---------------------------
Annual Report July 31, 1998
---------------------------
OPPENHEIMER
Municipal
Bond Fund
[GRAPHIC OMITTED]
[LOGO]
OppenheimerFunds(R)
THE RIGHT WAY TO INVEST
<PAGE>
Contents
3 President's Letter
4 An Interview
with Your Fund's
Manager
9 Fund Performance
13 Financial
Statements
36 Independent
Auditors' Report
37 Federal
Income Tax
Information
38 Officers and
Trustees
40 Information and
Services
Report highlights
- --------------------------------------------------------------------------------
o A resilient domestic economy and low inflation have been good for U.S. bonds
of all kinds.
o Lower borrowing costs have caused states and municipalities to rush to finance
new projects and refinance existing debt at lower rates. As a result, the supply
of municipal bonds for the first half of 1998 was relatively high.
o The healthcare industry has provided some attractive investment opportunities
due to the consolidation and heightened competition that have benefited many
hospitals.
- ----------------------------------
Avg Annual Total Returns
- ----------------------------------
For the 1-Year Period
Ended 7/31/98
Class A
Without With
Sales Chg.(1) Sales Chg.(2)
- ----------------------------------
5.55% 0.53%
- ----------------------------------
Class B
Without With
Sales Chg.(1) Sales Chg.(2)
- ----------------------------------
4.75% (0.25)%
- ----------------------------------
Class C
Without With
Sales Chg.(1) Sales Chg.(2)
- ----------------------------------
4.75% 3.75%
- ----------------------------------
Total returns include changes in share price and reinvestment of dividends and
capital gains distributions in a hypothetical investment for the periods shown.
In reviewing performance and rankings, please remember that past performance
does not guarantee future results. Investment return and principal value of an
investment in the Fund will fluctuate so that an investor's shares, when
redeemed, may be worth more or less than the original cost. Total returns as of
7/31/98 do not reflect substantial changes that occurred as a result of market
volatility in August and September 1998.
1. Includes changes in net asset value per share without deducting any sales
charges. Such performance would have been lower if sales charges were taken into
account.
2. Class A return includes the current maximum initial sales charge of 4.75%.
Class B return includes the applicable contingent deferred sales charge of 5%
(1-year) and 1% (since inception on 3/16/93). Class C return includes the
contingent deferred sales charge of 1%. An explanation of the different
performance calculations is in the Fund's prospectus. Class B and C shares are
subject to an annual 0.75% asset-based sales charge.
2 Oppenheimer Municipal Bond Fund
<PAGE>
Dear shareholder,
- --------------------------------------------------------------------------------
[PHOTO]
Bridget A. Macaskill
President
Oppenheimer
Municipal Bond Fund
The performance of the financial markets over the past several months could be
viewed as "A Tale of Two Markets." Until mid-July, the excitement surrounding
the stock market's continued ascent to new record highs overshadowed the
favorable economic environment that existed for bonds: low inflation and
declining interest rates. However, since that time, stocks have declined sharply
amid heightened volatility. Yet, the bond market remains poised to benefit from
the same positive economic conditions that existed earlier in the year.
Why have stocks faltered lately? The financial crises in Asia and Russia
have negatively affected the earnings of some large U.S. corporations and have
contributed to a slow-down in U.S. economic growth. Although slower economic
growth has been negative for stocks, it should not adversely impact bonds.
That's because slower economic growth generally means fewer inflationary
pressures and less likelihood that interest rates will rise.
What should you do during this period of relative uncertainty? If you have
well-defined, long-term financial goals and an investment strategy designed to
achieve them, we encourage you to stay the course. However, if you feel your
financial plan is out-of-date or incomplete, now is the time to make
improvements. The best way to cope with short-term volatility is to adhere to a
long-term plan that contains proven strategies, such as diversification among
various financial markets, geographic regions, investment styles and individual
securities. A long-term plan will give you the focus and perspective you need to
put short-term volatility in its proper context.
As longstanding advocates of financial planning, we have been encouraged by
our shareholders' rational responses to the latest market events. Many of you
tell us that you have a long-term strategy in place, which includes diversifying
your investment portfolio among a number of different asset classes in
accordance with your tolerance for risk. At OppenheimerFunds, our portfolio
management teams include seasoned professionals who have encountered extreme
market volatility in the past, giving them the perspective required to address
risks and take advantage of opportunities in turbulent markets. In our view,
having a well-defined set of financial goals, a disciplined long-term strategy
and the help of experienced investment professionals are all fundamental parts
of The Right Way to Invest.
Sincerely,
/s/ Bridget A. Macaskill
Bridget A. Macaskill
August 21, 1998
3 Oppenheimer Municipal Bond Fund
<PAGE>
An interview with your Fund's manager
- --------------------------------------------------------------------------------
"These economic influences have allowed longer-term interest rates to move lower
relative to short-term interest rates."
How has Oppenheimer Municipal Bond Fund performed over the past 12 months?
The Fund's Class A shares provided an average annual total return, without
deducting sales charges, of 5.55% for the one-year period that ended July 31,
1998.(1) These results reflect both income payments and capital appreciation of
the tax-exempt fixed-income securities in which the Fund invests.
How have positive U.S. economic conditions of the past year affected municipal
bonds?
A resilient domestic economy and low inflation have been good for U.S. bonds of
all kinds. The economy has continued to expand, despite concerns that the Asian
financial crisis might cause growth to slow. So far, consumers appear to have
picked up any slack created by weak demand from Asia, spending freely for major
purchases such as cars, boats and second homes. Yet, inflation has remained at
historically low levels. Even record-high employment has failed to rekindle
inflationary pressures.
These economic influences have allowed longer-term interest rates to move
lower relative to short-term interest rates. Because bond prices rise when
interest rates decline, most sectors of the U.S. bond market provided
above-average total returns over the past year. Taxable bonds, such as U.S.
Treasury securities, generally provided higher returns than tax-exempt bonds.
4 Oppenheimer Municipal Bond Fund
<PAGE>
[PHOTO]
Portfolio Management
Team (l to r)
Jerry Webman
Bob Patterson
(Portfolio Manager)
Why did taxable bonds outperform municipal bonds?
It's a matter of supply and demand. When the supply of municipal bonds issued is
high relative to demand from investors, higher yields may be required to attract
a limited number of investors. Conversely, when supply is low, issuers can offer
bonds with lower yields because there are more than enough buyers.
Particularly over the past six months, states and municipalities have
rushed to take advantage of lower borrowing costs by financing new projects and
refinancing existing debt at lower rates. As a result, the supply of municipal
bonds for the first half of 1998 was about 60% higher than it was in the first
half of 1997, limiting the decline of tax-exempt yields.
In contrast, the supply of U.S. Treasury securities fell because of the
federal government's progress toward achieving a balanced budget. The strong
economy has bolstered tax revenues, requiring the government to borrow less.
Yet, demand for U.S. Treasury securities has remained high, especially from
overseas investors seeking a safe haven from volatile foreign markets.
1. Includes changes in net asset value per share without deducting any sales
charges. Such performance would have been lower if sales charges were taken into
account.
5 Oppenheimer Municipal Bond Fund
<PAGE>
An interview with your Fund's manager
- --------------------------------------------------------------------------------
Where did you find attractive investment opportunities under these market
conditions?
The Fund emphasized quality with the current tight yield spreads but did seek
out undervalued situations in higher-yielding, lower-rated credits.
Lower-quality bonds usually offer higher yields than top-quality bonds, and they
tend to appreciate more as the issuers' credit profiles improve. New York City
bonds are good examples of improving credits. Several years ago, the city was
having trouble meeting its debt obligations because expenses, including
federally mandated social services programs, were higher than revenues. Since
then, New York City has cut costs, streamlined operations and benefited from
higher tax revenues in a strong economy. As a result, it is currently enjoying a
budget surplus of approximately $2 billion. We invested in New York City bonds
early in the 12-month period, and saw their value rise as the city's financial
condition improved. We later sold some of these holdings at a profit,
reinvesting the proceeds in other areas.
What types of projects do the Fund's holdings help to finance?
We've invested in bonds that support a wide variety of purposes, ranging from
airports to water works. Over the past year, however, we have found particularly
attractive values in certain industries. For example, the growing need for
senior citizen housing has spurred development of adult living facilities in
many parts of the country. The aging of America indicates that demand for senior
housing should remain high, enhancing these projects' ability to meet their debt
obligations. We've found similar opportunities in the health care industry,
where consolidation and heightened competition has benefited many hospitals. We
have invested in bonds issued by hospitals that, in our view, have successfully
met--and continue to meet--the challenges of the managed-care marketplace.
6 Oppenheimer Municipal Bond Fund
<PAGE>
- -----------------------------
Standardized Yields(2)
- -----------------------------
For the 30 Days Ended 7/31/98
Class A
- -----------------------------
4.35%
- -----------------------------
Class B
- -----------------------------
3.79%
- -----------------------------
Class C
- -----------------------------
3.78%
- -----------------------------
Have you avoided any areas of the municipal bond market?
We have tended to favor revenue bonds over general obligation bonds. Revenue
bonds are repaid from income generated by the underlying facility, such as sewer
systems or highways supported by fees and tolls. General obligation bonds, on
the other hand, are repaid from general tax revenues, making them more
vulnerable to credit-rating downgrades if economic conditions deteriorate.
We have also been careful with regard to electric utilities because
deregulation is changing the entire power-generation industry. We are waiting
for the competitive picture to become clearer before we invest more
substantially in this area.
What is your outlook for the municipal bond market?
We are optimistic. First, due to high supply, tax-exempt bonds are inexpensive
relative to comparable taxable securities. Municipal bonds have historically
provided about 85% of the pre-tax yield of U.S. Treasury securities. As of July
31, municipal bonds provided almost 95% of taxable bonds' pre-tax yield. We
expect municipal bond prices to rise as yields fall when the relationship
between taxable and tax-exempt bonds returns to more normal levels. Second, we
expect demand for municipal bonds to increase when common stocks lose their
luster. Many individuals have happily remained invested in equities because
stocks have generated stellar returns over the past three years. If the stock
market corrects, we think many of these investors will turn to the relative
safety and stability of tax-exempt bonds.
2. Standardized yield is based on net investment income for the 30-day period
ended 7/31/98. Falling share prices will tend to artificially raise yields.
7 Oppenheimer Municipal Bond Fund
<PAGE>
In addition, we are optimistic about the future of the U.S. economy. We expect
the slowdown in Asia to constrain U.S. economic growth, preventing the Federal
Reserve from raising short-term interest rates in an effort to forestall an
acceleration of inflation. However, even in a slowdown, economic growth is
likely to remain positive because of long-term factors such as U.S.
companies' competitive strength in global markets.
No matter what the future brings, however, we intend to continue to search
for municipal bonds that provide high levels of income exempt from federal
income taxes, while attempting to preserve capital.
Credit Allocation(3)
[PIE CHART]
AAA 44.6%
AA 8.0
A 15.6
BBB 24.4
BB 6.0
B 1.4
Top Five Industries
(Percentage of invested assets)4
- --------------------------------------------------------------------------------
Corporate Backed 19.7%
- --------------------------------------------------------------------------------
Electric Utilities 13.3
- --------------------------------------------------------------------------------
Highways 12.7
- --------------------------------------------------------------------------------
General Obligation 10.0
- --------------------------------------------------------------------------------
Single Family Housing 9.6
- --------------------------------------------------------------------------------
3. Portfolio data is as of July 31, 1998, is dollar-weighted based on invested
assets and subject to change. The Fund may invest up to 25% of its total assets
in below-investment-grade securities which carry greater risk that an issuer may
default on repayment of principal or interest. Securities rated by any rating
organization are included in the equivalent Standard & Poor's rating category.
Average credit quality and allocation include rated securities and those not
rated by a national rating organization (currently 5.6% of total investments)
but to which the Manager in its judgment has assigned ratings as securities
comparable to those rated by a rating agency in the same category.
4. Industry weightings are as of July 31, 1998, and are subject to change.
8 Oppenheimer Municipal Bond Fund
<PAGE>
Fund performance
- --------------------------------------------------------------------------------
How Has the Fund Performed?
Below is a discussion by the Manager of the Fund's performance during its fiscal
year ended July 31, 1998, followed by a graphical comparison of the Fund's
performance to an appropriate broad-based market index.
o Management's Discussion of Performance. During the Fund's fiscal year
that ended July 31, 1998, the primary drivers of the Fund's performance were the
effects of positive domestic economic conditions and low inflation in a
declining interest-rate environment.
These economic influences have allowed longer-term interest rates to move
lower relative to short-term interest rates. Because bond prices rise when
interest rates decline, most sectors of the U.S. bond market provided
above-average total returns over the past year. However, this has also caused
yields on most fixed-income securities, including many of the Fund's
investments, to decline during the period. As a result, the Fund reduced its
dividend in December of 1997. The Fund's portfolio holdings, allocations and
strategies are subject to change.
During the Fund's fiscal year ended July 31, 1998, the Fund maintained the
practice, to the extent consistent with the amount of the Fund's net investment
income and other distributable income, of attempting to pay dividends on Class A
shares at a constant level. This practice required the Manager, consistent with
the Fund's investment objectives and investment restrictions, to monitor the
Fund's portfolio and select higher yielding securities when deemed appropriate
to maintain necessary net investment income levels.
o Comparing the Fund's Performance to the Market. The graphs that follow
show the performance of a hypothetical $10,000 investment in each Class of
shares of the Fund held from the inception of the Class until July 31, 1998,
with all dividends and capital gains distributions reinvested in additional
shares. The graphs reflect the deduction of the 4.75% maximum initial sales
charge on Class A shares, the applicable 1% contingent deferred sales charge for
Class B shares, and the 1% contingent deferred sales charge on Class C shares
during the first year.
Because the Fund invests in a variety of Municipal Securities, the Fund's
performance is compared to the performance of Lehman Brothers Municipal Bond
Index, an unmanaged index of a broad range of investment grade municipal bonds
that is widely regarded as a measure of the performance of the general municipal
bond market.
Index performance reflects the reinvestment of income but does not
consider the effect of capital gains or transaction costs, and none of the
following data shows the effect of taxes. Also, the Fund's performance data
reflects the effect of Fund business and operating expenses. While index
comparisons may be useful to provide a benchmark for the Fund's performance, it
must be noted that the Fund's investments are not limited to the Lehman Brothers
Municipal Bond Index. Moreover, the index performance data does not reflect an
assessment of the risk of the investments included in the index.
9 Oppenheimer Municipal Bond Fund
<PAGE>
Fund performance
- --------------------------------------------------------------------------------
Class A Shares
Comparison of Change in Value of $10,000 Hypothetical Investments in:
Oppenheimer Municipal Bond Fund (Class A) and Lehman Brothers Municipal Bond
Index
[The following table was originally a line graph in the printed materials.]
Oppenheimer Lehman
Municipal Brothers
Bond Fund Municipal
Class A Bond Index
12/31/87 9525 10000
12/31/88 10481 11016
12/31/89 11468 12205
12/31/90 12148 13094
12/31/91 13620 14684
12/31/92 14872 15979
12/31/93 16924 17941
12/31/94 15369 17012
12/31/95 18177 19986
7/31/96 18317 20075
7/31/97 20325 22137
7/31/98 21454 23459
Average Annual Total Return of Class A Shares of the Fund at 7/31/98(1)
1 Year 0.53% 5 Year 4.96% 10 Year 7.37%
Class B Shares
Comparison of Change in Value of $10,000 Hypothetical Investments in:
Oppenheimer Municipal Bond Fund (Class B) and Lehman Brothers Municipal Bond
Index
[The following table was originally a line graph in the printed materials.]
Oppenheimer Lehman
Municipal Brothers
Bond Fund Municipal
Class B Bond Index
3.16.93 10000 10000
12.31.93 10839 10826
12.31.94 9765 10266
12.31.95 11455 12060
7.31.96 11504 12114
7.31.97 12659 13358
7.31.98 13160 14156
Average Annual Total Return of Class B Shares of the Fund at 7/31/98(2)
1 Year (0.25)% 5 Year 4.82% Life 5.24%
10 Oppenheimer Municipal Bond Fund
<PAGE>
Class C Shares
Comparison of Change in Value of $10,000 Hypothetical Investments in:
Oppenheimer Municipal Bond Fund (Class C) and Lehman Brothers Municipal Bond
Index
[The following table was originally a line graph in the printed materials.]
Oppenheimer Lehman
Municipal Brothers
Bond Fund Municipal
Class C Bond Index
8.29.95 10000 10000
12.31.95 10564 10478
7.31.96 10606 10524
7.31.97 11669 11606
7.31.98 12223 12299
Average Annual Total Return of Class C Shares of the Fund at 7/31/98(3)
1 Year 3.75% Life 7.11%
Total returns and the ending account values in the graphs show change in share
value and include reinvestment of all dividends and capital gains distributions.
1. Class A returns are shown net of the applicable 4.75% maximum initial sales
charge. The inception of the Fund (Class A shares) was 10/27/76.
2. Class B shares of the Fund were first publicly offered on 3/16/93. The
average annual total returns reflect reinvestment of all dividends and capital
gains distributions and are shown net of the applicable 5% and 1% contingent
deferred sales charges, respectively, for the 1-year period and the life of the
class. The ending account value in the graph is net of the applicable 1% sales
charge.
3. Class C shares of the Fund were first publicly offered on 8/29/95. The 1-year
period is shown net of the applicable 1% contingent deferred sales charge.
Past performance is not predictive of future performance. Graphs are not drawn
to same scale.
11 Oppenheimer Municipal Bond Fund
<PAGE>
Financials
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12 Oppenheimer Municipal Bond Fund
<PAGE>
- --------------------------------------------------------------------------------
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.
35 Oppenheimer Municipal Bond Fund
<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.
KPMG Peat Marwick LLP
Denver, Colorado
August 21, 1998
36 Oppenheimer Municipal Bond Fund
<PAGE>
- --------------------------------------------------------------------------------
Federal Income Tax Information (Unaudited)
- --------------------------------------------------------------------------------
================================================================================
In early 1999, shareholders will receive information regarding all dividends and
distributions paid to them by the Fund during calendar year 1998. Regulations of
the U.S. Treasury Department require the Fund to report this information to the
Internal Revenue Service.
None of the dividends paid by the Fund during the fiscal year
ended July 31, 1998 are eligible for the corporate dividend-received deduction.
The dividends were derived from interest on municipal bonds and are not subject
to federal income tax. To the extent a shareholder is subject to any state or
local tax laws, some or all of the dividends received may be taxable.
The foregoing information is presented to assist shareholders in
reporting distributions received from the Fund to the Internal Revenue Service.
Because of the complexity of the federal regulations which may affect your
individual tax return and the many variations in state and local tax
regulations, we recommend that you consult your tax advisor for specific
guidance.
37 Oppenheimer Municipal Bond Fund
<PAGE>
- --------------------------------------------------------------------------------
Oppenheimer Municipal Bond Fund
- --------------------------------------------------------------------------------
================================================================================
Officers and Trustees Leon Levy, Chairman of the Board of Trustees
Donald W. Spiro, Vice Chairman of the Board of Trustees
Bridget A. Macaskill, Trustee and President
Robert G. Galli, Trustee
Benjamin Lipstein, Trustee
Elizabeth B. Moynihan, Trustee
Kenneth A. Randall, Trustee
Edward V. Regan, Trustee
Russell S. Reynolds, Jr., Trustee
Pauline Trigere, Trustee
Clayton K. Yeutter, Trustee
Robert E. Patterson, Vice President
Jerry A. Webman, Vice President
George C. Bowen, Treasurer
Robert J. Bishop, Assistant Treasurer
Scott T. Farrar, Assistant Treasurer
Andrew J. Donohue, Secretary
Robert G. Zack, Assistant Secretary
================================================================================
Investment Advisor OppenheimerFunds, Inc.
================================================================================
Distributor OppenheimerFunds Distributor, Inc.
================================================================================
Transfer and Shareholder OppenheimerFunds Services
Servicing Agent
================================================================================
Custodian of Citibank, N.A.
Portfolio Securities
================================================================================
Independent Auditors KPMG Peat Marwick LLP
================================================================================
Legal Counsel Gordon Altman Butowsky Weitzen Shalov & Wein
This is a copy of a report to shareholders of
Oppenheimer Municipal Bond Fund. This report must be
preceded or accompanied by a Prospectus of Oppenheimer
Municipal Bond Fund. For material information
concerning the Fund, see the Prospectus.
Shares of Oppenheimer funds are not deposits or
obligations of any bank, are not guaranteed by any
bank, and are not insured by the FDIC or any other
agency, and involve investment risks, including
possible loss of the principal amount invested.
38 Oppenheimer Municipal Bond Fund
<PAGE>
- --------------------------------------------------------------------------------
OppenheimerFunds Family
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
=============================================================================================
Real Asset Funds
- ---------------------------------------------------------------------------------------------
Real Asset Fund Gold & Special Minerals Fund
=============================================================================================
Global Stock Funds
- ---------------------------------------------------------------------------------------------
Developing Markets Fund International Growth Fund Quest Global Value Fund
International Small Global Fund Global Growth &Income Fund
Company Fund
=============================================================================================
Stock Funds
- ---------------------------------------------------------------------------------------------
Enterprise Fund MidCap Fund Growth Fund
Discovery Fund Capital Appreciation Fund Disciplined Value Fund
Quest Small Cap Value Fund Quest Capital Value Fund Quest Value Fund
=============================================================================================
Stock & Bond Funds
- ---------------------------------------------------------------------------------------------
Main Street Income & Total Return Fund Disciplined Allocation Fund
Growth Fund Quest Balanced Multiple Strategies Fund
Quest Opportunity Value Fund(1) Convertible Securities Fund(2)
Value Fund Equity Income Fund
=============================================================================================
Taxable Bond Funds
- ---------------------------------------------------------------------------------------------
International Bond Fund Champion Income Fund U.S. Government Trust
World Bond Fund Strategic Income Fund Limited-Term Government Fund
High Yield Fund Bond Fund
=============================================================================================
Municipal Bond Funds
- ---------------------------------------------------------------------------------------------
California Municipal Fund(3) Pennsylvania Municipal Fund(3) Rochester Division:
Florida Municipal Fund(3) Municipal Bond Fund Rochester Fund Municipals
New Jersey Municipal Fund(3) Insured Municipal Fund Limited Term New York
New York Municipal Fund(3) Intermediate Municipal Fund Municipal Fund
=============================================================================================
Money Market Funds(4)
- ---------------------------------------------------------------------------------------------
Money Market Fund Cash Reserves
</TABLE>
1. On 5/18/98, the Fund's name was changed from "Quest Growth & Income Value
Fund."
2. On 4/28/98, the Fund's name was changed from "Bond Fund for Growth."
3. Available only to investors in certain states.
4. An investment in money market funds is neither insured nor guaranteed by the
Federal Deposit Insurance Corporation or any other government agency. Although
these funds may seek to preserve the value of your investment at $1.00 per
share, it is possible to lose money by investing in these funds. Oppenheimer
funds are distributed by OppenheimerFunds Distributor, Inc., Two World Trade
Center, New York, NY 10048-0203.
(C) Copyright 1998 OppenheimerFunds, Inc. All rights reserved.
39 Oppenheimer Municipal Bond Fund
<PAGE>
Information and services
- --------------------------------------------------------------------------------
As an Oppenheimer fund shareholder, you have some special privileges. Whether
it's automatic investment plans, informative newsletters and hotlines, or ready
account access, you can benefit from services designed to make investing simple.
And when you need help, our Customer Service Representatives are only a
toll-free phone call away. They can provide information about your account and
handle administrative requests. You can reach them at our General Information
number.
When you want to make a transaction, you can do it easily by calling our
toll-free Telephone Transactions number or by visiting our website. And, by
enrolling in AccountLink, a convenient service that "links" your Oppenheimer
funds accounts and your bank checking or savings account, you can use the
Telephone Transactions number or website to make investments.
For added convenience, you can get automated information with
OppenheimerFunds PhoneLink service, available 24 hours a day, 7 days a week.
PhoneLink gives you access to a variety of fund, account, and market
information. Of course, you can always speak with a Customer Service
Representative during the General Information hours shown at the left.
You can count on us whenever you need assistance. That's why the
International Customer Service Association, an independent, nonprofit
organization made up of over 3,200 customer service management professionals
from around the country, honored the Oppenheimer funds' transfer agent,
OppenheimerFunds Services, with their Award of Excellence in 1993.
So call us today, or visit us at our website at
www.oppenheimerfunds.com--we're here to help.
Internet
24-hr access to account
information. Online
transactions now available
- -----------------------------
www.oppenheimerfunds.com
- -----------------------------
General Information
Mon-Fri 8:30am-9pm ET
Sat 10am-4pm ET
- -----------------------------
1-800-525-7048
- -----------------------------
Account Transactions
Mon-Fri 8:30am-8pm ET
- -----------------------------
1-800-852-8457
- -----------------------------
PhoneLink
24-hr automated information
and automated transactions
- -----------------------------
1-800-533-3310
- -----------------------------
Telecommunication Device
for the Deaf (TDD)
Mon-Fri 8:30am-2pm ET
- -----------------------------
1-800-843-4461
- -----------------------------
OppenheimerFunds
Information Hotline
24 hours a day, timely and
insightful messages on the
economy and issues that
affect your investments
- -----------------------------
1-800-835-3104
- -----------------------------
[LOGO] OppenheimerFunds(R)
Distributor, Inc.
RA0310.001.0798 September 29, 1998
