Registration No. 2-57116
File No. 811-2668
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /X/
PRE-EFFECTIVE AMENDMENT NO. ___ / /
POST-EFFECTIVE AMENDMENT NO. 42 /X/
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940 /X/
AMENDMENT NO. 30 /X/
OPPENHEIMER MUNICIPAL BOND FUND
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(Exact Name of Registrant as Specified in Charter)
Two World Trade Center New York, New York 10048-0203
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(Address of Principal Executive Offices)
(212) 323-0200
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(Registrant's Telephone Number)
ANDREW J. DONOHUE, ESQ.
OppenheimerFunds, Inc.
Two World Trade Center, New York, New York 10048-0203
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(Name and Address of Agent for Service)
It is proposed that this filing will become effective:
/ / immediately upon filing pursuant to paragraph (b) /X/ on November 19,
1999, pursuant to paragraph (b) / / 60 days after filing pursuant to
paragraph (a)(1) / / on ______________, pursuant to paragraph (a)(1) / / 75
days after filing pursuant to paragraph (a)(2) / / on _______, pursuant to
paragraph (a)(2) of Rule (485)
If appropriate, check the following box:
/ / This post-effective amendment designates a new effective date for a
previously filed post-amendment.
<PAGE>
Oppenheimer
Municipal Bond Fund
Prospectus dated November 19, 1999
Oppenheimer Municipal Bond Fund is a
mutual fund. It seeks current income
exempt from federal income taxes by
investing in municipal securities,
while attempting to preserve
capital.
This Prospectus contains
important information about the
Fund's objective, its investment
policies, strategies and risks. It
also contains important information
about how to buy and sell shares of
the Fund and other account features.
As with all mutual funds, the Please read this Prospectus
Securities and Exchange Commission carefully before you invest and keep
has not approved or disapproved the it for future reference about your
Fund's securities nor has it account.
determined that this Prospectus is
accurate or complete. It is a
criminal offense to represent
otherwise.
[logo] OppenheimerFunds
<PAGE>
CONTENTS
ABOUT THE FUND
3 The Fund's Investment Objective and Strategies
3 Main Risks of Investing in the Fund
5 The Fund's Past Performance
6 Fees and Expenses of the Fund
7 About the Fund's Investments
11 How the Fund is Managed
ABOUT YOUR ACCOUNT
13 How to Buy Shares
Class A Shares
Class B Shares
Class C Shares
21 Special Investor Services
AccountLink
PhoneLink
OppenheimerFunds Web Site
22 How to Sell Shares
By Mail
By Telephone
By Checkwriting
25 How to Exchange Shares
26 Shareholder Account Rules and Policies
28 Dividends and Tax Information
29 Financial Highlights
<PAGE>
ABOUT THE FUND
The Fund's Investment Objective and Strategies
WHAT IS THE FUND'S INVESTMENT OBJECTIVE? The Fund seeks as high a level of
current interest income exempt from federal income taxes as is available from
investing in municipal securities, while attempting to preserve capital.
WHAT DOES THE FUND INVEST IN? The Fund invests mainly in municipal securities
that pay interest exempt from federal individual income tax. These primarily
include municipal bonds (which are long term obligations), municipal notes
(short term obligations), interests in municipal leases, and tax-exempt
commercial paper. Most of the securities the Fund buys must be "investment
grade" (the four highest rating categories of national rating organizations such
as Moody's).
The Fund does not limit its investments to securities of a particular
maturity range, but currently focuses on longer-term securities. These
investments are more fully explained in "About the Fund's Investments," below.
HOW DO THE PORTFOLIO MANAGER DECIDE WHAT SECURITIES TO BUY OR SELL? In selecting
securities for the Fund, the portfolio manager looks nationwide for municipal
securities using a variety of factors which may change over time and may vary in
particular cases. The portfolio manager currently looks for:
o Securities that provide high current income,
o A wide range of securities to diversify the portfolio,
o Securities having favorable credit characteristics, and
o Special situations that provide opportunities for value.
WHO IS THE FUND DESIGNED FOR? The Fund is designed for individual investors who
are seeking income exempt from federal income taxes. The Fund does not seek
capital gains or growth. Because it invests in tax-exempt securities, the Fund
is not appropriate for retirement plan accounts or for investors who want to
pursue capital growth.
Main Risks of Investing in the Fund
All investments have risks to some degree. The Fund's investments are subject to
changes in their value from a number of factors, described below. There is also
the risk that poor security selection by the Fund's investment Manager,
OppenheimerFunds, Inc., will cause the Fund to underperform other funds having a
similar objective. There is no assurance that the Fund will achieve its
objective.
These risks collectively form the risk profile of the Fund, and can affect
the value of the Fund's investments, its investment performance, and the prices
of its shares. These risks mean that you can lose money by investing in the
Fund. When you redeem your shares, they may be worth more or less than what you
paid for them.
CREDIT RISK. Municipal securities are debt securities that are subject to credit
risk. Credit risk is the risk that the issuer of a municipal security might not
make interest and principal payments on the security as they become due. If the
issuer fails to pay interest, the Fund's income might be reduced, and if the
issuer fails to repay principal, the value of that security and of the Fund's
shares may be reduced. Because the Fund can invest as much as 25% of its assets
in municipal securities below investment grade to seek higher income, the Fund's
credit risks are greater than those of funds that buy only investment-grade
bonds. A downgrade in an issuer's credit rating or other adverse news about an
issuer can reduce a security's market value.
INTEREST RATE RISKS. Municipal securities are subject to changes in value when
prevailing interest rates change. When interest rates fall, the values of
already-issuer municipal securities generally rise. When interest rates rise,
the values of already-issued municipal securities generally fall and the bonds
may sell at a discount from their face amount. The magnitude of these price
changes is generally greater for bonds with longer maturities. The Fund
currently focuses on longer term securities to seek higher income. Therefore,
its share prices may fluctuate more when interest rates change.
HOW RISKY IS THE FUND OVERALL? The value of the Fund's investments in municipal
securities will change over time due to a number of factors. They include
changes in general bond market movements, the change in value of particular
bonds because of an event affecting the issuer, or changes in interest rates
that can affect bond prices overall. These changes can affect the value of the
Fund's investments and its prices per share. In the OppenheimerFunds spectrum,
the Fund is more conservative than some types of taxable bond funds, such as
high yield bond funds, but has greater risks than money market funds.
An investment in the Fund is not a deposit of any bank, and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
The Fund's Past Performance
The bar chart and table below show one measure of the risks of investing in the
Fund, by showing changes in the Fund's performance (for its Class A shares) from
year to year for the past ten calendar years and by showing how the average
annual total returns of the Fund's shares compare to those of a broad-based
market index. The Fund's past investment performance is not necessarily an
indication of how the Fund will perform in the future.
(BAR CHART)
[see appendix to the prospectus]
For the period from 1/1/99 through 9/30/99, the cumulative return (not
annualized) for Class A shares was -2.52%. Sales charges are not included in the
calculations of return in this bar chart, and if those charges were included,
the returns would be less than those shown. During the 10-year period shown in
the bar chart, the highest return (not annualized) for a calendar quarter was
8.58% (1Q'95) and the lowest return (not annualized) for a calendar quarter was
- -6.51% (1Q'94).
Past 5 Years Past 10 years
Average Annual Total Returns (or life of (or life of
For the periods ended December Past 1 Year class, class,
31, 1998 if less) if less)
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Class A Shares (inception 1.01% 4.53% 7.26%
10/27/76)
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Lehman Brothers Municipal Bond
Index
(from 12/31/88)
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Class B Shares (inception 0.24% 4.41% 5.40%
3/16/93)
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Class C Shares (inception 4.14% 7.12% N/A
8/29/95)
The Fund's average annual total returns include the applicable sales charge: for
Class A, the current maximum initial sales charge of 4.75%; for Class B, the
applicable contingent deferred sales charges of 5% (1-year) and 1% (5 years and
life of class); for Class C, the 1% contingent deferred sales charge for the
1-year period.
The returns measure the performance of a hypothetical account and assume that
all dividends and capital gains distributions have been reinvested in additional
shares. The Fund's performance is compared to the Lehman Brothers Municipal Bond
Index, an unmanaged index of a broad range of investment grade municipal bonds.
The index performance does not consider the effects of capital gains or
transaction costs, and the Fund's investments may vary from the securities in
the index.
Fees and Expenses of the Fund
The Fund pays a variety of expenses directly for management of its assets,
administration, distribution of its shares and other services. Those expenses
are subtracted from the Fund's assets to calculate the Fund's net asset values
per share. All shareholders therefore pay those expenses indirectly.
Shareholders pay other expenses directly, such as sales charges and account
transaction charges. The following tables are meant to help you understand the
fees and expenses you may pay if you buy and hold shares of the Fund. The
numbers below are based on the Fund's expenses during the fiscal year ended July
31, 1999.
Shareholder Fees (charges paid directly from your investment):
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Class A Shares Class B Class C Shares
Shares
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Maximum Sales Charge (Load) on 4.75% None None
Purchases (as a % of offering
price)
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Maximum Deferred Sales Charge
(Load) None1 5%2 1%3
(as % of the lower of the
original offering
price or redemption proceeds)
1. A 1% contingent deferred sales charge may apply to redemptions of investments
of $1 million or more of Class A shares. See "How to Buy Shares" for details. 2.
Applies to redemptions in first year after purchase. The contingent deferred
sales charge declines to 1% in the sixth year and is eliminated after that. 3.
Applies to shares redeemed within 12 months of purchase.
Annual Fund Operating Expenses (deducted from Fund assets):
(% of average daily net assets)
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Class A Class B Shares Class C
Shares Shares
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Management Fees 0.52% 0.52% 0.52%
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Distribution and/or Service 0.22% 1.00% 1.00%
(12b-1) Fees
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Other Expenses 0.13% 0.13% 0.13%
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Total Annual Operating Expenses 0.87% 1.65% 1.65%
Expenses may vary in future years. "Other expenses" include transfer agent fees,
custodial fees, and accounting and legal expenses the Fund pays.
EXAMPLES. The following examples are intended to help you compare the cost of
investing in the Fund with the cost of investing in other mutual funds. The
examples assume that you invest $10,000 in a class of shares of the Fund for the
time periods indicated, and reinvest your dividends and distributions.
The first example assumes that you redeem all of your shares at the end of
those periods. The second example assumes you keep your shares. Both examples
also assume that your investment has a 5% return each year and that the class's
operating expenses remain the same. Your actual costs may be higher or lower
because expenses will vary over time. Based on these assumptions your expenses
would be as follows:
If shares are redeemed: 1 year 3 years 5 years 10 years1
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Class A Shares 560 739 934 1497
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Class B Shares 668 820 1097 1555
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Class C Shares 268 520 897 1955
If shares are not redeemed: 1 year 3 years 5 years 10 years1
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Class A Shares 560 739 934 1497
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Class B Shares 168 520 897 1555
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Class C Shares 168 520 897 1955
In the first example, expenses include the initial sales charge for Class A and
the applicable Class B or Class C contingent deferred sales charges. In the
second example, the Class A expenses include the sales charge, but Class B and
Class C expenses do not include contingent deferred sales charges. 1. Class B
expense for years 7 through 10 are based on Class A expenses, since Class B
shares automatically convert to Class A after 6 years.
About the Fund's Investments
THE FUND'S PRINCIPAL INVESTMENT POLICIES. The allocation of the Fund's portfolio
among different types of investments will vary over time based upon the
Manager's evaluation of economic and market trends. Under normal market
conditions, the Fund attempts to invest 100% of its assets in municipal
securities. As a fundamental policy, the Fund invests at least 80% of its assets
in municipal securities. The Statement of Additional Information contains more
detailed information about the Fund's investment policies and risks.
The Manager tries to reduce risks by carefully researching securities
before they are purchased. The Fund attempts to reduce its exposure to market
risks by diversifying its investments, that is, by not holding a substantial
amount of securities of any one issuer and by not investing too great a
percentage of the Fund's assets in any one issuer.
However, changes in the overall market prices of municipal securities and
the income they pay can occur at any time. The yield and share price of the Fund
will change daily based on changes in interest rates and market conditions, and
in response to other economic events.
MUNICIPAL SECURITIES. The Fund buys municipal bonds and notes, tax-exempt
commercial paper, certificates of participation in municipal leases, and other
debt obligations. These debt obligations are issued by state governments, as
well as their political subdivisions (such as cities, towns and counties), and
their agencies and authorities. The Fund can also buy securities issued by the
District of Columbia, any commonwealths, territories or possessions of the
United States, or their respective agencies, instrumentalities or authorities,
if the interest paid on the security is not subject to federal individual income
tax (in the opinion of bond counsel to the issuer at the time the security is
issued).
What is a Municipal Security? A municipal security is essentially a loan by the
buyer to the issuer of the security. The issuer promises to pay back the
principal amount of the loan and normally pays interest; exempt from federal
individual income tax.
Municipal securities are issued to raise money for a variety of public or
private purposes, including financing state or local governments, financing
specific projects or public facilities. The Fund can buy both long-term and
short-term municipal securities. Long-term securities have a maturity of more
than one year. The Fund currently focuses on longer-term securities, to seek
higher income.
The Fund can buy municipal securities that are "general obligations,"
secured by the issuer's pledge of its full faith, credit and taxing power for
the payment of principal and interest. The Fund can also buy "revenue
obligations," payable only from the revenues derived from a particular facility
or class of facilities, or a specific excise tax or other revenue source. Some
of these revenue obligations are private activity bonds that pay interest that
may be a tax preference for investors subject to alternative minimum tax.
Ratings of Municipal Securities the Fund Buys. Most of the municipal securities
the Fund buys are "investment grade" at the time of purchase. The Fund does
not invest more than 25% of its total assets in municipal securities that
at the time of purchase are not "investment-grade." "Investment grade"
securities are those rated within the four highest rating categories of
Moody's, Standard & Poor's, Fitch, or Duff & Phelps or another nationally
recognized rating organization, or (if unrated) are judged by the Manager
to be comparable to rated investment grade securities. Rating categories
are described in the Statement of Additional Information. A reduction in
the rating of a security after the Fund buys it will not automatically
require the Fund to dispose of that security. However, the Manager will
evaluate those securities to determine whether to keep them in the Fund's
portfolio.
The Manager may rely to some extent on credit ratings by nationally
recognized rating agencies in evaluating the credit risk of securities
selected for the Fund's portfolio. It may also use its own research and
analysis. Many factors affect an issuer's ability to make timely payments,
and the credit risks of a particular security may change over time.
Special Credit Risks of Lower-Grade Securities. Lower-grade municipal securities
may be subject to greater market fluctuations and greater risks of loss of
income and principal than higher-rated municipal securities. Securities
that are (or that have fallen) below investment grade entail a greater risk
that the issuers may not meet their debt obligations.
Municipal Lease Obligations. Municipal leases are used by state and local
government authorities to obtain funds to acquire land, equipment or
facilities. The Fund can invest in certificates of participation that
represent a proportionate interest in payments made under municipal lease
obligations. If the government stops making payments or transfers its
payment obligations to a private entity, the obligation could lose value or
become taxable.
CAN THE FUND'S INVESTMENT OBJECTIVE AND POLICIES CHANGE? The Fund's Board of
Trustee CAN change non-fundamental policies without shareholder approval,
although significant changes will be described in amendments to this Prospectus.
Fundamental policies cannot be changed without the approval of a majority of the
Fund's outstanding voting shares. The Fund's investment objective is a
fundamental policy. An investment policy or technique is not fundamental unless
this Prospectus or the Statement of Additional Information says that it is.
OTHER INVESTMENT STRATEGIES. To seek its objective, the Fund can also use the
investment techniques and strategies described below. The Fund might not always
use all of them. These techniques involve risks although some are designed to
help reduce overall investment risks.
Floating Rate/Variable Rate Obligations. Some municipal securities have variable
or floating interest rates. Variable rates are adjustable at stated
periodic intervals. Floating rates are automatically adjusted according to
a specified market rate for such investments, such as the percentage of the
prime rate of a bank, or the 91-day U.S. Treasury Bill rate. Certain
variable rate bonds known as "inverse floaters" pay interest at rates that
move in the opposite direction of yields on short-term bonds in response to
market changes. As interest rates rise, inverse floaters produce less
current income, and their market value can become volatile. Inverse
floaters are a type of "derivative security." Some have a "cap," so that if
interest rates rise above the "cap," the security pays additional interest
income. If rates do not rise above the "cap," the Fund will have paid an
additional amount for a feature that proves worthless.
OtherDerivatives. The Fund can invest in derivative securities that pay
interest that depends on the change in value of an underlying asset,
interest rate or index. Options and futures (discussed below) are also
examples of derivatives. The Fund may use derivatives to seek increased
returns or to try to hedge investment risks. Examples of external pricing
mechanisms are interest rate swaps, municipal bond indices or swap indices.
o There Are Special Risks in Using Derivatives. If the issuer of the
derivative investment does not pay the amount due, the Fund can lose
money on its investment. Also, the underlying security or investment on
which the derivative is based, and the derivative itself, may not
perform the way the Manager expected it to perform. If that happens, the
Fund will get less income than expected or its share price could
decline. To try to preserve capital, the Fund has limits on the amount
of particular types of derivatives it can hold. For example, the Fund
will not invest more than 20% of its total assets in inverse floaters.
Puts and Stand-By Commitments. The Fund can acquire "stand-by commitments" or
"puts" with respect to municipal securities. The Fund obtains the right to
sell specified securities at a set price on demand to the issuing
broker-dealer or bank. However, this feature may result in a lower interest
rate on the security. The Fund acquires stand-by commitments or puts solely
to enhance portfolio liquidity.
Illiquid Securities. Investments may be illiquid because they do not have an
active trading market, making it difficult to value them or dispose of them
promptly at an acceptable price. The Fund will not invest more than 15% of
its net assets in illiquid securities. The Manager monitors holdings of
illiquid securities on an ongoing basis to determine whether to sell any
holdings to maintain adequate liquidity. The Fund cannot buy a security
that has a restriction on its resale.
Hedging. The Fund can buy and sell futures contracts, put and call options, or
enter into interest rate swap agreements. These are all referred to as "hedging
instruments." The Fund does not use hedging instruments for speculative
purposes, and has limits on the use of them. The Fund does not use hedging
instruments to a substantial degree and is not required to use them in seeking
its goal. Hedging involves risks. If the Manager uses a hedging instrument at
the wrong time or judges market conditions incorrectly, the strategy could
reduce the Fund's returns. Temporary Defensive Investments. The Fund can invest
up to 100% of its total
assets in temporary defensive investments during periods of unusual market
conditions. Generally they would be short-term municipal securities but
could be U.S. government securities or highly-rated corporate debt
securities. The income from some temporary defensive investments may not be
tax-exempt, and therefore when making those investments the Fund might not
achieve its objective. The Fund may also hold cash and cash equivalents
pending the investment of proceeds from the sale of Fund shares or
portfolio securities, or to meet anticipated redemptions of Fund shares.
How the Fund is Managed
THE MANAGER. The Fund's investment Manager, OppenheimerFunds, Inc., selects the
Fund's investments and handles its day-to-day business. The Manager carries out
its duties, subject to the policies established by the Board of Trustees, under
an investment advisory agreement which states the Manager's responsibilities.
The Agreement sets the fees the Fund pays to the Manager and describes the
expenses that the Fund is responsible to pay to conduct its business.
The Manager has operated as an investment advisor since 1960. The Manager
(including subsidiaries) managed more than $110 billion in assets as of
September 30, 1999, including other Oppenheimer funds, with more than 5 million
shareholder accounts. The Manager is located at Two World Trade Center, 34th
Floor, New York, New York 10048-0203. Portfolio Manager. The Fund's portfolio
manager is Robert E. Patterson, a
Senior Vice President of the Manager. Mr. Patterson is the person
principally responsible for the day-to-day management of the Fund's
portfolio, and has had this responsibility since November 18, 1985. Mr.
Patterson is a Vice President of the Fund and also an officer and
portfolio manager of other Oppenheimer funds.
Advisory Fees. Under the investment advisory agreement, the Fund pays the
Manager an advisory fee at an annual rate which declines as the Fund's
assets grow: 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 over $1 billion. The Fund's management fee for its last
fiscal year ended July 31, 1999, was 0.52% of average annual net assets for
each class of shares.
YEAR 2000 ISSUES. Because many computer software systems in use today cannot
distinguish the year 2000 from the year 1900, the markets for securities in
which the Fund invests could be detrimentally affected by computer failures
beginning January 1, 2000. Failure of computer systems used for securities
trading could result in settlement and liquidity problems for the Fund and other
investors. That failure could have a negative impact on handling securities
trades, pricing and accounting services. Data processing errors by government
issuers of securities could result in economic uncertainties, and issuers may
incur substantial costs in attempting to prevent or fix such errors, all of
which could have a negative effect on the Fund's investments and returns.
The Manager, the Distributor and the Transfer Agent have been working on
necessary changes to their computer systems to deal with the year 2000 and
expect that their systems will be adapted in time for that event, although there
cannot be assurance of success. Additionally, the services they provide depend
on the interaction of their computer systems with those of brokers, information
services, the Fund's custodian bank and other parties. Therefore, any failure of
the computer systems of those parties to deal with the year 2000 may also have a
negative effect on the services they provide to the Fund. The extent of that
risk cannot be ascertained at this time.
ABOUT YOUR ACCOUNT
How to Buy Shares
HOW DO YOU BUY SHARES? You can buy shares several ways, as described below.
The Fund's Distributor, OppenheimerFunds Distributor, Inc., may appoint
servicing agents to accept purchase (and redemption) orders. The Distributor,
in its sole discretion, may reject any purchase order for the Fund's shares.
Buying Shares Through Your Dealer. You can buy shares through any dealer,
broker or financial institution that has a sales agreement with the
Distributor. Your dealer will place your order with the Distributor on your
behalf.
Buying Shares Through the Distributor. Complete an OppenheimerFunds New Account
Application and return it with a check payable to "OppenheimerFunds
Distributor, Inc." Mail it to P.O. Box 5270, Denver, Colorado 80217. If you
don't list a dealer on the application, the Distributor will act as your
agent in buying the shares. However, we recommend that you discuss your
investment with a financial advisor before you make a purchase to be sure
that the Fund is appropriate for you.
o Paying by Federal Funds Wire. Shares purchased through the Distributor may
be paid for by Federal Funds wire. The minimum investment is $2,500. Before
sending a wire, call the Distributor's Wire Department at 1.800.525.7048 to
notify the Distributor of the wire and to receive further instructions.
o Buying Shares Through OppenheimerFunds AccountLink. With AccountLink,
you pay for shares by electronic funds transfers from your bank account.
Shares are purchased for your account by a transfer of money from your
bank account through the Automated Clearing House (ACH) system. You can
provide those instructions automatically, under an Asset Builder Plan,
described below, or by telephone instructions using OppenheimerFunds
PhoneLink, also described below. Please refer to "AccountLink," below
for more details.
o Buying Shares Through Asset Builder Plans. You may purchase shares of the
Fund (and up to four other Oppenheimer funds) automatically each month from
your account at a bank or other financial institution under an Asset
Builder Plan with AccountLink. Details are in the Asset Builder Application
and the Statement of Additional Information.
HOW MUCH MUST YOU INVEST? You can buy Fund shares with a minimum initial
investment of $1,000. You can make additional purchases at any time with as
little as $25. There are reduced minimum investments under special investment
plans.
o With Asset Builder Plans, Automatic Exchange Plans and military allotment
plans, you can make initial and subsequent investments for as little as
$25. You can make additional purchases of at least $25 by telephone through
AccountLink.
o The minimum investment requirement does not apply to reinvesting dividends
from the Fund or other Oppenheimer funds (a list of them appears in the
Statement of Additional Information, or you can ask your dealer or call the
Transfer Agent), or reinvesting distributions from unit investment trusts
that have made arrangements with the Distributor.
AT WHAT PRICE ARE SHARES SOLD? Shares are sold at their offering price, which is
the net asset value per share plus any initial sales charge that applies. The
offering price that applies to a purchase order is based on the next calculation
of the net asset value per share that is made after the Distributor receives the
purchase order at its offices in Denver, Colorado, or after any agent appointed
by the Distributor receives the order and sends it to the Distributor. Net Asset
Value. The Fund calculates the net asset value of each class of
shares as of the close of The New York Stock Exchange, on each day the
Exchange is open for trading (referred to in this Prospectus as a "regular
business day"). The Exchange normally closes at 4:00 P.M., New York time,
but may close earlier on some days. All references to time in this
Prospectus mean "New York time". The net asset value per share is
determined by dividing the value of the Fund's net assets attributable to a
class by the number of shares of that class that are outstanding. To
determine net asset value, the Fund's Board of Trustees has established
procedures to value the Fund's securities, in general based on market
value. The Board has adopted special procedures for valuing illiquid
securities and obligations for which market values cannot be readily
obtained.
The Offering Price. To receive the offering price for a particular day, in most
cases the Distributor or its designated agent must receive your order by
the time of day The New York Stock Exchange closes that day. If your order
is received on a day when the Exchange is closed or after it has closed,
the order will receive the next offering price that is determined after
your order is received.
Buying Through s Dealer. If you buy shares through a dealer, your dealer must
receive the order by the close of The New York Stock Exchange and transmit
it to the Distributor so that it is received before the Distributor's close
of business on a regular business day (normally 5:00 P.M.) to receive that
day's offering price. Otherwise, the order will receive the next offering
price that is determined.
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WHAT CLASSES OF SHARES DOES THE FUND OFFER? The Fund offers investors three
different classes of shares. The different classes of shares represent
investments in the same portfolio of securities, but the classes are subject to
different expenses and will likely have different share prices. When you buy
shares, be sure to specify Class A, Class B or Class C shares. If you do not
choose a class, your investment will be made in Class A shares.
ClassA Shares. If you buy Class A shares, you pay an initial sales charge (on
investments up to $1 million). The amount of that sales charge will vary
depending on the amount you invest. The sales charge rates are listed in
"How Can You Buy Class A Shares?" below.
Class B Shares. If you buy Class B shares, you pay no sales charge at the
time of purchase, but you will pay an annual asset-based sales charge.
If you sell your shares within six years of buying them, you will
normally pay a contingent deferred sales charge. That sales charge
varies depending on how long you own your shares, as described in "How Can
You Buy Class B Shares?" below.
Class C Shares. If you buy Class C shares, you pay no sales charge at the
time of purchase, but you will pay an annual asset-based sales charge.
If you sell your shares within 12 months of buying them, you will
normally pay a contingent deferred sales charge of 1%, as described in "How
Can You Buy Class C Shares?" below.
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WHICH CLASS OF SHARES SHOULD YOU CHOOSE? Once you decide that the Fund is an
appropriate investment for you, the decision as to which class of shares is best
suited to your needs depends on a number of factors that you should discuss with
your financial advisor. Some factors to consider are how much you plan to invest
and how long you plan to hold your investment. If your goals and objectives
change over time and you plan to purchase additional shares, you should
re-evaluate those factors to see if you should consider another class of shares.
The Fund's operating costs that apply to a class of shares and the effect of the
different types of sales charges on your investment will vary your investment
results over time.
The discussion below is not intended to be investment advice or a
recommendation, because each investor's financial considerations are different.
You should review these factors with your financial advisor. The discussion
below assumes that you will purchase only one class of shares and not a
combination of shares of different classes. How Long Do You Expect to Hold Your
Investment? While future financial needs
cannot be predicted with certainty, knowing how long you expect to hold
your investment will assist you in selecting the appropriate class of
shares. Because of the effect of class-based expenses, your choice will
also depend on how much you plan to invest. For example, the reduced sales
charges available for larger purchases of Class A shares may, over time,
offset the effect of paying an initial sales charge on your investment,
compared to the effect over time of higher class-based expenses on shares
of Class B or Class C .
o Investing for the Shorter Term. While the Fund is meant to be a
long-term investment, if you have a relatively short-term investment
horizon (that is, you plan to hold your shares for not more than six
years), you should probably consider purchasing Class A or Class C
shares rather than Class B shares. That is because of the effect of the
Class B contingent deferred sales charge if you redeem within six years,
as well as the effect of the Class B asset-based sales charge on the
investment return for that class in the short-term. Class C shares might
be the appropriate choice (especially for investments of less than
$100,000), because there is no initial sales charge on Class C shares,
and the contingent deferred sales charge does not apply to amounts you
sell after holding them one year.
However, if you plan to invest more than $100,000 for the shorter term,
then as your investment horizon increases toward six years, Class C shares
might not be as advantageous as Class A shares. That is because the annual
asset-based sales charge on Class C shares will have a greater impact on
your account over the longer term than the reduced front-end sales charge
available for larger purchases of Class A shares.
And for investors who invest $1 million or more, in most cases Class A
shares will be the most advantageous choice, no matter how long you intend
to hold your shares. For that reason, the Distributor normally will not
accept purchase orders of $500,000 or more of Class B shares or $1 million
or more of Class C shares from a single investor.
o Investing for the Longer Term. If you are investing less than $100,000 for
the longer-term, for example for retirement, and do not expect to need
access to your money for seven years or more, Class B shares may be
appropriate.
Of course, these examples are based on approximations of the effect of
current sales charges and expenses projected over time, and do not detail
all of the considerations in selecting a class of shares. You should
analyze your options carefully with your financial advisor before making
that choice.
Are There Differences in Account Features That Matter to You? Some account
features (such as checkwriting) may not be available to Class B or Class C
shareholders. Other features may not be advisable (because of the effect of
the contingent deferred sales charge) for Class B or Class C shareholders.
Therefore, you should carefully review how you plan to use your investment
account before deciding which class of shares to buy. Additionally, the
dividends payable to Class B and Class C shareholders will be reduced by
the additional expenses borne by those classes that are not borne by Class
A shares, such as the Class B and Class C asset-based sales charge
described below and in the Statement of Additional Information. Share
certificates are not available for Class B and Class C shares, and if you
are considering using your shares as collateral for a loan, that may be a
factor to consider. Also, checkwriting privileges are not available for
Class B or Class C shares.
How Does It Affect Payments to My Broker? A salesperson, such as a broker, may
receive different compensation for selling one class of shares than for
selling another class. It is important to remember that Class B and Class C
contingent deferred sales charges and asset-based sales charges have the
same purpose as the front-end sales charge on sales of Class A shares: to
compensate the Distributor for commissions and expenses it pays to dealers
and financial institutions for selling shares. The Distributor may pay
additional compensation from its own resources to securities dealers or
financial institutions based upon the value of shares of the Fund owned by
the dealer or financial institution for its own account or for its
customers.
SPECIAL SALES CHARGE ARRANGEMENTS AND WAIVERS. Appendix C to the Statement of
Additional Information details the conditions for the waiver of sales charges
that apply in certain cases, and the special sales charge rates that apply to
purchases of shares of the Fund by certain groups, or under specified retirement
plan arrangements or in other special types of transactions. To receive a waiver
or special sales charge rate, you must advise the Distributor when purchasing
shares or the Transfer Agent when redeeming shares that the special conditions
apply.
HOW CAN YOU BUY CLASS A SHARES? Class A shares are sold at their offering price,
which is normally net asset value plus an initial sales charge. However, in some
cases, described below, purchases are not subject to an initial sales charge,
and the offering price will be the net asset value. In other cases, reduced
sales charges may be available, as described below or in the Statement of
Additional Information. Out of the amount you invest, the Fund receives the net
asset value to invest for your account.
The sales charge varies depending on the amount of your purchase. A portion
of the sales charge may be retained by the Distributor or allocated to your
dealer as commission. The Distributor reserves the right to reallow the entire
commission to dealers. The current sales charge rates and commissions paid to
dealers and brokers are as follows:
- -------------------------------------------------------------------------------
Front-End Sales Front-End Sales
Charge As a Charge As a Commission as
Percentage of Percentage of Percentage of
Amount of Purchase Offering Price Net Offering
Amount Invested Price
- -------------------------------------------------------------------------------
Less than $50,000 4.75% 4.98% 4.00%
- -------------------------------------------------------------------------------
$50,000 or more but less than 4.50% 4.71% 4.00%
$100,000
- -------------------------------------------------------------------------------
$100,000 or more but less than 3.50% 3.63% 3.00%
$250,000
- -------------------------------------------------------------------------------
$250,000 or more but less than 2.50% 2.56% 2.25%
$500,000
- -------------------------------------------------------------------------------
$500,000 or more but less than 2.00% 2.04% 1.80%
$1 million
ClassA Contingent Deferred Sales Charge. There is no initial sales charge on
purchases of Class A shares of any one or more of the Oppenheimer funds
aggregating $1 million or more. The Distributor pays dealers of record
commissions in an amount equal to 1.0% of purchases of $1 million or more
other than by retirement accounts. That commission will be paid only on
purchases that were not previously subject to a front-end sales charge and
dealer commission.
If you redeem any of those shares within 18 months of the end of the
calendar month of their purchase, a contingent deferred sales charge
(called the "Class A contingent deferred sales charge") may be deducted
from the redemption proceeds. That sales charge will be equal to 1.0% of
the lesser of (1) the aggregate net asset value of the redeemed shares at
the time of redemption (excluding shares purchased by reinvestment of
dividends or capital gain distributions) or (2) the original net asset
value of the redeemed shares. However, the Class A contingent deferred
sales charge will not exceed the aggregate amount of the commissions the
Distributor paid to your dealer on all purchases of Class A shares of all
Oppenheimer funds you made that were subject to the Class A contingent
deferred sales charge.
In determining whether a contingent deferred sales charge is payable when
shares are redeemed, the Fund will first redeem shares that are not subject
to the sales charge, including shares purchased by reinvestment of
dividends and capital gains. Then the Fund will redeem other shares in the
order in which you purchased them. The Class A contingent deferred sales
charge is waived in certain cases described in "Waivers of Class A Sales
Charges" in the Statement of Additional Information.
The Class A contingent deferred sales charge is not charged on exchanges of
shares under the Fund's Exchange Privilege (described below). However, if
the shares acquired by exchange are redeemed within 18 calendar months of
the end of the calendar month in which the exchanged shares were originally
purchased, then the sales charge will apply.
How Can You Reduce Sales Charges in Buying Class A Shares? You may be eligible
to buy Class A shares at reduced sales charge rates under the Fund's "Right of
Accumulation" or a Letter of Intent, as described in "Reduced Sales Charges" in
the Statement of Additional Information. The Class A initial and
contingent deferred sales charges are not imposed in the circumstances
described in "Reduced Sales Charges" in the Statement of Additional
Information.
HOW CAN YOU BUY CLASS B SHARES? Class B shares are sold at net asset value per
share without an initial sales charge. However, if Class B shares are redeemed
within 6 years of their purchase, a contingent deferred sales charge will be
deducted from the redemption proceeds. The Class B contingent deferred sales
charge is paid to compensate the Distributor for its expenses of providing
distribution-related services to the Fund in connection with the sale of Class B
shares.
The contingent deferred sales charge will be based on the lesser of the net
asset value of the redeemed shares at the time of redemption or the
original net asset value. The contingent deferred sales charge is not
imposed on:
o the amount of your account value represented by an increase in net asset
value over the initial purchase price,
o shares purchased by the reinvestment of dividends or capital gains
distributions, or
o shares redeemed in the special circumstances described in the Appendix in
the Statement of Additional Information.
To determine whether the contingent deferred sales charge applies to a
redemption, the Fund redeems shares in the following order:
1. shares acquired by reinvestment of dividends and capital gains
distributions,
2. shares held for over 6 years, and 3. shares held the longest during the
6-year period.
The amount of the contingent deferred sales charge will depend on the
number of years since you invested and the dollar amount being redeemed,
according to the following schedule:
------------------------------------------------------------------------------
Years Since Beginning of Month in Contingent Deferred Sales Charge on
Which Purchase Order Was Accepted Redemptions In that Year (As % of
Amount Subject to Charge)
------------------------------------------------------------------------------
0-1 5.0%
------------------------------------------------------------------------------
1-2 4.0%
------------------------------------------------------------------------------
2-3 3.0%
------------------------------------------------------------------------------
3-4 3.0%
------------------------------------------------------------------------------
4-5 2.0%
------------------------------------------------------------------------------
5-6 1.0%
------------------------------------------------------------------------------
6 and following None
In the table, a "year" is a 12-month period. In applying the sales charge, all
purchases are considered to have been made on the first regular business day of
the month in which the purchase was made.
Automatic Conversion of Class B Shares. Class B shares automatically convert to
Class A shares 72 months after you purchase them. This conversion feature
relieves Class B shareholders of the asset-based sales charge that applies
to Class B shares under the Class B Distribution and Service Plan,
described below. The conversion is based on the relative net asset value of
the two classes, and no sales load or other charge is imposed. When any
Class B shares you hold convert, any other Class B shares that were
acquired by the reinvesting of dividends and distributions on the converted
shares will also convert to Class A shares. The conversion feature is
subject to the continued availability of a tax ruling described in the
Statement of Additional Information.
HOW CAN YOU BUY CLASS C SHARES? Class C shares are sold at net asset value per
share without an initial sales charge. However, if Class C shares are redeemed
within 12 months of their purchase, a contingent deferred sales charge of 1.0%
will be deducted from the redemption proceeds. The Class C contingent deferred
sales charge is paid to compensate the Distributor for its expenses of providing
distribution-related services to the Fund in connection with the sale of Class C
shares.
The contingent deferred sales charge will be based on the lesser of the net
asset value of the redeemed shares at the time of redemption or the
original net asset value. The contingent deferred sales charge is not
imposed on:
o the amount of your account value represented by the increase in net asset
value over the initial purchase price,
o shares purchased by the reinvestment of dividends or capital gains
distributions, or
o shares redeemed in the special circumstances described in the Appendix to
the Statement of Additional Information. To determine whether the
contingent deferred sales charge applies to a redemption, the Fund redeems
shares in the following order:
1. shares acquired by reinvestment of dividends and capital gains
distributions,
2. shares held for over 12 months, and 3. shares held the longest during the
12-month period.
DISTRIBUTION AND SERVICE (12b-1)PLANS.
Service Plan for Class A Shares. The Fund has adopted a Service Plan for Class A
shares. It reimburses the Distributor for a portion of its costs incurred
for services provided to accounts that hold Class A shares. Reimbursement
is made quarterly at an annual rate of up to 0.25% of the average annual
net assets of Class A shares of the Fund. The Distributor currently uses
all of those fees to compensate dealers, brokers, banks and other financial
institutions quarterly for providing personal service and maintenance of
accounts of their customers that hold Class A shares.
Distribution and Service Plans for Class B and Class C Shares. The Fund has
adopted Distribution and Service Plans for Class B and Class C shares to
compensate the Distributor for its services and costs in distributing Class
B and Class C shares and servicing accounts. Under the plans, the Fund pays
the Distributor an annual asset-based sales charge of 0.75% per year on
Class B shares and on Class C shares. The Distributor also receives a
service fee of 0.25% per year under each plan.
The asset-based sales charge and service fees increase Class B and Class C
expenses by up to 1.00% of the net assets per year of the respective class.
Because these fees are paid out of the Fund's assets on an on-going basis,
over time these fees will increase the cost of your investment and may cost
you more than other types of sales charges.
The Distributor uses the service fees to compensate dealers for providing
personal services for accounts that hold Class B or Class C shares. The
Distributor pays the 0.25% service fees to dealers in advance for the first
year after the shares were sold by the dealer. After the shares have been
held for a year, the Distributor pays the service fees to dealers on a
quarterly basis.
The Distributor currently pays a sales commission of 3.75% of the purchase
price of Class B shares to dealers from its own resources at the time of
sale. Including the advance of the service fee, the total amount paid by
the Distributor to the dealer at the time of sales of Class B shares is
therefore 4.00% of the purchase price. The Distributor retains the Class B
asset-based sales charge.
The Distributor currently pays sales commissions of 0.75% of the purchase
price of Class C shares to dealers from its own resources at the time of
sale. Including the advance of the service fee, the total amount paid by
the Distributor to the dealer at the time of sale of Class C shares is
therefore 1.00% of the purchase price. The Distributor plans to pay the
asset-based sales charge as an ongoing commission to the dealer on Class C
shares that have been outstanding for a year or more.
Special Investor Services
ACCOUNTLINK. You can use our AccountLink feature to link your Fund account
with an account at a U.S. bank or other financial institution. It must be an
Automated Clearing House (ACH) member. AccountLink lets you:
o transmit funds electronically to purchase shares by telephone (through a
service representative or by PhoneLink) or automatically under Asset
Builder Plans, or
o have the Transfer Agent send redemption proceeds or to transmit dividends
and distributions directly to your bank account. Please call the Transfer
Agent for more information. You may purchase shares by telephone only after
your account has been
established. To purchase shares in amounts up to $250,000 through a telephone
representative, call the Distributor at 1.800.852.8452. The purchase payment
will be debited from your bank account.
AccountLink privileges should be requested on your Application or your
dealer's settlement instructions if you buy your shares through a dealer. After
your account is established, you can request AccountLink privileges by sending
signature-guaranteed instructions to the Transfer Agent. AccountLink privileges
will apply to each shareholder listed in the registration on your account as
well as to your dealer representative of record unless and until the Transfer
Agent receives written instructions terminating or changing those privileges.
After you establish AccountLink for your account, any change of bank account
information must be made by signature-guaranteed instructions to the Transfer
Agent signed by all shareholders who own the account.
PHONELINK. PhoneLink is the OppenheimerFunds automated telephone system that
enables shareholders to perform a number of account transactions
automatically using a touch-tone phone. PhoneLink may be used on
already-established Fund accounts after you obtain a Personal Identification
Number (PIN), by calling the special PhoneLink number, 1.800.533.3310.
Purchasing Shares. You may purchase shares in amounts up to $100,000 by
phone, by calling 1.800.533.3310. You must have established AccountLink
privileges to link your bank account with the Fund to pay for these
purchases.
Exchanging Shares. With the OppenheimerFunds Exchange Privilege, described
below, you can exchange shares automatically by phone from your Fund
account to another Oppenheimer funds account you have already established
by calling the special PhoneLink number.
Selling Shares. You can redeem shares by telephone automatically by calling the
PhoneLink number and the Fund will send the proceeds directly to your
AccountLink bank account. Please refer to "How to Sell Shares," below for
details.
CAN YOU SUBMIT TRANSACTION REQUESTS BY FAX? You may send requests for certain
types of account transactions to the Transfer Agent by fax (telecopier). Please
call 1-800-525-7048 for information about which transactions may be handled this
way. Transaction requests submitted by fax are subject to the same rules and
restrictions as written and telephone requests described in this Prospectus.
OPPENHEIMERFUNDS INTERNET WEB SITE. You can obtain information about the Fund,
as well as your account balance, on the OppenheimerFunds Internet web site, at
http://www.oppenheimerfunds.com. Additionally, shareholders listed in the
account registration (and the dealer of record) may request certain account
transactions through a special section of that web site. To perform account
transactions, you must first obtain a personal identification number (PIN) by
calling the Transfer Agent at 1-800-533-3310. If you do not want to have
Internet account transaction capability for your account, please call the
Transfer Agent at 1.800.525.7048.
AUTOMATIC WITHDRAWAL AND EXCHANGE PLANS. The Fund has several plans that enable
you to sell shares automatically or exchange them to another Oppenheimer fund
account on a regular basis. Please call the Transfer Agent or consult the
Statement of Additional Information for details.
REINVESTMENT PRIVILEGE. If you redeem some or all of your Class A or Class B
shares of the Fund, you have up to 6 months to reinvest all or part of the
redemption proceeds in Class A shares of the Fund or other Oppenheimer funds
without paying a sales charge. This privilege applies only to Class A shares
that you purchased subject to an initial sales charge and to Class A or Class B
shares on which you paid a contingent deferred sales charge when you redeemed
them. This privilege does not apply to Class C shares. You must be sure to ask
the Distributor for this privilege when you send your payment.
How to Sell Shares
You can sell (redeem) some or all of your shares on any regular business day.
Your shares will be sold at the next net asset value calculated after your order
is received in proper form (which means that it must comply with the procedures
described below) and is accepted by the Transfer Agent. The Fund lets you sell
your shares by writing a letter, by using the Fund's checkwriting privilege or
by telephone. You can also set up Automatic Withdrawal Plans to redeem shares on
a regular basis. If you have questions about any of these procedures, and
especially if you are redeeming shares in a special situation, such as due to
the death of the owner, please call the Transfer Agent first, at 1.800.525.7048,
for assistance.
Certain Requests Require a Signature Guarantee. To protect you and the Fund from
fraud, the following redemption requests must be in writing and must
include a signature guarantee (although there may be other situations that
also require a signature guarantee):
o You wish to redeem more than $100,000 and receive a check o The redemption
check is not payable to all shareholders listed on the
account statement
o The redemption check is not sent to the address of record on your
account statement
o Shares are being transferred to a Fund account with a different owner or
name
o Shares are being redeemed by someone (such as an Executor) other than
the owners
Where Can You Have Your Signature Guaranteed? The Transfer Agent will accept
a guarantee of your signature by a number of financial institutions,
including: a U.S. bank, trust company, credit union or savings
association, or by a foreign bank that has a U.S. correspondent bank, or
by a U.S. registered dealer or broker in securities, municipal
securities or government securities, or by a U.S. national securities
exchange, a registered securities association or a clearing agency. If
you are signing on behalf of a corporation, partnership or other
business or as a fiduciary, you must also include your title in the
signature.
HOW DO YOU SELL SHARES BY MAIL? Write a "letter of instructions" that
includes:
o Your name
o The Fund's name
o Your Fund account number (from your account statement) o The dollar amount
or number of shares to be redeemed o Any special payment instructions o Any
share certificates for the shares you are selling o The signatures of all
registered owners exactly as the account is
registered, and
o Any special documents requested by the Transfer Agent to assure proper
authorization of the person asking to sell the shares.
- --------------------------------------------------------------------------------
Use the following address for Send courier or express mail
requests by mail: requests to:
OppenheimerFunds Services OppenheimerFunds Services
P.O. Box 5270 10200 E. Girard Avenue, Building D
Denver, Colorado 80217 Denver, Colorado 80231
- --------------------------------------------------------------------------------
HOW DO YOU SELL SHARES BY TELEPHONE? You and your dealer representative of
record may also sell your shares by telephone. To receive the redemption price
calculated on a particular regular business day, your call must be received by
the Transfer Agent by the close of The New York Stock Exchange that day, which
is normally 4:00 P.M., but may be earlier on some days. You may not redeem
shares held under a share certificate by telephone.
o To redeem shares through a service representative, call 1.800.852.8457 o To
redeem shares automatically on PhoneLink, call 1.800.533.3310
Whichever method you use, you may have a check sent to the address on the
account statement, or, if you have linked your Fund account to your bank
account on AccountLink, you may have the proceeds sent to that bank
account.
ARE THERE LIMITS ON AMOUNTS REDEEMED BY TELEPHONE?
Telephone Redemptions Paid by Check. Up to $100,000 may be redeemed by
telephone in any 7-day period. The check must be payable to all owners of
record of the shares and must be sent to the address on the account
statement. This service is not available within 30 days of changing the
address on an account.
Telephone Redemptions Through AccountLink or Wire. There are no dollar limits on
telephone redemption proceeds sent to a bank account designated when you
establish AccountLink. Normally the ACH transfer to your bank is initiated
on the business day after the redemption. You do not receive dividends on
the proceeds of the shares you redeemed while they are waiting to be
transferred.
Shareholders may also have the Transfer Agent send redemption proceeds of
$2,500 or more by Federal Funds wire to a designated commercial bank
account. The bank must be a member of the Federal Reserve wire system.
There is a $10 fee for each Federal Funds wire. To place a wire redemption
request, call the Transfer Agent at 1.800.852.8457. The wire will normally
be transmitted on the next bank business day after the shares are redeemed.
There is a possibility that the wire may be delayed up to seven days to
enable the Fund to sell securities to pay the redemption proceeds. No
dividends are accrued or paid on the proceeds of shares that have been
redeemed and are awaiting transmittal by wire. To establish wire redemption
privileges on an account that is already established, please contact the
Transfer Agent for instructions.
CHECKWRITING. To write checks against your Fund account, request that privilege
on your account Application, or contact the Transfer Agent for signature cards.
They must be signed (with a signature guarantee) by all owners of the account
and returned to the Transfer Agent so that checks can be sent to you to use.
Shareholders with joint accounts can elect in writing to have checks paid over
the signature of one owner. If you previously signed a signature card to
establish checkwriting in another Oppenheimer fund, simply call 1.800.525.7048
to request checkwriting for an account in this Fund with the same registration
as the other account.
o Checks can be written to the order of whomever you wish, but may not be
cashed at the bank. The checks are payable through the Fund's custodian
bank.
o Checkwriting privileges are not available for accounts holding shares that
are subject to a contingent deferred sales charge.
o Checks must be written for at least $100.
o Checks cannot be paid if they are written for more than your account value.
Remember: your shares fluctuate in value and you should not write a check
close to the total account value.
o You may not write a check that would require the Fund to redeem shares that
were purchased by check or Asset Builder Plan payments within the prior 10
days.
o Don't use your checks if you changed your Fund account number, until you
receive new checks.
CAN YOU SELL SHARES THROUGH YOUR DEALER? The Distributor has made arrangements
to repurchase Fund shares from dealers and brokers on behalf of their customers.
Brokers or dealers may charge for that service. If your shares are held in the
name of your dealer, you must redeem them through your dealer.
How to Exchange Shares
Shares of the Fund may be exchanged for shares of certain Oppenheimer funds at
net asset value per share at the time of exchange, without sales charge. To
exchange shares, you must meet several conditions:
o Shares of the fund selected for exchange must be available for sale in your
state of residence.
o The prospectuses of this Fund and the fund whose shares you want to buy
must offer the exchange privilege.
o You must hold the shares you buy when you establish your account for at
least 7 days before you can exchange them. After the account is open 7
days, you can exchange shares every regular business day.
o You must meet the minimum purchase requirements for the fund whose shares
you purchase by exchange.
o Before exchanging into a fund, you must obtain and read its prospectus.
Shares of a particular class of the Fund may be exchanged only for shares
of the same class in the other Oppenheimer funds. For example, you can exchange
Class A shares of this Fund only for Class A shares of another fund. In some
cases, sales charges may be imposed on exchange transactions. For tax purposes,
exchanges of shares involve a sale of the shares of the fund you own and a
purchase of the shares of the other fund, which may result in a capital gain or
loss. Please refer to "How to Exchange Shares" in the Statement of Additional
Information for more details.
You can find a list of Oppenheimer funds currently available for exchanges
in the Statement of Additional Information or obtain one by calling a service
representative at 1-800-525-7048. That list can change from time to time.
HOW DO YOU SUBMIT EXCHANGE REQUESTS? Exchanges may be requested in writing or
by telephone:
Written Exchange Requests. Submit an OppenheimerFunds Exchange Request form,
signed by all owners of the account. Send it to the Transfer Agent at
the address on the Back Cover.
Telephone Exchange Requests. Telephone exchange requests may be made either by
calling a service representative at 1.800.852.8457, or by using PhoneLink
for automated exchanges by calling 1.800.533.3310. Telephone exchanges may
be made only between accounts that are registered with the same name(s) and
address. Shares held under certificates may not be exchanged by telephone.
ARE THERE LIMITATIONS ON EXCHANGES? There are certain exchange policies you
should be aware of:
o Shares are normally redeemed from one fund and purchased from the other
fund in the exchange transaction on the same regular business day on
which the Transfer Agent receives an exchange request that conforms to
the policies described above. It must be received by the close of The
New York Stock Exchange that day, which is normally 4:00 P.M. but may be
earlier on some days. However, either fund may delay the purchase of
shares of the fund you are exchanging into up to seven days if it
determines it would be disadvantaged by a same-day exchange. For
example, the receipt of multiple exchange requests from a "market timer"
might require the Fund to sell securities at a disadvantageous time
and/or price.
o Because excessive trading can hurt fund performance and harm shareholders,
the Fund reserves the right to refuse any exchange request that it believes
will disadvantage it, or to refuse multiple exchange requests submitted by
a shareholder or dealer.
o The Fund may amend, suspend or terminate the exchange privilege at any
time. The Fund will provide you notice whenever it is required to do so by
applicable law, but it may impose changes at any time for emergency
purposes.
o If the Transfer Agent cannot exchange all the shares you request because of
a restriction cited above, only the shares eligible for exchange will be
exchanged.
Shareholder Account Rules and Policies
The Offering Of Shares may be suspended during any period in which the
determination of net asset value is suspended, and the offering may be
suspended by the Board of Trustees at any time the Board believes it is in
the Fund's best interest to do so.
Telephone Transaction Privileges for purchases, redemptions or exchanges may be
modified, suspended or terminated by the Fund at any time. If an account
has more than one owner, the Fund and the Transfer Agent may rely on the
instructions of any one owner. Telephone privileges apply to each owner of
the account and the dealer representative of record for the account unless
the Transfer Agent receives cancellation instructions from an owner of the
account.
The Transfer Agent Will Record Any Telephone Calls to verify data concerning
transactions and has adopted other procedures to confirm that telephone
instructions are genuine, by requiring callers to provide tax
identification numbers and other account data or by using PINs, and by
confirming such transactions in writing. The Transfer Agent and the Fund
will not be liable for losses or expenses arising out of telephone
instructions reasonably believed to be genuine.
Redemption Or Transfer Requests Will Not Be Honored Until The Transfer Agent
Receives All Required Documents In Proper Form. From time to time, the
Transfer Agent in its discretion may waive certain of the requirements for
redemptions stated in this Prospectus.
Dealers That Can Perform Account Transactions For Their Clients By Participating
In NETWORKING through the National Securities Clearing Corporation are
responsible for obtaining their clients' permission to perform those
transactions, and are responsible to their clients who are shareholders of
the Fund if the dealer performs any transaction
erroneously or improperly.
The Redemption Prices For Shares Will Vary from day to day because the value of
the securities in the Fund's portfolio fluctuates. The redemption price,
which is the net asset value per share, will normally differ for each class
of shares. The redemption value of your shares may be more or less than
their original cost.
Payment For Redeemed Shares ordinarily is made in cash. It is forwarded by check
or through AccountLink or by Federal Funds wire (as elected by the
shareholder) within seven days after the Transfer Agent receives redemption
instructions in proper form. However, under unusual circumstances
determined by the Securities and Exchange Commission, payment may be
delayed or suspended. For accounts registered in the name of a
broker-dealer, payment will normally be forwarded within three business
days after redemption.
The Transfer Agent May Delay Forwarding A Check or processing a payment via
AccountLink for recently purchased shares, but only until the purchase
payment has cleared. That delay may be as much as 10 days from the date the
shares were purchased. That delay may be avoided if you purchase shares by
Federal Funds wire or certified check, or arrange with your bank to provide
telephone or written assurance to the Transfer Agent that your purchase
payment has cleared.
Involuntary Redemptions Of Small Accounts may be made by the Fund if the account
value has fallen below $500 for reasons other than the fact that the market
value of shares has dropped. In some cases involuntary redemptions may be
made to repay the Distributor for losses from the cancellation of share
purchase orders.
Shares May Be "Redeemed In Kind" under unusual circumstances (such as a lack of
liquidity in the Fund's portfolio to meet redemptions). This means that the
redemption proceeds will be paid with securities from the Fund's portfolio.
"Backup Withholding" of Federal income tax may be applied against taxable
dividends, distributions and redemption proceeds (including exchanges) if
you fail to furnish the Fund your correct, certified Social Security or
Employer Identification Number when you sign your application, or if you
under-report your income to the Internal Revenue Service.
To Avoid Sending Duplicate Copies Of Materials To Households, the Fund will
mail only one copy of each annual and semi-annual report to shareholders
having the same last name and address on the Fund's records. However, each
shareholder may call the Transfer Agent at 1.800.525.7048 to ask that
copies of those materials be sent personally to that shareholder.
Dividends and Taxes
DIVIDENDS. The Fund intends to declare dividends separately for Class A, Class B
and Class C shares from net tax-exempt income and/or net investment income each
regular business day and to pay those dividends to shareholders monthly on a
date selected by the Board of Trustees. Daily dividends will not be declared or
paid on newly purchased shares until Federal Funds are available to the Fund
from the purchase payment for such shares.
The Fund attempts to pay dividends on Class A shares at a constant level.
There is no assurance that it will be able to do so. The Board of Trustees may
change the targeted dividend level at any time, without prior notice to
shareholders. Additionally, the amount of those dividends and the distributions
paid on Class B and C shares may vary over time, depending on market conditions,
the composition of the Fund's portfolio, and expenses borne by the particular
class of shares. Dividends and distributions paid on Class A shares will
generally be higher than for Class B and Class C shares, which normally have
higher expenses than Class A. The Fund cannot guarantee that it will pay any
dividends or distributions.
CAPITAL GAINS. Although the Fund does not seek capital gains, it may realize
capital gains on the sale of portfolio securities. If it does, it may make
distributions out of any net short-term or long-term capital gains in December
of each year. The Fund may make supplemental distributions of dividends and
capital gains following the end of its fiscal year. Long-term capital gains will
be separately identified in the tax information the Fund sends you after the end
of the calendar year.
WHAT ARE YOUR CHOICES FOR RECEIVING DISTRIBUTIONS? When you open your
account, specify on your application how you want to receive your dividends
and distributions. You have four options:
Reinvest All Distributions in the Fund. You can elect to reinvest all
dividends and capital gains distributions in additional shares of the
Fund.
Reinvest Dividends or Capital Gains. You can elect to reinvest some
distributions (dividends, short-term capital gains or long-term capital
gains distributions) in the Fund while receiving the other types of
distributions by check or having them sent to your bank account through
AccountLink.
Receive All Distributions in Cash. You can elect to receive a check for all
dividends and capital gains distributions or have them sent to your bank
through AccountLink.
Reinvest Your Distributions in Another OppenheimerFunds Account. You can
reinvest all distributions in the same class of shares of another
Oppenheimer fund account you have established.
TAXES. Dividends paid from net investment income earned by the Fund on municipal
securities will be excludable from gross income for Federal individual income
tax purposes. A portion of a dividend that is derived from interest paid on
certain "private activity bonds" may be an item of tax preference if you are
subject to the alternative minimum tax. If the Fund earns interest on taxable
investments, any dividends derived from those earnings will be taxable as
ordinary income to shareholders.
Dividends and capital gains distributions may be subject to state or local
taxes. Long-term capital gains are taxable as long-term capital gains when
distributed to shareholders. It does not matter how long you have held your
shares. Dividends paid from short-term capital gains are taxable as ordinary
income. Whether you reinvest your distributions in additional shares or take
them in cash, the tax treatment is the same. Every year the Fund will send you
and the IRS a statement showing the amount of any taxable distribution you
received in the previous year as well as the amount of your tax-exempt income.
Remember There May be Taxes on Transactions. Even though the Fund seeks to
distribute tax-exempt income to shareholders, you may have a capital gain
or loss when you sell or exchange your shares. A capital gain or loss is
the difference between the price you paid for the shares and the price you
received when you sold them. Any capital gain is subject to capital gains
tax.
Returns of Capital Can Occur. In certain cases, distributions made by the Fund
may be considered a non-taxable return of capital to shareholders. If that
occurs, it will be identified in notices to shareholders.
This information is only a summary of certain federal income tax
information about your investment. You should consult with your tax adviser
about the effect of an investment in the Fund on your particular tax situation.
Financial Highlights
The Financial Highlights Table is presented to help you understand the Fund's
financial performance for the past 5 fiscal years. Certain information reflects
financial results for a single Fund share. The total returns in the table
represent the rate that an investor would have earned (or lost) on an investment
in the Fund (assuming reinvestment of all dividends and distributions). This
information has been audited by KPMG LLP, the Fund's independent auditors, whose
report, along with the Fund's financial statements, is included in the Statement
of Additional Information, which is available on request.
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
YEAR ENDED| YEAR ENDED|
JULY 31,| DECEMBER 31,|
CLASS A 1999 1998 1997 1996(1)| 1995 1994|
===============================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING DATA
Net asset value, beginning of period $10.27 $10.24 $ 9.74 $9.98 $8.93 $10.44
- -----------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .52 .51 .55 .32 .54 .57
Net realized and unrealized gain (loss) (.25) .04 .49 (.25) 1.06 (1.52)
------ ------ ------ ------ ------ ------
Total income (loss) from
investment operations .27 .55 1.04 .07 1.60 (.95)
- -----------------------------------------------------------------------------------------------------------------------------
Dividends and distributions to
shareholders:
Dividends from
net investment income (.52) (.52) (.54) (.31) (.54) (.56)
Dividends in excess of
net investment income -- -- -- -- (.01) --
------ ------ ------ ------ ------ ------
Total dividends and
distributions to shareholders (.52) (.52) (.54) (.31) (.55) (.56)
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $10.02 $10.27 $10.24 $9.74 $9.98 $ 8.93
====== ====== ====== ====== ===== ======
=============================================================================================================================
TOTAL RETURN, AT NET ASSET VALUE(2) 2.57% 5.55% 10.97% 0.77% 18.28% (9.19)%
=============================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period
(in thousands) $568,673 $579,570 $586,546 $590,299 $634,473 $541,161
- -----------------------------------------------------------------------------------------------------------------------------
Average net assets
(in thousands) $587,197 $581,630 $582,624 $606,509 $569,859 $582,038
- -----------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:(3)
Net investment income 5.00% 5.00% 5.55% 5.58% 5.65% 5.94%
Expenses 0.87% 0.87%(4) 0.87%(4) 0.92%(4) 0.88%(4) 0.88%
- -----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(5) 18% 21% 24% 24% 25% 22%
</TABLE>
1. For the seven months ended July 31, 1996. The Fund changed its fiscal year
end from December 31 to July 31.
2. Assumes a $1,000 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.
3. Annualized for periods of less than one full year.
4. Expense ratio reflects the effect of expenses paid indirectly by the Fund.
5. 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, 1999, were $145,629,048 and $121,967,453,
respectively.
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED| YEAR ENDED|
JULY 31,| DECEMBER 31,|
CLASS B 1999 1998 1997 1996(1)| 1995 1994|
=============================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING DATA
Net asset value, beginning of period $10.25 $10.22 $ 9.73 $9.96 $8.92 $10.43
- -----------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .44 .43 .47 .27 .47 .50
Net realized and
unrealized gain (loss) (.25) .04 .48 (.23) 1.05 (1.52)
------- ------ ------ ------ ------ ------
Total income (loss) from
investment operations .19 .47 .95 .04 1.52 (1.02)
- -----------------------------------------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from
net investment income (.44) (.44) (.46) (.27) (.47) (.49)
Dividends in excess of
net investment income -- -- -- -- (.01) --
------- ------ ------ ------ ------ ------
Total dividends and
distributions to shareholders (.44) (.44) (.46) (.27) (.48) (.49)
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $10.00 $10.25 $10.22 $9.73 $9.96 $ 8.92
======= ====== ====== ===== ===== ======
=============================================================================================================================
TOTAL RETURN, AT NET ASSET VALUE(2) 1.78% 4.75% 10.05% 0.43% 17.30% (9.91)%
=============================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period
(in thousands) $90,022 $91,677 $83,897 $74,055 $72,488 $53,245
- -----------------------------------------------------------------------------------------------------------------------------
Average net assets
(in thousands) $96,352 $88,531 $77,881 $73,047 $63,669 $46,548
- -----------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:(3)
Net investment income 4.22% 4.21% 4.76% 4.79% 4.84% 5.11%
Expenses 1.65% 1.65%(4) 1.65%(4) 1.70%(4) 1.68%(4) 1.69%
- -----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(5) 18% 21% 24% 24% 25% 22%
</TABLE>
1. For the seven months ended July 31, 1996. The Fund changed its fiscal year
end from December 31 to July 31.
2. Assumes a $1,000 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.
3. Annualized for periods of less than one full year.
4. Expense ratio reflects the effect of expenses paid indirectly by the Fund.
5. 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, 1999, were $145,629,048 and $121,967,453,
respectively.
<PAGE>
FINANCIAL HIGHLIGHTS (Continued)
<TABLE>
<CAPTION>
YEAR| PERIOD|
ENDED| ENDED|
JULY 31,| DEC. 31,|
CLASS C 1999 1998 1997 1996(1)| 1995(6)|
==============================================================================================================
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING DATA
Net asset value, beginning of period $10.25 $10.22 $ 9.73 $9.96 $9.58
- -----------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .44 .43 .46 .27 .15
Net realized and unrealized gain (loss) (.25) .04 .49 (.23) .39
------ ------ ------ ------ ------
Total income (loss) from
investment operations .19 .47 .95 .04 .54
- -----------------------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income (.44) (.44) (.46) (.27) (.15)
Dividends in excess of
net investment income -- -- -- -- (.01)
------ ------ ------ ------ ------
Total dividends and
distributions to shareholders (.44) (.44) (.46) (.27) (.16)
- -----------------------------------------------------------------------------------------------------------
Net asset value, end of period $10.00 $10.25 $10.22 $9.73 $9.96
====== ====== ====== ===== =====
===========================================================================================================
TOTAL RETURN, AT NET ASSET VALUE(2) 1.78% 4.75% 10.03% 0.40% 5.64%
===========================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period
(in thousands) $18,621 $12,857 $8,648 $4,210 $1,975
- -----------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $16,868 $10,655 $5,724 $3,105 $1,506
- -----------------------------------------------------------------------------------------------------------
Ratios to average net assets:(3)
Net investment income 4.22% 4.30% 4.72% 4.72% 4.49%
Expenses 1.65% 1.64%(4) 1.67%(4) 1.75%(4) 1.64%(4)
- -----------------------------------------------------------------------------------------------------------
Portfolio turnover rate(5) 18% 21% 24% 24% 25%
- -----------------------------------------------------------------------------------------------------------
</TABLE>
1. For the seven months ended July 31, 1996. The Fund changed its fiscal year
end from December 31 to July 31.
2. Assumes a $1,000 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.
3. Annualized for periods of less than one full year.
4. Expense ratio reflects the effect of expenses paid indirectly by the Fund.
5. 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, 1999, were $145,629,048 and $121,967,453,
respectively.
6. For the period from August 29, 1995 (inception of offering) to December 31,
1995.
<PAGE>
Appendix to Prospectus of
Oppenheimer Municipal Bond Fund
Graphic Material included in the Prospectus of Oppenheimer Municipal
Bond Fund: "Annual Total Returns (Class A) (% as of 7/31 each year)":
A bar chart will be included in the Prospectus of Oppenheimer Municipal
Bond Fund (the "Fund") depicting the annual total returns of a hypothetical
investment in Class A shares of the Fund for each of the last ten calendar
years, without deducting sales charges. Set forth below are the relevant data
points that will appear on the bar chart.
Calendar Oppenheimer
Year Municipal Bond Fund
Ended Class A Shares
12/31/98 6.05%
12/31/97 9.38%
12/31/96 5.17%
12/31/95 18.28%
12/31/94 -9.19%
12/31/93 13.79%
12/31/92 9.20%
12/31/91 12.11%
12/31/90 5.93%
12/31/89 9.43%
<PAGE>
INFORMATION AND SERVICES
For More Information on Oppenheimer Municipal Bond Fund: The following
additional information about the Fund is available without charge upon request:
STATEMENT OF ADDITIONAL INFORMATION This document includes additional
information about the Fund's investment policies, risks, and operations. It is
incorporated by reference into this Prospectus (which means it is legally part
of this Prospectus).
ANNUAL AND SEMI-ANNUAL REPORTS Additional information about the Fund's
investments and performance is available in the Fund's Annual and Semi-Annual
Reports to shareholders. The Annual Report includes a discussion of market
conditions and investment strategies that significantly affected the Fund's
performance during its last fiscal year.
How to Get More Information:
You can request the Statement of Additional Information, the Annual and
Semi-Annual Reports, and other information about the Fund or your account:
- -------------------------------------------------------------------------------
By Telephone: Call OppenheimerFunds Services toll-free:
1.800.525.7048
- -------------------------------------------------------------------------------
By Mail: Write to:
OppenheimerFunds Services
P.O. Box 5270
Denver, Colorado 80217-5270
- -------------------------------------------------------------------------------
On the Internet: You can read or down-load documents on
the OppenheimerFunds web site:
http://www.oppenheimerfunds.com
- -------------------------------------------------------------------------------
You can also obtain copies of the Statement of Additional Information and other
Fund documents and reports by visiting the SEC's Public Reference Room in
Washington, D.C. (Phone 1.800.SEC.0330) or the SEC's Internet web site at
http://www.sec.gov. Copies may be obtained upon payment of a duplicating fee by
writing to the SEC's Public Reference Section, Washington, D.C. 20549-6009.
No one has been authorized to provide any information about the Fund or to make
any representations about the Fund other than what is contained in this
Prospectus. This Prospectus is not an offer to sell shares of the Fund, nor a
solicitation of an offer to buy shares of the Fund, to any person in any state
or other jurisdiction where it is unlawful to make such an offer.
SEC File No. 811-2668 The Fund's shares are distributed by:
PR0310.001.1199 [logo] Oppenheimer Funds Distributors, Inc.
Printed on recycled paper. Distributor, Inc.
<PAGE>
Oppenheimer Municipal Bond Fund
Two World Trade Center, New York, New York 10048-0203
1-800-525-7048
Statement of Additional Information dated November 19, 1999
This Statement of Additional Information is not a Prospectus. This document
contains additional information about the Fund and supplements information in
the Prospectus dated November 19, 1999. It should be read together with the
Prospectus, which may be obtained by writing to the Fund's Transfer Agent,
OppenheimerFunds Services, at P.O. Box 5270, Denver, Colorado 80217 or by
calling the Transfer Agent at the toll-free number shown above or by downloading
it from the OppenheimerFunds Internet web site at www.oppenheimerfunds.com.
Contents
Page
About the Fund
Additional Information About the Fund's Investment Policies and Risks... 2
The Fund's Investment Policies...................................... 2
Other Investment Techniques and Strategies.......................... 7
Investment Restrictions............................................. 18
How the Fund is Managed ................................................ 20
Organization and History............................................ 20
Trustees and Officers of the Fund................................... 21
The Manager......................................................... 27
Brokerage Policies of the Fund...................................... 28
Distribution and Service Plans...................................... 30
Performance of the Fund............................................. 33
About Your Account
How To Buy Shares....................................................... 38
How To Sell Shares...................................................... 45
How to Exchange Shares.................................................. 49
Dividends, Capital Gains and Taxes...................................... 52
Additional Information About the Fund................................... 54
Financial Information About the Fund
Independent Auditors' Report............................................ 55
Financial Statements ................................................... 56
Appendix A: Municipal Bond Ratings...................................... A-1
Appendix B: Industry Classifications.................................... B-1
Appendix C: Special Sales Charge Arrangements and Waivers............... C-1
<PAGE>
ABOUT THE FUND
Additional Information About the Fund's Investment Policies and Risks
The investment objective and the principal investment policies of the Fund
are described in the Prospectus. This Statement of Additional Information
contains supplemental information about those policies and the types of
securities that the Fund's investment Manager, OppenheimerFunds, Inc., will
select for the Fund. Additional explanations are also provided about the
strategies the Fund may use to try to achieve its objective.
The Fund's Investment Policies. The Fund does not make investments with the
objective of seeking capital growth, since that would generally be inconsistent
with its goal of seeking tax-exempt income. However, the value of the securities
held by the Fund may be affected by changes in general interest rates. Because
the current value of debt securities varies inversely with changes in prevailing
interest rates, if interest rates increased after a security was purchased, that
security would normally decline in value. Conversely, should interest rates
decrease after a security was purchased, normally its value would rise.
However, those fluctuations in value will not generally result in realized
gains or losses to the Fund unless the Fund sells the security prior to
maturity. A debt security held to maturity is redeemable by its issuer at full
principal value plus accrued interest. The Fund does not usually intend to
dispose of securities prior to their maturity, but may do so for liquidity, or
because of other factors affecting the issuer that cause the Manager to sell the
particular security. In that case, the Fund could experience a capital gain or
loss on the sale.
There are variations in the credit quality of municipal securities, both
within a particular rating classification and between classifications. These
variations depend on numerous factors. The yields of municipal securities depend
on a number of factors, including general conditions in the municipal securities
market, the size of a particular offering, the maturity of the obligation and
rating (if any) of the issue. These factors are discussed in greater detail
below.
Municipal Securities. The types of municipal securities in which the Fund may
invest are described in the Prospectus under "About the Fund's Investments."
Municipal securities are generally classified as general obligation bonds,
revenue bonds and notes. A discussion of the general characteristics of these
principal types of municipal securities follows below.
|X| Municipal Bonds. We have classified longer term municipal securities as
"municipal bonds." The principal classifications of long-term municipal bonds
are "general obligation" and "revenue" (including "industrial development")
bonds. They may have fixed, variable or floating rates of interest, as described
below.
Some bonds may be "callable," allowing the issuer to redeem them before
their maturity date. To protect bondholders, callable bonds may be issued with
provisions that prevent them from being called for a period of time. Typically,
that is 5 to 10 years from the issuance date. When interest rates decline, if
the call protection on a bond has expired, it is more likely that the issuer may
call the bond. If that occurs, the Fund might have to reinvest the proceeds of
the called bond in bonds that pay a lower rate of return.
|_| General Obligation Bonds. The basic security behind general
obligation bonds is the issuer's pledge of its full faith and credit and taxing
power, if any, for the repayment of principal and the payment of interest.
Issuers of general obligation bonds include states, counties, cities, towns, and
regional districts. The proceeds of these obligations are used to fund a wide
range of public projects, including construction or improvement of schools,
highways and roads, and water and sewer systems. The rate of taxes that can be
levied for the payment of debt service on these bonds may be limited or
unlimited. Additionally, there may be limits as to the rate or amount of special
assessments that can be levied to meet these obligations.
|_| Revenue Bonds. The principal security for a revenue bond is
generally the net revenues derived from a particular facility, group of
facilities, or, in some cases, the proceeds of a special excise tax or other
specific revenue source. Revenue bonds are issued to finance a wide variety of
capital projects. Examples include electric, gas, water and sewer systems;
highways, bridges, and tunnels; port and airport facilities; colleges and
universities; and hospitals.
Although the principal security for these types of bonds may vary
from bond to bond, many provide additional security in the form of a debt
service reserve fund that may be used to make principal and interest payments on
the issuer's obligations. Housing finance authorities have a wide range of
security, including partially or fully insured mortgages, rent subsidized and/or
collateralized mortgages, and/or the net revenues from housing or other public
projects. Some authorities provide further security in the form of a state's
ability (without obligation) to make up deficiencies in the debt service reserve
fund.
|_| Industrial Development Bonds. Industrial development bonds are
considered municipal bonds if the interest paid is exempt from federal income
tax. They are issued by or on behalf of public authorities to raise money to
finance various privately operated facilities for business and manufacturing,
housing, sports, and pollution control. These bonds may also be used to finance
public facilities such as airports, mass transit systems, ports, and parking.
The payment of the principal and interest on such bonds is dependent solely on
the ability of the facility's user to meet its financial obligations and the
pledge, if any, of real and personal property financed by the bond as security
for those payments.
|_| Private Activity Municipal Securities. The Tax Reform Act of
1986 (the "Tax Reform Act") reorganized, as well as amended, the rules governing
tax exemption for interest on certain types of municipal securities. The Tax
Reform Act generally did not change the tax treatment of bonds issued in order
to finance governmental operations. Thus, interest on general obligation bonds
issued by or on behalf of state or local governments, the proceeds of which are
used to finance the operations of such governments, continues to be tax-exempt.
However, the Tax Reform Act limited the use of tax-exempt bonds for
non-governmental (private) purposes. More stringent restrictions were placed on
the use of proceeds of such bonds. Interest on certain private activity bonds is
taxable under the revised rules. There is an exception for "qualified"
tax-exempt private activity bonds, for example, exempt facility bonds including
certain industrial development bonds, qualified mortgage bonds, qualified
Section 501(c)(3) bonds, and qualified student loan bonds.
In addition, limitations as to the amount of private activity bonds which
each state may issue were revised downward by the Tax Reform Act, which will
reduce the supply of such bonds. The value of the Fund's portfolio could be
affected if there is a reduction in the availability of such bonds.
Interest on certain private activity bonds issued after August 7, 1986,
which continues to be tax-exempt, will be treated as a tax preference item
subject to the alternative minimum tax (discussed below) to which certain
taxpayers are subject. The Fund may hold municipal securities the interest on
which (and thus a proportionate share of the exempt-interest dividends paid by
the Fund) will be subject to the Federal alternative minimum tax on individuals
and corporations.
The Federal alternative minimum tax is designed to ensure that all persons
who receive income pay some tax, even if their regular tax is zero. This is
accomplished in part by including in taxable income certain tax preference items
that are used to calculate alternative minimum taxable income. The Tax Reform
Act made tax-exempt interest from certain private activity bonds a tax
preference item for purposes of the alternative minimum tax on individuals and
corporations. Any exempt-interest dividend paid by a regulated investment
company will be treated as interest on a specific private activity bond to the
extent of the proportionate relationship the interest the investment company
receives on such bonds bears to all its exempt interest dividends.
In addition, corporate taxpayers subject to the alternative minimum tax
may, under some circumstances, have to include exempt-interest dividends in
calculating their alternative minimum taxable income. That could occur in
situations where the "adjusted current earnings" of the corporation exceeds its
alternative minimum taxable income.
To determine whether a municipal security is treated as a taxable private
activity bond, it is subject to a test for: (a) a trade or business use and
security interest, or (b) a private loan restriction. Under the trade or
business use and security interest test, an obligation is a private activity
bond if: (i) more than 10% of the bond proceeds are used for private business
purposes and (ii) 10% or more of the payment of principal or interest on the
issue is directly or indirectly derived from such private use or is secured by
the privately used property or the payments related to the use of the property.
For certain types of uses, a 5% threshold is substituted for this 10% threshold.
The term "private business use" means any direct or indirect use in a trade
or business carried on by an individual or entity other than a state or
municipal governmental unit. Under the private loan restriction, the amount of
bond proceeds that may be used to make private loans is limited to the lesser of
5% or $5.0 million of the proceeds. Thus, certain issues of municipal securities
could lose their tax-exempt status retroactively if the issuer fails to meet
certain requirements as to the expenditure of the proceeds of that issue or the
use of the bond-financed facility. The Fund makes no independent investigation
of the users of such bonds or their use of proceeds of the bonds. If the Fund
should hold a bond that loses its tax-exempt status retroactively, there might
be an adjustment to the tax-exempt income previously distributed to
shareholders.
Additionally, a private activity bond that would otherwise be a qualified
tax-exempt private activity bond will not, under Internal Revenue Code Section
147(a), be a qualified bond for any period during which it is held by a person
who is a "substantial user" of the facilities or by a "related person" of such a
substantial user. This "substantial user" provision applies primarily to exempt
facility bonds, including industrial development bonds. The Fund may invest in
industrial development bonds and other private activity bonds. Therefore, the
Fund may not be an appropriate investment for entities which are "substantial
users" (or persons related to "substantial users") of such exempt facilities.
Those entities and persons should consult their tax advisers before purchasing
shares of the Fund.
A "substantial user" of such facilities is defined generally as a
"non-exempt person who regularly uses part of a facility" financed from the
proceeds of exempt facility bonds. Generally, an individual will not be a
"related person" under the Internal Revenue Code unless such individual or the
individual's immediate family (spouse, brothers, sisters and immediate
descendants) own directly or indirectly in the aggregate more than 50% in value
of the equity of a corporation or partnership which is a "substantial user" of a
facility financed from the proceeds of exempt facility bonds.
|X| Municipal Notes. Municipal securities having a maturity (when the
security is issued) of less than one year are generally known as municipal
notes. Municipal notes generally are used to provide for short-term working
capital needs. Some of the types of municipal notes the Fund can invest in are
described below.
|_| Tax Anticipation Notes. These are issued to finance working
capital needs of municipalities. Generally, they are issued in anticipation of
various seasonal tax revenue, such as income, sales, use or other business
taxes, and are payable from these specific future taxes.
|_| Revenue Anticipation Notes. These are notes issued in
expectation of receipt of other types of revenue, such as Federal revenues
available under Federal revenue-sharing programs.
|_| Bond Anticipation Notes. Bond anticipation notes are issued to
provide interim financing until long-term financing can be arranged. The
long-term bonds that are issued typically also provide the money for the
repayment of the notes.
|_| Construction Loan Notes. These are sold to provide project
construction financing until permanent financing can be secured. After
successful completion and acceptance of the project, it may receive permanent
financing through public agencies, such as the Federal Housing Administration.
|X| Tax Exempt Commercial Paper. This type of short-term obligation
(usually having a maturity of 270 days or less) is issued by a municipality
to meet current working capital needs.
|X| Municipal Lease Obligations. The Fund's investments in municipal lease
obligations may be through certificates of participation that are offered to
investors by public entities. Municipal leases may take the form of a lease or
an installment purchase contract issued by a state or local government authority
to obtain funds to acquire a wide variety of equipment and facilities.
Some municipal lease securities may be deemed to be "illiquid" securities.
Their purchase by the Fund would be limited as described below in "Illiquid
Securities." From time to time the Fund may invest more than 5% of its net
assets in municipal lease obligations that the Manager has determined to be
liquid under guidelines set by the Board of Trustees. Those guidelines require
the Manager to evaluate:
|_| the frequency of trades and price quotations for such securities; |_|
the number of dealers or other potential buyers willing to purchase
or sell such securities; |_| the availability of market-makers; and |_|
the nature of the trades for such securities.
While the Fund holds such securities, the Manager will also evaluate the
likelihood of a continuing market for these securities and their credit quality.
Municipal leases have special risk considerations. Although lease
obligations do not constitute general obligations of the municipality for which
the municipality's taxing power is pledged, a lease obligation is ordinarily
backed by the municipality's covenant to budget for, appropriate and make the
payments due under the lease obligation. However, certain lease obligations
contain "non-appropriation" clauses which provide that the municipality has no
obligation to make lease or installment purchase payments in future years unless
money is appropriated for that purpose on a yearly basis. While the obligation
might be secured by the lease, it might be difficult to dispose of that property
in case of a default.
Projects financed with certificates of participation generally are not
subject to state constitutional debt limitations or other statutory requirements
that may apply to other municipal securities. Payments by the public entity on
the obligation underlying the certificates are derived from available revenue
sources. That revenue might be diverted to the funding of other municipal
service projects. Payments of interest and/or principal with respect to the
certificates are not guaranteed and do not constitute an obligation of a state
or any of its political subdivisions.
In addition to the risk of "non-appropriation," municipal lease securities
do not have as highly liquid a market as conventional municipal bonds. Municipal
leases, like other municipal debt obligations, are subject to the risk of
non-payment of interest or repayment of principal by the issuer. The ability of
issuers of municipal leases to make timely lease payments may be adversely
affected in general economic downturns and as relative governmental cost burdens
are reallocated among federal, state and local governmental units. A default in
payment of income would result in a reduction of income to the Fund. It could
also result in a reduction in the value of the municipal lease and that, as well
as a default in repayment of principal, could result in a decrease in the net
asset value of the Fund.
|X| Ratings of Municipal Securities. Ratings by ratings organizations such
as Moody's Investors Service, Standard & Poor's Corporation and Fitch IBCA, Inc.
represent the respective rating agency's opinions of the credit quality of the
municipal securities they undertake to rate. However, their ratings are general
opinions and are not guarantees of quality. Municipal securities that have the
same maturity, coupon and rating may have different yields, while other
municipal securities that have the same maturity and coupon but different
ratings may have the same yield.
Lower grade securities may have a higher yield than securities rated in the
higher rating categories. In addition to having a greater risk of default than
higher-grade, securities, there may be less of a market for these securities. As
a result they may be harder to sell at an acceptable price. The additional risks
mean that the Fund may not receive the anticipated level of income from these
securities, and the Fund's net asset value may be affected by declines in the
value of lower-grade securities. However, because the added risk of lower
quality securities might not be consistent with the Fund's policy of
preservation of capital, the Fund limits its investments in lower quality
securities.
Subsequent to its purchase by the Fund, a municipal security may cease to
be rated or its rating may be reduced below the minimum required for purchase by
the Fund. Neither event requires the Fund to sell the security, but the Manager
will consider such events in determining whether the Fund should continue to
hold the security. To the extent that ratings given by Moody's, Standard &
Poor's, or Fitch change as a result of changes in those rating organizations or
their rating systems, the Fund will attempt to use comparable ratings as
standards for investments in accordance with the Fund's investment policies.
The Fund may buy municipal securities that are "pre-refunded." The issuer's
obligation to repay the principal value of the security is generally
collateralized with U.S. government securities placed in an escrow account. This
causes the pre-refunded security to have essentially the same risks of default
as a AAA-rated security.
A list of the rating categories of Moody's, S&P and Fitch for municipal
securities is contained in Appendix A to this Statement of Additional
Information. Because the Fund may purchase securities that are unrated by
nationally recognized rating organizations, the Manager will make its own
assessment of the credit quality of unrated issues the Fund buys. The Manager
will use criteria similar to those used by the rating agencies, and assigning a
rating category to a security that is comparable to what the Manager believes a
rating agency would assign to that security. However, the Manager's rating does
not constitute a guarantee of the quality of a particular issue.
Other Investment Techniques and Strategies. In seeking its objective, the Fund
may from time to time employ the types of investment strategies and investments
described below.
Portfolio Turnover. A change in the securities held by the Fund from buying
and selling investments is known as "portfolio turnover." Short-term trading
increases the rate of portfolio turnover and could increase the Fund's
transaction costs. However, the Fund ordinarily incurs little or no brokerage
expense because most of the Fund's portfolio transactions are principal trades
that do not require payment of brokerage commissions.
The Fund ordinarily does not trade securities to achieve short-term capital
gains, because they would not be tax-exempt income. To a limited degree, the
Fund may engage in short-term trading to attempt to take advantage of short-term
market variations. It may also do so to dispose of a portfolio security prior to
its maturity. That might be done if, on the basis of a revised credit evaluation
of the issuer or other considerations, the Fund believes such disposition
advisable or it needs to generate cash to satisfy requests to redeem Fund
shares. In those cases, the Fund may realize a capital gain or loss on its
investments. The Fund's annual portfolio turnover rate normally is not expected
to exceed 100%.
|X| Floating Rate and Variable Rate Obligations. Variable rate demand
obligations have a demand feature that allows the Fund to tender the obligation
to the issuer or a third party prior to its maturity. The tender may be at par
value plus accrued interest, according to the terms of the obligation.
The interest rate on a floating rate demand note is based on a stated
prevailing market rate, such as a bank's prime rate, the 91-day U.S. Treasury
Bill rate, or some other standard, and is adjusted automatically each time such
rate is adjusted. The interest rate on a variable rate demand note is also based
on a stated prevailing market rate but is adjusted automatically at specified
intervals of not less than one year. Generally, the changes in the interest rate
on such securities reduce the fluctuation in their market value. As interest
rates decrease or increase, the potential for capital appreciation or
depreciation is less than that for fixed-rate obligations of the same maturity.
The Manager may determine that an unrated floating rate or variable rate demand
obligation meets the Fund's quality standards by reason of being backed by a
letter of credit or guarantee issued by a bank that meets those quality
standards.
Floating rate and variable rate demand notes that have a stated maturity in
excess of one year may have features that permit the holder to recover the
principal amount of the underlying security at specified intervals not exceeding
one year and upon not more than 30 days' notice. The issuer of that type of note
normally has a corresponding right in its discretion, after a given period, to
prepay the outstanding principal amount of the note plus accrued interest.
Generally the issuer must provide a specified number of days' notice to the
holder.
|X| Inverse Floaters and Other Derivative Investments. Inverse floaters may
offer relatively high current income, reflecting the spread between long-term
and short-term tax exempt interest rates. As long as the municipal yield curve
remains relatively steep and short-term rates remain relatively low, owners of
inverse floaters will have the opportunity to earn interest at above-market
rates because they receive interest at the higher long-term rates but have paid
for bonds with lower short-term rates. If the yield curve flattens and shifts
upward, an inverse floater will lose value more quickly than a conventional
long-term bond. The Fund will invest in inverse floaters to seek higher
tax-exempt yields than are available from fixed-rate bonds that have comparable
maturities and credit ratings. In some cases the holder of an inverse floater
may have an option to convert the floater to a fixed-rate bond, pursuant to a
"rate-lock option."
Some inverse floaters have a feature known as an interest rate "cap" as
part of the terms of the investment. Investing in inverse floaters that have
interest rate caps might be part of a portfolio strategy to try to maintain a
high current yield for the Fund when the Fund has invested in inverse floaters
that expose the Fund to the risk of short-term interest rate fluctuations.
"Embedded" caps can be used to hedge a portion of the Fund's exposure to rising
interest rates. When interest rates exceed a pre-determined rate, the cap
generates additional cash flows that offset the decline in interest rates on the
inverse floater, and the hedge is successful. However, the Fund bears the risk
that if interest rates do not rise above the pre-determined rate, the cap (which
is purchased for additional cost) will not provide additional cash flows and
will expire worthless.
Inverse floaters are a form of derivative investment. Certain
derivatives, such as options, futures, indexed securities and entering into
swap agreements, can be used to increase or decrease the Fund's exposure to
changing security prices, interest rates or other factors that affect the
value of securities. However, these techniques could result in losses to
the Fund, if the Manager judges market conditions incorrectly or employs a
strategy that does not correlate well with the Fund's other investments.
These techniques can cause losses if the counterparty does not perform its
promises. An additional risk of investing in municipal securities that are
derivative investments is that their market value could be expected to vary
to a much greater extent than the market value of municipal securities that
are not derivative investments but have similar credit quality, redemption
provisions and maturities.
|X| When-Issued and Delayed Delivery Transactions. The Fund can purchase
securities on a "when-issued" basis, and may purchase or sell such securities on
a "delayed delivery" basis. "When-issued" or "delayed delivery" refers to
securities whose terms and indenture are available and for which a market
exists, but which are not available for immediate delivery.
When such transactions are negotiated the price (which is generally
expressed in yield terms) is fixed at the time the commitment is made. Delivery
and payment for the securities take place at a later date. Normally the
settlement date is within six months of the purchase of municipal bonds and
notes. However, the Fund may, from time to time, purchase municipal securities
having a settlement date more than six months and possibly as long as two years
or more after the trade date. The securities are subject to change in value from
market fluctuation during the settlement period. The value at delivery may be
less than the purchase price. For example, changes in interest rates in a
direction other than that expected by the Manager before settlement will affect
the value of such securities and may cause loss to the Fund.
The Fund will engage in when-issued transactions in order to secure what is
considered to be an advantageous price and yield at the time of entering into
the obligation. When the Fund engages in when-issued or delayed delivery
transactions, it relies on the buyer or seller, as the case may be, to complete
the transaction. Their failure to do so may cause the Fund to lose the
opportunity to obtain the security at a price and yield it considers
advantageous.
When the Fund engages in when-issued and delayed delivery transactions, it
does so for the purpose of acquiring or selling securities consistent with its
investment objective and policies for its portfolio or for delivery pursuant to
options contracts it has entered into, and not for the purposes of investment
leverage. Although the Fund will enter into when-issued or delayed-delivery
purchase transactions to acquire securities, the Fund may dispose of a
commitment prior to settlement. If the Fund chooses to dispose of the right to
acquire a when-issued security prior to its acquisition or to dispose of its
right to deliver or receive against a forward commitment, it may incur a gain or
loss.
At the time the Fund makes a commitment to purchase or sell a security on a
when-issued or forward commitment basis, it records the transaction on its books
and reflects the value of the security purchased. In a sale transaction, it
records the proceeds to be received, in determining its net asset value. The
Fund will identify to its Custodian cash, U.S. Government securities or other
high grade debt obligations at least equal to the value of purchase commitments
until the Fund pays for the investment.
When-issued transactions and forward commitments can be used by the Fund as
a defensive technique to hedge against anticipated changes in interest rates and
prices. For instance, in periods of rising interest rates and falling prices,
the Fund might sell securities in its portfolio on a forward commitment basis to
attempt to limit its exposure to anticipated falling prices. In periods of
falling interest rates and rising prices, the Fund might sell portfolio
securities and purchase the same or similar securities on a when-issued or
forward commitment basis, to obtain the benefit of currently higher cash yields.
|X| Zero-Coupon Securities. The Fund may buy zero-coupon and delayed
interest municipal securities. Zero-coupon securities do not make periodic
interest payments and are sold at a deep discount from their face value. The
buyer recognizes a rate of return determined by the gradual appreciation of the
security, which is redeemed at face value on a specified maturity date. This
discount depends on the time remaining until maturity, as well as prevailing
interest rates, the liquidity of the security and the credit quality of the
issuer. In the absence of threats to the issuer's credit quality, the discount
typically decreases as the maturity date approaches. Some zero-coupon securities
are convertible, in that they are zero-coupon securities until a predetermined
date, at which time they convert to a security with a specified coupon rate.
Because zero-coupon securities pay no interest and compound semi-annually
at the rate fixed at the time of their issuance, their value is generally more
volatile than the value of other debt securities. Their value may fall more
dramatically than the value of interest-bearing securities when interest rates
rise. When prevailing interest rates fall, zero-coupon securities tend to rise
more rapidly in value because they have a fixed rate of return.
The Fund's investment in zero-coupon securities may cause the Fund to
recognize income and make distributions to shareholders before it receives any
cash payments on the zero-coupon investment. To generate cash to satisfy those
distribution requirements, the Fund may have to sell portfolio securities that
it otherwise might have continued to hold or to use cash flows from other
sources such as the sale of Fund shares.
|X| Puts and Standby Commitments. When the Fund buys a municipal security
subject to a standby commitment to repurchase the security, the Fund is entitled
to same-day settlement from the purchaser. The Fund receives an exercise price
equal to the amortized cost of the underlying security plus any accrued interest
at the time of exercise. A put purchased in conjunction with a municipal
security enables the Fund to sell the underlying security within a specified
period of time at a fixed exercise price.
The Fund might purchase a standby commitment or put separately in cash or
it might acquire the security subject to the standby commitment or put (at a
price that reflects that additional feature). The Fund will enter into these
transactions only with banks and securities dealers that, in the Manager's
opinion, present minimal credit risks. The Fund's ability to exercise a put or
standby commitment will depend on the ability of the bank or dealer to pay for
the securities if the put or standby commitment is exercised. If the bank or
dealer should default on its obligation, the Fund might not be able to recover
all or a portion of any loss sustained from having to sell the security
elsewhere.
Puts and standby commitments are not transferable by the Fund. They
terminate if the Fund sells the underlying security to a third party. The Fund
intends to enter into these arrangements to facilitate portfolio liquidity,
although such arrangements might enable the Fund to sell a security at a
pre-arranged price that may be higher than the prevailing market price at the
time the put or standby commitment is exercised. However, the Fund might refrain
from exercising a put or standby commitment if the exercise price is
significantly higher than the prevailing market price, to avoid imposing a loss
on the seller that could jeopardize the Fund's business relationships with the
seller.
A put or standby commitment increases the cost of the security and
reduces the yield otherwise available from the security. Any consideration
paid by the Fund for the put or standby commitment will be reflected on the
Fund's books as unrealized depreciation while the put or standby commitment
is held, and a realized gain or loss when the put or commitment is
exercised or expires. Interest income received by the Fund from municipal
securities subject to puts or stand-by commitments may not qualify as tax
exempt in its hands if the terms of the put or stand-by commitment cause
the Fund not to be treated as the tax owner of the underlying municipal
securities.
|X| Repurchase Agreements. The Fund may acquire securities subject to
repurchase agreements. It may do so for liquidity purposes to meet anticipated
redemptions of Fund shares, or pending the investment of the proceeds from sales
of Fund shares, or pending the settlement of portfolio securities. In a
repurchase transaction, the Fund acquires a security from, and simultaneously
resells it to an approved vendor for delivery on an agreed upon future date. The
resale price exceeds the purchase price by an amount that reflects an
agreed-upon interest rate effective for the period during which the repurchase
agreement is in effect. Approved vendors include U.S. commercial banks, U.S.
branches of foreign banks or broker-dealers that have been designated a primary
dealer in government securities, which meet the credit requirements set by the
Fund's Board of Trustees from time to time.
The majority of these transactions run from day to day. Delivery pursuant
to resale typically will occur within one to five days of the purchase.
Repurchase agreements having a maturity beyond seven days are subject to the
Fund's limits on holding illiquid investments. There is no limit on the amount
of the Fund's assets that may be subject to repurchase agreements of seven days
or less.
Repurchase agreements, considered "loans" under the Investment Company Act,
are collateralized by the underlying security. The Fund's repurchase agreements
require that at all times while the repurchase agreement is in effect, the
collateral's value must equal or exceed the repurchase price to fully
collateralize the repayment obligation. The Manager will monitor the vendor's
creditworthiness to confirm that the vendor is financially sound and will
continuously monitor the collateral's value. However, if the vendor fails to pay
the resale price on the delivery date, the Fund may incur costs in disposing of
the collateral and may experience losses if there is any delay in its ability to
do so.
|X| Illiquid Securities. The Fund has percentage limitations that apply to
purchases of illiquid securities, as stated in the Prospectus. The Fund's
fundamental policies prohibit it from purchasing any restricted security that
would require registration with the Securities and Exchange Commission before it
could be sold publicly.
|X| Loans of Portfolio Securities. To attempt to raise income or raise cash
for liquidity purposes, the Fund may lend its portfolio securities to brokers,
dealers and other financial institutions. These loans are limited to not more
than 25% of the value of the Fund's total assets. There are risks in connection
with securities lending. The Fund might experience a delay in receiving
additional collateral to secure a loan, or a delay in recovery of the loaned
securities. The Fund presently does not intend to engage in loans of securities
that will exceed 5% of the value of the Fund's total assets in the coming year.
Income from securities loans does not constitute exempt-interest income for the
purpose of paying tax-exempt dividends.
The Fund must receive collateral for a loan. Under current applicable
regulatory requirements (which are subject to change), on each business day the
loan collateral must be at least equal to the value of the loaned securities. It
must consist of cash, bank letters of credit, securities of the U.S. government
or its agencies or instrumentalities, or other cash equivalents in which the
Fund is permitted to invest. To be acceptable as collateral, letters of credit
must obligate a bank to pay amounts demanded by the Fund if the demand meets the
terms of the letter. The terms of the letter of credit and the issuing bank both
must be satisfactory to the Fund.
When it lends securities, the Fund receives amounts equal to the dividends
or interest on the loaned securities. It also receives one or more of (a)
negotiated loan fees, (b) interest on securities used as collateral, and (c)
interest on short-term debt securities purchased with the loan collateral.
Either type of interest may be shared with the borrower. The Fund may pay
reasonable finder's, administrative or other fees in connection with these
loans. The terms of the Fund's loans must meet applicable tests under the
Internal Revenue Code and must permit the Fund to reacquire loaned securities on
five days' notice or in time to vote on any important matter.
|X| Hedging. The Fund may use hedging to attempt to protect against
declines in the market value of its portfolio, to permit the Fund to retain
unrealized gains in the value of portfolio securities that have appreciated, or
to facilitate selling securities for investment reasons. To do so the Fund may:
|_| sell interest rate futures or municipal bond index futures,
|_| buy puts on such futures or securities, or
|_| write covered calls on securities, interest rate futures or municipal
bond index futures. Covered calls may also be written on debt securities to
attempt to increase the Fund's income, but that income would not be
tax-exempt. Therefore it is unlikely that the Fund would write covered
calls for that purpose.
The Fund may also use hedging to establish a position in the debt
securities market as a temporary substitute for purchasing individual debt
securities. In that case the Fund will normally seek to purchase the securities,
and then terminate that hedging position. For this type of hedging, the Fund
may:
|_| buy interest rate futures or municipal bond index futures, or |_| buy
calls on such futures or on securities.
The Fund is not obligated to use hedging instruments, even though it is
permitted to use them in the Manager's discretion, as described below. The
Fund's strategy of hedging with futures and options on futures will be
incidental to the Fund's investment activities in the underlying cash market.
The particular hedging instruments the Fund can use are described below. The
Fund may employ new hedging instruments and strategies when they are developed,
if those investment methods are consistent with the Fund's investment objective
and are permissible under applicable regulations governing the Fund.
|_| Futures. The Fund may buy and sell futures contracts relating to debt
securities (these are called "interest rate futures") and municipal bond indices
(these are referred to as "municipal bond index futures").
An interest rate future obligates the seller to deliver (and the
purchaser to take) cash or a specific type of debt security to settle the
futures transaction. Either party could also enter into an offsetting
contract to close out the futures position.
A "municipal bond index" assigns relative values to the municipal bonds in
the index, and is used as the basis for trading long-term municipal bond futures
contracts. Municipal bond index futures are similar to interest rate futures
except that settlement is made only in cash. The obligation under the contract
may also be satisfied by entering into an offsetting contract. The strategies
which the Fund employs in using municipal bond index futures are similar to
those with regard to interest rate futures.
Upon entering into a futures transaction, the Fund will be required to
deposit an initial margin payment in cash or U.S. government securities with the
futures commission merchant (the "futures broker"). Initial margin payments will
be deposited with the Fund's Custodian in an account registered in the futures
broker's name. However, the futures broker can gain access to that account only
under certain specified conditions. As the future is marked to market (that is,
its value on the Fund's books is changed) to reflect changes in its market
value, subsequent margin payments, called variation margin, will be paid to or
by the futures broker daily.
At any time prior to the expiration of the future, the Fund may elect to
close out its position by taking an opposite position at which time a final
determination of variation margin is made and additional cash is required to be
paid by or released to the Fund. Any gain or loss is then realized by the Fund
on the Future for tax purposes. Although interest rate futures by their terms
call for settlement by the delivery of debt securities, in most cases the
obligation is fulfilled without such delivery by entering into an offsetting
transaction. All futures transactions are effected through a clearing house
associated with the exchange on which the contracts are traded.
The Fund may concurrently buy and sell futures contracts in a strategy
anticipating that the future the Fund purchased will perform better than the
future the Fund sold. For example, the Fund might buy municipal bond futures and
concurrently sell U.S. Treasury Bond futures (a type of interest rate future).
The Fund would benefit if municipal bonds outperform U.S. Treasury Bonds on a
duration-adjusted basis.
Duration is a volatility measure that refers to the expected percentage
change in the value of a bond resulting from a change in general interest rates
(measured by each 1% change in the rates on U.S. Treasury securities). For
example, if a bond has an effective duration of three years, a 1% increase in
general interest rates would be expected to cause the value of the bond to
decline about 3%. There are risks that this type of futures strategy will not be
successful. U.S. Treasury bonds might perform better on a duration-adjusted
basis than municipal bonds, and the assumptions about duration that were used
might be incorrect (in this case, the duration of municipal bonds relative to
U.S. Treasury Bonds might have been greater than anticipated).
|_| Put and Call Options. The Fund may buy and sell certain kinds of put
options (puts) and call options (calls). These strategies are described below.
|_| Writing Covered Call Options. The Fund may write (that is, sell)
call options. The Fund's call writing is subject to a number of restrictions:
After the Fund writes a call, not more than 25% of the Fund's total assets
may be subject to calls.
(2) Calls the Fund sells must be listed on a securities or commodities
exchange or quoted on NASDAQ, the automated quotation system of The
Nasdaq Stock Market, Inc. or traded in the over-the-counter market.
(3) Each call the Fund writes must be "covered" while it is outstanding.
That means the Fund must own the investment on which the call was
written.
(4) The Fund may write calls on futures contracts that it owns, but these
calls must be covered by securities or other liquid assets that the
Fund owns and segregates to enable it to satisfy its obligations if the
call is exercised.
When the Fund writes a call on a security, it receives cash (a premium).
The Fund agrees to sell the underlying investment to a purchaser of a
corresponding call on the same security during the call period at a fixed
exercise price regardless of market price changes during the call period. The
call period is usually not more than nine months. The exercise price may differ
from the market price of the underlying security. The Fund has retained the risk
of loss that the price of the underlying security may decline during the call
period. That risk may be offset to some extent by the premium the Fund receives.
If the value of the investment does not rise above the call price, it is likely
that the call will lapse without being exercised. In that case the Fund would
keep the cash premium and the investment.
The Fund's Custodian, or a securities depository acting for the Custodian,
will act as the Fund's escrow agent through the facilities of the Options
Clearing Corporation ("OCC"), as to the investments on which the Fund has
written calls traded on exchanges, or as to other acceptable escrow securities.
In that way, no margin will be required for such transactions. OCC will release
the securities on the expiration of the calls or upon the Fund's entering into a
closing purchase transaction.
When the Fund writes an over-the-counter ("OTC") option, it will enter into
an arrangement with a primary U.S. Government securities dealer which will
establish a formula price at which the Fund will have the absolute right to
repurchase that OTC option. The formula price would generally be based on a
multiple of the premium received for the option, plus the amount by which the
option is exercisable below the market price of the underlying security (that
is, the option is "in-the-money"). When the Fund writes an OTC option, it will
treat as illiquid (for purposes of its restriction on illiquid securities) the
mark-to-market value of any OTC option held by it, unless the option is subject
to a buy-back agreement by the executing broker. The Securities and Exchange
Commission is evaluating whether OTC options should be considered liquid
securities. The procedure described above could be affected by the outcome of
that evaluation.
To terminate its obligation on a call it has written, the Fund may purchase
a corresponding call in a "closing purchase transaction." The Fund will then
realize a profit or loss, depending upon whether the net of the amount of the
option transaction costs and the premium received on the call the Fund wrote was
more or less than the price of the call the Fund purchased to close out the
transaction. A profit may also be realized if the call lapses unexercised,
because the Fund retains the underlying investment and the premium received. Any
such profits are considered short-term capital gains for Federal tax purposes,
as are premiums on lapsed calls. When distributed by the Fund they are taxable
as ordinary income.
The Fund may also write calls on futures contracts without owning the
futures contract or securities deliverable under the contract. To do so, at the
time the call is written, the Fund must cover the call by segregating in escrow
an equivalent dollar value of liquid assets. The Fund will segregate additional
liquid assets if the value of the escrowed assets drops below 100% of the
current value of the future. Because of this escrow requirement, in no
circumstances would the Fund's receipt of an exercise notice as to that future
put the Fund in a "short" futures position.
|_| Purchasing Calls and Puts. The Fund may buy calls only on securities,
broadly-based municipal bond indices, municipal bond index futures and interest
rate futures. It may also buy calls to close out a call it has written, as
discussed above. Calls the Fund buys must be listed on a securities or
commodities exchange, or quoted on NASDAQ, or traded in the over-the-counter
market. A call or put option must not be purchased if the purchase would cause
the value of all the Fund's put and call options to exceed 5% of its total
assets.
When the Fund purchases a call (other than in a closing purchase
transaction), it pays a premium. For calls on securities that the Fund buys, it
has the right to buy the underlying investment from a seller of a corresponding
call on the same investment during the call period at a fixed exercise price.
The Fund benefits only if (1) the call is sold at a profit or (2) the call is
exercised when the market price of the underlying investment is above the sum of
the exercise price plus the transaction costs and premium paid for the call. If
the call is not either exercised or sold (whether or not at a profit), it will
become worthless at its expiration date. In that case the Fund will lose its
premium payment and the right to purchase the underlying investment.
Calls on municipal bond indices, interest rate futures and municipal bond
index futures are settled in cash rather than by delivering the underlying
investment. Gain or loss depends on changes in the securities included in the
index in question (and thus on price movements in the debt securities market
generally) rather than on changes in price of the individual futures contract.
The Fund may buy only those puts that relate to securities that the Fund
owns, broadly-based municipal bond indices, municipal bond index futures or
interest rate futures (whether or not the Fund owns the futures). The Fund may
not sell puts other than puts it has previously purchased.
When the Fund purchases a put, it pays a premium. The Fund then has the
right to sell the underlying investment to a seller of a corresponding put on
the same investment during the put period at a fixed exercise price. Puts on
municipal bond indices are settled in cash. Buying a put on a debt security,
interest rate future or municipal bond index future the Fund owns enables it to
protect itself during the put period against a decline in the value of the
underlying investment below the exercise price. If the market price of the
underlying investment is equal to or above the exercise price and as a result
the put is not exercised or resold, the put will become worthless at its
expiration date. In that case the Fund will lose its premium payment and the
right to sell the underlying investment. A put may be sold prior to expiration
(whether or not at a profit).
|_| Risks of Hedging with Options and Futures. The use of hedging
instruments requires special skills and knowledge of investment techniques that
are different than what is required for normal portfolio management. If the
Manager uses a hedging instrument at the wrong time or judges market conditions
incorrectly, hedging strategies may reduce the Fund's returns.
The Fund's option activities may affect its portfolio turnover rate and
brokerage commissions. The exercise of calls written by the Fund may cause the
Fund to sell related portfolio securities, thus increasing its turnover rate.
The exercise by the Fund of puts on securities will cause the sale of underlying
investments, increasing portfolio turnover. Although the decision whether to
exercise a put it holds is within the Fund's control, holding a put might cause
the Fund to sell the related investments for reasons that would not exist in the
absence of the put.
The Fund may pay a brokerage commission each time it buys a call or put,
sells a call, or buys or sells an underlying investment in connection with the
exercise of a call or put. Such commissions may be higher on a relative basis
than the commissions for direct purchases or sales of the underlying
investments. Premiums paid for options are small in relation to the market value
of the underlying investments. Consequently, put and call options offer large
amounts of leverage. The leverage offered by trading in options could result in
the Fund's net asset value being more sensitive to changes in the value of the
underlying investment.
If a covered call written by the Fund is exercised on an investment that
has increased in value, the Fund will be required to sell the investment at the
call price. It will not be able to realize any profit if the investment has
increased in value above the call price.
There is a risk in using short hedging by selling interest rate futures and
municipal bond index futures or purchasing puts on municipal bond indices or
futures to attempt to protect against declines in the value of the Fund's
securities. The risk is that the prices of such futures or the applicable index
will correlate imperfectly with the behavior of the cash (that is, market)
prices of the Fund's securities. It is possible for example, that while the Fund
has used hedging instruments in a short hedge, the market may advance and the
value of debt securities held in the Fund's portfolio may decline. If that
occurred, the Fund would lose money on the hedging instruments and also
experience a decline in value of its debt securities. However, while this could
occur over a brief period or to a very small degree, over time the value of a
diversified portfolio of debt securities will tend to move in the same direction
as the indices upon which the hedging instruments are based.
The risk of imperfect correlation increases as the composition of the
Fund's portfolio diverges from the securities included in the applicable index.
To compensate for the imperfect correlation of movements in the price of debt
securities being hedged and movements in the price of the hedging instruments,
the Fund may use hedging instruments in a greater dollar amount than the dollar
amount of debt securities being hedged. It might do so if the historical
volatility of the prices of the debt securities being hedged is greater than the
historical volatility of the applicable index.
The ordinary spreads between prices in the cash and futures markets are
subject to distortions due to differences in the natures of those markets. All
participants in the futures markets are subject to margin deposit and
maintenance requirements. Rather than meeting additional margin deposit
requirements, investors may close out futures contracts through offsetting
transactions which could distort the normal relationship between the cash and
futures markets. From the point of view of speculators, the deposit requirements
in the futures markets are less onerous than margin requirements in the
securities markets. Therefore, increased participation by speculators in the
futures markets may cause temporary price distortions.
The Fund may use hedging instruments to establish a position in the
municipal securities markets as a temporary substitute for the purchase of
individual securities (long hedging). It is possible that the market may
decline. If the Fund then concludes not to invest in such securities because of
concerns that there may be further market decline or for other reasons, the Fund
will realize a loss on the hedging instruments that is not offset by a reduction
in the purchase price of the securities.
An option position may be closed out only on a market that provides
secondary trading for options of the same series. There is no assurance that a
liquid secondary market will exist for a particular option. If the Fund could
not effect a closing purchase transaction due to a lack of a market, it would
have to hold the callable investment until the call lapsed or was exercised.
|_| Interest Rate Swap Transactions. In an interest rate swap, the Fund and
another party exchange their right to receive or their obligation to pay
interest on a security. For example, they may swap a right to receive floating
rate payments for fixed rate payments. The Fund enters into swaps only on
securities it owns. The Fund may not enter into swaps with respect to more than
25% of its total assets. Also, the Fund will segregate liquid assets (such as
cash or U.S. Government securities) to cover any amounts it could owe under
swaps that exceed the amounts it is entitled to receive, and it will adjust that
amount daily, as needed. Income from interest rate swaps may be taxable.
Swap agreements entail both interest rate risk and credit risk. There is a
risk that, based on movements of interest rates in the future, the payments made
by the Fund under a swap agreement will have been greater than those received by
it. Credit risk arises from the possibility that the counterparty will default.
If the counterparty to an interest rate swap defaults, the Fund's loss will
consist of the net amount of contractual interest payments that the Fund has not
yet received. The Manager will monitor the creditworthiness of counterparties to
the Fund's interest rate swap transactions on an ongoing basis.
The Fund will enter into swap transactions with appropriate counterparties
pursuant to master netting agreements. A master netting agreement provides that
all swaps done between the Fund and that counterparty under the master agreement
shall be regarded as parts of an integral agreement. If on any date amounts are
payable under one or more swap transactions, the net amount payable on that date
shall be paid. In addition, the master netting agreement may provide that if one
party defaults generally or on one swap, the counterparty may terminate the
swaps with that party. Under master netting agreements, if there is a default
resulting in a loss to one party, that party's damages are calculated by
reference to the average cost of a replacement swap with respect to each swap.
The gains and losses on all swaps are then netted, and the result is the
counterparty's gain or loss on termination. The termination of all swaps and the
netting of gains and losses on termination is generally referred to as
"aggregation."
|_| Regulatory Aspects of Hedging Instruments. When using futures and
options on futures, the Fund is required to operate within certain guidelines
and restrictions established by the Commodity Futures Trading Commission (the
"CFTC"). In particular, the Fund is exempted from registration with the CFTC as
a "commodity pool operator" if the Fund complies with the requirements of Rule
4.5 adopted by the CFTC. That Rule does not limit the percentage of the Fund's
assets that may be used for Futures margin and related options premiums for a
bona fide hedging position. However, under the Rule the Fund must limit its
aggregate initial futures margin and related options premiums to no more than 5%
of the Fund's net assets for hedging strategies that are not considered bona
fide hedging strategies under the Rule. Under the Rule, the Fund also must use
short futures and options on futures positions solely for bona fide hedging
purposes within the meaning and intent of the applicable provisions of the
Commodity Exchange Act.
Transactions in options by the Fund are subject to limitations established
by the option exchanges. The exchanges limit the maximum number of options that
may be written or held by a single investor or group of investors acting in
concert. Those limits apply regardless of whether the options were written or
purchased on the same or different exchanges, or are held in one or more
accounts or through one or more different exchanges or through one or more
brokers. Thus, the number of options that the Fund may write or hold may be
affected by options written or held by other entities, including other
investment companies having the same adviser as the Fund (or an adviser that is
an affiliate of the Fund's adviser). The exchanges also impose position limits
on futures transactions. An exchange may order the liquidation of positions
found to be in violation of those limits and may impose certain other sanctions.
Under the Investment Company Act, when the Fund purchases an interest rate
future or municipal bond index future, it must maintain cash or readily
marketable short-term debt instruments in an amount equal to the market value of
the investments underlying the future, less the margin deposit applicable to it.
The account must be a segregated account or accounts held by its custodian bank.
|X| Temporary Defensive Investments. The securities the Fund may invest
in for temporary defensive purposes include the following:
|_| short-term municipal securities;
|_| obligations issued or guaranteed by the U.S. Government or its
agencies or instrumentalities;
|_| corporate debt securities rated within the three highest grades
by a nationally recognized rating agency;
|_| commercial paper rated "A-1" by S&P, or a comparable rating by
another nationally recognized rating agency; and
|_| certificates of deposit of domestic banks with assets of $1
billion or more.
|X| Taxable Investments. While the Fund can invest up to 20% of its total
assets in investments that generate income subject to income taxes, it does not
anticipate investing substantial amounts of its assets in taxable investments
under normal market conditions or as part of its normal trading strategies and
policies. To the extent it invests in taxable securities, the Fund would not be
able to met its objective of providing tax exempt income to its shareholders.
Taxable investments include, for example, hedging instruments, repurchase
agreements, and the types of securities it would buy for temporary defensive
purposes.
Investment Restrictions
|X| What Are "Fundamental Policies?" Fundamental policies are those
policies that the Fund has adopted to govern its investments that can be changed
only by the vote of a "majority" of the Fund's outstanding voting securities.
Under the Investment Company Act, such a "majority" vote is defined as the vote
of the holders of the lesser of:
|_|67% or more of the shares present or represented by proxy at a
shareholder meeting, if the holders of more than 50% of the outstanding
shares are present or represented by proxy, or
|_|more than 50% of the outstanding shares.
The Fund's investment objective is a fundamental policy. Other policies
described in the Prospectus or this Statement of Additional Information are
"fundamental" only if they are identified as such. The Fund's Board of Trustees
can change non-fundamental policies without shareholder approval. However,
significant changes to investment policies will be described in supplements or
updates to the Prospectus or this Statement of Additional Information, as
appropriate. The Fund's most significant investment policies are described in
the Prospectus.
|X| Does the Fund Have Additional Fundamental Policies? The following
investment restrictions are fundamental policies of the Fund:
|_| The Fund cannot invest in securities or other investments other than
municipal securities, the temporary investments described in its Prospectus,
repurchase agreements, covered calls, private activity municipal securities and
hedging instruments described in "About the Fund" in the Prospectus or this
Statement of Additional Information.
|_| The Fund cannot lend any of its assets. However, repurchase agreements
and the purchase of debt securities in accordance with the Fund's other
investment policies and restrictions are permitted. The Fund may also lend its
portfolio securities as described in "Loans of Portfolio Securities.
|_| The Fund cannot borrow money in excess of 10% of the value of its total
assets. The Fund may borrow only from banks as a temporary measure for
extraordinary or emergency purposes, and not for the purpose of leveraging its
investments. No assets of the Fund may be pledged, mortgaged or otherwise
encumbered, transferred or assigned to secure a debt. However, the use of escrow
or other collateral arrangements in connection with hedging instruments is
permitted.
|_| The Fund cannot invest more than 5% of the value of its total assets in
the securities of any one issuer. The Fund cannot acquire more than 10% of the
total value of all outstanding securities of any one issuer. In both cases, this
restriction does not apply to securities of the U.S. Government or its agencies
or instrumentalities.
|_| The Fund cannot concentrate its investments to the extent of 25% of its
total assets in any industry. However, there is no limitation as to the Fund's
investments in municipal securities or in obligations issued by the U.S.
Government and its agencies or instrumentalities.
|_| The Fund cannot invest in real estate. This restriction shall not
prevent the Fund from investing in Municipal Securities or other permitted
securities that are secured by real estate or interests in real estate.
|_| The Fund cannot purchase securities on margin. However, the Fund may
obtain such short-term credits that may be necessary for the clearance of
purchases and sales of securities. Furthermore, the Fund may make margin
deposits in connection with the use of hedging instruments as permitted by any
of its other fundamental policies.
|_| The Fund cannot sell securities short.
|_| The Fund cannot underwrite securities or invest in securities that are
subject to restrictions on resale.
|_| The Fund cannot invest in or hold securities of any issuer if officers
and Trustees of the Fund or the Manager individually beneficially own more than
1/2 of 1% of the securities of that issuer and together own more than 5% of the
securities of that issuer.
|_| The Fund cannot invest in securities of any other investment company,
except in connection with a merger with another investment company.
|_| The Fund cannot issue any bonds, debentures or senior equity
securities.
The Fund currently has an operating policy (which is not a fundamental
policy but will not be changed without the approval of a shareholder vote) that
prohibits the Fund from issuing senior securities. However, that policy does not
prohibit certain activities that are permitted by the Fund's other policies,
including borrowing money for emergency purposes as permitted by its other
investment policies and applicable regulations, entering into delayed-delivery
and when-issued arrangements for portfolio securities transactions, and entering
into contracts to buy or sell derivatives, hedging instruments, options, futures
and the related margin, collateral or escrow arrangements permitted under its
other investment policies.
Unless the Prospectus or Statement of Additional Information states that a
percentage restriction applies on an ongoing basis, it applies only at the time
the Fund makes an investment. In that case the Fund need not sell securities to
meet the percentage limits if the value of the investment increases in
proportion to the size of the Fund.
Diversification. The Fund intends to be "diversified" as defined in the
Investment Company Act and to satisfy the restrictions against investing too
much of its assets in any "issuer" as set forth in the restrictions above. In
implementing this policy, the identification of the issuer of a municipal
security depends on the terms and conditions of the security. When the assets
and revenues of an agency, authority, instrumentality or other political
subdivision are separate from those of the government creating it and the
security is backed only by the assets and revenues of the subdivision, agency,
authority or instrumentality, the latter would be deemed to be the sole issuer.
Similarly, if an industrial development bond is backed only by the assets and
revenues of the non-governmental user, then that user would be deemed to be the
sole issuer. However, if in either case the creating government or some other
entity guarantees a security, the guarantee would be considered a separate
security and would be treated as an issue of such government or other entity.
Applying the Restriction Against Concentration. To implement its policy not to
concentrate its investments, the Fund has adopted the industry classifications
set forth in Appendix B to this Statement of Additional Information. Those
industry classifications are not a fundamental policy.
In implementing the Fund's policy not to concentrate its investments, the
Manager will consider a non-governmental user of facilities financed by
industrial development bonds as being in a particular industry. That is done
even though the bonds are municipal securities, as to which the Fund has no
concentration limitation. Although this application of the concentration
restriction is not a fundamental policy of the Fund, it will not be changed
without shareholder approval.
The Manager has no present intention of investing more than 25% of the
total assets of the Fund in securities of issuers located in the same state, or
in securities paying interest derived from revenues of similar types of
projects. Neither of these is a fundamental policy, and therefore, either of
them may be changed without shareholder approval. Should any such change occur,
the Prospectus and/or this Statement of Additional Information will be
supplemented or revised to reflect the change.
How the Fund Is Managed
Organization and History. The Fund is an open-end, diversified management
investment company with an unlimited number of authorized shares of beneficial
interest. The Fund was originally incorporated in Maryland in 1976 but was
reorganized in 1987 as a Massachusetts business trust.
The Fund is governed by a Board of Trustees, which is responsible for
protecting the interests of shareholders under Massachusetts law. The Trustees
meet periodically throughout the year to oversee the Fund's activities, review
its performance, and review the actions of the Manager. Although the Fund will
not normally hold annual meetings of its shareholders, it may hold shareholder
meetings from time to time on important matters, and shareholders have the right
to call a meeting to remove a Trustee or to take other action described in the
Fund's Declaration of Trust.
|_| Classes of Shares. The Board of Trustees has the power, without
shareholder approval, to divide unissued shares of the Fund into two or more
classes. The Board has done so, and the Fund currently has three classes of
shares, Class A, Class B and Class C. All classes invest in the same investment
portfolio. Shares are freely transferable. Each share has one vote at
shareholder meetings, with fractional shares voting proportionally on matters
submitted to the vote of shareholders. Each class of shares:
|_| has its own dividends and distributions,
|_| pays certain expenses which may be different for the different classes,
|_| may have a different net asset value,
|_| may have separate voting rights on matters in which the interests of
one class are different from the interests of another class, and
|_| votes as a class on matters that affect that class alone.
|_| Meetings of Shareholders. As a Massachusetts business trust, the Fund
is not required to hold, and does not plan to hold, regular annual meetings of
shareholders. The Fund will hold meetings when required to do so by the
Investment Company Act or other applicable law. It will also do so when a
shareholder meeting is called by the Trustees or upon proper request of the
shareholders.
Shareholders have the right, upon the declaration in writing or vote of
two-thirds of the outstanding shares of the Fund, to remove a Trustee. The
Trustees will call a meeting of shareholders to vote on the removal of a Trustee
upon the written request of the record holders of 10% of its outstanding shares.
If the Trustees receive a request from at least 10 shareholders stating that
they wish to communicate with other shareholders to request a meeting to remove
a Trustee, the Trustees will then either make the Fund's shareholder list
available to the applicants or mail their communication to all other
shareholders at the applicants' expense. The shareholders making the request
must have been shareholders for at least six months and must hold shares of the
Fund valued at $25,000 or more or constituting at least 1% of the Fund's
outstanding shares, whichever is less. The Trustees may also take other action
as permitted by the Investment Company Act.
|_| Shareholder and Trustee Liability. The Fund's Declaration of Trust
contains an express disclaimer of shareholder or Trustee liability for the
Fund's obligations. It also provides for indemnification and reimbursement of
expenses out of the Fund's property for any shareholder held personally liable
for its obligations. The Declaration of Trust also states that upon request, the
Fund shall assume the defense of any claim made against a shareholder for any
act or obligation of the Fund and shall satisfy any judgment on that claim.
Massachusetts law permits a shareholder of a business trust (such as the Fund)
to be held personally liable as a "partner" under certain circumstances.
However, the risk that a Fund shareholder will incur financial loss from being
held liable as a "partner" of the Fund is limited to the relatively remote
circumstances in which the Fund would be unable to meet its obligations.
The Fund's contractual arrangements state that any person doing business
with the Fund (and each shareholder of the Fund) agrees under its Declaration of
Trust to look solely to the assets of the Fund for satisfaction of any claim or
demand that may arise out of any dealings with the Fund. Additionally, the
Trustees shall have no personal liability to any such person, to the extent
permitted by law.
Trustees and Officers of the Fund. The Fund's Trustees and officers and their
principal occupations and business affiliations and occupations during the past
five years are listed below. Trustees denoted with an asterisk (*) below are
deemed to be "interested persons" of the Fund under the Investment Company Act.
All of the Trustees are Trustees or Directors of the following New York-based
Oppenheimer funds1:
Oppenheimer California Municipal Fund Oppenheimer Large Cap Growth Fund
Oppenheimer Capital Appreciation Fund Oppenheimer Money Market Fund, Inc.
Oppenheimer Capital Preservation Fund Oppenheimer Multiple Strategies Fund
Oppenheimer Developing Markets Fund Oppenheimer Multi-Sector Income Trust
Oppenheimer Multi-State Municipal
Oppenheimer Discovery Fund Trust
Oppenheimer Enterprise Fund Oppenheimer Municipal Bond Fund
Oppenheimer Europe Fund Oppenheimer New York Municipal Fund
Oppenheimer Global Fund Oppenheimer Series Fund, Inc.
Oppenheimer Global Growth & Income Fund Oppenheimer U.S. Government Trust
Oppenheimer Gold & Special Minerals Fund Oppenheimer Trinity Core Fund
Oppenheimer Growth Fund Oppenheimer Trinity Growth Fund
Oppenheimer International Growth Fund Oppenheimer Trinity Value Fund
Oppenheimer International Small Company
Fund Oppenheimer World Bond Fund
Ms. Macaskill and Messrs. Spiro, Donohue, Bowen, Zack, Bishop and Farrar
respectively hold the same offices with the other New York-based Oppenheimer
funds as with the Fund. As of 1999, the Trustees and officers of the Fund as a
group owned of record or beneficially less than 1% of each class of shares of
the Fund. The foregoing statement does not reflect ownership of shares of the
Fund held of record by an employee benefit plan for employees of the Manager,
other than the shares beneficially owned under the plan by the officers of the
Fund listed above. Ms. Macaskill and Mr. Donohue are trustees of that plan.
Leon Levy, Chairman of the Board of Trustees, Age: 75
280 Park Avenue, New York, NY 10017
General Partner of Odyssey Partners, L.P. (investment partnership) (since
1982) and Chairman of Avatar Holdings, Inc. (real estate development).
Robert G. Galli, Trustee, Age: 66
19750 Beach Road, Jupiter Island, FL 33469
A Trustee or Director of other Oppenheimer funds. Formerly he held the following
positions: Vice Chairman of the Manager, OppenheimerFunds, Inc. (October 1995 -
December 1997); Executive Vice President of the Manager (December 1977 - October
1995); Executive Vice President and director (April 1986 - October 1995) of
HarbourView Asset Management Corporation, an investment advisor subsidiary of
the Manager.
Dr. Phillip A. Griffiths, Trustee, Age: 61
97 Olden Lane, Princeton, New Jersey 08540
The Director of the Institute for Advanced Study, Princeton, N.J. (since 1991)
and a member of the National Academy of Sciences (since 1979); formerly a
director of Bankers Trust Corporation (1994 to June 1999), Provost and Professor
of Mathematics at Duke University (1983-1991), a director of Research Triangle
Institute, Raleigh, N.C. (1983-1991), and a Professor of Mathematics at Harvard
University (1972-1983).
Benjamin Lipstein, Trustee, Age: 76
591 Breezy Hill Road, Hillsdale, N.Y. 12529
Professor Emeritus of Marketing, Stern Graduate School of Business
Administration, New York University.
Bridget A. Macaskill, President and Trustee*, Age: 51
Two World Trade Center, 34th Floor, New York, NY 10048-0203
President (since June 1991), Chief Executive Officer (since September 1995) and
a Director (since December 1994) of the Manager; President and director (since
June 1991) of HarbourView Asset Management Corp., an investment advisor
subsidiary of the Manager; Chairman and a director of Shareholder Services, Inc.
(since August 1994) and Shareholder Financial Services, Inc. (since September
1995), transfer agent subsidiaries of the Manager; President (since September
1995) and a director (since October 1990) of Oppenheimer Acquisition Corp., the
Manager's parent holding company; President (since September 1995) and a
director (since November 1989) of Oppenheimer Partnership Holdings, Inc., a
holding company subsidiary of the Manager; a director (since July 1996) of
Oppenheimer Real Asset Management, Inc.; President and a director (since October
1997) of OppenheimerFunds International Ltd., an offshore fund management
subsidiary of the Manager, and of Oppenheimer Millennium Funds plc; President
and a director or trustee of other Oppenheimer funds; a director of Prudential
Corporation plc (a U.K.
financial service company).
Elizabeth B. Moynihan, Trustee, Age: 70
801 Pennsylvania Avenue, N.W., Washington, D.C. 20004
Author and architectural historian; a trustee of the Freer Gallery of Art
(Smithsonian Institution); Executive Committee of Board of Trustees of the
National Building Museum; a member of the Trustees Council,
Preservation League of New York State.
Kenneth A. Randall, Trustee, Age: 72
6 Whittaker's Mill, Williamsburg, Virginia 23185
A director of Dominion Resources, Inc. (electric utility holding company),
Dominion Energy, Inc. (electric power and oil and gas producer), and Prime
Retail, Inc. (real estate investment trust); formerly President and Chief
Executive Officer of The Conference Board, Inc. (international economic and
business research) and a director of Lumbermens Mutual Casualty Company,
American Motorists Insurance Company and American Manufacturers Mutual Insurance
Company.
Edward V. Regan, Trustee, Age: 69
40 Park Avenue, New York, New York 10016
Chairman of Municipal Assistance Corporation for the City of New York; Senior
Fellow of Jerome Levy Economics Institute, Bard College; a director of Offit
Bank; a director of River Bank America (real estate manager); Trustee, Financial
Accounting Foundation (FASB and GASB); formerly New York State Comptroller and
trustee, New York State and Local Retirement Fund.
Russell S. Reynolds, Jr., Trustee, Age: 67
8 Sound Shore Drive, Greenwich, Connecticut 06830
Chairman of The Directorship Group Inc. (corporate governance consulting and
executive recruiting); a director of Professional Staff Limited (U.K.
temporary staffing company); a life trustee of International House
(non-profit educational organization); and a trustee of Greenwich Historical
Society.
Donald W. Spiro, Vice Chairman and Trustee, Age: 73
Two World Trade Center, 34th Floor, New York, NY 10048-0203
A Trustee of other Oppenheimer Funds. Formerly he held the following positions:
Chairman Emeritus (August 1991 - August 1999), Chairman (November 1987 - January
1991) and a director (January 1969 - August 1999) of the Manager; President and
Director of the Distributor (July 1978 - January 1992).
Pauline Trigere, Trustee, Age: 86
498 Seventh Avenue, New York, New York 10018
Chairman and Chief Executive Officer of P.T. Concept (design and sale of
women's fashions).
Clayton K. Yeutter, Trustee, Age: 68
10475 E. Laurel Lane, Scottsdale, Arizona 85259
Of Counsel, Hogan & Hartson (a law firm); a director of Zurich Financial
Services (financial services), Zurich Allied AG and Allied Zurich p.l.c.
(insurance investment management); Caterpillar, Inc. (machinery), ConAgra,
Inc. (food and agricultural products), Farmers Insurance Company (insurance),
FMC Corp. (chemicals and machinery) and Texas Instruments, Inc.
(electronics); formerly (in descending chronological order), Counselor to the
President (Bush) for Domestic Policy, Chairman of the Republican National
Committee, Secretary of the U.S. Department of Agriculture, and U.S. Trade
Representative.
Robert E. Patterson, Vice President and Portfolio Manager, Age:56 Two World
Trade Center, New York, New York 10048-0203 Senior Vice President of the Manager
(since February 1993); an officer of other Oppenheimer funds.
Andrew J. Donohue, Secretary, Age: 49
Two World Trade Center, 34th Floor, New York, NY 10048-0203 Executive Vice
President (since January 1993), General Counsel (since October 1991) and a
Director (since September 1995) of the Manager; Executive Vice President and
General Counsel (since September 1993) and a director (since January 1992) of
the Distributor; Executive Vice President, General Counsel and a director of
HarbourView Asset Management Corp., Shareholder Services, Inc., Shareholder
Financial Services, Inc. and Oppenheimer Partnership Holdings, Inc. (since
September 1995); President and a director of Centennial Asset Management Corp.
(since September 1995); President, General Counsel and a director of Oppenheimer
Real Asset Management, Inc. (since July 1996); General Counsel (since May 1996)
and Secretary (since April 1997) of Oppenheimer Acquisition Corp.; Vice
President and a director of OppenheimerFunds International Ltd. and Oppenheimer
Millennium Funds plc (since October 1997); an officer of other Oppenheimer
funds.
Brian W. Wixted, Treasurer; Age: 40
6803 South Tucson Way, Englewood, Colorado 80112
Senior Vice President and Treasurer (since April 1999) of the Manager; Treasurer
of HarbourView Asset Management Corp., Shareholder Services, Inc., Shareholder
Financial Services, Inc. and Oppenheimer Partnership Holdings, Inc. (since April
1999); Assistant Treasurer of Oppenheimer Acquisition Corp. (since April 1999);
Assistant Secretary of Centennial Asset Management Corp. (since April 1999);
formerly President and Chief Operating Officer, Bankers Trust Company - Mutual
Fund Services Division (March 1995 - March 1999); Vice President and Chief
Financial Officer of CS First Boston Investment Management Corp. (September 1991
- - March 1995); and Vice President and Accounting Manager, Merrill Lynch Asset
Management (November 1987 - September 1991).
Robert G. Zack, Assistant Secretary, Age: 51
Two World Trade Center, 34th Floor, New York, NY 10048-0203
Senior Vice President (since May 1985) and Associate General Counsel (since
May 1981) of the Manager; Assistant Secretary of Shareholder Services, Inc.
(since May 1985) and Shareholder Financial Services, Inc. (since November
1989); Assistant Secretary of OppenheimerFunds International Ltd. and
Oppenheimer Millennium Funds plc (since October 1997); an officer of other
Oppenheimer funds.
Robert J. Bishop, Assistant Treasurer, Age: 40
6803 South Tucson Way, Englewood, Colorado 80112
Vice President of the Manager/Mutual Fund Accounting (since May 1996); an
officer of other Oppenheimer funds; formerly an Assistant Vice President of the
Manager/Mutual Fund Accounting (April 1994-May 1996), and a Fund
Controller for the Manager.
Scott T. Farrar, Assistant Treasurer, Age: 34
6803 South Tucson Way, Englewood, Colorado 80112
Vice President of the Manager/Mutual Fund Accounting (since May 1996); Assistant
Treasurer of OppenheimerFunds International Ltd. and Oppenheimer Millennium
Funds plc (since October 1997); an officer of other Oppenheimer funds; formerly
an Assistant Vice President of the Manager/Mutual Fund Accounting (April
1994-May 1996), and a Fund Controller for the Manager.
|X| Remuneration of Trustees. The officers of the Fund and certain Trustees
of the Fund (Ms. Macaskill and Mr. Spiro) who are affiliated with the Manager
receive no salary or fee from the Fund. The remaining Trustees of the Fund
received the compensation shown below. The compensation from the Fund was paid
during its fiscal year ended July 31, 1999. The compensation from all of the New
York-based Oppenheimer funds (including the Fund) was received as a director,
trustee or member of a committee of the boards of those funds during the
calendar year 1998.
<PAGE>
------------------------------------------------------------------------------
Total
Retirement Compensation
Benefits from all
Trustee's Name Aggregate Accrued New York-Based
and Committee Compensation as Fund Oppenheimer Funds
Position from Fund Expenses (22 Funds)1
------------------------------------------------------------------------------
Leon Levy $12,996 $1,301 $162,600
Chairman
------------------------------------------------------------------------------
Robert G. Galli $4,475 0 $113,383
Study Committee Member
------------------------------------------------------------------------------
Philip Griffiths $730 0 0
------------------------------------------------------------------------------
Benjamin Lipstein $11,684 $1,574 $140,550
Study Committee Chairman
Audit Committee Member
------------------------------------------------------------------------------
Elizabeth B. Moynihan $7,121 0 $99,000
Study Committee Member
------------------------------------------------------------------------------
Kenneth A. Randall $7,348 $817 $90,800
Audit Committee Chairman
------------------------------------------------------------------------------
Edward V. Regan $6,460 0 $89,800
Proxy Committee Chairman,
Audit Committee Member
------------------------------------------------------------------------------
Russell S. Reynolds, Jr. $5,074 $240 $67,200
Proxy Committee Member
------------------------------------------------------------------------------
Pauline Trigere $4,840 $524 $60,000
------------------------------------------------------------------------------
Clayton K. Yeutter (2) $4,834 0 $67,200
Proxy Committee Member
------------------------------------------------------------------------------
(1) For the 1998 calendar year.
(2) Includes $1,227 deferred under Deferred Compensation Plan described below.
|X| Retirement Plan for Trustees. The Fund has adopted a retirement plan
that provides for payments to retired Trustees. Payments are up to 80% of the
average compensation paid during a Trustee's five years of service in which the
highest compensation was received. A Trustee must serve as trustee for any of
the New York-based Oppenheimer funds for at least 15 years to be eligible for
the maximum payment. Each Trustee's retirement benefits will depend on the
amount of the Trustee's future compensation and length of service.
|X| Deferred Compensation Plan for Trustees. The Board of Trustees has
adopted a Deferred Compensation Plan for disinterested trustees that enables
them to elect to defer receipt of all or a portion of the annual fees they are
entitled to receive from the Fund. Under the plan, the compensation deferred by
a Trustee is periodically adjusted as though an equivalent amount had been
invested in shares of one or more Oppenheimer funds selected by the Trustee. The
amount paid to the Trustee under the plan will be determined based upon the
performance of the selected funds.
Deferral of Trustees' fees under the plan will not materially affect the
Fund's assets, liabilities or net income per share. The plan will not obligate
the Fund to retain the services of any Trustee or to pay any particular level of
compensation to any Trustee. Pursuant to an Order issued by the Securities and
Exchange Commission, the Fund may invest in the funds selected by the Trustee
under the plan without shareholder approval for the limited purpose of
determining the value of the Trustee's deferred fee account.
|X| Major Shareholders. As of November 3 1999, the only persons who owned
of record or were known by the Fund to own beneficially 5% or more of any class
of the Fund's outstanding shares were the following:
Merrill Lynch Pierce Fenner & Smith, Inc. 4800 Deer Lake Drive E., Floor
3, Jacksonville, Florida 32246, which owned 538,488.089 Class B shares
(6.53% of the Class B shares then outstanding), for the benefit of its
customers.
Merrill Lynch Pierce Fenner & Smith, Inc. 4800 Deer Lake Drive E., Floor
3, Jacksonville, Florida 32246, which owned 220,345,313 Class C shares
(12.94% of the Class C shares then outstanding), for the benefit of its
customers.
The Manager. The Manager is wholly-owned by Oppenheimer Acquisition Corp., a
holding company controlled by Massachusetts Mutual Life Insurance Company. The
Manager and the Fund have a Code of Ethics. It is designed to detect and prevent
improper personal trading by certain employees, including portfolio managers,
that would compete with or take advantage of the Fund's portfolio transactions.
Compliance with the Code of Ethics is carefully monitored and strictly enforced
by the Manager.
The portfolio manager of the Fund is principally responsible for the
day-to-day management of the Fund's investment portfolio. Other members of the
Manager's fixed-income portfolio department, particularly security analysts,
traders and other portfolio managers have broad experience with fixed-income
securities. They provide the Fund's portfolio manager with research and support
in managing the Fund's investments.
|X| The Investment Advisory Agreement. The Manager provides investment
advisory and management services to the Fund under an investment advisory
agreement between the Manager and the Fund. The Manager selects securities for
the Fund's portfolio and handles its day-to day business. That agreement
requires the Manager, at its expense, to provide the Fund with adequate office
space, facilities and equipment. It also requires the Manager to provide and
supervise the activities of all administrative and clerical personnel required
to provide effective corporate administration for the Fund. Those
responsibilities include the compilation and maintenance of records with respect
to the Fund's operations, the preparation and filing of specified reports, and
the composition of proxy materials and registration statements for continuous
public sale of shares of the Fund.
Expenses not expressly assumed by the Manager under the advisory agreement
are paid by the Fund. The investment advisory agreement lists examples of
expenses paid by the Fund. The major categories relate to interest, taxes, fees
to disinterested Trustees, legal and audit expenses, custodian and transfer
agent expenses, share issuance costs, certain printing and registration costs,
brokerage commissions, and non-recurring expenses, including litigation cost.
The management fees paid by the Fund to the Manager are calculated at the rates
described in the Prospectus, which are applied to the assets of the Fund as a
whole. The fees are allocated to each class of shares based upon the relative
proportion of the Fund's net assets represented by that class. The management
fees paid by the Fund to the Manager during its last three fiscal years are
listed below.
------------------------------------------------------------
Fiscal Year Management Fee Paid to
Ending 7/31 OppenheimerFunds, Inc.
------------------------------------------------------------
1997 $3,493,873
------------------------------------------------------------
1998 $3,563,611
------------------------------------------------------------
1999 $3,651,960
------------------------------------------------------------
The investment advisory agreement states that in the absence of willful
misfeasance, bad faith, gross negligence in the performance of its duties,
or reckless disregard for its obligations and duties under the investment
advisory agreement, the Manager is not liable for any loss sustained by
reason of any investment of the Fund assets made with due care and in good
faith.
The agreement permits the Manager to act as investment adviser for any
other person, firm or corporation and to use the name "Oppenheimer" in
connection with other investment companies for which it may act as
investment adviser or general distributor. If the Manager shall no longer
act as investment adviser to the Fund, the Manager may withdraw the Fund's
right to use the name "Oppenheimer" as part of its name.
Brokerage Policies of the Fund
Brokerage Provisions of the Investment Advisory Agreement. One of the duties of
the Manager under the investment advisory agreement is to buy and sell portfolio
securities for the Fund. The investment advisory agreement allows the Manager to
use broker-dealers to effect the Fund's portfolio transactions. Under the
agreement, the Manager may employ those broker-dealers (including "affiliated"
brokers, as that term is defined in the Investment Company Act) that, in the
Manager's best judgment based on all relevant factors, will implement the Fund's
policy to obtain, at reasonable expense, the "best execution" of portfolio
transactions. "Best execution" refers to prompt and reliable execution at the
most favorable price obtainable. The Manager need not seek competitive
commission bidding. However, the Manager is expected to minimize the commissions
paid to the extent consistent with the interest and policies of the Fund as
established by its Board of Trustees.
Under the investment advisory agreement, the Manager may select brokers
that provide brokerage and/or research services for the Fund and/or the other
accounts over which the Manager or its affiliates have investment discretion.
The commissions paid to such brokers may be higher than another qualified broker
would charge, if the Manager makes a good faith determination that the
commission is fair and reasonable in relation to the services provided. Subject
to those other considerations, as a factor in selecting brokers for the Fund's
portfolio transactions, the Manager may also consider sales of shares of the
Fund and other investment companies managed by the Manager or its affiliates.
Brokerage Practices Followed by the Manager. The Manager allocates brokerage for
the Fund subject to the provisions of the investment advisory agreement and the
procedures and rules described above. Generally the Manager's portfolio traders
allocate brokerage upon recommendations from the Manager's portfolio managers.
In certain instances, portfolio managers may directly place trades and allocate
brokerage. In either case, the Manager's executive officers supervise the
allocation of brokerage.
Most securities purchases made by the Fund are in principal transactions at
net prices. The Fund usually deals directly with the selling or purchasing
principal or market maker without incurring charges for the services of a broker
on its behalf unless the Manager determines that a better price or execution may
be obtained by using the services of a broker. Therefore, the Fund does not
incur substantial brokerage costs. Portfolio securities purchased from
underwriters include a commission or concession paid by the issuer to the
underwriter in the price of the security. Portfolio securities purchased from
dealers include a spread between the bid and asked price.
The Fund seeks to obtain prompt execution of orders at the most favorable
net prices. In an option transaction, the Fund ordinarily uses the same broker
for the purchase or sale of the option and any transaction in the investment to
which the option relates. When possible, the Manager tries to combine concurrent
orders to purchase or sell the same security by more than one of the accounts
managed by the Manager or its affiliates. The transactions under those combined
orders are averaged as to price and allocated in accordance with the purchase or
sale orders actually placed for each account.
The investment advisory agreement permits the Manager to allocate brokerage
for research services. The research services provided by a particular broker may
be useful only to one or more of the advisory accounts of the Manager and its
affiliates. Investment research received by the Manager for the commissions paid
by those other accounts may be useful both to the Fund and one or more of the
Manager's other accounts. Investment research services may be supplied to the
Manager by a third party at the instance of a broker through which trades are
placed. Investment research services include information and analyses on
particular companies and industries as well as market or economic trends and
portfolio strategy, market quotations for portfolio evaluations, information
systems, computer hardware and similar products and services. If a research
service also assists the Manager in a non-research capacity (such as bookkeeping
or other administrative functions), then only the percentage or component that
provides assistance to the Manager in the investment decision-making process may
be paid in commission dollars.
The Board of Trustees has permitted the Manager to use concessions on
fixed-price offerings to obtain research, in the same manner as is permitted for
agency transactions. The Board has also permitted the Manager to use stated
commissions on secondary fixed-income agency trades to obtain research if the
broker represents to the Manager that: (i) the trade is not from or for the
broker's own inventory, (ii) the trade was executed by the broker on an agency
basis at the stated commission, and (iii) the trade is not a riskless principal
transaction.
The research services provided by brokers broaden the scope and supplement
the research activities of the Manager. That research provides additional views
and comparisons for consideration and helps the Manager to obtain market
information for the valuation of securities that are either held in the Fund's
portfolio or are being considered for purchase. The Manager provides information
to the Board of the Fund about the commissions paid to brokers furnishing
research services, together with the Manager's representation that the amount of
such commissions was reasonably related to the value or benefit of such
services.
Other funds advised by the Manager have investment objectives and policies
similar to those of the Fund. Those other funds may purchase or sell the same
securities as the Fund at the same time as the Fund, which could affect the
supply and price of the securities. If two or more of funds advised by the
Manager purchase the same security on the same day from the same dealer, the
Manager may average the price of the transactions and allocate the average among
the funds.
Distribution and Service Plans
The Distributor. Under its General Distributor's Agreement with the Fund, the
Distributor acts as the Fund's principal underwriter in the continuous public
offering of the Fund's Class A, Class B and Class C shares. The Distributor is
not obligated to sell a specific number of shares. Expenses normally
attributable to sales are borne by the Distributor. They exclude payments under
the Distribution and Service Plans but include advertising and the cost of
printing and mailing prospectuses (other than those furnished to existing
shareholders).
The compensation paid to (or retained by) the Distributor from the sale of
shares or on the redemption of shares is discussed in the table below:
------------------------------------------------------------------------------
Aggregate Class A Commissions Commissions Commissions
Fiscal Front-End Front-End on Class A on Class B on Class C
Year Sales Sales Shares Shares Shares
Ended Charges on Charges Advanced by Advanced by Advanced by
7/31: Class A Retained by Distributor1 Distributor1 Distributor1
Shares Distributor
------------------------------------------------------------------------------
1997 $829,188 $210,262 N/A $505,653 $49,122
------------------------------------------------------------------------------
1998 $896,039 $197,524 $135,952 $675,133 $62,750
------------------------------------------------------------------------------
1999 $801,669 $216,077 $65,289 $707,523 $71,786
------------------------------------------------------------------------------
1.The Distributor advances commission payments to dealers for certain sales of
Class A shares and for sales of Class B and Class C shares from its own
resources at the time of sale.
------------------------------------------------------------------------------
Class A Contingent Class B Contingent Class C Contingent
Fiscal Year Deferred Sales Deferred Sales Deferred Sales Charges
Ended 7/31: Charges Charges Retained by
Retained by Retained by Distributor
Distributor Distributor
------------------------------------------------------------------------------
1999 $1,578 $291,023 $8,384
------------------------------------------------------------------------------
For additional information about distribution of the Fund's shares,
including fees and expenses, please refer to "Distribution and Service Plans."
Distribution and Service Plans. The Fund has adopted a Service Plan for its
Class A shares and Distribution and Service Plans for its Class B and Class C
shares under Rule 12b-1 of the Investment Company Act. Under those plans, the
Fund makes payments to the Distributor in connection with the distribution
and/or servicing of the shares of the particular class.
Under the plans the Manager and the Distributor may make payments to
affiliates and, in their sole discretion, from time to time may use their own
resources to make payments to brokers, dealers or other financial institutions
for distribution and administrative services they perform at no cost to the
Fund. The Manager may use profits from the advisory fee it receives from the
Fund. The Distributor and the Manager may, in their sole discretion, increase or
decrease the amount of payments they make to plan recipients from their own
resources.
Unless a plan is terminated as described below, the plan continues in
effect from year to year, but only if the Fund's Board of Trustees and its
Independent Trustees specifically vote annually to approve its continuance.
Approval must be by a vote cast in person at a meeting called for the purpose of
voting on continuing the plan. A plan may be terminated at any time by the vote
of a majority of the Independent Trustees or by the vote of the holders of a
"majority" (as defined in the Investment Company Act) of the outstanding shares
of that class.
The Board and the Independent Trustees must approve all material amendments
to a plan. An amendment to increase materially the amount of payments to be made
under the plan must be approved by shareholders of the class affected by the
amendment. Because Class B shares automatically convert into Class A shares
after six years, the Fund must obtain the approval of both Class A and Class B
shareholders for an amendment to the Class A plan that would materially increase
the amount to be paid under that plan. That approval must be by a "majority" (as
defined in the Investment Company Act) of the shares of each class, voting
separately by Class. While the plans are in effect, the Treasurer of the Fund
shall provide separate written reports on the plans to the Fund's Board of
Trustees at least quarterly for its review. The reports shall detail the amount
of all payments made under a plan and the purpose for which the payments were
made. Those reports are subject to the review and approval of the Independent
Trustees in the exercise of their fiduciary duty.
Each plan states that while it is in effect, the selection or replacement
and nomination of those Trustees of the Fund who are not "interested persons" of
the Fund is committed to the discretion of the Independent Trustees. This
provision does not prevent the involvement of others in the selection and
nomination process as long as the final decision as to selection or nomination
is approved by a majority of the Independent Trustees.
Under the plans, no payment will be made to any recipient in any quarter in
which the aggregate net asset value of all Fund shares held by the recipient for
itself and its customers does not exceed a minimum amount, if any, that may be
set from time to time by a majority of the Fund's Independent Trustees.
Initially, the Board of Trustees has set the fees at the maximum rate allowed
under the plans and has set no minimum asset amount needed to qualify for
payments.
|_| Class A Service Plan Fees. Under the Class A service plan, the
Distributor currently uses the fees it receives from the Fund to pay brokers,
dealers and other financial institutions (they are referred to as "recipients")
for personal services and account maintenance services they provide for their
customers who hold Class A shares. The services include, among others, answering
customer inquiries about the Fund, assisting in establishing and maintaining
accounts in the Fund, making the Fund's investment plans available and providing
other services at the request of the Fund or the Distributor. The Distributor
makes payments to plan recipients quarterly at an annual rate not to exceed
0.25% of the average annual net assets of Class A shares acquired on or after
April 1, 1991, held in accounts of the service providers or their customers. The
rate is 0.15% for average annual net assets represented by Class A shares
acquired before April 1, 1991.
For the fiscal year ended July 31, 1999, payments under the Plan for Class
A shares totaled $1,290,905, all of which was paid by the Distributor to
recipients. That included $109,431 paid to an affiliate of the Distributor. Any
unreimbursed expenses the Distributor incurs with respect to Class A shares for
any fiscal year may not be recovered in subsequent years. The Distributor may
not use payments received under the Class A plan to pay any of its interest
expenses, carrying charges, other financial costs, or allocation of overhead.
|_| Class B and Class C Service and Distribution Plan Fees. Under each
plan, service fees and distribution fees are computed on the average of the net
asset value of shares in the respective class, determined as of the close of
each regular business day during the period. The Class B and Class C plans
provide for the Distributor to be compensated at a flat rate, whether the
Distributor's distribution expenses are more or less than the amounts paid by
the Fund under the plans during that period. The Class B and Class C plans
permit the Distributor to retain both the asset-based sales charges and the
service fee on shares or to pay recipients the service fee on a quarterly basis,
without payment in advance.
The Distributor presently intends to pay recipients the service fee on
Class B and Class C shares in advance for the first year the shares are
outstanding. After the first year shares are outstanding, the Distributor makes
payments quarterly on those shares. The advance payment is based on the net
asset value of shares sold. Shares purchased by exchange do not qualify for an
advance service fee payment. If Class B or Class C shares are redeemed during
the first year after their purchase, the recipient of the service fees on those
shares will be obligated to repay the Distributor a pro rata portion of the
advance payment made on those shares.
The Distributor retains the asset-based sales charge on Class B shares. The
Distributor retains the asset-based sales charge on Class C shares during the
first year the shares are outstanding. It pays the asset-based sales charge as
an ongoing commission to the dealer on Class C shares outstanding for a year or
more. If a dealer has a special agreement with the Distributor, the Distributor
will pay the Class B and/or Class C service fees and the asset-based sales
charge to the dealer quarterly in lieu of paying the sales commission and
service fee in advance at the time of purchase.
The asset-based sales charge on Class B and Class C shares allows investors
to buy shares without a front-end sales charge while allowing the Distributor to
compensate dealers that sell those shares. The Distributor's actual expenses in
selling Class B and Class C shares may be more than the payments it receives
from contingent deferred sales charges collected on redeemed shares and from the
Fund under the plans. The Fund pays the asset-based sales charge to the
Distributor for its services rendered in distributing Class B and Class C
shares. The payments are made to the Distributor in recognition that the
Distributor:
|_|pays sales commissions to authorized brokers and dealers at the time of
sale and pays service fees as described in the Prospectus,
|_|may finance payment of sales commissions and/or the advance of the
service fee payment to recipients under the plans, or may provide such
financing from its own resources or from the resources of an affiliate,
|_| employs personnel to support distribution of shares, and
|_| bears the costs of sales literature, advertising and prospectuses
(other than those furnished to current shareholders) and state "blue
sky" registration fees and certain other distribution expenses.
The Distributor's actual expenses in selling Class B and Class C shares
may be more than the payments it receives from the contingent deferred
sales charges collected on redeemed shares and from the Fund under the
plans. If either the Class B or Class C plan is terminated by the Fund, the
Board of Trustees may allow the Fund to continue payments of the
asset-based sales charge to the Distributor for distributing shares before
the plan was terminated.
- -------------------------------------------------------------------------------
Distribution Fees Paid to the Distributor in the Fiscal Year Ended 7/31/99
- -------------------------------------------------------------------------------
Distributor's Distributor's
Aggregate Unreimbursed
Total Amount Unreimbursed Expenses as %
Payments Retained by Expenses of Net Assets
Under Plan Distributor Under Plan of Class
- -------------------------------------------------------------------------------
Class B Plan $963,566 $766,109 $2,234,594 2.48%
- -------------------------------------------------------------------------------
Class C Plan $168,521 $ $ 1.20%
97,752 223,243
- -------------------------------------------------------------------------------
All payments under the Class B and the Class C plans are subject to the
limitations imposed by the Conduct Rules of the National Association of
Securities Dealers, Inc. on payments of asset-based sales charges and service
fees.
Performance of the Fund
Explanation of Performance Terminology. The Fund uses a variety of terms to
illustrate its performance. These terms include "standardized yield,"
"tax-equivalent yield," "dividend yield," "average annual total return,"
"cumulative total return," "average annual total return at net asset value" and
"total return at net asset value." An explanation of how yields and total
returns are calculated is set forth below. The charts below show the Fund's
performance during its most recent fiscal year end. You can obtain current
performance information by calling the Fund's Transfer Agent at 1-800-525-7048
or by visiting the OppenheimerFunds Internet web site at
http://www.oppenheimerfunds.com.
The Fund's illustrations of its performance data in advertisements must
comply with rules of the Securities and Exchange Commission. Those rules
describe the types of performance data that may be used and how it is to be
calculated. In general, any advertisement by the Fund of its performance data
must include the average annual total returns for the advertised class of shares
of the Fund. Those returns must be shown for the 1, 5 and 10-year periods (or
the life of the class, if less) ending as of the most recently ended calendar
quarter prior to the publication of the advertisement (or its submission for
publication). Certain types of yields may also be shown, provided that they are
accompanied by standardized average annual total returns.
Use of standardized performance calculations enables an investor to compare
the Fund's performance to the performance of other funds for the same periods.
However, a number of factors should be considered before using the Fund's
performance information as a basis for comparison with other investments:
|_|Yields and total returns measure the performance of a hypothetical
account in the Fund over various periods and do not show the performance
of each shareholder's account. Your account's performance will vary from
the model performance data if your dividends are received in cash, or
you buy or sell shares during the period, or you bought your shares at a
different time and price than the shares used in the model.
|_| The Fund's performance returns do not reflect the effect of taxes
on distributions.
|_| An investment in the Fund is not insured by the FDIC or any other
government agency.
|_|The principal value of the Fund's shares, and its yields and total
returns are not guaranteed and normally will fluctuate on a daily basis.
|_|When an investor's shares are redeemed, they may be worth more or less
than their original cost.
|_|Yields and total returns for any given past period represent historical
performance information and are not, and should not be considered, a
prediction of future yields or returns.
The performance of each class of shares is shown separately, because the
performance of each class of shares will usually be different. That is because
of the different kinds of expenses each class bears. The yields and total
returns of each class of shares of the Fund are affected by market conditions,
the quality of the Fund's investments, the maturity of those investments, the
types of investments the Fund holds, and its operating expenses that are
allocated to the particular class.
|X| Yields. The Fund uses a variety of different yields to illustrate its
current returns. Each class of shares calculates its yield separately because of
the different expenses that affect each class.
|_| Standardized Yield. The "standardized yield" (sometimes referred to
just as "yield") is shown for a class of shares for a stated 30-day period. It
is not based on actual distributions paid by the Fund to shareholders in the
30-day period, but is a hypothetical yield based upon the net investment income
from the Fund's portfolio investments for that period. It may therefore differ
from the "dividend yield" for the same class of shares, described below.
Standardized yield is calculated using the following formula set forth in
rules adopted by the Securities and Exchange Commission, designed to assure
uniformity in the way that all funds calculate their yields:
(a-b) 6
Standardized Yield = 2 ((--- + 1) - 1)
( cd)
The symbols above represent the following factors:
a = dividends and interest earned during the 30-day period.
b = expenses accrued for the period (net of any expense assumptions).
c = the average daily number of shares of that class outstanding during
the 30-day period that were entitled to receive dividends.
d = the maximum offering price per share of that class on the last day
of the period, adjusted for undistributed net investment income.
The standardized yield for a particular 30-day period may differ from the
yield for other periods. The SEC formula assumes that the standardized yield for
a 30-day period occurs at a constant rate for a six-month period and is
annualized at the end of the six-month period. Additionally, because each class
of shares is subject to different expenses, it is likely that the standardized
yields of the Fund's classes of shares will differ for any 30-day period.
|_| Dividend Yield. The Fund may quote a "dividend yield" for each class of
its shares. Dividend yield is based on the dividends paid on a class of shares
during the actual dividend period. To calculate dividend yield, the dividends of
a class declared during a stated period are added together, and the sum is
multiplied by 12 (to annualize the yield) and divided by the maximum offering
price on the last day of the dividend period. The formula is shown below:
Dividend Yield = dividends paid x 12/maximum offering price (payment date)
The maximum offering price for Class A shares includes the current maximum
initial sales charge. The maximum offering price for Class B and Class C shares
is the net asset value per share, without considering the effect of contingent
deferred sales charges. The Class A dividend yield may also be quoted without
deducting the maximum initial sales charge.
|_| Tax-Equivalent Yield. The "tax-equivalent yield" of a class of shares
is the equivalent yield that would have to be earned on a taxable investment to
achieve the after-tax results represented by the Fund's tax-equivalent yield. It
adjusts the Fund's standardized yield, as calculated above, by a stated Federal
tax rate. Using different tax rates to show different tax equivalent yields
shows investors in different tax brackets the tax equivalent yield of the Fund
based on their own tax bracket.
The tax-equivalent yield is based on a 30-day period, and is computed by
dividing the tax-exempt portion of the Fund's current yield (as calculated
above) by one minus a stated income tax rate. The result is added to the portion
(if any) of the Fund's current yield that is not tax-exempt.
The tax-equivalent yield may be used to compare the tax effects of income
derived from the Fund with income from taxable investments at the tax rates
stated. Your tax bracket is determined by your Federal taxable income (the net
amount subject to Federal income tax after deductions and exemptions). The
tax-equivalent yield table assumes that the investor is taxed at the highest
bracket, regardless of whether a switch to non-taxable investments would cause a
lower bracket to apply.
------------------------------------------------------------------------------
The Fund's Yields for the 30-Day Periods Ended 7/31/99
------------------------------------------------------------------------------
------------------------------------------------------------------------------
Tax-Equivalent Yield
Standardized Yield Dividend Yield (39.6% Fed. Tax
Bracket)
Class of
Shares
------------------------------------------------------------------------------
------------------------------------------------------------------------------
Without After Without After Without After
Sales Sales Sales Sales Sales Sales
Charge Charge Charge Charge Charge Charge
------------------------------------------------------------------------------
Class A 4.84% 4.61% 5.15% 4.91% 8.01% 7.63%
------------------------------------------------------------------------------
Class B 4.05% N/A 4.37% N/A 6.71% N/A
------------------------------------------------------------------------------
Class C 4.05% N/A 4.36% N/A 6.71% N/A
------------------------------------------------------------------------------
|X| Total Return Information. There are different types of "total returns"
to measure the Fund's performance. Total return is the change in value of a
hypothetical investment in the Fund over a given period, assuming that all
dividends and capital gains distributions are reinvested in additional shares
and that the investment is redeemed at the end of the period. Because of
differences in expenses for each class of shares, the total returns for each
class are separately measured. The cumulative total return measures the change
in value over the entire period (for example, ten years). An average annual
total return shows the average rate of return for each year in a period that
would produce the cumulative total return over the entire period. However,
average annual total returns do not show actual year-by-year performance. The
Fund uses standardized calculations for its total returns as prescribed by the
SEC. The methodology is discussed below.
In calculating total returns for Class A shares, the current maximum sales
charge of 4.75% (as a percentage of the offering price) is deducted from the
initial investment ("P") (unless the return is shown without sales charge, as
described below). For Class B shares, payment of the applicable contingent
deferred sales charge is applied, depending on the period for which the return
is shown: 5.0% in the first year, 4.0% in the second year, 3.0% in the third and
fourth years, 2.0% in the fifth year, 1.0% in the sixth year and none
thereafter. For Class C shares, the 1% contingent deferred sales charge is
deducted for returns for the 1-year period.
|_| Average Annual Total Return. The "average annual total return" of each
class is an average annual compounded rate of return for each year in a
specified number of years. It is the rate of return based on the change in value
of a hypothetical initial investment of $1,000 ("P" in the formula below) held
for a number of years ("n") to achieve an Ending Redeemable Value ("ERV" in the
formula) of that investment, according to the following formula:
1/n
(ERV)
(---) -1 = Average Annual Total Return
( P )
|_| Cumulative Total Return. The "cumulative total return" calculation
measures the change in value of a hypothetical investment of $1,000 over an
entire period of years. Its calculation uses some of the same factors as average
annual total return, but it does not average the rate of return on an annual
basis. Cumulative total return is determined as follows:
ERV - P
------- = Total Return
P
|_| Total Returns at Net Asset Value. From time to time the Fund may also
quote a cumulative or an average annual total return "at net asset value"
(without deducting sales charges) for Class A, Class B or Class C shares. Each
is based on the difference in net asset value per share at the beginning and the
end of the period for a hypothetical investment in that class of shares (without
considering front-end or contingent deferred sales charges) and takes into
consideration the reinvestment of dividends and capital gains distributions.
------------------------------------------------------------------------------
The Fund's Total Returns for the Periods Ended 7/31/99
------------------------------------------------------------------------------
Cumulative Total Average Annual Total Returns
Returns (10 years
or life of class)
Class of
Shares
------------------------------------------------------------------------------
5-Year 10-Year
1-Year (or life of (or life of
class) class)
------------------------------------------------------------------------------
After Without After Without After Without After Without
Sales Sales Sales Sales Sales Sales Sales Sales
Charge Charge Charge Charge Charge Charge Charge Charge
------------------------------------------------------------------------------
Class A 86.67% 95.99% -2.31% 2.57% 5.46% 6.49% 6.44% 6.96%
------------------------------------------------------------------------------
Class B 34.96%(2) 34.96% -3.10% 1.78% 5.35% 5.67% 4.82%(2) 4.82%(2)
------------------------------------------------------------------------------
Class C 24.4%(3) 24.4% 0.80% 1.78% 5.72%(3)5.72%(3) N/A N/A
------------------------------------------------------------------------------
1.Inception of Class A: 10/27/76
2.Inception of Class B: 3/16/93. Because Class B shares convert to Class A
shares 72 months after purchase, the "life-of-class" return for Class B uses
Class A performance for the period after conversion.
3.Inception of Class C: 8/29/95
Other Performance Comparisons. The Fund compares its performance annually to
that of an appropriate broadly based market index in its Annual Report to
shareholders. You can obtain that information by contacting the Transfer Agent
at the addresses or telephone numbers shown on the cover of this Statement of
Additional Information. The Fund may also compare its performance to that of
other investments, including other mutual funds, or use rankings of its
performance by independent ranking entities. Examples of these performance
comparisons are set forth below.
|_| Lipper Rankings. From time to time the Fund may publish the ranking of
the performance of its Class A, Class B or Class C shares by Lipper Analytical
Services, Inc. ("Lipper"). Lipper is a widely-recognized independent mutual fund
monitoring service. Lipper monitors the performance of regulated investment
companies, including the Fund, and ranks their performance for various periods
based on categories relating to investment objectives. The performance of the
Fund is ranked by Lipper against all other general municipal bond funds. The
Lipper performance rankings are based on total returns that include the
reinvestment of capital gain distributions and income dividends but do not take
sales charges or taxes into consideration. Lipper also publishes "peer-group"
indices of the performance of all mutual funds in a category that it monitors
and averages of the performance of the funds in particular categories.
|_| Morningstar Rankings. From time to time the Fund may publish the
ranking and/or star rating of the performance of its classes of shares by
Morningstar, Inc., an independent mutual fund monitoring service. Morningstar
ranks mutual funds in broad investment categories: domestic stock funds,
international stock funds, taxable bond funds and municipal bond funds. The Fund
is ranked among municipal bond funds.
Morningstar proprietary star ratings reflect historical risk-adjusted total
investment return. Investment return measures a fund's (or class's) one, three,
five and ten-year average annual total returns (depending on the inception of
the fund or class) in excess of 90-day U.S. Treasury bill returns after
considering the fund's sales charges and expenses. Risk measures a fund's (or
class's) performance below 90-day U.S. Treasury bill returns. Risk and
investment return are combined to produce star ratings reflecting performance
relative to the other funds in a fund's category. Five stars is the "highest"
ranking (top 10% of funds in a category), four stars is "above average" (next
22.5%), three stars is "average" (next 35%), two stars is "below average" (next
22.5%) and one star is "lowest" (bottom 10%). The current star rating is the
fund's (or class's) overall rating, which is the fund's 3-year rating or its
combined 3- and 5-year rating (weighted 60%/40% respectively), or its combined
3-, 5-, and 10-year rating (weighted 40%/30%/30%, respectively), depending on
the inception date of the fund (or class). Rankings are subject to change
monthly.
The Fund may also compare its total return ranking to that of other funds
in its Morningstar category. In addition to its star ratings. Those total return
rankings are percentage from one percent to one hundred percent and are not risk
adjusted. For example, if a fund is in the 94th percentile, that means that 94%
of the funds in the same category performed better than it did.
|_| Performance Rankings and Comparisons by Other Entities and
Publications. From time to time the Fund may include in its advertisements and
sales literature performance information about the Fund cited in newspapers and
other periodicals such as The New York Times, The Wall Street Journal, Barron's,
or similar publications. That information may include performance quotations
from other sources, including Lipper and Morningstar. The performance of the
Fund's Class A, Class B or Class C shares may be compared in publications to the
performance of various market indices or other investments, and averages,
performance rankings or other benchmarks prepared by recognized mutual fund
statistical services.
Investors may also wish to compare the Fund's Class A, Class B or Class C
returns to the return on fixed-income investments available from banks and
thrift institutions. Those include certificates of deposit, ordinary
interest-paying checking and savings accounts, and other forms of fixed or
variable time deposits, and various other instruments such as Treasury bills.
However, the Fund's returns and share price are not guaranteed or insured by the
FDIC or any other agency and will fluctuate daily, while bank depository
obligations may be insured by the FDIC and may provide fixed rates of return.
Repayment of principal and payment of interest on Treasury securities is backed
by the full faith and credit of the U.S. government.
From time to time, the Fund may publish rankings or ratings of the Manager
or Transfer Agent, and of the investor services provided by them to shareholders
of the Oppenheimer funds, other than performance rankings of the Oppenheimer
funds themselves. Those ratings or rankings of shareholder and investor services
by third parties may include comparisons of their services to those provided by
other mutual fund families selected by the rating or ranking services. They may
be based upon the opinions of the rating or ranking service itself, using its
research or judgment, or based upon surveys of investors, brokers, shareholders
or others.
ABOUT YOUR ACCOUNT
How to Buy Shares
Additional information is presented below about the methods that can be
used to buy shares of the Fund. Appendix C contains more information about the
special sales charge arrangements offered by the Fund, and the circumstances in
which sales charges may be reduced or waived for certain classes of investors.
AccountLink. When shares are purchased through AccountLink, each purchase must
be at least $25. Shares will be purchased on the regular business day the
Distributor is instructed to initiate the Automated Clearing House ("ACH")
transfer to buy the shares. Dividends will begin to accrue on shares purchased
with the proceeds of ACH transfers on the business day the Fund received Federal
Funds for the purchase through the ACH system before the close of The New York
Stock Exchange. The Exchange normally closes at 4:00 P.M., but may close earlier
on certain days. If Federal Funds are received on a business day after the close
the Exchange, the shares will be purchased and dividends will begin to accrue on
the next regular business day. The proceeds of ACH transfers are normally
received by the Fund three (3) days after the transfers are initiated. The
Distributor and the Fund are not responsible for any delays in purchasing shares
resulting from delays in ACH transmissions.
Reduced Sales Charges. As discussed in the Prospectus, a reduced sales charge
rate may be obtained for Class A shares under Right of Accumulation and Letters
of Intent because of the economies of sales efforts and reduction in expenses
realized by the Distributor, dealers and brokers making such sales. No sales
charge is imposed in certain other circumstances described in Appendix C to this
Statement of Additional Information because the Distributor or dealer or broker
incurs little or no selling expenses.
|X| Right of Accumulation. To qualify for the lower sales charge rates that
apply to larger purchases of Class A shares, you and your spouse can add
together:
|_|Class A and Class B shares you purchase for your individual accounts,
or for your joint accounts, or for trust or custodial accounts on behalf
of your children who are minors, and
|_|Current purchases of Class A and Class B shares of the Fund and other
Oppenheimer funds to reduce the sales charge rate that applies to
current purchases of Class A shares, and
|_|Class A and Class B shares of Oppenheimer funds you previously
purchased subject to an initial or contingent deferred sales charge to
reduce the sales charge rate for current purchases of Class A shares,
provided that you still hold your investment in one of the Oppenheimer
funds.
A fiduciary can count all shares purchased for a trust, estate or other
fiduciary account (including one or more employee benefit plans of the same
employer) that has multiple accounts. The Distributor will add the value, at
current offering price, of the shares you previously purchased and currently own
to the value of current purchases to determine the sales charge rate that
applies. The reduced sales charge will apply only to current purchases. You must
request it when you buy shares.
|X| The Oppenheimer Funds. The Oppenheimer funds are those mutual funds
for which the Distributor acts as the distributor or the sub-distributor and
currently include the following:
Oppenheimer Main Street California
Oppenheimer Bond Fund Municipal Fund
Oppenheimer Main Street Growth & Income
Oppenheimer Capital Appreciation Fund Fund
Oppenheimer Capital Preservation Fund Oppenheimer Main Street Small Cap Fund
Oppenheimer California Municipal Fund Oppenheimer MidCap Fund Oppenheimer
Champion Income Fund Oppenheimer Multiple Strategies Fund
Oppenheimer Convertible Securities Fund Oppenheimer Municipal Bond Fund
Oppenheimer Developing Markets Fund Oppenheimer New York Municipal Fund
Oppenheimer Disciplined Allocation Fund Oppenheimer New Jersey Municipal Fund
Oppenheimer Disciplined Value Fund Oppenheimer Pennsylvania Municipal Fund
Oppenheimer Discovery Fund Oppenheimer Quest Balanced Value Fund
Oppenheimer Quest Capital Value Fund,
Oppenheimer Enterprise Fund Inc.
Oppenheimer Quest Global Value Fund,
Oppenheimer Capital Income Fund Inc.
Oppenheimer Europe Fund Oppenheimer Quest Opportunity Value Fund
Oppenheimer Florida Municipal Fund Oppenheimer Quest Small Cap Value Fund
Oppenheimer Global Fund Oppenheimer Quest Value Fund, Inc.
Oppenheimer Global Growth & Income Fund Oppenheimer Real Asset Fund
Oppenheimer Gold & Special Minerals Fund Oppenheimer Senior Floating Rate Fund
Oppenheimer Growth Fund Oppenheimer Strategic Income Fund
Oppenheimer High Yield Fund Oppenheimer Total Return Fund, Inc.
Oppenheimer Insured Municipal Fund Oppenheimer Trinity Core Fund
Oppenheimer Intermediate Municipal Fund Oppenheimer Trinity Growth Fund
Oppenheimer International Bond Fund Oppenheimer Trinity Value Fund
Oppenheimer International Growth Fund Oppenheimer U.S. Government Trust
Oppenheimer International Small Company
Fund Oppenheimer World Bond Fund
Oppenheimer Large Cap Growth Fund Limited-Term New York Municipal Fund
Oppenheimer Limited-Term Government
Fund Rochester Fund Municipals
And the following money market funds:
Centennial America Fund, L. P. Centennial New York Tax Exempt Trust
Centennial California Tax Exempt Trust Centennial Tax Exempt Trust
Centennial Government Trust Oppenheimer Cash Reserves
Centennial Money Market Trust Oppenheimer Money Market Fund, Inc.
There is an initial sales charge on the purchase of Class A shares of each
of the Oppenheimer funds except the money market funds. Under certain
circumstances described in this Statement of Additional Information, redemption
proceeds of certain money market fund shares may be subject to a contingent
deferred sales charge.
Letters of Intent. Under a Letter of Intent, if you purchase Class A shares or
Class A and Class B shares of the Fund and other Oppenheimer funds during a
13-month period, you can reduce the sales charge rate that applies to your
purchases of Class A shares. The total amount of your intended purchases of both
Class A and Class B shares will determine the reduced sales charge rate for the
Class A shares purchased during that period. You can include purchases made up
to 90 days before the date of the Letter.
A Letter of Intent is an investor's statement in writing to the Distributor
of the intention to purchase Class A shares or Class A and Class B shares of the
Fund (and other Oppenheimer funds) during a 13-month period (the "Letter of
Intent period"). At the investor's request, this may include purchases made up
to 90 days prior to the date of the Letter. The Letter states the investor's
intention to make the aggregate amount of purchases of shares which, when added
to the investor's holdings of shares of those funds, will equal or exceed the
amount specified in the Letter. Purchases made by reinvestment of dividends or
distributions of capital gains and purchases made at net asset value without
sales charge do not count toward satisfying the amount of the Letter.
A Letter enables an investor to count the Class A and Class B shares
purchased under the Letter to obtain the reduced sales charge rate on purchases
of Class A shares of the Fund (and other Oppenheimer funds) that applies under
the Right of Accumulation to current purchases of Class A shares. Each purchase
of Class A shares under the Letter will be made at the public offering price
(including the sales charge) that applies to a single lump-sum purchase of
shares in the amount intended to be purchased under the Letter.
In submitting a Letter, the investor makes no commitment to purchase
shares. However, if the investor's purchases of shares within the Letter of
Intent period, when added to the value (at offering price) of the investor's
holdings of shares on the last day of that period, do not equal or exceed the
intended purchase amount, the investor agrees to pay the additional amount of
sales charge applicable to such purchases. That amount is described in "Terms of
Escrow," below (those terms may be amended by the Distributor from time to
time). The investor agrees that shares equal in value to 5% of the intended
purchase amount will be held in escrow by the Transfer Agent subject to the
Terms of Escrow. Also, the investor agrees to be bound by the terms of the
Prospectus, this Statement of Additional Information and the Application used
for a Letter of Intent. If those terms are amended, as they may be from time to
time by the Fund, the investor agrees to be bounded by the amended terms and
that those amendments will apply automatically to existing Letters of Intent.
If the total eligible purchases made during the Letter of Intent period do
not equal or exceed the intended purchase amount, the commissions previously
paid to the dealer of record for the account and the amount of sales charge
retained by the Distributor will be adjusted to the rates applicable to actual
total purchases. If total eligible purchases during the Letter of Intent period
exceed the intended purchase amount and exceed the amount needed to qualify for
the next sales charge rate reduction set forth in the Prospectus, the sales
charges paid will be adjusted to the lower rate. That adjustment will be made
only if and when the dealer returns to the Distributor the excess of the amount
of commissions allowed or paid to the dealer over the amount of commissions that
apply to the actual amount of purchases. The excess commissions returned to the
Distributor will be used to purchase additional shares for the investor's
account at the net asset value per share in effect on the date of such purchase,
promptly after the Distributor's receipt thereof.
In determining the total amount of purchases made under a Letter, shares
redeemed by the investor prior to the termination of the Letter of Intent period
will be deducted. It is the responsibility of the dealer of record and/or the
investor to advise the Distributor about the Letter in placing any purchase
orders for the investor during the Letter of Intent period. All of such
purchases must be made through the Distributor.
|_| Terms of Escrow That Apply to Letters of Intent.
1. Out of the initial purchase (or subsequent purchases if necessary) made
pursuant to a Letter, shares of the Fund equal in value up to 5% of the intended
purchase amount specified in the Letter shall be held in escrow by the Transfer
Agent. For example, if the intended purchase amount is $50,000, the escrow shall
be shares valued in the amount of $2,500 (computed at the public offering price
adjusted for a $50,000 purchase). Any dividends and capital gains distributions
on the escrowed shares will be credited to the investor's account.
2. If the total minimum investment specified under the Letter is completed
within the thirteen-month Letter of Intent period, the escrowed shares will be
promptly released to the investor.
3. If, at the end of the thirteen-month Letter of Intent period the total
purchases pursuant to the Letter are less than the intended purchase amount
specified in the Letter, the investor must remit to the Distributor an amount
equal to the difference between the dollar amount of sales charges actually paid
and the amount of sales charges which would have been paid if the total amount
purchased had been made at a single time. That sales charge adjustment will
apply to any shares redeemed prior to the completion of the Letter. If the
difference in sales charges is not paid within twenty days after a request from
the Distributor or the dealer, the Distributor will, within sixty days of the
expiration of the Letter, redeem the number of escrowed shares necessary to
realize such difference in sales charges. Full and fractional shares remaining
after such redemption will be released from escrow. If a request is received to
redeem escrowed shares prior to the payment of such additional sales charge, the
sales charge will be withheld from the redemption proceeds.
4. By signing the Letter, the investor irrevocably constitutes and appoints
the Transfer Agent as attorney-in-fact to surrender for redemption any or all
escrowed shares.
5. The shares eligible for purchase under the Letter (or the holding of
which may be counted toward completion of a Letter) include:
(a) Class A shares sold with a front-end sales charge or subject to a
Class A contingent deferred sales charge,
(b) Class B shares of other Oppenheimer funds acquired subject to a
contingent deferred sales charge, and
(c) Class A or Class B shares acquired by exchange of either (1) Class A
shares of one of the other Oppenheimer funds that were acquired
subject to a Class A initial or contingent deferred sales charge or
(2) Class B shares of one of the other Oppenheimer funds that were
acquired subject to a contingent deferred sales charge.
6. Shares held in escrow hereunder will automatically be exchanged for
shares of another fund to which an exchange is requested, as described in the
section of the Prospectus entitled "How to Exchange Shares" and the escrow will
be transferred to that other fund.
Asset Builder Plans. To establish an Asset Builder Plan to buy shares directly
from a bank account, you must enclose a check (the minimum is $25) for the
initial purchase with your application. Shares purchased by Asset Builder Plan
payments from bank accounts are subject to the redemption restrictions for
recent purchases described in the Prospectus. Asset Builder Plans are available
only if your bank is an ACH member. Asset Builder Plans may not be used to buy
shares for OppenheimerFunds-employer-sponsored qualified retirement accounts.
Asset Builder Plans also enable shareholders of Oppenheimer Cash Reserves to use
their account in that fund to make monthly automatic purchases of shares of up
to four other Oppenheimer funds.
If you make payments from your bank to purchase shares of the Fund, your
bank account will be debited automatically. Normally, the debit will be made two
business days prior to the investment dates you selected on your Application.
Neither the Distributor, the Transfer Agent nor the Fund shall be responsible
for any delays in purchasing shares that result from delays in ACH
transmissions.
Before you establish Asset Builder payments, you should obtain a prospectus
of the selected fund(s) from your financial advisor (or the Distributor) and
request an application from the Distributor. Complete the application and return
it. You may change the amount of your Asset Builder payment or your can
terminate these automatic investments at any time by writing to the Transfer
Agent. The Transfer Agent requires a reasonable period (approximately 10 days)
after receipt of your instructions to implement them. The Fund reserves the
right to amend, suspend, or discontinue offering Asset Builder plans at any time
without prior notice.
Cancellation of Purchase Orders. Cancellation of purchase orders for the Fund's
shares (for example, when a purchase check is returned to the Fund unpaid)
causes a loss to be incurred when the net asset value of the Fund's shares on
the cancellation date is less than on the purchase date. That loss is equal to
the amount of the decline in the net asset value per share multiplied by the
number of shares in the purchase order. The investor is responsible for that
loss. If the investor fails to compensate the Fund for the loss, the Distributor
will do so. The Fund may reimburse the Distributor for that amount by redeeming
shares from any account registered in that investor's name, or the Fund or the
Distributor may seek other redress.
Classes of Shares. Each class of shares of the Fund represents an interest in
the same portfolio of investments of the Fund. However, each class has different
shareholder privileges and features. The net income attributable to Class B or
Class C shares and the dividends payable on Class B or Class C shares will be
reduced by incremental expenses borne solely by that class. Those expenses
include the asset-based sales charges to which Class B and Class C are subject.
The availability of three classes of shares permits an investor to choose
the method of purchasing shares that is more appropriate for the investor. That
may depend on the amount of the purchase, the length of time the investor
expects to hold shares, and other relevant circumstances. Class A shares in
general are sold subject to an initial sales charge. While Class B and Class C
shares have no initial sales charge, the purpose of the deferred sales charge
and asset-based sales charge on Class B and Class C shares is the same as that
of the initial sales charge on Class A shares - to compensate the Distributor
and brokers, dealers and financial institutions that sell shares of the Fund. A
salesperson who is entitled to receive compensation for selling Fund shares may
receive different levels of compensation for selling to one class of shares than
another.
The Distributor will not accept any order in the amount of $500,000 or more
for Class B shares or $1 million or more for Class C shares on behalf of a
single investor (not including dealer "street name" or omnibus accounts). That
is because generally it will be more advantageous for that investor to purchase
Class A shares of the Fund.
|_| Class B Conversion. The conversion of Class B shares to Class A shares
after six years is subject to the continuing availability of a private letter
ruling from the Internal Revenue Service, or an opinion of counsel or tax
adviser, to the effect that the conversion of Class B shares does not constitute
a taxable event for the holder under Federal income tax law. If such a revenue
ruling or opinion is no longer available, the automatic conversion feature may
be suspended, in which event no further conversions of Class B shares would
occur while such suspension remained in effect. Although Class B shares could
then be exchanged for Class A shares on the basis of relative net asset value of
the two classes, without the imposition of a sales charge or fee, such exchange
could constitute a taxable event for the holder, and absent such exchange, Class
B shares might continue to be subject to the asset-based sales charge for longer
than six years.
|_| Allocation of Expenses. The Fund pays expenses related to its daily
operations, such as custodian fees, trustees' fees, transfer agency fees, legal
fees and auditing costs. Those expenses are paid out of the Fund's assets and
are not paid directly by shareholders. However, those expenses reduce the net
asset value of shares, and therefore are indirectly borne by shareholders
through their investment.
The methodology for calculating the net asset value, dividends and
distributions of the Fund's share classes recognizes two types of expenses.
General expenses that do not pertain specifically to any one class are allocated
pro rata to the shares of all classes. The allocation is based on the percentage
of the Fund's total assets that is represented by the assets of each class, and
then equally to each outstanding share within a given class. Such general
expenses include management fees, legal, bookkeeping and audit fees, printing
and mailing costs of shareholder reports, Prospectuses, Statements of Additional
Information and other materials for current shareholders, fees to unaffiliated
Trustees, custodian expenses, share issuance costs, organization and start-up
costs, interest, taxes and brokerage commissions, and non-recurring expenses,
such as litigation costs.
Other expenses that are directly attributable to a particular class are
allocated equally to each outstanding share within that class. Examples of such
expenses include distribution and service plan (12b-1) fees, transfer and
shareholder servicing agent fees and expenses, share registration fees and
shareholder meeting expenses (to the extent that such expenses pertain only to a
specific class).
Determination of Net Asset Values Per Share. The net asset values per share of
each class of shares of the Fund are determined as of the close of business of
The New York Stock Exchange on each day that the Exchange is open. It is done by
dividing the value of the Fund's net assets attributable to that class by the
number of shares of that class that are outstanding. The Exchange normally
closes at 4:00 P.M., New York time, but may close earlier on some other days
(for example, in case of weather emergencies or on days falling before a
holiday). The Exchange's most recent annual announcement (which is subject to
change) states that it will close on New Year's Day, Martin Luther King, Jr.
Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day. It may also close on other days.
Dealers other than Exchange members may conduct trading in municipal
securities on days on which the Exchange is closed (including weekends and U.S.
holidays) or after 4:00 P.M. on a regular business day. Because the Fund's net
asset values will not be calculated on those days, the Fund's net asset values
per share may be significantly affected on such days when shareholders may not
purchase or redeem shares.
|X| Securities Valuation. The Fund's Board of Trustees has established
procedures for the valuation of the Fund's securities. In general those
procedures are as follows:
|_|Long-term debt securities having a remaining maturity in excess of 60
days are valued based on the mean between the "bid" and "asked" prices
determined by a portfolio pricing service approved by the Fund's Board
of Trustees or obtained by the Manager from two active market makers in
the security on the basis of reasonable inquiry.
|_|The following securities are valued at the mean between the "bid" and
"asked" prices determined by a pricing service approved by the Fund's
Board of Trustees or obtained by the Manager from two active market
makers in the security on the basis of reasonable inquiry: (1) debt
instruments that have a maturity of more than 397 days when
issued,
(2) debt instruments that had a maturity of 397 days or less when issued
and have a remaining maturity of more than 60 days, and
(3) non-money market debt instruments that had a maturity of 397 days or
less when issued and which have a remaining maturity of 60 days or
less.
|_| The following securities are valued at cost, adjusted
for amortization of premiums and accretion of discounts:
(1) money market debt securities held by a non-money market fund that
had a maturity of less than 397 days when issued that have a
remaining maturity of 60 days or less, and
(2) debt instruments held by a money market fund that have a remaining
maturity of 397 days or less.
|_|Securities not having readily-available market quotations are valued at
fair value determined under the Board's procedures.
If the Manager is unable to locate two market makers willing to give
quotes, a security may be priced at the mean between the "bid" and "asked"
prices provided by a single active market maker (which in certain cases may be
the "bid" price if no "asked" price is available).
In the case of municipal securities, when last sale information is not
generally available, the Manager may use pricing services approved by the
Board of Trustees. The pricing service may use "matrix" comparisons to the
prices for comparable instruments on the basis of quality, yield, maturity.
Other special factors may be involved (such as the tax-exempt status of the
interest paid by municipal securities). The Manager will monitor the
accuracy of the pricing services. That monitoring may include comparing
prices used for portfolio valuation to actual sales prices of selected
securities.
Puts, calls, interest rate futures and municipal bond index futures are
valued at the last sale price on the principal exchange on which they are traded
or on NASDAQ, as applicable, as determined by a pricing service approved by the
Board of Trustees or by the Manager. If there were no sales that day, they shall
be valued at the last sale price on the preceding trading day if it is within
the spread of the closing "bid" and "asked" prices on the principal exchange or
on NASDAQ on the valuation date. If not, the value shall be the closing bid
price on the principal exchange or on NASDAQ on the valuation date. If the put,
call or future is not traded on an exchange or on NASDAQ, it shall be valued by
the mean between "bid" and "asked" prices obtained by the Manager from two
active market makers. In certain cases that may be at the "bid" price if no
"asked" price is available.
When the Fund writes an option, an amount equal to the premium received is
included in the Fund's Statement of Assets and Liabilities as an asset. An
equivalent credit is included in the liability section. The credit is adjusted
("marked-to-market") to reflect the current market value of the option. In
determining the Fund's gain on investments, if a call or put written by the Fund
is exercised, the proceeds are increased by the premium received. If a call or
put written by the Fund expires, the Fund has a gain in the amount of the
premium. If the Fund enters into a closing purchase transaction, it will have a
gain or loss, depending on whether the premium received was more or less than
the cost of the closing transaction. If the Fund exercises a put it holds, the
amount the Fund receives on its sale of the underlying investment is reduced by
the amount of premium paid by the Fund.
How to Sell Shares
The information below supplements the terms and conditions for redeeming
shares set forth in the Prospectus.
Checkwriting. When a check is presented to the Fund's bank for clearance, the
bank will ask the Fund to redeem a sufficient number of full and fractional
shares in the shareholder's account to cover the amount of the check. This
enables the shareholder to continue to receive dividends on those shares until
the check is presented to the Fund. Checks may not be presented for payment at
the offices of the bank listed on the check or at the Fund's custodian bank.
That limitation does not affect the use of checks for the payment of bills or to
obtain cash at other banks. The Fund reserves the right to amend, suspend or
discontinue offering Checkwriting privileges at any time without prior notice.
In choosing to take advantage of the Checkwriting privilege by signing the
Account Application or by completing a Checkwriting card, each individual who
signs:
(1) for individual accounts, represents that they are the registered
owner(s) of the shares of the Fund in that account;
(2) for accounts for corporations, partnerships, trusts and other entities,
represents that they are an officer, general partner, trustee or other
fiduciary or agent, as applicable, duly authorized to act on behalf of
such registered owner(s);
(3) authorizes the Fund, its Transfer Agent and any bank through which the
Fund's drafts (checks) are payable to pay all checks drawn on the Fund
account of such person(s) and to redeem a sufficient amount of shares
from that account to cover payment of each check;
(4) specifically acknowledges that if they choose to permit checks to be
honored if there is a single signature on checks drawn against joint
accounts, or accounts for corporations, partnerships, trusts or
other entities, the signature of any one signatory on a check will
be sufficient to authorize payment of that check and redemption from
the account, even if that account is registered in the names of more
than one person or more than one authorized signature appears on the
Checkwriting card or the Application, as applicable;
(5) understands that the Checkwriting privilege may be terminated or
amended at any time by the Fund and/or the Fund's bank; and
(6) acknowledges and agrees that neither the Fund nor its bank shall incur
any liability for that amendment or termination of checkwriting
privileges or for redeeming shares to pay checks reasonably believed by
them to be genuine, or for returning or not paying checks that have not
been accepted for any reason.
Reinvestment Privilege. Within six months of a redemption, a shareholder may
reinvest all or part of the redemption proceeds of:
|_| Class A shares that you purchased subject to an initial sales charge or
Class A shares on which a contingent deferred sales charge was paid, or
|_| Class B shares that were subject to the Class B contingent deferred
sales charge when redeemed.
The reinvestment may be made without sales charge only in Class A shares of
the Fund or any of the other Oppenheimer funds into which shares of the Fund are
exchangeable as described in "How to Exchange Shares" below. Reinvestment will
be at the net asset value next computed after the Transfer Agent receives the
reinvestment order. The shareholder must ask the Transfer Agent for that
privilege at the time of reinvestment. This privilege does not apply to Class C
shares. The Fund may amend, suspend or cease offering this reinvestment
privilege at any time as to shares redeemed after the date of such amendment,
suspension or cessation.
Any capital gain that was realized when the shares were redeemed is
taxable, and reinvestment will not alter any capital gains tax payable on that
gain. If there has been a capital loss on the redemption, some or all of the
loss may not be tax deductible, depending on the timing and amount of the
reinvestment. Under the Internal Revenue Code, if the redemption proceeds of
Fund shares on which a sales charge was paid are reinvested in shares of the
Fund or another of the Oppenheimer funds within 90 days of payment of the sales
charge, the shareholder's basis in the shares of the Fund that were redeemed may
not include the amount of the sales charge paid. That would reduce the loss or
increase the gain recognized from the redemption. However, in that case the
sales charge would be added to the basis of the shares acquired by the
reinvestment of the redemption proceeds.
Payments "In Kind". The Prospectus states that payment for shares tendered for
redemption is ordinarily made in cash. However, the Board of Trustees of the
Fund may determine that it would be detrimental to the best interests of the
remaining shareholders of the Fund to make payment of a redemption order wholly
or partly in cash. In that case, the Fund may pay the redemption proceeds in
whole or in part by a distribution "in kind" of liquid securities from the
portfolio of the Fund, in lieu of cash.
The Fund has elected to be governed by Rule 18f-1 under the Investment
Company Act. Under that rule, the Fund is obligated to redeem shares solely in
cash up to the lesser of $250,000 or 1% of the net assets of the Fund during any
90-day period for any one shareholder. If shares are redeemed in kind, the
redeeming shareholder might incur brokerage or other costs in selling the
securities for cash. The Fund will value securities used to pay redemptions in
kind using the same method the Fund uses to value its portfolio securities
described above under "Determination of Net Asset Values Per Share." That
valuation will be made as of the time the redemption price is determined.
Involuntary Redemptions. The Fund's Board of Trustees has the right to cause the
involuntary redemption of the shares held in any account if the aggregate net
asset value of those shares is less than $200 or such lesser amount as the Board
may fix. The Board of Trustees will not cause the involuntary redemption of
shares in an account if the aggregate net asset value of such shares has fallen
below the stated minimum solely as a result of market fluctuations. If the Board
exercises this right, it may also fix the requirements for any notice to be
given to the shareholders in question (not less than 30 days). The Board may
alternatively set requirements for the shareholder to increase the investment,
or set other terms and conditions so that the shares would not be involuntarily
redeemed.
Transfers of Shares. A transfer of shares to a different registration is not an
event that triggers the payment of sales charges. Therefore, shares are not
subject to the payment of a contingent deferred sales charge of any class at the
time of transfer to the name of another person or entity. It does not matter
whether the transfer occurs by absolute assignment, gift or bequest, as long as
it does not involve, directly or indirectly, a public sale of the shares. When
shares subject to a contingent deferred sales charge are transferred, the
transferred shares will remain subject to the contingent deferred sales charge.
It will be calculated as if the transferee shareholder had acquired the
transferred shares in the same manner and at the same time as the transferring
shareholder.
If less than all shares held in an account are transferred, and some but
not all shares in the account would be subject to a contingent deferred sales
charge if redeemed at the time of transfer, the priorities described in the
Prospectus under "How to Buy Shares" for the imposition of the Class B or Class
C contingent deferred sales charge will be followed in determining the order in
which shares are transferred.
Special Arrangements for Repurchase of Shares from Dealers and Brokers. The
Distributor is the Fund's agent to repurchase its shares from authorized dealers
or brokers on behalf of their customers. Shareholders should contact their
broker or dealer to arrange this type of redemption. The repurchase price per
share will be the net asset value next computed after the Distributor receives
an order placed by the dealer or broker. However, if the Distributor receives a
repurchase order from a dealer or broker after the close of The New York Stock
Exchange on a regular business day, it will be processed at that day's net asset
value if the order was received by the dealer or broker from its customers prior
to the time the Exchange closes. Normally, the Exchange closes at 4:00 P.M., but
may do so earlier on some days. Additionally, the order must have been
transmitted to and received by the Distributor prior to its close of business
that day (normally 5:00 P.M.).
Ordinarily, for accounts redeemed by a broker-dealer under this procedure,
payment will be made within three business days after the shares have been
redeemed upon the Distributor's receipt of the required redemption documents in
proper form. The signature(s) of the registered owners on the redemption
documents must be guaranteed as described in the Prospectus.
Automatic Withdrawal and Exchange Plans. Investors owning shares of the Fund
valued at $5,000 or more can authorize the Transfer Agent to redeem shares
(having a value of at least $50) automatically on a monthly, quarterly,
semi-annual or annual basis under an Automatic Withdrawal Plan. Shares will be
redeemed three business days prior to the date requested by the shareholder for
receipt of the payment. Automatic withdrawals of up to $1,500 per month may be
requested by telephone if payments are to be made by check payable to all
shareholders of record. Payments must also be sent to the address of record for
the account and the address must not have been changed within the prior 30 days.
Required minimum distributions from OppenheimerFunds-sponsored retirement plans
may not be arranged on this basis.
Payments are normally made by check, but shareholders having AccountLink
privileges (see "How To Buy Shares") may arrange to have Automatic Withdrawal
Plan payments transferred to the bank account designated on the Account
Application or by signature-guaranteed instructions sent to the Transfer Agent.
Shares are normally redeemed pursuant to an Automatic Withdrawal Plan three
business days before the payment transmittal date you select in the Account
Application. If a contingent deferred sales charge applies to the redemption,
the amount of the check or payment will be reduced accordingly.
The Fund cannot guarantee receipt of a payment on the date requested. The
Fund reserves the right to amend, suspend or discontinue offering these plans at
any time without prior notice. Because of the sales charge assessed on Class A
share purchases, shareholders should not make regular additional Class A share
purchases while participating in an Automatic Withdrawal Plan. Class B and Class
C shareholders should not establish withdrawal plans, because of the imposition
of the contingent deferred sales charge on such withdrawals (except where the
contingent deferred sales charge is waived as described in "Waivers of Class B
and Class C Sales Charges" below).
By requesting an Automatic Withdrawal or Exchange Plan, the shareholder
agrees to the terms and conditions that apply to such plans, as stated below.
These provisions may be amended from time to time by the Fund and/or the
Distributor. When adopted, any amendments will automatically apply to existing
Plans.
|X| Automatic Exchange Plans. Shareholders can authorize the Transfer Agent
to exchange a pre-determined amount of shares of the Fund for shares (of the
same class) of other Oppenheimer funds automatically on a monthly, quarterly,
semi-annual or annual basis under an Automatic Exchange Plan. The minimum amount
that may be exchanged to each other fund account is $25. Instructions should be
provided on the OppenheimerFunds Application or signature-guaranteed
instructions. Exchanges made under these plans are subject to the restrictions
that apply to exchanges as set forth in "How to Exchange Shares" in the
Prospectus and below in this Statement of Additional Information.
|X| Automatic Withdrawal Plans. Fund shares will be redeemed as necessary
to meet withdrawal payments. Shares acquired without a sales charge will be
redeemed first. Shares acquired with reinvested dividends and capital gains
distributions will be redeemed next, followed by shares acquired with a sales
charge, to the extent necessary to make withdrawal payments. Depending upon the
amount withdrawn, the investor's principal may be depleted. Payments made under
these plans should not be considered as a yield or income on your investment.
The Transfer Agent will administer the investor's Automatic Withdrawal Plan
as agent for the shareholder(s) (the "Planholder") who executed the Plan
authorization and application submitted to the Transfer Agent. Neither the Fund
nor the Transfer Agent shall incur any liability to the Planholder for any
action taken or not taken by the Transfer Agent in good faith to administer the
Plan. Share certificates will not be issued for shares of the Fund purchased for
and held under the Plan, but the Transfer Agent will credit all such shares to
the account of the Planholder on the records of the Fund. Any share certificates
held by a Planholder may be surrendered unendorsed to the Transfer Agent with
the Plan application so that the shares represented by the certificate may be
held under the Plan.
For accounts subject to Automatic Withdrawal Plans, distributions of
capital gains must be reinvested in shares of the Fund, which will be done at
net asset value without a sales charge. Dividends on shares held in the account
may be paid in cash or reinvested.
Shares will be redeemed to make withdrawal payments at the net asset value
per share determined on the redemption date. Checks or AccountLink payments
representing the proceeds of Plan withdrawals will normally be transmitted three
business days prior to the date selected for receipt of the payment, according
to the choice specified in writing by the Planholder. Receipt of payment on the
date selected cannot be guaranteed.
The amount and the interval of disbursement payments and the address to
which checks are to be mailed or AccountLink payments are to be sent may be
changed at any time by the Planholder by writing to the Transfer Agent. The
Planholder should allow at least two weeks' time after mailing such notification
for the requested change to be put in effect. The Planholder may, at any time,
instruct the Transfer Agent by written notice to redeem all, or any part of, the
shares held under the Plan. That notice must be in proper form in accordance
with the requirements of the then-current Prospectus of the Fund. In that case,
the Transfer Agent will redeem the number of shares requested at the net asset
value per share in effect and will mail a check for the proceeds to the
Planholder.
The Planholder may terminate a Plan at any time by writing to the Transfer
Agent. The Fund may also give directions to the Transfer Agent to terminate a
Plan. The Transfer Agent will also terminate a Plan upon its receipt of evidence
satisfactory to it that the Planholder has died or is legally incapacitated.
Upon termination of a Plan by the Transfer Agent or the Fund, shares that have
not been redeemed will be held in uncertificated form in the name of the
Planholder. The account will continue as a dividend-reinvestment, uncertificated
account unless and until proper instructions are received from the Planholder,
his or her executor or guardian, or another authorized person.
To use shares held under the Plan as collateral for a debt, the Planholder
may request issuance of a portion of the shares in certificated form. Upon
written request from the Planholder, the Transfer Agent will determine the
number of shares for which a certificate may be issued without causing the
withdrawal checks to stop. However, should such uncertificated shares become
exhausted, Plan withdrawals will terminate.
If the Transfer Agent ceases to act as transfer agent for the Fund, the
Planholder will be deemed to have appointed any successor transfer agent to act
as agent in administering the Plan.
How to Exchange Shares
As stated in the Prospectus, shares of a particular class of Oppenheimer
funds having more than one class of shares may be exchanged only for shares of
the same class of other Oppenheimer funds. Shares of Oppenheimer funds that have
a single class without a class designation are deemed "Class A" shares for this
purpose. You can obtain a current list showing which funds offer which classes
by calling the Distributor at 1-800-525-7048.
|_|All of the Oppenheimer funds currently offer Class A, B and C shares
except Oppenheimer Money Market Fund, Inc., Centennial Money Market
Trust, Centennial Tax Exempt Trust, Centennial Government Trust,
Centennial New York Tax Exempt Trust, Centennial California Tax Exempt
Trust, and Centennial America Fund, L.P., which only offer
Class A shares.
|_|Oppenheimer Main Street California Municipal Fund currently offers only
Class A and Class B shares.
|_|Class B and Class C shares of Oppenheimer Cash Reserves are generally
available only by exchange from the same class of shares of other
Oppenheimer funds or through OppenheimerFunds-sponsored 401 (k) plans.
|_|Only certain Oppenheimer funds currently offer Class Y shares. Class Y
shares of Oppenheimer Real Asset Fund may not be exchanged for shares of
any other fund.
|_|Class M shares of Oppenheimer Convertible Securities Fund may be
exchanged only for Class A shares of other Oppenheimer funds. They may
not be acquired by exchange of shares of any class of any other
Oppenheimer funds except Class A shares of Oppenheimer Money Market Fund
or Oppenheimer Cash Reserves acquired by exchange of Class M shares.
|_|Class A shares of Senior Floating Rate Fund are not available by
exchange of Class A shares of other Oppenheimer funds. Class A shares of
Senior Floating Rate Fund that are exchanged for shares of the other
Oppenheimer funds may not be exchanged back for Class A shares of Senior
Floating Rate Fund.
|_|Class X shares of Limited Term New York Municipal Fund can be exchanged
only for Class B shares of other Oppenheimer funds and no exchanges may
be made to Class X shares.
|_|Shares of Oppenheimer Capital Preservation Fund may not be exchanged
for shares of Oppenheimer Money Market Fund, Inc., Oppenheimer Cash
Reserves or Oppenheimer Limited-Term Government Fund. Only participants
in certain retirement plans may purchase shares of Oppenheimer Capital
Preservation Fund, and only those participants may exchange shares of
other Oppenheimer funds for shares of Oppenheimer Capital Preservation
Fund.
Class A shares of Oppenheimer funds may be exchanged at net asset value for
shares of any money market fund offered by the Distributor. Shares of any money
market fund purchased without a sales charge may be exchanged for shares of
Oppenheimer funds offered with a sales charge upon payment of the sales charge.
They may also be used to purchase shares of Oppenheimer funds subject to a
contingent deferred sales charge.
Shares of Oppenheimer Money Market Fund, Inc. purchased with the redemption
proceeds of shares of other mutual funds (other than funds managed by the
Manager or its subsidiaries) redeemed within the 30 days prior to that purchase
may subsequently be exchanged for shares of other Oppenheimer funds without
being subject to an initial or contingent deferred sales charge. To qualify for
that privilege, the investor or the investor's dealer must notify the
Distributor of eligibility for this privilege at the time the shares of
Oppenheimer Money Market Fund, Inc. are purchased. If requested, they must
supply proof of entitlement to this privilege.
Shares of the Fund acquired by reinvestment of dividends or distributions
from any of the other Oppenheimer funds or from any unit investment trust for
which reinvestment arrangements have been made with the Distributor may be
exchanged at net asset value for shares of any of the Oppenheimer funds.
The Fund may amend, suspend or terminate the exchange privilege at any
time. Although the Fund may impose these changes at any time, it will provide
you with notice of those changes whenever it is required to do so by applicable
law. It may be required to provide 60 days notice prior to materially amending
or terminating the exchange privilege. That 60 day notice is not required in
extraordinary circumstances.
|_| How Exchanges Affect Contingent Deferred Sales Charges. No contingent
deferred sales charge is imposed on exchanges of shares of any class purchased
subject to a contingent deferred sales charge. However, when Class A shares
acquired by exchange of Class A shares of other Oppenheimer funds purchased
subject to a Class A contingent deferred sales charge are redeemed within 18
months of the end of the calendar month of the initial purchase of the exchanged
Class A shares, the Class A contingent deferred sales charge is imposed on the
redeemed shares. The Class B contingent deferred sales charge is imposed on
Class B shares acquired by exchange if they are redeemed within 6 years of the
initial purchase of the exchanged Class B shares. The Class C contingent
deferred sales charge is imposed on Class C shares acquired by exchange if they
are redeemed within 12 months of the initial purchase of the exchanged Class C
shares.
When Class B or Class C shares are redeemed to effect an exchange, the
priorities described in "How To Buy Shares" in the Prospectus for the imposition
of the Class B or the Class C contingent deferred sales charge will be followed
in determining the order in which the shares are exchanged. Before exchanging
shares, shareholders should take into account how the exchange may affect any
contingent deferred sales charge that might be imposed in the subsequent
redemption of remaining shares.
|_| Limits on Multiple Exchange Orders. The Fund reserves the right to
reject telephone or written exchange requests submitted in bulk by anyone on
behalf of more than one account. The Fund may accept requests for exchanges of
up to 50 accounts per day from representatives of authorized dealers that
qualify for this privilege.
|_| Telephone Exchange Requests. When exchanging shares by telephone, a
shareholder must have an existing account in the fund to which the exchange is
to be made. Otherwise, the investors must obtain a Prospectus of that fund
before the exchange request may be submitted. For full or partial exchanges of
an account made by telephone, any special account features such as Asset Builder
Plans and Automatic Withdrawal Plans will be switched to the new account unless
the Transfer Agent is instructed otherwise. If all telephone lines are busy
(which might occur, for example, during periods of substantial market
fluctuations), shareholders might not be able to request exchanges by telephone
and would have to submit written exchange requests.
|_| Processing Exchange Requests. Shares to be exchanged are redeemed on
the regular business day the Transfer Agent receives an exchange request in
proper form (the "Redemption Date"). Normally, shares of the fund to be acquired
are purchased on the Redemption Date, but such purchases may be delayed by
either fund up to five business days if it determines that it would be
disadvantaged by an immediate transfer of the redemption proceeds. The Fund
reserves the right, in its discretion, to refuse any exchange request that may
disadvantage it. For example, if the receipt of multiple exchange requests from
a dealer might require the disposition of portfolio securities at a time or at a
price that might be disadvantageous to the Fund, the Fund may refuse the
request.
In connection with any exchange request, the number of shares exchanged may
be less than the number requested if the exchange or the number requested would
include shares subject to a restriction cited in the Prospectus or this
Statement of Additional Information, or would include shares covered by a share
certificate that is not tendered with the request. In those cases, only the
shares available for exchange without restriction will be exchanged.
The different Oppenheimer funds available for exchange have different
investment objectives, policies and risks. A shareholder should assure that the
fund selected is appropriate for his or her investment and should be aware of
the tax consequences of an exchange. For federal income tax purposes, an
exchange transaction is treated as a redemption of shares of one fund and a
purchase of shares of another. "Reinvestment Privilege," above, discusses some
of the tax consequences of reinvestment of redemption proceeds in such cases.
The Fund, the Distributor, and the Transfer Agent are unable to provide
investment, tax or legal advice to a shareholder in connection with an exchange
request or any other investment transaction.
Dividends, Capital Gains and Taxes
Dividends and Distributions. Dividends will be payable on shares held of record
at the time of the previous determination of net asset value, or as otherwise
described in "How to Buy Shares." Daily dividends will not be declared or paid
on newly purchased shares until such time as Federal Funds (funds credited to a
member bank's account at the Federal Reserve Bank) are available from the
purchase payment for such shares. Normally, purchase checks received from
investors are converted to Federal Funds on the next business day. Shares
purchased through dealers or brokers normally are paid for by the third business
day following the placement of the purchase order.
Shares redeemed through the regular redemption procedure will be paid
dividends through and including the day on which the redemption request is
received by the Transfer Agent in proper form. Dividends will be declared on
shares repurchased by a dealer or broker for three business days following the
trade date (that is, up to and including the day prior to settlement of the
repurchase). If all shares in an account are redeemed, all dividends accrued on
shares of the same class in the account will be paid together with the
redemption proceeds.
The Fund's practice of attempting to pay dividends on Class A shares at a
constant level requires the Manager to monitor the Fund's portfolio and, if
necessary, to select higher-yielding securities when it is deemed appropriate to
seek income at the level needed to meet the target. Those securities must be
within the Fund's investment parameters, however. The Fund expects to pay
dividends at a targeted level from its net investment income and other
distributable income without any impact on the net asset values per share.
Dividends, distributions and the proceeds of the redemption of Fund shares
represented by checks returned to the Transfer Agent by the Postal Service as
undeliverable will be invested in shares of Oppenheimer Money Market Fund, Inc.
Reinvestment will be made as promptly as possible after the return of such
checks to the Transfer Agent, to enable the investor to earn a return on
otherwise idle funds. Unclaimed accounts may be subject to state escheatment
laws, and the Fund and the Transfer Agent will not be liable to shareholders or
their representatives for compliance with those laws in good faith.
The amount of a distribution paid on a class of shares may vary from time
to time depending on market conditions, the composition of the Fund's portfolio,
and expenses borne by the Fund or borne separately by a class. Dividends are
calculated in the same manner, at the same time and on the same day for shares
of each class. However, dividends on Class B and Class C shares are expected to
be lower than dividends on Class A shares. That is due to the effect of the
asset-based sales charge on Class B and Class C shares. Those dividends will
also differ in amount as a consequence of any difference in net asset value
among Class A, Class B and Class C shares.
Tax Status of the Fund's Dividends and Distributions. The Fund intends to
qualify under the Internal Revenue Code during each fiscal year to pay
"exempt-interest dividends" to its shareholders. Exempt-interest dividends that
are derived from net investment income earned by the Fund on municipal
securities will be excludable from gross income of shareholders for Federal
income tax purposes.
Net investment income includes the allocation of amounts of income from the
municipal securities in the Fund's portfolio that are free from Federal income
taxes. This allocation will be made by the use of one designated percentage
applied uniformly to all income dividends paid during the Fund's tax year. That
designation will normally be made following the end of each fiscal year as to
income dividends paid in the prior year. The percentage of income designated as
tax-exempt may substantially differ from the percentage of the Fund's income
that was tax-exempt for a given period.
A portion of the exempt-interest dividends paid by the Fund may be an item
of tax preference for shareholders subject to the alternative minimum tax. The
amount of any dividends attributable to tax preference items for purposes of the
alternative minimum tax will be identified when tax information is distributed
by the Fund.
A shareholder receiving a dividend from income earned by the Fund from one
or more of the following sources treats the dividend as a receipt of either
ordinary income or long-term capital gain in the computation of gross income,
regardless of whether the dividend is reinvested:
(1) certain taxable temporary investments (such as certificates of deposit,
repurchase agreements, commercial paper and obligations of the U.S.
government, its agencies and instrumentalities);
(2) income from securities loans;
(3) income or gains from options or futures; or
(4) an excess of net short-term capital gain over net long-term capital
loss from the Fund.
The Fund's dividends will not be eligible for the dividends-received
deduction for corporations. Shareholders receiving Social Security benefits
should be aware that exempt-interest dividends are a factor in determining
whether such benefits are subject to Federal income tax. Losses realized by
shareholders on the redemption of Fund shares within six months of purchase
(which period may be shortened by regulation) will be disallowed for Federal
income tax purposes to the extent of exempt-interest dividends received on such
shares.
If the Fund qualifies as a "regulated investment company" under the
Internal Revenue Code, it will not be liable for Federal income taxes on amounts
paid by it as dividends and distributions. That qualification enables the Fund
to "pass through" its income and realized capital gains to shareholders without
having to pay tax on them. The Fund qualified as a regulated investment company
in its last fiscal year and intends to qualify in future years, but reserves the
right not to qualify. The Internal Revenue Code contains a number of complex
tests to determine whether the Fund qualifies. The Fund might not meet those
tests in a particular year. If it does not qualify, the Fund will be treated for
tax purposes as an ordinary corporation and will receive no tax deduction for
payments of dividends and distributions made to shareholders.
Under the Internal Revenue Code, by December 31 each year the Fund must
distribute 98% of its taxable investment income earned from January 1 through
December 31 of that year and 98% of its capital gains realized in the period
from November 1 of the prior year through October 31 of the current year. If it
does not, the Fund must pay an excise tax on the amounts not distributed. It is
presently anticipated that the Fund will meet those requirements. However, the
Fund's Board of Trustees and the Manager might determine in a particular year
that it would be in the best interest of shareholders not to make distributions
at the required levels and to pay the excise tax on the undistributed amounts.
That would reduce the amount of income or capital gains available for
distribution to shareholders.
Dividend Reinvestment in Another Fund. Shareholders of the Fund may elect to
reinvest all dividends and/or capital gains distributions in shares of the same
class of any of the other Oppenheimer funds listed above. Reinvestment will be
made at net asset value without sales charge. To elect this option, the
shareholder must notify the Transfer Agent in writing and must have an existing
account in the fund selected for reinvestment. Otherwise the shareholder must
first obtain a prospectus for that fund and an application from the Transfer
Agent to establish an account. The investment will be made at the net asset
value per share in effect at the close of business on the payable date of the
dividend or distribution. Dividends and/or distributions from certain of the
other Oppenheimer funds may be invested in shares of this Fund on the same
basis.
Additional Information About the Fund
The Transfer Agent. The Fund's Transfer Agent, OppenheimerFunds Services, is a
division of the Manager. It is responsible for maintaining the Fund's
shareholder registry and shareholder accounting records, and for paying
dividends and distributions to shareholders of the Fund. It also handles
shareholder servicing and administrative functions. It is paid on an "at-cost"
basis.
The Custodian. Citibank, N.A. is the Custodian of the Fund's assets. The
Custodian's responsibilities include safeguarding and controlling the Fund's
portfolio securities and handling the delivery of such securities to and from
the Fund. It will be the practice of the Fund to deal with the Custodian in a
manner uninfluenced by any banking relationship the Custodian may have with the
Manager and its affiliates. The Fund's cash balances with the Custodian in
excess of $100,000 are not protected by Federal Deposit Insurance. Those
uninsured balances may at times be substantial.
Independent Auditors. KPMG LLP are the independent auditors of the Fund. They
audit the Fund's financial statements and perform other related audit services.
They also act as auditors for certain other funds advised by the Manager and its
affiliates.
<PAGE>
INDEPENDENT AUDITORS' REPORT
================================================================================
The Board of Trustees and Shareholders of
Oppenheimer Municipal Bond Fund:
We have audited the accompanying statement of assets and liabilities, including
the statement of investments, of Oppenheimer Municipal Bond Fund as of July 31,
1999, and the related statement of operations for the year then ended, the
statements of changes in net assets for each of the years in the two-year period
then ended and the financial highlights for each of the years in the three-year
period then ended, the seven-month period ended July 31, 1996, and each of the
years in the two-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, 1999, by correspondence with the custodian and brokers; and
where confirmations were not received from brokers, we performed other auditing
procedures. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial
highlights referred to above present fairly, in all material respects, the
financial position of Oppenheimer Municipal Bond Fund as of July 31, 1999, 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 three-year period then ended, the
seven-month period ended July 31, 1996, and each of the years in the two-year
period ended December 31, 1995, in conformity with generally accepted accounting
principles.
/s/ KPMG LLP
KPMG LLP
Denver, Colorado
August 20, 1999
<PAGE>
STATEMENT OF INVESTMENTS July 31, 1999
<TABLE>
<CAPTION>
RATINGS:
MOODY'S/
S&P/FITCH FACE MARKET VALUE
(UNAUDITED) AMOUNT SEE NOTE 1
=================================================================================================
<S> <C> <C> <C>
MUNICIPAL BONDS AND NOTES--101.3%
- -------------------------------------------------------------------------------------------------
ALABAMA--1.2%
Huntsville, AL HCF Authority RB, Prerefunded,
Series B, MBIA Insured, 6.625%, 6/1/23 Aaa/AAA $ 7,235,000 $ 8,054,508
- -------------------------------------------------------------------------------------------------
ARIZONA--0.9%
Central AZ Irrigation & Drainage District
GORB, Series A, 6%, 6/1/13 NR/NR 1,080,950 979,784
- -------------------------------------------------------------------------------------------------
Peoria, AZ IDAU RRB, Sierra Winds Life,
Series A, 6.375%, 8/15/29(1) NR/NR 5,000,000 4,837,950
------------
5,817,734
- -------------------------------------------------------------------------------------------------
CALIFORNIA--13.6%
CA Foothill/Eastern Transportation Corridor
Agency Toll Road RB, Sr. Lien,
Series A, 6.50%, 1/1/32 Baa3/BBB-/BBB 10,500,000 11,742,675
- -------------------------------------------------------------------------------------------------
CA HFA RB, Series C, 6.65%, 8/1/14 Aa2/AA- 5,000,000 5,259,350
- -------------------------------------------------------------------------------------------------
CA HFA SFM RB, Series C, 6.75%, 2/1/25 Aa2/AA- 4,860,000 5,111,213
- -------------------------------------------------------------------------------------------------
CA SCDAU Revenue Refunding COP,
Inverse Floater, 7.575%, 11/1/15(2) A1/NR 1,500,000 1,438,125
- -------------------------------------------------------------------------------------------------
Foothill/Eastern Corridor Agency CA Toll
Road RRB, 5.75%, 1/15/40 Baa3/BBB-/BBB 5,750,000 5,719,410
- -------------------------------------------------------------------------------------------------
Industry, CA UDA TXAL Bonds, Transportation
Distribution Project No. 3, 6.90%, 11/1/07 NR/A- 500,000 540,010
- -------------------------------------------------------------------------------------------------
Los Angeles, CA Regional AIC Lease
RRB, 5.65%, 8/1/17 Ba2/BB 10,000,000 9,719,600
- -------------------------------------------------------------------------------------------------
Los Angeles, CA Regional AIC Lease RRB,
Facilities Sublease-International Airport
Project, 6.35%, 11/1/25 Baa3/BBB- 8,930,000 9,378,643
- -------------------------------------------------------------------------------------------------
Palmdale, CA Community RA SFM RRB,
Escrowed to Maturity, Series A, 8%, 3/1/16 Aaa/NR/A+ 5,000,000 6,486,900
- -------------------------------------------------------------------------------------------------
Perris, CA SFM RB, Escrowed to Maturity,
Series A, 8.30%, 6/1/13 Aaa/AAA 7,000,000 9,114,630
- -------------------------------------------------------------------------------------------------
Pomona, CA SFM RRB, Escrowed to Maturity,
Series A, 7.60%, 5/1/23 Aaa/AAA 6,000,000 7,525,800
- -------------------------------------------------------------------------------------------------
Redding, CA Electric System Revenue COP,
FGIC Insured, Inverse Floater, 7.97%,
6/1/19(2) Aaa/AAA/AAA 6,000,000 6,202,500
- -------------------------------------------------------------------------------------------------
San Joaquin Hills, CA Transportation
Corridor Agency Toll Road RB, Sr. Lien,
Prerefunded, 6.75%, 1/1/32 Aaa/AAA/AAA 12,700,000 14,003,528
------------
92,242,384
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RATINGS:
MOODY'S/
S&P/FITCH FACE MARKET VALUE
(UNAUDITED) AMOUNT SEE NOTE 1
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------------
COLORADO--0.7%
CO HFAU RB, Rocky Mountain Adventist
Health System, 6.625%, 2/1/22 Baa2/BB- $ 5,000,000 $ 4,819,750
- -------------------------------------------------------------------------------------------------
CONNECTICUT--4.1%
Mashantucket, CT Western Pequot Tribe Special
RB, Prerefunded, Series A, 6.40%, 9/1/11(3) Aaa/AAA 7,435,000 8,362,516
- -------------------------------------------------------------------------------------------------
Mashantucket, CT Western Pequot Tribe Special
RB, Unrefunded Balance, Series A, 6.40%,
9/1/11(3) NR/BBB- 7,565,000 8,040,763
- -------------------------------------------------------------------------------------------------
Mashantucket, CT Western Pequot Tribe
Special RRB, Sub. Lien, Series B, 5.75%,
9/1/27(3) Baa3/NR 11,900,000 11,521,223
------------
27,924,502
- -------------------------------------------------------------------------------------------------
FLORIDA--4.6%
Dade Cnty., FL IDAU RB, Miami Cerebral Palsy
Services Project, 8%, 6/1/22 NR/NR 2,755,000 2,989,230
- -------------------------------------------------------------------------------------------------
Escambia Cnty., FL HFAU RB,
Azalea Trace, Inc., 6%, 1/1/15 NR/NR 4,000,000 4,016,600
- -------------------------------------------------------------------------------------------------
FL BOE Capital Outlay GORB, 8.40%, 6/1/07 Aa2/AA+ 750,000 910,425
- -------------------------------------------------------------------------------------------------
FL HFA SFM RRB, Series A, 6.35%, 7/1/14 Aaa/AAA 710,000 745,138
- -------------------------------------------------------------------------------------------------
Grand Haven, FL CDD SPAST RB, Series A,
6.30%, 5/1/02 NR/NR 1,153,000 1,168,715
- -------------------------------------------------------------------------------------------------
Lee Cnty., FL Housing FAU SFM RB, Series A-2,
6.85%, 3/1/29 Aaa/NR 1,585,000 1,766,039
- -------------------------------------------------------------------------------------------------
Lee Cnty., FL IDAU HCF RRB, Shell Point Village
Project, Series A, 5.50%, 11/15/21 NR/BBB- 2,000,000 1,877,760
- -------------------------------------------------------------------------------------------------
Lee Cnty., FL IDAU HCF RRB, Shell Point Village
Project, Series A, 5.50%, 11/15/29 NR/BBB- 2,250,000 2,087,662
- -------------------------------------------------------------------------------------------------
Miami-Dade Cnty., FL SPO RB, Sub. Lien,
Series B, MBIA Insured, Zero Coupon, 5.45%,
10/1/29(4) Aaa/AAA/AAA 25,895,000 4,642,715
- -------------------------------------------------------------------------------------------------
Palm Beach Cnty., FL HF Authority RB,
Retirement Community, 5.125%, 11/15/29 NR/A- 3,130,000 2,807,422
- -------------------------------------------------------------------------------------------------
Village Center CDD FL Recreational RB,
Series A, MBIA Insured, 5%, 11/1/23 Aaa/AAA/AAA 8,345,000 7,836,956
------------
30,848,662
- -------------------------------------------------------------------------------------------------
GEORGIA--2.7%
GA MEAU RRB, Project One, Series X,
MBIA Insured, 6.50%, 1/1/12 Aaa/AAA 500,000 564,040
- -------------------------------------------------------------------------------------------------
GA MEAU SPO Refunding Bonds, Series Y,
6.50%, 1/1/17 A3/A 10,750,000 12,003,557
- -------------------------------------------------------------------------------------------------
GA MEAU SPO Refunding Bonds, Series Y,
MBIA Insured, 6.50%, 1/1/17 Aaa/AAA 1,000,000 1,133,490
- -------------------------------------------------------------------------------------------------
Rockdale Cnty., GA DAU SWD RB, Visy
Paper Inc. Project, 7.40%, 1/1/16 NR/NR 4,555,000 4,776,009
------------
18,477,096
</TABLE>
<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>
- -------------------------------------------------------------------------------------------------
ILLINOIS--1.5%
IL HFAU RB, Hinsdale Hospital Project,
Escrowed to Maturity, Series C, 9.50%,
11/15/19 NR/AAA $ 860,000 $ 943,437
- -------------------------------------------------------------------------------------------------
IL Regional Transportation Authority RB,
AMBAC Insured, 7.20%, 11/1/20 Aaa/AAA/AAA 7,500,000 9,133,875
------------
10,077,312
- -------------------------------------------------------------------------------------------------
INDIANA--4.1%
Indianapolis, IN Airport Authority RB, SPF
Federal Express Corp. Project, 7.10%,
1/15/17 Baa2/BBB 15,500,000 16,983,970
- -------------------------------------------------------------------------------------------------
Indianapolis, IN Airport Authority RB, SPF
United Airlines Project, Series A,
6.50%, 11/15/31 Baa2/BB+ 10,500,000 10,984,260
------------
27,968,230
- -------------------------------------------------------------------------------------------------
KENTUCKY--0.4%
Kenton Cnty., KY AB RB, SPF Delta Airlines
Project, Series A, 6.125%, 2/1/22 Baa3/BBB- 2,790,000 2,820,857
- -------------------------------------------------------------------------------------------------
LOUISIANA--1.5%
New Orleans, LA Home Mtg. Authority SPO
Refunding Bonds, Escrowed to Maturity,
6.25%, 1/15/11 Aaa/NR 9,500,000 10,498,070
- -------------------------------------------------------------------------------------------------
MARYLAND--0.1%
MD University Auxiliary Facilities & Tuition
System RRB, Series A, 5.90%, 2/1/03 Aa3/AA+/AA 500,000 521,535
- -------------------------------------------------------------------------------------------------
MASSACHUSETTS--3.9%
MA GOB, Unrefunded Balance, Series B,
MBIA Insured, 6.50%, 8/1/11 Aaa/AAA/AAA 430,000 455,951
- -------------------------------------------------------------------------------------------------
MA TUAU Metropolitan Highway System RRB,
Sr. Lien, Series A, MBIA Insured, 5%, 1/1/37 Aaa/AAA/AAA 7,000,000 6,309,450
- -------------------------------------------------------------------------------------------------
MA Water Pollution Abatement Trust RRB,
Series A, FGIC Insured, 4.75%, 2/1/26 Aaa/NR/AAA 6,500,000 5,729,425
- -------------------------------------------------------------------------------------------------
MA Water Resource Authority RB,
Series A, 6.50%, 7/15/19 A1/A+/A+ 12,225,000 13,788,944
------------
26,283,770
- -------------------------------------------------------------------------------------------------
MICHIGAN--7.1%
Detroit, MI GORB, Series B, 6.25%, 4/1/09 Baa1/BBB+/A- 4,065,000 4,343,534
- -------------------------------------------------------------------------------------------------
Detroit, MI GORB, Series B, 6.375%, 4/1/06 Baa1/BBB+/A- 2,000,000 2,158,500
- -------------------------------------------------------------------------------------------------
Detroit, MI GORB, Series B, 6.375%, 4/1/07 Baa1/BBB+/A- 500,000 537,315
- -------------------------------------------------------------------------------------------------
Detroit, MI Sewage Disposal RB, Prerefunded,
FGIC Insured, Inverse Floater, 7.87%,
7/1/23(2) Aaa/AAA 10,100,000 11,349,875
- -------------------------------------------------------------------------------------------------
Detroit, MI Sewage Disposal RRB, Unrefunded
Balance, FGIC Insured, Inverse Floater,
7.87%, 7/1/23(2) Aaa/AAA/AAA 3,100,000 3,173,625
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RATINGS:
MOODY'S/
S&P/FITCH FACE MARKET VALUE
(UNAUDITED) AMOUNT SEE NOTE 1
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------------
MICHIGAN (CONTINUED)
Detroit, MI Water Supply System RB,
Prerefunded, FGIC Insured, Inverse Floater,
9.22%, 7/1/22(2) Aaa/AAA/AAA $ 3,700,000 $ 4,241,125
- -------------------------------------------------------------------------------------------------
Detroit, MI Water Supply System RB,
Unrefunded Balance, FGIC Insured,
Inverse Floater, 9.22%, 7/1/22(2) Aaa/AAA 1,500,000 1,704,375
- -------------------------------------------------------------------------------------------------
MI Hospital FAU RRB, FSA Insured,
Inverse Floater, 8.97%, 2/15/22(2) Aaa/AAA/AAA 5,000,000 5,562,500
- -------------------------------------------------------------------------------------------------
MI Strategic Fund SWD RRB, Genesee Power
Station Project, 7.50%, 1/1/21 NR/NR 3,650,000 3,873,928
- -------------------------------------------------------------------------------------------------
Wayne Cnty., MI Special Airport Facilities RRB,
Northwest Airlines, Inc. Facilities,
Series 1995, 6.75%, 12/1/15 NR/NR 10,460,000 11,119,085
------------
48,063,862
- -------------------------------------------------------------------------------------------------
NEW HAMPSHIRE--0.1%
NH Housing FAU SFM RB, Series C,
6.90%, 7/1/19 Aa3/NR 940,000 986,192
- -------------------------------------------------------------------------------------------------
NEW JERSEY--4.4%
Bergen Cnty., NJ Utilities WPCAU RB,
Prerefunded, Series A, FGIC Insured,
6.50%, 12/15/12(5) Aaa/AAA/AAA 5,600,000 6,059,536
- -------------------------------------------------------------------------------------------------
NJ EDAU RRB, First Mtg. Franciscan Oaks
Project, 5.75%, 10/1/23 NR/NR 2,255,000 2,203,000
- -------------------------------------------------------------------------------------------------
NJ EDAU RRB, First Mtg. Keswick Pines,
5.70%, 1/1/18 NR/NR 1,000,000 971,110
- -------------------------------------------------------------------------------------------------
NJ EDAU RRB, First Mtg. Keswick Pines,
5.75%, 1/1/24 NR/NR 1,125,000 1,082,576
- -------------------------------------------------------------------------------------------------
NJ TUAU RRB, Series C, 6.50%, 1/1/16 Baa1/BBB+/A- 16,150,000 18,067,328
- -------------------------------------------------------------------------------------------------
NJ TUAU RRB, Series C, MBIA Insured,
6.50%, 1/1/16 Aaa/AAA/AAA 1,100,000 1,252,361
------------
29,635,911
- -------------------------------------------------------------------------------------------------
NEW YORK--4.9%
NYC GOB, Inverse Floater, 7.684%, 8/27/15(2) A3/A- 3,050,000 3,194,875
- -------------------------------------------------------------------------------------------------
NYC GOB, Prerefunded, Series D, 8%, 8/1/15 Aaa/A-/A 10,980,000 11,972,263
- -------------------------------------------------------------------------------------------------
NYC GOB, Series H, 6.125%, 8/1/25 A3/A-/A 5,000,000 5,304,150
- -------------------------------------------------------------------------------------------------
NYC IDA SPF RB, Terminal One Group Assn.
Project, 6%, 1/1/19 A3/A/A- 6,000,000 6,184,620
- -------------------------------------------------------------------------------------------------
NYS HFA RRB, NYC HF, Series A, 6%, 11/1/06 Baa1/A- 4,000,000 4,286,920
- -------------------------------------------------------------------------------------------------
NYS HFA RRB, NYC HF, Series A, 6%, 5/1/08 Baa1/A- 2,000,000 2,129,400
------------
33,072,228
</TABLE>
<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>
- -------------------------------------------------------------------------------------------------
OHIO--4.3%
Cleveland, OH PPS First Mtg. RB, Series A,
MBIA Insured, 7%, 11/15/16 Aaa/AAA $ 2,000,000 $ 2,278,260
- -------------------------------------------------------------------------------------------------
Montgomery Cnty., OH HCF RRB, Series B,
6.25%, 2/1/22 NR/NR 2,500,000 2,443,950
- -------------------------------------------------------------------------------------------------
OH Building Authority RB, Juvenile
Correctional Projects, Series A,
AMBAC Insured, 6.60%, 10/1/14 Aaa/AAA/AAA 500,000 559,180
- -------------------------------------------------------------------------------------------------
OH HFA SFM RB, Series B, Inverse Floater,
10.116%, 3/1/31(2)(6) Aaa/AAA 4,030,000 4,387,663
- -------------------------------------------------------------------------------------------------
OH Solid Waste RB, Republic Engineered
Steels, Inc. Project, 9%, 6/1/21 NR/NR 7,800,000 8,389,602
- -------------------------------------------------------------------------------------------------
OH SWD RB, USG Corporate Project,
5.65%, 3/1/33 Baa2/BBB 10,000,000 9,558,600
- -------------------------------------------------------------------------------------------------
Summit Cnty., OH GOB, AMBAC Insured,
6.625%, 12/1/12 Aaa/AAA/AAA 1,200,000 1,291,860
------------
28,909,115
- -------------------------------------------------------------------------------------------------
OKLAHOMA--1.5%
Tulsa, OK Municipal Airport Trust RB,
American Airlines Project, 6.25%, 6/1/20 Baa2/BBB- 9,820,000 10,137,775
- -------------------------------------------------------------------------------------------------
PENNSYLVANIA--13.0%
Allegheny Cnty., PA HDAU RRB, Villa St.
Joseph HCF, 6%, 8/15/28 NR/NR 2,000,000 1,882,480
- -------------------------------------------------------------------------------------------------
Chartiers Valley, PA CD IDAU First Mtg. RRB,
Asbury Health Center, 6.375%, 12/1/19(1) NR/NR 1,250,000 1,239,325
- -------------------------------------------------------------------------------------------------
Chartiers Valley, PA CD IDAU First Mtg. RRB,
Asbury Health Center, 6.375%, 12/1/24(1) NR/NR 1,500,000 1,473,045
- -------------------------------------------------------------------------------------------------
PA EDFAU Facilities RB, National Gypsum Co.,
Series B, 6.125%, 11/2/27 NR/NR 10,000,000 9,827,500
- -------------------------------------------------------------------------------------------------
PA EDFAU RR RB, Colver Project, Series D,
7.15%, 12/1/18 NR/BBB- 3,000,000 3,294,990
- -------------------------------------------------------------------------------------------------
PA EDFAU SWD RB, USD Corp. Project,
6%, 6/1/31 Baa2/BBB+ 12,000,000 11,931,360
- -------------------------------------------------------------------------------------------------
PA HEAA Student Loan RB, Series B,
AMBAC Insured, Inverse Floater,
8.616%, 3/1/22(2) Aaa/AAA/AAA 17,500,000 19,512,500
- -------------------------------------------------------------------------------------------------
PA TUCM RRB, Series N, 6.50%, 12/1/13 Aaa/AAA 750,000 798,255
- -------------------------------------------------------------------------------------------------
Philadelphia, PA Hospital & HEFAU RB,
Temple University Childrens Medical,
Series A, 5.625%, 6/15/19 NR/BBB+ 1,200,000 1,119,096
- -------------------------------------------------------------------------------------------------
Philadelphia, PA Hospital & HEFAU RRB,
The Philadelphia Protestant Home Project,
Series A, 6.50%, 7/1/27 NR/NR 3,380,000 3,478,662
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RATINGS:
MOODY'S/
S&P/FITCH FACE MARKET VALUE
(UNAUDITED) AMOUNT SEE NOTE 1
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------------
PENNSYLVANIA (CONTINUED)
Philadelphia, PA IDAU HCF RRB, Baptist
Home of Philadelphia, Series A, 5.50%,
11/15/18 NR/NR $ 1,670,000 $ 1,541,460
- -------------------------------------------------------------------------------------------------
Philadelphia, PA IDAU HCF RRB, Baptist Home
of Philadelphia, Series A, 5.60%, 11/15/28 NR/NR 1,275,000 1,166,676
- -------------------------------------------------------------------------------------------------
Philadelphia, PA Water & Wastewater RB,
FGIC Insured, 10%, 6/15/05 Aaa/AAA/AAA 17,600,000 22,343,728
- -------------------------------------------------------------------------------------------------
Schuylkill Cnty., PA IDAU RR RRB, Schuylkill
Energy Resources, Inc., 6.50%, 1/1/10(6) NR/NR/BB+ 8,110,000 8,225,973
------------
87,835,050
- -------------------------------------------------------------------------------------------------
SOUTH CAROLINA--1.9%
Piedmont, SC MPA RRB, Escrowed to Maturity,
Series A, FGIC Insured, 6.50%, 1/1/16 Aaa/AAA 285,000 325,735
- -------------------------------------------------------------------------------------------------
Piedmont, SC MPA RRB, Unrefunded Balance,
Series A, FGIC Insured, 6.50%, 1/1/16 Aaa/AAA 1,715,000 1,937,693
- -------------------------------------------------------------------------------------------------
SC Public Service Authority RB, Santee Cooper,
Prerefunded, Series D, AMBAC Insured,
6.50%, 7/1/24 Aaa/AAA/AAA 10,000,000 10,821,200
------------
13,084,628
- -------------------------------------------------------------------------------------------------
TEXAS--14.8%
AAAU TX SPF RB, American Airlines, Inc.
Project, 7%, 12/1/11 Baa2/BBB- 3,000,000 3,416,280
- -------------------------------------------------------------------------------------------------
AAAU TX SPF RB, Federal Express Corp.
Project, 6.375%, 4/1/21 Baa2/BBB 11,640,000 12,097,918
- -------------------------------------------------------------------------------------------------
Cypress-Fairbanks, TX ISD CAP GORB, Series A,
Zero Coupon, 5.85%, 2/15/15(4) Aaa/AAA 15,000,000 6,464,400
- -------------------------------------------------------------------------------------------------
Cypress-Fairbanks, TX ISD CAP GORB, Series A,
Zero Coupon, 5.89%, 2/15/14(4) Aaa/AAA 15,710,000 7,198,008
- -------------------------------------------------------------------------------------------------
Cypress-Fairbanks, TX ISD CAP GORB, Series A,
Zero Coupon, 5.91%, 2/15/16(4) Aaa/AAA 16,240,000 6,576,713
- -------------------------------------------------------------------------------------------------
Dallas-Fort Worth, TX International Airport
Facilities Improvement Corp. RB,
American Airlines, Inc., 7.25%, 11/1/30 Baa1/BBB- 8,000,000 8,629,440
- -------------------------------------------------------------------------------------------------
Harris Cnty., TX GORB, Toll Road, Sub. Lien,
Prerefunded, 6.50%, 8/15/15 Aa2/AA 215,000 232,849
- -------------------------------------------------------------------------------------------------
Harris Cnty., TX GORB, Toll Road, Sub. Lien,
Unrefunded Balance, 6.50%, 8/15/15 Aa2/AA 785,000 841,347
- -------------------------------------------------------------------------------------------------
Harris Cnty., TX GORRB, Toll Road,
Sub. Lien, 6.75%, 8/1/14 Aa2/AA 1,000,000 1,065,420
- -------------------------------------------------------------------------------------------------
Houston, TX WSS RB, Prior Lien, Unrefunded
Balance, Series B, 6.40%, 12/1/09 A3/A+ 995,000 1,069,715
</TABLE>
<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>
- -------------------------------------------------------------------------------------------------
TEXAS (CONTINUED)
Houston, TX WSS RB, Prior Lien, Unrefunded
Balance, Series B, 6.75%, 12/1/08 Aaa/AAA $ 440,000 $ 470,021
- -------------------------------------------------------------------------------------------------
North Central TX HFDC RB, Prerefunded,
Series B, Inverse Floater, 8.008%, 5/15/06(2) Aa2/AA 290,000 313,606
- -------------------------------------------------------------------------------------------------
North Central TX HFDC RB, Prerefunded,
Series B, Inverse Floater, 8.109%, 5/15/08(2) Aa2/AA 480,000 517,824
- -------------------------------------------------------------------------------------------------
North Central TX HFDC RB, Unrefunded
Balance, Series B, Inverse Floater,
8.008%, 5/15/06(2) Aa2/AA 2,710,000 2,873,223
- -------------------------------------------------------------------------------------------------
North Central TX HFDC RB, Unrefunded
Balance, Series B, Inverse Floater,
8.109%, 5/15/08(2) Aa2/AA 4,520,000 4,798,839
- -------------------------------------------------------------------------------------------------
Retama, TX Development Corp. SPF RRB,
Retama Racetrack, Escrowed to Maturity,
Series A, 10%, 12/15/19 Aaa/AAA 4,880,000 7,661,795
- -------------------------------------------------------------------------------------------------
San Antonio, TX Electric & Gas RRB,
Series A, 4.50%, 2/1/21 Aa1/AA/AA+ 6,000,000 5,177,460
- -------------------------------------------------------------------------------------------------
TX MPA CAP RRB, MBIA Insured,
Zero Coupon, 5.85%, 9/1/15(4) Aaa/AAA/AAA 10,000,000 4,184,400
- -------------------------------------------------------------------------------------------------
TX MPA CAP RRB, MBIA Insured,
Zero Coupon, 5.95%, 9/1/13(4) Aaa/AAA/AAA 6,900,000 3,261,975
- -------------------------------------------------------------------------------------------------
TX MPA CAP RRB, MBIA Insured,
Zero Coupon, 5.98%, 9/1/16(4) Aaa/AAA/AAA 39,990,000 15,720,069
- -------------------------------------------------------------------------------------------------
TX MPA CAP RRB, MBIA Insured,
Zero Coupon, 6.39%, 9/1/14(4) Aaa/AAA/AAA 17,500,000 7,787,150
------------
100,358,452
- -------------------------------------------------------------------------------------------------
VERMONT--0.2%
VT HFA Home Mtg. Purchase RB,
Series A, 7.85%, 12/1/29 A1/NR 1,330,000 1,358,861
- -------------------------------------------------------------------------------------------------
VIRGINIA--4.4%
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 1,624,582
- -------------------------------------------------------------------------------------------------
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 1,742,468
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RATINGS:
MOODY'S/
S&P/FITCH FACE MARKET VALUE
(UNAUDITED) AMOUNT SEE NOTE 1
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------------
VIRGINIA (CONTINUED)
Pocahontas Parkway Assn., VA Toll Road RB,
CAP, First Tier, Sub. Lien, Series C, Zero
Coupon, 5.82%, 8/15/08(4) Ba1/NR 3,000,000 $ 1,752,450
- -------------------------------------------------------------------------------------------------
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 1,698,056
- -------------------------------------------------------------------------------------------------
Pocahontas Parkway Assn., VA Toll Road RB,
CAP, Sr. Lien, Series B, Zero Coupon,
5.86%, 8/15/20(4) Baa3/A/A $25,000,000 7,491,250
- -------------------------------------------------------------------------------------------------
Pocahontas Parkway Assn., VA Toll Road RB,
CAP, Sr. Lien, Series B, Zero Coupon,
5.86%, 8/15/21(4) Baa3/A/A 26,300,000 7,439,218
- -------------------------------------------------------------------------------------------------
Pocahontas Parkway Assn., VA Toll Road RB,
CAP, Sr. Lien, Series B, Zero Coupon,
5.86%, 8/15/22(4) Baa3/A/A 29,900,000 7,983,599
------------
29,731,623
- -------------------------------------------------------------------------------------------------
WASHINGTON--3.0%
WA PP Supply System RRB, Nuclear
Project No. 1, 5.40%, 7/1/12 Aa1/AA-/AA- 20,000,000 20,019,000
- -------------------------------------------------------------------------------------------------
WEST VIRGINIA--0.6%
WV Parkways ED & Tourism Authority RB,
FGIC Insured, Inverse Floater, 8.032%,
5/16/19(2) Aaa/AAA 3,600,000 3,780,000
- -------------------------------------------------------------------------------------------------
WISCONSIN--1.0%
WI Health & Educational FA RB, Sinai
Samaritan Medical Center, Inc.,
MBIA Insured, 5.75%, 8/15/16 Aaa/AAA 6,250,000 6,375,563
- -------------------------------------------------------------------------------------------------
WI Housing & EDAU Home Ownership RRB,
Series A, 7.10%, 3/1/23 Aa2/AA 445,000 467,450
------------
6,843,013
- -------------------------------------------------------------------------------------------------
U.S. POSSESSIONS--0.8%
Guam Housing Corp. SFM RB, Series A,
5.75%, 9/1/31 NR/AAA 5,595,000 5,660,517
- -------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS, AT VALUE (COST $653,008,490) 101.3% 685,830,637
- -------------------------------------------------------------------------------------------------
LIABILITIES IN EXCESS OF OTHER ASSETS (1.3) (8,514,240)
------- ------------
NET ASSETS 100.0% $677,316,397
======= ============
</TABLE>
<PAGE>
STATEMENT OF INVESTMENTS (Continued)
- --------------------------------------------------------------------------------
To simplify the listings of securities, abbreviations are used per the table
below:
<TABLE>
<S> <C> <C> <C>
AAAU --Alliance Airport Authority, Inc. IDA --Industrial Development Agency
AB --Airport Board IDAU --Industrial Development Authority
AIC --Airport Improvement Corp. ISD --Independent School District
BOE --Board of Education MEAU --Municipal Electric Authority
CAP --Capital Appreciation MPA --Municipal Power Agency
CD --Commercial Development NYC --New York City
CDD --Community Development District NYS --New York State
COP --Certificates of Participation PP --Public Power
DAU --Development Authority PPS --Public Power System
ED --Economic Development RA --Redevelopment Agency
EDAU --Economic Development Authority RB --Revenue Bonds
EDFAU --Economic Development Finance Authority RR --Resource Recovery
FA --Facilities Authority RRB --Revenue Refunding Bonds
FAU --Finance Authority SCDAU --Statewide Communities Development Authority
GOB --General Obligation Bonds SFM --Single Family Mtg.
GORB --General Obligation Refunding Bonds SPAST --Special Assessment
GORRB --General Obligation Revenue Refunding Bonds SPF --Special Facilities
HCF --Health Care Facilities SPO --Special Obligations
HDAU --Hospital Development Authority SWD --Solid Waste Disposal
HEAA --Higher Education Assistance Agency TUAU --Turnpike Authority
HEFAU --Higher Educational Facilities Authority TUCM --Turnpike Commission
HF --Health Facilities TXAL --Tax Allocation
HFA --Housing Finance Agency UDA --Urban Development Agency
HFAU --Health Facilities Authority USD --Unified School District
HFDC --Health Facilities Development Corp. WPCAU --Water Pollution Control Authority
WSS --Water & Sewer System
</TABLE>
1. When-issued security to be delivered and settled after July 31, 1999.
2. 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 $73,050,655 or
10.79% of the Fund's net assets as of July 31, 1999.
3. 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 $27,924,502 or 4.12% of the Fund's net
assets as of July 31, 1999.
4. For zero coupon bonds, the interest rate shown is the effective yield on the
date of purchase.
5. Securities with an aggregate market value of $2,623,996 are held in
collateralized accounts to cover initial margin requirements on open futures
sales contracts. See Note 5 of Notes to Financial Statements.
6. Identifies issues considered to be illiquid or restricted--See Note 6 of
Notes to Financial Statements.
As of July 31, 1999, securities subject to the alternative minimum tax amount
to $190,490,293 or 28.12% of the Fund's net assets.
See accompanying Notes to Financial Statements.
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES July 31, 1999 (Unaudited)
<TABLE>
=================================================================================================
<S> <C>
ASSETS
Investments, at value (cost $653,008,490)--see accompanying statement $685,830,637
- -------------------------------------------------------------------------------------------------
Cash 144,423
- -------------------------------------------------------------------------------------------------
Receivables and other assets:
Interest 7,246,911
Shares of beneficial interest sold 373,373
Daily variation on futures contracts--Note 5 206,250
Other 6,032
------------
Total assets 693,807,626
=================================================================================================
LIABILITIES
Payables and other liabilities:
Investments purchased (including $7,550,320 purchased on a
when-issued basis)--Note 1 13,278,758
Dividends 1,894,440
Shares of beneficial interest redeemed 792,982
Trustees' compensation--Note 1 238,496
Distribution and service plan fees 117,016
Shareholder reports 67,562
Transfer and shareholder servicing agent fees 56,496
Other 45,479
-----------
Total liabilities 16,491,229
=================================================================================================
NET ASSETS $677,316,397
============
=================================================================================================
COMPOSITION OF NET ASSETS
Paid-in capital $643,616,468
- -------------------------------------------------------------------------------------------------
Overdistributed net investment income (1,542,690)
- -------------------------------------------------------------------------------------------------
Accumulated net realized gain on investment transactions 1,980,630
- -------------------------------------------------------------------------------------------------
Net unrealized appreciation on investments--Notes 3 and 5 33,261,989
------------
Net assets $677,316,397
============
</TABLE>
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES (Continued)
<TABLE>
=================================================================================================
<S> <C>
NET ASSET VALUE PER SHARE
Class A Shares:
Net asset value and redemption price per share (based on net
assets of $568,673,426 and 56,741,261 shares of beneficial
interest outstanding) $10.02
Maximum offering price per share (net asset value plus sales
charge of 4.75% of offering price) $10.52
- -------------------------------------------------------------------------------------------------
Class B Shares:
Net asset value, redemption price (excludes applicable contingent
deferred sales charge) and offering price per share (based on net
assets of $90,021,995 and 9,001,472 shares of beneficial interest
outstanding) $10.00
- -------------------------------------------------------------------------------------------------
Class C Shares:
Net asset value, redemption price (excludes applicable contingent
deferred sales charge) and offering price per share (based on net
assets of $18,620,976 and 1,862,191 shares of beneficial interest
outstanding) $10.00
</TABLE>
See accompanying Notes to Financial Statements.
<PAGE>
STATEMENT OF OPERATIONS For the Year Ended July 31, 1999
<TABLE>
<S> <C>
=================================================================================================
INVESTMENT INCOME
Interest $ 41,078,858
=================================================================================================
EXPENSES
Management fees--Note 4 3,651,960
- -------------------------------------------------------------------------------------------------
Distribution and service plan fees--Note 4:
Class A 1,290,905
Class B 963,566
Class C 168,521
- -------------------------------------------------------------------------------------------------
Transfer and shareholder servicing agent fees--Note 4 539,930
- -------------------------------------------------------------------------------------------------
Shareholder reports 134,765
- -------------------------------------------------------------------------------------------------
Custodian fees and expenses 83,843
- -------------------------------------------------------------------------------------------------
Trustees' compensation--Note 1 65,562
- -------------------------------------------------------------------------------------------------
Legal, auditing and other professional fees 40,948
- -------------------------------------------------------------------------------------------------
Other 42,650
------------
Total expenses 6,982,650
Less expenses paid indirectly--Note 1 (26,108)
------------
Net expenses 6,956,542
=================================================================================================
NET INVESTMENT INCOME 34,122,316
=================================================================================================
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain on:
Investments 795,479
Closing of futures contracts 3,239,515
------------
Net realized gain 4,034,994
- -------------------------------------------------------------------------------------------------
Net change in unrealized appreciation or depreciation on investments (21,131,992)
------------
Net realized and unrealized loss (17,096,998)
=================================================================================================
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 17,025,318
============
</TABLE>
See accompanying Notes to Financial Statements.
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION> YEAR ENDED JULY 31,
1999 1998
=================================================================================================
<S> <C> <C>
OPERATIONS
Net investment income $ 34,122,316 $ 33,251,946
- -------------------------------------------------------------------------------------------------
Net realized gain (loss) 4,034,994 (3,864,299)
- -------------------------------------------------------------------------------------------------
Net change in unrealized appreciation or
depreciation (21,131,992) 6,481,326
------------ ------------
Net increase in net assets resulting
from operations 17,025,318 35,868,973
=================================================================================================
DIVIDENDS AND/OR DISTRIBUTIONS TO SHAREHOLDERS
Dividends from net investment income:
Class A (29,412,371) (29,581,175)
Class B (4,082,909) (3,825,603)
Class C (714,322) (457,414)
=================================================================================================
BENEFICIAL INTEREST TRANSACTIONS
Net increase (decrease) in net assets resulting
from beneficial interest transactions--Note 2:
Class A 3,343,191 (8,655,646)
Class B 748,967 7,490,759
Class C 6,304,825 4,173,260
=================================================================================================
NET ASSETS
Total increase (decrease) (6,787,301) 5,013,154
- -------------------------------------------------------------------------------------------------
Beginning of period 684,103,698 679,090,544
------------ ------------
End of period (including overdistributed net
investment income of $1,542,690 and
$1,455,404, respectively) $677,316,397 $684,103,698
============ ============
</TABLE>
See accompanying Notes to Financial Statements.
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CLASS A
-------------------------------------------------------------------------------
YEAR ENDED JULY 31, YEAR ENDED DECEMBER 31,
1999 1998 1997 1996(1) 1995 1994
===============================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING DATA
Net asset value, beginning of period $10.27 $10.24 $ 9.74 $9.98 $8.93 $10.44
- -----------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .52 .51 .55 .32 .54 .57
Net realized and unrealized gain (loss) (.25) .04 .49 (.25) 1.06 (1.52)
------ ------ ------ ------ ------ ------
Total income (loss) from
investment operations .27 .55 1.04 .07 1.60 (.95)
- -----------------------------------------------------------------------------------------------------------------------------
Dividends and distributions to
shareholders:
Dividends from
net investment income (.52) (.52) (.54) (.31) (.54) (.56)
Dividends in excess of
net investment income -- -- -- -- (.01) --
------ ------ ------ ------ ------ ------
Total dividends and
distributions to shareholders (.52) (.52) (.54) (.31) (.55) (.56)
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $10.02 $10.27 $10.24 $9.74 $9.98 $ 8.93
====== ====== ====== ====== ===== ======
=============================================================================================================================
TOTAL RETURN, AT NET ASSET VALUE(2) 2.57% 5.55% 10.97% 0.77% 18.28% (9.19)%
=============================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period
(in thousands) $568,673 $579,570 $586,546 $590,299 $634,473 $541,161
- -----------------------------------------------------------------------------------------------------------------------------
Average net assets
(in thousands) $587,197 $581,630 $582,624 $606,509 $569,859 $582,038
- -----------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:(3)
Net investment income 5.00% 5.00% 5.55% 5.58% 5.65% 5.94%
Expenses 0.87% 0.87%(4) 0.87%(4) 0.92%(4) 0.88%(4) 0.88%
- -----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(5) 18% 21% 24% 24% 25% 22%
</TABLE>
1. For the seven months ended July 31, 1996. The Fund changed its fiscal year
end from December 31 to July 31.
2. Assumes a $1,000 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.
3. Annualized for periods of less than one full year.
4. Expense ratio reflects the effect of expenses paid indirectly by the Fund.
5. 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, 1999, were $145,629,048 and $121,967,453,
respectively.
<PAGE>
FINANCIAL HIGHLIGHTS (Continued)
<TABLE>
<CAPTION>
CLASS B
--------------------------------------------------------------------------------
YEAR ENDED JULY 31, YEAR ENDED DECEMBER 31,
1999 1998 1997 1996(1) 1995 1994
=============================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING DATA
Net asset value, beginning of period $10.25 $10.22 $ 9.73 $9.96 $8.92 $10.43
- -----------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .44 .43 .47 .27 .47 .50
Net realized and
unrealized gain (loss) (.25) .04 .48 (.23) 1.05 (1.52)
------- ------ ------ ------ ------ ------
Total income (loss) from
investment operations .19 .47 .95 .04 1.52 (1.02)
- -----------------------------------------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from
net investment income (.44) (.44) (.46) (.27) (.47) (.49)
Dividends in excess of
net investment income -- -- -- -- (.01) --
------- ------ ------ ------ ------ ------
Total dividends and
distributions to shareholders (.44) (.44) (.46) (.27) (.48) (.49)
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $10.00 $10.25 $10.22 $9.73 $9.96 $ 8.92
======= ====== ====== ===== ===== ======
=============================================================================================================================
TOTAL RETURN, AT NET ASSET VALUE(2) 1.78% 4.75% 10.05% 0.43% 17.30% (9.91)%
=============================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period
(in thousands) $90,022 $91,677 $83,897 $74,055 $72,488 $53,245
- -----------------------------------------------------------------------------------------------------------------------------
Average net assets
(in thousands) $96,352 $88,531 $77,881 $73,047 $63,669 $46,548
- -----------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:(3)
Net investment income 4.22% 4.21% 4.76% 4.79% 4.84% 5.11%
Expenses 1.65% 1.65%(4) 1.65%(4) 1.70%(4) 1.68%(4) 1.69%
- -----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(5) 18% 21% 24% 24% 25% 22%
</TABLE>
1. For the seven months ended July 31, 1996. The Fund changed its fiscal year
end from December 31 to July 31.
2. Assumes a $1,000 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.
3. Annualized for periods of less than one full year.
4. Expense ratio reflects the effect of expenses paid indirectly by the Fund.
5. 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, 1999, were $145,629,048 and $121,967,453,
respectively.
<PAGE>
<TABLE>
<CAPTION>
CLASS C
------------------------------------------------------------------
PERIOD
ENDED
YEAR ENDED JULY 31, DEC. 31,
1999 1998 1997 1996(1) 1995(6)
==============================================================================================================
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING DATA
Net asset value, beginning of period $10.25 $10.22 $ 9.73 $9.96 $9.58
- -----------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .44 .43 .46 .27 .15
Net realized and unrealized gain (loss) (.25) .04 .49 (.23) .39
------ ------ ------ ------ ------
Total income (loss) from
investment operations .19 .47 .95 .04 .54
- -----------------------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income (.44) (.44) (.46) (.27) (.15)
Dividends in excess of
net investment income -- -- -- -- (.01)
------ ------ ------ ------ ------
Total dividends and
distributions to shareholders (.44) (.44) (.46) (.27) (.16)
- -----------------------------------------------------------------------------------------------------------
Net asset value, end of period $10.00 $10.25 $10.22 $9.73 $9.96
====== ====== ====== ===== =====
===========================================================================================================
TOTAL RETURN, AT NET ASSET VALUE(2) 1.78% 4.75% 10.03% 0.40% 5.64%
===========================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period
(in thousands) $18,621 $12,857 $8,648 $4,210 $1,975
- -----------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $16,868 $10,655 $5,724 $3,105 $1,506
- -----------------------------------------------------------------------------------------------------------
Ratios to average net assets:(3)
Net investment income 4.22% 4.30% 4.72% 4.72% 4.49%
Expenses 1.65% 1.64%(4) 1.67%(4) 1.75%(4) 1.64%(4)
- -----------------------------------------------------------------------------------------------------------
Portfolio turnover rate(5) 18% 21% 24% 24% 25%
- -----------------------------------------------------------------------------------------------------------
</TABLE>
1. For the seven months ended July 31, 1996. The Fund changed its fiscal year
end from December 31 to July 31.
2. Assumes a $1,000 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.
3. Annualized for periods of less than one full year.
4. Expense ratio reflects the effect of expenses paid indirectly by the Fund.
5. 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, 1999, were $145,629,048 and $121,967,453,
respectively.
6. For the period from August 29, 1995 (inception of offering) to December 31,
1995.
See accompanying Notes to Financial Statements.
<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 interest 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, on investments up to $1 million. Class B and Class C
shares may be subject to a contingent deferred sales charge (CDSC). All classes
of shares have identical rights to earnings, assets and voting privileges,
except that each class has its own expenses directly attributable to that class
and exclusive voting rights with respect to matters affecting that class.
Classes A, B and C have separate distribution and/or service plans. 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.
- --------------------------------------------------------------------------------
SECURITIES 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. Options are valued based upon the last sale price on the
principal exchange on which the option is traded or, in the absence of any
transactions that day, the value is based upon the last sale price on the prior
trading date if it is within the spread between the closing bid and asked
prices. If the last sale price is outside the spread, the closing bid is used.
<PAGE>
================================================================================
SECURITIES PURCHASED ON A WHEN-ISSUED BASIS. Delivery and payment for securities
that have been purchased by the Fund on a forward commitment or when-issued
basis can take place a month or more after the transaction date. Normally the
settlement date occurs within six months after the transaction date; however,
the fund may, from time to time, purchase securities whose settlement date
extends beyond six months and possibly as long as two years or more beyond the
trade date. During this period, such securities do not earn interest, are
subject to market fluctuation and may increase or decrease in value prior to
their delivery. The Fund maintains segregated assets with a market value equal
to or greater than the amount of its purchase commitments. The purchase of
securities on a when-issued or forward commitment basis may increase the
volatility of the Fund's net asset value to the extent the Fund makes such
purchases while remaining substantially fully invested. As of July 31, 1999, the
Fund had entered into outstanding when-issued or forward commitments of
$7,550,320.
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
TRUSTEES' COMPENSATION. 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,
1999, a provision of $4,456 was made for the Fund's projected benefit
obligations and payments of $18,457 were made to retired trustees, resulting in
an accumulated liability of $235,370 as of July 31, 1999.
The Board of Trustees has adopted a deferred compensation
plan for independent Trustees that enables Trustees to elect to defer receipt of
all or a portion of annual compensation 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 Trustees 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.
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Continued)
================================================================================
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS. Dividends and distributions to
shareholders, which are determined in accordance with income tax regulations,
are recorded on the ex-dividend date.
- --------------------------------------------------------------------------------
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 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.
- --------------------------------------------------------------------------------
EXPENSE OFFSET ARRANGEMENTS. Expenses paid indirectly represent a reduction of
custodian fees for earnings on cash balances maintained by the Fund.
- --------------------------------------------------------------------------------
OTHER. Investment transactions are accounted for as of the trade date. Original
issue discount is accreted and premium is amortized in accordance with federal
income tax requirements. For municipal bonds acquired after April 30, 1993, on
disposition or maturity, taxable ordinary income is recognized to the extent of
the lesser of gain or market discount that would have accrued over the holding
period. Realized gains and losses on investments and unrealized appreciation and
depreciation are determined on an identified cost basis, which is the same basis
used for federal income tax purposes.
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of income and expenses during the reporting
period. Actual results could differ from those estimates.
<PAGE>
================================================================================
2. SHARES OF BENEFICIAL INTEREST
The Fund has authorized an unlimited number of no par value shares of beneficial
interest of each class. Transactions in shares of beneficial interest were as
follows:
<TABLE>
<CAPTION>
YEAR ENDED JULY 31, 1999 YEAR ENDED JULY 31, 1998
------------------------------- --------------------------------
SHARES AMOUNT SHARES AMOUNT
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A:
Sold 14,899,854 $ 154,002,934 7,539,023 $ 77,439,740
Dividends and/or
distributions reinvested 1,840,869 19,006,893 1,883,571 19,274,883
Redeemed (16,420,114) (169,666,636) (10,278,245) (105,370,269)
----------- ------------- ----------- --------------
Net increase (decrease) 320,609 $ 3,343,191 (855,651) $ (8,655,646)
=========== ============= =========== ==============
- -----------------------------------------------------------------------------------------------------------------
Class B:
Sold 2,590,055 $ 26,762,743 2,062,272 $ 21,072,590
Dividends and/or
distributions reinvested 246,696 2,542,377 230,245 2,351,819
Redeemed (2,778,452) (28,556,153) (1,556,731) (15,933,650)
----------- ------------- ----------- --------------
Net increase 58,299 $ 748,967 735,786 $ 7,490,759
=========== ============= =========== ==============
- -----------------------------------------------------------------------------------------------------------------
Class C:
Sold 1,026,290 $ 10,616,838 679,752 $ 6,954,811
Dividends and/or
distributions reinvested 49,362 508,501 30,969 316,430
Redeemed (467,899) (4,820,514) (302,537) (3,097,981)
----------- ------------- ----------- --------------
Net increase 607,753 $ 6,304,825 408,184 $ 4,173,260
=========== ============= =========== ==============
</TABLE>
================================================================================
3. UNREALIZED GAINS AND LOSSES ON SECURITIES
As of July 31, 1999, net unrealized appreciation on securities of $32,822,147
was composed of gross appreciation of $36,674,948, and gross depreciation of
$3,852,801.
================================================================================
4. MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES
MANAGEMENT FEES. 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. The Fund's management fee for the year ended July 31, 1999 was 0.52% of
the average annual net assets for each class of shares.
- --------------------------------------------------------------------------------
TRANSFER AGENT FEES. OppenheimerFunds Services (OFS), a division of the Manager,
is the transfer and shareholder servicing agent for the Fund and for other
Oppenheimer funds. OFS's total costs of providing such services are allocated
ratably to these funds.
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Continued)
================================================================================
4. MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES (CONTINUED)
DISTRIBUTION AND SERVICE PLAN FEES. Under its General Distributor's Agreement
with the Manager, the Distributor acts as the Fund's principal underwriter in
the continuous public offering of the different classes of shares of the Fund.
The compensation paid to (or retained by) the Distributor from the sale of
shares or on the redemption of shares is shown in the table below for the period
indicated.
<TABLE>
<CAPTION>
CLASS A
AGGREGATE FRONT-END COMMISSIONS ON COMMISSIONS ON COMMISSIONS ON
FRONT-END SALES SALES CHARGES CLASS A SHARES CLASS B SHARES CLASS C SHARES
YEAR CHARGES ON RETAINED BY ADVANCED BY ADVANCED BY ADVANCED BY
ENDED CLASS A SHARES DISTRIBUTOR DISTRIBUTOR(1) DISTRIBUTOR(1) DISTRIBUTOR(1)
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
July 31, 1999 $801,669 $216,077 $65,289 $707,523 $71,786
</TABLE>
1. The Distributor advances commission payments to dealers for certain sales of
Class A shares and for sales of Class B and Class C shares from its own
resources at the time of sale.
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
CONTINGENT DEFERRED CONTINGENT DEFERRED CONTINGENT DEFERRED
YEAR SALES CHARGES SALES CHARGES SALES CHARGES
ENDED RETAINED BY DISTRIBUTOR RETAINED BY DISTRIBUTOR RETAINED BY DISTRIBUTOR
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
July 31, 1999 $1,578 $291,023 $8,384
</TABLE>
The Fund has adopted a Service Plan for Class A shares and
Distribution and Service Plans for Class B and Class C shares under Rule 12b-1
of the Investment Company Act. Under those plans the Fund pays the Distributor
for all or a portion of its costs incurred in connection with the distribution
and/or servicing of the shares of the particular class.
- --------------------------------------------------------------------------------
CLASS A SERVICE PLAN FEES. Under the Class A service plan, the Distributor
currently uses the fees it receives from the Fund to pay brokers, dealers and
other financial institutions. The Class A service plan permits reimbursements to
the Distributor at a rate of up to 0.25% of average annual net assets of Class A
shares. The Distributor makes payments to plan recipients quarterly at an annual
rate not to exceed 0.25% of the average annual net assets consisting of Class A
shares of the Fund. For the fiscal year ended July 31, 1999, payments under the
Class A Plan totaled $1,290,905, all of which was paid by the Distributor to
recipients. That included $109,431 paid to an affiliate of the Distributor's
parent company. Any unreimbursed expenses the Distributor incurs with respect to
Class A shares in any fiscal year cannot be recovered in subsequent years.
- --------------------------------------------------------------------------------
CLASS B AND CLASS C DISTRIBUTION AND SERVICE PLAN FEES. Under each plan, service
fees and distribution fees are computed on the average of the net asset value of
shares in the respective class, determined as of the close of each regular
business day during the period. The Class B and Class C plans provide for the
Distributor to be compensated at a flat rate, whether the Distributor's
distribution expenses are more or less than the amounts paid by the Fund under
the plan during the period for which the fee is paid.
<PAGE>
================================================================================
The Distributor retains the asset-based sales charge on Class B shares. The
Distributor retains the asset-based sales charge on Class C shares during the
first year the shares are outstanding. The asset-based sales charges on Class B
and Class C shares allow investors to buy shares without a front-end sales
charge while allowing the Distributor to compensate dealers that sell those
shares.
The Distributor's actual expenses in selling Class B and
Class C shares may be more than the payments it receives from the contingent
deferred sales charges collected on redeemed shares and from the Fund under the
plans. If either the Class B or the Class C plan is terminated by the Fund, the
Board of Trustees may allow the Fund to continue payments of the asset-based
sales charge to the Distributor for distributing shares before the plan was
terminated. The plans allow for the carry-forward of distribution expenses, to
be recovered from asset-based sales charges in subsequent fiscal periods.
Distribution fees paid to the Distributor for the year ended July 31, 1999, were
as follows:
<TABLE>
<CAPTION>
DISTRIBUTOR'S
DISTRIBUTOR'S AGGREGATE UNREIMBURSED
TOTAL PAYMENTS AMOUNT RETAINED UNREIMBURSED EXPENSES EXPENSES AS % OF
CLASS UNDER PLAN BY DISTRIBUTOR UNDER PLAN NET ASSETS OF CLASS
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class B Plan $963,566 $766,109 $2,234,595 2.48%
- ------------------------------------------------------------------------------------------------------------------
Class C Plan $168,521 $ 97,752 $ 223,243 1.20%
==================================================================================================================
</TABLE>
5. FUTURES CONTRACTS
The Fund may buy and sell futures contracts in order to gain exposure to or to
seek to protect against changes in interest rates. The Fund may also buy or
write put or call options on these futures contracts.
The Fund generally sells futures contracts to hedge against
increases in interest rates and the resulting negative effect on the value of
fixed rate portfolio securities. The Fund may also purchase futures contracts to
gain exposure to changes in interest rates as it may be more efficient or cost
effective than actually buying fixed income securities.
Upon entering into a futures contract, the Fund is required
to deposit either cash or securities (initial margin) in an amount equal to a
certain percentage of the contract value. Subsequent payments (variation margin)
are made or received by the Fund each day. The variation margin payments are
equal to the daily changes in the contract value and are recorded as unrealized
gains and losses. The Fund may recognize a realized gain or loss when the
contract is closed or expires.
Securities held in collateralized accounts to cover initial
margin requirements on open futures contracts are noted in the Statement of
Investments. The Statement of Assets and Liabilities reflects a receivable
and/or payable for the daily mark to market for variation margin.
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Continued)
================================================================================
5. FUTURES CONTRACTS (CONTINUED)
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.
As of July 31, 1999, the Fund had outstanding futures contracts as follows:
<TABLE>
<CAPTION>
EXPIRATION NUMBER OF VALUATION AS OF UNREALIZED
CONTRACT DESCRIPTION DATE CONTRACTS JULY 31, 1999 APPRECIATION
- -----------------------------------------------------------------------------------------------------------------
CONTRACTS TO SELL
- -----------------
<S> <C> <C> <C> <C>
U.S. Treasury Bonds 9/21/99 600 $68,981,250 $439,842
</TABLE>
================================================================================
6. ILLIQUID OR RESTRICTED SECURITIES
As of July 31, 1999, 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 also 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 or restricted securities. Certain restricted
securities, eligible for resale to qualified institutional investors, are not
subject to that limitation. The aggregate value of illiquid or restricted
securities subject to this limitation as of July 31, 1999, was $12,613,636,
which represents 1.86% 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, 1999.
<PAGE>
Appendix A
MUNICIPAL BOND RATINGS DEFINITIONS
Below are summaries of the rating definitions used by the nationally-recognized
rating agencies listed below for municipal securities. Those ratings represent
the opinion of the agency as to the credit quality of issues that they rate. The
summaries below are based upon publicly-available information provided by the
rating organizations.
Moody's Investors Service, Inc.
- ------------------------------------------------------------------------------
Long-Term Bond Ratings
Aaa: Bonds rated Aaa are judged to be the best quality. They carry the smallest
degree of investment risk. Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, the changes that can be expected are
most unlikely to impair the fundamentally strong position of such issues.
Aa: Bonds rated Aa are judged to be of high quality by all standards. Together
with the Aaa group, they comprise what are generally known as high-grade bonds.
They are rated lower than the best bonds because margins of protection may not
be as large as with Aaa securities or fluctuation of protective elements may be
of greater amplitude or there may be other elements present which make the
long-term risks appear somewhat larger than those of Aaa securities.
A: Bonds rated A possess many favorable investment attributes and are to be
considered as upper-medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
Baa: Bonds rated Baa are considered medium grade obligations; that is, they are
neither highly protected nor poorly secured. Interest payments and principal
security appear adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and have speculative
characteristics as well.
Ba: Bonds rated Ba are judged to have speculative elements. Their future cannot
be considered well assured. Often the protection of interest and principal
payments may be very moderate and not well safeguarded during both good and bad
times over the future. Uncertainty of position characterizes bonds in this
class.
B: Bonds rated B generally lack characteristics of desirable investment.
Assurance of interest and principal payments or of maintenance of other terms of
the contract over any long period of time may be small.
Caa: Bonds rated Caa are of poor standing and may be in default or there may
be present elements of danger with respect to principal or interest.
Ca: Bonds rated Ca represent obligations which are speculative in a high
degree and are often in default or have other marked shortcomings.
C: Bonds rated C are the lowest class of rated bonds and can be regarded as
having extremely poor prospects of ever attaining any real investment standing.
Con. (...): Bonds for which the security depends on the completion of some act
or the fulfillment of some condition are rated conditionally. These bonds are
secured by (a) earnings of projects under construction, (b) earnings of projects
unseasoned in operating experience, (c) rentals that begin when facilities are
completed, or (d) payments to which some other limitation attaches.
Parenthetical rating denotes probable credit stature upon completion of
construction or elimination of basis of condition. Moody's applies numerical
modifiers 1, 2, and 3 in each generic rating classification from Aa through Caa.
The modifier "1" indicates that the obligation ranks in the higher end of its
category; the modifier "2" indicates a mid-range ranking and the modifier "3"
indicates a ranking in the lower end of the category. Advanced refunded issues
that are secured by certain assets are identified with a # symbol.
Short-Term Ratings - U.S. Tax-Exempt Municipals
There are four ratings below for short-term obligations that are investment
grade. Short-term speculative obligations are designated SG. For variable rate
demand obligations, a two-component rating is assigned. The first (MIG) element
represents an evaluation by Moody's of the degree of risk associated with
scheduled principal and interest payments, and the other (VMIG) represents an
evaluation of the degree of risk associated with the demand feature.
MIG 1/VMIG 1: Denotes best quality. There is strong protection by established
cash flows, superior liquidity support or demonstrated broad-based access to the
market for refinancing..
MIG 2/VMIG 2: Denotes high quality. Margins of protection are ample although not
as large as in the preceding group.
MIG 3/VMIG 3: Denotes favorable quality. All security elements are accounted for
but there is lacking the undeniable strength of the preceding grades. Liquidity
and cash flow protection may be narrow and market access for refinancing is
likely to be less well established.
MIG 4/VMIG 4: Denotes adequate quality. Protection commonly regarded as required
of an investment security is present and although not distinctly or
predominantly speculative, there is specific risk.
SG: Denotes speculative quality. Debt instruments in this category lack
margins of protection.
Standard & Poor's Rating Services
- ------------------------------------------------------------------------------
Long-Term Credit Ratings
AAA: Bonds rated "AAA" have the highest rating assigned by Standard & Poor's.
The obligor's capacity to meet its financial commitment on the obligation is
extremely strong.
AA: Bonds rated "AA" differ from the highest rated obligations only in small
degree. The obligor's capacity to meet its financial commitment on the
obligation is very strong.
A: Bonds rated "A" are somewhat more susceptible to adverse effects of changes
in circumstances and economic conditions than obligations in higher-rated
categories. However, the obligor's capacity to meet its financial commitment on
the obligation is still strong.
BBB: Bonds rated BBB exhibit adequate protection parameters. However, adverse
economic conditions or changing circumstances are more likely to lead to a
weakened capacity of the obligor to meet its financial commitment on the
obligation. Bonds rated BB, B, CCC, CC and C are regarded as having significant
speculative characteristics. BB indicates the least degree of speculation and C
the highest. While such obligations will likely have some quality and protective
characteristics, these may be outweighed by large uncertainties or major
exposures to adverse conditions.
BB: Bonds rated BB are less vulnerable to nonpayment than other speculative
issues. However, these face major uncertainties or exposure to adverse business,
financial, or economic conditions which could lead to the obligor's inadequate
capacity to meet its financial commitment on the obligation.
B: A bond rated B is more vulnerable to nonpayment than an obligation rated BB,
but the obligor currently has the capacity to meet its financial commitment on
the obligation.
CCC: A bond rated CCC is currently vulnerable to nonpayment, and is dependent
upon favorable business, financial, and economic conditions for the obligor to
meet its financial commitment on the obligation. In the event of adverse
business, financial or economic conditions, the obligor is not likely to have
the capacity to meet its financial commitment on the obligation.
CC: An obligation rated CC is currently highly vulnerable to nonpayment.
C: The C rating may used where a bankruptcy petition has been filed or similar
action has been taken, but payments on this obligation are being continued.
D: Bonds rated D are in default. Payments on the obligation are not being
made on the date due.
The ratings from AA to CCC may be modified by the addition of a plus (+) or
minus (-) sign to show relative standing within the major rating categories. The
"r" symbol is attached to the ratings of instruments with significant noncredit
risks.
Short-Term Issue Credit Ratings
A-1: Rated in the highest category. The obligor's capacity to meet its financial
commitment on the obligation is strong. Within this category, a plus (+) sign
designation indicates the issuer's capacity to meet its financial obligation is
very strong.
A-2: Obligation is somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than obligations in higher rating
categories. However, the obligor's capacity to meet its financial commitment on
the obligation is satisfactory.
A-3: Exhibits adequate protection parameters. However, adverse economic
conditions or changing circumstances are more likely to lead to a weakened
capacity of the obligor to meet its financial commitment on the obligation.
B: Regarded as having significant speculative characteristics. The obligor
currently has the capacity to meet its financial commitment on the obligation.
However, it faces major ongoing uncertainties which could lead to the obligor's
inadequate capacity to meet its financial commitment on the obligation.
C: Currently vulnerable to nonpayment and is dependent upon favorable
business, financial, and economic conditions for the obligor to meet its
financial commitment on the obligation.
D: In payment default. Payments on the obligation have not been made on the
due date. The rating may also be used if a bankruptcy petition has been filed
or similar actions jeopardize payments on the obligation.
- ------------------------------------------------------------------------------
Fitch IBCA, Inc.
International Long-Term Credit Ratings
Investment Grade:
AAA: Highest Credit Quality. "AAA" ratings denote the lowest expectation of
credit risk. They are assigned only in the case of exceptionally strong
capacity for timely payment of financial commitments. This capacity is highly
unlikely to be adversely affected by foreseeable events.
AA: Very High Credit Quality. "AA" ratings denote a very low expectation of
credit risk. They indicate a very strong capacity for timely payment of
financial commitments. This capacity is not significantly vulnerable to
foreseeable events.
A: High Credit Quality. "A" ratings denote a low expectation of credit risk.
The capacity for timely payment of financial commitments is considered
strong. This capacity may, nevertheless, be more vulnerable to changes in
circumstances or in economic conditions than is the case for higher ratings.
BBB: Good Credit Quality. "BBB" ratings indicate that there is currently a
low expectation of credit risk. The capacity for timely payment of financial
commitments is considered adequate, but adverse changes in circumstances and
in economic conditions are more likely to impair this capacity. This is the
lowest investment-grade category.
Speculative Grade:
BB: Speculative. "BB" ratings indicate that there is a possibility of credit
risk developing, particularly as the result of adverse economic change over
time. However, business or financial alternatives may be available to allow
financial commitments to be met.
B: Highly Speculative. "B" ratings indicate that significant credit risk is
present, but a limited margin of safety remains. Financial commitments are
currently being met. However, capacity for continued payment is contingent
upon a sustained, favorable business and economic environment.
CCC, CC C: High Default Risk. Default is a real possibility. Capacity for
meeting financial commitments is solely reliant upon sustained, favorable
business or economic developments. A "CC" rating indicates that default of
some kind appears probable. "C" ratings signal imminent default.
DDD, DD, and D: Default. Securities are not meeting current obligations and
are extremely speculative. "DDD" designates the highest potential for
recovery of amounts outstanding on any securities involved.
Plus (+) and minus (-) signs may be appended to a rating symbol to denote
relative status within the rating category. Plus and minus signs are not added
to the "AAA" category or to categories below "CCC."
International Short-Term Credit Ratings
F1: Highest credit quality. Strongest capacity for timely payment. May have an
added "+" to denote exceptionally strong credit feature.
F2: Good credit quality. A satisfactory capacity for timely payment, but the
margin of safety is not as great as in higher ratings.
F3: Fair credit quality. Capacity for timely payment is adequate. However,
near-term adverse changes could result in a reduction to non-investment grade.
B: Speculative. Minimal capacity for timely payment, plus vulnerability to
near-term adverse changes in financial and economic conditions.
C: High default risk. Default is a real possibility, Capacity for meeting
financial commitments is solely reliant upon a sustained, favorable business
and economic environment.
D: Default. Denotes actual or imminent payment default.
Duff & Phelps Credit Rating Co. Ratings
Long-Term Debt and Preferred Stock
AAA: Highest credit quality. The risk factors are negligible, being only
slightly more than for risk-free U.S. Treasury debt.
AA+, AA, AA-: High credit quality. Protection factors are strong. Risk is modest
but may vary slightly from time to time because of economic conditions.
A+, A & A-: Protection factors are average but adequate. However, risk factors
are more variable in periods of greater economic stress.
BBB+, BBB & BBB-: Below average protection factors but still considered
sufficient for prudent investment. Considerable variability in risk during
economic cycles.
BB+, BB & BB-: Below investment grade but deemed likely to meet obligations when
due. Present or prospective financial protection factors fluctuate according to
industry conditions. Overall quality may move up or down frequently within the
category.
B+, B & B-: Below investment grade and possessing risk that obligations will not
be met when due. Financial protection factors will fluctuate widely according to
economic cycles, industry conditions and/or company fortunes. Potential exists
for frequent changes in the rating within this category or into a higher of
lower rating grade.
CCC: Well below investment-grade securities. Considerable uncertainty exists as
to timely payment of principal, interest or preferred dividends. Protection
factors are narrow and risk can be substantial with unfavorable
economic/industry conditions, and/or with unfavorable company developments.
DD: Defaulted debt obligations. Issuer failed to meet scheduled principal
and/or interest payments.
DP: Preferred stock with dividend arrearages.
Short-Term Debt:
High Grade:
D-1+: Highest certainty of timely payment. Safety is just below risk-free
U.S. Treasury short-term debt.
D-1: Very high certainty of timely payment. Risk factors are minor.
D-1-: High certainty of timely payment. Risk factors are very small.
Good Grade:
D-2: Good certainty of timely payment. Risk factors are small.
Satisfactory Grade:
D-3: Satisfactory liquidity and other protection factors qualify issues as to
investment grade. Risk factors are larger and subject to more variation.
Nevertheless, timely payment is expected.
Non-Investment Grade:
D-4: Speculative investment characteristics. Liquidity is not sufficient to
insure against disruption in debt service.
Default:
D-5: Issuer failed to meet scheduled principal and/or interest payments.
<PAGE>
Appendix B
Municipal Bond Industry Classifications
Adult Living Facilities
Bond Anticipation Notes
Education
Electric Utilities
Gas Utilities
General Obligation
Higher Education
Highways/Railways
Hospital/Healthcare
Manufacturing, Durable Goods
Manufacturing, Non Durable Goods
Marine/Aviation Facilities
Multi-Family Housing
Municipal Leases
Non Profit Organization
Parking Fee Revenue
Pollution Control
Resource Recovery
Revenue Anticipation Notes
Sales Tax Revenue
Sewer Utilities
Single Family Housing
Special Assessment
Special Tax
Sports Facility Revenue
Student Loans
Tax Anticipation Notes
Tax & Revenue Anticipation Notes
Telephone Utilities
Water Utilities
<PAGE>
Appendix C
OppenheimerFunds Special Sales Charge Arrangements and Waivers
In certain cases, the initial sales charge that applies to purchases of
Class A shares1 of the Oppenheimer funds or the contingent deferred sales charge
that may apply to Class A, Class B or Class C shares may be waived.2 That is
because of the economies of sales efforts realized by OppenheimerFunds
Distributor, Inc., (referred to in this document as the "Distributor"), or by
dealers or other financial institutions that offer those shares to certain
classes of investors.
Not all waivers apply to all funds. For example, waivers relating to
Retirement Plans do not apply to Oppenheimer municipal funds, because shares of
those funds are not available for purchase by or on behalf of retirement plans.
Other waivers apply only to shareholders of certain funds.
For the purposes of some of the waivers described below and in the
Prospectus and Statement of Additional Information of the applicable Oppenheimer
funds, the term "Retirement Plan" refers to the following types of plans: (1)
plans qualified under Sections 401(a) or 401(k) of the Internal Revenue
Code,
(2) non-qualified deferred compensation plans, (3) employee benefit plans3 (4)
Group Retirement Plans4 (5) 403(b)(7) custodial plan accounts (6) Individual
Retirement Accounts ("IRAs"), including traditional IRAs,
Roth IRAs, SEP-IRAs, SARSEPs or SIMPLE plans
The interpretation of these provisions as to the applicability of a special
arrangement or waiver in a particular case is in the sole discretion of the
Distributor or the transfer agent (referred to in this document as the "Transfer
Agent") of the particular Oppenheimer fund. These waivers and special
arrangements may be amended or terminated at any time by a particular fund, the
Distributor, and/or OppenheimerFunds, Inc. (referred to in this document as the
"Manager").
Waivers that apply at the time shares are redeemed must be requested by the
shareholder and/or dealer in the redemption request.
- --------------
1. Certain waivers also apply to Class M shares of Oppenheimer Convertible
Securities Fund.
2. In the case of Oppenheimer Senior Floating Rate Fund, a continuously-offered
closed-end fund, references to contingent deferred sales charges mean the
Fund's Early Withdrawal Charges and references to "redemptions" mean
"repurchases" of shares.
3. An "employee benefit plan" means any plan or arrangement, whether or not it
is "qualified" under the Internal Revenue Code, under which Class A shares of
an Oppenheimer fund or funds are purchased by a fiduciary or other
administrator for the account of participants who are employees of a single
employer or of affiliated employers. These may include, for example, medical
savings accounts, payroll deduction plans or similar plans. The fund accounts
must be registered in the name of the fiduciary or administrator purchasing
the shares for the benefit of participants in the plan.
4. The term "Group Retirement Plan" means any qualified or non-qualified
retirement plan for employees of a corporation or sole proprietorship,
members and employees of a partnership or association or other organized
group of persons (the members of which may include other groups), if the
group has made special arrangements with the Distributor and all members of
the group participating in (or who are eligible to participate in) the plan
purchase Class A shares of an Oppenheimer fund or funds through a single
investment dealer, broker or other financial institution designated by the
group. Such plans include 457 plans, SEP-IRAs, SARSEPs, SIMPLE plans and
403(b) plans other than plans for public school employees. The term "Group
Retirement Plan" also includes qualified retirement plans and non-qualified
deferred compensation plans and IRAs that purchase Class A shares of an
Oppenheimer fund or funds through a single investment dealer, broker or other
financial institution that has made special arrangements with the Distributor
enabling those plans to purchase Class A shares at net asset value but
subject to the Class A contingent deferred sales charge.
I. Applicability of Class A Contingent Deferred Sales Charges in Certain
Cases
Purchases of Class A Shares of Oppenheimer Funds That Are Not Subject to Initial
Sales Charge but May Be Subject to the Class A Contingent Deferred Sales Charge
(unless a waiver applies).
There is no initial sales charge on purchases of Class A shares of any of
the Oppenheimer funds in the cases listed below. However, these purchases may be
subject to the Class A contingent deferred sales charge if redeemed within 18
months of the end of the calendar month of their purchase, as described in the
Prospectus (unless a waiver described elsewhere in this Appendix applies to the
redemption). Additionally, on shares purchased under these waivers that are
subject to the Class A contingent deferred sales charge, the Distributor will
pay the applicable commission described in the Prospectus under "Class A
Contingent Deferred Sales Charge."2 This waiver provision applies to:
o Purchases of Class A shares aggregating $1 million or more.
o Purchases by a Retirement Plan (other than an IRA or 403(b)(7)
custodial plan) that:
(1) buys shares costing $500,000 or more, or
(2) has, at the time of purchase, 100 or more eligible employees or
total plan assets of $500,000 or more, or
(3) certifies to the Distributor that it projects to have annual plan
purchases of $200,000 or more.
o Purchases by an OppenheimerFunds-sponsored Rollover IRA, if the
purchases are made:
(1) through a broker, dealer, bank or registered investment adviser
that has made special arrangements with the Distributor for those
purchases, or
(2) by a direct rollover of a distribution from a qualified Retirement
Plan if the administrator of that Plan has made special
arrangements with the Distributor for those purchases.
o Purchases of Class A shares by Retirement Plans that have any of the
following record-keeping arrangements:
(1) The record keeping is performed by Merrill Lynch Pierce Fenner & Smith,
Inc. ("Merrill Lynch") on a daily valuation basis for the
Retirement Plan. On the date the plan sponsor signs the
record-keeping service agreement with Merrill Lynch, the Plan
must have $3 million or more of its assets invested in (a)
mutual funds, other than those advised or managed by Merrill
Lynch Asset Management, L.P. ("MLAM"), that are made available
under a Service Agreement between Merrill Lynch and the mutual
fund's principal underwriter or distributor, and (b) funds
advised or managed by MLAM (the funds described in (a) and (b)
are referred to as "Applicable Investments").
(2) The record keeping for the Retirement Plan is performed on a daily
valuation basis by a record keeper whose services are provided
under a contract or arrangement between the Retirement Plan and
Merrill Lynch. On the date the plan sponsor signs the record
keeping service agreement with Merrill Lynch, the Plan must have
$3 million or more of its assets (excluding assets invested in
money market funds) invested in Applicable Investments.
(3) The record keeping for a Retirement Plan is handled under a service
agreement with Merrill Lynch and on the date the plan sponsor signs
that agreement, the Plan has 500 or more eligible employees (as
determined by the Merrill Lynch plan conversion manager).
o Purchases by a Retirement Plan whose record keeper had a
cost-allocation agreement with the Transfer Agent on or before May 1,
1999.
<PAGE>
II. Waivers of Class A Sales Charges of Oppenheimer Funds
A. Waivers of Initial and Contingent Deferred Sales Charges for Certain
Purchasers.
Class A shares purchased by the following investors are not subject to any Class
A sales charges (and no commissions are paid by the Distributor on such
purchases):
o The Manager or its affiliates.
o Present or former officers, directors, trustees and employees (and their
"immediate families") of the Fund, the Manager and its affiliates, and
retirement plans established by them for their employees. The term
"immediate family" refers to one's spouse, children, grandchildren,
grandparents, parents, parents-in-law, brothers and sisters, sons- and
daughters-in-law, a sibling's spouse, a spouse's siblings, aunts, uncles,
nieces and nephews; relatives by virtue of a remarriage (step-children,
step-parents, etc.) are included.
o Registered management investment companies, or separate accounts of
insurance companies having an agreement with the Manager or the
Distributor for that purpose.
o Dealers or brokers that have a sales agreement with the Distributor, if
they purchase shares for their own accounts or for retirement plans for
their employees.
o Employees and registered representatives (and their spouses) of dealers
or brokers described above or financial institutions that have entered
into sales arrangements with such dealers or brokers (and which are
identified as such to the Distributor) or with the Distributor. The
purchaser must certify to the Distributor at the time of purchase that
the purchase is for the purchaser's own account (or for the benefit of
such employee's spouse or minor children).
o Dealers, brokers, banks or registered investment advisors that have
entered into an agreement with the Distributor providing specifically for
the use of shares of the Fund in particular investment products made
available to their clients. Those clients may be charged a transaction
fee by their dealer, broker, bank or advisor for the purchase or sale of
Fund shares.
o Investment advisors and financial planners who have entered into an
agreement for this purpose with the Distributor and who charge an
advisory, consulting or other fee for their services and buy shares for
their own accounts or the accounts of their clients.
o "Rabbi trusts" that buy shares for their own accounts, if the purchases
are made through a broker or agent or other financial intermediary that
has made special arrangements with the Distributor for those purchases.
o Clients of investment advisors or financial planners (that have entered
into an agreement for this purpose with the Distributor) who buy shares
for their own accounts may also purchase shares without sales charge but
only if their accounts are linked to a master account of their investment
advisor or financial planner on the books and records of the broker,
agent or financial intermediary with which the Distributor has made such
special arrangements . Each of these investors may be charged a fee by
the broker, agent or financial intermediary for purchasing shares.
o Directors, trustees, officers or full-time employees of OpCap Advisors or
its affiliates, their relatives or any trust, pension, profit sharing or
other benefit plan which beneficially owns shares for those persons.
o Accounts for which Oppenheimer Capital (or its successor) is the
investment advisor (the Distributor must be advised of this arrangement)
and persons who are directors or trustees of the company or trust which
is the beneficial owner of such accounts.
o A unit investment trust that has entered into an appropriate agreement
with the Distributor.
o Dealers, brokers, banks, or registered investment advisers that have
entered into an agreement with the Distributor to sell shares to defined
contribution employee retirement plans for which the dealer, broker or
investment adviser provides administration services.
o Retirement Plans and deferred compensation plans and trusts used to fund
those plans (including, for example, plans qualified or created under
sections 401(a), 401(k), 403(b) or 457 of the Internal Revenue Code), in
each case if those purchases are made through a broker, agent or other
financial intermediary that has made special arrangements with the
Distributor for those purchases.
o A TRAC-2000 401(k) plan (sponsored by the former Quest for Value
Advisors) whose Class B or Class C shares of a Former Quest for Value
Fund were exchanged for Class A shares of that Fund due to the
termination of the Class B and Class C TRAC-2000 program on November 24,
1995.
o A qualified Retirement Plan that had agreed with the former Quest for
Value Advisors to purchase shares of any of the Former Quest for Value
Funds at net asset value, with such shares to be held through DCXchange,
a sub-transfer agency mutual fund clearinghouse, if that arrangement was
consummated and share purchases commenced by December 31, 1996.
B. Waivers of Initial and Contingent Deferred Sales Charges in Certain
Transactions.
Class A shares issued or purchased in the following transactions are not subject
to sales charges (and no commissions are paid by the Distributor on such
purchases):
o Shares issued in plans of reorganization, such as mergers, asset
acquisitions and exchange offers, to which the Fund is a party.
o Shares purchased by the reinvestment of dividends or other distributions
reinvested from the Fund or other Oppenheimer funds (other than
Oppenheimer Cash Reserves) or unit investment trusts for which
reinvestment arrangements have been made with the Distributor.
o Shares purchased through a broker-dealer that has entered into a special
agreement with the Distributor to allow the broker's customers to
purchase and pay for shares of Oppenheimer funds using the proceeds of
shares redeemed in the prior 30 days from a mutual fund (other than a
fund managed by the Manager or any of its subsidiaries) on which an
initial sales charge or contingent deferred sales charge was paid. This
waiver also applies to shares purchased by exchange of shares of
Oppenheimer Money Market Fund, Inc. that were purchased and paid for in
this manner. This waiver must be requested when the purchase order is
placed for shares of the Fund, and the Distributor may require evidence
of qualification for this waiver.
o Shares purchased with the proceeds of maturing principal units of any
Qualified Unit Investment Liquid Trust Series.
o Shares purchased by the reinvestment of loan repayments by a participant
in a Retirement Plan for which the Manager or an affiliate acts as
sponsor.
C. Waivers of the Class A Contingent Deferred Sales Charge for Certain
Redemptions.
The Class A contingent deferred sales charge is also waived if shares that would
otherwise be subject to the contingent deferred sales charge are redeemed in the
following cases:
o To make Automatic Withdrawal Plan payments that are limited annually to
no more than 12% of the account value measured at the time the Plan is
established, adjusted annually.
o Involuntary redemptions of shares by operation of law or involuntary
redemptions of small accounts (please refer to "Shareholder Account Rules
and Policies," in the applicable fund Prospectus).
o For distributions from Retirement Plans, deferred compensation plans or
other employee benefit plans for any of the following purposes:
(1) Following the death or disability (as defined in the Internal Revenue
Code) of the participant or beneficiary. The death or disability must
occur after the participant's account was established.
(2) To return excess contributions.
(3) To return contributions made due to a mistake of fact. (4) Hardship
withdrawals, as defined in the plan.3 (5) Under a Qualified Domestic Relations
Order, as defined in the Internal
Revenue Code, or, in the case of an IRA, a divorce or separation
agreement described in Section 71(b) of the Internal Revenue Code.
(6) To meet the minimum distribution requirements of the Internal
Revenue Code.
(7) To make "substantially equal periodic payments" as described in
Section 72(t) of the Internal Revenue Code.
(8) For loans to participants or beneficiaries. (9) Separation from service.4
(10)Participant-directed redemptions to purchase shares of a mutual fund
(other than a fund managed by the Manager or a subsidiary of the
Manager) if the plan has made special arrangements with the
Distributor.
(11)Plan termination or "in-service distributions," if the redemption
proceeds are rolled over directly to an OppenheimerFunds-sponsored
IRA.
o For distributions from Retirement Plans having 500 or more eligible
employees, except distributions due to termination of all of the
Oppenheimer funds as an investment option under the Plan.
o For distributions from 401(k) plans sponsored by broker-dealers that have
entered into a special agreement with the Distributor allowing this
waiver.
III. Waivers of Class B and Class C Sales Charges of Oppenheimer Funds
The Class B and Class C contingent deferred sales charges will not be applied to
shares purchased in certain types of transactions or redeemed in certain
circumstances described below.
A. Waivers for Redemptions in Certain Cases.
The Class B and Class C contingent deferred sales charges will be waived for
redemptions of shares in the following cases:
o Shares redeemed involuntarily, as described in "Shareholder Account Rules
and Policies," in the applicable Prospectus.
o Redemptions from accounts other than Retirement Plans following the death
or disability of the last surviving shareholder, including a trustee of a
grantor trust or revocable living trust for which the trustee is also the
sole beneficiary. The death or disability must have occurred after the
account was established, and for disability you must provide evidence of
a determination of disability by the Social Security Administration.
o Distributions from accounts for which the broker-dealer of record has
entered into a special agreement with the Distributor allowing this
waiver.
o Redemptions of Class B shares held by Retirement Plans whose records are
maintained on a daily valuation basis by Merrill Lynch or an independent
record keeper under a contract with Merrill Lynch.
o Redemptions of Class C shares of Oppenheimer U.S. Government Trust from
accounts of clients of financial institutions that have entered into a
special arrangement with the Distributor for this purpose.
o Redemptions requested in writing by a Retirement Plan sponsor of Class C
shares of an Oppenheimer fund in amounts of $1 million or more held by
the Retirement Plan for more than one year, if the redemption proceeds
are invested in Class A shares of one or more Oppenheimer funds.
o Distributions from Retirement Plans or other employee benefit plans for
any of the following purposes:
(1) Following the death or disability (as defined in the Internal
Revenue Code) of the participant or beneficiary. The death or
disability must occur after the participant's account was
established in an Oppenheimer fund.
(2) To return excess contributions made to a participant's account. (3) To
return contributions made due to a mistake of fact. (4) To make hardship
withdrawals, as defined in the plan.5 (5) To make distributions required under a
Qualified Domestic Relations
Order or, in the case of an IRA, a divorce or separation agreement
described in Section 71(b) of the Internal Revenue Code.
(6) To meet the minimum distribution requirements of the Internal
Revenue Code.
(7) To make "substantially equal periodic payments" as described in
Section 72(t) of the Internal Revenue Code.
(8) For loans to participants or beneficiaries.6 (9) On account of the
participant's separation from service.7 (10) Participant-directed redemptions to
purchase shares of a mutual fund
(other than a fund managed by the Manager or a subsidiary of the
Manager) offered as an investment option in a Retirement Plan if the
plan has made special arrangements with the Distributor.
(11) Distributions made on account of a plan termination or "in-service"
distributions," if the redemption proceeds are rolled over directly
to an OppenheimerFunds-sponsored IRA.
(12) Distributions from Retirement Plans having 500 or more eligible
employees, but excluding distributions made because of the Plan's
elimination as investment options under the Plan of all of the
Oppenheimer funds that had been offered.
(13) For distributions from a participant's account under an Automatic
Withdrawal Plan after the participant reaches age 59-1/2, as long
as the aggregate value of the distributions does not exceed 10% of
the account's value annually (measured from the establishment of the
Automatic Withdrawal Plan).
o Redemptions of Class B shares or Class C shares under an Automatic
Withdrawal Plan from an account other than a Retirement Plan if the
aggregate value of the redeemed shares does not exceed 10% of the
account's value annually.
B. Waivers for Shares Sold or Issued in Certain Transactions.
The contingent deferred sales charge is also waived on Class B and Class C
shares sold or issued in the following cases:
o Shares sold to the Manager or its affiliates.
o Shares sold to registered management investment companies or separate
accounts of insurance companies having an agreement with the Manager or
the Distributor for that purpose.
o Shares issued in plans of reorganization to which the Fund is a party.
o Shares sold to present or former officers, directors, trustees or
employees (and their "immediate families" as defined above in Section
I.A.) of the Fund, the Manager and its affiliates and retirement plans
established by them for their employees.
IV. Special Sales Charge Arrangements for Shareholders of Certain
Oppenheimer Funds Who Were Shareholders of Former Quest for Value Funds
The initial and contingent deferred sales charge rates and waivers for Class A,
Class B and Class C shares described in the Prospectus or Statement of
Additional Information of the Oppenheimer funds are modified as described below
for certain persons who were shareholders of the former Quest for Value Funds.
To be eligible, those persons must have been shareholders on November 24, 1995,
when OppenheimerFunds, Inc. became the investment advisor to those former Quest
for Value Funds. Those funds include:
<PAGE>
Oppenheimer Quest Value Fund, Inc. Oppenheimer Quest Small Cap Value
Fund
Oppenheimer Quest Balanced Value Fund Oppenheimer Quest Global Value Fund
Oppenheimer Quest Opportunity Value Fund
These arrangements also apply to shareholders of the following funds when
they merged (were reorganized) into various Oppenheimer funds on November 24,
1995:
Quest for Value U.S. Government Income Quest for Value New York
Fund Tax-Exempt Fund
Quest for Value Investment Quality Quest for Value National
Income Fund Tax-Exempt Fund
Quest for Value Global Income Fund Quest for Value California
Tax-Exempt Fund
All of the funds listed above are referred to in this Appendix as the
"Former Quest for Value Funds." The waivers of initial and contingent deferred
sales charges described in this Appendix apply to shares of an Oppenheimer fund
that are either:
o acquired by such shareholder pursuant to an exchange of shares of an
Oppenheimer fund that was one of the Former Quest for Value Funds or
o purchased by such shareholder by exchange of shares of another
Oppenheimer fund that were acquired pursuant to the merger of any of the
Former Quest for Value Funds into that other Oppenheimer fund on November
24, 1995.
A. Reductions or Waivers of Class A Sales Charges.
Reduced Class A Initial Sales Charge Rates for Certain Former Quest for
Value Funds Shareholders.
Purchases by Groups and Associations. The following table sets forth the initial
sales charge rates for Class A shares purchased by members of "Associations"
formed for any purpose other than the purchase of securities. The rates in the
table apply if that Association purchased shares of any of the Former Quest for
Value Funds or received a proposal to purchase such shares from OCC Distributors
prior to November 24, 1995.
------------------------------------------------------------------------------
Initial Sales
Number of Charge Initial Sales Charge Commission
EligibleEmployees or as a % of as a % of as % of
Members Offering Price Net Amount Invested Offering Price
------------------------------------------------------------------------------
9 or Fewer 2.50% 2.56% 2.00%
------------------------------------------------------------------------------
At least 10 but not 2.00% 2.04% 1.60%
more than 49
------------------------------------------------------------------------------
For purchases by Associations having 50 or more eligible employees or
members, there is no initial sales charge on purchases of Class A shares, but
those shares are subject to the Class A contingent deferred sales charge
described in the applicable fund's Prospectus.
Purchases made under this arrangement qualify for the lower of either the
sales charge rate in the table based on the number of members of an Association,
or the sales charge rate that applies under the Right of Accumulation described
in the applicable fund's Prospectus and Statement of Additional Information.
Individuals who qualify under this arrangement for reduced sales charge rates as
members of Associations also may purchase shares for their individual or
custodial accounts at these reduced sales charge rates, upon request to the
Distributor.
Waiver of Class A Sales Charges for Certain Shareholders. Class A shares
purchased by the following investors are not subject to any Class A initial or
contingent deferred sales charges:
o Shareholders who were shareholders of the AMA Family of Funds on February
28, 1991 and who acquired shares of any of the Former Quest for Value
Funds by merger of a portfolio of the AMA Family of Funds.
o Shareholders who acquired shares of any Former Quest for Value Fund by
merger of any of the portfolios of the Unified Funds.
Waiver of Class A Contingent Deferred Sales Charge in Certain Transactions.
The Class A contingent deferred sales charge will not apply to redemptions of
Class A shares purchased by the following investors who were shareholders of any
Former Quest for Value Fund:
Investors who purchased Class A shares from a dealer that is or was not
permitted to receive a sales load or redemption fee imposed on a shareholder
with whom that dealer has a fiduciary relationship, under the Employee
Retirement Income Security Act of 1974 and regulations adopted under that law.
B. Class A, Class B and Class C Contingent Deferred Sales Charge Waivers.
Waivers for Redemptions of Shares Purchased Prior to March 6, 1995. In the
following cases, the contingent deferred sales charge will be waived for
redemptions of Class A, Class B or Class C shares of an Oppenheimer fund. The
shares must have been acquired by the merger of a Former Quest for Value Fund
into the fund or by exchange from an Oppenheimer fund that was a Former Quest
for Value Fund or into which such fund merged. Those shares must have been
purchased prior to March 6, 1995 in connection with:
o withdrawals under an automatic withdrawal plan holding only either Class
B or Class C shares if the annual withdrawal does not exceed 10% of the
initial value of the account, and
o liquidation of a shareholder's account if the aggregate net asset value
of shares held in the account is less than the required minimum value of
such accounts.
Waivers for Redemptions of Shares Purchased on or After March 6, 1995 but
Prior to November 24, 1995. In the following cases, the contingent deferred
sales charge will be waived for redemptions of Class A, Class B or Class C
shares of an Oppenheimer fund. The shares must have been acquired by the merger
of a Former Quest for Value Fund into the fund or by exchange from an
Oppenheimer fund that was a Former Quest For Value Fund or into which such
Former Quest for Value Fund merged. Those shares must have been purchased on or
after March 6, 1995, but prior to November 24, 1995:
o redemptions following the death or disability of the shareholder(s) (as
evidenced by a determination of total disability by the U.S.
Social Security Administration);
o withdrawals under an automatic withdrawal plan (but only for Class B or
Class C shares) where the annual withdrawals do not exceed 10% of the
initial value of the account; and
o liquidation of a shareholder's account if the aggregate net asset value
of shares held in the account is less than the required minimum account
value.
A shareholder's account will be credited with the amount of any contingent
deferred sales charge paid on the redemption of any Class A, Class B or Class C
shares of the Oppenheimer fund described in this section if the proceeds are
invested in the same Class of shares in that fund or another Oppenheimer fund
within 90 days after redemption.
V. Special Sales Charge Arrangements for Shareholders of Certain Oppenheimer
Funds Who Were Shareholders of Coonecticut Mutual Investment Accounts, Inc.
The initial and contingent deferred sale charge rates and waivers for Class A
and Class B shares described in the respective Prospectus (or this Appendix) of
the following Oppenheimer funds (each is referred to as a "Fund" in this
section):
o Oppenheimer U. S. Government Trust,
o Oppenheimer Bond Fund,
o Oppenheimer Disciplined Value Fund and
o Oppenheimer Disciplined Allocation Fund
are modified as described below for those Fund shareholders who were
shareholders of the following funds (referred to as the "Former Connecticut
Mutual Funds") on March 1, 1996, when OppenheimerFunds, Inc. became the
investment adviser to the Former Connecticut Mutual Funds:
Connecticut Mutual Liquid Account Connecticut Mutual Total
Return Account
Connecticut Mutual Government CMIA LifeSpan Capital
Securities Account Appreciation Account
Connecticut Mutual Income Account CMIA LifeSpan Balanced Account
Connecticut Mutual Growth Account CMIA Diversified Income Account
A. Prior Class A CDSC and Class A Sales Charge Waivers.
o Class A Contingent Deferred Sales Charge. Certain shareholders of a Fund
and the other Former Connecticut Mutual Funds are entitled to continue to make
additional purchases of Class A shares at net asset value without a Class A
initial sales charge, but subject to the Class A contingent deferred sales
charge that was in effect prior to March 18, 1996 (the "prior Class A CDSC").
Under the prior Class A CDSC, if any of those shares are redeemed within one
year of purchase, they will be assessed a 1% contingent deferred sales charge on
an amount equal to the current market value or the original purchase price of
the shares sold, whichever is smaller (in such redemptions, any shares not
subject to the prior Class A CDSC will be redeemed first).
Those shareholders who are eligible for the prior Class A CDSC are:
(1) persons whose purchases of Class A shares of a Fund and other Former
Connecticut Mutual Funds were $500,000 prior to March 18, 1996, as a
result of direct purchases or purchases pursuant to the Fund's policies
on Combined Purchases or Rights of Accumulation, who still hold those
shares in that Fund or other Former Connecticut Mutual Funds, and
(2) persons whose intended purchases under a Statement of Intention entered
into prior to March 18, 1996, with the former general distributor of the
Former Connecticut Mutual Funds to purchase shares valued at $500,000 or
more over a 13-month period entitled those persons to purchase shares at
net asset value without being subject to the Class A initial sales
charge.
Any of the Class A shares of a Fund and the other Former Connecticut Mutual
Funds that were purchased at net asset value prior to March 18, 1996,
remain subject to the prior Class A CDSC, or if any additional shares are
purchased by those shareholders at net asset value pursuant to this
arrangement they will be subject to the prior Class A CDSC.
o Class A Sales Charge Waivers. Additional Class A shares of a Fund may be
purchased without a sales charge, by a person who was in one (or more) of the
categories below and acquired Class A shares prior to March 18, 1996, and still
holds Class A shares: (1) any purchaser, provided the total initial amount
invested in the Fund
or any one or more of the Former Connecticut Mutual Funds totaled
$500,000 or more, including investments made pursuant to the Combined
Purchases, Statement of Intention and Rights of Accumulation features
available at the time of the initial purchase and such investment is
still held in one or more of the Former Connecticut Mutual Funds or a
Fund into which such Fund merged;
(2) any participant in a qualified plan, provided that the total initial
amount invested by the plan in the Fund or any one or more of the
Former Connecticut Mutual Funds totaled $500,000 or more;
(3) Directors of the Fund or any one or more of the Former Connecticut
Mutual Funds and members of their immediate families;
(4) employee benefit plans sponsored by Connecticut Mutual Financial
Services, L.L.C. ("CMFS"), the prior distributor of the Former
Connecticut Mutual Funds, and its affiliated companies;
(5) one or more members of a group of at least 1,000 persons (and persons
who are retirees from such group) engaged in a common business,
profession, civic or charitable endeavor or other activity, and the
spouses and minor dependent children of such persons, pursuant to a
marketing program between CMFS and such group; and
(6) an institution acting as a fiduciary on behalf of an individual or
individuals, if such institution was directly compensated by the
individual(s) for recommending the purchase of the shares of the Fund
or any one or more of the Former Connecticut Mutual Funds, provided the
institution had an agreement with CMFS.
Purchases of Class A shares made pursuant to (1) and (2) above may be
subject to the Class A CDSC of the Former Connecticut Mutual Funds described
above.
Additionally, Class A shares of a Fund may be purchased without a sales
charge by any holder of a variable annuity contract issued in New York State by
Connecticut Mutual Life Insurance Company through the Panorama Separate Account
which is beyond the applicable surrender charge period and which was used to
fund a qualified plan, if that holder exchanges the variable annuity contract
proceeds to buy Class A shares of the Fund.
B. Class A and Class B Contingent Deferred Sales Charge Waivers.
In addition to the waivers set forth in the Prospectus and in this Appendix,
above, the contingent deferred sales charge will be waived for redemptions of
Class A and Class B shares of a Fund and exchanges of Class A or Class B shares
of a Fund into Class A or Class B shares of a Former Connecticut Mutual Fund
provided that the Class A or Class B shares of the Fund to be redeemed or
exchanged were (i) acquired prior to March 18, 1996 or (ii) were acquired by
exchange from an Oppenheimer fund that was a Former Connecticut Mutual Fund.
Additionally, the shares of such Former Connecticut Mutual Fund must have been
purchased prior to March 18, 1996: (1) by the estate of a deceased shareholder;
(2) upon the disability of a shareholder, as defined in Section 72(m)(7) of
the Internal Revenue Code;
(3) for retirement distributions (or loans) to participants or
beneficiaries from retirement plans qualified under Sections 401(a) or
403(b)(7)of the Code, or from IRAs, deferred compensation plans created
under Section 457 of the Code, or other employee benefit plans;
(4) as tax-free returns of excess contributions to such retirement or
employee benefit plans;
(5) in whole or in part, in connection with shares sold to any state,
county, or city, or any instrumentality, department, authority, or
agency thereof, that is prohibited by applicable investment laws from
paying a sales charge or commission in connection with the purchase of
shares of any registered investment management company;
(6) in connection with the redemption of shares of the Fund due to a
combination with another investment company by virtue of a merger,
acquisition or similar reorganization transaction;
(7) in connection with the Fund's right to involuntarily redeem or
liquidate the Fund;
(8) in connection with automatic redemptions of Class A shares and Class B
shares in certain retirement plan accounts pursuant to an Automatic
Withdrawal Plan but limited to no more than 12% of the original value
annually; or
(9) as involuntary redemptions of shares by operation of law, or under
procedures set forth in the Fund's Articles of Incorporation, or as
adopted by the Board of Directors of the Fund.
VI. Special Reduced Sales Charge for Former Shareholders of Advance America
Funds, Inc.
Shareholders of Oppenheimer Municipal Bond Fund, Oppenheimer U.S. Government
Trust, Oppenheimer Strategic Income Fund and Oppenheimer Equity Income Fund who
acquired (and still hold) shares of those funds as a result of the
reorganization of series of Advance America Funds, Inc. into those Oppenheimer
funds on October 18, 1991, and who held shares of Advance America Funds, Inc. on
March 30, 1990, may purchase Class A shares of those four Oppenheimer funds at a
maximum sales charge rate of 4.50%.
VII. Sales Charge Waivers on Purchases of Class M Shares of Oppenheimer
Convertible Securities Fund
Oppenheimer Convertible Securities Fund (referred to as the "Fund" in this
section) may sell Class M shares at net asset value without any initial sales
charge to the classes of investors listed below who, prior to March 11, 1996,
owned shares of the Fund's then-existing Class A and were permitted to purchase
those shares at net asset value without sales charge:
o the Manager and its affiliates,
o present or former officers, directors, trustees and employees (and their
"immediate families" as defined in the Fund's Statement of Additional
Information) of the Fund, the Manager and its affiliates, and retirement
plans established by them or the prior investment advisor of the Fund
for their employees,
o registered management investment companies or separate accounts of
insurance companies that had an agreement with the Fund's prior
investment advisor or distributor for that purpose,
o dealers or brokers that have a sales agreement with the Distributor, if
they purchase shares for their own accounts or for retirement plans for
their employees,
o employees and registered representatives (and their spouses) of dealers
or brokers described in the preceding section or financial institutions
that have entered into sales arrangements with those dealers or brokers
(and whose identity is made known to the Distributor) or with the
Distributor, but only if the purchaser certifies to the Distributor at
the time of purchase that the purchaser meets these qualifications,
o dealers, brokers, or registered investment advisors that had entered
into an agreement with the Distributor or the prior distributor of the
Fund specifically providing for the use of Class M shares of the Fund in
specific investment products made available to their clients, and
o dealers, brokers or registered investment advisors that had entered into
an agreement with the Distributor or prior distributor of the Fund's
shares to sell shares to defined contribution employee retirement plans
for which the dealer, broker, or investment advisor provides
administrative services.
<PAGE>
- ------------------------------------------------------------------------------
Oppenheimer Municipal Bond Fund
- ------------------------------------------------------------------------------
Internet Web Site:
ww.oppenheimerfunds.com
Investment Adviser
OppenheimerFunds, Inc.
Two World Trade Center
New York, New York 10048-0203
Distributor
OppenheimerFunds Distributor, Inc.
Two World Trade Center
New York, New York 10048-0203
Transfer Agent
OppenheimerFunds Services
P.O. Box 5270
Denver, Colorado 80217-5270
1-800-525-7048
Custodian Bank
Citibank, N.A.
399 Park Avenue
New York, New York 10043
Independent Auditors
KPMG LLP
707 Seventeenth Street
Denver, Colorado 80202
Legal Counsel
Mayer, Brown & Platt
1675 Broadway
New York, New York 10019-5820
[logo]
PX0310.1199
- --------
1Ms. Macaskill and Mr. Griffiths are not Directors of Oppenheimer Money Market
Fund, Inc.; Mr. Griffiths is also not a Trustee of Oppenheimer Discovery Fund. 2
However, that commission will not be paid on purchases of shares in amounts of
$1 million or more (including any right of accumulation) by a Retirement Plan
that pays for the purchase with the redemption proceeds of Class C shares of one
or more Oppenheimer funds held by the Plan for more than one year. 3 This
provision does not apply to IRAs. 4 This provision does not apply to 403(b)(7)
custodial plans if the participant is less than age 55, nor to IRAs. 5 This
provision does not apply to IRAs. 6 This provision does not apply to loans from
403(b)(7) custodial plans. 7 This provision does not apply to 403(b)(7)
custodial plans if the participant is less than age 55, nor to IRAs.
<PAGE>
OPPENHEIMER MUNICIPAL BOND FUND
FORM N-1A
PART C
OTHER INFORMATION
Item 23. Exhibits
(a) Amended and Restated Declaration of Trust dated September 16, 1996:
Previously filed with Registrant's Post-Effective Amendment No. 37 (11/20/96)
and incorporated herein by reference .
(b) Amended and Restated By-Laws dated as of June 4, 1998: Previously filed with
Registrant's Post-Effective Amendment No. 41(11/27/98) and incorporated herein
by reference.
(c) (i) Specimen Class A Share Certificate: Filed herewith.
(ii) Specimen Class B Share Certificate: Filed herewith.
(iii) Specimen Class C Share Certificate: Filed herewith.
(d) Investment Advisory Agreement dated October 22, 1990: Previously filed with
Registrant's Post-Effective Amendment No. 27 (2/28/91), refiled with
Registrant's Post-Effective Amendment No. 33 (4/28/95) pursuant to Item 102 of
Regulation S-T, and incorporated herein by reference.
(e) (i) General Distributor's Agreement dated December 10, 1992: Previously
filed with Registrant's Post-Effective Amendment No. 30 (3/16/93), refiled with
Registrant's Post-Effective Amendment No. 33 (4/28/95) pursuant to Item 102 of
Regulation S-T, and incorporated herein by reference.
(ii) Form of Dealer Agreement of OppenheimerFunds Distributor, Inc.: Filed
with Post-Effective Amendment No. 2 of Oppenheimer Trinity Value Fund (Reg.
No. 333-79707), 8/25/99, and incorporated herein by reference.
(iii) Form of OppenheimerFunds
Distributor, Inc. Broker Agreement: Filed with Post-Effective Amendment No.
2 of Oppenheimer Trinity Value Fund (Reg. No. 333-79707), 8/25/99, and
incorporated herein by reference.
(iv) Form of OppenheimerFunds Distributor, Inc. Agency
Agreement: Filed with Post-Effective Amendment No. 2 of Oppenheimer Trinity
Value Fund (Reg. No. 333-79707), 8/25/99, and incorporated herein by
reference.
(f) (i) Retirement Plan for Non-Interested Trustees or Directors dated
6/7/90: Previously filed with Post-Effective Amendment No. 97 of
Oppenheimer Fund (Reg. No. 2-14586), 8/30/90, refiled with Post-Effective
Amendment No. 45 of Oppenheimer Growth Fund (Reg. No. 2-45272), 8/22/94,
pursuant to Item 102 of Regulation S-T, and incorporated herein by
reference.
(ii) Retirement Plan for Non-Interested Trustees or Directors
dated 6/7/90 - Filed with Post-Effective Amendment No. 97 to the
Registration Statement of Oppenheimer Fund (File No. 2-14586) 8/30/90,
refiled with Post-Effective Amendment No. 45 of Oppenheimer Growth Fund
(Reg. No. 2-45272), 8/22/94, pursuant to Item 102 of Regulation S-T, and
incorporated herein by reference.
(iii) Form of Deferred Compensation Agreement for Disinterested
Trustees: Filed with Post-Effective Amendment No.26 to the Registration
Statement of Oppenheimer Gold & Special Minerals Fund (Reg. No. 2-82590),
10/28/98, and incorporated by reference.
(g) (i) Custody Agreement dated October 7, 1976: Previously filed with
Registrant's Post-Effective Amendment No. 2 (5/18/77), refiled with Registrant's
Post-Effective Amendment No. 33 (4/28/95) pursuant to Item 102 of Regulation S-T
and incorporated herein by reference .
(ii) Assignment and Amendment dated May 1, 1987 of Custody Agreement dated
October 7, 1976 among Oppenheimer Tax-Free Bond Fund, Inc., Citibank, N.A., and
Oppenheimer Tax-Free Bond Fund: Previously filed with Registrant's
Post-Effective Amendment No. 22, 5/1/87, refiled with Registrant's
Post-Effective Amendment No. 33, 4/28/95, pursuant to Item 102 of Regulation
S-T, and incorporated herein by reference.
(iii) Amendment dated as of March, 1978 to Custody Agreement of
Oppenheimer Tax-Free Bond Fund, Inc.: Previously filed with Registrant's
Post-Effective Amendment No. 24, 4/25/88, refiled with Registrant's
Post-Effective Amendment No. 33, 4/28/95, pursuant to Item 102 of Regulation
S-T, and incorporated herein by reference.
(iv) Amendment dated as of August 13, 1980 to Custody Agreement of
Oppenheimer Tax-Free Bond Fund, Inc.: Previously filed with Registrant's
Post-Effective Amendment No. 24, 4/25/88, refiled with Registrant's
Post-Effective Amendment No. 33, 4/28/95, pursuant to Item 102 of Regulation
S-T, and incorporated herein by reference.
(v) Amendment dated September 28, 1984 to Custody Agreement of Oppenheimer
Tax-Free Bond Fund, Inc.: Previously filed with Registrant's Post-Effective
Amendment No. 24, 4/25/88, refiled with Registrant's Post-Effective Amendment
No. 33, 4/28/95, pursuant to Item 102 of Regulation S-T, and incorporated herein
by reference.
(vi) Amendment dated June 16, 1986 to Custody Agreement of Oppenheimer
Tax-Free Bond Fund, Inc.: Previously filed with Registrant's Post-Effective
Amendment No. 24, 4/25/88, refiled with Registrant's Post-Effective Amendment
No. 33, 4/28/95, pursuant to Item 102 of Regulation S-T, and incorporated herein
by reference.
(vii) Foreign Custody Manager Agreement between Registrant and The
Bank of New York: Previously filed with Pre-Effective Amendment No. 2 to
registration statement of Oppenheimer World Bond Fund (Reg. 333-48973),
4/23/98, and incorporated herein by reference.
(h) Not applicable.
(i) Opinion and Consent of Counsel dated May 1, 1987: Previously filed with
Registrant's Post-Effective Amendment No. 22 (5/1/87) , refiled with
Registrant's Post-Effective Amendment No. 33 (4/28/95) pursuant to Item 102 of
Regulation S-T, and incorporated herein by reference.
(j) Independent Auditor's Consent: Filed herewith.
(k) Not applicable.
(l) Investment Letter from OppenheimerFunds, Inc. to Registrant dated
October 1, 1976: Previously filed with Post-Effective Amendment No. 40
(9/24/98), and incorporated herein by reference.
(m) (i) Service Plan and Agreement for Class A shares dated June 20, 1994: Filed
herewith.
(ii) Distribution and Service Plan and Agreement for Class B shares dated
February 12, 1998: Previously filed with Post-Effective Amendment No. 40
(9/24/98), and incorporated herein by reference.
(iii) Distribution and Service Plan and Agreement for Class C shares dated
February 12, 1998: Previously filed with Post-Effective Amendment No.
40 (9/24/98), and incorporated herein by reference.
(n) Oppenheimer Funds Multiple Class Plan under Rule 18f-3 as updated through
8/24/99: Previously filed with Pre-Effective Amendment No. 1 to the Registration
Statement of Oppenheimer Senior Floating Rate Fund (Reg. No. 333-82579),
8/27/99, and incorporated herein by reference.
- -- Powers of Attorney for all Trustees/Directors: Previously filed with
Pre-Effective Amendment No. 1 to the registration statement of Oppenheimer
Trinity Value Fund (Reg. No. 333-79707), 8/4/99, and incorportated herein by
reference.
Item 24. Persons Controlled by or Under Common Control with the Fund
None.
Item 25. Indemnification
Reference is made to the provisions of Article Seven of Registrant's Amended and
Restated Declaration of Trust filed as Exhibit 23(a) to this Registration
Statement, and incorporated herein by reference.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to trustees, officers and controlling persons of
Registrant pursuant to the foregoing provisions or otherwise, Registrant has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act of
1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by Registrant
of expenses incurred or paid by a trustee, officer or controlling person of
Registrant in the successful defense of any action, suit or proceeding) is
asserted by such trustee, officer or controlling person, Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of such
issue.
Item 26. Business and Other Connections of the Investment Adviser
(a) OppenheimerFunds, Inc. is the investment adviser of the Registrant; it and
certain subsidiaries and affiliates act in the same capacity to other investment
companies, including without limitation those described in Parts A and B hereof
and listed in Item 26(b) below.
(b) There is set forth below information as to any other business, profession,
vocation or employment of a substantial nature in which each officer and
director of OppenheimerFunds, Inc. is, or at any time during the past two fiscal
years has been, engaged for his/her own account or in the capacity of director,
officer, employee, partner or trustee.
Name and Current Position Other Business and Connections
with OppenheimerFunds, Inc. During the Past Two Years
Charles E. Albers,
Senior Vice President An officer and/or portfolio manager of certain
Oppenheimer funds (since April 1998);
a Chartered Financial Analyst;
formerly, a Vice President and
portfolio manager for Guardian
Investor Services, the investment
management subsidiary of The Guardian
Life Insurance Company (since 1972).
Edward Amberger,
Assistant Vice President Formerly Assistant Vice President,
Securities Analyst for Morgan Stanley
Dean Witter (May 1997 - April 1998); and
Research Analyst (July 1996 - May 1997),
Portfolio Manager (February 1992 - July
1996) and Department Manager (June 1988
to February 1992) for The Bank of New
York.
Peter M. Antos,
Senior Vice President An officer and/or portfolio manager of
certain Oppenheimer funds; a Chartered
Financial Analyst; Senior Vice President
of HarbourView Asset Management
Corporation; prior to March 1996 he was
the senior equity portfolio manager for
the Panorama Series Fund, Inc. (the
"Company") and other mutual funds and
pension funds managed by G.R. Phelps &
Co. Inc. ("G.R. Phelps"), the Company's
former investment adviser, which was a
subsidiary of Connecticut Mutual Life
Insurance Company; he was also
responsible for managing the common stock
department and common stock investments
of Connecticut Mutual Life Insurance Co.
Lawrence Apolito,
Vice President None.
Victor Babin,
Senior Vice President None.
Bruce Bartlett,
Senior Vice President An officer and/or portfolio manager of
certain Oppenheimer funds. Formerly, a
Vice President and Senior Portfolio
Manager at First of America Investment
Corp.
George Batejan,
Executive Vice President,
Chief Information Officer Formerly Senior Vice President, Group
Executive, and Senior Systems Officer for
American International Group (October
1994 - May 1998).
John R. Blomfield,
Vice President Formerly Senior Product Manager
(November 1995 - August 1997) of
International Home Foods and American Home
Products (March 1994 - October 1996).
Connie Bechtolt,
Assistant Vice President None.
Kathleen Beichert,
Vice President None.
Rajeev Bhaman,
Vice President Formerly, Vice President (January
1992 - February, 1996) of Asian Equities for
Barclays de Zoete Wedd, Inc.
Robert J. Bishop,
Vice President Vice President of Mutual Fund Accounting
(since May 1996); an officer of other
Oppenheimer funds; formerly, an Assistant
Vice President of OppenheimerFunds,
Inc./Mutual Fund Accounting (April 1994 -
May 1996), and a Fund Controller for
OppenheimerFunds, Inc.
Chad Boll,
Assistant Vice President None
Scott Brooks,
Vice President None.
Kevin Brosmith,
Vice President None.
Adele Campbell,
Assistant Vice President & Assistant
Treasurer: Rochester Division Formerly, Assistant Vice President of
Rochester Fund Services, Inc.
Michael Carbuto,
Vice President An officer and/or portfolio manager of
certain Oppenheimer funds; Vice President
of Centennial Asset Management
Corporation.
John Cardillo,
Assistant Vice President None.
Mark Curry,
Assistant Vice President None.
H.C. Digby Clements,
Vice President:
Rochester Division None.
O. Leonard Darling,
Executive Vice President
and Chief Investment
Officer Chief Investment Officer (since 6/99); Chief
Executive Officer and Senior Manager of
HarbourView Asset Management Corporation;
Trustee (1993 - present) of Awhtolia College
- Greece; formerly Chief Executive Officer
(1993-June 1999).
William DeJianne, None.
Assistant Vice President
Robert A. Densen,
Senior Vice President None.
Sheri Devereux,
Vice President None.
Craig P. Dinsell
Executive Vice President Formerly, Senior Vice President of Human
Resources for Fidelity Investments-Retail
Division (January 1995 - January 1996),
Fidelity Investments FMR Co. (January
1996 - June 1997) and Fidelity
Investments FTPG (June 1997 - January
1998).
John Doney,
Vice President An officer and/or portfolio
manager of certain Oppenheimer funds.
Andrew J. Donohue,
Executive Vice President,
General Counsel and Director Executive Vice President (since September
1993), and a director (since January
1992) of the Distributor; Executive Vice
President, General Counsel and a director
of HarbourView Asset Management
Corporation Shareholder Services, Inc.,
Shareholder Financial Services, Inc. and
Oppenheimer Partnership Holdings, Inc.
since (September 1995); President and a
director of Centennial Asset Management
Corporation (since September 1995);
President and a director of Oppenheimer
Real Asset Management, Inc (since July
1996); General Counsel (since May 1996)
and Secretary (since April 1997) of
Oppenheimer Acquisition Corp.; Vice
President and Director of
OppenheimerFunds International, Ltd. and
Oppenheimer Millennium Funds plc (since
October 1997); an officer of other
Oppenheimer funds.
Patrick Dougherty, None.
Assistant Vice President
Bruce Dunbar, None.
Vice President
Daniel Engstrom,
Assistant Vice President None.
George Evans,
Vice President An officer and/or portfolio
manager of certain Oppenheimer funds.
Edward Everett,
Assistant Vice President None.
George Fahey,
Vice President None.
Scott Farrar,
Vice President Assistant Treasurer of Oppenheimer
Millennium Funds plc (since October
1997); an officer of other Oppenheimer
funds; formerly an Assistant Vice
President of OppenheimerFunds,
Inc./Mutual Fund Accounting (April 1994 -
May 1996), and a Fund Controller for
OppenheimerFunds, Inc.
Leslie A. Falconio,
Vice President An officer and/or portfolio
manager of certain Oppenheimer funds (since
6/99).
Katherine P. Feld,
Vice President and Secretary Vice President and Secretary of the
Distributor; Secretary of HarbourView
Asset Management Corporation, and
Centennial Asset Management Corporation;
Secretary, Vice President and Director of
Centennial Capital Corporation; Vice
President and Secretary of Oppenheimer
Real Asset Management, Inc.
Ronald H. Fielding,
Senior Vice President; Chairman:
Rochester Division An officer, Director and/or portfolio
manager of certain Oppenheimer funds;
Presently he holds the following other
positions: Director (since 1995) of ICI
Mutual Insurance Company; Governor (since
1994) of St. John's College; Director
(since 1994 - present) of International
Museum of Photography at George Eastman
House. Formerly, he held the following
positions: formerly, Chairman of the
Board and Director of Rochester Fund
Distributors, Inc. ("RFD"); President and
Director of Fielding Management Company,
Inc. ("FMC"); President and Director of
Rochester Capital Advisors, Inc.
("RCAI"); Managing Partner of Rochester
Capital Advisors, L.P., President and
Director of Rochester Fund Services, Inc.
("RFS"); President and Director of
Rochester Tax Managed Fund, Inc.;
Director (1993 - 1997) of VehiCare Corp.;
Director (1993 - 1996) of VoiceMode.
David Foxhoven,
Assistant Vice President Formerly Manager, Banking Operations
Department (July 1996 - November 1998).
Jennifer Foxson,
Vice President None.
Erin Gardiner,
Assistant Vice President None.
Alan Gilston,
Vice President Formerly, Vice President (1987 - 1997)
for Schroder Capital Management
International.
Jill Glazerman,
Vice President None.
Robyn Goldstein-Liebler
Assistant Vice President None.
Mikhail Goldverg
Assistant Vice President None.
Jeremy Griffiths,
Executive Vice President,
Chief Financial Officer and Chief Financial Officer and Treasurer (since
March
Director 1998) of Oppenheimer Acquisition Corp.; a
Member and Fellow of the Institute of
Chartered Accountants; formerly, an
accountant for Arthur Young (London, U.K.).
Robert Grill,
Senior Vice President Formerly, Marketing Vice
President for Bankers Trust Company (1993 -
1996); Steering Committee Member,
Subcommittee Chairman for American Savings
Education Council (1995 - 1996).
Elaine T. Hamann,
Vice President Formerly, Vice President (September 1989
- January 1997) of Bankers Trust Company.
Robert Haley
Assistant Vice President Formerly, Vice President of
Information Services for Bankers Trust
Company (January 1991 - November 1997).
Thomas B. Hayes,
Vice President None.
Barbara Hennigar,
Executive Vice President and
Chief Executive Officer of
OppenheimerFunds Services,
a division of the Manager President and Director of Shareholder
Financial Services, Inc.; President and
Chief Executive Officer of Shareholder
Services, Inc.
Dorothy Hirshman, None.
Assistant Vice President
Merryl Hoffman,
Vice President and None.
Senior Counsel
Scott T. Huebl,
Vice President None.
James Hyland,
Assistant Vice President Formerly Manager of Customer Research for
Prudential Investments (February 1998 -
July 1999).
Richard Hymes,
Vice President None.
Kathleen T. Ives,
Vice President None.
Christopher Jacobs,
Assistant Vice President None.
William Jaume,
Vice President None.
Frank Jennings,
Vice President An officer and/or portfolio
manager of certain Oppenheimer funds.
Susan Katz,
Vice President None.
Thomas W. Keffer,
Senior Vice President None.
Erica Klein,
Assistant Vice President None.
Avram Kornberg,
Vice President None.
Jimmy Kourkoulakos,
Assistant Vice President. None.
John Kowalik,
Senior Vice President An officer and/or portfolio manager for
certain OppenheimerFunds; formerly,
Managing Director and Senior Portfolio
Manager at Prudential Global Advisors
(1989 - 1998).
Joseph Krist,
Assistant Vice President None.
Michael Levine,
Vice President None.
Shanquan Li,
Vice President None.
Stephen F. Libera,
Vice President An officer and/or portfolio manager for
certain Oppenheimer funds; a Chartered
Financial Analyst; a Vice President of
HarbourView Asset Management Corporation;
prior to March 1996, the senior bond
portfolio manager for Panorama Series
Fund Inc., other mutual funds and pension
accounts managed by G.R. Phelps; also
responsible for managing the public
fixed-income securities department at
Connecticut Mutual Life Insurance Co.
Mitchell J. Lindauer,
Vice President None.
Dan Loughran,
Assistant Vice President:
Rochester Division None.
David Mabry,
Vice President None.
Steve Macchia,
Vice President None.
Bridget Macaskill,
President, Chief Executive Officer
and Director Chief Executive Officer (since September
1995); President and director (since June
1991) of HarbourView Asset Management
Corporation; and a director of
Shareholder Services, Inc. (since August
1994), and Shareholder Financial
Services, Inc. (September 1995);
President (since September 1995) and a
director (since October 1990) of
Oppenheimer Acquisition Corp.; President
(since September 1995) and a director
(since November 1989) of Oppenheimer
Partnership Holdings, Inc., a holding
company subsidiary of OppenheimerFunds,
Inc.; a director of Oppenheimer Real
Asset Management, Inc. (since July 1996);
President and a director (since October
1997) of OppenheimerFunds International
Ltd., an offshore fund manager subsidiary
of OppenheimerFunds, Inc. and Oppenheimer
Millennium Funds plc (since October
1997); President and a director of other
Oppenheimer funds; a director of
Hillsdown Holdings plc (a U.K. food
company); formerly, an Executive Vice
President of OFI.
Philip T. Masterson,
Vice President Formerly an Associate at Davis,
Graham, & Stubbs (January 1998 - July 1998);
Associate; Myer, Swanson, Adams & Wolf, P.C.
(May 1996 - June 1998).
Loretta McCarthy,
Executive Vice President None.
Beth Michnowski,
Assistant Vice President Formerly Senior Marketing
Manager (May 1996 - June 1997) and Director
of Product Marketing (August 1992 - May
1996) with Fidelity Investments.
Lisa Migan,
Assistant Vice President None.
Andrew J. Mika
Senior Vice President Formerly a Second Vice President for
Guardian Investments (June 1990 - October
1999).
Denis R. Molleur,
Vice President and
Senior Counsel None.
Nikolaos Monoyios,
Vice President A Vice President and/or portfolio manager
of certain Oppenheimer funds (since April
1998); a Certified Financial Analyst;
formerly, a Vice President and portfolio
manager for Guardian Investor Services,
the management subsidiary of The Guardian
Life Insurance Company (since 1979).
Linda Moore,
Vice President Formerly, Marketing Manager (July 1995
-November 1996) for Chase Investment
Services Corp.
Kenneth Nadler,
Vice President None.
David Negri,
Senior Vice President An officer and/or portfolio
manager of certain Oppenheimer funds.
Barbara Niederbrach,
Assistant Vice President None.
Robert A. Nowaczyk,
Vice President None.
Ray Olson,
Assistant Vice President None.
Richard M. O'Shaugnessy,
Assistant Vice President:
Rochester Division None.
Gina M. Palmieri,
Vice President An officer and/or portfolio
manager of certain Oppenheimer funds (since
6/99).
Robert E. Patterson,
Senior Vice President An officer and/or portfolio
manager of certain Oppenheimer funds.
James Phillips
Assistant Vice President None.
Stephen Puckett,
Vice President None.
Jane Putnam,
Vice President An officer and/or portfolio
manager of certain Oppenheimer funds.
Michael Quinn,
Assistant Vice President Formerly, Assistant Vice President (April
1995 - January 1998) of Van Kampen
American Capital.
Julie Radtke,
Vice President Formerly Assistant Vice President and
Business Analyst for Pershing, Jersey
City (August 1997 -November 1997); Senior
Business Consultant, American
International Group (January 1996 - July
1997).
Russell Read,
Senior Vice President Vice President of Oppenheimer Real Asset
Management, Inc. (since March 1995).
Thomas Reedy,
Vice President An officer and/or portfolio
manager of certain Oppenheimer funds;
formerly, a Securities Analyst for the
Manager.
John Reinhardt,
Vice President: Rochester Division None
Ruxandra Risko,
Vice President None.
Michael S. Rosen,
Vice President An officer and/or portfolio
manager of certain Oppenheimer funds.
Richard H. Rubinstein,
Senior Vice President An officer and/or portfolio
manager of certain Oppenheimer funds.
Lawrence Rudnick,
Assistant Vice President None.
James Ruff,
Executive Vice President & Director None.
Andrew Ruotolo
Executive Vice President Formerly Chief Operations Officer for
American
International Group (since 1997).
Rohit Sah,
Assistant Vice President None.
Valerie Sanders,
Vice President None.
Jeff Schneider,
Vice President Director, Personal Decisions
International.
Ellen Schoenfeld,
Assistant Vice President None.
David Schultz,
Senior Vice President
and Chief Executive Officer Senior Managing Director, President
(since April 1999) and Chief Executive
Officer of HarbourView Asset Management
Corporation (since June 1999).
Stephanie Seminara,
Vice President None.
Martha Shapiro,
Assistant Vice President None.
Michelle Simone,
Assistant Vice President None.
Christian D. Smith
Senior Vice President Formerly Co-head of the Municipal
Portfolio Management Team, Portfolio
Manager for Prudential Global Asset
Management (January 1990 - September
1999).
Connie Song,
Assistant Vice President None.
Richard Soper,
Vice President None.
Keith Spencer Equity trader.
Vice President
Cathleen Stahl,
Vice President Assistant Vice President & Manager of
Women & Investing Program
Richard A. Stein,
Vice President: Rochester Division Assistant Vice President (since 1995) of
Rochester Capitol Advisors, L.P.
Arthur Steinmetz,
Senior Vice President An officer and/or portfolio
manager of certain Oppenheimer funds.
John Stoma,
Senior Vice President None.
Michael C. Strathearn,
Vice President An officer and/or portfolio
manager of certain Oppenheimer funds; a
Chartered Financial Analyst; a Vice
President of HarbourView Asset Management
Corporation.
Wayne Strauss,
Assistant Vice President: Rochester
Division Formerly Senior Editor, West Publishing
Company (January 1997 - March 1997).
James C. Swain,
Vice Chairman of the Board Chairman, CEO and Trustee, Director or
Managing Partner of the Denver-based
Oppenheimer Funds; formerly, President
and Director of Centennial Asset
Management Corporation and Chairman of
the Board of Shareholder Services, Inc.
Susan Switzer,
Assistant Vice President None.
Anthony A. Tanner,
Vice President: Rochester Division None.
Jay Tracey,
Vice President An officer and/or portfolio
manager of certain Oppenheimer funds.
James Turner,
Assistant Vice President None.
Angela Uttaro,
Assistant Vice President None.
Maureen VanNorstrand,
Assistant Vice President None.
Annette Von Brandis,
Assistant Vice President None.
Teresa Ward,
Assistant Vice President None.
Jerry Webman,
Senior Vice President Director of New York-based tax-exempt
fixed income Oppenheimer funds.
Christine Wells,
Vice President None.
Joseph Welsh,
Assistant Vice President None.
Kenneth B. White,
Vice President An officer and/or portfolio
manager of certain Oppenheimer funds; a
Chartered Financial Analyst; Vice President
of HarbourView Asset Management Corporation.
William L. Wilby,
Senior Vice President An officer and/or portfolio manager of
certain Oppenheimer funds; Vice President
of HarbourView Asset Management
Corporation.
Donna Winn, Senior Vice President/Distribution
Marketing.
Senior Vice President
Brian W. Wixted,
Senior Vice President and
Treasurer Formerly Principal and Chief Operating Officer,
Bankers Trust Company - Mutual Fund
Services Division (March 1995 - March
1999); Vice President and Chief
Financial Officer of CS First Boston
Investment Management Corp.
(September 1991 - March 1995); and
Vice President and Accounting
Manager, Merrill Lynch Asset
Management (November 1987 - September
1991).
Carol Wolf,
Vice President An officer and/or portfolio manager of certain
Oppenheimer funds; Vice President of
Centennial Asset Management
Corporation; Vice President, Finance
and Accounting; Point of Contact:
Finance Supporters of Children;
Member of the Oncology Advisory Board
of the Childrens Hospital.
Caleb Wong,
Vice President An officer and/or portfolio
manager of certain Oppenheimer funds (since
6/99) .
Robert G. Zack,
Senior Vice President and
Assistant Secretary, Associate
General Counsel Assistant Secretary of Shareholder
Services, Inc. (since May 1985),
Shareholder Financial Services, Inc.
(since November 1989), OppenheimerFunds
International Ltd. (since 1998),
Oppenheimer Millennium Funds plc (since
October 1997); an officer of other
Oppenheimer funds.
Jill Zachman,
Assistant Vice President:
Rochester Division None.
Arthur J. Zimmer,
Senior Vice President An officer and/or portfolio manager of
certain Oppenheimer funds; Vice President
of Centennial Asset Management
Corporation.
The Oppenheimer Funds include the New York-based Oppenheimer Funds, the
Denver-based Oppenheimer Funds and the Oppenheimer Quest /Rochester Funds, as
set forth below:
New York-based Oppenheimer Funds
Oppenheimer California Municipal Fund
Oppenheimer Capital Appreciation Fund
Oppenheimer Capital Preservation Fund
- ------------------------------------------------------------------------------
Oppenheimer Developing Markets Fund
- ------------------------------------------------------------------------------
Oppenheimer Discovery Fund
Oppenheimer Enterprise Fund
Oppenheimer Europe Fund
Oppenheimer Global Fund
Oppenheimer Global Growth & Income Fund
Oppenheimer Gold & Special Minerals Fund
Oppenheimer Growth Fund
Oppenheimer International Growth Fund
Oppenheimer International Small Company Fund
Oppenheimer Large Cap Growth Fund
Oppenheimer Money Market Fund, Inc.
Oppenheimer Multi-Sector Income Trust
Oppenheimer Multi-State Municipal Trust
Oppenheimer Multiple Strategies Fund
Oppenheimer Municipal Bond Fund
Oppenheimer New York Municipal Fund
Oppenheimer Series Fund, Inc.
Oppenheimer Trinity Core Fund
Oppenheimer Trinity Growth Fund
Oppenheimer Trinity Value Fund
Oppenheimer U.S. Government Trust
Oppenheimer World Bond Fund
Quest/Rochester Funds
Limited Term New York Municipal Fund
Oppenheimer Convertible Securities Fund
Oppenheimer MidCap Fund
Oppenheimer Quest Capital Value Fund, Inc.
Oppenheimer Quest For Value Funds
Oppenheimer Quest Global Value Fund, Inc.
Oppenheimer Quest Value Fund, Inc.
Rochester Fund Municipals
Denver-based Oppenheimer Funds
Centennial America Fund, L.P.
Centennial California Tax Exempt Trust
- ------------------------------------------------------------------------------
Centennial Government Trust
- ------------------------------------------------------------------------------
Centennial Money Market Trust Centennial New York Tax Exempt Trust
Centennial Tax Exempt Trust Oppenheimer Cash Reserves Oppenheimer Champion
Income Fund Oppenheimer Capital Income Fund Oppenheimer High Yield Fund
Oppenheimer Integrity Funds Oppenheimer International Bond Fund
Oppenheimer Limited-Term Government Fund Oppenheimer Main Street Small Cap
Fund Oppenheimer Main Street Funds, Inc. Oppenheimer Municipal Fund
Oppenheimer Real Asset Fund Oppenheimer Senior Floating Rate Fund
Oppenheimer Strategic Income Fund Oppenheimer Total Return Fund, Inc.
Oppenheimer Variable Account Funds Panorama Series Fund, Inc.
The address of OppenheimerFunds, Inc., the New York-based Oppenheimer Funds, the
Quest Funds, OppenheimerFunds Distributor, Inc., HarbourView Asset Management
Corp., Oppenheimer Partnership Holdings, Inc., and Oppenheimer Acquisition Corp.
is Two World Trade Center, New York, New York 10048-0203.
The address of the Denver-based Oppenheimer Funds, Shareholder Financial
Services, Inc., Shareholder Services, Inc., OppenheimerFunds Services,
Centennial Asset Management Corporation, Centennial Capital Corp., and
Oppenheimer Real Asset Management, Inc. is 6803 South Tucson Way, Englewood,
Colorado 80112.
The address of the Rochester-based funds is 350 Linden Oaks, Rochester, New York
14625-2807.
Item 27. Principal Underwriter
(a) OppenheimerFunds Distributor, Inc. is the Distributor of the Registrant's
shares. It is also the Distributor of each of the other registered open-end
investment companies for which OppenheimerFunds, Inc. is the investment adviser,
as described in Part A and B of this Registration Statement and listed in Item
26(b) above (except Oppenheimer Multi-Sector Income Trust and Panorama Series
Fund, Inc.) and for MassMutual Institutional Funds.
(b) The directors and officers of the Registrant's principal underwriter are:
Name & Principal Positions & Offices Positions & Offices
Business Address with Underwriter with Registrant
Jason Bach Vice President None
31 Racquel Drive
Marietta, GA 30064
Peter Beebe Vice President None
876 Foxdale Avenue
Winnetka, IL 60093
Douglas S. Blankenship Vice President None
17011 Woodbank
Spring, TX 77379
Peter W. Brennan Vice President None
8826 Amberton Lane
Charlotte, NC 28226
Kevin Brosmith Vice President None
856 West Fullerton
Chicago, IL 60614
Susan Burton(2) Vice President None
Erin Cawley(2) Assistant Vice President None
Robert Coli Vice President None
12 White Tail Lane
Bedminster, NJ 07921
William Coughlin Vice President None
1730 N. Clark Street
#3203
Chicago, IL 60614
Mary Crooks(1)
Daniel Deckman Vice President None
12252 Rockledge Circle
Boca Raton, FL 33428
Christopher DeSimone Vice President None
5105 Aldrich Avenue South
Minneapolis, MN 55419
Joseph DiMauro Vice President None
244 McKinley Avenue
Grosse Pointe Farms, MI 48236
Rhonda Dixon-Gunner(1) Assistant Vice President None
Andrew John Donohue(2) Executive Vice Secretary of the
President, Director Oppenheimer funds.
and General Counsel
John Donovan Vice President None
868 Washington Road
Woodbury, CT 06798
Kenneth Dorris Vice President None
4104 Harlanwood Drive
Fort Worth, TX 76109
G. Patrick Dougherty, Jr. Vice President None
780 Watchung Road
Bound Brook, NJ 08805
Eric Edstrom(2) Vice President None
Wendy H. Ehrlich Vice President None
4 Craig Street
Jericho, NY 11753
Kent Elwell Vice President None
35 Crown Terrace
Yardley, PA 19067
George Fahey Vice President None
141 Breon Lane
Elkton, MD 21921
Eric Fallon Vice President None
10 Worth Circle
Newton, MA 02158
Katherine P. Feld(2) Vice President None
& Secretary & Senior Counsel
Mark Ferro Vice President None
43 Market Street
Breezy Point, NY 11697
Ronald H. Fielding(3) Vice President None
John ("J") Fortuna(2) Vice President None
Ronald R. Foster Senior Vice President None
11339 Avant Lane
Cincinnati, OH 45249
Patricia Gadecki-Wells Vice President None
4734 Highland Place Center
Lakeland, FL 33813
Luiggino Galleto Vice President None
10302 Reisling Court
Charlotte, NC 28277
Michelle Gans Vice President None
8327 Kimball Drive
Eden Prairie, MN 55347
L. Daniel Garrity Vice President None
27 Covington Road
Avondale, GA 30002
Lucio Giliberti Vice President None
78 Metro Vista Drive
Hawthorne, NJ 07506
Ralph Grant(2) Vice President/National None
Sales Manager
Jeremy Griffiths Director None
Michael Guman Vice President None
3913 Pleasent Avenue
Allentown, PA 18103
Linda Harding Vice President/FID None
6229 Love Drive
#413
Irving, TX 75039
Webb Heidinger Vice President None
138 Gates Street
Portsmouth, NH 03801
Phillip Hemery Vice President None
184 Park Avenue
Rochester, NY 14607
Tammy Hospodar Vice President None
30864 Paloma Court
Westlake Village, CA 91362
Edward Hrybenko (2) Vice President None
Richard L. Hymes (2) Vice President None
Byron Ingram(1) Assistant Vice President None
Kathleen T. Ives(1) Vice President None
Lynn Jensen Vice President None
5120 Patterson Street
Long Beach, CA 90815
Eric K. Johnson Vice President None
3665 Clay Street
San Francisco, CA 94118
Mark D. Johnson Vice President None
409 Sundowner Ridge Court
Wildwood, MO 63011
Elyse Jurman Vice President None
1194 Hillsboro Mile, #51
Hillsboro Beach, FL 33062
Michael Keogh(2) Vice President None
Brian Kelly Vice President None
60 Larkspur Road
Fairfield, CT 06430
Richard Klein Vice President None
4820 Fremont Avenue So.
Minneapolis, MN 55409
Brent Krantz Vice President None
2609 SW 149th Place
Seattle, WA 98166
Oren Lane Vice President None
5286 Timber Bend Drive
Brighton, MI 48116
Todd Lawson Vice President None
- ------------------------------------------------------------------------------
10687 East Ida Avenue
- ------------------------------------------------------------------------------
Englewood, CO 80111
Dawn Lind Vice President None
7 Maize Court
Melville, NY 11747
James Loehle Vice President None
30 Wesley Hill Lane
Warwick, NY 10990
Steve Manns Vice President None
1941 W. Wolfram Street
Chicago, IL 60657
Todd Marion Vice President None
3 St. Marks Place
Cold Spring Harbor, NY 11724
LuAnn Mascia(2) Assistant Vice President None
Marie Masters Vice President None
8384 Glen Eagle Drive
Manlius, NY 13104
Theresa-Marie Maynier Vice President None
2421 Charlotte Drive
Charlotte, NC 28203
Anthony Mazzariello Vice President None
704 Beaver Road
Leetsdale, PA 15056
John McDonough Vice President None
3812 Leland Street
Chevy Chase, MD 20815
Kent McGowan Vice President None
18424 12th Avenue West
Lynnwood, WA 98037
Tanya Mrva(2) Assistant Vice President None
Laura Mulhall(2) Senior Vice President None
Charles Murray Vice President None
18 Spring Lake Drive
Far Hills, NJ 07931
Wendy Murray Vice President None
32 Carolin Road
Upper Montclair, NJ 07043
Denise-Marie Nakamura Vice President None
4111 Colony Plaza
Newport, CA 92660
John Nesnay Vice President None
3410 East County Line
#17
Highlands Ranch, CO 80126
Chad V. Noel Vice President None
- ------------------------------------------------------------------------------
2408 Eagleridge Drive
- ------------------------------------------------------------------------------
Henderson, NV 89014
Joseph Norton Vice President None
2518 Fillmore Street
San Francisco, CA 94115
Kevin Parchinski Vice President None
8409 West 116th Terrace
Overland Park, KS 66210
Gayle Pereira Vice President None
2707 Via Arboleda
San Clemente, CA 92672
Charles K. Pettit Vice President None
22 Fall Meadow Drive
Pittsford, NY 14534
Bill Presutti Vice President None
130 E. 63rd Street, #10E
New York, NY 10021
Steve Puckett Vice President None
5297 Soledad Mountain Road
San Diego, CA 92109
Elaine Puleo(2) Senior Vice President None
Christopher L. Quinson (2) Vice President/ None
- ------------------------------------------------------------------------------
Variable Annuities
- ------------------------------------------------------------------------------
Minnie Ra Vice President None
- ------------------------------------------------------------------------------
100 Delores Street, #203
- ------------------------------------------------------------------------------
Carmel, CA 93923
Dustin Raring Vice President None
378 Elm Street
Denver, CO 80220
Michael Raso Vice President None
16 N. Chatsworth Ave.
Apt. 301
Larchmont, NY 10538
Sean Reardon Vice President None
10915 NE 123rd Place
#B207
Kirkland, WA 98034
John C. Reinhardt(3) Vice President None
Douglas Rentschler Vice President None
677 Middlesex Road
Grosse Pointe Park, MI 48230
Ruxandra Risko(2) Vice President None
Michael S. Rosen(2) Vice President None
Kenneth Rosenson Vice President None
3505 Malibu Country Drive
Malibu, CA 90265
James Ruff(2) President & Director None
Alfredo Scalzo Vice President None
19401 Via Del Mar, #303
Tampa, FL 33647
Timothy Schoeffler Vice President None
1717 Fox Hall Road
Washington, DC 77479
Michael Sciortino Vice President None
785 Beau Chene Drive
Mandeville, LA 70471
Eric Sharp Vice President None
862 McNeill Circle
Woodland, CA 95695
Michelle Simone(2) Assistant Vice President None
Stuart Speckman(2) Vice President None
Timothy J. Stegner Vice President None
794 Jackson Street
Denver, CO 80206
Marlo Stil Vice President None
8579 Prestwick Drive
La Jolla, CA 92037
Peter Sullivan Vice President None
21445 S. E 35th Street
Issaquah, WA 98029
David Sturgis Vice President None
81 Surrey Lane
Boxford, MA 01921
Scott Such(1) Senior Vice President None
Brian Summe Vice President None
239 N. Colony Drive
Edgewood, KY 41017
George Sweeney Vice President None
5 Smokehouse Lane
Hummelstown, PA 17036
Andrew Sweeny Vice President None
5967 Bayberry Drive
Cincinnati, OH 45242
Scott McGregor Tatum Vice President None
704 Inwood
Southlake, TX 76092
David G. Thomas Vice President None
2200 North Wilson Blvd.
Suite 102-176
Arlington, VA 22201
Sarah Turpin Vice President None
3517 Milton Avenue
Dallas, TX 75205
Mark Vandehey(1) Vice President None
Brian Villec (2) Vice President None
Andrea Walsh(1) Vice President None
Suzanne Walters(1) Assistant Vice President None
James Wiaduck Vice President None
935 Wood Run Court
South Lyon, MI 48178
Michael Weigner Vice President None
5722 Harborside Drive
Tampa, FL 33615
Donn Weise Vice President None
3249 Earlmar Drive
Los Angeles, CA 90064
Marjorie Williams Vice President None
6930 East Ranch Road
Cave Creek, AZ 85331
Brian W. Wixted (1) Vice President Vice President and
and Treasurer Treasurer of the
Oppenheimer funds.
(1) 6803 South Tucson Way, Englewood, CO 80112
(2) Two World Trade Center, New York, NY 10048
(3) 350 Linden Oaks, Rochester, NY 14623
(c) Not applicable.
Item 28. Location of Accounts and Records
The accounts, books and other documents required to be maintained by Registrant
pursuant to Section 31(a) of the Investment Company Act of 1940 and rules
promulgated thereunder are in the possession of OppenheimerFunds, Inc. at its
offices at 6803 South Tucson Way, Englewood, Colorado 80112.
Item 29. Management Services
Not applicable
Item 30. Undertakings
Not applicable.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and/or the Investment
Company Act of 1940, the Registrant certifies that it meets all the requirements
for effectiveness of this Registration Statement pursuant to Rule 485(b) under
the Securities Act of 1933 and has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of New York and State of New York on the 19th day of November, 1999.
OPPENHEIMER MUNICIPAL BOND FUND
By: /s/ Bridget A. Macaskill*
---------------------------------------
Bridget A. Macaskill, President
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities on
the dates indicated:
Signatures Title Date
/s/ Leon Levy* Chairman of the November 19, 1999
- --------------- Board of Trustees
Leon Levy
/s/ Donald W. Spiro* Vice Chairman and November 19, 1999
- --------------- Trustee
Donald W. Spiro
/s/ Robert G. Galli* Trustee November 19, 1999
- -------------------------------------
Robert G. Galli
/s/ Phillip Griffiths* Trustee November 19, 1999
- -------------------------------------
Phillip Griffiths
/s/ Benjamin Lipstein* Trustee November 19, 1999
- -------------------------------------
Benjamin Lipstein
/s/ Bridget A. Macaskill* President, November 19, 1999
- --------------- Principal
Executive
Bridget A. Macaskill Officer, Trustee
/s/ Elizabeth B. Moynihan* Trustee November 19, 1999
- -------------------------------------
Elizabeth B. Moynihan
/s/ Kenneth A. Randall* Trustee November 19, 1999
- -------------------------------------
Kenneth A. Randall
/s/ Edward V. Regan* Trustee November 19, 1999
- -------------------------------------
Edward V. Regan
/s/ Russell S. Reynolds, Jr.* Trustee November 19, 1999
- -------------------------------------
Russell S. Reynolds, Jr.
/s/ Pauline Trigere* Trustee November 19, 1999
- -------------------------------------
Pauline Trigere
/s/ Brian W. Wixted* Treasurer November 19, 1999
- -------------------------------------
Brian W. Wixted
/s/ Clayton K. Yeutter* Trustee November 19, 1999
- -------------------------------------
Clayton K. Yeutter
*By: /s/ Robert G. Zack
- ---------------------------------------------
- ------------------------------------------------------------------------------
Robert G. Zack, Attorney-in-Fact
- ------------------------------------------------------------------------------
<PAGE>
OPPENHEIMER MUNICIPAL BOND FUND
Registration No. 2-57116
Post-Effective Amendment No. 42
Exhibit Index
Form N-1A
Item No.
23(c)(i) Specimen Class A Share Certificate
23(c)(ii) Specimen Class B Share Certificate
23(c)(iii) Specimen Class C Share Certificate
23(j) Independent Auditors' Consent
23(m)(i) Service Plan and Agreement for Class A Shares
OPPENHEIMER MUNICIPAL BOND FUND
Class A Share Certificate (8-1/2" x 11")
I. FRONT OF CERTIFICATE (All text and other matter lies within 8-1/4"
x 10-3/4" decorative border, 5/16" wide)
(upper left corner, box with heading: NUMBER [of shares]
(upper right corner) [share certificate
no.] XX-000000
(upper right box, CLASS A SHARES below cert.
no.)
(centered below boxes)
OPPENHEIMER MUNICIPAL BOND FUND
A MASSACHUSETTS BUSINESS TRUST
(at left) THIS IS TO CERTIFY THAT (at right) SEE REVERSE FOR
CERTAIN DEFINITIONS
(box with number) CUSIP 683977102
(at left) is the owner of
(centered) FULLY PAID CLASS A SHARES OF BENEFICIAL INTEREST
OPPENHEIMER MUNICIPAL BOND FUND
(hereinafter called the "Fund"), transferable only on the books of the
Fund By the holder hereof in person or by duly authorized attorney, upon
surrender of this certificate properly endorsed. This certificate and the
shares represented hereby are issued and shall be held subject to all of
the provisions of the Declaration of Trust of the Fund to all of which the
holder by acceptance hereof assents. This certificate is not valid until
countersigned by the Transfer Agent.
WITNESS the facsimile seal of the Fund and the signatures of its duly
authorized officers.
(at left of seal) Dated: (at right of seal)
(signature) (signature)
/s/ Brian W. Wixted /s/ Bridget A. Macaskill
- ----------------------- -------------------
TREASURER PRESIDENT
<PAGE>
(centered at bottom)
1-1/2" diameter facsimile seal
with legend
OPPENHEIMER MUNICIPAL BOND FUND
SEAL
1999
COMMONWEALTH OF MASSACHUSETTS
(at lower right, printed vertically) Countersigned
OPPENHEIMERFUNDS SERVICES
[A DIVISION OF OPPENHEIMERFUNDS, INC.]
Denver (CO.) Transfer Agent
By ____________________________
Authorized Signature
II. BACK OF CERTIFICATE (text reads from top to bottom of 11" dimension)
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations.
TEN COM - as tenants in common TEN ENT - as tenants by the entirety JT TEN WROS
NOT TC - as joint tenants with
rights of suvivorship and not
as tenants in common
UNIF GIFT/TRANSFER MIN ACT - __________________ Custodian _______________
(Cust) (Minor)
UNDER UGMA/UTMA ___________________
(State)
Additional abbreviations may also be used though not on above list.
For Value Received ................ hereby sell(s), assign(s) and transfer(s)
unto
PLEASE INSERT SOCIAL SECURITY OR
OTHER IDENTIFYING NUMBER OF ASSIGNEE
AND PROVIDE CERTIFICATION BY TRANSFEREE
(box for identifying number)
<PAGE>
(Please print or type name and address of assignee)
________________________________________________Class A Shares of beneficial
interest represented by the within certificate, and do hereby irrevocably
constitute and appoint ___________________________ Attorney to transfer the said
shares on the books of the within named Fund with full power of substitution in
the premises.
Dated: ______________________
Signed: __________________________
-----------------------------------
(Both must sign if joint owners)
Signature(s) __________________________
guaranteed Name of Guarantor
by: _____________________________
Signature of
Officer/Title
(text printed NOTICE: The signature(s) to this assignment
must correspond
vertically to right correspond with the name(s) as written upon the
face of the
of above paragraph certificate in every particular without
alteration or enlargement
or any change whatever.
(text printed in Signatures must be guaranteed by a financial
box to left of institution of the type described in the
current
signature(s)) prospectus of the Fund.
PLEASE NOTE: This document contains a watermark OppenheimerFunds
when viewed at an angle. It is invalid without this "four hands" watermark:
logotype
THIS SPACE MUST NOT BE COVERED IN ANY WAY
OPPENHEIMER MUNICIPAL BOND FUND
Class B Share Certificate (8-1/2" x 11")
I. FRONT OF CERTIFICATE (All text and other matter lies within 8-1/4"
x 10-3/4" decorative border, 5/16" wide)
(upper left corner, box with heading: NUMBER [of shares]
(upper right corner) [share certificate
no.] XX-000000
(upper right box, CLASS B SHARES below cert.
no.)
(centered below boxes)
OPPENHEIMER MUNICIPAL BOND FUND
A MASSACHUSETTS BUSINESS TRUST
(at left) THIS IS TO CERTIFY THAT (at right) SEE REVERSE FOR
CERTAIN DEFINITIONS
(box with number) CUSIP 683977201
(at left) is the owner of
(centered) FULLY PAID CLASS B SHARES OF BENEFICIAL INTEREST
OPPENHEIMER MUNICIPAL BOND FUND
(hereinafter called the "Fund"), transferable only on the books of the
Fund By the holder hereof in person or by duly authorized attorney, upon
surrender of this certificate properly endorsed. This certificate and the
shares represented hereby are issued and shall be held subject to all of
the provisions of the Declaration of Trust of the Fund to all of which the
holder by acceptance hereof assents. This certificate is not valid until
countersigned by the Transfer Agent.
WITNESS the facsimile seal of the Fund and the signatures of its duly
authorized officers.
(at left of seal) Dated: (at right of seal)
(signature) (signature)
/s/ Brian W. Wixted /s/ Bridget A. Macaskill
- ----------------------- -------------------
TREASURER PRESIDENT
<PAGE>
(centered at bottom)
1-1/2" diameter facsimile seal
with legend
OPPENHEIMER MUNICIPAL BOND FUND
SEAL
1999
COMMONWEALTH OF MASSACHUSETTS
(at lower right, printed vertically) Countersigned
OPPENHEIMERFUNDS SERVICES
[A DIVISION OF OPPENHEIMERFUNDS, INC.]
Denver (CO.) Transfer Agent
By ____________________________
Authorized Signature
II. BACK OF CERTIFICATE (text reads from top to bottom of 11" dimension)
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations.
TEN COM - as tenants in common TEN ENT - as tenants by the entirety JT TEN WROS
NOT TC - as joint tenants with
rights of suvivorship and not
as tenants in common
UNIF GIFT/TRANSFER MIN ACT - __________________ Custodian _______________
(Cust) (Minor)
UNDER UGMA/UTMA ___________________
(State)
Additional abbreviations may also be used though not on above list.
For Value Received ................ hereby sell(s), assign(s) and transfer(s)
unto
PLEASE INSERT SOCIAL SECURITY OR
OTHER IDENTIFYING NUMBER OF ASSIGNEE
AND PROVIDE CERTIFICATION BY TRANSFEREE
(box for identifying number)
<PAGE>
(Please print or type name and address of assignee)
________________________________________________Class B Shares of beneficial
interest represented by the within certificate, and do hereby irrevocably
constitute and appoint ___________________________ Attorney to transfer the said
shares on the books of the within named Fund with full power of substitution in
the premises.
Dated: ______________________
Signed: __________________________
-----------------------------------
(Both must sign if joint owners)
Signature(s) __________________________
guaranteed Name of Guarantor
by: _____________________________
Signature of
Officer/Title
(text printed NOTICE: The signature(s) to this assignment
must correspond
vertically to right correspond with the name(s) as written upon the
face of the
of above paragraph certificate in every particular without
alteration or enlargement
or any change whatever.
(text printed in Signatures must be guaranteed by a financial
box to left of institution of the type described in the
current
signature(s)) prospectus of the Fund.
PLEASE NOTE: This document contains a watermark OppenheimerFunds
when viewed at an angle. It is invalid without this "four hands" watermark:
logotype
THIS SPACE MUST NOT BE COVERED IN ANY WAY
OPPENHEIMER MUNICIPAL BOND FUND
Class C Share Certificate (8-1/2" x 11")
I. FRONT OF CERTIFICATE (All text and other matter lies within 8-1/4"
x 10-3/4" decorative border, 5/16" wide)
(upper left corner, box with heading: NUMBER [of shares]
(upper right corner) [share certificate
no.] XX-000000
(upper right box, CLASS C SHARES below cert.
no.)
(centered below boxes)
OPPENHEIMER MUNICIPAL BOND FUND
A MASSACHUSETTS BUSINESS TRUST
(at left) THIS IS TO CERTIFY THAT (at right) SEE REVERSE FOR
CERTAIN DEFINITIONS
(box with number) CUSIP 683977300
(at left) is the owner of
(centered) FULLY PAID CLASS C SHARES OF BENEFICIAL INTEREST
OPPENHEIMER MUNICIPAL BOND FUND
(hereinafter called the "Fund"), transferable only on the books of the
Fund By the holder hereof in person or by duly authorized attorney, upon
surrender of this certificate properly endorsed. This certificate and the
shares represented hereby are issued and shall be held subject to all of
the provisions of the Declaration of Trust of the Fund to all of which the
holder by acceptance hereof assents. This certificate is not valid until
countersigned by the Transfer Agent.
WITNESS the facsimile seal of the Fund and the signatures of its duly
authorized officers.
(at left of seal) Dated: (at right of seal)
(signature) (signature)
/s/ Brian W. Wixted /s/ Bridget A. Macaskill
- ----------------------- -------------------
TREASURER PRESIDENT
<PAGE>
(centered at bottom)
1-1/2" diameter facsimile seal
with legend
OPPENHEIMER MUNICIPAL BOND FUND
SEAL
1999
COMMONWEALTH OF MASSACHUSETTS
(at lower right, printed vertically) Countersigned
OPPENHEIMERFUNDS SERVICES
[A DIVISION OF OPPENHEIMERFUNDS, INC.]
Denver (CO.) Transfer Agent
By ____________________________
Authorized Signature
II. BACK OF CERTIFICATE (text reads from top to bottom of 11" dimension)
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations.
TEN COM - as tenants in common TEN ENT - as tenants by the entirety JT TEN WROS
NOT TC - as joint tenants with
rights of suvivorship and not
as tenants in common
UNIF GIFT/TRANSFER MIN ACT - __________________ Custodian _______________
(Cust) (Minor)
UNDER UGMA/UTMA ___________________
(State)
Additional abbreviations may also be used though not on above list.
For Value Received ................ hereby sell(s), assign(s) and transfer(s)
unto
PLEASE INSERT SOCIAL SECURITY OR
OTHER IDENTIFYING NUMBER OF ASSIGNEE
AND PROVIDE CERTIFICATION BY TRANSFEREE
(box for identifying number)
<PAGE>
(Please print or type name and address of assignee)
________________________________________________Class C Shares of beneficial
interest represented by the within certificate, and do hereby irrevocably
constitute and appoint ___________________________ Attorney to transfer the said
shares on the books of the within named Fund with full power of substitution in
the premises.
Dated: ______________________
Signed: __________________________
-----------------------------------
(Both must sign if joint owners)
Signature(s) __________________________
guaranteed Name of Guarantor
by: _____________________________
Signature of
Officer/Title
(text printed NOTICE: The signature(s) to this assignment
must correspond
vertically to right correspond with the name(s) as written upon the
face of the
of above paragraph certificate in every particular without
alteration or enlargement
or any change whatever.
(text printed in Signatures must be guaranteed by a financial
box to left of institution of the type described in the
current
signature(s)) prospectus of the Fund.
PLEASE NOTE: This document contains a watermark OppenheimerFunds
when viewed at an angle. It is invalid without this "four hands" watermark:
logotype
THIS SPACE MUST NOT BE COVERED IN ANY WAY
INDEPENDENT AUDITORS' CONSENT
The Board of Trustees
Oppenheimer Municipal Bond Fund:
We consent to the use in this Registration Statement of Oppenheimer Municipal
Bond Fund of our report dated August 20, 1999, appearing in the Statement of
Additional Information, which is part of such Registration Statement, and to the
references to our firm under the headings "Financial Highlights" included in the
Prospectus, which is also part of such Registration Statement and "Independent
Auditors" included in the Statement of Additional Information.
/s/ KPMG LLP
KPMG LLP
Denver, Colorado
November 17, 1999
SERVICE PLAN AND AGREEMENT
Between
Oppenheimer Tax-Free Bond Fund and
OppenheimerFunds Distributor, Inc.
For Class A Shares
Service Plan and Agreement dated the 20th day of June, 1994, by and between
Oppenheimer Tax-Free Bond Fund (the "Fund") and OppenheimerFunds Distributor,
Inc. (the "Distributor").
1. The Plan. This Plan is the Fund's written service plan for its Class A Shares
described in the Fund's registration statement as of the date this Plan takes
effect, contemplated by and to comply with Rule 2830 of the Conduct Rules of the
National Association of Securities Dealers, Inc. pursuant to which the Fund will
reimburse the Distributor for a portion of its costs incurred in connection with
the personal service and the maintenance of shareholder accounts ("Accounts")
that hold Class A Shares (the "Shares") of such series and class of the Fund.
The Fund may be deemed to be acting as distributor of securities of which it is
the issuer, pursuant to Rule 12b-1 under the Investment Company Act of 1940 (the
"1940 Act"), according to the terms of this Plan. The Distributor is authorized
under the Plan to pay "Recipients," as hereinafter defined, for rendering
services and for the maintenance of Accounts. Such Recipients are intended to
have certain rights as third-party beneficiaries under this Plan.
2. Definitions. As used in this Plan, the following terms shall have the
following meanings:
(a) "Recipient" shall mean any broker, dealer, bank or other financial
institution which: (i) has rendered services in connection with the
personal service and maintenance of Accounts; (ii) shall furnish
the Distributor (on behalf of the Fund) with such information as
the Distributor shall reasonably request to answer such questions
as may arise concerning such service; and (iii) has been selected
by the Distributor to receive payments under the Plan.
Notwithstanding the foregoing, a majority of the Fund's Board of
Trustees (the "Board") who are not "interested persons" (as defined
in the 1940 Act) and who have no direct or indirect financial
interest in the operation of this Plan or in any agreements
relating to this Plan (the "Independent Trustees") may remove any
broker, dealer, bank or other institution as a Recipient, whereupon
such entity's rights as a third party beneficiary hereof shall
terminate.
(b) "Qualified Holdings" shall mean, as to any Recipient, all Shares
owned beneficially or of record by: (i) such Recipient, or (ii)
such customers, clients and/or accounts as to which such Recipient
is a fiduciary or custodian or co-fiduciary or co-custodian
(collectively, the "Customers"), but in no event shall any such
Shares be deemed owned by more than one Recipient for purposes of
this Plan. In the event that two entities would otherwise qualify
as Recipients as to the same Shares, the Recipient which is the
dealer of record on the Fund's books shall be deemed the Recipient
as to such Shares for purposes of this Plan.
3. Payments.
(a) Under the Plan, the Fund will make payments to the Distributor,
within forty-five (45) days of the end of each calendar quarter, in
the amount of the lesser of: (i) .0625% (.25% on an annual basis)
of the average during the calendar quarter of the aggregate net
asset value of the Shares computed as of the close of each business
day, or (ii) the Distributor's actual expenses under the Plan for
that quarter of the type approved by the Board. The Distributor
will use such fee received from the Fund in its entirety to
reimburse itself for payments to Recipients and for its other
expenditures and costs of the type approved by the Board incurred
in connection with the personal service and maintenance of Accounts
including, but not limited to, the services described in the
following paragraph. The Distributor may make Plan payments to any
"affiliated person" (as defined in the 1940 Act) of the Distributor
if such affiliated person qualifies as a Recipient.
The services to be rendered by the Distributor and Recipients in
connection with the personal service and the maintenance of Accounts
may include, but shall not be limited to, the following: answering
routine inquiries from the Recipient's customers concerning the Fund,
providing such customers with information on their investment in
shares, assisting in the establishment and maintenance of accounts or
sub-accounts in the Fund, making the Fund's investment plans and
dividend payment options available, and providing such other
information and customer liaison services and the maintenance of
Accounts as the Distributor or the Fund may reasonably request. It may
be presumed that a Recipient has provided services qualifying for
compensation under the Plan if it has Qualified Holdings of Shares to
entitle it to payments under the Plan. In the event that either the
Distributor or the Board should have reason to believe that,
notwithstanding the level of Qualified Holdings, a Recipient may not
be rendering appropriate services, then the Distributor, at the
request of the Board, shall require the Recipient to provide a written
report or other information to verify that said Recipient is providing
appropriate services in this regard. If the Distributor still is not
satisfied, it may take appropriate steps to terminate the Recipient's
status as such under the Plan, whereupon such entity's rights as a
third-party beneficiary hereunder shall terminate.
Payments received by the Distributor from the Fund under the Plan will
not be used to pay any interest expense, carrying charge or other
financial costs, or allocation of overhead of the Distributor, or for
any other purpose other than for the payments described in this
Section 3. The amount payable to the Distributor each quarter will be
reduced to the extent that reimbursement payments otherwise
permissible under the Plan have not been authorized by the Board of
Trustees for that quarter. Any unreimbursed expenses incurred for any
quarter by the Distributor may not be recovered in later periods.
(b) The Distributor shall make payments to any Recipient quarterly,
within forty-five (45) days of the end of each calendar quarter, at
a rate not to exceed .0625% (.25% on an annual basis) of the
average during the calendar quarter of the aggregate net asset
value of the Shares computed as of the close of each business day
of Qualified Holdings (excluding Shares acquired in reorganizations
with investment companies for which Oppenheimer Management
Corporation or an affiliate acts as investment adviser and which
have not adopted a distribution plan at the time of reorganization
with the Fund). However, no such payments shall be made to any
Recipient for any such quarter in which its Qualified Holdings do
not equal or exceed, at the end of such quarter, the minimum amount
("Minimum Qualified Holdings"), if any, to be set from time to time
by a majority of the Independent Trustees. A majority of the
Independent Trustees may at any time or from time to time increase
or decrease and thereafter adjust the rate of fees to be paid to
the Distributor or to any Recipient, but not to exceed the rate set
forth above, and/or increase or decrease the number of shares
constituting Minimum Qualified Holdings. The Distributor shall
notify all Recipients of the Minimum Qualified Holdings and the
rate of payments hereunder applicable to Recipients, and shall
provide each such Recipient with written notice within thirty (30)
days after any change in these provisions. Inclusion of such
provisions or a change in such provisions in a revised current
prospectus shall be sufficient notice.
(c) Under the Plan, payments may be made to Recipients: (i) by Oppenheimer
Management Corporation ("OMC") from its own resources (which may
include profits derived from the advisory fee it receives from the
Fund), or (ii) by the Distributor (a subsidiary of OMC), from its own
resources.
4. Selection and Nomination of Trustees. While this Plan is in effect, the
selection or replacement of Independent Trustees and the nomination of those
persons to be Trustees of the Fund who are not "interested persons" of the Fund
shall be committed to the discretion of the Independent Trustees. Nothing herein
shall prevent the Independent Trustees from soliciting the views or the
involvement of others in such selection or nomination if the final decision on
any such selection and nomination is approved by a majority of the incumbent
Independent Trustees.
5. Reports. While this Plan is in effect, the Treasurer of the Fund shall
provide at least quarterly a written report to the Fund's Board for its review,
detailing the amount of all payments made pursuant to this Plan, the identity of
the Recipient of each such payment, and the purposes for which the payments were
made. The report shall state whether all provisions of Section 3 of this Plan
have been complied with. The Distributor shall annually certify to the Board the
amount of its total expenses incurred that year with respect to the personal
service and maintenance of Accounts in conjunction with the Board's annual
review of the continuation of the Plan.
6. Related Agreements. Any agreement related to this Plan shall be in writing
and shall provide that: (i) such agreement may be terminated at any time,
without payment of any penalty, by vote of a majority of the Independent
Trustees or by a vote of the holders of a "majority" (as defined in the 1940
Act) of the Fund's outstanding Shares of the Class, on not more than sixty days
written notice to any other party to the agreement; (ii) such agreement shall
automatically terminate in the event of its "assignment" (as defined in the 1940
Act); (iii) it shall go into effect when approved by a vote of the Board and its
Independent Trustees cast in person at a meeting called for the purpose of
voting on such agreement; and (iv) it shall, unless terminated as herein
provided, continue in effect from year to year only so long as such continuance
is specifically approved at least annually by the Board and its Independent
Trustees cast in person at a meeting called for the purpose of voting on such
continuance.
7. Effectiveness, Continuation, Termination and Amendment. This Plan has been
approved by a vote of the Board and its Independent Trustees cast in person at a
meeting called on February 10, 1994 for the purpose of voting on this Plan, and
was approved by a "majority" (as defined in the 1940 Act) of the Fund's
outstanding voting securities of the Class at a meeting held June 20, 1994. It
takes effect as of July 1, 1994, whereupon it replaces the Service Plan and
Agreement dated June 10, 1993, Unless terminated as hereinafter provided, it
shall continue in effect until December 31, 1994 and from year to year
thereafter or as the Board may otherwise determine only so long as such
continuance is specifically approved at least annually by the Board and its
Independent Trustees cast in person at a meeting called for the purpose of
voting on such continuance. This Plan may be terminated at any time by vote of a
majority of the Independent Trustees or by the vote of the holders of a
"majority" (as defined in the 1940 Act) of the Fund's outstanding voting
securities of the Class. This Plan may not be amended to increase materially the
amount of payments to be made without approval of the Class A Shareholders, in
the manner described above, and all material amendments must be approved by a
vote of the Board and of the Independent Trustees.
8. Shareholder and Trustee Liability Disclaimer. The Distributor understands and
agrees that the obligations of the Fund under this Plan are not binding upon any
shareholder or Trustee of the Fund personally, but only the Fund and the Fund's
property. The Distributor represents that it has notice of the provisions of the
Declaration of Trust of the Fund disclaiming shareholder and Trustee liability
for acts or obligations of the Fund.
Oppenheimer Tax-Free Bond Fund
/s/ Andrew J. Donohue
by:-----------------------------------
Andrew J. Donohue
Secretary
OppenheimerFunds Distributor, Inc.
/s/ Katherine P. Feld
by:----------------------------------
Katherine P. Feld
Vice President and Secretary
