the plan sponsor signs the
record-keeping service agreement with Merrill Lynch, the Plan
must have $3 million or more of its assets invested in (a) mutual
funds, other than those advised or managed by Merrill Lynch Asset
Management, L.P. ("MLAM"), that are made available under a
Service Agreement between Merrill Lynch and the mutual fund's
principal underwriter or distributor, and (b) funds advised or
managed by MLAM (the funds described in (a) and (b) are referred
to as "Applicable Investments").
(2) The record keeping for the Retirement Plan is performed on a daily
valuation basis by a record keeper whose services are provided
under a contract or arrangement between the Retirement Plan and
Merrill Lynch. On the date the plan sponsor signs the record
keeping service agreement with Merrill Lynch, the Plan must have
$3 million or more of its assets (excluding assets invested in
money market funds) invested in Applicable Investments.
(3) The record keeping for a Retirement Plan is handled under a service
agreement with Merrill Lynch and on the date the plan sponsor
signs that agreement, the Plan has 500 or more eligible employees
(as determined by the Merrill Lynch plan conversion manager).
- ------------------------------------------------------------------------------
Waivers of Class A Sales Charges of Oppenheimer Funds
- ------------------------------------------------------------------------------
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 (and no commissions are paid by the Distributor on such
purchases):
|_| The Manager or its affiliates.
|_| Present or former officers, directors, trustees and employees (and
their "immediate families") of the Fund, the Manager and its affiliates, and
retirement plans established by them for their employees. 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.
|_| Registered management investment companies, or separate accounts
of insurance companies having an agreement with the Manager or the
Distributor for that purpose.
|_| Dealers or brokers that have a sales agreement with the
Distributor, if they purchase shares for their own accounts or for retirement
plans for their employees.
|_| Employees and registered representatives (and their spouses) of
dealers or brokers described above or financial institutions that have
entered into sales arrangements with such dealers or brokers (and which are
identified as such to the Distributor) or with the Distributor. The purchaser
must certify to the Distributor at the time of purchase that the purchase is
for the purchaser's own account (or for the benefit of such employee's spouse
or minor children).
|_| Dealers, brokers, banks or registered investment 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.
|_| 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.
|_| "Rabbi trusts" that buy shares for their own accounts, if the
purchases are made through a broker or agent or other financial intermediary
that has made special arrangements with the Distributor for those purchases.
|_| Clients of 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.
|_| Directors, trustees, officers or full-time employees of OpCap
Advisors or its affiliates, their relatives or any trust, pension, profit
sharing or other benefit plan which beneficially owns shares for those
persons.
|_| Accounts for which Oppenheimer Capital (or its successor) 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.
|_| A unit investment trust that has entered into an appropriate
agreement with the Distributor.
|_| Dealers, brokers, banks, or registered investment advisers
that have entered into an agreement with the Distributor to sell shares to
defined contribution employee retirement plans for which the dealer, broker
or investment adviser provides administration services.
|_| Retirement plans and deferred compensation plans and trusts
used to fund those plans (including, for example, plans qualified or created
under sections 401(a), 401(k), 403(b) or 457 of the Internal Revenue Code),
in each case if those purchases are made through a broker, agent or other
financial intermediary that has made special arrangements with the
Distributor for those purchases.
|_| A TRAC-2000 401(k) plan (sponsored by the former Quest for
Value Advisors) whose Class B or Class C shares of a Former Quest for Value
Fund were exchanged for Class A shares of that Fund due to the termination of
the Class B and Class C TRAC-2000 program on November 24, 1995.
|_| A qualified Retirement Plan that had agreed with the former
Quest for Value Advisors to purchase shares of any of the Former Quest for
Value Funds at net asset value, with such shares to be held through
DCXchange, a sub-transfer agency mutual fund clearinghouse, if that
arrangement was consummated and share purchases commenced by December 31,
1996.
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 sales charges (and no commissions are paid by the Distributor on
such purchases):
|_| Shares issued in plans of reorganization, such as mergers, asset
acquisitions and exchange offers, to which the Fund is a party.
|_| Shares purchased by the reinvestment of dividends or other
distributions reinvested from the Fund or other Oppenheimer funds (other than
Oppenheimer Cash Reserves) or unit investment trusts for which reinvestment
arrangements have been made with the Distributor.
|_| Shares purchased and paid for with the proceeds of shares redeemed
in the prior 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 shares of the Fund, and the Distributor
may require evidence of qualification for this waiver.
|_| Shares purchased with the proceeds of maturing principal units of
any Qualified Unit Investment Liquid Trust Series.
|_| Shares purchased by the reinvestment of loan repayments by
a participant in a Retirement Plan for which the Manager or an affiliate acts
as sponsor.
Waivers of the Class A Contingent Deferred Sales Charge for Certain
Redemptions.
The Class A contingent deferred sales charge is also waived if shares that
would otherwise be subject to the contingent deferred sales charge are
redeemed in the following cases:
|_| To make Automatic Withdrawal Plan payments that are limited
annually to no more than 12% of the original account value.
|_| Involuntary redemptions of shares by operation of law or
involuntary redemptions of small accounts (see "Shareholder Account Rules and
Policies," in the Prospectus).
|_| For distributions from Retirement Plans, deferred compensation
plans or other employee benefit plans for any of the following purposes:
(1) Following the death or disability (as defined in the Internal Revenue
Code) of the participant or beneficiary. The death or disability
must occur after the participant's account was established.
(2) To return excess contributions.
(3) To return contributions made due to a mistake of fact.
(4) Hardship withdrawals, as defined in the plan.
(5) Under a Qualified Domestic Relations Order, as defined in the Internal
Revenue Code.
(6) To meet the minimum distribution requirements of the Internal Revenue
Code.
(7) To establish "substantially equal periodic payments" as described in
Section 72(t) of the Internal Revenue Code.
(8) For retirement distributions or loans to participants or beneficiaries.
(9) Separation from service.
(10)Participant-directed redemptions to purchase shares of a mutual
fund other than a fund managed by the Manager or a subsidiary.
The fund must be one that is offered as an investment option
in a Retirement Plan in which Oppenheimer funds are also
offered as investment options under a special arrangement with the
Distributor.
(11) Plan termination or "in-service distributions," if the
redemption proceeds are rolled over directly to an
OppenheimerFunds-sponsored IRA.
|_| For distributions from Retirement Plans having 500 or more
eligible participants, except distributions due to termination of all of the
Oppenheimer funds as an investment option under the Plan.
|_| For distributions from 401(k) plans sponsored by
broker-dealers that have entered into a special agreement with the
Distributor allowing this waiver.
- ------------------------------------------------------------------------------
Waivers of Class B and Class C Sales Charges of Oppenheimer Funds
- ------------------------------------------------------------------------------
The Class B and Class C contingent deferred sales charges will not be
applied to shares purchased in certain types of transactions or redeemed in
certain circumstances described below.
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:
|_| Shares redeemed involuntarily, as described in "Shareholder
Account Rules and Policies,"
in the applicable Prospectus.
|_| Distributions to participants or beneficiaries from Retirement
Plans, if the distributions are made:
(a) under an Automatic Withdrawal Plan after the participant reaches age
59-1/2, as long as the payments are no more than 10% of the account
value annually (measured from the date the Transfer Agent receives
the request), or
(b) following the death or disability (as defined in the Internal Revenue
Code) of the participant or beneficiary (the death or disability
must have occurred after the account was established).
|_| Redemptions from accounts other than Retirement Plans 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.
|_| Returns of excess contributions to Retirement Plans.
|_| Distributions from Retirement Plans to make "substantially equal
periodic payments" as permitted in Section 72(t) of the Internal Revenue Code
that do not exceed 10% of the account value annually, measured from the date
the Transfer Agent receives the request.
|_| Distributions from OppenheimerFunds prototype 401(k) plans and from
certain Massachusetts Mutual Life Insurance Company prototype 401(k) plans:
(1) for hardship withdrawals;
(2) under a Qualified Domestic Relations Order, as defined in the Internal
Revenue Code;
(3) to meet minimum distribution requirements as defined in the Internal
Revenue Code;
(4) to make "substantially equal periodic payments" as described in Section
72(t) of the Internal Revenue Code;
(5) for separation from service; or
(6) for loans to participants or beneficiaries.
|_| Distributions from 401(k) plans sponsored by broker-dealers that
have entered into a special agreement with the Distributor allowing this
waiver.
|_| Redemptions of Class B shares held by Retirement Plans whose
records are maintained on a daily valuation basis by Merrill Lynch or an
independent record keeper under a contract with Merrill Lynch.
|_| Redemptions of Class C shares of Oppenheimer U.S. Government Trust
from accounts of clients of financial institutions that have entered into a
special arrangement with the Distributor for this purpose.
Waivers for Shares Sold or Issued in Certain Transactions.
The contingent deferred sales charge is also waived on Class B and
Class C shares sold or issued in the following cases:
|_| Shares sold to the Manager or its affiliates.
|_| Shares sold to registered management investment companies or
separate accounts of insurance companies having an agreement with the Manager
or the Distributor for that purpose.
|_| Shares issued in plans of reorganization to which the Fund is a
party.
- ------------------------------------------------------------------------------
Special Sales Charge Arrangements for Shareholders of Certain Oppenheimer
Funds 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 described in the Prospectus or Statement
of Additional Information of the Oppenheimer funds are modified as described
below for certain persons who were shareholders of the former Quest for Value
Funds. To be eligible, those persons must have been shareholders on November
24, 1995, when OppenheimerFunds, Inc. became the investment advisor to those
former Quest for Value Funds. Those funds include:
Oppenheimer Quest Value Fund, Inc.,
Oppenheimer Quest Balanced Value Fund,
Oppenheimer Quest Opportunity Value Fund,
Oppenheimer Quest Small Cap Value Fund and
Oppenheimer Quest Global Value Fund, Inc.
These arrangements also apply to shareholders of the following funds
when they merged into various Oppenheimer funds on November 24, 1995:
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
All of the funds listed above are referred to in this Appendix as the
"Former Quest for Value Funds." The waivers of initial and contingent
deferred sales charges described in this Appendix apply to shares of an
Oppenheimer fund that are either:
|_| acquired by such shareholder pursuant to an exchange of shares
of an Oppenheimer fund that was one of the Former Quest for Value Funds or
|_| purchased by such shareholder by exchange of shares of another
Oppenheimer fund that were acquired pursuant to the merger of any of the
Former Quest for Value Funds into that other Oppenheimer fund on November 24,
1995.
Reductions or Waivers of Class A Sales Charges.
|X| Reduced Class A Initial Sales Charge Rates for Certain Former Quest
for Value Funds Shareholders
Purchases by Groups and Associations. The following table sets forth the
initial sales charge rates for Class A shares purchased by members of
"Associations" formed for any purpose other than the purchase of securities.
The rates in the table apply 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.
- ------------------------------------------------------------------------------
------------------------------------------------------------------------------
Number of Eligible Initial Sales Initial Sales
Employees or Members Charge as a % of Charge as a % of Commission as %
Offering Price Net Amount of Offering Price
Invested
------------------------------------------------------------------------------
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 in the applicable fund's Prospectus.
Purchases made under this arrangement qualify for the lower of either
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 Right of
Accumulation described in the applicable fund's Prospectus and Statement of
Additional Information. 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 Distributor.
|X| Waiver of Class A Sales Charges for Certain Shareholders. Class A
shares purchased by the following investors are not subject to any Class A
initial or contingent deferred sales charges:
|_| Shareholders 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.
|_| Shareholders who acquired shares of any Former Quest for Value Fund
by merger of any of the portfolios of the Unified Funds.
|X| 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 purchased by the following investors who were
shareholders of any Former Quest for Value Fund:
Investors who purchased Class A shares from a dealer that is or was not
permitted to receive a sales load or redemption fee imposed on a shareholder
with whom that dealer has a fiduciary relationship, under the Employee
Retirement Income Security Act of 1974 and regulations adopted under that law.
Class A, Class B and Class C Contingent Deferred Sales Charge Waivers
|X| 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 an
Oppenheimer fund. The shares must have been 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.
Those shares must have been purchased prior to March 6, 1995 in connection
with:
|_| 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
|_| 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.
|X| 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 an Oppenheimer fund. The shares must have been 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
Former Quest for Value Fund merged. Those shares must have been purchased on
or after March 6, 1995, but prior to November 24, 1995:
|_| 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);
|_| 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
|_| 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 Oppenheimer fund described in this section if the
proceeds are invested in the same Class of shares in that fund or another
Oppenheimer fund within 90 days after redemption.
- ------------------------------------------------------------------------------
Special Sales Charge Arrangements for Shareholders of Certain Oppenheimer
Funds Who Were Shareholders of Connecticut Mutual Investment Accounts, Inc.
- ------------------------------------------------------------------------------
The initial and contingent deferred sale charge rates and waivers for
Class A and Class B shares described in the Prospectus or this Appendix for
Oppenheimer U. S. Government Trust, Oppenheimer Bond Fund, Oppenheimer
Disciplined Value Fund and Oppenheimer Disciplined Allocation Fund (each is
included in the reference to "Fund" below) are modified as described below
for those shareholders who were shareholders of Connecticut Mutual Liquid
Account, Connecticut Mutual Government Securities Account, Connecticut Mutual
Income Account, Connecticut Mutual Growth Account, Connecticut Mutual Total
Return Account, CMIA LifeSpan Capital Appreciation Account, CMIA LifeSpan
Balanced Account and CMIA Diversified Income Account (the "Former Connecticut
Mutual Funds") on March 1, 1996, when OppenheimerFunds, Inc. became the
investment adviser to the Former Connecticut Mutual Funds.
Prior Class A CDSC and Class A Sales Charge Waivers
|_| Class A Contingent Deferred Sales Charge. Certain shareholders of
a Fund and the other Former Connecticut Mutual Funds are entitled to continue
to make additional purchases of Class A shares at net asset value without a
Class A initial sales charge, but subject to the Class A contingent deferred
sales charge that was in effect prior to March 18, 1996 (the "prior Class A
CDSC"). Under the prior Class A CDSC, if any of those shares are redeemed
within one year of purchase, they will be assessed a 1% contingent deferred
sales charge on an amount equal to the current market value or the original
purchase price of the shares sold, whichever is smaller (in such redemptions,
any shares not subject to the prior Class A CDSC will be redeemed first).
Those shareholders who are eligible for the prior Class A CDSC are:
(1) persons whose purchases of Class A shares of a Fund and other Former
Connecticut Mutual Funds were $500,000 prior to March 18, 1996, as a
result of direct purchases or purchases pursuant to the Fund's
policies on Combined Purchases or Rights of Accumulation, who still
hold those shares in that Fund or other Former Connecticut Mutual
Funds, and
(2) persons whose intended purchases under a Statement of Intention entered
into prior to March 18, 1996, with the former general distributor of
the Former Connecticut Mutual Funds to purchase shares valued at
$500,000 or more over a 13-month period entitled those persons to
purchase shares at net asset value without being subject to the
Class A initial sales charge.
Any of the Class A shares of a Fund and the other Former Connecticut
Mutual Funds that were purchased at net asset value prior to March 18, 1996,
remain subject to the prior Class A CDSC, or if any additional shares are
purchased by those shareholders at net asset value pursuant to this
arrangement they will be subject to the prior Class A CDSC.
|_| Class A Sales Charge Waivers. Additional Class A shares of a Fund
may be purchased without a sales charge, by a person who was in one (or more)
of the categories below and acquired Class A shares prior to March 18, 1996,
and still holds Class A shares:
(1) any purchaser, provided the total initial amount invested in the Fund
or any one or more of the Former Connecticut Mutual Funds totaled
$500,000 or more, including investments made pursuant to the
Combined Purchases, Statement of Intention and Rights of
Accumulation features available at the time of the initial purchase
and such investment is still held in one or more of the Former
Connecticut Mutual Funds or a Fund into which such Fund merged;
(2) any participant in a qualified plan, provided that the total initial
amount invested by the plan in the Fund or any one or more of the
Former Connecticut Mutual Funds totaled $500,000 or more;
(3) Directors of the Fund or any one or more of the Former Connecticut
Mutual Funds and members of their immediate families;
(4) employee benefit plans sponsored by Connecticut Mutual Financial
Services, L.L.C. ("CMFS"), the prior distributor of the Former
Connecticut Mutual Funds, and its affiliated companies;
(5) one or more members of a group of at least 1,000 persons (and persons
who are retirees from such group) engaged in a common business,
profession, civic or charitable endeavor or other activity, and the
spouses and minor dependent children of such persons, pursuant to a
marketing program between CMFS and such group; and
(6) an institution acting as a fiduciary on behalf of an individual or
individuals, if such institution was directly compensated by the
individual(s) for recommending the purchase of the shares of the
Fund or any one or more of the Former Connecticut Mutual Funds,
provided the institution had an agreement with CMFS.
Purchases of Class A shares made pursuant to (1) and (2) above may be
subject to the Class A CDSC of the Former Connecticut Mutual Funds described
above.
Additionally, Class A shares of a Fund may be purchased without a sales
charge by any holder of a variable annuity contract issued in New York State
by Connecticut Mutual Life Insurance Company through the Panorama Separate
Account which is beyond the applicable surrender charge period and which was
used to fund a qualified plan, if that holder exchanges the variable annuity
contract proceeds to buy Class A shares of the Fund.
Class A and Class B Contingent Deferred Sales Charge Waivers
In addition to the waivers set forth in the Prospectus and in this Appendix,
above, the contingent deferred sales charge will be waived for redemptions of
Class A and Class B shares of a Fund and exchanges of Class A or Class B
shares of a Fund into Class A or Class B shares of a Former Connecticut
Mutual Fund provided that the Class A or Class B shares of the Fund to be
redeemed or exchanged were (i) acquired prior to March 18, 1996 or (ii) were
acquired by exchange from an Oppenheimer fund that was a Former Connecticut
Mutual Fund. Additionally, the shares of such Former Connecticut Mutual Fund
must have been purchased prior to March 18, 1996:
(1) by the estate of a deceased shareholder;
(2) upon the disability of a shareholder, as defined in Section 72(m)(7) of
the Internal Revenue Code;
(3) for retirement distributions (or loans) to participants or
beneficiaries from retirement plans qualified under Sections 401(a)
or 403(b)(7)of the Code, or from IRAs, deferred compensation plans
created under Section 457 of the Code, or other employee benefit
plans;
(4) as tax-free returns of excess contributions to such retirement or
employee benefit plans;
(5) in whole or in part, in connection with shares sold to any state,
county, or city, or any instrumentality, department, authority, or
agency thereof, that is prohibited by applicable investment laws
from paying a sales charge or commission in connection with the
purchase of shares of any registered investment management company;
(6) in connection with the redemption of shares of the Fund due to a
combination with another investment company by virtue of a merger,
acquisition or similar reorganization transaction;
(7) in connection with the Fund's right to involuntarily redeem or
liquidate the Fund;
(8) in connection with automatic redemptions of Class A shares and Class B
shares in certain retirement plan accounts pursuant to an Automatic
Withdrawal Plan but limited to no more than 12% of the original
value annually; or
(9) as involuntary redemptions of shares by operation of law, or under
procedures set forth in the Fund's Articles of Incorporation, or as
adopted by the Board of Directors of the Fund.
- ------------------------------------------------------------------------------
Special Reduced Sales Charge for Former Shareholders of Advance America
Funds, Inc.
- ------------------------------------------------------------------------------
Shareholders of Oppenheimer Municipal Bond Fund, Oppenheimer U.S.
Government Trust, Oppenheimer Strategic Income Fund and Oppenheimer Equity
Income Fund who acquired (and still hold) shares of those funds as a result
of the reorganization of series of Advance America Funds, Inc. into those
Oppenheimer funds on October 18, 1991, and who held shares of Advance America
Funds, Inc. on March 30, 1990, may purchase Class A shares of those four
Oppenheimer funds at a maximum sales charge rate of 4.50%.
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
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 as of July 31, 1998, the related
statement of operations for the year then ended, the statements of changes in
net assets for each of the years in the two-year period then ended, and the
financial highlights for each of the years in the two-year period then ended,
the seven-month period ended July 31, 1996 and for each of the years in the
three-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, 1998, 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, 1998, the results of
its operations for the year then ended, the changes in its net assets for each
of the years in the two-year period then ended, and the financial highlights for
each of the years in the two-year period then ended, the seven-month period
ended July 31, 1996 and for each of the years in the three-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, 1998
- --------------------------------------------------------------------------------
Statement of Investments July 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Ratings:
Moody's/
S&P/Fitch Face Market Value
(Unaudited) Amount See Note 1
===========================================================================================
<S> <C> <C> <C>
Municipal Bonds and Notes--99.3%
- -------------------------------------------------------------------------------------------
Alabama--1.2%
Huntsville, AL HCF Authority RB, Series B,
MBIA Insured, 6.625%, 6/1/23 Aaa/AAA $ 7,235,000 $ 8,237,337
- -------------------------------------------------------------------------------------------
Arizona--0.1%
Central AZ Irrigation & Drainage District GORB,
Series A, 6%, 6/1/13 NR/NR 1,080,950 992,788
- -------------------------------------------------------------------------------------------
California--11.8%
Anaheim, CA PFAU Lease RB, Sr. Public
Improvements Project, Series A, FSA Insured,
5%, 3/1/37 Aaa/AAA/AAA 5,250,000 5,088,457
- -------------------------------------------------------------------------------------------
CA Foothill/Eastern Transportation Corridor
Agency Toll Road RB, Sr. Lien, Series A,
6.50%, 1/1/32 Baa/BBB-/BBB 10,500,000 11,510,940
- -------------------------------------------------------------------------------------------
CA HFA Home Mtg. RB, Series C, 6.65%, 8/1/14 Aa2/AA- 5,000,000 5,338,150
- -------------------------------------------------------------------------------------------
CA HFA Home Mtg. RB, Series C, 6.75%, 2/1/25 Aa2/AA- 4,885,000 5,214,102
- -------------------------------------------------------------------------------------------
CA PWBL RB, University of California Regents,
Prerefunded, Series A, AMBAC Insured,
6.40%, 12/1/16 Aaa/AAA/AAA 2,500,000 2,781,150
- -------------------------------------------------------------------------------------------
CA SCDAU Revenue Refunding COP,
Cedars-Sinai Medical Center, 5.40%, 11/1/15 A1/NR 3,000,000 3,017,580
- -------------------------------------------------------------------------------------------
Industry, CA UDA TXAL Bonds, Transportation
Distribution Project No. 3, 6.90%, 11/1/07 NR/A- 500,000 552,060
- -------------------------------------------------------------------------------------------
Los Angeles, CA Regional AIC Lease RRB,
Facilities Sublease-International Airport Project,
6.35%, 11/1/25 Baa3/BBB- 8,930,000 9,772,903
- -------------------------------------------------------------------------------------------
Perris, CA SFM RB, Escrowed to Maturity,
Series A, 8.30%, 6/1/13 Aaa/AAA 7,000,000 9,136,470
- -------------------------------------------------------------------------------------------
Pomona, CA SFM RRB, Escrowed to Maturity,
Series A, 7.60%, 5/1/23 Aaa/AAA 6,000,000 7,882,320
- -------------------------------------------------------------------------------------------
Redding, CA Electric System Revenue COP,
FGIC Insured, Inverse Floater, 7.403%, 6/1/19(1) Aaa/AAA/AAA 6,000,000 6,495,000
- -------------------------------------------------------------------------------------------
San Joaquin Hills, CA Transportation Corridor
Agency Toll Road RB, Sr. Lien, 6.75%, 1/1/32 Aaa/AAA/AAA 12,700,000 14,300,073
------------
81,089,205
- -------------------------------------------------------------------------------------------
Colorado--0.8%
CO HFAU RB, Rocky Mountain Adventist Health
System, 6.625%, 2/1/22 Baa2/BBB 5,000,000 5,368,250
</TABLE>
13 Oppenheimer Municipal Bond Fund
<PAGE>
- --------------------------------------------------------------------------------
Statement of Investments (Continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Ratings:
Moody's/
S&P/Fitch Face Market Value
(Unaudited) Amount See Note 1
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Connecticut--4.2%
Mashantucket, CT Western Pequot Tribe Special
RB, Prerefunded, Series A, 6.40%, 9/1/11(2) Aaa/AAA $ 7,435,000 $ 8,543,038
- -------------------------------------------------------------------------------------------
Mashantucket, CT Western Pequot Tribe Special
RB, Unrefunded Balance, Series A,
6.40%, 9/1/11(2) Baa3/BBB- 7,565,000 8,267,940
- -------------------------------------------------------------------------------------------
Mashantucket, CT Western Pequot Tribe Special
RRB, Sub. Lien, Series B, 5.75%, 9/1/27(2) Baa3/NR 11,900,000 12,178,579
------------
28,989,557
- -------------------------------------------------------------------------------------------
Florida--2.5%
Dade Cnty., FL IDAU RB, Miami Cerebral Palsy
Services Project, 8%, 6/1/22 NR/NR 2,845,000 3,202,901
- -------------------------------------------------------------------------------------------
Escambia Cnty., FL HFAU RB, Azalea Trace, Inc.,
6%, 1/1/15 NR/NR/BBB- 4,000,000 4,123,160
- -------------------------------------------------------------------------------------------
Escambia Cnty., FL HFAU RRB, Baptist Hospital,
Inc. & Manor, 5.125%, 10/1/19 A3/BBB+ 2,000,000 1,942,020
- -------------------------------------------------------------------------------------------
FL BOE Capital Outlay GORB, 8.40%, 6/1/07 Aa2/AA+ 750,000 950,827
- -------------------------------------------------------------------------------------------
FL HFA SFM RRB, Series A, 6.35%, 7/1/14 Aaa/AAA 790,000 840,402
- -------------------------------------------------------------------------------------------
Grand Haven, FL CDD SPAST RB, Series A,
6.30%, 5/1/02 NR/NR 1,235,000 1,266,678
- -------------------------------------------------------------------------------------------
Lee Cnty., FL Housing FAU SFM RB, Series A-2,
6.85%, 3/1/29 Aaa/NR 1,780,000 2,010,759
- -------------------------------------------------------------------------------------------
Village CDD No. 3, FL SPAST RB, MBIA Insured,
5%, 5/1/19 Aaa/AAA 2,645,000 2,586,334
------------
16,923,081
- -------------------------------------------------------------------------------------------
Georgia--2.1%
GA MEAU Power SPO Refunding Bonds,
Series Y, 6.50%, 1/1/17 A3/A 10,750,000 12,385,827
- -------------------------------------------------------------------------------------------
GA MEAU Power SPO Refunding Bonds,
Series Y, MBIA-IBC Insured, 6.50%, 1/1/17 Aaa/AAA 1,000,000 1,178,460
- -------------------------------------------------------------------------------------------
GA MEAU RRB, Project One, Series X,
MBIA Insured, 6.50%, 1/1/12 Aaa/AAA 500,000 583,345
------------
14,147,632
- -------------------------------------------------------------------------------------------
Illinois--1.5%
IL HFAU RB, Hinsdale Hospital Project,
Escrowed to Maturity, Series C, 9.50%, 11/15/19 Baa1/NR 900,000 1,047,960
- -------------------------------------------------------------------------------------------
IL Regional Transportation Authority RB,
AMBAC Insured, 7.20%, 11/1/20 Aaa/AAA/AAA 7,500,000 9,568,500
------------
10,616,460
</TABLE>
14 Oppenheimer Municipal Bond Fund
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Ratings:
Moody's/
S&P/Fitch Face Market Value
(Unaudited) Amount See Note 1
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Indiana--4.2%
Indianapolis, IN Airport Authority RB,
SPF-Federal Express Corp. Project, 7.10%, 1/15/17 Baa2/BBB $15,500,000 $ 17,432,075
- -------------------------------------------------------------------------------------------
Indianapolis, IN Airport Authority RB,
SPF-United Airlines Project, Series A,
6.50%, 11/15/31 Baa2/BB+ 10,500,000 11,376,015
------------
28,808,090
- -------------------------------------------------------------------------------------------
Kentucky--0.4%
Kenton Cnty., KY AB RB, SPF-Delta Airlines
Project, Series A, 6.125%, 2/1/22 Baa3/BBB- 2,790,000 2,859,080
- -------------------------------------------------------------------------------------------
Louisiana--1.6%
New Orleans, LA Home Mtg. Authority SPO
Refunding Bonds, Escrowed to Maturity,
6.25%, 1/15/11 Aaa/AAA 9,500,000 10,692,535
- -------------------------------------------------------------------------------------------
Maryland--0.1%
MD University System Auxiliary Facilities & Tuition
RRB, Series A, 5.90%, 2/1/03 Aa3/AA+/AA 500,000 529,870
- -------------------------------------------------------------------------------------------
Massachusetts--3.9%
MA GOB, Unrefunded Balance, Series B, MBIA
Insured, 6.50%, 8/1/11 Aaa/AAA/AAA 430,000 464,692
- -------------------------------------------------------------------------------------------
MA TUAU Metropolitan Highway System RRB,
Sr. Lien, Series A, MBIA Insured, 5%, 1/1/37 Aaa/AAA/AAA 7,000,000 6,739,810
- -------------------------------------------------------------------------------------------
MA Water Resource Authority RB, Series A,
6.50%, 7/15/19 A1/A/A+ 12,225,000 14,438,703
- -------------------------------------------------------------------------------------------
MA Water Resource Authority RRB, Series D,
MBIA Insured, 5%, 8/1/24 Aaa/AAA/AAA 5,000,000 4,861,800
------------
26,505,005
- -------------------------------------------------------------------------------------------
Michigan--7.8%
Detroit, MI GORB, Series B, 6.25%, 4/1/09 Baa2/BBB+/BBB+ 4,065,000 4,403,005
- -------------------------------------------------------------------------------------------
Detroit, MI GORB, Series B, 6.375%, 4/1/06 Baa2/BBB+/BBB+ 2,000,000 2,201,940
- -------------------------------------------------------------------------------------------
Detroit, MI GORB, Series B, 6.375%, 4/1/07 Baa2/BBB+/BBB+ 500,000 548,980
- -------------------------------------------------------------------------------------------
Detroit, MI Sewage Disposal RB, FGIC Insured,
Inverse Floater, 7.415%, 7/1/23(1) Aaa/AAA/AAA 13,200,000 14,256,000
- -------------------------------------------------------------------------------------------
Detroit, MI Water Supply System RB, Prerefunded,
FGIC Insured, Inverse Floater, 8.765%, 7/1/22(1) Aaa/AAA/AAA 3,700,000 4,412,250
- -------------------------------------------------------------------------------------------
Detroit, MI Water Supply System RB, Unrefunded
Balance, FGIC Insured, Inverse Floater,
8.765%, 7/1/22(1) Aaa/AAA 1,500,000 1,768,125
- -------------------------------------------------------------------------------------------
MI Hospital FAU RRB, FSA Insured, Inverse
Floater, 8.889%, 2/15/22(1) Aaa/AAA 5,000,000 5,768,750
- -------------------------------------------------------------------------------------------
MI Hospital FAU RRB, Genesys Regional
Medical Hospital, Series A, 5.50%, 10/1/27 Baa2/BBB/BBB 4,500,000 4,480,200
</TABLE>
15 Oppenheimer Municipal Bond Fund
<PAGE>
- --------------------------------------------------------------------------------
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 (continued)
MI Strategic Fund SWD RRB, Genesee Power
Station Project, 7.50%, 1/1/21 NR/NR $ 3,650,000 $ 3,964,593
- -------------------------------------------------------------------------------------------
Wayne Cnty., MI Special Airport Facilities RRB,
Northwest Airlines, Inc. Facilities, Series 1995,
6.75%, 12/1/15 NR/NR 10,475,000 11,621,070
------------
53,424,913
- -------------------------------------------------------------------------------------------
New Hampshire--0.2%
NH Housing FAU SFM RB, Series C,
6.90%, 7/1/19 Aa3/NR 1,000,000 1,064,410
- -------------------------------------------------------------------------------------------
New Jersey--4.3%
Bergen Cnty., NJ MUAU Water PC RB,
Prerefunded, Series A, FGIC
Insured,
6.50%, 12/15/12 Aaa/AAA/AAA 5,600,000 6,175,680
- -------------------------------------------------------------------------------------------
NJ EDAU RRB, First Mortgage-Keswick Pines,
5.75%, 1/1/24 NR/NR 1,125,000 1,130,175
- -------------------------------------------------------------------------------------------
NJ EDAU RRB, Franciscan Oaks Project,
5.75%, 10/1/23 NR/NR 2,255,000 2,283,481
- -------------------------------------------------------------------------------------------
NJ TUAU RRB, Series C, 6.50%, 1/1/16 Baa1/BBB+/A- 16,150,000 18,728,024
- -------------------------------------------------------------------------------------------
NJ TUAU RRB, Series C, MBIA Insured,
6.50%, 1/1/16 Aaa/AAA 1,100,000 1,296,691
------------
29,614,051
- -------------------------------------------------------------------------------------------
New York--5.6%
NYC GOB, Inverse Floater, 7.278%, 8/27/15(1) A3/A- 3,050,000 3,297,812
- -------------------------------------------------------------------------------------------
NYC GOB, Prerefunded, Series A, 7.75%, 8/15/16 Aaa/AAA/A- 25,000 28,032
- -------------------------------------------------------------------------------------------
NYC GOB, Prerefunded, Series D, 8%, 8/1/15 Aaa/A-/A- 10,980,000 12,374,680
- -------------------------------------------------------------------------------------------
NYC GOB, Series H, 6.125%, 8/1/25 A3/A-/A- 5,000,000 5,418,700
- -------------------------------------------------------------------------------------------
NYC GOB, Unrefunded Balance, Series A,
7.75%, 8/15/16 A3/A-/A- 127,500 142,202
- -------------------------------------------------------------------------------------------
NYC GOB, Unrefunded Balance, Series D,
8%, 8/1/15 A3/A-/AAA 20,000 22,272
- -------------------------------------------------------------------------------------------
NYC GOB, Unrefunded Balance, Series G,
7.625%, 2/1/15 A3/A-/A- 75,000 83,475
- -------------------------------------------------------------------------------------------
NYC IDA SPF RB, Terminal One Group Assn
Project, 6%, 1/1/19 A3/A/A- 6,000,000 6,339,180
- -------------------------------------------------------------------------------------------
NYS GOB, 6.875%, 3/1/12 A2/A 1,000,000 1,109,030
- -------------------------------------------------------------------------------------------
NYS HFA RRB, NYC HF, Series A, 6%, 11/1/06 Baa1/BBB+ 4,000,000 4,354,760
- -------------------------------------------------------------------------------------------
NYS HFA RRB, NYC HF, Series A, 6%, 5/1/08 Baa1/BBB+ 2,000,000 2,175,760
- -------------------------------------------------------------------------------------------
NYS HFA RRB, Unrefunded Balance,
7.90%, 11/1/99 Baa1/BBB+ 2,880,000 2,958,134
------------
38,304,037
</TABLE>
16 Oppenheimer Municipal Bond Fund
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Ratings:
Moody's/
S&P/Fitch Face Market Value
(Unaudited) Amount See Note 1
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Ohio--5.9%
Cleveland, OH Airport Systems RB, Series A,
FSA Insured, 5.125%, 1/1/22 Aaa/AAA $10,500,000 $ 10,275,300
- -------------------------------------------------------------------------------------------
Cleveland, OH PPS First Mtg. RB, Series A,
MBIA Insured, 7%, 11/15/16 Aaa/AAA 2,000,000 2,301,280
- -------------------------------------------------------------------------------------------
Montgomery Cnty., OH HCF RRB, Series B,
6.25%, 2/1/22 NR/NR 2,500,000 2,584,975
- -------------------------------------------------------------------------------------------
OH Building Authority RB, Juvenile
Correctional Projects, Series A,
AMBAC Insured, 6.60%, 10/1/14 Aaa/AAA/AAA 500,000 563,555
- -------------------------------------------------------------------------------------------
OH HFA SFM RB, Series B, Inverse Floater,
9.74%, 3/1/31(1) Aaa/AAA 4,380,000 4,900,125
- -------------------------------------------------------------------------------------------
OH Solid Waste RB, Republic Engineered Steels,
Inc. Project, 9%, 6/1/21 NR/NR 7,800,000 8,391,864
- -------------------------------------------------------------------------------------------
OH SWD RB, USG Corporate Project,
5.65%, 3/1/33 Ba1/BBB 10,000,000 10,084,100
- -------------------------------------------------------------------------------------------
Summit Cnty., OH GOB, AMBAC Insured,
6.625%, 12/1/12 Aaa/AAA/AAA 1,200,000 1,308,876
------------
40,410,075
- -------------------------------------------------------------------------------------------
Oklahoma--1.5%
Tulsa, OK Municipal Airport Trust RB,
American Airlines Project, 6.25%, 6/1/20 Baa2/BBB- 9,820,000 10,474,012
- -------------------------------------------------------------------------------------------
Pennsylvania--10.3%
PA EDFAU RR RB, Colver Project, Series D,
7.15%, 12/1/18 NR/BBB-/BBB- 3,000,000 3,353,580
- -------------------------------------------------------------------------------------------
PA HEAA Student Loan RB, Series B, AMBAC
Insured, Inverse Floater, 8.346%, 3/1/22(1) Aaa/AAA/AAA 17,500,000 19,665,625
- -------------------------------------------------------------------------------------------
PA HFA SFM RB, Series 61A, 5.50%, 4/1/29 Aa2/AA+ 9,205,000 9,319,234
- -------------------------------------------------------------------------------------------
PA TUCM RRB, Series N, 6.50%, 12/1/13 Aaa/AAA 750,000 812,715
- -------------------------------------------------------------------------------------------
Philadelphia, PA IDAU HCF RRB, Baptist Home
of Philadelphia, Series A, 5.50%, 11/15/18 NR/NR 1,670,000 1,633,911
- -------------------------------------------------------------------------------------------
Philadelphia, PA IDAU HCF RRB, Baptist Home
of Philadelphia, Series A, 5.60%, 11/15/28 NR/NR 1,275,000 1,247,588
- -------------------------------------------------------------------------------------------
Philadelphia, PA Water & Sewer RRB, Escrowed
to Maturity, Tenth Series, 7.35%, 9/1/04 Aaa/AAA/BBB+ 2,455,000 2,763,520
- -------------------------------------------------------------------------------------------
Philadelphia, PA Water & Wastewater RB, FGIC
Insured, 10%, 6/15/05 Aaa/AAA/AAA 17,600,000 23,235,344
- -------------------------------------------------------------------------------------------
Schuylkill Cnty., PA IDAU RR RRB, Schuylkill
Energy Resources, Inc., 6.50%, 1/1/10(3) NR/NR/BB 8,565,000 8,565,000
------------
70,596,517
</TABLE>
17 Oppenheimer Municipal Bond Fund
<PAGE>
- --------------------------------------------------------------------------------
Statement of Investments (Continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Ratings:
Moody's/
S&P/Fitch Face Market Value
(Unaudited) Amount See Note 1
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
South Carolina--2.0%
Piedmont, SC MPA RRB, Escrowed to Maturity,
Series A, FGIC Insured, 6.50%, 1/1/16 Aaa/AAA $ 285,000 $ 337,070
- -------------------------------------------------------------------------------------------
Piedmont, SC MPA RRB, Unrefunded Balance,
Series A, FGIC Insured, 6.50%, 1/1/16 Aaa/AAA 1,715,000 2,020,544
- -------------------------------------------------------------------------------------------
SC Public Service Authority RB, Santee Cooper,
Prerefunded, Series D, AMBAC Insured,
6.50%, 7/1/24 Aaa/AAA/AAA 10,000,000 11,040,000
------------
13,397,614
- -------------------------------------------------------------------------------------------
Texas--15.0%
AAAU TX SPF RB, American Airlines, Inc.
Project, 7%, 12/1/11 Baa2/BBB- 3,000,000 3,527,100
- -------------------------------------------------------------------------------------------
AAAU TX SPF RB, Federal Express Corp. Project,
6.375%, 4/1/21 Baa2/BBB 11,640,000 12,590,173
- -------------------------------------------------------------------------------------------
Cypress-Fairbanks, TX ISD CAP GORB, Series A,
Zero Coupon, 5.89%, 2/15/14(4) Aaa/AAA 15,710,000 7,118,201
- -------------------------------------------------------------------------------------------
Cypress-Fairbanks, TX ISD CAP GORB, Series A,
Zero Coupon, 5.85%, 2/15/15(4) Aaa/AAA 15,000,000 6,407,100
- -------------------------------------------------------------------------------------------
Cypress-Fairbanks, TX ISD CAP GORB, Series A,
Zero Coupon, 5.91%, 2/15/16(4) Aaa/AAA 16,240,000 6,577,687
- -------------------------------------------------------------------------------------------
Dallas-Fort Worth, TX International Airport
Facilities Improvement Corp. RB, American
Airlines, Inc., 7.25%, 11/1/30 Baa2/BBB- 8,000,000 8,868,880
- -------------------------------------------------------------------------------------------
Gulf Coast, TX Waste Disposal Authority RB,
5.60%, 4/1/32 Baa3/BBB- 6,000,000 5,974,260
- -------------------------------------------------------------------------------------------
Harris Cnty., TX GORB, Toll Road, Sub. Lien,
Prerefunded, 6.50%, 8/15/15 Aa3/AA 215,000 237,461
- -------------------------------------------------------------------------------------------
Harris Cnty., TX GORB, Toll Road, Sub. Lien,
Unrefunded Balance, 6.50%, 8/15/15 Aa3/AA 785,000 857,016
- -------------------------------------------------------------------------------------------
Harris Cnty., TX GORRB, Toll Road, Sub. Lien,
6.75%, 8/1/14 Aa2/AA 1,000,000 1,087,650
- -------------------------------------------------------------------------------------------
Houston, TX WSS RB, Prior Lien, Unrefunded
Balance, Series B, 6.40%, 12/1/09 A3/A 995,000 1,088,311
- -------------------------------------------------------------------------------------------
Houston, TX WSS RB, Prior Lien, Unrefunded
Balance, Series B, 6.75%, 12/1/08 A3/A 440,000 482,117
- -------------------------------------------------------------------------------------------
North Central TX HFDC RB, Prerefunded,
Series B, Inverse Floater, 7.45%, 5/15/06(1) Aa2/AA 290,000 322,680
- -------------------------------------------------------------------------------------------
North Central TX HFDC RB, Prerefunded,
Series B, Inverse Floater, 7.55%, 5/15/08(1) Aa2/AA 480,000 532,426
- -------------------------------------------------------------------------------------------
North Central TX HFDC RB, Unrefunded
Balance, Series B, Inverse Floater,
7.45%, 5/15/06(1) Aa2/AA 2,710,000 2,963,846
</TABLE>
18 Oppenheimer Municipal Bond Fund
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Ratings:
Moody's/
S&P/Fitch Face Market Value
(Unaudited) Amount See Note 1
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Texas(continued)
North Central TX HFDC RB, Unrefunded
Balance, Series B, Inverse Floater,
7.55%, 5/15/08(1) Aa2/AA $ 4,520,000 $ 4,927,885
- -------------------------------------------------------------------------------------------
Retama, TX Development Corp. SPF RRB,
Retama Racetrack, Escrowed to Maturity,
Series A, 10%, 12/15/19 Aaa/AAA 4,880,000 7,983,485
- -------------------------------------------------------------------------------------------
TX MPA CAP RRB, MBIA Insured, Zero Coupon,
5.95%, 9/1/13(4) Aaa/AAA/AAA 6,900,000 3,223,404
- -------------------------------------------------------------------------------------------
TX MPA CAP RRB, MBIA Insured, Zero Coupon,
5.93%, 9/1/14(4) Aaa/AAA/AAA 17,500,000 7,712,425
- -------------------------------------------------------------------------------------------
TX MPA CAP RRB, MBIA Insured, Zero Coupon,
5.85%, 9/1/15(4) Aaa/AAA/AAA 10,000,000 4,153,400
- -------------------------------------------------------------------------------------------
TX MPA CAP RRB, MBIA Insured, Zero Coupon,
5.98%, 9/1/16(4) Aaa/AAA/AAA 39,990,000 15,749,262
------------
102,384,769
- -------------------------------------------------------------------------------------------
Vermont--0.2%
VT HFA Home Mtg. Purchase RB, Series A,
7.85%, 12/1/29 A1/A- 1,570,000 1,631,309
- -------------------------------------------------------------------------------------------
Virginia--4.2%
Pocahontas Parkway Assn., VA Toll Road RB,
CAP, First Tier, Sub. Lien, Series C, Zero Coupon,
5.60%, 8/15/05(4) Ba1/NR 2,300,000 1,572,579
- -------------------------------------------------------------------------------------------
Pocahontas Parkway Assn., VA Toll Road RB,
CAP, First Tier, Sub. Lien, Series C, Zero Coupon,
5.75%, 8/15/07(4) Ba1/NR 2,800,000 1,695,876
- -------------------------------------------------------------------------------------------
Pocahontas Parkway Assn., VA Toll Road RB,
CAP, First Tier, Sub. Lien, Series C, Zero Coupon,
5.80%, 8/15/08(4) Ba1/NR 3,000,000 1,710,600
- -------------------------------------------------------------------------------------------
Pocahontas Parkway Assn., VA Toll Road RB,
CAP, First Tier, Sub. Lien, Series C, Zero Coupon,
5.85%, 8/15/09(4) Ba1/NR 3,100,000 1,662,468
- -------------------------------------------------------------------------------------------
Pocahontas Parkway Assn., VA Toll Road RB,
CAP, Sr. Lien, Series B, Zero Coupon,
5.86%, 8/15/20(4) Baa3/BBB-/A 25,000,000 7,160,500
- -------------------------------------------------------------------------------------------
Pocahontas Parkway Assn., VA Toll Road RB,
CAP, Sr. Lien, Series B, Zero Coupon,
5.86%, 8/15/21(4) Baa3/BBB-/A 26,300,000 7,110,731
- -------------------------------------------------------------------------------------------
Pocahontas Parkway Assn., VA Toll Road RB,
CAP, Sr. Lien, Series B, Zero Coupon,
5.86%, 8/15/22(4) Baa3/BBB-/A 29,900,000 7,631,078
------------
28,543,832
</TABLE>
19 Oppenheimer Municipal Bond Fund
<PAGE>
- --------------------------------------------------------------------------------
Statement of Investments (Continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Ratings:
Moody's/
S&P/Fitch Face Market Value
(Unaudited) Amount See Note 1
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Washington--3.0%
WA PP Supply System RRB, Nuclear Project
No. 1, 5.40%, 7/1/12 Aa1/AA-/AA- $20,000,000 $ 20,414,600
- -------------------------------------------------------------------------------------------
West Virginia--0.6%
WV Parkways ED & Tourism Authority RB,
FGIC Insured, Inverse Floater, 7.577%, 5/16/19(1) Aaa/AAA 3,600,000 4,014,000
- -------------------------------------------------------------------------------------------
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 6,588,563
- -------------------------------------------------------------------------------------------
WI Housing & EDAU Home Ownership RRB,
Series A, 7.10%, 3/1/23 Aa2/AA 705,000 751,375
------------
7,339,938
- -------------------------------------------------------------------------------------------
U.S. Possessions--3.2%
Guam Housing Corp. SFM RB, Series A,
5.75%, 9/1/31 NR/AAA 5,725,000 6,087,392
- -------------------------------------------------------------------------------------------
PR CMWLTH GOB, 5.375%, 7/1/25 Baa1/A 1,600,000 1,622,544
- -------------------------------------------------------------------------------------------
PR CMWLTH GOB, 6.50%, 7/1/14 Baa1/A 6,690,000 7,830,645
- -------------------------------------------------------------------------------------------
PR CMWLTH GOB, 6.50%, 7/1/15 Baa1/A 3,310,000 3,876,341
- -------------------------------------------------------------------------------------------
PR EPAU RB, Unrefunded Balance, Series O,
7.125%, 7/1/14 Baa1/BBB+ 2,350,000 2,450,862
------------
21,867,784
- -------------------------------------------------------------------------------------------
Total Investments, at Value (Cost $624,846,770) 99.3% 679,240,751
- -------------------------------------------------------------------------------------------
Other Assets Net of Liabilities 0.7 4,862,947
---------- ------------
Net Assets 100.0% $684,103,698
========== ============
</TABLE>
20 Oppenheimer Municipal Bond Fund
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
To simplify the listings of securities, abbreviations are used per the table
below:
AAAU --Alliance Airport Authority, Inc.
AB --Airport Board
AIC --Airport Improvement Corp.
BOE --Board of Education
CAP --Capital Appreciation
CDD --Community Development District
CMWLTH --Commonwealth
COP --Certificates of Participation
ED --Economic Development
EDAU --Economic Development Authority
EDFAU --Economic Development Finance Authority
EPAU --Electric Power Authority
FAU --Finance Authority
GOB --General Obligation Bonds
GORB --General Obligation Refunding Bonds
GORRB --General Obligation Revenue Refunding Bonds
HCF --Health Care Facilities
HEAA --Higher Education Assistance Agency
HF --Health Facilities
HFA --Housing Finance Agency
HFAU --Health Facilities Authority
HFDC --Health Facilities Development Corp.
IDA --Industrial Development Agency
IDAU --Industrial Development Authority
ISD --Independent School District
MEAU --Municipal Electric Authority
MPA --Municipal Power Agency
MUAU --Municipal Utilities Authority
NYC --New York City
NYS --New York State
PC --Pollution Control
PFAU --Public Finance Authority
PP --Public Power
PPS --Public Power System
PWBL --Public Works Board Lease
RB --Revenue Bonds
RR --Resource Recovery
RRB --Revenue Refunding Bonds
SCDAU --Statewide Communities Development
Authority
SFM --Single Family Mortgage
SPAST --Special Assessment
SPF --Special Facilities
SPO --Special Obligations
SWD --Solid Waste Disposal
TUAU --Turnpike Authority
TUCM --Turnpike Commission
TXAL --Tax Allocation
UDA --Urban Development Agency
WSS --Water & Sewer System
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 $73,324,524 or 10.72% of the
Fund's net assets as of July 31, 1998.
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 $28,989,557 or 4.24% of the Fund's net
assets as of July 31, 1998.
3. Identifies issues considered to be illiquid or restricted--See Note 6 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, 1998, securities subject to the alternative minimum tax amount to
$177,968,778 or 26.01% of the Fund's net assets.
See accompanying Notes to Financial Statements.
21 Oppenheimer Municipal Bond Fund
<PAGE>
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities July 31, 1998
- --------------------------------------------------------------------------------
===============================================================================
Assets
Investments, at value (cost $624,846,770)--see
accompanying statement $679,240,751
- -------------------------------------------------------------------------------
Cash 491,431
- -------------------------------------------------------------------------------
Receivables:
Interest 7,064,422
Shares of beneficial interest sold 350,148
Daily variation on futures contracts--Note 5 7,500
- -------------------------------------------------------------------------------
Other 13,191
------------
Total assets 687,167,443
===============================================================================
Liabilities
Payables and other liabilities:
Dividends 1,836,508
Shares of beneficial interest redeemed 652,277
Trustees' fees--Note 1 255,136
Distribution and service plan fees 128,258
Transfer and shareholder servicing agent fees 58,415
Other 133,151
------------
Total liabilities 3,063,745
===============================================================================
Net Assets $684,103,698
============
===============================================================================
Composition of Net Assets
Paid-in capital $633,219,485
- -------------------------------------------------------------------------------
Overdistributed net investment income (1,455,404)
- -------------------------------------------------------------------------------
Accumulated net realized loss on investment transactions (2,054,364)
- -------------------------------------------------------------------------------
Net unrealized appreciation on investments--Note 3 54,393,981
------------
Net assets $684,103,698
============
22 Oppenheimer Municipal Bond Fund
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
================================================================================
Net Asset Value Per Share
Class A Shares:
Net asset value and redemption price per share (based on net assets of
$579,569,538 and 56,420,652 shares of beneficial interest outstanding) $10.27
Maximum offering price per share (net asset value plus sales charge of
4.75% of offering price) $10.78
- --------------------------------------------------------------------------------
Class B Shares:
Net asset value, redemption price (excludes applicable contingent
deferred sales charge) and offering price per share (based on net
assets of $91,677,207 and 8,943,173 shares of beneficial
interest outstanding) $10.25
- --------------------------------------------------------------------------------
Class C Shares:
Net asset value, redemption price (excludes applicable contingent deferred
sales charge) and offering price per share (based on net assets of
$12,856,953 and 1,254,438 shares of beneficial interest outstanding) $10.25
See accompanying Notes to Financial Statements.
23 Oppenheimer Municipal Bond Fund
<PAGE>
- --------------------------------------------------------------------------------
Statement of OperationsFor the Year Ended July 31, 1998
- --------------------------------------------------------------------------------
===============================================================================
Investment Income
Interest $39,919,425
===============================================================================
Expenses
Management fees--Note 4 3,563,611
- -------------------------------------------------------------------------------
Distribution and service plan fees--Note 4:
Class A 1,268,439
Class B 885,087
Class C 106,441
- -------------------------------------------------------------------------------
Transfer and shareholder servicing agent fees--Note 4 458,094
- --------------------------------------------------------------------------------
Shareholder reports 135,816
- --------------------------------------------------------------------------------
Trustees' fees and expenses--Note 1 125,264
- --------------------------------------------------------------------------------
Custodian fees and expenses 56,648
- --------------------------------------------------------------------------------
Legal, auditing and other professional fees 43,618
- --------------------------------------------------------------------------------
Other 24,461
-----------
Total expenses 6,667,479
===============================================================================
Net Investment Income 33,251,946
===============================================================================
Realized and Unrealized Gain (Loss)
Net realized gain (loss) on:
Investments 2,515,326
Closing of futures contracts (6,379,625)
-----------
Net realized loss (3,864,299)
- --------------------------------------------------------------------------------
Net change in unrealized appreciation or depreciation
on investments 6,481,326
-----------
Net realized and unrealized gain 2,617,027
===============================================================================
Net Increase in Net Assets Resulting from Operations $35,868,973
===========
See accompanying Notes to Financial Statements.
24 Oppenheimer Municipal Bond Fund
<PAGE>
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended July 31,
1998 1997
==============================================================================================
<S> <C> <C>
Operations
Net investment income $ 33,251,946 $ 36,303,013
- ----------------------------------------------------------------------------------------------
Net realized gain (loss) (3,864,299) 1,258,139
Net change in unrealized appreciation or depreciation 6,481,326 31,244,641
------------ ------------
Net increase in net assets resulting from operations 35,868,973 68,805,793
==============================================================================================
Dividends to Shareholders
Dividends from net investment income:
Class A (29,581,175) (31,577,223)
Class B (3,825,603) (3,635,315)
Class C (457,414) (266,953)
==============================================================================================
Beneficial Interest Transactions
Net increase (decrease) in net assets resulting
from beneficial interest transactions--Note 2:
Class A (8,655,646) (32,746,596)
Class B 7,490,759 5,873,351
Class C 4,173,260 4,073,296
==============================================================================================
Net Assets
Total increase 5,013,154 10,526,353
- ----------------------------------------------------------------------------------------------
Beginning of period 679,090,544 668,564,191
------------ ------------
End of period [including undistributed (overdistributed) net
investment income of $(1,455,404) and $837,200, respectively] $684,103,698 $679,090,544
============ ============
</TABLE>
See accompanying Notes to Financial Statements.
25 Oppenheimer Municipal Bond Fund
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A
---------------------------------------------------------------
Year Ended July 31, Year Ended December 31,
1998 1997 1996(2) 1995 1994
==============================================================================================================
<S> <C> <C> <C> <C> <C>
Per Share Operating Data
Net asset value, beginning of period $10.24 $9.74 $9.98 $8.93 $10.44
- --------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .51 .55 .32 .54 .57
Net realized and unrealized gain (loss) .04 .49 (.25) 1.06 (1.52)
------ ------ ----- ----- ------
Total income (loss) from
investment operations .55 1.04 .07 1.60 (.95)
- --------------------------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income (.52) (.54) (.31) (.54) (.56)
Dividends in excess of net
investment income -- -- -- (.01) --
Distributions from net realized gain -- -- -- -- --
------ ------ ----- ----- ------
Total dividends and distributions
to shareholders (.52) (.54) (.31) (.55) (.56)
- --------------------------------------------------------------------------------------------------------------
Net asset value, end of period $10.27 $10.24 $9.74 $9.98 $8.93
====== ====== ===== ===== ======
==============================================================================================================
Total Return, at Net Asset Value(4) 5.55% 10.97% 0.77% 18.28% (9.19)%
==============================================================================================================
Ratios/Supplemental Data
Net assets, end of period (in thousands) $579,570 $586,546 $590,299 $634,473 $541,161
- --------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $581,630 $582,624 $606,509 $569,859 $582,038
- --------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income 5.00% 5.55% 5.58%(5) 5.65% 5.94%
Expenses 0.87% 0.87% 0.92%(5) 0.88% 0.88%
- --------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(6) 20.8% 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. 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.
26 Oppenheimer Municipal Bond Fund
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class B
-------- --------------------------------------------------------------------
Year Ended July 31, Year Ended December 31,
1993 1998 1997 1996(2) 1995 1994 1993(3)
================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C>
Per Share Operating Data
Net asset value, beginning of period $9.94 $10.22 $9.73 $9.96 $8.92 $10.43 $10.22
- --------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .59 .43 .47 .27 .47 .50 .41
Net realized and unrealized gain (loss) .74 .04 .48 (.23) 1.05 (1.52) .43
------ ------ ------ ----- ----- ------ ------
Total income (loss) from
investment operations 1.33 .47 .95 .04 1.52 (1.02) .84
- --------------------------------------------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income (.62) (.44) (.46) (.27) (.47) (.49) (.42)
Dividends in excess of net
investment income -- -- -- -- (.01) -- --
Distributions from net realized gain (.21) -- -- -- -- -- (.21)
------ ------ ------ ----- ----- ------ ------
Total dividends and distributions
to shareholders (.83) (.44) (.46) (.27) (.48) (.49) (.63)
- --------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $10.44 $10.25 $10.22 $9.73 $9.96 $8.92 $10.43
====== ====== ====== ===== ===== ====== ======
================================================================================================================================
Total Return, at Net Asset Value(4) 13.79% 4.75% 10.05% 0.43% 17.30% (9.91)% 8.49%
================================================================================================================================
Ratios/Supplemental Data
Net assets, end of period (in thousands) $608,128 $91,677 $83,897 $74,055 $72,488 $53,245 $33,024
- --------------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $567,777 $88,531 $77,881 $73,047 $63,669 $46,548 $16,444
- --------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income 5.71% 4.21% 4.76% 4.79%(5) 4.84% 5.11% 4.54%(5)
Expenses 0.88% 1.65% 1.65% 1.70%(5) 1.68% 1.69% 1.74%(5)
- --------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(6) 30.2% 20.8% 23.8% 23.9% 25.1% 21.7% 30.2%
</TABLE>
5. Annualized.
6. The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities owned
during the period. Securities with a maturity or expiration date at the time of
acquisition of one year or less are excluded from the calculation. Purchases and
sales of investment securities (excluding short-term securities) for the period
ended July 31, 1998 were $140,458,511 and $142,158,107, respectively.
27 Oppenheimer Municipal Bond Fund
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights (Continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class C
----------------------------------------
Period
Ended
Year Ended July 31, Dec. 31,
1998 1997 1996(2) 1995(1)
===========================================================================================
<S> <C> <C> <C> <C>
Per Share Operating Data
Net asset value, beginning of period $10.22 $9.73 $9.96 $9.58
- -------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .43 .46 .27 .15
Net realized and unrealized gain (loss) .04 .49 (.23) .39
------ ------ ----- -----
Total income (loss) from investment operations .47 .95 .04 .54
- -------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income (.44) (.46) (.27) (.15)
Dividends in excess of net investment income -- -- -- (.01)
Distributions from net realized gain -- -- -- --
------ ------ ----- -----
Total dividends and distributions to shareholders (.44) (.46) (.27) (.16)
- -------------------------------------------------------------------------------------------
Net asset value, end of period $10.25 $10.22 $9.73 $9.96
====== ====== ===== =====
===========================================================================================
Total Return, at Net Asset Value(4) 4.75% 10.03% 0.40% 5.64%
===========================================================================================
Ratios/Supplemental Data
Net assets, end of period (in thousands) $12,857 $8,648 $4,210 $1,975
- -------------------------------------------------------------------------------------------
Average net assets (in thousands) $10,655 $5,724 $3,105 $1,506
- -------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income 4.30% 4.72% 4.72%(5) 4.49%(5)
Expenses 1.64% 1.67% 1.75%(5) 1.64%(5)
- -------------------------------------------------------------------------------------------
Portfolio turnover rate(6) 20.8% 23.8% 23.9% 25.1%
</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. 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.
5. Annualized.
6. The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities owned
during the period. Securities with a maturity or expiration date at the time of
acquisition of one year or less are excluded from the calculation. Purchases and
sales of investment securities (excluding short-term securities) for the period
ended July 31, 1998 were $140,458,511 and $142,158,107, respectively.
See accompanying Notes to Financial Statements.
28 Oppenheimer Municipal Bond Fund
<PAGE>
- --------------------------------------------------------------------------------
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 as high a level
of current income exempt from Federal income taxes as is available from
investing in Municipal Securities, while attempting to preserve capital. The
Fund's investment advisor is OppenheimerFunds, Inc. (the Manager). The Fund
offers Class A, Class B and Class C shares. Class A shares are sold with a
front-end sales charge. Class B and Class C shares may be subject to a
contingent deferred sales charge. All 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.
29 Oppenheimer Municipal Bond Fund
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (Continued)
- --------------------------------------------------------------------------------
================================================================================
1. Significant Accounting Policies (continued)
Allocation of Income, Expenses, Gains and Losses. Income, expenses (other than
those attributable to a specific class), 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, 1998 the Fund
had available for federal income tax purposes an unused capital loss carryover
of approximately $2,058,000, which expires between 2003 and 2006.
- --------------------------------------------------------------------------------
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, 1998, a provision of $62,125 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 $249,371 at July 31, 1998.
The Board of Trustees had adopted a deferred compensation plan
for independent Trustees that enables Trustees to elect to defer receipt of all
or a portion of annual fees they are entitled to receive from the Fund. Under
the plan, the compensation deferred is periodically adjusted as though an
equivalent amount had been invested for the Trustee 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 affect the net assets of the
Fund, and will not materially affect the Fund's assets, liabilities or net
income per share.
- --------------------------------------------------------------------------------
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.
30 Oppenheimer Municipal Bond Fund
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
================================================================================
Classification of Distributions to Shareholders. Net investment income (loss)
and net realized gain (loss) may differ for financial statement and 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.
The Fund adjusts 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, 1998, amounts have been reclassified to reflect
an increase in paid-in capital of $1,847,476, a decrease in undistributed net
investment income of $1,680,358, and an increase in accumulated net realized
loss on investments of $167,118.
- --------------------------------------------------------------------------------
Other. Investment transactions are accounted for on the date the investments are
purchased or sold (trade date). Original issue discount on securities purchased
is amortized over the life of the respective securities, in accordance with
federal income tax requirements. As of November 4, 1997, in order to conform
book and tax bases, the Fund began amortization of premiums on securities for
book purposes. Such cumulative change was limited to a reclassification
adjustment and had no impact on net assets or total increase (decrease) in net
assets. Accordingly, during the year ended July 31, 1998, amounts have been
reclassified to reflect an increase in net unrealized appreciation of
investments of $1,710,031. Paid-in capital was decreased for the same amount.
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.
31 Oppenheimer Municipal Bond Fund
<PAGE>
- --------------------------------------------------------------------------------
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:
Year Ended July 31, 1998 Year Ended July 31, 1997
--------------------------- ----------------------------
Shares Amount Shares Amount
- -------------------------------------------------------------------------------
Class A:
Sold 7,539,023 $77,439,740 4,946,747 $48,948,803
Dividends reinvested 1,883,571 19,274,883 2,089,594 20,654,651
Redeemed (10,278,245) (105,370,269) (10,346,905) (102,350,050)
----------- ------------ ----------- ------------
Net decrease (855,651) $(8,655,646) (3,310,564) $(32,746,596)
=========== ============ =========== ============
- -------------------------------------------------------------------------------
Class B:
Sold 2,062,272 $21,072,590 1,596,575 $15,764,185
Dividends reinvested 230,245 2,351,819 233,176 2,301,877
Redeemed (1,556,731) (15,933,650) (1,234,381) (12,192,711)
----------- ------------ ----------- ------------
Net increase 735,786 $7,490,759 595,370 $5,873,351
=========== ============ =========== ============
- -------------------------------------------------------------------------------
Class C:
Sold 679,752 $6,954,811 519,375 $5,132,628
Dividends reinvested 30,969 316,430 17,317 171,212
Redeemed (302,537) (3,097,981) (123,236) (1,230,544)
----------- ------------ ----------- ------------
Net increase 408,184 $4,173,260 413,456 $4,073,296
=========== ============ =========== ============
================================================================================
3. Unrealized Gains and Losses on Investments
At July 31, 1998, net unrealized appreciation on investments of $54,393,981 was
composed of gross appreciation of $54,533,720, and gross depreciation of
$139,739.
32 Oppenheimer Municipal Bond Fund
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
================================================================================
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% 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.
For the year ended July 31, 1998, commissions (sales charges paid
by investors) on sales of Class A shares totaled $896,039, of which $197,524 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 $675,133 and $62,750, respectively, of which $36,032 and
$3,161, respectively, was paid to an affiliated broker/dealer for Class B and
Class C. During the year ended July 31, 1998, OFDI received contingent deferred
sales charges of $206,602 and $4,920, 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 maintenance of
accounts of their customers that hold Class A shares. During the year ended July
31, 1998, OFDI paid $104,770 to an affiliated broker/dealer as reimbursement for
Class A personal service and maintenance expenses.
33 Oppenheimer Municipal Bond Fund
<PAGE>
- --------------------------------------------------------------------------------
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 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, for
its services rendered in distributing Class B and Class C shares. OFDI also
receives a service fee of 0.25% per year to compensate dealers for providing
personal services for accounts that hold Class B and C shares. Each fee is
computed on the average annual net assets of Class B or Class C shares,
determined as of the close of each regular business day. During the year ended
July 31, 1998, OFDI paid $702,663 and $68,271, respectively, to an affiliated
broker/dealer as compensation for Class B and Class C personal service and
maintenance expenses and retained $10,399 and $2,611, 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, 1998, OFDI had incurred excess distribution and servicing costs of
$2,314,524 for Class B and $168,663 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 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.
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.
34 Oppenheimer Municipal Bond Fund
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
================================================================================
6. Illiquid and Restricted Securities
At July 31, 1998, investments in securities included issues that are illiquid or
restricted. Restricted securities are often purchased in private placement
transactions, are not registered under the Securities Act of 1933, may have
contractual restrictions on resale, and are valued under methods approved by the
Board of Trustees as reflecting fair value. A security may be considered
illiquid if it lacks a readily available market or if its valuation has not
changed for a certain period of time. The Fund intends to invest no more than
10% of its net assets (determined at the time of purchase and reviewed
periodically) in illiquid and restricted securities. Certain restricted
securities, eligible for resale to qualified institutional investors, are not
subject to that limit. The aggregate value of illiquid or restricted securities
subject to this limitation at July 31, 1998 was $8,565,000, which represents
1.25% of the Fund's net assets.
================================================================================
7. Bank Borrowings
The Fund may borrow from a bank for temporary or emergency purposes including,
without limitation, funding of shareholder redemptions provided asset coverage
for borrowings exceeds 300%. The Fund has entered into an agreement which
enables it to participate with other Oppenheimer funds in an unsecured line of
credit with a bank, which permits borrowings up to $400 million, collectively.
Interest is charged to each fund, based on its borrowings, at a rate equal to
the Federal Funds Rate plus 0.35%. Borrowings are payable 30 days after such
loan is executed. The Fund also pays a commitment fee equal to its pro rata
share of the average unutilized amount of the credit facility at a rate of
0.0575% per annum.
The Fund had no borrowings outstanding during the year ended July
31, 1998.
- ------------------------------------------------------------------------------
Oppenheimer Municipal Bond Fund
- ------------------------------------------------------------------------------
Internet Web Site:
www.oppenheimerfunds.com
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 80217-5270
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
67890
PX0310.1198
