Bridget A. Macaskill
Chief Executive Officer and Chairman OppenheimerFunds Logo
Two World Trade Center, 34th Floor
New York, NY 10048-0203
Tel. 1.800.525.7048
www.oppenheimerfunds.com
September 20, 2000
Dear Oppenheimer Insured Municipal Fund Shareholder,
One of the things we are proud of at OppenheimerFunds, Inc. is our
commitment to searching for new investment opportunities for shareholders. I am
writing to you today to let you know about one of those opportunities--a
positive change that has been proposed for Oppenheimer Insured Municipal Fund.
After careful consideration, the Board of Directors has determined that it
would be in the best interest of Insured Municipal Fund shareholders for the
Fund to reorganize into another Oppenheimer fund, Oppenheimer Municipal Bond
Fund. A shareholder meeting has been scheduled in November, and all Insured
Municipal Fund shareholders of record on August 17 are being asked to vote,
either in person or by proxy, on the proposed reorganization. You will find a
notice of the meeting, a ballot card, a proxy statement detailing the proposal,
a Municipal Bond Fund prospectus and a postage-paid return envelope enclosed for
your use.
Why does the Board of Directors recommend this change?
Oppenheimer Insured Municipal Fund and Municipal Bond Fund have similar
investment goals and policies. In addition, the consolidation of the two funds
is expected to result in greater economies of scale. The merger with Municipal
Bond Fund means former shareholders of Insured Municipal Fund may benefit from a
lower expense ratio as costs are spread among a larger asset base.
How do you vote?
No matter how large or small your investment, your vote is important, so
please review the proxy statement carefully. To cast your vote, simply mark,
sign and date the enclosed proxy ballot and return it in the postage-paid
envelope today. Remember, it can be costly for the Fund--and ultimately for you
as a shareholder--to remail ballots if not enough responses are received to
conduct the meeting.
If you have any questions about the proposal, please feel free to contact
your financial advisor, or call us at 1-800-525-7048. As always, we appreciate
your confidence in OppenheimerFunds and look forward to serving you for many
years to come.
Sincerely,
BAM's signature
Enclosures
XP0865.003.0800
<PAGE>
OPPENHEIMER INSURED MUNICIPAL FUND
6803 South Tucson Way, Englewood, Colorado 80112
1-800-525-7048
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON NOVEMBER 2, 2000
To the Shareholders of Oppenheimer Insured Municipal Fund:
Notice is hereby given that a Special Meeting of the Shareholders of
Oppenheimer Insured Municipal Fund ("Insured Municipal Fund"), a series of
Oppenheimer Municipal Fund, a registered management investment company, will
be held at 6803 South Tucson Way, Englewood, Colorado 80112 at 10:00 A.M.,
Mountain time, on November 2, 2000, or any adjournments thereof (the
"Meeting"), for the following purposes:
1. To approve an Agreement and Plan of Reorganization between Insured
Municipal Fund and Oppenheimer Municipal Bond Fund ("Municipal Bond Fund"),
and the transactions contemplated thereby, including (a) the transfer of
substantially all the assets of Insured Municipal Fund to Municipal Bond
Fund in exchange for Class A, Class B and Class C shares of Municipal Bond
Fund, (b) the distribution of such shares of Municipal Bond Fund to the
corresponding Class A, Class B and Class C shareholders of Insured Municipal
Fund in complete liquidation of Insured Municipal Fund, and (c) the
cancellation of the outstanding shares of Insured Municipal Fund (the
"Proposal").
2. To act upon such other matters as may properly come before the Meeting.
Shareholders of record at the close of business on August 17, 2000 are
entitled to notice of, and to vote at, the Meeting. The Proposal is more
fully discussed in the Prospectus/Proxy Statement. Please read it carefully
before telling us, through your proxy or in person, how you wish your shares
to be voted. The Board of Trustees of Oppenheimer Municipal Fund, on behalf
of Insured Municipal Fund recommends a vote in favor of the Proposal. WE
URGE YOU TO SIGN, DATE AND MAIL THE ENCLOSED PROXY PROMPTLY.
By Order of the Board of Trustees,
Andrew J. Donohue, Secretary
September 20, 2000
----------------------------------------------------------------------
Shareholders who do not expect to attend the Meeting are requested to
indicate voting instructions on the enclosed proxy and to date, sign and
return it in the accompanying postage-paid envelope. To avoid unnecessary
duplicate mailings, we ask your cooperation in promptly mailing your proxy
no matter how large or small your holdings may be.
<PAGE>
COMBINED PROSPECTUS/PROXY STATEMENT
DATED SEPTEMBER 1, 2000
Acquisition of the Assets of OPPENHEIMER INSURED MUNICIPAL FUND, a series of
Oppenheimer Municipal Fund By and in exchange for Class A, Class B and
Class C shares of OPPENHEIMER MUNICIPAL BOND FUND
This combined Prospectus/Proxy Statement (i) relates to the registration
of Class A, B and C shares of Oppenheimer Municipal Bond Fund ("Municipal Bond
Fund") to be offered to the shareholders of Oppenheimer Insured Municipal Fund
("Insured Municipal Fund") pursuant to the Agreement and Plan of Reorganization
(the "Reorganization Agreement"), and (ii) solicits proxies from shareholders of
Insured Municipal Fund to be voted at a Special Meeting of Shareholders (the
"Meeting") to approve the Reorganization Agreement and the transactions
contemplated thereby (the "Reorganization"). If shareholders vote to approve the
Reorganization and the Reorganization Agreement, the net assets of Insured
Municipal Fund will be acquired by and in exchange for shares of Municipal Bond
Fund. The Meeting will be held at the offices of Oppenheimer Municipal Fund (the
"Trust") at 6803 South Tucson Way, Englewood, Colorado 80112 on November 2, 2000
at 10:00 A.M. Mountain time. The Board of Trustees of the Trust is soliciting
these proxies on behalf of Insured Municipal Fund. This Prospectus/Proxy
Statement will first be sent to shareholders on or about September 20, 2000.
If the shareholders vote to approve the Reorganization Agreement and the
Reorganization, you will receive Class A shares of Municipal Bond Fund equal in
value to the value as of the Valuation Date of your Class A shares of Insured
Municipal Fund, Class B shares of Municipal Bond Fund equal in value to your
Class B shares of Insured Municipal Fund or Class C shares of Municipal Bond
Fund equal in value to your Class C shares of Insured Municipal Fund. Insured
Municipal Fund will then be liquidated.
Municipal Bond Fund's investment objective is to seek maximum current
income exempt from federal income taxes as is available from investing in
municipal securities, while attempting to preserve capital. Under normal market
conditions, Municipal Bond Fund attempts to invest 100% of its assets in
municipal securities. Municipal Bond Fund, as a matter of fundamental policy,
invests at least 80% of its assets, in municipal securities. With respect to
below investment grade investments, Municipal Bond Fund limits itself to 25% or
less of total assets. Municipal Bond Fund currently emphasizes investment in
municipal securities with long-term maturities and may invest in municipal
securities subject to the alternative minimum tax (i.e. AMT municipal
securities).
This Prospectus/Proxy Statement gives information about Class A, Class B
and Class C shares of Municipal Bond Fund that you should know before investing.
You should retain it for future reference. A Statement of Additional Information
relating to this Prospectus/Proxy Statement, dated September 1, 2000 (the
"Prospectus/Proxy Statement of Additional Information") has been filed with the
Securities and Exchange Commission ("SEC") and is incorporated by reference. You
may receive a copy by written request to the Transfer Agent or by calling
toll-free as detailed above. The Prospectus/Proxy Statement of Additional
Information includes the following documents: Annual and Semi-Annual Report
dated July 31, 1999 and January 31, 2000, respectively, of Municipal Bond Fund;
Annual and Semi-Annual Report dated September 30, 1999 and March 31, 2000,
respectively, of Insured Municipal Fund; Statement of Additional Information of
Municipal Bond Fund; and Statement of Additional Information of Insured
Municipal Fund.
The Prospectus of Municipal Bond Fund dated November 19, 1999 is attached
to and considered a part of this Prospectus/Proxy Statement and is intended to
provide you with additional information about Municipal Bond Fund.
The following documents have been filed with the SEC and are available
without charge upon written request to OppenheimerFunds Services (the "Transfer
Agent") or by calling the toll-free number shown above: (i) a Prospectus for
Insured Municipal Fund, dated January 28, 2000; (ii) a Statement of Additional
Information for Insured Municipal Fund, dated January 28, 2000; and (iii) a
Statement of Additional Information for Municipal Bond Fund, dated November 19,
1999.
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved these securities or passed upon the adequacy of this
Prospectus/Proxy Statement. Any representation to the contrary is a criminal
offense.
Mutual fund shares are not deposits or obligations of any bank, and are not
insured or guaranteed by the Federal Deposit Insurance Corporation, or any other
U.S. Government agency. Mutual fund shares involve investment risks including
the possible loss of principal.
This Prospectus/Proxy Statement is dated September 1, 2000.
<PAGE>
Combined Prospectus/Proxy Statement
TABLE OF CONTENTS
PROSPECTUS/PROXY STATEMENT
Cover Page Page
Synopsis
On what Proposal am I being asked to vote? What are the general tax
consequences of the Reorganization?
Comparisons of Some Important Features
How do the investment objectives and policies of the two Funds compare?
Who manages the two Funds?
What are the fees and expenses of each Fund and those expected after the
Reorganization?
Where can I find more financial information about the Funds? How have the
Funds performed? What are other key features of the Funds?
Investment Management and Fees
Transfer Agency and Custody Services
Distribution Services
Operating Expenses
Purchases and Redemptions
Dividends and Distributions
What are the principal risks of an investment in the Municipal Bond Fund?
Reasons for the Reorganization
Information about the Reorganization
How will the Reorganization be carried out? Who will pay the expenses of
the Reorganization? What are the tax consequences of the Reorganization?
What should I know about Class A, Class B and Class C shares of Municipal
Bond
Fund?
What are the capitalizations of the Funds and what might the
capitalization be after the Reorganization?
Comparison of Investment Objectives and Policies
Are there any significant differences between the investment objectives
and strategies of the two Funds?
How do the investment policies of the two Funds compare?
Municipal Securities
Insured Municipal Securities
Ratings of Municipal Securities the Funds Buy
Special Credit Risks of Lower-Grade Securities
Municipal Lease Obligations
Other Investment Strategies
What are the fundamental investment restrictions of the Funds? What are
the risk factors associated with investments in the Funds?
Interest Rate, Income and Credit Risk
Risks of Using Derivative Investments
Risks of Lower-Grade Securities
How do the account features and shareholder services for the Funds
compare?
Investment Management
Distribution
Purchases and Redemptions
Shareholder Services
Dividends and Distributions
Voting Information
How many votes are necessary to approve the Reorganization Agreement? How
do I ensure my vote is accurately recorded?
Can I revoke my proxy?
What other matters will be voted upon at the Meeting? Who is entitled to
vote? What other solicitations will be made?
Are there appraisal rights?
Information about Municipal Bond Fund
Information about Insured Municipal Fund
Principal Stockholders
Exhibit A - Agreement and Plan of Reorganization by and between Oppenheimer
Municipal Fund, on behalf of its series, Oppenheimer Insured Municipal
Fund, and Oppenheimer Municipal Bond Fund
Enclosures
- Prospectus of Oppenheimer Municipal Bond Fund, dated November 19, 1999
<PAGE>
SYNOPSIS
This is only a summary and is qualified in its entirety by the more
detailed information contained in or incorporated by reference in this
Prospectus/Proxy Statement and by the Reorganization Agreement which is attached
as Exhibit A. Shareholders should carefully review this Prospectus/Proxy
Statement and Reorganization Agreement in its entirety and, in particular, the
current Prospectus of Municipal Bond Fund which accompanies this
Prospectus/Proxy Statement and is incorporated herein by reference.
On what Proposal am I being asked to vote?
At a meeting held on February 29, 2000, the Board of Trustees of
Oppenheimer Municipal Fund on behalf of Insured Municipal Fund approved a
reorganization transaction that will, if approved by shareholders, result in the
transfer of the net assets of your fund, Insured Municipal Fund to Municipal
Bond Fund, in exchange for an equal value of shares of Municipal Bond Fund. The
shares of Municipal Bond Fund will then be distributed to Insured Municipal Fund
shareholders and Insured Municipal Fund will be liquidated. (The proposed
Reorganization is referred to in this Prospectus/Proxy Statement as the
"Reorganization.") As a result of the Reorganization, you will cease to be a
shareholder of Insured Municipal Fund and will become a shareholder of Municipal
Bond Fund. This exchange will occur on the Closing Date of the Reorganization.
Approval of the Reorganization means you will receive Class A, Class B or
Class C shares of Municipal Bond Fund equal in value to the value as of the
valuation date of your Class A, Class B or Class C shares, respectively, of
Insured Municipal Fund. The shares you receive will be issued at net asset value
without a sales charge or the payment of a contingent deferred sales charge
("CDSC") although if your shares of Insured Municipal Fund are subject to a
CDSC, your Municipal Bond Fund shares will continue to be subject to the CDSC
applicable to your shares. In calculating CDSC, the length of time for which you
held your Insured Municipal Fund shares will carry over to your Municipal Bond
Fund shares.
For the reasons set forth in the "Reasons for the Reorganization" section,
the Board of Insured Municipal Fund has determined that the Reorganization is in
the best interests of the shareholders of Insured Municipal Fund. The Board
concluded that no dilution in value would result to shareholders of Insured
Municipal Fund as a result of the Reorganization.
THE BOARD OF TRUSTEES RECOMMENDS THAT YOU VOTE
TO APPROVE THE AGREEMENT AND PLAN OF REORGANIZATION
AND THE REORGANIZATION
What are the general tax consequences of the Reorganization?
It is expected that shareholders of Insured Municipal Fund who are U.S.
citizens will not recognize any gain or loss for federal income tax purposes, as
a result of the exchange of their shares for shares of Municipal Bond Fund. You
should, however, consult your tax advisor regarding the effect, if any, of the
Reorganization in light of your individual circumstances. You should also
consult your tax advisor about state and local tax consequences. For further
information about the tax consequences of the Reorganization, please see the
"Information About the Transaction - What are the tax consequences of the
Reorganization?"
COMPARISONS OF SOME IMPORTANT FEATURES
How do the investment objectives and policies of the two Funds compare?
Insured Municipal Fund is a series of Oppenheimer Municipal Fund, which is
a mutual fund in the OppenheimerFunds complex. It is managed by
OppenheimerFunds, Inc. (the "Manager"). It has investment objectives and
policies which are substantially similar but not identical to those of Municipal
Bond Fund. Insured Municipal Fund seeks a high level of current income exempt
from federal personal income taxes by investing in municipal securities.
Municipal Bond Fund seeks maximum current income exempt from federal income
taxes by investing in municipal securities, while attempting to preserve
capital.
In seeking their investment objectives, Insured Municipal Fund and
Municipal Bond Fund utilize a similar investing strategy and invest primarily in
municipal securities. Insured Municipal Fund, as a non-fundamental investment
policy, invests at least 80% of its total assets in municipal securities, and at
least 65% of its assets in insured and "pre-refunded" municipal securities.
Municipal Bond Fund, as a matter of fundamental policy, invests at least 80% of
its assets in municipal securities.
With respect to below investment grade investments, Insured Municipal Fund
limits such investments to 10% or less of its total assets while Municipal Bond
Fund limits such investments to 25% or less of total assets. Both Funds
currently emphasize investment in municipal securities with long-term maturities
and may invest in municipal securities subject to the alternative minimum tax
(i.e. AMT municipal securities).
As of March 31, 2000, the average credit quality of Insured Municipal Fund
was AAA and 83.01% of the portfolio's municipal securities were "insured." As of
March 31, 2000, the average credit quality of Municipal Bond Fund was A+ and
28.03% of the portfolio's municipal securities were "insured." During 1999,
Insured Municipal Fund did not use any insurance protection associated with its
municipal securities. To the best knowledge of the Manager, Insured Municipal
Fund has never activated any municipal bond insurance coverage on its holdings.
In order to manage interest rate risk in a rising interest rate
environment, the Manager recently began selling some of Insured Municipal Fund's
longer duration bonds and replaced them with shorter duration instruments.
Consequently, the income earned by Insured Municipal Fund has decreased and,
effective April 11, 2000, the Board of Trustees of Insured Municipal Fund, at
the request of Management, reduced Insured Municipal Fund's Class A dividend
payment from $0.0683 per share to $0.0661 per share.
Who manages the two Funds?
The day-to-day management of the business and affairs of each Fund is the
responsibility of the Manager, OppenheimerFunds, Inc., under the oversight of
each Fund's respective Board of Trustees. Insured Municipal Fund is a series
fund of Oppenheimer Municipal Fund, an open-end registered management investment
company, which was organized as a Massachusetts business trust in 1986, and is
registered with the SEC. Insured Municipal Fund commenced operations on November
11, 1986. Municipal Bond Fund was originally incorporated in Maryland in 1976
but was reorganized in 1987 as a Massachusetts business trust, and is also
registered with the SEC. Municipal Bond Fund is an open-end registered
management investment company.
The Manager is located at Two World Trade Center, New York, New York
10048, and acts as investment advisor to both Funds.
Robert E. Patterson, a Senior Vice President of the Manager, is the
portfolio manager for Municipal Bond Fund. He became the portfolio manager on
November 18, 1985 and has been employed by the Manager since November 1985.
Information regarding Mr. Patterson and his business experience for the last
five years is provided in the accompanying Prospectus of Municipal Bond Fund
under the section "How the Fund is Managed."
Jerry Webman, a Senior Vice President of the Manager, and Merrell Hora,
an Assistant Vice President of the Manager, are the portfolio managers of
Insured Municipal Fund. They became the Fund's portfolio managers on August
28, 2000. Mr. Webman and Mr. Hora have been employed by the Manager since
February 1996 and July 1998, respectively. Information regarding Mr. Webman
and Mr. Hora and their business experience for the last five years is
provided in the Prospectus of Insured Municipal Fund under the section "How
the Fund is Managed."
What are the fees and expenses of each Fund and those expected after the
Reorganization?
Insured Municipal Fund and Municipal Bond Fund each pay a variety of
expenses directly for management of their assets, administration, distribution
of their shares and other services. Those expenses are subtracted from each
Fund's assets to calculate each Fund's net asset value per share. Shareholders
pay these expenses indirectly. Shareholders pay other expenses directly, such as
sales charges and account transaction charges. The following tables are provided
to help you understand and compare the fees and expenses of investing in shares
of Insured Municipal Fund with the fees and expenses of investing in shares of
Municipal Bond Fund. The pro forma expenses of the surviving Municipal Bond Fund
show what the fees and expenses are expected to be after giving effect to the
Reorganization. All amounts shown are a percentage of net assets of each class
of shares of the Funds.
<PAGE>
PRO FORMA FEE TABLE FOR INSURED MUNICIPAL FUND
AND MUNICIPAL BOND FUND+
------------------------------------------------------------------------
Insured Municipal Bond Pro Forma Surviving
Municipal Fund Class A Municipal Bond Fund
Fund Class A Shares Class A shares
shares
------------------------------------------------------------------------
------------------------------------------------------------------------
Shareholder
Transaction
Expenses
(charges paid
directly from a
shareholder's
investment)
------------------------------------------------------------------------
------------------------------------------------------------------------
Maximum Sales
Charge (Load) 4.75% 4.75% 4.75%
on purchases
(as a % of
offering
price)
------------------------------------------------------------------------
------------------------------------------------------------------------
Maximum
Deferred None1 None1 None1
Sales Charge
(Load) (as a
% of the
lower of the
original
offering
price or
redemption
proceeds)
------------------------------------------------------------------------
------------------------------------------------------------------------
------------------------------------------------------------------------
------------------------------------------------------------------------
Annual Fund
Operating
Expenses (as a
percentage of
average daily
net assets)
------------------------------------------------------------------------
------------------------------------------------------------------------
Management 0.44% 0.52% 0.51%
Fees
------------------------------------------------------------------------
------------------------------------------------------------------------
Distribution
and/or 0.24% 0.22% 0.22%
Service
(12b-1) Fees
------------------------------------------------------------------------
------------------------------------------------------------------------
Other Expenses 0.21% 0.13% 0.13%
------------------------------------------------------------------------
------------------------------------------------------------------------
Total Fund 0.89% 0.87% 0.86%
Operating
Expenses
------------------------------------------------------------------------
<PAGE>
------------------------------------------------------------------------
Insured Municipal Bond Pro Forma Surviving
Municipal Fund Class B Municipal Bond Fund
Fund Class B Shares Class B shares
shares
------------------------------------------------------------------------
------------------------------------------------------------------------
Shareholder
Transaction
Expenses
(charges paid
directly from a
shareholder's
investment)
------------------------------------------------------------------------
------------------------------------------------------------------------
Maximum Sales
Charge (Load) None None None
on purchases
(as a % of
offering
price)
------------------------------------------------------------------------
------------------------------------------------------------------------
Maximum
Deferred 5%2 5%2 5%2
Sales Charge
(Load) (as a
% of the
lower of the
original
offering
price or
redemption
proceeds)
------------------------------------------------------------------------
------------------------------------------------------------------------
Annual Fund
Operating
Expenses (as a
percentage of
average daily
net assets)
------------------------------------------------------------------------
------------------------------------------------------------------------
Management 0.44% 0.52% 0.51%
Fees
------------------------------------------------------------------------
------------------------------------------------------------------------
Distribution
and/or 1.00% 1.00% 1.00%
Service
(12b-1) Fees
------------------------------------------------------------------------
------------------------------------------------------------------------
Other Expenses 0.21% 0.13% 0.13%
------------------------------------------------------------------------
------------------------------------------------------------------------
Total Fund 1.65% 1.65% 1.64%
Operating
Expenses
------------------------------------------------------------------------
<PAGE>
------------------------------------------------------------------------
Insured Municipal Bond Pro Forma Surviving
Municipal Fund Class C Municipal Bond Fund
Fund Class C Shares Class C shares
shares
------------------------------------------------------------------------
------------------------------------------------------------------------
Shareholder
Transaction
Expenses
(charges paid
directly from a
shareholder's
investment)
------------------------------------------------------------------------
------------------------------------------------------------------------
Maximum Sales
Charge (Load) None None None
on purchases
(as a % of
offering
price)
------------------------------------------------------------------------
------------------------------------------------------------------------
Maximum
Deferred 1%3 1%3 1%3
Sales Charge
(Load) (as a
% of the
lower of the
original
offering
price or
redemption
proceeds)
------------------------------------------------------------------------
------------------------------------------------------------------------
Annual Fund
Operating
Expenses (as a
percentage of
average daily
net assets)
------------------------------------------------------------------------
------------------------------------------------------------------------
Management 0.44% 0.52% 0.51%
Fees
------------------------------------------------------------------------
------------------------------------------------------------------------
Distribution
and/or 1.00% 1.00% 1.00%
Service
(12b-1) Fees
------------------------------------------------------------------------
------------------------------------------------------------------------
Other Expenses 0.21% 0.13% 0.13%
------------------------------------------------------------------------
------------------------------------------------------------------------
Total Fund 1.65% 1.65% 1.64%
Operating
Expenses
------------------------------------------------------------------------
Note: Expenses may vary in future years. "Other expenses" include transfer
agent fees, custodial accounting and legal expenses the Fund pays.
+Information provided is for Insured Municipal Fund and Municipal Bond Fund
for the twelve-month period ended March 31, 2000.
1A contingent deferred sales charge may apply to redemptions of investments of
$1 million or more of Class A shares. See "How to Buy Shares" in each Fund's
Prospectus. 2Applies to redemptions in first year after purchase. The contingent
deferred sales charge declines to 1% in the sixth year and is eliminated after
that. 3Applies to shares redeemed within 12 months of purchase.
The 12b-1 fees for Class A shares of Municipal Bond Fund are service plan
fees which are a maximum of 0.25% of average annual net assets of Class A
shares. The 12b-1 fees for Class B and Class C shares of both Insured Municipal
Fund and Municipal Bond Fund are Distribution and Service Plan fees which
include a service fee of 0.25% and an asset-based sales charge of 0.75%.
Examples
The examples below are intended to help you compare the cost of investing
in each Fund and the proposed surviving Municipal Bond Fund. The examples assume
an annual return for each class of 5%, the operating expenses remain the same as
described above, and reinvestment of your dividends and distributions.
Your actual costs may be higher or lower because expenses will vary over
time. For each $10,000 investment, you would pay the following projected
expenses if you sold your shares after the number of years shown.
12 Months Ended 3/31/00
Insured Municipal Fund
-----------------------------------------------------------------------------
If shares are 1 year 3 years 5 years 10 years 1
redeemed:
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
Class A $563 $751 $ 955 $1,541
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
Class B $670 $826 $1,107 $1,588
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
Class C $270 $526 $ 907 $1,976
-----------------------------------------------------------------------------
Insured Municipal Fund
-----------------------------------------------------------------------------
If shares are not 1 year 3 years 5 years 10 years 1
redeemed:
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
Class A $563 $751 $955 $1,541
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
Class B $170 $526 $907 $1,588
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
Class C $170 $526 $907 $1,976
-----------------------------------------------------------------------------
Municipal Bond Fund
-----------------------------------------------------------------------------
If shares are 1 year 3 years 5 years 10 years 1
redeemed:
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
Class A $561 $742 $ 939 $1,508
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
Class B $669 $823 $1,102 $1,566
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
Class C $269 $523 $ 902 $1,965
-----------------------------------------------------------------------------
Municipal Bond Fund
-----------------------------------------------------------------------------
If shares are not 1 year 3 years 5 years 10 years 1
redeemed:
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
Class A $561 $742 $939 $1,508
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
Class B $169 $523 $902 $1,566
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
Class C $169 $523 $902 $1,965
-----------------------------------------------------------------------------
Pro Forma Surviving Municipal Bond Fund
-----------------------------------------------------------------------------
If shares are 1 year 3 years 5 years 10 years 1
redeemed:
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
Class A $559 $736 $ 929 $1,485
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
Class B $667 $817 $1,092 $1,544
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
Class C $267 $517 $ 892 $1,944
-----------------------------------------------------------------------------
Pro Forma Surviving Municipal Bond Fund
-----------------------------------------------------------------------------
If shares are not 1 year 3 years 5 years 10 years 1
redeemed:
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
Class A $559 $736 $929 $1,485
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
Class B $167 $517 $892 $1,544
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
Class C $167 $517 $892 $1,944
-----------------------------------------------------------------------------
1 Class B expenses for years 7 through 10 are based on Class A expenses, since
Class B shares automatically convert to Class A after 6 years.
In the example where shares are redeemed, expenses include the initial sales
charge for Class A and the applicable Class B or Class C contingent deferred
sales charge. In the example where shares are not redeemed, the Class A expenses
include the sales charge, but Class B and Class C expenses do not include the
contingent deferred sales charges.
Where can I find more financial information about the Funds?
Performance information for both Insured Municipal Fund and Municipal Bond
Fund is set forth in each Fund's Prospectus under the section "The Fund's Past
Performance." Municipal Bond Fund's Prospectus accompanies this Prospectus/Proxy
Statement and is incorporated by reference.
The financial statements of Insured Municipal Fund and additional
information with respect to the Fund's performance during its fiscal year ended
September 30, 1999 (and the six month semi-annual period ended March 31, 2000),
including a discussion of factors that materially affected its performance and
relevant market conditions, are set forth in Insured Municipal Fund's Annual and
Semi-Annual Reports dated September 30, 1999 and March 31, 2000, respectively,
and are included in the Prospectus/Proxy Statement of Additional Information and
incorporated herein by reference. These documents are available upon request.
See the section entitled "Information About Insured Municipal Fund." The
financial statements of Municipal Bond Fund and additional information with
respect to the Fund's performance during the fiscal year ended July 31, 1999
(and the six month semi-annual period ended January 31, 2000), including a
discussion of factors that materially affected its performance and relevant
market conditions, are set forth in Municipal Bond Fund's Annual and Semi-Annual
Reports dated as of July 31, 1999 and January 31, 2000, respectively, and is
included in the Prospectus/Proxy Statement of Additional Information and
incorporated herein by reference. These documents are available upon request.
See the section entitled "Information About Municipal Bond Fund." Pro forma
financial statements for the period April 1, 1999 through March 31, 2000,
reflecting Municipal Bond Fund after the Reorganization are included in the
Prospectus/Proxy Statement of Additional Information and incorporated herein by
reference.
How have the Funds performed?
The following past performance information is set forth in each Prospectus
for each Fund: (i) a bar chart detailing annual total returns of Class A shares
of each Fund as of December 31st for each of the full calendar years since such
Fund's inception; and (ii) a table detailing how the average annual total
returns of each Fund's Class A, Class B and Class C shares compare to those of
the Lehman Brothers Municipal Bond Index, a broad-based market index. Past
performance does not necessarily indicate how a fund will perform in the future.
Average annual total returns for the Funds for the period ended June 30,
2000 are as follows:
---------------------------------------------------------------------
Fund 1-year 5-year 10-year/Life
---------------------------------------------------------------------
---------------------------------------------------------------------
Municipal Bond Fund Class A
(inception 10/27/76) - 6.74% 3.79% 5.74%
---------------------------------------------------------------------
---------------------------------------------------------------------
Municipal Bond Fund Class B
(inception 3/16/93) - 7.46% 3.66% 3.91%
---------------------------------------------------------------------
---------------------------------------------------------------------
Municipal Bond Fund Class C
(inception 8/29/95) - 3.78% N/A 3.95%
---------------------------------------------------------------------
---------------------------------------------------------------------
Lehman Brothers Municipal
Bond Index (from 12/31/88) 3.25% 5.88% 7.06%
---------------------------------------------------------------------
---------------------------------------------------------------------
Insured Municipal Fund
Class A - 5.38% 3.75% 5.66%
(inception 11/11/86)
---------------------------------------------------------------------
---------------------------------------------------------------------
Insured Municipal Fund
Class B -6.14% 3.64% 3.79%
(inception 5/3/93)
---------------------------------------------------------------------
---------------------------------------------------------------------
Insured Municipal Fund
Class C -2.36% N/A 3.90%
(inception 8/29/95)
---------------------------------------------------------------------
Total returns include changes in share price and reinvestment of dividends and
capital gains distributions in a hypothetical investment for the periods shown.
An explanation of the different performance calculations is set forth in each
Fund's Prospectus and Statement of Additional Information. Each Fund's average
annual total return includes the applicable sales charge for Class A, Class B
and Class C shares: for Class A, the current maximum initial sales charge of
4.75%; Class B, the contingent deferred sales charges of 5% (1 year), and 2% (5
year); and Class C, a contingent deferred sales charge of 1% if shares are
redeemed within 12 months of purchase. Municipal Bond Fund's annual total return
also includes the applicable sales charge for Class B shares of 1% (life of the
class).
The graphs that follow show the performance of a hypothetical $10,000
investment in each class of shares of Municipal Bond Fund held until July 31,
1999. In the case of Class A shares, performance is measured over a 10-year
period. In the case of Class B shares, performance is measured from inception of
the class on March 16, 1993. In the case of Class C shares, performance is
measured from inception of the class on August 29, 1995. Municipal Bond Fund's
performance reflects the deduction of the maximum initial sales charge on Class
A shares, the applicable contingent deferred sales charge on Class B and Class C
shares, and reinvestments of all dividends and capital gains distributions.
Municipal Bond Fund's performance is compared to the performance of that of the
Lehman Brothers Municipal Bond Index, an unmanaged index of a broad range of
investment grade municipal bonds that is widely regarded as a measure of the
performance of the general municipal bond market. Index performance reflects the
reinvestment of dividends but does not consider the effect of capital gains or
transaction costs, and none of the data in the graphs that follow shows the
effect of taxes. Municipal Bond Fund's performance reflects the effects of Fund
business and operating expenses. While index comparisons may be useful to
provide a benchmark for the Fund's performance, it must be noted that the Fund's
investments are not limited to the securities in the index.
<PAGE>
CLASS A SHARES
COMPARISON OF CHANGE IN VALUE OF $10,000 HYPOTHETICAL INVESTMENTS IN:
Oppenheimer Insured Municipal Fund (Class A),
and Lehman Brothers Municipal Bond Index
[Begin tabular representation of line chart]
Oppenheimer Lehman
---------- ------
9.30.89 9525 10000
9.30.90 10078 10680
9.30.91 11396 12088
9.30.92 12620 13351
9.30.93 14389 15053
9.30.94 13608 14685
9.30.95 15009 16328
9.30.96 16009 17314
9.30.97 17491 18875
9.30.98 19066 20520
9.30.99 18160 20377
[End tabular representation of line chart]
AVERAGE ANNUAL TOTAL RETURN OF CLASS A SHARES OF THE FUND AT 9/30/99(1)
1-YEAR -9.28% 5-YEAR 4.92% 10-YEAR 6.15%
CLASS B SHARES
COMPARISON OF CHANGE IN VALUE OF $10,000 HYPOTHETICAL INVESTMENTS IN:
Oppenheimer Insured Municipal Fund (Class B),
and Lehman Brothers Municipal Bond Index
[Begin tabular representation of line chart]
Oppenheimer Lehman
---------- ------
5.3.93 10000 10000
9.30.93 10604 10570
9.30.94 9949 10312
9.30.95 10892 11465
9.30.96 11531 12157
9.30.97 12502 13254
9.30.98 13524 14409
9.30.99 12785 14308
[End tabular representation of line chart]
AVERAGE ANNUAL TOTAL RETURN OF CLASS B SHARES OF THE FUND AT 9/30/99(1)
1-YEAR -9.98% 5-YEAR 4.81% LIFE 3.96%
CLASS C SHARES
COMPARISON OF CHANGE IN VALUE OF $10,000 HYPOTHETICAL INVESTMENTS IN:
Oppenheimer Insured Municipal Fund (Class C),
and Lehman Brothers Municipal Bond Index
[Begin tabular representation of line chart]
Oppenheimer Lehman
---------- ------
8.29.95 10000 10000
9.30.95 10130 10063
9.30.96 10714 10671
9.30.97 11622 11633
9.30.98 12573 12647
9.30.99 11884 12559
[End tabular representation of line chart]
AVERAGE ANNUAL TOTAL RETURN OF CLASS C SHARES OF THE FUND AT 9/30/99(1)
1-YEAR -6.38% LIFE 4.32%
Total returns and the ending account values in the graphs show change in share
value and include reinvestment of all dividends and capital gains distributions.
The performance information for the Lehman Brothers Municipal Bond Index in the
graphs begins on 12/31/88 for Class A, 3/31/93 for Class B and 8/31/95 for Class
C. 1. The Fund changed its fiscal year end from December 31 to July 31. 2. The
average annual total returns are shown net of the applicable 4.75%
maximum initial sales charge.
3. Class B shares of the Fund were first publicly offered on 3/16/93. The
average annual total returns are shown net of the applicable 5% (1-year) and
1% (since inception) contingent deferred sales charge.
4. Class C shares of the Fund were first publicly offered on 8/29/95. The 1-year
period is shown net of the applicable 1% contingent deferred sales charge.
Past performance is not predictive of future performance. Graphs are not drawn
to the same scale.
What are other key features of the Funds?
The description of certain key features of the Funds below is supplemented
by each Fund's Prospectus and Statement of Additional Information, each of which
is incorporated herein by reference.
Investment Management and Fees - OppenheimerFunds, Inc., manages the
assets of both Insured Municipal Fund and Municipal Bond Fund and makes the
investment decisions for both Funds. Both Funds obtain investment management
services from the Manager according to the terms of management agreements that
are substantially the same, except for fee rates.
Under its management agreement, Insured Municipal Fund pays the Manager a
management fee equal to an annual rate of: 0.450% of the first $100 million of
average annual net assets, 0.400% of the next $150 million, 0.375% of the next
$250 million, and 0.350% of average annual net assets in excess of $500 million.
Insured Municipal Fund's management fee for the year ended September 30, 1999,
was 0.44% of the average annual net assets for each class of shares.
Under its management agreement, Municipal Bond Fund pays the Manager a
management fee equal to an annual rate of: 0.60% of the first $200 million of
average 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 net assets in excess of $1 billion. Municipal Bond Fund's
management fee for the fiscal year ended July 31, 1999, was 0.52% of the average
annual net assets for each class of shares.
Effective upon the Closing of the Reorganization, the management fee rate
for Municipal Bond Fund is expected to be 0.51% of average annual net assets,
based on the combined average net assets of the Funds for the twelve-month
period ended March 31, 2000 which equaled $775,309,569 for Class A, Class B and
Class C shares of Insured Municipal Fund and Municipal Bond Fund.
Transfer Agency and Custody Services - OppenheimerFunds Services, a
division of the Manager, acts as transfer and shareholder servicing agent on an
at-cost basis for both Municipal Bond Fund and Insured Municipal Fund and for
certain other open-end funds managed by the Manager and its affiliates. The
terms of the Transfer Agency Agreement for both Funds are substantially the
same.
Citibank, N.A., located at 399 Park Avenue, New York, New York, 10043 acts
as custodian of the securities and other assets of both Funds.
Distribution Services - OppenheimerFunds Distributor, Inc. (the
"Distributor") acts as the principal underwriter in a continuous public offering
of shares of both Funds, but is not obligated to sell a specific number of
shares. Both Funds also adopted a Service Plan and Agreement under Rule 12b-1
for their Class A shares that reimburses the Distributor for payments to dealers
for providing certain shareholder services at an annual rate of 0.25% of average
net assets of Class A shares of the Funds held by dealers or their customers.
Both Funds have also adopted Distribution and Service Plans under Rule 12b-1 for
their Class B and Class C shares to compensate the Distributor for services in
connection with distribution. Under these Plans, the Funds pay the Distributor a
service fee at an annual rate of 0.25% of average annual net assets of Class B
and Class C shares and an asset-based charge at an annual rate of 0.75% of net
assets on Class B and Class C shares, whether the distribution expenses are more
or less than the amounts paid by the Distributor under the Plan during the
period. The Distributor then uses service fees to compensate dealers for
providing personal services and maintaining shareholder accounts. The terms of
the Service Plan and Agreement and the Distribution and Service Plan are
substantially the same for both Funds.
For a detailed description of each Fund's distribution-related services,
see section entitled "Comparison of Investment Objectives and Policies - How do
the account features and shareholder services for the Funds compare?"
Purchases, Redemptions, Exchanges and other Shareholder Services - Both
Funds have the same requirements and restrictions in connection with purchases,
redemptions and exchanges. In addition, each Fund also offers the same types of
shareholder services. More detailed information regarding purchases,
redemptions, exchanges and shareholder services can be found below in the
section "Comparison of Investment Objectives and Policies - How do the account
features and shareholder services for the Funds compare?"
Dividends and Distributions - Both Funds declare dividends separately for
each class of shares from net tax-exempt income and/or net investment income
each regular business day and pay those dividends to shareholders monthly on a
date selected by the Boards of each Fund. Daily dividends will not be declared
or paid on newly-purchased shares until Federal Funds are available to the Funds
from the purchase payment for those shares.
For a detailed description of each Fund's policy on dividends and
distributions, see the section entitled "Comparison of Investment Objectives and
Policies - How do the Account Features and Shareholder Services for the Funds
Compare?"
What are the principal risks of an investment in the Municipal Bond Fund?
As with most investments, investments in Municipal Bond Fund and Insured
Municipal Fund involve risks. There can be no guarantee against loss resulting
from an investment in either Fund, nor can there be any assurance that either
Fund will achieve its investment objective. The risks associated with an
investment in each Fund are similar and include risks associated with tax-exempt
and other fixed income investments generally, such as interest rate and credit
risks. There are, however, some distinctions in the investment programs of
Municipal Bond Fund and Insured Municipal Fund. Specifically, there are
differences in the variety of permitted investments and risks associated with
such investments, and the percentage of investments in non-investment grade
securities.
For more information about the risks of the Funds, see the section
entitled "Comparison of Investment Objectives and Policies - What are the risk
factors associated with investments in the Funds?"
REASONS FOR THE REORGANIZATION
The Manager proposed to the Board of Trustees of the Trust, on behalf of
Insured Municipal Fund, a reorganization into Municipal Bond Fund so that
shareholders of Insured Municipal Fund may become shareholders of a
substantially larger fund advised by the same investment advisor with a similar
investment objective. The Board also considered the fact that Municipal Bond
Fund has the potential for lower overall operating expenses. The Board also
considered that the Reorganization would be a tax-free reorganization, and there
would be no sales charge imposed in effecting the Reorganization. In addition,
due to the relatively moderate costs of the reorganization, the Boards of both
Funds concluded that neither Fund would experience dilution as a result of the
Reorganization.
The Board reviewed information demonstrating that Insured Municipal Fund
is a smaller fund with approximately $118 million in net assets as of March 31,
2000. The Board anticipates that Insured Municipal Fund's assets will not
increase substantially in size in the near future. By comparison, Municipal Bond
Fund had approximately $575 million in net assets as of March 31, 2000. In 1999,
the net assets of both Funds decreased. Specifically, Insured Municipal Fund's
net assets decreased by 12%, while Municipal Bond Fund's net assets decreased by
15% for the calendar year ended December 31, 1999. After the Reorganization, the
shareholders of Insured Municipal Fund would become shareholders of a larger
fund that has lower overall operating expenses, than Insured Municipal Fund.
Economies of scale may benefit shareholders of Insured Municipal Fund.
The Reorganization Agreement was presented to the Board of Trustees of the
Trust on behalf of Insured Municipal Fund at a meeting held on February 29,
2000. At the meeting, the Board questioned the Manager about the potential
benefits and costs to shareholders of Insured Municipal Fund. In deciding
whether to recommend approval of the Reorganization to shareholders, the Board
considered, among other things: the expense ratios of Insured Municipal Fund and
Municipal Bond Fund; the comparative investment performance of the two Funds;
the investment objectives and policies, restrictions and investments of the two
Funds; the tax consequences of the Reorganization; and the significant
experience of the management team. The Board noted that the Fund's arrangements
for the purchase, sale and/or exchange of shares are also substantially the
same. The Board also noted that each Fund will pay for its own Reorganization
expenses incurred, including the opinion of tax counsel, and that the
Reorganization is expected to be tax-free to shareholders and the Funds.
The Board concluded that the Reorganization is in the best interests of
the shareholders of Insured Municipal Fund and that no dilution would result to
shareholders from the Reorganization. It then decided to approve the
Reorganization Agreement and to recommend that shareholders of Insured Municipal
Fund vote to approve the Reorganization. As required by law, the Trustees
approving the Reorganization Agreement included a majority of the Trustees who
are not interested persons of Insured Municipal Fund.
The Board's conclusion was based on a number of factors, including that
the Reorganization would permit shareholders to pursue their investment goals in
a larger fund. A larger fund should have an enhanced ability to effect portfolio
transactions on more favorable terms and should have greater investment
flexibility. A fund with higher aggregate net assets may also be able to reduce
certain costs and expenses. This may result in lower overall expense ratios
through the spreading of fixed costs of fund operations over a larger asset
base. However, variable expenses that are based on the value of assets or the
number of shareholder accounts, such as custody and transfer agent fees, would
be largely unaffected by the Reorganization. In addition, information provided
to the Board indicated that total operating expenses of Class A shares of the
surviving Municipal Bond Fund will decrease slightly as compared to Insured
Municipal Fund, and the total operating expenses of Municipal Bond Fund's Class
B and Class C shares will remain the same.
The Board of Municipal Bond Fund also determined that the Reorganization
was in the best interests of Municipal Bond Fund and its shareholders and
that no dilution would result to shareholders. Municipal Bond Fund
shareholders do not vote on the Reorganization.
For the reasons discussed above, the Board, on behalf of Insured Municipal
Fund, recommends that you vote FOR the Reorganization Agreement. If the
shareholders of Insured Municipal Fund do not approve the Reorganization
Agreement, the Board will consider other possible courses of action for Insured
Municipal Fund, including dissolution and liquidation.
INFORMATION ABOUT THE REORGANIZATION
This is only a summary of the Reorganization Agreement. You should read
the actual form of Reorganization Agreement. It is attached as Exhibit A.
How will the Reorganization be carried out?
If the shareholders of Insured Municipal Fund approve the Reorganization
Agreement, the Reorganization will take place after various conditions are
satisfied by Insured Municipal Fund and Municipal Bond Fund, including delivery
of certain documents. The closing date is presently scheduled for November 9,
2000 and the Valuation Date is presently scheduled for November 8, 2000. If
shareholders of Insured Municipal Fund do not approve the Reorganization
Agreement, the Reorganization will not take place.
If shareholders of Insured Municipal Fund approve the Reorganization
Agreement, Insured Municipal Fund will deliver to Municipal Bond Fund
substantially all of its assets on the closing date. In exchange, shareholders
of Insured Municipal Fund will receive Class A, Class B and Class C Municipal
Bond Fund shares that have a value equal to the dollar value of the assets
delivered by Insured Municipal Fund to Municipal Bond Fund. Insured Municipal
Fund will then be liquidated and its outstanding shares will be cancelled. The
stock transfer books of Insured Municipal Fund will be permanently closed at the
close of business on the Valuation Date. Only redemption requests received in
proper form by the Transfer Agent on or before the close of business on the
Valuation Date shall be fulfilled by Insured Municipal Fund. Redemption requests
received after that time will be considered requests to redeem shares of
Municipal Bond Fund.
Shareholders of Insured Municipal Fund who vote their Class A, Class B or
Class C shares in favor of the Reorganization will be electing in effect to
redeem their shares of Insured Municipal Fund at net asset value on the
Valuation Date, after Insured Municipal Fund subtracts a cash reserve, and
reinvest the proceeds in Class A, Class B or Class C shares of Municipal Bond
Fund at net asset value. The cash reserve is that amount retained by Insured
Municipal Fund which is deemed sufficient in the discretion of the Board for the
payment of the Fund's outstanding debts and expenses of liquidation. If the cash
reserve is insufficient to satisfy any of Insured Municipal Fund's liabilities,
the Manager will assume responsibility for any such unsatisfied liability.
Municipal Bond Fund is not assuming any debts of Insured Municipal Fund except
debts for unsettled securities transactions and outstanding dividend and
redemption checks. Insured Municipal Fund will recognize capital gain or loss on
any sales of portfolio securities made prior to the Reorganization.
Under the Reorganization Agreement, within one year after the Closing
Date, Insured Municipal Fund shall: (a) either pay or make provision for all of
its debts and taxes; and (b) either (i) transfer any remaining amount of the
cash reserve to Municipal Bond Fund, if such remaining amount is not material
(as defined below) or (ii) distribute such remaining amount to the shareholders
of Insured Municipal Fund who were shareholders on the Valuation Date. If the
remaining Cash Reserve is distributed to former Insured Municipal Fund
shareholders, such distribution would be considered a return of capital for
federal income tax purposes, reducing the tax basis of the shares received in
the Reorganization, should it be approved. Such remaining amount shall be deemed
to be material if the amount to be distributed, after deducting the estimated
expenses of the distribution, equals or exceeds one cent per share of the number
of Insured Municipal Fund shares outstanding on the Valuation Date. Within one
year after the Closing Date, Insured Municipal Fund will complete its
liquidation.
The Reorganization Agreement provides for coordination between the Funds
as to their respective portfolios so that, after the closing, Municipal Bond
Fund will be in compliance with all of its investment policies and restrictions.
Insured Municipal Fund will recognize a capital gain or loss on any sales made
prior to the Reorganization pursuant to this paragraph. While any such
coordination may increase the taxable distributions to Insured Municipal Fund
shareholders described below, any such coordination is intended to be consistent
with a tax-free reorganization for federal income tax purposes.
Under the Reorganization Agreement, either Insured Municipal Fund or
Municipal Bond Fund may abandon and terminate the Reorganization Agreement
without liability to the other party. See Exhibit A attached hereto.
To the extent permitted by law, the Funds may agree to amend the
Reorganization Agreement without shareholder approval. They may also agree to
terminate and abandon the Reorganization at any time before or, to the extent
permitted by law, after the approval of shareholders of Insured Municipal Fund.
Who will pay the expenses of the Reorganization?
The Funds will bear the cost of the tax opinion. Any documents such as
existing prospectuses or annual reports that are included in the proxy statement
mailing or at a shareholder's request will be a cost of the Fund issuing the
document. Any other out-of-pocket expenses, including legal, accounting and
transfer agent expenses associated with the Reorganization will be paid by
Insured Municipal Fund and Municipal Bond Fund, respectively, in amounts
incurred by each. Management estimates that such expenses associated with the
Reorganization to be borne by Insured Municipal Fund should not exceed $41,000.
Liabilities as of the date of the transfer of assets will consist primarily of
accrued but unpaid normal operating expenses of Insured Municipal Fund,
excluding the cost of any portfolio securities purchased but not yet settled and
outstanding shareholder redemption and dividend checks.
What are the tax consequences of the Reorganization?
The Reorganization is intended to qualify as a tax-free reorganization for
federal income tax purposes under Section 368(a)(1) of the Internal Revenue Code
of 1986, as amended. Based on certain assumptions and representations received
from Insured Municipal Fund, and Municipal Bond Fund, it is expected to be the
opinion of KPMG LLP, tax advisor to the Funds, that shareholders of Insured
Municipal Fund will not recognize any gain or loss for federal income tax
purposes as a result of the exchange of their shares for shares of Municipal
Bond Fund, and that shareholders of Municipal Bond Fund will not recognize any
gain or loss upon receipt of Insured Municipal Fund's assets. Neither Fund will
recognize gain as a result of the Reorganization.
Immediately prior to the Valuation Date, Insured Municipal Fund will pay a
dividend(s) which will have the effect of distributing to Insured Municipal
Fund's shareholders all of Insured Municipal Fund's net investment company
income for tax years ending on or prior to the Closing Date (computed without
regard to any deduction for dividends paid) and all of its net capital gains, if
any, realized in tax years ending on or prior to the Closing Date (after
reduction for any available capital loss carry-forward). For the most part,
dividends representing net tax exempt investment company income are expected not
to be taxable under federal personal income taxes. However, to the extent that
any dividends include income taxable for federal personal income tax purposes,
that income and any capital gains distributions that are paid will be included
in the taxable income of Insured Municipal Fund's shareholders as ordinary
income and capital gain, respectively.
You will continue to be responsible for tracking the purchase cost and
holding period of your shares and should consult your tax advisor regarding the
effect, if any, of the Reorganization in light of your individual circumstances.
You should also consult your tax advisor as to state and local and other tax
consequences, if any, of the Reorganization because this discussion only relates
to federal income tax consequences.
What should I know about Class A, Class B and Class C shares of Municipal Bond
Fund?
The rights of shareholders of both Funds are substantially the same. Class
A, Class B and/or Class C shares of Municipal Bond Fund will be distributed to
shareholders of Class A, Class B and Class C Insured Municipal Fund
shareholders, respectively, in connection with the Reorganization. Each share
will be fully paid and nonassessable when issued with no personal liability
attaching to the ownership thereof, will have no preemptive or conversion rights
and will be transferable on the books of Municipal Bond Fund. The shares of
Municipal Bond Fund will be recorded electronically in each shareholder's
account. Municipal Bond Fund will then send a confirmation to each shareholder.
As described in its prospectus, Municipal Bond Fund does not issue share
certificates for its Class B and Class C shares. Former Class A shareholders of
Insured Municipal Fund who wish to have certificates representing their shares
of Municipal Bond Fund must make a written request to the Transfer Agent.
Shareholders of Insured Municipal Fund holding certificates representing their
shares will not be required to surrender their certificates in connection with
the reorganization. However, former Class A shareholders of Insured Municipal
Fund whose shares are represented by outstanding share certificates will not be
allowed to redeem class shares of Municipal Bond Fund they receive in the
Reorganization until the certificates for the exchanged Insured Municipal Fund
have been returned to the Transfer Agent.
Like Insured Municipal Fund, Municipal Bond Fund does not routinely hold
annual shareholder meetings. Municipal Bond Fund and Insured Municipal Fund do
not have cumulative voting rights. Insured Municipal Fund, as a series of
Oppenheimer Municipal Fund, and Municipal Bond Fund are organized as
Massachusetts business trusts. Under certain circumstances, shareholders of
either Fund may be held personally liable as partners for such Fund's
obligations, however, under the Declaration of Trust governing each of the
Funds, such a shareholder is entitled to certain indemnification rights and the
risk of a shareholder incurring any such loss is limited to the remote
circumstances in which a Fund is unable to meet its obligations.
What are the capitalizations of the Funds and what might the
capitalization be after the Reorganization?
The following table sets forth the capitalization (unaudited) of Insured
Municipal Fund and Municipal Bond Fund and indicates the pro forma combined
capitalization as of March 31, 2000 as if the Reorganization had occurred on
that date.
Net Asset
Shares Value
Net Assets Outstanding Per Share
Insured Municipal Fund
Class A $ 92,253,576 5,722,200 $16.12
Class B $ 21,874,843 1,356,038 $16.13
Class C $ 4,238,061 262,924 $16.12
Municipal Bond Fund
Class A $ 499,512,113 53,430,137 $ 9.35
Class B $ 63,714,846 6,829,894 $ 9.33
Class C $ 11,960,346 1,282,255 $ 9.33
Municipal Bond Fund
(Pro Forma Surviving Fund)
Class A $ 591,765,689 63,296,830 $ 9.35*
Class B $ 85,589,689 9,174,465 $ 9.33*
Class C $ 16,198,407 1,736,495 $ 9.33*
* Reflects the issuance of 8,866,693 Class A shares, 2,344,571 Class B shares
and 454,240 Class C shares of Municipal Bond Fund in a tax-free exchange for the
net assets of Insured Municipal Fund, aggregating $118,366,480.
COMPARISON OF INVESTMENT OBJECTIVES AND POLICIES
This section describes key investment policies of Insured Municipal Fund
and Municipal Bond Fund, and certain noteworthy differences between the
investment objectives and policies of the two Funds. For a complete description
of Municipal Bond Fund's investment policies and risks please review its
prospectus dated November 19, 1999, which accompanies this Prospectus/Proxy
Statement.
Are there any significant differences between the investment objectives and
strategies of the two Funds?
In considering whether to approve the Reorganization, shareholders of Insured
Municipal Fund should consider the differences in investment objectives,
policies and risks of the Funds. Additional information about Municipal Bond
Fund is set forth in its Prospectus, accompanying this Prospectus/Proxy
Statement and incorporated herein by reference, and additional information about
both Funds is set forth in documents that may be obtained upon request to the
transfer agent or upon review at the offices of the SEC. See "Information about
Insured Municipal Fund" and "Information about Municipal Bond Fund."
Insured Municipal Fund's investment objective is to seek a high level of
current income exempt from federal income taxes by investing in municipal
securities. Municipal Bond Fund's investment objective is to seek maximum
current interest income exempt from federal income taxes by investing in
municipal securities, while attempting to preserve capital. The investment
policies of the Funds differ slightly. Insured Municipal Fund, as a
non-fundamental investment policy, invests at least 80% of its total assets in
municipal securities and at least 65% of its assets in insured and
"pre-refunded" municipal securities. Municipal Bond Fund, as a matter of
fundamental policy, invests at least 80% of its assets in municipal securities.
With respect to below investment grade investments, Insured Municipal Fund
limits such investments to 10% or less of its total assets while Municipal Bond
Fund limits such investments to 25% or less of its total assets. Both Funds
currently emphasize investment in municipal securities with long-term maturities
and may invest in municipal securities subject to the alternative minimum tax
(i.e. AMT municipal securities).
How do the investment policies of the two Funds compare?
Municipal Securities. The municipal securities that both Funds invest in
primarily include municipal bonds (which are long-term obligations), municipal
notes (short-term obligations), and interests in municipal leases. Both Funds
invest mainly in municipal securities. Municipal securities are securities
issued by the governments of the District of Columbia and other states as well
as their political subdivisions, authorities, instrumentalities and agencies,
and securities issued by any commonwealths, territories or possessions of the
United States, or their respective agencies, instrumentalities or authorities,
if the interest paid on the security is not subject to federal personal income
tax (in the opinion of bond counsel to the issuer at the time the security is
issued).
The Funds 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 Funds 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
revenue obligations are private activity bonds that pay interest that may be a
tax preference item for investors subject to alternative minimum tax.
Insured Municipal Securities. Insured Municipal Fund invests at least 65%
of its assets in "insured municipal securities." These securities include (1)
securities that have an insurance policy covering the payment of all
installments of interest and repayment of principal and (2) "pre-refunded"
municipal securities. Although insurance reduces the effects of risks of
default, insurance on municipal securities that Insured Municipal Fund buys does
not guarantee or insure the market value of those securities or Insured
Municipal Fund's share prices. If an issuer defaults on an insured municipal
security, the payment of the claim under the insurance policy depends on the
claims-paying ability of the insurance company.
In a "pre-refunding" the issuer of a municipal security issues a second
bond to raise cash to pay off the first bond at its call date or dates. The
proceeds of the second bond are invested in U.S. Treasury securities that mature
on the call date as security for the payment. Because of the collateral
arrangement, these bonds typically are rated in the highest rating category of
national rating organizations and are considered by Insured Municipal Fund to
have credit protection equivalent to that of insured securities. However, these
securities also typically offer a lower interest rate than the rate prevailing
in the market for comparable issues that do not have collateral arrangements.
Ratings of Municipal Securities the Funds Buy. Most of the municipal
securities both Funds buy are "investment-grade" at the time of purchase.
Insured Municipal Fund and Municipal Bond Fund do not invest more than 10% and
25%, respectively, of their 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, the international rating agency, or other nationally recognized
rating organizations, or (if unrated) judged by the Manager to be comparable to
rated investment-grade securities.
The Manager may rely to some extent on credit ratings by
nationally-recognized rating organizations in evaluating the credit risk of
securities selected for either Fund's portfolio. It also uses 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.
If the securities are not rated, the Manager will use its judgment to
assign a rating to a security comparable to that of a rating agency. Insured
Municipal Fund limits its investments in unrated securities to 10% or less of
its total assets while Municipal Bond Fund limits its investments in unrated
securities to 25% or less of its total assets. If the rating of a security is
reduced after either Fund buys it, that Fund is not required automatically to
dispose of that security. However, the Manager will evaluate those securities to
determine whether to keep them in the Fund's portfolio.
Special Credit Risks of Lower-Grade Securities. Lower-grade municipal
securities (these are sometimes called "junk bonds") may be subject to greater
market fluctuations and greater risks of loss of income and principal than
higher-grade 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
governments to obtain funds to acquire land, equipment or facilities. Both Funds
can invest in certificates of participation that represent a proportionate
interest in payments made under municipal lease obligations. Most municipal
leases, while secured by the leased property, are not general obligations of the
issuing municipality. They often contain "non-appropriation" clauses under which
the municipal government has no obligation to make lease or installment payments
in future years unless money is appropriated on a yearly basis. If the
government stops making payments or transfers its payment obligations to a
private entity, the obligation could lose value or become taxable.
Other Investment Strategies. To seek their objectives, the Funds can also
use the investment techniques and strategies described below. The Funds might
not always use all of them. These techniques have certain risks although some
are designed to help reduce overall investment or market risks.
o 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 form of derivative investment. 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 Funds when
the Funds have invested in inverse floaters that expose the Funds to the risk
of short-term interest rate fluctuations. "Embedded" caps can be used to
hedge a portion of the Funds' 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 Funds bear 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. Neither Fund can invest more than 20% of its total
assets in inverse floaters.
o Other Derivatives. Both Funds can also invest in other derivative investments
that pay interest that depends on the change in value of an underlying asset,
interest rate or index. Examples are hedging instruments, interest rate
swaps, municipal bond indices or swap indices.
Derivatives have risks. If the issuer of the derivative investment does not
pay the amount due, the Fund can lose money on the investment. The underlying
security or investment on which a derivative is based, and the derivative
itself, may not perform the way the Manager expected it to. As a result of
these risks the Fund could realize less principal or income from the
investment than expected or its hedge might be unsuccessful. As a result, the
Fund's share prices could fall. Certain derivative investments held by the
Fund might be illiquid.
Hedging. Both Funds can buy and sell futures contracts, put and call options,
and enter into interest rate swap agreements. These are all referred to as
"hedging instruments." Neither Fund may use hedging for speculative purposes.
Currently, neither Fund uses hedging extensively. Both Funds have limits on
their use of hedging instruments and are not required to use them in seeking
their objective.
Hedging involves risk. If the Manager uses a hedging instrument at the wrong
time or judges market conditions incorrectly, the strategy could reduce the
Fund's return. The Funds could also experience losses if the prices of its
futures and options positions were not correlated with their other
investments or if they could not close out a position because of an illiquid
market for the future or option.
Interest rate swaps are subject to credit risks (if the other party fails to
meet its obligations) and also to interest rate risks. The Funds could be
obligated to pay more under their swap agreements than they receive under
them, as a result of interest rate changes. The Funds may not enter into
swaps with respect to more than 25% of its total assets.
o When-Issued and Delayed-Delivery Transactions. Both Funds may purchase
municipal securities on a "when-issued" basis and may purchase or sell such
securities on a "delayed-delivery" basis. Between the purchase and
settlement, no payment is made for the security and no interest accrues to
the buyer from the investment. There is a risk of loss to the Funds if the
value of the security declines prior to the settlement date.
o Puts and Stand-By Commitments. Both Funds can acquire "stand-by commitments"
or "puts" with respect to municipal securities. The Funds obtain 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. Both Funds acquire stand-by commitments or puts solely
to enhance portfolio liquidity.
o Illiquid and Restricted 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. Neither Fund will
invest more than 15% of its net assets in illiquid securities. A
restricted security is one that has a contractual restriction on its resale
or which cannot be sold publicly until it is registered under the
Securities Act of 1933. Certain restricted securities that are eligible
for resale to qualified institutional buyers may not be subject to that
limit. The Manager monitors holdings of illiquid securities on an ongoing
basis to determine whether to sell any holdings to maintain adequate
liquidity. Municipal Bond Fund cannot buy securities that have a
restriction on resale.
o Temporary Defensive Investments. Both Funds can invest up to 100% of
their 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 Funds might not achieve their objectives. The Funds can
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.
o Loans of Portfolio Securities. Both Funds can lend their portfolio
securities to brokers, dealers and other financial institutions. A Fund
might do so to raise cash for liquidity purposes. These loans are limited
to not more than 5% of the value of the Insured Municipal Fund's total
assets and not more than 25% of the value of Municipal Bond 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. Neither Fund
presently intends to engage in loans of securities that will exceed 5% of
the value of that Fund's total assets. 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, a 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 or others. A Fund can
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 a Fund to reacquire loaned
securities on five days' notice or in time to vote on any important matter.
o Zero-Coupon Securities. Municipal Bond Fund can 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 and
long duration.
o Repurchase Agreements. Both Funds can acquire securities subject to
repurchase agreements. They 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 transactions. 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.
Repurchase agreements having a maturity beyond seven days are subject to the
Funds' limits on holding illiquid investments. There is no limit on the
amount of Municipal Bond Fund's net assets that may be subject to repurchase
agreements of seven days or less. Insured Municipal Fund will not enter into
transactions that will cause more than 25% of its net assets to be subject to
repurchase agreements. Because income earned on repurchase transactions is
not tax-exempt, under normal market conditions the Funds will limit their
repurchase transactions to 20% of their total assets. That limit may be
exceeded if the Funds use repurchase agreements as temporary defensive
investments.
What are the fundamental investment restrictions of the Funds?
Both Insured Municipal Fund and Municipal Bond Fund have certain
additional investment restrictions that, together with their investment
objectives are fundamental policies, changeable only by shareholder approval.
Generally, these investment restrictions are similar between the Funds. They are
discussed below. Fundamental policies govern the Funds' activities and cannot be
changed without shareholder approval.
o Neither Fund can lend money except in connection with the acquisition of debt
securities and repurchase agreements as permitted by its investment policies
and restrictions. Both Funds can also make loans of portfolio securities,
subject to the restrictions listed in each Funds' Statement of Additional
Information and summarized above.
o Neither Fund can 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.
o Municipal Bond Fund cannot invest in any other securities other than
municipal securities, temporary defensive investments, repurchase agreements,
covered calls, private activity municipal securities and hedging instruments.
o Insured Municipal Fund cannot invest in interests in oil, gas or other
mineral exploration or development programs.
o Insured Municipal Fund, with respect to 75% of its total assets, cannot buy
securities issued or guaranteed by any one issuer (except the U.S. Government
or any of its agencies or instrumentalities) if more than 5% of its total
assets would be invested in securities of that issuer or Insured Municipal
Fund would then own more than 10% of that issuer's voting securities.
o Municipal Bond Fund cannot invest more than 5% of the value of its total
assets in the securities of any one issuer. Municipal Bond 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.
o Neither Fund can invest in real estate. However, the Funds are permitted to
invest in municipal securities or other permissible securities or instruments
secured by real estate or interests in real estate.
o Neither Fund can purchase securities on margin. However, they can make margin
deposits when using hedging instruments permitted by any of their other
policies. Insured Municipal Fund can invest in options, futures, options on
futures and similar instruments. Additionally, Municipal Bond Fund may obtain
such short-term credits that may be necessary for the clearance of purchases
and sales of securities.
o Neither Fund can sell securities short.
o Insured Municipal Fund cannot invest in companies for the purpose of
acquiring control or management of those companies.
o Neither Fund can underwrite securities of other companies. A permitted
exception for Insured Municipal Fund is in case it is deemed to be an
underwriter under the Securities Act of 1933 when reselling any securities
held in its own portfolio.
o Municipal Bond Fund cannot invest in securities that are subject to
restrictions on resale.
o Neither Fund can invest in or hold securities of any issuer if officers and
directors or trustees of the funds 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.
o Insured Municipal Fund cannot invest in securities of any other investment
companies, except if they are acquired as part of a merger, consolidation or
other acquisition. Municipal Bond Fund cannot invest in securities of any
other investment company, except in connection with a merger with another
investment company.
o Insured Municipal Fund cannot borrow money, except from banks for
temporary purposes in amounts not in excess of 5% of the value of the
Fund's assets. No assets of the Fund may be pledged, mortgaged or
hypothecated except to secure a borrowing, and in that case no more than
10% of the Fund's total assets may be pledged, mortgaged or hypothecated.
Borrowings may not be made for leverage, but only for liquidity purposes to
satisfy redemption requests when the liquidation of portfolio securities is
considered inconvenient or disadvantageous. However, the Fund can enter
into when-issued and delayed-delivery transactions.
o Municipal Bond 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.
o Neither Fund can issue "senior securities," (this is not a fundamental
policy for Municipal Bond Fund but it will not be changed without the
approval of shareholders) but this does not prohibit certain investment
activities for which assets of the Funds are designated as segregated, or
margin, collateral or escrow arrangements are established, to cover the
related obligations. Examples of those activities include borrowing money,
reverse repurchase agreements, delayed-delivery and when-issued
arrangements for portfolio securities transactions, and contracts to buy or
sell derivatives, hedging instruments, options or futures.
What are the risk factors associated with investments in the Funds?
Like all investments, an investment in both of the Funds involves risk.
There is no assurance that the Funds will meet their investment objectives. The
achievement of the Funds' goals depends upon market conditions, generally, and
on the portfolio managers' analytical and portfolio management skills. There is
a risk that poor security selection by the Manager will cause the Funds to
underperform other funds having a similar objective. Insured Municipal Fund
invests at least 65% of its assets in insured municipal securities. Otherwise,
the risks of the Funds are basically the same as those of other investments in
municipal securities and other fixed income securities of similar quality.
Interest Rate Risk. Changes in interest rates will affect the value of
each Fund's portfolio and its share prices. Interest rate risk is the risk that
changes in interest rates can reduce the value of a security. Municipal
securities are subject to changes in value when prevailing interest rates
change. When interest rates fall, the values of already-issued 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 or duration. The Funds
currently focus on longer term securities to seek higher income. Therefore, its
share prices may fluctuate more when interest rates change.
Income Risk. Income Risk is the risk that a Fund's income will decrease
due to falling interest rates. Since a Fund can only distribute what it earns, a
Fund's distributions to its shareholders may decline when interest rates fall.
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. A Fund may also suffer if an issuer's ability
to make payments of interest or principal, or likelihood of payment of interest
or principal is perceived to decline. Insured Municipal Fund and Municipal Bond
Fund may each invest as much as 10% and 25%, respectively, of their assets in
municipal securities below investment grade to seek higher income. Municipal
Bond Fund's credit risks are greater than those of funds that buy only
investment-grade bonds and potentially greater than the credit risks associated
with Insured Municipal Fund. Currently, neither Fund is invested in below
investment grade securities. Insured Municipal Fund's investments in insured
municipal securities help reduce some of the possible effects of credit risk to
the Fund. To help reduce credit risk, Insured Municipal Fund focuses on
investment-grade securities. Credit ratings are not guarantees of an issuer's
timely payment of obligations and a downgrade or other adverse news about an
issuer can reduce a security's market value.
Risks of Using Derivative Investments. The Funds can use derivatives to
seek increased income or to try to hedge certain investment risks. In general
terms, a derivative investment is an investment contract whose value depends on
(or is derived from) the value of an underlying asset, interest rate or index.
Options, futures, "inverse floaters," and interest rate swaps are examples of
derivatives the Funds use.
If the issuer of the derivative investment does not pay the amount due,
the Funds can lose money on their investment. Also, the underlying security or
investment on which the derivative is based, and the derivative itself, might
not perform the way the Manager expected it to perform. If that happens, the
Funds will get less income than expected, or their hedge might be unsuccessful,
and their share prices could fall. The Funds have limits on the amount of
particular types of derivatives they can hold. However, using derivatives can
increase the volatility of the Funds' share prices. Some derivatives may be
illiquid, making it difficult for the Funds to sell them quickly at an
acceptable price.
Risks of Lower-Grade Securities. Insured Municipal Fund may invest up to
10% of its total assets and Municipal Bond Fund may invest up to 25% of its
total assets in lower grade securities. These 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.
How do the account features and shareholder services for the Funds compare?
Investment Management - Pursuant to each investment advisory agreement,
the Manager acts as the investment advisor for the Funds and supervises the
investment program of the Funds. The investment advisory agreements state that
the Manager will provide administrative services for the Funds, including
compilation and maintenance of records, preparation and filing of reports
required by the SEC, reports to shareholders, and composition of proxy
statements and registration statements required by Federal and state securities
laws. Further, the Manager has agreed to furnish the Funds with office space,
facilities and equipment and arrange for its employees to serve as officers of
the Funds.
Expenses not expressly assumed by the Manager under each Fund's advisory
agreement or by the Distributor under the General Distributor's Agreement are
paid by the Funds. The investment advisory agreements list examples of expenses
paid by the Funds, the major categories of which relate to interest, taxes,
brokerage commissions, fees to certain Directors, Trustees, legal and audit
expenses, custodian and transfer agent expenses, share issuance costs, certain
printing and registration costs and non-recurring expenses, including litigation
costs.
Both investment advisory agreements generally provide that in the absence
of willful misfeasance, bad faith, gross negligence in the performance of its
duties or reckless disregard of its obligations and duties under the investment
advisory agreement, the Manager is not liable for any loss sustained by reason
of good faith errors or omissions in connection with any matters to which the
agreement(s) relate. The agreements permit the Manager to act as investment
advisor for any other person, firm or corporation. Pursuant to each agreement,
the Manager is permitted to use the name "Oppenheimer" in connection with other
investment companies for which it may act as investment advisor or general
distributor. If the Manager shall no longer act as investment advisor to the
Funds, the Manager may withdraw the right of the Funds to use the name
"Oppenheimer" as part of their names.
The Manager is controlled by Oppenheimer Acquisition Corp., a holding
company owned in part by senior management of the Manager and ultimately
controlled by Massachusetts Mutual Life Insurance Company, a mutual life
insurance company that also advises pension plans and investment companies. The
Manager has been an investment advisor since January 1960. The Manager
(including subsidiaries and an affiliate) managed more than $120 billion in
assets as of March 31, 2000, 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. OppenheimerFunds Services, a division
of the Manager, acts as transfer and shareholder servicing agent on an at-cost
basis for both Insured Municipal Fund and Municipal Bond Fund and for certain
other open-end funds managed by the Manager and its affiliates.
Distribution - Pursuant to General Distributor's Agreements, the
Distributor acts as principal underwriter in a continuous public offering of
shares of Insured Municipal Fund and Municipal Bond Fund, but is not obligated
to sell a specific number of shares. Expenses normally attributable to sales,
including advertising and the cost of printing and mailing prospectuses other
than those furnished to existing shareholders, are borne by the Distributor,
except for those for which the Distributor is paid under each Fund's Rule 12b-1
Distribution and Service Plan described below.
Both Funds have adopted a Service Plan and Agreement under Rule 12b-1 of
the Investment Company Act for their Class A shares. Each Plan reimburses the
Distributor for a portion of its costs incurred in connection with the personal
service and maintenance of accounts that hold Class A shares. Under each plan,
reimbursement is made quarterly at an annual rate that may not exceed 0.25% of
the average annual net assets of Class A shares of the Fund. The Distributor
currently uses all of those fees to reimburse dealers, brokers, banks and other
financial institutions quarterly for expenses they incur in providing personal
service and maintenance of accounts of their customers that hold Class A shares.
Both Funds have adopted Distribution and Service Plans under Rule 12b-1 of
the 1940 Act for their Class B and Class C shares. Each Plan compensates the
Distributor for its services and costs in distributing Class B and Class C
shares and servicing accounts. Under each Plan, the Funds pay the Distributor an
asset-based sales charge at an annual rate of up to 0.75% per year. The
Distributor also receives a service fee of 0.25% per year under each plan. All
fee amounts are computed on the average annual net assets of the class
determined as of the close of each regular business day of each Fund. The Class
B asset-based sales charge is retained by the Distributor. After the first year,
the Class C asset-based sales charge is paid to the broker-dealer as an ongoing
concession for shares that have been outstanding for a year or more.
Purchases and Redemptions - Both Funds are part of the OppenheimerFunds
family of funds. The procedures for purchases, exchanges and redemptions of
shares of the Funds are the same. Shares of either Fund may be exchanged for
shares of the same class of other Oppenheimer funds offering such shares.
Exchange privileges are subject to amendment or termination at any time.
Both Funds offer the same initial and subsequent minimum investment
amounts for the purchase of shares. These amounts are $1,000 and $25,
respectively. Both Funds have a maximum initial sales charge of 4.75% on Class A
shares for purchases of less than $50,000. The sales charge of 4.75% is reduced
for purchases of Class A shares of $50,000 or more. Investors who purchase $1
million or more of Class A shares pay no initial sales charge but may have to
pay a contingent deferred sales charge of up to 1% if the shares are sold within
18 calendar months from the end of the calendar month during which they were
purchased. Class B shares of the Funds are sold without a front-end sales charge
but may be subject to a contingent deferred sales charge ("CDSC") upon
redemption depending on the length of time the shares are held. The CDSC begins
at 5% for shares redeemed in the first year and declines to 1% in the sixth year
and is eliminated after that.
Class A, Class B and Class C shares of Municipal Bond Fund received in the
Reorganization will be issued at net asset value, without a sales charge and no
CDSC will be imposed on any Insured Municipal Fund shares exchanged for
Municipal Bond Fund shares as a result of the Reorganization. However, any CDSC
that applies to Insured Municipal Fund shares as of the date of the exchange
will carry over to Municipal Bond Fund shares received in the Reorganization.
Shareholder Services - Both Funds also offer the following privileges: (i)
Right of Accumulation, (ii) Letter of Intent, (iii) reinvestment of dividends
and distributions at net asset value, (iv) net asset value purchases by certain
individuals and entities, (v) Asset Builder (automatic investment) Plans, (vi)
Automatic Withdrawal and Exchange Plans for shareholders who own shares of the
Fund valued at $5,000 or more, (vii) AccountLink and PhoneLink arrangements,
(viii) exchanges of shares for shares of the same class of certain other funds
at net asset value, and (ix) telephone redemption and exchange privileges. All
of such services and privileges are subject to amendment or termination at any
time and are subject to the terms of the Fund's respective prospectuses.
Dividends and Distributions - Both Funds attempt to pay dividends on their
Class A shares at a constant per share level. There is no assurance that they
will be able to do so. The Boards of the Funds may change the targeted dividend
level at any time, without prior notice to shareholders. Additionally, the
amount of dividends and the distributions paid on Class A, Class B or Class C
shares may vary over time, depending on market conditions, the composition of
the Funds' portfolios, and expenses borne by the particular class of shares.
Dividends paid on Class A shares will generally be higher than those paid on
Class B or Class C shares, which normally have higher expenses than Class A.
There can be no guarantee that either Fund will pay any dividends or
distributions.
Although neither Fund seeks capital gains, either Fund 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 Funds may make supplemental distributions of dividends and capital gains
following the end of their fiscal years.
VOTING INFORMATION
How many votes are necessary to approve the Reorganization Agreement?
The affirmative vote of the holders of a majority of the total number of
shares of Insured Municipal Fund outstanding and entitled to vote is necessary
to approve the Reorganization Agreement and the transactions contemplated
thereby. Each shareholder will be entitled to one vote for each full share, and
a fractional vote for each fractional share of Insured Municipal Fund held on
the Record Date. If sufficient votes to approve the proposal are not received by
the date of the Meeting, the Meeting may be adjourned to permit further
solicitation of proxies. The holders of a majority of shares entitled to vote at
the Meeting and present in person of by proxy (whether or not sufficient to
constitute a quorum) may adjourn the Meeting to permit further solicitation of
proxies. For purposes of the Meeting, a majority of shares outstanding and
entitled to vote, present in person or represented by proxy, constitutes a
quorum.
How do I ensure my vote is accurately recorded?
You can vote in either of two ways:
o By mail, with the enclosed proxy card.
o In person at the Meeting.
A proxy card is, in essence, a ballot. If you simply sign and date the proxy but
give no voting instructions, your shares will be voted in favor of the
Reorganization Agreement.
Can I revoke my proxy?
Yes. You may revoke your proxy at any time before it is voted by (i)
writing to the Secretary of Insured Municipal Fund at 6803 South Tucson Way,
Englewood, Colorado 80112 (if received in time to be acted upon); (ii) attending
the Meeting and voting in person; or (iii) signing and returning a later-dated
proxy (if returned and received in time to be voted).
What other matters will be voted upon at the Meeting?
The Board of Trustees of Oppenheimer Municipal Fund on behalf of Insured
Municipal Fund does not intend to bring any matters before the Meeting other
than those described in this proxy. It is not aware of any other matters to be
brought before the Meeting by others. If any other matters legally come before
the Meeting, the proxy ballot confers discretionary authority with respect to
such matters, and it is the intention of the persons named to vote proxies to
vote in accordance with their judgment on such matters.
Who is entitled to vote?
Shareholders of record of Insured Municipal Fund at the close of business
on August 17, 2000, the record date, will be entitled to vote at the Meeting. On
the record date, there were 6,997,095.417 outstanding shares of Insured
Municipal Fund, consisting of 5,534,821.676 Class A shares, 1,241,101.092 Class
B shares and 221,172.649 Class C shares. On the record date, there were
58,786,795.816 outstanding shares of Municipal Bond Fund, consisting of
51,525,237.876 Class A shares, 5,986,263.240 Class B shares and 1,275,294.700
Class C shares. Under relevant state law and the Trust's charter documents,
proxies representing abstentions and broker non-votes will be included for
purposes of determining whether a quorum is present at the Meeting, but will be
treated as votes not cast and, therefore, will not be counted for purposes of
determining whether the matters to be voted upon at the Meeting have been
approved. Municipal Bond Fund shareholders do not vote on the Reorganization.
What other solicitations will be made?
Insured Municipal Fund will request broker-dealer firms, custodians,
nominees and fiduciaries to forward proxy material to the beneficial owners of
the shares of record, and may reimburse them for their reasonable expenses
incurred in connection with such proxy solicitation. In addition to
solicitations by mail, officers of Insured Municipal Fund or officers and
employees of OppenheimerFunds Services, without extra pay, may conduct
additional solicitations personally or by telephone or telegraph. Any expenses
so incurred will be borne by OppenheimerFunds Services. Proxies may also be
solicited by a proxy solicitation firm hired at Insured Municipal Fund's
expense.
Shares owned of record by broker-dealers for the benefit of their
customers ("street account shares") will be voted by the broker-dealer based on
instructions received from its customers. If no instructions are received, and
the broker-dealer does not have discretionary power to vote such street account
shares under applicable stock exchange rules, the shares represented thereby
will be considered to be present at the Meeting for purposes only of determining
the quorum. Because of the need to obtain a majority vote for the Reorganization
proposal to pass, broker non-votes will have the same effect as a vote "against"
the proposal.
Are there appraisal rights?
No. Under the 1940 Act, shareholders do not have rights of appraisal as a
result of the Reorganization. Although appraisal rights are unavailable, you
have the right to redeem your shares at net asset value until the closing date.
After the closing date, you may redeem your new Municipal Bond Fund shares or
exchange them into shares of certain other funds in the OppenheimerFunds family,
subject to the terms of the prospectuses of both Funds.
INFORMATION ABOUT MUNICIPAL BOND FUND
Information about Municipal Bond Fund is included in the Municipal Bond
Fund Prospectus, which is attached to and considered a part of this
Prospectus/Proxy Statement. Additional information about Municipal Bond Fund is
included in Municipal Bond Fund's Statement of Additional Information dated
November 19, 1999, Annual Report dated July 31, 1999 and Semi-Annual Report
dated January 31, 2000, which have been filed with the SEC and are incorporated
herein by reference. You may request a free copy of these materials and other
information by calling 1.800.525.7048 or by writing to Municipal Bond Fund at
OppenheimerFunds Services, P.O. Box 5270, Denver, CO 80217. Municipal Bond Fund
also files proxy materials, reports and other information with the SEC in
accordance with the informational requirements of the Securities and Exchange
Act of 1934 and the 1940 Act. These materials can be inspected and copied at:
the SEC's Public Reference Room in Washington, D.C. (Phone: 1.202.942.8090) or
the EDGAR database on the SEC's Internet website at http:\\www.sec.gov. Copies
may be obtained upon payment of a duplicating fee by electronic request at the
SEC's e-mail address: [email protected] or by writing to the SEC's Public
Reference Section, Washington, D.C. 20549-0102.
INFORMATION ABOUT INSURED MUNICIPAL FUND
Information about Insured Municipal Fund is included in the current
Insured Municipal Fund Prospectus. This document has been filed with the SEC and
is incorporated by reference herein. Additional information about Insured
Municipal Fund is included in the Fund's Statement of Additional Information,
Annual Report dated September 31, 1999 and Semi-Annual Report dated March 31,
2000, which have been filed with the SEC and are incorporated by reference
herein. You may request free copies of these or other documents relating to
Insured Municipal Fund by calling 1.800.525.7048 or by writing to
OppenheimerFunds Services, P.O. Box 5270, Denver, CO 80217. Reports and other
information filed by Insured Municipal Fund can be inspected and copied at: the
SEC's Public Reference Room in Washington, D.C. (Phone: 1.202.942.8090) or the
EDGAR database on the SEC's Internet web-site at http:\\www.sec.gov. Copies may
be obtained upon payment of a duplicating fee by electronic request at the SEC's
e-mail address: [email protected] or by writing to the SEC's Public Reference
Section, Washington, D.C. 20549-0102.
PRINCIPAL STOCKHOLDERS
As of the record date, the officers and Trustees of the Trust, as a group,
owned less than 1% of the outstanding voting shares of each of Insured Municipal
Fund and Municipal Bond Fund. To the knowledge of Insured Municipal Fund, as of
the record date, no person owned (beneficially or of record) 5% or more of the
outstanding shares of Insured Municipal Fund, except for Merrill Lynch Pierce
Fenner & Smith for the sole benefit of its customer of the outstanding Class C
shares, 4800 Deer Lake Drive, Jacksonville, FL 32246, which held 106,465.424 or
8.55% of the outstanding Class B shares, and 44,792.244 or 20.25 % of the
outstanding Class C shares; and the Margie H. Madak Trust which held 30,622.750
or 13.84% of the outstanding Class C shares, NFSC for the sole benefit of its
customer of the outstanding Class C shares, 15C Country Club Road, Honolulu,
Hawaii 96817, which held 12,902.803 or 5.83% of the outstanding Class C shares,
and the Victor C. Gray Family Investment Limited Partnership held 11,206.891 or
5.06%of the outstanding Class C shares, of Insured Municipal Fund. To the
knowledge of Municipal Bond Fund, as of the record date, no person owned
(beneficially or of record) 5% or more of the outstanding shares of Municipal
Bond Fund, except for Merrill Lynch Pierce Fenner & Smith, 4800 Deer Lake Drive,
Jacksonville, FL 32246, which held 541,916.621 or 9.06% and 131,283.999 or
10.29%, respectively, of the outstanding Class B and Class C shares for the sole
benefit of its customer of Municipal Bond Fund.
By Order of the Board of Trustees
Andrew J. Donohue, Secretary
September 20, 2000
<PAGE>
EXHIBIT A
AGREEMENT AND PLAN OF REORGANIZATION
AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") dated as of _____, 2000
by and between Oppenheimer Municipal Fund on behalf of its series, Oppenheimer
Insured Municipal Fund ("Insured Municipal Fund"), a Massachusetts business
trust and Oppenheimer Municipal Bond Fund ("Municipal Bond Fund"), a
Massachusetts business trust.
W I T N E S S E T H:
WHEREAS, the parties are each open-end investment companies of the management
type; and
WHEREAS, the parties hereto desire to provide for the reorganization pursuant to
Section 368(a)(1) of the Internal Revenue Code of 1986, as amended (the "Code"),
of Insured Municipal Fund through the acquisition by Municipal Bond Fund of
substantially all of the assets of Insured Municipal Fund in exchange for the
voting shares of beneficial interest of Class A, Class B and Class C shares
("shares") of Municipal Bond Fund and the assumption by Municipal Bond Fund of
certain liabilities of Insured Municipal Fund, which Class A, Class B and Class
C shares of Municipal Bond Fund are to be distributed by Insured Municipal Fund
pro rata to its shareholders in complete liquidation of Insured Municipal Fund
and complete cancellation of its shares;
NOW, THEREFORE, in consideration of the mutual promises herein contained, the
parties hereto agree as follows:
1. The parties hereto hereby adopt this Agreement and Plan of
Reorganization (the "Agreement") pursuant to Section 368(a)(1) of the Code as
follows: The reorganization will be comprised of the acquisition by Municipal
Bond Fund of substantially all of the assets of Insured Municipal Fund in
exchange for Class A, Class B and Class C shares of Municipal Bond Fund and the
assumption by Municipal Bond Fund of certain liabilities of Insured Municipal
Fund, followed by the distribution of such Class A, Class B and Class C shares
of Municipal Bond Fund to the respective Class A, Class B and Class C
shareholders of Insured Municipal Fund in exchange for their Class A, Class B
and Class C shares of Insured Municipal Fund, all upon and subject to the terms
of the Agreement hereinafter set forth.
The share transfer books of Insured Municipal Fund will be permanently
closed at the close of business on the Valuation Date (as hereinafter defined)
and only redemption requests received in proper form on or prior to the close of
business on the Valuation Date shall be fulfilled by Insured Municipal Fund;
redemption requests received by Insured Municipal Fund after that date shall be
treated as requests for the redemption of the shares of Municipal Bond Fund to
be distributed to the shareholder in question as provided in Section 5 hereof.
2. On the Closing Date (as hereinafter defined), all of the assets of
Insured Municipal Fund on that date, excluding a cash reserve (the "Cash
Reserve") to be retained by Insured Municipal Fund, sufficient in its discretion
for the payment of the expenses of Insured Municipal Fund's dissolution and its
liabilities, but not in excess of the amount contemplated by Section 10.E.,
shall be delivered as provided in Section 8 to Municipal Bond Fund, in exchange
for and against delivery to Insured Municipal Fund on the Closing Date of a
number of Class A, Class B and Class C shares of Municipal Bond Fund, having an
aggregate net asset value equal to the value of the assets of Insured Municipal
Fund so transferred and delivered.
3. The net asset value of Class A, Class B and Class C shares of Municipal
Bond Fund and the value of the assets of Insured Municipal Fund to be
transferred shall in each case be determined as of the close of business of The
New York Stock Exchange on the Valuation Date. The computation of the net asset
value of the Class A, Class B and Class C shares of Municipal Bond Fund and the
Class A, Class B and Class C shares of Insured Municipal Fund shall be done in
the manner used by Municipal Bond Fund and Insured Municipal Fund, respectively,
in the computation of such net asset value per share as set forth in their
respective prospectuses. The methods used by Municipal Bond Fund in such
computation shall be applied to the valuation of the assets of Insured Municipal
Fund to be transferred to Municipal Bond Fund.
Insured Municipal Fund shall declare and pay, immediately prior to the
Valuation Date, a dividend or dividends which, together with all previous such
dividends, shall have the effect of distributing to Insured Municipal Fund's
shareholders all of Insured Municipal Fund's investment company income for
taxable years ending on or prior to the Closing Date (computed without regard to
any dividends paid) and all of its net capital gain, if any, realized in taxable
years ending on or prior to the Closing Date (after reduction for any capital
loss carry-forward).
4. The closing (the "Closing") shall be at the offices of
OppenheimerFunds, Inc. (the "Agent"), Two World Trade Center, New York, NY
10048, at 4:00 P.M. New York time on ________, 2000 or at such other time or
place as the parties may designate or as provided below (the "Closing Date").
The business day preceding the Closing Date is herein referred to as the
"Valuation Date."
In the event that on the Valuation Date either party has, pursuant to the
Investment Company Act of 1940, as amended (the "Act"), or any rule, regulation
or order thereunder, suspended the redemption of its shares or postponed payment
therefore, the Closing Date shall be postponed until the first business day
after the date when both parties have ceased such suspension or postponement;
provided, however, that if such suspension shall continue for a period of 60
days beyond the Valuation Date, then the other party to the Agreement shall be
permitted to terminate the Agreement without liability to either party for such
termination.
5. In conjunction with the Closing, Insured Municipal Fund shall
distribute on a pro rata basis to the shareholders of Insured Municipal Fund as
of the Valuation Date Class A, Class B and Class C shares of Municipal Bond Fund
received by Insured Municipal Fund on the Closing Date in exchange for the
assets of Insured Municipal Fund in complete liquidation of Insured Municipal
Fund; for the purpose of the distribution by Insured Municipal Fund of Class A,
Class B and Class C shares of Municipal Bond Fund to Insured Municipal Fund's
shareholders, Municipal Bond Fund will promptly cause its transfer agent to: (a)
credit an appropriate number of Class A, Class B and Class C shares of Municipal
Bond Fund on the books of Municipal Bond Fund to each Class A, Class B and Class
C shareholder of Insured Municipal Fund in accordance with a list (the
"Shareholder List") of Insured Municipal Fund shareholders received from Insured
Municipal Fund; and (b) confirm an appropriate number of Class A, Class B and
Class C shares of Municipal Bond Fund to each Class A, Class B and Class C
shareholder of Insured Municipal Fund; certificates for Class A shares of
Municipal Bond Fund will be issued upon written request of a former shareholder
of Insured Municipal Fund but only for whole shares, with fractional shares
credited to the name of the shareholder on the books of Municipal Bond Fund.
The Shareholder List shall indicate, as of the close of business on the
Valuation Date, the name and address of each shareholder of Insured Municipal
Fund, indicating his or her share balance. Insured Municipal Fund agrees to
supply the Shareholder List to Municipal Bond Fund not later than the Closing
Date. Shareholders of Insured Municipal Fund holding certificates representing
their shares shall not be required to surrender their certificates to anyone in
connection with the reorganization. After the Closing Date, however, it will be
necessary for such shareholders to surrender their certificates in order to
redeem, transfer or pledge the shares of Municipal Bond Fund which they
received.
6. Within one year after the Closing Date, Insured Municipal Fund shall
(a) either pay or make provision for payment of all of its liabilities and
taxes, and (b) either (i) transfer any remaining amount of the Cash Reserve to
Municipal Bond Fund, if such remaining amount (as reduced by the estimated cost
of distributing it to shareholders) is not material (as defined below) or (ii)
distribute such remaining amount to the shareholders of Insured Municipal Fund
on the Valuation Date. Such remaining amount shall be deemed to be material if
the amount to be distributed, after deduction of the estimated expenses of the
distribution, equals or exceeds one cent per share of Insured Municipal Fund
outstanding on the Valuation Date.
7. Prior to the Closing Date, there shall be coordination between the
parties as to their respective portfolios so that, after the Closing, Municipal
Bond Fund will be in compliance with all of its investment policies and
restrictions. At the Closing, Insured Municipal Fund shall deliver to Municipal
Bond Fund two copies of a list setting forth the securities then owned by
Insured Municipal Fund. Promptly after the Closing, Insured Municipal Fund shall
provide Municipal Bond Fund a list setting forth the respective federal income
tax bases thereof.
8. Portfolio securities or written evidence acceptable to Municipal Bond
Fund of record ownership thereof by The Depository Trust Company or through the
Federal Reserve Book Entry System or any other depository approved by Insured
Municipal Fund pursuant to Rule 17f-4 and Rule 17f-5 under the Act shall be
endorsed and delivered, or transferred by appropriate transfer or assignment
documents, by Insured Municipal Fund on the Closing Date to Municipal Bond Fund,
or at its direction, to its custodian bank, in proper form for transfer in such
condition as to constitute good delivery thereof in accordance with the custom
of brokers and shall be accompanied by all necessary state transfer stamps, if
any. The cash delivered shall be in the form of certified or bank cashiers'
checks or by bank wire or intra-bank transfer payable to the order of Municipal
Bond Fund for the account of Municipal Bond Fund. Class A, Class B and Class C
shares of Municipal Bond Fund representing the number of Class A, Class B and
Class C shares of Municipal Bond Fund being delivered against the assets of
Insured Municipal Fund, registered in the name of Insured Municipal Fund, shall
be transferred to Insured Municipal Fund on the Closing Date. Such shares shall
thereupon be assigned by Insured Municipal Fund to its shareholders so that the
shares of Municipal Bond Fund may be distributed as provided in Section 5.
If, at the Closing Date, Insured Municipal Fund is unable to make delivery
under this Section 8 to Municipal Bond Fund of any of its portfolio securities
or cash for the reason that any of such securities purchased by Insured
Municipal Fund, or the cash proceeds of a sale of portfolio securities, prior to
the Closing Date have not yet been delivered to it or Insured Municipal Fund's
custodian, then the delivery requirements of this Section 8 with respect to said
undelivered securities or cash will be waived and Insured Municipal Fund will
deliver to Municipal Bond Fund by or on the Closing Date with respect to said
undelivered securities or cash executed copies of an agreement or agreements of
assignment in a form reasonably satisfactory to Municipal Bond Fund, together
with such other documents, including a due bill or due bills and brokers'
confirmation slips as may reasonably be required by Municipal Bond Fund.
9. Municipal Bond Fund shall not assume the liabilities (except for
portfolio securities purchased which have not settled and for shareholder
redemption and dividend checks outstanding) of Insured Municipal Fund, but
Insured Municipal Fund will, nevertheless, use its best efforts to discharge all
known liabilities, so far as may be possible, prior to the Closing Date. The
cost of printing and mailing the proxies and proxy statements will be borne by
Insured Municipal Fund. Insured Municipal Fund and Municipal Bond Fund will bear
the cost of the tax opinion. Any documents such as existing prospectuses or
annual reports that are included in that mailing will be a cost of the Fund
issuing the document. Any other out-of-pocket expenses of Municipal Bond Fund
and Insured Municipal Fund associated with this reorganization, including legal,
accounting and transfer agent expenses, will be borne by Insured Municipal Fund
and Municipal Bond Fund, respectively, in the amounts so incurred by each.
10. The obligations of Municipal Bond Fund hereunder shall be subject to
the following conditions:
A.The Board of Directors of Insured Municipal Fund shall have
authorized the execution of the Agreement, and the shareholders of Insured
Municipal Fund shall have approved the Agreement and the transactions
contemplated hereby, and Insured Municipal Fund shall have furnished to
Municipal Bond Fund copies of resolutions to that effect certified by the
Secretary or the Assistant Secretary of Insured Municipal Fund; such shareholder
approval shall have been by the affirmative vote of a majority of the total
number of shares of Insured Municipal Fund outstanding and entitled to vote at a
meeting for which proxies have been solicited by the Proxy Statement and
Prospectus (as hereinafter defined).
B.Municipal Bond Fund shall have received an opinion dated the
Closing Date of counsel to Insured Municipal Fund, to the effect that (i)
Insured Municipal Fund is a business trust duly organized, validly existing and
in good standing under the laws of the Commonwealth of Massachusetts with full
powers to carry on its business as then being conducted and to enter into and
perform the Agreement; and (ii) that all action necessary to make the Agreement,
according to its terms, valid, binding and enforceable on Insured Municipal Fund
and to authorize effectively the transactions contemplated by the Agreement have
been taken by Insured Municipal Fund (Massachusetts counsel may be relied upon
for this opinion).
C.The representations and warranties of Insured Municipal Fund
contained herein shall be true and correct at and as of the Closing Date, and
Municipal Bond Fund shall have been furnished with a certificate of the
President, or a Vice President, or the Secretary or the Assistant Secretary or
the Treasurer of Insured Municipal Fund, dated the Closing Date, to that effect.
D.On the Closing Date, Insured Municipal Fund shall have furnished to
Municipal Bond Fund a certificate of the Treasurer or Assistant Treasurer of
Insured Municipal Fund as to the amount of the capital loss carry-over and net
unrealized appreciation or depreciation, if any, with respect to Insured
Municipal Fund as of the Closing Date.
E.The Cash Reserve shall not exceed 10% of the value of the net
assets, nor 30% in value of the gross assets, of Insured Municipal Fund at the
close of business on the Valuation Date.
F.A Registration Statement on Form N-14 filed by Municipal Bond Fund
under the Securities Act of 1933, as amended (the "1933 Act"), containing a
preliminary form of the Proxy Statement and Prospectus, shall have become
effective under the 1933 Act.
G.On the Closing Date, Municipal Bond Fund shall have received a
letter of Andrew J. Donohue or other senior executive officer of
OppenheimerFunds, Inc. acceptable to Municipal Bond Fund, stating that nothing
has come to his or her attention which in his or her judgment would indicate
that as of the Closing Date there were any material, actual or contingent
liabilities of Insured Municipal Fund arising out of litigation brought against
Insured Municipal Fund or claims asserted against it, or pending or to the best
of his or her knowledge threatened claims or litigation not reflected in or
apparent from the most recent audited financial statements and footnotes thereto
of Insured Municipal Fund delivered to Municipal Bond Fund. Such letter may also
include such additional statements relating to the scope of the review conducted
by such person and his or her responsibilities and liabilities as are not
unreasonable under the circumstances.
H.Municipal Bond Fund shall have received an opinion, dated the
Closing Date, of KPMG LLP, to the same effect as the opinion contemplated by
Section 11.E. of the Agreement.
I.Municipal Bond Fund shall have received at the Closing all of the
assets of Insured Municipal Fund to be conveyed hereunder, which assets shall be
free and clear of all liens, encumbrances, security interests, restrictions and
limitations whatsoever.
11. The obligations of Insured Municipal Fund hereunder shall be subject
to the following conditions:
A.The Board of Directors of Municipal Bond Fund shall have authorized
the execution of the Agreement, and the transactions contemplated thereby, and
Municipal Bond Fund shall have furnished to Insured Municipal Fund copies of
resolutions to that effect certified by the Secretary or the Assistant Secretary
of Municipal Bond Fund.
B.Insured Municipal Fund's shareholders shall have approved the
Agreement and the transactions contemplated hereby, by an affirmative vote of a
majority of the total number of shares of Insured Municipal Fund outstanding and
entitled to vote and Insured Municipal Fund shall have furnished Municipal Bond
Fund copies of resolutions to that effect certified by the Secretary or an
Assistant Secretary of Insured Municipal Fund.
C.Insured Municipal Fund shall have received an opinion dated the
Closing Date of counsel to Municipal Bond Fund, to the effect that (i) Municipal
Bond Fund is a business trust organized, validly existing and in good standing
under the laws of the Commonwealth of Massachusetts with full powers to carry on
its business as then being conducted and to enter into and perform the
Agreement; (ii) all action necessary to make the Agreement, according to its
terms, valid, binding and enforceable upon Municipal Bond Fund and to authorize
effectively the transactions contemplated by the Agreement have been taken by
Municipal Bond Fund, and (iii) the shares of Municipal Bond Fund to be issued
hereunder are duly authorized and when issued will be validly issued, fully-paid
and non-assessable (Massachusetts counsel may be relied upon for this opinion).
D. The representations and warranties of Municipal Bond Fund
contained herein shall be true and correct at and as of the Closing Date, and
Insured Municipal Fund shall have been furnished with a certificate of the
President, a Vice President or the Secretary or the Assistant Secretary or the
Treasurer of Municipal Bond Fund to that effect dated the Closing Date.
E.Insured Municipal Fund shall have received an opinion of KPMG LLP
to the effect that the federal tax consequences of the transaction, if carried
out in the manner outlined in the Agreement and in accordance with (i) Insured
Municipal Fund's representation that there is no plan or intention by any
Insured Municipal Fund shareholder who owns 5% or more of Insured Municipal
Fund's outstanding shares, and, to Insured Municipal Fund's best knowledge,
there is no plan or intention on the part of the remaining Insured Municipal
Fund shareholders, to redeem, sell, exchange or otherwise dispose of a number of
Municipal Bond Fund shares received in the transaction that would reduce Insured
Municipal Fund shareholders' ownership of Municipal Bond Fund shares to a number
of shares having a value, as of the Closing Date, of less than 50% of the value
of all of the formerly outstanding Insured Municipal Fund shares as of the same
date, and (ii) the representation by each of Insured Municipal Fund and
Municipal Bond Fund that, as of the Closing Date, Insured Municipal Fund and
Municipal Bond Fund will qualify as regulated investment companies or will meet
the diversification test of Section 368(a)(2)(F)(ii) of the Code, will be as
follows:
1. The transactions contemplated by the Agreement will qualify as a
tax-free "reorganization" within the meaning of Section 368(a)(1) of the Code,
and under the regulations promulgated thereunder.
2. Insured Municipal Fund and Municipal Bond Fund will each qualify
as a "party to a reorganization" within the meaning of Section 368(b)(2) of the
Code.
3. No gain or loss will be recognized by the shareholders of
Insured Municipal Fund upon the distribution of Class A, Class B and Class C
shares of beneficial interest in Municipal Bond Fund to the shareholders of
Insured Municipal Fund pursuant to Section 354 of the Code.
4. Under Section 361(a) of the Code no gain or loss will be
recognized by Insured Municipal Fund by reason of the transfer of substantially
all its assets in exchange for Class A, Class B and Class C shares of Municipal
Bond Fund.
5. Under Section 1032 of the Code, no gain or loss will be
recognized by Municipal Bond Fund by reason of the transfer of substantially all
of Insured Municipal Fund's assets in exchange for Class A, Class B and Class C
shares of Municipal Bond Fund and Municipal Bond Fund's assumption of certain
liabilities of Insured Municipal Fund.
6. The shareholders of Insured Municipal Fund will have the same
tax basis and holding period for the Class A, Class B and Class C shares of
beneficial interest in Municipal Bond Fund that they receive as they had for
Insured Municipal Fund shares that they previously held, pursuant to Section
358(a) and 1223(1), respectively, of the Code.
7. The securities transferred by Insured Municipal Fund to
Municipal Bond Fund will have the same tax basis and holding period in the hands
of Municipal Bond Fund as they had for Insured Municipal Fund, pursuant to
Section 362(b) and 1223(1), respectively, of the Code.
F.The Cash Reserve shall not exceed 10% of the value of the net
assets, nor 30% in value of the gross assets, of Insured Municipal Fund at the
close of business on the Valuation Date.
G.A Registration Statement on Form N-14 filed by Municipal Bond Fund
under the 1933 Act, containing a preliminary form of the Proxy Statement and
Prospectus, shall have become effective under the 1933 Act.
H.On the Closing Date, Insured Municipal Fund shall have received a
letter of Andrew J. Donohue or other senior executive officer of
OppenheimerFunds, Inc. acceptable to Insured Municipal Fund, stating that
nothing has come to his or her attention which in his or her judgment would
indicate that as of the Closing Date there were any material, actual or
contingent liabilities of Municipal Bond Fund arising out of litigation brought
against Municipal Bond Fund or claims asserted against it, or pending or, to the
best of his or her knowledge, threatened claims or litigation not reflected in
or apparent by the most recent audited financial statements and footnotes
thereto of Municipal Bond Fund delivered to Insured Municipal Fund. Such letter
may also include such additional statements relating to the scope of the review
conducted by such person and his or her responsibilities and liabilities as are
not unreasonable under the circumstances.
I.Insured Municipal Fund shall acknowledge receipt of the Class A,
Class B and Class C shares of Municipal Bond Fund.
12. Insured Municipal Fund hereby represents and warrants that:
A.The financial statements of Insured Municipal Fund as of September
30, 1999 heretofore furnished to Municipal Bond Fund, present fairly the
financial position, results of operations, and changes in net assets of Insured
Municipal Fund as of that date, in conformity with generally accepted accounting
principles applied on a basis consistent with the preceding year; and that from
September 30, 1999 through the date hereof there have not been, and through the
Closing Date there will not be, any material adverse change in the business or
financial condition of Insured Municipal Fund, it being agreed that a decrease
in the size of Insured Municipal Fund due to a diminution in the value of its
portfolio and/or redemption of its shares shall not be considered a material
adverse change;
B.Contingent upon approval of the Agreement and the transactions
contemplated thereby by Insured Municipal Fund's shareholders, Insured Municipal
Fund has authority to transfer all of the assets of Insured Municipal Fund to be
conveyed hereunder free and clear of all liens, encumbrances, security
interests, restrictions and limitations whatsoever;
C.The Prospectus, as amended and supplemented, contained in Insured
Municipal Fund's Registration Statement under the 1933 Act, as amended, is true,
correct and complete, conforms to the requirements of the 1933 Act and does not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading. The Registration Statement, as amended, was, as of the date of the
filing of the last Post-Effective Amendment, true, correct and complete,
conformed to the requirements of the 1933 Act and did not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading;
D.There is no material contingent liability of Insured Municipal Fund
and no material claim and no material legal, administrative or other proceedings
pending or, to the knowledge of Insured Municipal Fund, threatened against
Insured Municipal Fund, not reflected in such Prospectus;
E.Except for the Agreement, there are no material contracts
outstanding to which Insured Municipal Fund is a party other than those ordinary
in the conduct of its business;
F.Oppenheimer Municipal Fund is a Massachusetts business trust duly
organized, validly existing and in good standing under the laws of the
Commonwealth of Massachusetts; and has all necessary and material federal and
state authorizations to own all of its assets and to carry on its business as
now being conducted; and Insured Municipal Fund, a series of Oppenheimer
Municipal Fund, is duly registered under the Act and such registration has not
been rescinded or revoked and is in full force and effect;
G.All federal and other tax returns and reports of Insured Municipal
Fund required by law to be filed have been filed, and all federal and other
taxes shown due on said returns and reports have been paid or provision shall
have been made for the payment thereof and to the best of the knowledge of
Insured Municipal Fund no such return is currently under audit and no assessment
has been asserted with respect to such returns and to the extent such tax
returns with respect to the taxable year of Insured Municipal Fund ended
September 30, 1999 have not been filed, such returns will be filed when required
and the amount of tax shown as due thereon shall be paid when due; and
H.Insured Municipal Fund has elected to be treated as a regulated
investment company and, for each fiscal year of its operations, Insured
Municipal Fund has met the requirements of Subchapter M of the Code for
qualification and treatment as a regulated investment company and Insured
Municipal Fund intends to meet such requirements with respect to its current
taxable year.
13. Municipal Bond Fund hereby represents and warrants that:
A.The financial statements of Municipal Bond Fund as of July 31, 1999
heretofore furnished to Insured Municipal Fund, present fairly the financial
position, results of operations, and changes in net assets of Municipal Bond
Fund, as of that date, in conformity with generally accepted accounting
principles applied on a basis consistent with the preceding year; and that from
July 31, 1999 through the date hereof there have not been, and through the
Closing Date there will not be, any material adverse changes in the business or
financial condition of Municipal Bond Fund, it being understood that a decrease
in the size of Municipal Bond Fund due to a diminution in the value of its
portfolio and/or redemption of its shares shall not be considered a material or
adverse change;
B.The Prospectus, as amended and supplemented, contained in Municipal
Bond Fund's Registration Statement under the 1933 Act, is true, correct and
complete, conforms to the requirements of the 1933 Act and does not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not misleading.
The Registration Statement, as amended, was, as of the date of the filing of the
last Post-Effective Amendment, true, correct and complete, conformed to the
requirements of the 1933 Act and did not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading;
C.There is no material contingent liability of Municipal Bond Fund
and no material claim and no material legal, administrative or other proceedings
pending or, to the knowledge of Municipal Bond Fund, threatened against
Municipal Bond Fund, not reflected in such Prospectus;
D.Except for this Agreement, there are no material contracts
outstanding to which Municipal Bond Fund is a party other than those ordinary in
the conduct of its business;
E.Municipal Bond Fund is a business trust duly organized, validly
existing and in good standing under the laws of the Commonwealth of
Massachusetts; Municipal Bond Fund has all necessary and material federal and
state authorizations to own all its properties and assets and to carry on its
business as now being conducted; the Class A, Class B and Class C shares of
Municipal Bond Fund which it issues to Insured Municipal Fund pursuant to the
Agreement will be duly authorized, validly issued, fully-paid and
non-assessable, will conform to the description thereof contained in Municipal
Bond Fund's Registration Statement and will be duly registered under the 1933
Act and in the states where registration is required; and Municipal Bond Fund is
duly registered under the Act and such registration has not been revoked or
rescinded and is in full force and effect;
F.All federal and other tax returns and reports of Municipal Bond
Fund required by law to be filed have been filed, and all federal and other
taxes shown due on said returns and reports have been paid or provision shall
have been made for the payment thereof and to the best of the knowledge of
Municipal Bond Fund no such return is currently under audit and no assessment
has been asserted with respect to such returns and to the extent such tax
returns with respect to the taxable year of Municipal Bond Fund ended July 31,
1999 have not been filed, such returns will be filed when required and the
amount of tax shown as due thereon shall be paid when due;
G.Municipal Bond Fund has elected to be treated as a regulated
investment company and, for each fiscal year of its operations, Municipal Bond
Fund has met the requirements of Subchapter M of the Code for qualification and
treatment as a regulated investment company and Municipal Bond Fund intends to
meet such requirements with respect to its current taxable year;
H.Municipal Bond Fund has no plan or intention (i) to dispose of any
of the assets transferred by Insured Municipal Fund, other than in the ordinary
course of business, or (ii) to redeem or reacquire any of the Class A, Class B
and Class C shares issued by it in the reorganization other than pursuant to
valid requests of shareholders; and
I.After consummation of the transactions contemplated by the
Agreement, Municipal Bond Fund intends to operate its business in a
substantially unchanged manner.
14. Each party hereby represents to the other that no broker or finder has
been employed by it with respect to the Agreement or the transactions
contemplated hereby. Each party also represents and warrants to the other that
the information concerning it in the Proxy Statement and Prospectus will not as
of its date contain any untrue statement of a material fact or omit to state a
fact necessary to make the statements concerning it therein not misleading and
that the financial statements concerning it will present the information shown
fairly in accordance with generally accepted accounting principles applied on a
basis consistent with the preceding year. Each party also represents and
warrants to the other that the Agreement is valid, binding and enforceable in
accordance with its terms and that the execution, delivery and performance of
the Agreement will not result in any violation of, or be in conflict with, any
provision of any charter, by-laws, contract, agreement, judgment, decree or
order to which it is subject or to which it is a party. Municipal Bond Fund
hereby represents to and covenants with Insured Municipal Fund that, if the
reorganization becomes effective, Municipal Bond Fund will treat each
shareholder of Insured Municipal Fund who received any of Municipal Bond Fund's
shares as a result of the reorganization as having made the minimum initial
purchase of shares of Municipal Bond Fund received by such shareholder for the
purpose of making additional investments in shares of Municipal Bond Fund,
regardless of the value of the shares of Municipal Bond Fund received.
15. Municipal Bond Fund agrees that it will prepare and file a
Registration Statement on Form N-14 under the 1933 Act which shall contain a
preliminary form of proxy statement and prospectus contemplated by Rule 145
under the 1933 Act. The final form of such proxy statement and prospectus is
referred to in the Agreement as the "Proxy Statement and Prospectus." Each party
agrees that it will use its best efforts to have such Registration Statement
declared effective and to supply such information concerning itself for
inclusion in the Proxy Statement and Prospectus as may be necessary or desirable
in this connection. Insured Municipal Fund covenants and agrees to deregister as
an investment company under the Act as soon as practicable to the extent
required, and, upon Closing, to cause the cancellation of its outstanding
shares.
16. The obligations of the parties shall be subject to the right of either
party to abandon and terminate the Agreement for any reason and there shall be
no liability for damages or other recourse available to a party not so
terminating this Agreement, provided, however, that in the event that a party
shall terminate this Agreement without reasonable cause, the party so
terminating shall, upon demand, reimburse the party not so terminating for all
expenses, including reasonable out-of-pocket expenses and fees incurred in
connection with this Agreement.
17. The Agreement may be executed in several counterparts, each of which
shall be deemed an original, but all taken together shall constitute one
Agreement. The rights and obligations of each party pursuant to the Agreement
shall not be assignable.
18. All prior or contemporaneous agreements and representations are merged
into the Agreement, which constitutes the entire contract between the parties
hereto. No amendment or modification hereof shall be of any force and effect
unless in writing and signed by the parties and no party shall be deemed to have
waived any provision herein for its benefit unless it executes a written
acknowledgment of such waiver.
19. Municipal Bond Fund understands that the obligations of Insured
Municipal Fund under the Agreement are not binding upon any Director or
shareholder of Insured Municipal Fund personally, but bind only Insured
Municipal Fund and Insured Municipal Fund's property. Municipal Bond Fund
represents that it has notice of the provisions of the Declaration of Trust with
respect to Insured Municipal Fund disclaiming shareholder and Director liability
for acts or obligations of Insured Municipal Fund.
20. Insured Municipal Fund understands that the obligations of Municipal
Bond Fund under the Agreement are not binding upon any Director or shareholder
of Municipal Bond Fund personally, but bind only Municipal Bond Fund and
Municipal Bond Fund's property. Insured Municipal Fund represents that it has
notice of the provisions of the Declaration of Trust with respect to Municipal
Bond Fund disclaiming shareholder and Director liability for acts or obligations
of Municipal Bond Fund.
21. Wherever in this Agreement the Directors or officers of Insured
Municipal Fund are referred to, such references shall mean the Directors or
officers of Oppenheimer Municipal Fund acting for and on behalf of Insured
Municipal Fund.
IN WITNESS WHEREOF, each of the parties has caused the Agreement to be executed
and attested by its officers thereunto duly authorized on the date first set
forth above.
OPPENHEIMER MUNICIPAL FUND
on behalf of its series
OPPENHEIMER INSURED MUNICIPAL FUND
By:
Andrew Donohue
Secretary
OPPENHEIMER MUNICIPAL BOND FUND
By:
Andrew Donohue
Secretary
<PAGE>
Oppenheimer Insured Municipal Fund
Proxy For Special Shareholders Meeting To Be Held November 2, 2000
The undersigned shareholder of Oppenheimer Insured Municipal Fund ("Insured
Municipal Fund"), does hereby appoint Allan B. Adams, Robert Bishop, Scott
Farrar and Brian W. Wixted, and each of them, as attorneys-in-fact and proxies
of the undersigned, with full power of substitution, to attend the Special
Meeting of Shareholders of Insured Municipal Fund to be held on November 2, 2000
at 6803 South Tucson Way, Englewood, Colorado at 10:00 A.M., Mountain time, and
at all adjournments thereof, and to vote the shares held in the name of the
undersigned on the record date for said meeting on the Proposal specified on the
reverse side. Said attorneys-in-fact shall vote in accordance with their best
judgment as to any other matter.
PROXY SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES, WHO RECOMMENDS A VOTE FOR
THE PROPOSAL ON THE REVERSE SIDE. THE SHARES REPRESENTED HEREBY WILL BE VOTED AS
INDICATED ON THE REVERSE SIDE OR FOR IF NO CHOICE IS INDICATED.
Please mark your proxy, date and sign it on the reverse side and return it
promptly in the accompanying envelope, which requires no postage if mailed in
the United States.
The Proposal:
To approve an Agreement and Plan of Reorganization between Oppenheimer
Insured Municipal Fund ("Insured Municipal Fund"), a series of Oppenheimer
Municipal Fund, and Oppenheimer Municipal Bond Fund ("Municipal Bond Fund"),
and the transactions contemplated thereby, including (a) the transfer of
substantially all the assets of Insured Municipal Fund to Municipal Bond
Fund in exchange for Class A, Class B and Class C shares of Municipal Bond
Fund, (b) the distribution of such shares of Municipal Bond Fund to the
corresponding Class A, Class B and Class C shareholders of Insured Municipal
Fund in complete liquidation of Insured Municipal Fund and (c) the
cancellation of the outstanding shares of Insured Municipal Fund.
FOR______ AGAINST______ ABSTAIN_______
Dated: _________________________________, 2000
(Month) (Day)
---------------------------------
Signature(s)
_________________________________ Signature
Please read both sides of this ballot.
NOTE: PLEASE SIGN EXACTLY AS YOUR NAME(S) APPEAR HEREON. When signing as
custodian, attorney, executor, administrator, trustee, etc., please give your
full title as such. All joint owners should sign this proxy. If the account is
registered in the name of a corporation, partnership or other entity, a duly
authorized individual must sign on its behalf and give his or her title.
<PAGE>
Part B
STATEMENT OF ADDITIONAL INFORMATION
to PROSPECTUS/PROXY STATEMENT
Acquisition of the Assets of the
OPPENHEIMER INSURED MUNICIPAL FUND
By and in exchange for Shares of the
OPPENHEIMER MUNICIPAL BOND FUND
This Statement of Additional Information to this Prospectus/Proxy
Statement (the "SAI") relates specifically to the proposed delivery of
substantially all of the assets of Oppenheimer Insured Municipal Fund ("Insured
Municipal Fund") for shares of Oppenheimer Municipal Bond Fund ("Municipal Bond
Fund").
This SAI consists of this Cover Page and the following documents: (i) the
Annual and Semi-Annual Reports dated September 31, 1999 and March 31, 2000,
respectively, of Insured Municipal Fund; (ii) the Annual and Semi-Annual Reports
dated July 31, 1999 and January 31, 2000, respectively, of Municipal Bond Fund;
(iii) the Statement of Additional Information of Insured Municipal Fund; and
(iv) the Statement of Additional Information of Municipal Bond Fund.
This SAI is not a Prospectus; you should read this SAI in conjunction with
the Prospectus/Proxy Statement dated September 1, 2000, relating to the
above-referenced transaction. You can request a copy of the Prospectus/Proxy
Statement by calling 1.800.525.7048 or by writing OppenheimerFunds Services at
P.O. Box 5270, Denver, Colorado 80217. The date of this SAI is September 1,
2000.
<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
As with all mutual funds, the Fund and other account
Securities and Exchange features. Please read this
Commission has not approved or Prospectus carefully before you
disapproved the Fund's invest and keep it for future
securities nor has it reference about your account.
determined that this
Prospectus is accurate or
complete.
It is a criminal offense to
represent otherwise.
<PAGE>
CONTENTS
ABOUT THE FUND
3 The Fund's 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 Taxes
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. The Fund is not a complete investment program.
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 Past 10
Average Annual Total Returns Years years
For the periods ended Past 1 Year (or life (or life of
December 31, 1998 of class, class,
if less) if less)
--------------------------------------------------------------------
--------------------------------------------------------------------
Class A Shares (inception 1.01% 4.53% 7.26%
10/27/76)
--------------------------------------------------------------------
--------------------------------------------------------------------
Lehman Brothers Municipal 6.48% 7.50% N/A
Bond Index
(from 12/31/88)
--------------------------------------------------------------------
--------------------------------------------------------------------
Class B Shares (inception 0.24% 4.41% 5.40%
3/16/93)
--------------------------------------------------------------------
--------------------------------------------------------------------
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), 2% (5-years) and 1%
(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):
Class A Class B Class C
Shares Shares Shares
--------------------------------------------------------------------
--------------------------------------------------------------------
Maximum Sales Charge (Load) 4.75% None None
on
Purchases (as a % of
offering price)
--------------------------------------------------------------------
--------------------------------------------------------------------
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)
Class A Class B Class C
Shares Shares Shares
-------------------------------------------------------------------
-------------------------------------------------------------------
Management Fees 0.52% 0.52% 0.52%
-------------------------------------------------------------------
-------------------------------------------------------------------
Distribution and/or Service 0.22% 1.00% 1.00%
(12b-1) Fees
-------------------------------------------------------------------
-------------------------------------------------------------------
Other Expenses 0.13% 0.13% 0.13%
-------------------------------------------------------------------
-------------------------------------------------------------------
Total Annual Operating 0.87% 1.65% 1.65%
Expenses
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
--------------------------------------------------------------------
--------------------------------------------------------------------
Class A Shares $560 $739 $ $1497
934
--------------------------------------------------------------------
--------------------------------------------------------------------
Class B Shares $668 $820 $1097 $1555
--------------------------------------------------------------------
--------------------------------------------------------------------
Class C Shares $268 $520 $ $1955
897
If shares are not redeemed: 1 year 3 years 5 years 10 years1
--------------------------------------------------------------------
--------------------------------------------------------------------
Class A Shares $560 $739 $934 $1497
--------------------------------------------------------------------
--------------------------------------------------------------------
Class B Shares $168 $520 $897 $1555
--------------------------------------------------------------------
--------------------------------------------------------------------
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).
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.
Other Derivatives. 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.
Putsand 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 a 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.
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
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.
-------------------------------------------------------------------------------
Class A Shares. If you buy Class A shares, you pay an initial sales charge (on
investments up to $1 million). The amount of that sales charge will vary
depending on the amount you invest. The sales charge rates are listed in
"How Can 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.
-------------------------------------------------------------------------------
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 Front-End
Sales Sales Commission
Charge As a Charge As a as
Amount of Purchase Percentage Percentage of Percentage
of Net of
Offering Amount Offering
Price Invested Price
--------------------------------------------------------------------
--------------------------------------------------------------------
Less than $50,000 4.75% 4.98% 4.00%
--------------------------------------------------------------------
--------------------------------------------------------------------
$50,000 or more but less 4.50% 4.71% 4.00%
than $100,000
--------------------------------------------------------------------
--------------------------------------------------------------------
$100,000 or more but less 3.50% 3.63% 3.00%
than $250,000
--------------------------------------------------------------------
--------------------------------------------------------------------
$250,000 or more but less 2.50% 2.56% 2.25%
than $500,000
--------------------------------------------------------------------
--------------------------------------------------------------------
$500,000 or more but less 2.00% 2.04% 1.80%
than $1 million
Class A Contingent Deferred Sales Charge. There is no initial sales charge on
purchases of Class A shares of any one or more of the Oppenheimer funds
aggregating $1 million or more. The Distributor pays dealers of record
commissions in an amount equal to 1.0% of purchases of $1 million or more
other than by retirement accounts. That commission will be paid only on
purchases that were not previously subject to a front-end sales charge and
dealer commission.
If you redeem any of those shares within 18 months of the end of the
calendar month of their purchase, a contingent deferred sales charge (called
the "Class A contingent deferred sales charge") may be deducted from the
redemption proceeds. That sales charge will be equal to 1.0% of the lesser
of (1) the aggregate net asset value of the redeemed shares at the time of
redemption (excluding shares purchased by reinvestment of dividends or
capital gain distributions) or (2) the original net asset value of the
redeemed shares. However, the Class A contingent deferred sales charge will
not exceed the aggregate amount of the commissions the Distributor paid to
your dealer on all purchases of Class A shares of all Oppenheimer funds you
made that were subject to the Class A contingent deferred sales charge.
In determining whether a contingent deferred sales charge is payable when
shares are redeemed, the Fund will first redeem shares that are not subject
to the sales charge, including shares purchased by reinvestment of dividends
and capital gains. Then the Fund will redeem other shares in the order in
which you purchased them. The Class A contingent deferred sales charge is
waived in certain cases described in "Waivers of Class A Sales Charges" in
the Statement of Additional Information.
The Class A contingent deferred sales charge is not charged on exchanges of
shares under the Fund's Exchange Privilege (described below). However, if
the shares acquired by exchange are redeemed within 18 calendar months of
the end of the calendar month in which the exchanged shares were originally
purchased, then the sales charge will apply.
How Can 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 Contingent Deferred Sales Charge
in on Redemptions In that Year (As %
Which Purchase Order Was of Amount Subject to Charge)
Accepted
-------------------------------------------------------------------
-------------------------------------------------------------------
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 1.800.852.8457. The purchase payment
will be debited from your bank account.
AccountLink privileges should be requested on your Application or your
dealer's settlement instructions if you buy your shares through a dealer. After
your account is established, you can request AccountLink privileges by sending
signature-guaranteed instructions to the Transfer Agent. AccountLink privileges
will apply to each shareholder listed in the registration on your account as
well as to your dealer representative of record unless and until the Transfer
Agent receives written instructions terminating or changing those privileges.
After you establish AccountLink for your account, any change of bank account
information must be made by signature-guaranteed instructions to the Transfer
Agent signed by all shareholders who own the account.
PHONELINK. PhoneLink is the OppenheimerFunds automated telephone system that
enables shareholders to perform a number of account transactions
automatically using a touch-tone phone. PhoneLink may be used on
already-established Fund accounts after you obtain a Personal Identification
Number (PIN), by calling the special PhoneLink number, 1.800.533.3310.
Purchasing Shares. You may purchase shares in amounts up to $100,000 by
phone, by calling 1.800.533.3310. You must have established AccountLink
privileges to link your bank account with the Fund to pay for these
purchases.
Exchanging Shares. With the OppenheimerFunds Exchange Privilege, described
below, you can exchange shares automatically by phone from your Fund account
to another Oppenheimer funds account you have already established by calling
the special PhoneLink number.
Selling Shares. You can redeem shares by telephone automatically by calling the
PhoneLink number and the Fund will send the proceeds directly to your
AccountLink bank account. Please refer to "How to Sell Shares," below for
details.
CAN 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
Denver, Colorado 80217 D
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 fiscal periods. 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>
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 send us a request by
E-mail or 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>
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>
------------------------------------------------------------------------------
Oppenheimer Insured Municipal Fund
------------------------------------------------------------------------------
6803 South Tucson Way, Englewood, Colorado 80112
1-800-525-7048
Statement of Additional Information dated January 28, 2000, Revised as of
February 16, 2000
This Statement of Additional Information is not a Prospectus. This
document contains additional information about the Fund and supplements
information in the Prospectus dated January 28, 2000. It should be read together
with the Prospectus, which may be obtained by writing to the Fund's Transfer
Agent, OppenheimerFunds Services, at P.O. Box 5270, Denver, Colorado 80217 or by
calling the Transfer Agent at the toll-free number shown above or by downloading
it from the OppenheimerFunds Internet web site at www.oppenheimerfunds.com.
Contents Page
About the Fund
Additional Information About the Fund's Investment Policies and Risks 2
The Fund's Investment Policies................................2
Municipal Securities..........................................3
Other Investment Techniques and Strategies...................10
Investment Restrictions......................................22
How the Fund is Managed..........................................25
Organization and History.....................................25
Trustees and Officers of the Fund............................26
The Manager .................................................31
Brokerage Policies of the Fund...................................33
Distribution and Service Plans...................................35
Performance of the Fund..........................................38
About Your Account
How To Buy Shares................................................44
How To Sell Shares...............................................51
How to Exchange Shares...........................................55
Dividends and Taxes..............................................58
Additional Information About the Fund............................60
Financial Information About the Fund
Independent Auditors' Report.....................................62
Financial Statements ............................................63
Appendix A: Municipal Bond Ratings Definitions..................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., can 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 composition of the Fund's portfolio and the
techniques and strategies that the Fund's Manager may use in selecting portfolio
securities will vary over time. The Fund is not required to use all of the
investment techniques and strategies described below at all times in seeking its
goal. It may use some of the special investment techniques and strategies at
some times or not at all. The Fund does not make investments with the objective
of seeking capital growth. However, the values of the securities held by the
Fund may be affected by changes in general interest rates and other factors,
prior to their maturity. Because the current values of debt securities vary
inversely with changes in prevailing interest rates, if interest rates increase
after a security is purchased, that security will normally fall in value.
Conversely, should interest rates decrease after a security is purchased,
normally its value will 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 the
security's 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 purposes, or because of other factors affecting the issuer that cause
the Manager to sell the particular security. In that case, the Fund could
realize 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.
|X| 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 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 Manager believes such disposition is
advisable or the Fund needs to generate cash to satisfy requests to redeem Fund
shares. In those cases, the Fund may realize a capital gain or loss on its
investments. The Fund's annual portfolio turnover rate normally is not expected
to exceed 100%.
Municipal Securities. The types of municipal securities in which the Fund may
invest are described in the Prospectus under "About the Fund's Investments."
Municipal securities are generally classified as general obligation bonds,
revenue bonds and notes. A discussion of the general characteristics of these
principal types of municipal securities follows below.
|X| Municipal Bonds. We have classified municipal securities having a
maturity (when-issued) of more than one year 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.
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. While the Fund holds such securities, the Manager will
also evaluate the likelihood of a continuing market for these securities and
their credit quality.
|X| Ratings of Municipal Securities. Ratings by ratings organizations such
as Moody's Investors Service, Standard & Poor's Ratings Service 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.
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 can 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.
The rating definitions of Moody's, Standard & Poor's, Duff & Phelps and
Fitch for municipal securities are contained in Appendix A to this Statement of
Additional Information. The Fund can 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 assign 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.
|_| Special Risks of Lower-Grade Securities. 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.
While securities rate "Baa" by Moody's or "BBB" by Standard & Poor's or
Duff & Phelps are investment grade, they may be subject to special risks and
have some speculative characteristics.
|X| Insured Municipal Securities. Not all of the Fund's holdings of
municipal securities are insured. As noted in the Prospectus, within the
category of "insured" municipal securities, the Fund includes "pre-refunded"
municipal securities, because of the additional credit security offered by the
U.S. Government securities that collateralize the issuer's obligation to pay its
debt. To the extent that municipal securities in the Fund's portfolio are rated
insured, they will at all times be fully insured as to the scheduled payment of
all installments of interest and principal. This insurance substantially reduces
the risks to the Fund and its shareholders from defaults in the payment of
principal and interest on portfolio securities owned by the Fund.
Insurance coverage can be in one of three methods:
|_| a mutual fund "Portfolio Insurance Policy" issued by Financial Guaranty
Insurance Company,
|_| a "Secondary Market Insurance Policy," or
|_| a "New Issue Insurance Policy" obtained by the issuer or the underwriter
of the security at the time of its original issuance.
If a municipal security is already covered by a New Issue Insurance Policy
or Secondary Market Insurance Policy, then that security typically will not be
additionally insured under a Portfolio Insurance Policy issued by Financial
Guaranty Insurance Company. New Issue Insurance Policies or Secondary Market
Insurance Policies may be issued by Financial Guaranty Insurance Company or by
other insurers.
The insurance policies discussed above insure the scheduled payments of
all principal and interest on the covered municipal securities as those payments
fall due. The insurance does not guarantee the market value of the municipal
securities or the value of the shares of the Fund. Except as described below,
insurance of municipal securities the Fund buys has no effect on the net asset
value or redemption price of the shares of the Fund.
The insurance of principal refers to the face or par value of the
security, and is not affected by the price paid therefor by the Fund or the
market value of the security. Payment of a claim under an insurance policy
depends on the claims-paying ability of the insurer and by the Fund makes no
representations that any insurer will be able to meet its commitments.
|_| New Issue Insurance Policies. A New Issue Insurance Policy, on a
municipal security is obtained by the issuer or underwriters of that security.
All premiums on the insurance for a security is paid in advance by the issuer or
underwriter. Those policies are non-cancelable and continue in force so long as
the security is outstanding and the insurer remains in business. Since New Issue
Insurance remains in effect as long as the security insured by the policy is
outstanding, the insurance may have an effect on the resale value of the
security by the Fund. Therefore, New Issue Insurance may be considered to
represent an element of market value for a security insured by that policy, but
the exact effect, if any, of that insurance on the security's market value
cannot be estimated. The Fund will acquire a municipal security subject to New
Issue Insurance Policies only if the claims-paying ability of the insurer under
the policy is rated "AAA" by S&P, or has a comparable rating from another rating
organization on the date the Fund buys the security.
|_| Portfolio Insurance Policies. A Portfolio Insurance Policy obtained
by the Fund from Financial Guaranty Insurance Company will be effective only so
long as the Fund is in existence, Financial Guaranty Insurance Company is in
business, and the municipal security covered by the policy continues to be held
by the Fund. If the Fund sells the insured municipal security or if the security
is called or redeemed prior to its stated maturity the Portfolio Insurance
Policy terminates on the security.
A Portfolio Insurance Policy obtained by the Fund is non-cancellable
except for the Fund's failure to pay the premium. Nonpayment of premiums on a
Portfolio Insurance Policy obtained by the Fund will, under certain
circumstances, result in the cancellation of the Portfolio Insurance Policy and
also will permit Financial Guaranty Insurance Company to take action against the
Fund to recover premium payments that are due. The premium rate for a security
covered by a Portfolio Insurance Policy is fixed for the life of the security at
the time the Fund buys it. The insurance premiums are payable monthly by the
Fund and are adjusted for purchases, sales and payments prior to maturity of
covered securities during the month. Financial Guaranty Insurance Company cannot
cancel coverage already in force with respect to municipal securities owned by
the Fund and covered by the Portfolio Insurance Policy except for non-payment of
premiums. If any insurance for a municipal security is canceled, the Manager
will then determine as promptly as possible whether the Fund should sell that
security.
In determining whether to insure a municipal security, Financial Guaranty
Insurance Company applies its own standards, which are not necessarily the same
as the criteria used by the Manager when selecting securities for the Fund's
portfolio. The decision whether to insure a security is made prior to the Fund's
purchase of that security. A contract to purchase a security is not covered by
the Portfolio Insurance Policy for that security although securities underlying
such contracts are covered by the insurance upon physical delivery of the
securities to the Fund or the Fund's custodian bank. The Fund does not obtain
insurance on investments made for temporary liquidity and defensive purposes and
pending investment in longer term municipal securities.
Premiums are paid from the Fund's assets, and will therefore reduce the
Fund's current yield. When the Fund purchases a Secondary Market Insurance
Policy, the single premium is added to the cost basis of the municipal security
and is not considered an item of expense for the Fund.
|_| Secondary Market Insurance. The Fund might decide to purchase from
Financial Guaranty Insurance Company a Secondary Market Insurance Policy on any
municipal security can purchased by the Fund owns that is already covered by a
Portfolio Insurance Policy. The Fund obtain a Secondary Market Insurance Policy
on a security even if it is covered by a Portfolio Insurance Policy. However,
the coverage (and obligation to pay monthly premiums) under the Portfolio
Insurance Policy with respect to that security would cease when the purchases a
Secondary Market Insurance Policy on that security.
When purchasing a Secondary Market Insurance Policy, the Fund pays a
single pre-determined premium. The Fund thereby obtains insurance against
non-payment of scheduled principal and interest for the remaining term of the
security, regardless of whether the Fund owns the security. That insurance
coverage will be non-cancellable and will continue in force so long as the
insured security is outstanding. Acquiring that type of policy enables the Fund
to sell the municipal security to a third party as an "AAA"-rated insured
security at a market price higher than what otherwise might be obtainable if the
security were sold without the insurance coverage. That rating is not automatic,
however, and must specifically be requested from Standard & Poor's for a
security. This type of policy likely would be purchased if, the Manager, thinks
that the market value or net proceeds of a sale of the insured security would
exceed the current value of the security (without insurance) plus the cost of
the policy. Any difference between a security's market value as an "AAA"-rated
security and its market value without that rating, including the cost of the
insurance single premium, would inure to the Fund in determining its net
realized capital gain or loss the sale of the security.
The Fund can purchase insurance under a Secondary Market Insurance Policy
in lieu of a Portfolio Insurance Policy at any time, regardless of the effect on
the market value of the underlying municipal security, if the Manager believes
such insurance would best serve the Fund's interests in meeting its objectives
and policies. The Fund can purchase a Secondary Market Insurance Policy on a
security that is currently in default as to payments by the issuer to enable the
Fund to sell the security on an insured basis rather than be obligated to hold
the defaulted security in its portfolio in order to continue in force a
Portfolio Insurance Policy on that security.
|_| Financial Guaranty Insurance Company. The information below about
Financial Guaranty Insurance Company is derived from publicly-available sources
believed reliable by the Manager. Financial Guaranty Insurance Company is a New
York stock insurance company, with principal offices at 115 Broadway, New York,
New York, 10006. Financial Guaranty Insurance Company, domiciled in the State of
New York, commenced its business of providing insurance and financial guaranties
for a variety of investment instruments in January, 1984. Financial Guaranty
Insurance Company is a subsidiary of FGIC Corporation, a Delaware holding
company. FGIC Corporation is a wholly-owned subsidiary of General Electric
Capital Corporation. Neither FGIC Corporation nor General Electric Capital
Corporation are obligated to pay the debts of or the claims against Financial
Guaranty Insurance Company.
In addition to providing insurance for the payment of interest on and
principal of municipal bonds and notes held in unit investment trust and mutual
fund portfolios, Financial Guaranty Insurance Company provides insurance for new
issues and secondary market issues of municipal bonds and notes and for portions
of those issues. Financial Guaranty Insurance Company also provides credit
enhancements for asset-backed securities and mortgage-backed securities.
Financial Guaranty Insurance Company is currently authorized to write
insurance in 50 states and the District of Columbia, files reports with state
insurance regulatory agencies and is subject to audit and review by such
authorities. Financial Guaranty Insurance Company is also subject to regulation
by the State of New York Insurance Department. That regulation is no guarantee
that Financial Guaranty Insurance Company will be able to perform on its
commitments or contracts of insurance if a claim under them at some time in the
future.
Under the provisions of a Portfolio Insurance Policy, Financial Guaranty
Insurance Company unconditionally and irrevocably agrees to pay to State Street
Bank and Trust Company or its successor, as its agent, that portion of the
principal of and interest on the security that becomes due for payment but is
unpaid because of nonpayment by the issuer. Financial Guaranty Insurance Company
will make those payments to the agent on the date the principal or interest
becomes due for payment or on the business day next following the day on which
Financial Guaranty Insurance Company receives notice of nonpayment, whichever is
later.
The agent will disburse to the Fund the face amount of principal and
interest which is then due for payment but is unpaid by reason of nonpayment by
the issuer. However it will do so only upon receipt by the agent of (i) evidence
of the Fund's right to receive payment of the principal or interest due for
payment and (ii) evidence, including any appropriate instruments of assignment,
that all of the rights to payment of the principal or interest due for payment
thereupon shall vest in Financial Guaranty Insurance Company. The proceeds
attributable to interest payments will be tax-exempt. Upon such payment by the
agent, Financial Guaranty Insurance Company will be fully subrogated to all of
the Fund's rights under the defaulted obligation, which includes the right of
Financial Guaranty Insurance Company to obtain payment from the issuer to the
extent of amounts paid by Financial Guaranty Insurance Company to the Fund.
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. It is not required to use all of the strategies at all times
and at times may not use them.
|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" (or "forward commitment") 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. No income begins to
accrue to the Fund on a when issued security until the Fund receives the
security at settlement of the trade.
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. Its 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 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 on its books liquid assets 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| 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 transactions.
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 Manager 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. The Fund will not enter into
transactions that will cause more than 25% of the Fund's net assets to be
subject to repurchase agreements.
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. 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. The Manager will monitor the vendor's creditworthiness to confirm that
the vendor is financially sound and will continuously monitor the collateral's
value.
|X| Illiquid and Restricted Securities. To enable the Fund to sell its
holdings of a restricted security not registered under the Securities Act of
1933, the Fund might have to cause those securities to be registered. The
expenses of registering restricted securities may be negotiated by the Fund with
the issuer at the time the Fund buys the securities. When the Fund must arrange
registration because the Fund wishes to sell the security, a considerable period
may elapse between the time the decision is made to sell the security and the
time the security is registered so that the Fund could sell it. The Fund would
bear the risks of any downward price fluctuation during that period.
The Fund has percentage limitations that apply to purchases of restricted
and illiquid securities, as stated in the Prospectus. Those percentage
restrictions do not limit purchases of restricted securities that are eligible
for resale to qualified institutional purchasers pursuant to Rule 144A under the
Securities Act of 1933, provided that those securities have been determined to
be liquid by the Board of Trustees of the Fund or by the Manager. Those
guidelines take into account the trading activity for such securities and the
availability of reliable pricing information, among other factors. If there is a
lack of trading interest in a particular Rule 144A security, the Fund's holding
of that security may be deemed to be illiquid.
The Fund can also acquire restricted securities through private
placements. Those securities have contractual restrictions on their public
resale. Those restrictions might limit the Fund's ability to dispose of the
securities and might lower the amount the Fund could realize upon the sale.
|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 cannot exceed 5%
of the value of the Fund's total assets. The Fund currently does not intend to
lend securities. 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. 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 can 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
could:
|_| 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. The Fund can also write covered calls 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 can 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 would normally seek to purchase the
securities, and then terminate that hedging position. For this type of hedging,
the Fund could:
|_| 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,
are approved by its Board, and are permissible under the Fund's investment
restrictions and applicable regulations.
|_| Futures. The Fund can 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"), but only as a hedge
against interest rate changes.
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.
No money is paid by or received by the Fund on the purchase or sale of a
futures contract. 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 debt security 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 fall 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 (for example, the duration of municipal bonds
relative to U.S. Treasury Bonds might turn out to be greater than anticipated).
|_| Put and Call Options. The Fund can buy and sell certain kinds of put
options (puts) and call options (calls), including exchange-traded and
over-the-counter put and call options. These can include index options,
securities options and futures options. These strategies are described below.
|_| Writing Covered Call Options. The Fund can write (that is, sell) call
options. After the Fund writes a call, not more than 20% of the fund's total
assets may be subject to calls. Each call the Fund writes must be "covered"
while it is outstanding. That means the Fund must own the investment on which
the call was written. The Fund may write calls on futures contracts, but if it
does not own the futures contract or delivery securities, 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.
When the Fund writes a call on an index, it receives cash (a premium). If
the buyer of the call exercises it, the Fund will pay an amount of cash equal to
the difference between the closing price of the call and the exercise price,
multiplied by the specified multiple that determines the total value of the call
for each point of difference. If the value of the underlying 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.
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.
|_|Writing Put Options. The Fund can sell put options. A put option on
securities gives the purchaser the right to sell, and the writer the obligation
to buy, the underlying investment at the exercise price during the option
period. The Fund will not write puts if, as a result, more than 20% of the
Fund's total assets would be required to be segregated to cover such put
options.
If the Fund writes a put, the put must be covered by liquid assets
identified on the Fund's books. The premium the Fund receives from writing a put
represents a profit, as long as the price of the underlying investment remains
equal to or above the exercise price of the put. However, the Fund also assumes
the obligation during the option period to buy the underlying investment from
the buyer of the put at the exercise price, even if the value of the investment
falls below the exercise price. If a put the Fund has written expires
unexercised, the Fund realizes a gain in the amount of the premium less the
transaction costs incurred. If the put is exercised, the Fund must fulfill its
obligation to purchase the underlying investment at the exercise price. That
price will usually exceed the market value of the investment at that time. In
that case, the Fund may incur a loss if it sells the underlying investment. That
loss will be equal to the sum of the sale price of the underlying investment and
the premium received minus the sum of the exercise price and any transaction
costs the Fund incurred.
When writing a put option on a security, to secure its obligation to pay
for the underlying security the Fund will deposit in escrow liquid assets with a
value equal to or greater than the exercise price of the underlying securities.
The Fund therefore forgoes the opportunity of investing the segregated assets or
writing calls against those assets.
As long as the Fund's obligation as the put writer continues, it may be
assigned an exercise notice by the broker-dealer through which the put was sold.
That notice will require the Fund to take delivery of the underlying security
and pay the exercise price. The Fund has no control over when it may be required
to purchase the underlying security, since it may be assigned an exercise notice
at any time prior to the termination of its obligation as the writer of the put.
That obligation terminates upon expiration of the put. It may also terminate if,
before it receives an exercise notice, the Fund effects a closing purchase
transaction by purchasing a put of the same series as it sold. Once the Fund has
been assigned an exercise notice, it cannot effect a closing purchase
transaction.
The Fund may decide to effect a closing purchase transaction to realize a
profit on an outstanding put option it has written or to prevent the underlying
security from being put. Effecting a closing purchase transaction will also
permit the Fund to write another put option on the security, or to sell the
security and use the proceeds from the sale for other investments. The Fund will
realize a profit or loss from a closing purchase transaction depending on
whether the cost of the transaction is less or more than the premium received
from writing the put option. Any profits from writing puts are considered
short-term capital gains for federal tax purposes, and when distributed by the
Fund, are taxable as ordinary income.
|_| Purchasing Calls and Puts. The Fund can buy calls on securities,
broadly-based municipal bond indices, municipal bond index futures and interest
rate futures. It can 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 may 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.
The Fund may buy puts on debt securities, municipal bond indices, and
interest rate or municipal bond index futures, whether or not it owns the
underlying investment. When the Fund purchases a put, it pays a premium and,
except as to puts on indices, has the right to sell the underlying investment to
a seller of a put on a corresponding investment during the put period at a fixed
exercise price. Puts on municipal bond indices are settled in cash.
Buying a put on an investment the Fund does not own (such as an index or
future) permits the Fund either to resell the put or to buy the underlying
investment and sell it at the exercise price. The resale price will vary
inversely to the price of the underlying investment. If the market price of the
underlying investment is above the exercise price and, as a result, the put is
not exercised, the put will become worthless on its expiration date.
Buying a put on a debt security, interest rate future or municipal bond
index future the Fund owns enables the Fund to protect itself during the put
period against a decline in the value of the underlying investment below the
exercise price by selling the investment at the exercise price to a seller of a
corresponding put. If the market price of the underlying investment is equal to
or above the exercise price and, as a result, the put is not exercised or
resold, the put will become worthless at its expiration date. In that case the
Fund will have paid the premium but lost the right to sell the underlying
investment. However, the Fund may sell the put prior to its expiration. That
sale may or may not be 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 could 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 could 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 might 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 might advance and the
value of debt securities held in the Fund's portfolio might 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 might 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 can 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 might
decline. If the Fund then concludes not to invest in such securities because of
concerns that there might 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 and
could incur losses.
|_| 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 can 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 can 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.
|X| Temporary Defensive Investments. The securities the Fund can
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 meet its objective of providing tax exempt income to its shareholders.
Taxable investments include, for example, hedging instruments, repurchase
agreements, and some of the types of securities the Fund could 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.
|_| The Fund cannot invest in real estate. However, the Fund can invest in
municipal securities or other permissible securities or instruments secured by
real estate or interests in real estate.
|_| The Fund cannot invest in interests in oil, gas, or other mineral
exploration or development programs.
|_| The Fund cannot purchase securities, or other instruments, on margin.
However, the Fund can invest in options, futures, options on futures and similar
instruments and may make margin deposits and payments in connection with those
investments.
|_| The Fund cannot make short sales of securities.
|_| The Fund cannot underwrite securities. A permitted exception is in the
case it is deemed to be an underwriter under the Securities Act of 1933 when
reselling securities held in its portfolio.
|_| The Fund cannot invest in securities of other investment companies,
except if they are acquired as part of a merger, consolidation or other
acquisition.
|_| The Fund cannot borrow money, except from banks for temporary purposes
in amounts not in excess of 5% of the value of the Fund's assets. No assets of
the Fund may be pledged, mortgaged or hypothecated except to secure a borrowing,
and in that case no more than 10% of the Fund's total assets may be pledged,
mortgaged or hypothecated. Borrowings may not be made for leverage, but only for
liquidity purposes to satisfy redemption requests when the liquidation of
portfolio securities is considered inconvenient or disadvantageous. However, the
Fund can enter into when-issued and delayed-delivery transactions as described
in this Statement of Additional Information.
|_| The Fund cannot make loans. However, the Fund can purchase or hold
debt obligations, repurchase agreements and other instruments and securities it
is permitted to own and may lend its portfolio securities and other investments
it owns.
|_| With respect to 75% of its total assets, the Fund cannot buy
securities issued or guaranteed by any one issuer (except the U.S. Government or
any of its agencies or instrumentalities) if more than 5% of the Fund's total
assets would be invested in securities of that issuer or the Fund would then own
more than 10% of that issuer's voting securities.
|_| The Fund cannot invest more than 25% of its total assets in a single
industry. As an operating policy, the Fund applies this restriction to 25% or
more of its total assets. However, the Fund can invest more than 25% of its
assets in a particular segment of the municipal bond market, but it will not
invest more than 25% of its total assets in industrial development bonds in a
single industry.
|_| The Fund cannot make investments for the purpose of exercising control
of management.
|_| The Fund cannot purchase securities of any issuer if, officers,
trustees and directors of the Fund or the Manager individually beneficially own
more than .5% of the securities of that issuer and together own beneficially
more than 5% of the outstanding securities of that issuer.
|_| The Fund cannot issue "senior securities," but this does not prohibit
certain investment activities for which assets of the Fund are designated as
segregated or margin collateral or escrow arrangements are established to cover
the related obligations. Examples of those activities include borrowing money,
reverse repurchase agreements, delayed-delivery and when-issued arrangements for
portfolio securities transactions, and contracts to buy or sell derivatives,
hedging instruments, options or futures.
The Fund will not purchase or retain securities if, as a result, the Fund
would have more than 5% of its total assets invested in securities of private
issuers having a record of less than three years' continuous operation, or in
industrial development bonds if the private entity on whose credit the security
is based, directly or indirectly, is less than three years old, unless the
security is rated by a nationally-recognized rating service. In each case, that
period may include the operation of predecessor companies or enterprises.
Additionally, the Fund will not invest in common stock or any warrants related
to common stocks. These operating policies are not fundamental 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.
How the Fund Is Managed
Organization and History. The Fund is one of two diversified investment
portfolios or "series" of Oppenheimer Municipal Fund, an open-end, diversified
management investment company organized as a Massachusetts business trust in
1986, with an unlimited number of authorized shares of beneficial interest.
Oppenheimer Municipal Fund (and therefore, the Fund, as one of its series)
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. Shareholders of Oppenheimer
Municipal Fund have the right to call a meeting to remove a Trustee or to take
other action described in the Declaration of Trust.
|X| 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.
|X| Meetings of Shareholders. As a series of 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 Oppenheimer Municipal 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 the
outstanding shares of Oppenheimer Municipal Fund. 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 shareholder lists of a series of Oppenheimer Municipal Fund
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 a
series of Oppenheimer Municipal Fund valued at $25,000 or more or constituting
at least 1% of the outstanding shares of Oppenheimer Municipal Fund, whichever
is less. The Trustees may also take other action as permitted by the Investment
Company Act.
|X| Shareholder and Trustee Liability. The 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 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 the Declaration of
Trust to look solely to the assets of the Fund for satisfaction of any claim or
demand that may arise out of any dealings with the Fund. The contracts further
state that the Trustees shall have no personal liability to any such person, to
the extent permitted by law.
Trustees and Officers of the Fund. The Fund's Trustees and officers and their
principal occupations and business affiliations 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 also trustees, directors or managing general partners of the
following Denver-based Oppenheimer funds1:
Oppenheimer Senior Floating Rate
Oppenheimer Cash Reserves Fund
Oppenheimer Champion Income Fund Oppenheimer Strategic Income Fund
Oppenheimer Total Return Fund,
Oppenheimer Capital Income Fund Inc.
Oppenheimer High Yield Fund Oppenheimer Variable Account Funds
Oppenheimer International Bond
Fund Panorama Series Fund, Inc.
Oppenheimer Integrity Funds Centennial America Fund, L. P.
Oppenheimer Limited-Term Centennial California Tax Exempt
Government Fund Trust
Oppenheimer Main Street Funds,
Inc. Centennial Government Trust
Oppenheimer Main Street Small
Cap Fund. Centennial Money Market Trust
Centennial New York Tax Exempt
Oppenheimer Municipal Fund Trust
Oppenheimer Real Asset Fund Centennial Tax Exempt Trust
Ms. Macaskill and Messrs. Swain, Bishop, Wixted, Donohue, Farrar and Zack,
who are officers of the Fund, respectively hold the same offices with the other
Denver-based Oppenheimer funds. As of December 28, 1999, the Trustees and
officers of the Fund as a group owned 1.2% of the Class A shares of the Fund.
The foregoing statement does not reflect shares held of record by an employee
benefit plan for employees of the Manager other than shares beneficially owned
under that plan by the officers of the Fund listed below. Ms. Macaskill and Mr.
Donohue are trustees of that plan.
William L. Armstrong, Trustee,2 Age: 62.
11 Carriage Lane, Littleton, Colorado 80121
Chairman of the following private mortgage banking companies: Cherry Creek
Mortgage Company (since 1991), Centennial State Mortgage Company (since 1994),
The El Paso Mortgage Company (since 1993), Transland Financial Services, Inc.
(since 1997), and Ambassador Media Corporation (since 1984); Chairman of the
following private companies: Frontier Real Estate, Inc. (residential real estate
brokerage) (since 1994), Frontier Title (title insurance agency) (since 1995)
and Great Frontier Insurance (insurance agency) (since 1995); Director of the
following public companies: Storage Technology Corporation (computer equipment
company) (since 1991), Helmerich & Payne, Inc. (oil and gas drilling/production
company) (since 1992), UNUMProvident (insurance company) (since 1991); formerly
Director of the following public companies: International Family Entertainment
(television channel) (1991 - 1997) and Natec Resources, Inc. (air pollution
control equipment and services company) (1991 - 1995); formerly U.S. Senator
(January 1979 - January 1991).
Robert G. Avis*, Trustee, Age: 68
One North Jefferson Ave., St. Louis, Missouri 63103
Chairman, President and Chief Executive Officer of A.G. Edwards Capital, Inc.
(general partnership of private equity funds), Director of A.G. Edwards &
Sons, Inc. (a broker-dealer) and Director of A.G. Edwards Trust Companies
(trust companies), formerly, Vice Chairman of A.G. Edwards & Sons, Inc. and
A.G. Edwards, Inc. (its parent holding company) and Chairman of A.G.E. Asset
Management (an investment advisor).
William A. Baker, Trustee, Age: 84
197 Desert Lakes Drive, Palm Springs, California 92264
Management Consultant.
George C. Bowen, Trustee, Age: 633
6803 South Tucson Way, Englewood, Colorado 80112
Formerly (until April 1999) Mr. Bowen held the following positions: Senior
Vice President (since September 1987) and Treasurer (since March 1985) of the
Manager; Vice President (since June 1983) and Treasurer (since March 1985) of
the Distributor; Vice President (since October 1989) and Treasurer (since
April 1986) of HarbourView Asset Management Corporation; Senior Vice
President (since February 1992), Treasurer (since July 1991) Assistant
Secretary and a director (since December 1991) of Centennial Asset Management
Corporation; President, Treasurer and a director of Centennial Capital
Corporation (since June 1989); Vice President and Treasurer (since August
1978) and Secretary (since April 1981) of Shareholder Services, Inc.; Vice
President, Treasurer and Secretary of Shareholder Financial Services, Inc.
(since November 1989); Assistant Treasurer of Oppenheimer Acquisition Corp.
(since March 1998); Treasurer of Oppenheimer Partnership Holdings, Inc.
(since November 1989); Vice President and Treasurer of Oppenheimer Real Asset
Management, Inc. (since July 1996); Treasurer of OppenheimerFunds
International Ltd. and Oppenheimer Millennium Funds plc (since October 1997).
Jon S. Fossel, Trustee, Age: 57 4
P.O. Box 44, Mead Street, Waccabuc, New York 10597
Formerly Chairman and a director of the Manager, President and a director of
Oppenheimer Acquisition Corp., the Manager's parent holding company, and
Shareholder Services, Inc. and Shareholder Financial Services, Inc., transfer
agent subsidiaries of the Manager.
Sam Freedman, Trustee, Age:59
4975 Lakeshore Drive, Littleton, Colorado 80123
Formerly Chairman and Chief Executive Officer of OppenheimerFunds Services,
Chairman, Chief Executive Officer and a director of Shareholder Services, Inc.,
Chairman, Chief Executive Officer and director of Shareholder Financial
Services, Inc., Vice President and director of Oppenheimer Acquisition Corp.
and a director of OppenheimerFunds, Inc.
Raymond J. Kalinowski, Trustee, Age: 70
44 Portland Drive, St. Louis, Missouri 63131
Director of Wave Technologies International, Inc. (a computer products
training company), self-employed consultant (securities matters).
C. Howard Kast, Trustee, Age: 78
2552 East Alameda, Denver, Colorado 80209
Formerly Managing Partner of Deloitte, Haskins & Sells (an accounting firm).
Robert M. Kirchner, Trustee, Age: 78
7500 E. Arapahoe Road, Englewood, Colorado 80112
President of The Kirchner Company (management consultants).
Bridget A. Macaskill*, President and Trustee, Age: 515
Two World Trade Center, New York, New York 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 Corporation, an investment adviser
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 of Oppenheimer Real Asset
Management, Inc. (since July 1996); 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 of other Oppenheimer funds; a director of Prudential Corporation plc
(a U.K. financial service company).
Ned M. Steel, Trustee, Age: 84
3416 South Race Street, Englewood, Colorado 80110
Chartered Property and Casualty Underwriter; a director of Visiting Nurse
Corporation of Colorado.
James C. Swain*, Chairman, Chief Executive Officer and Trustee, Age: 66 6803
South Tucson Way, Englewood, Colorado 80112 Vice Chairman of the Manager (since
September 1988); formerly President and a director of Centennial Asset
Management Corporation, an investment adviser subsidiary of the Manager and
Chairman of the Board of Shareholder Services, Inc.
Andrew J. Donohue, Vice President and Secretary, Age: 49
Two World Trade Center, New York, New York 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 Corporation, Shareholder Services,
Inc., Shareholder Financial Services, Inc. and (since September 1995)
Oppenheimer Partnership Holdings, Inc.; President and a director of Centennial
Asset Management Corporation (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.
Robert J. Bishop, Assistant Treasurer, Age: 41
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 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.
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 Corporation, 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 Corporation
(since April 1999); 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).
Robert G. Zack, Assistant Secretary, Age: 51
Two World Trade Center, New York, New York 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. Christian D. Smith, Vice President and Portfolio Manager, Age: 38. Two
World Trade Center, New York, New York 10048-0203 Senior Vice President of the
Manager (since October 11, 1999); an officer of other Oppenheimer funds. From
January 1999 to September 1999 he was Co-Head of the Municipal Portfolio
Management Team of Prudential Global Asset Management (an investment adviser),
prior to which he was a portfolio manager for that firm (January 1990 to January
1999).
Remuneration of Trustees. The officers of the Fund and two Trustees
of the Fund (Ms. Macaskill and Mr. Swain) are affiliated with the Manager and
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 September 30, 1999. The compensation from all of
the Denver-based Oppenheimer funds includes the compensation from the Fund and
represents compensation received as a director, trustee, managing general
partner or member of a committee of the Board during the calendar year 1999.
<PAGE>
------------------------------------------------------------------
Aggregate Total Compensation
Trustee's Name Compensation from all Denver-Based
and Other Positions from Fund Oppenheimer Funds1
------------------------------------------------------------------
------------------------------------------------------------------
William L. Armstrong $65 None 2
------------------------------------------------------------------
------------------------------------------------------------------
Robert G. Avis $422 $67,998.00
------------------------------------------------------------------
------------------------------------------------------------------
William A. Baker $431 $69,998.00
------------------------------------------------------------------
------------------------------------------------------------------
George C. Bowen $70 None 2
------------------------------------------------------------------
------------------------------------------------------------------
John S. Fossel $428 $67,496.00
Audit Committee Member
------------------------------------------------------------------
------------------------------------------------------------------
Sam Freedman $459 $73,998.00
Audit Committee Member
------------------------------------------------------------------
------------------------------------------------------------------
Raymond J. Kalinowski $455 $73,998.00
Audit Committee Member
------------------------------------------------------------------
------------------------------------------------------------------
C. Howard Kast $485 $76,998.00
Audit Committee Chairman
------------------------------------------------------------------
------------------------------------------------------------------
Robert M. Kirchner $427 $67,998.00
------------------------------------------------------------------
------------------------------------------------------------------
Ned M. Steel $422 $67,998.00
------------------------------------------------------------------
1. For the 1999 calendar year.
2. Mr. Armstrong and Mr. Bowen were not Trustees or Directors of the
Denver-based Oppenheimer funds during 1998.
|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 December 28, 1999, the only persons who
owned of record or who were known by the Fund to own beneficially 5% or more of
the Fund's outstanding shares were:
Merrill Lynch Pierce Fenner & Smith, Inc., 4800 Deer Lake Drive East,
Floor 3, Jacksonville, Florida, 32246-6484, which owned 680.935 Class B
shares, representing 6.99% of the Class B shares then outstanding.
Merrill Lynch Pierce Fenner & Smith, Inc., 4800 Deer Lake Drive East,
Floor 3, Jacksonville, Florida, 32246-6484, which owned 63,879.633 Class C
shares, representing 21.68% of the Class C shares then outstanding.
Margie H. Madak Trust, 8619 W. Sunnyside Avenue, Chicago, Illinois
60656-4149, which owned 29,762.828 of the Class C shares, representing
10.10% of the Class C shares then outstanding.
The Manager. The Manager is wholly-owned by Oppenheimer Acquisition Corp., a
holding company controlled by Massachusetts Mutual Life Insurance Company.
|X| Code of Ethics. The Fund, the Manager and the Distributor 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. Covered persons include
persons with knowledge of the investments and investment intentions of the Fund
and other funds advised by the Manager. The Code of Ethics does permit
personnel subject to the Code to invest in securities, including securities
that may be purchased or held by the Fund, subject to a number of restrictions
and controls. Compliance with the Code of Ethics is carefully monitored and
enforced by the Manager.
The Code of Ethics is an exhibit to the Fund's registration statement
filed with the Securities and Exchange Commission and can be reviewed and
copied at the SEC's Public Reference Room in Washington, D.C. You can obtain
information about the hours of operation of the Public Reference Room by
calling the SEC at 1-202-942-8090. The Code of Ethics can also be viewed as
part of the Fund's registration statement on the SEC's EDGAR database at the
SEC's Internet web site at http://www.sec.gov. Copies may be obtained, after
paying a duplicating fee, by electronic request at the following E-mail
address: [email protected]., or by writing to the SEC's Public Reference
Section, Washington, D.C. 20549-0102.
|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. The portfolio manager
of the Fund is employed by the Manager and is the person who is principally
responsible for the day-to-day management of the Fund's investment portfolio.
Other members of the Manager's Fixed-Income Portfolio Team provide the portfolio
manager with research and counsel in managing the Fund's investments. The
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.
The Fund pays expenses not expressly assumed by the Manager under the
advisory agreement. The 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 costs. 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 Ending 9/30 Management Fee Paid to
OppenheimerFunds, Inc.
-----------------------------------------------------------------
-----------------------------------------------------------------
1997 $471,703
-----------------------------------------------------------------
-----------------------------------------------------------------
1998 $545,563
-----------------------------------------------------------------
-----------------------------------------------------------------
1999 $601,513
-----------------------------------------------------------------
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. The Manager uses the name "Oppenheimer" in
connection with other investment companies for which it or an affiliate is the
investment adviser or general distributor. If the Manager shall no longer act as
investment adviser to the Fund, the Manager can withdraw its permission to the
Fund (and to Oppenheimer Municipal Fund) 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. 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. 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 permits 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 Board of Trustees has permits the Manager to use concessions on fixed-price
offerings to obtain research, in the same manner as is permitted for agency
transactions.
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.
-------------------------------------------------------------------
Fiscal Year Ended 9/30 Total Brokerage Commissions Paid by
the Fund1
-------------------------------------------------------------------
-------------------------------------------------------------------
1997 None
-------------------------------------------------------------------
-------------------------------------------------------------------
1998 $73,0592
-------------------------------------------------------------------
-------------------------------------------------------------------
1999 $89,180
-------------------------------------------------------------------
1. Amounts do not include spreads or concessions on principal amounts on a net
trade basis.
2. In the fiscal year ended 9/30/99, no transactions directed to brokers for
research services.
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 different classes of shares of the Fund. The Distributor is not
obligated to sell a specific number of shares. Expenses normally attributable to
sales are borne by the Distributor.
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 CommissionsCommissions
Fiscal Front-End Front-End on Class A on Class on Class C
Year Sales Sales Shares B Shares Shares
Ended Charges Charges Advanced by Advanced Advanced
9/30: on Class A Retained Distributor1 by by
Shares by DistributorDistributor1
Distributor
-------------------------------------------------------------------
-------------------------------------------------------------------
1997 $164,201 $35,272 $ 5,001 $222,466 $18,115
-------------------------------------------------------------------
-------------------------------------------------------------------
1998 $197,201 $47,360 $ 1,663 $350,427 $27,494
-------------------------------------------------------------------
-------------------------------------------------------------------
1999 $214,856 $36,028 $13,460 $274,507 $21,836
-------------------------------------------------------------------
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.
* Includes amount retained by a broker-dealer that is an affiliate or parent
of the distributor.
-----------------------------------------------------------------
Fiscal Class A Class B Class C
Year Contingent Contingent Contingent
Ended Deferred Sales Deferred Sales Deferred Sales
9/30: Charges Retained Charges Retained Charges Retained
by Distributor by Distributor by Distributor
-----------------------------------------------------------------
-----------------------------------------------------------------
1999 $0 $96,005 $4,312
-----------------------------------------------------------------
Distribution and Service Plans. The Fund has adopted a Service Plan for its
Class A shares and Distribution and Service Plans for its Class B and Class C
shares under Rule 12b-1 of the Investment Company Act. Under those plans, the
Fund makes payments to the Distributor in connection with the distribution
and/or servicing of the shares of the particular class.
Each plan has been approved by a vote of the Board of Trustees of the
Fund, including a majority of the Independent Trustees, 6 cast in person at a
meeting called for the purpose of voting on that plan.
Under the plans the Manager and the Distributor, in their sole discretion,
from time to time may use their own resources (at no direct cost to the Fund) to
make payments to brokers, dealers or other financial institutions for
distribution and administrative services they perform. 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 plan for a class, 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. 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.
|X| Class A Service Plan. 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 held in accounts of the service
provider or their customers.
For the fiscal year ended September 30, 1999, payments under the Plan for
Class A shares totaled $245,096, all of which was paid by the Distributor to
recipients. That included $12,398 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.
|X| Class B and Class C Service and Distribution Plans. 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 types of services that recipients provide for the
service fee are similar to the services provided under the Class A plan,
described above.
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. The
Class B and Class C 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 in the Fiscal Year Ended
9/30/99
--------------------------------------------------------------------
--------------------------------------------------------------------
Distributor's Distributor's
Aggregate Unreimbursed
Total Amount Unreimbursed Expenses as %
Payments Retained by Expenses of Net Assets
Class: Under Plan Distributor Under Plan of Class
--------------------------------------------------------------------
--------------------------------------------------------------------
Class B $ 285,641 $ 233,634 $ 938,638 3.55%
Plan
--------------------------------------------------------------------
--------------------------------------------------------------------
Class C $ 57,731 $ 33,511 $ 789,916 1.41%
Plan
--------------------------------------------------------------------
All payments under the Class B and Class C plans are subject to the
limitations imposed by the Conduct Rules of the National Association of
Securities Dealers, Inc. on payments of asset-based sales charges and service
fees to NASD members.
Performance of the Fund
Explanation of Performance Terminology. The Fund uses a variety of terms to
illustrate its performance. These terms include "standardized yield,"
"tax-equivalent yield," "dividend yield," "average annual total return,"
"cumulative total return," "average annual total return at net asset value" and
"total return at net asset value." An explanation of how yields and total
returns are calculated is set forth below. The charts below show the Fund's
performance as of 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 = 2[(a-b 6
--- + 1) - 1]
cd
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:
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 9/30/99
-----------------------------------------------------------------
-----------------------------------------------------------------
Tax-Equivalent
Standardized Dividend Yield Yield
Yield (39.6% Fed. Tax
Class of Bracket)
Shares
-----------------------------------------------------------------
-----------------------------------------------------------------
Without After Without After Without After
Sales Sales Sales Sales Sales Sales
Charge Charge Charge Charge Charge Charge
-----------------------------------------------------------------
-----------------------------------------------------------------
Class A 5.12% 4.88% 4.93% 4.69% 8.48% 8.08%
-----------------------------------------------------------------
-----------------------------------------------------------------
Class B 4.35% N/A 4.10% N/A 7.20% N/A
-----------------------------------------------------------------
-----------------------------------------------------------------
Class C 4.35% N/A 4.11% N/A 7.20% 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: |_| 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.
ERV-P
----- = Total Return
P
--------------------------------------------------------------------
The Fund's Total Returns for the Periods Ended 9/30/99
--------------------------------------------------------------------
--------------------------------------------------------------------
Cumulative Average Annual Total Returns
Total
Returns (10
years or
Class of life of
Shares class)
--------------------------------------------------------------------
--------------------------------------------------------------------
5-Year 10-Year
1-Year (or life of (or life of
class) class)
--------------------------------------------------------------------
--------------------------------------------------------------------
After WithoutAfter WithoutAfter Without After Without
Sales Sales Sales Sales Sales Sales Sales Sales
Charge Charge Charge Charge Charge Charge Charge Charge
--------------------------------------------------------------------
--------------------------------------------------------------------
Class A 81.60% 90.66% -9.28% -4.76% 4.92% 5.94% 6.15% 6.67%
--------------------------------------------------------------------
--------------------------------------------------------------------
Class B 28.24% 27.85% -9.98% -5.47% 4.81% 5.14% 3.96%(2)3.96%(2)
--------------------------------------------------------------------
--------------------------------------------------------------------
Class C 18.85%(18.85% -6.38% -5.48% 4.32%(34.32%(3) N/A N/A
--------------------------------------------------------------------
1. Inception of Class A: 11/11/86
2. Inception of Class B:05/03/93
3. Inception of Class C:08/29/95
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.
|X| 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 insured municipal debt 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.
|X| 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
rates and 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 rankings reflecting performance
relative to the average fund in a fund's category. Five stars is the "highest"
ranking (top 10% of funds in a category), four stars is "above average" (next
22.5%), three stars is "average" (next 35%), two stars is "below average" (next
22.5%) and one star is "lowest" (bottom 10%). The current star ranking is the
fund's (or class's) 3-year ranking or its combined 3- and 5-year ranking
(weighted 60%/40% respectively), or its combined 3-, 5-, and 10-year ranking
(weighted 40%, 30% and 30%, respectively), depending on the inception date of
the fund (or class). Rankings are subject to change monthly.
The Fund may also compare its total return ranking to that of other funds
in its Morningstar category, in addition to its star rankings. Those total
return rankings are percentages 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.
|X| Performance Rankings and Comparisons by Other Entities and Publications.
From time to time the Fund may include in its advertisements and sales
literature performance information about the Fund cited in newspapers and other
periodicals such as The New York Times, The Wall Street Journal, Barron's, or
similar publications. That information may include performance quotations from
other sources, including Lipper and Morningstar. The performance of the Fund's
Class A, Class B or Class C shares may be compared in publications to the
performance of various market indices or other investments, and averages,
performance rankings or other benchmarks prepared by recognized mutual fund
statistical services.
Investors may also wish to compare the Fund's Class A, Class B or Class C
returns to the return on fixed-income investments available from banks and
thrift institutions. Those include certificates of deposit, ordinary
interest-paying checking and savings accounts, and other forms of fixed or
variable time deposits, and various other instruments such as Treasury bills.
However, the Fund's returns and share price are not guaranteed or insured by the
FDIC or any other agency and will fluctuate daily, while bank depository
obligations may be insured by the FDIC and may provide fixed rates of return.
Repayment of principal and payment of interest on Treasury securities is backed
by the full faith and credit of the U.S. Government.
From time to time, the Fund may publish rankings or ratings of the Manager
or Transfer Agent, and of the investor services provided by them to shareholders
of the Oppenheimer funds, other than performance rankings of the Oppenheimer
funds themselves. Those ratings or rankings of shareholder and investor services
by third parties may include comparisons of their services to those provided by
other mutual fund families selected by the rating or ranking services. They may
be based upon the opinions of the rating or ranking service itself, using its
research or judgment, or based upon surveys of investors, brokers, shareholders
or others.
-------------------------------------------------------------------------------
ABOUT YOUR ACCOUNT
-------------------------------------------------------------------------------
How to Buy Shares
Additional information is presented below about the methods that can be used to
buy shares of the Fund. Appendix C contains more information about the special
sales charge arrangements offered by the Fund, and the circumstances in which
sales charges may be reduced or waived for certain classes of investors.
AccountLink. When shares are purchased through AccountLink, each purchase must
be at least $25. Shares will be purchased on the regular business day the
Distributor is instructed to initiate the Automated Clearing House ("ACH")
transfer to buy the shares. Dividends will begin to accrue on shares purchased
with the proceeds of ACH transfers on the business day the Fund receives federal
Funds for the purchase through the ACH system before the close of The New York
Stock Exchange. The Exchange normally closes at 4:00 P.M., but may close earlier
on certain days. If federal Funds are received on a business day after the close
of the Exchange, the shares will be purchased and dividends will begin to accrue
on the next regular business day. The proceeds of ACH transfers are normally
received by the Fund 3 days after the transfers are initiated. The Distributor
and the Fund are not responsible for any delays in purchasing shares resulting
from delays in ACH transmissions.
Reduced Sales Charges. As discussed in the Prospectus, a reduced sales charge
rate may be obtained for Class A shares under Right of Accumulation and Letters
of Intent because of the economies of sales efforts and reduction in expenses
realized by the Distributor, dealers and brokers making such sales. No sales
charge is imposed in certain other circumstances described in Appendix C to this
Statement of Additional Information because the Distributor or dealer or broker
incurs little or no selling expenses.
|X| Right of Accumulation. To qualify for the lower sales charge rates
that apply to larger purchases of Class A shares, you and your spouse can add
together:
|_| Class A and Class B shares you purchase for your individual accounts,
or for your joint accounts, or for trust or custodial accounts on behalf
of your children who are minors, and
|_| Current purchases of Class A and Class B shares of the Fund and other
Oppenheimer funds to reduce the sales charge rate that applies to
current purchases of Class A shares, and
|_| Class A and Class B shares of Oppenheimer funds you previously
purchased subject to an initial or contingent deferred sales charge to
reduce the sales charge rate for current purchases of Class A shares,
provided that you still hold your investment in one of the Oppenheimer
funds.
A fiduciary can count all shares purchased for a trust, estate or other
fiduciary account (including one or more employee benefit plans of the same
employer) that has multiple accounts. The Distributor will add the value, at
current offering price, of the shares you previously purchased and currently own
to the value of current purchases to determine the sales charge rate that
applies. The reduced sales charge will apply only to current purchases. You must
request it when you buy shares.
|X| The Oppenheimer Funds. The Oppenheimer funds are those mutual
funds for which the Distributor acts as the distributor or the
sub-distributor and currently include the following:
Oppenheimer California Municipal Oppenheimer Large Cap Growth
Fund Fund
Oppenheimer Capital Appreciation Oppenheimer Money Market Fund,
Fund Inc.
Oppenheimer Capital Preservation Oppenheimer Multiple
Fund Strategies Fund
Oppenheimer Multi-Sector
Oppenheimer Developing Markets Fund Income Trust
Oppenheimer Multi-State
Oppenheimer Discovery Fund Municipal Trust
Oppenheimer Enterprise Fund Oppenheimer Municipal Bond Fund
Oppenheimer New York Municipal
Oppenheimer Europe Fund Fund
Oppenheimer Global Fund Oppenheimer Series Fund, Inc.
Oppenheimer Global Growth & Income Oppenheimer U.S. Government
Fund 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
Oppenheimer Senior Floating
Oppenheimer Cash Reserves Rate Fund
Oppenheimer Strategic Income
Oppenheimer Champion Income Fund Fund
Oppenheimer Total Return Fund,
Oppenheimer Capital Income Fund Inc.
Oppenheimer Variable Account
Oppenheimer High Yield Fund Funds
Oppenheimer International Bond Fund Panorama Series Fund, Inc.
Oppenheimer Integrity Funds Centennial America Fund, L. P.
Oppenheimer Limited-Term Centennial California Tax
Government Fund Exempt Trust
Oppenheimer Main Street Funds,
Inc. Centennial Government Trust
Oppenheimer Main Street Small Cap
Fund. Centennial Money Market Trust
Centennial New York Tax Exempt
Oppenheimer Municipal Fund Trust
Oppenheimer Real Asset Fund Centennial Tax Exempt Trust
Rochester Portfolio Series, a
Oppenheimer Quest For Value Funds, a series fund having one series:
series fund having the following Limited-Term New York
series: Municipal Fund
Oppenheimer Quest Small Cap Value Bond Fund Series, a series fund
Fund, having one series:
Oppenheimer Quest Balanced Value Oppenheimer Convertible
Fund and Securities Fund
Oppenheimer Quest Opportunity Rochester Fund Municipals
Value Fund
Oppenheimer Quest Global Value Fund, Oppenheimer MidCap Fund
Inc.
Oppenheimer Quest Capital Value Fund,
Inc.
Oppenheimer Quest Value 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 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.
|X| 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 of OppenheimerFunds employer-sponsored qualified retirement accounts.
Asset Builder Plans also enable shareholders of Oppenheimer Cash Reserves to use
their fund account to make monthly automatic purchases of shares of up to four
other Oppenheimer funds.
If you make payments from your bank account to purchase shares of the
Fund, your bank account will be 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 you 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
normally 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 from his or her firm
selling Fund shares may receive different levels of compensation for selling one
class of shares rather 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.
|X| 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.
|X| 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, 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 U.S.
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. The Fund's net asset
values will not be calculated on those days, and the values of some of Fund's
portfolio securities may change significantly on those days, when shareholders
cannot 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 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 Appendix C 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.
o 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.
o Oppenheimer Main Street California Municipal Fund currently offers only
Class A and Class B shares.
o 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.
o 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.
o 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.
o 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.
o 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.
o 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.
|X| How Exchanges Affect Contingent Deferred Sales Charges. No contingent
deferred sales charge is imposed on exchanges of shares of any class purchased
subject to a contingent deferred sales charge. However, when Class A shares
acquired by exchange of Class A shares of other Oppenheimer funds purchased
subject to a Class A contingent deferred sales charge are redeemed within 18
months of the end of the calendar month of the initial purchase of the exchanged
Class A shares, the Class A contingent deferred sales charge is imposed on the
redeemed shares. The Class B contingent deferred sales charge is imposed on
Class B shares acquired by exchange if they are redeemed within 6 years of the
initial purchase of the exchanged Class B shares. The Class C contingent
deferred sales charge is imposed on Class C shares acquired by exchange if they
are redeemed within 12 months of the initial purchase of the exchanged Class C
shares.
When Class B or Class C shares are redeemed to effect an exchange, the
priorities described in "How To Buy Shares" in the Prospectus for the imposition
of the Class B or the Class C contingent deferred sales charge will be followed
in determining the order in which the shares are exchanged. Before exchanging
shares, shareholders should take into account how the exchange may affect any
contingent deferred sales charge that might be imposed in the subsequent
redemption of remaining shares. Shareholders owning shares of more than one
class must specify which class of shares they wish to exchange.
|X| 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.
|X| 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. 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. 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.
|X| 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. When your exchange some or all of your shares from one fund to another,
any special account feature such as an Asset Builder Plan or Automatic
Withdrawal Plan, will be switched to the new fund account unless you tell the
Transfer Agent not to do so. However, special redemption and exchange features
such as Automatic Exchange Plans and Automatic Withdrawal Plans cannot be
switched to an account in Oppenheimer Senior Floating Rate Fund.
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 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 the different classes of 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; or
(3) 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 Distributor. The Fund's shares are sold through dealers, brokers and other
financial institutions that have a sales agreement with OppenheimerFunds
Distributor, Inc. a subsidiary of the Manager that acts as the Fund's
Distributor. The Distributor also distributes shares of the other Oppenheimer
funds and is sub-distributor for funds managed by a subsidiary of the Manager.
The Transfer Agent. OppenheimerFunds Services, the Fund's Transfer Agent, 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. It also handles shareholder
servicing and administrative functions. It acts on an "at-cost" basis. It also
acts as shareholder servicing agent for the other Oppenheimer funds.
Shareholders should direct inquiries about their accounts to the Transfer Agent
at the address and toll-free numbers shown on the back cover.
The Custodian. The Bank of New York is the custodian bank 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. Deloitte & Touche LLP are the independent auditors of the
Fund. They audit the Fund's financial statements and perform other related audit
services. They also act as auditors for certain other funds advised by the
Manager and its affiliates.
<PAGE>
A-7
A-1
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.
<PAGE>
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>
B-1
<PAGE>
Appendix B
Industry Classification
Aerospace/Defense Food and Drug Retailers
Air Transportation Gas Utilities
Asset-Backed Health Care/Drugs
Auto Parts and Equipment Health Care/Supplies & Services
Automotive Homebuilders/Real Estate
Bank Holding Companies Hotel/Gaming
Banks Industrial Services
Beverages Information Technology
Broadcasting Insurance
Broker-Dealers Leasing & Factoring
Building Materials Leisure
Cable Television Manufacturing
Chemicals Metals/Mining
Commercial Finance Nondurable Household Goods
Communication Equipment Office Equipment
Computer Hardware Oil - Domestic
Computer Software Oil - International
Conglomerates Paper
Consumer Finance Photography
Consumer Services Publishing
Containers Railroads & Truckers
Convenience Stores Restaurants
Department Stores Savings & Loans
Diversified Financial Shipping
Diversified Media Special Purpose Financial
Drug Wholesalers Specialty Printing
Durable Household Goods Specialty Retailing
Education Steel
Electric Utilities Telecommunications - Long
Distance
Electrical Equipment Telephone - Utility
Electronics Textile, Apparel & Home
Furnishings
Energy Services Tobacco
Entertainment/Film Trucks and Parts
Environmental Wireless Services
Food
<PAGE>
C-7
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."7 This waiver provision applies to: |_|
Purchases of Class A shares aggregating $1 million or more. |_| 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.
|_| Purchases by an OppenheimerFunds-sponsored Rollover IRA, if the
purchases are made:
(1) through a broker, dealer, bank or registered investment adviser that
has made special arrangements with the Distributor for those
purchases, or
(2) by a direct rollover of a distribution from a qualified Retirement
Plan if the administrator of that Plan has made special arrangements
with the Distributor for those purchases.
|_| Purchases of Class A shares by Retirement Plans that have any of the
following record-keeping arrangements:
(1) The record keeping is performed by Merrill Lynch Pierce Fenner & Smith,
Inc. ("Merrill Lynch") on a daily valuation basis for the
Retirement Plan. On the date the plan sponsor signs the
record-keeping service agreement with Merrill Lynch, the Plan must
have $3 million or more of its assets invested in (a) mutual funds,
other than those advised or managed by Merrill Lynch Asset
Management, L.P. ("MLAM"), that are made available under a Service
Agreement between Merrill Lynch and the mutual fund's principal
underwriter or distributor, and (b) funds advised or managed by
MLAM (the funds described in (a) and (b) are referred to as
"Applicable Investments").
(2) The record keeping for the Retirement Plan is performed on a daily
valuation basis by a record keeper whose services are provided
under a contract or arrangement between the Retirement Plan and
Merrill Lynch. On the date the plan sponsor signs the record
keeping service agreement with Merrill Lynch, the Plan must have $3
million or more of its assets (excluding assets invested in money
market funds) invested in Applicable Investments.
(3) The record keeping for a Retirement Plan is handled under a service
agreement with Merrill Lynch and on the date the plan sponsor signs
that agreement, the Plan has 500 or more eligible employees (as
determined by the Merrill Lynch plan conversion manager).
|_| Purchases by a Retirement Plan whose record keeper had a cost-allocation
agreement with the Transfer Agent on or before May 1, 1999.
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): |_| The Manager or its affiliates. |_| Present or former officers,
directors, trustees and employees (and their
"immediate families") of the Fund, the Manager and its affiliates, and
retirement plans established by them for their employees. The term
"immediate family" refers to one's spouse, children, grandchildren,
grandparents, parents, parents-in-law, brothers and sisters, sons- and
daughters-in-law, a sibling's spouse, a spouse's siblings, aunts,
uncles, nieces and nephews; relatives by virtue of a remarriage
(step-children, step-parents, etc.) are included.
|_| Registered management investment companies, or separate accounts of
insurance companies having an agreement with the Manager or the
Distributor for that purpose.
|_| Dealers or brokers that have a sales agreement with the Distributor, if
they purchase shares for their own accounts or for retirement plans for
their employees.
|_| Employees and registered representatives (and their spouses) of dealers
or brokers described above or financial institutions that have entered
into sales arrangements with such dealers or brokers (and which are
identified as such to the Distributor) or with the Distributor. The
purchaser must certify to the Distributor at the time of purchase that
the purchase is for the purchaser's own account (or for the benefit of
such employee's spouse or minor children).
|_| Dealers, brokers, banks or registered investment advisors that have
entered into an agreement with the Distributor providing specifically
for the use of shares of the Fund in particular investment products made
available to their clients. Those clients may be charged a transaction
fee by their dealer, broker, bank or advisor for the purchase or sale of
Fund shares.
|_| Investment advisors and financial planners who have entered into an
agreement for this purpose with the Distributor and who charge an
advisory, consulting or other fee for their services and buy shares for
their own accounts or the accounts of their clients.
|_| "Rabbi trusts" that buy shares for their own accounts, if the purchases
are made through a broker or agent or other financial intermediary that
has made special arrangements with the Distributor for those purchases.
|_| Clients of investment advisors or financial planners (that have entered
into an agreement for this purpose with the Distributor) who buy
shares for their own accounts may also purchase shares without sales
charge but only if their accounts are linked to a master account of
their investment advisor or financial planner on the books and records
of the broker, agent or financial intermediary with which the
Distributor has made such special arrangements . Each of these
investors may be charged a fee by the broker, agent or financial
intermediary for purchasing shares.
|_| Directors, trustees, officers or full-time employees of OpCap Advisors
or its affiliates, their relatives or any trust, pension, profit sharing
or other benefit plan which beneficially owns shares for those persons.
|_| Accounts for which Oppenheimer Capital (or its successor) is the
investment advisor (the Distributor must be advised of this arrangement)
and persons who are directors or trustees of the company or trust which
is the beneficial owner of such accounts.
|_| A unit investment trust that has entered into an appropriate agreement
with the Distributor.
|_| Dealers, brokers, banks, or registered investment advisers that have
entered into an agreement with the Distributor to sell shares to defined
contribution employee retirement plans for which the dealer, broker or
investment adviser provides administration services.
|_| Retirement Plans and deferred compensation plans and trusts used to fund
those plans (including, for example, plans qualified or created under
sections 401(a), 401(k), 403(b) or 457 of the Internal Revenue Code), in
each case if those purchases are made through a broker, agent or other
financial intermediary that has made special arrangements with the
Distributor for those purchases.
|_| A TRAC-2000 401(k) plan (sponsored by the former Quest for Value
Advisors) whose Class B or Class C shares of a Former Quest for Value
Fund were exchanged for Class A shares of that Fund due to the
termination of the Class B and Class C TRAC-2000 program on November 24,
1995.
|_| A qualified Retirement Plan that had agreed with the former Quest for
Value Advisors to purchase shares of any of the Former Quest for Value
Funds at net asset value, with such shares to be held through DCXchange,
a sub-transfer agency mutual fund clearinghouse, if that arrangement was
consummated and share purchases commenced by December 31, 1996.
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): |_| Shares issued in plans of reorganization, such as mergers, asset
acquisitions and exchange offers, to which the Fund is a party.
|_| Shares purchased by the reinvestment of dividends or other distributions
reinvested from the Fund or other Oppenheimer funds (other than
Oppenheimer Cash Reserves) or unit investment trusts for which
reinvestment arrangements have been made with the Distributor.
|_| Shares purchased 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.
|_| Shares purchased with the proceeds of maturing principal units of any
Qualified Unit Investment Liquid Trust Series.
|_| Shares purchased by the reinvestment of loan repayments by a participant
in a Retirement Plan for which the Manager or an affiliate acts as
sponsor.
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: |_| 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.
|_| 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).
|_| 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.8 (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.9 (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.
|_| 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.
|_| 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: |_| Shares redeemed involuntarily,
as described in "Shareholder Account
Rules and Policies," in the applicable Prospectus.
|_| 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.
|_| Distributions from accounts for which the broker-dealer of record has
entered into a special agreement with the Distributor allowing this
waiver.
|_| Redemptions of Class B shares held by Retirement Plans whose records are
maintained on a daily valuation basis by Merrill Lynch or an independent
record keeper under a contract with Merrill Lynch.
|_| Redemptions of Class C shares of Oppenheimer U.S. Government Trust from
accounts of clients of financial institutions that have entered into a
special arrangement with the Distributor for this purpose.
|_| 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.
|_| 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.10 (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.11 (9) On account of the
participant's separation from service.12 (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).
|_|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:
|_| Shares sold to the Manager or its affiliates.
|_| Shares sold to registered management investment companies or separate
accounts of insurance companies having an agreement with the Manager or
the Distributor for that purpose.
|_| Shares issued in plans of reorganization to which the Fund is a party.
|_| 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, Oppenheimer Quest Small Cap
Inc. Value Fund
Oppenheimer Quest Balanced Oppenheimer Quest Global
Value Fund 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 Quest for Value New York
Income Fund Tax-Exempt Fund
Quest for Value Investment Quest for Value National
Quality Income Fund Tax-Exempt Fund
Quest for Value Global Income Quest for Value California
Fund Tax-Exempt Fund
All of the funds listed above are referred to in this Appendix as the
"Former Quest for Value Funds." The waivers of initial and contingent deferred
sales charges described in this Appendix apply to shares of an Oppenheimer fund
that are either: |_| acquired by such shareholder pursuant to an exchange of
shares of an
Oppenheimer fund that was one of the Former Quest for Value Funds or |_|
purchased by such shareholder by exchange of shares of another
Oppenheimer fund that were acquired pursuant to the merger of any of the
Former Quest for Value Funds into that other Oppenheimer fund on
November 24, 1995.
A. Reductions or Waivers of Class A Sales Charges.
|X| Reduced Class A Initial Sales Charge Rates for Certain Former Quest
for Value Funds Shareholders.
Purchases by Groups and Associations. The following table sets forth the initial
sales charge rates for Class A shares purchased by members of "Associations"
formed for any purpose other than the purchase of securities. The rates in the
table apply if that Association purchased shares of any of the Former Quest for
Value Funds or received a proposal to purchase such shares from OCC Distributors
prior to November 24, 1995.
---------------------------------------------------------------------
Number of Initial Sales Initial Sales
Eligible Charge as a % Charge as a % Commission as %
Employees or of Offering of Net Amount of Offering
Members Price Invested Price
---------------------------------------------------------------------
---------------------------------------------------------------------
9 or Fewer 2.50% 2.56% 2.00%
---------------------------------------------------------------------
---------------------------------------------------------------------
At least 10 but 2.00% 2.04% 1.60%
not 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.
|X| Waiver of Class A Sales Charges for Certain Shareholders. Class A
shares purchased by the following investors are not subject to any Class A
initial or contingent deferred sales charges:
|_| Shareholders who were shareholders of the AMA Family of Funds on
February 28, 1991 and who acquired shares of any of the Former Quest for
Value Funds by merger of a portfolio of the AMA Family of Funds.
|_| Shareholders who acquired shares of any Former Quest for Value Fund by
merger of any of the portfolios of the Unified Funds.
|X| Waiver of Class A Contingent Deferred Sales Charge in Certain
Transactions. The Class A contingent deferred sales charge will not apply to
redemptions of Class A shares purchased by the following investors who were
shareholders of any Former Quest for Value Fund:
Investors who purchased Class A shares from a dealer that is or was not
permitted to receive a sales load or redemption fee imposed on a shareholder
with whom that dealer has a fiduciary relationship, under the Employee
Retirement Income Security Act of 1974 and regulations adopted under that law.
B. Class A, Class B and Class C Contingent Deferred Sales Charge Waivers.
|X| Waivers for Redemptions of Shares Purchased Prior to March 6, 1995. In
the following cases, the contingent deferred sales charge will be waived for
redemptions of Class A, Class B or Class C shares of an Oppenheimer fund. The
shares must have been acquired by the merger of a Former Quest for Value Fund
into the fund or by exchange from an Oppenheimer fund that was a Former Quest
for Value Fund or into which such fund merged. Those shares must have been
purchased prior to March 6, 1995 in connection with: |_| withdrawals under an
automatic withdrawal plan holding only either Class
B or Class C shares if the annual withdrawal does not exceed 10% of the
initial value of the account, and
|_| liquidation of a shareholder's account if the aggregate net asset value
of shares held in the account is less than the required minimum value of
such accounts.
|X| Waivers for Redemptions of Shares Purchased on or After March 6, 1995
but Prior to November 24, 1995. In the following cases, the contingent deferred
sales charge will be waived for redemptions of Class A, Class B or Class C
shares of an Oppenheimer fund. The shares must have been acquired by the merger
of a Former Quest for Value Fund into the fund or by exchange from an
Oppenheimer fund that was a Former Quest For Value Fund or into which such
Former Quest for Value Fund merged. Those shares must have been purchased on or
after March 6, 1995, but prior to November 24, 1995: |_| redemptions following
the death or disability of the shareholder(s) (as
evidenced by a determination of total disability by the U.S. Social
Security Administration);
|_| withdrawals under an automatic withdrawal plan (but only for Class B or
Class C shares) where the annual withdrawals do not exceed 10% of the
initial value of the account; and
|_| liquidation of a shareholder's account if the aggregate net asset value
of shares held in the account is less than the required minimum account
value.
A shareholder's account will be credited with the amount of any contingent
deferred sales charge paid on the redemption of any Class A, Class B or Class C
shares of the Oppenheimer fund described in this section if the proceeds are
invested in the same Class of shares in that fund or another Oppenheimerfund
within 90 days after redemption.
V. Special Sales Charge Arrangements for Shareholders of Certain
Oppenheimer Funds Who Were Shareholders of Connecticut Mutual Investment
Accounts, Inc.
The initial and contingent deferred sale charge rates and waivers for Class A
and Class B shares described in the 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.
|X| 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.
|X| 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:
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;
(1) 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;
(2) Directors of the Fund or any one or more of the Former Connecticut
Mutual Funds and members of their immediate families;
(3) 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;
(4) 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
(5) 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:
|_| the Manager and its affiliates,
|_| 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,
|_| 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,
|_| dealers or brokers that have a sales agreement with the Distributor, if
they purchase shares for their own accounts or for retirement plans for
their employees,
|_| employees and registered representatives (and their spouses) of dealers
or brokers described 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,
|_| 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
|_| 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 Insured Municipal Fund
-------------------------------------------------------------------------------
Internet Web Site:
www.oppenheimerfunds.com
Investment Adviser
OppenheimerFunds, Inc.
Two World Trade Center
New York, New York 10048-0203
Distributor
OppenheimerFunds Distributor, Inc.
Two World Trade Center
New York, New York 10048-0203
Transfer 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
Deloitte & Touche LLP
555 Seventeenth Street, Suite 3600
Denver, Colorado 80202-3942
Legal Counsel
Myer, Swanson, Adams & Wolf, P.C.
1600 Broadway
Denver, Colorado 80202
PX0865.00
<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:
(1) After the Fund writes a call, not more than 25% of the Fund's total assets
may be subject to calls.
(2) Calls the Fund 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 Oppenheimer Large Cap Growth
Fund Fund
Oppenheimer Capital Appreciation Oppenheimer Money Market Fund,
Fund Inc.
Oppenheimer Capital Preservation Oppenheimer Multiple Strategies
Fund Fund
Oppenheimer Multi-Sector Income
Oppenheimer Developing Markets Fund Trust
Oppenheimer Multi-State
Oppenheimer Discovery Fund Municipal Trust
Oppenheimer Enterprise Fund Oppenheimer Municipal Bond Fund
Oppenheimer New York Municipal
Oppenheimer Europe Fund Fund
Oppenheimer Global Fund Oppenheimer Series Fund, Inc.
Oppenheimer Global Growth & Income Oppenheimer U.S. Government
Fund 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 November 3, 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
Position from Fund Expenses Funds
(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 CommissionsCommissions
Fiscal Front-End Front-End on Class A on Class on Class C
Year Sales Sales Shares B Shares Shares
Ended Charges on Charges Advanced by Advanced Advanced
7/31: Class A Retained Distributor1 by by
Shares by DistributorDistributor1
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 Class B Class C Contingent
Fiscal Contingent Contingent Deferred Sales
Year Deferred Sales Deferred Sales Charges
Ended Charges Charges Retained by
7/31: 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 %
Under Plan Distributor Under Plan of Net
Assets
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:
Standardized Yield = 2[(a-b 6
--- + 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
Standardized Dividend Yield Yield
Yield (39.6% Fed. Tax
Class of Bracket)
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 Average Annual Total Returns
Total
Returns (10
years
Class or life of
of class)
Shares
-------------------------------------------------------------------
-------------------------------------------------------------------
5-Year 10-Year
1-Year (or life of (or life of
class) class)
-------------------------------------------------------------------
-------------------------------------------------------------------
After Without After WithoutAfter 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%(234.96% -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%(35.72%(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 Capital Appreciation Oppenheimer Main Street Growth &
Fund Income Fund
Oppenheimer Capital Preservation Oppenheimer Main Street Small Cap
Fund Fund
Oppenheimer California Municipal
Fund Oppenheimer MidCap Fund
Oppenheimer Multiple Strategies
Oppenheimer Champion Income Fund Fund
Oppenheimer Convertible
Securities Fund Oppenheimer Municipal Bond Fund
Oppenheimer Developing Markets
Fund Oppenheimer New York Municipal Fund
Oppenheimer Disciplined Oppenheimer New Jersey Municipal
Allocation Fund Fund
Oppenheimer Disciplined Value Oppenheimer Pennsylvania Municipal
Fund Fund
Oppenheimer Quest Balanced Value
Oppenheimer Discovery Fund Fund
Oppenheimer Quest Capital Value
Oppenheimer Enterprise Fund Fund, Inc.
Oppenheimer Quest Global Value
Oppenheimer Capital Income Fund Fund, Inc.
Oppenheimer Quest Opportunity
Oppenheimer Europe Fund Value Fund
Oppenheimer Florida Municipal Oppenheimer Quest Small Cap Value
Fund Fund
Oppenheimer Global Fund Oppenheimer Quest Value Fund, Inc.
Oppenheimer Global Growth &
Income Fund Oppenheimer Real Asset Fund
Oppenheimer Gold & Special Oppenheimer Senior Floating Rate
Minerals Fund Fund
Oppenheimer Growth Fund Oppenheimer Strategic Income Fund
Oppenheimer Total Return Fund,
Oppenheimer High Yield 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
Limited-Term New York Municipal
Oppenheimer Large Cap Growth Fund 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 Centennial Tax Exempt Trust
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>
A-6
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>
B-1
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>
C-4
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 Oppenheimer Quest Global
Fund 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 Quest for Value New York
Income 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 Initial Sales Charge
EligibleEmployees Charge as a % of Commission
or as a % of Net Amount as % of
Members Offering Price 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
PX0310.1199
<PAGE>
INDEPENDENT AUDITORS' REPORT
--------------------------------------------------------------------------------
TO THE BOARD OF TRUSTEES AND SHAREHOLDERS OF
OPPENHEIMER INSURED MUNICIPAL FUND:
We have audited the accompanying statement of assets and liabilities, including
the statement of investments, of Oppenheimer Insured Municipal Fund as of
September 30, 1999, the related statement of operations for the year then ended,
the statements of changes in net assets for the years ended September 30, 1999
and 1998, and the financial highlights for the period October 1, 1994 to
September 30, 1999. 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 confirma-tion of securities owned as of
September 30, 1999, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Oppenheimer Insured
Municipal Fund as of September 30, 1999, the results of its operations, the
changes in its net assets, and the financial highlights for the respective
stated periods, in conformity with generally accepted accounting principles.
/s/ DELOITTE & TOUCHE LLP
-------------------------
DELOITTE & TOUCHE LLP
Denver, Colorado
October 21, 1999
<PAGE>
STATEMENT OF INVESTMENTS September 30, 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--99.3%
-----------------------------------------------------------------------------------------------------------------
ALABAMA--1.8%
Lauderdale Cnty. & Florence AL Health Care
Authority RB, Coffee Health Group, Series A,
5.25%, 7/1/19 NR/AAA/AAA $2,500,000 $2,315,800
-----------------------------------------------------------------------------------------------------------------
ALASKA--3.3%
AK Export & IDAU RB, Snettisham Hydroelectric
Power, First Series, AMBAC Insured, 5.50%, 1/1/16 NR/AAA/AAA 1,145,000 1,098,009
-----------------------------------------------------------------------------------------------------------------
AK Export & IDAU RB, Snettisham Hydroelectric
Power, First Series, AMBAC Insured, 5.50%, 1/1/17 NR/AAA/AAA 1,265,000 1,203,331
-----------------------------------------------------------------------------------------------------------------
AK Student Loan Corp. RRB, Series A, AMBAC
Insured, 5.30%, 7/1/15 Aaa/AAA/AAA 2,165,000 2,044,388
-----------
4,345,728
-----------------------------------------------------------------------------------------------------------------
ARIZONA--0.9%
AZ Educational LMC RRB, Series B, 7%, 3/1/05 Aa2/NR 1,090,000 1,141,099
-----------------------------------------------------------------------------------------------------------------
CALIFORNIA--3.9%
CA SCDAU Revenue Refunding COP, Cedars-Sinai
Medical Center, MBIA Insured, 6.50%, 8/1/12 Aaa/AAA 1,000,000 1,103,060
-----------------------------------------------------------------------------------------------------------------
Pomona, CA USD GORB, Series A, MBIA Insured,
6.15%, 8/1/15 Aaa/AAA 1,000,000 1,073,150
-----------------------------------------------------------------------------------------------------------------
Redding, CA Electric System Revenue COP,
MBIA Insured, Inverse Floater, 9.004%, 7/8/22(1) Aaa/AAA 1,500,000 1,725,000
-----------------------------------------------------------------------------------------------------------------
Sacramento, CA MUD Electric RRB, Series G, MBIA
Insured, 6.50%, 9/1/13 Aaa/AAA/A 1,000,000 1,130,250
-----------
5,031,460
-----------------------------------------------------------------------------------------------------------------
COLORADO--4.0%
CO Housing FAU MH RB, Series B-2, 5.90%, 10/1/38 Aa2/AA+ 1,000,000 989,450
-----------------------------------------------------------------------------------------------------------------
CO Housing FAU SFM CAP RB, Series C-1, Zero Coupon,
5.63%, 11/1/29(2) Aa2/NR 5,000,000 834,550
-----------------------------------------------------------------------------------------------------------------
CO Housing FAU SFM RB, Sr. Lien, Series C-2, 6.875%,
11/1/28 Aa2/NR 2,000,000 2,144,180
-----------------------------------------------------------------------------------------------------------------
Douglas & Elbert Cntys., CO SDI No. RE-1,
Improvement GOB, Series A, MBIA Insured,
8%, 12/15/09 Aaa/AAA 1,000,000 1,237,010
-----------
5,205,190
-----------------------------------------------------------------------------------------------------------------
CONNECTICUT--3.0%
CT Housing FAU RB, Series A, Subseries A-2, 6.20%,
11/15/22 Aa2/AA 855,000 872,656
-----------------------------------------------------------------------------------------------------------------
CT Housing FAU RRB, Series A, Subseries D-2, 6.20%,
11/15/27 Aa2/AA 995,000 1,012,850
</TABLE>
12 OPPENHEIMER INSURED MUNICIPAL FUND
<PAGE>
<TABLE>
<CAPTION>
RATINGS:
MOODY'S/
S&P/FITCH FACE MARKET VALUE
(UNAUDITED) AMOUNT SEE NOTE 1
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CONNECTICUT Continued
CT Housing FAU RRB, Subseries C-2, 5.85%,
11/15/28 Aa2/AA $1,980,000 $ 1,955,290
-----------
3,840,796
-----------------------------------------------------------------------------------------------------------------
FLORIDA--3.3%
FL HFA MH RRB, Series C, 6%, 8/1/11 NR/AAA 1,000,000 1,042,350
-----------------------------------------------------------------------------------------------------------------
Lee Cnty., FL Hospital Board of Directors RRB,
MBIA Insured, Inverse Floater, 8.887%, 3/26/20(1) Aaa/AAA 1,000,000 1,102,500
-----------------------------------------------------------------------------------------------------------------
Miami-Dade Cnty., FL Aviation RB, Series C,
MBIA Insured, 5.25%, 10/1/18 NR/AAA/AAA 1,000,000 924,710
-----------------------------------------------------------------------------------------------------------------
Miami-Dade Cnty., FL SPO RRB, Sub. Lien, Series A,
MBIA Insured, Zero Coupon, 5.45%, 10/1/15(2) Aaa/AAA/AAA 3,000,000 1,194,150
-----------
4,263,710
GEORGIA--2.5%
Dalton, GA DAU RB, MBIA Insured, 5.50%, 8/15/26 Aaa/AAA/AAA 1,000,000 966,590
-----------------------------------------------------------------------------------------------------------------
GA MEAU RRB, Project One, Sub. Lien, Series A,
AMBAC Insured, 5.375%, 1/1/13 Aaa/AAA/AAA 2,285,000 2,259,225
----------
3,225,815
-----------------------------------------------------------------------------------------------------------------
ILLINOIS--13.2%
Chicago, IL BOE GOB, Chicago School Reform
Project, Series A, AMBAC Insured, 5.25%, 12/1/22 Aaa/AAA/AAA 2,000,000 1,833,240
-----------------------------------------------------------------------------------------------------------------
Chicago, IL GOB, Inverse Floater, 7.255%, 1/1/28(1,3) NR/AAA 5,000,000 4,040,800
-----------------------------------------------------------------------------------------------------------------
Chicago, IL O'Hare International Airport RRB,
General Airport, Second Lien, Series A,
AMBAC Insured, 5.50%, 1/1/16 Aaa/AAA/AAA 2,500,000 2,417,675
-----------------------------------------------------------------------------------------------------------------
Chicago, IL SFM RB, Series B, 6.95%, 9/1/28 Aaa/NR 1,890,000 2,005,970
-----------------------------------------------------------------------------------------------------------------
Cook Cnty., IL Community College District No. 508
Chicago COP, FGIC Insured, 8.75%, 1/1/05 Aaa/AAA/AAA 500,000 590,935
-----------------------------------------------------------------------------------------------------------------
Cook Cnty., IL Community College District No. 508
Lease COP, Series C, MBIA Insured, 7.70%, 12/1/07 Aaa/AAA 1,500,000 1,776,165
-----------------------------------------------------------------------------------------------------------------
Cook Cnty., IL SDI No. 99 Cicero GOB, FGIC Insured,
8.50%, 12/1/05 Aaa/NR 1,170,000 1,399,718
-----------------------------------------------------------------------------------------------------------------
IL Development FAU Retirement Housing RB,
Regency Park, Escrowed to Maturity, Series A,
Zero Coupon, 5.85%, 7/15/23(2) NR/AAA 8,750,000 1,817,900
-----------------------------------------------------------------------------------------------------------------
IL HFAU RRB, Methodist Medical Center,
MBIA Insured, 5.125%, 11/15/18 Aaa/AAA/AAA 1,500,000 1,354,125
-----------
17,236,528
</TABLE>
13 OPPENHEIMER INSURED MUNICIPAL FUND
<PAGE>
STATEMENT OF INVESTMENTS (CONTINUED)
<TABLE>
<CAPTION>
RATINGS:
MOODY'S/
S&P/FITCH FACE MARKET VALUE
(UNAUDITED) AMOUNT SEE NOTE 1
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INDIANA--4.2%
Hamilton Southeastern, IN Consolidated School
Building Corp. RRB, First Mtg., AMBAC Insured,
7%, 7/1/11 Aaa/AAA/AAA $ 500,000 $ 524,975
-----------------------------------------------------------------------------------------------------------------
IN HFFAU Hospital RB, Clarian Health Partners, Inc.,
Series A, 6%, 2/15/21 Aa3/AA/AA 2,000,000 1,993,860
-----------------------------------------------------------------------------------------------------------------
IN Office Building Commission Capital Complex RB,
Series B, MBIA Insured, 7.40%, 7/1/15 Aaa/AAA 2,500,000 2,993,275
-----------
5,512,110
-----------------------------------------------------------------------------------------------------------------
MASSACHUSETTS--3.7%
MA Health & Educational FA RB, Mt. Auburn
Hospital Issue, Series B-1, MBIA Insured, 6.25%, 8/15/14 Aaa/AAA 1,000,000 1,060,860
-----------------------------------------------------------------------------------------------------------------
MA HFA RB, Series A, AMBAC Insured, 6.60%, 7/1/14 Aaa/AAA/AAA 1,905,000 1,998,688
-----------------------------------------------------------------------------------------------------------------
MA POAU RB, Series E, FGIC-TCRS Insured, 5%, 7/1/28 Aaa/AAA 2,000,000 1,718,880
-----------
4,778,428
-----------------------------------------------------------------------------------------------------------------
NEVADA--1.6%
Clark Cnty., NV Passenger Facility Charge RB,
Las Vegas McCarran International Airport Project,
Series B, MBIA Insured, 6.50%, 7/1/12 Aaa/AAA 2,000,000 2,119,760
-----------------------------------------------------------------------------------------------------------------
NEW HAMPSHIRE--0.4%
NH Turnpike System RRB, Series A, FGIC Insured,
6.75%, 11/1/11 Aaa/AAA/AAA 500,000 552,840
-----------------------------------------------------------------------------------------------------------------
NEW YORK--8.1%
L.I., NY PAU Electric System RRB,
Series A, 5%, 12/1/18 Aaa/AAA/AAA 4,000,000 3,621,600
-----------------------------------------------------------------------------------------------------------------
NYC MWFAU WSS RRB, Series D, FGIC Insured,
4.75%, 6/15/25 Aaa/AAA/AAA 2,000,000 1,689,280
-----------------------------------------------------------------------------------------------------------------
NYC RB, Series J, MBIA-IBC Insured, 5%, 5/15/17 Aaa/AAA/AAA 3,000,000 2,723,190
-----------------------------------------------------------------------------------------------------------------
NYS United Nations Development Corp. RRB,
Sr. Lien, Series B, 5.60%, 7/1/26 A2/NR/A 2,590,000 2,487,514
-----------
10,521,584
-----------------------------------------------------------------------------------------------------------------
OHIO--4.1%
Cleveland, OH PPS RRB, First Mtg., Subseries 1,
MBIA Insured, 5.125%, 11/15/18 Aaa/AAA 3,000,000 2,795,850
-----------------------------------------------------------------------------------------------------------------
OH HFA Mtg. RB, 6.10%, 9/1/28 NR/AAA 1,990,000 1,989,881
-----------------------------------------------------------------------------------------------------------------
Streetsboro, OH SDI GOB, AMBAC Insured,
7.125%, 12/1/10 Aaa/AAA/AAA 500,000 572,670
-----------
5,358,401
</TABLE>
14 OPPENHEIMER INSURED MUNICIPAL FUND
<PAGE>
<TABLE>
<CAPTION>
RATINGS:
MOODY'S/
S&P/FITCH FACE MARKET VALUE
(UNAUDITED) AMOUNT SEE NOTE 1
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OKLAHOMA--1.7%
OK Industrial Authority Health Systems RB,
Baptist Medical Center, Series C, AMBAC Insured,
7%, 8/15/05 Aaa/AAA/AAA $2,000,000 $ 2,219,020
-----------------------------------------------------------------------------------------------------------------
PENNSYLVANIA--10.0%
Berks Cnty., PA GOB, Prerefunded, FGIC Insured,
Inverse Floater, 8.63%, 11/10/20(1) Aaa/AAA/AAA 1,000,000 1,147,500
-----------------------------------------------------------------------------------------------------------------
Chester Cnty., PA Education & HFAU RRB,
Series B, 5.375%, 5/15/27 A1/AA-/AA- 3,575,000 3,210,922
-----------------------------------------------------------------------------------------------------------------
Delaware Valley, PA Regional FAU Local
Government RB, Series B, AMBAC Insured,
5.70%, 7/1/27 Aaa/AAA 2,000,000 1,998,420
-----------------------------------------------------------------------------------------------------------------
PA HEAA Student Loan RB, Series B,
AMBAC Insured, Inverse Floater, 8.209%, 3/1/22(1) Aaa/AAA/AAA 1,250,000 1,328,125
-----------------------------------------------------------------------------------------------------------------
PA HEFAU RRB, Thomas Jefferson University,
AMBAC Insured, 5%, 7/1/19 Aaa/AAA 2,000,000 1,807,680
-----------------------------------------------------------------------------------------------------------------
Philadelphia, PA Airport RB, Series 387A,
Inverse Floater, 8.303%, 6/15/12(1) NR/NR 1,565,000 1,519,458
-----------------------------------------------------------------------------------------------------------------
Philadelphia, PA Regional POAU Lease RB,
MBIA Insured, Inverse Floater, 8.50%, 9/1/20(1) Aaa/AAA 1,900,000 1,985,500
-----------
12,997,605
-----------------------------------------------------------------------------------------------------------------
TEXAS--19.2%
Cedar Hill, TX ISD CAP RRB, Zero Coupon,
6.10%, 8/15/11(2) Aaa/NR/AAA 1,585,000 836,991
-----------------------------------------------------------------------------------------------------------------
Fort Worth, TX Higher Education Finance Corp. RB,
AMBAC-TCRS Insured, 5%, 3/15/27 Aaa/AAA 3,000,000 2,614,860
-----------------------------------------------------------------------------------------------------------------
Grand Prairie, TX HFDC RRB, Dallas/Ft. Worth Medical
Center Project, AMBAC Insured, 6.875%, 11/1/10 Aaa/AAA/AAA 1,800,000 1,984,662
-----------------------------------------------------------------------------------------------------------------
Harris Cnty., TX Hospital District RRB, AMBAC
Insured, 7.40%, 2/15/10 Aaa/AAA/AAA 2,000,000 2,296,880
-----------------------------------------------------------------------------------------------------------------
Harris Cnty., TX Houston Sports Authority Special
CAP RB, Jr. Lien, Series B, MBIA Insured,
Zero Coupon, 5.33%, 11/15/13(2) Aaa/AAA/AAA 4,360,000 1,946,914
-----------------------------------------------------------------------------------------------------------------
Houston, TX Airport System RRB, Sub. Lien,
Series B, FGIC Insured, 5%, 7/1/17 Aaa/AAA/AAA 2,750,000 2,458,802
-----------------------------------------------------------------------------------------------------------------
Lower Neches Valley, TX IDAU Corp. RRB,
Mobil Oil Refining Corp., 5.55%, 3/1/33 Aa2/AA 3,000,000 2,812,170
-----------------------------------------------------------------------------------------------------------------
Lower Neches Valley, TX IDAU Corp. Sewer Facilities
RB, Mobil Oil Refining Corp. Project, 6.40%, 3/1/30 Aa2/AA 1,000,000 1,031,150
-----------------------------------------------------------------------------------------------------------------
Rio Grande Valley, TX HFDC Retirement Facilities RB,
Golden Palms, Series B, MBIA Insured, 6.40%, 8/1/12 Aaa/AAA 2,000,000 2,120,800
-----------------------------------------------------------------------------------------------------------------
Tarrant Cnty., TX HFDC RB, Texas Health Resources
System, Series A, MBIA Insured, 5.75%, 2/15/11 Aaa/AAA/AAA 2,130,000 2,189,321
</TABLE>
15 OPPENHEIMER INSURED MUNICIPAL FUND
<PAGE>
STATEMENT OF INVESTMENTS (CONTINUED)
<TABLE>
<CAPTION>
RATINGS:
MOODY'S/
S&P/FITCH FACE MARKET VALUE
(UNAUDITED) AMOUNT SEE NOTE 1
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
TEXAS Continued
TX A&M RB, Series 556, Inverse Floater,
7.252%, 5/15/20(1) NR/NR $5,000,000 $ 4,682,000
-----------
24,974,550
-----------------------------------------------------------------------------------------------------------------
WASHINGTON--4.3%
Chelan Cnty., WA Public Utilities District No. 1 RB,
Chelan Hydroelectric Conservation System-Division III,
Series A, 5.60%, 7/1/32 Aa3/AA/AA- 2,000,000 1,927,360
-----------------------------------------------------------------------------------------------------------------
Tacoma, WA Electric Systems RB, Prerefunded,
AMBAC Insured, Inverse Floater, 9.043%, 1/2/15(1) Aaa/AAA/AAA 1,000,000 1,088,750
-----------------------------------------------------------------------------------------------------------------
WA PP Supply System RRB, Nuclear Project No. 1,
Series A, 5%, 7/1/13 Aa1/AA-/AA- 1,500,000 1,404,090
-----------------------------------------------------------------------------------------------------------------
WA PP Supply System RRB, Nuclear Project No. 2,
Series A, FGIC Insured, Zero Coupon, 5.50%, 7/1/09(2) Aaa/AAA/AAA 2,000,000 1,203,080
-----------
5,623,280
-----------------------------------------------------------------------------------------------------------------
WEST VIRGINIA--0.7%
WV GOB, Capital Appreciation-Infracture, Series A,
FGIC Insured, Zero Coupon, 5.20%, 11/1/14(2) Aa3/AAA/AAA 2,100,000 912,765
-----------------------------------------------------------------------------------------------------------------
WISCONSIN--1.1%
WI Health & Educational FA RB, Aurora Medical
Group, Inc. Project, FSA Insured, 6%, 11/15/11 Aaa/AAA/AAA 1,370,000 1,470,764
-----------------------------------------------------------------------------------------------------------------
DISTRICT OF COLUMBIA--4.3%
DC Convention Center Authority Dedicated Tax RB,
Sr. Lien, AMBAC Insured, 4.75%, 10/1/28 Aaa/AAA/AAA 3,000,000 2,464,530
-----------------------------------------------------------------------------------------------------------------
DC Hospital RRB, Medlantic Healthcare Group,
Series A, MBIA Insured, 5.25%, 8/15/12 Aaa/AAA/AAA 1,000,000 993,360
-----------------------------------------------------------------------------------------------------------------
DC RRB, Prerefunded, Series A-1, MBIA Insured,
6%, 6/1/11 Aaa/AAA/AAA 100,000 107,242
-----------------------------------------------------------------------------------------------------------------
DC RRB, Unrefunded Balance, Series A-1,
MBIA Insured, 6%, 6/1/11 Aaa/AAA/AAA 1,900,000 2,008,547
-----------
5,573,679
-----------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS, AT VALUE (COST $131,990,570) 99.3% 129,220,912
-----------------------------------------------------------------------------------------------------------------
OTHER ASSETS NET OF LIABILITIES 0.7 888,825
-----------------------------
NET ASSETS 100.0% $130,109,737
-----------------------------
</TABLE>
16 OPPENHEIMER INSURED MUNICIPAL FUND
<PAGE>
FOOTNOTES to statement of investments
To simplify the listings of securities, abbreviations are used per the table
below:
BOE Board of Education
CAP Capital Appreciation
COP Certificates of Participation DAU Development Authority FA Facilities
Authority FAU Finance Authority GOB General Obligation Bonds GORB General
Obligation Refunding Bonds HEAA Higher Education Assistance Agency HEFAU Higher
Educational Facilities Authority HFA Housing Finance Agency HFAU Health
Facilities Authority HFDC Health Facilities Development Corp. HFFAU Health
Facilities Finance Authority IDAU Industrial Development Authority
ISD Independent School District L.I. Long Island
LMC Loan Marketing Corp.
MEAU Municipal Electric Authority
MH Multifamily Housing MUD Municipal Utility District MWFAU Municipal Water
Finance Authority NYC New York City NYS New York State PAU Power Authority POAU
Port Authority PP Public Power PPS Public Power System RB Revenue Bonds RRB
Revenue Refunding Bonds SCDAU Statewide Communities Development Authority SDI
School District SFM Single Family Mtg. SPO Special Obligations USD Unified
School District WSS Water & Sewer System
1. Represents the current interest rate for a variable rate bond known as an
"inverse floater" which pays interest at a rate that varies inversely with
short-term interest rates. As interest rates rise, inverse floaters produce less
current income. Their price may be more volatile than the price of a comparable
fixed-rate security. Inverse floaters amount to $18,619,633 or 14.31% of the
Fund's net assets as of September 30, 1999.
2. For zero coupon bonds, the interest rate shown is the effective yield on the
date of purchase.
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 $4,040,800 or 3.11% of the Fund's net
assets as of September 30, 1999.
AS OF SEPTEMBER 30, 1999, SECURITIES SUBJECT TO THE ALTERNATIVE MINIMUM TAX
AMOUNT TO $37,548,433 OR 28.86% OF THE FUND'S NET ASSETS.
See accompanying Notes to Financial Statements.
17 OPPENHEIMER INSURED MUNICIPAL FUND
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES September 30, 1999
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------
<S> <C>
ASSETS
Investments, at value (cost $131,990,570)--see accompanying statement $ 129,220,912
-----------------------------------------------------------------------------------------------------------------
Cash 117,917
-----------------------------------------------------------------------------------------------------------------
Receivables and other assets:
Interest 1,784,284
Shares of beneficial interest sold 370,513
Other 26,083
------------
Total assets 131,519,709
-----------------------------------------------------------------------------------------------------------------
LIABILITIES Payables and other liabilities:
Notes payable to bank (interest rate at 5.975% at September 30, 1999)--Note 6 800,000
Dividends 333,586
Shares of beneficial interest redeemed 124,294
Distribution and service plan fees 80,096
Shareholder reports 43,764
Transfer and shareholder servicing agent fees 12,350
Trustees' compensation 200
Other 15,682
Total liabilities 1,409,972
------------
NET ASSETS $130,109,737
============
-----------------------------------------------------------------------------------------------------------------
COMPOSITION OF NET ASSETS
Paid-in capital $ 133,588,693
-----------------------------------------------------------------------------------------------------------------
Overdistributed net investment income (82,803)
-----------------------------------------------------------------------------------------------------------------
Accumulated net realized loss on investment transactions (626,495)
-----------------------------------------------------------------------------------------------------------------
Net unrealized depreciation on investments--Note 3 (2,769,658)
------------
Net assets $130,109,737
============
</TABLE>
18 OPPENHEIMER INSURED MUNICIPAL FUND
<PAGE>
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------
<S> <C>
NET ASSET VALUE PER SHARE
Class A Shares:
Net asset value and redemption price per share (based on net assets of
$98,030,062 and 5,948,043 shares of beneficial interest outstanding) $16.48
Maximum offering price per share (net asset value plus sales charge
of 4.75% of offering price) $17.30
-----------------------------------------------------------------------------------------------------------------
Class B Shares:
Net asset value, redemption price (excludes applicable contingent deferred
sales charge) and offering price per share (based on net assets of $26,468,484
and 1,605,517 shares of beneficial interest outstanding) $16.49
-----------------------------------------------------------------------------------------------------------------
Class C Shares:
Net asset value, redemption price (excludes applicable contingent deferred
sales charge) and offering price per share (based on net assets of $5,611,191
and 340,547 shares of beneficial interest outstanding) $16.48
</TABLE>
See accompanying Notes to Financial Statements.
19 OPPENHEIMER INSURED MUNICIPAL FUND
<PAGE>
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS For the Year Ended September 30, 1999
-----------------------------------------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME
Interest $ 7,778,347
-----------------------------------------------------------------------------------------------------------------
EXPENSES
Management fees--Note 4 601,513
-----------------------------------------------------------------------------------------------------------------
Distribution and service plan fees--Note 4:
Class A 245,096
Class B 285,641
Class C 57,731
-----------------------------------------------------------------------------------------------------------------
Transfer and shareholder servicing agent fees--Note 4 118,665
-----------------------------------------------------------------------------------------------------------------
Shareholder reports 74,074
-----------------------------------------------------------------------------------------------------------------
Registration and filing fees 39,275
-----------------------------------------------------------------------------------------------------------------
Custodian fees and expenses 22,200
-----------------------------------------------------------------------------------------------------------------
Legal, auditing and other professional fees 12,876
-----------------------------------------------------------------------------------------------------------------
Accounting service fees--Note 4 12,000
-----------------------------------------------------------------------------------------------------------------
Trustees' compensation 3,984
-----------------------------------------------------------------------------------------------------------------
Other 14,801
------------
Total expenses 1,487,856
Less expenses paid indirectly--Note 1 (15,619)
------------
Net expenses 1,472,237
-----------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME 6,306,110
-----------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) Net realized gain (loss) on:
Investments (1,138,896)
Closing of futures contracts 786,788
------------
Net realized loss (352,108)
-----------------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation or depreciation on investments (12,885,535)
Net realized and unrealized loss (13,237,643)
-----------------------------------------------------------------------------------------------------------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $ (6,931,533)
============
</TABLE>
See accompanying Notes to Financial Statements.
20 OPPENHEIMER INSURED MUNICIPAL FUND
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
YEAR ENDED SEPTEMBER 30, 1999 1998
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATIONS
Net investment income $ 6,306,110 $ 5,368,369
-----------------------------------------------------------------------------------------------------------------
Net realized gain (loss) (352,108) 1,181,782
-----------------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation or depreciation (12,885,535) 3,993,214
--------------------------------
Net increase (decrease) in net assets resulting from operations (6,931,533) 10,543,365
-----------------------------------------------------------------------------------------------------------------
DIVIDENDS AND/OR DISTRIBUTIONS TO SHAREHOLDERS
Dividends from net investment
income:
Class A (4,716,753) (4,498,622)
Class B (1,078,468) (921,805)
Class C (218,878) (140,882)
-----------------------------------------------------------------------------------------------------------------
Distributions from net realized gain:
Class A (1,141,094) (646,115)
Class B (310,557) (149,337)
Class C (60,365) (19,416)
-----------------------------------------------------------------------------------------------------------------
BENEFICIAL INTEREST TRANSACTIONS Net increase in net assets resulting from
beneficial interest transactions--Note 2:
Class A 6,192,573 8,417,042
Class B 2,067,306 6,601,026
Class C 1,305,323 2,237,718
-----------------------------------------------------------------------------------------------------------------
NET ASSETS
Total increase (decrease) (4,892,446) 21,422,974
-----------------------------------------------------------------------------------------------------------------
Beginning of period 135,002,183 113,579,209
--------------------------------
End of period (including overdistributed net investment
income of $82,803 and $297,350, respectively) $130,109,737 $135,002,183
================================
</TABLE>
See accompanying Notes to Financial Statements.
21 OPPENHEIMER INSURED MUNICIPAL FUND
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
CLASS A YEAR ENDED SEPTEMBER 30, 1999 1998 1997 1996 1995
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING DATA
Net asset value, beginning of period $18.31 $17.72 $17.07 $16.86 $16.14
-----------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .84 .80 .91 .90 .90
Net realized and unrealized gain (loss) (1.67) .75 .63 .20 .71
------------------------------------------------------------
Total income (loss) from
investment operations (.83) 1.55 1.54 1.10 1.61
-----------------------------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income (.80) (.84) (.89) (.89) (.89)
Distributions from net realized gain (.20) (.12) -- -- --
------------------------------------------------------------
Total dividends and distributions
to shareholders (1.00) (.96) (.89) (.89) (.89)
-----------------------------------------------------------------------------------------------------------------
Net asset value, end of period $16.48 $18.31 $17.72 $17.07 $16.86
============================================================
-----------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE(1) (4.76)% 9.01% 9.25% 6.67% 10.29%
-----------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands) $ 98,030 $102,687 $91,051 $83,516 $76,691
-----------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $103,527 $ 96,458 $86,511 $81,233 $70,650
-----------------------------------------------------------------------------------------------------------------
Ratios to average net assets:(2)
Net investment income 4.77% 4.49% 5.25% 5.27% 5.52%
Expenses 0.89% 0.89%(3) 0.95%(3) 1.02%(3) 0.95%(3)
-----------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(4) 108% 73% 77% 93% 58%
</TABLE>
1. 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.
2. Annualized for periods of less than one full year.
3. Expense ratio reflects the effect of expenses paid indirectly by the Fund.
4. 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 September 30, 1999 were $153,837,549 and $147,711,836, respectively.
See accompanying Notes to Financial Statements.
22 OPPENHEIMER INSURED MUNICIPAL FUND
<PAGE>
<TABLE>
<CAPTION>
CLASS B YEAR ENDED SEPTEMBER 30, 1999 1998 1997 1996 1995
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING DATA
Net asset value, beginning of period $18.32 $17.73 $17.08 $16.87 $16.15
-----------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .71 .67 .76 .77 .78
Net realized and unrealized gain (loss) (1.67) .74 .65 .20 .71
------------------------------------------------------------
Total income (loss) from
investment operations (.96) 1.41 1.41 .97 1.49
-----------------------------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income (.67) (.70) (.76) (.76) (.77)
Distributions from net realized gain (.20) (.12) -- -- --
------------------------------------------------------------
Total dividends and distributions
to shareholders (.87) (.82) (.76) (.76) (.77)
-----------------------------------------------------------------------------------------------------------------
Net asset value, end of period $16.49 $18.32 $17.73 $17.08 $16.87
============================================================
-----------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE(1) (5.47)% 8.18% 8.43% 5.87% 9.47%
-----------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands) $26,468 $27,392 $19,974 $15,983 $13,341
-----------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $28,562 $23,817 $17,309 $14,822 $11,987
-----------------------------------------------------------------------------------------------------------------
Ratios to average net assets:(2)
Net investment income 4.00% 3.76% 4.48% 4.50% 4.75%
Expenses 1.65% 1.64%(3) 1.71%(3) 1.77%(3) 1.71%(3)
-----------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(4) 108% 73% 77% 93% 58%
</TABLE>
1. 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.
2. Annualized for periods of less than one full year.
3. Expense ratio reflects the effect of expenses paid indirectly by the Fund. 4.
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 September 30, 1999, were $153,837,549 and $147,711,836, respectively.
See accompanying Notes to Financial Statements.
23 OPPENHEIMER INSURED MUNICIPAL FUND
<PAGE>
FINANCIAL HIGHLIGHTS Continued
<TABLE>
<CAPTION>
CLASS C YEAR ENDED SEPTEMBER 30, 1999 1998 1997(5) 1996 1995(6)
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING DATA
Net asset value, beginning of period $18.31 $17.72 $17.06 $16.86 $16.72
-----------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .71 .70 .76 .75 .08
Net realized and unrealized gain (loss) (1.67) .71 .65 .21 .14
------------------------------------------------------------
Total income (loss) from
investment operations (.96) 1.41 1.41 .96 .22
-----------------------------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income (.67) (.70) (.75) (.76) (.08)
Distributions from net realized gain (.20) (.12) -- -- --
------------------------------------------------------------
Total dividends and distributions
to shareholders (.87) (.82) (.75) (.76) (.08)
-----------------------------------------------------------------------------------------------------------------
Net asset value, end of period $16.48 $18.31 $17.72 $17.06 $16.86
============================================================
-----------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE(1) (5.48)% 8.18% 8.48% 5.77% 1.30%
-----------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands) $5,611 $4,923 $2,554 $924 $211
-----------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $5,775 $3,661 $1,720 $618 $ 1
-----------------------------------------------------------------------------------------------------------------
Ratios to average net assets:(2)
Net investment income 4.01% 3.82% 4.45% 4.38% 4.89%
Expenses 1.65% 1.64%(3) 1.72%(3) 1.81%(3) 1.07%(3)
-----------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(4) 108% 73% 77% 93% 58%
</TABLE>
1. 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.
2. Annualized for periods of less than one full year.
3. Expense ratio reflects the effect of expenses paid indirectly by the Fund. 4.
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 September 30, 1999, were $153,837,549 and $147,711,836, respectively. 5.
Per share amounts calculated based on the average shares outstanding during the
period. 6. For the period from August 29, 1995 (inception of offering) to
September 30, 1995.
See accompanying Notes to Financial Statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
-------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Oppenheimer Insured Municipal Fund (the Fund) is a separate series of
Oppenheimer Municipal Fund, a diversified, open-end management investment
company registered under the Investment Company Act of 1940, as amended. The
Fund's investment objective is to provide a high level of current income exempt
from Federal income tax. 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.
-------------------------------------------------------------------------------
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.
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES Continued
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 to shareholders. Therefore, no federal
income or excise tax provision is required.
--------------------------------------------------------------------------------
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. The Fund adjusts the classification of distributions to shareholders
to reflect the differences between financial statement amounts and distributions
determined in accordance with income tax regulations. Accordingly, during the
year ended September 30, 1999, amounts have been reclassified to reflect a
decrease in paid-in capital of $28,550, an increase in overdistributed net
investment income of $77,464, and a decrease in accumulated net realized loss on
investments of $106,014.
--------------------------------------------------------------------------------
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 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.
26 OPPENHEIMER INSURED MUNICIPAL FUND
<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 SEPTEMBER 30, 1999 YEAR ENDED SEPTEMBER 30, 1998
SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
-----------------------------------------------------------------------------------------------------------------
CLASS A
Sold 1,139,629 $20,168,330 955,728 $17,118,675
Dividends and/or distributions reinvested 246,492 4,359,639 212,388 3,794,412
Redeemed (1,046,047) (18,335,396) (698,348) (12,496,045)
----------------------------------------------------------------------
Net increase 340,074 $6,192,573 469,768 $8,417,042
======================================================================
-----------------------------------------------------------------------------------------------------------------
CLASS B
Sold 483,752 $8,559,831 543,004 $9,724,208
Dividends and/or distributions reinvested 50,736 898,692 39,547 706,671
Redeemed (424,380) (7,391,217) (213,910) (3,829,853)
----------------------------------------------------------------------
Net increase 110,108 $2,067,306 368,641 $6,601,026
======================================================================
-----------------------------------------------------------------------------------------------------------------
CLASS C
Sold 140,475 $2,501,020 156,606 $2,808,699
Dividends and/or distributions reinvested 11,966 211,869 7,178 128,230
Redeemed (80,811) (1,407,566) (39,038) (699,211)
----------------------------------------------------------------------
Net increase 71,630 $1,305,323 124,746 $2,237,718
======================================================================
-----------------------------------------------------------------------------------------------------------------
</TABLE>
3. UNREALIZED GAINS AND LOSSES ON SECURITIES
As of September 30, 1999, net unrealized depreciation on securities of
$2,769,658 was composed of gross appreciation of $2,457,956, and gross
depreciation of $5,227,614.
27 OPPENHEIMER INSURED MUNICIPAL FUND
<PAGE>
--------------------------------------------------------------------------------
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 0.45% of the first
$100 million of average annual net assets, 0.40% of the next $150 million,
0.375% of the next $250 million and 0.35% of average annual net assets in excess
of $500 million. The Fund's management fee for year ended September 30, 1999 was
0.44% of average annual net assets for each class of shares.
--------------------------------------------------------------------------------
ACCOUNTING FEES. The Manager acts as the accounting agent for the Fund at an
annual fee of $12,000, plus out-of-pocket costs and expenses reasonably
incurred.
--------------------------------------------------------------------------------
TRANSFER AGENT FEES. OppenheimerFunds Services (OFS), a division of the Manager,
is the transfer and shareholder servicing agent for the Fund and other
Oppenheimer funds. OFS's total costs of providing such services are allocated
ratably to these funds.
--------------------------------------------------------------------------------
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>
AGGREGATE CLASS A COMMISSIONS COMMISSIONS COMMISSIONS
FRONT-END FRONT-END ON CLASS A ON CLASS B ON CLASS C
SALES CHARGES SALES CHARGES SHARES SHARES SHARES
ON CLASS A RETAINED BY ADVANCED BY ADVANCED BY ADVANCED BY
YEAR ENDED SHARES DISTRIBUTOR DISTRIBUTOR(1) DISTRIBUTOR(1) DISTRIBUTOR(1)
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
September 30, 1999 $214,856 $36,028 $13,460 $274,507 $21,836
</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
SALES CHARGES SALES CHARGES SALES CHARGES
YEAR ENDED RETAINED BY DISTRIBUTOR RETAINED BY DISTRIBUTOR RETAINED BY DISTRIBUTOR
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
September 30, 1999 $-- $96,005 $4,312
</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.
28 OPPENHEIMER INSURED MUNICIPAL FUND
<PAGE>
--------------------------------------------------------------------------------
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 September 30, 1999, payments under
the Class A Plan totaled $245,096, all of which was paid by the Distributor to
recipients. That included $12,398 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.
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 September 30,
1999, were as follows:
<TABLE>
<CAPTION>
DISTRIBUTOR'S DISTRIBUTOR'S
AGGREGATE UNREIMBURSED
UNREIMBURSED EXPENSES AS %
TOTAL PAYMENTS AMOUNT RETAINED EXPENSES OF NET ASSETS
UNDER PLAN BY DISTRIBUTOR UNDER PLAN OF CLASS
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class B Plan $285,641 $233,634 $938,638 3.55%
Class C Plan 57,731 33,511 78,916 1.41
</TABLE>
29 OPPENHEIMER INSURED MUNICIPAL FUND
<PAGE>
--------------------------------------------------------------------------------
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.
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.
--------------------------------------------------------------------------------
6. 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 borrowings outstanding of $800,000 at September 30, 1999.
<PAGE>
ANNUAL REPORT JULY 31, 1999
OPPENHEIMER
MUNICIPAL
BOND FUND
[PHOTO]
[OPPENHEIMERFUNDS LOGO]
THE RIGHT WAY TO INVEST
<PAGE>
CONTENTS
3 President's Letter
5 An interview with
your Fund's
Manager
10 Fund Performance
--------------------------
14 Financial
Statements
37 Independent
Auditors' Report
--------------------------
38 Federal
Income Tax
Information
39 Officers and
Trustees
40 Information and
Services
REPORT HIGHLIGHTS
--------------------------------------------------------------------------------
- IN STARK CONTRAST TO U.S. TREASURY SECURITIES, municipal bond prices were
generally stable throughout the reporting period.
- OUR RESEARCH-INTENSIVE SECURITY SELECTION STRATEGY helped us find areas of
opportunity.
AVG ANNUAL TOTAL RETURNS
For the 1-Year Period
Ended 7/31/99
<TABLE>
<S> <C>
CLASS A
Without With
Sales Chg.(1) Sales Chg.(2)
------------------------------------
2.57% -2.31%
------------------------------------
CLASS B
Without With
Sales Chg.(1) Sales Chg.(2)
------------------------------------
1.78% -3.10%
------------------------------------
CLASS C
Without With
Sales Chg.(1) Sales Chg.(2)
------------------------------------
1.78% 0.80%
------------------------------------
</TABLE>
Total returns include changes in share price and reinvestment of dividends and
capital gains distributions in a hypothetical investment for the periods shown.
IN REVIEWING PERFORMANCE AND RANKINGS, PLEASE REMEMBER THAT PAST PERFORMANCE
DOES NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE OF AN
INVESTMENT IN THE FUND WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN
REDEEMED, MAY BE WORTH MORE OR LESS THAN THE ORIGINAL COST. THE FUND'S
PERFORMANCE MAY FROM TIME TO TIME BE SUBJECT TO SUBSTANTIAL SHORT-TERM CHANGES,
PARTICULARLY DURING PERIODS OF MARKET OR INTEREST RATE VOLATILITY. FOR UPDATES
ON THE FUND'S PERFORMANCE, PLEASE CONTACT YOUR FINANCIAL ADVISOR, CALL US AT
1-800-525-7048 OR VISIT OUR WEBSITE, WWW.OPPENHEIMERFUNDS.COM.
1. Includes changes in net asset value per share without deducting any sales
charges.
2. Class A returns include the current maximum initial sales charge of 4.75%.
Class B returns include the applicable contingent deferred sales charge of 5%.
Class C returns include the contingent deferred sales charge of 1%. Class B and
C shares are subject to an annual 0.75% asset-based sales charge. An explanation
of the different performance calculations is in the Fund's prospectus.
2 Oppenheimer Municipal Bond Fund
<PAGE>
[PHOTO]
BRIDGET A. MACASKILL
President
Oppenheimer
Municipal Bond Fund
DEAR SHAREHOLDER,
--------------------------------------------------------------------------------
In many ways, the 1999 investment environment has, so far, unfolded as many
expected it would, producing both attractive opportunities and formidable
challenges for investors.
On the economic front, early worries about the effects of global weakness in
the wake of last year's credit and currency crises have abated. Instead, as many
economies around the world begin to strengthen, concerns now center around
whether the U.S. economy may be growing too quickly. Throughout the year,
consumers in the United States have continued to spend and borrow heavily, more
than offsetting any temporary slowdown in the industrial and export sectors.
The economy's strength has not gone unnoticed by the nation's monetary
policymakers. In an effort to ward off emerging inflationary pressures, the
Federal Reserve Board increased short-term interest rates this past summer.
Market reaction to robust economic growth has been mixed. The U.S. bond
market has generally declined, as fixed income investors became increasingly
concerned about the effects of rising interest rates.
In the stock market, the performance of large-capitalization growth stocks,
which has driven the market's advance over the past few years, has begun to
moderate, and many previously out-of-favor value-oriented, mid-cap and small-cap
stocks have rallied. At the same time, a healthy percentage of actively managed,
diversified portfolios have once again begun to outperform unmanaged stock
indices such as Standard & Poor's 500.
(over, please)
3 Oppenheimer Municipal Bond Fund
<PAGE>
At OppenheimerFunds, we applaud the Fed's pre-emptive strike against inflation.
In our view, history has repeatedly demonstrated that most financial assets do
best in a low-inflation environment. What's more, we believe that the move to
higher interest rates should be temporary.
One recent development is quite troublesome to us however: the increasing
popularity of "day trading" among individuals seeking to make fast money in a
volatile stock market. In our opinion, day trading is not investing, it is
gambling. Experience proves that without extensive research and analysis,
attempting to time short-term price swings is a fool's errand. Instead, we
continue to encourage investors to maintain a long-term perspective that is
measured in years, not days.
Finally, while we remain alert to the potential impact of the Y2K issue, we
are encouraged by the progress made in addressing the matter. At
OppenheimerFunds, our shareholder accounting systems are already Y2K compliant,
and we have successfully participated in all required industry-wide tests. We
intend to continue re-testing our systems in order to help further protect
against any potential problems. After all, whether in our computer accounting
systems or the financial markets, managing risk is an important part of what
makes OppenheimerFunds The Right Way to Invest.
Sincerely,
/s/ BRIDGET A. MACASKILL
Bridget A. Macaskill
August 20, 1999
4 Oppenheimer Municipal Bond Fund
<PAGE>
[PHOTO]
PORTFOLIO MANAGEMENT
TEAM (L TO R)
Bob Patterson
(Portfolio Manager)
Caryn Halbrecht
Jerry Webman
AN INTERVIEW WITH YOUR FUND'S MANAGER
--------------------------------------------------------------------------------
HOW DID OPPENHEIMER MUNICIPAL BOND FUND PERFORM DURING THE ONE-YEAR PERIOD THAT
ENDED JULY 31, 1999?
We are generally pleased with the Fund's performance over the fiscal year. We
attribute the Fund's performance to our conservative investment strategy in a
rapidly changing investment environment. In fact, market conditions during the
final six months of 1998 and the first half of 1999 were, in many respects,
direct opposites of each other. The final six months of 1998 were generally
characterized by recessionary economic conditions throughout much of the world,
declining interest rates in the United States and less restrictive monetary
policies worldwide. In contrast, the first half of 1999 saw signs of global
economic recovery, rising domestic interest rates and, ultimately, a tighter
monetary policy in the United States.
HOW DID THESE ECONOMIC CONDITIONS AFFECT THE U.S. MUNICIPAL BOND MARKET?
In stark contrast to the volatile prices of U.S. Treasury securities, municipal
bonds were generally stable throughout the one-year reporting period. In the
first half of the period, global economic uncertainty triggered a "flight to
quality" among U.S. and foreign investors. This created unprecedented demand for
U.S. Treasury securities, driving their prices up and their yields down (prices
and yields move in opposite directions). However, because municipal bonds do not
provide tax advantages to foreign investors, municipals did not benefit to the
same extent. As a result, U.S. Treasury securities significantly outperformed
triple-A rated municipal bonds with comparable maturities.
5 Oppenheimer Municipal Bond Fund
<PAGE>
"MUNICIPAL BONDS ENDURED SIGNIFICANTLY LESS VOLATILITY THAN OTHER HIGH-QUALITY,
FIXED INCOME SECURITIES OVER THE PAST YEAR."
AN INTERVIEW WITH YOUR FUND'S MANAGER
--------------------------------------------------------------------------------
In the second half of the reporting period, while municipal bonds remained
stable, prices of U.S. Treasury securities declined sharply. As the economy grew
stronger, many investors regained their confidence and sold their Treasury bonds
in order to return to riskier financial assets such as stocks and corporate
bonds. Consequently, municipal bonds generally provided higher total returns
than U.S. Treasuries.
In our opinion, municipal bonds' relative stability is the result of
supply-and-demand factors. Strong economic conditions in the United States
reduced many states and municipalities' need to borrow, leading to a diminished
supply of tax-exempt bonds. In fact, approximately 23% fewer municipal bonds
were issued during the first six months of 1999 than in the same period one year
earlier. Yet, demand remained high from investors seeking to minimize their
income tax liabilities. This supply-and-demand relationship helped support the
stability of municipal bond prices and yields.
DID YOU FIND COMPELLING VALUES IN THIS MARKET ENVIRONMENT?
Yes. In the fourth quarter of 1998, long-term, tax-exempt municipal bond yields
were actually slightly higher than yields of long-term, taxable U.S. Treasury
securities. In effect, most investors who purchased municipal bonds at that time
generally received the tax advantages for free. By mid-1999, municipal bond
yields decreased to approximately 91% of comparable Treasury yields. While this
represented a substantial narrowing of the yield relationship between tax-exempt
and taxable bonds, we believe that, compared to historical norms, municipal
bonds continue to provide excellent after-tax values.
6 Oppenheimer Municipal Bond Fund
<PAGE>
AVG ANNUAL TOTAL RETURNS
For the Periods Ended 6/30/99(1)
<TABLE>
<CAPTION>
CLASS A
<S> <C> <C>
1 year 5 year 10 Year
------------------------------------
-2.39% 5.87% 6.55%
------------------------------------
CLASS B
Since
1 year 5 year Inception
------------------------------------
-3.09% 5.74% 4.85%
------------------------------------
CLASS C
Since
1 year 5 year Inception
------------------------------------
0.81% N/A 5.81%
------------------------------------
</TABLE>
HOW DID YOU MANAGE THE FUND IN THIS ENVIRONMENT?
We attempted to invest in tax-exempt securities while managing the risks of
changing interest rates. Throughout the one-year reporting period, we emphasized
those sectors of the municipal bond market that we expected to benefit most from
prevailing economic and market conditions. Conversely, we tried to avoid those
sectors that we believed would benefit least. This strategy led us to areas of
opportunity such as retirement villages and adult living facilities. These
residential housing projects have issued tax-exempt bonds to meet rising demands
of a growing population of aging Americans who want amenities tailored to their
lifestyles.
Our strategy also led us to avoid certain issuers, such as health care
facilities that are subject to financial pressures because of a currently
unfavorable regulatory and legislative environment, including cutbacks in
Medicaid and Medicare. We also tended to avoid bonds issued by utilities that
are in the midst of industry-wide deregulation.
1. Total returns include changes in share price and reinvestment of dividends
and capital gains distributions in a hypothetical investment for the periods
shown. Class A returns include the current maximum initial sales charge of
4.75%. Class A shares were first publicly offered on 10/27/76. Class B returns
include the applicable contingent deferred sales charge of 5% (1-year) and 1%
(since inception on 3/16/93). Class C returns for the one-year result include
the contingent deferred sales charge of 1%. Class C shares have an inception
date of 8/29/95. Class B and C shares are subject to an annual 0.75% asset-based
sales charge. An explanation of the different performance calculations is in the
Fund's prospectus.
7 Oppenheimer Municipal Bond Fund
<PAGE>
<TABLE>
<CAPTION>
STANDARDIZED YIELDS(2)
For the 30 Days Ended 7/31/99
------------------------------------
<S> <C>
CLASS A 4.61%
------------------------------------
CLASS B 4.05
------------------------------------
CLASS C 4.05
------------------------------------
</TABLE>
AN INTERVIEW WITH YOUR FUND'S MANAGER
-------------------------------------------------------------------------------
In addition, throughout the reporting period, we maintained a neutral average
duration--which is a measure of sensitivity to changes in interest rates. When
interest rates declined in 1998, our neutral position constrained performance
slightly compared to portfolios with longer durations. However, when interest
rates rose in 1999, our neutral position helped shelter the portfolio from the
brunt of the interest-rate risks affecting investors who had previously adopted
a longer, more aggressive, duration strategy.
WHAT IS YOUR OUTLOOK FOR THE MUNICIPAL BOND MARKET AND THE FUND?
We remain cautiously optimistic. First, we believe that municipal bonds are
attractively valued relative to comparable taxable securities, and should
benefit as that relationship returns to more normal levels. Second, states and
municipalities have benefited greatly from the recent strength of the U.S.
economy, which has enabled many of them to put their fiscal houses in good
order. This should help reduce the risk of potential defaults.
2. Standardized yield is based on net investment income for the 30-day period
ended July 31, 1999. Falling share prices will tend to artificially raise
yields.
8 Oppenheimer Municipal Bond Fund
<PAGE>
CREDIT ALLOCATION(3)
[PIE CHART]
<TABLE>
<S> <C>
- AAA 42.9%
- AA 7.4
- A 14.9
- BBB 24.5
- BB 8.9
- B 1.4
</TABLE>
On the other hand, we remain concerned about rising interest rates. Accordingly,
we intend to continue to monitor the economic environment carefully. If the
economy continues to grow at an unsustainable rate, we may position the
portfolio to reduce the adverse effects of potentially higher interest rates. We
believe that these credit-conscious, risk-averse strategies make Oppenheimer
Municipal Bond Fund an important part of The Right Way to Invest.
<TABLE>
<CAPTION>
TOP FIVE INDUSTRIES (Percentages of invested assets) (4)
------------------------------------------------------------------------
<S> <C>
Corporate Backed 22.5%
------------------------------------------------------------------------
Electric Utilities 13.3
------------------------------------------------------------------------
Highways 13.3
------------------------------------------------------------------------
Single Family Housing 8.7
------------------------------------------------------------------------
General Obligation 7.7
------------------------------------------------------------------------
</TABLE>
3. Portfolio data are as of July 31, 1999, are dollar-weighted based on invested
assets and are subject to change. The Fund may invest up to 25% of its assets in
below-investment-grade securities which carry greater risk of default. Average
credit quality and ratings allocations include securities rated by national
ratings organizations as well as unrated securities (currently 9.45% of total
investments) which have ratings assigned by the Manager in categories equivalent
to those of ratings organizations. 4. Industry weightings are as of July 31,
1999, and are subject to change.
9 Oppenheimer Municipal Bond Fund
<PAGE>
FUND PERFORMANCE
--------------------------------------------------------------------------------
HOW HAS THE FUND PERFORMED? Below is a discussion, by the Manager, of the Fund's
performance during its fiscal year ended July 31, 1999, followed by a graphical
comparison of the Fund's performance to an appropriate broad-based market index.
- MANAGEMENT'S DISCUSSION OF PERFORMANCE. During the Fund's fiscal year that
ended July 31, 1999, Oppenheimer Municipal Bond Fund performed relatively well,
despite the fact that the overall bond market weakened considerably in 1999. The
weakness in the bond market stemmed from signs of continuing strong economic
growth, which could cause inflation to reemerge. However, the Fund benefited
from a reduced supply of new tax-exempt bond issues relative to robust demand
from investors seeking to manage their income tax liabilities. This reduction in
issuance was primarily a result of strong economic conditions throughout the
United States, which helped curtail states and municipalities' need to borrow.
In this environment, the Fund continued to adhere to its longstanding strategy
of holding a diversified portfolio of municipal bonds selected after extensive
research into their issuers' credit quality. The Fund's portfolio holdings,
allocations and strategies are subject to change.
- COMPARING THE FUND'S PERFORMANCE TO THE MARKET. The graphs that follow
show the performance of a hypothetical $10,000 investment in each class of
shares of the Fund held from the inception of the class until July 31, 1999. In
the case of Class A shares, performance is measured over a ten-year period. In
the case of Class B shares, performance is measured from the inception of the
class on March 16, 1993, and in the case of Class C shares, from the inception
of the class on August 29, 1995. The Fund's performance reflects the deduction
of the maximum initial sales charge on
10 Oppenheimer Municipal Bond Fund
<PAGE>
Class A shares and the applicable contingent deferred sales charge for Class B
and Class C shares. The graphs assume that all dividends and capital gains
distributions were reinvested in additional shares.
Because the Fund invests in a variety of municipal securities, the Fund's
performance is compared to that of the Lehman Brothers Municipal Bond Index, an
unmanaged index of a broad range of investment grade municipal bonds that is
widely regarded as a measure of the performance of the general municipal bond
market. Index performance reflects the reinvestment of income but does not
consider the effect of capital gains or transaction costs, and none of the data
below shows the effect of taxes. Also, the Fund's performance reflects the
effect of Fund business and operating expenses. While index comparisons may be
useful to provide a benchmark for the Fund's performance, it must be noted that
the Fund's investments are not limited to the securities in any one index.
11 Oppenheimer Municipal Bond Fund
<PAGE>
FUND PERFORMANCE
--------------------------------------------------------------------------------
CLASS A SHARES
COMPARISON OF CHANGE IN VALUE OF $10,000 HYPOTHETICAL INVESTMENTS IN:
Oppenheimer Municipal Bond Fund (Class A) and Lehman Brothers Municipal Bond
Index
[The following table was originally a line graph in the printed materials.]
<TABLE>
<CAPTION>
Oppenheimer Municipal Lehman Brothers Municipal
Bond Fund (Class A) Bond Index
<S> <C> <C>
12/31/88 $ 9,525 $ 10,000
12/31/89 10,423 11,079
12/31/90 11,041 11,886
12/31/91 12,379 13,329
12/31/92 13,517 14,504
12/31/93 15,381 16,286
12/31/94 13,968 15,444
12/31/95 16,522 18,140
7/31/96(1) 16,648 18,222
7/31/97 18,474 20,091
7/31/98 19,499 21,295
7/31/99 19,999 21,908
</TABLE>
AVERAGE ANNUAL TOTAL RETURN OF CLASS A SHARES OF THE FUND AT 7/31/99 (2)
1 YEAR -2.31% 5 YEAR 5.46% 10 YEAR 6.44%
CLASS B SHARES
COMPARISON OF CHANGE IN VALUE OF $10,000 HYPOTHETICAL INVESTMENTS IN:
Oppenheimer Municipal Bond Fund (Class B) and Lehman Brothers Municipal Bond
Index
[The following table was originally a line graph in the printed materials.]
<TABLE>
<CAPTION>
Oppenheimer Municipal Lehman Brothers Municipal
Bond Fund (Class B) Bond Index
<S> <C> <C>
3/16/93 $ 10,000 $ 10,000
12/31/93 10,839 10,826
12/31/94 9,765 10,267
12/31/95 11,455 12,059
7/31/96(1) 11,504 12,113
7/31/97 12,659 13,355
7/31/98 13,260 14,156
7/31/99 13,496 14,563
</TABLE>
AVERAGE ANNUAL TOTAL RETURN OF CLASS B SHARES OF THE FUND AT 7/31/99(3)
1 YEAR -3.10% 5 YEAR 5.35% LIFE 4.81%
12 Oppenheimer Municipal Bond Fund
<PAGE>
CLASS C SHARES
COMPARISON OF CHANGE IN VALUE OF $10,000 HYPOTHETICAL INVESTMENTS IN:
Oppenheimer Municipal Bond Fund (Class C) and Lehman Brothers Municipal Bond
Index
[The following table was originally a line graph in the printed materials.]
<TABLE>
<CAPTION>
Oppenheimer Municipal Lehman Brothers Municipal
Bond Fund (Class C) Bond Index
<S> <C> <C>
8/29/95 $ 10,000 $ 10,000
12/31/95 10,564 10,479
7/31/96(1) 10,606 10,526
7/31/97 11,669 11,605
7/31/98 12,223 12,301
7/31/99 12,440 12,655
</TABLE>
AVERAGE ANNUAL TOTAL RETURN OF CLASS C SHARES OF THE FUND AT 7/31/99(4)
1 YEAR 0.80% LIFE 5.72%
Total returns and the ending account values in the graphs show change in share
value and include reinvestment of all dividends and capital gains distributions.
The performance information for the Lehman Brothers Municipal Bond Index in the
graphs begins on 12/31/88 for Class A, 3/31/93 for Class B and 8/31/95 for Class
C.
1 The Fund changed its fiscal year end from December 31 to July 31.
2. The average annual total returns are shown net of the applicable 4.75%
maximum initial sales charge.
3. Class B shares of the Fund were first publicly offered on 3/16/93. The
average annual total returns are shown net of the applicable 5% (1-year) and 1%
(since inception) contingent deferred sales charges. The ending account value in
the graph is net of the applicable 1% sales charge.
4. Class C shares of the Fund were first publicly offered on 8/29/95. The 1-year
period is shown net of the applicable 1% contingent deferred sales charge. Past
performance is not predictive of future performance. Graphs are not drawn to the
same scale.
13 Oppenheimer Municipal Bond Fund
<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>
14 Oppenheimer Municipal Bond Fund
<PAGE>
<TABLE>
<CAPTION>
RATINGS:
MOODY'S/
S&P/FITCH FACE MARKET VALUE
(UNAUDITED) AMOUNT SEE NOTE 1
<S> <C> <C> <C>
-------------------------------------------------------------------------------------------------
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>
15 Oppenheimer Municipal Bond Fund
<PAGE>
STATEMENT OF INVESTMENTS (Continued)
<TABLE>
<CAPTION>
RATINGS:
MOODY'S/
S&P/FITCH FACE MARKET VALUE
(UNAUDITED) AMOUNT SEE NOTE 1
<S> <C> <C> <C>
-------------------------------------------------------------------------------------------------
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>
16 Oppenheimer Municipal Bond Fund
<PAGE>
<TABLE>
<CAPTION>
RATINGS:
MOODY'S/
S&P/FITCH FACE MARKET VALUE
(UNAUDITED) AMOUNT SEE NOTE 1
<S> <C> <C> <C>
-------------------------------------------------------------------------------------------------
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>
17 Oppenheimer Municipal Bond Fund
<PAGE>
STATEMENT OF INVESTMENTS (Continued)
<TABLE>
<CAPTION>
RATINGS:
MOODY'S/
S&P/FITCH FACE MARKET VALUE
(UNAUDITED) AMOUNT SEE NOTE 1
<S> <C> <C> <C>
-------------------------------------------------------------------------------------------------
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>
18 Oppenheimer Municipal Bond Fund
<PAGE>
<TABLE>
<CAPTION>
RATINGS:
MOODY'S/
S&P/FITCH FACE MARKET VALUE
(UNAUDITED) AMOUNT SEE NOTE 1
<S> <C> <C> <C>
-------------------------------------------------------------------------------------------------
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>
19 Oppenheimer Municipal Bond Fund
<PAGE>
STATEMENT OF INVESTMENTS (Continued)
<TABLE>
<CAPTION>
RATINGS:
MOODY'S/
S&P/FITCH FACE MARKET VALUE
(UNAUDITED) AMOUNT SEE NOTE 1
<S> <C> <C> <C>
-------------------------------------------------------------------------------------------------
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>
20 Oppenheimer Municipal Bond Fund
<PAGE>
<TABLE>
<CAPTION>
RATINGS:
MOODY'S/
S&P/FITCH FACE MARKET VALUE
(UNAUDITED) AMOUNT SEE NOTE 1
<S> <C> <C> <C>
-------------------------------------------------------------------------------------------------
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>
21 Oppenheimer Municipal Bond Fund
<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.
22 Oppenheimer Municipal Bond Fund
<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>
23 Oppenheimer Municipal Bond Fund
<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.
24 Oppenheimer Municipal Bond Fund
<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.
25 Oppenheimer Municipal Bond Fund
<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.
26 Oppenheimer Municipal Bond Fund
<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.
27 Oppenheimer Municipal Bond Fund
<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.
28 Oppenheimer Municipal Bond Fund
<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.
29 Oppenheimer Municipal Bond Fund
<PAGE>
NOTES TO FINANCIAL STATEMENTS
================================================================================
1. SIGNIFICANT ACCOUNTING POLICIES
Oppenheimer Municipal Bond Fund (the Fund) is registered under the Investment
Company Act of 1940, as amended, as a diversified, open-end management
investment company. The Fund's investment objective is to seek as high a level
of current 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.
30 Oppenheimer Municipal Bond Fund
<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.
31 Oppenheimer Municipal Bond Fund
<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.
32 Oppenheimer Municipal Bond Fund
<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.
33 Oppenheimer Municipal Bond Fund
<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.
34 Oppenheimer Municipal Bond Fund
<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.
35 Oppenheimer Municipal Bond Fund
<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.
36 Oppenheimer Municipal Bond Fund
<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.
KPMG LLP
Denver, Colorado
August 20, 1999
37 Oppenheimer Municipal Bond Fund
<PAGE>
FEDERAL INCOME TAX INFORMATION (Unaudited)
================================================================================
In early 2000, shareholders will receive information regarding all dividends and
distributions paid to them by the Fund during calendar year 1999. Regulations of
the U.S. Treasury Department require the Fund to report this information to the
Internal Revenue Service.
None of the dividends paid by the Fund during the fiscal
year ended July 31, 1999, are eligible for the corporate dividend-received
deduction. The dividends were derived from interest on municipal bonds and are
not subject to federal income tax. To the extent a shareholder is subject to any
state or local tax laws, some or all of the dividends received may be taxable.
The foregoing information is presented to assist
shareholders in reporting distributions received from the Fund to the Internal
Revenue Service. Because of the complexity of the federal regulations which may
affect your individual tax return and the many variations in state and local tax
regulations, we recommend that you consult your tax advisor for specific
guidance.
38 Oppenheimer Municipal Bond Fund
<PAGE>
OPPENHEIMER MUNICIPAL BOND FUND
================================================================================
OFFICERS AND TRUSTEES Leon Levy, Chairman of the Board of Trustees
Donald W. Spiro, Vice Chairman of the Board of
Trustees
Bridget A. Macaskill, Trustee and President
Robert G. Galli, Trustee
Phillip A. Griffiths, Trustee
Benjamin Lipstein, Trustee
Elizabeth B. Moynihan, Trustee
Kenneth A. Randall, Trustee
Edward V. Regan, Trustee
Russell S. Reynolds, Jr., Trustee
Pauline Trigere, Trustee
Clayton K. Yeutter, Trustee
Robert E. Patterson, Vice President
Andrew J. Donohue, Secretary
Brian W. Wixted, Treasurer
Robert G. Zack, Assistant Secretary
Robert J. Bishop, Assistant Treasurer
Scott T. Farrar, Assistant Treasurer
================================================================================
INVESTMENT ADVISOR OppenheimerFunds, Inc.
================================================================================
DISTRIBUTOR OppenheimerFunds Distributor, Inc.
================================================================================
TRANSFER AND SHAREHOLDER OppenheimerFunds Services
SERVICING AGENT
================================================================================
CUSTODIAN OF Citibank, N.A.
PORTFOLIO SECURITIES
================================================================================
INDEPENDENT AUDITORS KPMG LLP
================================================================================
LEGAL COUNSEL Mayer, Brown & Platt
This is a copy of a report to shareholders of
Oppenheimer Municipal Bond Fund. This report
must be preceded or accompanied by a
Prospectus of Oppenheimer Municipal Bond Fund.
For material information concerning the Fund,
see the Prospectus.
Shares of Oppenheimer funds are not deposits
or obligations of any bank, are not guaranteed
by any bank, and are not insured by the FDIC
or any other agency, and involve investment
risks, including the possible loss of the
principal amount invested.
39 Oppenheimer Municipal Bond Fund
<PAGE>
INFORMATION AND SERVICES
--------------------------------------------------------------------------------
As an Oppenheimer fund shareholder, you can benefit from special services
designed to make investing simple. Whether it's automatic investment plans,
timely market updates, or immediate account access, you can count on us whenever
you need assistance. So call us today, or visit our website--we're here to help.
INTERNET
24-hr access to account information and transactions
WWW.OPPENHEIMERFUNDS.COM
GENERAL INFORMATION
Mon-Fri 8:30am-9pm ET, Sat 10am-4pm ET
1-800-525-7048
TELEPHONE TRANSACTIONS
Mon-Fri 8:30am-9pm ET, Sat 10am-4pm ET
1-800-852-8457
PHONELINK
24-hr automated information
and automated transactions
1-800-533-3310
TELECOMMUNICATIONS DEVICE FOR THE DEAF (TDD)
Mon-Fri 8:30am-6pm ET
1-800-843-4461
OPPENHEIMERFUNDS INFORMATION HOTLINE 24 hours a day, timely and insightful
messages on the economy and issues that may affect your investments
1-800-835-3104
TRANSFER AND SHAREHOLDER SERVICING AGENT
OppenheimerFunds Services,
P.O. Box 5270, Denver, CO 80217-5270
[OPPENHEIMERFUNDS LOGO]
RA0310.001.0799 September 29, 1999
<PAGE>
[PHOTO]
Semiannual Report March 31, 2000
Oppenheimer
Insured Municipal Fund
[LOGO OF OPPENHEIMER FUNDS]
<PAGE>
REPORT HIGHLIGHTS
CONTENTS
1 President's Letter
3 An Interview with Your Fund's Manager
9 Financial Statements
27 Officers and Trustees
28 OppenheimerFunds Family
Although the Federal Reserve Board's interest rate hikes hurt the prices of
fixed income securities, we believe these inflation-fighting actions will set
the stage for improved long-term Fund performance.
Despite a difficult investment environment, which resulted in a negative total
return for the Fund, we believe we have provided a consistent rate of federally
tax-exempt income during the period.
We restructured the Fund's portfolio by reducing average duration and employing
hedging strategies in an effort to better perform in an environment of rising
interest rates.
Cumulative
Total Returns
For the 6-Month Period
Ended 3/31/00*
Class A
Without With
Sales Chg. Sales Chg.
---------------------------------
0. 38% -4. 39%
Class B
Without With
Sales Chg. Sales Chg.
---------------------------------
-0. 01% -4. 90%
Class C
Without With
Sales Chg. Sales Chg.
---------------------------------
-0. 01% -0. 99%
* See Notes, page 7, for further details.
<PAGE>
PRESIDENT'S LETTER
Dear shareholder,
[PHOTO] [PHOTO]
James C. Swain
Chairman
Oppenheimer
Insured Municipal Fund
Bridget A. Macaskill
President
Oppenheimer
Insured Municipal Fund
For many years, we have encouraged investors to consider whether they could
tolerate more risk in their long-term investments by participating in the stock
market, which has historically provided higher long-term returns than any other
asset class. Today, however, we have a very different concern: some investors
may be assuming too much risk by concentrating their investments in just a
handful of stocks or sectors or by "chasing performance. " Alan Greenspan, the
Chairman of the Federal Reserve Board, has stated his view that the recent
spectacular returns of some sectors of the market are partly responsible for
pushing our economy to growth rates that could lead to higher inflation. The
dramatic rise in the prices of a narrow segment of the market has created
enormous wealth for some investors. In turn, those investors are spending at a
rate that the Fed believes may threaten the healthy growth of our economy.
That's why the Fed has been raising interest rates steadily and decisively over
the past year. By making borrowing more expensive, the Fed is attempting to slow
economic growth. It is a precarious balancing act: too much tightening creates
the risk of recession, while too little opens the door to inflation.
The implications are clear: investors must be prepared for near-term market
volatility. In the bond market, higher interest rates usually lead to lower bond
prices. In the stock market, slower economic growth could reduce corporate
earnings and put downward pressure on stock prices. Highly valued stocks may be
particularly vulnerable to a correction. The Securities and Exchange Commission
Chairman, Arthur Levitt, has cautioned investors against the expectation that
the types of returns seen in the recent bull market will last forever. We agree.
1 OPPENHEIMER INSURED MUNICIPAL FUND
<PAGE>
PRESIDENT'S LETTER
Because of the prospect of continued market volatility, we encourage you to
consider diversifying your investments. Indeed, diversification may help you
mitigate the effects of sharp declines in any one area. It may also help you
better position your portfolio to seek greater returns over the long run.
While "new economy" stocks have risen since our last report to you, many "old
economy" stocks are selling at unusually low prices. In the bond market, higher
interest rates over the short term may reduce inflation concerns, which should
be beneficial over the long term. By buying out-of-favor investments, you may be
able to profit when and if they return to favor in the future. Of course, there
is no assurance that value investing will return to favor in the market, but it
may be a diversification strategy to consider for part of your portfolio.
What specific investments should you consider today so that you are prepared for
tomorrow? The answer depends on your individual investing goals, risk tolerance
and financial circumstances. We urge you to talk with your financial advisor
about ways to diversify your portfolio. This may include considering global
diversification as part of your strategy. While investing abroad has special
risks, such as the effects of foreign currency fluctuation, it also offers
opportunities to participate in global economic growth and to hedge against the
volatility in U. S. markets.
We thank you for your continued confidence in OppenheimerFunds, The Right Way to
Invest.
Sincerely,
/s/ James C. Swain /s/ Bridget A. Macaskill
James C. Swain Bridget A. Macaskill
April 24, 2000
2 OPPENHEIMER INSURED MUNICIPAL FUND
<PAGE>
AN INTERVIEW WITH YOUR FUND'S MANAGER
[PHOTO]
Portfolio Management Team (l to r)
Christian Smith (Portfolio Manager) Robert Patterson
How would you characterize the Fund's performance during the six-month period
that ended March 31, 2000?
A. The recent six-month period proved challenging for most fixed-income
securities. Insured municipal bond funds suffered with the rest of the fixed
income market. While it is not surprising that Oppenheimer Insured Municipal
Fund's total return was negative in this difficult environment, we are
nevertheless disappointed with these results.
At the same time, we are pleased that the Fund met its goal of providing
investors with a consistent rate of federally tax-exempt income during the
period. For investors in the top federal tax bracket, the Fund's Class A shares
have a tax-free yield of 5.13%, which works out to a taxable equivalent yield of
8.02%.1 That level of taxable return would be difficult to achieve without
taking substantial credit risk. Yet, during the period, the municipal bonds held
in our portfolio averaged AAA credit quality.
What made this such a challenging period for municipal bond investing?
Municipal bonds, like most fixed income investments, tend to be sensitive to
changing interest rates. The income yield of these securities remains fixed from
the time they are issued until they mature. As a result, when interest rates
rise over time, a bond's constant yield appears less attractive to investors.
When interest rates fall the yield appears more attractive. That's why bond
prices generally fall when interest rates rise, and rise when interest rates
fall.
1. Dividend yields are calculated based on net asset value (NAV), are annualized
and divided by the offering price as of the Fund's distribution date on March
10, 2000. Dividend yields at NAV do not include sales charges. Falling share
prices will tend to artificially raise yields.
3 OPPENHEIMER INSURED MUNICIPAL FUND
<PAGE>
AN INTERVIEW WITH YOUR FUND'S MANAGER
"Municipal bonds offer attractive rates of tax-exempt income combined with less
credit risk and lower volatility than many other types of bonds. "
During the period, the Federal Reserve Board (the Fed) raised interest rates in
an effort to slow the pace of the U. S. economy and reduce the potential for
rising inflation. Although actual inflation remained at low levels, consumer
spending was exceedingly strong, prompting the Fed to signal that additional
rate hikes might be necessary. The Fed's actions weakened bond prices, including
prices of municipal bonds.
How did you manage the Fund under these conditions?
We actively managed the Fund's average duration in light of rising interest
rates. Duration refers to the length of time before a bond matures, and is a
measure of a bond's sensitivity to changes in interest rates. The longer a
bond's duration, the greater the impact of rising or falling interest rates. For
that reason, bond funds tend to benefit from holding a portfolio of securities
with a longer average duration during times of falling interest rates, and
shorter average duration during times of rising rates.
When I assumed leadership of the portfolio management team in November 1999, the
Fund was positioned to take advantage of a decline in interest rates. However,
as evidence mounted that rates were rising and would probably continue to rise,
we changed that strategy in order to emphasize shorter term instruments.
Unfavorable market conditions prevented us from implementing our shorter
duration strategy until the beginning of Year 2000. When market conditions
improved in January, we began selling some of our longer duration bonds,
replacing them with shorter duration instruments. We also employed a hedging
strategy of shorting municipal bond futures to further reduce the Fund's average
duration. By March 31, 2000, the end of the period, we had lowered the Fund's
average duration from approximately 10 years to less than eight years, in line
with most insured municipal bond funds.
4 OPPENHEIMER INSURED MUNICIPAL FUND
<PAGE>
Average Annual
Total Returns
For the Periods Ended 3/31/002
Class A
1-Year 5-Year 10-Year
-----------------------------------------------
-9. 70% 3. 91% 5. 79%
Class B Since
1-Year 5-Year Inception
-----------------------------------------------
-10. 43% 3. 80% 3. 71%
Class C Since
1-Year 5-Year Inception
-----------------------------------------------
-6. 82% N/A 3. 83%
Because of ongoing market volatility, the Fund's returns may fluctuate and may
be less than the results shown.
What is your outlook for the coming months?
Although rising interest rates hurt the Fund during the last six months, we
believe the Fed's aggressive, inflation-fighting stance is likely to prove
beneficial to the Fund's investors over the long term. By raising rates to slow
the economy, the Fed is reducing the possibility of future inflation.
Uncontrolled inflation could have an even greater adverse affect on the Fund
than recent rate increases. On the other hand, if the Fed's actions lead to
slowing economic growth, the result may eventually be an environment of stable
or falling interest rates that would benefit the Fund's investors.
Still, we believe interest rates are likely to continue to rise in the near
future while the Fed pursues its anti-inflationary course. Accordingly, for the
time being we plan to persevere in our efforts to better position the Fund for
an environment of rising interest rates. We also believe that insured municipal
bonds will continue to provide attractive rates of tax-exempt current income
with less credit risk and lower levels of volatility than many other types of
bonds offering similar or even lower yields. Carefully searching for high
quality investments that help investors to maximize their current income is what
makes Oppenheimer Insured Municipal Fund an important part of The Right Way to
Invest.
2. See notes on page 7 for further details.
5 OPPENHEIMER INSURED MUNICIPAL FUND
<PAGE>
AN INTERVIEW WITH YOUR FUND'S MANAGER
Credit Allocation(3)
[GRAPH]
AAA 88. 9%
AA 11. 1
Standardized Yields4
For the 30 Days Ended 3/31/00
Class A 4. 64%
Class B 4. 11
Class C 4. 11
Top Ten Positions by State5
Illinois 14. 3%
New York 11. 3
Texas 10. 0
Pennsylvania 9. 2
Michigan 8. 5
Colorado 5. 7
Alaska 5. 0
Nevada 4. 5
Arizona 4. 4
California 4. 3
3. Portfolio data is subject to change. Percentages are as of March 31, 2000,
and are dollar-weighted based on total market value of investments. Securities
rated by any rating organization are included in the equivalent Standard &
Poor's rating category. Average credit quality and allocation include rated
securities and those not rated by a national rating organization (currently 2.
66% of total investments), but which have been assigned the ratings above by the
Fund's investment advisor for internal purposes as being comparable, in the
advisor's judgment, to securities rated by a rating agency in the same category.
4. Standardized yield is based on net investment income for the 30-day period
ended March 31, 2000. Falling share prices will tend to artificially raise
yields. 5. Portfolio data is subject to change. Percentages are as of March 31,
2000, and are based on net assets.
6 OPPENHEIMER INSURED MUNICIPAL FUND
<PAGE>
NOTES
In reviewing performance and rankings, please remember that past performance
does not guarantee future results. Investment return and principal value of an
investment in the Fund will fluctuate so that an investor's shares, when
redeemed, maybe worth more or less than the original cost. For quarterly updates
on the Fund's performance, please contact your financial advisor, call us at
1. 800. 525. 7048 or visit our website at www. oppenheimerfunds. com.
Total returns include changes in share price and reinvestment of dividends and
capital gains distributions in a hypothetical investment for the periods shown.
Cumulative total returns are not annualized. The Fund's total returns and yields
shown do not show the effects of income taxes on an individual's investment.
Taxes may reduce your actual investment returns on income or gains paid by the
Fund or any gains you may realize if you sell your shares.
Class A shares were first publicly offered on 11/11/86. Unless otherwise noted,
Class A returns include the current maximum initial sales charge of 4. 75%. The
Fund's maximum sales charge for Class A shares was lower prior to 2/1/93, so
actual performance may have been higher.
Class B shares of the Fund were first publicly offered on 5/3/93. Unless
otherwise noted, Class B returns include the applicable contingent deferred
sales charge of 5% (1-year) and 2% (5-year). 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. Class B shares are
subject to an annual 0. 75% asset-based sales charge.
Class C shares of the Fund were first publicly offered on 8/29/95. Unless
otherwise noted, Class C returns include the contingent deferred sales charge of
1% for the 1-year period. Class C shares are subject to an annual 0. 75%
asset-based sales charge.
An explanation of the calculation of performance is in the Fund's Statement of
Additional Information.
7 OPPENHEIMER INSURED MUNICIPAL FUND
<PAGE>
Financials
8 OPPENHEIMER INSURED MUNICIPAL FUND
<PAGE>
STATEMENT OF INVESTMENTS March 31, 2000 / Unaudited
<TABLE>
<CAPTION>
Ratings: Market
Moody's/ Principal Value
S&P/Fitch Amount See Note 1
Municipal Bonds and Notes1-00.4%
Alaska-5.0%
<S> <C> <C> <C>
AK Export & IDAU RB, Snettisham Hydroelectric
Power, First Series, AMBAC Insured, 5.50%, 1/1/16 NR/AAA/AAA $1,145,000 $1,111,451
AK Export & IDAU RB, Snettisham Hydroelectric
Power, First Series, AMBAC Insured, 5.50%, 1/1/17 NR/AAA/AAA 1,265,000 1,219,966
Anchorage, AK Water RRB, AMBAC Insured,
5.625%, 9/1/13 Aaa/AAA/AAA 1,000,000 1,022,090
Anchorage, AK Water RRB, AMBAC Insured,
6%, 9/1/19 Aaa/AAA/AAA 1,000,000 1,024,450
Anchorage, AK Water RRB, AMBAC Insured,
6%, 9/1/24 Aaa/AAA/AAA 1,500,000 1,519,035
-----------
5,896,992
Arizona-2.7% -----------
AZ Educational LMC RRB, Series B, 7%, 3/1/05 Aa2/NR 1,090,000 1,134,058
University of AZ COP, University Parking & Student
Housing, AMBAC Insured, 5.75%, 6/1/19 Aaa/AAA 2,000,000 2,020,400
-----------
3,154,458
-----------
California-4.3%
CA SCDAU Revenue Refunding COP, Cedars-Sinai
Medical Center, MBIA Insured, 6.50%, 8/1/121 Aaa/AAA 1,000,000 1,100,970
Pomona, CA USD GORB, Series A, MBIA Insured,
6.15%, 8/1/15 Aaa/AAA 1,000,000 1,089,460
Redding, CA Electric System Revenue COP,
MBIA Insured, Inverse Floater, 8.55%, 7/8/222 Aaa/AAA 1,500,000 1,708,125
Sacramento, CA MUD Electric RRB, Series G,
MBIA Insured, 6.50%, 9/1/13 Aaa/AAA/A 1,000,000 1,145,820
-----------
5,044,375
-----------
Colorado-5.7%
Broomfield, CO COP, 5.75%, 12/1/24 Aaa/AAA 1,250,000 1,254,950
CO HFA RRB, Single Family Program, Series B-2,
7.10%, 4/1/173 Aa2/AA 1,000,000 1,089,660
CO Housing FAU SFM RB, Sr. Lien, Series C-2,
6.875%, 11/1/28 Aa2/NR 2,000,000 2,106,180
CO Resource & Power DA Small Water Resource RB,
Series A, FGIC Insured, 5.80%, 11/1/20 Aaa/AAA/AAA 1,000,000 1,009,790
Douglas & Elbert Cntys., CO SDI No. RE-1,
Improvement GOB, Series A, MBIA Insured,
8%, 12/15/09 Aaa/AAA 1,000,000 1,223,600
-----------
6,684,180
</TABLE>
9 OPPENHEIMER INSURED MUNICIPAL FUND
<PAGE>
STATEMENT OF INVESTMENTS Unaudited / Continued
<TABLE>
<CAPTION>
Ratings: Market
Moody's/ Principal Value
S&P/Fitch Amount See Note1
Connecticut-1.5%
<S> <C> <C> <C>
CT Housing FAU RB, Series A, Subseries A-2,
6.20%, 11/15/22 Aa2/AA $830,000 $841,545
CT Housing FAU RRB, Series A, Subseries D-2,
6.20%, 11/15/27 Aa2/AA 945,000 957,115
------------
1,798,660
------------
Florida-1.8%
FL HFA MH RRB, Series C, 6%, 8/1/11 NR/AAA 1,000,000 1,025,590
Lee Cnty., FL Hospital Board of Directors RRB,
MBIA Insured, Inverse Floater, 8.89%, 3/26/202 Aaa/AAA 1,000,000 1,060,000
------------
2,085,590
------------
Hawaii-0.9%
Hawaii Budget & Finance Department Special
Purpose RRB, Prerefunded, Series D, AMBAC Insured,
6.15%, 1/1/20 Aaa/AAA 1,000,000 1,019,490
Illinois-14.3%
Chicago, IL SFM RB, Series B, 6.95%, 9/1/28 Aaa/NR 1,830,000 1,924,812
Chicago. IL GOUN, Series A, FGIC Insured,
6.75%, 1/1/35 Aaa/AAA/AAA 2,000,000 2,179,660
Cook Cnty., IL Community College District
No. 508 Chicago COP, FGIC Insured,
8.75%, 1/1/05 Aaa/AAA/AAA 500,000 577,315
Cook Cnty., IL Community College District
No. 508 Lease COP, Series C, MBIA Insured,
7.70%, 12/1/07 Aaa/AAA 1,500,000 1,745,910
Cook Cnty., IL RB, FGIC Insured, 5.50%, 11/15/22 Aaa/AAA/AAA 6,000,000 5,698,380
Cook Cnty., IL SDI No. 99 Cicero GOB,
FGIC Insured, 8.50%, 12/1/05 Aaa/NR 1,170,000 1,366,958
Metropolitan Pier & Exposition Authority RB,
IL Hospitality Facilities, McCormick Plaza
Convention Center, Escrowed to Maturity, 7%, 7/1/26 A/BBB-/AAA 3,000,000 3,474,300
------------
16,967,335
------------
Indiana-3.0%
Hamilton Southeastern, IN Consolidated School
Building Corp. RRB, First Mtg., AMBAC Insured,
7%, 7/1/11 Aaa/AAA/AAA 500,000 519,005
IN Office Building Commission Capital Complex RB,
Series B, MBIA Insured, 7.40%, 7/1/15 Aaa/AAA 2,500,000 3,008,075
------------
3,527,080
</TABLE>
10 OPPENHEIMER INSURED MUNICIPAL FUND
<PAGE>
<TABLE>
<CAPTION>
Ratings: Market
Moody's/ Principal Value
S&P/Fitch Amount See Note 1
Massachusetts-2.4%
<S> <C> <C> <C>
MA Health & Educational FA RB, Mt. Auburn Hospital
Issue, Series B-1, MBIA Insured, 6.25%, 8/15/14 Aaa/AAA $1,000,000 $1,047,160
MA HFA RB, Series A, AMBAC Insured,
6.60%, 7/1/14 Aaa/AAA/AAA 1,750,000 1,813,980
-----------
2,861,140
-----------
Michigan-8.5%
Central Montcalm, MI Public Schools RB,
MBIA Insured, 5.75%, 5/1/24 Aaa/AAA 750,000 748,500
Detroit, MI GOB, Series B, MBIA Insured,
6%, 4/1/17 Aaa/AAA 3,035,000 3,149,450
Howell, MI Public Schools RB, MBIA Insured,
5.875%, 5/1/19 Aaa/AAA 1,850,000 1,877,177
MI Building Authority RRB, Series I,
MBIA-IBC Insured, 6.25%, 10/1/20 Aaa/AAA/AA 2,815,000 2,878,619
Romulus, MI Community Schools RB,
5.75%, 5/1/25 Aaa/AAA 1,400,000 1,395,310
-----------
10,049,056
-----------
Nevada-4.5%
Clark Cnty. , NV Passenger Facility Charge RB,
Las Vegas McCarran International Airport Project,
Series B, MBIA Insured, 6. 50%, 7/1/12 Aaa/AAA 2,000,000 2,091,920
Wahoe Cnty., NV SDI RB, FSA Insured,
5.875%, 6/1/20 Aaa/AAA/AAA 3,175,000 3,207,353
-----------
5,299,273
-----------
New Hampshire-0.5%
NH Turnpike System RRB, Series A, FGIC Insured,
6.75%, 11/1/11 Aaa/AAA/AAA 500, 000 550,580
New Jersey-3.0%
NJ Transportation COP, Series 15, AMBAC Insured,
8.04%, 9/15/154 NR/AAA 3,250,000 3,595,280
New York-11.3%
NYS DA RB, SUEFS, FGIC Insured,
5.125%, 5/15/18 Aaa/AAA/AAA 1,000,000 956,570
NYS MTAU Dedicated Tax Fund RB, Series A,
FGIC Insured, 6.125%, 4/1/17 Aaa/AAA/AAA 1,000,000 1,049,940
NYS Tollway Authority Highway & Bridge Trust
Fund RB, Series A, FSA Insured, 6%, 4/1/16 NR/AAA/AAA 1,000,000 1,049,000
NYS UDC RB, Series C, 5.875%, 1/1/19 Aaa/AAA/AAA 5,000,000 5,077,350
TSASC, Inc., NYRB, 6.25%, 7/15/27 Aa1/A/A+ 5,250,000 5,225,535
-----------
13,358,395
</TABLE>
11 OPPENHEIMER INSURED MUNICIPAL FUND
<PAGE>
STATEMENT OF INVESTMENTS Unaudited / Continued
<TABLE>
<CAPTION>
Ratings: Market
Moody's/ Principal Value
S&P/Fitch Amount See Note 1
Ohio-2.9%
<S> <C> <C> <C>
Mahoning Valley, OH Sanitary Distilled Water RRB,
FSA Insured, 5.75%, 11/15/16 Aaa/AAA/AAA $1,450,000 $1,480,102
Streetsboro, OH SDI GOB, AMBAC Insured,
7.125%, 12/1/10 Aaa/AAA/AAA 500,000 563,220
Summit Cnty., OH RB, FGIC Insured,
6.25%, 12/1/21 Aaa/AAA/AAA 1,270,000 1,340,460
-----------
3,383,782
-----------
Oklahoma-1.8%
OK Industrial Authority Health Systems RB,
Baptist Medical Center, Series C, AMBAC Insured,
7%, 8/15/05 Aaa/AAA/AAA 2,000,000 2,172,060
Pennsylvania-9.2%
Berks Cnty., PA GOB, Prerefunded, FGIC Insured,
Inverse Floater, 8.38%, 11/10/202 Aaa/AAA/AAA 1,000,000 1,107,500
PA Convention Center RRB, Series A,
MBIA-IBC Insured, 6.75%, 9/1/19 Aaa/AAA 1,150,000 1,231,915
PA HEAA Student Loan RB, Series B,
AMBAC Insured, Inverse Floater, 7.85%, 3/1/222 Aaa/AAA/AAA 1,250,000 1,275,000
Philadelphia, PA Airport RB, Series 387A,
Inverse Floater, 5.86%, 6/15/122 NR/NR 1,565,000 1,539,866
Philadelphia, PA Regional POAU Lease RB,
MBIA Insured, Inverse Floater, 8.03%, 9/1/202 Aaa/AAA 1,900,000 1,945,125
Pittsburgh, PA RB, Series A, 5.75%, 9/1/19 Aaa/AAA 1,000,000 1,006,080
Pittsburgh, PA RB, Series A, 5.75%, 9/1/20 Aaa/AAA 2,795,000 2,801,904
-----------
10,907,390
-----------
Texas-10.0%
Cedar Hill, TX ISD CAP RRB, Zero Coupon,
6.10%, 8/15/115 Aaa/NR/AAA 1,585,000 846,707
Grand Prairie, TX HFDC RRB, Dallas/Ft. Worth
Medical Center Project, AMBAC Insured,
6.875%, 11/1/10 Aaa/AAA/AAA 1,800,000 1,949,130
Harris Cnty., TX Hospital District RRB,
AMBAC Insured, 7.40%, 2/15/10 Aaa/AAA/AAA 2,000,000 2,251,400
Harris Cnty., TX Houston Sports Authority
Special CAP RB, Jr. Lien, Series B, MBIA Insured,
Zero Coupon, 5.33%, 11/15/135 Aaa/AAA/AAA 4,360,000 2,024,958
Lower Colorado River Authority, TX RRB,
Series A, 5.875%, 5/15/17 Aaa/AAA/AAA 1,625,000 1,662,196
</TABLE>
12 OPPENHEIMER INSURED MUNICIPAL FUND
<PAGE>
<TABLE>
<CAPTION>
Ratings: Market
Moody's/ Principal Value
S&P/Fitch Amount See Note 1
Texas Continued
<S> <C> <C> <C>
Lower Neches Valley, TX IDAU Corp. Sewer
Facilities RB, Mobil Oil Refining Corp. Project,
6.40%, 3/1/30 Aaa/AAA $1,000,000 $1,021,910
Rio Grande Valley TX HFDC Retirement Facilities RB,
Golden Palms, Series B, MBIA Insured, 6.40%, 8/1/12 Aaa/AAA 2,000,000 2,093,940
-----------
11,850,241
-----------
Washington-1.9%
Tacoma, WA Electric Systems RB, Prerefunded,
AMBAC Insured, Inverse Floater, 8.89%, 1/2/152 Aaa/AAA/AAA 1,000,000 1,068,750
WA PP Supply System RRB, Nuclear Project No. 2,
Series A, FGIC Insured, Zero Coupon, 5.50%, 7/1/095 Aaa/AAA/AAA 2,000,000 1,221,740
-----------
2,290,490
-----------
Wisconsin-1.2%
WI Health & Educational FA RB, Aurora Medical
Group, Inc. Project, FSA Insured, 6%, 11/15/11 Aaa/AAA/AAA 1,370,000 1,455,392
District of Columbia-2.6%
DC Hospital RRB, Medlantic Healthcare Group,
Series A, MBIA Insured, 5.25%, 8/15/12 Aaa/AAA/AAA 1,000,000 994,100
DC RRB, Prerefunded, Series A-1, MBIA Insured,
6%, 6/1/11 Aaa/AAA/AAA 100,000 106,660
DC RRB, Unrefunded Balance, Series A-1,
MBIA Insured, 6%, 6/1/11 Aaa/AAA/AAA 1,900,000 2,010,029
-----------
3,110,789
-----------
U.S. Possessions-1.4%
PR Municipal FAU GOB, Series PA-638B,
Inverse Floater, 7.38%, 8/1/152,6 NR/NR 1,500,000 1,675,785
------------
Total Municipal Bonds and Notes (Cost $115,840,298) 118,737,813
------------
Short-Term Tax-Exempt Obligations-1.7%
Maricopa Cnty., AZ PC Corp. RRB, Arizona Public
Service Co., Series C, 3.95%, 4/3/004 (Cost $2,000,000) 2,000,000 2,000,000
------------
Total Investments, at Value (Cost $117,840,298) 102.1% 120,737,813
Liabilities in Excess of Other Assets (2.1) (2,479,163)
-------------------------
Net Assets 100.0% $118,258,650
=========================
</TABLE>
13 OPPENHEIMER INSURED MUNICIPAL FUND
<PAGE>
STATEMENTS OF INVESTMENTS Unaudited / Continued
FOOTNOTES TO STATEMENT OF INVESTMENTS
<TABLE>
To simplify the listings of securities, abbreviations are used per the table
below:
<S> <C>
CAP Capital Appreciation MTAU Metropolitan Transportation Authority
COP Certificates of Participation MUD Municipal Utility District
DA Dormitory Authority NYS New York State
FA Facilities Authority PC Pollution Control
FAU Finance Authority POAU Port Authority
GOB General Obligation Bonds PP Public Power
GORB General Obligation Refunding Bonds RB Revenue Bonds
GOUN General Obligation Unlimited Nts. RRB Revenue Refunding Bonds
HEAA Higher Education Assistance Agency SCDAU Statewide Communities Development
HFA Housing Finance Agency Authority
HFDC Health Facilities Development Corp. SDI School District
IDAU Industrial Development Authority SFM Single Family Mtg.
ISD Independent School District SUEFS State University Educational Facilities System
LMC Loan Marketing Corp. UDC Urban Development Corp.
MH Multi family Housing USD Unified School District
</TABLE>
1. Securities with an aggregate market value of $1,096,066 are held in
collateralized accounts to cover initial margin requirements on open futures
sales contracts. See Note 5 of Notes to Financial Statements. 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 maybe more volatile than the price of a comparable fixed-rate
security. Inverse floaters amount to $11,380,151 or 9.62% of the Fund's net
assets as of March 31, 2000. 3. When-issued security to be delivered and settled
after March 31, 2000. 4. Represents the current interest rate for a variable or
increasing rate security. 5. For zero coupon bonds, the interest rate shown is
the effective yield on the date of purchase. 6. 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 $1,675,785 or
1.42% of the Fund's net assets as of March 31, 2000.
As of March 31, 2000, securities subject to the alternative minimum tax amount
to $19,146,954 or 16.19% of the Fund's net assets.
See accompanying Notes to Financial Statements.
14 OPPENHEIMER INSURED MUNICIPAL FUND
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES Unaudited
March 31, 2000
<TABLE>
-----------------------------------------------------------------------------------------------
Assets
<S> <C>
Investments, at value (cost $117, 840, 298)-see accompanying statement $120,737,813
Cash 349,673
Receivables and other assets:
Interest 1,743,723
Shares of beneficial interest sold 139,404
Other 7,415
-------------
Total assets 122,978,028
----------------------------------------------------------------------------------------------
Liabilities
Payables and other liabilities:
Investments purchased (including $1,086,775 purchased on a 3,861,640
when-issued basis)
Dividends 352,037
Shares of beneficial interest redeemed 294,904
Distribution and service plan fees 71,632
Daily variation on futures contracts 48,813
Transfer and shareholder servicing agent fees 17,755
Trustees' compensation 1,589
Other 71,008
-------------
Total liabilities 4,719,378
----------------------------------------------------------------------------------------------
Net Assets $118,258,650
=============
-----------------------------------------------------------------------------------------------
Composition of Net Assets
Paid-in capital $124,639,829
Overdistributed net investment income (157,797)
Accumulated net realized loss on investment transactions (8,792,272)
Net unrealized appreciation on investments 2,568,890
-------------
Net assets $118,258,650
=============
-----------------------------------------------------------------------------------------------
Net Asset Value Per Share
Class A Shares:
Net asset value and redemption price per share (based on net assets of
$92,261,096 and 5,722,666 shares of beneficial interest outstanding) $16.12
Maximum offering price per share (net asset value plus sales charge of
4.75% of offering price) $16.92
Class B Shares: Net asset value, redemption price (excludes applicable
contingent deferred sales charge) and offering price per share (based on net
assets of $21,784,493 and 1,350,437 shares of beneficial interest outstanding)
$16.13
Class C Shares:
Net asset value, redemption price (excludes applicable contingent deferred
sales charge) and offering price per share (based on net assets of $4,213,061
and 261,373 shares of beneficial interest outstanding) $16.12
</TABLE>
See accompanying Notes to Financial Statements.
15 OPPENHEIMER INSURED MUNICIPAL FUND
<PAGE>
STATEMENT OF OPERATIONS Unaudited
For the Six Months Ended March 31, 2000
<TABLE>
------------------------------------------------------------------------------------
<S> <C>
Investment Income
Interest $3,689,687
------------------------------------------------------------------------------------
Expenses
Management fees 270,710
Distribution and service plan fees:
Class A 112,671
Class B 119,927
Class C 23,899
Shareholder reports 50,906
Transfer and shareholder servicing agent fees 50,076
Legal, auditing and other professional fees 33,850
Custodian fees and expenses 16,063
Accounting service fees 6,000
Trustees' compensation 3,462
Other 17,116
-----------
Total expenses 704,680
Less expenses paid indirectly (6,729)
-----------
Net expenses 697,951
-----------------------------------------------------------------------------------
Net Investment Income 2,991,736
------------------------------------------------------------------------------------
Realized and Unrealized Gain (Loss)
Net realized loss on:
Investments (8,080,996)
Closing of futures contracts (84,781)
-----------
Net realized loss (8,165,777)
-----------
Net change in unrealized appreciation or depreciation on investments 5,338,548
-----------
Net realized and unrealized loss (2,827,229)
-----------------------------------------------------------------------------------
Net Increase in Net Assets Resulting from Operations $164,507
===========
</TABLE>
See accompanying Notes to Financial Statements.
16 OPPENHEIMER INSURED MUNICIPAL FUND
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Six Months Year
Ended Ended
March 31, 2000 Sept. 30,
(Unaudited) 1999
-------------------------------------------------------------------------------------------
Operations
<S> <C> <C>
Net investment income $2,991,736 $6,306,110
Net realized loss (8,165,777) (352,108)
Net change in unrealized appreciation or depreciation 5,338,548 (12,885,535)
----------------------------
Net increase (decrease) in net assets resulting from
operations 164,507 (6,931,533)
------------------------------------------------------------------------------------------
Dividends and/or Distributions to Shareholders
Dividends from net investment income:
Class A (2,444,756) (4,716,753)
Class B (519,033) (1,078,468)
Class C (102,941) (218,878)
Distributions from net realized gain:
Class A -- (1,141,094)
Class B -- (310,557)
Class C -- (60,365)
-------------------------------------------------------------------------------------------
Beneficial Interest Transactions
Net increase (decrease) in net assets resulting from
beneficial interest transaction:
Class A (3,610,848) 6,192,573
Class B (4,068,789) 2,067,306
Class C (1,269,227) 1,305,323
-------------------------------------------------------------------------------------------
Net Assets
Total decrease (11,851,087) (4,892,446)
Beginning of period 130,109,737 135,002,183
----------------------------
End of period (including overdistributed net investment
income of $157,797 and $82,803, respectively) $118,258,650 $130,109,737
============================
</TABLE>
See accompanying Notes to Financial Statements.
17 OPPENHEIMER INSURED MUNICIPAL FUND
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
Six Months Year
Ended Ended
March 31, 2000 Sept. 30,
Class A (Unaudited) 1999 1998 1997 1996 1995
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating Data
Net asset value, beginning of period $16.48 $18.31 $17.72 $17.07 $16.86 $16.14
--------------------------------------------------
Income (loss) from investment operations:
Net investment income .40 .84 .80 .91 .90 .90
Net realized and unrealized gain (loss) (.35) (1.67) .75 .63 .20 .71
--------------------------------------------------
Total income (loss) from
investment operations .05 (.83) 1.55 1.54 1.10 1.61
--------------------------------------------------
Dividends and/or distributions
to shareholders:
Dividends from net investment income (.41) (.80) (.84) (.89) (.89) (.89)
Distributions from net realized gain --- (.20) (.12) --- --- ---
--------------------------------------------------
Total dividends and/or distributions
to shareholders (.41) (1.00) (.96) (.89) (.89) (.89)
--------------------------------------------------
Net asset value, end of period $16.12 $16.48 $18.31 $17.72 $17.07 $16.86
==================================================
-----------------------------------------------------------------------------------------------------
Total Return, at Net Asset Value1 0.38% (4.76)% 9.01% 9.25% 6.67% 10.29%
-----------------------------------------------------------------------------------------------------
Ratios/Supplemental Data
Net assets, end of period (in thousands) $92,261 $ 98,030 $102,687 $91,051 $83,516 $76,691
Average net assets (in thousands) $93,910 $103,527 $96,458 $86,511 $81,233 $70,650
-----------------------------------------------------------------------------------------------------
Ratios to average net assets:2
Net investment income 5.04% 4.77% 4.49% 5.25% 5.27% 5.52%
Expenses 0.98% 0.89% 0.89%3 0.95%3 1.02%3 0.95%3
Portfolio turnover rate4 74% 108% 73% 77% 93% 58%
</TABLE>
1. 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.
2. Annualized for periods of less than one full year.
3. Expense ratio has not been grossed up to reflect the effect of expenses paid
indirectly. 4. 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 March 31, 2000, were $86,421,498 and
$94,549,491, respectively.
See accompanying Notes to Financial Statements.
18 OPPENHEIMER INSURED MUNICIPAL FUND
<PAGE>
<TABLE>
<CAPTION>
Six Months Year
Ended Ended
March 31, 2000 Sept. 30,
Class B (Unaudited) 1999 1998 1997 1996 1995
------------------------------------------------------------------------------------------------------
Per Share Operating Data
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $16.49 $18.32 $17.73 $17.08 $16.87 $16.15
----------------------------------------------------
Income (loss) from investment operations:
Net investment income .33 .71 .67 .76 .77 .78
Net realized and unrealized gain (loss) (.34) (1.67) .74 .65 .20 .71
----------------------------------------------------
Total income (loss) from
investment operations (.01) (.96) 1.41 1.41 .97 1.49
----------------------------------------------------
Dividends and/or distributions
to shareholders:
Dividends from net investment income (.35) (.67) (.70) (.76) (.76) (.77)
Distributions from net realized gain -- (.20) (.12) -- -- --
----------------------------------------------------
Total dividends and/or distributions
to shareholders (.35) (.87) (.82) (.76) (.76) (.77)
----------------------------------------------------
Net asset value, end of period $16.13 $16.49 $18.32 $17.73 $17.08 $16.87
====================================================
------------------------------------------------------------------------------------------------------
Total Return, at Net Asset Value1 (0.01)% (5.47)% 8.18% 8.43% 5.87% 9.47%
------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data
Net assets, end of period (in thousands) $21,784 $26,468 $27,392 $19,974 $15,983 $13,341
Average net assets (in thousands) $23,926 $28,562 $23,817 $17,309 $14,822 $11,987
------------------------------------------------------------------------------------------------------
Ratios to average net assets:2
Net investment income 4.28% 4.00% 3.76% 4.48% 4.50% 4.75%
Expenses 1.74% 1.65% 1.64%3 1.71%3 1.77%3 1.71%3
Portfolio turnover rate4 74% 108% 73% 77% 93% 58%
</TABLE>
1. 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.
2. Annualized for periods of less than one full year.
3. Expense ratio has not been grossed up to reflect the effect of expenses paid
indirectly. 4. 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 March 31, 2000, were $86,421,498 and
$94,549,491, respectively.
See accompanying Notes to Financial Statements.
19 OPPENHEIMER INSURED MUNICIPAL FUND
<PAGE>
FINANCIAL HIGHLIGHTS Continued
<TABLE>
Six Months Year
Ended Ended
March 31, 2000 Sept. 30,
Class C (Unaudited) 1999 1998 1997 1996 1995(6)
-------------------------------------------------------------------------------------------------------------------------
Per Share Operating Data
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $16.48 $18.31 $17.72 $17.06 $16.86 $16.72
----------------------------------------------------------
Income (loss) from investment operations:
Net investment income .34 .71 .70 .76 .75 .08
Net realized and unrealized gain (loss) (.35) (1.67) .71 .65 .21 .14
----------------------------------------------------------
Total income (loss) from investment operations (.01) (.96) 1.41 1.41 .96 .22
----------------------------------------------------------
Dividends and/or distributions to
shareholders:
Dividends from net investment income (.35) (.67) (.70) (.75) (.76) (.08)
Distributions from net realized gain -- (.20) (.12) -- -- --
----------------------------------------------------------
Total dividends and/or distributions to shareholders (.35) (.87) (.82) (.75) (.76) (.08)
----------------------------------------------------------
Net asset value, end of period $16.12 $16.48 $18.31 $17.72 $17.06 $16.86
==========================================================
-------------------------------------------------------------------------------------------------------------------------
Total Return, at Net Asset Value1 (0.01)% (5.48)% 8.18% 8.48% 5.77% 1.30%
-------------------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data
Net assets, end of period (in thousands) $4,213 $5,611 $4,923 $2,554 $924 $211
Average net assets (in thousands) $4,766 $5,775 $3,661 $1,720 $618 $1
-------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:2
Net investment income 4.30% 4.01% 3.82% 4.45% 4.38% 4.89%
Expenses 1.74% 1.65% 1.64%3 1.72%3 1.81%3 1.07%3
Portfolio turnover rate4 74% 108% 73% 77% 93% 58%
</TABLE>
1. 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.
2. Annualized for periods of less than one full year.
3. Expense ratio has not been grossed up to reflect the effect of expenses paid
indirectly. 4. 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 March 31, 2000, were $86,421,498 and
$94,549,491, respectively. 5. Per share amounts calculated based on the average
shares outstanding during the period. 6. For the period from August 29, 1995
(inception of offering) to September 30, 1995.
See accompanying Notes to Financial Statements.
20 OPPENHEIMER INSURED MUNICIPAL FUND
<PAGE>
NOTES TO FINANCIAL STATEMENTS Unaudited
--------------------------------------------------------------------------------
1. Significant Accounting Policies
Oppenheimer Insured Municipal Fund (the Fund) is a separate series of
Oppenheimer Municipal Fund, an open-end management investment company registered
under the Investment Company Act of 1940, as amended. The Fund's investment
objective is to seek a high level of current income exempt from federal income
tax. 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 at
their offering price, which is normally net asset value plus an initial sales
charge. Class B and Class C shares are sold without an initial sales charge but
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 shares 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. Securities for which quotations are readily available are
valued at the last sale price, or if in the absence of a sale, at the last sale
price on the prior trading day if it is within the spread of the closing bid and
asked prices, and if not, at the closing bid price. Securities (including
restricted securities) for which quotations are not readily available are valued
primarily using dealer-supplied valuations, a portfolio pricing service
authorized by the Board of Trustees, or at their fair value. Fair value is
determined in good faith under consistently applied procedures under the
supervision of the Board of Trustees. Short-term "money market type" debt
securities with remaining maturities of sixty days or less are valued at cost
(or last determined market value) and adjusted for amortization or accretion to
maturity of any premium or discount.
--------------------------------------------------------------------------------
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 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 March 31, 2000, the Fund had
entered into net outstanding when-issued or forward commitments of $1,086,775.
21 OPPENHEIMER INSURED MUNICIPAL FUND
<PAGE>
NOTES TO FINANCIAL STATEMENTS Unaudited / Continued
--------------------------------------------------------------------------------
1. Significant Accounting Policies Continued
In connection with its ability to purchase securities on a when-issued or
forward commitment basis, the Fund may enter into mortgage dollar-rolls in which
the Fund sells securities for delivery in the current month and simultaneously
contracts with the same counterparty to repurchase similar (same type, coupon
and maturity) but not identical securities on a specified future date. The Fund
records each dollar-roll as a sale and a new purchase transaction.
--------------------------------------------------------------------------------
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 carry-overs, to shareholders. Therefore, no
federal income or excise tax provision is required
--------------------------------------------------------------------------------
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 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.
22 OPPENHEIMER INSURED MUNICIPAL FUND
<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>
Six Months Ended March 31, 2000 Year Ended September 30, 1999
Shares Amount Shares Amount
Class A
<S> <C> <C> <C> <C>
Sold 465,595 $7,458,447 1,139,629 $20,168,330
Dividends and/or distributions reinvested 106,954 1,719,700 246,492 4,359,639
Redeemed (797,926) (12,788,995) (1,046,047) (18,335,396)
---------------------------------------------------------
Net increase (decrease) (225,377) $(3,610,848) 340,074 $6,192,573
=========================================================
Class B
Sold 111,517 $1,800,044 483,752 $8,559,831
Dividends and/or distributions reinvested 19,163 308,216 50,736 898,692
Redeemed (385,760) (6,177,049) (424,380) (7,391,217)
----------------------------------------------------------
Net increase (decrease) (255,080) $(4,068,789) 110,108 $ 2,067,306
==========================================================
Class C
Sold 21,161 $ 339,255 140,475 $ 2,501, 020
Dividends and/or distributions reinvested 4,058 65,286 11,966 211,869
----------------------------------------------------------
Net increase (decrease) (79,174) $(1,269,227) 71,630 $ 1,305,323
==========================================================
</TABLE>
--------------------------------------------------------------------------------
3. Unrealized Gains and Losses on Securities
As of March 31, 2000, net unrealized appreciation on securities of $2,897,515
was composed of gross appreciation of $3,403,511, and gross depreciation of
$505,996.
--------------------------------------------------------------------------------
4. 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 0.45% of
the first $100 million of average annual net assets, 0.40% of the next $150
million, 0.375% of the next $250 million and 0.35% of average annual net assets
in excess of $500 million. The Fund's management fee for the six months ended
March 31, 2000, was 0.44% of average annual net assets for each class of shares,
annualized for periods of less than one full year.
--------------------------------------------------------------------------------
Accounting Fees. The Manager acts as the accounting agent for the Fund at an
annual fee of $12,000, plus out-of-pocket costs and expenses reasonably
incurred.
OPPENHEIMER INSURED MUNICIPAL FUND
<PAGE>
NOTES TO FINANCIAL STATEMENTS Unaudited / Continued
--------------------------------------------------------------------------------
4. Fees and Other Transactions with affiliates Continued
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.
--------------------------------------------------------------------------------
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>
Six Months Aggregate Class A Commissions Commissions Commissionson
E nded Front-End Front-End on Class A on Class B on Class C
Sales Charges Sales Charges Shares Shares Shares
on Class A Retained by Advanced by Advanced by Advanced by
Shares Distributor Distributor1 Distributor1 Distributor1
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
March 31, 2000 $52,018 $10,692 $-- $62,801 $1,769
</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>
Six Months Class A Class B Class C
Ended Contingent Deferred Contingent Deferred Contingent Deferred
Sales Charges Sales Charges Sales Charges
Retained by Distributor Retained by Distributor Retained by Distributor
---------------------------------------------------------------------------------------
<S> <C> <C> <C>
March 31, 2000 $-- $34,924 $2,099
</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 purchased. 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 six months ended March 31, 2000, payments
under the Class A plan totaled $112,671, all of which was paid by the
Distributor to recipients. That included $5,321 paid to an affiliate of the
Manager. Any unreimbursed expenses the Distributor incurs with respect to Class
A shares in any fiscal year cannot be recovered in subsequent years.
24 OPPENHEIMER INSURED MUNICIPAL FUND
<PAGE>
--------------------------------------------------------------------------------
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.
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 asset-based sales charges from the Fund under
the plans. If any 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 six months ended March 31,
2000, were as follows:
<TABLE>
Total Payments Amount Retained Distributor's Aggregate Distributor's Unreimbursed
Under Plan by Distributor Unreimbursed Expenses Expenses as %
Under Plan of Net Assets
of Class
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class B Plan $119,927 $98,167 $905,651 4.16%
Class C Plan 23,899 6,419 76,734 1.82
</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.
25 OPPENHEIMER INSURED MUNICIPAL FUND
<PAGE>
NOTES TO FINANCIAL STATEMENTS Unaudited / Continued
--------------------------------------------------------------------------------
5. Futures Contracts Continued
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.
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 March 31, 2000, the Fund had outstanding futures contracts as follows:
<TABLE>
Contract Description Expiration Number of Valuation as of Unrealized
Date Contracts March 31, 2000 Depreciation
------------------------------------------------------------------------------
Contracts to Sell
<S> <C> <C> <C> <C>
Municipal Bond 6/21/00 142 $13,538,813 $328,625
</TABLE>
--------------------------------------------------------------------------------
6. Bank Borrowings
The Fund may borrow from a bank for temporary or emergency purposes including,
with-out 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. 45%. 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.
08% per annum.
The Fund had no borrowings outstanding during the six months ended March 31,
2000.
26 OPPENHEIMER INSURED MUNICIPAL FUND
<PAGE>
OPPENHEIMER INSURED MUNICIPAL FUND
A Series of Oppenheimer Municipal Fund
--------------------------------------------------------------------------------
Officers and Trustees James C. Swain, Trustee and Chairman
of the Board
Bridget A. Macaskill, Trustee and President
William H. Armstrong, Trustee
Robert G. Avis, Trustee
William A. Baker, Trustee
George C. Bowen, Trustee
Edward L. Cameron, Trustee
Jon S. Fossel, Trustee
Sam Freedman, Trustee
Raymond J. Kalinowski, Trustee
C. Howard Kast, Trustee
Robert M. Kirchner, Trustee
Ned M. Steel, Trustee
Christian D. Smith, Vice President
Andrew J. Donohue, Vice President
and Secretary
Brian W. Wixted, Treasurer
Robert J. Bishop, Assistant Treasurer
Scott T. Farrar, Assistant Treasurer
Robert G. Zack, Assistant Secretary
Investment Advisor OppenheimerFunds, Inc.
Distributor OppenheimerFunds Distributor, Inc.
Transfer and Shareholder OppenheimerFunds Services
Servicing Agent
Custodian of Portfolio
Securities Citibank, N. A.
Independent Auditors Deloitte & Touche LLP
Legal Counsel Myer, Swanson, Adams & Wolf, P. C.
The financial statements included herein have
been taken from the records of the fund
without examination of the independent
auditors. This is a copy of a report to
shareholders of Oppenheimer Insured Municipal
Fund. This report must be preceded or
accompanied by a Prospectus of Oppenheimer
Insured Municipal Fund. For more complete
information concerning the Fund, see the
Prospectus. Shares of Oppenheimer funds are
not deposits or obligations of any bank, are
not guaranteed by any bank, are not insured by
the FDIC or any other agency, and involve
investment risks, including the possible loss
of the principal amount invested.
27 OPPENHEIMER INSURED MUNICIPAL FUND
<PAGE>
OPPENHEIMERFUNDS FAMILY
--------------------------------------------------------------------------------
Global Equity
<TABLE>
<S> <C>
Developing Markets Fund Global Fund
International Small Company Fund Quest Global Value Fund
Europe Fund Global Growth & Income Fund
International Growth Fund
--------------------------------------------------------------------------------
Equity
Stock
Stock & Bond
Enterprise Fund1
Main Street(R)
Growth & Income Fund
Discovery Fund
Quest Opportunity Value Fund
Main Street Small Cap Fund
Total Return Fund Quest Small Cap Value Fund Quest Balanced Value Fund MidCap
Fund Capital Income Fund2 Capital Appreciation Fund Multiple Strategies Fund
Growth Fund Disciplined Allocation Fund Disciplined Value Fund Convertible
Securities Fund Quest Value Fund Trinity Growth Fund Specialty Trinity Core Fund
Real Asset Fund Trinity Value Fund Gold & Special Minerals Fund
--------------------------------------------------------------------------------
Fixed Income
Taxable Municipal
International Bond Fund California Municipal Fund 3
World Bond Fund Main Street California Municipal Fund3
High Yield Fund Florida Municipal Fund3
Champion Income Fund New Jersey Municipal Fund3
Strategic Income Fund New York Municipal Fund 3
Bond Fund Pennsylvania Municipal Fund3
Senior Floating Rate Fund Municipal Bond Fund
U. S. Government Trust Insured Municipal Fund
Limited-Term Government Fund Intermediate Municipal Fund
Rochester Division
Rochester Fund Municipals
Limited Term New York Municipal Fund
--------------------------------------------------------------------------------
Money Market4
Money Market Fund Cash Reserves
</TABLE>
1. Effective July 1, 1999, this fund is closed to new investors. See prospectus
for details. 2. On 4/1/99, the Fund's name was changed from "Oppenheimer Equity
Income Fund." 3. Available to investors only in certain states. 4. An investment
in money market funds is neither insured nor guaranteed by the Federal Deposit
Insurance Corporation or any other government agency. Although these funds may
seek to preserve the value of your investment at $1. 00 per share, it is
possible to lose money by investing in these funds.
Oppenheimer funds are distributed by OppenheimerFunds Distributor, Inc., Two
World Trade Center, New York, NY 10048-0203.
(C) Copyright 2000 OppenheimerFunds, Inc. All rights reserved.
28 OPPENHEIMER INSURED MUNICIPAL FUND
<PAGE>
INFORMATION AND SERVICES
As an Oppenheimer fund shareholder, you can benefit from special services
designed to make investing simple. Whether it's automatic investment plans,
timely market updates, or immediate account access, you can count on us whenever
you need assistance. So call us today, or visit our website--we're here to help.
Internet
24-hr access to account information and transactions
www. oppenheimerfunds. com
------------------------------------------------------
General Information
Mon-Fri 8:30am-9pm ET, Sat 10am-4pm ET
1.800.525.7048
------------------------------------------------------
Telephone Transactions
Mon-Fri 8:30am-9pm ET, Sat 10am-4pm ET
1.800.852.8457
------------------------------------------------------
PhoneLink
24-hr automated information and automated transactions
1.800.533.3310
------------------------------------------------------
Telecommunications Device for the Deaf (TDD)
Mon-Fri 8:30am-7pm ET
1.800.843.4461
------------------------------------------------------
OppenheimerFunds Information Hotline
24 hours a day, timely and insightful messages on the
economy and issues that may affect your investments
1.800.835.3104
------------------------------------------------------
Transfer and Shareholder Servicing Agent
OppenheimerFunds Services
P. O. Box 5270, Denver, CO 80217-5270
------------------------------------------------------
Ticker Symbols
Class A: OPISX Class B: OISBX Class C: OISCX
[LOGO]
<PAGE>
[PHOTO]
Semiannual Report January 31, 2000
Oppenheimer
MUNICIPAL BOND FUND
[LOGO]OPPENHEIMERFUNDS-Registered Trademark-
The Right Way to Invest
<PAGE>
REPORT HIGHLIGHTS
--------------------------------------------------------------------------------
CONTENTS
1 President's Letter
3 An Interview with Your Fund's Manager
9 Financial Statements
29 Officers and Trustees
MUNICIPAL BOND PRICES GENERALLY DECLINED IN A RISING-INTEREST-RATE ENVIRONMENT
over the six-month reporting period.
WE FOCUSED PRIMARILY ON INSURED SECURITIES DURING THE PERIOD, as yield
differences had narrowed between high quality and lower quality municipal bonds.
WE BELIEVE THAT THE FUND'S UNDERVALUED HOLDINGS MAY BENEFIT AS THE INVESTMENT
ENVIRONMENT IMPROVES and demand for high yielding securities picks up.
----------------------------
CUMULATIVE
TOTAL RETURNS
For the 6-Month Period
Ended 1/31/00 *
Class A
Without With
Sales Chg. Sales Chg.
----------------------
-5.64% -10.13%
Class B
Without With
Sales Chg. Sales Chg.
----------------------
-6.02% -10.59%
Class C
Without With
Sales Chg. Sales Chg.
----------------------
-6.02% -6.93%
----------------------------
------------------
NOT FDIC INSURED.
NO BANK GUARANTEE.
MAY LOSE VALUE.
------------------
*See page 7 for further details.
<PAGE>
PRESIDENT'S LETTER
--------------------------------------------------------------------------------
[PHOTO]
Bridget A. Macaskill
President
Oppenheimer
Municipal Bond Fund
DEAR SHAREHOLDER,
Whenever a new year begins--let alone a new decade or century--it makes sense to
pause a moment to assess where we've been and where we're going.
In retrospect, U.S. stocks and bonds in 1999 were subject to sudden and
substantial swings in investor sentiment because of economic uncertainty. When
the year began, investors were concerned that growth in the United States might
slow in response to economic weakness overseas. At mid-year, investors were
concerned that the economy was too strong, potentially rekindling inflationary
pressures. Yet, by year end, it became clearer that while the U.S. economy grew
robustly in 1999, inflation remained at low levels. Indeed, investors appeared
more comfortable with the economy after the Federal Reserve Board demonstrated
its inflation-fighting resolve by raising interest rates three times between
June and November.
As is normal in a rising-interest-rate environment, bond prices generally
declined in 1999, led lower by U.S. Treasury bonds. In the stock market, while
most major indices advanced, strong performance was mostly limited to a handful
of large-capitalization growth companies, principally in the technology arena.
Smaller and value-oriented stocks provided particularly lackluster returns and,
overall, foreign stocks outperformed U.S. stocks in 1999.
Looking forward, we expect the U.S. economy to remain on a moderate-growth,
low-inflation course. As recent revisions of 1999's economic statistics
demonstrated, the economy has defied many analysts' forecasts by growing at a
strong rate, which should be positive for the bond market. Similarly, positive
economic forces could help the stock market's performance broaden to include
value-oriented and smaller stocks.
We see particularly compelling opportunities outside of the U.S. market.
Many foreign stocks also ended 1999 more attractively valued than large-cap U.S.
stocks, and economic trends in overseas markets could lead to higher stock
prices. In Europe, corporate restructuring has just begun, giving
1 OPPENHEIMER MUNICIPAL BOND FUND
<PAGE>
PRESIDENT'S LETTER
--------------------------------------------------------------------------------
companies there the same potential for cost-cutting and productivity
improvements that U.S. companies enjoyed 10 years ago. In Japan and Asia,
economic recovery is expected to gain strength, which could allow stocks to
rally from relatively low levels.
Another 1999 trend that should remain in force in 2000 is the growth of
businesses related to the Internet. The rise of e-commerce has been good for
consumers and the economy because of greater price competition, which has helped
keep inflation under control. The Internet has also been good for investors, as
even companies with no earnings have seen their stock prices soar. Clearly,
while the Internet is here to stay, not all "dot-com" companies will survive,
and many of these high-flying Internet stocks will eventually--and perhaps very
suddenly--return to more reasonable levels. The long-term winners are most
likely to be companies that support the Internet's growth with content or
infrastructure.
What else is in store for investors in 2000? While we do not have an
infallible crystal ball, we believe that in almost any investment environment,
consistent success stems from an unwavering focus on fundamental investment
principles such as maintaining a long-term perspective, using diversification to
manage risks, and availing oneself of the services of a knowledgeable financial
advisor. Indeed, these principles serve as the foundation for every investment
we offer, helping to make OppenheimerFunds THE RIGHT WAY TO INVEST in 2000 and
beyond.
Sincerely,
/s/ Bridget A. Macaskill
Bridget A. Macaskill
February 22, 2000
These general market views represent opinions of OppenheimerFunds, Inc. and are
not intended to predict or depict performance of any particular fund. Specific
discussion, as it applies to your Fund, is contained in the pages that follow.
2 OPPENHEIMER MUNICIPAL BOND FUND
<PAGE>
AN INTERVIEW WITH YOUR FUND'S MANAGER
--------------------------------------------------------------------------------
[PHOTO]
Portfolio Management Team (l to r)
Christian Smith
Robert Patterson
(Portfolio Manager)
HOW DID OPPENHEIMER MUNICIPAL BOND FUND PERFORM OVER THE SIX-MONTH PERIOD THAT
ENDED JANUARY 31, 2000?
A. The Fund's performance over the past six months reflected a very challenging
investment environment. During the reporting period, stronger-than-expected
economic growth in both domestic and overseas markets fueled investors' concerns
that inflationary pressures might reemerge in the U.S. economy. As a result,
interest rates and most bond yields rose. Because bond yields and prices move in
opposite directions, higher interest rates eroded the value of many fixed income
securities, including municipal bonds. In addition, the tax-exempt bond market
was subject to adverse supply-and-demand influences, which eroded returns
further.
WHAT ECONOMIC FORCES AFFECTED MUNICIPAL BONDS AND THE FUND?
When the reporting period began on July 1, 1999, the Federal Reserve Board had
just implemented its first interest rate hike of 1999. They did so in response
to concerns that unsustainable economic growth might reignite inflationary
pressures. While inflation had not yet accelerated, early warning signs included
very low unemployment, high levels of consumer spending and borrowing, and
rising commodities prices. When the economy subsequently gained momentum, the
Federal Reserve raised short-term interest rates again in August and November
for a total increase of 0.75 percentage points during the reporting period.
These increases were quickly reflected in municipal bond prices.
3 OPPENHEIMER MUNICIPAL BOND FUND
<PAGE>
AN INTERVIEW WITH YOUR FUND'S MANAGER
--------------------------------------------------------------------------------
WHAT SUPPLY-AND-DEMAND FACTORS INFLUENCED THE FUND'S PERFORMANCE?
Higher interest rates reduced demand for municipal bonds from corporate and
institutional investors. In addition, many mutual fund shareholders shifted
assets from bond funds to stock funds because of the stock market's stellar
returns, which reduced overall demand from tax-exempt mutual funds. With these
investors effectively absent from the market, municipal bond yields rose further
than would have been expected from the Fed's interest rate increases alone.
HOW WAS THE FUND MANAGED IN THIS ENVIRONMENT?
We primarily focused on repositioning the portfolio to a more defensive posture
in order to provide a cushion against the adverse effects of a declining market.
With higher yielding securities available, we sold some of our lower yielding
holdings to enhance the Fund's income stream. Although we sold many of these
securities at a lower price than their original cost, we were able to use these
losses to offset earlier gains, helping to reduce capital gains tax liabilities
for our shareholders.
WHERE DID YOU FIND THE MOST ATTRACTIVE INVESTMENT OPPORTUNITIES?
We found particularly attractive yields in insured bonds with maturities in the
20-year range. Because the yield difference between high quality and lower
quality bonds had narrowed, we believed that we would not be adequately
compensated for the extra risks that lower yielding bonds entail. We preferred
the 20-year maturity range because their prices held up better than
intermediate-term securities in the 10- to 15-year range, which were
particularly hard hit by the lack of demand from institutional buyers.
[SIDENOTE:]
"AFTER A VERY CHALLENGING 1999, WE BELIEVE THE PORTFOLIO IS WELL-POSITIONED TO
BENEFIT FROM BETTER MARKET CONDITIONS IN 2000."
[/SIDENOTE:]
4 OPPENHEIMER MUNICIPAL BOND FUND
<PAGE>
On the other hand, we carefully avoided those sectors of the market that we
regarded as troublesome, including healthcare and utilities. However, we
maintained our holdings of "special situations," which are bonds that we regard
as undervalued at the time of purchase, and that we believe will benefit from
the improving credit quality of their issuers. One example of a special
situation bond is a college in Savannah, Georgia, that issued tax-exempt bonds
at an inopportune time, requiring them to offer extra yield to attract
investors' attention. When institutional demand returns to the markets, we
believe that these bonds' value will rise. However, during the past six months,
they have hurt the Fund's returns.
WHAT IS YOUR OUTLOOK FOR THE NEW YEAR?
We are cautious over the near term and optimistic over the longer term. We
expect the U.S. economy to remain strong over the next several months, which may
prompt the Federal Reserve Board to increase interest rates further.
Accordingly, we intend to maintain our defensive posture until we believe the
Fed's moves toward a more restrictive monetary policy are complete. If and when
evidence emerges that the bulk of interest rate increases are behind us, we are
likely to see better performance from our "special situations" holdings. We are
also likely to see the return of corporate and institutional buyers, which
should help support tax-exempt bond prices.
[SIDENOTE:]
-----------------------------------
AVERAGE ANNUAL TOTAL RETURNS(1)
For the Periods Ended 12/31/99
CLASS A
1-Year 5-Year 10-Year
-----------------------------
-9.59% 5.46% 5.74%
CLASS B Since
1-Year 5-Year Inception
-----------------------------
-10.31% 5.35% 3.88%
CLASS C Since
1-Year 5-Year Inception
-----------------------------
-6.64% N/A 4.01%
-----------------------------
STANDARDIZED YIELD(2)
For the 30 Days Ended 1/31/00
-----------------------------
CLASS A 5.40%
-----------------------------
CLASS B 4.89
-----------------------------
CLASS C 4.89
-----------------------------
[/SIDENOTE:]
(1) See page 7 for further details.
(2) Standardized yield is based on net investment income for the 30-day period
ended January 31, 2000. Falling share prices will tend to artificially raise
yields.
5 OPPENHEIMER MUNICIPAL BOND FUND
<PAGE>
For our part, when the investment environment improves, we are prepared to seize
opportunities more aggressively, with an eye toward locking in high yields for
as long as practical and participating in the potential for capital
appreciation. In our view, this kind of active management approach is what makes
Oppenheimer Municipal Bond Fund an important part of THE RIGHT WAY TO INVEST.
TOP FIVE STATES(4)
----------------------------------------
Texas 14.1%
----------------------------------------
California 14.0
----------------------------------------
Pennsylvania 13.5
----------------------------------------
Michigan 7.7
----------------------------------------
New Jersey 5.6
----------------------------------------
[SIDENOTE:]
-----------------------
CREDIT ALLOCATION(3)
[GRAPH]
- AAA 38.7%
- AA 10.1
- A 14.0
- BBB 24.5
- BB 11.9
- B 0.8
-----------------------
[/SIDENOTE:]
(3) Portfolio data are as of January 31, 2000, are subject to change, and are
dollar-weighted based on total market value of investments. The Fund may invest
up to 25% of its assets in below-investment-grade securities which carry greater
risk of default. Average credit quality and ratings allocations include
securities rated by national rating organizations as well as unrated securities
(currently 10.8% of total investments) which have ratings assigned by the
Manager in categories equivalent to those of rating organizations. (4) Portfolio
is subject to change. Percentages are as of January 31, 2000, and are based on
net assets.
6 OPPENHEIMER MUNICIPAL BOND FUND
<PAGE>
NOTES
--------------------------------------------------------------------------------
IN REVIEWING PERFORMANCE AND RANKINGS, PLEASE REMEMBER THAT PAST PERFORMANCE
DOES NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE OF AN
INVESTMENT IN THE FUND WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN
REDEEMED, MAY BE WORTH MORE OR LESS THAN THE ORIGINAL COST. THE FUND'S
PERFORMANCE MAY FROM TIME TO TIME BE SUBJECT TO SUBSTANTIAL SHORT-TERM CHANGES,
PARTICULARLY DURING PERIODS OF MARKET OR INTEREST RATE VOLATILITY. FOR UPDATES
ON THE FUND'S PERFORMANCE, PLEASE CONTACT YOUR FINANCIAL ADVISOR, CALL US AT
1.800.525.7048 OR VISIT OUR WEBSITE, www.oppenheimerfunds.com.
Total returns include changes in share price and reinvestment of dividends and
capital gains distributions in a hypothetical investment for the periods shown.
Cumulative total returns are not annualized.
CLASS A shares were first publicly offered on 10/27/76. Class A returns include
the current maximum initial sales charge of 4.75%.
CLASS B shares of the Fund were first publicly offered on 3/16/93. Class B
returns include the applicable contingent deferred sales charge of 5% (1-year)
and 1% (5-year). 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. Class B shares are subject to an annual 0.75%
asset-based sales charge.
CLASS C shares of the Fund were first publicly offered on 8/29/95. Class C
returns include the contingent deferred sales charge of 1% for the 1-year
period. Class C shares are subject to an annual 0.75% asset-based sales charge.
An explanation of the different performance calculations is in the Fund's
prospectus.
7 OPPENHEIMER MUNICIPAL BOND FUND
<PAGE>
--------------------------------------------------------------------------------
FINANCIALS
--------------------------------------------------------------------------------
8 OPPENHEIMER MUNICIPAL BOND FUND
<PAGE>
STATEMENT OF INVESTMENTS January 31, 2000 / Unaudited
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATINGS: MARKET
MOODY'S/ FACE VALUE
S&P/FITCH AMOUNT SEE NOTE 1
-----------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
MUNICIPAL BONDS AND NOTES--98.3%
-----------------------------------------------------------------------------------------------------------------
ARIZONA--0.9%
Central AZ Irrigation & Drainage District GORB, Series A,
6%, 6/1/13 NR/NR $ 1,080,950 $ 928,341
-----------------------------------------------------------------------------------------------------------------
Peoria, AZ IDAU RRB, Sierra Winds Life, Series A,
6.375%, 8/15/29 NR/NR 5,000,000 4,262,300
--------------
5,190,641
-----------------------------------------------------------------------------------------------------------------
CALIFORNIA--14.0%
CA Foothill/Eastern Corridor Agency Toll Road RB,
Sr. Lien, Prerefunded, Series A, 6.50%, 1/1/32 Baa3/BBB-/BBB 10,500,000 11,510,415
-----------------------------------------------------------------------------------------------------------------
CA HFA Home Mtg. RB, Series C, 6.75%, 2/1/25 Aa2/AA- 40,000 40,000
-----------------------------------------------------------------------------------------------------------------
CA HFA RB, Series C, 6.65%, 8/1/14(1) Aa2/AA- 5,000,000 5,060,350
-----------------------------------------------------------------------------------------------------------------
CA HFA SFM RB, Series C, 6.75%, 2/1/25 Aa2/AA- 4,755,000 4,812,203
-----------------------------------------------------------------------------------------------------------------
CA SCDAU Revenue Refunding COP, Inverse Floater,
6.916%, 11/1/15(2) A1/NR 1,500,000 1,366,875
-----------------------------------------------------------------------------------------------------------------
Foothill/Eastern Corridor Agency CA Toll Road RRB,
5.75%, 1/15/40 Baa3/BBB-/BBB 5,750,000 5,046,545
-----------------------------------------------------------------------------------------------------------------
Industry, CA UDA TXAL Bonds, Transportation
Distribution Project No. 3, 6.90%, 11/1/07 NR/A- 500,000 529,140
-----------------------------------------------------------------------------------------------------------------
Los Angeles, CA Regional AIC Lease RRB, 5.65%, 8/1/17 Ba2/BB 4,600,000 4,004,070
-----------------------------------------------------------------------------------------------------------------
Los Angeles, CA Regional AIC Lease RRB, Facilities
Sublease-International Airport Project, 6.35%, 11/1/25 Baa3/BBB- 8,930,000 8,402,326
-----------------------------------------------------------------------------------------------------------------
Palmdale, CA Community RA SFM RRB, Escrowed to
Maturity, Series A, 8%, 3/1/16 Aaa/NR/A+ 5,000,000 6,101,400
-----------------------------------------------------------------------------------------------------------------
Perris, CA SFM RB, Escrowed to Maturity, Series A,
8.30%, 6/1/13 Aaa/AAA 7,000,000 8,691,830
-----------------------------------------------------------------------------------------------------------------
Pomona, CA SFM RRB, Escrowed to Maturity, Series A,
7.60%, 5/1/23 Aaa/AAA 6,000,000 7,040,400
-----------------------------------------------------------------------------------------------------------------
Redding, CA Electric System Revenue COP, FGIC Insured,
Inverse Floater, 7.788%, 6/1/19(2) Aaa/AAA/AAA 6,000,000 5,527,500
-----------------------------------------------------------------------------------------------------------------
San Joaquin Hills, CA Transportation Corridor Agency
Toll Road RB, Sr. Lien, Prerefunded, 6.75%, 1/1/32 Aaa/AAA/AAA 12,700,000 13,682,726
--------------
81,815,780
-----------------------------------------------------------------------------------------------------------------
COLORADO--0.7%
CO HFAU RB, Rocky Mountain Adventist Health
System, 6.625%, 2/1/22 Baa2/BB- 5,000,000 4,234,750
-----------------------------------------------------------------------------------------------------------------
CONNECTICUT--4.5%
Mashantucket, CT Western Pequot Tribe Special RB,
Prerefunded, Series A, 6.40%, 9/1/11(3) Aaa/AAA 7,435,000 8,069,875
</TABLE>
9 OPPENHEIMER MUNICIPAL BOND FUND
<PAGE>
STATEMENT OF INVESTMENTS Unaudited / Continued
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATINGS: MARKET
MOODY'S/ FACE VALUE
S&P/FITCH AMOUNT SEE NOTE 1
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CONNECTICUT Continued
Mashantucket, CT Western Pequot Tribe Special RB,
Unrefunded Balance, Series A, 6.40%, 9/1/11(3) NR/BBB- $ 7,565,000 $ 7,719,477
-----------------------------------------------------------------------------------------------------------------
Mashantucket, CT Western Pequot Tribe Special RRB,
Sub. Lien, Series B, 5.75%, 9/1/27(3) Baa3/NR 11,900,000 10,369,422
--------------
26,158,774
-----------------------------------------------------------------------------------------------------------------
FLORIDA--3.2%
Dade Cnty., FL IDAU RB, Miami Cerebral Palsy Services
Project, 8%, 6/1/22 NR/NR 2,755,000 2,886,055
-----------------------------------------------------------------------------------------------------------------
FL BOE Capital Outlay GORB, 8.40%, 6/1/07 Aa2/AA+ 750,000 878,332
-----------------------------------------------------------------------------------------------------------------
FL HFA RB, Riverfront Apts., Series A, AMBAC Insured,
6.25%, 4/1/37 Aaa/AAA 40,000 40,000
-----------------------------------------------------------------------------------------------------------------
FL HFA SFM RRB, Series A, 6.35%, 7/1/14 Aaa/AAA 630,000 636,886
-----------------------------------------------------------------------------------------------------------------
Grand Haven, FL CDD SPAST RB, Series A, 6.30%, 5/1/02 NR/NR 1,103,000 1,099,768
-----------------------------------------------------------------------------------------------------------------
Heritage Springs, FL CDD Capital Improvement RB, Series B,
6.25%, 5/1/05 NR/NR 2,410,000 2,377,489
-----------------------------------------------------------------------------------------------------------------
Lee Cnty., FL Housing FAU SFM RB, Series A-2, 6.85%, 3/1/29 Aaa/NR 1,585,000 1,667,895
-----------------------------------------------------------------------------------------------------------------
Lee Cnty., FL IDAU HCF RRB, Shell Point Village Project,
Series A, 5.50%, 11/15/21 NR/BBB- 2,000,000 1,528,160
-----------------------------------------------------------------------------------------------------------------
Lee Cnty., FL IDAU HCF RRB, Shell Point Village Project,
Series A, 5.50%, 11/15/29 NR/BBB- 2,250,000 1,648,103
-----------------------------------------------------------------------------------------------------------------
Miami-Dade Cnty., FL SPO RB, Sub. Lien, Series B, MBIA
Insured, Zero Coupon, 5.452%, 10/1/29(4) Aaa/AAA/AAA 25,895,000 3,921,280
-----------------------------------------------------------------------------------------------------------------
Palm Beach Cnty., FL HFAU RB, Retirement Community,
5.125%, 11/15/29 NR/A- 3,130,000 2,259,046
--------------
18,943,014
-----------------------------------------------------------------------------------------------------------------
GEORGIA--3.9%
GA MEAU RRB, Project One, Series X, MBIA Insured,
6.50%, 1/1/12 Aaa/AAA 500,000 540,300
-----------------------------------------------------------------------------------------------------------------
GA MEAU SPO Refunding Bonds, Series Y, 6.50%, 1/1/17 A3/A 10,750,000 11,278,148
-----------------------------------------------------------------------------------------------------------------
GA MEAU SPO Refunding Bonds, Series Y, MBIA Insured,
6.50%, 1/1/17 Aaa/AAA 1,000,000 1,069,710
-----------------------------------------------------------------------------------------------------------------
Rockdale Cnty., GA DAU SWD RB, Visy Paper Inc. Project,
7.40%, 1/1/16 NR/NR 4,405,000 4,479,224
-----------------------------------------------------------------------------------------------------------------
Rockdale Cnty., GA DAU SWD RB, Visy Paper Inc. Project,
7.40%, 1/1/16(5) NR/NR 75,000 75,000
-----------------------------------------------------------------------------------------------------------------
Savannah, GA EDAU RB, College of Art & Design Project,
6.90%, 10/1/29 NR/BBB- 5,880,000 5,653,855
--------------
23,096,237
</TABLE>
10 OPPENHEIMER MUNICIPAL BOND FUND
<PAGE>
<TABLE>
<CAPTION>
RATINGS: MARKET
MOODY'S/ FACE VALUE
S&P/FITCH AMOUNT SEE NOTE 1
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ILLINOIS--1.6%
IL HFAU RB, Hinsdale Hospital Project, Escrowed to
Maturity, Series C, 9.50%, 11/15/19 NR/AAA $ 820,000 $ 871,307
-----------------------------------------------------------------------------------------------------------------
IL Regional Transportation Authority RB, AMBAC
Insured, 7.20%, 11/1/20 Aaa/AAA/AAA 7,500,000 8,471,325
--------------
9,342,632
-----------------------------------------------------------------------------------------------------------------
INDIANA--4.4%
Indianapolis, IN Airport Authority RB, SPF Federal
Express Corp. Project, 7.10%, 1/15/17 Baa2/BBB 15,500,000 15,905,480
-----------------------------------------------------------------------------------------------------------------
Indianapolis, IN Airport Authority RB, SPF United
Airlines Project, Series A, 6.50%, 11/15/31 Baa2/BB+ 10,500,000 9,726,360
--------------
25,631,840
-----------------------------------------------------------------------------------------------------------------
KENTUCKY--0.4%
Kenton Cnty., KY AB RB, SPF Delta Airlines Project,
Series A, 6.125%, 2/1/22 Baa3/BBB- 2,790,000 2,520,905
-----------------------------------------------------------------------------------------------------------------
LOUISIANA--1.7%
New Orleans, LA Home Mtg. Authority SPO Refunding
Bonds, Escrowed to Maturity, 6.25%, 1/15/11 Aaa/NR 9,500,000 10,114,840
-----------------------------------------------------------------------------------------------------------------
MARYLAND--0.1%
MD University Auxiliary Facilities & Tuition System RRB,
Series A, 5.90%, 2/1/03 Aa3/AA+/AA 500,000 515,015
-----------------------------------------------------------------------------------------------------------------
MASSACHUSETTS--2.3%
MA GOB, Unrefunded Balance, Series B, MBIA Insured,
6.50%, 8/1/11 Aaa/AAA/AAA 430,000 448,507
-----------------------------------------------------------------------------------------------------------------
MA Water Resource Authority RB, Series A,
6.50%, 7/15/19 A1/A+/A+ 12,225,000 12,919,258
--------------
13,367,765
-----------------------------------------------------------------------------------------------------------------
MICHIGAN--7.7%
Detroit, MI GORB, Series B, 6.25%, 4/1/09 Baa1/BBB+/A- 4,065,000 4,234,551
-----------------------------------------------------------------------------------------------------------------
Detroit, MI GORB, Series B, 6.375%, 4/1/06 Baa1/BBB+/A- 2,000,000 2,088,700
-----------------------------------------------------------------------------------------------------------------
Detroit, MI GORB, Series B, 6.375%, 4/1/07 Baa1/BBB+/A- 500,000 523,635
-----------------------------------------------------------------------------------------------------------------
Detroit, MI Sewage Disposal RB, Prerefunded,
FGIC Insured, Inverse Floater, 6.756%, 7/1/23(2) Aaa/AAA 10,100,000 10,706,000
-----------------------------------------------------------------------------------------------------------------
Detroit, MI Sewage Disposal RRB, Unrefunded Balance,
FGIC Insured, Inverse Floater, 6.756%, 7/1/23(2) Aaa/AAA/AAA 3,100,000 2,716,375
-----------------------------------------------------------------------------------------------------------------
Detroit, MI Water Supply System RB, Prerefunded,
FGIC Insured, Inverse Floater, 8.106%, 7/1/22(2) Aaa/AAA/AAA 3,700,000 4,070,000
-----------------------------------------------------------------------------------------------------------------
Detroit, MI Water Supply System RB, Unrefunded
Balance, FGIC Insured, Inverse Floater, 8.106%, 7/1/22(2) Aaa/AAA 1,500,000 1,541,250
</TABLE>
11 OPPENHEIMER MUNICIPAL BOND FUND
<PAGE>
STATEMENT OF INVESTMENTS Unaudited / Continued
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATINGS: MARKET
MOODY'S/ FACE VALUE
S&P/FITCH AMOUNT SEE NOTE 1
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
MICHIGAN Continued
MI Hospital FAU RRB, FSA Insured, Inverse Floater,
8.514%, 2/15/22(2) Aaa/AAA/AAA $ 5,000,000 $ 4,993,750
-----------------------------------------------------------------------------------------------------------------
MI Strategic Fund SWD RRB, Genesee Power Station
Project, 7.50%, 1/1/21 NR/NR 3,650,000 3,745,557
-----------------------------------------------------------------------------------------------------------------
Wayne Cnty., MI Airport SPF RRB, Northwest Airlines, Inc.
Project, Series 1995, 6.75%, 12/1/15 NR/NR 10,450,000 10,249,883
--------------
44,869,701
-----------------------------------------------------------------------------------------------------------------
NEW HAMPSHIRE--0.1%
NH Housing FAU SFM RB, Series C, 6.90%, 7/1/19 Aa2/NR 855,000 867,731
-----------------------------------------------------------------------------------------------------------------
NEW JERSEY--5.6%
NJ EDAU RRB, First Mtg. Franciscan Oaks Project,
5.75%, 10/1/23 NR/NR 2,255,000 1,805,984
-----------------------------------------------------------------------------------------------------------------
NJ EDAU RRB, First Mtg. Keswick Pines, 5.70%, 1/1/18 NR/NR 1,000,000 820,690
-----------------------------------------------------------------------------------------------------------------
NJ EDAU RRB, First Mtg. Keswick Pines, 5.75%, 1/1/24 NR/NR 1,125,000 901,755
-----------------------------------------------------------------------------------------------------------------
NJ EDAU SPF RB, Continental Airlines, Inc. Project,
6.25%, 9/15/29 Ba2/BB 13,000,000 11,451,570
-----------------------------------------------------------------------------------------------------------------
NJ TUAU RRB, Series C, 6.50%, 1/1/16 Baa1/BBB+/A- 16,150,000 16,937,313
-----------------------------------------------------------------------------------------------------------------
NJ TUAU RRB, Series C, MBIA Insured, 6.50%, 1/1/16 Aaa/AAA/AAA 1,100,000 1,182,104
--------------
33,099,416
-----------------------------------------------------------------------------------------------------------------
NEW YORK--5.2%
NYC GOB, Inverse Floater, 7.582%, 8/27/15(2) A3/A-/A 3,050,000 2,897,500
-----------------------------------------------------------------------------------------------------------------
NYC GOB, Prerefunded, Series D, 8%, 8/1/15 Aaa/A-/A 10,980,000 11,693,480
-----------------------------------------------------------------------------------------------------------------
NYS HFA RRB, NYC HF, Series A, 6%, 11/1/06 Baa1/A- 4,000,000 4,094,120
-----------------------------------------------------------------------------------------------------------------
NYS HFA RRB, NYC HF, Series A, 6%, 5/1/08 Baa1/A- 2,000,000 2,035,560
-----------------------------------------------------------------------------------------------------------------
TSASC, Inc., NY RB, Series 1, 6.25%, 7/15/34 Aa2/A/A+ 10,000,000 9,493,500
--------------
30,214,160
-----------------------------------------------------------------------------------------------------------------
OHIO--3.1%
Cleveland, OH PPS First Mtg. RB, Series A, MBIA
Insured, 7%, 11/15/16 Aaa/AAA 2,000,000 2,207,980
-----------------------------------------------------------------------------------------------------------------
Montgomery Cnty., OH HCF RRB, Series B, 6.25%, 2/1/22 NR/NR 2,500,000 2,149,075
-----------------------------------------------------------------------------------------------------------------
OH HFA SFM RB, Series B, Inverse Floater, 9.466%, 3/1/31(2) Aaa/AAA 3,130,000 3,294,325
-----------------------------------------------------------------------------------------------------------------
OH Solid Waste RB, Republic Engineered Steels, Inc.
Project, 9%, 6/1/21 NR/NR 7,800,000 3,902,184
-----------------------------------------------------------------------------------------------------------------
OH SWD RB, USG Corporate Project, 5.65%, 3/1/33 Baa2/BBB+ 8,000,000 6,558,320
--------------
18,111,884
</TABLE>
12 OPPENHEIMER MUNICIPAL BOND FUND
<PAGE>
<TABLE>
<CAPTION>
RATINGS: MARKET
MOODY'S/ FACE VALUE
S&P/FITCH AMOUNT SEE NOTE 1
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OKLAHOMA--1.6%
Tulsa, OK Municipal Airport Trust RB, American Airlines
Project, 6.25%, 6/1/20 Baa2/BBB- $ 9,820,000 $ 9,136,724
-----------------------------------------------------------------------------------------------------------------
PENNSYLVANIA--13.5%
Allegheny Cnty., PA HDAU RRB, Villa St. Joseph HCF,
6%, 8/15/28 NR/NR 2,000,000 1,636,860
-----------------------------------------------------------------------------------------------------------------
Chartiers Valley, PA CD IDAU First Mtg. RRB, Asbury
Health Center, 6.375%, 12/1/19 NR/NR 1,250,000 1,099,450
-----------------------------------------------------------------------------------------------------------------
Chartiers Valley, PA CD IDAU First Mtg. RRB, Asbury
Health Center, 6.375%, 12/1/24 NR/NR 1,500,000 1,301,175
-----------------------------------------------------------------------------------------------------------------
PA EDFAU Facilities RB, National Gypsum Co., Series B,
6.125%, 11/2/27 NR/NR 10,000,000 8,909,400
-----------------------------------------------------------------------------------------------------------------
PA EDFAU RR RB, Colver Project, Series D,
7.15%, 12/1/18 NR/BBB-/BBB- 3,000,000 3,045,630
-----------------------------------------------------------------------------------------------------------------
PA EDFAU SWD RB, USD Corp. Project, 6%, 6/1/31 Baa2/BBB+ 12,000,000 10,599,480
-----------------------------------------------------------------------------------------------------------------
PA HEAA Student Loan RB, Series B, AMBAC Insured,
Inverse Floater, 8.30%, 3/1/22(2) Aaa/AAA/AAA 17,500,000 16,712,500
-----------------------------------------------------------------------------------------------------------------
PA TUCM RRB, Series N, 6.50%, 12/1/13 Aaa/AAA 750,000 784,125
-----------------------------------------------------------------------------------------------------------------
Philadelphia, PA Hospital & HEFAU RB, Temple
University Children's Medical, Series A, 5.625%, 6/15/19 NR/BBB+ 1,200,000 976,140
-----------------------------------------------------------------------------------------------------------------
Philadelphia, PA Hospital & HEFAU RRB, The
Philadelphia Protestant Home Project, Series A,
6.50%, 7/1/27 NR/NR 3,380,000 2,971,290
-----------------------------------------------------------------------------------------------------------------
Philadelphia, PA IDAU HCF RRB, Baptist Home of
Philadelphia, Series A, 5.50%, 11/15/18 NR/NR 1,670,000 1,326,197
-----------------------------------------------------------------------------------------------------------------
Philadelphia, PA IDAU HCF RRB, Baptist Home of
Philadelphia, Series A, 5.60%, 11/15/28 NR/NR 1,275,000 972,519
-----------------------------------------------------------------------------------------------------------------
Philadelphia, PA Water & Wastewater RB,
FGIC Insured, 10%, 6/15/05 Aaa/AAA/AAA 17,600,000 21,536,768
-----------------------------------------------------------------------------------------------------------------
Schuylkill Cnty., PA IDAU RR RRB, Schuylkill
Energy Resources, Inc., 6.50%, 1/1/10 NR/NR/BB+ 7,665,000 7,497,826
--------------
79,369,360
-----------------------------------------------------------------------------------------------------------------
SOUTH CAROLINA--0.4%
Piedmont, SC MPA RRB, Escrowed to Maturity,
Series A, FGIC Insured, 6.50%, 1/1/16 Aaa/AAA 285,000 307,541
-----------------------------------------------------------------------------------------------------------------
Piedmont, SC MPA RRB, Unrefunded Balance,
Series A, FGIC Insured, 6.50%, 1/1/16 Aaa/AAA 1,715,000 1,824,743
--------------
2,132,284
-----------------------------------------------------------------------------------------------------------------
TEXAS--14.1%
AAAU TX SPF RB, American Airlines, Inc. Project,
7%, 12/1/11 Baa2/BBB- 3,000,000 3,099,600
</TABLE>
13 OPPENHEIMER MUNICIPAL BOND FUND
<PAGE>
STATEMENT OF INVESTMENTS Unaudited / Continued
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATINGS: MARKET
MOODY'S/ FACE VALUE
S&P/FITCH AMOUNT SEE NOTE 1
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
TEXAS Continued
Cypress-Fairbanks, TX ISD CAP GORB, Series A, Zero
Coupon, 5.89%, 2/15/14(4) Aaa/AAA $15,710,000 $ 6,748,859
-----------------------------------------------------------------------------------------------------------------
Cypress-Fairbanks, TX ISD CAP GORB, Series A, Zero
Coupon, 5.85%, 2/15/15(4) Aaa/AAA 15,000,000 5,997,000
-----------------------------------------------------------------------------------------------------------------
Cypress-Fairbanks, TX ISD CAP GORB, Series A, Zero
Coupon, 5.91%, 2/15/16(4) Aaa/AAA 16,240,000 6,061,418
-----------------------------------------------------------------------------------------------------------------
Dallas-Fort Worth, TX International Airport Facilities
Improvement Corp. RB, American Airlines, Inc.,
7.25%, 11/1/30 Baa1/BBB- 8,000,000 8,110,560
-----------------------------------------------------------------------------------------------------------------
Harris Cnty., TX GORB, Toll Road, Sub. Lien, Prerefunded,
6.50%, 8/15/15 Aa1/AA 215,000 227,780
-----------------------------------------------------------------------------------------------------------------
Harris Cnty., TX GORB, Toll Road, Sub. Lien, Unrefunded
Balance, 6.50%, 8/15/15 Aa1/AA 785,000 816,706
-----------------------------------------------------------------------------------------------------------------
Harris Cnty., TX GORRB, Toll Road, Sub. Lien, 6.75%, 8/1/14 Aa1/AA 1,000,000 1,046,160
-----------------------------------------------------------------------------------------------------------------
Houston, TX WSS RB, Prior Lien, Unrefunded Balance,
Series B, 6.40%, 12/1/09 A3/A+ 995,000 1,047,864
-----------------------------------------------------------------------------------------------------------------
Houston, TX WSS RB, Prior Lien, Unrefunded Balance,
Series B, 6.75%, 12/1/08 Aaa/AAA 440,000 461,195
-----------------------------------------------------------------------------------------------------------------
North Central TX HFDC RB, Prerefunded, Series B,
6.30%, 5/15/06 Aa2/AA 290,000 305,083
-----------------------------------------------------------------------------------------------------------------
North Central TX HFDC RB, Prerefunded, Series B,
6.40%, 5/15/08 Aa2/AA 480,000 505,992
-----------------------------------------------------------------------------------------------------------------
North Central TX HFDC RB, Series A, 7.25%, 11/15/19 NR/NR 2,000,000 1,842,580
-----------------------------------------------------------------------------------------------------------------
North Central TX HFDC RB, Series A, 7.50%, 11/15/29 NR/NR 3,000,000 2,788,620
-----------------------------------------------------------------------------------------------------------------
North Central TX HFDC RB, Unrefunded Balance,
Series B, 6.30%, 5/15/06 Aa2/AA 2,710,000 2,810,487
-----------------------------------------------------------------------------------------------------------------
North Central TX HFDC RB, Unrefunded Balance,
Series B, 6.40%, 5/15/08 Aa2/AA 4,520,000 4,677,432
-----------------------------------------------------------------------------------------------------------------
Retama, TX Development Corp. SPF RRB, Retama
Racetrack, Escrowed to Maturity, Series A, 10%, 12/15/19 Aaa/AAA 4,880,000 7,153,836
-----------------------------------------------------------------------------------------------------------------
TX MPA CAP RRB, MBIA Insured, Zero Coupon,
5.95%, 9/1/13(4) Aaa/AAA/AAA 6,900,000 3,086,991
-----------------------------------------------------------------------------------------------------------------
TX MPA CAP RRB, MBIA Insured, Zero Coupon,
5.93%, 9/1/14(4) Aaa/AAA/AAA 17,500,000 7,275,450
-----------------------------------------------------------------------------------------------------------------
TX MPA CAP RRB, MBIA Insured, Zero Coupon,
5.85%, 9/1/15(4) Aaa/AAA/AAA 10,000,000 3,867,500
-----------------------------------------------------------------------------------------------------------------
TX MPA CAP RRB, MBIA Insured, Zero Coupon,
5.98%, 9/1/16(4) Aaa/AAA/AAA 39,990,000 14,434,790
--------------
82,365,903
</TABLE>
14 OPPENHEIMER MUNICIPAL BOND FUND
<PAGE>
<TABLE>
<CAPTION>
RATINGS: MARKET
MOODY'S/ FACE VALUE
S&P/FITCH AMOUNT SEE NOTE 1
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
VERMONT--0.2%
VT HFA Home Mtg. Purchase RB, Series A, 7.85%, 12/1/29 A1/NR $ 1,330,000 $ 1,357,903
-----------------------------------------------------------------------------------------------------------------
VIRGINIA--4.1%
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 1,534,238
-----------------------------------------------------------------------------------------------------------------
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 1,607,872
-----------------------------------------------------------------------------------------------------------------
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 1,600,500
-----------------------------------------------------------------------------------------------------------------
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 1,529,478
-----------------------------------------------------------------------------------------------------------------
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 5,912,000
-----------------------------------------------------------------------------------------------------------------
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 5,797,835
-----------------------------------------------------------------------------------------------------------------
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 6,144,450
--------------
24,126,373
-----------------------------------------------------------------------------------------------------------------
WASHINGTON--3.3%
WA PP Supply System RRB, Nuclear Project No. 1,
5.40%, 7/1/12 Aa1/AA-/AA- 20,000,000 19,161,200
-----------------------------------------------------------------------------------------------------------------
WEST VIRGINIA--0.6%
WV Parkways ED & Tourism Authority RB, FGIC Insured,
Inverse Floater, 7.626%, 5/16/19(2) Aaa/AAA 3,600,000 3,316,500
-----------------------------------------------------------------------------------------------------------------
WISCONSIN--1.1%
WI Health & Educational FA RB, Sinai Samaritan Medical
Center, Inc., MBIA Insured, 5.75%, 8/15/16 Aaa/AAA 6,250,000 6,046,063
-----------------------------------------------------------------------------------------------------------------
WI Housing & EDAU Home Ownership RRB, Series A,
7.10%, 3/1/23 Aa2/AA 350,000 358,783
--------------
6,404,846
--------------
Total Municipal Bonds and Notes (Cost $599,495,218) 575,466,178
-----------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------
SHORT-TERM TAX-EXEMPT OBLIGATIONS--0.9%
FL BOE Public Education Capital Outlay Municipal Securities Trust Receipts,
Series SGA 67, 3.65%, 6/1/00(6) 500,000 500,000
-----------------------------------------------------------------------------------------------------------------
Harris Cnty., TX HFDC Hospital RRB, Methodist Hospital Project, 3.60%, 2/1/00(6) 4,800,000 4,800,000
---------------
Total Short-Term Tax-Exempt Obligations (Cost $5,300,000) 5,300,000
-----------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS, AT VALUE (COST $604,795,218) 99.2% 580,766,178
-----------------------------------------------------------------------------------------------------------------
OTHER ASSETS NET OF LIABILITIES 0.8 4,678,338
---------------------------------
NET ASSETS 100.0% $585,444,516
---------------------------------
---------------------------------
</TABLE>
15 OPPENHEIMER MUNICIPAL BOND FUND
<PAGE>
STATEMENT OF INVESTMENTS Unaudited / Continued
--------------------------------------------------------------------------------
FOOTNOTES TO STATEMENT OF INVESTMENTS
To simplify the listings of securities, abbreviations are used per the table
below:
<TABLE>
<S> <C>
AAAU Alliance Airport Authority, Inc. IDAU Industrial Development Authority
AB Airport Board ISD Independent School District
AIC Airport Improvement Corp. MEAU Municipal Electric Authority
BOE Board of Education MPA Municipal Power Agency
CAP Capital Appreciation NYC New York City
CD Commercial Development NYS New York State
CDD Community Development District PP Public Power
COP Certificates of Participation PPS Public Power System
DAU Development Authority RA Redevelopment Agency
ED Economic Development RB Revenue Bonds
EDAU Economic Development Authority RR Resource Recovery
EDFAU Economic Development Finance Authority RRB Revenue Refunding Bonds
FA Facilities Authority SCDAU Statewide Communities Development
FAU Finance Authority 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. WSS Water & Sewer System
</TABLE>
(1) Securities with an aggregate market value of $5,060,350 are held in
collateralized accounts to cover initial margin requirements on open futures
sales contracts. See Note 5 of Notes to Financial Statements. (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 $57,142,575 or 9.76% of the Fund's net assets as of January
31, 2000. (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 $26,158,774 or 4.47% of the Fund's net
assets as of January 31, 2000. (4) For zero coupon bonds, the interest rate
shown is the effective yield on the date of purchase. (5) Identifies issues
considered to be illiquid or restricted--See Note 6 of Notes to Financial
Statements. (6) Represents the current interest rate for a variable or
increasing rate security.
AS OF JANUARY 31, 2000, SECURITIES SUBJECT TO THE ALTERNATIVE MINIMUM TAX AMOUNT
TO $152,237,304 OR 26% OF THE FUND'S NET ASSETS.
See accompanying Notes to Financial Statements.
16 OPPENHEIMER MUNICIPAL BOND FUND
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES Unaudited
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
JANUARY 31, 2000
------------------------------------------------------------------------------------------
ASSETS
<S> <C>
Investments, at value (cost $604,795,218)--see accompanying statement $ 580,766,178
------------------------------------------------------------------------------------------
Cash 420,939
------------------------------------------------------------------------------------------
Receivables and other assets:
Interest 6,880,080
Shares of beneficial interest sold 821,033
Daily variation on futures contracts 639,063
Other 11,868
----------------
Total assets 589,539,161
------------------------------------------------------------------------------------------
LIABILITIES Payables and other liabilities:
Dividends 1,822,421
Shares of beneficial interest redeemed 1,749,066
Trustees' compensation 238,649
Distribution and service plan fees 132,431
Transfer and shareholder servicing agent fees 75,989
Other 76,089
----------------
Total liabilities 4,094,645
------------------------------------------------------------------------------------------
NET ASSETS $585,444,516
----------------
----------------
------------------------------------------------------------------------------------------
COMPOSITION OF NET ASSETS
Paid-in capital $609,314,103
------------------------------------------------------------------------------------------
Overdistributed net investment income (1,331,527)
------------------------------------------------------------------------------------------
Accumulated net realized gain on investment transactions 1,454,950
------------------------------------------------------------------------------------------
Net unrealized depreciation on investments (23,993,010)
----------------
Net assets $585,444,516
----------------
----------------
------------------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE
Class A Shares:
Net asset value and redemption price per share (based on net assets of
$502,921,568 and 54,970,822 shares of beneficial interest outstanding) $9.15
Maximum offering price per share (net asset value plus sales charge of
4.75% of offering price) $9.61
------------------------------------------------------------------------------------------
Class B Shares:
Net asset value, redemption price (excludes applicable contingent deferred sales
charge) and offering price per share (based on net assets of $68,796,736 and
7,535,681 shares of beneficial interest outstanding) $9.13
------------------------------------------------------------------------------------------
Class C Shares:
Net asset value, redemption price (excludes applicable contingent deferred sales
charge) and offering price per share (based on net assets of $13,726,212 and
1,503,728 shares of beneficial interest outstanding) $9.13 </TABLE>
See accompanying Notes to Financial Statements.
17 OPPENHEIMER MUNICIPAL BOND FUND
<PAGE>
STATEMENT OF OPERATIONS Unaudited
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED JANUARY 31, 2000
------------------------------------------------------------------------------------------
INVESTMENT INCOME
<S> <C>
Interest $ 20,269,666
------------------------------------------------------------------------------------------
EXPENSES
Management fees 1,695,084
------------------------------------------------------------------------------------------
Distribution and service plan fees:
Class A 630,865
Class B 400,149
Class C 83,785
------------------------------------------------------------------------------------------
Transfer and shareholder servicing agent fees 258,420
------------------------------------------------------------------------------------------
Custodian fees and expenses 64,540
------------------------------------------------------------------------------------------
Trustees' compensation 17,251
------------------------------------------------------------------------------------------
Other 102,913
---------------
Total expenses 3,253,007
Less expenses paid indirectly (18,422)
---------------
Net expenses 3,234,585
------------------------------------------------------------------------------------------
NET INVESTMENT INCOME 17,035,081
------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) Net realized gain (loss) on:
Investments (1,323,419)
Closing of futures contracts 4,386,672
---------------
Net realized gain 3,063,253
------------------------------------------------------------------------------------------
Net change in unrealized appreciation or depreciation on investments (57,254,999)
---------------
Net realized and unrealized loss (54,191,746)
------------------------------------------------------------------------------------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $(37,156,665)
---------------
---------------
</TABLE>
See accompanying Notes to Financial Statements.
18 OPPENHEIMER MUNICIPAL BOND FUND
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
6 MOS. YEAR
ENDED ENDED
JANUARY 31, 2000 JULY 31,
(UNAUDITED) 1999
------------------------------------------------------------------------------------------------------
OPERATIONS
<S> <C> <C>
Net investment income $ 17,035,081 $ 34,122,316
------------------------------------------------------------------------------------------------------
Net realized gain 3,063,253 4,034,994
------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation or depreciation (57,254,999) (21,131,992)
-----------------------------------
Net increase (decrease) in net assets resulting from operations (37,156,665) 17,025,318
------------------------------------------------------------------------------------------------------
DIVIDENDS AND/OR DISTRIBUTIONS TO SHAREHOLDERS Dividends from net investment
income:
Class A (14,631,057) (29,412,371)
Class B (1,812,116) (4,082,909)
Class C (380,745) (714,322)
------------------------------------------------------------------------------------------------------
Distributions from net realized gain:
Class A (3,065,371) --
Class B (436,022) --
Class C (87,540) --
------------------------------------------------------------------------------------------------------
BENEFICIAL INTEREST TRANSACTIONS
Net increase (decrease) in net assets resulting from
beneficial interest transactions:
Class A (16,860,522) 3,343,191
Class B (14,042,658) 748,967
Class C (3,399,185) 6,304,825
------------------------------------------------------------------------------------------------------
NET ASSETS
Total decrease (91,871,881) (6,787,301)
------------------------------------------------------------------------------------------------------
Beginning of period 677,316,397 684,103,698
-----------------------------------
End of period (including overdistributed net investment
income of $1,331,527 and $1,542,690, respectively) $585,444,516 $677,316,397
-----------------------------------
-----------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
19 OPPENHEIMER MUNICIPAL BOND FUND
<PAGE>
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
6 MOS. YEAR YEAR
ENDED ENDED ENDED
JAN. 31, 2000 JULY 31, DEC. 31,
CLASS A (UNAUDITED) 1999 1998 1997 1996(1) 1995
-----------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING DATA
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $10.02 $10.27 $10.24 $ 9.74 $ 9.98 $ 8.93
-----------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .27 .52 .51 .55 .32 .54
Net realized and unrealized gain (loss) (.82) (.25) .04 .49 (.25) 1.06
----------------------------------------------------------------------
Total income (loss) from
investment operations (.55) .27 .55 1.04 .07 1.60
-----------------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income (.26) (.52) (.52) (.54) (.31) (.54)
Dividends in excess of net investment income -- -- -- -- -- (.01)
Distributions from net realized gain (.06) -- -- -- -- --
----------------------------------------------------------------------
Total dividends and/or distributions
to shareholders (.32) (.52) (.52) (.54) (.31) (.55)
-----------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 9.15 $10.02 $10.27 $10.24 $ 9.74 $ 9.98
----------------------------------------------------------------------
----------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE(2) (5.64)% 2.57% 5.55% 10.97% 0.77% 18.28%
-----------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands) $502,922 $568,673 $579,570 $586,546 $590,299 $634,473
-----------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $540,048 $587,197 $581,630 $582,624 $606,509 $569,859
-----------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:(3)
Net investment income 5.44% 5.00% 5.00% 5.55% 5.58% 5.65%
Expenses 0.90% 0.87% 0.87%(4) 0.87%(4) 0.92%(4) 0.88%(4)
-----------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(5) 6% 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 has not been grossed up to reflect the effect of
expenses paid indirectly. (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 January 31, 2000, were $40,243,147
and $94,384,512, respectively.
See accompanying Notes to Financial Statements.
20 OPPENHEIMER MUNICIPAL BOND FUND
<PAGE>
<TABLE>
<CAPTION>
6 MOS. YEAR YEAR
ENDED ENDED ENDED
JAN. 31, 2000 JULY 31, DEC. 31,
CLASS B (UNAUDITED) 1999 1998 1997 1996(1) 1995
-----------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING DATA
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $10.00 $10.25 $10.22 $ 9.73 $9.96 $8.92
-----------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .22 .44 .43 .47 .27 .47
Net realized and unrealized gain (loss) (.81) (.25) .04 .48 (.23) 1.05
----------------------------------------------------------------------
Total income (loss) from
investment operations (.59) .19 .47 .95 .04 1.52
-----------------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income (.22) (.44) (.44) (.46) (.27) (.47)
Dividends in excess of net investment income -- -- -- -- -- (.01)
Distributions from net realized gain (.06) -- -- -- -- --
----------------------------------------------------------------------
Total dividends and/or distributions
to shareholders (.28) (.44) (.44) (.46) (.27) (.48)
-----------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 9.13 $10.00 $10.25 $10.22 $9.73 $9.96
----------------------------------------------------------------------
----------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE(2) (6.02)% 1.78% 4.75% 10.05% 0.43% 17.30%
-----------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands) $68,797 $90,022 $91,677 $83,897 $74,055 $72,488
-----------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $79,295 $96,352 $88,531 $77,881 $73,047 $63,669
-----------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:(3)
Net investment income 4.67% 4.22% 4.21% 4.76% 4.79% 4.84%
Expenses 1.67% 1.65% 1.65%(4) 1.65%(4) 1.70%(4) 1.68%(4)
-----------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(5) 6% 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 has not been grossed up to reflect the effect of
expenses paid indirectly. (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 January 31, 2000 were $40,243,147
and $94,384,512, respectively.
See accompanying Notes to Financial Statements.
21 OPPENHEIMER MUNICIPAL BOND FUND
<PAGE>
FINANCIAL HIGHLIGHTS Continued
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
6 MOS. YEAR YEAR
ENDED ENDED ENDED
JAN. 31, 2000 JULY 31, DEC. 31,
CLASS C (UNAUDITED) 1999 1998 1997 1996(1) 1995(6)
-----------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING DATA
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $10.00 $10.25 $10.22 $ 9.73 $9.96 $9.58
-----------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .22 .44 .43 .46 .27 .15
Net realized and unrealized gain (loss) (.81) (.25) .04 .49 (.23) .39
----------------------------------------------------------------------
Total income (loss) from
investment operations (.59) .19 .47 .95 .04 .54
-----------------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income (.22) (.44) (.44) (.46) (.27) (.15)
Dividends in excess of net investment income -- -- -- -- -- (.01)
Distributions from net realized gain (.06) -- -- -- -- --
----------------------------------------------------------------------
Total dividends and/or distributions
to shareholders (.28) (.44) (.44) (.46) (.27) (.16)
-----------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 9.13 $10.00 $10.25 $10.22 $9.73 $9.96
----------------------------------------------------------------------
----------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE(2) (6.02)% 1.78% 4.75% 10.03% 0.40% 5.64%
-----------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands) $13,726 $18,621 $12,857 $8,648 $4,210 $1,975
-----------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $16,601 $16,868 $10,655 $5,724 $3,105 $1,506
-----------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:(3)
Net investment income 4.68% 4.22% 4.30% 4.72% 4.72% 4.49%
Expenses 1.67% 1.65% 1.64%(4) 1.67%(4) 1.75%(4) 1.64%(4)
-----------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(5) 6% 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 has not been grossed up to reflect the effect of
expenses paid indirectly. (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 January 31, 2000, were $40,243,147
and $94,384,512, respectively. (6) For the period from August 29, 1995
(inception of offering) to December 31, 1995.
See accompanying Notes to Financial Statements.
22 OPPENHEIMER MUNICIPAL BOND FUND
<PAGE>
NOTES TO FINANCIAL STATEMENTS Unaudited
--------------------------------------------------------------------------------
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 at their offering price, which is normally net asset value plus an initial
sales charge. Class B and Class C shares are sold without an initial sales
charge but 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 shares 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. Securities for which quotations are readily available are
valued at the last sale price, or if in the absence of a sale, at the last sale
price on the prior trading day if it is within the spread of the closing bid and
asked prices, and if not, at the closing bid price. Securities (including
restricted securities) for which quotations are not readily available are valued
primarily using dealer-supplied valuations, a portfolio pricing service
authorized by the Board of Trustees, or at their fair value. Fair value is
determined in good faith under consistently applied procedures under the
supervision of the Board of Trustees. Short-term "money market type" debt
securities with remaining maturities of sixty days or less are valued at cost
(or last determined market value) and adjusted for amortization or accretion to
maturity of any premium or discount.
--------------------------------------------------------------------------------
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.
23 OPPENHEIMER MUNICIPAL BOND FUND
<PAGE>
NOTES TO FINANCIAL STATEMENTS Unaudited / Continued
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES Continued
TRUSTEES' COMPENSATION. The Fund has adopted an unfunded retirement plan for the
Fund's independent Board of Trustees. Benefits are based on years of service and
fees paid to each trustee during the years of service. During the six months
ended January 31, 2000, a provision of $2,871 was made for the Fund's projected
benefit obligations, resulting in an accumulated liability of $238,241 as of
January 31, 2000.
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 Board of Trustees in shares of one
or more Oppenheimer funds selected by the trustee. The amount paid to the Board
of Trustees 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 investment income per share.
--------------------------------------------------------------------------------
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 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.
24 OPPENHEIMER MUNICIPAL BOND FUND
<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>
6 MOS. ENDED JANUARY 31, 2000 YEAR ENDED JULY 31, 1999
SHARES AMOUNT SHARES AMOUNT
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CLASS A
Sold 7,871,270 $ 75,404,958 14,899,854 $ 154,002,934
Dividends and/or
distributions reinvested 1,221,925 11,722,427 1,840,869 19,006,893
Redeemed (10,863,634) (103,987,907) (16,420,114) (169,666,636)
------------------------------------------------------------------
Net increase (decrease) (1,770,439) $(16,860,522) 320,609 $ 3,343,191
------------------------------------------------------------------
------------------------------------------------------------------
---------------------------------------------------------------------------------------------------
CLASS B
Sold 887,101 $ 8,485,152 2,590,055 $ 26,762,743
Dividends and/or
distributions reinvested 147,981 1,416,735 246,696 2,542,377
Redeemed (2,500,873) (23,944,545) (2,778,452) (28,556,153)
------------------------------------------------------------------
Net increase (decrease) (1,465,791) $(14,042,658) 58,299 $ 748,967
------------------------------------------------------------------
------------------------------------------------------------------
---------------------------------------------------------------------------------------------------
CLASS C
Sold 214,609 $ 2,048,503 1,026,290 $ 10,616,838
Dividends and/or
distributions reinvested 34,096 326,484 49,362 508,501
Redeemed (607,168) (5,774,172) (467,899) (4,820,514)
------------------------------------------------------------------
Net increase (decrease) (358,463) $ (3,399,185) 607,753 $ 6,304,825
------------------------------------------------------------------
------------------------------------------------------------------
</TABLE>
--------------------------------------------------------------------------------
3. UNREALIZED GAINS AND LOSSES ON SECURITIES
As of January 31, 2000, net unrealized depreciation on securities of $24,029,040
was composed of gross appreciation of $10,997,948, and gross depreciation of
$35,026,988.
--------------------------------------------------------------------------------
4. 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 over $1
billion. The Fund's management fee for the six months ended January 31, 2000 was
0.53% of the average annual net assets of each class of shares, annualized for
periods of less than one full year.
--------------------------------------------------------------------------------
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.
25 OPPENHEIMER MUNICIPAL BOND FUND
<PAGE>
NOTES TO FINANCIAL STATEMENTS Unaudited / Continued
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
4. 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>
AGGREGATE CLASS A COMMISSIONS COMMISSIONS COMMISSIONS
FRONT-END FRONT-END ON CLASS A ON CLASS B ON CLASS C
SALES CHARGES SALES CHARGES SHARES SHARES SHARES
ON CLASS A RETAINED BY ADVANCED BY ADVANCED BY ADVANCED BY
6 MOS. ENDED SHARES DISTRIBUTOR DISTRIBUTOR(1) DISTRIBUTOR(1) DISTRIBUTOR(1)
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
January 31, 2000 $271,026 $72,029 $31,089 $198,721 $10,730
</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
SALES CHARGES SALES CHARGES SALES CHARGES
6 MOS. ENDED RETAINED BY DISTRIBUTOR RETAINED BY DISTRIBUTOR RETAINED BY DISTRIBUTOR
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
January 31, 2000 $4,218 $196,674 $7,784
</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 purchased. 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 six months ended January 31, 2000,
payments under the Class A plan totaled $630,865, all of which was paid by the
Distributor to recipients. That included $49,299 paid to an affiliate of the
Manager. 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.
26 OPPENHEIMER MUNICIPAL BOND FUND
<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 asset-based sales charges from the Fund under
the plans. If any 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 six months ended January 31,
2000, were as follows:
<TABLE>
<CAPTION>
DISTRIBUTOR'S DISTRIBUTOR'S
AGGREGATE UNREIMBURSED
UNREIMBURSED EXPENSES AS %
TOTAL PAYMENTS AMOUNT RETAINED EXPENSES OF NET ASSETS
UNDER PLAN BY DISTRIBUTOR UNDER PLAN OF CLASS
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class B Plan $400,149 $325,513 $2,045,781 2.97%
Class C Plan 83,785 24,455 195,906 1.43
--------------------------------------------------------------------------------------------------------
</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.
27 OPPENHEIMER MUNICIPAL BOND FUND
<PAGE>
NOTES TO FINANCIAL STATEMENTS Unaudited / 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 January 31, 2000, the Fund had outstanding futures contracts as follows:
<TABLE>
<CAPTION>
UNREALIZED
EXPIRATION NUMBER OF VALUATION AS OF APPRECIATION
CONTRACT DESCRIPTION DATE CONTRACTS JANUARY 31, 2000 (DEPRECIATION)
-------------------------------------------------------------------------------------------------------
CONTRACTS TO SELL
<S> <C> <C> <C> <C>
Municipal Bond 3/22/00 600 $55,331,250 $ (993,750)
U.S. Long Bond 3/22/00 350 31,740,625 1,029,780
----------------
$ 36,030
----------------
----------------
</TABLE>
--------------------------------------------------------------------------------
6. ILLIQUID OR RESTRICTED SECURITIES
As of January 31, 2000, 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 January 31, 2000 was $75,000, which
represents 0.01% 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 0.45%. 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 0.08%
per annum.
The Fund had no borrowings outstanding during the six months ended January
31, 2000.
28 OPPENHEIMER MUNICIPAL BOND FUND
<PAGE>
OPPENHEIMER MUNICIPAL BOND FUND
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
OFFICERS AND TRUSTEES Leon Levy, Chairman of the Board of Trustees
Donald W. Spiro, Vice Chairman of the Board of
Trustees
Bridget A. Macaskill, Trustee and President
Robert G. Galli, Trustee
Phillip A. Griffiths, Trustee
Benjamin Lipstein, Trustee
Elizabeth B. Moynihan, Trustee
Kenneth A. Randall, Trustee
Edward V. Regan, Trustee
Russell S. Reynolds, Jr., Trustee
Clayton K. Yeutter, Trustee
Robert E. Patterson, Vice President
Andrew J. Donohue, Secretary
Brian W. Wixted, Treasurer
Robert G. Zack, Assistant Secretary
Robert J. Bishop, Assistant Treasurer
Scott T. Farrar, Assistant Treasurer
--------------------------------------------------------------------------------
INVESTMENT ADVISOR OppenheimerFunds, Inc.
--------------------------------------------------------------------------------
DISTRIBUTOR OppenheimerFunds Distributor, Inc.
--------------------------------------------------------------------------------
TRANSFER AND SHAREHOLDER OppenheimerFunds Services
SERVICING AGENT
--------------------------------------------------------------------------------
CUSTODIAN OF Citibank, N.A.
PORTFOLIO SECURITIES
--------------------------------------------------------------------------------
INDEPENDENT AUDITORS KPMG LLP
--------------------------------------------------------------------------------
LEGAL COUNSEL Mayer, Brown & Platt
The financial statements included herein have been
taken from the records of the Fund without
examination of the independent auditors.
This is a copy of a report to shareholders of
Oppenheimer Municipal Bond Fund. This report must be
preceded or accompanied by a Prospectus of
Oppenheimer Municipal Bond Fund. For material
information concerning the Fund, see the Prospectus.
SHARES OF OPPENHEIMER FUNDS ARE NOT DEPOSITS OR
OBLIGATIONS OF ANY BANK, ARE NOT GUARANTEED BY ANY
BANK, ARE NOT INSURED BY THE FDIC OR ANY OTHER
AGENCY, AND INVOLVE INVESTMENT RISKS, INCLUDING THE
POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED.
29 OPPENHEIMER MUNICIPAL BOND FUND
<PAGE>
INFORMATION AND SERVICES
--------------------------------------------------------------------------------
As an Oppenheimer fund shareholder, you can benefit from special services
designed to make investing simple. Whether it's automatic investment plans,
timely market updates, or immediate account access, you can count on us whenever
you need assistance. So call us today, or visit our website--we're here to help.
--------------------------------------------------------------------------------
INTERNET
24-hr access to account information and transactions
www.oppenheimerfunds.com
--------------------------------------------------------------------------------
GENERAL INFORMATION
Mon-Fri 8:30am-9pm ET, Sat 10am-4pm ET
1.800.525.7048
--------------------------------------------------------------------------------
TELEPHONE TRANSACTIONS
Mon-Fri 8:30am-9pm ET, Sat 10am-4pm ET
1.800.852.8457
--------------------------------------------------------------------------------
PHONELINK
24-hr automated information and automated transactions
1.800.533.3310
--------------------------------------------------------------------------------
TELECOMMUNICATIONS DEVICE FOR THE DEAF (TDD)
Mon-Fri 8:30am-7pm ET
1.800.843.4461
--------------------------------------------------------------------------------
OPPENHEIMERFUNDS INFORMATION HOTLINE
24 hours a day, timely and insightful messages on the economy and issues that
may affect your investments
1.800.835.3104
--------------------------------------------------------------------------------
TRANSFER AND SHAREHOLDER SERVICING AGENT
OppenheimerFunds Services
P.O. Box 5270, Denver, CO 80217-5270
--------------------------------------------------------------------------------
[LOGO]OPPENHEIMERFUNDS-Registered Trademark-
Distributor, Inc.
RS0310.001.0100 March 31, 2000
<PAGE>
At a meeting held on February 29, 2000, the Board of Trustees of Oppenheimer
Municipal Fund on behalf of its series of Oppenheimer Insured Municipal Fund
approved a reorganization transaction that will, if approved by shareholders,
result in the transfer of the net assets of Oppenheimer Insured Municipal Fund
to Oppenheimer Municipal Bond Fund, in exchange for an equal value of shares of
Oppenheimer Municipal Bond Fund. The shares of Oppenheimer Municipal Bond Fund
will then be distributed to Oppenheimer Insured Municipal Fund shareholders and
Oppenheimer Insured Municipal Fund will be liquidated. The pro forma financial
statements reflect the (i) Combined Statement of Investments as of March 31,
2000; (ii) Combined Statements of Assets and Liabilities as of March 31, 2000;
and (iii) Combined Statements of Operations for the twelve-month period ended
March 31, 2000.
<TABLE>
<CAPTION>
Pro Forma Combining Statements of Assets and Liabilities March 31, 2000 (Unaudited)
Oppenheimer Municipal Bond Fund and Oppenheimer Insured Municipal Fund
Pro Forma
Combined
Oppenheimer Oppenheimer Oppenheimer
Municipal Bond Insured Municipal ProForma California
Fund Fund (1) Adjustments Municipal Fund
------------------------------------------------------------------------------
ASSETS:
<S> <C> <C> <C> <C>
Investments, at value (cost * ) $568,680,281 $120,737,813 $689,418,094
Cash 1,394,815 441,374 $1,942,092
Unrealized appreciation on forward foreign
Receivables:
Interest, dividends and principal paydowns 7,826,203 1,691,496 $9,517,699
Shares of beneficial interest or capital stock sold 120,109 75,056 $195,165
Investments sold - 26,114 $26,114
Other 66,645 14,140 $80,785
------------------------------------------------------------------------------
Total assets $578,088,053 $122,985,993 $701,074,046
------------------------------------------------------------------------------
LIABILITIES:
Payables and other liabilities:
Investments purchased - 3,957,313 3,957,313
Dividends 1,884,452 352,037 2,236,489
Shares of beneficial interest or capital stock
redeemed 94,838 122,725 217,563
Custodian fees 462 237 699
Trustees' and Directors' fees 236,432 1,589 238,021
Distributions and service plan fees 327,211 71,632 398,843
Daily variation on futures contracts 171,875 48,813 220,688
Transfer and shareholder servicing agent fees 79,080 17,758 96,838
Other 106,398 47,408 153,806
------------------------------------------------------------------------------
Total liabilities 2,900,748 4,619,512 7,520,260
------------------------------------------------------------------------------
NET ASSETS $575,187,305 $118,366,481 $693,553,786
==============================================================================
COMPOSITION OF NET ASSETS:
Paid-in capital 586,655,262 124,747,660 711,402,922
Par value of shares of capital stock - -
Additional paid-in capital - -
Undistributed net investment income (1,425,049) (157,797) (1,582,846)
Accumulated net realized loss from investments and
foreign currency transactions 785,342 (8,792,272) (8,006,930)
Net unrealized appreciation (depreciation)on
investments and translation of assets and liabilities
denominated in foreign currencies (10,828,250) 2,568,890 (8,259,360)
------------------------------------------------------------------------------
NET ASSETS $575,187,305 $118,366,481 - $693,553,786
==============================================================================
</TABLE>
<PAGE>
<TABLE>
Pro Forma Combining Statements of Assets and Liabilities March 31, 2000 (Unaudited)
Oppenheimer Municipal Bond Fund and Oppenheimer Insured Municipal Fund
Pro Forma
Combined
Oppenheimer Oppenheimer Oppenheimer
Municipal Bond Insured Municipal ProForma California
Fund Fund (1) Adjustments Municipal Fund
------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Asset Value Per Share
Class A Shares:
Net asset value and redemption price per share (based on net assets of
$499,512,113, $92,253,576 and $591,765,689 and 53,430,137, 5,772,200 and
63,296,830 shares of beneficial interest or capital shares outstanding for
Oppenheimer Municipal Bond Fund, Oppenheimer Insured Municipal Fund and Combined
Oppenheimer Municipal Bond Fund,
respectively) $9.35 $16.12 $9.35
Maximum offering price per share (net asset value
plus sales charge of 4.75% of offering price) $9.82 $16.92 $9.82
Class B Shares:
Net asset value and redemption price per share (based on net assets of
$63,714,846, $21,874,843 and $85,589,689 and 6,829,894, 1,356,038 and 9,174,465
shares of beneficial interest or capital shares outstanding for Oppenheimer
Municipal Bond Fund, Oppenheimer Insured Municipal Fund and Combined Oppenheimer
Municipal Bond Fund,
respectively) $9.33 $16.13 $9.98
Class C Shares:
Net asset value and redemption price per share (based on net assets of
$11,960,346, $4,238,061 and $16,198,407 and 1,282,255, 262,924 and 1,736,495
shares of beneficial interest or capital shares outstanding for Oppenheimer
Municipal Bond Fund, Oppenheimer Insured Municipal Fund and Combined Oppenheimer
Municipal Bond Fund,
respectively) $9.33 $16.12 $9.96
*Cost $578,367,906 $117,840,298 $696,208,204
</TABLE>
(1) Oppenheimer Insured Municipal Fund Class A shares will be exchanged for
Oppenheimer Municipal Bond Fund Class A shares.
Oppenheimer Insured Municipal Fund Class B shares will be exchanged for
Oppenheimer Municipal Bond Fund Class B shares.
Oppenheimer Insured Municipal Fund Class C shares will be exchanged for
Oppenheimer Municipal Bond Fund Class C shares.
<PAGE>
<TABLE>
<CAPTION>
Pro Forma Combining Statements of Operations For The Twelve Months Ended March 31, 2000 (Unaudited)
Oppenheimer Municipal Bond Fund and Oppenheimer Insured Municipal Fund
Pro Forma
Combined
Oppenheimer Oppenheimer Oppenheimer
Municipal Bond Insured Municipal ProForma California
Fund Fund Adjustments Municipal Fund
------------------------------------------------------------------------------
INVESTMENT INCOME:
<S> <C> <C> <C> <C>
Interest $40,324,172 $7,730,925 $48,055,097
Dividends - - -
------------------------------------------------------------------------------
Total income 40,324,172 7,730,925 48,055,097
------------------------------------------------------------------------------
EXPENSES:
Management fees 3,413,777 570,540 3,984,317
Distribution and service plan fees:
Class A 1,221,353 235,068 1,456,421
Class B 824,057 262,467 1,086,524
Class C 166,432 53,985 220,417
Transfer and shareholder servicing agent fees 491,679 107,734 599,413
Custodian fees and expenses 96,424 13,757 110,181
Legal and auditing fees 45,111 27,859 (27,859)(1) 45,111
Insurance expenses 6,061 2,627 8,688
Shareholder reports 164,837 88,500 (54,052)(2) 199,285
Trustees' or Directors' fees and expenses 45,740 5,256 50,996
Registration and filing fees: - 48,492 48,492
Class A - - -
Class B - - -
Class C - - -
Other 18,410 10,098 28,508
------------------------------------------------------------------------------
Total expenses 6,493,881 1,426,383 (81,911) 7,838,353
------------------------------------------------------------------------------
NET INVESTMENT INCOME 33,830,291 6,304,542 81,911 40,216,744
------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) from:
Investments (907,070) (10,077,278) (10,984,348)
Closing of futures contracts 2,658,407 241,802 2,900,209
Closing and expiration of options written - - -
Foreign currency transactions - - -
------------------------------------------------------------------------------
Net realized loss 1,751,337 (9,835,476) - (8,084,139)
------------------------------------------------------------------------------
Net change in unrealized appreciation or depreciation on:
investments (67,398,676) (4,293,931) (71,692,607)
Translation of assets and liabilities denominated in
foreign currencies - - -
------------------------------------------------------------------------------
Net change (67,398,676) (4,293,931) (71,692,607)
------------------------------------------------------------------------------
Net realized and unrealized loss (65,647,339) (14,129,407) - (79,776,746)
------------------------------------------------------------------------------
NET DECREASE IN NET ASSETS
RESULTING FROM OPERATIONS ($31,817,048) ($7,824,865) $81,911 ($39,560,002)
==============================================================================
</TABLE>
(1) Reflects elimination of duplicate legal and auditing fees. (2) Reflects
elimination of printing fee.
<PAGE>
-------------------------------------------------------------------------------
PROFORMA COMBINING STATEMENT OF INVESTMENTS March 31, 2000 (Unaudited)
Oppenheimer Municipal Bond Fund and Oppenheimer Insured Municipal Fund
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT MARKET VALUE
------------------------------------- -----------------------------------------
OPPENHEIMER OPPENHEIMER
RATINGS: OPPENHEIMER INSURED OPPENHEIMER INSURED
MOODY'S/ MUNICIPAL MUNICIPAL COMBINED MUNICIPAL MUNICIPAL COMBINED
S&P/FITCH BOND FUND FUND PROFORMA BOND FUND FUND PROFORMA
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
MUNICIPAL BONDS AND
NOTES - 99.4%
-----------------------------------------------------------------------------------------------------------------------------------
ALASKA - 0.9%
-----------------------------------------------------------------------------------------------------------------------------------
AK Export & IDAU RB,
Snettisham Hydroelectric
Power, First Series, AMBAC
Insured, 5.50%, 1/1/16 NR /AAA /AAA $ -- $ 1,145,000 $ 1,145,000 $ -- $ 1,111,451 $ 1,111,451
-----------------------------------------------------------------------------------------------------------------------------------
AK Export & IDAU RB,
Snettisham Hydroelectric
Power, First Series, AMBAC
Insured, 5.50%, 1/1/17 NR /AAA /AAA -- 1,265,000 1,265,000 -- 1,219,966 1,219,966
-----------------------------------------------------------------------------------------------------------------------------------
Anchorage, AK Water
RRB, AMBAC Insured,
5.625%, 9/1/13 Aaa /AAA /AAA -- 1,000,000 1,000,000 -- 1,022,090 1,022,090
-----------------------------------------------------------------------------------------------------------------------------------
Anchorage, AK Water
RRB, AMBAC Insured, 6%,
9/1/19 Aaa /AAA /AAA -- 1,000,000 1,000,000 -- 1,024,450 1,024,450
-----------------------------------------------------------------------------------------------------------------------------------
Anchorage, AK Water RRB,
AMBAC Insured, 6%, 9/1/24 Aaa /AAA /AAA -- 1,500,000 1,500,000 -- 1,519,035 1,519,035
-----------------------------------------
-- 5,896,992 5,896,992
-----------------------------------------------------------------------------------------------------------------------------------
ARIZONA - 1.2%
-----------------------------------------------------------------------------------------------------------------------------------
AZ Educational LMC RRB,
Series B, 7%, 3/1/05 Aa2 /NR -- 1,090,000 1,090,000 -- 1,134,058 1,134,058
-----------------------------------------------------------------------------------------------------------------------------------
Central AZ Irrigation
& Drainage District GORB,
Series A, 6%, 6/1/13 NR /NR 1,080,950 -- 1,080,950 940,751 -- 940,751
-----------------------------------------------------------------------------------------------------------------------------------
Peoria, AZ IDAU RRB,
Sierra Winds Life, Series
A, 6.375%, 8/15/29 NR /NR 5,000,000 -- 5,000,000 4,338,350 -- 4,338,350
-----------------------------------------------------------------------------------------------------------------------------------
University of AZ COP,
University Parking and
Student Housing, AMBAC
Insured, 5.75%, 6/1/19 Aaa /AAA -- 2,000,000 2,000,000 -- 2,020,400 2,020,400
-----------------------------------------
5,279,101 3,154,458 8,433,559
-----------------------------------------------------------------------------------------------------------------------------------
CALIFORNIA - 8.9%
-----------------------------------------------------------------------------------------------------------------------------------
CA Foothill/Eastern Corridor
Agency Toll Road RB, Sr. Lien,
Prerefunded, Series A,
6.50%, 1/1/32 Aaa /AAA /BBB 3,000,000 -- 3,000,000 3,317,190 -- 3,317,190
-----------------------------------------------------------------------------------------------------------------------------------
CA HFA RB, Series C, 6.65%,
8/1/14 Aa2 /AA- 5,000,000 -- 5,000,000 5,094,900 -- 5,094,900
-----------------------------------------------------------------------------------------------------------------------------------
CA HFA SFM RB, Series C,
6.75%, 2/1/25 Aa2 /AA- 4,775,000 -- 4,775,000 4,865,295 -- 4,865,295
-----------------------------------------------------------------------------------------------------------------------------------
CA SCDAU Revenue Refunding
COP, Cedars-Sinai Medical
Center, MBIA Insured,
6.50%, 8/1/12 Aaa /AAA -- 1,000,000 1,000,000 -- 1,100,970 1,100,970
-----------------------------------------------------------------------------------------------------------------------------------
CA SCDAU Revenue Refunding COP,
Inverse Floater, 7.068%,
11/1/15 (1) A1 /NR 1,500,000 -- 1,500,000 1,479,375 -- 1,479,375
-----------------------------------------------------------------------------------------------------------------------------------
Industry, CA UDA TXAL Bonds,
Transportation Distribution
Project No. 3, 6.90%, 11/1/07 NR /A- 500,000 -- 500,000 527,840 -- 527,840
-----------------------------------------------------------------------------------------------------------------------------------
Los Angeles, CA Regional AIC
Lease RRB, 5.65%, 8/1/17 Ba2 /BB 4,600,000 -- 4,600,000 4,082,776 -- 4,082,776
-----------------------------------------------------------------------------------------------------------------------------------
Los Angeles, CA Regional AIC
Lease RRB, Facilities Sublease-
International Airport Project,
6.35%, 11/1/25 Baa3/BBB- 8,930,000 -- 8,930,000 8,549,314 -- 8,549,314
-----------------------------------------------------------------------------------------------------------------------------------
Palmdale, CA Community RA SFM
RRB, Escrowed to Maturity,
Series A, 8%, 3/1/16 Aaa /NR /A+ 5,000,000 -- 5,000,000 6,298,700 -- 6,298,700
-----------------------------------------------------------------------------------------------------------------------------------
Perris, CA SFM RB, Escrowed
to Maturity, Series A, 8.30%,
6/1/13 Aaa /AAA 7,000,000 -- 7,000,000 8,935,220 -- 8,935,220
-----------------------------------------------------------------------------------------------------------------------------------
Pomona, CA SFM RRB, Escrowed
to Maturity, Series A,
7.60%, 5/1/23 Aaa /AAA 6,000,000 -- 6,000,000 7,290,540 -- 7,290,540
-----------------------------------------------------------------------------------------------------------------------------------
Pomona, CA USD GORB,
Series A, MBIA Insured,
6.15%, 8/1/15 Aaa /AAA -- 1,000,000 1,000,000 -- 1,089,460 1,089,460
-----------------------------------------------------------------------------------------------------------------------------------
Redding, CA Electric System
Revenue COP, FGIC Insured,
Inverse Floater, 7.028%,
6/1/19 (1) Aaa /AAA /AAA 6,000,000 -- 6,000,000 5,902,500 -- 5,902,500
-----------------------------------------------------------------------------------------------------------------------------------
Redding, CA Electric System
Revenue COP, MBIA Insured,
Inverse Floater, 8.548%,
7/8/22 (1) Aaa /AAA -- 1,500,000 1,500,000 -- 1,708,125 1,708,125
-----------------------------------------------------------------------------------------------------------------------------------
Sacramento, CA MUD Electric
RRB, Series G, MBIA
Insured, 6.50%, 9/1/13 Aaa /AAA /A -- 1,000,000 1,000,000 -- 1,145,820 1,145,820
-----------------------------------------
56,343,650 5,044,375 61,388,025
-----------------------------------------------------------------------------------------------------------------------------------
COLORADO - 1.6%
-----------------------------------------------------------------------------------------------------------------------------------
Broomfield, CO COP,
5.75%, 12/1/24 Aaa /AAA -- 1,250,000 1,250,000 -- 1,254,950 1,254,950
-----------------------------------------------------------------------------------------------------------------------------------
CO HFA RRB, Single Family
Program, Series B-2, 7.10%,
4/1/17 Aa2 /AA -- 1,000,000 1,000,000 -- 1,089,660 1,089,660
-----------------------------------------------------------------------------------------------------------------------------------
CO HFAU RB, Rocky Mountain
Adventist Health System,
6.625%, 2/1/22 Ba1 /BB 5,000,000 -- 5,000,000 4,213,900 -- 4,213,900
-----------------------------------------------------------------------------------------------------------------------------------
CO Housing FAU SFM RB, Sr.
Lien, Series C-2, 6.875%,
11/1/28 Aa2 /NR -- 2,000,000 2,000,000 -- 2,106,180 2,106,180
-----------------------------------------------------------------------------------------------------------------------------------
CO Resource & Power DA
Small Water Resource RB,
Series A, FGIC Insured,
5.80%, 11/1/20 Aaa /AAA /AAA -- 1,000,000 1,000,000 -- 1,009,790 1,009,790
-----------------------------------------------------------------------------------------------------------------------------------
Douglas & Elbert Cntys., CO
SDI No. RE-1, Improvement
GOB, Series A, MBIA Insured,
8%, 12/15/09 Aaa /AAA -- 1,000,000 1,000,000 -- 1,223,600 1,223,600
-----------------------------------------
4,213,900 6,684,180 10,898,080
-----------------------------------------------------------------------------------------------------------------------------------
CONNECTICUT - 4.1%
-----------------------------------------------------------------------------------------------------------------------------------
CT Housing FAU RB, Series A,
Subseries A-2, 6.20%, 11/15/22 Aa2 /AA -- 830,000 830,000 -- 841,545 841,545
-----------------------------------------------------------------------------------------------------------------------------------
CT Housing FAU RRB, Series A,
Subseries D-2, 6.20%, 11/15/27 Aa2 /AA -- 945,000 945,000 -- 957,115 957,115
-----------------------------------------------------------------------------------------------------------------------------------
Mashantucket, CT Western Pequot
Tribe Special RB, Prerefunded,
Series A, 6.40%, 9/1/11 (2) Aaa /AAA 7,435,000 -- 7,435,000 8,156,046 -- 8,156,046
-----------------------------------------------------------------------------------------------------------------------------------
Mashantucket, CT Western
Pequot Tribe Special RB,
Unrefunded Balance, Series A,
6.40%, 9/1/11 (2) NR /BBB- 7,565,000 -- 7,565,000 7,863,439 -- 7,863,439
-----------------------------------------------------------------------------------------------------------------------------------
Mashantucket, CT Western Pequot
Tribe Special RRB, Sub. Lien,
Series B, 5.75%, 9/1/27 (2) Baa3/NR 11,900,000 -- 11,900,000 10,838,639 -- 10,838,639
-----------------------------------------
26,858,124 1,798,660 28,656,784
-----------------------------------------------------------------------------------------------------------------------------------
FLORIDA - 3.1%
-----------------------------------------------------------------------------------------------------------------------------------
Dade Cnty., FL IDAU RB, Miami
Cerebral Palsy Services Project,
8%, 6/1/22 NR /NR 2,755,000 -- 2,755,000 2,893,191 -- 2,893,191
-----------------------------------------------------------------------------------------------------------------------------------
FL BOE Capital Outlay GORB,
8.40%, 6/1/07 Aa2 /AA+ 750,000 -- 750,000 881,040 -- 881,040
-----------------------------------------------------------------------------------------------------------------------------------
FL HFA RB, Riverfront Apts.,
Series A, AMBAC Insured,
6.25%, 4/1/37 Aaa /AAA 40,000 -- 40,000 40,000 -- 40,000
-----------------------------------------------------------------------------------------------------------------------------------
FL HFA MH RRB, Series C,
6%, 8/1/11 NR /AAA -- 1,000,000 1,000,000 1,025,590 1,025,590
-----------------------------------------------------------------------------------------------------------------------------------
FL HFA SFM RRB, Series A,
6.35%, 7/1/14 Aaa /AAA 630,000 -- 630,000 641,277 -- 641,277
-----------------------------------------------------------------------------------------------------------------------------------
Grand Haven, FL CDD SPAST
RB, Series A, 6.30%, 5/1/02 NR /NR 1,103,000 -- 1,103,000 1,104,732 -- 1,104,732
-----------------------------------------------------------------------------------------------------------------------------------
Heritage Springs, FL CDD
Capital Improvement RB,
Series B, 6.25%, 5/1/05 NR /NR 2,410,000 -- 2,410,000 2,387,683 -- 2,387,683
-----------------------------------------------------------------------------------------------------------------------------------
Lee Cnty., FL Housing FAU SFM
RB, Series A-2, 6.85%, 3/1/29 Aaa /NR 1,585,000 -- 1,585,000 1,698,787 -- 1,698,787
-----------------------------------------------------------------------------------------------------------------------------------
Lee Cnty., FL Hospital Board
of Directors RRB, MBIA Insured,
Inverse Floater, 8.887%,
3/26/20 (1) Aaa /AAA -- 1,000,000 1,000,000 -- 1,060,000 1,060,000
-----------------------------------------------------------------------------------------------------------------------------------
Lee Cnty., FL IDAU HCF RRB,
Shell Point Village Project,
Series A, 5.50%, 11/15/21 NR /BBB- 2,000,000 -- 2,000,000 1,566,500 -- 1,566,500
-----------------------------------------------------------------------------------------------------------------------------------
Lee Cnty., FL IDAU HCF RRB,
Shell Point Village Project,
Series A, 5.50%, 11/15/29 NR /BBB- 2,250,000 -- 2,250,000 1,692,112 -- 1,692,112
-----------------------------------------------------------------------------------------------------------------------------------
Miami-Dade Cnty., FL SPO RB,
Sub. Lien, Series B, MBIA
Insured, Zero Coupon, 5.452%,
10/1/29 (3) Aaa /AAA /AAA 25,895,000 -- 25,895,000 4,281,220 -- 4,281,220
-----------------------------------------------------------------------------------------------------------------------------------
Palm Beach Cnty., FL HFAU
RB, Retirement Community,
5.125%, 11/15/29 NR /A- 3,130,000 -- 3,130,000 2,411,665 -- 2,411,665
-----------------------------------------
19,598,207 2,085,590 21,683,797
-----------------------------------------------------------------------------------------------------------------------------------
HAWAII - 0.1%
-----------------------------------------------------------------------------------------------------------------------------------
Hawaii Budget & Finance
Department Special Purpose
RRB, Series D, AMBAC Insured,
Prerefunded, 6.15%, 1/1/20 Aaa /AAA -- 1,000,000 1,000,000 -- 1,019,490 1,019,490
-----------------------------------------------------------------------------------------------------------------------------------
GEORGIA - 3.5%
-----------------------------------------------------------------------------------------------------------------------------------
GA MEAU RRB, Project One,
Series X, MBIA Insured,
6.50%, 1/1/12 Aaa /AAA 500,000 -- 500,000 558,670 -- 558,670
-----------------------------------------------------------------------------------------------------------------------------------
GA MEAU SPO Refunding
Bonds, Series Y, MBIA Insured,
6.50%, 1/1/17 Aaa /AAA 11,750,000 -- 11,750,000 13,127,217 -- 13,127,217
-----------------------------------------------------------------------------------------------------------------------------------
Rockdale Cnty., GA DAU
SWD RB, Visy Paper Inc.
Project, 7.40%, 1/1/16 NR /NR 4,480,000 -- 4,480,000 4,573,542 -- 4,573,542
-----------------------------------------------------------------------------------------------------------------------------------
Savannah, GA EDAU RB,
College of Art & Design
Project, 6.90%, 10/1/29 NR /BBB- 5,880,000 -- 5,880,000 5,898,992 -- 5,898,992
-----------------------------------------
24,158,421 -- 24,158,421
-----------------------------------------------------------------------------------------------------------------------------------
ILLINOIS - 3.9%
-----------------------------------------------------------------------------------------------------------------------------------
Chicago, IL SFM RB, Series
B, 6.95%, 9/1/28 Aaa /NR -- 1,830,000 1,830,000 -- 1,924,812 1,924,812
-----------------------------------------------------------------------------------------------------------------------------------
Chicago. IL GOUN, Series
A, FGIC Insured, 6.75%, 1/1/35 Aaa /AAA /AAA -- 2,000,000 2,000,000 -- 2,179,660 2,179,660
-----------------------------------------------------------------------------------------------------------------------------------
Cook Cnty., IL Community
College District No. 508
Chicago COP, FGIC Insured,
8.75%, 1/1/05 Aaa /AAA /AAA -- 500,000 500,000 -- 577,315 577,315
-----------------------------------------------------------------------------------------------------------------------------------
Cook Cnty., IL Community
College District No. 508 Lease
COP, Series C, MBIA Insured,
7.70%, 12/1/07 Aaa /AAA -- 1,500,000 1,500,000 -- 1,745,910 1,745,910
-----------------------------------------------------------------------------------------------------------------------------------
Cook Cnty., IL RB, FGIC
Insured, 5.50%, 11/15/22 Aaa /AAA /AAA -- 6,000,000 6,000,000 -- 5,698,380 5,698,380
-----------------------------------------------------------------------------------------------------------------------------------
Cook Cnty., IL SDI No. 99
Cicero GOB, FGIC Insured,
8.50%, 12/1/05 Aaa /NR -- 1,170,000 1,170,000 -- 1,366,958 1,366,958
-----------------------------------------------------------------------------------------------------------------------------------
IL HFAU RB, Hinsdale Hospital
Project, Escrowed to Maturity,
Series C, 9.50%, 11/15/19 NR /AAA 820,000 -- 820,000 864,034 -- 864,034
-----------------------------------------------------------------------------------------------------------------------------------
IL Regional Transportation
Authority RB, AMBAC Insured,
7.20%, 11/1/20 Aaa /AAA /AAA 7,500,000 -- 7,500,000 8,864,700 -- 8,864,700
-----------------------------------------------------------------------------------------------------------------------------------
Metropolitan Pier & Exposition
Authority RB, IL Hospitality
Facilities, McCormick Plaza
Convention Center, Escrowed to
Maturity, 7%, 7/1/26 A /AAA /AAA -- 3,000,000 3,000,000 -- 3,474,300 3,474,300
----------------------------------------------------------
9,728,734 16,967,335 26,696,069
-----------------------------------------------------------------------------------------------------------------------------------
INDIANA - 4.3%
-----------------------------------------------------------------------------------------------------------------------------------
Hamilton Southeastern, IN
Consolidated School Building
Corp. RRB, First Mtg., AMBAC
Insured, 7%, 7/1/11 Aaa /AAA /AAA -- 500,000 500,000 -- 519,005 519,005
-----------------------------------------------------------------------------------------------------------------------------------
IN Office Building
Commission Capital Complex
RB, Series B, MBIA Insured,
7.40%, 7/1/15 Aaa /AAA -- 2,500,000 2,500,000 -- 3,008,075 3,008,075
-----------------------------------------------------------------------------------------------------------------------------------
Indianapolis, IN Airport
Authority RB, SPF Federal
Express Corp. Project,
7.10%, 1/15/17 Baa2/BBB 15,500,000 -- 15,500,000 16,117,365 -- 16,117,365
-----------------------------------------------------------------------------------------------------------------------------------
Indianapolis, IN Airport
Authority RB, SPF United
Airlines Project, Series A,
6.50%, 11/15/31 Baa2/BB+ 10,500,000 -- 10,500,000 10,251,465 -- 10,251,465
-----------------------------------------
26,368,830 3,527,080 29,895,910
-----------------------------------------------------------------------------------------------------------------------------------
KENTUCKY - 0.4%
-----------------------------------------------------------------------------------------------------------------------------------
Kenton Cnty., KY AB RB,
SPF Delta Airlines Project,
Series A, 6.125%, 2/1/22 Baa3/BBB- 2,790,000 -- 2,790,000 2,649,886 -- 2,649,886
-----------------------------------------------------------------------------------------------------------------------------------
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 -- 9,500,000 10,274,820 -- 10,274,820
-----------------------------------------------------------------------------------------------------------------------------------
MASSACHUSETTS - 2.4%
-----------------------------------------------------------------------------------------------------------------------------------
MA GOB, Unrefunded Balance,
Series B, MBIA Insured,
6.50%, 8/1/11 Aaa /AAA /AAA 430,000 -- 430,000 447,832 -- 447,832
-----------------------------------------------------------------------------------------------------------------------------------
MA Health & Educational FA
RB, Mt. Auburn Hospital
Issue, Series B-1, MBIA
Insured, 6.25%, 8/15/14 Aaa /AAA -- 1,000,000 1,000,000 -- 1,047,160 1,047,160
-----------------------------------------------------------------------------------------------------------------------------------
MA HFA RB, Series A, AMBAC
Insured, 6.60%, 7/1/14 Aaa /AAA /AAA -- 1,750,000 1,750,000 -- 1,813,980 1,813,980
-----------------------------------------------------------------------------------------------------------------------------------
MA Water Resource Authority
RB, Series A, 6.50%, 7/15/19 A1 /A+ /A+ 12,225,000 -- 12,225,000 13,596,034 -- 13,596,034
---------- -------------- ---------------
14,043,866 2,861,140 16,905,006
-----------------------------------------------------------------------------------------------------------------------------------
MICHIGAN - 8.0%
-----------------------------------------------------------------------------------------------------------------------------------
Central Montcalm, MI Public
Schools RB, MBIA Insured,
5.75%, 5/1/24 Aaa /AAA -- 750,000 750,000 -- 748,500 748,500
-----------------------------------------------------------------------------------------------------------------------------------
Detroit, MI GOB, Series B,
MBIA Insured, 6%, 4/1/17 Aaa /AAA -- 3,035,000 3,035,000 -- 3,149,450 3,149,450
-----------------------------------------------------------------------------------------------------------------------------------
Detroit, MI GORB, Series B,
6.25%, 4/1/09 Baa1/BBB+/A- 4,065,000 -- 4,065,000 4,253,047 -- 4,253,047
-----------------------------------------------------------------------------------------------------------------------------------
Detroit, MI GORB, Series B,
6.375%, 4/1/06 Baa1/BBB+/A- 2,000,000 -- 2,000,000 2,106,060 -- 2,106,060
-----------------------------------------------------------------------------------------------------------------------------------
Detroit, MI GORB, Series B,
6.375%, 4/1/07 Baa1/BBB+/A- 500,000 -- 500,000 525,840 -- 525,840
-----------------------------------------------------------------------------------------------------------------------------------
Detroit, MI Sewage Disposal
RB, Prerefunded, FGIC
Insured, Inverse Floater,
7.314%, 7/1/23 (1) Aaa /AAA 10,100,000 -- 10,100,000 10,718,625 -- 10,718,625
-----------------------------------------------------------------------------------------------------------------------------------
Detroit, MI Sewage Disposal
RRB, Unrefunded Balance,
FGIC Insured, Inverse
Floater, 7.314%, 7/1/23 (1) Aaa /AAA /AAA 3,100,000 -- 3,100,000 2,879,125 -- 2,879,125
-----------------------------------------------------------------------------------------------------------------------------------
Detroit, MI Water Supply
System RB, Prerefunded,
FGIC Insured, Inverse
Floater, 8.664%, 7/1/22 (1) Aaa /AAA /AAA 3,700,000 -- 3,700,000 4,051,500 -- 4,051,500
-----------------------------------------------------------------------------------------------------------------------------------
Detroit, MI Water Supply
System RB, Unrefunded
Balance, FGIC Insured,
Inverse Floater, 8.664%,
7/1/22 (1) Aaa /AAA 1,500,000 -- 1,500,000 1,569,375 -- 1,569,375
-----------------------------------------------------------------------------------------------------------------------------------
Howell, MI Public Schools RB,
MBIA Insured, 5.875%, 5/1/19 Aaa /AAA -- 1,850,000 1,850,000 -- 1,877,177 1,877,177
-----------------------------------------------------------------------------------------------------------------------------------
MI Building Authority RRB,
Series I, MBIA-IBC Insured,
6.25%, 10/1/20 Aaa /AAA /AA -- 2,815,000 2,815,000 -- 2,878,619 2,878,619
-----------------------------------------------------------------------------------------------------------------------------------
MI Hospital FAU RRB, FSA
Insured, Inverse Floater,
8.564%, 2/15/22 (1) Aaa /AAA /AAA 5,000,000 -- 5,000,000 5,100,000 -- 5,100,000
-----------------------------------------------------------------------------------------------------------------------------------
MI Strategic Fund SWD RRB,
Genesee Power Station Project,
7.50%, 1/1/21 NR /NR 3,650,000 -- 3,650,000 3,759,573 -- 3,759,573
-----------------------------------------------------------------------------------------------------------------------------------
Romulus, MI Community Schools
RB, 5.75%, 5/1/25 Aaa /AAA 1,400,000 1,400,000 -- 1,395,310 1,395,310
-----------------------------------------------------------------------------------------------------------------------------------
Wayne Cnty., MI SPF Airport
RRB, Northwest Airlines, Inc.,
Series 1995, 6.75%, 12/1/15 NR /NR 10,450,000 -- 10,450,000 10,451,777 -- 10,451,777
-----------------------------------------
45,414,922 10,049,056 55,463,978
-----------------------------------------------------------------------------------------------------------------------------------
NEVADA - 0.8%
-----------------------------------------------------------------------------------------------------------------------------------
Clark Cnty., NV Passenger
Facility Charge RB, Las Vegas
McCarran International Airport
Project, Series B, MBIA
Insured, 6.50%, 7/1/12 Aaa /AAA -- 2,000,000 2,000,000 -- 2,091,920 2,091,920
-----------------------------------------------------------------------------------------------------------------------------------
Wahoe Cnty., NV SD RB, FSA
Insured, 5.875%, 6/1/20 Aaa /AAA /AAA -- 3,175,000 3,175,000 -- 3,207,353 3,207,353
-----------------------------------------
-- 5,299,273 5,299,273
-----------------------------------------------------------------------------------------------------------------------------------
NEW HAMPSHIRE - 0.2%
-----------------------------------------------------------------------------------------------------------------------------------
NH Housing FAU SFM RB,
Series C, 6.90%, 7/1/19 Aa2 /NR 855,000 -- 855,000 873,536 -- 873,536
-----------------------------------------------------------------------------------------------------------------------------------
NH Turnpike System RRB,
Series A, FGIC Insured,
6.75%, 11/1/11 Aaa /AAA /AAA -- 500,000 500,000 -- 550,580 550,580
-----------------------------------------
873,536 550,580 1,424,116
-----------------------------------------------------------------------------------------------------------------------------------
NEW JERSEY - 5.5%
-----------------------------------------------------------------------------------------------------------------------------------
NJ EDAU RRB, First Mtg.
Franciscan Oaks Project,
5.75%, 10/1/23 NR /NR 2,255,000 -- 2,255,000 1,830,541 -- 1,830,541
-----------------------------------------------------------------------------------------------------------------------------------
NJ EDAU RRB, First Mtg.
Keswick Pines, 5.70%,
1/1/18 NR /NR 1,000,000 -- 1,000,000 824,400 -- 824,400
-----------------------------------------------------------------------------------------------------------------------------------
NJ EDAU RRB, First Mtg.
Keswick Pines, 5.75%, 1/1/24 NR /NR 1,125,000 -- 1,125,000 902,250 -- 902,250
-----------------------------------------------------------------------------------------------------------------------------------
NJ EDAU SPF RB, Continental
Airlines, Inc. Project,
6.25%, 9/15/29 Ba2 /BB 13,000,000 -- 13,000,000 11,971,310 -- 11,971,310
-----------------------------------------------------------------------------------------------------------------------------------
NJ Transportation COP,
Series 15, AMBAC Insured,
8.04%, 9/15/15 (4) NR /AAA -- 3,250,000 3,250,000 -- 3,595,280 3,595,280
-----------------------------------------------------------------------------------------------------------------------------------
NJ TUAU RRB, Series C,
6.50%, 1/1/16 A3 /A- /A- 16,150,000 -- 16,150,000 17,757,894 -- 17,757,894
-----------------------------------------------------------------------------------------------------------------------------------
NJ TUAU RRB, Series C,
MBIA Insured, 6.50%, 1/1/16 Aaa /AAA /AAA 1,100,000 -- 1,100,000 1,225,532 -- 1,225,532
-----------------------------------------
34,511,927 3,595,280 38,107,207
-----------------------------------------------------------------------------------------------------------------------------------
NEW YORK - 6.4%
-----------------------------------------------------------------------------------------------------------------------------------
NYC GOB, Inverse Floater,
6.923%, 8/27/15 (1) Baa1/BBB+ 3,050,000 -- 3,050,000 3,084,313 -- 3,084,313
-----------------------------------------------------------------------------------------------------------------------------------
NYC GOB, Prerefunded,
Series D, 8%, 8/1/15 Aaa /A- /A 10,980,000 -- 10,980,000 11,634,188 -- 11,634,188
-----------------------------------------------------------------------------------------------------------------------------------
NYS DA RB, SUEFS, FGIC
Insured, 5.125%, 5/15/18 Aaa /AAA /AAA -- 1,000,000 1,000,000 -- 956,570 956,570
-----------------------------------------------------------------------------------------------------------------------------------
NYS HFA RRB, NYC HF,
Series A, 6%, 11/1/06 Baa1/A- 4,000,000 -- 4,000,000 4,136,880 -- 4,136,880
-----------------------------------------------------------------------------------------------------------------------------------
NYS HFA RRB, NYC HF,
Series A, 6%, 5/1/08 Baa1/A- 2,000,000 -- 2,000,000 2,070,380 -- 2,070,380
-----------------------------------------------------------------------------------------------------------------------------------
NYS MTA Dedicated Tax
Fund RB, Series A, FGIC
Insured, 6.125%, 4/1/17 Aaa /AAA /AAA -- 1,000,000 1,000,000 -- 1,049,940 1,049,940
-----------------------------------------------------------------------------------------------------------------------------------
NYS Tollway Authority
Highway & Bridge Trust
Fund RB, Series A, FSA
Insured, 6%, 4/1/16 Aaa /AAA /AAA -- 1,000,000 1,000,000 -- 1,049,000 1,049,000
-----------------------------------------------------------------------------------------------------------------------------------
NYS UDC RB, Series C,
5.875%, 1/1/19 Aaa /AAA /AAA -- 5,000,000 5,000,000 -- 5,077,350 5,077,350
-----------------------------------------------------------------------------------------------------------------------------------
TSASC, Inc., NY RB,
6.25%, 7/15/27 Aa1 /A /A+ -- 5,250,000 5,250,000 -- 5,225,535 5,225,535
-----------------------------------------------------------------------------------------------------------------------------------
TSASC, Inc., NY RB,
Series 1, 6.25%, 7/15/34 Aa2 /A /A+ 10,000,000 -- 10,000,000 9,894,300 -- 9,894,300
-----------------------------------------
30,820,061 13,358,395 44,178,456
-----------------------------------------------------------------------------------------------------------------------------------
OHIO - 3.0%
-----------------------------------------------------------------------------------------------------------------------------------
Cleveland, OH PPS RB, First Mtg., Prerefunded, Series A, MBIA Insured, 7%,
11/15/16 Aaa /AAA 1,100,000 -- 1,100,000 1,216,116 -- 1,216,116
-----------------------------------------------------------------------------------------------------------------------------------
Cleveland, OH PPS RB, First
Mtg., Unrefunded Balance,
Series A, MBIA Insured, Series
A, 7%, 11/15/16 Aaa /AAA 900,000 -- 900,000 995,004 -- 995,004
-----------------------------------------------------------------------------------------------------------------------------------
Mahoning Valley, OH Sanitary
Distilled Water RRB, FSA
Insured, 5.75%, 11/15/16 Aaa /AAA /AAA -- 1,450,000 1,450,000 -- 1,480,102 1,480,102
-----------------------------------------------------------------------------------------------------------------------------------
Montgomery Cnty., OH HCF
RRB, Series B, 6.25%, 2/1/22 NR /NR 2,500,000 -- 2,500,000 2,187,025 -- 2,187,025
-----------------------------------------------------------------------------------------------------------------------------------
OH HFA SFM RB, Series B,
Inverse Floater, 9.466%,
3/1/31 (1) Aaa /AAA 3,030,000 -- 3,030,000 3,192,863 -- 3,192,863
-----------------------------------------------------------------------------------------------------------------------------------
OH Solid Waste RB,
Republic Engineered Steels,
Inc. Project, 9%, 6/1/21 NR /NR 7,800,000 -- 7,800,000 2,576,886 -- 2,576,886
-----------------------------------------------------------------------------------------------------------------------------------
OH SWD RB, USG Corporate
Project, 5.65%, 3/1/33 Baa1/BBB+ 8,000,000 -- 8,000,000 6,936,160 -- 6,936,160
-----------------------------------------------------------------------------------------------------------------------------------
Streetsboro, OH SDI GOB,
AMBAC Insured, 7.125%, 12/1/10 Aaa /AAA /AAA -- 500,000 500,000 -- 563,220 563,220
-----------------------------------------------------------------------------------------------------------------------------------
Summit Cnty., OH RB, FGIC
Insured, 6.25%, 12/1/21 Aaa /AAA /AAA -- 1,270,000 1,270,000 -- 1,340,460 1,340,460
-----------------------------------------
17,104,054 3,383,782 20,487,836
-----------------------------------------------------------------------------------------------------------------------------------
OKLAHOMA - 1.8%
-----------------------------------------------------------------------------------------------------------------------------------
OK Industrial Authority
Health Systems RB, Baptist
Medical Center, Series C,
AMBAC Insured, 7%, 8/15/05 Aaa /AAA /AAA -- 2,000,000 2,000,000 -- 2,172,060 2,172,060
-----------------------------------------------------------------------------------------------------------------------------------
Tulsa, OK Municipal Airport
Trust RB, American Airlines
Project, 6.25%, 6/1/20 Baa2/BBB- 9,820,000 -- 9,820,000 9,664,255 -- 9,664,255
-----------------------------------------
9,664,255 2,172,060 11,836,315
-----------------------------------------------------------------------------------------------------------------------------------
PENNSYLVANIA - 13.3%
-----------------------------------------------------------------------------------------------------------------------------------
Allegheny Cnty., PA HDAU
RRB, Villa St. Joseph HCF,
6%, 8/15/28 NR /NR 2,000,000 -- 2,000,000 1,666,500 -- 1,666,500
-----------------------------------------------------------------------------------------------------------------------------------
Berks Cnty., PA GOB,
Prerefunded, FGIC Insured,
Inverse Floater, 8.382%,
11/10/20 (1) Aaa /AAA /AAA -- 1,000,000 1,000,000 -- 1,107,500 1,107,500
-----------------------------------------------------------------------------------------------------------------------------------
Chartiers Valley, PA CD
IDAU First Mtg. RRB, Asbury
Health Center, 6.375%,
12/1/19 NR /NR 1,250,000 -- 1,250,000 1,118,175 -- 1,118,175
-----------------------------------------------------------------------------------------------------------------------------------
Chartiers Valley, PA CD
IDAU First Mtg. RRB, Asbury
Health Center, 6.375%,
12/1/24 NR /NR 1,500,000 -- 1,500,000 1,325,100 -- 1,325,100
-----------------------------------------------------------------------------------------------------------------------------------
PA Convention Center
RRB, Series A, MBIA/IBC
Insured, 6.75%, 9/1/19 Aaa /AAA -- 1,150,000 1,150,000 -- 1,231,915 1,231,915
-----------------------------------------------------------------------------------------------------------------------------------
PA EDFAU Facilities RB,
National Gypsum Co.,
Series B, 6.125%, 11/2/27 NR /NR 10,000,000 -- 10,000,000 9,035,400 -- 9,035,400
-----------------------------------------------------------------------------------------------------------------------------------
PA EDFAU RR RB, Colver
Project, Series D,
7.15%, 12/1/18 NR /BBB- 3,000,000 -- 3,000,000 3,078,540 -- 3,078,540
-----------------------------------------------------------------------------------------------------------------------------------
PA EDFAU SWD RB, USD
Corp. Project, 6%, 6/1/31 Baa1/BBB+ 12,000,000 -- 12,000,000 10,949,280 -- 10,949,280
-----------------------------------------------------------------------------------------------------------------------------------
PA HEAA Student Loan RB, Series B, AMBAC Insured, Inverse Floater, 7.854%,
3/1/22 (1) Aaa /AAA /AAA 17,500,000 1,250,000 18,750,000 17,850,000 1,275,000 19,125,000
-----------------------------------------------------------------------------------------------------------------------------------
PA TUCM RRB, Series N,
6.50%, 12/1/13 Aaa /AAA 750,000 -- 750,000 783,953 -- 783,953
-----------------------------------------------------------------------------------------------------------------------------------
Philadelphia, PA Airport
RB, Series 387A, Inverse
Floater, 5.861%, 6/15/12 (1) NR /NR -- 1,565,000 1,565,000 -- 1,539,866 1,539,866
-----------------------------------------------------------------------------------------------------------------------------------
Philadelphia, PA Hospital &
HEFAU RB, Temple University
Childrens Medical, Series A,
5.625%, 6/15/19 Baa2/BBB+ 1,200,000 -- 1,200,000 988,092 -- 988,092
-----------------------------------------------------------------------------------------------------------------------------------
Philadelphia, PA Hospital &
HEFAU RRB, The Philadelphia
Protestant Home Project,
Series A, 6.50%, 7/1/27 NR /NR 3,380,000 -- 3,380,000 3,041,493 -- 3,041,493
-----------------------------------------------------------------------------------------------------------------------------------
Philadelphia, PA IDAU HCF
RRB, Baptist Home of
Philadelphia, Series A,
5.50%, 11/15/18 NR /NR 1,670,000 -- 1,670,000 1,349,711 -- 1,349,711
-----------------------------------------------------------------------------------------------------------------------------------
Philadelphia, PA IDAU HCF
RRB, Baptist Home of
Philadelphia, Series A,
5.60%, 11/15/28 NR /NR 1,275,000 -- 1,275,000 991,746 -- 991,746
-----------------------------------------------------------------------------------------------------------------------------------
Philadelphia, PA Regional
POAU Lease RB, MBIA Insured,
Inverse Floater, 8.03%,
9/1/20 (1) Aaa /AAA -- 1,900,000 1,900,000 -- 1,945,125 1,945,125
-----------------------------------------------------------------------------------------------------------------------------------
Philadelphia, PA Water &
Wastewater RB, FGIC Insured,
10%, 6/15/05 Aaa /AAA /AAA 17,600,000 17,600,000 21,510,368 -- 21,510,368
-----------------------------------------------------------------------------------------------------------------------------------
Pittsburgh, PA RB,
Series A, 5.75%, 9/1/19 Aaa /AAA -- 1,000,000 1,000,000 -- 1,006,080 1,006,080
-----------------------------------------------------------------------------------------------------------------------------------
Pittsburgh, PA RB,
Series A, 5.75%, 9/1/20 Aaa /AAA -- 2,795,000 2,795,000 -- 2,801,904 2,801,904
-----------------------------------------------------------------------------------------------------------------------------------
Schuylkill Cnty., PA IDAU
RR RRB, Schuylkill Energy
Resources, Inc., 6.50%, 1/1/10 NR /NR /BB+ 7,665,000 -- 7,665,000 7,539,371 -- 7,539,371
-----------------------------------------
81,227,729 10,907,390 92,135,119
-----------------------------------------------------------------------------------------------------------------------------------
SOUTH CAROLINA - 0.3%
-----------------------------------------------------------------------------------------------------------------------------------
Piedmont, SC MPA RRB,
Escrowed to Maturity,
Series A, FGIC Insured,
6.50%, 1/1/16 Aaa /AAA 285,000 -- 285,000 317,137 -- 317,137
-----------------------------------------------------------------------------------------------------------------------------------
Piedmont, SC MPA RRB,
Unrefunded Balance,
Series A, FGIC Insured,
6.50%, 1/1/16 Aaa /AAA 1,715,000 -- 1,715,000 1,902,604 -- 1,902,604
-----------------------------------------
2,219,741 -- 2,219,741
-----------------------------------------------------------------------------------------------------------------------------------
TEXAS - 14.2%
-----------------------------------------------------------------------------------------------------------------------------------
AAAU TX SPF RB, American
Airlines, Inc. Project,
7%, 12/1/11 Baa2/BBB- 3,000,000 -- 3,000,000 3,259,320 -- 3,259,320
-----------------------------------------------------------------------------------------------------------------------------------
Cedar Hill, TX ISD CAP
RRB, Zero Coupon, 6.10%,
8/15/11 (3) Aaa /NR /AAA -- 1,585,000 1,585,000 -- 846,707 846,707
-----------------------------------------------------------------------------------------------------------------------------------
Cypress-Fairbanks, TX ISD
CAP GORB, Series A, Zero
Coupon, 5.89%, 2/15/14 (3) Aaa /AAA 15,710,000 -- 15,710,000 7,252,836 -- 7,252,836
-----------------------------------------------------------------------------------------------------------------------------------
Cypress-Fairbanks, TX
ISD CAP GORB, Series A, Zero
Coupon, 5.85%, 2/15/15 (1) Aaa /AAA 15,000,000 -- 15,000,000 6,483,750 -- 6,483,750
-----------------------------------------------------------------------------------------------------------------------------------
Cypress-Fairbanks, TX ISD
CAP GORB, Series A, Zero
Coupon, 5.91%, 2/15/16 (1) Aaa /AAA 16,240,000 -- 16,240,000 6,573,627 -- 6,573,627
-----------------------------------------------------------------------------------------------------------------------------------
Dallas-Fort Worth, TX
International Airport
Facilities Improvement Corp.
RB, American Airlines, Inc.,
7.25%, 11/1/30 Baa1/BBB- 8,000,000 -- 8,000,000 8,189,520 -- 8,189,520
-----------------------------------------------------------------------------------------------------------------------------------
Grand Prairie, TX HFDC RRB,
Dallas/Ft. Worth Medical
Center Project, AMBAC
Insured, 6.875%, 11/1/10 Aaa /AAA /AAA -- 1,800,000 1,800,000 -- 1,949,130 1,949,130
-----------------------------------------------------------------------------------------------------------------------------------
Harris Cnty., TX GORB,
Toll Road, Sub. Lien,
Prerefunded, 6.50%, 8/15/15 Aa1 /AA 215,000 -- 215,000 227,294 -- 227,294
-----------------------------------------------------------------------------------------------------------------------------------
Harris Cnty., TX GORB, Toll
Road, Sub. Lien, Unrefunded
Balance, 6.50%, 8/15/15 Aa1 /AA 785,000 -- 785,000 825,749 -- 825,749
-----------------------------------------------------------------------------------------------------------------------------------
Harris Cnty., TX GORRB,
Toll Road, Sub. Lien,
6.75%, 8/1/14 Aa1 /AA 1,000,000 -- 1,000,000 1,044,600 -- 1,044,600
-----------------------------------------------------------------------------------------------------------------------------------
Harris Cnty., TX Hospital
District RRB, AMBAC
Insured, 7.40%, 2/15/10 Aaa /AAA /AAA -- 2,000,000 2,000,000 -- 2,251,400 2,251,400
-----------------------------------------------------------------------------------------------------------------------------------
Harris Cnty., TX Houston
Sports Authority Special
CAP RB, Jr. Lien, Series B,
MBIA Insured, Zero Coupon,
5.33%, 11/15/13 (3) Aaa /AAA /AAA -- 4,360,000 4,360,000 -- 2,024,958 2,024,958
-----------------------------------------------------------------------------------------------------------------------------------
Houston, TX WSS RB, Prior
Lien, Unrefunded Balance,
Series B, 6.40%, 12/1/09 A3 /A+ 995,000 -- 995,000 1,046,481 -- 1,046,481
-----------------------------------------------------------------------------------------------------------------------------------
Houston, TX WSS RB, Prior
Lien, Unrefunded Balance,
Series B, 6.75%, 12/1/08 A2 /AAA 440,000 -- 440,000 460,218 -- 460,218
-----------------------------------------------------------------------------------------------------------------------------------
Lower Colorado River Authority,
TX RRB, Series A,
5.875%, 5/15/17 Aaa /AAA /AAA -- 1,625,000 1,625,000 -- 1,662,196 1,662,196
-----------------------------------------------------------------------------------------------------------------------------------
Lower Neches Valley, TX
IDAU Corp. Sewer Facilities
RB, Mobil Oil Refining
Corp. Project, 6.40%, 3/1/30 Aaa /AAA -- 1,000,000 1,000,000 -- 1,021,910 1,021,910
-----------------------------------------------------------------------------------------------------------------------------------
North Central TX HFDC RB,
Prerefunded, Series B,
6.30%, 5/15/06 Aa2 /AA 290,000 -- 290,000 304,462 -- 304,462
-----------------------------------------------------------------------------------------------------------------------------------
North Central TX HFDC
RB, Prerefunded, Series
B, 6.40%, 5/15/08 Aa2 /AA 480,000 -- 480,000 504,854 -- 504,854
-----------------------------------------------------------------------------------------------------------------------------------
North Central TX HFDC RB,
Series A, 7.25%, 11/15/19 NR /NR 2,000,000 -- 2,000,000 1,890,140 -- 1,890,140
-----------------------------------------------------------------------------------------------------------------------------------
North Central TX HFDC RB,
Series A, 7.50%, 11/15/29 NR /NR 3,000,000 -- 3,000,000 2,879,520 -- 2,879,520
-----------------------------------------------------------------------------------------------------------------------------------
North Central TX HFDC RB,
Unrefunded Balance,
Series B, 6.30%, 5/15/06 Aa2 /AA 2,710,000 -- 2,710,000 2,816,178 -- 2,816,178
-----------------------------------------------------------------------------------------------------------------------------------
North Central TX HFDC
RB, Unrefunded Balance,
Series B, 6.40%, 5/15/08 Aa2 /AA- 4,520,000 -- 4,520,000 4,699,580 -- 4,699,580
-----------------------------------------------------------------------------------------------------------------------------------
Retama, TX Development
Corp. SPF RRB, Retama
Racetrack, Escrowed to
Maturity, Series A,
10%, 12/15/19 Aaa /AAA 4,880,000 -- 4,880,000 7,387,002 -- 7,387,002
-----------------------------------------------------------------------------------------------------------------------------------
TX MPA CAP RRB, MBIA
Insured, Zero Coupon, 5.95%,
9/1/13 (3) Aaa /AAA /AAA 6,900,000 -- 6,900,000 3,297,372 -- 3,297,372
-----------------------------------------------------------------------------------------------------------------------------------
TX MPA CAP RRB, MBIA
Insured, Zero Coupon,
5.93%, 9/1/14 (3) Aaa /AAA /AAA 17,500,000 -- 17,500,000 7,837,725 -- 7,837,725
-----------------------------------------------------------------------------------------------------------------------------------
TX MPA CAP RRB, MBIA
Insured, Zero Coupon,
5.85%, 9/1/15 (3) Aaa /AAA /AAA 10,000,000 -- 10,000,000 4,191,800 -- 4,191,800
-----------------------------------------------------------------------------------------------------------------------------------
TX MPA CAP RRB, MBIA
Insured, Zero Coupon,
5.98%, 9/1/16 (3) Aaa /AAA /AAA 39,990,000 -- 39,990,000 15,692,876 -- 15,692,876
-----------------------------------------------------------------------------------------------------------------------------------
Rio Grande Valley TX HFDC
Retirement Facilities RB,
Golden Palms, Series B,
MBIA Insured, 6.40%, 8/1/12 Aaa /AAA -- 2,000,000 2,000,000 -- 2,093,940 2,093,940
-----------------------------------------
86,864,904 11,850,241 98,715,145
-----------------------------------------------------------------------------------------------------------------------------------
VERMONT - 0.2%
-----------------------------------------------------------------------------------------------------------------------------------
VT HFA Home Mtg. Purchase
RB, Series A, 7.85%, 12/1/29 A1 /NR 1,330,000 -- 1,330,000 1,358,223 -- 1,358,223
-----------------------------------------------------------------------------------------------------------------------------------
VIRGINIA - 3.7%
-----------------------------------------------------------------------------------------------------------------------------------
Pocahontas Parkway Assn.,
VA Toll Road RB, CAP,
First Tier, Sub. Lien,
Series C, Zero Coupon,
5.60%, 8/15/05 (3) Ba1 /NR 2,300,000 -- 2,300,000 1,570,854 -- 1,570,854
-----------------------------------------------------------------------------------------------------------------------------------
Pocahontas Parkway Assn.,
VA Toll Road RB, CAP,
First Tier, Sub. Lien,
Series C, Zero Coupon,
5.75%, 8/15/07 (3) Ba1 /NR 2,800,000 -- 2,800,000 1,653,372 -- 1,653,372
-----------------------------------------------------------------------------------------------------------------------------------
Pocahontas Parkway Assn.,
VA Toll Road RB, CAP,
First Tier, Sub. Lien,
Series C, Zero Coupon,
5.82%, 8/15/08 (3) Ba1 /NR 3,000,000 -- 3,000,000 1,649,310 -- 1,649,310
-----------------------------------------------------------------------------------------------------------------------------------
Pocahontas Parkway Assn.,
VA Toll Road RB, CAP,
First Tier, Sub. Lien,
Series C, Zero Coupon,
5.85%, 8/15/09 (3) Ba1 /NR 3,100,000 -- 3,100,000 1,579,574 -- 1,579,574
-----------------------------------------------------------------------------------------------------------------------------------
Pocahontas Parkway Assn.,
VA Toll Road RB, CAP,
Sr. Lien, Series B, Zero
Coupon, 5.86%, 8/15/20 (3) Baa3/A /A 25,000,000 -- 25,000,000 6,258,500 -- 6,258,500
-----------------------------------------------------------------------------------------------------------------------------------
Pocahontas Parkway Assn.,
VA Toll Road RB, CAP, Sr.
Lien, Series B, Zero
Coupon, 5.86%, 8/15/21 (3) Baa3/A /A 26,300,000 -- 26,300,000 6,151,307 -- 6,151,307
-----------------------------------------------------------------------------------------------------------------------------------
Pocahontas Parkway Assn.,
VA Toll Road RB, CAP,
Sr. Lien, Series B, Zero
Coupon, 5.86%, 8/15/22 (3) Baa3/A /A 29,900,000 -- 29,900,000 6,533,748 -- 6,533,748
-----------------------------------------
25,396,665 -- 25,396,665
-----------------------------------------------------------------------------------------------------------------------------------
WASHINGTON - 3.1%
-----------------------------------------------------------------------------------------------------------------------------------
Tacoma, WA Electric Systems
RB, Prerefunded, AMBAC
Insured, Inverse Floater,
8.891%, 1/2/15 (1) Aaa /AAA /AAA -- 1,000,000 1,000,000 -- 1,068,750 1,068,750
-----------------------------------------------------------------------------------------------------------------------------------
WA PP Supply System RRB,
Nuclear Project No. 1,
5.40%, 7/1/12 Aa1 /AA- /AA- 20,000,000 -- 20,000,000 19,821,600 -- 19,821,600
-----------------------------------------------------------------------------------------------------------------------------------
WA PP Supply System RRB,
Nuclear Project No. 2,
Series A, FGIC Insured,
Zero Coupon, 5.50%, 7/1/09 (3) Aaa /AAA /AAA -- 2,000,000 2,000,000 -- 1,221,740 1,221,740
-----------------------------------------
19,821,600 2,290,490 22,112,090
-----------------------------------------------------------------------------------------------------------------------------------
WEST VIRGINIA - 0.5%
-----------------------------------------------------------------------------------------------------------------------------------
WV Parkways ED & Tourism
Authority RB, FGIC
Insured, Inverse Floater,
7.373%, 5/16/19 (1) Aaa /AAA 3,600,000 -- 3,600,000 3,550,500 -- 3,550,500
-----------------------------------------------------------------------------------------------------------------------------------
WISCONSIN - 0.3%
-----------------------------------------------------------------------------------------------------------------------------------
WI Health & Educational FA
RB, Aurora Medical Group,
Inc. Project, FSA Insured,
6%, 11/15/11 Aaa /AAA /AAA -- 1,370,000 1,370,000 -- 1,455,392 1,455,392
-----------------------------------------------------------------------------------------------------------------------------------
WI Housing & EDAU Home
Ownership RRB, Series A,
7.10%, 3/1/23 Aa2 /AA 290,000 -- 290,000 298,425 -- 298,425
-----------------------------------------
298,425 1,455,392 1,753,817
-----------------------------------------------------------------------------------------------------------------------------------
DISTRICT OF COLUMBIA - 0.5%
-----------------------------------------------------------------------------------------------------------------------------------
DC Hospital RRB,
Medlantic Healthcare
Group, Series A, MBIA
Insured, 5.25%, 8/15/12 Aaa /AAA /AAA -- 1,000,000 1,000,000 -- 994,100 994,100
-----------------------------------------------------------------------------------------------------------------------------------
DC RRB, Prerefunded,
Series A-1, MBIA Insured,
6%, 6/1/11 Aaa /AAA /AAA -- 100,000 100,000 -- 106,660 106,660
-----------------------------------------------------------------------------------------------------------------------------------
DC RRB, Unrefunded
Balance, Series A-1, MBIA
Insured, 6%, 6/1/11 Aaa /AAA /AAA -- 1,900,000 1,900,000 -- 2,010,029 2,010,029
-----------------------------------------
-- 3,110,789 3,110,789
-----------------------------------------------------------------------------------------------------------------------------------
U.S. POSSESSIONS - 1.7%
-----------------------------------------------------------------------------------------------------------------------------------
PR CMWLTH Linked GOUN,
FSA Insured, 5.831%, 7/1/20 Aaa /AAA /AAA 10,000,000 -- 10,000,000 10,036,200 -- 10,036,200
-----------------------------------------------------------------------------------------------------------------------------------
PR Municipal FAU GOB,
Series PA-638B, Inverse
Floater, 7.38%, 8/1/15 (1) NR /NR -- 1,500,000 1,500,000 -- 1,675,785 1,675,785
-----------------------------------------
10,036,200 1,675,785 11,711,985
-----------------------------------------
Total Municipal Bonds and
Notes (Cost $578,367,906,
$115,840,298, Combined
$694,208,204) 568,680,281 118,737,813 687,418,094
-----------------------------------------------------------------------------------------------------------------------------------
SHORT-TERM TAX-EXEMPT
OBLIGATIONS - 0.3%
-----------------------------------------------------------------------------------------------------------------------------------
Maricopa Cnty., AZ PC Corp.
RRB, Arizona Public
Service Co., Series C,
3.95%, 4/3/00
(Cost $2,000,000) -- 2,000,000 2,000,000 -- 2,000,000 2,000,000
-----------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS, AT VALUE
(COST $578,367,906,
$117,840,298, COMBINED
$696,208,204) 98.9% 102.0% 99.4% 568,680,281 120,737,813 689,418,094
-----------------------------------------------------------------------------------------------------------------------------------
OTHER ASSETS NET OF LIABILITIES 1.1 (2.0) 0.6 6,507,024 (2,371,332) 4,135,692
-------- ---------- ----- ------------ ------------ ------------
NET ASSETS 98.9% 102.0% 100.0% $575,187,305 $118,366,481 $693,553,786
======== ========= ===== ============ ============ ============
</TABLE>
To simplify the listings of securities, abbreviations are used per the table
below: AAAU - Alliance Airport Authority, Inc. AB - Airport Board AIC - Airport
Improvement Corp. BOE - Board of Education BTAU - Bridge & Tunnel Authority CAP
- Capital Appreciation CD - Commercial Development CDAU - Communities
Development Authority CDC - Community Development Corp. CDD - Community
Development District CFD - Community Facilities District CIA - Community
Improvement Agency CMWLTH - Commonwealth COP - Certificates of Participation CUS
- City University System DA - Dormitory Authority DAU - Development Authority ED
- Economic Development EDAU - Economic Development Authority EDFAU - Economic
Development Finance Authority EFCPC - Environmental Facilities Corp. Pollution
Control EPAU - Electric Power Authority ERDAUEF - Energy Research & Development
Authority Electric Facilities ERDAUGF - Energy Research & Development Authority
Gas Facilities ERDAUPC Energy Research & Development Authority Pollution Control
EU - Electric Utilities FA - Facilities Authority FAU - Finance Authority GAC
Government Assistance Corp. GP - General Purpose GOB - General Obligation Bonds
GORB General Obligation Refunding Bonds GORRB - General Obligation Revenue
Refunding Bonds GOUN - General Obligation Unlimited Nts. HA - Hospital Authority
HAU Housing Authority HCF - Health Care Facilities HDAU - Hospital Development
Authority HDC - Housing Development Corp. HEAA - Higher Education Assistance
Agency HEAU - Higher Education Authority HEFAU - Higher Educational Facilities
Authority HF - Health Facilities HFA - Housing Finance Agency HFASC - Housing
Finance Agency Service Contract HFAU - Health Facilities Authority HFDC - Health
Facilities Development Corp. HFFAU - Health Facilities Finance Authority HTAU
Highway & Transportation Authority IDV - Industrial Development IDA - Industrial
Development Agency IDAU - Industrial Development Authority ISD - Independent
School District LGAC - Local Government Assistance Corp. L.I. - Long Island LMC
- Loan Marketing Corp. MAG - Mtg. Agency MCFFA - Medical Care Facilities Finance
Agency MEAU - Municipal Electric Authority MH - Multifamily Housing MHESF Mental
Health Services Facilities MPA - Municipal Power Agency MTAU Metropolitan
Transportation Authority MUAU - Municipal Utilities Authority MUD Municipal
Utility District MWFAU - Municipal Water Finance Authority NYC - New York City
NYS - New York State PAUNYNJ - Port Authority of New York & New Jersey PAU Power
Authority PC - Pollution Control PCFAU - Pollution Control Finance Authority
PFAU - Public Finance Authority POAU - Port Authority PP - Public Power PPA -
Public Power Agency PPAU - Public Power Authority PPS - Public Power System PWBL
- Public Works Board Lease RA - Redevelopment Agency RAN - Revenue Anticipation
Nts. RB - Revenue Bonds RDAU - Research & Development Authority RR - Resource
Recovery RRB - Revenue Refunding Bonds SAC - Student Assistance Corp. SCD -
Statewide Communities Development SCDAU - Statewide Communities Development
Authority SDI - School District SFM - Single Family Mtg. SHAU State Housing
Authority SPAST - Special Assessment SPF - Special Facilities SPO Special
Obligations SPTX - Special Tax SPWBL - State Public Works Board Lease SUEFS -
State University Educational Facilities System SWD - Solid Waste Disposal TAN -
Tax Anticipation Nts. TBTAU - Triborough Bridge & Tunnel Authority TUAU -
Turnpike Authority TUCM - Turnpike Commission TXAL - Tax Allocation UDA - Urban
Development Agency UDC - Urban Development Corp. USD Unified School District
WPCAU - Water Pollution Control Authority WS - Water System WSS - Water & Sewer
System
1. Represents the current interest rate for a variable rate bond known as an
"inverse floater" which pays interest at a rate that varies inversely with
short-term interest rates. As interest rates rise, inverse floaters produce less
current income. Their price may be more volatile than the price of a comparable
fixed-rate security. Inverse floaters amount to $58,372,338 or 10.15%,
$11,380,151 or 9.62% (Combined $69,752,489 or 10.06%) of the Fund's net assets
as of March 31, 2000. 2. Represents securities sold under Rule 144A, which are
exempt from registration under the Securities Act of 1933, as amended. These
securities have been determined to be liquid under guidelines established by the
Board of Trustees. These securities amount to $26,858,124 or 4.67%, $1,675,785
or 1.42% (Combined $28,533,909 or 4.11%) of the Fund's net assets as of March
31, 2000. 3. For zero coupon bonds, the interest rate shown is the effective
yield on the date of purchase. 4. Represents the current interest rate for a
variable or increasing rate security.
