<PAGE>
Oppenheimer Insured Tax-Exempt Bond Fund
3410 South Galena Street, Denver, CO 80231
Telephone 1-800-525-7048
Oppenheimer Insured Tax-Exempt Bond Fund (the "Fund"), is a series
of Oppenheimer Tax-Exempt Bond Fund (the "Trust"). The Fund has the
investment objective of seeking as high a level of current income exempt
from Federal income tax as is consistent with the assurance of the
scheduled receipt of interest and principal through insurance and with
preservation of capital. See "The Fund and Its Investment Policies."
While payments of principal and interest on the securities in which the
Fund invests are insured (other than securities purchased for temporary
or liquidity purposes), neither the principal value of those securities
nor the net asset value of shares of the Fund is guaranteed, and therefore
the Fund's net asset value per share is subject to fluctuations due to
changes in the value of its portfolio investments. For more details on
the insurance of the Fund's portfolio, see page 8.
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 (i) at the time of purchase (the "Class A shares"), or (ii) on a
contingent deferred basis (the "Class B shares"). Class B 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 B shares
within six years 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, and are not insured by the FDIC 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 10
Investment Restrictions 11
Management of the Fund 11
How to Buy Shares 12
Alternative Sales Arrangements 12
Class A Shares 13
Class A Sales Charge Table 14
Class A Contingent Deferred Sales
Charge 14
Reduced Sales Charges for Class A
Purchases 15
Class A Service Plan 16
Class B Shares 17
Class B Contingent Deferred Sales
Charge 17
Class B Conversion Feature 17
Class B Distribution and Service
Plan 18
Purchase Programs for Class A and Class B
Shares 19
AccountLink 19
PhoneLink 20
Asset Builder Plans 20
Group Programs 20
How to Redeem Shares 21
Regular Redemption Procedures 21
Telephone Redemptions 21
Check Writing 22
Automatic Withdrawal and Exchange
Plans 22
Repurchase 23
Reinvestment Privilege 23
General Information on Redemptions 23
Exchanges of Shares 24
Dividends, Distributions and Taxes 26
Fund Performance Information 28
Additional Information 30
<PAGE>
Fund Expenses
The following table sets forth the fees that an investor in the Fund
might pay and expenses paid by the Fund during its fiscal year ended
September 30, 1993.
Shareholder Transaction Expenses
Class A Class B
Shares Shares
Maximum Sales Charge on Purchases
(as a percentage of offering price) 4.75% None
Sales Charge on Reinvested Dividends None None
Maximum Contingent Deferred
Sales Charge on Redemptions None (1) 5.0% (2)
Redemption Fee None (3) None (3)
Exchange Fee $5.00 $5.00
Annual Fund Operating Expenses
(estimated as to Class B shares)
(as a percentage of average net assets)
Class A Class B
Shares Shares
Management Fees (restated) .45% .45%
12b-1 (Distribution and/or Service
Plan) Fees .25% 1.00%
Other Expenses .48% .51%
Total Fund Operating
Expenses (restated) 1.18% 1.96%
_______________
(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 contingent deferred sales charge is imposed on the proceeds of
Class B shares redeemed within six years of their purchase, subject
to certain exceptions. That charge is imposed as a percentage of net
asset value at the time of purchase or redemption, whichever is less,
and declines from 5.0% in the first year that shares are held, to
4.0% in the second year, 3.0% in the third and fourth years, 2.0% in
the fifth year, 1.0% in the sixth year and eliminated thereafter.
There is no charge on Class B shares held for more than six years.
See "How to Buy Shares - Class B Contingent Deferred Sales Charge,"
below.
(3) 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").
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
Charge"). The "Annual Fund Operating Expenses" shown in the table above
are restated to reflect the termination, effective June 1, 1993, of a
voluntary expense assumption by the Fund's investment adviser, Oppenheimer
Management Corporation (the "Manager"). Such restatement sets forth what
the Fund's operating expenses would have been in the Fund's fiscal year
ended September 30, 1993 had the expense assumption not been in effect
during that year. See "Investment Management Services" in the Additional
Statement for further details. Class B shares were not publicly offered
prior to May 3, 1993. The "Annual Fund Operating Expenses" as to Class
B shares are estimates based on amounts that would have been payable
during the fiscal year ended September 30, 1993, assuming that Class B
shares were outstanding during the entire fiscal year. 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 B
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 example applies the restated total Fund operating
expenses in the chart above 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 such stated period.
1 year 3 years 5 years 10 years(1)
1. Class A Shares $59 $83 $109 $184
2. Class C Shares $70 $92 $126 $190
3. Class A Shares,
assuming no
redemption $59 $83 $109 $184
4. Class C Shares,
assuming no
redemption $20 $62 $106 $190
_______________
(1) Class B shares convert to Class A shares under the terms and
conditions described under "How to Buy Shares - Class B Conversion
Feature." Therefore, years 7 through 10 reflect the Class A expenses
shown above. Long-term shareholders of Class B shares could pay the
economic equivalent, through the asset-based sales charge and
contingent deferred sales charge imposed on Class B shares, of more
than the maximum front-end sales charges permitted under applicable
regulatory requirements. The Class B Conversion Feature is intended
to minimize the likelihood that this will occur.
This example 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 and Class B 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.
The public sale of Class B shares commenced on May 3, 1993.
<TABLE>
<CAPTION>
Class A Class B
Period Ended
Year Ended September 30, September 30,
1993 1992 1991 1990++ 1989 1988 1987+ 1993+++
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Per Share Operating Data:
Net asset value, beginning of period $ 16.92 $ 16.17 $ 15.16 $ 15.27 $ 14.96 $13.79 $16.00 $17.33
Income (loss) from investment
operations:
Net investment income .93 .96 .92 .98 1.06 1.07 .92 .30
Net realized and unrealized gain (loss)
on investments 1.35 .73 1.01 (.11) .31 1.17 (2.21) .74
Total income (loss) from investment
operations 2.28 1.69 1.93 .87 1.37 2.24 (1.29) 1.04
Dividends and distributions to
shareholders:
Dividends from net investment income (.96) (.91) (.92) (.98) (1.06) (1.07) (.92) (.30)
Distributions from net realized gain on
investments (.18) (.03) -- -- -- -- -- --
Total dividends and distributions to
shareholders (1.14) (.94) (.92) (.98) (1.06) (1.07) (.92) (.30)
Net asset value, end of period $ 18.06 $ 16.92 $ 16.17 $ 15.16 $ 15.27 $14.96 $13.79 $18.07
Total Return, at Net Asset Value** 14.02% 10.74% 13.08% 5.81% 9.37% 16.67% (8.36)% 6.04%
Ratios/Supplemental Data:
Net assets, end of period (in thousands) $62,158 $33,751 $23,791 $16,863 $13,105 $8,483 $5,449 $5,104
Average net assets (in thousands) $45,949 $27,811 $19,936 $15,145 $11,200 $6,936 $5,435 $2,298
Number of shares outstanding at end of
period (in thousands) 3,442 1,995 1,471 1,113 858 567 395 282
Ratios to average net assets:
Net investment income 5.40% 5.81% 5.83% 6.43% 6.87% 7.34% 6.69%* 3.99%*
Expenses, before voluntary assumption by
the Manager 1.18% 1.35% 1.60% 1.62% 2.04% 2.50% 2.98%* 1.96%*
Expenses, net of voluntary assumption by
the Manager 1.10% .95% .91% .62% .42% .13% .34%* N/A
Portfolio turnover rate*** 7% 47% 67% 62% 142% 141% 112% 7%
<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
$30,133,427 and $3,330,059, 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.
+++For the period from May 3, 1993 (inception of offering) to September
30, 1993.
</TABLE>
<PAGE>
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 Fund's investment objective is to
provide as high a level of current income exempt from Federal income tax
as is consistent with the assurance of the scheduled receipt of interest
income and principal through insurance and with preservation of capital.
A discussion of the types of securities in which the Fund may invest and
the restrictions on such investments is contained below. 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 Municipal Securities (as defined below) and at
least 65% of its total assets in Municipal Securities that are insured as
to scheduled payments of both interest and principal, except as described
below. Although each insurer's quality standards may vary from time to
time, generally such insurers insure only those Municipal Securities that
are rated, at the date of purchase: (1) in the case of long-term debt,
"AAA" through "BBB" by Standard & Poor's Corporation ("S&P") or "Aaa"
through "Baa" by Moody's Investors Service, Inc. ("Moody's"); (2) in the
case of short-term securities, "SP-1+" through "SP-2" by S&P or "MIG 1"
through "MIG 4" 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. An insurer may also insure lower-rated or unrated Municipal
Securities if they meet its insurance standards.
The Fund may invest, without any limitation as to rating category,
in any securities for which it obtains insurance coverage. Although the
cost of insurance on the Fund's portfolio will reduce the Fund's yield,
one of the objectives of obtaining such insurance is to achieve a higher
yield than would be available if all securities in the Fund's portfolio
were rated "AAA" by S&P without the benefit of any insurance. If the Fund
invests in insured Municipal Securities that are below investment grade
in the opinion of the Manager, such insurance will make the risks of
owning such securities comparable to those of investment grade Municipal
Securities.
Pending investment of its assets in longer term Municipal Securities,
the Fund may invest up to 35% of its total assets in short-term Municipal
Securities without obtaining insurance on them, provided that such
securities are rated "MIG 1" or "A-1+" by Moody's or "SP-1+" or "AAA" by
S&P. Although the Fund intends to invest in insured Municipal Securities
(or temporarily in uninsured short-term Municipal Securities), the Fund
may invest temporarily up to 20% of its assets in uninsured taxable
securities for liquidity purposes and may invest more than 20% of its
total assets in uninsured taxable securities for temporary defensive
purposes, as described below. In addition, the Fund normally will 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).
Municipal Securities
The Fund will attempt to achieve its investment 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 Objective 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 (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. Insurance on the Municipal Securities of the Fund does
not insure against fluctuations in the net asset value of the Fund's
shares, and the net asset value will be affected by increases or decreases
in prevailing interest rates.
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, conditions affecting the Municipal Securities market and the
cost of the insurance obtainable on such bonds.
-- Insurance. To the extent that Municipal Securities in the Fund's
portfolio are insured, they will at all times be fully insured as to the
scheduled payment of all installments of interest and principal except,
as noted above, for investments made for temporary liquidity and defensive
purposes and pending investment in longer term Municipal Securities. This
insurance minimizes the risks to the Fund and its shareholders from
defaults in the portfolio securities owned by it. Each Municipal Security
in the Fund's portfolio will be covered by either a mutual fund "Portfolio
Insurance Policy" issued by Financial Guaranty Insurance Company
("Financial Guaranty"), a "Secondary Market Insurance Policy" or a "New
Issue Insurance Policy" obtained by the issuer or the underwriter of the
security at the time of its original issuance. If a Municipal Security
is already covered by a New Issue Insurance Policy or Secondary Market
Insurance Policy, then such security is not required to be additionally
insured under a Portfolio Insurance Policy issued by Financial Guaranty.
Such New Issue Insurance Policy or Secondary Market Insurance Policy may
have been issued by Financial Guaranty or by other insurers.
Based upon the current composition of the Fund's portfolio, the
Manager estimates that the premiums for a Portfolio Insurance Policy will
range from 0.2% to 0.4% per annum of average daily net assets. Premiums
are paid from the Fund's assets, and will reduce the current yield on its
portfolio by the amount thereof. When the Fund purchases a Secondary
Market Insurance Policy (see below), the single premium is added to the
cost basis of the Municipal Security and is not considered an item of
expense for the Fund.
Any of the policies discussed above insure the scheduled payment of
all principal and interest on the Municipal Securities as they fall due.
The insurance does not guarantee the market value of the Municipal
Securities or the value of the shares of the Fund and, except as described
below, has no effect on the net asset value or redemption price of the
shares of the Fund. The insurance of principal refers to the face or par
value of the security, and is not affected by the price paid therefor by
the Fund or the market value thereof. Payment of a claim under an
insurance policy depends on the claims-paying ability of the insurer and
no representation is made by the Fund as to the ability of any insurer to
meet its commitments.
The New Issue Insurance Policies, if any, on the Fund's securities
have been obtained by the respective issuers or underwriters of those
securities, and all premiums with respect to such securities have been
paid in advance by such issuers or underwriters. Such policies are non-
cancellable and will continue in force so long as the securities are
outstanding and the respective insurers remain in business. Since New
Issue Insurance remains in effect as long as the securities insured
thereby are outstanding, the insurance may have an effect on the resale
value of securities in the Fund's portfolio. Therefore, New Issue
Insurance may be considered to represent an element of market value in
regard to securities thus insured, but the exact effect, if any, of this
insurance on such market value cannot be estimated. The Fund will acquire
Municipal Securities subject to New Issue Insurance Policies only if the
claims-paying ability of the insurer thereof is rated "AAA" by S&P at the
date of purchase.
The Portfolio Insurance Policy obtained by the Fund from Financial
Guaranty will be effective only so long as the Fund is in existence,
Financial Guaranty is in business, and the Municipal Securities described
in the policy continue to be held by the Fund. In the event of a sale of
any Municipal Security by the Fund or payment thereof prior to maturity
because such Municipal Security is called or redeemed, the Portfolio
Insurance Policy terminates as to such security.
The Portfolio Insurance Policy obtained by the Fund is non-
cancellable except for failure to pay the premium. Nonpayment of premiums
on the Portfolio Insurance Policy obtained by the Fund will, under certain
circumstances, result in the cancellation of the Portfolio Insurance
Policy and also will permit Financial Guaranty to take action against the
Fund to recover premium payments due it. The premium rate for each
security covered by the Portfolio Insurance Policy is fixed for the life
of the Fund at the time of purchase. The insurance premiums are payable
monthly by the Fund and are adjusted for purchases, sales and payments
prior to maturity of covered securities during the month. Financial
Guaranty cannot cancel coverage already in force with respect to Municipal
Securities owned by the Fund and covered by the Portfolio Insurance Policy
except for non-payment of premiums. If any insurance for a Municipal
Security is canceled, the Manager will determine as promptly thereafter
as possible whether that security should be sold by the Fund.
In determining whether to insure any Municipal Security, Financial
Guaranty applies its own standards, which are not necessarily the same as
the criteria used in regard to the selection of securities by the Manager.
That decision is made prior to the Fund's purchase of such securities.
Contracts to purchase securities are not covered by the Portfolio
Insurance Policy although securities underlying such contracts are covered
by such insurance upon physical delivery of the securities to the Fund or
the Fund's Custodian.
-- Secondary Market Insurance. The Fund may at any time purchase
from Financial Guaranty a Secondary Market Insurance Policy on any
Municipal Security purchased by the Fund that is covered by a Portfolio
Insurance Policy. The right of the Fund to obtain a Secondary Market
Insurance Policy with respect to a security is in addition to the
Portfolio Insurance Policy. However, the coverage and obligation to pay
monthly premiums under a Portfolio Insurance Policy with respect to a
security would cease with the purchase by the Fund of a Secondary Market
Insurance Policy on such security.
By purchasing a Secondary Market Insurance Policy, the Fund would,
upon payment of a single pre-determined premium, obtain insurance against
non-payment of scheduled principal and interest for the remaining term of
the security, regardless of whether the Fund then owned the security.
Such insurance coverage will be noncancellable and will continue in force
so long as the security so insured is outstanding. The purpose of
acquiring such a policy would be to enable the Fund to sell the Municipal
Security to a third party as an "AAA" rated insured security at a market
price higher than what otherwise might be obtainable if the security were
sold without the insurance coverage. Such rating is not automatic,
however, and must specifically be requested from S&P for each security.
Such policy likely would be purchased if, in the opinion of the Manager,
the market value or net proceeds of a sale of the security so insured
would exceed the current value of the security (without insurance) plus
the cost of the policy. Any difference between a security's market value
as an "AAA" rated security and its market value without such rating,
including the single premium cost thereof, would inure to the Fund in
determining the net capital gain or loss realized by the Fund upon the
sale of the portfolio security. The Fund may purchase insurance under a
Secondary Market Insurance Policy in lieu of a Portfolio Insurance Policy
at any time, regardless of the effect on market value of the underlying
Municipal Security, if the Manager believes such insurance would best
serve the Fund's interests in meeting its objectives and policies. The
Secondary Market Insurance Policy allows the Fund to purchase a Secondary
Market Insurance Policy on a security which is currently in default as to
payments by the issuer and to sell such security on an insured basis
rather than be obligated to hold the defaulted security in its portfolio
in order to continue in force the applicable Portfolio Insurance Policy.
-- Financial Guaranty Insurance Company. Financial Guaranty is a New
York stock insurance company, with principal offices at 175 Water Street,
New York, New York, 10038. "Investment Objectives and Policies" in the
Additional Statement contains more information on Financial Guaranty.
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:
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 resale
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 or defensive 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 its net 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 the 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 then 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 E. Patterson, a Senior Vice President of the Manager, serves
as a Portfolio Manager of the Fund and a Vice President of the Trust and
has been primarily responsible for the day-to-day management of the Fund's
portfolio since February, 1992. 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 management fees to the Manager
computed on the aggregate net assets of the fund each day at the following
annual rates: 0.450% of the first $100 million of net assets; 0.400% of
the next $150 million; 0.375% of the next $250 million; and 0.350% 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 B shares"). The contingent deferred sales charge will
be imposed on most redemptions of Class B shares within six years 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 for Class B 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 the asset-based sales charge
with respect to Class B shares are the same as those of the initial sales
charges 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 B shares and the dividends payable
on Class B shares will be reduced by incremental expenses borne solely by
that class, including the asset-based sales charge to which Class B 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 B 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 B 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 and (ii) short-term debt
securities. 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 B 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 customers 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 best interest of the Fund 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 B 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 $50,000 4.75% 4.98% 4.00%
$50,000 or more but
less than $100,000 4.50% 4.71% 4.00%
$100,000 or more but
less than $250,000 3.50% 3.63% 3.00%
$250,000 or more but
less than $500,000 2.50% 2.56% 2.25%
$500,000 or more but
less than $1 million 2.00% 2.04% 1.80%
$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" (each as 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
"Transfers" 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 six 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 table above 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 Tax-Free
Bond Fund, Oppenheimer New York Tax-Exempt Fund, Oppenheimer California
Tax-Exempt Fund, Oppenheimer Pennsylvania Tax-Exempt Fund, Oppenheimer
Florida Tax-Exempt Fund, Oppenheimer Asset Allocation Fund, Oppenheimer
Target Fund, Oppenheimer Discovery Fund, Oppenheimer Mortgage Income Fund,
Oppenheimer High Yield Fund, Oppenheimer Champion High Yield Fund,
Oppenheimer Total Return Fund, Inc., Oppenheimer Global Bio-Tech Fund,
Oppenheimer Global Environment Fund, Oppenheimer Global Growth & Income
Fund, Oppenheimer U.S. Government Trust, Oppenheimer Investment Grade Bond
Fund, Oppenheimer Value Stock Fund, Oppenheimer Intermediate Tax-Exempt
Bond Fund, Oppenheimer Government Securities Fund, Oppenheimer Fund,
Oppenheimer Global Fund, Oppenheimer Time Fund, Oppenheimer Special Fund,
Oppenheimer Gold & Special Minerals Fund, Oppenheimer Equity Income Fund,
Oppenheimer Main Street Income & Growth Fund, Oppenheimer Main Street
California Tax-Exempt Fund, Oppenheimer Strategic Income Fund, Oppenheimer
Strategic Investment Grade Bond Fund, Oppenheimer Strategic Income &
Growth Fund, and Oppenheimer Strategic Short-Term Income Fund and (ii) the
following "Money Market Funds": Oppenheimer Money Market Fund, Inc.,
Daily Cash Accumulation Fund, Inc., Centennial Money Market Trust,
Centennial Government Trust, Centennial Tax Exempt Trust, Centennial
America Fund, L.P., Centennial California Tax Exempt Trust, Centennial New
York Tax Exempt Trust, 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 the 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.
Letters 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
"Letters 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 or
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 shares of the Fund
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") pursuant to Rule 12b-1 of the Investment Company Act under
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 and 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 each business 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 B Shares
Class B shares are sold at net asset value per share without the
imposition of a sales charge at the time of purchase.
-- Class B Contingent Deferred Sales Charge. A contingent deferred
sales charge (the "Class B CDSC") will be deducted from the redemption
proceeds of Class B shares redeemed within six years of their purchase
(not including shares purchased by reinvestment of dividends or capital
gains). The charge will be assessed on an amount equal to the lesser of
the then current net asset value or the original purchase price of the
Class B shares being redeemed. Accordingly, no Class B 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 B CDSC
applies to a redemption, Class B shares are redeemed in the following
order: (1) those acquired pursuant to reinvestment of dividends or
distributions, (2) those held for over six years, and (3) those held
longest during the six year period.
Proceeds from the Class B 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 B shares. The
combination of the Class B CDSC and the distribution fee retained by the
Distributor (as described under "Class B Distribution and Service Plan")
facilitate the sale of Class B shares without a sales charge being
deducted at the time of purchase. Any Class B CDSC required to be imposed
on Class B share redemptions will be assessed according to the following
schedule:
Contingent Deferred
Sales Charge on
Year(s) Since Redemptions in that
Purchase Order Was Year (as % of
Accepted Applicable Proceeds)
- -------------------------------------------------
0-1 5.0%
1-2 4.0%
2-3 3.0%
3-4 3.0%
4-5 2.0%
5-6 1.0%
6 or more None
In the table above, a "year" is twelve months. In determining the
amount of the Class B CDSC that applies and when Class B shares convert
as described in the following paragraph, 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 B CDSC will be waived upon the
request of the investor in the case of redemptions of shares following the
death or disability of the shareholder(s) (as evidenced by a determination
of total disability by the U.S. Social Security Administration). In
addition, no CDSC is imposed on 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 B Conversion Feature. At the end of seventy-two months
after investor's purchase order for Class B shares is accepted, such
"Matured Class B shares" automatically will convert to Class A shares, on
the basis of the relative net asset value of the two classes, without the
imposition of any sales load or other charge. Each time any Matured Class
B shares convert to Class A shares, any Class B shares acquired by the
reinvestment of dividends or distributions on such Matured Class B shares
that are still held will also convert to Class A shares, on the same
basis. The conversion feature is intended to relieve holders of Matured
Class B shares of the asset-based sales charge under the Class B
Distribution and Service Plan after such shares have been outstanding long
enough that the Distributor may have been compensated for distribution
expenses related to such shares.
The conversion of Matured Class B shares to Class A shares is subject
to the continuing availability of a private letter ruling from the
Internal Revenue Service, or an opinion of counsel or a tax adviser, to
the effect that the conversion of Matured Class B shares does not
constitute a taxable event for the holder under Federal income tax law.
If such a private letter ruling or opinion is no longer available, the
automatic conversion feature may be suspended, in which event no further
conversions of Matured Class B shares would occur while such suspension
remained in effect. Although Matured Class B shares could then be
exchanged for Class A shares on the basis of the relative net asset value
of the two classes, without the imposition of a sales charge or fee, such
exchange could constitute a taxable event for the holder, and absent such
exchange, Class B shares might continue to be subject to the asset-based
sales charge for longer than six years.
-- Class B Distribution and Service Plan. The Fund has adopted a
plan of distribution (the "Class B 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 B shares. Pursuant to the
Class B Plan, the Fund will pay the Distributor an asset-based sales
charge of 0.75% per annum on Class B shares outstanding for six years or
less, plus a service fee of 0.25% per annum, each of which is computed on
the average net assets of Class B shares of the Fund computed as of the
close of each business day. Asset-based sales charges and service fees
will be paid by the Fund to the Distributor monthly and quarterly,
respectively. The Distributor will use the service fee payment to
compensate Recipients for providing personal service and the maintenance
of shareholder accounts that hold Class B 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 B 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
B shares held in accounts of the Recipient or its customers. Other terms
and options under the Class B Plan for payment of the service fee by the
Distributor to Recipients, and other terms and conditions of the Class B
Plan are described under "Distribution and Service Plans" in the
Additional Statement.
The Distributor currently expects to pay sales commissions from its
own resources to authorized dealers or brokers at the time of sale equal
to 3.75% 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 asset-
based sales charge payments by the Fund to the Distributor under the Class
B Plan are intended to allow it to recoup such sales commissions plus
service fees advanced. The Distributor anticipates that it will take a
number of years to recoup the sales commissions paid to authorized brokers
or dealers from the Fund's payments to the Distributor under the Class B
Plan.
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 B 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.
At September 30, 1993, the Distributor had incurred unreimbursed expenses
under the Class B Plan of $212,292 (equal to 4.16% of the Fund's Class B
net assets on that date), which have been carried over into the present
Class B Plan year.
The Class B Plan contains a provision which contractually obligates
the Fund to continue payments to the Distributor for certain expenses it
incurred for Class B shares sold prior to termination of the Class B Plan.
If the Class B Plan is terminated, the Distributor is entitled to continue
to receive the asset-based sales charge of 0.75% per annum on Class B
shares sold prior to termination until the Distributor has recovered its
Class B distribution expenses (incurred prior to termination) from such
payments and from the Class B CDSC.
The Fund believes that under current applicable accounting standards,
its obligation under the Class B Plan to pay any asset-based sales charges
in future periods is not required to be recognized as a liability. This
accounting standard is currently under review by the AICPA. In the
future, if applicable accounting standards should be deemed to require
that obligation to be recognized as a liability, a decrease in the net
asset value per share of Class B shares could result. Were that to occur,
such decrease would affect all Class B shares regardless of how long the
shares were held and the Board may consider other alternatives.
Furthermore, Class B shareholders would continue to remain subject to the
Class B CDSC.
The Class B Plan has the effect of increasing annual expenses of
Class B shares of the Fund by up to 1.00% of the class's average annual
net assets from what its expenses would otherwise be. In addition, the
Manager and the Distributor may, under the Class B 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 B 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 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
Intermediate 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 B 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 B 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 B Shares" above 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 B shares or
Class A shares subject to a CDSC. Checks may be written by the
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 regular
additional Class A purchases while participating in an Automatic
Withdrawal Plan. Class B shareholders normally should not establish
withdrawal plans because of the imposition of the Class B CDSC on such
withdrawals (except where the Class B CDSC is waived as described in
"Class B 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 B
shares that were subject to the Class B 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 the 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 the
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 B 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 the 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
offer Class B 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 is imposed on the redeemed shares (see "Class A Contingent Deferred
Sales Charge" above). Similarly, the Class B CDSC is imposed on Class B
shares redeemed within six years of the initial purchase of the exchanged
Class B shares (see "Class B 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 B shares are redeemed to effect an exchange, the
priorities described in "How to Buy Shares" for the imposition of the
Class B 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 B shares.
-- Telephone Exchanges. Telephone exchange requests may either 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 Status of the Fund's Dividends and Distributions" in the
Additional Statement for more information on other tax matters.
Information about the possible applicability of Alternative Minimum Tax
to the Fund's dividends is contained in "Investment Objective and Policies
- - Private Activity Municipal Securities" in the Additional Statement.
Dividends and Distributions
The Fund intends to declare dividends separately for Class A and
Class B 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 B shares are expected to be lower than on Class A
shares on a pro rata basis as a result of the asset-based sales charge on
Class B shares, and such dividends will also differ in amount as a
consequence of any difference between the net asset values of Class A and
Class B 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 a dealer or broker for four business days following
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 notifies 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
June 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 June 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
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 Fund's 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
Class B CDSC applicable to the period for which the Class B shares are
outstanding, 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 B CDSC (for Class
B 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. Yields and returns
are calculated separately and will differ for shares of each class, and
the higher anticipated expenses of Class B shares should result in shares
of that class having lower yields than Class A shares for the same period
of time. From time to time the Manager may voluntarily assume a portion
of the Fund's expenses (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. The Fund continued to
maintain a strong position in bonds that the Manager considered to be
related to essential services and projects that benefit the entire
community, such as toll roads, housing and hospitals. Recent additions
to the portfolio followed this basic strategy, and are backed by insurance
from one of the major bond insurance companies. 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 both by geographic location
and by market sector.
Comparison of Change
In Value of $10,000
Hypothetical Investment in
Oppenheimer Insured
Tax-Exempt Bond Fund and
Lehman Municipal Bond Index
Average Annual Total Return of the Fund at 9/30/93
A Shares 1 Year 5 Year Life*
8.60% 9.49% 7.85%
Cumulative Total Return of the Fund at 9/30/93
B Shares Life**
B Shares 1.04%
Insured
Year Tax-Exempt Lehman Muni $10,000
Ending Bond Fund A Bond Index Investment
11/11/86 $10,000
11/30/86 $ 9,000 $10,000
09/30/87 $ 8,729 -3.10% $ 9,690
09/30/88 $10,184 12.98% $10,948
09/30/89 $11,138 8.68% $11,898
09/30/90 $11,785 6.80% $12,707
09/30/91 $13,326 13.19% $14,383
09/30/92 $14,757 10.45% $15,886
09/30/93 $16,826 12.74% $17,910
Insured
Year Tax-Exempt Lehman Muni $10,000
Ending Bond Fund B Bond Index Investment
05/01/93 $10,000 $10,000
09/30/93 $10,104 5.70% $10,570
Past Performance is not predictive of future performance.
*The Fund began operations on 11/11/86.
**Class B shares of the Fund first publicly sold on 5/1/93.
The performance graph set forth above depicts the performance of a
$10,000 hypothetical investment in Class A and Class B shares of the Fund
at the offering price including sales charges in effect on November 11,
1986 and May 3, 1993, respectively (commencement of operations for Class
A and Class B shares, respectively) 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 and Class B shares during
these respective periods 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 4.75% and includes reinvestment of all dividends and capital gains
distributions, but does not consider taxes. The Fund's Class B total
return reflects the deduction of the maximum contingent deferred sales
charge of 5.0% for the first year and includes reinvestment of all
dividends and capital gains distributions, but does not consider taxes.
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 B shares of
Oppenheimer Insured 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 details. 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; it also acts as
transfer agent for unit investment trusts for the accumulation of shares
of one of such funds. Shareholders should 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 Prospectus
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 OPPENHEIMER
Citibank, N.A. Insured
399 Park Avenue Tax-Exempt
New York, New York 10043 Bond Fund
Independent Auditors
Deloitte & Touche
1560 Broadway
Denver, Colorado 80202
Effective January 25, 1994
Legal Counsel
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 an offer in such state.
OppenheimerFunds
PR866 (1/94) Printed on recycled paper
<PAGE>
Investment Adviser Prospectus and
Oppenheimer Management Corporation New Account Application
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 OPPENHEIMER
Citibank, N.A. Insured
399 Park Avenue Tax-Exempt
New York, New York 10043 Bond Fund
Independent Auditors
Deloitte & Touche
1560 Broadway
Denver, Colorado 80202
Effective January 25, 1994
Legal Counsel
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 an offer in such state.
OppenheimerFunds
PR865 (1/94) Printed on recycled paper
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
OPPENHEIMER INSURED TAX-EXEMPT BOND FUND
3410 South Galena Street, Denver, Colorado 80231
1-800-525-7048
Oppenheimer Insured 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. . . . . . . . . . . . . . . . . . 8
Trustees and Officers. . . . . . . . . . . . . . . . . . . 9
Investment Management Services . . . . . . . . . . . . . . 11
Purchase, Redemption and Pricing of Shares . . . . . . . . 14
Distribution and Service Plans . . . . . . . . . . . . . . 17
Performance and Tax Information. . . . . . . . . . . . . . 19
Additional Information . . . . . . . . . . . . . . . . . . 23
Automatic Withdrawal Plan Provisions . . . . . . . . . . . 24
Letters of Intent. . . . . . . . . . . . . . . . . . . . . 26
Independent Auditors' Report . . . . . . . . . . . . . . . 28
Financial Statements . . . . . . . . . . . . . . . . . . . 29
Appendix A (Ratings of Investments). . . . . . . . . . . . A-1
Appendix B (Tax-Equivalent Yield Chart). . . . . . . . . . B-1
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.
Financial Guaranty Insurance Company. The portfolio insurance policy
obtained by the Fund was issued by Financial Guaranty Insurance Company
("Financial Guaranty"). Financial Guaranty is a wholly-owned subsidiary
of FGIC Corporation (the "Corporation"), a Delaware holding company.
Financial Guaranty, domiciled in the State of New York, commenced its
business of providing insurance and financial guaranties for a variety of
investment instruments in January, 1984. The Corporation is a wholly-
owned subsidiary of General Electric Capital Corporation. Neither the
Corporation nor General Electric Capital Corporation are obligated to pay
the debts of or the claims against Financial Guaranty.
Financial Guaranty, in addition to providing insurance for the
payment of interest on and principal of municipal bonds and notes held in
unit investment trust and mutual fund portfolios, provides insurance for
new issues and secondary market issues of municipal bonds and notes and
for portions of new issues and secondary market issues of municipal bonds
and notes. Financial Guaranty also provides credit enhancements for
asset-backed securities, commercial real estate financing and mortgage-
backed securities. It is also authorized to write fire, property damage,
liability, workers' compensation and employer's liability and fidelity and
surety insurance.
Financial Guaranty is currently authorized to write insurance in 49
states and the District of Columbia, files reports with state insurance
regulatory agencies and is subject to audit and review by such
authorities. Financial Guaranty is also subject to regulation by the
State of New York Insurance Department. Such regulation, however, is no
guarantee that Financial Guaranty will be able to perform on its
commitments or contracts of insurance in the event a claim should be made
thereunder at some time in the future.
The policy of insurance obtained by the Fund from Financial Guaranty
and the agreement and negotiations in respect thereof represent the only
relationship between Financial Guaranty and the Fund. Otherwise, neither
Financial Guaranty nor its parent, FGIC Corporation, or any affiliate
thereof has any significant relationship, direct or indirect, with the
Fund.
Under the provisions of the Portfolio Insurance Policy, Financial
Guaranty unconditionally and irrevocably agrees to pay to Citibank, N.A.
or its successor, as its agent (the "Fiscal Agent") that portion of the
principal of and interest on the securities which shall become due for
payment but shall be unpaid by reason of nonpayment by the issuer.
Financial Guaranty will make such payments to the Fiscal Agent on the date
such principal or interest becomes due for payment or on the business day
next following the day on which Financial Guaranty shall have received
notice of nonpayment, whichever is later. The Fiscal Agent will disburse
to the Fund the face amount of principal and interest which is then due
for payment but is unpaid by reason of nonpayment by the issuer but only
upon receipt by the Fiscal Agent of (i) evidence of the Fund's right to
receive payment of the principal or interest due for payment and (ii)
evidence, including any appropriate instruments of assignment, that all
of the rights to payment of such principal or interest due for payment
thereupon shall vest in Financial Guaranty. (The proceeds attributable
to interest payments will be tax-exempt.) Upon such a payment by the
Fiscal Agent, Financial Guaranty will be fully subrogated to all of the
Fund's rights under the defaulted obligation which includes the right of
Financial Guaranty to obtain payment from the issuer to the extent of
amounts paid by Financial Guaranty to the Fund.
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 $1.0 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, as amended
(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's 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 Municipal Securities the Fund may invest in are considered to
be interests in real estate; (2) invest in interests in oil, gas, or other
mineral exploration or development programs; (3) purchase securities 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)
purchase or sell puts, calls or combinations thereof, or purchase or sell
interest rate futures contracts or related options; (8) make investments
for the purpose of exercising control of management; (9) 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; (10)
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; (11) 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
(12) invest in common stock or any warrants related thereto.
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.
Except as noted below, each Trustee is also a trustee, director or
managing general partner of 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., Daily Cash Accumulation Fund, Inc. (collectively the "Centennial
Trusts"), Oppenheimer Government Securities Fund, 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 Short-Term Income
Fund, Oppenheimer Strategic Investment Grade Bond Fund, Oppenheimer
Strategic Income & Growth Fund, The New York Tax-Exempt Income Fund, Inc.,
Oppenheimer Intermediate Tax-Exempt Bond Fund, Oppenheimer Integrity
Funds, Oppenheimer Variable Account Funds, Oppenheimer Champion High Yield
Fund, and Oppenheimer Main Street Funds, Inc. (the "Denver-based
OppenheimerFunds"). Mr. Fossel is President and Mr. Swain is Chairman of
the Denver-based OppenheimerFunds. All of the officers except Mr.
Patterson hold similar positions as officers of all such funds and trusts.
As of December 31, 1993, the Trustees and officers of the Trust owned less
than 1% of the outstanding 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 a 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
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); 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 of the Board of Trustees totaled
$2,031. 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 owned of record
or was known by the Fund to be the record or beneficial owner of 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 exceed the most stringent state
regulatory limitation on fund expenses 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, this limitation,
imposed by California, 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. Independently of the Agreement, the Manager had also
undertaken to assume the expenses (excluding extraordinary non-recurring
expenses such as litigation) of the Fund in an amount not exceeding a
stated percentage of the Fund's average annual net assets. Prior to
January 1, 1993, the Manager had undertaken to assume expenses of the Fund
in an amount up to 0.25% of the Fund's average annual assets. Effective
January 1, 1993, the Manager reduced the amount of expenses assumed to a
maximum of 0.10% of the Fund's average annual net assets. On June 1,
1993, the additional expense assumption was eliminated. Any assumption
of expenses under an undertaking will lower the Fund's overall expense
ratio and increase its yield and total return during the time such
expenses are assumed. The Manager reserves the right to vary the amount
of expenses assumed or eliminate the assumption of expenses altogether at
any time.
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 investment adviser to the Fund, 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 $210,570, of which $36,479 was assumed by the
Manager. During the fiscal year ended September 30, 1992, the management
fees payable by the Fund were $124,996, of which $13,415 was paid to the
Manager due to its assumption of $111,581 of the Fund's expenses. During
its fiscal year ended September 30, 1991, the management fees payable by
the Fund were $89,711, none of which was paid to the Manager due to its
assumption of $137,927 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 Subadvisory Agreement with the
Manager. The Manager paid subadvisory fees to CBIM at the annual rate of
.15% of the average daily net assets of the Fund. Because of the
aforementioned expense assumption undertaking by the Manager, the Manager
did not receive any management fee from the Fund with which to pay CBIM
its Subadvisory fee, and thus absorbed that expense.
Portfolio Transactions. Portfolio decisions are made by the portfolio
manager, 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 a 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 prices.
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 value per share
of Class A and Class B 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 on those days, the Fund's net asset
values per share of Class A and Class B 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 debt securities having a
remaining maturity in excess of 60 days, are valued at the mean between
the asked and bid 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.
With respect to valuation of securities which are in default in
payment of principal or interest or, as determined by the Manager, in
significant risk of such default (the "Defaulted Securities") and which
are covered by insurance obtained by the Fund, the value of the insurance
guaranteeing interest and principal payments will be an element of the net
asset value per share for the Fund. The value of the insurance will be
equal to the difference between (i) the market value of the Defaulted
Securities assuming the exercise of the right to obtain a Secondary Market
Insurance Policy (less the insurance premium attributable to the purchase
of such policy) and (ii) the market value of such Defaulted Securities not
covered by a Secondary Market Insurance Policy. In addition, the ability
of Financial Guaranty to meet its commitments under the Fund's insurance
policy, including the commitments to issue Secondary Market Insurance
Policies, will be considered. If an occurrence were to take place after
the value of a security in a portfolio was so established but before the
net asset value per share is determined which was likely to materially
change the net asset value, then such security would be valued under
procedures adopted by the Trustees to make such fair value determination.
Dual Class Methodology. The methodology for calculating the net asset
value, dividends and distributions of the Fund's Class A and Class B
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 (a) Distribution Plan
fees, (b) incremental transfer and shareholder servicing agent fees and
expenses, (c) registration fees and (d) 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, and brothers and sister-in-law.
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 held 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 B 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 some but 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 B
Contingent Deferred Sales Charge" in the Prospectus for the imposition of
the Class B CDSC on redemptions.
Exchanges of Class B 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 offer Class B shares:
Oppenheimer Strategic Income Fund
Oppenheimer Strategic Income & Growth Fund
Oppenheimer Strategic Investment Grade Bond Fund
Oppenheimer Strategic Short-Term Income Fund
Oppenheimer New York Tax-Exempt Fund
Oppenheimer Tax-Free Bond Fund
Oppenheimer Total Return Fund, Inc.
Oppenheimer Investment Grade Bond Fund
Oppenheimer Value Stock Fund
Oppenheimer California Tax-Exempt Fund
Oppenheimer Pennsylvania Tax-Exempt Fund
Oppenheimer Government Securities Fund
Oppenheimer High Yield Fund
Oppenheimer Mortgage Income Fund
Oppenheimer Cash Reserves
Oppenheimer Special Fund
Oppenheimer Equity Income Fund
Oppenheimer Global Fund
Oppenheimer Main Street California Tax-Exempt Fund.
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 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 Trust, 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 [for the Distribution and Service Plan for the Class
B shares (the "Class B Plan"), such vote having been cast by the Manager
as the sole initial holder of Class B 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 Trust'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 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 B 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, that may be determined from time to time by a majority of the
Independent Trustees. Initially, the Board of Trustees has set the fee
at the maximum rate and set no minimum amount. 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, with respect to the
Class A Plan the Fund reimbursed the Distributor $115,296, and paid $2,684
to an affiliated broker-dealer of the Distributor. 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 B Plan allows the service fee payment to be paid by the
Distributor to Recipients in advance for the first year Class B 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
B shares sold. An exchange of shares does not entitle the Recipient to
an advance service fee payment. In the event Class B 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 B Plan permits the Distributor to retain
both the asset-based sales charges and the service fee on Class B 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 B Plan by the Board.
Initially, the Board has set no minimum holding period. All payments
under the Class B Plan are subject to the limitations on such plans
imposed by the National Association of Securities Dealers, Inc. Rules of
Fair Practice. The Class B 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. In the event
the Class B Plan is terminated, the Distributor is entitled to continue
to receive the asset-based sales charge of 0.75% per annum on Class B
shares sold prior to termination until the Distributor has recovered its
Class B distribution expenses incurred prior to termination from such
payments and from the Class B CDSC. Payments under the Class B Plan for
the period May 3, 1993 through September 30, 1993 totaled $9,300.
The asset-based sales charge paid to the Distributor by the Fund
under the Class B 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 financing costs, as described in the Prospectus. Such
payments may also be used to pay for the following expenses in connection
with the distribution of Class B shares: (i) financing the advance of the
service fee payment to Recipients under the Class B Plan, (ii)
compensation and expenses of personnel employed by the Distributor to
support distribution of Class B shares, and (iii) costs of sales
literature, advertising and prospectuses (other than those furnished to
current shareholders).
The Fund believes that current accounting standards do not require
the Fund to record as a current liability its obligation under the Class
B Plan to carry over and continue payments of the asset-based sales charge
to the Distributor in the future to reimburse it for expenses incurred as
to Class B shares sold prior to the termination of the plan. Those
accounting standards are currently being reviewed by the AICPA, as
discussed in the prospectus. If those accounting standards should be
changed to require the Fund to recognize that obligation for future
payments as a current liability, the Fund's Board would consider other
alternatives to that provision of the Class b Plan, because otherwise the
treatment of such expenses as a current liability could result in a
decrease in the net asset value per Class B share. Such decrease would
affect all then-outstanding Class B shares regardless of how long they had
been held. Furthermore, Class B shareholders whose shares had not matured
would continue to remain subject to the Class B CDSC.
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. 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 these services. 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 that 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 Plans to such institutions, in the event of any future
change in such laws or regulations that may adversely affect the ability
of such institutions to provide those services. It is not expected that
shareholders would suffer any adverse financial consequences as a result
of any of those occurrences. In addition, certain banks and financial
institutions may be required to register as dealers under state law.
PERFORMANCE AND TAX INFORMATION
Yield and Total Return Information. As described in the Prospectus, 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. An explanation of how those yields and returns are
calculated and the components of those calculations are set forth below.
During a portion of the periods for which performance data of Class A
shares is shown below, the Manager has been assuming a portion of the
Fund's expenses; as a result, the performance results shown are greater
than would be the case without such assumption of expenses. The public
sale of Class B shares of the Fund commenced on May 3, 1993.
The Fund's "yield" on Class A and Class B shares for the 30-day
period ended September 30, 1993 was 4.42% and 3.80%, respectively, which
reflects the effect of the Manager's assumption of the Fund's expenses.
Such yield is calculated using the following formula under 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 that class outstanding
during the 30-day period that were entitled to receive
dividends.
d = the maximum offering price (including sales charge) of the Fund
per share of the class on the last day of the period adjusted
for undistributed net investment income.
This yield of a class of shares 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" described below.
The "tax-equivalent yield" of each class of shares adjusts the Fund's
current yield, as calculated above, by a stated Federal tax rate. The
tax-equivalent yield 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 that is not tax-exempt. The tax-equivalent yield may
be used to compare the tax effects of income derived from shares of a
class 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 for
the Fund's Class A and Class B shares was 7.32% and 6.29%, respectively,
for a single person in the maximum Federal income tax bracket of 39.6%.
The "average annual total return" of a 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 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 (i) for the Class A shares, assume the
payment of the Fund's current maximum sales charge of 4.75% (as a
percentage of the offering price) on the initial investment ("P") and (ii)
for Class B shares, the payment of a contingent deferred sales charge of
5.0% for the first year, 4.0% for the second year, 3.0% for the third and
fourth years, 2.0% for the fifth year, 1.0% in the sixth year, and
eliminated thereafter, as described in "How to Buy Shares" 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 return" 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, was 8.60% and 9.49%, respectively, and
for the period from the inception of the Fund on November 11, 1986,
through September 30, 1993, was 7.85%. The "total return" on Class A
shares from inception of the Fund on November 11, 1986 through
September 30, 1993, was 68.26%. The "average annual total return" and
"total return" on Class B shares at the maximum contingent deferred sales
charge for the period May 3, 1993 to September 30, 1993 were 2.56%
(annualized) and 1.04%, respectively.
From time to time the Fund may quote a "total return at net asset
value" for Class A or Class B 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 "total return at net asset value" on Class A shares
for the one year period ended September 30, 1993, was 76.59%. The Fund's
"total return at net asset value" on the Class B shares for the period May
3, 1993 to September 30, 1993 was 6.04%.
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 B dividends paid
on shares of a class derived from net investment income during a stated
period. Under those calculations, the 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 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
------------------------------------- = x 12
MOP of the Class (last day of period)
In the above, "Dividends" is the sum of that class's dividends and/or
distributions declared during a stated monthly period and "MOP" is the
maximum offering price on the last day of the period. From time to time
similar calculations may also be made using the net asset value of the
Fund (instead of its 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 were 5.26% and
5.52%. The "dividend yield at net asset value" on Class B shares for the
30-day period ended September 30, 1993 was 4.63%.
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 Fund's 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 B shares of the Fund are affected by portfolio quality,
portfolio maturity, type of investments held, and the Fund's operating
expenses. Performance information shown above reflects the voluntary
assumption of expenses by the Manager through May 31, 1993. The expense
reimbursement was eliminated June 1, 1993. When comparing the yield,
total return and investment risk on an investment in a class of 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 its Class A or
Class B 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 its performance for
various periods based on categories relating to investment objectives.
The performance of the Fund's classes of shares 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 performance of its Class
A or Class B shares by Morningstar, Inc., 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 to 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 any of the other funds listed in the Prospectus as
"Eligible Funds," at net asset value without sales charge. Class B
shareholders should be aware that as of the date of this Additional
Statement, not all Eligible Funds offer Class B shares. The names of
these Funds are listed under "Purchase, Redemption and Pricing of
Shares - Exchanges of Class B Shares" above. 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 an 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 - Insured 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 B 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 prospectus (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 $17,764 from the Fund and reallowed $48,785
to other dealers. During the period October 1, 1991 through January 31,
1992, Clayton Brown retained commissions in the amount of $3 and reallowed
$19,170 to other dealers; during the period February 1, 1992 through
September 30, 1992, OFDI retained commissions in the amount of $4,214 and
reallowed $45,087 to other dealers, including $4,317 paid to an affiliated
broker-dealer. In the fiscal years ended September 30, 1990 and 1991, and
from October 1, 1991 through January 31, 1992, OFDI, which served as sub-
distributor during those periods, received no reallowance of commissions
from Clayton Brown. In the fiscal year ended September 30, 1993, OFDI
retained commissions in the amount of $94,358, and reallowed $57,050 to
an affiliated broker-dealer.
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,
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.
LETTERS 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 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
Class A 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 Insured Tax-Exempt
Bond Fund:
We have audited the accompanying statement of assets and liabilities,
including the statement of investments, of Oppenheimer Insured 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
Insured 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> <C> <C> <C>
Municipal Bonds and Notes--93.7%
Alabama--1.7%
Pelham, Alabama General Obligation Warrants,
AMBAC Insured, 7.10%, 8/1/15 Aaa/AAA $1,000,000 $ 1,142,650
Alaska--.8%
Alaska Energy Authority Power Revenue Bonds,
Bradley Lake Hydroelectric Project-2nd Project,
MBIA Insured, 7.25%, 7/1/21 Aaa/AAA 500,000 568,441
California--17.1%
California Public Capital Improvements Financing
Authority Revenue Bonds, Pooled Project,
Series 1988B, BIG Insured, 8.10%, 3/1/18 Aaa/AAA 245,000 289,752
California State General Obligation Bonds,
FSA Insured, 5.50%, 4/1/19 Aaa/AAA 2,235,000 2,255,869
California State Public Works Board Lease Revenue
Bonds, Department of Corrections California State
Prison, Series B, MBIA Insured, 5.50%, 12/1/12 Aaa/AAA/A+ 2,400,000 2,433,847
Los Angeles, California Waste-Water Systems Revenue
Refunding Bonds, Series A, MBIA Insured, 5.70%,
6/1/20 Aaa/AAA/A+ 3,730,000 3,841,922
Sacramento, California Municipal Utility District
Electric Revenue Refunding Bonds:
Series D, MBIA Insured, 5.25%, 11/15/20 Aaa/AAA/AAA 1,000,000 1,180,830
Series 1992B, FGIC Insured, 9.73%, 8/15/18(1) Aaa/AAA/A- 1,500,000 1,480,675
11,482,895
Colorado--2.5%
Colorado Health Facilities Authority Revenue Bonds:
PSL Health Systems Project, Series A, FSA Insured,
7.25%, 2/15/16 Aaa/AAA 500,000 579,629
Poudre Valley, Colorado Hospital District Hospital
Revenue Bonds, AMBAC Insured, 6.625%, 12/1/11 Aaa/AAA 500,000 539,616
Rose Medical Center, MBIA Insured, 7%, 8/15/21 Aaa/AAA 500,000 561,764
1,681,009
Florida--1.5%
Alachua County, Florida Library District Refunding
Bonds, MBIA Insured, 6.25%, 8/1/17 Aaa/AAA 250,000 272,408
Dade County, Florida General Obligation Refunding
Bonds, FGIC Insured, 12%, 10/1/04 Aaa/AAA/AAA 100,000 160,874
Escambia County, Florida Utilities Authority Utility
System Revenue Refunding Bonds, Prerefunded,
FGIC Insured, 7.625%, 1/1/07 Aaa/AAA/AAA 250,000 286,764
Miami, Florida General Obligation Refunding Bonds,
Prerefunded, Series 1987, MBIA Insured, 7.40%,
4/1/05 Aaa/AAA 250,000 292,945
1,012,991
Georgia--1.6%
Fulton De Kalb, Georgia Hospital Authority Revenue
Certificates, Prerefunded, Series A, AMBAC Insured,
7.25%, 1/1/20 Aaa/AAA 900,000 1,058,018
Illinois--1.9%
Chicago, Illinois Public Commerce Building Revenue
Bonds, Prerefunded, Series A, FGIC Insured,
7.75%, 1/1/06 Aaa/AAA/AAA 500,000 590,931
Cook County, Illinois Community College District
No. 508 Certificates of Participation, FGIC Insured,
8.75%, 1/1/05 Aaa/AAA/AAA 500,000 659,810
1,250,741
Indiana--7.6%
Fort Wayne, Indiana Hospital Authority Revenue Bonds,
Parkview Memorial Hospital Project, Series A,
FGIC Insured, 7.50%, 11/15/11 Aaa/AAA/AAA 250,000 283,179
Hamilton Southeastern, Indiana Consolidated
School Building Corp. Refunding Bonds,
First Mortgage, AMBAC Insured, 7%, 7/1/11 Aaa/AAA 500,000 561,610
<PAGE>
Ratings
Moody's/S&P's/Fitch's Face Market Value
(Unaudited) Amount See Note 1
Municipal Bonds and Notes (continued)
Indiana
(continued)
Indiana Health Facilities Financing Authority
Hospital Revenue Bonds, Community Hospital of
Indiana, MBIA Insured, 7%, 7/1/21 Aaa/AAA $ 500,000 $ 559,397
Indiana State Office Building Commission Capital
Complex Revenue Bonds, Series B, MBIA Insured,
7.40%, 7/1/15 Aaa/AAA 2,500,000 3,135,082
Whitko, Indiana Middle School Building Corp.
Revenue Bonds, AMBAC Insured, 6.75%, 7/15/12 Aaa/AAA 500,000 549,063
5,088,331
Kansas--.8%
Burlington, Kansas Pollution Control Revenue
Refunding Bonds, Kansas Gas and Electric Co.
Project, MBIA Insured, 7%, 6/1/31 Aaa/AAA 500,000 566,427
Massachusetts--.4%
Massachusetts State Consolidated Loan Bonds, TCC,
Prerefunded, Series A, BIG Insured, 7.50%, 2/1/07 Aaa/AAA 250,000 291,080
Michigan--4.8%
Detroit, Michigan Sewage Disposal System Revenue
Refunding Bonds, FGIC Insured, 8.378%, 7/1/23(1) Aaa/AAA/AAA 2,000,000 2,126,753
Michigan Municipal Bond Authority Revenue Bonds,
Local Government, Group 19, AMBAC Insured,
7.50%, 11/1/09 Aaa/AAA 250,000 287,731
Sault Sainte Marie, Michigan General Obligation
Bonds, AMBAC Insured, 7.50%, 9/1/10 Aaa/AAA 250,000 287,907
Western Townships, Michigan Utilities Authority
Sewerage Disposal Systems Refunding Bonds,
CGIC Insured, 6.50%, 1/1/19 Aaa/AAA 500,000 546,624
3,249,015
Nebraska--.8%
Nebraska Investment Finance Authority Hospital
Revenue Bonds, Nebraska Methodist Health
System, MBIA Insured, 7%, 3/1/06 Aaa/AAA 500,000 565,593
Nevada--1.9%
Humboldt County, Nevada Pollution Control Revenue
Bonds, Idaho Power Co. Project, AMBAC Insured,
8.30%, 12/1/14 Aaa/AAA 1,000,000 1,269,335
New Hampshire--.9%
New Hampshire Turnpike System Revenue Refunding
Bonds, Series A, FGIC Insured, 6.75%, 11/1/11 Aaa/AAA/AAA 500,000 582,167
New Jersey--.8%
Bergen County, New Jersey Utilities Authority Water
Pollution Control Revenue Bonds, Series A, FGIC
Insured, 6.50%, 12/15/12 Aaa/AAA/AAA 500,000 554,757
New York--6.0%
Dormitory Authority of the State of New York Revenue
Bonds, Manhattan College, Asset Guaranty Insured,
6.50%, 7/1/19 NR/AA 1,000,000 1,103,889
New York City Municipal Water Finance Authority
Water and Sewer System Revenue Bonds, Series C,
AMBAC Insured, 6.20%, 6/15/21 Aaa/AAA 1,500,000 1,619,326
New York State Medical Care Facilities
Finance Agency Revenue Bonds, Mental Health
Services Improvement:
Capital Guaranteed, Series 1990B, CGIC Insured,
7.875%, 8/15/15 Baa1/AAA 500,000 572,265
Series A, MBIA-IBC Insured, 7.75%, 8/15/10 Aaa/AAA 625,000 740,493
4,035,973
North Carolina--2.9%
North Carolina Municipal Power Agency No.1 Catawba
Electric Revenue Refunding Bonds, Series 1985,
FSA Insured, 6.20%, 1/1/18 Aaa/AAA/A 1,800,000 1,932,649
<PAGE>
Ratings
Moody's/S&P's/Fitch's Face Market Value
(Unaudited) Amount See Note 1
Municipal Bonds and Notes (continued)
Ohio--2.6%
Board of Education Mentor Exempted Village School
District, Ohio Unlimited Tax Improvement Bonds,
Prerefunded, Series 1989, MBIA Insured, 7.40%,
12/1/11 Aaa/AAA $ 500,000 $ 593,914
Clermont County, Ohio Sewer System Revenue
Bonds, AMBAC Insured, 7.375%, 12/1/20 Aaa/AAA 250,000 286,856
Streetsboro, Ohio City School District Bonds,
AMBAC Insured, 7.125%, 12/1/10 Aaa/AAA 500,000 613,272
Toledo, Ohio Sewer System Revenue Refunding
Mortgage Revenue Bonds, MBIA Insured, 7.375%,
11/15/10 Aaa/AAA 250,000 285,610
1,779,652
Oklahoma--3.8%
Grove, Oklahoma Municipal Services Authority
Utility and Sales Tax Revenue Bonds, Series 1991,
CGIC Insured, 7%, 2/1/16 Aaa/AAA 1,115,000 1,244,785
Norman, Oklahoma Regional Hospital Authority
Revenue Bonds, MBIA Insured, 6.90%, 9/1/21 Aaa/AAA 500,000 555,367
Oklahoma Baptist University Authority
Revenue Bonds, FGIC Insured, 7.10%, 8/1/09 Aaa/AAA/AAA 150,000 168,497
Tulsa, Oklahoma Airports Improvement Trust
Consolidated General Revenue Bonds,
MBIA Insured, 7.50%, 6/1/08 Aaa/AAA 500,000 562,424
2,531,073
Pennsylvania--15.4%
Allegheny County, Pennsylvania Hospital Development
Authority Revenue Bonds, Presbyterian University
Hospital, Series A, MBIA Insured, 7.60%, 3/1/08 Aaa/AAA 1,400,000 1,573,482
Berks County, Pennsylvania General Obligation
Bonds, FGIC Insured, 9.385%, 11/10/20(1) Aaa/AAA 1,000,000 1,200,919
Butler County, Pennsylvania Hospital Authority
Revenue Bonds, North Hills Passavant Hospital,
Series 1991A, CGIC Insured, 7%, 6/1/22 Aaa/AAA 200,000 225,074
Pennsylvania Intergovernmental Cooperative Authority
Special Tax Revenue Bonds, City of Philadelphia
Funding Program, FGIC Insured, 5.25%, 6/15/06 Aaa/AAA/AAA 3,000,000 3,054,585
Pennsylvania State Higher Education Assistance
Agency Student Loan Residual Interest Revenue
Bonds,
Series 1992B, AMBAC Insured, 9.374%, 3/1/11(1) Aaa/AAA 1,250,000 1,333,947
Philadelphia, Pennsylvania Hospitals and Higher
Educational Facilities Authority Hospital Revenue
Refunding Bonds, Presbyterian University of
Pennsylvania Medical Center, Prerefunded, Series
1989,
AMBAC Insured, 8%, 7/1/13 Aaa/AAA 400,000 465,193
Philadelphia, Pennsylvania Regional Port Authority
Lease Revenue Bonds, MBIA Insured, 9.20%, 9/1/20 Aaa/AAA 1,900,000 2,238,519
Purchase Line, Pennsylvania School District General
Obligation Bonds, MBIA Insured, 7.30%, 1/15/11 Aaa/AAA 250,000 290,962
10,382,681
South Carolina--5.8%
Florence County, South Carolina School District
No. 003 Certificates of Participation, Series B,
CGIC Insured, 7%, 1/1/11 Aaa/AAA 310,000 342,022
Rock Hill, South Carolina Combined Utility System
Revenue Bonds, Series 1988, FGIC Insured,
7.875%, 1/1/09 Aaa/AAA/AAA 600,000 693,922
South Carolina State Public Service Authority Revenue
Refunding Bonds, Series A, MBIA Insured, 5.50%,
7/1/21 Aaa/AAA/A+ 2,300,000 2,320,930
Sumter County, South Carolina School District
No. 017, Certificates of Participation, Series A,
CGIC Insured, 7.125%, 1/1/11 Aaa/AAA 500,000 569,772
3,926,646
<PAGE>
Ratings
Moody's/S&P's/Fitch's Face Market Value
(Unaudited) Amount See Note 1
Municipal Bonds and Notes (continued)
Texas--4.7%
Austin, Texas Combined Utility Systems Revenue
Refunding Bonds, Prerefunded, BIG Insured,
8.625%, 11/15/17 Aaa/AAA $ 250,000 $ 322,960
Texas Municipal Power Agency Capital Appreciation
Revenue Refunding Bonds, MBIA Insured, 0%, 9/1/16 Aaa/AAA/A+ 10,000,000 2,820,000
3,142,960
Virginia--.9%
Roanoke, Virginia Industrial Development Authority
Hospital Revenue Bonds, Roanoke Memorial Hospital
Project, Prerefunded, MBIA Insured, 7.25%, 7/1/10 Aaa/AAA 500,000 593,160
West Virginia--3.1%
West Virginia School Building Authority Revenue
Bonds, Prerefunded, MBIA Insured, 7.25%, 7/1/15 Aaa/AAA 750,000 889,740
West Virginia State Water Development Authority
Revenue Bonds, Loan Program 11, Capital
Guaranteed, Series B, CGIC Insured, 7.50%, 11/1/29 Aaa/AAA 1,000,000 1,176,037
2,065,777
Wisconsin--1.7%
Wisconsin State Health & Educational Facilities
Authority Revenue Bonds:
Novus Health Group, Series B, MBIA Insured,
6.75%, 12/15/20 Aaa/AAA 500,000 558,113
SSM Healthcare Projects, Prerefunded, Series B,
MBIA Insured, 7%, 6/1/20 Aaa/AAA 500,000 585,097
1,143,210
U.S. Possessions--1.7%
Puerto Rico Commonwealth General Obligation
Refunding Bonds, FSA Insured, 8.882%, 7/1/20(1) Aaa/AAA 1,000,000 1,120,069
Total Municipal Bonds and Notes (Cost $57,661,463) 63,017,300
Short-Term Tax-Exempt Obligations--3.9%
Houston, Texas Health Facilities Development Corp. Hospital
Revenue Bonds, Methodist Hospital Project,
3.50%(2) 300,000 300,000
Indianapolis, Indiana Resource Recovery Revenue
Bonds, Ogden Martin System, 3.30%(2) 1,000,000 1,000,000
Lincoln County, Wyoming Pollution Control Revenue
Bonds, Exxon Project, Series B, 3.30%(2) 800,000 800,000
Mcintosh, Alabama Industrial Development Board
Environmental Improvement Revenue Bonds,
Ciba-Geigy Corp. Project, 3.10%(2) 500,000 500,000
Total Short-Term Tax-Exempt Obligations (Cost
$2,600,000) 2,600,000
Total Investments, at Value (Cost $60,261,463) 97.6% 65,617,300
Other Assets Net of Liabilities 2.4 1,644,943
Net Assets 100.0% $67,262,243
<FN>
(1)Represents the current interest rate for a variable rate security.
(2)Floating or variable rate obligation maturing in more than one year.
The interest rate, which is based on specific, or an index of, market
interest rates, is subject to change periodically and is the effective
rate on September 30, 1993. A demand feature allows the recovery of
principal at any time, or at specified intervals not exceeding one year,
on up to 30 days' notice.
</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 $60,261,463)--see
accompanying statement $65,617,300
Receivables:
Shares of beneficial interest sold 1,129,689
Interest 929,939
Other 30,081
Total assets 67,707,009
Liabilities
Bank overdraft 80,804
Payables and other liabilities:
Dividends 195,556
Shares of beneficial interest redeemed 79,870
Distribution assistance--Note 4 38,873
Other 49,663
Total liabilities 444,766
Net Assets $67,262,243
Composition of
Net Assets Paid-in capital $61,623,646
Undistributed net investment income 64,446
Accumulated net realized gain from investment
transactions 218,314
Net unrealized appreciation of investments--Note 3 5,355,837
Net Assets $67,262,243
Net Asset Value
Per Share Class A Shares:
Net asset value and redemption price per share
(based on net assets of $62,157,825 and 3,441,758
shares of beneficial interest outstanding) $18.06
Maximum offering price per share
(net asset value plus sales charge of 4.75% of
offering price) $18.96
Class B Shares:
Net asset value, redemption price and offering
price per share (based on net assets of $5,104,418
and 282,420 shares of beneficial interest
outstanding) $18.07
</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 $3,043,655
Expenses Management fees--Note 4 210,570
Distribution assistance:
Class A--Note 4 115,296
Class B--Note 4 9,300
Transfer and shareholder servicing agent
fees--Note 4 97,051
Shareholder reports 43,193
Registration and filing fees:
Class A 40,108
Class B 2,468
Custodian fees and expenses 12,742
Legal and auditing fees 10,615
Trustees' fees and expenses 2,031
Other 16,578
Total expenses 559,952
Less assumption of expenses by Oppenheimer
Management
Corporation--Note 4 (36,479)
Net expenses 523,473
Net Investment Income 2,520,182
Realized and
Unrealized Gain
on Investments Net realized gain on investments 242,996
Net change in unrealized appreciation of
investments:
Beginning of year 1,702,351
End of year--Note 3 5,355,837
Net change 3,653,486
Net Realized and Unrealized Gain on Investments 3,896,482
Net Increase in Net Assets Resulting from Operations $6,416,664
</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 $ 2,520,182 $ 1,616,170
Net realized gain on investments 242,996 419,154
Net change in unrealized appreciation or
depreciation of investments 3,653,486 798,605
Net increase in net assets resulting from
operations 6,416,664 2,833,929
Dividends and
Distributions to
Shareholders Dividends from net investment income:
Class A ($.96 and $.91 per share, respectively) (2,518,298) (1,514,718)
Class B ($.30 per share) (38,890) --
Distributions from net realized gain on investments:
Class A ($.18 and $.028 per share, respectively) (387,637) (67,365)
Beneficial
Interest
Transactions Net increase in net assets resulting from Class A
beneficial interest transactions--Note 2 25,043,911 8,707,650
Net increase in net assets resulting from Class B
beneficial interest transactions--Note 2 4,995,749 --
Net Assets Total increase 33,511,499 9,959,496
Beginning of year 33,750,744 23,791,248
End of year (including undistributed net
investment income of $64,446 and $101,452,
respectively) $67,262,243 $33,750,744
</TABLE>
See accompanying notes to financial statements.
<PAGE>
Financial Highlights
<TABLE>
<CAPTION>
Class A Class B
Period Ended
Year Ended September 30, September 30,
1993 1992 1991 1990++ 1989 1988 1987+ 1993+++
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Per Share Operating Data:
Net asset value, beginning of period $ 16.92 $ 16.17 $ 15.16 $ 15.27 $ 14.96 $13.79 $16.00 $17.33
Income (loss) from investment
operations:
Net investment income .93 .96 .92 .98 1.06 1.07 .92 .30
Net realized and unrealized gain (loss)
on investments 1.35 .73 1.01 (.11) .31 1.17 (2.21) .74
Total income (loss) from investment
operations 2.28 1.69 1.93 .87 1.37 2.24 (1.29) 1.04
Dividends and distributions to
shareholders:
Dividends from net investment income (.96) (.91) (.92) (.98) (1.06) (1.07) (.92) (.30)
Distributions from net realized gain on
investments (.18) (.03) -- -- -- -- -- --
Total dividends and distributions to
shareholders (1.14) (.94) (.92) (.98) (1.06) (1.07) (.92) (.30)
Net asset value, end of period $ 18.06 $ 16.92 $ 16.17 $ 15.16 $ 15.27 $14.96 $13.79 $18.07
Total Return, at Net Asset Value** 14.02% 10.74% 13.08% 5.81% 9.37% 16.67% (8.36)% 6.04%
Ratios/Supplemental Data:
Net assets, end of period (in thousands) $62,158 $33,751 $23,791 $16,863 $13,105 $8,483 $5,449 $5,104
Average net assets (in thousands) $45,949 $27,811 $19,936 $15,145 $11,200 $6,936 $5,435 $2,298
Number of shares outstanding at end of
period (in thousands) 3,442 1,995 1,471 1,113 858 567 395 282
Ratios to average net assets:
Net investment income 5.40% 5.81% 5.83% 6.43% 6.87% 7.34% 6.69%* 3.99%*
Expenses, before voluntary assumption by
the Manager 1.18% 1.35% 1.60% 1.62% 2.04% 2.50% 2.98%* 1.96%*
Expenses, net of voluntary assumption by
the Manager 1.10% .95% .91% .62% .42% .13% .34%* N/A
Portfolio turnover rate*** 7% 47% 67% 62% 142% 141% 112% 7%
<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
$30,133,427 and $3,330,059, 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.
+++For the period from May 3, 1993 (inception of offering) to September
30, 1993.
</TABLE>
See accompanying notes to financial statements.
<PAGE>
Notes to Financial Statements
1. Significant Accounting Policies Oppenheimer Insured 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 Fund offers both
Class A and Class B shares. Class A shares are sold with a front-end sales
charge. Class B shares may be subject to a contingent deferred sales
charge. Both classes of shares have identical rights to earnings, assets
and voting privileges, except that each class has its own distribution
plan, expenses directly attributable to a particular class and exclusive
voting rights with respect to matters affecting a single class. Class B
shares will automatically convert to Class A shares six years after the
date of purchase. The following is a summary of significant accounting
policies consistently followed by the Fund.
Investment Valuation--Portfolio securities are valued at 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.
Allocation of Income, Expenses and Gains and Losses--Income, expenses
(other than those attributable to a specific class) and gains and losses
are allocated daily to each class of shares based upon the relative
proportion of net assets represented by such class. Operating expenses
directly attributable to a specific class are charged against the
operations of that class.
Federal 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
separately for Class A and Class B shares 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 of each class. 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>
Class A:
Sold 1,716,581 $29,729,902 702,842 $11,649,596
Dividends and distributions
reinvested 122,875 2,119,692 74,647 1,235,529
Redeemed (392,790) (6,805,683) (253,423) (4,177,475)
Net increase 1,446,666 $25,043,911 524,066 $ 8,707,650
Class B:
Sold 281,944 $ 4,987,254 -- $ --
Dividends reinvested 1,056 18,887 -- --
Redeemed (580) (10,392) -- --
Net increase 282,420 $ 4,995,749 -- $ --
<FN>
+For the year ended September 30, 1993 for Class A shares and for the
period from May 3, 1993 (inception of offering) to September 30, 1993 for
Class B shares.
</TABLE>
<PAGE>
3. Unrealized Gains and Losses on Investments
At September 30, 1993, the market value of each portfolio security held
exceeded the associated cost, resulting in unrealized appreciation of
$5,355,837.
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 .45%
on the first $100 million of net assets, .40% on the next $150 million,
.375% on the next $250 million and .35% 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. In addition, the Manager had voluntarily undertaken to
assume Fund expenses of .10% (.25% through December 31, 1992) of average
annual net assets. This voluntary undertaking was terminated effective
June 1, 1993.
The Manager acts as the accounting agent for the Fund at an annual fee of
$12,000, plus out-of-pocket costs and expenses reasonably incurred.
For the year ended September 30, 1993, commissions (sales charges paid by
investors) on sales of Class A shares totaled $582,215, of which $151,408
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 separate approved plans of distribution, each class 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. In addition, Class B
shares are subject to an asset- based sales charge of .75% of net assets
annually, to reimburse OFDI for sales commissions paid from its own
resources at the time of sale and associated financing costs. In the event
of termination or discontinuance of the Class B plan of distribution, the
Fund would be contractually obligated to pay OFDI for any expenses not
previously reimbursed or recovered through contingent deferred sales
charges. During the year ended September 30, 1993, OFDI paid $9,300 to an
affiliated broker-dealer as reimbursement for Class A distribution-related
expenses and retained $9,300 as reimbursement for Class B
distribution-related expenses and sales commissions.
<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 January 1, 1993. Federal
taxable income refers to the net amount subject to Federal income tax
after deductions and exemptions. 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. The brackets do not reflect the phaseout of
itemized deductions and personal exemptions at higher income levels,
resulting in higher effective tax rates and tax equivalent yields.
<TABLE>
<CAPTION>
Federal
Taxable Income: EffectiveA Oppenheimer Insured 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 $ 36,900 15.00%4.12% 4.71% 5.29% 5.88% 6.47% 7.06% 7.65%
$ 36,900 $ 89,150 28.00%4.86% 5.56% 6.25% 6.94% 7.64% 8.33% 9.03%
$ 89,150 $140,000 31.00%5.07% 5.80% 6.52% 7.25% 7.97% 8.70% 9.42%
$140,000 $250,000 36.00%5.47% 6.25% 7.03% 7.81% 8.59% 9.38% 10.16%
$250,000 and above 39.60%5.79% 6.62% 7.45% 8.28% 9.11% 9.93% 10.76%
Single Return
Over Not Over
$ 0 $ 22,100 15.00%4.12% 4.71% 5.29% 5.88% 6.47% 7.06% 7.65%
$ 22,100 $ 53,500 28.00%4.86% 5.56% 6.25% 6.94% 7.64% 8.33% 9.03%
$ 53,500 $115,000 31.00%5.07% 5.80% 6.52% 7.25% 7.97% 8.70% 9.42%
$115,000 $250,000 36.00%5.47% 6.25% 7.03% 7.81% 8.59% 9.38% 10.16%
$250,000 and above 39.60%5.79% 6.62% 7.45% 8.28% 9.11% 9.93% 10.76%
</TABLE>
<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
<PAGE>
