<PAGE>
Oppenheimer Intermediate Tax-Exempt Bond Fund
3410 South Galena Street, Denver, CO 80231
Telephone 1-800-525-7048
Oppenheimer Intermediate Tax-Exempt Bond Fund (the "Fund"), is a
series of Oppenheimer Tax-Exempt Bond Fund. The Fund has the investment
objective of seeking a high level of current income exempt from Federal
income tax through the purchase of investment grade securities. See "The
Fund and Its Investment Policies."
The Fund offers two classes of shares which may be purchased at a
price equal to their respective net asset value per share, plus a sales
charge. The investor may elect to purchase shares with a sales charge
imposed (1) at the time of purchase (the "Class A shares"), or (2) on a
contingent deferred basis (the "Class C shares"). Class C shares are also
subject to an asset-based sales charge. The contingent deferred sales
charge (the "CDSC") will be imposed on most redemptions of Class C shares
within 12 months of purchase. These alternatives permit an investor to
choose the method of purchasing shares that is more beneficial to that
investor depending on the amount of the purchase, the length of time the
investor expects to hold the shares and other circumstances. See "How to
Buy Shares -Alternative Sales Arrangements" below for further details.
This Prospectus sets forth concisely information about the Fund that
a prospective investor should know before investing. A Statement of
Additional Information about the Fund (the "Additional Statement") dated
January 25, 1994, has been filed with the Securities and Exchange
Commission ("SEC") and is available without charge upon written request
to Oppenheimer Shareholder Services (the "Transfer Agent"), P. O. Box
5270, Denver, Colorado 80217 or by calling the Transfer Agent at the toll-
free number shown above. The Additional Statement (which is incorporated
in its entirety by reference in this Prospectus) contains more detailed
information about the Fund and its management, including more complete
information about certain risk factors.
Investors are advised to read and retain this Prospectus for future
reference. Shares of the Fund are not deposits or obligations of any
bank, are not guaranteed by any bank, are not insured by the F.D.I.C. or
any other agency, and involve investment risks, including the possible
loss of principal.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
This Prospectus is effective January 25, 1994.
<PAGE>
Table of Contents
Page
Fund Expenses 2
Financial Highlights 4
The Fund and Its Investment Policies 5
Special Investment Methods 8
Investment Restrictions 10
Management of the Fund 10
How to Buy Shares 11
Alternative Sales Arrangements 11
Class A Shares 12
Class A Sales Charge Table 13
Class A Contingent Deferred Sales
Charge 13
Reduced Sales Charges for Class A
Purchases 14
Class A Service Plan 15
Class C Shares 16
Class C Contingent Deferred Sales
Charge 16
Class C Distribution and Service Plan 16
Purchase Programs for Class A and Class C
Shares 17
AccountLink 17
PhoneLink 18
Asset Builder Plans 18
Group Programs 18
How to Redeem Shares 19
Regular Redemption Procedures 19
Telephone Redemptions 19
Check Writing 20
Automatic Withdrawal and Exchange Plans 21
Repurchase 21
Reinvestment Privilege 21
General Information on Redemptions 22
Exchanges of Shares 22
Dividends, Distributions and Taxes 24
Fund Performance Information 26
Additional Information 28
<PAGE>
Fund Expenses
The following table sets forth the fees that an investor in the Fund
might pay and the expenses paid by the Fund during its fiscal year ended
September 30, 1993. Class C shares were not publicly offered during that
period.
Shareholder Transaction Expenses
Class A Class C
Shares Shares
Maximum Sales Charge on Purchases
(as a percentage of offering price) 3.50% None
Sales Charge on Reinvested Dividends None None
Maximum Contingent Deferred Sales
Charge on Redemptions None(1) 1.0%(2)
Redemption Fees None* None*
Exchange Fee $5.00 $5.00
Annual Fund Operating Expenses
(Restated as to Class A Shares)
(Estimated as to Class C Shares)
(as a percentage of average net assets)
Class A Class C
Shares Shares
Management Fees .50% .50%
12b-1 (Distribution and/or Service
Plan) Fees .25% 1.00%
Other Expenses .32% .32%
Total Fund Operating Expenses 1.07% 1.82%
_________________
* There is a $15 transaction fee for redemptions paid by Federal Funds
wire, but not for redemptions paid by check or by Automated Clearing
House ("ACH") wire through AccountLink, or for which check writing
privileges are used (see "How To Redeem Shares").
(1) Certain Class A share purchases of $1 million or more are not subject
to front-end sales charges, but a contingent deferred sales charge
(maximum of 1.0%) is imposed on the proceeds of such shares redeemed
within 18 months of the end of the calendar month of their purchase
subject to certain conditions. See "How to Buy Shares--Class A
Contingent Deferred Sales Charge," below.
(2) A 1.0% contingent deferred sales charge is imposed on the proceeds
of Class C shares redeemed within 12 months of their purchase,
subject to certain conditions. See "How to Buy Shares - Class C
Contingent Deferred Sales Charge," below.
The purpose of this table is to assist an investor in understanding
the various costs and expenses that an investor in shares of the Fund will
bear directly (shareholder transaction expenses) or indirectly (annual
fund operating expenses). The sales charge rate shown for Class A shares
is the current maximum rate applicable to purchases of Class A shares of
the Fund. Investors in Class A shares may be entitled to reduced sales
charges based on the amount purchased or the value of shares already owned
and may be subject to a contingent deferred sales charge in limited
circumstances. See "How to Buy Shares--Class A Contingent Deferred Sales
Change" below. The "Annual Fund Operating Expenses" for Class A shares
shown in the table above are restated to reflect what the Fund's operating
expenses would have been in the Fund's 1993 fiscal year had the Fund's
investment manager, Oppenheimer Management Corporation (the "Manager"),
not assumed certain Fund expenses under a voluntary expense assumption
undertaking that was terminated by the Manager effective January 1, 1993.
Class C shares were not publicly sold during the fiscal year ended
September 30, 1993. The "Annual Fund Operating Expenses" as to Class C
shares are estimates based on amounts that would have been payable that
period assuming that Class C shares were outstanding during such fiscal
period. The actual amount of such fees and expenses in the current and
future years will depend on a number of factors, including the actual
average net assets of Class C shares during such years. "Other Expenses"
includes such expenses as custodial and transfer agent fees, audit, legal
and other business operating expenses, but excludes extraordinary
expenses. For further details, see "Purchase, Redemption and Pricing of
shares--Dual Class Methodology" and the Fund's financial statements both
included in the Additional Statement.
The following examples apply the above-stated expenses and the
current maximum sales charges to a hypothetical $1,000 investment in
shares of the Fund over the time periods shown below, assuming a 5% annual
rate of return on the investment. The amounts shown below are the
cumulative costs of such hypothetical $1,000 investment for the periods
shown and, except as indicated in lines 3 and 4, assume that the shares
are redeemed at the end of each stated period.
1 year 3 years 5 years 10 years(1)
1. Class A Shares $46 $68 $92 $161
2. Class C Shares $28 $57 $99 $214
3. Class A Shares,
assuming no
redemption $46 $68 $92 $161
4. Class C Shares,
assuming no
redemption $18 $57 $99 $214
_________________
(1) Long-term shareholders of Class C shares could pay the economic
equivalent, through the asset-based sales charge imposed on Class C
shares, of more than the maximum front-end sales charges permitted
under applicable regulatory requirements.
These examples should not be considered a representation of past or
future expenses or performance. Expenses are subject to change and actual
performance and expenses may be less or greater than those illustrated
above.
<PAGE>
Financial Highlights
Selected Data for a Class A share of the Fund outstanding throughout each
period
The information in the table below for the fiscal years ended
September 30, 1990, 1991, 1992 and 1993, has been audited by Deloitte &
Touche, the Fund's independent auditors. The information in the table
below (except for total return) for the fiscal periods ended September 30,
1987 (from the commencement of operations on November 11, 1986), 1988, and
1989 was audited by the Fund's prior independent auditors. The report of
Deloitte & Touche on the financial statements of the Fund for the fiscal
year ended September 30, 1993 is included in the Additional Statement.
No Class C shares were publicly offered during these periods.
Accordingly, no information on Class C shares is reflected in the table
below or in the Fund's other financial statements.
<PAGE>
<TABLE>
<CAPTION>
Year Ended September 30,
1993 1992 1991 1990++ 1989 1988 1987+
<S> <C> <C> <C> <C> <C> <C> <C>
Per Share Operating Data:
Net asset value, beginning of period $ 15.09 $ 14.40 $ 13.51 $ 13.57 $ 13.33 $ 12.56 $ 14.00
Income (loss) from investment operations:
Net investment income .77 .86 .83 .90 .98 1.05 .90
Net realized and unrealized gain (loss) on investments .70 .69 .91 (.08) .24 .77 (1.44)
Total income (loss) from investment operations 1.47 1.55 1.74 .82 1.22 1.82 (.54)
Dividends and distributions to shareholders:
Dividends from net investment income (.75) (.86) (.85) (.88) (.98) (1.05) (.90)
Distributions from net realized gain on investments (.47) - - - - - -
Total dividends and distributions to shareholders (1.22) (.86) (.85) (.88) (.98) (1.05) (.90)
Net asset value, end of period $ 15.34 $ 15.09 $ 14.40 $ 13.51 $ 13.57 $ 13.33 $ 12.56
Total Return, at Net Asset Value** 10.31% 11.10% 13.20% 6.14% 9.54% 14.96% (4.11)%
Ratios/Supplemental Data:
Net assets, end of period (in thousands) $70,136 $29,724 $23,675 $20,287 $19,350 $13,480 $10,228
Average net assets (in thousands) $48,915 $25,153 $22,071 $20,576 $17,188 $12,220 $11,152
Number of shares outstanding at end of period (in
thousands) 4,571 1,970 1,644 1,502 1,426 1,011 814
Ratios to average net assets:
Net investment income 5.08% 5.87% 5.93% 6.56% 7.09% 8.01% 7.39%*
Expenses, before voluntary assumption by
the Manager 1.07% 1.25% 1.35% 1.41% 1.56% 1.75% 1.95%*
Expenses, net of voluntary assumption by
the Manager 1.05% 1.16% 1.16% .66% .23% --% .40%*
Portfolio turnover rate*** 21% 93% 75% 102% 180% 148% 98%
<FN>
*Annualized.
**Assumes a hypothetical initial investment on the business day before the
first day of the fiscal period, 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.
***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 year ended September 30, 1993 were $46,164,903 and
$9,912,262, respectively.
+For the period from November 11, 1986 (commencement of operations) to
September 30, 1987.
++On April 7, 1990, Oppenheimer Management Corporation became the
investment adviser to the Fund.
</TABLE>
The Fund and Its Investment Policies
The Fund is one of two investment portfolios or "series" of
Oppenheimer Tax-Exempt Bond Fund (the "Trust"), which is a diversified,
open-end, management investment company organized as a Massachusetts
business trust on August 5, 1986. The investment objective of the Fund
is to provide a high level of current income exempt from Federal income
tax through the purchase of investment grade securities. Since market
risks are inherent in all securities to varying degrees, assurance cannot
be given that the Fund will achieve its investment objective. The Fund's
investment policies and practices are not "fundamental" policies (as
defined below) unless a particular policy is identified as fundamental.
The Board may change non-fundamental investment policies without
shareholder approval.
As a matter of fundamental policy, the Fund will seek to attain its
investment objective by investing at least 80% of its total assets in a
diversified portfolio of "investment grade" (defined below) Municipal
Securities under normal market conditions. "Investment grade" securities
include: (1) in the case of long-term debt, those securities rated "AAA"
through "BBB" by Standard & Poor's Corporation ("S&P") or "Aaa" through
"Baa" by Moody's Investor Services, Inc. ("Moody's"); (2) in the case of
short-term securities, "SP-1+" through "SP-2" by S&P or "MIG1" through
"MIG4" by Moody's; or (3) in the case of tax-exempt commercial paper,
"A-1+" through "A-2" by S&P or "Prime-1" through "Prime-2" by Moody's.
The Fund may also invest in unrated securities judged by the Manager to
be of comparable quality to Municipal Securities rated within such
categories.
Municipal bonds rated "Baa" and municipal notes rated "MIG 2" by
Moody's, and municipal bonds rated "BBB" and municipal notes rated "SP-2"
by S&P, although of investment grade, may be subject to greater market
fluctuations and risks of loss of income and principal than higher-rated
Municipal Securities, and may be considered to have speculative
characteristics. Although unrated securities are not necessarily of lower
quality, the market for them may not be as broad as for rated securities.
A reduction in the rating of a security after it is purchased by the Fund
will not require its disposition. To the extent that the Fund holds
securities that have fallen below investment grade, there is a greater
risk that the Fund's receipt of interest income will be impaired and that
its net asset value will be affected if the issuers of such securities
fail to meet their obligations. See Appendix A to the Additional Statement
for a description of rating categories of S&P and Moody's.
The Fund may invest up to 20% of its total assets in taxable
securities for liquidity purposes, as described below, and may invest more
than 20% of its assets in taxable securities for temporary defensive
purposes, as described below. In addition, the Fund will normally not
invest more than 20% of its total assets in municipal securities issued
to benefit a private user ("Private Activity Municipal Securities"), the
interest from which may be subject to Federal alternative minimum tax to
which certain shareholders may be subject (see "Dividends, Distributions
and Taxes," below and "Private Activity Municipal Securities" in the
Additional Statement for a more detailed discussion of the tax treatment
of the Fund's dividends). Under normal circumstances, the Fund will
maintain a dollar-weighted average portfolio maturity of more than three
but not more than ten years. In calculating maturity, the Fund will
consider various factors, including anticipated payments of principal.
The Fund may hold securities with maturities of more than ten years
provided that under normal circumstances it maintains a dollar-weighted
average portfolio maturity as stated above.
Municipal Securities
The Fund will attempt to achieve its objective by investing in
municipal bonds, municipal notes (including tax anticipation notes, bond
anticipation notes, revenue anticipation notes, construction loan notes
and other short-term loans), tax-exempt commercial paper and other debt
obligations issued by or on behalf of states, the District of Columbia,
any commonwealths, territories or possessions of the United States, or
their respective political subdivisions, agencies, instrumentalities or
authorities, the interest from which is not subject to Federal individual
income tax in the opinion of bond counsel to the respective issuer at the
time of issue (collectively, "Municipal Securities"). No independent
investigation has been made by the Manager as to the users of proceeds of
bond offerings or the application of such proceeds. "Municipal Bonds" are
Municipal Securities that have a maturity when issued of one year or more,
and "Municipal Notes" are Municipal Securities that have a maturity when
issued of less than one year.
The two principal classifications of Municipal Securities are
"general obligations" (secured by the issuer's pledge of its full faith,
credit and taxing power for the payment of principal and interest) and
"revenue obligations" (payable only from the revenues derived from a
particular facility or class of facilities, or a specific excise tax or
other revenue source). The Fund may invest in Municipal Securities of
both classifications, subject to particular restrictions described below.
Yields on Municipal Securities vary depending on a variety of
factors, including the general condition of the financial markets and of
the Municipal Securities market in particular, the size of a particular
offering, the maturity of the security and the credit rating of the issue.
Generally, Municipal Securities of longer maturities produce higher
current yields but are subject to greater price fluctuation due to changes
in interest rates (discussed below), tax laws and other general market
factors than are Municipal Securities with shorter maturities. Similarly,
lower-rated Municipal Securities generally produce a greater yield than
higher-rated Municipal Securities due to the perception of a greater
degree of risk as to the ability of the issuer to meet principal and
interest obligations. "Investment Objectives and Policies" in the
Additional Statement contains more information about Municipal Securities.
From time to time, proposals have been introduced before Congress to
restrict or eliminate the Federal income tax exemption for interest on
Municipal Securities. Similar proposals may be introduced in the future.
If such a proposal were enacted, the availability of Municipal Securities
for investment by the Fund and the value of the portfolio of the Fund
would be affected. At such time, the Board of Trustees of the Trust would
re-evaluate the investment objectives and policies of the Fund and
possibly submit to shareholders proposals for changes in the structure of
the Fund.
-- Floating Rate/Variable Rate Obligations. Some of the Municipal
Securities the Fund may purchase may have variable or floating interest
rates. Variable rates are adjustable at stated periodic intervals.
Floating rates are automatically adjusted according to a specified market
rate for such investments, such as the percentage of the prime rate of a
bank, or the 91-day U.S. Treasury Bill rate. Such obligations may be
secured by bank letters of credit or other credit support arrangements.
See "Floating Rate/Variable Rate Obligations" in the Additional Statement
for more details.
-- Inverse Floaters and Derivative Securities. The Fund may invest
in variable rate bonds where the interest rate paid varies inversely with
movements in short-term tax-exempt yields. Such bonds are known as
"inverse floaters." As short-term rates rise, inverse floaters produce
less current income. The Fund may choose to hedge its exposure to rising
interest rates by purchasing municipal bonds with embedded interest rate
caps, a type of derivative security. The cap is structured whereby cash
flows are based on the amount by which interest rates exceed a
predetermined level known as the "strike price." Embedded caps may be
appropriate if the Manager has leveraged the Fund's portfolio to maintain
high current yield by purchasing inverse floaters and believes it has
taken on more short-term interest rate risk than it would like to bear.
Embedded caps hedge a portion of the Fund's exposure to rising short-term
interest rates where interest rates exceed the strike price. The risk is
that if interest rates do not rise above the strike price, then the cap -
purchased at a certain cost - will never provide additional cash flows and
expires worthless.
-- Municipal Lease Securities. The Fund may invest in municipal
lease obligations. While some municipal lease securities may be deemed
to be "illiquid" securities (the purchase of which would be limited as
described below in "Illiquid and Restricted Securities"), from time to
time the Fund may invest more than 5% of its net assets in municipal lease
obligations that the Manager has determined to be liquid under guidelines
set by the Board of Trustees. Those guidelines require the Manager to
evaluate: (1) the frequency of trades and price quotations for such
securities, (2) the number of dealers or other potential buyers willing
to purchase or sell such securities; (3) the availability of market-
makers; and (4) the nature of the trades for such securities. The Manager
will also evaluate the likelihood of a continuing market for such
securities throughout the time they are held by the Fund and the credit
quality of the instrument. See "Investment Objectives and Policies -
Municipal Securities - Municipal Lease Securities" in the Additional
Statement for more details.
-- Investments in Taxable Securities. Under certain conditions and
subject to certain restrictions, described above, the Fund may hold
certain taxable investments under any of the following circumstances: (a)
pending investment of the proceeds of sales of shares of the Fund or sales
of portfolio securities; (b) pending settlement of purchases of portfolio
securities; or (c) to maintain liquidity for the purpose of meeting
anticipated redemptions or exchanges. In addition, the Fund may invest
more than 20% of its assets in taxable securities for temporary defensive
purposes when, in the opinion of the Manager, it is advisable to do so
because of market conditions. While dividends paid by the Fund from
income derived from interest attributable to Municipal Securities will be
exempt from Federal individual income taxes, any net interest income
derived from taxable securities and distributed by the Fund will be
taxable as ordinary income when distributed. To the extent that the Fund
distributes taxable income, it will not be meeting its investment
objective.
The types of taxable securities in which the Fund may invest are
limited to the following short-term fixed-income securities (maturing in
one year or less from the time of purchase): (i) obligations issued by,
or guaranteed as to principal and interest by, the U.S. Government or by
its agencies or instrumentalities if such obligations are backed by the
full faith and credit of the United States; (ii) commercial paper rated
"A-1" or better by S&P or "Prime-1" or better by Moody's and issued by
companies whose long-term unsecured debt is rated "AAA" by S&P or "Aaa"
by Moody's; (iii) certificates of deposit of any bank whose long-term debt
obligations have been rated "AAA" by S&P or "Aaa" by Moody's; and (iv)
repurchase agreements and Hedging Instruments (described below in "Special
Investment Methods") with respect to any of the foregoing types of
securities; provided, however, that such commercial paper, certificates
of deposit and repurchase agreements may not exceed 25% of the total
assets of the Fund.
-- Effect of Interest Rate Changes. The values of Municipal
Securities will vary as a result of changing evaluations by rating
services and investors of the ability of the issuers of such securities
to meet their principal and interest payments. Such values will also
change in response to changes in interest rates: should interest rates
rise, the values of outstanding Municipal Securities will probably decline
and (if purchased at principal amount) would sell at a discount; should
interest rates fall, the values of outstanding Municipal Securities will
probably increase and (if purchased at principal amount) would sell at a
premium. Changes in the value of Municipal Securities held in the Fund's
portfolio arising from these or other factors) will not affect interest
income derived from those securities but will affect the Fund's net asset
value per share.
There are no restrictions on the maturities of the Municipal
Securities in which the Fund may invest. The Fund will seek to invest in
Municipal Securities that, in the judgment of the Manager, will provide
a high level of current income consistent with the Fund's liquidity
requirements, and conditions affecting the Municipal Securities market.
Portfolio Turnover
The Fund generally will not engage in the trading of securities for
the purpose of realizing short-term gains, but the Fund may sell
securities as the Manager deems advisable to take advantage of
differentials in yield to accomplish the Fund's investment objective.
While short-term trading increases portfolio turnover, the Fund incurs
little or no brokerage costs. See "Dividends, Distributions and Taxes"
in this Prospectus and "Portfolio Transactions" in the Additional
Statement for further details.
Special Investment Methods
In pursuing its investment objective, the Fund may use the following
special investment methods:
Options and Hedging
For hedging purposes the Fund may purchase and sell certain interest
rate futures contracts and municipal bond index futures (collectively,
"Futures") (described below) and put and call options on such Futures and
municipal bond indices, all of which are referred to as "Hedging
Instruments." The Fund will not use Hedging Instruments for speculation.
Futures contracts and options on Futures contracts will be used only as
a hedge against anticipated interest rate changes. If the Manager
anticipates that interest rates will rise, as a hedge against a decrease
in value of the Fund's securities, the Fund may sell a Futures contract
or a call option thereon, or purchase a put option on a Futures contract
or a debt security. If it is anticipated that interest rates will
decline, the Fund may purchase a Futures contract or a call option thereon
or on a debt security, or sell a put option on a Futures contract, to
protect against an increase in the price of securities the Fund intends
to purchase. Revenue from hedging transactions is taxable. The Hedging
Instruments the Fund may use are described below and in greater detail in
"Covered Calls and Hedging" in the Additional Statement.
-- Purchasing and Selling Puts and Calls. The Fund may sell a call
option on a Futures contract only if it holds the Futures contract (or
other securities acceptable for applicable escrow arrangements) in its
portfolio while the call is outstanding. The Fund may purchase put
options ("puts") which relate to a debt security, Interest Rate Future or
Municipal Bond Index Future held by it. The Fund may purchase calls: (i)
as to debt securities, Interest Rate Futures or Municipal Bond Index
Futures, or (ii) to effect a "closing purchase transaction" to terminate
its obligation as to a call it has previously written. A call or put may
be purchased only if, after such purchase, the value of all options held
by the Fund would not exceed 5% of the Fund's total assets.
-- Interest Rate Futures and Municipal Bond Index Futures. The Fund
may buy and sell Futures contracts only if they relate to debt securities
("Interest Rate Futures") or municipal bond indices ("Municipal Bond Index
Futures"). Municipal Bond Index Futures generally reflect the price
movements of municipal bonds, and are settled by the delivery of cash, not
by the securities comprising the index. That obligation may also be
satisfied by entering into an offsetting contract to close out the Futures
position.
-- Risks of Options and Futures Trading. "Covered Calls and Hedging"
in the Additional Statement contains more information about options and
Futures, options on Futures contracts, the payment of premiums for options
trades, and on the tax effects, risks and possible benefits to the Fund
from options trading, and information as to the Fund's other limitations
(which are not fundamental policies) on investment in Futures and options
thereon. There are certain risks in writing calls. If a call written by
the Fund is exercised, the Fund forgoes any profit from any increase in
the market price above the call price of the underlying investment on
which the call was written. The principal risks of Futures trading are:
(a) possible imperfect correlation between the prices of the Futures and
the market value of the Fund's portfolio securities; (b) possible lack of
a liquid secondary market for closing out a Futures position; (c) the need
for additional skills and techniques beyond those required for normal
portfolio management; and (d) losses on Futures resulting from market or
interest rate movements not anticipated by the Manager.
-- Interest Rate Swap Transactions. The Fund may enter into interest
rate swaps. In an interest rate swap, the Fund and another party exchange
their respective commitments to pay or receive interest on a security,
(e.g., an exchange of floating rate payments for fixed rate payments).
The Fund will not use interest rate swaps for leverage. Swap transactions
will be entered into only as to security positions held by the Fund. The
Fund may not enter into swap transactions with respect to more than 50%
of its total assets.
The Fund will segregate liquid assets (e.g., cash, U.S. Government
securities or other appropriate high grade debt obligations) equal to the
net excess, if any, of its obligations over its entitlements under the
swap and will mark to market that amount daily. The interest rate risk
of a swap is that the Fund will incur a net payment obligation as a result
of movements in interest rates. The credit risk of an interest rate swap
depends on the counterparty's ability to perform. The value of the swap
may decline if the counterparty's creditworthiness deteriorates. If the
counterparty defaults, the Fund risks the loss of the net amount of
interest payments that it is contractually entitled to receive. The Fund
may be able to reduce or eliminate its exposure to losses under swap
agreements either by assigning them to another party, or by entering into
an offsetting swap agreement with the same counterparty or another
creditworthy counterparty. See "Covered Calls and Hedging" in the
Additional Statement for further details.
Loans of Portfolio Securities
To attempt to increase its income, the Fund may lend its portfolio
securities (other than in repurchase transactions) to qualified borrowers
if the loan is collateralized by cash or U.S. Government Securities in
accordance with applicable regulatory requirements and if, after any loan,
the value of securities loaned does not exceed 5% of the value of the
Fund's total assets. The income from such loans, when distributed by the
Fund, will be taxable as ordinary income. The Fund does not currently
intend to lend its portfolio securities. See "Loans of Portfolio
Securities" in the Additional Statement for further information on
securities loans.
Illiquid and Restricted Securities
The Fund may buy securities whose disposition would be subject to
legal restrictions ("restricted securities"). The Fund will not purchase
or otherwise acquire any security if, as a result, more than 15% of its
net assets would be invested in securities that are illiquid by virtue of
the absence of a readily available market or because of legal or
contractual restrictions on resale. Such securities include: (i)
repurchase agreements maturing in more than seven days; (ii) securities
for which market quotations are not readily-available; and (iii) certain
municipal lease obligations that are considered illiquid securities. This
non-fundamental policy does not limit purchases of: (i) obligations
payable at principal amount plus accrued interest on or within seven days
after demand, (ii) municipal lease obligations that the Manager determines
are liquid (see above), or (iii) restricted securities eligible for
re-sale to qualified institutional buyers pursuant to Rule 144A under the
Securities Act of 1933 that are determined to be liquid by the Trust's
Board of Trustees or by the Manager under Board-approved guidelines. The
Fund currently intends to invest no more than 10% of its net assets in
illiquid or restricted securities, excluding Rule 144A restricted
securities that are determined to be liquid, as above. If due to changes
in relative value, more than 15% of the value of the Fund's net assets
consisted of illiquid securities, the Manager would consider appropriate
steps to protect the Fund's flexibility. There may be undesirable delays
in selling illiquid securities at prices representing their fair value.
When-Issued Securities
The Fund may invest in securities on a "when-issued" or "delayed
delivery" basis. In those transactions, the Fund obligates itself to
purchase or sell securities with delivery and payment to occur at a later
date to secure what is considered to be an advantageous price and yield
at the time the obligation is entered into. The price, which is generally
expressed in yield terms, is fixed at the time the commitment to purchase
is made, but delivery and payment for when-issued securities take place
at a later date (normally within 45 days of purchase). The Fund is
subject to the risk of adverse market fluctuation between purchase and
settlement. During the period between purchase and settlement, no payment
is made by the Fund to the issuer and no interest accrues to the Fund from
the investment. Although the Fund is subject to the risk of adverse
market fluctuation between purchase and settlement, the Manager does not
believe that the Fund's net asset value or income will be materially
adversely affected by its purchase of securities on a "when-issued" basis.
See "When-Issued and Delayed-Delivery Transactions" in the Additional
Statement for more details.
Repurchase Agreements
The Fund may acquire securities subject to repurchase agreements, for
liquidity purposes to meet anticipated redemptions, or pending the
investment of proceeds from sales of Fund shares or settlement of
purchases of portfolio investments. The Fund's repurchase agreements will
be fully collateralized. However, if the seller of the securities fails
to pay the agreed-upon repurchase price on the delivery date, the Fund's
risks may include any costs of disposing of collateral for the agreement,
and any loss that might result from any delays in foreclosing on the
collateral. The Fund will not enter into repurchase transactions that
will cause more than 25% of the Fund's total assets to be subject to
repurchase agreements and will not enter into repurchase agreements that
will cause more than 15% of its net assets to be subject to repurchase
agreements having a maturity beyond seven days. See "Repurchase
Agreements" in the Additional Statement for further details.
Investment Restrictions
The Fund has certain investment restrictions which, together with its
investment objective, are fundamental policies changeable only by the vote
of a "majority," as defined in the Investment Company Act of 1940, as
amended (the "Investment Company Act"), of the Fund's outstanding voting
securities. Under some of those restrictions, the Fund cannot: (1) 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 other than to secure a borrowing, and
then in amounts not exceeding 10% of the Fund's total assets; borrowings
may not be made for leverage, but only for liquidity purposes to satisfy
redemption requests when liquidation of portfolio securities is considered
inconvenient or disadvantageous; however, the Fund may enter into when-
issued and delayed delivery transactions as described herein; (2) Purchase
certificates of deposit or taxable commercial paper that will cause more
than 25% of the Fund's total assets to be so invested; (3) Make loans,
except that the Fund may purchase or hold debt obligations in accordance
with its other investment restrictions that are fundamental policies (and
may enter into repurchase transactions and may lend its portfolio
securities in amounts not exceeding 5% of the total assets of the Fund if
such loans are collateralized by cash or U.S. Government Securities in
amounts equal at all times to at least 100% of the value of the securities
loaned, including accrued interest); (4) Buy securities issued or
guaranteed by any one issuer (except the U.S. Government or any of its
agencies or instrumentalities), if with respect to 75% of its total
assets, more than 5% of the Fund's total assets would be invested in
securities of that issuer or the Fund would own more than 10% of that
issuer's voting securities; (5) Deviate from its other fundamental
policies described in "The Fund and Its Investment Policies"; or (6)
Invest more than 25% of its total assets in a single industry (although
the Fund may invest more than 25% of its assets in a particular segment
of the municipal bond market, but will not invest more than 25% of its
total assets in industrial revenue bonds in a single industry). The
percentage restrictions described above and in the Additional Statement
apply only at the time of investment and require no action by the Fund as
a result of subsequent changes in value of the investments or the size of
the Fund. A supplementary list of investment restrictions is contained
in "Investment Restrictions" in the Additional Statement.
Management Of The Fund
The Trust's Board of Trustees has overall responsibility for the
management of the Fund under the laws of Massachusetts governing the
responsibilities of trustees of business trusts. Subject to the authority
of the Board of Trustees, the Manager is responsible for the day-to-day
management of the Fund's business, supervises the investment operations
of the Fund and the composition of its portfolio and furnishes the Fund
advice and recommendations with respect to investments, investment
policies and the purchase and sale of securities, pursuant to an
investment advisory agreement (the "Agreement") with the Trust on behalf
of the Fund.
Robert Patterson a Senior Vice President of the Manager, serves as
a Portfolio Manager of the Fund and a Vice President of the Trust. Since
February, 1992, he has been the person principally responsible for the
day-to-day management of the Fund's portfolio. During the past five
years, Mr. Patterson has also served as an officer and portfolio manager
for other OppenheimerFunds. For more information about the Trust's other
officers and the Trustees, see "Trustees and Officers" in the Additional
Statement.
Under the Agreement, the Fund pays a management fee monthly to the
Manager computed on the aggregate net assets of the Fund each day at the
following annual rates: 0.500% of the first $100 million of net assets;
0.450% of the next $150 million; 0.425% of the next $250 million; and
0.400% of net assets over $500 million. The Agreement contains provisions
relating to portfolio transactions, including the selection of brokers and
dealers when used for such transactions. Subject to the Agreement, the
Manager may also consider sales of shares of the Fund and other funds
advised by the Manager or its affiliates as a factor in the selection of
brokers or dealers for the Fund's portfolio transactions. Most purchases
made by the Fund are principal transactions at net prices, and the Fund
incurs little or no brokerage costs. "Investment Management Services" in
the Additional Statement contains more complete information about the
Agreement, including a description of expense assumption arrangements,
exculpation provisions and brokerage practices of the Fund.
The Manager has operated as an investment adviser since April 30,
1959. The Manager and its affiliates currently advise U.S. investment
companies with assets aggregating over $24 billion as of September 30,
1993, and having more than 1.8 million shareholder accounts. The Manager
is owned 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.
How to Buy Shares
Alternative Sales Arrangements
Two classes of shares of the Fund are offered under the Fund's
"Alternative Sales Arrangements." The investor may elect to purchase
shares with a sales charge imposed (i) at the time of purchase or on a
contingent deferred basis on redemption of shares purchased in amounts
over $1 million (the "Class A shares"), or (ii) on a contingent deferred
basis (the "Class C shares"). The contingent deferred sales charge will
be imposed on most redemptions of Class C shares within 12 months of
purchase. The Alternative Sales Arrangements permit an investor to choose
the method of purchasing shares that is more beneficial to the investor
depending on the amount of the purchase, the length of time the investor
expects to hold shares and other relevant circumstances. The Fund's
Distributor, Oppenheimer Funds Distributor, Inc. (the "Distributor"), will
not knowingly accept any order for $1 million or more of Class C shares
or of one or more of the "Eligible Funds" listed in "Right of
Accumulation" below, on behalf of a single investor (not including dealer
"street name" or omnibus accounts) because it generally will be more
advantageous for such investor to purchase Class A shares of such Eligible
Fund(s) instead. Investors should understand that the purpose and
function of the deferred sales charge and asset-based sales charge with
respect to Class C shares are the same as those of the initial sales
charge with respect to Class A shares. Any financial intermediaries or
other person entitled to receive compensation for selling or servicing
Fund shares may receive different compensation with respect to one class
of shares than the other.
The two classes of shares each represent an interest in the same
portfolio of investments of the Fund. However, as described in this
Prospectus, each class has different shareholder privileges and features.
The net income attributable to Class C shares and the dividends payable
on Class C shares will be reduced by incremental expenses borne solely by
that class, including the asset-based sales charge to which Class C shares
are subject. For further information, see "Purchase, Redemption and
Pricing of Shares" in the Additional Statement.
The Fund's shares of either class may be purchased through any dealer
or broker that has a sales agreement with the Distributor, a subsidiary
of the Manager. There are two ways to make an initial investment: either
(1) complete an OppenheimerFunds New Account Application and mail it with
payment to the Distributor at P.O. Box 5270, Denver, Colorado 80217 (if
no dealer or broker is named in the Application, the Distributor will be
listed as the dealer of record), or (2) order the shares through your
dealer or broker. Be certain to specify whether you intend to purchase
Class A shares or Class C shares. If no such instructions are provided,
initial investments will be made in Class A shares and subsequent
investments will be made in the same class as the most recent previous
investment.
The minimum initial investment is $1,000, except as otherwise
described in this Prospectus. Subsequent purchases must be at least $25,
and may be made (1) through authorized dealers or brokers, (2) by
forwarding payment to the Distributor at the above address with the names
of all account owners, the account number and the name of the Fund, (3)
automatically through Asset Builder Plans or (4) by telephone using
AccountLink described below. Under an Asset Builder Plan, Automatic
Exchange Plan, 403(b)(7) custodial plan or military allotment plan,
initial and subsequent investments must be at least $25. The minimum
initial and subsequent purchase requirements are waived on purchases made
by reinvesting dividends from any of the "Eligible Funds" listed in "Right
of Accumulation" below, or by reinvesting distributions from unit
investment trusts for which reinvestment arrangements have been made with
the Distributor. No share certificates will be issued for Class C shares.
No share certificates will be issued for Class A shares unless
specifically requested in writing by an investor or the dealer or broker.
The net asset value per share of each class is determined as of 4:00
P.M. (all references to time in this Prospectus mean New York time) each
day The New York Stock Exchange is open (a "regular business day") by
dividing the value of the Fund's net assets attributable to that class by
the number of shares of that class outstanding. The Fund's Board of
Trustees has established procedures for valuing the Fund's securities.
In general, those valuations are based on market value, with special
provisions for: (i) securities (including restricted securities) not
having readily-available market quotations, (ii) short-term debt
securities and (iii) covered calls and Hedging Instruments. Further
details are in "Purchase, Redemption and Pricing of Shares" in the
Additional Statement. The net asset values per share of Class A and Class
C shares are expected to be substantially the same; however, from time to
time the net asset values of each class may differ due to differences in
expenses borne by each class, as discussed under "Purchase, Redemption and
Pricing of Shares - Dual Class Methodology" in the Additional Statement.
All purchase orders received by the Distributor at its office in
Denver, Colorado prior to 4:00 P.M. on a regular business day are
processed at that day's offering price. However, an order received by the
Distributor from a dealer or broker after the offering price is determined
that day will receive such offering price if the order was received by the
dealer or broker from its customer prior to 4:00 P.M., and was transmitted
to and received by the Distributor prior to its close of business that day
(normally 5:00 P.M.). Purchase orders received on other than a regular
business day will be executed on the next regular business day. The
Distributor, in its sole discretion, may accept or reject any order for
purchase of the Fund's shares. The sale of shares will be suspended
during any period when the determination of net asset value is suspended
and may be suspended by the Board of Trustees whenever the Board judges
it in the Fund's best interest to do so.
Class A Shares
Class A shares are sold at their offering price, which (as that term
is used in this Prospectus and the Additional Statement) is net asset
value plus a front-end sales charge, except that as to certain purchases
described below that are not subject to a front-end sales charge, the
offering price is net asset value. The offering price is determined as
of 4:00 P.M. each regular business day. Class A shares may not be
converted into Class C shares.
The table below shows the regular front-end sales charge rates for
Class A shares for a "single purchaser" (defined below), together with the
dealer discounts paid to authorized dealers and the agency commissions
paid to authorized brokers (collectively, "commissions"):
- -------------------------------------------------------------------------
Amount of Purchase Front-end Front-end Commission
Sales Charge Sales Charge as
as as Percentage
Percentage Approximate of Offering
of Offering Percentage Price
Price of Amount
Invested
- -------------------------------------------------------------------------
Less than $100,000 3.50% 3.63% 3.00%
$100,000 or more but
less than $250,000 3.00% 3.09% 2.50%
$250,000 or more but
less than $500,000 2.50% 2.56% 2.00%
$500,000 or more but
less than $1 million 2.00% 2.04% 1.50%
$1 million or more None* None* None*
- -------------------------------------------------------------------------
*See "Class A Contingent Deferred Sales Charge," below.
Under certain circumstances, commissions up to the amount of the
entire sales charge may be paid to dealers or brokers, who might then be
deemed to be "underwriters" as defined in the Securities Act of 1933.
Commission rates may vary among the funds for which the Manager and its
affiliates act as investment advisers.
The Distributor may advance up to 13 months' commissions to dealers
that have entered into special arrangements with the Distributor as to
purchases made by their clients under Oppenheimer Asset Builder Plans.
If a registered representative of a securities dealer sells more than $2.5
million of Class A shares of "Eligible Funds" other than "Money Market
Funds" (as that term is defined below) in a calendar year, the dealer firm
is eligible to send such representative, with a guest, to a three-day
sales conference (generally held in a resort), if one is sponsored and
held by the Distributor; or in lieu of sending such representative that
firm may, at its option, receive the equivalent cash value of such award
as additional commission. The Distributor may, from time to time, enter
into arrangements with specific dealers whereby the Distributor may make
additional payments to that dealer based, in part, on that dealer meeting
certain sales criteria. Such additional payments may be based on sales
for a specific period of time, shares of certain or all of the "Eligible
Funds" held by the dealer and/or its customers, or some combination
thereof.
-- Class A Contingent Deferred Sales Charge. On purchases of Class
A shares of any one or more of the "Eligible Funds" by a "single
purchaser" (defined below in "Right of Accumulation") aggregating $1
million or more, the Distributor will pay authorized dealers an amount
equal to 1.0% of the first $2.5 million of such purchases, plus 0.50% of
the next $2.5 million, plus 0.25% of such purchases in excess of $5
million. A contingent deferred sales charge (the "Class A CDSC") will be
deducted from the redemption proceeds of shares as to whose purchase the
Distributor has made such payments to dealers if the shares are redeemed
within 18 months of the end of the calendar month of their purchase. The
Class A CDSC shall be an amount equal to 1.0% of the lesser of the
aggregate net asset value of the redeemed shares (not including shares
purchased by reinvestment of dividends or capital gains) or the original
cost of such shares. However, the total Class A CDSC paid on such shares
will not exceed the aggregate commissions paid to dealers on all Class A
shares of "Eligible Funds" purchased subject to a Class A CDSC by that
"single purchaser."
The Class A CDSC does not apply to purchases at net asset value
described in "Other Circumstances" below and will be waived in the case
of redemptions of shares made for: (i) Automatic Withdrawal Plan payments
limited to no more than 12% of the original account value annually; and
(ii) involuntary redemptions of shares by operation of law or under
procedures set forth in the Trust's Declaration of Trust or as adopted by
the Board of Trustees (collectively, "Involuntary Redemptions"). See
"Transfer of Shares" in "Purchase, Redemption and Pricing of Shares" in
the Additional Statement for further details.
Some or all of the proceeds of redeemed shares on which a Class A
CDSC was paid at the time of redemption and which are subsequently
reinvested under the "Reinvestment Privilege" (described below) may be
reinvested within 6 months of redemption without sales charge at net asset
value on the reinvestment date if the investor notifies the Distributor
that the privilege applies. Additionally, no Class A CDSC is charged on
exchanges, pursuant to the Fund's Exchange Privilege (described below),
of shares purchased subject to a Class A CDSC, except that if the Class
A shares acquired by exchange are redeemed within 18 months of the end of
the calendar month of the initial purchase of the exchanged shares, the
Class A CDSC will apply. In determining whether a Class A CDSC is
payable, and the amount of any such Class A CDSC, shares not subject to
a Class A CDSC are redeemed first, including shares purchased by
reinvestment of dividends and capital gains distributions, and then other
shares are redeemed in the order of purchase.
-- Reduced Sales Charges for Class A Purchases. The sales charge
rates in the above table may be reduced as follows:
Right of Accumulation. In calculating the sales charge rate
applicable to current purchases of Class A shares, a "single purchaser"
(defined below) is entitled to accumulate current purchases with the
greater of: (1) amounts previously paid for, or (2) the current value (at
offering price) of Class A shares of certain other "Eligible Funds" and
of the Fund if sold subject to an initial sales charge and if the
investment is still held in one of the Eligible Funds. The Eligible Funds
are those for which the Distributor or an affiliate acts as the
distributor and include the following: (i) the Fund, Oppenheimer Time
Fund, Oppenheimer Target Fund, Oppenheimer Tax-Free Bond Fund, Oppenheimer
New York Tax-Exempt Fund, Oppenheimer California Tax-Exempt Fund,
Oppenheimer High Yield Fund, Oppenheimer Champion High Yield Fund,
Oppenheimer Total Return Fund, Inc., Oppenheimer Asset Allocation Fund,
Oppenheimer Mortgage Income Fund, Oppenheimer Discovery Fund, Oppenheimer
Global Bio-Tech Fund, Oppenheimer Global Environment Fund, Oppenheimer
Global Growth & Income Fund, Oppenheimer Pennsylvania Tax-Exempt Fund,
Oppenheimer Global Fund, Oppenheimer Fund, Oppenheimer Special Fund,
Oppenheimer Equity Income Fund, Oppenheimer Gold & Special Minerals Fund,
Oppenheimer Investment Grade Bond Fund, Oppenheimer Value Stock Fund,
Oppenheimer U.S. Government Trust, Oppenheimer Insured Tax-Exempt Bond
Fund, Oppenheimer Government Securities Fund, Oppenheimer Main Street
Income & Growth Fund, Oppenheimer Main Street California Tax-Exempt Fund,
Oppenheimer Florida Tax-Exempt Fund, Oppenheimer Strategic Income Fund,
Oppenheimer Strategic Income & Growth Fund, Oppenheimer Strategic
Investment Grade Bond Fund, Oppenheimer Strategic Short-Term Income Fund
and (ii) the following "Money Market Funds": Centennial Money Market
Trust, Centennial Tax Exempt Trust, Centennial Government Trust,
Centennial New York Tax Exempt Trust, Centennial California Tax Exempt
Trust, Centennial America Fund, L.P., Oppenheimer Money Market Fund, Inc.,
Daily Cash Accumulation Fund, Inc., Oppenheimer Cash Reserves and
Oppenheimer Tax-Exempt Cash Reserves. There is an initial sales charge
on the purchase of Class A shares of each Eligible Fund except Money
Market Funds (under certain circumstances described herein, redemption
proceeds of Money Market Fund shares may be subject to a CDSC). The
reduced sales charge applies only to current purchases.
The term "single purchaser" refers to: (i) an individual; (ii) an
individual and spouse purchasing shares of the Fund for their own account
or for trust or custodial accounts for their minor children; or (iii) a
fiduciary purchasing for any one trust, estate or fiduciary account,
including employee benefit plans created under Sections 401 or 457 of the
Internal Revenue Code of 1986, as amended (the "Internal Revenue Code"),
including related plans of the same employer. To be entitled to a reduced
sales charge under the Right of Accumulation, at the time of purchase the
purchaser must ask the Distributor for such entitlement and provide the
account number(s) for shares of Eligible Funds owned by the "single
purchaser," and the age of any minor children for whom shares are held.
Letter of Intent. By initially investing at least $1,000 and
submitting a Letter of Intent (the "Letter") to the Distributor, a "single
purchaser" may purchase Class A shares of the Fund and other Eligible
Funds (other than the Money Market Funds) during a 13-month period at the
reduced sales charge rates, or at net asset value but subject to the Class
A CDSC, if applicable, applying to the aggregate amount of the intended
purchases stated in the Letter. The Letter may apply to purchases made
up to 90 days before the date of the Letter. The Fund and the Distributor
reserve the right to amend or terminate such program at any time without
prior notice. For further details, including escrow requirements, see
"Letter of Intent" in the Additional Statement.
Other Circumstances. No sales charge is imposed on Class A shares
of the Fund: (i) sold to the Manager or its affiliates, or to present and
former officers, trustees or directors and employees (and their "immediate
families," as defined in "Reduced Sales Charges" in the Additional
Statement) of the Fund, the Manager and its affiliates, and to retirement
plans established by them for employees; (ii) issued in plans of
reorganization, such as mergers, asset acquisitions and exchange offers,
to which the Fund is a party; (iii) sold to registered investment
companies or to separate accounts of insurance companies having an
agreement with the Manager or the Distributor; (iv) sold to dealers or
brokers that have a sales agreement with the Distributor, for their own
account or for retirement plans for their employees, or sold to employees
(and their spouses) of such dealers or brokers or of financial
institutions that have entered into a sales arrangement with such dealer
or broker or the Distributor (and are identified to the Distributor by
such dealer or broker); the purchaser must certify to the Distributor at
the time of purchase that such purchase is for its own account (or for the
benefit of such employee's minor children); (v) sold to dealers, brokers
or registered investment advisers that have entered into an agreement with
the Distributor providing specifically for the use of Fund shares in
particular investment products made available to the clients of the
dealer, broker or registered investment adviser; and (vi) purchased by the
reinvestment of (a) loan repayments by a participant in a retirement plan
for which the Manager or its affiliates act as Sponsor, or (b) dividends
or other distributions reinvested from the Fund or other "Eligible Funds"
(other than the Cash Reserves Funds) or unit investment trusts for which
reinvestment arrangements have been made with the Distributor. "Reduced
Sales Charges" in the Additional Statement discusses this policy.
-- Class A Service Plan. The Fund has adopted a service plan (the
"Class A Plan") under Rule 12b-1 of the Investment Company Act, pursuant
to which the Fund will reimburse the Distributor quarterly for a portion
of its costs incurred in connection with the personal service and
maintenance of accounts that hold Class A shares. The Distributor will
use such fees received from the Fund in their entirety: (i) to compensate
brokers, dealers, banks and other institutions (collectively,
"Recipients") each quarter for personal service and maintenance of
accounts that hold Class A shares and (ii) to reimburse itself (to the
extent authorized by the Board of Trustees) for its other expenditures
under the Plan and its costs for personal service and maintenance of
accounts. The services to be provided under the Class A Plan include but
are not limited to, the following: answering routine inquiries from the
Recipient's customers concerning the Fund, providing such customers with
information on their investment in Class A shares, assisting in
establishing and maintaining accounts or sub-accounts in the Fund, making
the Fund's investment plans and dividend payment options available, and
providing such other information and customer liaison services and the
maintenance of accounts as the Distributor or the Fund may reasonably
request. Payments by the Distributor to Recipients will be made quarterly
and computed as of the close of business each day at an annual rate not
to exceed 0.25% of the aggregate net asset value of Class A shares owned
by the Recipient or its customers.
Any unreimbursed expenses incurred during any quarter by the
Distributor may not be recovered in later periods. The Fund will not be
charged for any interest expense, carrying charges or other financial
costs, or allocation of overhead by the Distributor. The Class A Plan has
the effect of increasing annual expenses of the Fund by up to 0.25% of its
average annual net assets from what its expense would otherwise be. In
addition, the Manager and the Distributor may, under the Class A Plan,
from time to time from their own resources (which, as to the Manager, may
include profits derived from the advisory fee it receives from the Fund)
make payments to Recipients for distribution and administrative services
they perform. For further details, see "Distribution and Service Plans"
in the Additional Statement.
Class C Shares
Class C Shares are sold at net asset value per share without the
imposition of a sales charge at the time of purchase.
-- Class C Contingent Deferred Sales Charge. A contingent deferred
sales charge (the "Class C CDSC") will be deducted from the redemption
proceeds of Class C shares redeemed within 12 months of their purchase
(not including shares purchased by reinvestment of dividends or capital
gains). The Class C CDSC shall be an amount equal to 1.0% of the lesser
of the then net asset value or the original purchase price of the Class
C shares being redeemed. Accordingly, no Class C CDSC will be imposed on
amounts representing increases in net asset value above the initial
purchase price (including increases due to reinvestment of dividends or
capital gains). In determining whether a Class C CDSC is payable and the
amount of any such CDSC, shares not subject to a CDSC are redeemed first,
including shares purchased by reinvestment of dividends and capital gains
distributions, and then other shares are redeemed in the order of
purchase.
Proceeds from the Class C CDSC are paid to the Distributor to
reimburse it for its expenses related to providing distribution-related
services to the Fund in connection with the sale of Class C Shares. The
combination of the Class C CDSC and the distribution fee retained by the
Distributor (as described under "Class C Distribution and Service Plan")
facilitate the sale of Class C Shares without a sales charge being
deducted at the time of purchase.
In determining the amount of the Class C CDSC that applies, all
purchases shall be considered as having been made on the first regular
business day of the month in which the purchase was made. The Class C
CDSC will be waived upon the request of the shareholder for redemptions
following the (i) death or (ii) complete disability (as evidenced by a
certificate from the U.S. Social Security Administration), of all persons
individually owning such shares of record and not as fiduciaries or
agents, that occurs since the account was established. In addition, no
CDSC is imposed on Class C shares of the Fund (i) sold to the Manager or
its affiliates; (ii) sold to registered investment companies or separate
accounts of insurance companies having an agreement with the Manager or
the Distributor; (iii) issued in plans of reorganization, such as mergers,
asset acquisitions and exchange offers to which the Fund is a party; or
(iv) redeemed in Involuntary Redemptions. See "Transfer of Shares" in
"Purchase, Redemption and Pricing of Shares" in the Additional Statement
for further details.
-- Class C Distribution and Service Plan. The Fund has adopted a
plan of distribution (the "Class C Plan") under Rule 12b-1 of the
Investment Company Act, pursuant to which it will compensate the
Distributor for its services and costs incurred in connection with the
distribution and service of the Fund's Class C shares. Pursuant to the
Class C Plan, the Fund will pay the Distributor an asset-based sales
charge of 0.75% per annum plus a service fee of 0.25% per annum, each of
which is computed on the average net assets of Class C shares of the Fund
computed as of the close of each business day. The Distributor will use
the service fee payment to compensate Recipients for providing personal
service and the maintenance of shareholder accounts that hold Class C
shares, examples of which are described under "Class A Service Plan."
Service fee payments by the Distributor to Recipients will be made
(i) in advance for the first year Class C shares are outstanding,
following the purchase of shares, in an amount equal to 0.25% of the net
assets of the shares purchased by the Recipient or its customers and (ii)
thereafter, on a quarterly basis, computed as of the close of each
business day at an annual rate of 0.25% of the net asset value of Class
C shares held in accounts of the Recipient or its customers. Other terms
and options under the Class C Plan for payment of the service fee by the
Distributor to Recipients, and other terms and conditions of the Class C
Plan are described under "Distribution and Service Plans" in the
Additional Statement. Asset-based sales charges and service fees will be
paid by the Fund to the Distributor monthly and quarterly, respectively.
The Distributor currently expects to pay sales commissions from its
own resources to authorized dealers or brokers at the time of sale equal
to 0.75% of the purchase price of Fund shares sold by such dealer or
broker, and to advance the first year service fee of 0.25%. The service
fee and asset-based sales charge payments by the Fund to the Distributor
during the initial year that Class C shares are outstanding under the
Class C Plan are intended to allow the Distributor to recoup such sales
commissions and service fees advanced. After the first year that Class
C shares are outstanding, the Distributor expects to pay the asset-based
sales charge on such shares to authorized dealers or brokers as an ongoing
sales commission.
Asset-based sales charge payments are designed to permit an investor
to purchase shares of the Fund without the assessment of a front-end sales
load and at the same time permit the Distributor to compensate brokers and
dealers in connection with the sale of shares of the Fund. The
Distributor's actual distribution expenses for any given year may exceed
the aggregate of payments received pursuant to the Class C Plan and
contingent deferred sales charges, and such expenses will be carried
forward and paid in future years. The Fund will be charged only for
interest expenses, carrying charges or other financial costs that are
directly related to the carry-forward of actual distribution expenses.
For example, if the Distributor incurred distribution expenses of $4
million in a given fiscal year, of which $2,000,000 was recovered in the
form of contingent deferred sales charges paid by investors and $1,600,000
were reimbursed in the form of payments made by the Fund to the
Distributor under the Class C Plan, the balance of $400,000 (plus
interest) would be subject to recovery in future fiscal years from such
sources.
The Class C Plan contains a provision which allows the Board to
permit the Fund to continue payments to the Distributor for certain
expenses it incurred for Class C shares sold prior to termination of the
Class C Plan. Pursuant to this provision, payment of the asset-based
sales charge of up to 0.75% per annum could continue after termination.
The Class C Plan has the effect of increasing annual expenses of
Class C shares of the Fund by up to 1.00% of its average annual net assets
from what its expenses would otherwise be. In addition, the Manager and
the Distributor may, under the Class C Plan, from time to time from their
own resources (which, as to the Manager, may include profits derived from
the advisory fee it receives from the Fund) make payments to Recipients
for distribution and administrative services they perform. For further
details, see "Distribution and Service Plans" in the Additional Statement.
Purchase Programs for Class A and Class C Shares
-- AccountLink. OppenheimerFunds AccountLink is a means to link a
shareholder's Fund account with an account at a U.S. bank or other
financial institution that is an Automated Clearing House ("ACH") member.
AccountLink can be used to transmit funds by electronic funds transfers
for account transactions, including subsequent share purchases. The
minimum investment by AccountLink is $25. Purchases of up to $250,000 may
be made by telephone using AccountLink (the maximum is $100,000 if the
transaction is done by PhoneLink, described below). To speak to service
operators to initiate such purchases, call the Distributor at 1-800-852-
8457. All such calls will be recorded. To initiate such purchases
automatically using PhoneLink, call 1-800-533-3310. Shares will be
purchased on the regular business day the Distributor is instructed to
initiate the ACH transfer to buy the shares. Dividends will begin to
accrue on such shares on the day the Fund receives Federal Funds for such
purchase through the ACH system before 4:00 P.M., which is normally three
days after the ACH transfer is initiated. If such Federal Funds are
received after that time, dividends will begin to accrue on the next
regular business day after such Federal Funds are received.
AccountLink may also be used as a means of transmitting redemption
proceeds to a designated bank account (see "How to Redeem Shares") or to
transmit distributions paid by the Fund directly to a bank account (see
"Dividends and Distributions"). AccountLink privileges must be requested
on the application used to buy shares or the dealer settlement
instructions establishing the account, or on subsequent signature-
guaranteed instructions to the Transfer Agent, from all shareholders of
record for an account, and such privileges thereupon apply to each
shareholder of record and the dealer representative of record unless and
until the Transfer Agent receives written instructions from a shareholder
of record canceling such privileges. Changes of bank account information
must be made by signature-guaranteed instructions to the Transfer Agent
by all shareholders of record for an account. The Transfer Agent, the
Fund and the Distributor have adopted reasonable procedures to confirm
that telephone instructions under AccountLink (described above) and
"PhoneLink," "Telephone Redemptions" and the "Exchange Privilege"
(described below) are genuine, by requiring callers to provide the tax
identification number(s) and other account data by recording such calls
and confirming such transactions in writing. If the Transfer Agent and
the Distributor do not use such procedures, they may be liable for losses
due to unauthorized transactions, but otherwise will not be responsible
for losses of expenses arising out of telephone instructions reasonably
believed to be genuine. The Fund reserves the right to amend, suspend or
discontinue AccountLink privileges at any time without prior notice.
-- PhoneLink. PhoneLink is the OppenheimerFunds automated telephone
system which enables shareholders of the Fund to initiate account
transactions automatically by telephone, including exchanges between
existing accounts (see "Exchange Privilege" below), redemptions (see "How
to Redeem Shares - Telephone Redemptions," below) and purchases (see
"AccountLink" above). PhoneLink transactions may be done automatically
using a touchtone telephone provided that the shareholder uses a Personal
Identification Number ("PIN") which may be obtained through PhoneLink by
calling 1-800-533-3310. If an account has multiple owners, the Transfer
Agent or the Distributor may rely on any instructions initiated through
PhoneLink using a PIN. The Fund reserves the right to amend, suspend or
discontinue PhoneLink privileges at any time without prior notice.
-- Asset Builder Plans. Investors may purchase shares of the Fund
(and up to four other Eligible Funds) automatically under Asset Builder
Plans. With AccountLink, Asset Builder Plans may be used to make regular
monthly investments ($25 minimum) from the investor's account at a bank
or other financial institution. See "AccountLink," above for details.
To establish an Asset Builder Plan from a bank account, a check (minimum
$25) for the initial purchase must accompany the application. Shares
purchased by Asset Builder Plan payments from bank accounts are subject
to the redemption restrictions for recent purchases described in "How To
Redeem Shares." Asset Builder Plans also enable shareholders of
Oppenheimer Tax-Exempt Cash Reserves or Oppenheimer Cash Reserves to use
those accounts for monthly automatic purchases of shares of the Fund and
up to four other Eligible Funds.
There is a sales charge on the purchase of certain Eligible Funds,
and an application should be obtained from the Transfer Agent and
completed and a prospectus of the selected fund(s) (available from the
Distributor) should be obtained before initiating payments. The amount
of the Asset Builder investment may be changed or the automatic
investments terminated at any time by writing to the Transfer Agent. A
reasonable period (approximately 15 days) is required after receipt of
such instructions to implement them. The Fund reserves the right to
amend, suspend, or discontinue offering such plans at any time without
prior notice.
-- Group Programs. Reduced sales charges are available to
participants in a group sales program if the administrator of the program
has entered into an agreement with the Distributor providing, among other
things, that all participants' purchases are made by a single group order
and payment for each investment period and that requisite data about such
participants and purchases be provided to the Transfer Agent in acceptable
computer format. The sales charge for such purchases will be at the rate
in the table above that applies to combined current purchases (minimum $25
per participant per period) of shares of the Fund, Oppenheimer Insured
Tax-Exempt Bond Fund and Oppenheimer Government Securities Fund by all
participants in such program based upon the current value (at offering
price) of shares of such fund held by all participants in such program at
the time of purchase. No certificates will be issued for shares held by
program participants and dividends and distributions must be reinvested
in accounts held by such participants. Automatic Withdrawal and Exchange
Plans (described below) may not be used for such accounts. The Fund and
the Distributor reserve the right to amend, suspend or cease offering such
programs at any time without prior notice.
How to Redeem Shares
Regular Redemption Procedures
To redeem some or all shares in an account (whether or not
represented by certificates) under the Fund's regular redemption
procedures, a shareholder must send the following items to the Fund's
transfer agent, Oppenheimer Shareholder Services, P.O. Box 5270, Denver,
Colorado 80217 [send courier or Express Mail deliveries to 10200 E. Girard
Avenue, Building D, Denver, Colorado 80231]: (1) a written request for
redemption signed by all registered owners exactly as the shares are
registered, including fiduciary titles, if any, and specifying the account
number and the dollar amount or number of shares to be redeemed; (2) a
guarantee of the signatures of all registered owners on the redemption
request or on the endorsement on the share certificate or accompanying
stock power, by a U.S. bank, trust company, credit union or savings
association, or a foreign bank having 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,
registered securities association or clearing agency; (3) any share
certificates issued for any of the shares to be redeemed; and (4) any
additional documents which may be required by the Transfer Agent for
redemption by corporations, partnerships or other organizations,
executors, administrators, trustees, custodians, guardians, or if the
redemption is requested by anyone other than the shareholder(s) of record
or to demonstrate eligibility for waiver of the Class C CDSC on the
grounds of age or disability. Transfers of shares are subject to similar
requirements.
A signature guarantee is not required for redemptions of $50,000 or
less, requested by and payable to all shareholders of record, to be sent
to the address of record for that account. To avoid delay in redemption
or transfer, shareholders having questions about these requirements should
contact the Transfer Agent in writing or by calling 1-800-525-7048 before
submitting a request. From time to time the Transfer Agent in its
discretion may waive any or certain of the foregoing requirements in
particular cases. Redemption or transfer requests will not be honored
until the Transfer Agent receives all required documents in the proper
form. Shareholders owning shares of both classes must specify whether
they intend to redeem Class A or Class C shares.
Telephone Redemptions
To redeem shares by telephone through a service representative, call
the Transfer Agent at 1-800-852-8457. To use PhoneLink to redeem shares
automatically, without a service representative, call 1-800-533-3310.
Under either method of telephone redemptions, proceeds may be paid by
check or through AccountLink as described below. The Transfer Agent may
record any calls. Telephone redemptions may not be available if all lines
are busy, and shareholders would have to use the Fund's regular redemption
procedures described above. Requests received by the Transfer Agent prior
to 4:00 P.M. on a regular business day will be processed at the net asset
value per share determined that day. Telephone redemption privileges are
not available for newly-purchased (within the prior 15 days) shares, or
for shares represented by certificates.
Telephone redemption privileges apply automatically to each
shareholder and the dealer representative of record unless the Transfer
Agent receives cancellation instructions from a shareholder of record.
If an account has multiple owners, the Transfer Agent may rely on the
instructions of any one owner. Telephone redemption privileges may be
amended, suspended or discontinued by the Fund at any time without prior
notice.
-- Telephone Redemptions Paid by Check. For redemption proceeds paid
by check, amounts up to $50,000 may be redeemed by telephone, once in each
seven-day period. The check must be payable to the shareholder(s) of
record and sent to the address of record for the account. Telephone
redemptions paid by check are not available within 30 days of a change of
the address of record.
-- Redemptions Paid Through AccountLink or Wire. Redemption proceeds
may be wired to a pre-designated account at another financial institution
through AccountLink or by Federal Funds wire.
If AccountLink privileges have been established for an account, any
amount may be redeemed by telephone, wire or written instructions to the
Transfer Agent, and the ACH transfer of the redemption proceeds to the
designated bank account normally will be initiated by the Transfer Agent
on the next bank business day after the redemption. There are no dollar
or frequency limitations on telephone redemptions sent to a designated
bank account through AccountLink. No dividends are paid on the proceeds
of redeemed shares awaiting transmittal by ACH transfer. See
"AccountLink" under "How To Buy Shares--Purchase Programs for Class A and
Class C Shares" for instructions on establishing this privilege.
Shareholders may also wire redemption proceeds of $2,500 or more in
Federal Funds to a designated commercial bank account if the bank is a
member of the Federal Reserve wire system. To place a wire redemption
request, call the Transfer Agent at 1-800-525-7048. There is a $15 fee
for each wire. For both methods of wiring redemption proceeds, the
account number at the designated financial institution must be supplied
to the Transfer Agent on the application or dealer settlement instructions
establishing the account or may be added to existing accounts or changed
only by signature-guaranteed instructions to the Transfer Agent from all
shareholders of record. Such redemption requests may be made by
telephone, wire or written instructions to the Transfer Agent. The wire
for the redemption proceeds normally will be transmitted by the Transfer
Agent on the next bank business day after redemption. No dividends are
paid on the proceeds of redeemed shares awaiting transmittal by wire. See
"Purchase, Redemption and Pricing of Shares" in the Additional Statement
for more details.
Check Writing
Upon request, the Transfer Agent will provide shareholders whose
shares are not represented by certificates with forms of drafts ("checks")
payable through a bank selected by the Fund (the "Bank"). Check writing
privileges are not available to accounts holding either Class C shares or
Class A shares subject to a CDSC. Checks may be written by a shareholder
in any amount not less than $100, payable to the order of anyone, and will
be subject to the Bank's rules and regulations governing checks. The
Transfer Agent will arrange for check writing after obtaining a specimen
signature card from the shareholder(s). If a check is presented for an
amount greater than the account value, it will not be paid. A check
should not be written in an amount close to the total value of the account
because the net asset value of the Fund's shares fluctuates from day to
day. The Fund will charge a handling fee of $10 for any check that is not
paid at the request of a shareholder or because of an insufficient share
balance or because the check was written for less than the stated minimum.
Shareholders of joint accounts may elect to have checks honored with a
single signature. Checks issued for one account in the Fund must not be
used if the shareholder's account has been transferred to a new account
or if the account number or registration has been changed. Shares
purchased by check or Asset Builder payments within the prior 15 days may
not be redeemed by check writing. A check that would require the
redemption of some or all of the shares so purchased is subject to non-
payment.
The Bank will present checks to the Fund to redeem shares to cover
the amount of the check. This enables the shareholder to continue
receiving dividends on those shares until the check is presented to the
Fund. Checks may not be presented for payment at the offices of the Bank
or the Fund's Custodian. This limitation does not affect the use of
checks for the payment of bills or to obtain cash at other banks. The
Fund reserves the right to amend, suspend or discontinue offering such
privilege at any time without prior notice.
Automatic Withdrawal and Exchange Plans
Investors owning shares of the Fund valued at $5,000 or more can
authorize the Transfer Agent to redeem shares (minimum $50) automatically
on a monthly, quarterly, semi-annual or annual basis under an Automatic
Withdrawal Plan. Shares will be redeemed three business days prior to the
date requested by the shareholder for receipt of the payment. Automatic
withdrawals of up to $1,500 per month may be requested by telephone if
payments are by check payable to all shareholders of record and sent to
the address of record for the account (and if the address has not been
changed within the prior 30 days). Payments are normally made by check,
but shareholders having AccountLink privileges (see "How To Buy Shares")
may arrange to have Automatic Withdrawal Plan payments transferred to the
bank account designated on the OppenheimerFunds New Account Application
or signature-guaranteed instructions. Because of the sales charge
assessed on Class A share purchases, shareholders should not make
additional Class A shares purchases while participating in an Automatic
Withdrawal Plan. Class C shareholders normally should not establish
withdrawal plans, because of the imposition of the Class C CDSC on such
withdrawals (except where the Class C CDSC is waived as described in
"Class C Contingent Deferred Sales Charge"). The Fund cannot guarantee
receipt of the payment on the date requested and reserves the right to
amend, suspend or discontinue offering such plans at any time without
prior notice. For further details, refer to "Automatic Withdrawal Plan
Provisions" in the Additional Statement.
Shareholders can also authorize the Transfer Agent to exchange a
predetermined amount (minimum $25 per fund account) of shares of the Fund
for shares of up to five other "Eligible Funds" automatically on a
monthly, quarterly, semi-annual or annual basis, under an Automatic
Exchange Plan. Exchanges made pursuant to such Plans are subject to the
conditions and terms applicable to exchanges described in "Exchange
Privilege" below.
Repurchase
The Distributor is the Fund's agent to repurchase its shares from
authorized dealers or brokers. The repurchase price will be the net asset
value next computed after the receipt of an order placed by such dealer
or broker, except that orders received by the Distributor from dealers or
brokers after 4:00 P.M. on a regular business day will be processed at
that day's net asset value if such orders were received by the dealer or
broker from its customers prior to 4:00 P.M. and are transmitted to and
received by the Distributor prior to its close of business that day
(normally 5:00 P.M.). Payment ordinarily will be made within seven days
after the Distributor's receipt of the required documents, with
signature(s) guaranteed as described above.
Reinvestment Privilege
Within six months of a redemption, a shareholder may reinvest all or
part of the redemption proceeds of (i) Class A shares, or (ii) Class C
shares that were subject to the Class C CDSC when redeemed, in Class A
shares of the Fund or any of the Eligible Funds into which shares of the
Fund are exchangeable as described below, at the net asset value next
computed after receipt by the Transfer Agent of the reinvestment order.
The shareholder must ask the Distributor for such entitlement at the time
of reinvestment. A realized gain on the redemption is taxable, and the
reinvestment will not alter any capital gains tax payable on that gain.
If there has been a loss on the redemption, some or all of the loss may
not be tax deductible, depending on the timing and amount reinvested in
the Fund. Under the Internal Revenue Code, if the redemption proceeds of
Fund shares on which sales charges were paid are reinvested in shares of
the Fund or another Eligible Fund within 90 days of payment of the sales
charge, the shareholder's basis in the Fund shares redeemed may not
include the amount of the sales charge paid, thereby reducing the loss or
increasing the gain recognized from the redemption. 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.
General Information on Redemptions
The redemption price will be the Fund's net asset value per share
next determined after the Transfer Agent receives redemption instructions
in proper form. The market value of the securities in the Fund's
portfolio is subject to daily fluctuations and the net asset value of each
class of the Fund's shares will fluctuate accordingly. Therefore, the
redemption value may be more or less than the investor's cost. Under
certain unusual circumstances, shares may be redeemed in kind (i.e., by
payment in portfolio securities). The Fund may involuntarily redeem small
accounts (if the account has fallen below $1,000 in value for reasons
other than market value fluctuations) and may redeem shares in amounts
sufficient to compensate the Distributor for any loss due to cancellation
of a share purchase order; for details, see "Purchase, Redemption and
Pricing of Shares" in the Additional Statement. Under the Internal
Revenue Code, the Fund may be required to impose "backup" withholding of
Federal income tax at the rate of 31% from any taxable dividends,
distributions and redemption proceeds (including exchanges), if the
shareholder has not furnished the Fund a certified tax identification
number or has not complied with provisions of the Internal Revenue Code
relating to reporting dividends.
Payment for redeemed shares is made ordinarily in cash and forwarded
within seven days of the Transfer Agent's receipt of redemption
instructions in proper form, except under unusual circumstances as
determined by the SEC. The Transfer Agent may delay forwarding a
redemption check for recently purchased shares only until the purchase
payment has cleared, which may take up to 15 days or more from the
purchase date. Such delay may be avoided if the shareholder arranges
telephone or written assurance satisfactory to the Transfer Agent from the
bank upon which the purchase payment was drawn. The Fund makes no charge
for redemption. Dealers or brokers may charge a fee for handling
redemption transactions, but such charge can be avoided by requesting the
redemption directly by the Fund through the Transfer Agent. Under certain
circumstances, the Class A and Class C CDSCs described under "How to Buy
Shares" may apply to the proceeds of redemptions.
Exchanges Of Shares
Exchange Privilege
Shares of the Fund and of the Eligible Funds listed in "Right of
Accumulation" may be exchanged at net asset value per share at the time
of exchange, without sales charge, if all of the following conditions are
met: (1) shares of the fund selected for exchange are available for sale
in the shareholder's state of residence; (2) the respective prospectuses
of the funds whose shares are to be exchanged and acquired offer the
Exchange Privilege to the investor; (3) newly-purchased (by initial or
subsequent investment) shares are held in an account for at least seven
days and all other shares at least one day prior to the exchange; and (4)
the aggregate net asset value of shares surrendered for exchange is at
least equal to the minimum investment requirements of the fund whose
shares are to be acquired.
In addition to the conditions stated above, shares of a particular
class of Eligible Fund having more than one class of shares may be
exchanged for shares of the same class of another Eligible Fund. All of
the Eligible Funds offer Class A shares, but only certain Eligible Funds
(referred to as the "Advisors Portfolio") offer Class C shares. The names
of those Eligible Funds can be obtained by calling the Distributor at 1-
800-525-7048. In addition, Class A shares of Eligible Funds may be
exchanged for shares of any Money Market Fund; shares of any Money Market
Fund purchased without a sales charge may be exchanged for shares of
Eligible Funds offered with a sales charge upon payment of the sales
charge, or, if applicable, may be used to purchase shares of Eligible
Funds subject to a CDSC; and shares of this Fund acquired by reinvestment
of dividends or distributions from any other Eligible Fund 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
Eligible Fund. No CDSC is imposed on exchanges of shares purchased
subject to a CDSC. However, when Class A shares acquired by exchange from
Class A shares purchased subject to a Class A CDSC 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 CDSC will apply (see "Class A
Contingent Deferred Sales Charge," above). Similarly, the Class C CDSC
is imposed on Class C shares redeemed within 12 months of the initial
purchase of the exchanged Class C shares (see "Class C Contingent Deferred
Sales Charge," above).
-- How to Exchange Shares. An exchange may be made by either: (1)
submitting an OppenheimerFunds Exchange Authorization Form to the Transfer
Agent, signed by all registered owners, or (2) telephone exchange
instructions to the Transfer Agent by a shareholder or the dealer
representative of record for an account. The Fund may modify, suspend or
discontinue either of these exchange privileges at any time, and will do
so on 60 days' notice, if such notice is required by regulations adopted
under the Investment Company Act. The Fund reserves the right to reject
telephone or written exchange requests submitted in bulk on behalf of 10
or more accounts. Telephone and written exchange requests must be
received by the Transfer Agent by 4:00 P.M. on a regular business day to
be effected that day. The number of shares exchanged may be less than the
number requested if the number requested would include shares subject to
a restriction cited above or shares covered by a certificate that is not
tendered with such request. Only the shares available for exchange
without restriction will be exchanged.
When Class C shares are redeemed to effect an exchange, the
priorities described in "How to Buy Shares" for the imposition of the
Class C CDSC will be followed in determining the order in which shares are
exchanged. Shareholders should take into account the effect of any
exchange on the applicability and rate of any CDSC that may be imposed in
the subsequent redemption of remaining shares. Shareholders owning shares
of both classes must specify whether they intend to exchange Class A or
Class C shares.
-- Telephone Exchanges. Telephone exchange requests may be placed
through a service representative by calling the Transfer Agent at 1-800-
852-8457 or automatically by PhoneLink, by calling 1-800-533-3310. If all
telephone exchange lines are busy (which might occur, for example during
periods of substantial market fluctuations), shareholders might not be
able to request telephone exchanges and would have to submit written
exchange requests. Telephone exchange calls may be recorded by the
Transfer Agent. Telephone exchanges are subject to the rules described
above. By exchanging shares by telephone, the shareholder is
acknowledging receipt of a prospectus of the fund to which the exchange
is made and that for full or partial exchanges, any special account
features such as Asset Builder Plans and Automatic Withdrawal or Exchange
Plans will be switched to the new account unless the Transfer Agent is
otherwise instructed. Telephone exchange privileges automatically apply
to each shareholder of record and the dealer representative of record
unless and until the Transfer Agent receives written instructions from a
shareholder(s) of record canceling such privileges. If an account has
multiple owners, the Transfer Agent may rely on the instructions of any
one owner. The Transfer Agent reserves the right to require shareholders
to confirm in writing their election of telephone exchange privileges for
an account. Shares acquired by telephone exchange must be registered
exactly as the account from which the exchange was made. Certificated
shares are not eligible for telephone exchange.
-- General Information on Exchanges. Shares to be exchanged are
redeemed on the 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 in its discretion reserves the right to refuse any
exchange request that will disadvantage it, for example if the receipt of
multiple exchange requests from a dealer might require the disposition of
securities at a time or price disadvantageous to the Fund. No sales
commissions are paid by the Distributor on exchanges of shares (unless a
front-end sales charge is assessed on the exchange).
The Eligible Funds have different investment objectives and policies.
For complete information, including sales charges and expenses, a
prospectus of the fund into which the exchange is being made should be
read prior to an exchange. A $5 service charge will be deducted from the
account to which the exchange is made to help defray administrative
costs. That charge is waived for telephone exchanges made by PhoneLink
between existing accounts. Dealers or brokers who process exchange
orders on behalf of their customers may charge for their services. Those
charges may be avoided by requesting the Fund directly to exchange shares.
For Federal tax purposes, an exchange is treated as a redemption and
purchase of shares (see "How to Redeem Shares - Reinvestment Privilege"
for a discussion of certain tax effects of exchanges).
Dividends, Distributions and Taxes
This discussion relates solely to Federal tax laws and is not
exhaustive; a qualified tax adviser should be consulted. The Fund's
dividends and distributions may be subject to state and local taxation.
See "Tax Aspects of Hedging Instruments" and "Tax Status of the Fund's
Dividends and Distributions" in the Additional Statement for more
information on tax aspects of the Fund's investment in Hedging Instruments
and other tax matters. Information about the possible applicability of
Alternative Minimum Tax to the Fund's dividends is contained in "The Fund
and Its Investment Policies - Private Activity Municipal Securities" in
the Additional Statement.
Dividends and Distributions
The Fund intends to declare dividends separately for Class A and
Class C shares from net investment income on each regular business day and
pay such dividends monthly on a date selected by the Board of Trustees.
Dividends will be payable on shares held of record at the time of the
previous determination of net asset value. An investor purchasing Fund
shares immediately prior to the declaration of a dividend or capital gain
distribution, which has the effect of reducing the Fund's net asset value
per share by the amount of the dividend or distribution, should consider
the tax consequences of receiving such distribution. The amount of a
class's distributions may vary from time to time depending upon market
conditions, the composition of the Fund's portfolio, and expenses borne
by the Fund or borne separately by that Class, as described under
"Purchase Redemption and Pricing of Shares - Dual Class Methodology" in
the Additional Statement. 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 C shares are expected to be lower than on Class A
shares on a pro rata basis as a result of the asset-backed sales charge
on Class C shares, and such dividends will also differ in an amount as a
consequence of any difference in net asset value between Class A and Class
C shares.
Daily dividends will not be declared or paid on newly-purchased
shares until 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 fifth 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 paid with respect to
shares repurchased by dealer or broker order for four business days
subsequent to the trade date (i.e., to and including the day prior to
settlement of the repurchase). If a shareholder redeems all shares in an
account, all dividends accrued on shares held in that account will be paid
together with the redemption proceeds.
Distributions from net realized short-term or long-term capital
gains, if any, will be paid at least once each year. If net capital
losses are realized in any year, they are charged against principal and
not against net investment income, which is distributed regardless of
capital gains or losses. Long-term gains, if any, will be identified
separately when tax information is distributed. Receipt of tax-exempt
income must be reported on the taxpayer's Federal income tax return.
There is no fixed dividend rate and there can be no assurance as to
the payment of any dividends or distributions or the realization of any
gains. Dividends and distributions are automatically reinvested in Fund
shares of the same class at net asset value, as of a date selected by the
Board of Trustees, unless the shareholder asks the Transfer Agent to pay
dividends and capital gains distributions in cash, or to reinvest them in
another Eligible Fund, as described in "Dividend Reinvestment in Another
Fund" in the Additional Statement. That request must be received prior
to a dividend record date to be effective as to that dividend. Under
AccountLink, dividends and distributions may be automatically transferred
to a designated account at a financial institution. See "AccountLink" in
"How to Buy Shares" and the OppenheimerFunds New Account Application for
more details. For existing accounts, such privileges may be established
only by signature-guaranteed instructions from all shareholders to the
Transfer Agent. Dividends, distributions and the proceeds of redemptions
of Fund shares represented by checks returned to the Transfer Agent by the
Postal Service as undeliverable will be invested in shares of Oppenheimer
Money Market Fund, Inc. as promptly as possible after the return of such
checks to the Transfer Agent, to enable the investor to earn a return on
otherwise idle funds.
During the Fund's fiscal year ended September 30, 1993, prior to
January 1, 1993, the Fund sought to pay distributions to shareholders at
a targeted level per Class A share each month, to the extent that target
was consistent with the Fund's net investment income and other
distributable income sources, although the amount of distributions could
vary from time to time, depending on market conditions, the composition
of the Fund's portfolio, and expenses borne by that Class. The Board of
Trustees could change that targeted level at any time, and there is
otherwise no fixed dividend rate. There can be no assurance as to the
payment of any dividends or the realization of any capital gains. The
Fund was able to pay dividends at the targeted level from net investment
income and other distributable income, without any material impact on the
Manager's portfolio management practices or on the Fund's net asset value
per share. Prior to January 1, 1993, the Manager assumed certain of the
Fund's expenses. The effect of that assumption would have been to reduce
expenses and increase the Fund's net asset value per share, although the
amount of any such increase would not have exceeded $.01 per Fund share.
Tax Status of the Fund's Dividends and Distributions
The Fund intends to qualify under the Internal Revenue Code during
each fiscal year to pay "exempt-interest dividends" to its shareholders.
Exempt-interest dividends which are derived from net investment income
earned by the Fund on Municipal Securities will be excludable from gross
income of shareholders for Federal income tax purposes. Net investment
income includes the allocation of amounts of income from the Municipal
Securities in the Fund's portfolio which are free from Federal income
taxes. This allocation will be made by the use of one designated
percentage applied uniformly to all income dividends made during the
Fund's tax year. Such designation will normally be made following the end
of each fiscal year as to income dividends paid in the prior year. The
percentage of income designated as tax-exempt may substantially differ
from the percentage of the Fund's income that was tax-exempt for a given
period. A portion of the exempt-interest dividends paid by the Fund may
be an item of tax preference for shareholders subject to the alternative
minimum tax. All of the Fund's dividends (excluding capital gains
distributions) paid during the fiscal year ended September 30, 1993 were
exempt from Federal income taxes. Corporate shareholders and "substantial
users" of facilities financed by Private Activity Municipal Securities
should see "Private Activity Municipal Securities" in the Additional
Statement before purchasing shares.
A shareholder receiving a dividend from income earned by the Fund
from one or more of: (i) certain taxable investments (such as certificates
of deposit, repurchase agreements, commercial paper and obligations of the
U.S. Government, its agencies and instrumentalities); (ii) income from
hedging transactions and securities loans; and (iii) an excess of net
short-term capital gain over net long-term capital loss from the Fund,
treats the dividend as a receipt of either ordinary income or long-term
capital gain in the computation of gross income, regardless of whether the
dividend is reinvested. The Fund's dividends will not be eligible for the
dividends-received deduction for corporations. Shareholders receiving
Social Security benefits should be aware that exempt-interest dividends
are a factor in determining whether such benefits are subject to Federal
income tax. Losses realized by shareholders on the redemption of Fund
shares within six months of purchase (which period may be shortened by
regulation) will be disallowed for Federal income tax purposes to the
extent of exempt-interest dividends received on such shares.
Long-term capital gains distributions, if any, are taxable as long-
term capital gains whether received in cash or reinvested and regardless
of how long Fund shares have been held. Dividends paid by the Fund
derived from net short-term capital gains are taxable to shareholders as
ordinary income, whether received in cash or reinvested. For information
on "backup withholding" on taxable dividends, see "How To Redeem Shares."
Interest on loans used to purchase shares of the Fund may not be deducted
for Federal income tax purposes. Under rules used by the Internal Revenue
Service to determine when borrowed funds are deemed used for the purpose
of purchasing or carrying particular assets, the purchase of Fund shares
may be considered to have been made with borrowed funds even though the
borrowed funds are not directly traceable to the purchase of shares.
Tax Status of the Fund
If the Fund qualifies as a "regulated investment company" under the
Internal Revenue Code, it will not be liable for Federal income taxes on
amounts paid by it as dividends and distributions. The Fund qualified
during its last fiscal year and intends to qualify in current and future
fiscal years, but reserves the right not to do so. However, the Internal
Revenue Code contains a number of complex tests relating to such
qualification which the Fund might not meet in any particular fiscal year.
For example, if the Fund derives 30% or more of its gross income from the
sale of securities held less than three months, it may fail to qualify.
If the Fund does not qualify, it would be treated for tax purposes as an
ordinary corporation, would receive no tax deduction for payments made to
shareholders and would be unable to pay "exempt-interest dividends" as
discussed above.
Fund Performance Information
Yield and Total Return Information
From time to time the "standardized yield," "tax equivalent yield,"
"dividend yield," "average annual total return," "total return" and "total
return at net asset value" of an investment in each class of shares of the
Fund may be advertised. Under rules adopted by the SEC, the Fund's
"yield" of each class is computed in a standardized manner for mutual
funds, by dividing the net investment income per share earned during a 30-
day base period by the maximum offering price per share on the last day
of the period. This yield calculation is compounded on a semi-annual
basis, and multiplied by 2 to provide an annualized yield. The Fund's
"tax-equivalent yield" of each class is determined by dividing that
portion of the yield (calculated as described above) that is tax-exempt
by a factor that includes the applicable income tax rate (adjusted for any
portion of the yield that is not tax-exempt). The "tax-equivalent yield"
is then compounded and annualized in the same manner as the "yield."
"Dividend yield" of each class of the Fund represents dividends derived
from net investment income during a stated period divided by the maximum
offering price at the end of the period to show the rate of return based
on actual distributions paid to shareholders of that class.
The Fund's "average annual total return" of each class for a
particular period is computed by determining the average annual compounded
rate of return over the period, using the initial amount invested at the
beginning of the period and the redeemable value of the investment at the
end of the period. The "total return" of each class for a period is a
cumulative rate of return over the entire period, also using the initial
amount invested and redeemable value at the end of the period. In both
cases, the initial amount invested assumes the payment of the Fund's
current maximum initial sales charge applicable to Class A shares, or the
1.0% Class C CDSC is taken into account with respect to the performance
of that class. The Fund may also quote a "total return at net asset
value" of each class, which is total return calculated without considering
either initial sales charges (for Class A shares) or the Class C CDSC (for
Class C shares). In all instances, the redeemable value of the investment
assumes that all dividends and capital gains distributions have been
reinvested at net asset value without sales charge. The "average annual
total return," "total return" and "total return at net asset value"
indicate the investment results an investor holding shares of that class
would have experienced over the stated period from changes in share price
and reinvestment of dividends and distributions.
All performance information is based on historical per share earnings
and is not intended to indicate future performance. From time to time the
Manager may voluntarily assume a portion of the Fund's expenses in any
class (which may include the management fee), thereby lowering the overall
expense ratio per share and increasing the yield and total return of that
class during the time such expenses are assumed. "Yield, Total Return and
Tax Information" in the Additional Statement contains more detailed
information about calculating the Fund's yields and returns, and other
performance information.
Management's Discussion of Performance
During the twelve months ended September 30, 1993, the performance
of the municipal bond market was favorably affected by low interest rates,
Federal tax increases and gradual economic growth. During its fiscal year
ended September 30, 1993, the Fund was generally fully-invested in a
portfolio of bonds that are, in the opinion of the Manager, quality bonds.
The Fund also sought to lock-in attractive rates with call protection,
which prevents the issuer of the bond from calling or redeeming it before
maturity. In the opinion of the Manager, the Fund is well diversified by
state and market sector with an emphasis on states with higher tax rates,
such as New York, Ohio and Maryland.
Comparison of Change
In Value of $10,000
Hypothetical Investment in
Oppenheimer Intermediate
Tax-Exempt Bond Fund A and
Lehman Municipal Bond Index
Average Annual Total Return of the Fund at 9/30/93
1 Year 5 Year Life*
6.44% 9.25% 8.15%
Intermediate
Year Tax-Exempt Lehman Muni $10,000
Ending Bond Fund Bond Index Investment
11/11/86 $ 9,650
11/30/86 $ 9,745 $10,000
09/30/87 $ 9,253 -3.10% $ 9,690
09/30/88 $10,638 12.98% $10,948
09/30/89 $11,652 8.68% $11,898
09/30/90 $12,368 6.80% $12,707
09/30/91 $14,000 13.19% $14,383
09/30/92 $15,553 10.45% $15,886
09/30/93 $17,156 12.74% $17,910
Past performance is not predictive of future performance.
*The Fund began operations on 11/11/86.
The performance graph above depicts the performance of a $10,000
hypothetical investment in Class A shares of the Fund at the offering
price including sales charges in effect on November 11, 1986 (commencement
of operations) held through September 30, 1993, with all dividends and
distributions reinvested in additional shares at net asset value on the
reinvestment date, without sales charge. The graph compares the total
return of the Fund's Class A shares during this period against the
performance of the Lehman Brothers Municipal Bond Index, an unmanaged
index of a broad range of investment grade municipal bonds, widely
regarded as a measure of the performance of the general municipal bond
market and includes a factor for the reinvestment of interest but does not
reflect expenses. The Fund's Class A total return reflects the deduction
of the current maximum sales charge rate of 3.50% and includes
reinvestment of all dividends and capital gains distributions, but does
not consider taxes. A comparable graph is not shown for the Fund's Class
C shares as they were not publicly offered during this period.
Additional Information
Description of the Fund and Its Shares
The Fund is a series of Oppenheimer Tax-Exempt Bond Fund (the
"Trust") which presently has two series. Two classes of shares of each
Series are presently outstanding. Class A and Class C shares of
Oppenheimer Intermediate Tax-Exempt Bond Fund constitute the shares of
beneficial interest described herein. Shares of each series are
transferable without restriction and have equal rights and privileges.
Each shareholder is entitled to one vote per share held (and a fractional
vote for each fractional share), and to participate pro rata in dividends
and distributions of that Series and in the net distributable assets of
the Trust attributable to that series on liquidation. When issued, such
shares are fully paid and nonassessable (except as described in the
Additional Statement under "Additional Information"), and have no
preemptive, subscription or cumulative voting rights. The Trust's Board
of Trustees is empowered to create additional "series" of shares of the
Trust, which may have separate assets and liabilities, and additional
"classes" of shares, which would represent interests in the same portfolio
of investments.
On any matter submitted to a vote of all shareholders of the Trust,
the vote shall be by individual series and not in the aggregate, except
when required by the Investment Company Act of 1940, or if the Board
determines that the matter affects only the interests of one or more class
or series, then only shareholders of that class or series shall vote.
The Fund does not anticipate holding annual meetings. Under certain
circumstances, shareholders of the Fund have the right to remove a Trustee
and may be held personally liable as "partners" for the Fund's
obligations; however, the risk of a shareholder incurring any financial
loss is limited to the relatively remote circumstances in which the Fund
is unable to meet its obligations. See "Additional Information" in the
Additional Statement for details.
The Custodian and the Transfer Agent
The Custodian of the assets of the Fund is Citibank, N.A. The
Manager and its affiliates presently have banking relationships with the
Custodian. See "Additional Information" in the Additional Statement for
further information. The Fund's cash balances in excess of $100,000 held
by the Custodian are not protected by Federal deposit insurance. Such
uninsured balances at times may be substantial.
The Transfer Agent, a division of the Manager, acts as transfer agent
and shareholder servicing agent on an at-cost basis for the Fund and
certain other open-end funds advised by the Manager and acts as transfer
agent for unit investment trusts for the accumulation of shares of one of
such funds. Shareholders should be direct any inquiries to the Transfer
Agent at the address or toll-free phone number listed on the back cover
of this Prospectus.
<PAGE>
Investment Adviser
Oppenheimer Management Corporation Advisors
Two World Trade Center Portfolio
New York, New York 10048-0203
Distributor
Oppenheimer Funds Distributor, Inc.
Two World Trade Center
New York, New York 10048-0203
Transfer Agent O P P E N H E I M E R
Oppenheimer Shareholder Services
P.O. Box 5270 Intermediate
Denver, Colorado 80217 Tax-Exempt
1-800-525-7048 Bond Fund
Custodian of Portfolio Securities
Citibank, N.A.
399 Park Avenue
New York, New York 10043
Independent Auditors
Deloitte & Touche
1560 Broadway
Denver, Colorado 80202
Prospectus
Legal Counsel Effective January 25, 1994
Myer, Swanson & Adams, P.C.
1600 Broadway
Denver, Colorado 80202
No dealer, salesperson or any other person
has been authorized to give any information
or to make any representations other than
those contained in this Prospectus or the
Additional Statement, and if given or made,
such information and representations must
not be relied upon as having been authorized
by the Fund, Oppenheimer Management
Corporation, Oppenheimer Funds Distributor,
Inc., or any affiliate thereof. This
Prospectus does not constitute an offer to
sell or a solicitation of an offer to buy
any of the securities offered hereby in any
state to any person to whom it is unlawful
to make such offer in such state.
OppenheimerFunds
PR861 (1/94) Printed on recycled paper
<PAGE>
Investment Adviser
Oppenheimer Management Corporation Advisors
Two World Trade Center Portfolio
New York, New York 10048-0203
Distributor
Oppenheimer Funds Distributor, Inc.
Two World Trade Center
New York, New York 10048-0203
Transfer Agent O P P E N H E I M E R
Oppenheimer Shareholder Services
P.O. Box 5270 Intermediate
Denver, Colorado 80217 Tax-Exempt
1-800-525-7048 Bond Fund
Custodian of Portfolio Securities
Citibank, N.A.
399 Park Avenue
New York, New York 10043
Independent Auditors
Deloitte & Touche
1560 Broadway
Denver, Colorado 80202 Prospectus and
New Account Application
Legal Counsel Effective January 25, 1994
Myer, Swanson & Adams, P.C.
1600 Broadway
Denver, Colorado 80202
No dealer, salesperson or any other person
has been authorized to give any information
or to make any representations other than
those contained in this Prospectus or the
Additional Statement, and if given or made,
such information and representations must
not be relied upon as having been authorized
by the Fund, Oppenheimer Management
Corporation, Oppenheimer Funds Distributor,
Inc., or any affiliate thereof. This
Prospectus does not constitute an offer to
sell or a solicitation of an offer to buy
any of the securities offered hereby in any
state to any person to whom it is unlawful
to make such offer in such state.
OppenheimerFunds
PR861 (1/94) Printed on recycled paper
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
OPPENHEIMER INTERMEDIATE TAX-EXEMPT BOND FUND
3410 South Galena Street, Denver, Colorado 80231
1-800-525-7048
Oppenheimer Intermediate Tax-Exempt Bond Fund (the "Fund"), is a
series of Oppenheimer Tax-Exempt Bond Fund (the "Trust"). This Statement
of Additional Information (the "Additional Statement") is not a
Prospectus. This Additional Statement should be read together with the
Fund's Prospectus (the "Prospectus") dated January 25, 1994, which may be
obtained upon written request to Oppenheimer Shareholder Services (the
"Transfer Agent"), P.O. Box 5270, Denver, Colorado 80217 or by calling the
Transfer Agent at the toll-free number shown above.
TABLE OF CONTENTS
Page
Investment Objectives and Policies . . . . . . . . . . . . 2
Investment Restrictions. . . . . . . . . . . . . . . . . . 12
Trustees and Officers. . . . . . . . . . . . . . . . . . . 12
Investment Management Services . . . . . . . . . . . . . . 15
Purchase, Redemption and Pricing of Shares . . . . . . . . 17
Distribution and Service Plans . . . . . . . . . . . . . . 20
Performance and Tax Information. . . . . . . . . . . . . . 22
Additional Information . . . . . . . . . . . . . . . . . . 25
Automatic Withdrawal Plan Provisions . . . . . . . . . . . 27
Letters of Intent. . . . . . . . . . . . . . . . . . . . . 29
Independent Auditor's Report . . . . . . . . . . . . . . . 31
Financial Statements . . . . . . . . . . . . . . . . . . . 32
Appendix A (Ratings of Investments). . . . . . . . . . . . A-1
Appendix B (Tax-Equivalent Yield Chart). . . . . . . . . . B-2
This Additional Statement is effective January 25, 1994.
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
The investment objectives and policies of the Fund are described in
the Prospectus. Supplemental information about those policies is set
forth below. Certain capitalized terms used in this Additional Statement
are defined in the Prospectus.
Municipal Securities. The types of Municipal Securities the Fund may
invest in are described in "The Fund And Its Investment Policies" in the
Prospectus. Below is a discussion of the general characteristics of types
of Municipal Securities.
Municipal Bonds. The principal classifications of long-term
municipal bonds are "general obligation" and "revenue" or "industrial
development" bonds.
General Obligation Bonds. Issuers of general obligation bonds
include states, counties, cities, towns, and regional districts. The
proceeds of these obligations are used to fund a wide range of public
projects, including construction or improvement of schools, highways and
roads, and water and sewer systems. The basic security behind general
obligation bonds is the issuer's pledge of its full faith and credit and
taxing power for the payment of principal and interest. The taxes that
can be levied for the payment of debt service may be limited or unlimited
as to the rate or amount of special assessments.
Revenue Bonds. The principal security for a revenue bond is
generally the net revenues derived from a particular facility, group of
facilities, or, in some cases, the proceeds of a special excise or other
specific revenue source. Revenue bonds are issued to finance a wide
variety of capital projects including: electric, gas, water and sewer
systems; highways, bridges, and tunnels; port and airport facilities;
colleges and universities; and hospitals. Although the principal security
behind these bonds may vary, many provide additional security in the form
of a debt service reserve fund whose money may be used to make principal
and interest payments on the issuer's obligations. Housing finance
authorities have a wide range of security, including partially or fully
insured mortgages, rent subsidized and/or collateralized mortgages, and/or
the net revenues from housing or other public projects. Some authorities
provide further security in the form of a state's ability (without
obligation) to make up deficiencies in the debt service reserve fund.
Industrial Development Bonds. Industrial development bonds,
which are considered municipal bonds if the interest paid is exempt from
federal income tax, are issued by or on behalf of public authorities to
raise money to finance various privately operated facilities for business
and manufacturing, housing, sports, and pollution control. These bonds
are also used to finance public facilities such as airports, mass transit
systems, ports, and parking. The payment of the principal and interest
on such bonds is dependent solely on the ability of the facility's user
to meet its financial obligations and the pledge, if any, of real and
personal property so financed as security for such payment.
Municipal Notes. Municipal Securities having a maturity when issued
of less than one year are generally known as municipal notes. Municipal
notes generally are used to provide for short-term working capital needs
and include:
Tax Anticipation Notes. Tax anticipation notes are issued to
finance working capital needs of municipalities. Generally, they are
issued in anticipation of various seasonal tax revenue, such as income,
sales, use or business taxes, and are payable from these specific future
taxes.
Revenue Anticipation Notes. Revenue anticipation notes are
issued in expectation of receipt of other types of revenue, such as
Federal revenues available under the Federal revenue sharing programs.
Bond Anticipation Notes. Bond anticipation notes are issued to
provide interim financing until long-term financing can be arranged. In
most cases, the long-term bonds then provide the money for the repayment
of the notes.
Construction Loan Notes. Construction loan notes are sold to
provide construction financing. After successful completion and
acceptance, many projects receive permanent financing through the Federal
Housing Administration.
Tax-Exempt Commercial Paper. Tax-exempt commercial paper is a short-
term obligation with a stated maturity of 365 days or less. It is issued
by state and local governments or their agencies to finance seasonal
working capital needs or as short-term financing in anticipation of
longer-term financing.
Municipal Lease Securities. Municipal leases may take the form of
a lease or an installment purchase contract issued by state and local
government authorities to obtain funds to acquire a wide variety of
equipment and facilities. Although lease obligations do not constitute
general obligations of the municipality for which the municipality's
taxing power is pledged, a lease obligation is ordinarily backed by the
municipality's covenant to budget for, appropriate and make the payments
due under the lease obligation. However, certain lease obligations
contain "non-appropriation" clauses which provide that the municipality
has no obligation to make lease or installment purchase payments in future
years unless money is appropriated for such purpose on a yearly basis.
Municipal leases, like other municipal debt obligations, are subject to
the risk of non-payment. The ability of issuers of municipal leases to
make timely lease payments may be adversely impacted in general economic
downturns and as relative governmental cost burdens are reallocated among
federal, state and local governmental units. Such non-payment would
result in a reduction of income to the Fund, and could result in a
reduction in the value of the municipal lease experiencing non-payment and
a potential decrease in the net asset value of the Fund.
Floating Rate/Variable Rate Obligations. Floating rate and variable
rate demand notes are tax-exempt obligations which may have a stated
maturity in excess of one year, but may include features that permit the
holder to recover the principal amount of the underlying security at
specified intervals not exceeding one year and upon no more than 30 days'
notice. The issuer of such notes normally has a corresponding right,
after a given period, to prepay in its discretion the outstanding
principal amount of the note plus accrued interest upon a specified number
of days notice to the holder. The interest rate on a floating rate demand
note is based on a stated prevailing market rate, such as a bank's prime
rate, the 90-day U.S. Treasury Bill rate, or some other standard, and is
adjusted automatically each time such rate is adjusted. The interest rate
on a variable rate demand note is also based on a stated prevailing market
rate but is adjusted automatically at specified intervals of no more 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
Trust's investment adviser, Oppenheimer Management Corporation (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 the
Fund's quality standards.
Inverse Floaters and Derivative Securities. From time to time the
Fund may invest in variable rate bonds where the interest rate paid varies
inversely with movements in short-term tax-exempt yields. Such bonds are
known as "inverse floaters." The expectation is that inverse floaters
will provide higher expected tax-exempt yields than are available for
fixed-rate bonds of comparable credit and maturity. In certain instances,
the holder of an inverse floater may have an option to convert the inverse
floater into a fixed-rate bond. Inverse floaters produce relatively high
current income, reflecting the spread between short-term tax-exempt rates
and long-term tax-exempt rates. As long as the municipal yield curve
remains relatively steep, owners of inverse floaters will continue to earn
above-market interest rates because they are receiving the higher long-
term rates together the differential between long-term and short-term
rates. If long-term rates rise, an inverse floater will lose value more
quickly than conventional long-term municipal bonds.
The Fund may choose to hedge its exposure to rising interest rates
by purchasing municipal bonds with embedded interest rate caps, a type of
derivative security. The cap is structured whereby cash flows are based
on the amount by which interest rates exceed a predetermined level known
as the "strike price." Embedded caps may be appropriate if the Manager
has leveraged the Fund's portfolio to maintain high current yield by
purchasing inverse floaters and believes it has taken on more short-term
interest rate risk than it would like to bear. Embedded caps hedge a
portion of the Fund's exposure to rising short-term interest rates when
interest rates exceed the strike price. The risk is that if interest
rates do not rise above the strike price, then the cap - purchased at a
certain cost - will never provide additional cash flows and expires
worthless. As with other options, embedded caps are a "wasting asset,"
meaning that their value will decline to zero at expiration. Therefore,
the Manager would need to be correct in both the direction and timing of
interest rate moves for investments in embedded interest rate caps to be
profitable.
When-Issued and Delayed Delivery Transactions. As stated in the
Prospectus, the Fund may invest in Municipal Securities on a "when-issued"
or "delayed delivery" basis. Payment for and delivery of the securities
generally settles within 45 days of the date the offer is accepted. The
purchase price and yield are fixed at the time the buyer enters into the
commitment. During the period between purchase and settlement, no payment
is made by the Fund to the issuer and no interest accrues to the Fund from
this investment. However, the Fund intends to be as fully invested as
possible and will not invest in when-issued securities if its income or
net asset value will be materially adversely affected. At the time the
Fund makes the commitment to purchase a Municipal Security on a when-
issued basis, it will record the transaction on its books and reflect the
value of the security in determining its net asset value. It will also
segregate cash or other high quality liquid Municipal Securities equal in
value to the commitment for the when-issued securities. While when-issued
securities may be sold prior to settlement date, the Fund intends to
acquire the securities upon settlement unless a prior sale appears
desirable for investment reasons. There is a risk that the yield
available in the market when delivery occurs may be higher than the yield
on the security acquired.
Private Activity Municipal Securities. The Tax Reform Act of 1986
(the "Tax Reform Act") reorganized, as well as amended, the rules
governing tax exemption for interest on Municipal Securities. The Tax
Reform Act generally did not change the tax treatment of bonds issued in
order to finance governmental operations. Thus, interest on obligations
issued by or on behalf of a state or local government, the proceeds of
which are used to finance the operations of such governments (e.g.,
general obligation bonds) continues to be tax-exempt. However, the Tax
Reform Act further limited the use of tax-exempt bonds for non-
governmental (private) purposes. More stringent restrictions were placed
on the use of proceeds of such bonds. Interest on certain private
activity bonds (other than those specified as "qualified" tax-exempt
private activity bonds, e.g., exempt facility bonds including certain
industrial development bonds, qualified mortgage bonds, qualified Section
501(c)(3) bonds, qualified student loan bonds, etc.) is taxable under the
revised rules.
Interest on certain private activity bonds issued after August 7,
1986, which continues to be tax-exempt will be treated as a tax preference
item subject to the alternative minimum tax (discussed below) to which
certain taxpayers are subject. Further, a private activity bond which
would otherwise be a qualified tax-exempt private activity bond will not,
under Internal Revenue Code Section 147(a), be a qualified bond for any
period during which it is held by a person who is a "substantial user" of
the facilities or by a "related person" of such a substantial user. This
"substantial user" provision is applicable primarily to exempt facility
bonds, including industrial development bonds. The Fund may not be an
appropriate investment for entities which are "substantial users" (or
persons related thereto) of such exempt facilities, and such persons
should consult their own tax advisers before purchasing shares. A
"substantial user" of such facilities is defined generally as a "non-
exempt person who regularly uses part of a facility" financed from the
proceeds of exempt facility bonds. Generally, an individual will not be
a "related person" under the Internal Revenue Code unless such investor
or the investor's immediate family (spouse, brothers, sisters and
immediate descendants) own directly or indirectly in the aggregate more
than 50% in value of the equity of a corporation or partnership which is
a "substantial user" of a facility financed from the proceeds of exempt
facility bonds. In addition, limitations as to the amount of private
activity bonds which each state may issue were revised downward by the
Tax Reform Act, which will reduce the supply of such bonds. The value of
the Fund's portfolio could be affected if there is a reduction in the
availability of such bonds. That value may also be affected by a 1988
U.S. Supreme Court decision upholding the constitutionality of the
imposition of a Federal tax on the interest earned on Municipal Securities
issued in bearer form.
A Municipal Security is treated as a taxable private activity bond
under a test for: (a) a trade or business use and security interest, or
(b) a private loan restriction. Under the trade or business use and
security interest test, an obligation is a private activity bond if: (i)
more than 10% of bond proceeds are used for private business purposes and
(ii) 10% or more of the payment of principal or interest on the issue is
directly or indirectly derived from such private use or is secured by the
privately used property or the payments related to the use of the
property. For certain types of uses, a 5% threshold is substituted for
this 10% threshold. (The term "private business use" means any direct or
indirect use in a trade or business carried on by an individual or entity
other than a governmental unit.) Under the private loan restriction, the
amount of bond proceeds which may be used to make private loans is limited
to the lesser of 5% or $5.0 million of the proceeds. Thus, certain issues
of Municipal Securities could lose their tax-exempt status retroactively
if the issuer fails to meet certain requirements as to the expenditure of
the proceeds of that issue or use of the bond-financed facility. The Fund
makes no independent investigation of the users of such bonds or their use
of proceeds. Should the Fund hold a bond that loses its tax-exempt status
retroactively, there might be an adjustment to the tax-exempt income
previously paid to shareholders.
The Federal alternative minimum tax is designed to ensure that all
taxpayers pay some tax, even if their regular tax is zero. This is
accomplished in part by including in taxable income certain tax preference
items in arriving at alternative minimum taxable income. The Tax Reform
Act made tax-exempt interest from certain private activity bonds a tax
preference item for purposes of the alternative minimum tax on individuals
and corporations. Any exempt-interest dividend paid by a regulated
investment company will be treated as interest on a specific private
activity bond to the extent of its proportionate share of the interest on
such bonds received by the regulated investment company. In addition,
corporate taxpayers subject to the alternative minimum tax may, under some
circumstances, have to include exempt-interest dividends in calculating
their alternative minimum taxable income in situations where the "adjusted
current earnings" of the corporation exceeds its alternative minimum
taxable income. The Fund may hold Municipal Securities the interest on
which (and thus a proportionate share of the exempt-interest dividends
paid by the Fund) will be subject to the Federal alternative minimum tax
on individuals and corporations. The Fund anticipates that under normal
circumstances it will not purchase any such securities in an amount
greater than 20% of the Fund's total assets.
Ratings of Municipal Securities. Moody's and S&P's ratings (See
Appendix A) represent their respective opinions of the quality of the
Municipal Securities they undertake to rate. However, such ratings are
general and subjective and are not absolute standards of quality.
Consequently, Municipal Securities with the same maturity, coupon and
rating may have different yields, while Municipal Securities of the same
maturity and coupon with different ratings may have the same yield.
Investment in lower-quality securities may produce a higher yield than
securities rated in the higher rating categories described in the
Prospectus (or judged by the Manager to be of comparable quality).
However, the added risk of lower quality securities might not be
consistent with a policy of preservation of capital.
Covered Calls and Hedging. As described in the Prospectus, the Fund may
employ one or more types of Hedging Instruments and options thereon for
hedging purposes. When hedging to attempt to protect against declines in
the market value of the Fund's portfolio, to permit the Fund to retain
unrealized gains in the value of portfolio securities which have
appreciated, or to facilitate selling securities for investment reasons,
the Fund may: (i) sell Interest Rate Futures or Municipal Bond Index
Futures, (ii) buy puts on such Futures or securities, or (iii) write
covered calls on securities held by it, Interest Rate Futures or Municipal
Bond Index Futures (as described in the Prospectus). Covered calls and
puts may also be written on debt securities to attempt to increase the
Fund's income. When hedging to permit the Fund to establish a position
in the debt securities market as a temporary substitute for purchasing
individual debt securities (which the Fund will normally purchase, and
then terminate that hedging position), the Fund may: (i) buy Interest Rate
Futures or Municipal Bond Index Futures, or (ii) buy calls on such Futures
or on debt securities. The Fund's strategy of hedging with Futures and
options on Futures will be incidental to the Fund's activities in the
underlying cash market. Additional information about the Hedging
Instruments and options thereon the Fund may use is provided below.
Writing Covered Call Options. When the Fund writes a call on a
security, it receives a premium and agrees to sell the callable
investment to a purchaser of a corresponding call on the same security
during the call period (usually not more than nine months) at a fixed
exercise price (which may differ from the market price of the underlying
investment), regardless of market price changes during the call period.
The Fund has retained the risk of loss should the price of the underlying
security decline during the call period, which may be offset to some
extent by the premium. To terminate its obligation on a call it has
written, the Fund may purchase a corresponding call in a "closing purchase
transaction." A profit or loss will be realized, depending upon whether
the net of the amount of option transaction costs and the premium received
on the call written is more or less than the price of the call
subsequently purchased. A profit may also be realized if the call lapses
unexercised, because the Fund retains the underlying investment and the
premium received. Any such profits are considered short-term gains for
Federal tax purposes, and when distributed by the Fund are taxable as
ordinary income. An option position may be closed out only on a market
that provides secondary trading for options of the same series, and there
is no assurance that a liquid secondary market will exist for a particular
option. If the Fund could not effect a closing purchase transaction due
to the lack of a market, it would have to hold the callable investment
until the call lapsed or were exercised. The Fund will not write covered
call options in an amount exceeding 20% of the value of its total assets.
Interest Rate Futures. The Fund may buy and sell futures contracts
relating to debt securities ("Interest Rate Futures") and municipal bond
indices ("Municipal Bond Index Futures"), discussed below. Interest Rate
Futures obligate the seller to deliver and the purchaser to take a
specific debt security at a specified price on a specified date. Interest
Rate Futures obligate the seller to deliver, and the purchaser to take,
a specific type of debt security (which may be a security other than a
Municipal Security) or cash at a specific future date at a fixed price.
No price is paid or received upon the purchase or sale of an Interest Rate
Future. Upon entering into a Futures transaction, the Fund will be
required to deposit an initial margin payment in cash or U.S. Treasury
bills with the futures commission merchant (the "futures broker"). The
initial margin will be deposited with the Custodian in an account
registered in the futures broker's name; however the futures broker can
gain access to that account only under specified conditions. As the
Future is marked to market to reflect changes in its market value,
subsequent margin payments, called variation margin, will be paid to or
by the futures broker, on a daily basis. At any time prior to 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, additional cash is required to be paid by or released to the
Fund, and any loss or gain is realized for tax purposes. Although
Interest Rate Futures by their terms call for settlement by the delivery
or acquisition of debt securities, in most cases the obligation is
fulfilled by entering into an offsetting position. All futures
transactions are effected through a clearinghouse associated with the
exchange on which the contracts are traded.
Interest Rate Swap Transactions. Swap agreements entail both
interest rate risk and credit risk. There is a risk that, based on
movements of interest rates in the future, the payments made by the Fund
under a swap agreement will have been greater than those received by it.
Credit risk arises from the possibility that the counterparty will
default. If the counterparty to an interest rate swap defaults, the
Fund's loss will consist of the net amount of contractual interest
payments that the Fund has not yet received. The Manager will monitor the
creditworthiness of counterparties to the Fund's interest rate swap
transactions on an ongoing basis. The Fund will enter into swap
transactions with appropriate counterparties pursuant to master netting
agreements. A master netting agreement provides that all swaps done
between the Fund and that counterparty under the master agreement shall
be regarded as parts of an integral agreement. If on any date amounts are
payable in the same currency in respect of one or more swap transactions,
the net amount payable on that date in that currency shall be paid. In
addition, the master netting agreement may provide that if one party
defaults generally or on one swap, the counterparty may terminate the
swaps with that party. Under such agreements, if there is a default
resulting in a loss to one party, the measure of that party's damages is
calculated by reference to the average cost of a replacement swap with
respect to each swap (i.e., the mark-to-market value at the time of the
termination of each swap). The gains and losses on all swaps are then
netted, and the result is the counterparty's gain or loss on termination.
The termination of all swaps and the netting of gains and losses on
termination is generally referred to as "aggregation."
Municipal Bond Index Futures. A "municipal bond index" assigns
relative values to the municipal bonds included in that index, and is used
to serve as the basis for trading long-term municipal bond Futures
contracts. Municipal Bond Index Futures are similar to Interest Rate
Futures except that settlement is made in cash. The obligation under such
contracts may also be satisfied by entering into an offsetting contract
to close out the futures position. Net gain or loss on options on such
Municipal Bond Index Futures depends on the price movements of the
securities included in the index. The strategies which the Fund employs
regarding Municipal Bond Index Futures are similar to those described
above with regard to Interest Rate Futures.
Purchasing Calls and Puts. When the Fund purchases a call (other
than in a closing purchase transaction), it pays a premium and, except as
to calls on Municipal Bond Index Futures, has the right to buy the
underlying investment from a seller of a corresponding call on the same
investment during the call period at a fixed exercise price. The Fund
benefits only if the call is sold at a profit or if, during the call
period, the market price of the underlying investment is above the sum of
the call price plus the transaction costs and the premium paid for the
call, and the call is exercised. If the call is not exercised or sold
(whether or not at a profit), it will become worthless at its expiration
date and the Fund will lose its premium payment and the right to purchase
the underlying investment. When the Fund purchases a call or put on a
municipal bond index, Municipal Bond Index Future or Interest Rate Future,
it pays a premium, but settlement is in cash rather than by delivery of
the underlying investment to the Fund. Gain or loss depends on changes
in the index in question (and thus on price movements in the debt
securities market generally) rather than on price movements in individual
securities futures contracts. The Fund will not purchase options if, as
a result, the aggregate cost of all outstanding options exceeds 5% of the
total assets of the Fund.
When the Fund buys a put, it pays a premium and, except as to puts
on municipal bond indices, has the right to sell the underlying investment
to a seller of a corresponding put on the same investment during the put
period at a fixed exercise price. Buying a put on a debt security,
Interest Rate Future or Municipal Bond Index Future the Fund owns enables
it to protect itself during the put period against a decline in the value
of the underlying investment below the exercise price by selling such
underlying investment at the exercise price to a seller of a corresponding
put. If the market price of the underlying investment is equal to or
above the exercise price and as a result the put is not exercised or
resold, the put will become worthless at its expiration date and the Fund
will lose its premium payment and the right to sell the underlying
investment. The put may, however, be sold prior to expiration (whether
or not at a profit).
An option position may be closed out only on a market which provides
secondary trading for options of the same series, and there is no
assurance that a liquid secondary market will exist for any particular
option. The Fund's option activities may affect its turnover rate and
brokerage commissions. The exercise of calls written by the Fund may
cause it to sell underling investments, thus increasing its turnover rate
in a manner beyond its control. The exercise by the Fund of puts may also
cause the sale of underlying investments, also increasing turnover, since
the underlying investment might be sold for reasons which would not exist
in the absence of the put. The Fund will pay a brokerage commission each
time it buys a call or a put or sells a call. Such commissions may be
higher, on a relative basis, than those which would apply to direct
purchases or sales of the underlying investment. Premiums paid for
options are small in relation to the market value of the related
investments and, consequently, put and call options offer large amounts
of leverage. The leverage offered by trading in options may cause the net
asset value of the Fund to be more sensitive to changes in the value of
the underlying investments.
Additional Information about Hedging Instruments and Their Use. The
Fund's Custodian, or a securities depository acting for the Custodian,
will act as the Fund's escrow agent through the facilities of the Options
Clearing Corporation ("OCC"), as to the investments on which the Fund has
written options traded on exchanges, or as to other acceptable escrow
securities, so that no margin will be required for such transactions. OCC
will release the securities on the expiration of the calls or upon the
Fund's entering into a closing purchase transaction. An option position
may be closed out only on a market which provides secondary trading for
options of the same series and there is no assurance that a liquid
secondary market will exist for any particular option. The Fund's option
activities may affect its portfolio turnover rate and brokerage
commissions. The exercise of calls written by the Fund may cause the
Fund to sell related portfolio securities, thus increasing its portfolio
turnover rate. The exercise by the Fund of puts on securities will cause
the sale of related investments, also increasing portfolio turnover.
Although such exercise is within the Fund's control, holding a put might
cause the Fund to sell the related investments for reasons which would not
exist in the absence of the put. The Fund will pay a brokerage commission
each time it buys a call or put, sells a call, or buys or sells an
underlying investment in connection with the exercise of a call or put.
Such commissions may be higher on a relative basis than those which would
apply to direct purchases or sales of such underlying investments.
Premiums paid for options are small in relation to the market value of the
related investments and consequently, put and call options offer large
amounts of leverage. The leverage offered by trading in options could
result in the Fund's net asset value being more sensitive to changes in
the value of the underlying investments.
Regulatory Aspects of Hedging Instruments. The use of Futures and
options thereon to attempt to protect against the market risk of a decline
in the value of portfolio securities is referred to as having a "short
futures position," and the use of such instruments to attempt to protect
against the market risk that portfolio securities are not fully included
in an increase in value of the bond market as a whole is referred to as
having a "long futures position." The Fund must operate within certain
restrictions as to its long and short positions in Futures and options
thereon under a rule ("CFTC Rule") adopted by the Commodity Futures
Trading Commission ("CFTC") under the Commodity Exchange Act (the "CEA"),
which excludes the Fund from registration with the CFTC as a "commodity
pool operator" (as defined under the CEA), if it complies with the CFTC
Rule. Under these restrictions, the Fund will not, as to any positions,
whether long, short or a combination thereof, enter into Futures and
options thereon for which the aggregate initial margins and premiums
exceed 5% of the fair market value of its assets, with certain exclusions
as defined in the CFTC Rule. Under the restrictions, the Fund also must,
as to its short positions, use Futures and options thereon solely for bona
fide hedging purposes within the meaning and intent of the applicable
provisions under the CEA.
Transactions in options by the Fund are subject to limitations
established by each of the exchanges governing the maximum number of
options which may be written or held by a single investor or group of
investors acting in concert, regardless of whether the options were
written or purchased on the same or different exchanges or are held in one
or more accounts or through one or more exchanges or brokers. Thus, the
number of options which the Fund may write or hold may be affected by
options written or held by other entities, including other investment
companies having the same or an affiliated investment adviser. Position
limits also apply to Futures. An exchange may order the liquidation of
positions found to be in violation of those limits and may impose certain
other sanctions. Due to provisions under the Investment Company Act,
when the Fund purchases an Interest Rate Future or Municipal Bond Index
Future, the Fund will maintain, in a segregated account or accounts with
its Custodian, cash or readily marketable short-term (maturing in one year
or less) debt instruments in an amount equal to the market value of the
investments underlying such Future, less the margin deposit applicable to
it.
Tax Aspects of Hedging Instruments. The Fund intends to qualify as
a "regulated investment company" under the Internal Revenue Code. One of
the tests for such qualification is that less than 30% of its gross income
(irrespective of losses) must be derived from gains realized on the sale
of securities held for less than three months. Due to this limitation,
the Fund will limit the extent to which it engages in the following
activities, but will not be precluded from them: (i) selling investments,
including Interest Rate Futures and Municipal Bond Index Futures, held for
less than three months, whether or not they were purchased on the exercise
of a call held by the Fund; (ii) writing calls on investments held less
than three months; (iii) purchasing calls or puts which expire in less
than three months; (iv) effecting closing transactions with respect to
calls or puts purchased less than three months previously; and (v)
exercising puts or calls held by the Fund for less than three months.
Possible Risk Factors in Hedging. In addition to the risks with
respect to Futures and options discussed in the Prospectus and above,
there is a risk in using short hedging by selling Interest Rate Futures
and Municipal Bond Index Futures that the prices of such Futures or the
applicable index will correlate imperfectly with the behavior of the cash
(i.e., market value) prices of the Fund's securities. The ordinary
spreads between prices in the cash and futures markets are subject to
distortions due to differences in the natures of those markets. First,
all participants in the futures market are subject to margin deposit and
maintenance requirements. Rather than meeting additional margin deposit
requirements, investors may close out futures contracts through offsetting
transactions which could distort the normal relationship between the cash
and futures markets. Second, the liquidity of the futures market depends
on participants entering into offsetting transactions rather than making
or taking delivery. To the extent participants decide to make or take
delivery, liquidity in the futures market could be reduced, thus producing
distortion. Third, from the point of view of speculators, the deposit
requirements in the futures market are less onerous than margin
requirements in the securities market. Therefore, increased participation
by speculators in the futures market may cause temporary price
distortions.
The risk of imperfect correlation increases as the composition of the
Fund's portfolio diverges from the securities included in the applicable
index. To compensate for the imperfect correlation of movements in the
price of debt securities being hedged and movements in the price of the
Hedging Instruments, the Fund may use Hedging Instruments in a greater
dollar amount than the dollar amount of debt securities being hedged if
the historical volatility of the prices of such debt securities being
hedged is more than the historical volatility of the applicable index.
It is also possible that where 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 this occurred, the Fund
would lose money on the Hedging Instruments and also experience a decline
in value of its debt securities. However, while this could occur for a
very brief period or to a very small degree, over time the value of a
diversified portfolio of debt securities will tend to move in the same
direction as the indices upon which the Hedging Instruments are based.
If the Fund uses Hedging Instruments to establish a position in the debt
securities markets as a temporary substitute for the purchase of
individual debt securities (long hedging) by buying Interest Rate Futures,
Municipal Bond Index Futures and/or calls on such Futures or debt
securities, it is possible that the market may decline; if the Fund then
concludes not to invest in such securities at that time because of
concerns as to possible further market decline or for other reasons, the
Fund will realize a loss on the Hedging Instruments that is not offset by
a reduction in the price of the debt securities purchased.
Portfolio Turnover. The Fund may purchase or sell securities without
regard to the length of time the security has been held, to take advantage
of short-term differentials in bond yields, consistent with its investment
objective. While short-term trading increases portfolio turnover, the
execution cost for Municipal Securities is substantially less than for
equivalent dollar values of equity securities. However, short-term
trading may affect the Fund's status as an investment company under the
Internal Revenue Code (see "Dividends, Distributions and Taxes" in the
Prospectus).
Repurchase Agreements. In a repurchase transaction, the Fund acquires a
security from, and simultaneously resells it to, an approved vendor (a
U.S. commercial bank or the U.S. branch of a foreign bank with total
domestic assets of at least $1 billion or a broker-dealer that has been
designated a primary dealer in government securities with net capital of
at least $50 million) for delivery on an agreed-upon future date. The
repurchase price exceeds the purchase price by an amount that reflects an
agreed-upon interest rate effective for the period during which the
repurchase agreement is in effect. The majority of these transactions run
from day to day, and delivery pursuant to the resale typically will occur
within one to five days of the purchase. Repurchase agreements are
considered "loans" under the Investment Company Act of 1940 (the
"Investment Company Act"), collateralized by the underlying security. The
Fund's repurchase agreements require that at all times while the
repurchase agreement is in effect, the collateral's value must equal or
exceed the repurchase price to fully collateralize the repayment
obligation. Additionally the Manager will continuously monitor the
collateral value and will impose creditworthiness requirements to confirm
that the vendor is financially sound.
Loans of Portfolio Securities. As discussed in the Prospectus, the Fund
may lend its portfolio securities to qualified borrowers if the loan is
collateralized in accordance with applicable regulatory requirements
(which are subject to change). Under present regulatory requirements, the
loan collateral must, on each business day, at least equal the market
value of the loaned securities and must consist of cash, bank letters of
credit, U.S. Government securities, or other cash equivalents in which the
Fund is permitted to invest. To be acceptable as collateral, letters of
credit must obligate a bank to pay amounts demanded by the Fund if the
demand meets the terms of the letter. Such terms and the issuing bank
must be satisfactory to the Fund. In a portfolio securities lending
transaction, the Fund receives from the borrower an amount equal to the
interest paid or the dividends declared on the loaned securities during
the term of the loan as well as the interest on the collateral securities,
less any finders' or administrative fees the Fund pays in arranging the
loan. The Fund may share the interest it receives on the collateral
securities with the borrower as long as it realizes at least a minimum
amount of interest required by the lending guidelines established by its
Board of Trustees. The Fund will not lend portfolio securities to any
officer, trustee, employee or affiliate of the Fund or its Manager. The
terms of the Fund's loans must meet certain tests under the Internal
Revenue Code and must permit the Fund to reacquire loaned securities on
five business days' notice or in time to vote on any important matter.
INVESTMENT RESTRICTIONS
The significant investment restrictions of the Fund are described in
the Prospectus. The following investment restrictions are also fundamental
policies of the Fund and, together with the fundamental policies and
investment objective described in the Prospectus, cannot be changed by the
Fund without the vote of a "majority" of the Fund's outstanding voting
securities. Under the Investment Company Act, such a "majority" vote of
the Fund is defined as the vote of the holders of the lesser of: (i) 67%
or more of the shares present or represented by proxy at such meeting, if
the holders of more than 50% of the outstanding shares are present, or
(ii) more than 50% of the outstanding shares of the Fund.
Under these additional restrictions, the Fund cannot: (1) Purchase
or sell real estate, commodities or commodity contracts except to the
extent that the Municipal Securities the Fund may invest in are considered
to be interests in real estate, and except to the extent that the options
and Futures contracts the Fund may trade are considered to be commodities
or commodity contracts; (2) Invest in interests in oil, gas, or other
mineral exploration or development programs; (3) Purchase securities on
margin; however, the deposit of initial or variation margin by the Fund
in connection with Futures contracts or related options transactions is
not considered the purchase of a security on margin; (4) Make short sales
of securities; (5) Underwrite securities except to the extent the Fund
may be deemed to be an underwriter in connection with the sale of
securities held in its portfolio; (6) Invest in securities of other
investment companies, except as they may be acquired as part of a merger,
consolidation or other acquisition; (7) Make investments for the purpose
of exercising control of management; (8) Purchase securities of any issuer
if, to the knowledge of the Fund, its officers and trustees and officers
and directors of the Manager or who individually own more than .5% of the
securities of such issuer together own beneficially more than 5% of such
issuer's outstanding securities; (9) 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 (such period may include the operation of predecessor
companies or enterprises) 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 (including predecessors), unless
the security is rated by a nationally-recognized rating service; (10)
Invest more than 25% of its assets in a single industry (as described in
the Prospectus, the Fund may, from time to time, invest more than 25% of
its assets in a particular segment of the Municipal Securities market,
however, the Fund will not invest more than 25% of its assets in
industrial revenue bonds in a single industry); or (11) Invest in common
stock or any warrants related thereto.
In connection with the qualification of its shares in certain states,
the Fund has undertaken that in addition to the above, it will not: (i)
invest in real estate limited partnerships, or (ii) invest in oil, gas or
other mineral leases. In the event the Fund's shares cease to be
qualified under such laws or if such undertaking otherwise ceases to be
operative, the Fund would not be subject to such restriction. The
percentage restrictions described above and in the Prospectus apply only
at the time of investment and require no action by the Fund as a result
of subsequent changes in relative values.
TRUSTEES AND OFFICERS
The Trustees and officers of the Trust and their principal business
affiliations and occupations during the past five years are listed below.
With the exception of Caryn Halbrecht and Robert E. Patterson, each serves
in a similar capacity with Oppenheimer Total Return Fund, Inc.,
Oppenheimer Equity Income Fund, Oppenheimer Cash Reserves, Oppenheimer
Tax-Exempt Cash Reserves, Oppenheimer High Yield Fund, Oppenheimer
Strategic Income Fund, Oppenheimer Strategic Income & Growth Fund,
Oppenheimer Strategic Investment Grade Bond Fund, Oppenheimer Strategic
Short-Term Income Fund, Centennial Money Market Trust, Centennial Tax
Exempt Trust, Centennial Government Trust, Centennial New York Tax Exempt
Trust, Centennial California Tax Exempt Trust, Oppenheimer Government
Securities Fund, Oppenheimer Main Street Funds, Inc., Centennial America
Fund, L.P., The New York Tax-Exempt Income Fund, Inc., Daily Cash
Accumulation Fund, Inc., Oppenheimer Integrity Funds, Oppenheimer Variable
Account Funds and Oppenheimer Champion High Yield Fund (the "Denver-based
OppenheimerFunds"). All of the officers except Mr. Patterson hold similar
positions as officers of all such funds and trusts. Mr. Fossel is
President and Mr. Swain is Chairman of the Denver-based OppenheimerFunds.
As of December 31, 1993, the Trustees and officers of the Trust owned less
than 1% of the shares of the Fund.
ROBERT G. AVIS, Trustee*
One North Jefferson Ave., St. Louis, Missouri 63103
Vice Chairman of A.G. Edwards & Sons, Inc. (a broker-dealer) and A.G.
Edwards, Inc. (its parent holding company); Chairman of A.G.E. Asset
Management and A.G. Edwards Trust Company (its affiliated investment
adviser and trust company, respectively).
WILLIAM A. BAKER, Trustee
197 Desert Lakes Drive, Palm Springs, California 92264
Management Consultant.
CHARLES CONRAD, JR., Trustee
5301 Bolsa Avenue, Huntington Beach, California 92647
Vice President of McDonnell Douglas Ltd.; formerly associated with
the National Aeronautics and Space Administration.
JON S. FOSSEL, President and Trustee*
Two World Trade Center, New York, New York 10048-0203
Chairman, Chief Executive Officer and a Director of the Manager;
President and a director of Oppenheimer Acquisition Corp. ("OAC"),
the Manager's parent holding company; President and a director of
HarbourView Asset Management Corporation, a subsidiary of the Manager
("HarbourView"); a director of Shareholder Services, Inc. ("SSI") and
Shareholder Financial Services, Inc. ("SFSI"), transfer agent
subsidiaries of the Manager; formerly President of the Manager.
RAYMOND J. KALINOWSKI, Trustee
44 Portland Drive, St. Louis, Missouri 63131
Formerly Vice Chairman and a director of A.G. Edwards, Inc., parent
holding company of A.G. Edwards & Sons, Inc. (a broker-dealer), of
which he was a Senior Vice President.
C. HOWARD KAST, Trustee
2552 East Alameda, Denver, Colorado 80209
Formerly the Managing Partner of Deloitte, Haskins & Sells (an
accounting firm).
ROBERT M. KIRCHNER, Trustee
7500 E. Arapahoe Road, Englewood, Colorado 80112
President of The Kirchner Company (management consultants).
NED M. STEEL, Trustee
3416 South Race Street, Englewood, Colorado 80110
Chartered Property and Casualty Underwriter; formerly Senior Vice
President and a Director of Van Gilder Insurance Corp. (insurance
brokers).
JAMES C. SWAIN, Chairman and Trustee*
3410 South Galena Street, Denver, Colorado 80231
Vice Chairman of the Manager; President and Director of Centennial
Asset Management Corporation, an investment adviser subsidiary of the
Manager ("Centennial"); formerly President and Director of
Oppenheimer Asset Management Corporation ("OAMC"), an investment
adviser which was a subsidiary of the Manager, Vice President of
Oppenheimer Funds Distributor, Inc., the Fund's Distributor ("OFDI"
or the "Distributor") and Chairman of the Board of SSI.
ANDREW J. DONOHUE, Vice President
Two World Trade Center, New York, New York 10048-0203
Executive Vice President and General Counsel of Oppenheimer
Management Corporation ("OMC") (the "Manager") and Oppenheimer Funds
Distributor, Inc. (the "Distributor"); an officer of other
OppenheimerFunds; formerly Senior Vice President and Associate
General Counsel of the Manager and the Distributor, Partner in Kraft
& McManimon (a law firm), an officer of First Investors Corporation
(a broker-dealer) and First Investors Management Company, Inc.
(broker-dealer and investment adviser), and a director and an officer
of First Investors Family of Funds and First Investors Life Insurance
Company.
ROBERT E. PATTERSON, Vice President and Portfolio Manager
Two World Trade Center, New York, New York 10048-0203
Vice President of the Manager; an officer of other OppenheimerFunds.
CARYN HALBRECHT, Vice President and Portfolio Manager
Vice President of the Manager; an officer of other OppenheimerFunds;
formerly a Vice President of Fixed-Income portfolio management at
Bankers Trust.
GEORGE C. BOWEN, Vice President, Secretary and Treasurer
3410 South Galena Street, Denver, Colorado 80231
Senior Vice President and Treasurer of the Manager; Vice President
and Treasurer of the Distributor and HarbourView; Senior Vice
President, Treasurer and Assistant Secretary and a director of
Centennial; Vice President, Treasurer and Secretary of SSI and SFSI;
an officer of other OppenheimerFunds; formerly Senior Vice
President/Comptroller and Secretary of OAMC.
ROBERT G. ZACK, Assistant Secretary
Two World Trade Center, New York, New York 10048-0203
Senior Vice President and Associate General Counsel of the Manager;
Assistant Secretary of SSI and SFSI; an officer of other
OppenheimerFunds.
LYNN M. COLUCCY, Assistant Treasurer
3410 South Galena Street, Denver, Colorado 80231
Vice President and Assistant Treasurer of the Manager; an officer of
other OppenheimerFunds; formerly Vice President/Director of Internal
Audit of the Manager.
[FN]
________________
*A Trustee who is an "interested person" of the Fund as defined in the
Investment Company Act.
Remuneration of Trustees and Officers. The officers of the Trust
(including Mr. Swain and Mr. Fossel) are affiliated with the Manager and
receive no salary or fee from the Trust. During the fiscal year ended
September 30, 1993, the remuneration (including expense reimbursements)
paid by the Trust to the Trustees of the Fund as a group (excluding
Messrs. Fossel and Swain) in the aggregate for services as Trustees and
as members of one or more committees totaled $2,946. The Trust has an
Audit and Review Committee, comprised of Messrs. Baker (Chairman), Conrad
and Kirchner, which meets regularly to review audits, audit procedures,
financial statements and other financial and operational matters of the
Trust. Committee members receive fees based on the number of meetings
attended, and the Fund pays a pro-rata share of such fees with all the
other Denver-based OppenheimerFunds.
Major Shareholders. As of December 31, 1993, no person owns of record or
is known by the Fund to own beneficially 5% or more of the outstanding
shares of the Fund.
INVESTMENT MANAGEMENT SERVICES
The Manager is owned by Oppenheimer Acquisition Corp. ("OAC"), a
holding company controlled by Massachusetts Mutual Life Insurance Company.
OAC is also owned in part by certain of the Manager's directors and its
officers, some of whom may also serve as officers of the Trust, and two
of whom (Messrs. Fossel and Swain) serve as Trustees of the Trust.
The management fee is payable monthly to the Manager under the terms
of the investment advisory agreement between the Manager and the Trust on
behalf of the Fund (the "Agreement"), and is computed on the net assets
of the Fund as of the close of business each day. Expenses not expressly
assumed by the Manager under the Agreement or by the Distributor are paid
by the Fund. The Agreement lists examples of expenses paid by the Fund,
the major categories of which relate to interest, taxes, fees to certain
Trustees, legal and audit expenses, the cost of calculating its net asset
value, brokerage commissions, custodian and transfer agent expenses, share
issuance costs, certain printing and share registration costs and non-
recurring expenses, including litigation.
Under the Agreement, the Manager has undertaken that if the total
expenses of the Fund in any month should exceed the most stringent state
regulatory requirements on expense limitations applicable to the Fund, the
Manager's compensation under the Agreement will be reduced by the amount
of such excess. For the purpose of such calculation, there shall be
excluded any expense borne directly or indirectly by the Fund which is
permitted to be excluded from the computation of such limitation by such
statute or state regulatory authority. At present, that limitation is
imposed by California and South Dakota, and limits expenses (with
specified exclusions) to 2.5% of the first $30 million of average net
assets, 2.0% of the next $70 million of average net assets and 1.5% of
average net assets in excess of $100 million. Prior to January 1, 1993
the Manager had, independently of the Agreement, voluntarily undertaken
to assume the expenses (excluding extraordinary non-recurring expenses
such as litigation) of the Fund in an amount up to .10% of the Fund's
average annual net assets. The assumption of expenses under this
undertaking lowered the Fund's overall expense ratio and increased its
yield and total return during the time such expenses were assumed.
Effective January 1, 1993, the Manager eliminated the voluntary expense
assumption.
The Agreement requires the Manager, at its expense, to provide the
Fund with adequate office space, facilities and equipment, and to provide
and supervise the activities of all administrative and clerical personnel
required to provide effective administration for the Fund, including the
compilation and maintenance of records with respect to its operations, the
preparation and filing of specified reports, and composition of proxy
materials and registration statements for continuous public sale of shares
of the Fund. The Agreement provides that in the absence of willful
misfeasance, bad faith, or gross negligence in the performance of its
duties under the Agreement, or reckless disregard of its obligations or
duties thereunder, the Manager shall not be liable for any loss sustained
by reason of any good faith errors or omissions in connection with any
matter to which the Agreement relates. The Agreement permits the Manager
to act as investment adviser for any other person, firm or corporation.
Under a non-exclusive license, the Manager permits the Fund to use the
name "Oppenheimer" and the Manager retains the right to use that name in
connection with other investment companies for which it may act as
investment adviser or an affiliate may act as distributor. If the Manager
no longer acts as the Fund's investment adviser, the Fund's right to use
the name "Oppenheimer" as part of its name may be withdrawn.
The Manager became the Fund's investment adviser on April 7, 1990.
During the fiscal year ended September 30, 1993, the management fees
payable by the Fund were $243,742, of which $236,149 was paid to the
Manager due to its assumption of $7,593 of the Fund's expenses. During
the fiscal year ended September 30, 1992, the management fees payable by
the Fund were $125,755, of which $102,141 was paid to the Manager due to
its assumption of $23,614 of the Fund's expenses. During the fiscal year
ended September 30, 1991, the management fees payable by the Fund were
$110,354, of which $67,948 was paid to the Manager due to its assumption
of $42,406 of the Fund's expenses.
From April 7, 1990 until January 31, 1992, Clayton Brown Investment
Management, Inc. ("CBIM"), an affiliate of Clayton Brown & Associates,
Inc., which was the Fund's general distributor until January 31, 1992, was
the sub-advisor for the Fund, pursuant to a Subadvisory Agreement with the
Manager. The Manager paid subadvisory fees to CBIM at the annual rates
of .20% of the average daily net assets of the Fund. During the fiscal
year ended September 30, 1992, the Manager paid fees of $15,928 to CBIM.
Portfolio Transactions. Portfolio decisions are made by portfolio
managers under the supervision of the Manager's executive officers. As
most purchases made by the Fund are principal transactions at net prices,
the Fund incurs little or no brokerage costs. The Fund usually deals
directly with the selling or purchasing principal or market maker without
incurring charges for the services of a broker on its behalf unless it is
determined that better price or execution may be obtained by utilizing the
services of a broker. Purchases of portfolio securities from underwriters
include a commission or concession paid by the issuer to the underwriter,
and purchases from dealers include a spread between the bid and asked
price. The Fund seeks to obtain prompt execution of orders at the most
favorable net price.
If a broker is used for the Fund's portfolio transactions, the
Agreement contains provisions relating to the selection of brokers,
dealers and futures commission merchants (collectively referred to as
"brokers") for the Fund's futures, put and call transactions. The Manager
is authorized by the Agreement to employ brokers as may, in its best
judgment based on all relevant factors, implement the policy of the Fund
to obtain, at reasonable expense, the "best execution" (prompt and
reliable execution at the most favorable price obtainable) of such
transactions. The Manager need not seek competitive commission bidding
but is expected to minimize the commissions paid to the extent consistent
with the interest and policies of the Fund. When the Fund engages in an
option transaction, ordinarily the same broker will be used for the
purchase or sale of the option and any transactions in the securities to
which the option relates. Where possible, concurrent orders to purchase
or sell the same security by more than one of the accounts managed by the
Manager or its affiliates are combined. The transactions effected
pursuant to such combined orders are averaged as to price and allocated
in accordance with the purchase or sale orders actually placed for each
account.
Under the Agreement, the Manager is authorized to select brokers that
provide brokerage and/or research services for the Fund and/or the other
accounts over which the Manager or its affiliates have investment
discretion. The commissions paid to such brokers may be higher than
another qualified broker would have charged if a good faith determination
is made by the Manager that the commission is reasonable and fair in
relation to the services provided. Subject to the foregoing
considerations, the Manager may also consider sales of shares of the Fund
and other funds advised by the Manager and its affiliates as a factor in
the selection of brokers for the Fund's portfolio transactions.
The research services provided by a particular broker may be useful
only to one or more of the advisory accounts of the Manager and its
affiliates, and investment research for the commissions of these other
accounts may be useful both to the Fund and one or more of such other
accounts. Such research, which may be supplied by a third party at the
instance of a broker, includes information and analyses on particular
companies, issuers and industries as well as market or economic trends and
portfolio strategy, receipt of market quotations for portfolio
evaluations, information systems, computer hardware and similar products
and services. It serves to broaden the scope and supplement the research
activities of the Manager, to make available additional views for
consideration and comparisons, and to enable the Manager to obtain market
information for the valuation of securities held in the Fund's portfolio
or being considered for purchase. 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 for in commission dollars. The Board and the
Independent Trustees of the Fund annually review information furnished by
the Manager relative to the commissions paid to brokers furnishing such
services in an effort to ascertain that the amount of such commissions was
reasonably related to the value or benefit of such services. 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.
PURCHASE, REDEMPTION AND PRICING OF SHARES
Determination of Net Asset Value Per Share. The net asset values per
share of Class A and Class C shares of the Fund are determined as of 4:00
P.M. (all references to time mean New York time) each day The New York
Stock Exchange (the "NYSE") is open (a "regular business day"), by
dividing the value of the Fund's net assets attributable to that class by
the total number of shares of that class outstanding. The NYSE's most
recent annual holiday schedule (which is subject to change) states that
it will close on New Year's Day, Presidents' Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. It
may also close on other days. Dealers in debt securities may conduct
trading on certain days on which the NYSE is closed (e.g., weekends or
holidays, such as Good Friday). Because the Fund's net asset values and
offering prices will not be calculated on those days, if securities of the
same type held by the Fund are traded, the Fund's net asset values per
share of Class A and Class C shares of the Fund may be significantly
affected on such days, when shareholders will not have the ability to
purchase or redeem shares.
The Trust's Board of Trustees has established procedures for the
valuation of the Fund's securities, generally, as follows: (i) securities
(including restricted securities) not having readily-available market
quotations are valued at fair value under the Board's procedures; (ii)
long-term debt securities, and short-term securities having a remaining
maturity in excess of 60 days, are valued at the mean between the bid and
asked prices determined by a portfolio pricing service approved by the
Trust's Board of Trustees or prices are obtained from active market makers
in the security on the basis of reasonable inquiry; and (iii) short-term
debt securities (having a remaining maturity of 60 days or less) are
valued at cost, adjusted for amortization of premiums and accretion of
discounts. In the case of Municipal Securities, when last sale
information is not generally available, such pricing procedures may
include "matrix" comparisons to the prices for comparable instruments on
the basis of quality, yield, maturity, and other special factors involved
(such as the tax-exempt status of the interest paid by Municipal
Securities). With the approval of the Trust's Board of Trustees, the
Manager may employ a pricing service, bank or broker/dealer experienced
in such matters to price any of the types of securities described above.
The Board has authorized the Manager to employ a pricing service to price
many of the Fund's securities. The Trustees will monitor the accuracy of
such pricing services by comparing prices used for portfolio evaluation
to actual sales prices of selected securities.
The Fund values puts, calls, Interest Rate Futures and Municipal Bond
Index Futures at the last sales price on the principal exchange on which
they are traded. If there were no sales on the principal exchange, the
last sale on any exchange is used. In the absence of any sales that day,
value shall be the last reported sales price on the prior trading day or
closing bid or asked prices on the principal exchange closest to the last
reported sales price. When the Fund writes an option, an amount equal to
the premium received by the Fund is included in its Statement of Assets
and Liabilities as an asset, and an equivalent deferred credit is included
in the liability section. The deferred credit is adjusted ("marked-to-
market") to reflect the current market value of the option.
Dual Class Methodology. The methodology for calculating the net asset
value, dividends and distributions of the Fund's Class A and Class C
shares recognizes two types of expenses. General expenses that do not
pertain specifically to either class are allocated pro rata to the shares
of each class, based on the percentage of the net assets of such class to
the Fund's total net assets, and then equally to each outstanding share
within a given class. Such general expenses include (i) management fees,
(ii) legal, bookkeeping and audit fees, (iii) printing and mailing costs
of shareholder reports, Prospectuses, Additional Statements and other
materials for current shareholders, (iv) fees to unaffiliated Trustees,
(v) custodian expenses, (vi) share issuance costs, (vii) organization and
start-up costs, (viii) interest, taxes and brokerage commissions, and (ix)
non-recurring expenses, such as litigation costs. Other expenses that are
directly attributable to a class are allocated equally to each outstanding
share within that class. Such expenses include (i) Distribution Plan
fees, (ii) incremental transfer and shareholder servicing agent fees and
expenses, (iii) registration fees and (iv) shareholder meeting expenses,
to the extent that such expenses pertain to a specific class rather than
to the Fund as a whole.
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 of expenses realized by the Distributor, dealers and brokers
making such sales. No sales charge is imposed in certain circumstances
described in the Prospectus because the Distributor incurs little or no
selling expenses. The term "immediate family" refers to one's spouse,
children, grandchildren, grandparents, parents, parents-in-law, brothers
and sisters, sons- and daughters-in-law, siblings, a sibling's spouse and
a spouse's siblings.
Redemptions. The Trust'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 such shares is less than $1,000 or such lesser amount
as the Board may decide. The Trust's Board of Trustees will not cause the
involuntary redemption of shares in any account if the aggregate net asset
value of such shares has fallen below the stated minimum solely as a
result of market fluctuations. Should the Board elect to exercise this
right, it may also fix, in accordance with the Investment Company Act, the
requirements for any notice to be given to the shareholders in question
(not less than 30 days), or may set requirements for permission to allow
the shareholder to increase the investment and other terms and conditions
so that the shares are not involuntarily redeemed.
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 difference in net asset value times the number
of shares in the purchase order. The investor is responsible for that
loss. If the investor fails to compensate the Fund for such 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 Distributor may seek other redress.
Transfer of Shares. Shareholders owning shares of both classes must
specify whether they intend to transfer Class A or Class C shares. Shares
are not subject to the payment of a CDSC of either class at the time of
transfer (by absolute assignment, gift or bequest, not involving, directly
or indirectly, a public sale). The transferred shares will remain subject
to the CDSC, 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 not all shares in the account would be subject to a CDSC
if redeemed at the time of transfer, then shares will be transferred in
the order described in "How to Buy Shares - Class C Contingent Deferred
Sales Charge" in the Prospectus for the imposition of the Class C CDSC on
redemptions.
Exchanges of Class C Shares. As stated in the Prospectus, shares of a
particular class of Eligible Funds having more than one class of shares
may be exchanged only for shares of the same class or of another Eligible
Fund. All of the Eligible Funds offer Class A shares, but only the
following other Eligible Funds (referred to as "Advisors Portfolio" funds)
offer Class C shares:
Oppenheimer Target Fund
Oppenheimer Fund
Oppenheimer Global Growth & Income Fund
Oppenheimer Asset Allocation Fund
Oppenheimer Champion High Yield Fund
Oppenheimer U.S. Government Trust
Oppenheimer Main Street Income & Growth Fund
Oppenheimer Cash Reserves
Wire Redemption Procedures. Under the Wire Redemption Procedure discussed
in the Prospectus, the Federal Funds wire of redemption proceeds may be
delayed if the Fund's Custodian bank is not open for business on a day
when the Fund would normally authorize the wire to be made, which is
usually the Fund's next regular business day following the redemption.
In those circumstances, the wire will not be transmitted until the next
bank business day on which the Fund is open for business. No dividends
will be paid on the proceeds of redeemed shares awaiting transfer by wire.
DISTRIBUTION AND SERVICE PLANS
The Fund has adopted a separate Distribution Plan for each class of
shares of the Fund under Rule 12b-1 of the Investment Company Act pursuant
to which the Fund will reimburse the Distributor for all or a portion of
its costs incurred in connection with the distribution and/or servicing
of the shares of that class as described in the Prospectus. Each Plan has
been approved by a vote of (i) the Board of Trustees of the Fund,
including a majority of the "Independent Trustees" (those Trustees of the
Trust who are not "interested persons," as defined under the Investment
Company Act and who have no direct or indirect financial interest in the
operation of the Plans or in any agreement relating to the Plans), cast
in person at a meeting called for the purpose of voting on that Plan, and
(ii) the holders of a "majority" (as defined in the Investment Company
Act) of the shares of each class, such vote having been cast, as to the
Distribution and Service Plan for the Class C shares (the "Class C Plan"),
by the Manager as the sole initial holder of Class C shares of the Fund.
Each Plan shall, unless terminated as described below, continue in
effect from year to year but only as long as such continuance is
specifically approved at least annually by the Fund's Board of Trustees
and its Independent Trustees by a vote cast in person at a meeting called
for the purpose of voting on such continuance. Either 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. Neither
Plan may be amended to increase materially the amount of payments to be
made unless such amendment is approved by shareholders of the class
affected by the amendment. All material amendments must be approved by
the Independent Trustees.
While the Plans are in effect, the Treasurer of the Fund shall
provide separate written reports to the Fund's Board of Trustees at least
quarterly on the amount of all payments made pursuant to each Plan, the
purpose for which the payment was made and the identity of each Recipient
that received any such payment. The report for the Class C Plan shall
also include the distribution costs for that quarter, and such costs for
previous fiscal periods that are carried forward, as explained in the
Prospectus and below. Those reports, including the allocations on which
they are based, will be subject to the review and approval of the
Independent Trustees in the exercise of their fiduciary duty. Each Plan
further provides that while it is in effect, the selection and nomination
of those Trustees of the Trust who are not "interested persons" of the
Trust is committed to the discretion of the Independent Trustees. This
does not prevent the involvement of others in such selection and
nomination if the final decision on any such selection or nomination is
approved by a majority of the Independent Trustees.
Under the Plans, no payment will be made to any Recipient in any
quarter if the aggregate net asset value of all Fund shares held by the
Recipient for itself and its customers did not exceed a minimum amount,
if any, established under the Plan from time to time by a majority of the
Trustees who are not "interested persons" (as defined in the Investment
Company Act) of the Fund and who have no direct or indirect financial
interest in the operation of the Plan or in any agreements related to the
Plan ("Independent Trustees"). Currently no minimum asset level has been
fixed by the Board of Trustees. The Plans permit the Distributor and the
Manager to make additional distribution payments to Recipients from their
own resources (including profits from advisory fees) at no cost to the
Fund. The Distributor and the Manager may, in their sole discretion,
increase or decrease the amount of distribution assistance payments they
make to Recipients from their own assets.
For the fiscal year ended September 30, 1993, pursuant to the Class
A Plan the Fund reimbursed Oppenheimer Funds Distributor, Inc. ("OFDI")
$121,833, of which $114,317 was paid to Recipients by OFDI, including
$7,516 paid to an affiliated broker-dealer of OFDI. Any unreimbursed
expenses incurred with respect to Class A shares for any fiscal quarter
by the Distributor may not be recovered under the Class A Plan in
subsequent fiscal quarters. Payments received by the Distributor under
the Class A Plan will not be used to pay any interest expense, carrying
charges, or other financial costs, or allocation of overhead by the
Distributor.
The Class C Plan allows the service fee payment to be paid by the
Distributor to Recipients in advance for the first year Class C shares are
outstanding, and thereafter on a quarterly basis, as described in the
Prospectus. The advance payment is based on the net assets of the Class
C shares sold. An exchange of shares does not entitle the Recipient to
an advance service fee payment. In the event Class C shares are redeemed
during the first year such shares are outstanding, the Recipient will be
obligated to repay a pro rata portion of such advance payment to the
Distributor. Although the Class C Plan permits the Distributor to retain
both the asset-based sales charges and the service fee on Class C shares,
or to pay Recipients the service fee on a quarterly basis, without payment
in advance, the Distributor intends to pay the service fee to Recipients
in the manner described above. A minimum holding period may be
established from time to time under the Class C Plan by the Board.
Initially, the Board has set no minimum holding period. All payments
under the Class C Plan are subject to the limitations imposed by the
National Association of Securities Dealers, Inc. Rules of Fair Practice.
The Class C Plan allows for the carry-forward of distribution expenses,
to be recovered from asset-based sales charges in subsequent fiscal
periods, as described in the Prospectus. As of the date of this
Additional Statement, no payments were made under the Class C Plan, as no
Class C shares were publicly issued prior to December 1, 1993.
The asset-based sales charge paid to the Distributor by the Fund
under the Class C Plan is intended to allow the Distributor to recoup the
cost of sales commissions paid to authorized brokers and dealers at the
time of sale, plus the service fee advanced, as described in the
Prospectus. Such payments may also be used to pay for the following
expenses in connection with the distribution of Class C shares: (i)
financing the advance of the service fee payment to Recipients under the
Class C Plan, (ii) compensation and expenses of personnel employed by the
Distributor to support distribution of Class C shares, and (iii) costs of
sales literature, advertising and prospectuses (other than those furnished
to current shareholders).
The Glass-Steagall Act and other applicable laws and regulations,
among other things, generally prohibit Federally-chartered or supervised
banks from engaging in the business of underwriting, selling or
distributing securities as principals. Accordingly, the Distributor may
pay banks only for sales made on an agency basis or for the performance
of administrative and shareholder servicing functions. In addition,
certain banks and financial institutions may be required to register as
dealers under state law. It is the understanding of the Manager and the
Distributor that the Glass-Steagall Act and other applicable laws and
regulations do not prohibit banks and other financial institutions from
providing the services required of a Recipient. However, judicial or
administrative decisions or interpretations of such laws, as well as
changes in either Federal or state statutes or regulations relating to the
permissible activities of banks or their subsidiaries or affiliates, could
prevent certain banks from continuing to perform all or a part of their
selling or servicing activities. If a bank were so prohibited,
shareholders of the Fund who were clients of such bank would be permitted
to remain as shareholders, and if a bank could no longer provide those
service functions, alternate means for continuing the servicing of such
shareholders would be sought. In such event, shareholders serviced by
such bank might no longer be able to avail themselves of any automatic
investment or other services then being provided by such bank. The Board
of Trustees will consider appropriate modifications to the Fund's
operations, including discontinuance of payments under the Plan to such
institutions, in the event of any future change in such laws or
regulations which may adversely affect the ability of such institutions
to provide these services. It is not expected that shareholders would
suffer any adverse financial consequences as a result of any of those
occurrences.
PERFORMANCE AND TAX INFORMATION
Performance Information. As described in the Prospectus, from time to
time "standardized yield," "tax-equivalent yield," "dividend yield,"
"average annual total return," "total return" and "total return at net
asset value" of an investment in each class of the Fund may be advertised.
An explanation of how yields and returns are calculated for each class and
the components of those calculations is set forth below. No yield or
total return performance information is presented below for Class C shares
because no shares of that class were publicly issued prior to December 1,
1993.
The Fund's "yield" of each class is calculated for a 30-day period
using the following formula under Securities and Exchange Commission
("SEC") rules:
a-b 6
Yield = 2 ((--- + 1 ) -1 )
cd
The symbols above represent the following factors:
a = dividends and interest earned during the 30-day period.
b = expenses accrued for the period (net of any expense
reimbursements).
c = the average daily number of shares of the Fund outstanding
during the 30-day period that were entitled to receive
dividends.
d = the maximum offering price (including sales charge) per share
on the last day of the period adjusted for undistributed net
investment income.
The yield of a class for a 30-day period may differ from its yield
for any other period. The SEC formula assumes that the 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. This "standardized" yield is not
based on distributions paid by the Fund to shareholders in the 30-day
period, but is a hypothetical yield based upon the return on the Fund's
portfolio investments and may differ from the Fund's "dividend yield" of
that class described below. For the 30-day period ended September 30,
1993, the Fund's yield on Class A shares was 4.18%.
The Fund's "tax-equivalent yield" of each class adjusts the Fund's
current yield, as calculated above, by a stated Federal tax rate. The
tax-equivalent yield of a class is based on a 30-day period, and is
computed by dividing the tax-exempt portion of the yield (as calculated
above) by one minus a stated income tax rate and adding the result to the
portion (if any) of the yield of that class that is not tax-exempt. The
tax-equivalent yield may be used to compare the tax effects of income
derived from the Fund with income from taxable investments at the tax
rates stated. Appendix B includes a tax-equivalent yield table, based on
various effective tax brackets for individual taxpayers. Such tax
brackets are determined by a taxpayer's Federal taxable income (the net
amount subject to Federal income tax after deductions and exemptions).
The tax-equivalent yield table assumes that the investor is taxed at the
highest bracket, regardless of whether a switch to non-taxable investments
would cause a lower bracket to apply and that state income tax payments
are fully deductible for income tax purposes. For taxpayers with income
above certain levels, otherwise allowable itemized deductions are limited.
For the 30-day period ended September 30, 1993, the tax-equivalent yield
on Class A shares was 6.92% for a single person in the 39.6% Federal
income tax bracket.
From time to time the Fund may also quote a "dividend yield" for each
class. Dividend yield is based on the Class A or Class C share dividends
of the Fund derived from net investment income during a stated period.
Under those calculations, the Fund's dividends for that class declared
during a stated period of one year or less (for example, 30 days) are
added together, and the sum is divided by the Fund's maximum offering
price per share of that class on the last day of the period. The result
may be annualized if the period of measurement is less than one year. The
Fund's dividend yield is calculated as follows:
Dividend Yield of the Class =
Dividends of the Class
-----------------------------------------------------
Max. Offering Price of the Class (last day of period)
divided by Number of days (accrual period) x 365
From time to time similar calculations may also be made using the
Class A or Class C share net asset value of the Fund (instead of their
maximum offering price) at the end of the period. The dividend yield and
dividend yield at net asset value on Class A shares for the 30-day period
ended September 30, 1993, was 4.81% and 4.99%, respectively.
The Fund's "average annual total return" of each class is an average
annual compounded rate of return. It is the rate of return based on
factors which include a hypothetical initial investment of $1,000 ("P" in
the formula below) held for a number of years ("n") with an Ending
Redeemable Value ("ERV") of that investment, according to the following
formula:
1/n
(ERV)
(---) -1 = Average Annual Total Return
( P )
The "total return" calculation for each class uses the same factors,
but does not average the rate of return on an annual basis. Total return
measures the cumulative (rather than average) change in value of a
hypothetical investment over a stated period. Total return is determined
as follows:
ERV-P
----- = Total Return
P
Both total return formulas assume (i) for Class A shares, the payment
of the current maximum sales charge of 3.50% (as a percentage of the
offering price) on the initial investment ("P"), and (ii) for Class C
shares, the payment of the 1.0% contingent deferred sales charge for the
first 12 months, applied as described in the Prospectus. The formulas
also assume that all dividends and capital gain distributions during the
period are reinvested at net asset value per share, and that the
investment is redeemable at the end of the period. The "average annual
total returns" on an investment in Class A shares of the Fund (using the
method described above) for the one and five year periods ended September
30, 1993, were 6.44% and 9.25%, respectively, and for the period from the
inception of the Fund on November 11, 1986, through September 30, 1993,
was 8.15%. The "total return" on Class A shares from inception of the
Fund on November 11, 1986 through September 30, 1993, was 71.56%. During
a portion of the periods for which total returns are shown, the Fund's
maximum sales charge rate was higher; as a result, performance returns on
actual investments during those periods may be lower than the results
shown.
From time to time the Fund may also quote a "total return at net
asset value" for Class A or Class C shares to describe the rate of return
on an investment in the Fund. It is based on the difference in net asset
value per share at the beginning and end of the period for that class of
shares (without considering sales charge) and takes into consideration the
reinvestment of dividends and capital gains (as with total return,
described above). The Fund's total return at net asset value for Class
A shares for the one year period ended September 30, 1993, was 10.31%.
Yield and total return information may be useful to investors in
reviewing the Fund's performance. However, a number of factors should be
considered before using such information as a basis for comparison with
other investments. An investment in the Fund is not insured. The Fund's
yield and total return are not guaranteed and normally will fluctuate on
a daily basis. The yield and total return for any given past period is
not an indication or representation by the Fund of future yields or rates
of return on its shares. The yield and total return of the Class A and
Class C shares of the Fund are affected by portfolio quality, portfolio
maturity, type of investments held, and the Fund's operating expenses.
When comparing the Fund's yield, total return and investment risk of an
investment in Class A or Class C shares of the Fund with those of other
investment instruments, investors should understand that certain other
investment alternatives such as certificates of deposit, U.S. Government
Securities, money market instruments or bank accounts may provide fixed
yields, and also that bank accounts may be insured and U.S. Government
securities may be guaranteed. In order to compare the Fund's dividends
to the rate of return on taxable investments, Federal income taxes on such
investments should be considered.
From time to time the Fund may publish the ranking of the performance
of its Class A or Class C shares by Lipper Analytical Services, Inc.
("Lipper"), a widely-recognized independent service which 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's classes is ranked
against (i) all other funds other than money market funds, and (ii) all
other general municipal bond funds. The Lipper performance analysis
includes the reinvestment of capital gain distributions and income
dividends but does not take sales charges or taxes into consideration.
From time to time the Fund may publish the ranking of the performance
of its Class A or Class C shares by Morningstar, Inc. ("Morningstar"), an
independent mutual fund monitoring service that ranks various mutual
funds, including the Fund, based upon the Fund's three, five and ten-year
average annual total returns (when available) and a risk factor that
reflects fund performance relative to three-month U.S. Treasury bill
monthly returns. Such returns are adjusted for fees and sales loads.
There are five ranking categories with a corresponding number of stars:
highest (5), above average (4), neutral (3), below average (2) and lowest
(1). Morningstar ranks the Fund in relation to other rated municipal bond
funds
Tax Status of the Fund. The Fund intends to qualify as a "regulated
investment company" under Subchapter M of the Internal Revenue Code. By
so qualifying, the Fund will not be subject to Federal income taxes on
amounts paid by it as dividends and distributions, as described in the
Prospectus. In order to qualify as a "regulated investment company," at
the end of each quarter of its taxable year, at least 50% of the
aggregate value of the Fund's total assets must consist of cash, cash
items, government securities and other securities, the latter limited with
respect to each issuer at the time of purchase to not more than 5% of the
Fund's total assets. The Fund will endeavor to insure that its assets are
so invested so that this requirement is satisfied, but there can be no
assurance that it will be successful in doing so.
Tax Status of the Fund's Dividends and Distributions. 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 from November 1 of the
prior year to October 31 of that year or else the Fund must pay an excise
tax on the amounts not distributed. While it is presently anticipated
that the Fund's distributions will meet those requirements, the Fund's
Board and the Manager may determine that in a particular year it would be
in the best interests of the Fund not to distribute income or capital
gains at the mandated levels and pay the excise tax on the undistributed
amounts, which would reduce the amount 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 the other funds listed in the Prospectus as "Eligible
Funds," at net asset value without sales charge. Class C shareholders
should be aware that as of the date of this Additional Statement, not all
Eligible Funds offer Class C shares. The names of these funds are listed
above under "Purchase, Redemption and Pricing of Shares - Exchanges of
Class C Shares." To elect this option, the shareholder must notify the
Transfer Agent in writing, and either must have an existing account in the
fund selected for reinvestment or must obtain a prospectus for that fund
and application from the Distributor to establish an account. The
investment will be made at net asset value per share in effect at the
close of business on the payable date of the dividend or distribution.
ADDITIONAL INFORMATION
Description of the Fund. Until July 10, 1992, the Fund was called "First
Trust Tax-Free Bond Fund - Income Series." The Trust's Declaration of
Trust contains an express disclaimer of shareholder and Trustee liability
for the Fund's obligations, and provides for indemnification and
reimbursement of expenses out of its property for any shareholder held
personally liable for its obligations. The Declaration of Trust also
provides that the Fund shall, upon request, assume the defense of any
claim made against any shareholder for any act or obligation of the Fund
and satisfy any judgment thereon. Thus, while under Massachusetts law,
a shareholder of a trust (such as the Fund) may be held personally liable
as a "partner" under certain circumstances, the risk of a Fund shareholder
incurring financial loss on account of shareholder liability is limited
to the relatively remote circumstances in which the Fund would be unable
to meet its obligations described above. Any person doing business with
the Fund, and any 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 which may arise out of any dealings with the Fund, and the
Trustees shall have no personal liability to any such person to the extent
permitted by the law.
Shareholders have the right, upon the declaration in writing or vote
of a majority of the outstanding shares of the Trust, 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 holders of 10% of its
outstanding shares. In addition, if the Trustees receive a written
request from at least 10 shareholders (who have been shareholders for at
least six months) holding in the aggregate shares of the Fund valued at
$25,000 or more or holding 1% or more of the Fund's outstanding shares,
whichever is less, that they wish to communicate with other shareholders
to request a meeting to remove a Trustee, the Trustees will then make the
Fund's shareholder list available to the applicants or mail their
communication to all other shareholders at the applicants' expense, or the
Trustees may take such other action as set forth in Section 16(c) of the
Investment Company Act.
Each whole share shall be entitled to one vote as to any matter on
which it is entitled to vote and each fractional share shall be entitled
to a proportionate fractional vote. Notwithstanding any other provision
of the Declaration of Trust, on any matter submitted to a vote of
Shareholders all Shares of the Trust then entitled to vote shall be voted
by individual Series and not in the aggregate, except (a) when required
by the 1940 Act, Shares shall be voted in the aggregate and not by
individual Series; and (b) when the Trustees have determined that the
matter affects only the interests of one or more series or Class of
Series, then only Shareholders of such Series or Class shall be entitled
to vote thereon. There shall be no cumulative voting in the election of
Trustees. Shares may be voted in person or by proxy.
The Custodian and the Transfer Agent. The Custodian's responsibilities
include safeguarding and controlling the Fund's portfolio securities and
handling the delivery of portfolio securities to and from the Fund. The
Manager has represented to the Fund that its banking relationships with
the Custodian have been and will continue to be unrelated to and
unaffected by the relationship between the Fund and the Custodian. It
will be the practice of the Fund to deal with the Custodian in a manner
uninfluenced by any banking relationship the Custodian may have with the
Manager or its affiliates.
Oppenheimer Shareholder Services, as transfer agent, is responsible
for maintaining the Fund's shareholder registry and shareholder accounting
records, and for shareholder servicing and administrative functions.
General Distributor's Agreement. Oppenheimer Funds Distributor, Inc.
("OFDI"), formerly named "Oppenheimer Fund Management, Inc.," became the
Fund's Distributor on January 31, 1992. Prior to that date, Clayton Brown
& Associates, Inc. ("Clayton Brown") was the Fund's general distributor.
Under the General Distributor's Agreement between the Fund and the
Distributor, the Distributor acts as the Fund's principal underwriter in
the continuous public offering of the Fund's Class A and Class C shares,
but is not obligated to sell a specific number of shares. Expenses
normally attributable to sales (other than those paid under the
Distribution Plan), including advertising and the cost of printing and
mailing prospectuses (other than those furnished to existing shareholders)
are borne by the Distributor.
In the fiscal year ended September 30, 1991, Clayton Brown retained
commissions in the amount of $14,461 from the Fund, and reallowed $29,328
to other dealers. During the period October 1, 1991 through January 31,
1992, Clayton Brown retained commissions in the amount of $19 and
reallowed $16,464 to other dealers. During the period February 1, 1992
through September 30, 1992, OFDI retained commissions in the amount of
$7,475 and reallowed $30,857 to other dealers, including $2,729 paid to
an affiliated broker-dealer. During the fiscal year ended September 30,
1993, OFDI retained commissions in the amount of $115,302 and paid
$106,317 to an affiliated broker-dealer. In the fiscal years ended
September 30, 1991, and from October 1, 1991 through January 1992, OFDI,
which served as sub-distributor during those periods, received no
reallowance of commissions from Clayton Brown.
Independent Auditors. The independent auditors of the Fund audit the
Fund's financial statements and perform other related audit services. They
also act as auditors for the Manager and for certain other funds advised
by the Manager.
AUTOMATIC WITHDRAWAL PLAN PROVISIONS
By requesting an Automatic Withdrawal Plan, the applicant agrees to
the terms and conditions applicable to such plans, as stated below and
elsewhere in the Application for such Plans, the Prospectus and this
Additional Statement as they may be amended from time to time by the Fund
and/or the Distributor. When adopted, such amendments will automatically
apply to existing Plans.
Fund shares will be redeemed as necessary to meet withdrawal
payments. Shares acquired without a sales charge will be redeemed first
and thereafter, shares acquired with reinvested dividends and
distributions followed by shares acquired with a sales charge will be
redeemed to the extent necessary to meet withdrawal payments. Depending
upon the amount withdrawn, the investor's principal may be depleted.
Payments made to shareholders under such plans should not be considered
as a yield or income on an investment. Purchases of additional shares
concurrently with withdrawals are undesirable because of sales charges on
purchases. Accordingly, a shareholder may not maintain an Automatic
Withdrawal Plan while simultaneously making regular purchases. The Fund
reserves the right to amend, suspend or cease offering such plans at any
time without prior notice.
1. Oppenheimer Shareholder Services, the transfer agent of the Fund
(the "Transfer Agent"), will administer the Automatic Withdrawal Plan (the
"Plan") as agent for the person (the "Planholder") who executed the Plan
authorization and application submitted to the Transfer Agent.
2. 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 now held by the 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. Those
shares will be carried on the Planholder's Plan Statement.
3. 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 may be paid in cash or reinvested.
4. Redemptions of shares in connection with disbursement payments
will be made at the net asset value per share in effect on the redemption
date.
5. Checks or ACH payments will be transmitted approximately three
business days prior to the date selected for receipt of the monthly or
quarterly payment (the date of receipt is approximate), according to the
choice specified in writing by the Planholder.
6. The amount and the interval of disbursement payments and the
address to which checks are to be mailed may be changed by the Planholder
on written notification to the Transfer Agent. The Planholder should
allow at least two weeks' time in mailing such notification before the
requested change can be put in effect.
7. The Planholder may, at any time, instruct the Transfer Agent by
written notice (in proper form in accordance with the requirements of the
then-current prospectus of the Fund) to redeem all, or any part of, the
shares held under the Plan. In such case, the Transfer Agent will redeem
the number of shares requested at the net asset value per share in effect
in accordance with the Fund's usual redemption procedures and will mail
a check for the proceeds of such redemption to the Planholder.
8. The Plan may, at any time, be terminated by the Planholder on
written notice to the Transfer Agent, or by the Transfer Agent upon
receiving directions to that effect from the Fund. The Transfer Agent
will also terminate the Plan upon receipt of evidence satisfactory to it
of the death or legal incapacity of the Planholder. Upon termination of
the Plan by the Transfer Agent or the Fund, shares remaining unredeemed
will be held in an uncertificated account in the name of the Planholder,
and the account will continue as a dividend-reinvestment, uncertificated
account unless and until proper instructions are received from the
Planholder, his executor or guardian, or as otherwise appropriate.
9. For purposes of using shares held under the Plan as collateral,
the Planholder may request issuance of a portion of his shares in
certificated form. Upon written request from the Planholder, the Transfer
Agent will determine the number of shares as to which a certificate may
be issued, so as not to cause the withdrawal checks to stop because of
exhaustion of uncertificated shares needed to continue payments. Should
such uncertificated shares become exhausted, Plan withdrawals will
terminate.
10. The Transfer Agent shall incur no liability to the Planholder
for any action taken or omitted by the Transfer Agent in good faith.
11. In the event that the Transfer Agent shall cease to act as
transfer agent for the Fund, the Planholder will be deemed to have
appointed any successor transfer agent to act as his agent in
administering the Plan.
LETTER OF INTENT
In submitting a Letter of Intent to purchase Class A shares of the
Fund and other OppenheimerFunds at a reduced sales charge, the investor
agrees to the terms of the Prospectus, the Application used to buy such
shares and the language of this Additional Statement as to Letters of
Intent, as they may be amended from time to time by the Fund. Such
amendments will apply automatically to existing Letters of Intent.
A Letter of Intent ("Letter") is the investor's statement of
intention to purchase Class A shares of the Fund (and other eligible
OppenheimerFunds sold with a sales charge) during the 13-month period from
the investor's first purchase pursuant to the Letter (the "Letter of
Intent period"), which may, at the investor's request, include purchases
made up to 90 days prior to the date of the Letter. The investor states
the intention to make the aggregate amount of purchases (excluding any
reinvestments of dividends or distributions or purchases made at net asset
value without sales charge), which together with the investor's holdings
of such funds (calculated at their respective public offering prices
calculated on the date of the Letter) will equal or exceed the amount
specified in the Letter to obtain the reduced sales charge rate (as set
forth in "How To Buy Shares" in the Prospectus) applicable to purchases
of shares in that amount (the "intended amount"). Each purchase under the
Letter will be made at the public offering price applicable to a single
lump-sum purchase of shares in the intended amount, as described in the
applicable prospectus.
In submitting a Letter, the investor makes no commitment to purchase
shares, but if the investor's purchases of shares within the Letter of
Intent period, when added to the value (at offering price) of the
investor's holdings of such fund shares on the last day of that period,
do not equal or exceed the intended amount, the investor agrees to pay the
additional amount of sales charge applicable to such purchases, as set
forth in "Terms of Escrow," below, as those terms may be amended from time
to time. The investor agrees that shares equal in value to 5% of the
intended amount will be held in escrow by the Fund's transfer agent
subject to the Terms of Escrow.
If the total eligible purchases made during the Letter of Intent
period do not equal or exceed the intended 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 amount and exceed the
amount needed to qualify for the next sales charge rate reduction set
forth in the applicable prospectus, the sales charges paid will be
adjusted to the lower rate, but only if and when the dealer returns to the
Distributor the excess of the amount of commissions allowed or paid to the
dealer over the amount of commissions that apply to the actual amount of
purchases. The excess commissions returned to the Distributor will be
used to purchase additional shares for the investor's account at the net
asset value per share in effect on the date of such purchase, promptly
after the Distributor's receipt thereof.
In determining the total amount of purchases made under a Letter,
shares redeemed by the investor prior to the termination of the Letter of
Intent period will be deducted. It is the responsibility of the dealer
of record and/or the investor to refer to 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
1. Out of the initial purchase (or subsequent purchases if
necessary), made pursuant to a Letter, shares of the Fund equal in value
to 5% of the intended amount specified in the Letter shall be held in
escrow by the Fund's transfer agent. For example, if the minimum amount
specified under the Letter 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 amount
specified in the Letter, the investor must remit to the Distributor an
amount equal to the difference between the dollar amount of sales charges
actually paid and the amount of sales charges which would have been paid
if the total amount purchased had been made at a single time. Such sales
charge adjustment will apply to any shares redeemed prior to the
completion of the Letter. If such difference in sales charges is not paid
within twenty days after a request from the Distributor or the dealer,
the Distributor will, within sixty days of the expiration of the Letter,
redeem the number of escrowed shares necessary to realize such difference
in sales charges. Full and fractional shares remaining after such
redemption will be released from escrow. If a request is received to
redeem escrowed shares prior to the payment of such additional sales
charge, the sales charge will be withheld from the redemption proceeds.
4. By signing the Letter, the investor irrevocably constitutes and
appoints the transfer agent of the Fund as attorney-in-fact to surrender
for redemption any or all escrowed shares.
5. The funds whose shares are eligible for purchase under the Letter
(or the holding of which may be counted toward completion of the Letter)
do not include any fund whose shares are sold without a front-end sales
charge or without being subject to a Class A contingent deferred sales
charge unless (for the purpose of determining completion of the obligation
to purchase shares under the Letter) the shares were acquired in exchange
for shares of a fund (described as a "Eligible Fund" in the Prospectus)
whose shares were acquired by payment of a 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 "Exchange Privilege," and the
escrow will be transferred to that other fund.
<PAGE>
<PAGE>
Independent Auditors' Report
The Board of Trustees and Shareholders of Oppenheimer Intermediate
Tax-Exempt Bond Fund:
We have audited the accompanying statement of assets and liabilities,
including the statement of investments, of Oppenheimer Intermediate
Tax-Exempt Bond Fund as of September 30, 1993, the related statement of
operations for the year then ended, the statements of changes in net
assets for the years ended September 30, 1993 and 1992, and the financial
highlights for the period October 1, 1989 to September 30, 1993. 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.
The financial highlights (except for total return) for the period November
11, 1986 (commencement of operations) to September 30, 1989 were audited
by other auditors whose report dated November 2, 1989, expressed an
unqualified opinion on those financial highlights.
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 also
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included
confirmation of securities owned at September 30, 1993 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
Intermediate Tax-Exempt Bond Fund at September 30, 1993, 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
DELOITTE & TOUCHE
Denver, Colorado
October 21, 1993
<PAGE>
Statement of Investments September 30, 1993
<TABLE>
<CAPTION>
Ratings
Moody's/S&P's/Fitch's Face Market Value
(Unaudited) Amount See Note 1
<S> <S> <C> <C> <C>
Municipal Bonds and Notes--97.9%
California--5.2% Corona, California Certificates of
Participation, Series B, 10%, 11/1/20 Aaa/AAA $1,000,000 $1,406,823
Northern California Power Agency Public
Power Revenue Bonds, Geothermal Project
No. 3, Series 1984A, 11.50%, 7/1/10 Aaa/AAA 1,000,000 1,152,707
Sacramento, California Municipal Utility
District Electric Revenue Refunding Bonds,
Series V, 7.50%, 8/15/18 Aaa/AAA/A- 965,000 1,066,033
3,625,563
Colorado--.8% Meridian Metropolitan District, Colorado
Revenue Refunding Bonds, 7.50%, 12/1/11 A3/NR 500,000 571,819
Georgia--2.1% Georgia State Residential Finance
Authority Home Ownership Mortgage Bonds,
Series A-2, FHA Insured, 7.50%, 6/1/17 Aa/AA 250,000 265,302
Monroe County, Georgia Development
Authority Pollution Control Revenue Bonds,
Oglethorpe Power Corp. Scherer Project,
Series 1992A, 5.35%, 1/1/98 A3/AA- 1,180,000 1,222,501
1,487,803
Hawaii--1.6% Hawaii State General Obligation Unlimited
Tax Bonds, Series BT, 6%, 2/1/02 Aa/AA 1,000,000 1,099,327
Illinois--3.6% Chicago, Illinois General Obligation
Project and Refunding Bonds, Series 1987B,
9.25%, 1/1/13 A/A- 500,000 603,152
Illinois Development Finance Authority
Pollution Control Revenue Bonds, Central
Illinois Public Service Co., Series A,
7.60%, 3/1/14 Aa2/AA 250,000 285,531
Illinois Health Facilities Authority
Revenue Refunding Bonds, Lutheran Health
Systems, Series C, 7.50%, 4/1/18 Aaa/AAA 400,000 470,740
Illinois State Sales Tax Revenue Bonds,
Series F, 8%, 6/15/18 Aaa/AAA 500,000 593,361
Southwestern Illinois Development
Authority Hospital Revenue Bonds, Saint
Elizabeth Medical Center, 8%, 6/1/10 NR/A- 500,000 590,386
2,543,170
Indiana--.3% Indiana University Revenue Bonds, Hospital
Facilities, 7%, 1/1/09 A1/A+ 215,000 233,263
Iowa--.2% Des Moines, Iowa Hospital Revenue Bonds,
Iowa Methodist Medical Center, 7.875%,
8/15/15 A1/A+ 150,000 174,095
Louisiana--1.5% Louisiana State Recovery District Sales
Tax Revenue Bonds, 7.625%, 7/1/96 A/A- 1,000,000 1,078,014
Maine--.8% Maine State Housing Authority Mortgage
Purchase Bonds, Series A, 7.50%, 11/15/22 A1/AA 500,000 538,280
Maryland--9.3% Howard County, Maryland Certificates of
Participation Bonds, Series A, 8.05%,
2/15/21 NR/AA+ 350,000 492,106
Maryland State Health and Higher
Educational Facilities Authority Revenue
Refunding Bonds, Johns Hopkins University,
7.50%, 7/1/20 Aa1/AA- 650,000 746,079
Maryland Water Quality Financing
Administration Revolving Loan Fund Revenue
Bonds:
Series A, 0%, 9/1/04 Aa/AA 1,575,000 944,962
Series A, 0%, 9/1/05 Aa/AA 1,575,000 891,357
Series A, 0%, 9/1/06 Aa/AA 1,575,000 839,158
Series A, 0%, 9/1/07 Aa/AA 1,575,000 788,481
Series A, 0%, 9/1/08 Aa/AA 1,575,000 744,825
Washington Suburban Sanitation District,
Maryland Sewage Disposal Unlimited Tax
Revenue Bonds, 5.60%, 6/1/01 Aa1/AA 1,000,000 1,082,744
6,529,712
<PAGE>
Ratings
Moody's/S&P's/Fitch's Face Market Value
(Unaudited) Amount See Note 1
Municipal Bonds and Notes (continued)
Massachusetts--6.9% Massachusetts Municipal Wholesale Electric
Co. Power Supply Systems Revenue Bonds,
Series E, 5.70%, 7/1/01 Baa1/BBB+/A- $1,000,000 $ 1,056,947
Massachusetts State Dedicated Income Tax
Bonds, Series A, 7.875%, 6/1/97 A/A/A 1,000,000 1,131,873
Massachusetts State Health and Educational
Facilities Authority Revenue Bonds, New
England Memorial Hospital, Series B,
5.90%, 7/1/03 Baa/NR 2,600,000 2,659,704
4,848,524
Michigan--.8% Michigan State Hospital Finance Authority
Revenue Bonds, McLaren Obligated Group,
Series A, 7.50%, 9/15/21 A/A 435,000 530,991
Nebraska--1.5% Omaha Public Power District Electric
Revenue Bonds, 5.10%, 2/1/03 Aa/AA 1,000,000 1,042,942
Nevada--3.4% Clark County, Nevada School District
General Obligation Bonds, Series A, MBIA
Insured, 9.75%, 6/1/01 Aaa/AAA 1,800,000 2,416,738
New Jersey--4.4% New Jersey State Housing and Mortgage
Finance Agency Revenue Bonds, Series A,
6.50%, 11/1/03 NR/A+ 1,860,000 1,977,237
New Jersey State Turnpike Authority
Revenue Bonds, Series A, 5.80%, 1/1/02 A/A/A 1,000,000 1,084,411
3,061,648
New Mexico--.8% New Mexico State Hospital Equipment Loan
Council Hospital Revenue Bonds, San Juan
Regional Medical Center, Inc. Project,
7.90%, 6/1/11 A/NR 500,000 583,550
New York--18.4% City of New York General Obligation Bonds:
Series A, 8.75%, 11/1/17 Aaa/AAA 500,000 601,582
Series B, 8.25%, 6/1/19 Aaa/A- 500,000 636,634
Series D, 5.70%, 8/1/02 Baa1/A- 5,500,000 5,676,676
New York City Municipal Water Finance
Authority Water and Sewer System Revenue
Bonds, Series B, FGIC Insured, 7.625%,
6/15/17 Aaa/AAA/AAA 300,000 352,157
New York State General Obligation
Refunding Bonds, 7.80%, 11/15/99 A/A- 1,000,000 1,188,419
New York State Medical Care Facilities
Finance Agency Revenue Bonds, Mental
Health Services Facilities, Series B,
AMBAC Insured, 5.85%, 2/15/02 Aaa/AAA 1,000,000 1,096,933
New York State Urban Development Corp.
Revenue Refunding Bonds, Correctional
Capital Facilities, 5.25%, 1/1/02 Baa1/BBB 2,035,000 2,049,733
Port Authority of New York and New Jersey
Consolidated Revenue Bonds, Eighty-Second
Series, 4.80%, 8/1/99 A1/AA-/AA- 1,250,000 1,293,630
12,895,764
North Carolina--4.4% North Carolina Municipal Power Agency No.
1 Catawba Electric Revenue Refunding
Bonds, 5.25%, 1/1/06 A/A 3,000,000 3,051,333
Oklahoma--.2% Oklahoma County, Oklahoma Home Finance
Authority Revenue Bonds, GNMA Collateral
Mortgage, 7.65%, 1/1/23 NR/AA+ 125,000 136,672
Pennsylvania--6.2% Greensburg Salem, Pennsylvania School
District Bonds, MBIA Insured, 7.10%,
1/1/19 Aaa/AAA 250,000 283,860
Pennsylvania Intergovernmental Cooperative
Authority Special Tax Revenue Bonds, City
of Philadelphia Funding Program, 5.25%,
6/15/06 Aaa/AAA 4,020,000 4,093,143
<PAGE>
Ratings
Moody's/S&P's/Fitch's Face Market Value
(Unaudited) Amount See Note 1
Statement of Investments (continued)
Municipal Bonds and Notes (continued)
South Carolina--3.0% Richland County, South Carolina Hospital
Facilities Revenue Bonds, Community
Provider Pooled Loan Program, Capital
Guaranteed, Series A, 7.125%, 7/1/17 Aaa/AAA $ 250,000 $ 281,243
South Carolina State Education Assistance
Authority Revenue Bonds, Insured Student
Loan, 6.30%, 9/1/01 NR/AA 1,400,000 1,522,518
Spartanburg County, South Carolina
Hospital Facilities Improvement Revenue
Refunding Bonds, Mary Black Memorial
Hospital, Inc. Project, Series 1988,
8.25%, 10/1/08 NR/A- 250,000 288,035
2,091,796
Texas--6.8% Austin, Texas Combined Utility Systems
Revenue Refunding Bonds, Series 1985A,
9.50%, 5/15/15 Aaa/A 250,000 324,258
Houston, Texas Water and Sewer System
Revenue Bonds, 5.60%, 12/1/01 A/A/A 2,200,000 2,323,715
Texas A&M University Financing System
Revenue Refunding Bonds, 5.40%, 5/15/02 Aa/AA/AA 1,000,000 1,052,008
Texas National Research Laboratory
Commission Financing Corp. Lease Revenue
Bonds, Superconducting Super Collider,
6.25%, 12/1/00 A/A-/A 1,000,000 1,073,833
4,773,814
Utah--1.6% Intermountain Power Agency of Utah Power
Supply Revenue Refunding Bonds, Series H,
9%, 7/1/19 Aa/AA 1,000,000 1,098,072
Washington--4.8% Port of Seattle, Washington Revenue Bonds,
Series B, 6.30%, 11/1/02 A1/AA-/AA- 1,000,000 1,103,937
South Columbia Basin Irrigation District,
Washington Hydroelectric Revenue Refunding
Bonds, 9.10%, 6/1/00 Aa/AA 1,000,000 1,110,772
Washington State Public Power Supply
System Revenue Refunding Bonds, Nuclear
Project No. 2, Series B, 7%, 7/1/12 Aa/AA 1,000,000 1,122,746
3,337,455
Wisconsin--.4% Wisconsin State Transportation Revenue
Bonds, Series B, 5.20%, 7/1/02 A1/AA- 250,000 262,712
U.S. Possessions--8.9% Puerto Rico Commonwealth Highway and
Transportation Authority Revenue Bonds,
7.306%, 7/1/04(1) Baa1/A 1,500,000 1,575,327
Puerto Rico Electric Power Authority
Revenue Refunding Bonds, 6.75%, 7/1/03 Baa1/A- 2,000,000 2,258,022
Puerto Rico Telephone Authority Revenue
Bonds, 7.346%, 1/1/03(1) Aaa/AAA 2,350,000 2,431,404
6,264,753
Total Investments, at Value (Cost $65,618,410) 97.9% 68,654,813
Other Assets Net of Liabilities 2.1 1,480,698
Net Assets 100.0% $70,135,511
<FN>
(1) Represents the current interest rate for a variable rate security.
</TABLE>
See accompanying notes to financial statements.
<PAGE>
Statement of Assets and Liabilities September 30, 1993
<TABLE>
<S> <C> <C>
Assets Investments, at value (cost $65,618,410)--see accompanying statement $68,654,813
Cash 192,092
Receivables:
Interest 1,055,637
Shares of beneficial interest sold 526,063
Other 15,536
Total assets 70,444,141
Liabilities Payables and other liabilities:
Dividends 193,903
Distribution assistance--Note 4 41,945
Shares of beneficial interest redeemed 24,765
Other 48,017
Total liabilities 308,630
Net Assets $70,135,511
Composition of
Net Assets Paid-in capital $66,670,716
Undistributed net investment income 102,188
Accumulated net realized gain from investment transactions 326,204
Net unrealized appreciation of investments--Note 3 3,036,403
Net Assets--Applicable to 4,571,295 shares of beneficial interest outstanding $70,135,511
Net Asset Value and Redemption Price Per Share $ 15.34
Maximum Offering Price Per Share (net asset value plus sales charge of 3.50% of offering price) $ 15.90
</TABLE>
See accompanying notes to financial statements.
<PAGE>
Statement of Operations For the Year Ended September 30, 1993
<TABLE>
<S> <C> <C>
Investment Income Interest $2,996,763
Expenses Management fees--Note 4 243,742
Distribution assistance--Note 4 121,833
Transfer and shareholder servicing agent fees--Note 4 60,210
Registration and filing fees 27,502
Shareholder reports 26,226
Legal and auditing fees 13,265
Custodian fees and expenses 9,255
Trustees' fees and expenses 2,946
Other 16,541
Total expenses 521,520
Less assumption of expenses by Oppenheimer Management
Corporation--Note 4 (7,593)
Net expenses 513,927
Net Investment Income 2,482,836
Realized and
Unrealized Gain
on Investments Net realized gain on investments 295,937
Net change in unrealized appreciation of investments:
Beginning of year 865,393
End of year--Note 3 3,036,403
Net change 2,171,010
Net Realized and Unrealized Gain on Investments 2,466,947
Net Increase in Net Assets Resulting from Operations $4,949,783
</TABLE>
See accompanying notes to financial statements.
<PAGE>
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Year Ended September 30,
1993 1992
<S> <C> <C> <C>
Operations Net investment income $ 2,482,836 $ 1,476,670
Net realized gain on investments 295,937 1,277,633
Net change in unrealized appreciation or depreciation of 2,171,010 (112,307)
investments
Net increase in net assets resulting from operations 4,949,783 2,641,996
Dividends and
Distributions to
Shareholders Dividends from net investment income ($.75 and $.86 per (2,380,648) (1,476,670)
share, respectively)
Distributions from net realized gain on investments ($.473 (1,090,058) --
per share)
Beneficial Interest Net increase in net assets resulting from beneficial 38,932,453 4,883,583
Transactions interest transactions--Note 2
Net Assets Total increase 40,411,530 6,048,909
Beginning of year 29,723,981 23,675,072
End of year $70,135,511 $29,723,981
</TABLE>
See accompanying notes to financial statements.
<PAGE>
Financial Highlights
<TABLE>
<CAPTION>
Year Ended September 30,
1993 1992 1991 1990++ 1989 1988 1987+
<S> <C> <C> <C> <C> <C> <C> <C>
Per Share Operating Data:
Net asset value, beginning of period $ 15.09 $ 14.40 $ 13.51 $ 13.57 $ 13.33 $ 12.56 $ 14.00
Income (loss) from investment operations:
Net investment income .77 .86 .83 .90 .98 1.05 .90
Net realized and unrealized gain (loss) on investments .70 .69 .91 (.08) .24 .77 (1.44)
Total income (loss) from investment operations 1.47 1.55 1.74 .82 1.22 1.82 (.54)
Dividends and distributions to shareholders:
Dividends from net investment income (.75) (.86) (.85) (.88) (.98) (1.05) (.90)
Distributions from net realized gain on investments (.47) - - - - - -
Total dividends and distributions to shareholders (1.22) (.86) (.85) (.88) (.98) (1.05) (.90)
Net asset value, end of period $ 15.34 $ 15.09 $ 14.40 $ 13.51 $ 13.57 $ 13.33 $ 12.56
Total Return, at Net Asset Value** 10.31% 11.10% 13.20% 6.14% 9.54% 14.96% (4.11)%
Ratios/Supplemental Data:
Net assets, end of period (in thousands) $70,136 $29,724 $23,675 $20,287 $19,350 $13,480 $10,228
Average net assets (in thousands) $48,915 $25,153 $22,071 $20,576 $17,188 $12,220 $11,152
Number of shares outstanding at end of period (in
thousands) 4,571 1,970 1,644 1,502 1,426 1,011 814
Ratios to average net assets:
Net investment income 5.08% 5.87% 5.93% 6.56% 7.09% 8.01% 7.39%*
Expenses, before voluntary assumption by
the Manager 1.07% 1.25% 1.35% 1.41% 1.56% 1.75% 1.95%*
Expenses, net of voluntary assumption by
the Manager 1.05% 1.16% 1.16% .66% .23% --% .40%*
Portfolio turnover rate*** 21% 93% 75% 102% 180% 148% 98%
<FN>
*Annualized.
**Assumes a hypothetical initial investment on the business day before the
first day of the fiscal period, 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.
***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 year ended September 30, 1993 were $46,164,903 and
$9,912,262, respectively.
+For the period from November 11, 1986 (commencement of operations) to
September 30, 1987.
++On April 7, 1990, Oppenheimer Management Corporation became the
investment adviser to the Fund.
</TABLE>
See accompanying notes to financial statements.
<PAGE>
Notes to Financial Statements
1. Significant Accounting Policies
Oppenheimer Intermediate Tax-Exempt Bond Fund (the Fund) is a separate
series of Oppenheimer Tax-Exempt Bond Fund, a diversified, open-end
management investment company registered under the Investment Company Act
of 1940, as amended. The Fund's investment adviser is Oppenheimer
Management Corporation (the Manager). The following is a summary of
significant accounting policies consistently followed by the Fund.
Investment Valuation--Portfolio securities are valued at 4:00 p.m. (New
York time) on each trading day. Long-term debt securities are valued by
a portfolio pricing service approved by the Board of Trustees. Long-term
debt securities which cannot be valued by the approved portfolio pricing
service are valued by averaging the mean between the bid and asked prices
obtained from two active market makers in such securities. Short-term 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. Securities for which market quotes
are not readily available are valued under procedures established by the
Board of Trustees to determine fair value in good faith.
Federal Income 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 tax provision is required.
Distributions to Shareholders--The Fund intends to declare dividends from
net investment income each regular business day and pay such dividends
monthly. Distributions from net realized gains on investments, if any,
will be declared at least once each year.
Other--Investment transactions are accounted for on the date the
investments are purchased or sold (trade date). Original issue discount
on securities purchased is amortized over the life of the respective
securities, in accordance with federal income tax requirements. 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.
2. Shares of Beneficial Interest
The Fund has authorized an unlimited number of no par value shares of
beneficial interest. Transactions in shares of beneficial interest were
as follows:
<TABLE>
<CAPTION>
Year Ended September 30, 1993 Year Ended September 30, 1992
Shares Amount Shares Amount
<S> <C> <C> <C> <C>
Sold 3,115,937 $ 46,722,666 521,935 $ 7,757,764
Dividends and distributions reinvested 160,105 2,381,702 65,061 959,431
Redeemed (674,670) (10,171,915) (261,252) (3,833,612)
Net increase 2,601,372 $ 38,932,453 325,744 $ 4,883,583
</TABLE>
3. Unrealized Gains and Losses on Investments
At September 30, 1993, net unrealized appreciation of investments of
$3,036,403 was composed of gross appreciation of $3,200,629, and gross
depreciation of $164,226.
<PAGE>
Notes to Financial Statements (continued)
4. Management Fees and Other Transactions with Affiliates Management fees
paid to the Manager were in accordance with the investment advisory
agreement with the Fund which provides for an annual fee of .50% on the
first $100 million of net assets, .45% on the next $150 million, .425% on
the next $250 million and .40% on net assets in excess of $500 million.
The Manager has agreed to assume Fund expenses (with specified exceptions)
in excess of the most stringent applicable regulatory limit on Fund
expenses. Prior to January 1, 1993, the Manager had voluntarily assumed
Fund expenses of .10% of average annual net assets.
For the year ended September 30, 1993, commissions (sales charges paid by
investors) on sales of Fund shares totaled $642,694, of which $221,619 was
retained by Oppenheimer Funds Distributor, Inc. (OFDI), a subsidiary of
the Manager, as general distributor, and by an affiliated broker-dealer.
Oppenheimer Shareholder Services (OSS), a division of the Manager, is the
transfer and shareholder servicing agent for the Fund, and for other
registered investment companies. OSS's total costs of providing such
services are allocated ratably to these companies.
Under an approved plan of distribution, the Fund may expend up to .25% of
its net assets annually to reimburse OFDI for costs incurred in
distributing shares of the Fund, including amounts paid to brokers,
dealers, banks and other financial institutions. During the year ended
September 30, 1993, OFDI paid $7,516 to an affiliated broker-dealer as
reimbursement for distribution-related expenses.
<PAGE>
Appendix A
DESCRIPTION OF RATINGS
Municipal Bond Ratings.
Moody's Investor Services, Inc. The four highest ratings of Moody's
for Municipal Securities are "Aaa," "Aa," "A" and "Baa." Moody's basis
of such ratings is as follows. Municipal Securities rated "Aaa" are
judged to be of the "best quality." The rating "Aa" is assigned to bonds
which are of "high quality by all standards," but as to which margins of
protection or other elements make long-term risks appear somewhat larger
than "Aaa" rated Municipal Securities. The "Aaa" and "Aa" rated bonds
comprise what are generally known as "high grade bonds." Municipal
Securities which are rated "A" by Moody's possess many favorable
investment attributes and are considered "upper medium grade obligations."
Factors giving security to principal and interest of bonds rated "A" are
considered adequate, but elements may be present which suggest a
susceptibility to impairment at some time in the future. Municipal
Securities rated "Baa" are considered "medium grade" obligations. They
are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any
great length of time. Those bonds in the "Aa," "A" and "Baa" groups which
Moody's believes possess the strongest attributes are designated "Aa1,"
"A1" and "Baa1."
In addition to the alphabetical rating system described above,
Municipal Securities rated by Moody's which have a demand feature that
provides the holder with the ability periodically to tender (put) the
portion of the debt covered by the demand feature, may also have a short-
term rating assigned to such demand feature. The short-term rating uses
the symbol VMIG to distinguish characteristics which include payment upon
periodic demand rather than fund or scheduled maturity dates and potential
reliance upon external liquidity, as well as other factors. The highest
investment quality is designated by the VMIG 1 rating and the lowest by
VMIG 4.
Standard & Poor's Corporation. The four highest ratings of S&P for
Municipal Securities are AAA (Prime), AA (High Grade), A (Good Grade), and
BBB (Medium Grade). Standard & Poor's basis of such ratings is as
follows. Municipal Securities rated AAA are "obligations of the highest
quality." The rating AA is accorded issues with investment
characteristics "only slightly less marked than those of the prime quality
issues." The rating A describes "the third strongest capacity for payment
of debt service." Principal and interest payments on bonds in this
category are regarded as safe. It differs from the two higher ratings
because, with respect to general obligation bonds, there is some weakness,
either in the local economic base, in debt burden, in the balance between
revenues and expenditures, or in quality of management. Under certain
adverse circumstances, any one such weakness might impair the ability of
the issuer to meet debt obligations at some future date. With respect to
revenue bonds rated A, debt service coverage is good, but not exceptional.
Stability of the pledged revenues could show some variations because of
increased competition or economic influences on revenues. Basic security
provisions, while satisfactory, are less stringent. Management
performance appears adequate.
The BBB rating is the lowest "investment grade" security rating. The
difference between A and BBB ratings is that the latter shows more than
one fundamental weakness, or one very substantial fundamental weakness,
whereas the former shows only one deficiency among the factors considered.
With respect to revenue bonds, debt coverage is only fair. Stability of
the pledged revenues could show variations, with the revenue flow possibly
being subject to erosion over time. Basic security provisions are no more
than adequate. Management performance could be stronger. The ratings AA,
A, and BBB may be modified by the addition of a plus or minus sign to show
relative standing within the major rating categories.
Municipal Note Ratings.
Moody's. Moody's ratings for state and Municipal Notes and other
short-term loans are designated "Moody's Investment Grade" ("MIG"). Notes
bearing the designation "MIG 1" are of the best quality, enjoying strong
protection from established cash flows of funds for their servicing or
from established and broad-based access to the market for financing.
Notes bearing the designation "MIG 2" are of high quality, with ample
margins of protection, although not so large as notes rated "MIG 1." Such
short-term notes which have demand features may also carry a rating using
the symbol "VMIG" as described above, with the designation "MIG 1/VMIG 1"
denoting best quality, with superior liquidity support in addition to
those characteristics attributable to the designation "MIG 1."
Standard & Poor's. Standard & Poor's ratings for Municipal Notes due
in three years or less are "SP1" and "SP2." "SP1" describes issues with
a very strong or strong capacity to pay principal and interest and
compares with bonds rated "A" by Standard & Poor's; if modified by a plus
sign, it compares with bonds rated "AA" or "AAA" by Standard & Poor's.
"SP2" describes issues with a satisfactory capacity to pay principal and
interest, and compares with bonds rated "BBB" by Standard & Poor's.
In addition to the alphabetical rating system described above,
Municipal Bonds rated by Moody's which have a demand feature that provides
the holder with the ability periodically to tender (put) the portion of
the debt covered by the demand feature, may also have a short-term rating
assigned to such demand feature. The short-term rating uses the symbol
"VMIG" to distinguish characteristics which include payment upon periodic
demand rather than fund or scheduled maturity dates and potential reliance
upon external liquidity, as well as other factors. The highest investment
quality is designated by the "VMIG 1" rating and the lowest by "VMIG 4."
<PAGE>
Appendix B
TAX-EQUIVALENT YIELDS
The equivalent yield tables below compare tax-free income with taxable
income under Federal income tax rates effective in 1993. The tables
assume that an investor's highest tax bracket applies to the change in
taxable income resulting from a switch between taxable and non-taxable
investments, that the investor is not subject to the Alternative Minimum
Tax, and that state income tax payments are fully deductible for Federal
income tax purposes. The income tax brackets are subject to indexing in
future years to reflect changes in the Consumer Price Index.
Example: Assuming a 4.0% tax-free yield, the equivalent taxable yield
would be 6.25% for a person in the 30% tax bracket.
<TABLE>
<CAPTION>
Federal
Taxable Income: EffectiveA Oppenheimer Intermediate Tax-Exempt Bond Fund Yield of
Tax 3.5% 4.0% 4.5% 5.0% 5.5% 6.0% 6.5%
Joint Return Bracket Is Equivalent to a Taxable Yield of:
Over Not Over
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 0$ 36,90015.00% 4.12% 4.71% 5.29% 5.88% 6.47% 7.06% 7.65%
$ 36,900$ 89,15028.00% 4.86% 5.56% 6.25% 6.94% 7.64% 8.33% 9.03%
$ 89,150$140,00031.00% 5.07% 5.80% 6.52% 7.25% 7.97% 8.70% 9.42%
$140,000$250,00036.00% 5.47% 6.25% 7.03% 7.81% 8.59% 9.38% 10.16%
$250,000 and above39.60%5.79% 6.62% 7.45% 8.28% 9.11% 9.93% 10.76%
Single Return
Over Not Over
$ 0$ 22,10015.00% 4.12% 4.71% 5.29% 5.88% 6.47% 7.06% 7.65%
$ 22,100$ 53,50028.00% 4.86% 5.56% 6.25% 6.94% 7.64% 8.33% 9.03%
$ 53,500$115,00031.00% 5.07% 5.80% 6.52% 7.25% 7.97% 8.70% 9.42%
$115,000$250,00036.00% 5.47% 6.25% 7.03% 7.81% 8.59% 9.38% 10.16%
$250,000 and above39.60%5.79% 6.62% 7.45% 8.28% 9.11% 9.93% 10.76%
<PAGE>
Investment Adviser
Oppenheimer Management Corporation
Two World Trade Center
New York, New York 10048-0203
Distributor
Oppenheimer Funds Distributor, Inc.
Two World Trade Center
New York, New York 10048-0203
Transfer and Shareholder Servicing Agent
Oppenheimer Shareholder Services
P.O. Box 5270
Denver, Colorado 80217
1-800-525-7048
Custodian of Portfolio Securities
Citibank, N.A.
399 Park Avenue
New York, New York 10043
Independent Auditors
Deloitte & Touche
1560 Broadway
Denver, Colorado 80202
Legal Counsel
Myer, Swanson & Adams, P.C.
1600 Broadway
Denver, Colorado 80202
</TABLE>
