OPPENHEIMER
Intermediate Municipal Fund
Prospectus dated February 1, 1997
Oppenheimer Intermediate Municipal Fund is a mutual fund that
seeks a high level of current income exempt from Federal income
tax. The Fund will, under normal market conditions, invest at
least 80% of its total assets in investment-grade Municipal
Securities. Please refer to "Investment Objective and Policies"
for more information about the types of securities the Fund invests
in and refer to "Investment Risks" for a discussion of the risks of
investing in the Fund.
This Prospectus explains concisely what you should know before
investing in the Fund. Please read this Prospectus carefully and
keep it for future reference. You can find more detailed
information about the Fund in the February 1, 1997 Statement of
Additional Information. For a free copy, call OppenheimerFunds
Services, the Fund's Transfer Agent, at 1-800-525-7048, or write to
the Transfer Agent at the address on the back cover. The Statement
of Additional Information has been filed with the Securities and
Exchange Commission ("SEC") and is incorporated into this
Prospectus by reference (which means that it is legally part of
this Prospectus).
OppenheimerFunds logo
Shares of the Fund are not deposits or obligations of any bank, are
not guaranteed by any bank, are not insured by the F.D.I.C. or any
other agency, and involve investment risks, including the possible
loss of the principal amount invested.
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.
<PAGE>
Contents
A B O U T T H E F U N D
Expenses
A Brief Overview of the Fund
Financial Highlights
Investment Objective and Policies
Investment Risks
Investment Techniques and Strategies
How the Fund is Managed
Performance of the Fund
A B O U T Y O U R A C C O U N T
How to Buy Shares
Class A Shares
Class B Shares
Class C Shares
Special Investor Services
AccountLink
Automatic Withdrawal and Exchange Plans
Reinvestment Privilege
How to Sell Shares
By Mail
By Telephone
Checkwriting
How to Exchange Shares
Shareholder Account Rules and Policies
Dividends, Capital Gains and Taxes
Appendix A: Special Sales Charge Arrangements
A B O U T T H E F U N D
Expenses
The Fund pays a variety of expenses directly for management of its
assets, administration, distribution of its shares and other
services, and those expenses are subtracted from the Fund's assets
to calculate the Fund's net asset value per share. All shareholders
therefore pay those expenses indirectly. Shareholders pay other
expenses directly, such as sales charges and account transaction
charges. The following tables are provided to help you understand
your direct expenses of investing in the Fund and your share of the
Fund's business operating expenses that you will bear indirectly.
The numbers below are based on the Fund's expenses during its last
fiscal year ended September 30, 1996.
Shareholder Transaction Expenses are charges you pay when
you buy or sell shares of the Fund. Please refer to "About Your
Account," from pages __ through __, for an explanation of how and
when these charges apply.
Class A Class B Class C
Shares Shares Shares
- -------------------------------------------------------------------------
Maximum Sales Charge 3.50% None None
on Purchases (as a % of
offering price)
- -------------------------------------------------------------------------
Maximum Deferred Sales Charge None(1) 4% in the first 1% if shares are
(as a % of the lower of year, declining redeemed within
the original offering to 1% in the 12 months of
price or redemption fifth year and purchase(2)
proceeds) eliminated
thereafter(2)
- -------------------------------------------------------------------------
Maximum Sales Charge on None None None
Reinvested Dividends
- -------------------------------------------------------------------------
Redemption Fee None(3) None(3) None(3)
- -------------------------------------------------------------------------
Exchange Fee None None None
1. If you invest $1 million or more in Class A shares, you may have
to pay a sales charge of up to 1% if you sell your shares within 18
calendar months from the end of the calendar month in which you
purchased those shares. See "How to Buy Shares - Class A Shares,"
below.
2. See "How to Buy Shares - Buying Class B Shares" and "How to Buy
Shares - Buying Class C Shares," below for more information on the
contingent deferred sales charges.
3. There is a $10 transaction fee for redemptions paid by Federal
Funds wire, but not for redemptions paid by check or by ACH wire
transfer through AccountLink, or for which check writing privileges
are used (see "How To Sell Shares").
Annual Fund Operating Expenses are paid out of the Fund's
assets and represent the Fund's expenses in operating its business.
For example, the Fund pays management fees to its investment
adviser, OppenheimerFunds, Inc. (referred to in this Prospectus as
the "Manager"). The rates of the Manager's fees are set forth in
"How the Fund is Managed," below. The Fund has other regular
expenses for services, such as transfer agent fees, custodial fees
paid to the bank that holds the Fund's portfolio securities, audit
fees and legal expenses. Those expenses are detailed in the Fund's
Financial Statements in the Statement of Additional Information.
Annual Fund Operating Expenses
(as a percentage of average net assets)
Class A Class B Class C
Shares Shares Shares
- -------------------------------------------------------------------
Management Fees 0.50% 0.50% 0.50%
- -------------------------------------------------------------------
12b-1 Plan Fees 0.24% 1.00% 1.00%
- -------------------------------------------------------------------
Other Expenses 0.28% 0.31% 0.28%
- -------------------------------------------------------------------
Total Fund Operating 1.02% 1.81% 1.78%
Expenses
The numbers in the chart above are based upon the Fund's
expenses in its last fiscal year. These amounts are shown as a
percentage of the average net assets of each class of the Fund's
shares for that year. The 12b-1 Distribution Plan Fees for Class
A shares are Service Plan Fees (the maximum fee is 0.25% of average
annual net assets of that class), and for Class B and Class C
shares are the Distribution and Service Plan Fees. (The maximum
service fee is 0.25% of average annual net assets of that class and
the asset-based sales charge is 0.75%). These plans are described
in greater detail in "How to Buy Shares" below.
The actual expenses for each class of shares in future years
may be more or less than the numbers in the chart, depending on a
number of factors, including changes in the actual value of the
Fund's assets represented by each class of shares.
Examples. To try to show the effect of these expenses on an
investment over time, we have created the hypothetical examples
shown below. Assume that you make a $1,000 investment in each
class of shares of the Fund, and that the Fund's annual return is
5%, and that its operating expenses for each class are the ones
shown in the Annual Fund Operating Expenses chart above. If you
were to redeem your shares at the end of each period shown below,
your investment would incur the following expenses by the end of 1,
3, 5 and 10 years:
1 year 3 years 5 years 10 years(1)
- -------------------------------------------------------------------
Class A Shares $45 $66 $ 89 $155
- -------------------------------------------------------------------
Class B Shares $58 $77 $108 $173
- -------------------------------------------------------------------
Class C Shares $28 $56 $ 96 $209
If you did not redeem your investment, it would incur the
following expenses:
Class A Shares $45 $66 $89 $155
- -------------------------------------------------------------------
Class B Shares $18 $57 $98 $173
- -------------------------------------------------------------------
Class C Shares $18 $56 $96 $209
1. In the first example, expenses include the Class A initial sales
charge and the applicable Class B or Class C contingent deferred
sales charge. In the second example, Class A expenses include the
initial sales charge, but Class B and Class C expenses do not
include contingent deferred sales charges. The Class B expenses in
years 7 through 10 are based on the Class A expenses shown above,
because the Fund automatically converts your Class B shares into
Class A shares after 6 years. Because of the effect of the asset-
based sales charge and the contingent deferred sales charge, long-
term holders of Class B and Class C shares could pay the economic
equivalent of more than the maximum front-end sales charge allowed
under applicable regulations. For Class B shareholders, the
automatic conversion of Class B shares to Class A shares is
designed to minimize the likelihood that this will occur. Please
refer to "How to Buy Shares" for more information.
These examples show the effect of expenses on an investment,
but are not meant to state or predict actual or expected costs or
investment returns of the Fund, all of which will vary.
A Brief Overview of the Fund
Some of the important facts about the Fund are summarized
below, with references to the section of this Prospectus where more
complete information can be found. You should carefully read the
entire Prospectus before making a decision about investing in the
Fund. Keep the Prospectus for reference after you invest,
particularly for information about your account, such as how to
sell or exchange shares.
What Is The Fund's Investment Objective? The Fund's
investment objective is to seek a high level of current income
exempt from Federal income tax.
What Does the Fund Invest In? To seek its objective, the
Fund will, under normal market conditions, invest at least 80% of
its assets in investment-grade Municipal Securities. The Fund may
also use hedging instruments and some derivative investments to try
to manage investment risks. These investments and their risks are
more fully explained in "Investment Objective and Policies,"
starting on page __.
Who Manages the Fund? The Fund's investment adviser (the
"Manager") is OppenheimerFunds, Inc. The Manager (including a
subsidiary) advises investment company portfolios having over $62
billion in assets as of December 31, 1996. The Manager is paid an
advisory fee by the Fund, based on its net assets. The Fund's
portfolio manager, who is employed by the Manager and is primarily
responsible for the selection of the Fund's securities, is Caryn
Halbrecht. The Fund's Board of Trustees, elected by shareholders,
oversees the investment adviser and the portfolio manager. Please
refer to "How the Fund is Managed," starting on page __ for more
information about the Manager and its fees.
How Risky is the Fund? All investments carry risks to some
degree. The Fund's investments in Municipal Securities are subject
to changes in their value from a number of factors such as changes
in general bond market movements, the change in value of particular
securities because of an event affecting the issuer, or changes in
interest rates. These changes affect the value of the Fund's
investments and its price per share. In the OppenheimerFunds
spectrum, the Fund is generally more conservative than high yield
bond funds, but more risky than money market funds. While the
Manager tries to reduce risks by diversifying investments, by
carefully researching securities before they are purchased for the
portfolio, and in some cases by using hedging techniques, there is
no guarantee of success in achieving the Fund's objectives and your
shares may be worth more or less than their original cost when you
redeem them. Please refer to Investment Risks" starting on page __
for a more complete discussion.
How Can I Buy Shares? You can buy shares through your
broker or dealer or financial institution, or you can purchase
shares directly through the Distributor by completing an
Application or by using an Automatic Investment Plan under
AccountLink. Please refer to "How To Buy Shares" starting on page
__ for more details.
Will I Pay a Sales Charge to Buy Shares? The Fund has three
classes of shares. All three classes have the same investment
portfolio but different expenses. Class A shares are offered with
a front-end sales charge, starting at 3.50%, and reduced for larger
purchases. Class B shares and Class C shares are offered without
a front-end sales charge, but may be subject to a contingent
deferred sales charge if redeemed within 5 years or 12 months of
purchase, respectively. There are also annual asset-based sales
charges on Class B and Class C shares. Please review "How To Buy
Shares" starting on page __ for more details, including a
discussion about factors you and your financial adviser should
consider in determining which class may be appropriate for you.
How Can I Sell My Shares? Shares can be redeemed by mail or
by telephone call to the Transfer Agent on any business day,
through your broker or dealer, or by writing a check against your
Fund account (available for Class A shares only). Please refer to
"How To Sell Shares" starting on page __. The Fund also offers
exchange privileges to other Oppenheimer funds, described in "How
to Exchange Shares" starting on page __.
How Has the Fund Performed? The Fund measures its
performance by quoting its yield, tax equivalent yield, average
annual total return and cumulative total return, which measure
historical performance. Those returns and yields can be compared
to the yields and returns (over similar periods) of other funds.
Of course, other mutual funds may have different objectives,
investments, and levels of risk. The Fund's performance can also
be compared to a broad market index, which we have done on pages __
and __. Please remember that past performance does not guarantee
future results.
Financial Highlights
The table on the following pages presents selected financial
information about the Fund, including per share data, expense
ratios and other data based on the Fund's average net assets. This
information has been audited by Deloitte & Touche LLP, the Fund's
independent auditors, whose report on the Fund's financial
statements for the fiscal year ended September 30, 1996, is
included in the Statement of Additional Information.
<PAGE>
<TABLE>
<CAPTION>
-------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
CLASS A
-------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30,
1996 1995 1994 1993 1992
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING DATA:
Net asset value, beginning of period $ 14.69 $ 14.23 $ 15.34 $ 15.09 $ 14.40
- -----------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income 0.79 .79 .72 .77 .86
Net realized and unrealized gain (loss) (.01) .42 (1.00) .70 .69
- -----------------------------------------------------------------------------------------------------------------------------------
Total income (loss) from investment
operations 0.78 1.21 (.28) 1.47 1.55
- -----------------------------------------------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income (.78) (.75) (.76) (.75) (.86)
Distributions from net realized gain -- -- -- (.47) --
Distributions in excess of net realized gain -- -- (.07) -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Total dividends and distributions
to shareholders (.78) (.75) (.83) (1.22) (.86)
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 14.69 $ 14.69 $ 14.23 $ 15.34 $ 15.09
==========================================================================
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE(3) 5.41% 8.78% (1.92)% 10.31% 11.10%
- -----------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) $ 83,253 $ 80,535 $ 83,456 $ 70,136 $ 29,724
- -----------------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $ 82,217 $ 79,681 $ 79,076 $ 48,915 $ 25,153
- -----------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income 5.35% 5.55% 5.05% 5.08% 5.87%
Expenses, before voluntary assumption by the Manager 1.02% 0.98% 1.00% 1.07% 1.25%
Expenses, net of voluntary assumption by the Manager N/A N/A N/A 1.05% 1.16%
- -----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(5) 53% 55% 51% 21% 93%
<CAPTION>
1991 1990(2) 1989 1988 1987(1)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING DATA:
Net asset value, beginning of period $ 13.51 $ 13.57 $ 13.33 $ 12.56 $ 14.00
- -----------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .83 .90 .98 1.05 .90
Net realized and unrealized gain (loss) .91 (.08) .24 .77 (1.44)
- -----------------------------------------------------------------------------------------------------------------------------------
Total income (loss) from investment
operations 1.74 .82 1.22 1.82 (.54)
- -----------------------------------------------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income (.85) (.88) (.98) (1.05) (.90)
Distributions from net realized gain -- -- -- -- --
Distributions in excess of net realized gain -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Total dividends and distributions
to shareholders (.85) (.88) (.98) (1.05) (.90)
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 14.40 $ 13.51 $ 13.57 $ 13.33 $ 12.56
==========================================================================
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE(3) 13.20% 6.14% 9.54% 14.96% (4.11)%
- -----------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) $ 23,675 $ 20,287 $ 19,350 $ 13,480 $ 10,228
- -----------------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $ 22,071 $ 20,576 $ 17,188 $ 12,220 $ 11,152
- -----------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income 5.93% 6.56% 7.09% 8.01% 7.39%(4)
Expenses, before voluntary assumption by the Manager 1.35% 1.41% 1.56% 1.75% 1.95%(4)
Expenses, net of voluntary assumption by the Manager 1.16% 0.66% 0.23% N/A 0.40%(4)
- -----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(5) 75% 102% 180% 148% 98%
<CAPTION>
CLASS B CLASS C
--------------------------- ---------------------------------------------
YEAR ENDED SEPTEMBER 30, YEAR ENDED SEPTEMBER 30,
1996 1995(7) 1996 1995 1994(6)
- ------------------------------------------------------------------------------------ ---------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING DATA:
Net asset value, beginning of period $ 14.69 $ 14.71 $ 14.67 $ 14.18 $ 15.14
- ------------------------------------------------------------------------------------ ---------------------------------------------
Income (loss) from investment operations:
Net investment income .66 .06 .68 .69 .46
Net realized and unrealized gain (loss) -- (.02) (.01) .43 (.83)
- ------------------------------------------------------------------------------------ ---------------------------------------------
Total income (loss) from investment
operations .66 .04 .67 1.12 (.37)
- ------------------------------------------------------------------------------------ ---------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income (.66) (.06) (.67) (.63) (.52)
Distributions from net realized gain -- -- -- -- --
Distributions in excess of net realized gain -- -- -- -- (.07)
- ------------------------------------------------------------------------------------ ---------------------------------------------
Total dividends and distributions
to shareholders (.66) (.06) (.67) (.63) (.59)
- ------------------------------------------------------------------------------------ ---------------------------------------------
Net asset value, end of period $ 14.69 $ 14.69 $ 14.67 $ 14.67 $ 14.18
=========================== =============================================
- ------------------------------------------------------------------------------------ ---------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE(3) 4.56% 0.83% 4.63% 8.13% (2.54)%
- ------------------------------------------------------------------------------------ ---------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) $ 2,858 $ 119 $ 10,908 $ 7,618 $ 8,511
- ------------------------------------------------------------------------------------ ---------------------------------------------
Average net assets (in thousands) $ 1,440 $ 37 $ 9,015 $ 7,437 $ 4,686
- ------------------------------------------------------------------------------------ ---------------------------------------------
Ratios to average net assets:
Net investment income 4.51% 3.87%(4) 4.56% 4.64% 3.77%(4)
Expenses, before voluntary assumption by the Manager 1.81% 1.54%(4) 1.78% 1.88% 2.24%(4)
Expenses, net of voluntary assumption by the Manager N/A N/A N/A N/A N/A
- ------------------------------------------------------------------------------------ ---------------------------------------------
Portfolio turnover rate(5) 53% 55% 53% 55% 51%
</TABLE>
1. For the period from November 11, 1986 (commencement of operations) to
September 30, 1987.
2. On April 7, 1990, OppenheimerFunds, Inc. became the investment adviser to the
Fund.
3. Assumes a hypothetical initial investment on the business day before the
first day of the fiscal period (or inception of offering), with all dividends
and distributions reinvested in additional shares on the reinvestment date, and
redemption at the net asset value calculated on the last business day of the
fiscal period. Sales charges are not reflected in the total returns. Total
returns are not annualized for periods of less than one full year.
4. Annualized.
5. The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities owned
during the period. Securities with a maturity or expiration date at the time of
acquisition of one year or less are excluded from the calculation. Purchases and
sales of investment securities (excluding short-term securities) for the period
ended September 30, 1996 were $57,514,179 and $48,400,755, respectively.
6. For the period from December 1, 1993 (inception of offering) to September 30,
1994.
7. For the period from September 11, 1995 (inception of offering) to September
30, 1995.
<PAGE>
Investment Objective and Policies
Objective. The Fund's investment objective is to provide a high
level of current income exempt from Federal income tax.
Investment Policies and Strategies. The Fund will seek to attain
its investment objective by investing, under normal market
conditions, at least 80% of its total assets in a portfolio of
"investment-grade" Municipal Securities. "Investment-grade" are
those rated - or are determined by the Manager to be of comparable
quality to those rated - within the four highest rating categories
of Moody's Investors Service, Inc., Standard & Poor's Corporation,
Fitch Investors Service, Inc. or another rating organization.
Municipal Securities in the fourth highest rating category (for
example, municipal bonds rated "Baa" and municipal notes rated "MIG
2" by Moody's, and municipal bonds rated "BBB" and municipal notes
rated "SP-2" by Standard & Poor's), although of investment grade,
may be subject to greater market fluctuations and risks of loss of
income and principal than higher-rated Municipal Securities, and
may be considered to have speculative characteristics. Although
unrated securities are not necessarily of lower quality, the market
for them may not be as broad as for rated securities. A reduction
in the rating of a security after it is purchased by the Fund will
not require its disposition. To the extent that the Fund holds
securities that have fallen below investment grade, there is a
greater risk that the Fund's receipt of interest income and
principal will be impaired and that its net asset value will be
affected if the issuers of such securities fail to meet their
obligations. See Appendix A to the Statement of Additional
Information for a description of the various rating categories.
Under normal market conditions, no more than 20% of the Fund's
total assets will be invested in taxable investments. However, for
temporary defensive purposes, the Fund may invest up to 100% of its
total assets in taxable certificates of deposit and commercial
paper and taxable or tax-exempt money market instruments. The Fund
may purchase Municipal Securities on a "when-issued" basis and may
purchase or sell Municipal Securities on a "delayed delivery"
basis. Under normal market conditions, the Fund will maintain a
dollar-weighted average portfolio maturity of more than three years
but not more than ten years. In calculating maturity, the Fund
will consider various factors, including anticipated payments of
principal. The Fund may hold securities with maturities of more
than ten years provided that under normal circumstances it
maintains a dollar-weighted average portfolio maturity as stated
above.
Can the Fund's Investment Objective and Policies Change?
The Fund has an investment objective, described above, as well as
investment policies it follows to try to achieve its objective.
Additionally, the Fund uses certain investment techniques and
strategies in carrying out those investment policies. The Fund's
investment policies and techniques are not "fundamental" unless
this Prospectus or the Statement of Additional Information says
that a particular policy is "fundamental." The Fund's investment
objective is a fundamental policy.
Fundamental policies are those that cannot be changed without
the approval of a "majority" of the Fund's outstanding voting
shares. The term "majority" is defined in the Investment Company
Act to be a particular percentage of outstanding voting shares (and
this term is explained in the Statement of Additional Information).
The Fund's Board of Trustees may change non-fundamental policies
without shareholder approval, although significant changes will be
described in amendments to this Prospectus.
Portfolio Turnover. A change in the securities held by the
Fund is known as "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 seek
to accomplish the Fund's investment objective. The "Financial
Highlights" above show the Fund's portfolio turnover rate during
past fiscal years. While short-term trading increases portfolio
turnover, and may increase the Fund's transaction costs, the Fund
incurs little or no brokerage costs. Portfolio turnover affects
the Fund's ability to qualify as a "regulated investment company"
under the Internal Revenue Code for tax deductions for dividends
and capital gains distributions the Fund pays to shareholders. See
"Tax Aspects of Covered Calls and Hedging Instruments" in the
Statement of Additional Information. The Fund qualified in its
last fiscal year and intends to do so in the coming year, although
it reserves the right not to qualify.
Investment Risks
All investments carry risks to some degree, whether they are
risks that market prices of the investment will fluctuate (this is
known as "market risk") or that the underlying issuer will
experience financial difficulties and may default on its obligation
under a fixed-income investment to pay interest and repay principal
(this is referred to as "credit risk"). These general investment
risks, and the special risks of certain types of investments that
the Fund may hold are described below. They affect the value of
the Fund's investments, its investment performance, and the prices
of its shares. These risks collectively form the risk profile of
the Fund.
Because of the types of securities the Fund invests in and the
investment techniques the Fund uses, the Fund is designed for
investors who are investing for the long term. It is not intended
for investors seeking assured income. While the Manager tries to
reduce risks by diversifying investments, by carefully researching
securities before they are purchased, and in some cases by using
hedging techniques, changes in overall market prices can occur at
any time, and because the income earned on securities is subject to
change, there is no assurance that the Fund will achieve its
investment objective. When you redeem your shares, they may be
worth more or less than what you paid for them.
Interest Rate Risk. 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.
Generally, securities of longer maturities are subject to
greater price fluctuations due to changes in 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 and conditions affecting the Municipal
Securities market.
There are special risks in investing in derivative
investments. The risks of investing in derivative investments
include not only the ability of the issuer of the derivative
investment to pay the amount due on the maturity of the investment,
but also the risk that the underlying investment security on which
the derivative is based, and the derivative itself, may not perform
the way the Manager expected it to perform. That can mean that the
Fund will realize less income than expected or that it can lose
part of its investment. Another risk of investing in derivative
investments is that their market value could be expected to vary to
a much greater extent than the market value of municipal securities
that are not derivative investments but have similar credit
quality, redemption provisions and maturities. These risks affect
the price of the Fund's shares.
Hedging instruments can be volatile investments and may
involve special risks. If the Manager uses a hedging instrument at
the wrong time or judges market conditions incorrectly, hedging
strategies may reduce the Fund's return. The Fund could also
experience losses if the prices of its futures and options
positions were not correlated with its other investments or if it
could not close out a position because of an illiquid market for
the future or option.
Options trading involves the payment of premiums and has
special tax effects on the Fund. There are also special risks in
particular hedging strategies. For example, in writing puts, there
is a risk that the Fund may be required to buy the underlying
security at a disadvantageous price. These risks and the hedging
strategies the Fund may use are described in greater detail in the
Statement of Additional Information.
Investment Techniques and Strategies
The Fund may also use the investment techniques and strategies
described below, which involve certain risks. The Statement of
Additional Information contains more information about these
practices, including limitations on their use that are designed to
reduce some of the risks.
Municipal Securities. "Municipal Securities" are municipal
bonds, municipal notes, 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. No
independent investigation has been made by the Manager as to the
users of proceeds of bond offerings or the application of such
proceeds.
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 issuer. Generally, Municipal Securities of longer
maturities produce higher current yields but are subject to greater
price fluctuation due to changes in interest rates (discussed
above), 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 a concern that there is a
greater degree of risk as to the ability of the issuer to meet
principal and interest obligations. "Investment Objective and
Policies" in the Statement of Additional Information contains more
information about Municipal Securities.
Investments in Taxable Securities and Temporary Defensive
Investment Strategy. Under normal market conditions, the Fund may
invest up to 20% of its assets in taxable investments, including
(i) certain "Temporary Investments" (described in the next
paragraph); (ii) hedging instruments (described in "Hedging"
below); (iii) repurchase agreements (explained below).
In times of unstable economic or market conditions, the
Manager may determine that it is appropriate for the Fund to assume
a temporary "defensive" position by investing some or all of its
assets (there is no limit on the amount) in short-term money market
instruments. These include the taxable obligations described
above, U.S. government securities, bank obligations, commercial
paper, corporate obligations and other instruments approved by the
Fund's Board of Trustees. This strategy would be implemented to
attempt to reduce fluctuations in the value of the Fund's assets.
The Fund may hold temporary investments pending the investment of
proceeds from the sale of Fund shares or portfolio securities,
pending settlement of purchases of Municipal Securities, or to meet
anticipated redemptions. To the extent the Fund assumes a
temporary defensive position, a portion of the Fund's distributions
may be subject to Federal and state income taxes and the Fund may
not achieve its objective.
Municipal Lease Obligations. The Fund may invest in
certificates of participation, which are tax-exempt obligations
that evidence the holder's right to share in lease, installment
loan or other financing payments by a public entity. Projects
financed with certificates of participation generally are not
subject to state constitutional debt limitations or other statutory
requirements that may be applicable to Municipal Securities.
Payments by the public entity on the obligation underlying the
certificates are derived from available revenue sources; such
revenue may be diverted to the funding of other municipal service
projects. Payments of interest and/or principal with respect to
the certificates are not guaranteed and do not constitute an
obligation of the states or any of their political subdivisions.
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 Fund's Board of Trustees. See
"Municipal Lease Obligations" in the Statement of Additional
Information for more details.
Floating Rate/Variable Rate Obligations. Some of the
Municipal Securities the Fund may purchase may have variable or
floating interest rates. Variable rates are adjusted 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 Statement of
Additional Information for more details.
Inverse Floaters and Derivative Investments. The Fund may
invest in variable rate bonds known as "inverse floaters." These
bonds pay interest at a rate that varies as the yields generally
available on short-term tax-exempt bonds change. However, the
yields on inverse floaters move in the opposite direction of yields
on short-term bonds in response to market changes. When the yields
on short-term tax-exempt bonds go up, the interest rate on the
inverse floater goes down. When the yields on short-term tax-
exempt bonds go down, the interest rate on the inverse floater goes
up. As interest rates rise, inverse floaters produce less current
income. Inverse floaters are a type of "derivative security,"
which is a specially designed investment whose performance is
linked to the performance of another security or investment. Some
inverse floaters have a "cap" whereby if interest rates rise above
the "cap," the security pays additional interest income. If rates
do not rise above the "cap," the Fund will have paid an additional
amount for a feature that proves worthless. The Fund may also
invest in municipal derivative securities that pay interest that
depends on an external pricing mechanism. Examples are interest
rate swaps or caps and municipal bond or swap indices. The Fund
anticipates that it would invest no more than 10% of its total
assets in inverse floaters.
"When-Issued" and "Delayed Delivery" Transactions. The Fund
may purchase Municipal Securities on a "when-issued" basis and may
purchase or sell Municipal Securities on a "delayed delivery"
basis. When the Fund engages in these transactions, it will do so
for the purpose of acquiring portfolio securities consistent with
the Fund's investment objective and policies and not for the
purpose of investment leverage. These terms refer to securities
that have been created and for which a market exists, but which are
not available for immediate delivery. There may be a risk of loss
to the Fund if the value of the security declines prior to the
settlement date. When the Fund is the buyer, it will segregate
with its custodian cash or high-grade Municipal Securities having
a total value equal to the amount of the Fund's purchase
commitments until payment is made.
Puts and Stand-By Commitments. The Fund may acquire
"stand-by commitments" or "puts" with respect to municipal
obligations held in its portfolio. Under a stand-by commitment or
put option, the Fund would have the right to sell specified
securities at a specific price on demand to the issuing broker-
dealer or bank. The Fund will acquire stand-by commitments or puts
solely to facilitate portfolio liquidity and does not intend to
exercise its rights thereunder for trading purposes.
Repurchase Agreements. The Fund may enter into repurchase
agreements. In a repurchase transaction, the Fund buys a security
and simultaneously sells it to the vendor for delivery at a future
date. There is no limit on the amount of the Fund's net assets
that may be subject to repurchase agreements of seven days or less.
Repurchase agreements must be fully collateralized. However, if the
vendor fails to pay the resale price on the delivery date, the Fund
may incur costs in disposing of the collateral and may experience
losses if there is any delay in its ability to do so. The Fund will
not enter into repurchase transactions that will cause more than
25% of the Fund's total assets to be subject to repurchase
agreements and will not enter into a repurchase agreement that
causes more than 10% of its net assets to be subject to repurchase
agreements having a maturity beyond seven days, because such
repurchase agreements may be illiquid (see "Illiquid and Restricted
Securities").
Loans of Portfolio Securities. To attempt to increase its
income, the Fund may lend its portfolio securities to brokers,
dealers and other financial institutions. The Fund must receive
collateral for such loans. The Fund does not intend to lend its
portfolio securities; if it does, these loans are limited to not
more than 5% of the value of the Fund's total assets and are
subject to other conditions described in the Statement of
Additional Information. The income from such loans, when
distributed by the Fund, will be taxable as ordinary income.
Illiquid and Restricted Securities. Under the policies and
procedures established by the Fund's Board of Trustees, the Manager
determines the liquidity of certain of the Fund's investments.
Investments may be illiquid because of the absence of an active
trading market, making it difficult to value them or dispose of
them promptly at an acceptable price. A restricted security is one
that has a contractual restriction on its resale or which cannot be
publicly sold until it is registered under the Securities Act of
1933. The Fund will not invest more than 10% of its net assets in
illiquid or restricted securities (the Board may increase that
limit to 15%). 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. The
Fund's percentage limitation on these investments does not apply to
certain restricted securities that are eligible for resale to
qualified institutional buyers. The Manager monitors holdings of
illiquid securities on an ongoing basis and at times the Fund may
be required to sell some holdings to maintain adequate liquidity.
Hedging. As described below, the Fund may purchase and sell
certain kinds of futures contracts, put and call options, forward
contracts, and options on futures and municipal bond indices, or
enter into interest rate swap agreements. These are referred to as
"hedging instruments." The Fund may invest in financial futures
contracts and related options on those contracts only as a hedge
against anticipated interest rate changes, and the Fund does not
intend to use hedging instruments for speculative purposes. The
hedging instruments the Fund may use are described below and in
greater detail in "Other Investment Techniques and Strategies" in
the Statement of Additional Information.
The Fund may buy and sell options, futures and forward
contracts for a number of purposes. It may do so to establish a
position in the securities market as a temporary substitute for
purchasing individual securities. The Fund may sell a futures
contract or a call option on a futures contract or purchase a put
option on such futures contract if the Manager anticipates that
interest rates will rise, as a hedge against a decrease in the
value of the Fund's portfolio securities. If the Manager
anticipates that interest rates will decline, the Fund may purchase
a futures contract or a call option on a futures contract, or sell
a put option on a futures contract, to protect against an increase
in the price of securities the Fund intends to buy.
Other hedging strategies, such as buying futures and call
options, tend to increase the Fund's exposure to the securities
market. Writing covered call options may also provide income to
the Fund for liquidity purposes or to raise cash to distribute to
shareholders.
Futures. The Fund may buy and sell financial futures
contracts that relate to (1) interest rates (these are referred to
as Interest Rate Futures); and (2) municipal bond indices (these
are referred to as Municipal Bond Index Futures). These types of
Futures are described in "Hedging With Options and Futures
Contracts" in the Statement of Additional Information. The Fund
may concurrently buy and sell Futures contracts in an attempt to
benefit from any outperformance of the Future purchased relative to
the performance of the Future sold. The Fund may not enter into
futures contracts or purchase related options on futures contracts,
for other than bona fide hedging purposes, if immediately after
doing so the amount the Fund committed to initial margin plus the
amount paid for unexpired options on futures contracts exceeds 5%
of the Fund's total assets.
Put and Call Options. The Fund may buy and sell certain
kinds of put options (puts) and call options (calls).
The Fund may buy calls only on debt securities, municipal bond
indices, Municipal Bond Index Futures and Interest Rate Futures, or
to terminate its obligation on a call the Fund previously wrote.
The Fund may write (that is, sell) covered call options. When the
Fund writes a call, it receives cash (called a premium). The call
gives the buyer the ability to buy the investment on which the call
was written from the Fund at the call price during the period in
which the call may be exercised. If the value of the investment
does not rise above the call price, it is likely that the call will
lapse without being exercised, while the Fund keeps the cash
premium (and the investment).
The Fund may purchase put options. Buying a put on an
investment gives the Fund the right to sell the investment at a set
price to a seller of a put on that investment. The Fund can buy
only those puts that relate to (1) debt securities that the Fund
owns, (2) Interest Rate Futures held by it, and (3) Municipal Bond
Index Futures held by it. The Fund may not sell a put other than
a put that it previously purchased.
The Fund may buy and sell puts and calls only if certain
conditions are met: (1) after the Fund writes a call, not more than
20% of the Fund's total assets may be subject to calls; (2) calls
the Fund buys or sells must be listed on a securities or
commodities exchange, or quoted on the Automated Quotation System
("NASDAQ") of The Nasdaq Stock Market, Inc. or in the case of calls
on debt securities, traded in the over-the-counter market; (3) each
call the Fund writes must be "covered" while it is outstanding:
that means the Fund must own the investment on which the call was
written; (4) the Fund may write calls on Futures contracts it owns,
but these calls must be covered by securities or other liquid
assets the Fund owns and segregates to enable it to satisfy its
obligations if the call is exercised; and (5) a call or put option
may not be purchased if the value of all of the Fund's put and call
options would exceed 5% of the Fund's total assets.
Interest Rate Swaps. In an interest rate swap, the Fund and
another party exchange their right to receive or their obligation
to pay interest on a security. For example, they may swap a right
to receive floating rate payments for fixed rate payments. The
Fund enters into swaps only on securities it owns. The Fund may
not enter into swaps with respect to more than 25% of its total
assets. Also, the Fund will segregate liquid assets (such as cash
or U.S. Government securities) to cover any amounts it could owe
under swaps that exceed the amounts it is entitled to receive, and
it will adjust that amount daily, as needed. The credit risk of an
interest rate swap depends on the counterparty's ability to
perform.
Other Investment Restrictions. The Fund has other investment
restrictions which are fundamental policies. Under these
fundamental policies, the Fund cannot do any of the following:
borrow money, except from banks for temporary purposes in
amounts not in excess of 5% of the value of the Fund's assets; no
assets of the Fund may be pledged, mortgaged or hypothecated other
than to secure a borrowing, and then in amounts not exceeding 10%
of the Fund's total assets; borrowings may not be made for
leverage, but only for liquidity purposes to satisfy redemption
requests when liquidation of portfolio securities is considered
inconvenient or disadvantageous; however, the Fund may enter into
when-issued and delayed delivery transactions as described herein;
make loans, except that the Fund may purchase or hold debt
obligations, repurchase agreements and other instruments and
securities it is permitted to own and may lend its portfolio
securities and other investments it owns;
buy securities issued or guaranteed by any one issuer
(except the U.S. Government or any of its agencies or
instrumentalities), if with respect to 75% of its total assets,
more than 5% of the Fund's total assets would be invested in
securities of that issuer or the Fund would own more than 10% of
that issuer's voting securities; or
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, it will not
invest more than 25% of its total assets in industrial revenue
bonds in a single industry).
Unless the prospectus states that a percentage restriction
applies on an ongoing basis, it applies only at the time the Fund
makes an investment, and the Fund need not sell securities to meet
the percentage limits if the value of the investment increases in
proportion to the size of the Fund. Other investment restrictions
are listed in "Investment Restrictions" in the Statement of
Additional Information.
How the Fund is Managed
Organization and History. The Fund is one of two diversified
investment portfolios or "series" of Oppenheimer Municipal Fund
(the "Trust"), an open-end, management investment company organized
as a Massachusetts business trust in 1986.
The Trust is governed by a Board of Trustees, which is
responsible under Massachusetts law for protecting the interests of
shareholders. The Trustees meet periodically throughout the year
to oversee the Fund's activities, review its performance, and
review the actions of the Manager. "Trustees and Officers of the
Trust" in the Statement of Additional Information names the
Trustees and provides more information about them and the officers
of the Trust. Although the Fund will not normally hold annual
meetings of Fund shareholders, it may hold shareholder meetings
from time to time on important matters, and shareholders have the
right to call a meeting to remove a Trustee or to take other action
described in the Declaration of Trust.
The Board of Trustees has the power, without shareholder
approval, to divide unissued shares of the Fund into two or more
classes. The Board has done so, and the Fund currently has three
classes of shares, Class A Class B and Class C. All three classes
invest in the same investment portfolio. Each class has its own
dividends and distributions and pays certain expenses which may be
different for the different classes. Each class may have a
different net asset value. Shares are freely transferrable. Each
share has one vote at shareholder meetings, with fractional shares
voting proportionally. Only shares of a particular class vote as
a class on matters that affect that class alone. Please refer to
"How the Fund is Managed" in the Statement of Additional
Information on voting of shares.
The Manager and Its Affiliates. The Fund is managed by the Manager,
OppenheimerFunds, Inc., which is responsible for selecting the
Fund's investments and handles its day-to-day business. The
Manager carries out its duties, subject to the policies established
by the Board of Trustees, under an Investment Advisory Agreement
which states the Manager's responsibilities. The Agreement sets
forth the fees paid by the Fund to the Manager, and describes the
expenses that the Fund is responsible to pay to conduct its
business.
The Manager has operated as an investment adviser since 1959.
The Manager (including a subsidiary) currently manages investment
companies, including other Oppenheimer funds, with assets of more
than $62 billion as of December 31, 1996, with more than 3 million
shareholder accounts. The Manager is owned by Oppenheimer
Acquisition Corp., a holding company that is owned in part by
senior officers of the Manager and controlled by Massachusetts
Mutual Life Insurance Company.
Portfolio Manager. The Portfolio Manager of the Fund is
Caryn Halbrecht, a Vice President of the Manager. She has been the
person principally responsible for the day-to-day management of the
Fund's portfolio since October, 1993. Ms. Halbrecht was previously
a Vice President of Fixed Income Portfolio Management at Bankers
Trust.
Fees and Expenses. Under the Investment Advisory Agreement,
the Fund pays the Manager the following annual fees, which decline
on additional assets as the Fund grows: 0.500% of the first $100
million of average annual net assets, 0.450% of the next $150
million, 0.425% of the next $250 million, and 0.400% of average
annual net assets over $500 million. The Fund's management fee for
its last fiscal year was 0.50% of average annual net assets for its
Class A, Class B and Class C shares.
The Fund pays expenses related to its daily operations, such
as custodian fees, Trustees' fees, transfer agency fees, legal fees
and auditing costs. Those expenses are paid out of the Fund's
assets and are not paid directly by shareholders. However, those
expenses reduce the net asset value of shares, and therefore are
indirectly borne by shareholders through their investment. More
information about the Investment Advisory Agreement and the other
expenses paid by the Fund is contained in the Statement of
Additional Information.
There is also information about the Fund's brokerage policies
and practices in "Brokerage Policies of the Fund" in the Statement
of Additional Information. That section discusses how brokers and
dealers are selected for the Fund's portfolio transactions.
Because the Fund purchases most of its portfolio securities
directly from the sellers and not through brokers, it therefore
incurs relatively little expense for brokerage. From time to time,
however, it may use brokers when buying portfolio securities. When
deciding which brokers to use, the Manager is permitted by the
Investment Advisory Agreement to consider whether brokers have sold
shares of the Fund or any other funds for which the Manager serves
as investment adviser.
The Distributor. The Fund's shares are sold through dealers
and brokers that have a sales agreement with OppenheimerFunds
Distributor, Inc., a subsidiary of the Manager that acts as the
Fund's Distributor. The Distributor also distributes the shares of
other "Oppenheimer funds" and is sub-distributor for funds managed
by a subsidiary of the Manager.
The Transfer Agent. The Fund's transfer agent is
OppenheimerFunds Services, a division of the Manager, which acts as
the shareholder servicing agent for the Fund on an "at-cost" basis.
It also acts as the shareholder servicing agent for other
Oppenheimer funds. Shareholders should direct inquiries about
their accounts to the Transfer Agent at the address and toll-free
number shown below under "How to Sell Shares" in this Prospectus
and on the back cover.
Performance of the Fund
Explanation of Performance Terminology. The Fund uses the terms
"total return," "average annual total return," "standardized
yield," "dividend yield" and "tax-equivalent yield" to illustrate
its performance. The performance of each class of shares is shown
separately, because the performance of each class of shares will
usually be different, as a result of the different kinds of
expenses each class bears. These returns and yields measure the
performance of a hypothetical account in the Fund over various
periods, and do not show the performance of each shareholder's
account (which will vary if dividends are received in cash, or
shares are sold or purchased). The Fund's performance may help you
see how well your Fund has done over time and to compare it to
other funds or to a market index.
It is important to understand that the Fund's total returns
and yields represent past performance and should not be considered
to be predictions of future returns or performance. This
performance data is described below, but more detailed information
about how total returns and yields are calculated is contained in
the Statement of Additional Information, which also contains
information about indices and other ways to measure and compare the
Fund's performance. The Fund's investment performance will vary
over time, depending on market conditions, the composition of the
portfolio, expenses and which class of shares you purchase.
Total Returns. There are different types of "total returns"
used to measure the Fund's performance. Total return is the change
in value of a hypothetical investment in the Fund over a given
period, assuming that all dividends and capital gains distributions
are reinvested in additional shares. The cumulative total return
measures the change in value over the entire period (for example,
ten years). An average annual total return shows the average rate
of return for each year in a period that would produce the
cumulative total return over the entire period. However, average
annual total returns do not show the Fund's actual year-by-year
performance.
When total returns are quoted for Class A shares, normally the
current maximum initial sales charge has been deducted. When total
returns are shown for Class B or Class C shares, normally the
contingent deferred sales charge that applies to the period for
which total return is shown has been deducted. However, total
returns may also be quoted at "net asset value" without considering
the effect of the sales charge, and those returns would be less if
sales charges were deducted.
Yield. Each Class of shares calculates its yield by
dividing the annualized net investment income per share from the
portfolio during a 30-day period by the maximum offering price on
the last day of the period. Tax-equivalent yield is the equivalent
yield that would be earned in the absence of income taxes. It is
calculated by dividing that portion of the yield that is tax-exempt
by a factor equal to one minus the applicable tax rate. The yield
of each class will differ because of the different expenses of each
class of shares. The yield data represents a hypothetical
investment return on the portfolio, and does not measure an
investment return based on dividends actually paid to shareholders.
To show that return, a dividend yield may be calculated. Dividend
yield is calculated by dividing the dividends of a class derived
from net investment income during a stated period by the maximum
offering price on the last day of the period. Yields and dividend
yields for Class A shares reflect the deduction of the maximum
initial sales charge, but may also be shown based on the Fund's net
asset value per share. Yields for Class B and Class C shares do
not reflect the deduction of the contingent deferred sales charge.
How Has the Fund Performed? Below is a discussion by the Manager
of the Fund's performance during its last fiscal year ended
September 30, 1996, followed by a graphical comparison of the
Fund's performance to an appropriate broad-based market index.
Management's Discussion of Performance. During the past
fiscal year ended September 30, 1996, the Fund's performance was
affected by shortening bond maturity to reduce the Fund's exposure
to interest rate shifts. Further protection against interest rate
risk was achieved through an overweighting in high coupon bonds
which are less sensitive to interest rate fluctuations. During the
period the Fund invested in a resource recovery plant that
underperformed due to a short-term legal issue. The Fund's
portfolio and its portfolio manager's strategies are subject to
change.
Comparing the Fund's Performance to the Market. The graphs
below shows the performance of a hypothetical $10,000 investment in
each class of shares of the Fund held until September 30, 1996. In
the case of Class A shares, performance is measured from the Fund's
inception on November 11, 1986, in the case of Class B shares from
the inception of the class on September 11, 1995, and in the case
of Class C shares, from the inception of the class on December 1,
1993.
The Fund's performance is compared to that of the Lehman
Brothers Municipal Bond Index, an unmanaged index of a broad range
of investment grade municipal bonds that is widely regarded as a
measure of the performance of the general municipal bond market.
Index performance reflects the reinvestment of income but does not
consider the effect of capital gains or transaction costs, and none
of the data below shows the effect of taxes. Also, the Fund's
performance data reflects the effect of Fund business and operating
expenses. While index comparisons may be useful to provide a
benchmark for the Fund's performance, it must be noted that the
Fund's investments are not limited to the securities in any one
index. Moreover, the index performance data does not reflect any
assessment of the risk of the investments included in the index.
Class A Shares
Comparison of Change in Value of $10,000 Hypothetical Investments
in:
Oppenheimer Intermediate Municipal Fund (Class A) and Lehman Bros.
Muni Bond Index
[graph]
Average Annual Total Returns of Class A Shares of the Fund at
9/30/961
1 Year 5 Years Life
- -------------------------------------------------------------------
1.72% 5.88% 6.88%
Class B Shares
Comparison of Change in Value of $10,000 Hypothetical Investments
in:
Oppenheimer Intermediate Municipal Fund (Class A) and Lehman Bros.
Muni Bond Index
[graph]
Average Annual Total Returns of Class B Shares of the Fund at
9/30/962
Life
- -------------------------------------------------------------------
0.56% 1.61%
Class C Shares
Comparison of Change in Value of $10,000 Hypothetical Investments
in:
Oppenheimer Intermediate Municipal Fund (Class C) and Lehman Bros.
Muni Bond Index
[graph]
Cumulative Total Returns of Class C Shares of the Fund at 9/30/963
1 Year Life
- ------------------------------------------------------------------
3.63% 3.52%
Total returns and the ending account values in the graph show
change in share value and include reinvestment of all dividends and
capital gains distributions.
1The inception date of the Fund (Class A shares) was 11/11/86.
Class A returns are shown net of the applicable 3.50% maximum
initial sales charge.
2Class B shares of the Fund were first publicly offered 9/11/95.
The average annual total returns reflect reinvestment of all
dividends and capital gains distributions are shown net of the
applicable 4% and 3% contingent deferred sales charges,
respectively, for the one year period and life-of-the-class. The
ending account value in the graph is net of the applicable 3% sales
charge.
3Class C shares of the Fund were first publicly offered on 12/1/93.
The life-of-the-class is shown net of the applicable 1.0%
contingent deferred sales charge.
Past performance is not predictive of future performance.
Graphs are not drawn to same scale.
A B O U T Y O U R A C C O U N T
How to Buy Shares
Classes of Shares. The Fund offers investors three different
classes of shares. The different classes of shares represent
investments in the same portfolio of securities but are subject to
different expenses and will likely have different share prices.
Class A Shares. If you buy Class A shares, you pay an
initial sales charge (on investments up to $1 million). If you
purchase Class A shares as part of an investment of at least $1
million in shares of one or more Oppenheimer funds, you will not
pay an initial sales charge, but if you sell any of those shares
within 18 months of buying them, you may pay a contingent deferred
sales charge. The amount of that sales charge will vary depending
on the amount you invested. Sales charge rates are described in
"Buying Class A Shares," below.
Class B Shares. If you buy Class B shares, you pay no sales
charge at the time of purchase, but if you sell your shares within
six years of buying them, you will normally pay a contingent
deferred sales charge. That sales charge varies depending on how
long you own your shares, as described in "Buying Class B Shares"
below.
Class C Shares. If you buy Class C shares, you pay no sales
charge at the time of purchase, but if you sell your shares within
12 months of buying them, you will normally pay a contingent
deferred sales charge of 1.0%, as described in "Buying Class C
Shares" below.
Which Class of Shares Should You Choose? Once you decide that the
Fund is an appropriate investment for you, the decisions as to
which class of shares is best suited to your needs depends on a
number of factors which you should discuss with your financial
advisor. The Fund's operating costs that apply to a class of
shares and the effect of the different types of sales charges on
your investment will vary your investment results over time. The
most important factors to consider are how much you plan to invest
and how long you plan to hold your investment. If your goals and
objectives change over time and you plan to purchase additional
shares, you should re-evaluate those factors to see if you should
consider another class of shares.
In the following discussion, to help provide you and your
financial advisor with a framework in which to choose a class, we
have made some assumptions using a hypothetical investment in the
Fund. We used the sales charge rates that apply to each class and
considered the effect of the annual asset-based sales charge on
Class B and Class C expenses (which, like all expenses, will affect
your investment return). For the sake of comparison, we have
assumed that there is a 10% rate of appreciation in the investment
each year. Of course, the actual performance of your investment
cannot be predicted and will vary, based on the Fund's actual
investment returns and the operating expenses borne by each class
of shares, and which class of shares you invest in.
The factors discussed below are not intended to be investment
advice or recommendations, because each investor's financial
considerations are different. The discussion below of the factors
to consider in purchasing a particular class of shares assumes that
you will purchase only one class of shares, and not a combination
of shares of different classes.
How Long Do You Expect to Hold Your Investment? While
future financial needs cannot be predicted with certainty, knowing
how long you expect to hold your investment will assist you in
selecting the appropriate class of shares. Because of the effect
of class-based expenses, your choice will also depend on how much
you plan to invest. For example, the reduced sales charges
available for larger purchases of Class A shares may, over time,
offset the effect of paying an initial sales charge on your
investment (which reduces the amount of your investment dollars
used to buy shares for your account), compared to the effect over
time of higher class-based expenses of Class B or Class C shares
for which no initial sales charge is paid.
Investing for the Short Term. If you have a short-term
investment horizon (that is, you plan to hold your shares for not
more than six years), you should probably consider purchasing Class
A or Class C shares rather than Class B shares, because of the
effect of the Class B contingent deferred sales charge if you
redeem in less than seven years, as well as the effect of the Class
B asset-based sales charge on the investment return for that class
in the short-term. Class C shares might be the appropriate choice
(especially for investments of less than $100,000) because there is
no initial sales charge on Class C shares, and the contingent
deferred sales charge does not apply to amounts you sell after
holding them one year.
However, if you plan to invest more than $100,000 for the
shorter term, then the more you invest and the more your investment
horizon increases toward six years, Class C shares might not be as
advantageous as Class A shares. That is because the annual asset-
based sales charge on Class C shares will have a greater impact on
your account over the longer term than the reduced front-end sales
charge available for larger purchases of Class A shares. For
example, Class A shares might be more advantageous than Class C
shares (as well as Class B shares) for investments of more than
$100,000 expected to be held for 5 or 6 years (or more). For
investments over $250,000 expected to be held 4 to 6 years (or
more), Class A shares may become more advantageous than Class C
shares (and Class B shares). If investing $500,000 or more, Class
A shares may be more advantageous as your investment horizon
approaches 3 years or more.
And for investors who invest $1 million or more, in most cases
Class A shares will be the most advantageous choice, no matter how
long you intend to hold your shares. For that reason, the
Distributor normally will not accept purchase orders of $500,000 or
more of Class B shares or $1 million or more of Class C shares from
a single investor.
Investing for the Longer Term. If you are investing for the
longer term, for example, for retirement, and do not expect to need
access to your money for seven years or more, Class B shares may be
an appropriate consideration, if you plan to invest less than
$100,000. If you plan to invest more than $100,000 over the long
term, Class A shares will likely be more advantageous than Class B
shares or Class C shares, as discussed above, because of the effect
of the expected lower expenses for Class A shares and the reduced
initial sales charges available for larger investments in Class A
shares under the Fund's Right of Accumulation.
Of course, these examples are based on approximations of the
effect of current sales charges and expenses on a hypothetical
investment over time, using the assumed annual performance return
stated above, and therefore you should analyze your options
carefully.
Are There Differences in Account Features That Matter to
You? Because some account features such as checkwriting may not be
available to Class B or Class C shareholders, or other features
(such as Automatic Withdrawal Plans) may not be advisable (because
of the effect of the contingent deferred sales charge) for Class B
or Class C shareholders, you should carefully review how you plan
to use your investment account before deciding which class of
shares to buy. Additionally, dividends payable to Class B and
Class C shareholders will be reduced by the additional expenses
borne by those classes that are not borne by Class A shares, such
as the Class B and Class C asset-based sales charges described
below and in the Statement of Additional Information. Share
certificates are not available for Class B and Class C shares and
if you are considering using your shares as collateral for a loan,
that may be a factor to consider.
How Does It Affect Payments to My Broker? A salesperson,
such as a broker, or any other person who is entitled to receive
compensation for selling Fund shares may receive different
compensation for selling one class of shares than for selling
another class. It is important that investors understand that the
purpose of the Class B and Class C contingent deferred sales charge
and asset-based sales charges is the same as the purpose of the
front-end sales charge on sales of Class A shares: that is, to
compensate the Distributor for commissions it pays to dealers and
financial institutions for selling shares.
How Much Must You Invest? You can open a Fund account with a
minimum initial investment of $1,000 and make additional
investments at any time with as little as $25. There are reduced
minimum investments under special investment plans.
With Asset Builder Plans, Automatic Exchange Plans and
military allotment plans, you can make initial and subsequent
investments for as little as $25; and subsequent purchases of at
least $25 can be made by telephone through AccountLink.
There is no minimum investment requirement if you are buying
shares by reinvesting dividends from the Fund or other Oppenheimer
funds (a list of them appears in the Statement of Additional
Information, or you can ask your dealer or call the Transfer
Agent), or by reinvesting distributions from unit investment trusts
that have made arrangements with the Distributor.
How Are Shares Purchased? You can buy shares several ways --
through any dealer, broker or financial institution that has a
sales agreement with the Distributor, directly through the
Distributor, or automatically from your bank account through an
Asset Builder Plan under the OppenheimerFunds AccountLink service.
The Distributor may appoint certain servicing agents as the
Distributor's agent to accept purchase (and redemption) orders.
When you buy shares, be sure to specify Class A, Class B or Class
C shares. If you do not choose, your investment will be made in
Class A shares.
Buying Shares Through Your Dealer. Your dealer will place
your order with the Distributor on your behalf.
Buying Shares Through the Distributor. Complete an
OppenheimerFunds New Account Application and return it with a check
payable to "OppenheimerFunds Distributor, Inc." Mail it to P.O. Box
5270, Denver, Colorado 80217. If you don't list a dealer on the
application, the Distributor will act as your agent in buying the
shares. However, it is recommended that you discuss your
investment first with a financial advisor, to be sure that it is
appropriate for you.
Payment by Federal Funds Wire. Shares may be purchased by
Federal Funds wire. The minimum investment is $2,500. You must
first call the Distributor's Wire Department at 1-800-525-7041 to
notify the Distributor of the wire, and to receive further
instructions.
Buying Shares Through OppenheimerFunds AccountLink. You can
use AccountLink to link your Fund account with an account at a U.S.
bank or other financial institution that is an Automated Clearing
House (ACH) member. You can then transmit funds electronically to
purchase shares, to send redemption proceeds, and to have the
Transfer Agent transmit dividends and distributions. Shares are
purchased for your account on the regular business day the
Distributor is instructed by you to initiate the ACH transfer to
buy shares. You can provide those instructions automatically,
under an Asset Builder Plan, described below, or by telephone
instructions using OppenheimerFunds PhoneLink, also described
below. You should request AccountLink privileges on the
application or dealer settlement instructions used to establish
your account. Please refer to "AccountLink" below for more details.
Asset Builder Plans. You may purchase shares of the Fund
(and up to four other Oppenheimer funds) automatically each month
from your account at a bank or other financial institution under an
Asset Builder Plan with AccountLink. Details are in the Statement
of Additional Information.
At What Price Are Shares Sold? Shares are sold at the public
offering price based on the net asset value (and any initial sales
charge that applies) that is next determined after the Distributor
receives the purchase order in Denver, Colorado. In most cases, to
enable you to receive that day's offering price, the Distributor or
its designated agent must receive your order by the time of day The
New York Stock Exchange closes, which is normally 4:00 P.M., New
York time, but may be earlier on some days (all references to time
in this Prospectus mean "New York time"). The net asset value of
each class of shares is determined as of that time on each day The
New York Stock Exchange is open (which is a "regular business
day").
If you buy shares through a dealer, the dealer must receive
your order by the close of The New York Stock Exchange on a regular
business day and transmit it to the Distributor so that it is
received before the Distributor's close of business that day, which
is normally 5:00 P.M. The Distributor may reject any purchase order
for the Fund's shares, in its sole discretion.
Special Sales Charge Arrangements for Certain Persons. Appendix A
in this prospectus sets forth conditions for the waiver of, or
exemption from, sales charges or the special sales charge rates
that apply to purchases of shares of the Fund (including purchases
by exchange) by a person who was a shareholder of one of the former
Quest for Value Funds (as defined in that Appendix).
Buying Class A Shares. Class A shares are sold at their offering
price, which is normally net asset value plus an initial sales
charge. However, in some cases, described below, purchases are not
subject to an initial sales charge, and the offering price will be
the net asset value. In some cases, reduced sales charges may be
available, as described below. Out of the amount you invest, the
Fund receives the net asset value to invest for your account. The
sales charge varies depending on the amount of your purchase. A
portion of the sales charge may be retained by the Distributor and
allocated to your dealer as commission. The current sales charge
rates and commissions paid to dealers and brokers are as follows:
Front-End Front-End
Sales Charge Sales Charge Commission
as a as a as
Percentage Percentage Percentage
of Offering of Amount of Offering
Amount of Purchase Price Invested Price
- -----------------------------------------------------------------------
Less than $100,000 3.50% 3.63% 3.00%
- -----------------------------------------------------------------------
$100,000 or more but less 3.00% 3.09% 2.50%
than $250,000
- -----------------------------------------------------------------------
$250,000 or more but less 2.50% 2.56% 2.00%
than $500,000
- -----------------------------------------------------------------------
$500,000 or more but less 2.00% 2.04% 1.50%
than $1 million
The Distributor reserves the right to reallow the entire commission
to dealers. If that occurs, the dealer may be considered an
"underwriter" under Federal securities laws.
Class A Contingent Deferred Sales Charge. There is no
initial sales charge on purchases of Class A shares of any one or
more of the Oppenheimer funds aggregating $1 million or more. The
Distributor pays dealers of record commissions on those non-
retirement plan purchases in an amount equal to the sum of 1.0%.
That commission will be paid only on the amount of those purchases
that were not previously subject to a front-end sales charge and
dealer commission.
If you redeem any of those shares within 18 months of the end
of the calendar month of their purchase, a contingent deferred
sales charge (called the "Class A contingent deferred sales
charge") may be deducted from the redemption proceeds. That sales
charge will be equal to 1.0% of the lesser of (1) the aggregate net
asset value of the redeemed shares (not including shares purchased
by reinvestment of dividends or capital gain distributions) or (2)
the original offering price (which is the original net asset value)
of the redeemed shares. However, the Class A contingent deferred
sales charge will not exceed the aggregate amount of the
commissions the Distributor paid to your dealer on all Class A
shares of all Oppenheimer funds you purchased subject to the Class
A contingent deferred sales charge. In determining whether a
contingent deferred sales charge is payable, the Fund will first
redeem shares that are not subject to the sales charge, including
shares purchased by reinvestment of dividends and capital gains,
and then will redeem other shares in the order that you purchased
them. The Class A contingent deferred sales charge is waived in
certain cases described in "Waivers of Class A Sales Charges"
below.
No Class A contingent deferred sales charge is charged on
exchanges of shares under the Fund's Exchange Privilege (described
below). However, if the shares acquired by exchange are redeemed
within 18 months of the end of the calendar month of the purchase
of the exchanged shares, the sales charge will apply.
Special Arrangements With Dealers. The Distributor may
advance up to 13 months' commissions to dealers that have
established special arrangements with the Distributor for Asset
Builder Plans for their clients.
Reduced Sales Charges for Class A Share Purchases. You may be
eligible to buy Class A shares at reduced sales charge rates in one
or more of the following ways:
Right of Accumulation. To qualify for the lower sales charge
rates that apply to larger purchases of Class A shares, you and
your spouse can add together Class A and Class B shares you
purchase for your individual accounts, or jointly, or for trust or
custodial accounts on behalf of your children who are minors. A
fiduciary can count all shares purchased for a trust, estate or
other fiduciary account (including one or more employee benefit
plans of the same employer) that has multiple accounts.
Additionally, you can add together current purchases of Class
A and Class B shares of the Fund and other Oppenheimer funds to
reduce the sales charge rate that applies to current purchases of
Class A shares. You can also include Class A and Class B shares of
other Oppenheimer funds you previously purchased subject to an
initial or contingent deferred sales charge to reduce the sales
charge rate for current purchases of Class A shares, provided that
you still hold your investment in one of the Oppenheimer funds.
The value of those shares will be based on the greater of the
amount you paid for the shares or their current value (at offering
price). The Oppenheimer funds are listed in "Reduced Sales
Charges" in the Statement of Additional Information, or a list can
be obtained from the Distributor. The reduced sales charge will
apply only to current purchases and must be requested when you buy
your shares.
Letter of Intent. Under a Letter of Intent, if you purchase
Class A shares or Class A and Class B shares of the Fund and other
Oppenheimer funds during a 13-month period, you can reduce the
sales charge rate that applies to your purchases of Class A shares.
The total amount of your intended purchases of both Class A and
Class B shares will determine the reduced sales charge rate for the
Class A shares purchased during that period. This can include
purchases made up to 90 days before the date of the Letter. More
information is contained in the Application and in "Reduced Sales
Charges" in the Statement of Additional Information.
Waivers of Class A Sales Charges. The Class A sales charges
are not imposed in the circumstances described below. There is an
explanation of this policy in "Reduced Sales Charges" in the
Statement of Additional Information.
Waivers of Initial and Contingent Deferred Sales Charges for
Certain Purchasers. Class A shares purchased by the following
investors are not subject to any Class A sales charges:
the Manager or its affiliates;
present or former officers, directors, trustees and
employees (and their "immediate families" as defined in "Reduced
Sales Charges" in the Statement of Additional Information) of the
Fund, the Manager and its affiliates;
registered management investment companies, or separate
accounts of insurance companies having an agreement with the
Manager or the Distributor for that purpose;
dealers or brokers that have a sales agreement with the
Distributor, if they purchase shares for their own accounts;
employees and registered representatives (and their spouses)
of dealers or brokers described above or financial institutions
that have entered into sales arrangements with such dealers or
brokers (and are identified to the Distributor) or with the
Distributor; the purchaser must certify to the Distributor at the
time of purchase that the purchase is for the purchaser's own
account (or for the benefit of such employee's spouse or minor
children);
dealers, brokers, banks or registered investment 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 their clients (those clients
may be charged a transaction fee by their dealer, broker, bank or
advisor for the purchase or sale of Fund shares);
directors, trustees, officers or full-time employees of
OpCap Advisors or its affiliates, their relatives or any trust,
pension, profit sharing or other benefit plan which beneficially
owns shares for those persons;
accounts for which Oppenheimer Capital is the investment
adviser (the Distributor must be advised of this arrangement) and
persons who are directors or trustees of the company or trust which
is the beneficial owner of such accounts; or
any unit investment trust that has entered into an
appropriate agreement with the Distributor.
Waivers of Initial and Contingent Deferred Sales Charges in
Certain Transactions. Class A shares issued or purchased in the
following transactions are not subject to Class A sales charges:
shares issued in plans of reorganization, such as mergers,
asset acquisitions and exchange offers, to which the Fund is a
party;
shares purchased by the reinvestment of dividends or other
distributions reinvested from the Fund or other Oppenheimer funds
(other than Oppenheimer Cash Reserves) or unit investment trusts
for which reinvestment arrangements have been made with the
Distributor;
shares purchased and paid for with the proceeds of shares
redeemed in the past 12 months from a mutual fund (other than a
fund managed by the Manager or any of its subsidiaries) on which an
initial sales charge or contingent deferred sales charge was paid
(this waiver also applies to shares purchased by exchange of shares
of Oppenheimer Money Market Fund, Inc. that were purchased and paid
for in this manner); this waiver must be requested when the
purchase order is placed for your shares of the Fund, and the
Distributor may require evidence of your qualification for this
waiver; or
shares purchased with the proceeds of maturing principal of
units of any Qualified Unit Investment Liquid Trust Series.
Waivers of the Class A Contingent Deferred Sales Charge for
Certain Redemptions. The Class A contingent deferred sales charge
is also waived if shares that would otherwise be subject to the
contingent deferred sales charge are redeemed in the following
cases:
to make Automatic Withdrawal Plan payments that are limited
annually to no more than 12% of the original account value;
involuntary redemptions of shares by operation of law or
involuntary redemptions of small accounts (see "Shareholders
Account Rules and Policies," below); or
If, at the time a purchase order is placed for Class A
shares that would otherwise be subject to the Class A contingent
deferred sales charge, the dealer agrees in writing to accept the
dealer's portion of the commission payable on the sale in
installments of 1/18th of the commission per month (and no further
commission will be payable if the shares are redeemed within 18
months of purchase).
Service Plan for Class A Shares. The Fund has adopted a
Service Plan for Class A shares to reimburse the Distributor for a
portion of its costs incurred in connection with the personal
service and maintenance of accounts that hold Class A shares.
Reimbursement is made quarterly at an annual rate that may not
exceed 0.25% of the average annual net assets of Class A shares of
the Fund. The Distributor uses all of those fees to compensate
dealers, brokers, banks and other financial institutions quarterly
for providing personal service and maintenance of accounts of their
customers that hold Class A shares and to reimburse itself (if the
Fund's Board of Trustees authorizes such reimbursements, which it
has not yet done) for its other expenditures under the Plan.
Services to be provided include, among others, answering
customer inquiries about the Fund, assisting in establishing and
maintaining accounts in the Fund, making the Fund's investment
plans available and providing other services at the request of the
Fund or the Distributor. Payments are made by the Distributor
quarterly at an annual rate not to exceed 0.25% of the average
annual net assets of Class A shares held in accounts of the service
providers or their customers. The payments under the Plan increase
the annual expenses of Class A shares. For more details, please
refer to "Distribution and Service Plans" in the Statement of
Additional Information.
Buying Class B Shares. Class B shares are sold at net asset value
per share without an initial sales charge. However, if Class B
shares are redeemed within six years of their purchase, a
contingent deferred sales charge will be deducted from the
redemption proceeds. That sales charge will not apply to shares
purchased by the reinvestment of dividends or capital gains
distributions. The contingent deferred sales charge will be based
on the lesser of the net asset value of the shares at the time of
redemption or the original offering price (which is the original
net asset value). The contingent deferred sales charge is not
imposed on the amount of your account value represented by the
increase in net asset value over the initial purchase price. The
Class B contingent deferred sales charge is paid to compensate the
Distributor for its expenses of providing distribution-related
services to the Fund in connection with the sale of Class B shares.
To determine whether the contingent deferred sales charge
applies to a redemption, the Fund redeems shares in the following
order: (1) shares acquired by reinvestment of dividends and capital
gains distributions, (2) shares held for over six years, and (3)
shares held the longest during the six-year period. The contingent
deferred sales charge is not imposed in the circumstances described
in "Waivers of Class B and Class C Sales Charges," below.
The amount of the contingent deferred sales charge will depend
on the number of years since you invested and the dollar amount
being redeemed, according to the following schedule:
Contingent Deferred
Sales Charge
Years Since Beginning of Month in On Redemptions in That Year
which Purchase Order Was Accepted (As % of Amount Subject to Charge)
- -----------------------------------------------------------------------
0-1
4.0%
- -----------------------------------------------------------------------
1-2
3.0%
- -----------------------------------------------------------------------
2-3
2.0%
- -----------------------------------------------------------------------
3-4 2.0%
- -----------------------------------------------------------------------
4-5
1.0%
- -----------------------------------------------------------------------
5 and following
None
In the table, a "year" is a 12-month period. All purchases are
considered to have been made on the first regular business day of
the month in which the purchase was made.
Automatic Conversion of Class B Shares. 72 months after you
purchase Class B shares, those shares will automatically convert to
Class A shares. This conversion feature relieves Class B
shareholders of the asset-based sales charge that applies to Class
B shares under the Class B Distribution and Service Plan, described
below. The conversion is based on the relative net asset value of
the two classes, and no sales load or other charge is imposed. When
Class B shares convert, any other Class B shares that were acquired
by the reinvestment of dividends and distributions on the converted
shares will also convert to Class A shares. The conversion feature
is subject to the continued availability of a tax ruling described
in "Alternative Sales Arrangements - Class A, Class B and Class C
Shares" in the Statement of Additional Information.
Distribution and Service Plan for Class B Shares. The Fund
has adopted a Distribution and Service Plan for Class B shares to
compensate the Distributor for distributing Class B shares and
servicing accounts. This Plan is described below under "Buying
Class C Shares - Distribution and Service Plans for Class B and
Class C Shares."
Waivers of Class B Sales Charges. The Class B contingent
deferred sales charge will not apply to shares purchased in certain
types of transactions, nor will it apply to shares redeemed in
certain circumstances, as described below under "Buying Class C
Shares - Waivers of Class B and Class C Sales Charges."
Distribution and Service Plans for Class B and Class C Shares.
The Fund has adopted Distribution and Service Plans for Class B and
Class C shares to compensate the Distributor for distributing Class
B and Class C shares and servicing accounts. Under the Plans, the
Fund pays the Distributor an annual "asset-based sales charge" of
0.75% per year on Class B shares and on Class C shares. The
Distributor also receives a service fee of 0.25% per year under
each plan.
Under each Plan, both fees are computed on the average of the
net asset value of shares in the respective class, determined as of
the close of each regular business day during the period. The
asset-based sales charge and service fees increase Class B and
Class C expenses by up to 1.00% of the net assets per year of the
respective class.
The Distributor uses the service fees to compensate dealers
for providing personal services for accounts that hold Class B or
Class C shares. Those services are similar to those provided under
the Class A Service Plan, described above. The Distributor pays
the 0.25% service fees to dealers in advance for the first year
after Class B or Class C shares have been sold by the dealer and
retains the service fee paid by the Fund in that year. After the
shares have been held for a year, the Distributor pays the service
fees to dealers on a quarterly basis.
The asset-based sales charge allows investors to buy Class B
or Class C shares without a front-end sales charge while allowing
the Distributor to compensate dealers that sell those shares. The
Fund pays the asset-based sales charges to the Distributor for its
services rendered in distributing Class B and Class C shares.
Those payments are at a fixed rate that is not related to the
Distributor's expenses. The services rendered by the Distributor
include paying and financing the payment of sales commissions,
service fees and other costs of distributing and selling Class B
and Class C shares.
The Distributor currently pays sales commissions of 2.75% of
the purchase price of Class B shares to dealers from its own
resources at the time of sale. Including the advance of the
service fee, the total amount paid by the Distributor to the dealer
at the time of sales of Class B shares is 3.00% of the purchase
price. The Distributor retains the Class B asset-based sales charge
The Distributor currently pays sales commissions of 0.75% of
the purchase price to dealers from its own resources at the time of
sale of Class C shares. Including the advance of the service fee,
the total amount paid by the Distributor to the dealer at the time
of sale of Class C shares is 1.00% of the purchase price. The
Distributor plans to pay the asset-based sales charge as an ongoing
commission to the dealer on Class C shares that have been
outstanding for a year or more.
The Distributor's actual expenses in selling Class B and Class
C shares may be more than the payments it receives from contingent
deferred sales charges collected on redeemed shares and from the
Fund under the Distribution and Service Plans for Class B and Class
C shares. If the Fund terminates either Plan, the Board of Trustees
may allow the Fund to continue payments of the asset-based sales
charge to the Distributor for distributing shares before the Plan
was terminated. At September 30, 1996, the end of the Class B Plan
years, the Distributor had incurred unreimbursed expenses under the
Class B Plan of $55,247, respectively (equal to 3.84%,
respectively, of the Fund's net assets represented by Class B
shares), which have been carried over into the present plan year.
At September 30, 1996, the end of the Class C Plan years, the
Distributor had incurred unreimbursed expenses under the Class C
Plan of $131,404, respectively (equal to 1.46%, respectively, of
the Fund's net assets represented by Class C shares), which have
been carried over into the present plan year.
Buying Class C Shares. Class C shares are sold at net asset value
per share without an initial sales charge. However, if Class C
shares are redeemed within 12 months of their purchase, a
contingent deferred sales charge of 1.0% will be deducted from the
redemption proceeds. That sales charge will not apply to shares
purchased by the reinvestment of dividends or capital gains
distributions. The charge will be assessed on the lesser of the net
asset value of the shares at the time of redemption or the original
purchase price. The contingent deferred sales charge is not imposed
on the amount of your account value represented by the increase in
net asset value over the initial purchase price. The Class C
contingent deferred sales charge is paid to compensate the
Distributor for its expenses of providing distribution-related
services to the Fund in connection with the sale of Class C shares.
To determine whether the contingent deferred sales charge
applies to a redemption, the Fund redeems shares in the following
order: (1) shares acquired by reinvestment of dividends and capital
gains distributions, (2) shares held for over 12 months, and (3)
shares held the longest during the 12-month period.
Waivers of Class B and Class C Sales Charges. The Class B
and Class C contingent deferred sales charges will not be applied
to shares purchased in certain types of transactions nor will it
apply to Class B and Class C shares redeemed in certain
circumstances as described below. The reasons for this policy are
in "Reduced Sales Charges" in the Statement of Additional
Information.
Waivers for Redemptions in Certain Cases. The Class B and
Class C contingent deferred sales charges will be waived for
redemption of shares in the following cases:
redemptions from accounts following the death or disability
of the last surviving shareholder, including a trustee of a
"signatory" trust or revocable living trust for which the trustee
is also the sole beneficiary (the death or disability must have
occurred after the account was established and you must provide
evidence of a determination of disability by the Social Security
Administration); or
shares redeemed involuntarily, as described in "Shareholder
Account Rules and Policies," below.
Waivers for Shares Sold or Issued in Certain Transactions.
The contingent deferred sales charge is also waived on Class B and
Class C shares sold or issued in the following cases:
shares sold to the Manager or its affiliates;
shares sold to registered management investment companies or
separate accounts of insurance companies having an agreement with
the Manager or the Distributor for that purpose; or
shares issued in plans of reorganization to which the Fund
is a party.
Special Investor Services
AccountLink. OppenheimerFunds AccountLink links your Fund account
to your account at your bank or other financial institution to
enable you to send money electronically between those accounts to
perform a number of types of account transactions. These include
purchases of shares by telephone (either through a service
representative or by PhoneLink, described below), automatic
investments under Asset Builder Plans, and sending dividends and
distributions or Automatic Withdrawal Plan payments directly to
your bank account. Please call the Transfer Agent for more
information.
AccountLink privileges should be requested on your dealer's
settlement instructions if you buy your shares through your dealer.
After your account is established, you can request AccountLink
privileges by sending signature-guaranteed instructions to the
Transfer Agent. AccountLink privileges will apply to each
shareholder listed in the registration on your account as well as
to your dealer representative of record unless and until the
Transfer Agent receives written instructions terminating or
changing those privileges. After you establish AccountLink for
your account, any change of bank account information must be made
by signature-guaranteed instructions to the Transfer Agent signed
by all shareholders who own the account.
Using AccountLink to Buy Shares. Purchases may be made by
telephone only after your account has been established. To purchase
shares in amounts up to $250,000 through a telephone
representative, call the Distributor at 1-800-852-8457. The
purchase payment will be debited from your bank account.
PhoneLink. PhoneLink is the OppenheimerFunds automated
telephone system that enables shareholders to perform a number of
account transactions automatically using a touch-tone phone.
PhoneLink may be used on already-established Fund accounts after
you obtain a Personal Identification Number (PIN), by calling the
special PhoneLink number: 1-800-533-3310.
Purchasing Shares. You may purchase shares in amounts up to
$100,000 by phone, by calling 1-800-533-3310. You must have
established AccountLink privileges to link your bank account with
the Fund, to pay for these purchases.
Exchanging Shares. With the OppenheimerFunds Exchange
Privilege, described below, you can exchange shares automatically
by phone from your Fund account to another Oppenheimer fund account
you have already established by calling the special PhoneLink
number. Please refer to "How to Exchange Shares," below, for
details.
Selling Shares. You can redeem shares by telephone
automatically by calling the PhoneLink number and the Fund will
send the proceeds directly to your AccountLink bank account.
Please refer to "How to Sell Shares," below, for details.
Automatic Withdrawal and Exchange Plans. The Fund has several
plans that enable you to sell shares automatically or exchange them
to another Oppenheimer fund account on a regular basis:
Automatic Withdrawal Plans. If your Fund account is worth
$5,000 or more, you can establish an Automatic Withdrawal Plan to
receive payments of at least $50 on a monthly, quarterly, semi-
annual or annual basis. The checks may be sent to you or sent
automatically to your bank account on AccountLink. You may even set
up certain types of withdrawals of up to $1,500 per month by
telephone. You should consult the Statement of Additional
Information for more details.
Automatic Exchange Plans. You can authorize the Transfer
Agent to automatically exchange an amount you establish in advance
for shares of up to five other Oppenheimer funds on a monthly,
quarterly, semi-annual or annual basis under an Automatic Exchange
Plan. The minimum purchase for each Oppenheimer fund account is
$25. These exchanges are subject to the terms of the Exchange
Privilege, described below.
Reinvestment Privilege. If you redeem some or all of your Class A
or Class B shares of the Fund, you have up to 6 months to reinvest
all or part of the redemption proceeds in Class A shares of the
Fund or other Oppenheimer funds without paying a sales charge. This
privilege applies to Class A shares that you purchased subject to
an initial sales charge and to Class A or Class B shares on which
you paid a contingent deferred sales charge when you redeemed them.
This privilege does not apply to Class C shares. You must be sure
to ask the Distributor for this privilege when you send your
payment. Please consult the Statement of Additional Information
for more details.
How to Sell Shares
You can arrange to take money out of your account by selling
(redeeming) some or all of your shares on any regular business day.
Your shares will be sold at the next net asset value calculated
after your order is received and accepted by the Transfer Agent.
The Fund offers you a number of ways to sell your shares: in
writing, by using the Fund's checkwriting privilege or by
telephone. You can also set up Automatic Withdrawal Plans to
redeem shares on a regular basis, as described above. If you have
questions about any of these procedures, and especially if you are
redeeming shares in a special situation, such as due to the death
of the owner, please call the Transfer Agent first, at 1-800-525-
7048, for assistance.
Certain Requests Require a Signature Guarantee. To protect
you and the Fund from fraud, certain redemption requests must be in
writing and must include a signature guarantee in the following
situations (there may be other situations also requiring a
signature guarantee):
You wish to redeem more than $50,000 worth of shares and
receive a check
The redemption check is not payable to all shareholders
listed on the account statement
The redemption check is not sent to the address of record on
your account statement
Shares are being transferred to a Fund account with a
different owner or name
Shares are redeemed by someone other than the owners (such
as an Executor)
Where Can I Have My Signature Guaranteed? The Transfer
Agent will accept a guarantee of your signature by a number of
financial institutions, including: a U.S. bank, trust company,
credit union or savings association, or by a foreign bank that has
a U.S. correspondent bank, or by a U.S. registered dealer or broker
in securities, municipal securities or government securities, or by
a U.S. national securities exchange, a registered securities
association or a clearing agency. If you are signing on behalf of
a corporation, partnership or other business or as a fiduciary, you
must also include your title in the signature.
Selling Shares by Mail. Write a "letter of instructions" that
includes:
Your name
The Fund's name
Your Fund account number (from your account statement)
The dollar amount or number of shares to be redeemed
Any special payment instructions
Any share certificates for the shares you are selling, and
The signatures of all registered owners exactly as the
account is registered, and
Any special requirements or documents requested by the
Transfer Agent to assure proper authorization of the person asking
to sell shares.
Use the following address for requests by mail:
OppenheimerFunds Services
P.O. Box 5270,
Denver, Colorado 80217
Send courier or Express Mail requests to:
OppenheimerFunds Services
10200 E. Girard Avenue, Building D
Denver, Colorado 80231
Selling Shares by Telephone. You and your dealer representative
of record may also sell your shares by telephone. To receive the
redemption price on a regular business day, your request must be
received by the Transfer Agent or its agent by the close of The New
York Stock Exchange that day, which is normally 4:00 P.M., but
which may be earlier on some days. You may not redeem shares held
under a share certificate by telephone.
To redeem shares through a service representative, call 1-
800-852-8457.
To redeem shares automatically on PhoneLink, call 1-800-533-
3310.
Whichever method you use, you may have a check sent to the
address on the account statement, or, if you have linked your Fund
account to your bank account on AccountLink, you may have the
proceeds sent to that account.
Telephone Redemptions Paid by Check. Up to $50,000 may be
redeemed by telephone, in any 7-day period. The check must be
payable to all owners of record of the shares and must be sent to
the address on the account. This service is not available within
30 days of changing the address on an account.
Telephone Redemptions Through AccountLink or by Wire. There
are no dollar limits on telephone redemption proceeds sent to a
bank account designated when you establish AccountLink. Normally
the ACH transfer to your bank is initiated on the business day
after the redemption. You do not receive dividends on the proceeds
of the shares you redeemed while they are waiting to be
transferred.
Shareholders may have the Transfer Agent send redemption
proceeds of $2,500 or more by Federal Funds wire to a designated
commercial bank account. The bank must be a member of the Federal
Reserve wire system. There is a $10 fee for each Federal Funds
wire. To place a wire redemption request, call the Transfer Agent
at 1-800-852-8457. The wire will normally be transmitted on the
next bank business day after the shares are redeemed. There is a
possibility that the wire may be delayed up to seven days to enable
the Fund to sell securities to pay the redemption proceeds. No
dividends are accrued or paid on the proceeds of shares that have
been redeemed and are awaiting transmittal by wire. To establish
wire redemption privileges on an account that is already
established, please contact the Transfer Agent for instructions.
Selling Shares Through Your Dealer. The Distributor has made
arrangements to repurchase Fund shares from dealers and brokers on
behalf of their customers. Brokers or dealers may charge for that
service. Please call your dealer for more information about this
procedure. Please refer to "Special Arrangements for Repurchase of
Shares from Dealers and Brokers" in the Statement of Additional
Information for more details.
Selling Shares by Wire. You may request that redemption proceeds
of $2,500 or more be wired to a previously designated account at a
commercial bank that is a member of the Federal Reserve wire
system. The wire will normally be transmitted on the next bank
business day after the redemption of shares. To place a wire
redemption request, call the Transfer Agent at 1-800-525-7048.
There is a $10 fee for each wire.
Checkwriting. To be able to write checks against your Fund
account, you may request that privilege on your account Application
or you can contact the Transfer Agent for signature cards, which
must be signed (with a signature guarantee) by all owners of the
account and returned to the Transfer Agent so that checks can be
sent to you to use. Shareholders with joint accounts can elect in
writing to have checks paid over the signature of one owner. If
you previously signed a signature card to establish checkwriting in
another Oppenheimer fund, simply call 1-800-525-7048 to request
checkwriting for an account in this Fund with the same registration
as the previous checkwriting account.
Checks can be written to the order of whomever you wish, but
may not be cashed at the Fund's bank or custodian.
Checkwriting privileges are not available for accounts
holding Class B shares or Class C shares, or Class A shares that
are subject to a contingent deferred sales charge.
Checks must be written for at least $100.
Checks cannot be paid if they are written for more than your
account value. Remember: your shares fluctuate in value and you
should not write a check close to the total account value.
You may not write a check that would require the Fund to
redeem shares that were purchased by check or Asset Builder Plan
payments within the prior 10 days.
Don't use your checks if you changed your Fund account
number.
The Fund will charge a $10 fee for any check that is not paid
because (1) the owners of the account told the Fund not to pay the
check, or (2) the check was for more than the account balance, or
(3) the check did not have the proper signatures or (4) the check
was written for less than $100.
How to Exchange Shares
Shares of the Fund may be exchanged for shares of certain
Oppenheimer funds at net asset value per share at the time of
exchange, without sales charge. To exchange shares, you must meet
several conditions:
Shares of the fund selected for exchange must be available
for sale in your state of residence
The prospectuses of this Fund and the fund whose shares you
want to buy must offer the exchange privilege
You must hold the shares you buy when you establish your
account for at least 7 days before you can exchange them; after the
account is open 7 days, you can exchange shares every regular
business day
You must meet the minimum purchase requirements for the fund
you purchase by exchange
Before exchanging into a fund, you should obtain and read
its prospectus
Shares of a particular class of the Fund may be exchanged only for
shares of the same class in the other Oppenheimer funds. For
example, you can exchange Class A shares of this Fund only for
Class A shares of another fund. At present, Oppenheimer Money
Market Fund, Inc. offers only one class of shares which are
considered to be "Class A shares" for this purpose. In some cases,
sales charges may be imposed on exchange transactions. Please
refer to "How to Exchange Shares" in the Statement of Additional
Information for more details.
Exchanges may be requested in writing or by telephone:
Written Exchange Requests. Submit an OppenheimerFunds
Exchange Request form, signed by all owners of the account. Send
it to the Transfer Agent at the addresses listed in "How to Sell
Shares."
Telephone Exchange Requests. Telephone exchange requests may
be made either by calling a service representative at 1-800-852-
8457 or by using PhoneLink for automated exchanges, by calling 1-
800-533-3310. Telephone exchanges may be made only between accounts
that are registered with the same name(s) and address. Shares held
under certificates may not be exchanged by telephone.
You can find a list of Oppenheimer funds currently available
for exchanges in the Statement of Additional Information or obtain
one by calling a service representative at 1-800-525-7048. That
list can change from time to time.
There are certain exchange policies you should be aware of:
Shares are normally redeemed from one fund and purchased
from the other fund in the exchange transaction on the same regular
business day on which the Transfer Agent receives an exchange
request that is in proper form by the close of The New York Stock
Exchange that day, which is normally 4:00 P.M., but may be earlier
on some days. However, either fund may delay the purchase of
shares of the fund you are exchanging into up to seven days if it
determines it would be disadvantaged by a same-day transfer of the
proceeds to buy shares. For example, the receipt of multiple
exchange requests from a dealer in a "market-timing" strategy might
require the sale of portfolio securities at a time or price
disadvantageous to the Fund.
Because excessive trading can hurt fund performance and harm
shareholders, the Fund reserves the right to refuse any exchange
request that will disadvantage it, or to refuse multiple exchange
requests submitted by a shareholder or dealer.
The Fund may amend, suspend or terminate the exchange
privilege at any time. Although the Fund will attempt to provide
you notice whenever it is reasonably able to do so, it may impose
these changes at any time.
For tax purposes, exchanges of shares involve a redemption
of the shares of the fund you own and a purchase of the shares of
the other Fund, which may result in a capital gain or loss. For
more information about taxes affecting exchanges, please refer to
"How to Exchange Shares" in the Statement of Additional
Information.
If the Transfer Agent cannot exchange all the shares you
request because of a restriction cited above, only the shares
eligible for exchange will be exchanged.
Shareholder Account Rules and Policies
Net Asset Value Per Share is determined for each class of
shares as of the close of The New York Stock Exchange, which is
normally 4:00 P.M., but may be earlier on some days, on each day
the Exchange is open by dividing the value of the Fund's net assets
attributable to a class by the number of shares of that class that
are outstanding. The Trust's Board of Trustees has established
procedures to value the Fund's securities to determine net asset
value. In general, securities values are based on market value.
There are special procedures for valuing illiquid and restricted
securities and obligations for which market values cannot be
readily obtained. These procedures are described more completely
in the Statement of Additional Information.
The offering of shares may be suspended during any period in
which the determination of net asset value is suspended, and the
offering may be suspended by the Board of Trustees at any time the
Board believes it is in the Fund's best interest to do so.
Telephone Transaction Privileges for purchases, redemptions
or exchanges may be modified, suspended or terminated by the Fund
at any time. If an account has more than one owner, the Fund and
the Transfer Agent may rely on the instructions of any one owner.
Telephone privileges apply to each owner of the account and the
dealer representative of record for the account unless and until
the Transfer Agent receives cancellation instructions from an owner
of the account.
The Transfer Agent will record any telephone calls to verify
data concerning transactions and has adopted other procedures to
confirm that telephone instructions are genuine, by requiring
callers to provide tax identification numbers and other account
data or by using PINs, and by confirming such transactions in
writing. If the Transfer Agent does not use reasonable procedures
it may be liable for losses due to unauthorized transactions, but
otherwise neither the Transfer Agent nor the Fund will be liable
for losses or expenses arising out of telephone instructions
reasonably believed to be genuine. If you are unable to reach the
Transfer Agent during periods of unusual market activity, you may
not be able to complete a telephone transaction and should consider
placing your order by mail.
Redemption or transfer requests will not be honored until
the Transfer Agent receives all required documents in proper form.
From time to time, the Transfer Agent in its discretion may waive
certain of the requirements for redemptions stated in this
Prospectus.
Dealers that can perform account transactions for their
clients by participating in NETWORKING through the National
Securities Clearing Corporation are responsible for obtaining their
clients' permission to perform those transactions and are
responsible to their clients who are shareholders of the Fund if
the dealer performs any transaction erroneously or improperly.
The redemption price for shares will vary from day to day
because the value of the securities in the Fund's portfolio
fluctuates, and the redemption price, which is the net asset value
per share, will normally be different for Class A, Class B and
Class C shares. Therefore, the redemption value of your shares may
be more or less than their original cost.
Payment for redeemed shares is made ordinarily in cash and
forwarded by check or through AccountLink (as elected by the
shareholder under the redemption procedures described above) within
seven days after the Transfer Agent receives redemption
instructions in proper form, except under unusual circumstances
determined by the Securities and Exchange Commission delaying or
suspending such payments. For accounts registered in the name of
a broker-dealer, payment will be forwarded within three business
days. The Transfer Agent may delay forwarding a check or processing
a payment via AccountLink for recently purchased shares, but only
until the purchase payment has cleared. That delay may be as much
as 10 days from the date the shares were purchased. That delay may
be avoided if you purchase shares by certified check or arrange
with your bank to provide telephone or written assurance to the
Transfer Agent that your purchase payment has cleared.
Involuntary redemptions of small accounts may be made by the
Fund if the account value has fallen below $200 for reasons other
than the fact that the market value of shares has dropped, and in
some cases, involuntary redemptions may be made to repay the
Distributor for losses from the cancellation of share purchase
orders.
Under unusual circumstances, shares of the Fund may be
redeemed "in kind," which means that the redemption proceeds will
be paid with securities from the Fund's portfolio. Please refer to
"How to Sell Shares" in the Statement of Additional Information for
more details.
"Backup Withholding" of Federal income tax may be applied at
the rate of 31% from taxable dividends, distributions and
redemption proceeds (including exchanges) if you fail to furnish
the Fund a certified Social Security or Employer Identification
Number when you sign your application, or if you violate Internal
Revenue Service regulations on tax reporting of income.
The Fund does not charge a redemption fee, but if your
dealer or broker handles your redemption, they may charge a fee.
That fee can be avoided by redeeming your Fund shares directly
through the Transfer Agent. Under the circumstances described in
"How To Buy Shares," you may be subject to a contingent deferred
sales charge when redeeming certain Class A, Class B and Class C
shares.
To avoid sending duplicate copies of materials to
households, the Fund will mail only one copy of each annual and
semi-annual report to shareholders having the same last name and
address on the Fund's records. However, each shareholder may call
the Transfer Agent at 1-800-525-7048 to ask that copies of those
materials be sent personally to that shareholder.
Dividends, Capital Gains and Taxes
Dividends. The Fund declares dividends separately for Class A,
Class B and Class C shares from net investment income each regular
business day and pays those dividends to shareholders monthly on a
date selected by the Board of Trustees. Dividends paid on Class A
shares generally are expected to be higher than for Class B or
Class C shares because expenses allocable to Class B and Class C
shares will generally be higher.
During the Fund's fiscal year ended September 30, 1996, the
Fund attempted to pay dividends on its Class A shares at a targeted
level above 3-month Treasury bill rates, to the extent that was
consistent with the amount of net investment income and other
distributable income available from the Fund's portfolio
investments. However, the targeted level can change and the amount
of each dividend can change from time to time (or there might not
be a dividend at all on any class) depending on market conditions,
the Fund's expenses, and the composition of the Fund's portfolio.
Attempting to pay dividends at a targeted level required the
Manager to monitor the Fund's income stream from its investments
compared to Treasury bill rates and at times to select higher
yielding securities (appropriate to the Fund's investment
objectives and restrictions) to try to earn income at the targeted
level. This practice did not affect the net asset values of any
class of shares. There is no targeted dividend level for Class B
or Class C shares. There is no fixed dividend rate and there can
be no assurance as to payment of any dividends.
Capital Gains. Although the Fund does not seek capital gains, the
Fund may realize capital gains on the sale of portfolio securities.
If it does, it may make distributions annually in December out of
any net short-term or long-term capital gains. The Fund may also
make supplemental distributions of dividends and capital gains
following the end of its fiscal year. If net capital losses are
realized in any year, they are charged against the principal and
not against net investment income, which is distributed regardless
of capital gains or losses. Long-term capital gains will be
separately identified in the tax information the Fund sends you
after the end of the calendar year. Short-term capital gains are
treated as dividends for tax purposes.
Distribution Options. When you open your account, specify on your
application how you want to receive your distributions. You have
four options:
Reinvest All Distributions in the Fund. You can elect to
reinvest all dividends and long-term capital gains distributions in
additional shares of the Fund.
Reinvest Capital Gains Only. You can elect to reinvest long-
term capital gains in the Fund while receiving dividends by check
or sent to your bank account on AccountLink.
Receive All Distributions in Cash. You can elect to receive
a check for all dividends and long-term capital gains distributions
or have them sent to your bank on AccountLink.
Reinvest Your Distributions in Another Oppenheimer Funds
Account. You can reinvest all distributions in another Oppenheimer
funds account you have established.
Taxes. Long-term capital gains are taxable as long-term capital
gains when distributed to shareholders. It does not matter how
long you held your shares. Dividends paid from short-term capital
gains are taxable as ordinary income. Dividends paid from net
investment income earned by the Fund on Municipal Securities will
be excludable from your gross income for Federal income tax
purposes. A portion of the dividends paid by the Fund may be an
item of tax preference if you are subject to alternative minimum
tax. Taxable dividends and distributions are subject to federal
income tax and may be subject to state or local taxes. Whether you
reinvest your distributions in additional shares or take them in
cash, the tax treatment is the same. Every year the Fund will send
you and the IRS a statement showing the amount of any taxable
distribution you received in the previous year as well as the
amount of your tax-exempt income.
"Buying a Dividend": When a fund goes ex-dividend, its share
price is reduced by the amount of the distribution. If you buy
shares on or just before the Fund declares a capital gains
distribution, you will pay the full price for the shares and then
receive a portion of the price back as a taxable capital gain. To
the extent the Fund's dividends include taxable income, you will
pay taxes on that portion of the dividend.
Taxes on Transactions: Even though the Fund seeks tax-exempt
income for distribution to shareholders, you may have a capital
gain or loss when you sell or exchange your shares. A capital gain
or loss is the difference between the price you paid for the shares
and the price you received when you sold them. Any capital gain is
subject to capital gains tax.
Returns of Capital: In certain cases, distributions made by
the Fund may be considered a non-taxable return of capital to
shareholders. If that occurs, it will be identified in notices to
shareholders. A non-taxable return of capital may reduce your tax
basis in your Fund shares.
This information is only a summary of certain federal tax
information about your investment. More information is contained
in the Statement of Additional Information, and in addition you
should consult with your tax adviser about the effect of an
investment in the Fund on your particular tax situation.
<PAGE>
APPENDIX A
Special Sales Charge Arrangements for Shareholders of the Fund
Who Were Shareholders of the Former Quest for Value Funds
The initial and contingent deferred sales charge rates and
waivers for Class A, Class B and Class C shares of the Fund
described elsewhere in this Prospectus are modified as described
below for those shareholders of (i) Quest for Value Fund, Inc.,
Quest for Value Growth and Income Fund, Quest for Value Opportunity
Fund, Quest for Value Small Capitalization Fund and Quest for Value
Global Equity Fund, Inc. on November 24, 1995, when
OppenheimerFunds, Inc. became the investment adviser to those
funds, and (ii) Quest for Value U.S. Government Income Fund, Quest
for Value Investment Quality Income Fund, Quest for Value Global
Income Fund, Quest for Value New York Tax-Exempt Fund, Quest for
Value National Tax-Exempt Fund and Quest for Value California Tax-
Exempt Fund when those funds merged into various Oppenheimer funds
on November 24, 1995. The funds listed above are referred to in
this Prospectus as the "Former Quest for Value Funds." The waivers
of initial and contingent deferred sales charges described in this
Appendix apply to shares of the Fund acquired by such shareholder
pursuant to an exchange of shares of one of the Oppenheimer funds
that was (i) one of the Former Quest for Value Funds or (ii)
received by such shareholder pursuant to the merger of any of the
Former Quest for Value Funds into an Oppenheimer fund on November
24, 1995.
Class A Sales Charges
Reduced Class A Initial Sales Charge Rates for Certain Former
Quest Shareholders
Purchases by Groups and Associations. The following table sets
forth the initial sales charge rates for Class A shares purchased
by members of "Associations" formed for any purpose other than the
purchase of securities if that Association purchased shares of any
of the Former Quest for Value Funds or received a proposal to
purchase such shares from OCC Distributors prior to November 24,
1995.
Front-End Front-End
Sales Sales Commission
Charge Charge as
as a as a Percentage
Number of Percentage Percentage of
Eligible Employees of Offering of Amount Offering
or Members Price Invested Price
_____________________________________________________________________
9 or fewer 2.50% 2.56% 2.00%
_____________________________________________________________________
At least 10 but not
more than 49 2.00% 2.04% 1.60%
For purchases by Associations having 50 or more eligible
employees or members, there is no initial sales charge on purchases
of Class A shares, but those shares are subject to the Class A
contingent deferred sales charge described on page __ of this
Prospectus.
Purchases made under this arrangement qualify for the lower of
the sales charge rate in the table based on the number of members
of an Association or the sales charge rate that applies under the
Rights of Accumulation described above in the Prospectus.
Individuals who qualify under this arrangement for reduced sales
charge rates as members of Associations also may purchase shares
for their individual or custodial accounts at these reduced sales
charge rates, upon request to the Fund's Distributor.
Special Class A Contingent Deferred Sales Charge Rates
Class A shares of the Fund purchased by exchange of shares of other
Oppenheimer funds that were acquired as a result of the merger of
Former Quest for Value Funds into those Oppenheimer funds, and
which shares were subject to a Class A contingent deferred sales
charge prior to November 24, 1995 will be subject to a contingent
deferred sales charge at the following rates: if they are redeemed
within 18 months of the end of the calendar month in which they
were purchased, at a rate equal to 1.0% if the redemption occurs
within 12 months of their initial purchase and at a rate of 0.50 of
1.0% if the redemption occurs in the subsequent six months. Class
A shares of any of the Former Quest for Value Funds purchased
without an initial sales charge on or before November 22, 1995 will
continue to be subject to the applicable contingent deferred sales
charge in effect as of that date as set forth in the then-current
prospectus for such fund.
Waiver of Class A Sales Charges for Certain Shareholders
Class A shares of the Fund purchased by the following investors are
not subject to any Class A initial or contingent deferred sales
charges:
Shareholders of the Fund who were shareholders of the AMA
Family of Funds on February 28, 1991 and who acquired shares of any
of the Former Quest for Value Funds by merger of a portfolio of the
AMA Family of Funds.
Shareholders of the Fund who acquired shares of any Former
Quest for Value Fund by merger of any of the portfolios of the
Unified Funds.
Waiver of Class A Contingent Deferred Sales Charge in Certain
Transactions
The Class A contingent deferred sales charge will not apply to
redemptions of Class A shares of the Fund purchased by the
following investors who were shareholders of any Former Quest for
Value Fund:
Investors who purchased Class A shares from a dealer that is
or was not permitted to receive a sales load or redemption fee
imposed on a shareholder with whom that dealer has a fiduciary
relationship under the Employee Retirement Income Security Act of
1974 and regulations adopted under that law.
Class A, Class B and Class C Contingent Deferred Sales Charge
Waivers
Waivers for Redemptions of Shares Purchased Prior to March 6,
1995
In the following cases, the contingent deferred sales charge will
be waived for redemptions of Class A, Class B or Class C shares of
the Fund acquired by the merger of a Former Quest for Value Fund
into the Fund or by exchange from an Oppenheimer fund that was a
Former Quest for Value Fund or into which such fund merged, if
those shares were purchased prior to March 6, 1995 in connection
with (i) withdrawals under an automatic withdrawal plan holding
only either Class B or Class C shares if the annual withdrawal does
not exceed 10% of the initial value of the account, and
(ii) liquidation of a shareholder's account if the aggregate net
asset value of shares held in the account is less than the required
minimum value of such accounts.
Waivers for Redemptions of Shares Purchased on or After March 6,
1995 but Prior to November 24, 1995.
In the following cases, the contingent deferred sales charge will
be waived for redemptions of Class A, Class B or Class C shares of
the Fund acquired by the merger of a Former Quest for Value Fund
into the Fund or by exchange from an Oppenheimer fund that was a
Former Quest For Value Fund or into which such fund merged, if
those shares were purchased on or after March 6, 1995, but prior to
November 24, 1995: (1) redemptions following the death or
disability of the shareholder(s) (as evidenced by a determination
of total disability by the U.S. Social Security Administration);
(2) withdrawals under an automatic withdrawal plan (but only for
Class B or Class C shares) where the annual withdrawals do not
exceed 10% of the initial value of the account; and (3) liquidation
of a shareholder's account if the aggregate net asset value of
shares held in the account is less than the required minimum
account value. A shareholder's account will be credited with the
amount of any contingent deferred sales charge paid on the
redemption of any Class A, Class B or Class C shares of the Fund
described in this section if within 90 days after that redemption,
the proceeds are invested in the same Class of shares in this Fund
or another Oppenheimer fund.
<PAGE>
APPENDIX TO PROSPECTUS OF
OPPENHEIMER INTERMEDIATE MUNICIPAL FUND
Graphic material included in Prospectus of Oppenheimer
Intermediate Municipal Fund: "Comparison of Total Return of
Oppenheimer Intermediate Municipal Fund and the Lehman Brothers
Municipal Bond Index - Change in Value of a $10,000 Hypothetical
Investment"
A linear graph will be included in the Prospectus of
Oppenheimer Intermediate Municipal Fund (the "Fund") depicting the
initial account value and subsequent account value of a
hypothetical $10,000 investment in the Fund. In the case of the
Fund's class A shares, that graph will cover the period from the
commencement of the Fund's operations (11/11/86) through 9/30/96,
in the case of the Fund's Class B shares will cover the period from
inception of the class (9/11/95) through 9/30/96 and in the case of
the Fund's Class C shares will cover the period from the inception
of the class (December 1, 1993) through September 30, 1996. The
graph will compare such values with hypothetical $10,000
investments over the same time periods in the Lehman Brothers
Municipal Bond Index. Set forth below are the relevant data points
that will appear on the linear graph. Additional information with
respect to the foregoing, including a description of the Lehman
Brothers Municipal Bond Index, is set forth in the Prospectus under
"How Has the Fund Performed - Management's Discussion of
Performance."
Fiscal Year Oppenheimer Intermediate Lehman Brothers
(Period) Ended Municipal Fund A Municipal Bond Index
11/11/86 $ 9,650 $10,000
9/30/87 $ 9,253 $ 9,882
9/30/88 $10,637 $11,164
9/30/89 $11,653 $12,134
9/30/90 $12,367 $12,958
9/30/91 $14,000 $14,667
9/30/92 $15,553 $16,200
9/30/93 $17,112 $18,264
9/30/94 $16,779 $17,818
9/30/95 $18,254 $19,814
9/30/96 $19,302 $20,723
Fiscal Oppenheimer Intermediate Lehman Brothers
Period Ended Municipal Fund B Municipal Bond Index
9/11/95 $10,000 $10,000
9/30/95 $10,011 $10,063
9/30/96 $10,170 $10,525
Fiscal Oppenheimer Intermediate Lehman Brothers
Period Ended Municipal Fund C Municipal Bond Index
12/1/93 $10,000 $10,000
9/30/94 $ 9,748 $ 9,824
9/30/95 $10,541 $10,924
9/30/96 $11,029 $11,426
<PAGE>
Oppenheimer Intermediate Municipal Fund
6803 South Tucson Way
Englewood, Colorado 80112
1-800-525-7048
Investment Advisor
OppenheimerFunds, Inc.
Two World Trade Center
New York, New York 10048-0203
Distributor
OppenheimerFunds Distributor, Inc.
Two World Trade Center
New York, New York 10048-0203
Transfer Agent
OppenheimerFunds Services
P.O. Box 5270
Denver, Colorado 80217
1-800-525-7048
Custodian of Portfolio Securities
Citibank, N.A.
399 Park Avenue
New York, New York 10043
Independent Auditors
Deloitte & Touche LLP
555 Seventeenth Street
Denver, Colorado 80202
Legal Counsel
Myer, Swanson, Adams & Wolf, P.C.
1600 Broadway
Denver, Colorado 80202
No dealer, broker, 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 Statement of
Additional Information and, if given or made, such information and
representations must not be relied upon as having been authorized
by the Fund, OppenheimerFunds, Inc., OppenheimerFunds 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.
PR0860.001.0297 Printed on Recycled Paper
<PAGE>
Oppenheimer Intermediate Municipal Fund
6803 South Tucson Way, Englewood, Colorado 80112
1-800-525-7048
Statement of Additional Information dated February 1, 1997
This Statement of Additional Information of Oppenheimer
Intermediate Municipal Fund is not a Prospectus. This document
contains additional information about the Fund and supplements
information in the Prospectus dated February 1, 1997. It should be
read together with the Fund's Prospectus, which may be obtained by
writing to the Fund's Transfer Agent, OppenheimerFunds Services, at
P.O. Box 5270, Denver, Colorado 80217 or by calling the Transfer
Agent at the toll-free number shown above.
TABLE OF CONTENTS
Page
About the Fund
Investment Objective and Policies. . . . . . . . . . . . .
Investment Policies and Strategies. . . . . . . . . .
Other Investment Techniques and Strategies. . . . . .
Other Investment Restrictions . . . . . . . . . . . .
How the Fund is Managed . . . . . . . . . . . . . . . . .
Organization and History. . . . . . . . . . . . . . .
Trustees and Officers of the Trust. . . . . . . . . .
The Manager and Its Affiliates. . . . . . . . . . . .
Brokerage Policies of the Fund . . . . . . . . . . . . . .
Performance of the Fund. . . . . . . . . . . . . . . . . .
Distribution and Service Plans . . . . . . . . . . . . . .
About Your Account
How To Buy Shares. . . . . . . . . . . . . . . . . . . . .
How To Sell Shares . . . . . . . . . . . . . . . . . . . .
How To Exchange Shares . . . . . . . . . . . . . . . . . .
Dividends, Capital Gains and Taxes . . . . . . . . . . . .
Additional Information About the Fund. . . . . . . . . . .
Financial Information About the Fund
Independent Auditors' Report . . . . . . . . . . . . . . .
Financial Statements . . . . . . . . . . . . . . . . . . .
Appendix A (Description of Ratings). .. . . . . . . . A-1
Appendix B (Tax-Equivalent Yield Chart). . . . . . . . B-1
Appendix C (Industry Classifications). . . . . . . . .C-1
<PAGE>
ABOUT THE FUND
Investment Objective and Policies
Investment Policies and Strategies. The investment objectives and
policies of the Fund are described in the Prospectus. Set forth
below is supplemental information about those policies and the
types of securities in which the Fund may invest, as well as the
strategies the Fund may use to try to achieve its objective.
Certain capitalized terms used in this Statement of Additional
Information have the same meaning as those terms have in the
Prospectus.
Municipal Securities. There are variations in the security of
Municipal Securities, both within a particular classification and
between classifications, depending on numerous factors. The yields
of Municipal Securities depend on, among other things, general
conditions of the Municipal Securities market, size of a particular
offering, the maturity of the obligation and rating of the issue.
The market value of Municipal Securities will vary as a result of
changing evaluations of the ability of their issuers to meet
interest and principal payments, as well as changes in the interest
rates payable on new issues 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.
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, OppenheimerFunds, Inc. (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 Other Derivative Investments. Some
inverse floaters have a feature known as an interest rate "cap" as
part of the terms of the investment. Investing in inverse floaters
that have interest rate caps might be part of a portfolio strategy
to try to maintain a high current yield for the Fund when the Fund
has invested in inverse floaters that expose the Fund to the risk
of short-term interest rate fluctuation. Embedded caps hedge a
portion of the Fund's exposure to rising interest rates. When
interest rates exceed the pre-determined rate, the cap generates
additional cash flows that offset the decline in interest rates on
the inverse floater, and the hedge is successful. However, the
Fund bears the risk that if interest rates do not rise above the
pre-determined rate, the cap (which is purchased for additional
cost) will not provide additional cash flows and will expire
worthless.
Municipal Lease Obligations. From time to time the Fund may
invest more than 5% of its net assets in municipal lease
obligations, generally through the acquisition of certificates of
participation, 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.
Municipal leases may take the form of a lease or an installment
purchase contract issued by a state or local government authority
to obtain funds to acquire a wide variety of equipment and
facilities. 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. Projects financed with
certificates of participation generally are not subject to state
constitutional debt limitations or other statutory requirements
that may be applicable to Municipal Securities. Payments by the
public entity on the obligation underlying the certificates are
derived from available revenue sources; such revenue may be
diverted to the funding of other municipal service projects.
Payments of interest and/or principal with respect to the
certificates are not guaranteed and do not constitute an obligation
of the issuing municipality or any of its political subdivisions.
In addition to the risk of "non-appropriation," municipal lease
securities do not yet have a highly developed market to provide the
degree of liquidity of conventional municipal bonds. 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 affected 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.
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 does not change the tax treatment of
bonds issued 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. Furthermore, 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 state or municipal governmental unit.) Under
the test for a 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 issuers 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, which makes tax-exempt interest from
certain private activity bonds a tax preference item for purposes
of the alternative minimum tax on individuals and corporations,
specifically states that 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. The Treasury is authorized to issue
regulations implementing the provision. 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.
Ratings of Municipal Securities. Moody's and S&P's or other
rating organizations 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.
Additional 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.
Other Investment Techniques and Strategies
Hedging With Options and Futures Contracts. The Fund may use
hedging instruments for the purposes described in the Prospectus.
When hedging to attempt to protect against declines in the market
value of the Fund's portfolio, or to permit the Fund to retain
unrealized gains in the value of portfolio securities which have
appreciated, or to facilitate selling securities for investment
reasons, the Fund may: (i) sell Interest Rate Futures or Municipal
Bond Index Futures, (ii) buy puts on such Futures or securities, or
(iii) write covered calls on securities held by it, Interest Rate
Futures, or Municipal Bond Index Futures. When hedging to
establish a position in the debt securities markets as a temporary
substitute for the purchase of individual debt securities the Fund
may: (i) buy Interest Rate Futures or Municipal Bond Index Futures,
or (ii) buy calls on such Futures or debt securities. Normally,
the Fund would then purchase the debt securities and terminate the
hedging position.
The Fund's strategy of hedging with Futures and options on
Futures will be incidental to the Fund's investment activities in
the underlying cash market. In the future, the Fund may employ
hedging instruments and strategies that are not presently
contemplated but which may be developed, to the extent such
investment methods are consistent with the Fund's investment
objective, and are legally permissible and disclosed in the
Prospectus. Additional information about the hedging instruments
the Fund may use is provided below.
Writing Covered Calls. As described in the Prospectus, the
Fund may write covered calls. When the Fund writes a call on an
investment, it receives a premium and agrees to sell the callable
investment to a purchaser of a corresponding call during the call
period (usually not more than 9 months) at a fixed exercise price
(which may differ from the market price of the underlying
investment) regardless of market price changes during the call
period. To terminate its obligation on a call it has written, the
Fund may purchase a corresponding call in a "closing purchase
transaction." A profit or loss will be realized, depending upon
whether the net of the amount of option transaction costs and the
premium received on the call the Fund has written is more or less
than the price of the call the Fund subsequently purchased. A
profit may also be realized if the call lapses unexercised, because
the Fund retains the underlying investment and the premium
received. Those profits are considered short-term capital gains
for Federal income tax purposes, as are premiums on lapsed calls,
and when distributed by the Fund are taxable as ordinary income.
If the Fund could not effect a closing purchase transaction due to
the lack of a market, it would have to hold the callable investment
until the call lapsed or was exercised. The Fund will not write
covered call options in an amount exceeding 20% of the value of its
total assets.
The Fund may also write calls on Futures without owning a
futures contract or deliverable securities, provided that at the
time the call is written, the Fund covers the call by segregating
in escrow an equivalent dollar value of deliverable securities or
liquid assets. The Fund will segregate additional liquid assets if
the value of the escrowed assets drops below 100% of the current
value of the Future. In no circumstances would an exercise notice
as to a Future put the Fund in a short futures position.
The Fund's Custodian, or a securities depository acting for the
Custodian, will act as the Fund's escrow agent, through the
facilities of the Options Clearing Corporation ("OCC"), as to the
investments on which the Fund has written options that are traded
on exchanges, or as to other acceptable escrow securities, so that
no margin will be required from the Fund for such option
transactions. OCC will release the securities covering a call on
the expiration of the call or when the Fund enters into a closing
purchase transaction. Call writing affects the Fund's turnover
rate and the brokerage commissions it pays. Commissions, normally
higher than on general securities transactions, are payable on
writing or purchasing a call.
Interest Rate Futures. The Fund may buy and sell futures
contracts relating to interest rates ("Interest Rate Futures") and
municipal bond indices ("Municipal Bond Index Futures"). An
Interest Rate Future obligates the seller to deliver and the
purchaser to take a specific type of debt security at a specific
future date for a fixed price to settle the futures transaction, or
to enter into an offsetting contract. No monetary amount is paid or
received by the Fund on the purchase of an Interest Rate Future.
The Fund may concurrently buy and sell Futures contracts in an
attempt to benefit from any outperformance of the Future purchased
relative to the performance of the Future sold. For example, the
Fund might buy Municipal Bond Futures and sell U.S. Treasury Bond
Futures (a type of Interest Rate Future). This type of transaction
would generally be profitable to the Fund if municipal bonds
outperform U.S. Treasury bonds after duration has been considered.
Duration is a volatility measure that refers to the expected
percentage change in the value of a bond resulting from a change in
general interest rates (measured by each 1% change in the rates on
U.S. Treasury securities). For example, if a bond has an effective
duration of three years, a 1% increase in general interest rates
would be expected to cause the bond to decline about 3%. Risks of
this type of Futures transaction, using the example above, would
include (1) outperformance of U.S. Treasuries relative to municipal
bonds, on a duration-adjusted basis, and (2) duration mismatch,
with duration of municipal bonds relative to U.S. Treasuries being
greater than anticipated.
Upon entering into a Futures transaction, the Fund will be
required to deposit an initial margin payment, in cash or U.S.
Treasury bills, with the futures commission merchant (the "futures
broker"). Initial margin payments will be deposited with the
Fund's Custodian in an account registered in the futures broker's
name; however, the futures broker can gain access to that account
only under certain specified conditions. As the Future is marked
to market (that is, its value on the Fund's books is changed) to
reflect changes in its market value, subsequent margin payments,
called variation margin, will be paid to or by the futures broker
on a daily basis.
At any time prior to the expiration of the Future, the Fund may
elect to close out its position by taking an opposite position, at
which time a final determination of variation margin is made and
additional cash is required to be paid by or released to the Fund.
Any gain or loss is then realized by the Fund on the Future for tax
purposes. Although Interest Rate Futures call for the delivery of
a specific debt security, in most cases the settlement obligation
is fulfilled without such delivery by entering into an offsetting
transaction. All Futures transactions are effected through a
clearing house associated with the exchange on which the contracts
are traded.
Municipal Bond Index Futures. A "municipal bond index"
assigns relative values to the municipal bonds included in that
index, and is used to serve as the basis for trading long-term
municipal bond Futures contracts. Municipal Bond Index Futures are
similar to Interest Rate Futures except that settlement is made in
cash. The obligation under such contracts may also be satisfied by
entering into an offsetting contract to close out the futures
position. Net gain or loss on options on such Municipal Bond Index
Futures depends on the price movements of the securities included
in the index. The strategies which the Fund employs regarding
Municipal Bond Index Futures are similar to those described above
with regard to Interest Rate Futures.
Interest Rate Swap Transactions. Swap agreements entail both
interest rate risk and credit risk. There is a risk that, based on
movements of interest rates in the future, the payments made by the
Fund under a swap agreement will have been greater than those
received by it. Credit risk arises from the possibility that the
counterparty will default. If the counterparty to an interest rate
swap defaults, the Fund's loss will consist of the net amount of
contractual interest payments that the Fund has not yet received.
The Manager will monitor the creditworthiness of counterparties to
the Fund's interest rate swap transactions on an ongoing basis.
The Fund will enter into swap transactions with appropriate
counterparties pursuant to master netting agreements.
A master netting agreement provides that all swaps done between
the Fund and that counterparty under the master agreement shall be
regarded as parts of an integral agreement. If on any date amounts
are payable in the same currency in respect of one or more swap
transactions, the net amount payable on that date in that currency
shall be paid. In addition, the master netting agreement may
provide that if one party defaults generally or on one swap, the
counterparty may terminate the swaps with that party. Under such
agreements, if there is a default resulting in a loss to one party,
the measure of that party's damages is calculated by reference to
the average cost of a replacement swap with respect to each swap
(i.e., the mark-to-market value at the time of the termination of
each swap). The gains and losses on all swaps are then netted, and
the result is the counterparty's gain or loss on termination. The
termination of all swaps and the netting of gains and losses on
termination is generally referred to as "aggregation." The Fund
will not invest more than 25% of its assets in interest rate swap
transactions and only on securities it owns.
Purchasing Puts and Calls. The Fund may purchase calls to
protect against the possibility that the Fund's portfolio will not
participate in an anticipated rise in the securities market. When
the Fund purchases a call (other than in a closing purchase
transaction), it pays a premium and, except as to calls on
Municipal Bond Index Futures, has the right to buy the underlying
investment from a seller of a corresponding call on the same
investment during the call period at a fixed exercise price. In
purchasing a call, the Fund benefits only if the call is sold at a
profit or if, during the call period, the market price of the
underlying investment is above the sum of the call price,
transaction costs, and the premium paid, and the call is exercised.
If the call is not exercised or sold (whether or not at a profit),
it will become worthless at its expiration date and the Fund will
lose its premium payment and the right to purchase the underlying
investment. When the Fund purchases a call on a municipal bond
index, Municipal Bond Index Future or Interest Rate Future, it pays
a premium, but settlement is in cash rather than by delivery of the
underlying investment to the Fund.
When the Fund purchases a put, it pays a premium and, except as
to puts on municipal bond indices, has the right to sell the
underlying investment to a seller of a corresponding put on the
same investment during the put period at a fixed exercise price.
Buying a put on a debt security, Interest Rate Future or Municipal
Bond Index Future the Fund owns (a "protective put") enables the
Fund to attempt to protect itself during the put period against a
decline in the value of the underlying investment below the
exercise price by selling the underlying investment at the exercise
price to a seller of a corresponding put. If the market price of
the underlying investment is equal to or above the exercise price
and as a result the put is not exercised or resold, the put will
become worthless at its expiration and the Fund will lose the
premium payment and the right to sell the underlying investment.
However, the put may be sold prior to expiration (whether or not at
a profit).
An option position may be closed out only on a market which
provides trading for options of the same series, and there is no
assurance that a liquid secondary market will exist for any
particular option. The Fund's option activities may affect its
portfolio turnover rate and brokerage commissions. The exercise of
calls written by the Fund may cause the Fund to sell related
portfolio securities, thus increasing its turnover rate. The
exercise by the Fund of puts on securities will cause the sale of
underlying investments, increasing portfolio turnover. Although
the decision whether to exercise a put it holds is within the
Fund's control, holding a put might cause the Fund to sell the
related investments for reasons that would not exist in the absence
of the put. The Fund will pay a brokerage commission each time it
buys or sells a call, put or an underlying investment in connection
with the exercise of a put or call. Those commissions may be
higher than the commissions for direct purchases or sales of the
underlying investments.
Premiums paid for options are small in relation to the market
value of the underlying investments and, consequently, put and call
options offer large amounts of leverage. The leverage offered by
trading in options could result in the Fund's net asset value being
more sensitive to changes in the value of the underlying
investments.
Regulatory Aspects of Hedging Instruments. The Fund is
required to operate within certain guidelines and restrictions with
respect to its use of Futures and options on Futures established by
the Commodity Futures Trading Commission ("CFTC"). In particular
the Fund is exempted from registration with the CFTC as a
"commodity pool operator" if the Fund complies with the
requirements of Rule 4.5 adopted by the CFTC. The Rule does not
limit the percentage of the Fund's assets that may be used for
Futures margin and related options premiums for a bona fide hedging
position. However, under the Rule the Fund must limit its
aggregate initial futures margin and related option premiums to no
more than 5% of the Fund's net assets for hedging strategies that
are not considered bona fide hedging strategies under the Rule.
Under the Rule, the Fund also must use short Futures and Futures
options positions solely for "bona fide hedging purposes" within
the meaning and intent of the applicable provisions of the
Commodity Exchange Act.
Transactions in options by the Fund are subject to limitations
established by option exchanges governing the maximum number of
options that may be written or held by a single investor or group
of investors acting in concert, regardless of whether the options
were written or purchased on the same or different exchanges or are
held in one or more accounts or through one or more different
exchanges or through one or more brokers. Thus the number of
options which the Fund may write or hold may be affected by options
written or held by other entities, including other investment
companies having the same adviser as the Fund (or an adviser that
is an affiliate of the Fund's adviser). The exchanges also impose
position limits on Futures transactions. An exchange may order the
liquidation of positions found to be in violation of those limits
and may impose certain other sanctions.
Due to requirements under the Investment Company Act, when the
Fund purchases an Interest Rate Future or Municipal Bond Index
Future, the Fund will maintain, in a segregated account or accounts
with its Custodian, cash or readily-marketable, short-term
(maturing in one year or less) debt instruments in an amount equal
to the market value of the securities underlying such Future, less
the margin deposit applicable to it.
Tax Aspects of Covered Calls and Hedging Instruments. The Fund
intends to qualify as a "regulated investment company" under the
Internal Revenue Code (although it reserves the right not to
qualify). That qualification enables the Fund to "pass through"
its income and realized capital gains to shareholders without
having to pay tax on them. One of the tests for the Fund's
qualification as a regulated investment company is that less than
30% of its gross income must be derived from gains realized on the
sale of securities held for less than three months. To comply with
this 30% cap, the Fund will limit the extent to which it engages in
the following activities, but will not be precluded from them: (i)
selling investments, including Interest Rate Futures and Municipal
Bond Index Futures, held for less than three months, whether or not
they were purchased on the exercise of a call held by the Fund;
(ii) purchasing options which expire in less than three months;
(iii) effecting closing transactions with respect to calls or puts
written or purchased less than three months previously; (iv)
exercising puts or calls held by the Fund for less than three
months; or (v) writing calls on investments held less than three
months.
Risks of Hedging With Options and Futures. An option position
may be closed out only on a market that provides secondary trading
for options of the same series, and there is no assurance that a
liquid secondary market will exist for any particular option. In
addition to the risks associated with hedging that are discussed in
the Prospectus and above, there is a risk in using short hedging by
selling Interest Rate Futures or Municipal Bond Index Futures. The
risk is that the prices of such Futures or the applicable index
will correlate imperfectly with the behavior of the cash (i.e.,
market value) prices of the Fund's securities. The ordinary
spreads between prices in the cash and futures markets are subject
to distortions, due to differences in the natures of those markets.
First, all participants in the futures markets are subject to
margin deposit and maintenance requirements. Rather than meeting
additional margin deposit requirements, investors may close out
futures contracts through offsetting transactions which could
distort the normal relationship between the cash and futures
markets. Second, the liquidity of the futures markets depends on
participants entering into offsetting transactions rather than
making or taking delivery. To the extent participants decide to
make or take delivery, liquidity in the futures markets could be
reduced, thus producing distortion. Third, from the point of view
of speculators, the deposit requirements in the futures markets are
less onerous than margin requirements in the securities markets.
Therefore, increased participation by speculators in the futures
markets may cause temporary price distortions.
The risk of imperfect correlation increases as the composition
of the Fund's portfolio diverges from the securities included in
the applicable index. To compensate for the imperfect correlation
of movements in the price of the equity securities being hedged and
movements in the price of the hedging instruments, the Fund may use
hedging instruments in a greater dollar amount than the dollar
amount of equity securities being hedged if the historical
volatility of the prices of the debt securities being hedged is
more than the historical volatility of the applicable index. It is
also possible that if the Fund has used hedging instruments in a
short hedge, the market may advance and the value of debt
securities held in the Fund's portfolio may decline. If that
occurred, the Fund would lose money on the hedging instruments and
also experience a decline in value in its portfolio securities.
However, while this could occur for a very brief period or to a
very small degree, over time the value of a diversified portfolio
of debt securities will tend to move in the same direction as the
indices upon which the hedging instruments are based.
If the Fund uses hedging instruments to establish a position in
the debt markets as a temporary substitute for the purchase of
individual debt securities (long hedging) by buying Interest Rate
Futures or Municipal Bond Futures and/or calls on such Futures, on
securities or on stock indices, it is possible that the market may
decline. If the Fund then concludes not to invest in such
securities at that time because of concerns as to a possible
further market decline or for other reasons, the Fund will realize
a loss on the hedging instruments that is not offset by a reduction
in the price of the debt securities purchased.
"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 shall not exceed 120 days from 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.
Repurchase Agreements. The Fund may acquire securities
subject to repurchase agreements for liquidity purposes to meet
anticipated redemptions, or pending the investment of the proceeds
from sales of Fund shares, or pending the settlement of purchases
of portfolio securities.
In a repurchase transaction, the Fund acquires a security from,
and simultaneously resells it to, an approved vendor. An "approved
vendor" is a U.S. commercial bank or the U.S. branch of a foreign
bank or a broker-dealer which has been designated a primary dealer
in government securities, which must meet credit requirements set
by the Trust's Board of Trustees from time to time. The resale
price exceeds the purchase price by an amount that reflects an
agreed-upon interest rate effective for the period during which the
repurchase agreement is in effect. 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, collateralized by the underlying security.
The Fund's repurchase agreements require that at all times while
the repurchase agreement is in effect, the value of the collateral
must equal or exceed the repurchase price to fully collateralize
the repayment obligation. Additionally, the Manager will impose
creditworthiness requirements to confirm that the vendor is
financially sound and will continuously monitor the collateral's
value.
Loans of Portfolio Securities. The Fund may lend its
portfolio securities subject to the restrictions stated in the
Prospectus. Under applicable regulatory requirements (which are
subject to change), the loan collateral on each business day must
at least equal the value of the loaned securities and must consist
of cash, bank letters of credit or securities of the U.S.
Government (or its agencies or instrumentalities). 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. When it lends securities, the Fund receives amounts
equal to the dividends or interest on loaned securities and also
receives one or more of (a) negotiated loan fees, (b) interest on
securities used as collateral, and (c) interest on short-term debt
securities purchased with such loan collateral. Either type of
interest may be shared with the borrower. The Fund may also pay
reasonable finder's, administrative or other fees. The terms of
the Fund's loans must meet applicable tests under the Internal
Revenue Code and must permit the Fund to reacquire loaned
securities on five days' notice or in time to vote on any important
matter.
Other Investment Restrictions
The Fund's most significant investment restrictions are set
forth in the Prospectus. There are additional investment
restrictions that the Fund must follow that are also fundamental
policies. Fundamental policies and the Fund's investment objective
cannot be changed 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.
Under these additional restrictions, the Fund cannot:
(1) invest in real estate, but this shall not prevent the Fund
from investing in Municipal instruments or other permissible
securities or instruments secured by real estate or interests
thereon;
(2) invest in interests in oil, gas, or other mineral
exploration or development programs;
(3) purchase securities, or other instruments, on margin;
however, the Fund may invest in options, futures, options on
futures and similar instruments and may make margin deposits and
payments in connection therewith;
(4) make short sales of securities;
(5) underwrite securities except to the extent the Fund may be
deemed to be an underwriter in connection with the sale of
securities held in its portfolio;
(6) invest in securities of other investment companies, except
as they may be acquired as part of a merger, consolidation or
other acquisition;
(7) make investments for the purpose of exercising control of
management; or
(8) purchase securities of any issuer if, to the knowledge of
the Fund, its officers and trustees and officers and directors
of the Manager who individually own more than 5% of the
securities of such issuer together own beneficially more than
5% of such issuer's outstanding securities.
As a matter of non-fundamental policy, the Fund shall not
purchase or retain securities if as a result the Fund would have
more than 5% of its total assets invested in securities of private
issuers having a record of less than three years' continuous
operation (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; or invest in common stock or any warrants related thereto.
In connection with the qualification of its shares in certain
states, the Fund has undertaken that in addition to the above, it
will not: (i) invest in real estate limited partnerships, or (ii)
invest in oil, gas or other mineral leases. In the event the
Fund's shares cease to be qualified under such laws or if such
undertaking otherwise ceases to be operative, the Fund would not be
subject to such restriction. The percentage restrictions described
above and in the Prospectus apply only at the time of investment
and require no action by the Fund as a result of subsequent changes
in relative values.
For purposes of the Fund's policy not to concentrate described
under investment restriction number 4 in the Prospectus, the Fund
has adopted the industry classifications set forth in Appendix C to
this Statement of Additional Information. This is not a
fundamental policy.
How the Fund Is Managed
Organization and History. Oppenheimer Municipal Fund is a
Massachusetts business trust and is composed of two series. The
Fund is one of the series. The Trust is not required to hold, and
does not plan to hold, regular annual meetings of shareholders. The
Trust and/or Fund will hold meetings when required to do so by the
Investment Company Act or other applicable law, or when a
shareholder meeting is called by the Trustees or upon proper
request of the shareholders. Shareholders have the right, upon the
declaration in writing or vote of two-thirds of the outstanding
shares of the 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 record holders of 10% of the outstanding
shares of the Trust. In addition, if the Trustees receive a
request from at least 10 shareholders (who have been shareholders
for at least six months) holding shares of the Trust valued at
$25,000 or more or holding at least 1% of the Trust's outstanding
shares, whichever is less, stating that they wish to communicate
with other shareholders to request a meeting to remove a Trustee,
the Trustees will then either make the Trust'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 under Section 16(c) of the
Investment Company Act.
Each share of the Fund represents an interest in the Fund
proportionately equal to the interest of each other share of the
same class and entitle the holder to one vote per share (and a
fractional vote for a fractional share) on matters submitted to
their vote at shareholders' meetings. Shareholders of the Trust
vote together in the aggregate on certain matters at shareholders'
meetings, such as the election of Trustees and ratification of
appointment of auditors for the Trust. Shareholders of a
particular series or class vote separately on proposals which
affect that series or class, and shareholders of a series or class
which is not affected by that matter are not entitled to vote on
the proposal. Shareholders of a class vote on certain amendments
to the Distribution and/or Service Plans if the amendments affect
that class.
The Trustees are authorized to create new series and classes of
series. The Trustees may reclassify unissued shares of the Trust
or its series or classes into additional series or classes of
shares. The Trustees may also divide or combine the shares of a
class into a greater or lesser number of shares provided that the
proportionate beneficial interest of a shareholder in the Fund and
Trust is not changed. Shares do not have cumulative voting rights
or preemptive or subscription rights. Shares may be voted in
person or by proxy.
The Declaration of Trust contains an express disclaimer of
shareholder or 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 Massachusetts law permits a
shareholder of a business trust (such as the Fund) to 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
Trust, and any shareholder of the Trust, agrees under the Trust's
Declaration of Trust to look solely to the assets of the Trust for
satisfaction of any claim or demand which may arise out of any
dealings with the Trust, and the Trustees shall have no personal
liability to any such person, to the extent permitted by law.
Trustees And Officers of the Trust. The Trust's Trustees and
officers and their principal occupations and business affiliations
during the past five years are listed below. All of the Trustees
are also trustees, directors or managing general partners of
Oppenheimer Total Return Fund, Inc., Oppenheimer Equity Income
Fund, Oppenheimer High Yield Fund, Oppenheimer Integrity Funds,
Oppenheimer Cash Reserves, Oppenheimer Limited-Term Government
Fund, The New York Tax-Exempt Income Fund, Inc., Oppenheimer
Champion Income Fund, Oppenheimer Main Street Funds, Inc.,
Oppenheimer Strategic Income Fund, Oppenheimer Strategic Income &
Growth Fund, Oppenheimer Variable Account Funds, Oppenheimer
International Bond Fund and Panorama Series Fund, Inc.; as well as
the following "Centennial Funds": Daily Cash Accumulation Fund,
Inc., Centennial America Fund, L.P., Centennial Money Market Trust,
Centennial Government Trust, Centennial New York Tax Exempt Trust,
Centennial Tax Exempt Trust and Centennial California Tax Exempt
Trust, (all of the foregoing funds are collectively referred to as
the "Denver-based Oppenheimer funds") except for Mr. Fossel and Ms.
Macaskill, who are Trustees, Directors, or Managing General
Partners of all the Denver-based Oppenheimer funds, except
Oppenheimer Integrity Funds, Oppenheimer Strategic Income Fund,
Panorama Series Fund, Inc. and Oppenheimer Variable Account Funds,
and except Mr. Fossel, who is not a trustee of Centennial New York
Tax-Exempt Trust or a Managing General Partner of Centennial
America Fund, L.P. Ms. Macaskill is President and Mr. Swain is
Chairman of the Denver-based Oppenheimer funds.
As of December 31, 1996, the Trustees and officers of the Fund
as a group owned of record or beneficially less than 1% of each
class of shares of the Fund or the Trust. The foregoing statement
does not reflect ownership of shares held of record by an employee
benefit plan for employees of the Manager (for which plan a trustee
and an officer listed below, Ms. Macaskill and Mr. Donohue,
respectively, are trustees), other than the shares beneficially
owned under the Plan by the officers of the Fund listed above.
Robert G. Avis, Trustee;* Age 65.
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; Age 82.
197 Desert Lakes Drive, Palm Springs, California 92264
Management Consultant.
Charles Conrad, Jr., Trustee; Age 65.
1501 Quail Street, Newport Beach, California 92660
Chairman and CEO of Universal Space Lines, Inc. (a space services
management company); formerly Vice President of McDonnell Douglas
Space Systems, Co. and associated with the National Aeronautics and
Space Administration.
____________________
* A Trustee who is an "interested person" of the Fund as defined in
the Investment Company Act.
Jon S. Fossel, Trustee; Age 54.
Box 44, Mead Street, Waccabuc, New York 10597
Member of the Board of Governors of the Investment Company
Institute (a national trade association of investment companies);
Chairman of the Investment Company Institute Education Foundation;
formerly Chairman and a director of the Manager; President and a
director of Oppenheimer Acquisition Corp. ("OAC"), the Manager's
parent holding company; and Shareholder Services, Inc. ("SSI") and
Shareholder Financial Services, Inc. ("SFSI"), transfer agent
subsidiaries of the Manager.
Sam Freedman, Trustee; Age 56
4975 Lakeshore Drive, Littleton, Colorado 80123
Formerly Chairman and Chief Executive Officer of OppenheimerFunds
Services, Chairman, Chief Executive Officer and a director of
Shareholder Services, Inc., Chairman, Chief Executive and Officer
and director of Shareholder Financial Services, Inc., Vice
President and director of Oppenheimer Acquisition Corporation and
a director of OppenheimerFunds, Inc.
Raymond J. Kalinowski, Trustee; Age 67.
44 Portland Drive, St. Louis, Missouri 63131
Director of Wave Technologies International, Inc. (a computer
products training company); 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; Age 75.
2552 East Alameda, Denver, Colorado 80209
Formerly the Managing Partner of Deloitte, Haskins & Sells (an
accounting firm).
Robert M. Kirchner, Trustee; Age 75.
7500 E. Arapahoe Road, Englewood, Colorado 80112
President of The Kirchner Company (management consultants).
Bridget A. Macaskill, President; Age 48
President, Chief Executive Officer and a Director of the Manager
and HarbourView Asset Management Corporation ("HarbourView") (a
subsidiary of the Manager); Chairman and a Director of SSI and
Shareholder Financial Services, Inc. ("SFSI"), President and a
Director of OAC and Oppenheimer Partnership Holdings, Inc., a
holding company subsidiary of the Manager; a director of
Oppenheimer Real Asset Management, Inc.; formerly Executive Vice
President of the Manager.
Ned M. Steel, Trustee; Age 81.
3416 S. Race Street, Englewood, Colorado 80110
Chartered Property and Casualty Underwriter; Director of Visiting
Nurse Corporation of Colorado; formerly Senior Vice President and
a director of Van Gilder Insurance Corp. (insurance brokers).
James C. Swain, Chairman, Chief Executive Officer and Trustee;* Age
63.
6803 Tucson Way, Englewood, Colorado 80012
Vice Chairman of the Manager; formerly President and Director of
Centennial Asset Management Corporation, an investment adviser
subsidiary of the Manager ("Centennial"); and formerly Chairman of
the Board of SSI.
____________________
* A Trustee who is an "interested person" of the Fund as defined in
the Investment Company Act.
Andrew J. Donohue, Vice President and Secretary; Age 46
Executive Vice President and General Counsel of OppenheimerFunds,
Inc. (the "Manager") and OppenheimerFunds Distributor, Inc. (the
"Distributor"); President and a director of Centennial; Executive
Vice President, General Counsel and a director of HarbourView, SSI,
SFSI, and Oppenheimer Partnership Holdings, Inc.; President and
director of Oppenheimer Real Asset Management, Inc.; General
Counsel of OAC; Executive Vice President, Chief Legal Officer and
a director of MultiSource Services, Inc. (a broker-dealer); an
officer of other Oppenheimer funds; 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 advisor);
director and an officer of First Investors Family of Funds and
First Investors Life Insurance Company.
George C. Bowen, Vice President, Assistant Secretary and Treasurer;
Age 60
6803 South Tucson Way, Englewood, Colorado 80112
Senior Vice President and Treasurer of the Manager; Vice President
and Treasurer of the Distributor and HarbourView; Senior Vice
President, Treasurer, Assistant Secretary and a director of
Centennial; Vice President, Treasurer and Secretary of SSI and
SFSI; Treasurer of OAC; Vice President and Treasurer of Oppenheimer
Real Asset Management, Inc.; Chief Executive Officer, Treasurer and
a director of MultiSource Services, Inc.; an officer of other
Oppenheimer funds.
Caryn Halbrecht, Vice President and Portfolio Manager; Age 40.
Two World Trade Center, New York, N.Y. 10048-0203
Vice President of the Manager; an officer of other Oppenheimer
funds; formerly a Vice President of Fixed-Income portfolio
management at Bankers Trust.
Robert G. Zack, Assistant Secretary; Age 48.
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
Oppenheimer funds.
Robert J. Bishop, Assistant Treasurer; Age 38
6803 South Tucson Way, Englewood, Colorado 80112
Vice President of the Manager/Mutual Fund Accounting; an officer of
other Oppenheimer funds; formerly a Fund Controller of the Manager,
prior to which he was an Accountant for Yale & Seffinger, P.C., and
previously an Accountant and Commissions Supervisor for Stuart
James Company Inc., a broker-dealer.
Scott Farrar, Assistant Treasurer; Age 31
6803 South Tucson Way, Englewood, Colorado 80112
Vice President of the Manager/Mutual Fund Accounting, an officer of
other Oppenheimer funds; formerly a Fund Controller for the
Manager.
Remuneration of Trustees. The officers of the Trust and
certain Trustees of the Trust (Ms. Macaskill and Mr. Swain) who
are affiliated with the Manager receive no salary or fee from the
Fund. Mr. Fossel did not receive any salary or fees from the Fund
prior to January 1, 1997. The remaining Trustees of the Fund
received the compensation shown below. Mr. Freedman became a
Trustee on June 27, 1996, and received no compensation from the
Fund before that date. The compensation from the Fund was paid
during its fiscal year ended September 30, 1996. The compensation
from all of the Denver-based Oppenheimer funds includes the Fund
and is compensation received as a director, trustee, managing
general partner or member of a committee of the Board during the
calendar year 1996.
Total Compensation
Aggregate From All
Compensation Denver-based
Name and Position from Fund Oppenheimer funds1
Robert G. Avis $361 $58,003
Trustee
William A. Baker $496 $79,715
Audit and Review
Committee Chairman
and Trustee
Charles Conrad, Jr. $465 $74,717
Audit and Review
Committee Member
and Trustee
Raymond J. Kalinowski $461 $74,173
Risk Management
Oversight Committee Member
and Trustee
C. Howard Kast $461 $74,173
Risk Management
Oversight Committee Member
and Trustee
Robert M. Kirchner $465 $74,717
Audit and Review
Committee Member
and Trustee
Ned M. Steel $361 $58,003
Trustee
Sam Freedman
Trustee $184 $29,502
______________________
1 For the 1996 calendar year.
Major Shareholders. As of December 31, 1996, (i) Merrill
Lynch Pierce Fenner & Smith, 4800 Deer Lake Drive EFL3,
Jacksonville, Florida, 32246, owned 20,574.000 Class B shares
(representing 8.72% of the Fund's outstanding Class B shares and
(ii) Merrill Lynch Pierce Fenner & Smith, 4800 Deer Lake Drive
EFL3, Jacksonville, Florida, 32246, owned 83,542.000 Class C shares
(representing 11.33% of the Fund's outstanding Class C shares). No
other person owned of record or was known by the Trust to own
beneficially 5% or more of the shares of the Trust as a whole or
either class of the Fund's outstanding shares as of that date.
The Manager and Its Affiliates. The Manager is wholly-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 officers, some of
whom may also serve as officers of the Fund, and two of whom (Ms.
Macaskill and Mr. Swain) serve as Trustees of the Fund.
The Manager and the Fund have a Code of Ethics. It is
designed to detect and prevent improper personal trading by certain
employees, including portfolio managers, that would compete with or
take advantage of the Fund's portfolio transactions. Compliance
with the Code of Ethics is carefully monitored and strictly
enforced by the Manager.
The Investment Advisory Agreement. The Investment Advisory
Agreement between the Manager and the Trust 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 corporate administration for the Fund, including
the compilation and maintenance of records with respect to its
operations, the preparation and filing of specified reports, and
the composition of proxy materials and registration statements for
continuous public sale of shares of the Fund.
Expenses not expressly assumed by the Manager under the
Investment Advisory Agreement or by the Distributor under the
General Distributor's Agreement are paid by the Fund. Expenses
with respect to the Trust's two series, including the Fund, are
allocated in proportion to the net assets of the respective Funds,
except where allocations of direct expenses could be made. Certain
expenses are further allocated to certain classes of shares of a
series as explained in the Prospectus and under "How to Buy Shares"
below. The Investment Advisory Agreement lists examples of
expenses paid by the Fund, the major categories of which relate to
interest, taxes, brokerage commissions, fees to certain Trustees,
legal and audit expenses, custodian and transfer agent expenses,
share issuance costs, certain printing and registration costs and
non-recurring expenses, including litigation costs. During the
Fund's fiscal years ended September 30, 1994, 1995 and 1996, the
management fees paid by the Fund to the Manager were $413,576,
$435,665 and $463,582, respectively.
The Investment Advisory Agreement contains no expense
limitation. However, because of state regulations limiting fund
expenses that previously applied, the Manager had voluntarily
undertaken that the Fund's total expenses in any fiscal year
(including the investment advisory agreement fee but exclusive of
taxes, interest, brokerage commissions, distribution plan payments
and any extraordinary non-recurring expenses, including litigation)
would not exceed the most stringent state regulatory limitation
applicable to the Fund. Due to changes in federal securities laws,
such state regulations no longer apply and the Manager's
undertaking is therefore inapplicable and has been withdrawn.
During the Fund's last fiscal year, the Fund's expenses did not
exceed the most stringent state regulatory limit and the voluntary
undertaking was not invoked.
The advisory agreement provides that in the absence of willful
misfeasance, bad faith or gross negligence in the performance of
its duties, or reckless disregard for its obligations and duties
under the advisory agreement, the Manager is not liable for any
loss resulting from a good faith error or omission on its part with
respect to any of its duties thereunder. The advisory agreement
permits the Manager to act as investment adviser for any other
person, firm or corporation and to use the name "Oppenheimer" in
connection with other investment companies, for which it may act as
investment adviser or general distributor. If the Manager shall no
longer act as investment adviser to the Fund, the right of the Fund
to use the name "Oppenheimer" as part of its name may be withdrawn.
The Distributor. Under its General Distributor's Agreement
with the Fund, the Distributor, OppenheimerFunds Distributor, Inc.,
acts as the Fund's principal underwriter in the continuous public
offering of the Fund's Class A, Class B and Class C shares, but is
not obligated to sell a specific number of shares. Expenses
normally attributable to sales, excluding payments under the
Distribution and Service Plans, but including advertising and the
cost of printing and mailing prospectuses (other than those
furnished to existing shareholders) are borne by the Distributor.
During the Fund's fiscal years ended September 30, 1994, 1995
and 1996, the aggregate sales charges on sales of the Fund's Class
A shares were $369,458, $160,045 and $160,206, respectively, of
which the Distributor and an affiliated broker-dealer retained in
the aggregate $140,136, $62,159 and $85,052 in these respective
years. During the Fund's fiscal year ended September 30, 1996, the
contingent deferred sales charges collected on the Fund's Class B
shares totalled $3,038 and the contingent deferred sales charges
collected on Class C shares totalled $6,670, all of which the
Distributor retained. For additional information about
distribution of the Fund's shares and the expenses connected with
such activities, please refer to "Distribution and Service Plans,"
below.
The Transfer Agent. OppenheimerFunds Services, a division of
the Manager, is responsible for maintaining the Fund's shareholder
registry and shareholder accounting records, and for shareholder
servicing and administrative functions.
Brokerage Policies of the Fund
Brokerage Provisions of the Investment Advisory Agreement. One of
the duties of the Manager under the Investment Advisory Agreement
is to arrange the portfolio transactions for the Fund. The
Investment Advisory Agreement contains provisions relating to the
employment of broker-dealers ("brokers") to effect the Fund's
portfolio transactions. In doing so, the Manager is authorized by
the Investment Advisory Agreement to employ such broker-dealers,
including "affiliated" brokers, as that term is defined in the
Investment Company Act, 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 as
established by its Board of Trustees.
Under the advisory agreement, the Manager is authorized to
select brokers other than affiliates 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 fair and reasonable
in relation to the services provided. Subject to the foregoing
considerations, the Manager may also consider sales of shares of
the Fund and other investment companies managed by the Manager or
its affiliates as a factor in the selection of brokers for the
Fund's portfolio transactions.
Description of Brokerage Practices Followed by the Manager.
Subject to the provisions of the Investment Advisory Agreement and
the procedures and rules described above, allocations of brokerage
are generally made by the Manager's portfolio traders upon
recommendations from the Manager's portfolio managers. In certain
instances, portfolio managers may directly place trades and
allocate brokerage, also subject to the provisions of the
Investment Advisory Agreement and the procedures and rules
described above. In either case, brokerage is allocated under the
supervision of the Manager's executive officers. As most purchases
made by the Fund are principal transactions at net prices, the Fund
does not incur substantial brokerage costs. The Fund usually deals
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
price. 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 transaction in the securities to which the option relates.
When 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.
Other funds advised by the Manager have investment objectives
and policies similar to those of the Fund. Such other funds may
purchase or sell the same securities at the same time as the Fund,
which could affect the supply and price of such securities. If two
or more of such funds purchase the same security on the same day
from the same dealer, the Manager may average the price of the
transactions and allocate the average among such funds.
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 received for the
commissions of those 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 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. If
a research service also assists the Manager in a non-research
capacity (such as bookkeeping or other administrative functions),
then only the percentage or component that provides assistance to
the Manager in the investment decision-making process may be paid
in commission dollars. The Board of Trustees permits the Manager
to use concessions on fixed-price offerings to obtain research, in
the same manner as is permitted for agency transactions. The Board
also permits the Manager to use stated commissions on secondary
fixed-income agency trades to obtain research where the broker has
represented to the Manager that: (i) the trade is not from or for
the broker's own inventory, (ii) the trade was executed by the
broker on an agency basis at the stated commission, and (iii) the
trade is not a riskless principal transaction.
The research services provided by brokers broadens the scope
and supplement the research activities of the Manager, by making
available additional views for consideration and comparisons, and
by enabling the Manager to obtain market information for the
valuation of securities held in the Fund's portfolio or being
considered for purchase. The Manager provides information as to
the commissions paid to brokers furnishing such services together
with the Manager's representation that the amount of such
commissions was reasonably related to the value or benefit of such
services.
Performance of the Fund
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,"
"cumulative total return," "average annual total return at net
asset value" and "total return at net asset value" of an investment
in a class of Fund shares may be advertised. An explanation of how
yields and total returns are calculated for each class and the
components of those calculations is set forth below. Class B
shares were first publicly offered on September 11, 1995. Class C
shares were first publicly offered on December 1, 1993.
The Fund's advertisements of its performance data must, under
applicable rules of the Securities and Exchange Commission, include
the average annual total returns for each advertised class of
shares of the Fund for the 1, 5 and 10-year periods (or the life of
the class, if less) ending as of the most recently-ended calendar
quarter prior to the publication of the advertisement. This
enables an investor to compare the Fund's performance to the
performance of other funds for the same periods. However, a number
of factors should be considered before using such information as a
basis for comparison with other investments. An investment in the
Fund is not insured; its yield and total return are not guaranteed
and normally will fluctuate on a daily basis. When redeemed, an
investor's shares may be worth more or less than their original
cost. Yield and total returns for any given past period are not a
prediction or representation by the Fund of future yields or rates
of return. The yield and total returns of each class of shares of
the Fund are affected by portfolio quality, portfolio maturity, the
type of investments the Fund holds and its operating expenses
allocated to the particular class.
Standardized Yields.
Yield. The Fund's "yield" (referred to as "standardized
yield") for a given 30-day period for a class of shares is
calculated using the following formula set forth in rules adopted
by the Securities and Exchange Commission that apply to all funds
that quote yields:
(a-b) 6
Standardized Yield = 2 ((--- + 1) - 1)
( cd)
The symbols above represent the following factors:
a = dividends and interest earned during the 30-day
period.
b = expenses accrued for the period (net of any expense
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 per share of that class
on the last day of the period, adjusted for
undistributed net investment income.
The standardized 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
actual distributions paid by the Fund to shareholders in the 30-day
period, but is a hypothetical yield based on the net investment
income from the Fund's portfolio investments calculated for that
period. The standardized yield may differ from the "dividend
yield" of that class, described below. Additionally, because each
class of shares is subject to different expenses, it is likely that
the standardized yields of the Fund's classes of shares will
differ. For the 30-day period ended September 30, 1996, the
standardized yields for the Fund's Class A, Class B and Class C
shares were 4.46%, 3.85% and 3.86%, respectively.
Tax-Equivalent Yield. The "tax-equivalent yield" of a class
of shares adjusts the Fund's current yield, as calculated above, by
a stated combined Federal and state tax rate. The tax equivalent
yield is based on a 30-day period, and is computed by dividing the
tax-exempt portion of the Fund's current yield (as calculated
above) by one minus a stated income tax rate and adding the result
to the portion (if any) of the Fund's current yield that is not
tax-exempt. The tax-equivalent yield may be used to compare the
tax effects of income derived from the Fund with income from
taxable investments at the tax rates stated. 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 and state taxable income (the
net amount subject to Federal and state income tax after deductions
and exemptions). The tax-equivalent yield tables 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. The
Fund's tax-equivalent yield for its Class A, Class B and Class C
shares for the 30-day period ended September 30, 1996 were 7.38%,
6.37% and 6.39%, respectively, for an individual in the 39.6%
Federal tax bracket.
Dividend Yield and Distribution Return. From time to time
the Fund may quote a "dividend yield" or a "distribution return"
for each class. Dividend yield is based on the dividends paid on
shares of a class from share dividends derived from net investment
income during a stated period. Distribution return includes
dividends derived from net investment income and from realized
capital gains declared during a stated period. Under those
calculations, the dividends and/or distributions 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. When the result is annualized for a period of less than
one year, the "dividend yield" is calculated as follows:
Dividend Yield of the Class =
Dividends of the Class
-----------------------------------------------------
Max. Offering Price of the Class (last day of period)
divided by Number of days (accrual period) x 365
The maximum offering price for Class A shares includes the
maximum front-end sales charge. For Class B and Class C shares,
the maximum offering price is the net asset value per share,
without considering the effect of contingent deferred sales
charges.
From time to time similar yield or distribution return
calculations may also be made using the Class A net asset value
(instead of its maximum offering price) at the end of the period.
The dividend yields on Class A shares for the 30-day period ended
September 30, 1996 were 5.20% and 5.38% when calculated at maximum
offering price and net asset value, respectively. The dividend
yield on Class B and Class C shares for the 30-day period ended
September 30, 1996 were 4.62% and 4.64%, respectively when
calculated at net asset value.
Total Return Information.
Average Annual Total Returns. The "average annual total
return" of each class is an average annual compounded rate of
return for each year in a specified number of years. It is the
rate of return based on the change in value of a hypothetical
initial investment of $1,000 ("P" in the formula below) held for a
number of years ("n") to achieve an Ending Redeemable Value ("ERV")
of that investment, according to the following formula:
1/n
(ERV)
(---) -1 = Average Annual Total Return
( P )
The "average annual total return" on an investment in Class A
shares of the Fund for the one and five year periods ended
September 30, 1996 were 1.73% and 5.88%, respectively, and for the
period from the inception of the Fund on November 11, 1986 through
September 30, 1996 was 6.88%. The "average annual total return" on
an investment in Class B shares for the year ended September 30,
1996 was 0.56%. The "average annual total return" on an investment
in Class B shares for the period from inception on September 11,
1995 through September 30, 1996 was 1.61%. The "average annual
total return" on an investment in Class C shares for the year
ended September 30, 1996 was 3.63%, and for the period from
inception on December 1, 1993 through September 30, 1995 was 3.52%.
Cumulative Total Return. The "cumulative total return"
calculation measures the change in the value of a hypothetical
investment of $1,000 over an entire period of years. Its
calculation uses some of the same factors as average annual total
return, but it does not average the rate of return on an annual
basis. Cumulative total return is determined as follows:
ERV - P
------- = Total Return
P
In calculating total returns for Class A shares, the current
maximum sales charge of 3.50% (as a percentage of the offering
price) is deducted from the initial investment ("P") (unless the
return is shown at net asset value, as discussed below). For Class
B shares, payment of 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% in the fifth year, 1.0% in the sixth year and
none thereafter is applied, as described in the Prospectus. For
Class C shares, the payment of the 1.0% contingent deferred sales
charge for the first 12 months is applied, as described in the
Prospectus. Total returns also assume that all dividends and
capital gains distributions during the period are reinvested to buy
additional shares at net asset value per share, and that the
investment is redeemed at the end of the period. The "total
return" on an investment in Class A shares of the Fund (using the
method described above) for the one year and five year periods
ended September 30, 1996 were 1.73% and 33.04%, respectively and
for the period from November 11, 1986 (inception of the Fund)
through September 30, 1996, was 93.01%. The cumulative total
return on Class B shares for the one year period ended September
30, 1996 was 0.56%. The cumulative total return on Class B shares
for the period September 11, 1995 (the inception of the Class)
through September 30, 1996 was 1.70%. The cumulative total return
on Class C shares for the one year period ended September 30, 1996
was 4.63% and for the period from December 1, 1993 (the inception
of the class) through September 30, 1996 was 10.29%. During a
portion of the periods for which total returns are shown, the
Fund's maximum sales charge rate was higher; as a result,
performance returns on actual investments during those periods may
be lower than the results shown.
Total Returns at Net Asset Value. From time to time the
Fund may also quote an average annual total return at net asset
value or a cumulative total return at net asset value for Class A,
Class B or Class C shares. Each is based on the difference in net
asset value per share at the beginning and the end of the period
for a hypothetical investment in that class of shares (without
considering front-end or contingent deferred sales charges) and
takes into consideration the reinvestment of dividends and capital
gains distributions. The "total return at net asset value" on the
Fund's Class A shares for the one-year and five year periods ended
September 30, 1996 was 5.41% and 37.87%, respectively and for the
period November 11, 1986 (inception of the Fund) through September
30, 1996 was 100.01%. The "average annual total return" on the
Fund's Class B shares from September 11, 1995 (inception of the
Class) through September 30, 1996 was 4.45%. The cumulative "total
returns at net asst value" on the Fund's Class B shares for the
period September 11, 1995 (inception of the Class) through
September 30, 1996 was 4.69%. The total return at net asset value
for the Fund's Class C shares year ended September 30, 1996 was
10.29%.
Total return information may be useful to investors in
reviewing the performance of the Fund's Class A, Class B or Class
C shares. However, when comparing total return of an investment in
Class A, Class B or Class C shares of the Fund, a number of factors
should be considered before using such information as a basis for
comparison before using such information with other investments.
Other Performance Comparisons. From time to time the Fund
may publish the ranking of its Class A, Class B or Class C shares
by Lipper Analytical Services, Inc. ("Lipper"), a widely-recognized
independent mutual fund monitoring service. Lipper monitors the
performance of regulated investment companies, including the Fund,
and ranks their performance for various periods based on categories
relating to investment objectives. The performance of the Fund is
ranked against (i) all other bond funds, other than money market
funds, and (ii) all other intermediate municipal debt funds. The
Lipper performance rankings are based on total returns that include
the reinvestment of capital gain distributions and income dividends
but do not take sales charges or taxes into consideration. From
time to time the Fund may include in its advertisement and sales
literature performance information about the Fund cited in other
newspapers and periodicals such as The New York Times, which may
include performance quotations from other sources, including Lipper
and Morningstar. The performance of the Fund's Class A, Class B or
Class C shares may be compared in publications to (i) the
performance of various market indices or to other investments for
which reliable performance data is available, and (ii) to averages,
performance rankings or other benchmarks prepared by recognized
mutual fund statistical services.
From time to time the Fund may publish the ranking of the
performance of its Class A, Class B or Class C shares by
Morningstar, Inc., an independent mutual fund monitoring service
that ranks mutual funds, including the Fund, monthly in broad
investment categories (domestic stock, international stock, taxable
bond, municipal bond and hybrid) based on risk-adjusted investment
return. Investment return measures a fund's three, five and ten-
year average annual total returns (when available) in excess of 90-
day U.S. Treasury bill returns after considering sales charges and
expenses. Risk reflects fund performance below 90-day U.S.
Treasury bill monthly returns. Risk and return are combined to
produce star rankings reflecting performance relative to the
average fund in a fund's category. Five stars is the "highest"
ranking (top 10%), four stars is "above average" (next 22.5%),
three stars is "average" (next 35%), two stars is "below average"
(next 22.5%) and one star is "lowest" (bottom 10%). Morningstar
ranks the Fund in relation to other rated municipal bond funds.
Rankings are subject to change.
Investors may also wish to compare the Fund's Class A, Class
B or Class C return to the returns on fixed income investments
available from banks and thrift institutions, such as certificates
of deposit, ordinary interest-paying checking and savings accounts,
and other forms of fixed or variable time deposits, and various
other instruments such as Treasury bills. However, the Fund's
returns and share price are not guaranteed or insured by the FDIC
or any other agency and will fluctuate daily, while bank depository
obligations may be insured by the FDIC and may provide fixed rates
of return, and Treasury bills are guaranteed as to principal and
interest by the U.S. government.
From time to time, the Fund's Manager may publish rankings or
ratings of the Manager (or Transfer Agent), or the investor
services provided by them to shareholders of the Oppenheimer funds,
other than the performance rankings of the Oppenheimer funds
themselves. Those ratings or rankings of shareholder/investor
services by a third party may compare the Oppenheimer funds'
services to those of other mutual fund families selected by the
rating or ranking services, and may be based upon the opinions of
the rating or ranking service itself, based on its research or
judgment, or based upon surveys of investors, brokers, shareholders
or others.
Distribution and Service Plans
The Fund has adopted a Service Plan for Class A shares and
Distribution and Service Plans for Class B and Class C shares of
the Fund under Rule 12b-1 of the Investment Company Act, pursuant
to which the Fund makes payments to the Distributor in connection
with the distribution and/or servicing of the shares of that class,
as described in the Prospectus. Each Plan has been approved by a
vote of (i) the Board of Trustees of the Fund, including a majority
of the Independent Trustees, 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 Class C
shares, that vote was cast by the Manager as the sole initial
holder of Class C shares.
In addition, under the Plans the Manager and the Distributor,
in their sole discretion, from time to time, may use their own
resources (which, in the case of the Manager, may include profits
from the advisory fee it receives from the Fund) at no cost to the
Fund to make payments to brokers, dealers, or other financial
institutions (each is referred to as a "Recipient" under the Plans)
for distribution and administrative services they perform. The
Distributor and the Manager may, in their sole discretion, increase
or decrease the amount of payments they make from their own
resources to Recipients.
Unless terminated as described below, each Plan continues in
effect from year to year but only as long as its continuance is
specifically approved at least annually by the 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. Each 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. No 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.
In addition, because Class B shares of the Fund automatically
convert into Class A shares after six years, the Fund is required
by a Securities and Exchange Commission rule to obtain the approval
of Class B as well as Class A shareholders for a proposed amendment
to the Class A Plan that would materially increase the amount to be
paid by Class A shareholders under the Class A Plan. Such approval
must be by a "majority" of the Class A and Class B shares (as
defined in the Investment Company Act), voting separately by Class.
All material amendments must be approved by the Independent
Trustees.
While the Plans are in effect, the Treasurer of the Fund is to
provide separate written reports to the Fund's Board of Trustees at
least quarterly for its review, detailing 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 and Class C Plans
shall also include the Distributor's distribution costs for that
quarter, and such costs for previous fiscal periods that have been
carried forward, as explained in the Prospectus and below.
Those reports 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 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 as to
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 Fund's Independent Trustees. Initially, the
Board of Trustees has set the fee at the maximum rate allowed under
the Plans and set no minimum amount. For the fiscal year ended
September 30, 1996, payments under the Class A Plan totalled
$197,072, including $21,448 paid to an affiliate of the
Distributor. Any unreimbursed expenses incurred by the Distributor
with respect to Class A shares for any fiscal year may not be
recovered in subsequent fiscal years. 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 and Class C Plans allow the service fee payment to
be paid by the Distributor to Recipients in advance for the first
year such shares are outstanding, and thereafter on a quarterly
basis, as described in the Prospectus. The advance payment is
based on the net asset value of shares sold. An exchange of shares
does not entitle the Recipient to an advance service fee payment.
In the event Class B and Class C shares are redeemed during the
first year such shares are outstanding, the Recipient will be
obligated to repay a pro rata portion of the advance of the service
fee payment to the Distributor. Pursuant to the Plans, service fee
payments by the Distributor to Recipients will be made (i) in
advance for the first year Class B and Class C shares are
outstanding, following the purchase of shares, in an amount equal
to 0.25% of the net asset value of the shares purchased by the
Recipient or its customers and (ii) thereafter, on a quarterly
basis, computed as of the close of business each day at an annual
rate of 0.25% of the average daily net asset value of Class B and
Class C shares held in accounts of the Recipient or its customers.
Payments made under the Class B Plan for the period from September
11, 1995 through September 30, 1996 totalled $14,341, of which
$13,506 was retained by the Distributor as reimbursement for Class
B distribution-related expenses and sales commissions. For the
year ended September 30, 1996, payments made under the Class C Plan
totalled $90,050, of which $38,414 was retained by the Distributor
as reimbursement for Class C Distribution-related expenses and
sales commissions.
Although the Class B and Class C Plans permit the Distributor
to retain both the asset-based sales charges and the service fee on
such shares, or to pay Recipients the service fee on a quarterly
basis without payment in advance, the Distributor presently 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 and Class C Plans by the Board. Initially, the Board
has set no minimum holding period. All payments under the Class B
Plan are subject to the limitations imposed by the Rules of Conduct
of the National Association of Securities Dealers, Inc. on payments
of asset-based sales charges and service fees.
The Class B and Class C Plans provide for the Distributor to
be compensated at a flat rate, whether the Distributor's
distribution expenses are more or less than the amounts paid by the
Fund during that period. The Distributor retains the asset-based
sales charge on Class B shares outstanding for less than 6 years.
As to Class C shares, the Distributor retains the asset-based sales
charge during the first year shares are outstanding and pays the
asset-based sales charge as an ongoing commission to the dealer on
Class C shares outstanding for more than a year or more. Such
payments are made to the Distributor in recognition that the
Distributor (i) pays sales commissions to authorized brokers and
dealers at the time of sale and pays service fees, as described in
the Prospectus, (ii) may finance such commissions and/or the
advance of the service fee payment to Recipients under those Plans,
or may provide such financing from its own resources, or from an
affiliate, (iii) employs personnel to support distribution of
shares, and (iv) may bear the costs of sales literature,
advertising and prospectuses (other than those furnished to current
shareholders) and state "blue sky" registration fees and certain
other distribution expenses.
ABOUT YOUR ACCOUNT
How To Buy Shares
Alternative Sales Arrangements - Class A, Class B and Class C
Shares. The availability of three classes of shares permits 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. Investors should understand that the
purpose and function of the deferred sales charge and asset-based
sales charge with respect to Class B and Class C shares are the
same as those of the initial sales charge with respect to Class A
shares. Any salesperson or other person entitled to receive
compensation for selling Fund shares may receive different
compensation with respect to one class of shares than the other.
The Distributor will not accept any order for $500,000 or more of
Class B shares or $1 million or more of Class C shares on behalf of
a single investor (not including dealer "street name" or omnibus
accounts) because generally it will be more advantageous for that
investor to purchase Class A shares of the Fund instead.
The three classes of shares each represent an interest in the
same portfolio investments of the Fund. However, each class has
different shareholder privileges and features. The net income
attributable to Class B and Class C shares and the dividends
payable on such Class B and Class C shares will be reduced by
incremental expenses borne solely by that class, including the
asset-based sales charge to which Class B and Class C shares are
subject.
The conversion of Class B shares to Class A shares after six
years is subject to the continuing availability of a private letter
ruling from the Internal Revenue Service, or an opinion of counsel
or tax adviser, to the effect that the conversion of Class B shares
does not constitute a taxable event for the holder under Federal
income tax law. If such a revenue ruling or opinion is no longer
available, the automatic conversion feature may be suspended, in
which event no further conversions of Class B shares would occur
while such suspension remained in effect. Although Class B shares
could then be exchanged for Class A shares on the basis of relative
net asset value of the two classes, without the imposition of a
sales charge or fee, such exchange could constitute a taxable event
for the holder, and absent such exchange, Class B shares might
continue to be subject to the asset-based sales charge for longer
than six years.
The methodology for calculating the net asset value, dividends
and distributions of the Fund's Class A, Class B and Class C shares
recognizes two types of expenses. General expenses that do not
pertain specifically to any 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, Statements of Additional Information 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 and Service 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.
Determination of Net Asset Values Per Share. The net asset values
per share of Class A, Class B and Class C shares of the Fund are
determined as of the close of business of The New York Stock
Exchange on each day that the Exchange is open by dividing the
value of the Fund's net assets attributable to that Class by the
number of shares of that class outstanding. The Exchange normally
closes at 4:00 P.M., New York time, but may close earlier on some
days (for example, in case of weather emergencies or on days
falling before a holiday). The Exchange's most recent annual
announcement (which is subject to change) states that it will close
on New Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
It may also close on other days. Dealers other than Exchange
members may conduct trading in Municipal Securities on certain days
on which the Exchange is closed (including weekends and holidays)
or after 4:00 P.M. on a regular business day. Because the Fund's
net asset value will not be calculated on those days, the Fund's
net asset value per share of each class may be significantly
affected at times when shareholders may not purchase or redeem
shares.
The Board of Trustees has established procedures for the
valuation of the Fund's securities, generally as follows: (i)
long-term debt securities having a remaining maturity in excess of
60 days are valued based on the mean between the "bid" and "ask"
prices determined by a portfolio pricing service approved by the
Board of Trustees or obtained by the Manager from two active market
makers in the security on the basis of reasonable inquiry; (ii)
debt instruments having a maturity of more than 397 days when
issued, and non-money market type instruments having a maturity of
397 days or less when issued, which have a remaining maturity of 60
days or less are valued at the mean between the "bid" and "ask"
prices determined by a pricing service approved by the Board of
Trustees or obtained by the Manager from two active market makers
in the security on the basis of reasonable inquiry; (iii) money
market debt securities that had a maturity of less than 397 days
when issued that have a remaining maturity of 60 days or less are
valued at cost, adjusted for amortization of premiums and accretion
of discounts; and (iv) securities (including restricted securities)
not having readily-available market quotations are valued at fair
value determined under the Board's procedures. If the Manager is
unable to locate two market makers willing to give quotes (see (i)
and (ii) above), the security may be priced at the mean between
the "bid" and "ask" prices provided by a single active market maker
(which in certain cases may be the "bid" price if no "ask" price is
available).
In the case of Municipal Securities, U.S. Government
securities and corporate bonds, 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). The Manager may use pricing services approved by the
Board of Trustees to price any of the types of securities described
above. The Manager will monitor the accuracy of such pricing
services, which may include comparing prices used for portfolio
evaluation to actual sales prices of selected securities.
Puts, calls, Interest Rate Futures and Municipal Bond Index
Futures are valued at the last sales price on the principal
exchange on which they are traded or on NASDAQ, as applicable, or
as determined by a pricing service approved by the Board of
Trustees. If there were no sales that day, the value is the last
sale price on the preceding trading day if it is within the spread
of the closing "bid" and "ask" prices on the principal exchange or
on NASDAQ on the valuation date, or, if not, the value is the
closing "bid" price on the principal exchange or on NASDAQ on the
valuation date. If the put, call or future is not traded on an
exchange or on NASDAQ, it is valued at the mean between "bid" and
"ask" prices obtained by the Manager from two active market makers
(which in certain cases may be the "bid" price if no "ask" price is
available).
When the Fund writes an option, an amount equal to the premium
received is included in the Fund's Statement of Assets and
Liabilities as an asset, and an equivalent credit is included in
the liability section. The credit is adjusted ("marked-to-market")
to reflect the current market value of the call or put.
In determining the Fund's gain on investments, if a call or
put written by the Fund is exercised, the proceeds are increased by
the premium received. If a call or put written by the Fund
expires, the Fund has a gain in the amount of the premium; if the
Fund enters into a closing purchase transaction, it will have a
gain or loss, depending on whether the premium received was more or
less than the cost of the closing transaction. If the Fund
exercises a put it holds, the amount the Fund receives on its sale
of the underlying investment is reduced by the amount of premium
paid by the Fund.
AccountLink. When shares are purchased through AccountLink, each
purchase must be at least $25. Shares will be purchased on the
regular business day the Distributor is instructed to initiate the
Automated Clearing House transfer to buy the shares. Dividends
will begin to accrue on shares purchased by the proceeds of ACH
transfers on the business day the Fund receives Federal Funds for
the purchase through the ACH system before the close of The New
York Stock Exchange. The Exchange normally closes at 4:00 p.m., but
may close earlier on certain days. If Federal Funds are received
on a business day after the close of the Exchange, the shares will
be purchased and dividends will begin to accrue on the next regular
business day after such Federal Funds are received. The proceeds
of ACH transfers are normally received by the Fund three days after
the transfers are initiated. The Distributor and the Fund are not
responsible for any delays in purchasing shares resulting from
delays in ACH transmissions.
Reduced Sales Charges. As discussed in the Prospectus, a reduced
sales charge rate may be obtained for Class A shares under Right of
Accumulation and Letters of Intent because of the economies of
sales efforts and reduction in expenses realized by the
Distributor, dealers and brokers making such sales. No sales
charge is imposed in certain other circumstances described in the
Prospectus because the Distributor or dealer or broker incurs
little or no selling expenses. The term "immediate family" refers
to one's spouse, children, grandchildren, parents, grandparents,
parents-in-law, brothers and sisters, sons- and daughters-in-law,
siblings, and a sibling's spouse, a spouse's siblings, aunts,
uncles, nieces and nephews.
The Oppenheimer Funds. The Oppenheimer funds are those
mutual funds for which the Distributor acts as the distributor or
the sub-distributor and include the following:
Oppenheimer Municipal Fund
Oppenheimer New York Municipal Fund
Oppenheimer California Municipal Fund
Oppenheimer Intermediate Municipal Fund
Oppenheimer Insured Municipal Fund
Oppenheimer Main Street California
Municipal Fund
Oppenheimer Florida Municipal Fund
Oppenheimer Pennsylvania Municipal Fund
Oppenheimer New Jersey Municipal Fund
Oppenheimer Fund
Oppenheimer Discovery Fund
Oppenheimer Target Fund
Oppenheimer Growth Fund
Oppenheimer Equity Income Fund
Oppenheimer Value Stock Fund
Oppenheimer Asset Allocation Fund
Oppenheimer Total Return Fund, Inc.
Oppenheimer Main Street Income & Growth Fund
Oppenheimer High Yield Fund
Oppenheimer Champion Income Fund
Oppenheimer Bond Fund
Oppenheimer U.S. Government Trust
Oppenheimer Limited-Term Government Fund
Oppenheimer Global Fund
Oppenheimer Global Emerging Growth Fund
Oppenheimer Global Growth & Income Fund
Oppenheimer Gold & Special Minerals Fund
Oppenheimer Strategic Income Fund
Oppenheimer Strategic Income & Growth Fund
Oppenheimer International Bond Fund
Oppenheimer Enterprise Fund
Oppenheimer International Growth Fund
Oppenheimer Quest Global Value Fund, Inc.
Oppenheimer Quest Value Fund, Inc.
Oppenheimer Quest Opportunity Value Fund
Oppenheimer Quest Small Cap Value Fund
Oppenheimer Quest Growth & Income Value Fund
Oppenheimer Quest Officers Value Fund
Oppenheimer Disciplined Allocation Fund
Oppenheimer Disciplined Value Fund
Oppenheimer LifeSpan Balanced Fund
Oppenheimer LifeSpan Income Fund
Oppenheimer LifeSpan Growth Fund
Rochester Fund Municipals
Oppenheimer Bond Fund For Growth
Limited-Term New York Municipal Fund
<PAGE>
and the following "Money Market Funds":
Oppenheimer Money Market Fund, Inc.
Oppenheimer Cash Reserves
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.
There is an initial sales charge on the purchase of Class A
shares of each of the Oppenheimer funds except Money Market Funds
(under certain circumstances described herein, redemption proceeds
of Money Market Fund shares may be subject to a contingent deferred
sales charge).
Letters of Intent. A Letter of Intent (referred to as a
"Letter") is the investor's statement in writing to the Distributor
of the intention to purchase Class A shares or Class A and Class B
shares of the Fund (and other Oppenheimer funds during a 13-month
period (the "Letter of Intent period"), which may, at the
investor's request, include purchases made up to 90 days prior to
the date of the Letter. The Letter states the investor's intention
to make the aggregate amount of purchases of shares which, when
added to the investor's holdings of shares of those funds, will
equal or exceed the amount specified in the Letter. Purchases made
by reinvestment of dividends or distributions of capital gains and
purchases made at net asset value without sales charge do not count
toward satisfying the amount of the Letter. A Letter enables an
investor to count the Class A and Class B shares to be purchased
under the Letter to obtain the reduced sales charge rate on
purchases of Class A shares of the Fund (and other Oppenheimer
funds) that applies under the Right of Accumulation to current
purchases of Class A shares. Each purchase of Class A shares under
the Letter will be made at the public offering price (including the
sales charge) that applies to a single lump-sum purchase of shares
in the amount intended to be purchased under the Letter.
In submitting a Letter, the investor makes no commitment to
purchase shares, 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 shares on the last day of that
period, do not equal or exceed the intended purchase amount, the
investor agrees to pay the additional amount of sales charge
applicable to such purchases, 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
purchase amount will be held in escrow by the Transfer Agent
subject to the Terms of Escrow. Also, the investor agrees to be
bound by the terms of the Prospectus, this Statement of Additional
Information and the Application used for such Letter of Intent, and
if such terms are amended, as they may be from time to time by the
Fund, that those amendments will apply automatically to existing
Letters of Intent.
If the total eligible purchases made during the Letter of
Intent period do not equal or exceed the intended purchase amount,
the commissions previously paid to the dealer of record for the
account and the amount of sales charge retained by the Distributor
will be adjusted to the rates applicable to actual total purchases.
If total eligible purchases during the Letter of Intent period
exceed the intended purchase amount and exceed the amount needed to
qualify for the next sales charge rate reduction set forth in the
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
advise the Distributor about the Letter in placing any purchase
orders for the investor during the Letter of Intent period. All
of such purchases must be made through the Distributor.
Terms of Escrow That Apply to Letters of Intent.
1. Out of the initial purchase (or subsequent purchases if
necessary) made pursuant to a Letter, shares of the Fund equal in
value up to 5% of the intended purchase amount specified in the
Letter shall be held in escrow by the Transfer Agent. For example,
if the intended purchase amount is $50,000, the escrow shall be
shares valued in the amount of $2,500 (computed at the public
offering price adjusted for a $50,000 purchase). Any dividends and
capital gains distributions on the escrowed shares will be credited
to the investor's account.
2. If the total minimum investment specified under the Letter
is completed within the thirteen-month Letter of Intent period, the
escrowed shares will be promptly released to the investor.
3. If, at the end of the thirteen-month Letter of Intent
period the total purchases pursuant to the Letter are less than the
intended purchase amount specified in the Letter, the investor must
remit to the Distributor an amount equal to the difference between
the dollar amount of sales charges actually paid and the amount of
sales charges which would have been paid if the total amount
purchased had been made at a single time. 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 as attorney-in-fact to surrender
for redemption any or all escrowed shares.
5. The shares eligible for purchase under the Letter (or the
holding of which may be counted toward completion of a Letter)
include (a) Class A shares sold with a front-end sales charge or
subject to a Class A contingent deferred sales charge, (b) Class B
shares of other Oppenheimer funds acquired subject to a contingent
deferred sales charge, and (c) Class A or B shares acquired in
exchange for either (i) Class A shares of one of the other
Oppenheimer funds that were acquired subject to a Class A initial
or contingent deferred sales charge or (ii) Class B shares of one
of the other Oppenheimer funds that were acquired subject to a
contingent deferred sales charge.
6. Shares held in escrow hereunder will automatically be
exchanged for shares of another fund to which an exchange is
requested, as described in the section of the Prospectus entitled
"How to Exchange Shares," and the escrow will be transferred to
that other fund.
Asset Builder Plans. To establish an Asset Builder Plan 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 Sell
Shares," in the Prospectus. Asset Builder Plans also enable
shareholders of the Fund to use those accounts for monthly
automatic purchases of shares of up to four other Oppenheimer
funds. If you make payments from your bank account to purchase
shares of the Fund, your bank account will be automatically debited
normally four to five business days prior to the investment dates
selected in the Account Application. Neither the Distributor, the
Transfer Agent nor the Fund shall be responsible for any delays in
purchasing shares resulting from delays in ACH transmission.
There is a front-end sales charge on the purchase of certain
Oppenheimer funds, or a contingent deferred sales charge may apply
to shares purchased by Asset Builder payments. An application
should be obtained from the Distributor, completed and returned,
and a prospectus of the selected fund(s) should be obtained from
the Distributor or your financial advisor before initiating Asset
Builder payments. The amount of the Asset Builder investment may
be changed or the automatic investments may be terminated at any
time by writing to the Transfer Agent. A reasonable period
(approximately 15 days) is required after the Transfer Agent's
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.
Cancellation of Purchase Orders. Cancellation of purchase orders
for the Fund's shares (for example, when a purchase check is
returned to the Fund unpaid) causes a loss to be incurred when the
net asset value of the Fund's shares on the cancellation date is
less than on the purchase date. That loss is equal to the amount
of the decline in the net asset value per share multiplied by the
number of shares in the purchase order. The investor is
responsible for that loss. If the investor fails to compensate the
Fund for the loss, the Distributor will do so. The Fund may
reimburse the Distributor for that amount by redeeming shares from
any account registered in that investor's name, or the Fund or the
Distributor may seek other redress.
Checkwriting. When a check is presented to the Bank for clearance,
the Bank will ask the Fund to redeem a sufficient number of full
and fractional shares in the shareholder's account to cover the
amount of the check. This enables the shareholder to continue
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 checkwriting privileges at any time without
prior notice.
By choosing the Checkwriting privilege, whether you do so by
signing the Account Application or by completing a Checkwriting
card, the individuals signing (1) represent that they are either
the registered owner(s) of the shares of the Fund, or are an
officer, general partner, trustee or other fiduciary or agent, as
applicable, duly authorized to act on behalf of such registered
owner(s); (2) authorize the Fund, its Transfer Agent and any bank
through which the Fund s drafts ( checks ) are payable (the Bank ),
to pay all checks drawn on the Fund account of such person(s) and
to effect a redemption of sufficient shares in that account to
cover payment of such checks; (3) specifically acknowledge(s) that
if you choose to permit a single signature on checks drawn against
joint accounts, or accounts for corporations, partnerships, trusts
or other entities, the signature of any one signatory on a check
will be sufficient to authorize payment of that check and
redemption from an account even if that account is registered in
the names of more than one person or even if more than one
authorized signature appears on the Checkwriting card or the
Application, as applicable; and (4) understand(s) that the
Checkwriting privilege may be terminated or amended at any time by
the Fund and/or the Bank and neither shall incur any liability for
such amendment or termination or for effecting redemptions to pay
checks reasonably believed to be genuine, or for returning or not
paying checks which have not been accepted for any reason.
How to Sell Shares
Information on how to sell shares of the Fund is stated in the
Prospectus. The information below supplements the terms and
conditions for redemptions set forth in the Prospectus.
Selling Shares by Wire. The wire of redemptions 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.
Involuntary Redemptions. The Fund's Board of Trustees has
the right to cause the involuntary redemption of the shares held in
any account if the aggregate net asset value of those shares is
less than $1,000 or such lesser amount as the Board may fix. The
Board of Trustees will not cause the involuntary redemption of
shares in an account if the aggregate net asset value of the 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 the Board may set requirements
for granting permission to the shareholder to increase the
investment, and set other terms and conditions so that the shares
would not be involuntarily redeemed.
Payments "In Kind". The Prospectus states that payment for
shares tendered for redemption is ordinarily made in cash. However,
the Board of Trustees of the Trust may determine that it would be
detrimental to the best interests of the remaining shareholders of
the Fund to make payment of a redemption order wholly or partly in
cash. In that case, the Fund may pay the redemption proceeds in
whole or in part by a distribution "in kind" of securities from the
portfolio of the Fund, in lieu of cash, in conformity with
applicable rules of the Securities and Exchange Commission. The
Trust has elected to be governed by Rule 18f-1 under the Investment
Company Act, pursuant to which the Fund is obligated to redeem
shares solely in cash up to the lesser of $250,000 or 1% of the net
assets of the Fund during any 90-day period for any one
shareholder. If shares are redeemed in kind, the redeeming
shareholder might incur brokerage or other costs in selling the
securities for cash. The method of valuing securities used to make
redemptions in kind will be the same as the method the Fund uses to
value its portfolio securities described above under "Determination
of Net Asset Values Per Share" and that valuation will be made as
of the time the redemption price is determined.
Reinvestment Privilege. Within six months of a redemption, a
shareholder may reinvest all or part of the redemption proceeds of
(i) Class A shares that you purchase subject to an initial sales
charge or Class A contingent deferred sales charge, or (ii) Class
B shares that were subject to the Class B contingent deferred sales
charge when redeemed. The reinvestment may be made without sales
charge only in Class A shares of the Fund or any of the other
Oppenheimer funds into which shares of the Fund are exchangeable as
described in "How to Exchange Shares" below, at the net asset value
next computed after the Transfer Agent receives the reinvestment
order. This reinvestment privilege does not apply to Class C
shares. The shareholder must ask the Distributor for that
privilege at the time of reinvestment. Any capital gain that was
realized when the shares were redeemed is taxable, and reinvestment
will not alter any capital gains tax payable on that gain. If
there has been a capital loss on the redemption, some or all of the
loss may not be tax deductible, depending on the timing and amount
of the reinvestment. Under the Internal Revenue Code, if the
redemption proceeds of Fund shares on which a sales charge was paid
are reinvested in shares of the Fund or another of the Oppenheimer
funds within 90 days of payment of the sales charge, the
shareholder's basis in the shares of the Fund that were redeemed
may not include the amount of the sales charge paid. That would
reduce the loss or increase the gain recognized from the
redemption. However, in that case the sales charge would be added
to the basis of the shares acquired by the reinvestment of the
redemption proceeds. 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.
Transfers of Shares. Shares are not subject to the payment of a
contingent deferred sales charge of any class at the time of
transfer to the name of another person or entity (whether the
transfer occurs by absolute assignment, gift or bequest, not
involving, directly or indirectly, a public sale). The transferred
shares will remain subject to the contingent deferred sales charge,
calculated as if the transferee shareholder had acquired the
transferred shares in the same manner and at the same time as the
transferring shareholder. If less than all shares held in an
account are transferred, and some but not all shares in the account
would be subject to a contingent deferred sales charge if redeemed
at the time of transfer, the priorities described in the Prospectus
under "How to Buy Shares" for the imposition of the Class B or the
Class C contingent deferred sales charge will be followed in
determining the order in which shares are transferred.
Special Arrangements for Repurchase of Shares from Dealers and
Brokers. The Distributor is the Fund's agent to repurchase its
shares from authorized dealers or brokers on behalf of their
customers. The shareholder should contact the broker or dealer to
arrange this type of redemption. The repurchase price per share
will be the net asset value next computed after the Distributor
receives an order placed by the dealer or broker, except that if
the Distributor receives a repurchase order from a dealer or broker
after the close of The New York Stock Exchange on a regular
business day, it will be processed at that day's net asset value if
the order was received by the dealer or broker from its customers
prior to the time the Exchange closes (normally that is 4:00 p.m.,
but may be earlier on some days) and the order was transmitted to
and received by the Distributor prior to its close of business that
day (normally 5:00 P.M.). Ordinarily, for accounts redeemed by a
broker-dealer under this procedure, payment will be made within
three business days after the shares have been redeemed upon the
Distributor's receipt of the required redemption documents in
proper form, with the signature(s) of the registered owners
guaranteed on the redemption documents as described in the
Prospectus.
Automatic Withdrawal and Exchange Plans. Investors owning shares
of the Fund valued at $5,000 or more can authorize the Transfer
Agent to redeem shares (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 to be made 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.
Shares are normally redeemed pursuant to an Automatic Withdrawal
Plan three business days before the date you select in the Account
Application. If a contingent deferred sales charge applies to the
redemption, the amount of the check or payment will be reduced
accordingly. The Fund cannot guarantee receipt of a payment on the
date requested and reserves the right to amend, suspend or
discontinue offering such plans at any time without prior notice.
Because of the sales charge assessed on Class A share purchases,
shareholders should not make regular additional Class A share
purchases while participating in an Automatic Withdrawal Plan.
Class B and Class C shareholders should not establish withdrawal
plans because of the imposition of the contingent deferred sales
charge on such withdrawals (except where the contingent deferred
sales charge is waived as described in the Prospectus under
"Waivers of Class B and Class C Sales Charges").
By requesting an Automatic Withdrawal or Exchange Plan, the
shareholder agrees to the terms and conditions applicable to such
plans, as stated below, as well as the Prospectus. These
provisions may be amended from time to time by the Fund and/or the
Distributor. When adopted, such amendments will automatically
apply to existing Plans.
Automatic Exchange Plans. Shareholders can authorize the
Transfer Agent (on the OppenheimerFunds Application or signature-
guaranteed instructions) to exchange a pre-determined amount of
shares of the Fund for shares (of the same class) of other
Oppenheimer funds automatically on a monthly, quarterly, semi-
annual or annual basis under an Automatic Exchange Plan. The
minimum amount that may be exchanged to each other fund account is
$25. Exchanges made under these plans are subject to the
restrictions that apply to exchanges as set forth in "How to
Exchange Shares" in the Prospectus and below in this Statement of
Additional Information.
Automatic Withdrawal 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 capital gains distributions will be
redeemed next, followed by shares acquired with a sales charge, to
the extent necessary to make withdrawal payments. Depending upon
the amount withdrawn, the investor's principal may be depleted.
Payments made under such plans should not be considered as a yield
or income on your investment. It may not be desirable to purchase
additional shares of Class A shares while maintaining automatic
withdrawals because of the sales charges that apply to purchases
when made. Accordingly, a shareholder normally may not maintain an
Automatic Withdrawal Plan while simultaneously making regular
purchases of Class A shares.
The Transfer Agent will administer the investor's Automatic
Withdrawal Plan (the "Plan") as agent for the investor (the
"Planholder") who executed the Plan authorization and application
submitted to the Transfer Agent. Neither the Fund nor the Transfer
Agent shall incur any liability to the Planholder for any action
taken or omitted by the Transfer Agent in good faith to administer
the Plan. Certificates will not be issued for shares of the Fund
purchased for and held under the Plan, but the Transfer Agent will
credit all such shares to the account of the Planholder on the
records of the Fund. Any share certificates held by a Planholder
may be surrendered unendorsed to the Transfer Agent with the Plan
application so that the shares represented by the certificate may
be held under the Plan.
For accounts subject to Automatic Withdrawal Plans,
distributions of capital gains must be reinvested in shares of the
Fund, which will be done at net asset value without a sales charge.
Dividends on shares held in the account may be paid in cash or
reinvested.
Redemptions of shares needed to make withdrawal payments will
be made at the net asset value per share determined on the
redemption date. Checks or AccountLink payments of the proceeds of
Plan withdrawals will normally be transmitted three business days
prior to the date selected for receipt of the payment (receipt of
payment on the date selected cannot be guaranteed), according to
the choice specified in writing by the Planholder.
The amount and the interval of disbursement payments and the
address to which checks are to be mailed or AccountLink payments
are to be sent may be changed at any time by the Planholder by
writing to the Transfer Agent. The Planholder should allow at
least two weeks' time in mailing such notification for the
requested change to be put in effect. The Planholder may, at any
time, instruct the Transfer Agent by written notice (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 that 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 to the Planholder.
The Plan may be terminated at any time by the Planholder by
writing to the Transfer Agent. A Plan may also be terminated at
any time by the Transfer Agent upon receiving directions to that
effect from the Fund. The Transfer Agent will also terminate a
Plan upon receipt of evidence satisfactory to it of the death or
legal incapacity of the Planholder. Upon termination of a Plan by
the Transfer Agent or the Fund, shares that have not been redeemed
from the account will be held in uncertificated form 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 or his or her
executor or guardian, or other authorized person.
To use shares held under the Plan as collateral for a debt,
the Planholder may request issuance of a portion of the shares in
certificated form. Upon written request from the Planholder, the
Transfer Agent will determine the number of shares for which a
certificate may be issued without causing the withdrawal checks to
stop because of exhaustion of uncertificated shares needed to
continue payments. However, should such uncertificated shares
become exhausted, Plan withdrawals will terminate.
If the Transfer Agent ceases to act as transfer agent for the
Fund, the Planholder will be deemed to have appointed any successor
transfer agent to act as agent in administering the Plan.
How To Exchange Shares
As stated in the Prospectus, shares of a particular class of
Oppenheimer funds having more than one class of shares may be
exchanged only for shares of the same class of other Oppenheimer
funds. Shares of the Oppenheimer funds that have a single class
without a class designation are deemed "Class A" shares for this
purpose. All of the Oppenheimer funds offer Class A, B and C
shares except Oppenheimer Money Market Fund, Inc., Centennial Money
Market Trust, Centennial Tax Exempt Trust, Centennial Government
Trust, Centennial New York Tax Exempt Trust, Centennial California
Tax Exempt Trust, Centennial America Fund, L.P., and Daily Cash
Accumulation Fund, Inc., which only offer Class A shares and
Oppenheimer Main Street California Municipal Fund which only offers
Class A and Class B shares, (Class B and Class C shares of
Oppenheimer Cash Reserves are generally available only by exchange
from the same class of shares of other Oppenheimer funds or through
OppenheimerFunds sponsored 401(k) plans). A current list showing
which funds offer which classes can be obtained by calling the
Distributor at 1-800-525-7048.
For accounts established on or before March 8, 1996 holding
Class M shares of Oppenheimer Bond Fund for Growth, Class M shares
can be exchanged only for Class A shares of other Oppenheimer
funds, including Rochester Fund Municipals and Limited Term New
York Municipal Fund. Class A shares of Rochester Fund Municipals
or Limited Term New York Municipal Fund acquired on the exchange of
Class M shares of Oppenheimer Bond Fund for Growth may be exchanged
for Class M shares of that fund. For accounts of Oppenheimer Bond
Fund for Growth established after March 8, 1996, Class M shares may
be exchanged for Class A shares of other Oppenheimer funds shares
except Rochester Fund Municipals and Limited Term New York
Municipals. Exchanges to Class M shares of Oppenheimer Bond Fund
for Growth are permitted from Class A shares of Oppenheimer Money
Market Fund, Inc. or Oppenheimer Cash Reserves that were acquired
by exchange from Class M shares. Otherwise no exchanges of any
class of any Oppenheimer fund into Class M shares are permitted.
However, if the Distributor receives, at the time of purchase,
notice that shares of Oppenheimer Money Market Fund, Inc. are being
purchased with the redemption proceeds of shares of other mutual
funds (other than other money market funds) that are not part of
the OppenheimerFunds family, those shares of Oppenheimer Money
Market Fund, Inc. may be exchanged for shares of other Oppenheimer
funds at net asset value without paying a sales charge.
Class A shares of Oppenheimer funds may be exchanged at net
asset value for shares of any Money Market Fund. Shares of any
Money Market Fund purchased without a sales charge may be exchanged
for shares of Oppenheimer funds offered with a sales charge upon
payment of the sales charge (or, if applicable, may be used to
purchase shares of Oppenheimer funds subject to a contingent
deferred sales charge). However, shares of Oppenheimer Money
Market Fund, Inc. purchased with the redemption proceeds of shares
of other mutual funds (other than funds managed by the Manager or
its subsidiaries) redeemed within the 12 months prior to that
purchase may subsequently be exchanged for shares of other
Oppenheimer funds without being subject to an initial or contingent
deferred sales charge, whichever is applicable. To qualify for
that privilege, the investor or the investor's dealer must notify
the Distributor of eligibility for this privilege at the time the
shares of Oppenheimer Money Market Fund, Inc. are purchased, and,
if requested, must supply proof of entitlement to this privilege.
Shares of the Fund acquired by reinvestment of dividends or
distributions from any of the Oppenheimer funds (except Oppenheimer
Cash Reserves) or from any unit investment trust for which
reinvestment arrangements have been made with the Distributor may
be exchanged at net asset value for shares of any of the
Oppenheimer funds. No contingent deferred sales charge is imposed
on exchanges of shares of any class purchased subject to a
contingent deferred sales charge. However, when Class A shares
acquired by exchange of Class A shares of other Oppenheimer funds
purchased subject to a Class A contingent deferred sales charge are
redeemed within 18 months of the end of the calendar month of the
initial purchase of the exchanged Class A shares, the Class A
contingent deferred sales charge is imposed on the redeemed shares.
(See "Class A Contingent Deferred Sales Charge" in the Prospectus).
The Class B contingent deferred sales charge is imposed on Class B
shares acquired by exchange if they are redeemed within six years
of the initial purchase of the exchanged Class B shares. The Class
C contingent deferred sales charge is imposed on Class C shares
acquired by exchange if they are redeemed within 12 months of the
initial purchase of the exchanged Class C shares.
When Class B or Class C shares are redeemed to effect an
exchange, the priorities described in "How To Buy Shares" in the
Prospectus for the imposition of the Class B or Class C contingent
deferred sales charge will be followed in determining the order in
which the shares are exchanged. Shareholders should take into
account the effect of any exchange on the applicability and rate of
any contingent deferred sales charge that might be imposed in the
subsequent redemption of remaining shares. Shareholders owning
shares of more than one Class must specify whether they intend to
exchange Class A, Class B or Class C shares.
The Fund reserves the right to reject telephone or written
exchange requests submitted in bulk by anyone on behalf of more
than one account. The Fund may accept requests for exchanges of up
to 50 accounts per day from representatives of authorized dealers
that qualify for this privilege. In connection with any exchange
request, the number of shares exchanged may be less than the number
requested if the exchange or the number requested would include
shares subject to a restriction cited in the Prospectus or this
Statement of Additional Information or would include shares covered
by a share certificate that is not tendered with the request. In
those cases, only the shares available for exchange without
restriction will be exchanged.
When exchanging shares by telephone, a shareholder must either
have an existing account in, or obtained and acknowledge receipt of
a prospectus of, the fund to which the exchange is to be made. For
full or partial exchanges of an account made by telephone, any
special account features such as Asset Builder Plans and Automatic
Withdrawal Plans will be switched to the new account unless the
Transfer Agent is instructed otherwise. If all telephone lines are
busy (which might occur, for example, during periods of substantial
market fluctuations), shareholders might not be able to request
exchanges by telephone and would have to submit written exchange
requests.
Shares to be exchanged are redeemed on the regular business
day the Transfer Agent receives an exchange request in proper form
(the "Redemption Date"). Normally, shares of the fund to be
acquired are purchased on the Redemption Date, but such purchases
may be delayed by either fund up to five business days if it
determines that it would be disadvantaged by an immediate transfer
of the redemption proceeds. The Fund reserves the right, in its
discretion, to refuse any exchange request that may disadvantage it
(for example, if the receipt of multiple exchange requests from a
dealer might require the disposition of portfolio securities at a
time or at a price that might be disadvantageous to the Fund).
The different Oppenheimer funds available for exchange have
different investment objectives, policies and risks, and a
shareholder should assure that the Fund selected is appropriate for
his or her investment and should be aware of the tax consequences
of an exchange. For federal income tax purposes, an exchange
transaction is treated as a redemption of shares of one fund and a
purchase of shares of another. "Reinvestment Privilege," above,
discusses some of the tax consequences of reinvestment of
redemption proceeds in such cases. The Fund, the Distributor, and
the Transfer Agent are unable to provide investment, tax or legal
advice to a shareholder in connection with an exchange request or
any other investment transaction.
Dividends, Capital Gains and Taxes
Dividends and Distributions. Dividends will be payable on shares
held of record at the time of the previous determination of net
asset value. 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 third business day following the
placement of the purchase order. Shares redeemed through the
regular redemption procedure will be paid dividends through and
including the day on which the redemption request is received by
the Transfer Agent in proper form. Dividends will be paid with
respect to shares repurchased by a dealer or broker for three
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.
Dividends, distributions and the proceeds of the redemption of
Fund shares represented by checks returned to the Transfer Agent by
the Postal Service as undeliverable will be invested in shares of
Oppenheimer Money Market Fund, Inc., 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.
The amount of a class's distributions may vary from time to
time depending on market conditions, the composition of the Fund's
portfolio, and expenses borne by the Fund or borne separately by a
class, as described in "Alternative Sales Arrangements -- Class A,
Class B and Class C," above. Dividends are calculated in the same
manner, at the same time and on the same day for shares of each
class. However, dividends on Class B and Class C shares are
expected to be lower than dividends on Class A shares as a result
of the asset-based sales charges on Class B and Class C shares, and
will also differ in amount as a consequence of any difference in
net asset value between the classes.
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 1995 were
exempt from Federal personal income taxes. The amount of any
dividends attributable to tax preference items for purposes of the
alternative minimum tax will be identified when tax information is
distributed by the Fund. Corporate shareholders and "substantial
users" of facilities financed by Private Activity Municipal
Securities should see "Private Activity Municipal Securities."
A shareholder receiving a dividend from income earned by the
Fund from one or more of: (1) certain taxable temporary investments
(such as certificates of deposit, repurchase agreements, commercial
paper and obligations of the U.S. government, its agencies and
instrumentalities); (2) income from securities loans; or (3) an
excess of net short-term capital gain over net long-term capital
loss from the Fund, 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 Sell 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.
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 as a regulated investment company in its last
fiscal year and intends to qualify in future years, but reserves
the right not to qualify. The Internal Revenue Code contains a
number of complex tests to determine whether the Fund will qualify,
and the Fund might not meet those tests in a particular 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 (see "Tax Aspects of Covered Calls and Hedging
Instruments," above). If it does not qualify, the Fund will be
treated for tax purposes as an ordinary corporation, will receive
no tax deduction for payments of dividends and distributions made
to shareholders and would be unable to pay "exempt-interest"
dividends as discussed above.
Under the Internal Revenue Code, by December 31 each year the
Fund must distribute 98% of its taxable investment income earned
from January 1 through December 31 of that year and 98% of its
capital gains realized in the period from November 1 of the prior
year through October 31 of the current year, or else the Fund must
pay an excise tax on the amounts not distributed. The Board and
the Manager might determine in a particular year that it might be
in the best interest of shareholders for the Fund not to make
distributions at the required levels and to pay the excise tax on
the undistributed amounts. That would reduce the amount of income
or capital gains available for distribution to shareholders.
Dividend Reinvestment in Another Fund. Shareholders of the Fund
may elect to reinvest all dividends and/or distributions in shares
of the same class of any of the other Oppenheimer funds (other than
Oppenheimer Cash Reserves) listed in "Reduced Sales Charges,"
above, at net asset value without sales charge. Class B and
Class C shareholders should be aware that as of the date of this
Statement of Additional Information, not all of the
OppenheimerFunds offer Class B or Class C shares. To elect this
option, a shareholder must notify the Transfer Agent in writing and
either must have an existing account in the fund selected for
investment or must obtain a prospectus for that fund and an
application from the Distributor to establish an account. The
investment will be made at the net asset value per share in effect
at the close of business on the payable date of the dividend or
distribution. Dividends and distributions from other Eligible
Funds may be invested in shares of this Fund on the same basis.
Additional Information About the Fund
The Custodian. The Custodian of the assets of the Fund is
Citibank, N.A. The Custodian's responsibilities include
safeguarding and controlling the Fund's portfolio securities,
collecting income on the portfolio securities and handling the
delivery of such securities to and from the Fund. The Manager has
represented to the Fund that the banking relationships between the
Manager and 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 and its
affiliates. The Fund's cash balances with the Custodian in excess
of $100,000 are not protected by Federal Deposit Insurance. Such
uninsured balances may at times be substantial.
Independent Auditors. The independent auditors of the Fund audit
the Manager's and the Fund's financial statements and perform other
related audit services. They also act as auditors for certain
other funds advised by the Manager and its affiliates.
<PAGE>
INDEPENDENT AUDITORS' REPORT
================================================================================
The Board of Trustees and Shareholders of Oppenheimer Intermediate
Municipal Fund:
We have audited the accompanying statement of assets and liabilities,
including the statement of investments, of Oppenheimer Intermediate
Municipal Fund as of September 30, 1996, the related statement of
operations for the year then ended, the statements of changes in net
assets for the years ended September 30, 1996 and 1995, and the
financial highlights for the period October 1, 1991 to September 30,
1996. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to
express an opinion on these financial statements and financial
highlights based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements and financial highlights are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of securities owned at September 30,
1996 by correspondence with the custodian and brokers; where replies
were not received from brokers, we performed other auditing procedures.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, such financial statements and
financial highlights present fairly, in all material respects, the
financial position of Oppenheimer Intermediate Municipal Fund at
September 30, 1996, 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.
DELOITTE & TOUCHE LLP
Denver, Colorado
October 21, 1996
<PAGE> 5
STATEMENT OF INVESTMENTS September 30, 1996
================================================================================
<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--98.8%
- ----------------------------------------------------------------------------------------------------------------
- --------------------
ALABAMA--1.5%
AL Water Pollution Control Authority RB, AMBAC
Insured, 6.15%, 8/15/99 Aaa/AAA/AAA $1,350,000
$1,414,368
- ----------------------------------------------------------------------------------------------------------------
- --------------------
ALASKA--1.2%
North Slope Borough, AK GOB, Series B,
FSA Insured, 7.50%, 6/30/01 Aaa/AAA 1,000,000
1,119,210
- ----------------------------------------------------------------------------------------------------------------
- --------------------
CALIFORNIA--11.2%
Berkeley, CA HF RB, Alta Bates Medical Center,
Series A, 6.50%, 12/1/11 Baa/BBB+ 3,000,000
3,047,670
- ----------------------------------------------------------------------------------------------------------------
- ------------
CA Statewide CDA Revenue COP, Cedars-Sinai
Medical Center: 5.40%, 11/1/15 A1/NR 2,000,000
1,805,780
MBIA Insured, 6.50%, 8/1/12 Aaa/AAA 1,000,000
1,113,170
- ----------------------------------------------------------------------------------------------------------------
- ------------
Corona, CA COP, Prerefunded, Series
B, 10%, 11/1/20 Aaa/AAA 1,000,000
1,292,410
- ----------------------------------------------------------------------------------------------------------------
- ------------
Long Beach Aquarium of the Pacific RB,
Series 1995-A, 5.75%, 7/1/05 NR/BBB/BBB-- 1,500,000
1,481,610
- ----------------------------------------------------------------------------------------------------------------
- ------------
Sacramento, CA Cogeneration Authority RB,
Procter & Gamble Project, 6.375%, 7/1/10 NR/BBB-- 1,100,000
1,121,736
- ----------------------------------------------------------------------------------------------------------------
- ------------
San Bernardino Cnty., CA COP,
Medical Center Financing Project, 6%, 8/1/09 Baa1/A-- 1,000,000
1,015,570
----------
10,877,946
- ----------------------------------------------------------------------------------------------------------------
- --------------------
COLORADO--1.7%
Denver, CO City & Cnty. Airport RB,
Series A, 7%, 11/15/99 Baa2/BBB/BBB 1,000,000
1,065,450
- ----------------------------------------------------------------------------------------------------------------
- ------------
Meridian Metropolitan District,
CO GORB, 7.50%, 12/1/11 A3/NR 500,000
549,255
----------
1,614,705
- ----------------------------------------------------------------------------------------------------------------
- --------------------
CONNECTICUT--2.6%
Mashantucket, CT Western Pequot Tribe
Special RB, Series A, 6.50%, 9/1/05(1) Baa/BBB 2,500,000
2,560,075
- ----------------------------------------------------------------------------------------------------------------
- --------------------
FLORIDA--1.0%
FL HFA RRB, MH, Series C, 6%, 8/1/11 NR/AAA 1,000,000
1,020,300
- ----------------------------------------------------------------------------------------------------------------
- --------------------
ILLINOIS--6.0%
Chicago, IL BOE GOB, School Reform Project,
6.25%, 12/1/11 Aaa/AAA 1,000,000
1,072,650
- ----------------------------------------------------------------------------------------------------------------
- ------------
Du Page Cnty., IL First Preservation District
GOB, Prerefunded, 7.70%, 11/1/00 Aaa/AAA 1,000,000
1,059,110
- ----------------------------------------------------------------------------------------------------------------
- ------------
IL HFAU RRB, Franciscan Sisters Health Care
Project, Series C, MBIA Insured, 6%, 9/1/09 Aaa/AAA 2,000,000
2,050,500
- ----------------------------------------------------------------------------------------------------------------
- ------------
Southwestern IL Development Authority
Hospital RB, St. Elizabeth Medical Center,
8%, 6/1/10 NR/A-- 500,000
541,775
- ----------------------------------------------------------------------------------------------------------------
- ------------
Waukegan, IL GOB, MBIA Insured, 7.50%,
12/30/03 A1/NR 1,000,000
1,147,400
----------
5,871,435
- ----------------------------------------------------------------------------------------------------------------
- --------------------
INDIANA--1.5%
IN Bond Bank RB, State Revolving Fund Program,
Series A, 6.875%, 2/1/12 NR/A 1,135,000
1,262,665
- ----------------------------------------------------------------------------------------------------------------
- ------------
IN University RB, Hospital Facilities Project,
7%, 1/1/09 A1/A+ 215,000
226,627
----------
1,489,292
- ----------------------------------------------------------------------------------------------------------------
- --------------------
LOUISIANA--1.1%
LA State GOB, Series A, AMBAC Insured, 8%, 5/1/99 Aaa/AAA/AAA 1,000,000
1,084,870
- ----------------------------------------------------------------------------------------------------------------
- --------------------
MAINE--1.3%
ME Educational LMC Student Loan RRB,
Series A, 6.05%, 11/1/04 Aaa/NR 750,000
779,977
- ----------------------------------------------------------------------------------------------------------------
- ------------
ME State Housing Authority RB, Mtg.
Purchase Project, Series A, 7.50%, 11/15/22 Aaa/AAA 500,000
529,940
----------
1,309,917
</TABLE>
5 Oppenheimer Intermediate Municipal Fund
<PAGE> 6
STATEMENT OF INVESTMENTS (Continued)
================================================================================
<TABLE>
<CAPTION>
RATINGS: MOODY'S/
S&P'S/FITCH'S FACE
MARKET VALUE
(UNAUDITED) AMOUNT
SEE NOTE 1
- ----------------------------------------------------------------------------------------------------------------
- --------------------
<S> <C> <C>
<C>
MARYLAND--1.3%
Howard Cnty., MD COP, Series A, 8.05%, 2/15/21 Aa1/AA+ $350,000
$462,959
- ----------------------------------------------------------------------------------------------------------------
- ------------
MD Water Quality Financing Administration RB,
Revolving Loan Fund, Series A, Zero Coupon,
5.358%, 9/1/07(2) Aa/AA/AA-- 1,500,000
846,375
----------
1,309,334
- ----------------------------------------------------------------------------------------------------------------
- --------------------
MASSACHUSETTS--2.2%
MA State Consolidated Loan RB, Series C,
AMBAC Insured, 7%, 6/1/09 Aaa/AAA/AAA 2,000,000
2,169,040
- ----------------------------------------------------------------------------------------------------------------
- --------------------
MICHIGAN--7.8%
Detroit, MI:
GORB, Series B, 7%, 4/1/04 Ba1/BBB/BBB-- 2,000,000
2,156,940
Self-Insurance Bonds, Series A, 5.70%, 5/1/02 NR/BBB-/BBB-- 1,000,000
1,014,250
- ----------------------------------------------------------------------------------------------------------------
- ------------
MI State:
Hospital Finance Authority RRB,
Sinai Hospital of Greater Detroit, Series 1995,
6%, 1/1/08 Baa/NR/BBB 2,500,000
2,417,050
Strategic Fund SWD RRB,
Genesee Power Station Project, 7.50%, 1/1/21 NR/NR 2,000,000
1,985,960
----------
7,574,200
- ----------------------------------------------------------------------------------------------------------------
- --------------------
NEBRASKA--2.1%
NE State Higher Education Loan Program,
Series A-6, 5.90%, 6/1/03 A/NR/A 2,000,000
2,058,600
- ----------------------------------------------------------------------------------------------------------------
- --------------------
NEVADA--3.3%
Clark Cnty., NV School District GOB, Series A,
MBIA Insured, 9.75%, 6/1/01 Aaa/AAA 1,800,000
2,178,018
- ----------------------------------------------------------------------------------------------------------------
- ------------
Washoe Cnty., NV Hospital Facility RRB,
Washoe Medical Center, Inc. Project, Series A,
AMBAC Insured, 6%, 6/1/09 Aaa/AAA/AAA 1,000,000
1,037,400
----------
3,215,418
- ----------------------------------------------------------------------------------------------------------------
- --------------------
NEW JERSEY--5.1%
Hoboken, Union City & Weehawken, NJ
Sewer Authority RB, Prerefunded,
MBIA Insured, 7.25%, 8/1/19 Aaa/AAA 1,900,000
2,073,926
- ----------------------------------------------------------------------------------------------------------------
- ------------
NJ State Turnpike Authority RRB, Series C,
AMBAC Insured, 6.50%, 1/1/08 Aaa/AAA 2,000,000
2,209,300
- ----------------------------------------------------------------------------------------------------------------
- ------------
Ocean Cnty., NJ GOB, 7.40%, 10/15/00 Aa/AA--/AA 600,000
663,186
----------
4,946,412
- ----------------------------------------------------------------------------------------------------------------
- --------------------
NEW MEXICO--0.6%
NM State Hospital Equipment Loan Council RB,
San Juan Regional Medical Center, Inc. Project,
7.90%, 6/1/11 A/NR 500,000
558,395
- ----------------------------------------------------------------------------------------------------------------
- --------------------
NEW YORK--15.7%
NYC GOB:
Prerefunded, Series F, 8.40%, 11/15/07 Aaa/AAA/AAA 2,140,000
2,531,171
Unrefunded Balance, Series F, 8.40%, 11/15/07 Baa1/BBB+ 360,000
406,944
Series B, 6.20%, 8/15/06 Baa1/BBB+/A-- 1,500,000
1,534,095
- ----------------------------------------------------------------------------------------------------------------
- ------------
NYC GORB, Series A, 7%, 8/1/07 Baa1/BBB+/A-- 2,000,000
2,169,080
- ----------------------------------------------------------------------------------------------------------------
- ------------
NYC IDA Special Facilities RB,
Terminal One Group Assn. Project:
6%, 1/1/08 A/A/A-- 2,000,000
1,989,280
6.10%, 1/1/09 A/A/A-- 2,000,000
1,998,920
- ----------------------------------------------------------------------------------------------------------------
- ------------
NYS GORB, 7.80%, 11/15/99 A/A-- 1,000,000
1,097,170
- ----------------------------------------------------------------------------------------------------------------
- ------------
NYS HFA RRB, NYC HF, Series A, 6.375%, 11/1/04 Baa/BBB+ 2,000,000
2,095,600
- ----------------------------------------------------------------------------------------------------------------
- ------------
NYS MCFFA RB, Prerefunded, 7.80%, 2/15/19 Aaa/AAA 1,275,000
1,399,733
----------
15,221,993
</TABLE>
6 Oppenheimer Intermediate Municipal Fund
<PAGE> 7
<TABLE>
<CAPTION>
S&P'S/FITCH'S
RATINGS: MOODY'S/ FACE
MARKET VALUE
(UNAUDITED) AMOUNT
SEE NOTE 1
- ----------------------------------------------------------------------------------------------------------------
- --------------------
<S> <C> <C>
<C>
OHIO--1.1%
OH State Solid Waste RB, Republic Engineered
Steels, Inc. Project, 9%, 6/1/21 NR/NR $1,000,000
$1,039,350
- ----------------------------------------------------------------------------------------------------------------
- --------------------
OKLAHOMA--1.3%
OK State Industrial Authority Health Systems RB,
Baptist Medical Center, Series C, AMBAC Insured,
7%, 8/15/05 Aaa/AAA/AAA 955,000
1,085,711
- ----------------------------------------------------------------------------------------------------------------
- ------------
Oklahoma Cnty., OK Home Finance Authority RB,
7.65%, 1/1/23 NR/AA-- 125,000
131,464
----------
1,217,175
- ----------------------------------------------------------------------------------------------------------------
- --------------------
OREGON--1.7%
Emerald Peoples Utilities District of OR RRB,
FGIC Insured, 7.20%, 11/1/04 Aaa/AAA 1,420,000
1,630,813
- ----------------------------------------------------------------------------------------------------------------
- --------------------
PENNSYLVANIA--8.2%
PA State IDA Economic Development RB,
Escrowed to Maturity, Series A, 6.80%, 7/1/01 NR/A--/AAA 3,000,000
3,263,280
- ----------------------------------------------------------------------------------------------------------------
- ------------
Philadelphia, PA Hospitals & HEFA RRB,
Jeanes Health System Project, 6.20%, 7/1/00 NR/BBB 1,360,000
1,431,332
- ----------------------------------------------------------------------------------------------------------------
- ------------
Schuylkill Cnty., PA IDA RR RRB,
Schuylkill Energy Resources, Inc., 6.50%, 1/1/10 NR/NR 3,425,000
3,293,001
----------
7,987,613
- ----------------------------------------------------------------------------------------------------------------
- --------------------
SOUTH CAROLINA--2.4%
Florence Cnty., SC Industrial Development RB,
Stone Container Project, 7.375%, 2/1/07 NR/NR 2,000,000
2,086,160
- ----------------------------------------------------------------------------------------------------------------
- ------------
Richland Cnty., SC Hospital Facilities RB,
Community Provider Pooled Loan Program, Series A,
FSA Insured, 7.125%, 7/1/17 Aaa/AAA 250,000
277,445
----------
2,363,605
- ----------------------------------------------------------------------------------------------------------------
- --------------------
SOUTH DAKOTA--1.6%
SD Student Loan Finance RB, Series A, 5.95%, 8/1/01 NR/A+ 1,500,000
1,550,025
- ----------------------------------------------------------------------------------------------------------------
- --------------------
TENNESSEE--3.4%
Chattanooga-Hamilton Cnty., TN HA RB,
Erlanger Medical Center, Prerefunded,
6.854%, 5/25/21 Aaa/AAA/AAA 3,000,000
3,299,520
- ----------------------------------------------------------------------------------------------------------------
- --------------------
TEXAS--5.0%
Austin, TX Independent School District
GORB, 7%, 8/1/06 Aaa/AAA 2,000,000
2,290,040
- ----------------------------------------------------------------------------------------------------------------
- ------------
Harris Cnty., TX:
HFDC Hospital RB, Hermann Trust, Prerefunded,
9%, 10/1/17 Aaa/NR 1,000,000
1,069,160
Toll Road Unlimited Tax & Sub. Lien RB,
Prerefunded, 10.375%, 8/1/14 Aaa/AAA 300,000
324,387
- ----------------------------------------------------------------------------------------------------------------
- ------------
San Antonio, TX Airport System RRB,
AMBAC Insured, 7.125%, 7/1/05 Aaa/AAA/AAA 1,000,000
1,144,360
----------
4,827,947
- ----------------------------------------------------------------------------------------------------------------
- --------------------
VERMONT--1.0%
VT State SAC Educational Loan RB,
Series A-3, FSA Insured, 6.25%, 6/15/03 Aaa/AAA 900,000
955,998
- ----------------------------------------------------------------------------------------------------------------
- --------------------
WEST VIRGINIA--0.9%
WV School Building Authority RB, Prerefunded,
MBIA Insured, 7.25%, 7/1/15 Aaa/AAA 750,000
832,425
- ----------------------------------------------------------------------------------------------------------------
- --------------------
DISTRICT OF COLUMBIA--1.1%
DC Hospital RRB, Medlantic Healthcare Group,
Series A, MBIA Insured, 6%, 8/15/12 Aaa/AAA 1,000,000
1,024,670
- ----------------------------------------------------------------------------------------------------------------
- --------------------
U.S. POSSESSIONS--3.9%
PR Commonwealth GOB, 6.35%, 7/1/10 Baa1/A 1,500,000
1,585,230
- ----------------------------------------------------------------------------------------------------------------
- ------------
PR EPA RB, Series P, 6.75%, 7/1/03 Baa1/BBB+ 2,000,000
2,184,980
----------
3,770,210
----------
Total Municipal Bonds and Notes (Cost $94,411,196)
95,914,861
</TABLE>
7 Oppenheimer Intermediate Municipal Fund
<PAGE> 8
STATEMENT OF INVESTMENTS (Continued)
================================================================================
<TABLE>
<CAPTION>
FACE
MARKET VALUE
AMOUNT
SEE NOTE 1
================================================================================================================
==============
<S> <C>
<C>
SHORT-TERM TAX-EXEMPT OBLIGATIONS--2.4%
- ----------------------------------------------------------------------------------------------------------------
- --------------
DE State Economic Development Authority RB,
Hospital Billing Project, Series A, BIG Insured, 3.90%, 10/1/96(3) $1,500,000
$1,500,000
- ----------------------------------------------------------------------------------------------------------------
- ------
Port St. Helens, OR PC RB, Portland General Electric,
Series B, 3.95%, 10/1/96(3) 800,000
800,000
----------
Total Short-Term Tax-Exempt Obligations (Cost $2,300,000)
2,300,000
- ----------------------------------------------------------------------------------------------------------------
- --------------
TOTAL INVESTMENTS, AT VALUE (COST $96,711,196) 101.2%
98,214,861
- ----------------------------------------------------------------------------------------------------------------
- --------------
LIABILITIES IN EXCESS OF OTHER ASSETS (1.2)
(1,196,355)
-----
----------
NET ASSETS 100.0%
$97,018,506
=====
===========
</TABLE>
1. Represents a security sold under Rule 144A, which is exempt from
registration under the Securities Act of 1933, as amended. This
security has been determined to be liquid under guidelines established
by the Board of Trustees. These securities amount to $2,560,075 or
2.64% of the Fund's net assets, at September 30, 1996.
2. For zero coupon bonds, the interest rate shown is the effective
yield on the date of purchase.
3. 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, 1996. This instrument may also have a demand
feature which allows the recovery of principal at any time, or at
specified intervals not exceeding one year, on up to 30 days' notice.
Maturity date shown represents effective maturity based on variable
rate and, if applicable, demand feature.
As of September 30, 1996, securities subject to the alternative minimum
tax amounted to $16,848,025 or 17.37% of the Fund's net assets.
To simplify the listings of the Oppenheimer Intermediate Municipal Fund
holdings in the Statement of Investments, we have abbreviated the
descriptions of many of the securities per the table below:
<TABLE>
<S> <C>
BOE -- Board of Education HFASC -- Housing Finance Agency Service Contract
CDA -- Communities Development Authority HFAU -- Health Facilities Authority
CDC -- Community Development Corporation HFDC -- Health Facilities Development
Corporation
COP -- Certificates of Participation HTA -- Highway & Transportation Authority
CUS -- City University System IDA -- Industrial Development Authority
DA -- Dormitory Authority LMC -- Loan Marketing Corporation
EFCPC -- Environmental Facilities Corporation MCFFA -- Medical Care Facilities Finance Agency
Pollution Control MH -- Multifamily Housing
EPA -- Electric Power Authority MTA -- Metropolitan Transportation Authority
ERDAEF -- Energy Research & Development MWFA -- Municipal Water Finance Authority
Authority Electric Facilities NYC -- New York City
ERDAGF -- Energy Research & Development NYS -- New York State
Authority Gas Facilities PANYNJ -- Port Authority of New York & New Jersey
FA -- Facilities Authority PAU -- Power Authority
GAC -- Government Assistance Corporation PC -- Pollution Control
GOB -- General Obligation Bonds RB -- Revenue Bonds
GORB -- General Obligation Refunding Bonds RR -- Resource Recovery
HA -- Hospital Authority RRB -- Revenue Refunding Bonds
HDA -- Hospital Development Authority SAC -- Student Assistance Corporation
HDC -- Housing Development Corporation SUEFS -- State University Educational Facilities
System
HEAA -- Higher Education Assistance Agency SWD -- Solid Waste Disposal
HEFA -- Higher Educational Facilities Authority TBTA -- Triborough Bridge & Tunnel Authority
HF -- Health Facilities UDC -- Urban Development Corporation
HFA -- Housing Finance Agency WSS -- Water & Sewer System
See accompanying Notes to Financial Statements.
</TABLE>
8 Oppenheimer Intermediate Municipal Fund
<PAGE> 9
STATEMENT OF ASSETS AND LIABILITIES September 30, 1996
================================================================================
<TABLE>
<S> <C>
===========================================================================================================
ASSETS
Investments, at value (cost $96,711,196)--see accompanying statement $98,214,861
---------------------------------------------------------------------------------------------------
Cash 518,117
---------------------------------------------------------------------------------------------------
Receivables:
Investments sold 2,129,041
Interest 1,713,474
Shares of beneficial interest sold 201,266
---------------------------------------------------------------------------------------------------
Other 19,716
-----------
Total assets 102,796,475
===========================================================================================================
LIABILITIES
Payables and other liabilities:
Investments purchased 4,980,917
Shares of beneficial interest redeemed 366,659
Dividends 300,638
Distribution and service plan fees 57,199
Transfer and shareholder servicing agent fees 4,136
Other 68,420
-----------
Total liabilities 5,777,969
===========================================================================================================
NET ASSETS $97,018,506
===========
===========================================================================================================
COMPOSITION OF
NET ASSETS
Paid-in capital $95,994,160
---------------------------------------------------------------------------------------------------
Undistributed net investment income 658,246
---------------------------------------------------------------------------------------------------
Accumulated net realized loss on investment transactions (1,137,565)
---------------------------------------------------------------------------------------------------
Net unrealized appreciation on investments--Note 3 1,503,665
-----------
Net assets $97,018,506
===========
===========================================================================================================
NET ASSET VALUE
PER SHARE
Class A Shares:
Net asset value and redemption price per share (based on net assets
of $83,252,627 and 5,667,670 shares of beneficial interest outstanding) $14.69
Maximum offering price per share (net asset value plus sales charge
of 3.50% of offering price) $15.22
---------------------------------------------------------------------------------------------------
Class B Shares:
Net asset value, redemption price and offering price per share (based on
net assets of $2,857,513 and 194,571 shares of beneficial interest outstanding) $14.69
---------------------------------------------------------------------------------------------------
Class C Shares:
Net asset value, redemption price and offering price per share (based on
net assets of $10,908,366 and 743,770 shares of beneficial interest outstanding) $14.67
See accompanying Notes to Financial Statements.
</TABLE>
9 Oppenheimer Intermediate Municipal Fund
<PAGE> 10
STATEMENT OF OPERATIONS For the Year Ended September 30, 1996
================================================================================
<TABLE>
<S> <C>
===========================================================================================================
INVESTMENT INCOME
Interest $5,886,847
===========================================================================================================
EXPENSES
Management fees--Note 4 463,582
---------------------------------------------------------------------------------------------------
Distribution and service plan fees--Note 4:
Class A 197,072
Class B 14,341
Class C 90,050
---------------------------------------------------------------------------------------------------
Transfer and shareholder servicing agent fees--Note 4 83,376
---------------------------------------------------------------------------------------------------
Shareholder reports 72,541
---------------------------------------------------------------------------------------------------
Registration and filing fees:
Class A 38,172
Class B 1,448
Class C 4,513
---------------------------------------------------------------------------------------------------
Legal and auditing fees 25,829
---------------------------------------------------------------------------------------------------
Custodian fees and expenses 22,681
---------------------------------------------------------------------------------------------------
Trustees' fees and expenses 3,254
---------------------------------------------------------------------------------------------------
Other 11,950
-----------
---------------------------------------------------------------------------------------------------
Total expenses 1,028,809
Less expenses paid indirectly--Note 4 (14,630)
-----------
Net expenses 1,014,179
===========================================================================================================
NET INVESTMENT INCOME 4,872,668
===========================================================================================================
REALIZED AND UNREALIZED
GAIN (LOSS)
Net realized gain on:
Investments 499,453
Closing of futures contracts 135,751
-----------
Net realized gain 635,204
---------------------------------------------------------------------------------------------------
Net change in unrealized appreciation or depreciation on investments (734,901)
-----------
Net realized and unrealized loss (99,697)
===========================================================================================================
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $4,772,971
===========
</TABLE>
See accompanying Notes to Financial Statements.
10 Oppenheimer Intermediate Municipal Fund
<PAGE> 11
STATEMENTS OF CHANGES IN NET ASSETS
================================================================================
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
1996 1995
===========================================================================================================
<S> <C> <C>
OPERATIONS
Net investment income $4,872,668 $4,765,137
---------------------------------------------------------------------------------------------------
Net realized gain (loss) 635,204 (1,590,413)
---------------------------------------------------------------------------------------------------
Net change in unrealized appreciation or depreciation (734,901) 4,069,030
---------- ----------
Net increase in net assets resulting from operations 4,772,971 7,243,754
===========================================================================================================
DIVIDENDS AND
DISTRIBUTIONS TO
SHAREHOLDERS
Dividends from net investment income:
Class A (4,349,156) (4,224,351)
Class B (63,816) (78)
Class C (407,791) (310,776)
===========================================================================================================
BENEFICIAL INTEREST
TRANSACTIONS
Net increase (decrease) in net assets resulting from
beneficial interest transactions--Note 2:
Class A 2,742,813 (5,399,631)
Class B 2,744,970 118,895
Class C 3,306,779 (1,122,859)
===========================================================================================================
NET ASSETS
Total increase (decrease) 8,746,770 (3,695,046)
---------------------------------------------------------------------------------------------------
Beginning of period 88,271,736 91,966,782
----------- -----------
End of period [including undistributed (overdistributed)
net investment income of $658,246 and $(66,542), respectively] $97,018,506 $88,271,736
=========== ===========
</TABLE>
See accompanying Notes to Financial Statements.
11 Oppenheimer Intermediate Municipal Fund
<PAGE> 12
FINANCIAL HIGHLIGHTS
================================================================================
<TABLE>
<CAPTION>
CLASS A
--------------------------------
YEAR ENDED SEPTEMBER 30,
1996 1995 1994
===========================================================================================
<S> <C> <C> <C>
PER SHARE OPERATING DATA:
Net asset value, beginning of period $14.69 $14.23 $15.34
- ------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .79 .79 .72
Net realized and unrealized gain (loss) (.01) .42 (1.00)
------ ------ ------
Total income (loss) from investment operations .78 1.21 (.28)
- ------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income (.78) (.75) (.76)
Distributions from net realized gain -- -- --
Distributions in excess of net realized gain -- -- (.07)
------ ------ ------
Total dividends and distributions to shareholders (.78) (.75) (.83)
- ------------------------------------------------------------------------------------------
Net asset value, end of period $14.69 $14.69 $14.23
====== ====== ======
==========================================================================================
TOTAL RETURN, AT NET ASSET VALUE(3) 5.41% 8.78% (1.92)%
==========================================================================================
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) $83,253 $80,535 $83,456
- ------------------------------------------------------------------------------------------
Average net assets (in thousands) $82,217 $79,681 $79,076
- ------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income 5.35% 5.55% 5.05%
Expenses, before voluntary assumption by the Manager(5) 1.02% 0.98% 1.00%
Expenses, net of voluntary assumption by the Manager N/A N/A N/A
- ------------------------------------------------------------------------------------------
Portfolio turnover rate(6) 53% 55% 51%
</TABLE>
1. For the period from December 1, 1993 (inception of offering) to September
30, 1994.
2. For the period from September 11, 1995 (inception of offering) to September
30, 1995.
3. Assumes a hypothetical initial investment on the business day before the
first day of the fiscal period (or inception of offering), with all dividends
and distributions reinvested in additional shares on the reinvestment date, and
redemption at the net asset value calculated on the last business day of the
fiscal period. Sales charges are not reflected in the total returns. Total
returns are not annualized for periods of less than one full year.
12 Oppenheimer Intermediate Municipal Fund
<PAGE> 13
================================================================================
<TABLE>
<CAPTION>
CLASS B CLASS C
- ----------------------- ------------------------ -------------------------------------
YEAR ENDED SEPTEMBER 30, YEAR ENDED SEPTEMBER 30,
1993 1992 1996 1995(2) 1996 1995 1994(1)
================================================================================================
<S> <C> <C> <C> <C> <C> <C>
$15.09 $14.40 $14.69 $14.71 $14.67 $14.18 $15.14
- ----------------------------------------------------------------------------------------------
.77 .86 .66 .06 .68 .69 .46
.70 .69 -- (.02) (.01) .43 (.83)
------ ------ ------ ------ ------ ------ ------
1.47 1.55 .66 .04 .67 1.12 (.37)
- ----------------------------------------------------------------------------------------------
(.75) (.86) (.66) (.06) (.67) (.63) (.52)
(.47) -- -- -- -- -- --
-- -- -- -- -- -- (.07)
------ ------ ------ ------ ------ ------ ------
(1.22) (.86) (.66) (.06) (.67) (.63) (.59)
- ----------------------------------------------------------------------------------------------
$15.34 $15.09 $14.69 $14.69 $14.67 $14.67 $14.18
====== ====== ====== ====== ====== ====== ======
==============================================================================================
10.31% 11.10% 4.56% 0.83% 4.63% 8.13% (2.54)%
==============================================================================================
$70,136 $29,724 $2,858 $119 $10,908 $7,618 $8,511
- ----------------------------------------------------------------------------------------------
$48,915 $25,153 $1,440 $ 37 $ 9,015 $7,437 $4,686
- ----------------------------------------------------------------------------------------------
5.08% 5.87% 4.51% 3.87%(4) 4.56% 4.64% 3.77%(4)
1.07% 1.25% 1.81% 1.54%(4) 1.78% 1.88% 2.24%(4)
1.05% 1.16% N/A N/A N/A N/A N/A
- ----------------------------------------------------------------------------------------------
21% 93% 53% 55% 53% 55% 51%
</TABLE>
4. Annualized.
5. Begining in fiscal 1995, the expense ratio reflects the effect of expenses
paid indirectly by the Fund. Prior year expense ratios have not been adjusted.
6. The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities
owned during the period. Securities with a maturity or expiration date at the
time of acquisition of one year or less are excluded from the calculation.
Purchases and sales of investment securities (excluding short-term securities)
for the period ended September 30, 1996 were $57,514,179 and $48,400,755,
respectively. See accompanying Notes to Financial Statements.
13 Oppenheimer Intermediate Municipal Fund
<PAGE> 14
NOTES TO FINANCIAL STATEMENTS
================================================================================
1. SIGNIFICANT
ACCOUNTING POLICIES
Oppenheimer Intermediate Municipal Fund (the Fund), operating under the
name Oppenheimer Intermediate Tax-Exempt Fund through October 9, 1996,
is a separate series of Oppenheimer Municipal Fund, operating under the
name Oppenheimer Tax-Exempt Fund through October 9, 1996, a
diversified, open-end management investment company registered under
the Investment Company Act of 1940, as amended. The Fund's investment
objective is to seek maximum current income exempt from federal income
tax for individual investors that is consistent with the preservation
of capital. The Fund's investment adviser is OppenheimerFunds, Inc.
(the Manager). The Fund offers Class A, Class B and Class C shares.
Class A shares are sold with a front-end sales charge. Class B and
Class C shares may be subject to a contingent deferred sales charge.
All three classes of shares have identical rights to earnings, assets
and voting privileges, except that each class has its own distribution
and/or service plan, expenses directly attributable to 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 the close of
the New York Stock Exchange on each trading day. Listed and unlisted
securities for which such information is regularly reported are valued
at the last sale price of the day or, in the absence of sales, at
values based on the closing bid or the last sale price on the prior
trading day. Long-term and short-term "non-money market" debt
securities are valued by a portfolio pricing service approved by the
Board of Trustees. Such securities which cannot be valued by the
approved portfolio pricing service are valued using dealer-supplied
valuations provided the Manager is satisfied that the firm rendering
the quotes is reliable and that the quotes reflect current market
value, or are valued under consistently applied procedures established
by the Board of Trustees to determine fair value in good faith.
Short-term "money market type" debt securities having a remaining
maturity of 60 days or less are valued at cost (or last
determined market value) adjusted for amortization to maturity of any
premium or discount.
------------------------------------------------------------------------
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 TAXES. The Fund intends to continue to comply with provisions
of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable income, including any
net realized gain on investments not offset by loss carryovers, to
shareholders. Therefore, no federal income or excise tax provision is
required. At September 30, 1996, the Fund had available for federal
income tax purposes an unused capital loss carryover of approximately
$1,138,000, expiring in 2003 and 2004.
------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS. The Fund intends to declare dividends
separately for Class A, Class B and Class C shares from net investment
income each day the New York Stock Exchange is open for business and
pay such dividends monthly. Distributions from net realized
gains on investments, if any, will be declared at least once each year.
CLASSIFICATION OF DISTRIBUTIONS TO SHAREHOLDERS. Net investment income
(loss) and net realized gain (loss) may differ for financial statement
and tax purposes primarily because of premium amortization for tax
purposes. The character of the distributions made during the year from
net investment income or net realized gains may differ from their
ultimate characterization for federal income tax purposes. Also, due to
timing of dividend distributions, the fiscal year in which amounts are
distributedmay differ from the year that the income or realized gain
(loss) was recorded by the Fund.
During the year ended September 30, 1996, the Fund
adjusted the classification of distributions to shareholders to reflect
the differences between financial statement amounts and distributions
determined in accordance with income tax regulations. Accordingly,
during the year ended September 30, 1996, amounts have been
reclassified to reflect a decrease in paid-in capital of $1,166,438, a
decrease in overdistributed income of $672,883, and a decrease in
accumulated net realized loss on investments of $493,555.
14 Oppenheimer Intermediate Municipal Fund
<PAGE> 15
================================================================================
1. SIGNIFICANT
ACCOUNTING POLICIES
(CONTINUED)
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. For
bonds acquired after April 30, 1993, on disposition or maturity,
taxable ordinary income is recognized to the extent of the lesser of
gain or market discount that would have accrued over the holding
period. Realized gains and losses on investments and unrealized
appreciation and depreciation are determined on an identified cost
basis, which is the same basis used for federal income tax purposes.
The preparation of financial statements in conformity
with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of income and expenses during the reporting period. Actual
results could differ from those estimates.
================================================================================
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, 1996 YEAR ENDED
SEPTEMBER 30, 1995(1)
------------------------------
- --------------------------------
SHARES AMOUNT SHARES
AMOUNT
- ----------------------------------------------------------------------------------------------------------------
- -----------
<S> <C> <C> <C>
<C>
Class A:
Sold 974,292 $ 14,353,015 1,003,900
$ 14,290,724
Dividends and distributions reinvested 203,597 2,998,589 196,934
2,809,242
Redeemed (993,272) (14,608,791) (1,583,239)
(22,499,597)
--------- ------------ -----------
------------
Net increase (decrease) 184,617 $ 2,742,813 (382,405)
$ (5,399,631)
========= ============ ===========
============
- ----------------------------------------------------------------------------------------------------------------
- -----------
Class B:
Sold 193,861 $ 2,852,627 8,097
$ 118,895
Dividends and distributions reinvested 2,577 37,785 --
--
Redeemed (9,964) (145,442) --
--
--------- ------------ -----------
------------
Net increase 186,474 $ 2,744,970 8,097
$ 118,895
========= ============ ===========
============
- ----------------------------------------------------------------------------------------------------------------
- -----------
Class C:
Sold 380,233 $ 5,600,605 208,137
$ 2,981,674
Dividends and distributions reinvested 20,909 307,116 18,316
259,921
Redeemed (176,779) (2,600,942) (307,226)
(4,364,454)
--------- ------------ -----------
------------
Net increase (decrease) 224,363 $ 3,306,779 (80,773)
$ (1,122,859)
========= ============ ===========
============
</TABLE>
1. For the year ended September 30, 1995 for Class A and Class C shares
and for the period from September 11, 1995 (inception of offering) to
September 30, 1995 for Class B shares.
================================================================================
3. UNREALIZED GAINS AND
LOSSES ON INVESTMENTS
At September 30, 1996, net unrealized appreciation on investments of
$1,503,665 was composed of gross appreciation of $2,312,769, and gross
depreciation of $809,104.
================================================================================
4. MANAGEMENT FEES
AND OTHER TRANSACTIONS
WITH AFFILIATES
Management fees paid to the Manager were in accordance with the
investment advisory agreement with the Fund which provides for a fee of
0.50% on the first $100 million of average annual net assets, 0.45% on
the next $150 million, 0.425% on the next $250 million and 0.40% on net
assets in excess of $500 million. The Manager has agreed to assume Fund
expenses (with specified exceptions) in excess of the most stringent
applicable regulatory limit on Fund expenses.
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, 1996, commissions
(sales charges paid by investors) on sales of Class A shares totaled
$160,206, of which $85,052 was retained by OppenheimerFunds
Distributor, Inc. (OFDI), a subsidiary of the Manager, as general
distributor, and by an affiliated broker/dealer. Sales charges advanced
to broker/dealers by OFDI on sales of the Fund's Class B and Class C
shares totaled $69,798 and $54,827, of which $1,320 and $1,905,
respectively, was paid to an affiliated broker/dealer. During the year
ended September 30, 1996, OFDI received contingent deferred sales
charges of $3,038 and $6,670, respectively upon redemption of Class B
and Class C shares, as reimbursement for sales commissions advanced by
OFDI at the time of sale of such shares.
15 Oppenheimer Intermediate Municipal Fund
<PAGE> 16
NOTES TO FINANCIAL STATEMENTS (Continued)
================================================================================
4. MANAGEMENT FEES AND
OTHER TRANSACTIONS
WITH AFFILIATES
(CONTINUED)
OppenheimerFunds Services (OFS), a division of the Manager, is the
transfer and shareholder servicing agent for the Fund, and for other
registered investment companies. OFS's total costs of providing such
services are allocated ratably to these companies.
Expenses paid indirectly represent a reduction of
custodian fees for earnings on cash balances maintained by the Fund.
The Fund has adopted a Service Plan for Class A
shares to reimburse OFDI for a portion of its costs incurred in
connection with the personal service and maintenance of accounts that
hold Class A shares. Reimbursement is made quarterly at an annual rate
that may not exceed 0.25% of the average annual net assets of Class A
shares of the Fund. OFDI uses the service fee to reimburse brokers,
dealers, banks and other financial institutions quarterly for providing
personal service and maintenance of accounts of their customers that
hold Class A shares. During the year ended September 30, 1996, OFDI
paid $21,448 to an affiliated broker/dealer as reimbursement for Class
A personal service and maintenance expenses.
The Fund has adopted compensation type Distribution
and Service Plans for Class B and Class C shares to compensate OFDI for
its services and costs in distributing Class B and Class C shares and
servicing accounts. Under the Plans, the Fund pays OFDI an annual
asset-based sales charge of 0.75% per year on Class B shares that are
outstanding for 6 years or less and on Class C shares, as compensation
for sales commissions paid from its own resources at the time of sale
and associated financing costs. If the Plans are terminated by the
Fund, the Board of Trustees may allow the Fund to continue payments of
the asset-based sales charge to OFDI for certain expenses it incurred
before the Plans were terminated. OFDI also receives a service fee of
0.25% per year as compensation for costs incurred in connection with
the personal service and maintenance of accounts that hold shares of
the Fund, including amounts paid to brokers, dealers, banks and other
financial institutions. Both fees are computed on the average annual
net assets of Class B and Class C shares, determined as of the close of
each regular business day. During the year ended September 30, 1996,
OFDI paid $3,824 to an affiliated broker/dealer as compensation for
Class C personal service and maintenance expenses and retained $13,506
and $38,414, respectively, as compensation for Class B and Class C
sales commissions and service fee advances, as well as financing costs.
At September 30, 1996, OFDI had incurred unreimbursed expenses of
$55,247 for Class B and $131,404 for Class C.
================================================================================
5. FUTURES CONTRACTS
The Fund may buy and sell interest rate futures contracts in order to
gain exposure to or protect against changes in interest rates. The Fund
may also buy or write put or call options on these futures contracts.
The Fund generally sells futures contracts to hedge
against increases in interest rates and the resulting negative effect
on the value of fixed rate portfolio securities. The Fund may also
purchase futures contracts to gain exposure to changes in interest
rates as it may be more efficient or cost effective than actually
buying fixed income securities.
Upon entering into a futures contract, the Fund is
required to deposit either cash or securities in an amount (initial
margin) equal to a certain percentage of the contract value. Subsequent
payments (variation margin) are made or received by the Fund each day.
The variation margin payments are equal to the daily changes in the
contract value and are recorded as unrealized gains and losses. The
Fund recognizes a realized gain or loss when the contract is closed or
expires.
Risks of entering into futures contracts (and related
options) include the possibility that there may be an illiquid market
and that a change in the value of the contract or option may not
correlate with changes in the value of the underlying securities.
<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,
1996. The tables assume that an investor's highest tax bracket
applies to the change in taxable income resulting from a switch
between taxable and non-taxable investments, that the investor is
not subject to the Alternative Minimum Tax, and that state income
tax payments are fully deductible for Federal income tax purposes.
The income tax brackets are subject to indexing in future years to
reflect changes in the Consumer Price Index.
Example: Assuming a 4.0% tax-free yield, the equivalent taxable
yield would be 6.25% for a person in the 36% tax bracket.
<TABLE>
<CAPTION>
Federal
Taxable Income: Effective A Oppenheimer Intermediate Tax-Exempt 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:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Over Not Over
$ 0 $ 40,100 15.00% 4.12% 4.71% 5.29% 5.88% 6.47% 7.06% 7.65%
$ 40,100 $ 96,900 28.00% 4.86% 5.56% 6.25% 6.94% 7.64% 8.33% 9.03%
$ 96,900 $147,700 31.00% 5.07% 5.80% 6.52% 7.25% 7.97% 8.70% 9.42%
$147,700 $263,750 36.00% 5.47% 6.25% 7.03% 7.81% 8.59% 9.38% 10.16%
$263,750 and above 39.60% 5.79% 6.62% 7.45% 8.28% 9.11% 9.93% 10.76%
Single Return
Over Not Over
$ 0 $ 24,000 15.00% 4.12% 4.71% 5.29% 5.88% 6.47% 7.06% 7.65%
$ 24,000 $ 58,150 28.00% 4.86% 5.56% 6.25% 6.94% 7.64% 8.33% 9.03%
$ 58,150 $121,340 31.00% 5.07% 5.80% 6.52% 7.25% 7.97% 8.70% 9.42%
$121,300 $263,750 36.00% 5.47% 6.25% 7.03% 7.81% 8.59% 9.38% 10.16%
$263,750 and above 39.60% 5.79% 6.62% 7.45% 8.28% 9.11% 9.93% 10.76%
</TABLE>
<PAGE>
Appendix C
Municipal Bond Industry Classifications
Electric
Gas
Water
Sewer
Telephone
Adult Living Facilities
Hospital
General Obligation
Special Assessment
Sales Tax
Manufacturing, Non Durables
Manufacturing, Durables
Pollution Control
Resource Recovery
Higher Education
Education
Lease Rental
Non Profit Organization
Highways
Marine/Aviation Facilities
Multi Family Housing
Single Family Housing <PAGE>
Investment Adviser
OppenheimerFunds, Inc.
Two World Trade Center
New York, New York 10048-0203
Distributor
OppenheimerFunds Distributor, Inc.
Two World Trade Center
New York, New York 10048-0203
Transfer and Shareholder Servicing Agent
OppenheimerFunds 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 LLP
555 Seventeenth Street
Denver, Colorado 80202
Legal Counsel
Myer, Swanson, Adams & Wolf, P.C.
1600 Broadway
Denver, Colorado 80202
<PAGE>
OPPENHEIMER
Insured Municipal Fund
Prospectus dated February 1, 1997
Oppenheimer Insured Municipal Fund is a mutual fund with the
investment objective of seeking a high level of current income
exempt from Federal income tax. The Fund will, under normal market
conditions, invest at least 80% of its total assets in Municipal
Securities and will invest at least 65% of its total assets in
insured Municipal Securities. See "Investment Objective and
Policies for more information about the types of securities the
Fund invests in and refer to "Investment Risks" for a discussion of
the risks of investing in the Fund." While payments of principal
and interest on certain securities held by the Fund are insured,
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 13.
This Prospectus explains concisely what you should know before
investing in the Fund. Please read this Prospectus carefully and
keep it for future reference. You can find more detailed
information about the Fund in the February 1, 1997 Statement of
Additional Information. For a free copy, call OppenheimerFunds
Services, the Fund's Transfer Agent, at 1-800-525-7048, or write to
the Transfer Agent at the address on the back cover. The Statement
of Additional Information has been filed with the Securities and
Exchange Commission and is incorporated into this Prospectus by
reference (which means that it is legally part of this Prospectus).
OppenheimerFunds logo
Shares of the Fund are not deposits or obligations of any bank, are
not guaranteed by any bank, are not insured by the F.D.I.C. or any
other agency, and involve investment risks, including the possible
loss of the principal amount invested.
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.
<PAGE>
Contents
A B O U T T H E F U N D
Expenses
A Brief Overview of the Fund
Financial Highlights
Investment Objective and Policies
Investment Risks
Investment Techniques and Strategies
How the Fund is Managed
Performance of the Fund
A B O U T Y O U R A C C O U N T
How to Buy Shares
Class A Shares
Class B Shares
Class C Shares
Special Investor Services
AccountLink
Automatic Withdrawal and Exchange Plans
Reinvestment Privilege
How to Sell Shares
By Mail
By Telephone
Checkwriting
How to Exchange Shares
Shareholder Account Rules and Policies
Dividends, Capital Gains and Taxes
Appendix A: Special Sales Charge Arrangements
<PAGE>
A B O U T T H E F U N D
Expenses
The Fund pays a variety of expenses directly for management of its
assets, administration, distribution of its shares and other
services, and those expenses are subtracted from the Fund's assets
to calculate the Fund's net asset value per share. All
shareholders therefore pay those expenses indirectly. Shareholders
pay other expenses directly, such as sales charges and account
transaction charges. The following tables are provided to help you
understand your direct expenses of investing in the Fund and your
share of the Fund's business operating expenses that you will bear
indirectly. The numbers below are based on the Fund's expenses
during its last fiscal year ended September 30, 1995.
Shareholder Transaction Expenses are charges you pay when
you buy or sell shares of the Fund. Please refer to "About Your
Account," starting on page __, for an explanation of how and when
these charges apply.
Class A Class B Class C
Shares Shares Shares
- -------------------------------------------------------------------------
Maximum Sales Charge 4.75% None None
on Purchases (as a % of
offering price)
- -------------------------------------------------------------------------
Maximum Deferred Sales None(1) 5% in the first 1% if shares are
Charge (as a % of the lower of year, declining redeemed within
the original offering to 1% in the 12 months of
price or redemption sixth year and purchase(2)
proceeds) eliminated
thereafter(2)
- -------------------------------------------------------------------------
Maximum Sales Charge on None None None
Reinvested Dividends
- -------------------------------------------------------------------------
Redemption Fee None(3) None(3) None(3)
- -------------------------------------------------------------------------
Exchange Fee None None None
1. If you invest $1 million or more in Class A shares, you may have
to pay a sales charge of up to 1% if you sell your shares within 18
calendar months from the end of the calendar month in which you
purchased those shares. See "How to Buy Shares - Buying Class A
Shares," below.
2. See "How to Buy Shares - Buying Class B Shares" and "How to Buy
Shares - Buying Class C Shares," below, for more information on the
contingent deferred sales charge.
3. There is a $10 transaction fee for redemptions paid by Federal
Funds wire, but not for redemptions paid by check or by ACH wire
transfer through AccountLink, or for which check writing privileges
are used (see "How To Sell Shares").
Annual Fund Operating Expenses are paid out of the Fund's
assets and represent the Fund's expenses in operating its business.
For example, the Fund pays management fees to its investment
adviser, OppenheimerFunds, Inc. (referred to in this Prospectus as
the "Manager"). The rates of the Manager's fees are set forth in
"How the Fund is Managed," below. The Fund has other regular
expenses for services, such as transfer agent fees, custodial fees
paid to the bank that holds the Fund's portfolio securities, audit
fees and legal expenses. Those expenses are detailed in the Fund's
Financial Statements in the Statement of Additional Information.
Annual Fund Operating Expenses
(as a percentage of average net assets)
Class A Class B Class C
Shares Shares Shares
- -------------------------------------------------------------------
Management Fees 0.45% 0.45% 0.45%
- -------------------------------------------------------------------
12b-1 Plan Fees 0.24% 1.00% 1.00%
- -------------------------------------------------------------------
Other Expenses 0.33% 0.32% 0.36%
- -------------------------------------------------------------------
Total Fund Operating 1.02% 1.77% 1.81%
Expenses
The numbers in the chart above are based upon the Fund's
expenses in its last fiscal year. These amounts are shown as a
percentage of the average net assets of each class of the Fund's
shares for that year. The 12b-1 Distribution Plan Fees for Class
A shares are Service Plan Fees (the maximum fee is 0.25% of average
annual net assets of that class) and for Class B and Class C shares
are the Distribution and Service Plan Fees (the maximum service fee
is 0.25% of average annual net assets of that class) and the annual
asset-based sales charge is 0.75%). These plans are described in
greater detail in "How to Buy Shares" below.
The actual expenses for each class of shares in future years
may be more or less than the numbers in the chart, depending on a
number of factors, including the actual value of the Fund's assets
represented by each class of shares.
Examples. To try to show the effect of these expenses on an
investment over time, we have created the hypothetical examples
shown below. Assume that you make a $1,000 investment in each
class of shares of the Fund, and that the Fund's annual return is
5%, and that its operating expenses for each class are the ones
shown in the Annual Fund Operating Expenses chart above. If you
were to redeem your shares at the end of each period shown below,
your investment would incur the following expenses by the end of 1,
3, 5 and 10 years:
1 year 3 years 5 years 10 years(1)
- -------------------------------------------------------------------
Class A Shares $57 $78 $101 $166
- -------------------------------------------------------------------
Class B Shares $68 $86 $116 $170
- -------------------------------------------------------------------
Class C Shares $28 $57 $98 $213
If you did not redeem your investment, it would incur the
following expenses:
1 year 3 years 5 years 10 years(1)
- -------------------------------------------------------------------
Class A Shares $57 $78 $101 $166
- -------------------------------------------------------------------
Class B Shares $18 $56 $96 $170
- -------------------------------------------------------------------
Class C Shares $18 $57 $98 $213
1. In the first example, expenses include the Class A initial sales
charge and the applicable Class B or Class C contingent deferred
sales charge. In the second example, Class A expenses include the
initial sales charge, but Class B and Class C expenses do not
include contingent deferred sales charges. The Class B expenses in
years 7 through 10 are based on the Class A expenses shown above,
because the Fund automatically converts your Class B shares into
Class A shares after 6 years. Because of the effect of the asset-
based sales charge and the contingent deferred sales charge, long-
term holders of Class B and Class C shares could pay the economic
equivalent of more than the maximum front-end sales charge allowed
under applicable regulations. For Class B shareholders, the
automatic conversion of Class B shares to Class A Shares is
designed to minimize the likelihood that this will occur. Please
refer to "How to Buy Shares" for more information.
These examples show the effect of expenses on an investment,
but are not meant to state or predict actual or expected costs or
investment returns of the Fund, all of which may be more or less
than those shown below.
A Brief Overview of the Fund
Some of the important facts about the Fund are summarized below,
with references to the section of this Prospectus where more
complete information can be found. You should carefully read the
entire Prospectus before making a decision about investing in the
Fund. Keep the Prospectus for reference after you invest,
particularly for information about your account, such as how to
sell or exchange shares.
What Is The Fund's Investment Objective? The Fund's
investment objective is to seek a high level of current income
exempt from Federal income tax.
What Does the Fund Invest In? To seek its objective, the
Fund will, under normal market conditions, invest at least 80% of
its assets in Municipal Securities and will invest at least 65% of
its assets in insured Municipal Securities. Pre-refunded Municipal
Securities will be considered to be insured for this purpose. Pre-
refunded Municipal Securities generally are rated in the highest
rating category by the various nationally recognized rating
organizations because of U.S. government agency collateral set
aside to support debt service payments on the bonds. The Fund may
also use hedging instruments and some derivative investments to try
to manage investment risks. These investments and their risks are
more fully explained in "Investment Objective and Policies,"
starting on page __.
Who Manages the Fund? The Fund's investment advisor is
OppenheimerFunds, Inc., which (including a subsidiary) manages
investment company portfolios having over $62 billion in assets at
December 31, 1996. The Manager is paid an advisory fee by the
Fund, based on its assets. The Fund's portfolio manager, who is
employed by the Manager and who is primarily responsible for the
selection of the Fund's securities, is Caryn Halbrecht. The Fund's
Board of Trustees, elected by shareholders, oversees the investment
adviser and the portfolio manager. Please refer to "How the Fund
is Managed," starting on page __ for more information about the
Manager and its fees.
How Risky is the Fund? All investments carry risks to some
degree. The risk of issuer default is minimized by the Fund's
policy of investing in insured Municipal Securities. However, the
Fund's investments in municipal bonds are subject to changes in
their value from a number of factors such as changes in general
bond market movements, the change in value of particular securities
because of an event affecting the issuer, or changes in interest
rates. These changes affect the value of the Fund's investments
and its price per share. In the OppenheimerFunds spectrum, the
Fund is more conservative than high yield bond funds, but more
risky than money market funds. While the Manager tries to reduce
risks by diversifying investments, by carefully researching
securities before they are purchased for the portfolio, by focusing
on insured municipal bonds, and in some cases by using hedging
techniques, there is no guarantee of success in achieving the
Fund's objective and your shares may be worth more or less than
their original cost when you redeem them. Please refer to
"Investment Risks" starting on page __ for a more complete
discussion of the Fund's investment risks.
How Can I Buy Shares? You can buy shares through your
broker or dealer or financial institution, or you can purchase
shares directly through the Fund's Distributor by completing an
Application or by using an Automatic Investment Plan under
AccountLink. Please refer to "How To Buy Shares" starting on page
__ for more details.
Will I Pay a Sales Charge to Buy Shares? The Fund has
three classes of shares. All three classes have the same
investment portfolio but different expenses. Class A shares are
offered with a front-end sales charge, starting at 4.75%, and
reduced for larger purchases. Class B shares and Class C shares
are offered without a front-end sales charge, but may be subject to
a contingent deferred sales charge if redeemed within five years or
12 months of purchase, respectively. There is also an annual
asset-based sales charge on Class B and Class C shares. Please
review "How To Buy Shares" starting on page __ for more details,
including a discussion about factors you and your financial adviser
should consider in determining which class may be appropriate for
you.
How Can I Sell My Shares? Shares can be redeemed by mail or
by telephone call to the Transfer Agent on any business day, or
through your broker or dealer, or by writing a check against your
Fund account (available for Class A shares only). Please refer to
"How To Sell Shares" on page __. The Fund also offers exchange
privileges to the other Oppenheimer funds, described in "How to
Exchange Shares," on page __.
How Has the Fund Performed? The Fund measures its
performance by quoting its yield, tax equivalent yield, average
annual total return and cumulative total return, which measure
historical performance. Those yields and returns can be compared
to the yields and returns (over similar periods) of other funds.
Of course, other mutual funds may have different objectives,
investments, and levels of risk. The Fund's performance can also
be compared to a broad market index, which we have done on pages __
and __. Please remember that past performance does not guarantee
future results.
Financial Highlights
The table on the following pages presents selected financial
information about the Fund, including per share data, expense
ratios and other data based on the Fund's average net assets. The
information for the fiscal years ended September 30, 1990, 1991,
1992, 1993, 1994 and 1995 has been audited by Deloitte & Touche
LLP, the Fund's independent auditors, whose report on the Fund's
financial statements for the fiscal year ended September 30, 1996,
is included in the Statement of Additional Information.
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CLASS A
----------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30,
1996 1995 1994 1993 1992
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING DATA:
Net asset value, beginning of period $ 16.86 $ 16.14 $ 18.06 $ 16.92 $ 16.17
- -----------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .90 .90 .89 .93 .96
Net realized and unrealized gain (loss) .20 .71 (1.84) 1.35 .73
- -----------------------------------------------------------------------------------------------------------------------------------
Total income (loss) from investment
operations 1.10 1.61 (.95) 2.28 1.69
- -----------------------------------------------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income (.89) (.89) (.89) (.96) (.91)
Distributions from net realized gain -- -- (.08) (.18) (.03)
- -----------------------------------------------------------------------------------------------------------------------------------
Total dividends and distributions
to shareholders (.89) (.89) (.97) (1.14) (.94)
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 17.07 $ 16.86 $ 16.14 $ 18.06 $ 16.92
=======================================================================
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE(4) 6.67% 10.29% (5.46)% 14.02% 10.74%
- -----------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) $ 83,516 $ 76,691 $ 67,793 $ 62,158 $ 33,751
- -----------------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $ 81,233 $ 70,650 $ 66,953 $ 45,949 $ 27,811
- -----------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income 5.27% 5.52% 5.23% 5.40% 5.81%
Expenses, before voluntary assumption by the Manager(6) 1.02% 0.95% 1.05% 1.18% 1.35%
Expenses, net of voluntary assumption by the Manager N/A N/A N/A 1.10% 0.95%
- -----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(7) 93% 58% 99% 7% 47%
<CAPTION>
CLASS A
----------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30,
1991 1990(3) 1989 1988 1987(2)
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING DATA:
Net asset value, beginning of period $ 15.16 $ 15.27 $ 14.96 $ 13.79 $ 16.00
- --------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .92 .98 1.06 1.07 .92
Net realized and unrealized gain (loss) 1.01 (.11) .31 1.17 (2.21)
- --------------------------------------------------------------------------------------------------------------------------------
Total income (loss) from investment
operations 1.93 .87 1.37 2.24 (1.29)
- --------------------------------------------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income (.92) (.98) (1.06) (1.07) (.92)
Distributions from net realized gain -- -- -- -- --
- --------------------------------------------------------------------------------------------------------------------------------
Total dividends and distributions
to shareholders (.92) (.98) (1.06) (1.07) (.92)
- --------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 16.17 $ 15.16 $ 15.27 $ 14.96 $ 13.79
=====================================================================
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE(4) 13.08% 5.81% 9.37% 16.67% (8.36)%
- --------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) $ 23,791 $ 16,863 $ 13,105 $ 8,483 $ 5,449
- --------------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $ 19,936 $ 15,145 $ 11,200 $ 6,936 $ 5,435
- --------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income 5.83% 6.43% 6.87% 7.34% 6.69%(5)
Expenses, before voluntary assumption by the Manager(6) 1.60% 1.62% 2.04% 2.50% 2.98%(5)
Expenses, net of voluntary assumption by the Manager 0.91% 0.62% 0.42% 0.13% 0.34%(5)
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(7) 67% 62% 142% 141% 112%
<CAPTION>
CLASS B CLASS C
----------------------------------------------- ------------------------
YEAR ENDED SEPTEMBER 30, YEAR ENDED SEPTEMBER 30,
1996 1995 1994 1993(1) 1996 1995(8)
- ------------------------------------------------------------------------------------------------------- ------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING DATA:
Net asset value, beginning of period $ 16.87 $ 16.15 $ 18.07 $ 17.33 $16.86 $ 16.72
- ------------------------------------------------------------------------------------------------------- ------------------------
Income (loss) from investment operations:
Net investment income .77 .78 .77 .30 .75 .08
Net realized and unrealized gain (loss) .20 .71 (1.86) .74 .21 .14
- ------------------------------------------------------------------------------------------------------- ------------------------
Total income (loss) from investment
operations .97 1.49 (1.09) 1.04 .96 .22
- ------------------------------------------------------------------------------------------------------- ------------------------
Dividends and distributions to shareholders:
Dividends from net investment income (.76) (.77) (.75) (.30) (.76) (.08)
Distributions from net realized gain -- -- (.08) -- -- --
- ------------------------------------------------------------------------------------------------------- ------------------------
Total dividends and distributions
to shareholders (.76) (.77) (.83) (.30) (.76) (.08)
- ------------------------------------------------------------------------------------------------------- ------------------------
Net asset value, end of period $ 17.08 $ 16.87 $ 16.15 $ 18.07 $17.06 $ 16.86
============================================== ========================
- ------------------------------------------------------------------------------------------------------- ------------------------
TOTAL RETURN, AT NET ASSET VALUE(4) 5.87% 9.47% (6.20)% 6.04% 5.77% 1.30%
- ------------------------------------------------------------------------------------------------------- ------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) $ 15,983 $ 13,341 $ 11,571 $ 5,104 $ 924 $ 211
- ------------------------------------------------------------------------------------------------------- ------------------------
Average net assets (in thousands) $ 14,822 $ 11,987 $ 9,209 $ 2,298 $ 618 $ 1
- ------------------------------------------------------------------------------------------------------- ------------------------
Ratios to average net assets:
Net investment income 4.50% 4.75% 4.43% 3.99%(5) 4.38% 4.89%(5)
Expenses, before voluntary assumption by the Manager(6) 1.77% 1.71% 1.82% 1.96%(5) 1.81% 1.07%(5)
Expenses, net of voluntary assumption by the Manager N/A N/A N/A N/A N/A N/A
- --------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(7) 93% 58% 99% 7% 93% 58%
</TABLE>
1. For the period from May 3, 1993 (inception of offering) to September 30,
1993.
2. For the period from November 11, 1986 (commencement of operations) to
September 30, 1987.
3. On April 7, 1990, OppenheimerFunds, Inc. became the investment adviser to the
Fund.
4. Assumes a hypothetical initial investment on the business day before the
first day of the fiscal period (or inception of offering), with all dividends
and distributions reinvested in additional shares on the reinvestment date, and
redemption at the net asset value calculated on the last business day of the
fiscal period. Sales charges are not reflected in the total returns. Total
returns are not annualized for periods of less than one full year.
5. Annualized.
6. Beginning in fiscal 1996, the expense ratio reflects the effect of expenses
paid indirectly by the Fund. Prior year expense ratios have not been adjusted.
7. The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities owned
during the period. Securities with a maturity or expiration date at the time of
acquisition of one year or less are excluded from the calculation. Purchases and
sales of investment securities (excluding short-term securities) for the period
ended September 30, 1996 were $101,039,632 and $89,667,451, respectively.
8. For the period from August 29, 1995 (inception of offering) to September 30,
1995.
<PAGE>
Investment Objective and Policies
Objective. The Fund's investment objective is to provide a high
level of current income exempt from Federal income tax.
Investment Policies and Strategies. The Fund will seek to attain
its investment objective by investing, under normal market
conditions, at least 80% of its assets in Municipal Securities and
will invest at least 65% of its assets in insured Municipal
Securities. Pre-refunded Municipal Securities will be considered
to be insured for this purpose. Pre-refunded Municipal Securities
generally are rated in the highest rating category by the various
nationally recognized rating organizations because of U.S.
government agency collateral set aside to support debt service
payments on the bonds.
The Fund will not invest more than 10% of its total assets in
securities which are not investment grade (or if not rated, of
comparable quality as determined by the Manager). Investment grade
securities are those rated - or are determined by the Manager to be
of comparable quality to those rated - within the four highest
rating categories of Moody's Investors Service, Inc., Standard &
Poor's Corporation, Fitch Investors Service, Inc. or other rating
organization.
Under normal market conditions, no more than 20% of the Fund's
total assets will be invested in taxable investments. However, for
temporary defensive purposes, the Fund may invest up to 100% of its
invested assets in taxable certificates of deposit and commercial
paper and taxable or tax-exempt money market instruments. The Fund
may purchase Municipal Securities on a "when-issued" basis and may
purchase or sell Municipal Securities on a "delayed delivery"
basis.
Can the Fund's Investment Objective and Policies Change?
The Fund has an investment objective, described above, as well as
investment policies it follows to try to achieve its objective.
Additionally, the Fund uses certain investment techniques and
strategies in carrying out those investment policies. The Fund's
investment policies and techniques are not "fundamental" unless
this Prospectus or the Statement of Additional Information says
that a particular policy is "fundamental." The Fund's investment
objective is a fundamental policy.
Fundamental policies are those that cannot be changed without
the approval of a "majority" of the Fund's outstanding voting
shares. The term "majority" is defined in the Investment Company
Act to be a particular percentage of outstanding voting shares (and
this term is explained in the Statement of Additional Information).
The Fund's Board of Trustees may change non-fundamental policies
without shareholder approval, although significant changes will be
described in amendments to this Prospectus.
Portfolio Turnover. A change in the securities held by the
Fund is known as "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 seek
to accomplish the Fund's investment objective. While short-term
trading increases portfolio turnover and may increase the Fund's
transaction costs, the Fund incurs little or no brokerage costs.
Portfolio turnover affects the Fund's ability to qualify as a
"regulated investment company" under the Internal Revenue Code for
tax deductions for dividends and capital gains distributions the
Fund pays to shareholders. See "Tax Aspects of Covered Calls and
Hedging Instruments" in the Statement of Additional Information.
The Fund qualified in its last fiscal year and intends to do so in
the coming year, although it reserves the right not to qualify.
The "Financial Highlights," above, shows the Fund's portfolio
turnover rate during past fiscal years.
Investment Risks
All investments carry risks to some degree, whether they are
risks that market prices of the investment will fluctuate (this is
known as "market risk") or that the underlying issuer will
experience financial difficulties and may default on its obligation
under a fixed-income investment to pay interest and repay principal
(this is referred to as "credit risk"). These general investment
risks, and the special risks of certain types of investments that
the Fund may hold are described below. They affect the value of
the Fund's investments, its investment performance, and the prices
of its shares. These risks collectively form the risk profile of
the Fund.
Because of the types of securities the Fund invests in and the
investment techniques the Fund uses, the Fund is designed for
investors who are investing for the long term. It is not intended
for investors seeking assured income. While the Manager tries to
reduce risks by diversifying investments, by carefully researching
securities before they are purchased, and in some cases by using
hedging techniques, changes in overall market prices can occur at
any time, and because the income earned on securities is subject to
change, there is no assurance that the Fund will achieve its
investment objective. When you redeem your shares, they may be
worth more or less than what you paid for them.
Interest Rate Risk. 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.
Generally, securities of longer maturities are subject to
greater price fluctuations due to changes in 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. The municipal securities in the
Fund's portfolio that are covered by insurance will be covered by
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-cancelable 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
noncancelable 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 115
Broadway, New York, New York, 10006. "Investment Objective and
Policies" in the Statement of Additional Information contains more
information on Financial Guaranty.
There are special risks in investing in derivative
investments. The risks of investing in derivative investments
include not only the ability of the issuer of the derivative
investment to pay the amount due on the maturity of the investment,
but also the risk that the underlying security or investment might
not perform the way the Manager expected it to perform. That can
mean that the Fund will realize less income than expected or that
it can lose part of its investment. Another risk of investing in
derivative investments is that their market value could be expected
to vary to a much greater extent than the market value of municipal
securities that are not derivative investments but have similar
credit quality, redemption provisions and maturities. These risks
affect the price of the Fund's shares.
Hedging instruments can be volatile investments and may
involve special risks. If the Manager uses a hedging instrument at
the wrong time or judges market conditions incorrectly, hedging
strategies may reduce the Fund's return. The Fund could also
experience losses if the prices of its futures and options
positions were not correlated with its other investments or if it
could not close out a position because of an illiquid market for
the future or option.
Options trading involves the payment of premiums and has
special tax effects on the Fund. There are also special risks in
particular hedging strategies. For example, in writing puts, there
is a risk that the Fund may be required to buy the underlying
security at a disadvantageous price. These risks and the hedging
strategies the Fund may use are described in greater detail in the
Statement of Additional Information.
Investment Techniques and Strategies. The Fund may also use the
investment techniques and strategies described below. These
techniques involve certain risks. The Statement of Additional
Information contains more information about these practices,
including limitations on their use that are designed to reduce some
of the risks.
Municipal Securities. "Municipal Securities" are municipal
bonds, municipal notes, 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. No
independent investigation has been made by the Manager as to the
users of proceeds of bond offerings or the application of such
proceeds.
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 issuer. Generally, Municipal Securities of longer
maturities produce higher current yields but are subject to greater
price fluctuation due to changes in interest rates (discussed
above), 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 a concern that there is a
greater degree of risk as to the ability of the issuer to meet
principal and interest obligations. "Investment Objective and
Policies" in the Statement of Additional Information contains more
information about Municipal Securities.
Investments in Taxable Securities and Temporary Defensive
Investment Strategy. Under normal market conditions, the Fund may
invest up to 20% of its assets in taxable investments, including
(i) certain "Temporary Investments" (described immediately below;
(ii) hedging instruments (described in "Hedging" below); (iii)
repurchase agreements (explained below).
In times of unstable economic or market conditions, the
Manager may determine that it is appropriate for the Fund to assume
a temporary "defensive" position by investing some or all of its
assets (there is no limit on the amount) in short-term money market
instruments. These Temporary Investments include the taxable
obligations described above, U.S. government securities, bank
obligations, commercial paper, corporate obligations and other
instruments approved by the Fund's Board of Trustees. This
strategy would be implemented to attempt to reduce fluctuations in
the value of the Fund's assets. The Fund may hold Temporary
Investments pending the investment of proceeds from the sale of
Fund shares or portfolio securities, pending settlement of
purchases of Municipal Securities, or to meet anticipated
redemptions. To the extent the Fund assumes a temporary defensive
position, a portion of the Fund's distributions may be subject to
Federal and state income taxes and the Fund may not achieve its
objective.
Municipal Lease Obligations. The Fund may invest in
certificates of participation, which are tax-exempt obligations
that evidence the holder's right to share in lease, installment
loan or other financing payments by a public entity. Projects
financed with certificates of participation generally are not
subject to state constitutional debt limitations or other statutory
requirements that may be applicable to Municipal Securities.
Payments by the public entity on the obligation underlying the
certificates are derived from available revenue sources; such
revenue may be diverted to the funding of other municipal service
projects. Payments of interest and/or principal with respect to
the certificates are not guaranteed and do not constitute an
obligation of the states or any of their political subdivisions.
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 Fund's Board of Trustees. See
"Municipal Lease Obligations" in the Statement of Additional
Information for more details.
Floating Rate/Variable Rate Obligations. Some of the
Municipal Securities the Fund may purchase may have variable or
floating interest rates. Variable rates are adjusted 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 Statement of
Additional Information for more details.
Inverse Floaters and Derivative Investments. The Fund may
invest in variable rate bonds known as "inverse floaters." These
bonds pay interest at a rate that varies as the yields generally
available on short-term tax-exempt bonds change. However, the
yields on inverse floaters move in the opposite direction of yields
on short-term bonds in response to market changes. When the yields
on short-term tax-exempt bonds go up, the interest rate on the
inverse floater goes down. When the yields on short-term tax-
exempt bonds go down, the interest rate on the inverse floater goes
up. As interest rates rise, inverse floaters produce less current
income. Inverse floaters are a type of "derivative security,"
which is a specially designed investment whose performance is
linked to the performance of another security or investment. Some
inverse floaters have a "cap" whereby if interest rates rise above
the "cap," the security pays additional interest income. If rates
do not rise above the "cap," the Fund will have paid an additional
amount for a feature that proves worthless. The Fund may also
invest in municipal derivative securities that pay interest that
depends on an external pricing mechanism. Examples are interest
rate swaps or caps and municipal bond or swap indices. The Fund
anticipates that it would invest no more than 10% of its total
assets in inverse floaters.
"When-Issued" and "Delayed Delivery" Transactions. The Fund
may purchase Municipal Securities on a "when-issued" basis and may
purchase or sell Municipal Securities on a "delayed delivery"
basis. These terms refer to securities that have been created and
for which a market exists, but which are not available for
immediate delivery. When the Fund engages in these transactions,
it will do so for the purpose of acquiring portfolio securities
consistent with the Fund's investment objective and policies and
not for the purpose of investment leverage. When the Fund is the
buyer, it will segregate account with its custodian cash or high-
grade Municipal Securities having a total value equal to the amount
of the Fund's purchase commitments until payment is made.
Repurchase Agreements. The Fund may enter into repurchase
agreements. In a repurchase transaction, the Fund buys a security
and simultaneously sells it to the vendor for delivery at a future
date. There is no limit on the amount of the Fund's net assets
that may be subject to repurchase agreements of seven days or less.
Repurchase agreements must be fully collateralized. However, if the
vendor fails to pay the resale price on the delivery date, the Fund
may incur costs in disposing of the collateral and may experience
losses if there is any delay in its ability to do so. The 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 a repurchase agreement that causes more than
10% of its net assets to be subject to repurchase agreements having
a maturity beyond seven days, because such repurchase agreements
may be illiquid (see "Illiquid and Restricted Securities").
Illiquid and Restricted Securities. Under the policies and
procedures established by the Fund's Board of Trustees, the Manager
determines the liquidity of certain of the Fund's investments.
Investments may be illiquid because of the absence of an active
trading market, making it difficult to value them or dispose of
them promptly at an acceptable price. A restricted security is one
that has a contractual restriction on its resale or which cannot be
sold publicly until it is registered under the Securities Act of
1933. The Fund will not invest more than 10% of its net assets in
illiquid or restricted securities (the Board may increase that
limit to 15%). The Fund's percentage limitation on these
investments does not apply to certain restricted securities that
are eligible for resale to qualified institutional purchasers. The
Manager monitors holdings of illiquid securities on an ongoing
basis and at times the Fund may be required to sell some holdings
to maintain adequate liquidity.
Loans of Portfolio Securities. To attempt to increase its
income, the Fund may lend its portfolio securities to brokers,
dealers, and other financial institutions. The Fund does not
intend to lend its portfolio securities during the coming year. If
it does the Fund must receive collateral for such loans. The Fund
does not intend to lend its portfolio securities; if it does, these
loans are limited to not more than 5% of the value of the Fund's
total assets and are subject to other conditions described in the
Statement of Additional Information. The income from such loans,
when distributed by the Fund, will be taxable as ordinary income.
Puts and Stand-By Commitments. The Fund may acquire
"stand-by commitments" or "puts" with respect to municipal
obligations held in its portfolio. Under a stand-by commitment or
put option, the Fund would have the right to sell specified
securities at a specific price on demand to the issuing broker-
dealer or bank. The Fund will acquire stand-by commitments or puts
solely to facilitate portfolio liquidity and does not intend to
exercise its rights thereunder for trading purposes.
Hedging. As described below, the Fund may purchase and sell
certain kinds of futures contracts, put and call options, forward
contracts, and options on futures and municipal bond indices, or
enter into interest rate swap agreements. These are referred to as
"hedging instruments." The Fund may invest in financial futures
contracts and related options on those contracts only as a hedge
against anticipated interest rate changes, and the Fund does not
intend to use hedging instruments for speculative purposes. The
hedging instruments the Fund may use are described below and in
greater detail in "Other Investment Techniques and Strategies" in
the Statement of Additional Information.
The Fund may buy and sell options, futures and forward
contracts for a number of purposes. It may do so to establish a
position in the securities market as a temporary substitute for
purchasing individual securities. The Fund may sell a futures
contract or a call option on a futures contract or purchase a put
option on such futures contract if the Manager anticipates that
interest rates will rise, as a hedge against a decrease in the
value of the Fund's portfolio securities. If the Manager
anticipates that interest rates will decline, the Fund may purchase
a futures contract or a call option on a futures contract, or sell
a put option on a futures contract, to protect against an increase
in the price of securities the Fund intends to buy.
Other hedging strategies, such as buying futures and call
options, tend to increase the Fund's exposure to the securities
market. Writing covered call options may also provide income to
the Fund for liquidity purposes or to raise cash to distribute to
shareholders.
Futures. The Fund may buy and sell financial futures
contracts that relate to (1) interest rates (these are referred to
as Interest Rate Futures); and (2) municipal bond indices (these
are referred to as Municipal Bond Index Futures). These types of
Futures are described in "Hedging With Options and Futures
Contracts" in the Statement of Additional Information. The Fund
may concurrently buy and sell Futures contracts in an attempt to
benefit from any outperformance of the Future purchased relative to
the performance of the Future sold. The Fund may not enter into
futures contracts or purchase related options on futures contracts,
for other than bona fide hedging purposes, if immediately after
doing so the amount the Fund committed to initial margin plus the
amount paid for unexpired options on futures contracts exceeds 5%
of the Fund's total assets.
Put and Call Options. The Fund may buy and sell certain
kinds of put options (puts) and call options (calls).
The Fund may buy calls only on debt securities, municipal bond
indices, Municipal Bond Index Futures and Interest Rate Futures, or
to terminate its obligation on a call the Fund previously wrote.
The Fund may write (that is, sell) covered call options. When the
Fund writes a call, it receives cash (called a premium). The call
gives the buyer the ability to buy the investment on which the call
was written from the Fund at the call price during the period in
which the call may be exercised. If the value of the investment
does not rise above the call price, it is likely that the call will
lapse without being exercised, while the Fund keeps the cash
premium (and the investment).
The Fund may purchase put options. Buying a put on an
investment gives the Fund the right to sell the investment at a set
price to a seller of a put on that investment. The Fund can buy
only those puts that relate to (1) debt securities that the Fund
owns, (2) Interest Rate Futures held by it, and (3) Municipal Bond
Index Futures held by it. The Fund may not sell a put other than
a put that it previously purchased.
The Fund may buy and sell puts and calls only if certain
conditions are met: (1) after the Fund writes a call, not more than
20% of the Fund's total assets may be subject to calls; (2) calls
the Fund buys or sells must be listed on a securities or
commodities exchange, or quoted on the Automated Quotation System
("NASDAQ") of The Nasdaq Stock Market, Inc. or in the case of calls
on debt securities, traded in the over-the-counter market; (3) each
call the Fund writes must be "covered" while it is outstanding:
that means the Fund must own the investment on which the call was
written; (4) the Fund may write calls on Futures contracts it owns,
but these calls must be covered by securities or other liquid
assets the Fund owns and segregates to enable it to satisfy its
obligations if the call is exercised; and (5) a call or put option
may not be purchased if the value of all of the Fund's put and call
options would exceed 5% of the Fund's total assets.
Interest Rate Swaps. In an interest rate swap, the Fund and
another party exchange their right to receive or their obligation
to pay interest on a security. For example, they may swap a right
to receive floating rate payments for fixed rate payments. The
Fund enters into swaps only on securities it owns. The Fund may
not enter into swaps with respect to more than 25% of its total
assets. Also, the Fund will segregate liquid assets (such as cash
or U.S. Government securities) to cover any amounts it could owe
under swaps that exceed the amounts it is entitled to receive, and
it will adjust that amount daily, as needed. The credit risk of an
interest rate swap depends on the counterparty's ability to
perform.
Other Investment Restrictions. The Fund has other investment
restrictions which are fundamental policies. Under these
fundamental policies, the Fund cannot do any of the following:
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;
make loans, except that the Fund may purchase or hold debt
obligations, repurchase agreements and other instruments and
securities it is permitted to own and may lend its portfolio
securities and other investments it owns;
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; or
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, it will not
invest more than 25% of its total assets in industrial development
bonds in a single industry).
Unless the prospectus states that a percentage restriction
applies on an ongoing basis, it applies only at the time the Fund
makes an investment, and the Fund need not sell securities to meet
the percentage limits if the value of the investment increases in
proportion to the size of the Fund. Other investment restrictions
are listed in "Investment Restrictions" in the Statement of
Additional Information.
How the Fund is Managed
Organization and History. The Fund is one of two diversified
investment portfolios or "series" of Oppenheimer Municipal Fund
(the "Trust"), an open-end, management investment company organized
as a Massachusetts business trust in 1986.
The Trust is governed by a Board of Trustees, which is
responsible under Massachusetts law for protecting the interests of
shareholders. The Trustees meet periodically throughout the year
to oversee the Fund's activities, review its performance, and
review the actions of the Manager. "Trustees and Officers of the
Trust" in the Statement of Additional Information names the
Trustees and provides more information about them and the officers
of the Trust. Although the Fund will not normally hold annual
meetings of shareholders, it may hold shareholder meetings from
time to time on important matters, and shareholders have the right
to call a meeting to remove a Trustee or to take other action
described in the Declaration of Trust.
The Board of Trustees has the power, without shareholder
approval, to divide unissued shares of the Fund into two or more
classes. The Board has done so, and the Fund currently has three
classes of shares, Class A, Class B and Class C. All three classes
invest in the same investment portfolio. Each class has its own
dividends and distributions and pays certain expenses which may be
different for the different classes. Each class may have a
different net asset value. Each share has one vote at shareholder
meetings, with fractional shares voting proportionally. Only
shares of a particular class vote as a class on matters that affect
that class alone. Shares are freely transferrable. Please refer
to "How the Fund is Managed" in the Statement of Additional
Information on voting of shares.
The Manager and Its Affiliates. The Fund is managed by the
Manager, OppenheimerFunds, Inc., which is responsible for selecting
the Fund's investments and handles its day-to-day business. The
Manager carries out its duties, subject to the policies established
by the Board of Trustees, under an Investment Advisory Agreement
which states the Manager's responsibilities. The Agreement sets
forth the fees paid by the Fund to the Manager, and describes the
expenses that the Fund is responsible to pay to conduct its
business.
The Manager has operated as an investment adviser since 1959.
The Manager (including a subsidiary) currently manages investment
companies, including other Oppenheimer funds, with assets of more
than $62 billion as of December 31, 1996, and held in more than 3
million shareholder accounts. The Manager is owned by Oppenheimer
Acquisition Corp., a holding company that is owned in part by
senior officers of the Manager and controlled by Massachusetts
Mutual Life Insurance Company.
Portfolio Manager. The portfolio manager of the Fund is
Caryn Halbrecht, a Vice President of the Manager. She has been the
person principally responsible for the day-to-day management of the
Fund's portfolio since October, 1993. Ms. Halbrecht was previously
a Vice President of Fixed Income Portfolio Management at Bankers
Trust.
Fees and Expenses. Under the Investment Advisory Agreement,
the Fund pays the Manager the following annual fees: 0.450% of the
first $100 million of average annual net assets, 0.400% of the next
$150 million, 0.375% of the next $250 million, and 0.350% of net
assets in excess of $500 million. The Fund's management fee for
its last fiscal year ended September 30, 1996 was 0.45% of average
annual net assets for its Class A, Class B and Class C shares.
The Fund pays expenses related to its daily operations, such
as custodian fees, Trustees' fees, transfer agency fees, legal fees
and auditing costs. Those expenses are paid out of the Fund's
assets and are not paid directly by shareholders. However, those
expenses reduce the net asset value of the Fund's shares, and
therefore are indirectly borne by shareholders through their
investment. More information about the Investment Advisory
Agreement and the other expenses paid by the Fund is contained in
the Statement of Additional Information.
There is also information about the Fund's brokerage policies
and practices in "Brokerage Policies of the Fund" in the Statement
of Additional Information. That section discusses how brokers and
dealers are selected for the Fund's portfolio transactions.
Because the Fund purchases most of its portfolio securities
directly from the sellers and not through brokers, it therefore
incurs relatively little expense for brokerage. From time to time,
however, it may use brokers when buying portfolio securities. When
deciding which brokers to use, the Manager is permitted by the
Investment Advisory Agreement to consider whether brokers have sold
shares of the Fund or any other funds for which the Manager serves
as investment adviser.
The Distributor. The Fund's shares are sold through dealers
and brokers that have a sales agreement with OppenheimerFunds
Distributor, Inc., a subsidiary of the Manager that acts as the
Fund's Distributor. The Distributor also distributes the shares of
other Oppenheimer funds and is sub-distributor for funds managed by
a subsidiary of the Manager.
The Transfer Agent. The Fund's transfer agent is
OppenheimerFunds Services, a division of the Manager, which acts as
the shareholder servicing agent for the Fund on an "at-cost" basis.
It also acts as the shareholder servicing agent for the other
Oppenheimer funds. Shareholders should direct inquiries about
their accounts to the Transfer Agent at the address and toll-free
number shown below under "How to Sell Shares" in this Prospectus
and on the back cover.
Performance of the Fund
Explanation of Performance Terminology. The Fund uses the terms
"total return," "average annual total return," "standardized
yield," "dividend yield," "yield" and "tax-equivalent yield" to
illustrate its performance. The performance of each class of
shares is shown separately, because the performance of each class
of shares will usually be different, as a result of the different
kinds of expenses each class bears. These returns and yields
measure the performance of a hypothetical account in the Fund over
various periods, and do not show the performance of each
shareholder's account (which will vary if dividends are received in
cash, or shares are sold and purchased). The Fund's performance
may help you see how well your Fund has done over time and to
compare it to other funds or to a market index.
It is important to understand that the Fund's yields and total
returns represent past performance and should not be considered to
be predictions of future returns or performance. This performance
data is described below, but more detailed information about how
total returns and yields are calculated is contained in the
Statement of Additional Information, which also contains
information about indices and other ways to measure and compare the
Fund's performance. The Fund's investment performance will vary
over time, depending on market conditions, the composition of the
portfolio, expenses and which class of shares you purchase.
Total Returns. There are different types of total returns
used to measure the Fund's performance. Total return is the change
in value of a hypothetical investment in the Fund over a given
period, assuming that all dividends and capital gains distributions
are reinvested in additional shares. The cumulative total return
measures the change in value over the entire period (for example,
ten years). An average annual total return shows the average rate
of return for each year in a period that would produce the
cumulative total return over the entire period. However, average
annual total returns do not show the Fund's actual year-by-year
performance.
When total returns are quoted for Class A shares, normally the
current maximum initial sales charge has been deducted. When total
returns are shown for Class B or Class C shares, normally the
contingent deferred sales charge that applies to the period for
which total return is shown has been deducted. However, total
returns may also be quoted "at net asset value," without
considering the effect of the sales charge, and those returns would
be less if sales charges were deducted.
Yield. Each Class of shares calculates its yield by
dividing the annualized net investment income per share from the
portfolio during a 30-day period by the maximum offering price on
the last day of the period. Tax-equivalent yield is the equivalent
yield that would be earned in the absence of income taxes. It is
calculated by dividing that portion of the yield that is tax-exempt
by a factor equal to one minus the applicable tax rate. The yield
of each Class will differ because of the different expenses of each
Class of shares. The yield data represents a hypothetical
investment return on the portfolio, and does not measure an
investment return based on dividends actually paid to shareholders.
To show that return, a dividend yield may be calculated. Dividend
yield is calculated by dividing the dividends of a Class derived
from net investment income during a stated period by the maximum
offering price on the last day of the period. Yields and dividend
yields for Class A shares reflect the deduction of the maximum
initial sales charge, but may also be shown based on the Fund's net
asset value per share. Yields for Class B and Class C shares do
not reflect the deduction of the contingent deferred sales charge.
How Has the Fund Performed? Below is a discussion by the Manager
of the Fund's performance during its last fiscal year ended
September 30, 1996, followed by a graphical comparison of the
Fund's performance to an appropriate broad-based market index.
Management's Discussion of Performance. During the past
fiscal year ended September 30, 1996, the Fund's performance was
affected by the increased volatility in interest rates. The Fund
shortened the portfolio's duration in anticipation of an interest
rate rise. In addition, municipal bonds improved considerably
versus treasuries as the prospect of tax reform evaporated. The
Fund's portfolio and its portfolio manager's strategies are subject
to change.
Comparing the Fund's Performance to the Market. The graphs
below show the performance of a hypothetical $10,000 investment in
each class of shares of the Fund held from the inception of the
Class until September 30, 1996. In the case of Class A shares,
from the commencement of operations on November 11, 1986, in the
case of Class B shares, from the inception of the class on May 3,
1993, and in the case of Class C shares from inception of the class
on August 29, 1995. In all cases, all dividends and capital gains
distributions were reinvested in additional shares. The graphs
reflect the deduction of the 4.75% current maximum initial sales
charge on Class A shares, the maximum 5% contingent deferred sales
charge on Class B shares, and the 1% contingent deferred sales
charge on Class C shares.
The Fund's performance is compared to that of the Lehman
Brothers Municipal Bond Index, an unmanaged index of a broad range
of investment grade municipal bonds, that is widely regarded as a
measure of the performance of the general municipal bond market.
Index performance reflects the reinvestment of income but does not
consider the effect of capital gains or transaction costs, and none
of the data below shows the effect of taxes. Also, the Fund's
performance data reflects the effect of Fund business and operating
expenses. While index comparisons may be useful to provide a
benchmark for the Fund's performance, it must be noted that the
Fund's investments are not limited to the securities in any one
index. Moreover, the index performance data does not reflect any
assessment of the risk of the investments included in the index.
Oppenheimer Insured Municipal Fund
Comparison of Change in Value
of $10,000 Hypothetical Investment to the
Lehman Brothers Municipal Bond Index
[Graph]
Past performance is not predictive of future performance.
Oppenheimer Insured Municipal Fund
Average Annual Total Returns at 9/30/96
1-Year 5-Year Life
Class A:1 1.60% 6.00% 6.55%
Class B:2 .87% 3.48%
Class C:3 4.77% 7.14%
______________________________
Total returns and the ending account values in the graph show
change in share value and include reinvestment of all dividends and
capital gains distributions.
1The inception date of the Fund (Class A shares) was 11/11/86.
Class A returns are shown net of the applicable 4.75% maximum
initial sales charge.
2Class B shares of the Fund were first publicly offered on 5/3/93.
The average annual total returns reflect reinvestment of all
dividends and capital gains distributions are shown net of the
applicable 5% and 3% contingent deferred sales charges,
respectively, for the one year period and life-of-the-class. The
ending account value in the graph is net of the applicable 3% sales
charge.
3Class C shares of the Fund were first publicly offered on 8/29/95.
The life-of-the-class is shown net of the applicable 1.0%
contingent deferred sales charge.
Past performance is not predictive of future performance.
Graphs are not drawn to same scale.
A B O U T Y O U R A C C O U N T
How to Buy Shares
Classes of Shares. The Fund offers investors three different
classes of shares. The different classes of shares represent
investments in the same portfolio of securities but are subject to
different expenses and will likely have different share prices.
Class A Shares. If you buy Class A shares, you pay an
initial sales charge (on investments up to $1 million). If you
purchase Class A shares as part of an investment of at least $1
million in shares of one or more Oppenheimer funds, you will not
pay an initial sales charge, but if you sell any of those shares
within 18 months of buying them, you may pay a contingent deferred
sales charge. The amount of that sales charge will vary depending
on the amount you invested. Sales charge is described in "Buying
Class A Shares" below.
Class B Shares. If you buy Class B shares, you pay no sales
charge at the time of purchase, but if you sell your shares within
six years of buying them, you will normally pay a contingent
deferred sales charge. That sales charge varies depending on how
long you own your shares as described in "Buying Class B Shares,"
below.
Class C Shares. If you buy Class C shares, you pay no sales
charge at the time of purchase, but if you sell your shares within
12 months of buying them, you will normally pay a contingent
deferred sales charge of 1% as described in "Buying Class C
Shares," below.
Which Class of Shares Should You Choose? Once you decide that the
Fund is an appropriate investment for you, the decisions as to
which class of shares is best suited to your needs depends on a
number of factors which you should discuss with your financial
advisor. The Fund's operating costs that apply to a class of
shares and the effect of the different types of sales charges on
your investment will vary your investment results over time. The
most important factors to consider are how much you plan to invest
and how long you plan to hold your investment. If your goals and
objectives change over time and you plan to purchase additional
shares, you should re-evaluate those factors to see if you should
consider another class of shares.
In the following discussion, to help provide you and your
financial advisor with a framework in which to choose a class, we
have made some assumptions using a hypothetical investment in the
Fund. We used the sales charge rates that apply to each class, and
considered the effect of the annual asset-based sales charge on
Class B and Class C expenses (which, like all expenses, will affect
your investment return). For the sake of comparison, we have
assumed that there is a 10% rate of appreciation in the investment
each year. Of course, the actual performance of your investment
cannot be predicted and will vary, based on the Fund's actual
investment returns and the operating expenses borne by each class
of shares, and which class of shares you invest in.
The factors discussed below are not intended to be investment
advice or recommendations, because each investor's financial
considerations are different. The discussion below of the factors
to consider in purchasing a particular class of shares assumes that
you will purchase only one class of shares, and not a combination
of shares of different classes.
How Long Do You Expect to Hold Your Investment? While
future financial needs cannot be predicted with certainty, knowing
how long you expect to hold your investment will assist you in
selecting the appropriate class of shares. Because of the effect
of class-based expenses, your choice will also depend on how much
you plan to invest. For example, the reduced sales charges
available for larger purchases of Class A shares may, over time,
offset the effect of paying an initial sales charge on your
investment (which reduces the amount of your investment dollars
used to buy shares for your account) compared to the effect over
time of higher class-based expenses on Class B or Class C shares
for which no initial sales charge is paid.
Investing for the Short Term. If you have a short term
investment horizon (that is, you plan to hold your shares for not
more than six years), you should probably consider purchasing Class
A or Class C shares rather than Class B shares because of the
effect of the Class B contingent deferred sales charge if you
redeem in less than 7 years, as well as the effect of the Class B
asset-based sales charge on the investment return for that class in
the short-term. Class C shares might be the appropriate choice
(especially for investments of less than $100,000) because there is
no initial sales charge on Class C shares, and the contingent
deferred sales charge does not apply to amounts you sell after
holding them one year.
However, if you plan to invest more than $100,000 for the
shorter term, then the more you invest and the more your investment
horizon increases toward six years, Class C shares might not be as
advantageous as Class A shares. That is because the annual asset-
based sales charge on Class C shares will have a greater impact on
your account over the longer term than the reduced front-end sales
charge available for larger purchases of Class A shares. For
example, Class A shares might be more advantageous than Class C
shares (as well as Class B shares) for investments of more than
$100,000 expected to be held for 5 or 6 years (or more). For
investments over $250,000 expected to be held 4 to 6 years (or
more). Class A shares may become more advantageous than Class C
shares (and Class B shares). If investing $500,000 or more, Class
A shares may be more advantageous as your investment horizon
approaches 3 years or more.
And for investors who invest $1 million or more, in most cases
Class A shares will be the most advantageous choice, no matter how
long you intend to hold your shares. For that reason, the
Distributor normally will not accept purchase orders of $500,000 or
more of Class B shares or $1 million or more of Class C shares,
respectively, from a single investor.
Investing for the Longer Term. If you are investing for the
longer term, for example, for retirement, and do not expect to need
access to your money for seven years or more, Class B shares may be
an appropriate consideration, if you plan to invest less than
$100,000. If you plan to invest more than $100,000 over the long
term, Class A shares will likely be more advantageous than Class B
shares or Class C shares, as discussed above, because of the effect
of the expected lower expenses for Class A shares and the reduced
initial sales charges available for larger investments in Class A
shares under the Fund's Right of Accumulation.
Of course, these examples are based on approximations of the
effect of current sales charges and expenses on a hypothetical
investment over time, using the assumed annual performance return
stated above, and therefore you should analyze your options
carefully.
Are There Differences in Account Features That Matter to
You? Because some account features may not be available to Class
B or Class C shareholders, such as checkwriting, or other features
(such as Automatic Withdrawal Plans) may not be advisable (because
of the effect of the contingent deferred sales charge) for Class B
or Class C shareholders, you should carefully review how you plan
to use your investment account before deciding which class of
shares to buy. Additionally, dividends payable to Class B and
Class C shareholders will be reduced by the additional expenses
borne by those classes that are not borne by Class A, such as the
Class B and Class C asset-based sales charges described below and
in the Statement of Additional Information. Share certificates are
not available for Class B or Class C shares and if you are
considering using your shares as collateral for a loan, that may be
a factor to consider.
How Does It Affect Payments to My Broker? A salesperson,
such as a broker, or any other person who is entitled to receive
compensation for selling Fund shares may receive different
compensation for selling one class of shares than for selling
another class. It is important that investors understand that the
purpose of the Class B and Class C contingent deferred sales charge
and asset-based sales charges is the same as the purpose of the
front-end sales charge on sales of Class A shares: that is, to
compensate the Distributor for commissions it pays to dealers and
financial institutions for selling shares.
How Much Must You Invest? You can open a Fund account with a
minimum initial investment of $1,000 and make additional
investments at any time with as little as $25. There are reduced
minimum investments under special investment plans:
With Asset Builder Plans, Automatic Exchange Plans and
military allotment plans, you can make initial and subsequent
investments for as little as $25; and subsequent purchases of at
least $25 can be made by telephone through AccountLink.
There is no minimum investment requirement if you are buying
shares by reinvesting dividends from the Fund or other Oppenheimer
funds (a list of them appears in the Statement of Additional
Information, or you can ask your dealer or call the Transfer
Agent), or by reinvesting distributions from unit investment trusts
that have made arrangements with the Distributor.
How Are Shares Purchased? You can buy shares several ways --
through any dealer, broker or financial institution that has a
sales agreement with the Distributor, or directly through the
Distributor, or automatically from your bank account through an
Asset Builder Plan under the OppenheimerFunds AccountLink service.
The Distributor may appoint certain servicing agents as the
Distributor's agent to accept purchase (and redemption) orders.
When you buy shares, be sure to specify Class A, Class B or Class
C shares. If you do not choose, your investment will be made in
Class A shares.
Buying Shares Through Your Dealer. Your dealer will place
your order with the Distributor on your behalf.
Buying Shares Through the Distributor. Complete an
OppenheimerFunds New Account Application and return it with a check
payable to "OppenheimerFunds Distributor, Inc." Mail it to P.O. Box
5270, Denver, Colorado 80217. If you don't list a dealer on the
application, the Distributor will act as your agent in buying the
shares. However, it is recommended that you discuss your
investment first with a financial advisor to be sure it is
appropriate for you.
Payment by Federal Funds Wire. Shares may be purchased by
Federal Funds wire. The minimum investment is $2,500. You must
first call the Distributor's Wire Department at 1-800-525-7041 to
notify the Distributor of the wire, and to receive further
instructions.
Buying Shares Through OppenheimerFunds AccountLink. You can
use AccountLink to link your Fund account with an account at a U.S.
bank or other financial institution that is an Automated Clearing
House (ACH) member. You can then transmit funds electronically to
purchase shares, to send redemption proceeds, and to have the
Transfer Agent transmit dividends and distributions. Shares are
purchased for your account on the regular business day the
Distributor is instructed by you to initiate the ACH transfer to
buy shares. You can provide those instructions automatically,
under an Asset Builder Plan, described below, or by telephone
instructions using OppenheimerFunds PhoneLink, also described
below. You should request AccountLink privileges on the
application or dealer settlement instructions used to establish
your account. Please refer to "AccountLink" below for more details.
Asset Builder Plans. You may purchase shares of the Fund
(and up to four other Oppenheimer funds) automatically each month
from your account at a bank or other financial institution under an
Asset Builder Plan with AccountLink. Details are in the Statement
of Additional Information.
At What Price Are Shares Sold? Shares are sold at the public
offering price based on the net asset value (and any initial sales
charge that applies) that is next determined after the Distributor
receives the purchase order in Denver, Colorado. In most cases, to
enable you to receive that day's offering price, the Distributor or
its designated agent must receive your order by the time of day The
New York Stock Exchange closes, which is normally 4:00 P.M., New
York time but may be earlier on some days (all references to time
in this Prospectus mean "New York time"). The net asset value of
each class of shares is determined as of that time on each day The
New York Stock Exchange is open (which is a "regular business
day").
If you buy shares through a dealer, the dealer must receive
your order by the close of The New York Stock Exchange on a regular
business day and transmit it to the Distributor so that it is
received before the Distributor's close of business that day, which
is normally 5:00 P.M. The Distributor may reject any purchase order
for the Fund's shares, in its sole discretion.
Special Sales Charge Arrangements for Certain Persons. The
Appendix A in this prospectus sets forth conditions for the waiver
of, or exemption from, sales charges or the special sales charge
rates that apply to purchases of shares of the Fund (including
purchases by exchange) by a person who was a shareholder of one of
the former Quest for Value Funds (as defined in that Appendix).
Buying Class A Shares. Class A shares are sold at their
offering price, which is normally net asset value plus an initial
sales charge. However, in some cases, described below, purchases
are not subject to an initial sales charge, and the offering price
will be the net asset value. In some cases, reduced sales charges
may be available, as described below. Out of the amount you
invest, the Fund receives the net asset value to invest for your
account. The sales charge varies depending on the amount of your
purchase. A portion of the sales charge may be retained by the
Distributor and allocated to your dealer as commission. The
current sales charge rates and commissions paid to dealers and
brokers are as follows:
Front-End Front-End
Sales Charge Sales Charge Commission
as a as a as
Percentage Percentage Percentage
of Offering of Amount of Offering
Amount of Purchase Price Invested Price
- -----------------------------------------------------------------------
Less than $50,000 4.75% 4.98% 4.00%
- -----------------------------------------------------------------------
$50,000 or more but less 4.50% 4.71% 4.00%
than $100,000
- -----------------------------------------------------------------------
$100,000 or more but less 3.50% 3.63% 3.00%
than $250,000
- -----------------------------------------------------------------------
$250,000 or more but less 2.50% 2.56% 2.25%
than $500,000
- -----------------------------------------------------------------------
$500,000 or more but less 2.00% 2.04% 1.80%
than $1 million
The Distributor reserves the right to reallow the entire
commission to dealers. If that occurs, the dealer may be
considered an "underwriter" under Federal securities laws.
Class A Contingent Deferred Sales Charge. There is no
initial sales charge on purchases of Class A shares of any one or
more of the Oppenheimer funds aggregating $1 million or more. The
Distributor pays dealers of record commissions on those non-
retirement plan purchases in an amount equal to the sum of 1.0%.
That commission will be paid only on the amount of those purchases
that were not previously subject to a front-end sales charge and
dealer commission.
If you redeem any of those shares within 18 months of the end
of the calendar month of their purchase, a contingent deferred
sales charge (called the "Class A contingent deferred sales
charge") may be deducted from the redemption proceeds. That sales
charge will be equal to 1.0% of the lesser of (1) the aggregate net
asset value of the redeemed shares (not including shares purchased
by reinvestment of dividends or capital gain distributions) or (2)
the original offering price (which is the original net asset value)
of the redeemed shares. However, the Class A contingent deferred
sales charge will not exceed the aggregate amount of the
commissions the Distributor paid to your dealer on all Class A
shares of all Oppenheimer funds you purchased subject to the Class
A contingent deferred sales charge. In determining whether a
contingent deferred sales charge is payable, the Fund will first
redeem shares that are not subject to the sales charge, including
shares purchased by reinvestment of dividends and capital gains,
and then will redeem other shares in the order that you purchased
them. The Class A contingent deferred sales charge is waived in
certain cases described in "Waivers of Class A Sales Charges"
below.
No Class A contingent deferred sales charge is charged on
exchanges of shares under the Fund's Exchange Privilege (described
below). However, if the shares acquired by exchange are redeemed
within 18 months of the end of the calendar month of the purchase
of the exchanged shares, the sales charge will apply.
Special Arrangements With Dealers. The Distributor may
advance up to 13 months' commissions to dealers that have
established special arrangements with the Distributor for Asset
Builder Plans for their clients.
Reduced Sales Charges for Class A Share Purchases. You may be
eligible to buy Class A shares at reduced sales charge rates in one
or more of the following ways:
Right of Accumulation. To qualify for the lower sales charge
rates that apply to larger purchases of Class A shares, you and
your spouse can add together Class A and Class B shares you
purchase for your individual accounts, or jointly, or for trusts or
custodial accounts on behalf of your children who are minors. A
fiduciary can count all shares purchased for a trust, estate or
other fiduciary account (including one or more employee benefit
plans of the same employer) that has multiple accounts.
Additionally, you can add together current purchases of Class
A and Class B shares of the Fund and other Oppenheimer funds to
reduce the sales charge rate that applies to current purchases of
Class A shares. You can also include Class A and Class B shares of
Oppenheimer funds you previously purchased subject to an initial or
contingent deferred sales charge to reduce the sales charge rate
for current purchases of Class A shares, provided that you still
hold your investment in one of the Oppenheimer funds. The value of
those shares will be based on the greater of the amount you paid
for the shares or their current value (at offering price). The
Oppenheimer funds are listed in "Reduced Sales Charges" in the
Statement of Additional Information, or a list can be obtained from
the Distributor. The reduced sales charge will apply only to
current purchases and must be requested when you buy your shares.
Letter of Intent. Under a Letter of Intent, if you purchase
Class A shares or Class A and Class B shares of the Fund and other
Oppenheimer funds during a 13-month period, you can reduce the
sales charge rate that applies to your purchases of Class A shares.
The total amount of your intended purchases of both Class A and
Class B shares will determine the reduced sales charge rate for the
Class A shares purchased during that period. This can include
purchases made up to 90 days before the date of the Letter. More
information is contained in the Application and in "Reduced Sales
Charges" in the Statement of Additional Information.
Waivers of Class A Sales Charges. The Class A sales charges
are not imposed in the circumstances described below. There is an
explanation of this policy in "Reduced Sales Charges" in the
Statement of Additional Information.
Waivers of Initial and Contingent Deferred Sales Charges for
Certain Purchasers. Class A shares purchased by the following
investors are not subject to any Class A sales charges:
the Manager or its affiliates;
present or former officers, directors, trustees and
employees (and their "immediate families" as defined in
"Reduced Sales Charges" in the Statement of Additional
Information) of the Fund, the Manager and its affiliates;
registered management investment companies, or separate
accounts of insurance companies having an agreement with the
Manager or the Distributor for that purpose;
dealers or brokers that have a sales agreement with the
Distributor, if they purchase shares for their own accounts;
employees and registered representatives (and their spouses)
of dealers or brokers described above or financial
institutions that have entered into sales arrangements with
such dealers or brokers (and are identified to the
Distributor) or with the Distributor; the purchaser must
certify to the Distributor at the time of purchase that the
purchase is for the purchaser's own account (or for the
benefit of such employee's spouse or minor children);
dealers, brokers, banks or registered investment 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 their clients
(those clients may be charged a transaction fee by their
dealer, broker, bank, or advisor for the purchase or sale of
Fund shares);
directors, trustees, officers or full-time employees of
OpCap Advisors or its affiliates, their relatives or any
trust, pension, profit sharing or other benefit plan
which beneficially owns shares for those persons;
accounts for which Oppenheimer Capital is the
investment adviser (the Distributor must be advised of
this arrangement) and persons who are directors or
trustees of the company or trust which is the beneficial
owner of such accounts; or
any unit investment trust that has entered into an
appropriate agreement with the Distributor.
Waivers of Initial and Contingent Deferred Sales Charges in
Certain Transactions. Class A shares issued or purchased in the
following transactions are not subject to Class A sales charges:
shares issued in plans of reorganization, such as mergers,
asset acquisitions and exchange offers, to which the Fund is a
party;
shares purchased by the reinvestment of dividends or other
distributions reinvested from the Fund or other Oppenheimer funds
(other than Oppenheimer Cash Reserves) or unit investment trusts
for which reinvestment arrangements have been made with the
Distributor;
shares purchased and paid for with the proceeds of shares
redeemed in the past 12 months from a mutual fund (other than a
fund managed by the Manager or any of its subsidiaries) on which an
initial sales charge or contingent deferred sales charge was paid
(this waiver also applies to shares purchased by exchange of shares
of Oppenheimer Money Market Fund, Inc. that were purchased and paid
for in this manner); this waiver must be requested when the
purchase order is placed for your shares of the Fund, and the
Distributor may require evidence of your qualification from this
waiver; or
shares purchased with the proceeds of maturing principal of
units of any Qualified Unit Investment Liquid Trust Series;
Waivers of the Class A Contingent Deferred Sales Charge for
Certain Redemptions. The Class A contingent deferred sales charge
is also waived if shares that would otherwise be subject to the
contingent deferred sales charge are redeemed in the following
cases:
to make Automatic Withdrawal Plan payments that are limited
annually to no more than 12% of the original account value,
involuntary redemptions of shares by operation of law or
involuntary redemptions of small accounts (see "Shareholder Account
Rules and Policies"); or
if, at the time a purchase order is placed for Class A
shares that would otherwise be subject to the Class A contingent
deferred sales charge, the dealer agrees in writing to accept the
dealer's portion of the commission payable on the sale in
installments of 1/18th of the commission per month (and no further
commission will be payable if the shares are redeemed within 18
months of purchase).
Service Plan for Class A Shares. The Fund has adopted a
Service Plan for Class A shares to reimburse the Distributor for a
portion of its costs incurred in connection with the personal
service and maintenance of accounts that hold Class A shares.
Reimbursement is made quarterly at an annual rate that may not
exceed 0.25% of the average annual net assets of Class A shares of
the Fund. The Distributor uses all of those fees to compensate
dealers, brokers, banks and other financial institutions quarterly
for providing personal service and maintenance of accounts of their
customers that hold Class A shares and to reimburse itself (if the
Fund's Board of Trustees authorizes such reimbursements, which it
has not yet done) for its other expenditures under the Plan.
Services to be provided include, among others, answering
customer inquiries about the Fund, assisting in establishing and
maintaining accounts in the Fund, making the Fund's investment
plans available and providing other services at the request of the
Fund or the Distributor. Payments are made by the Distributor
quarterly at an annual rate not to exceed 0.25% of the average
annual net assets of Class A shares held in accounts of the service
providers or their customers. The payments under the Plan increase
the annual expenses of Class A shares by up to 0.25% of its average
annual net assets. For more details, please refer to "Distribution
and Service Plans" in the Statement of Additional Information.
Buying Class B Shares. Class B shares are sold at net asset value
per share without an initial sales charge. However, if Class B
shares are redeemed within 6 years of their purchase, a contingent
deferred sales charge will be deducted from the redemption
proceeds. That sales charge will not apply to shares purchased by
the reinvestment of dividends or capital gains distributions. The
contingent deferred sales charge will be based on the lesser of the
net asset value of the redeemed shares at the time of redemption or
the original offering price (which is the original net asset
value). The contingent deferred sales charge is not imposed on the
amount of your account value represented by the increase in net
asset value over the initial purchase price. The Class B
contingent deferred sales charge is paid to compensate the
Distributor for its expenses of providing distribution-related
services to the Fund in connection with the sale of Class B shares.
To determine whether the contingent deferred sales charge
applies to a redemption, the Fund redeems shares in the following
order: (1) shares acquired by reinvestment of dividends and capital
gains distributions, (2) shares held for over 6 years, and (3)
shares held the longest during the 6-year period. The contingent
deferred sales charge is not imposed in the circumstances described
in "Waivers of Class B and Class C Sales Charges," below.
The amount of the contingent deferred sales charge will depend
on the number of years since you invested and the dollar amount
being redeemed, according to the following schedule:
Contingent Deferred
Sales Charge
Years Since Beginning of Month in On Redemptions in That Year
which Purchase Order Was Accepted (As % of Amount Subject to Charge)
- -----------------------------------------------------------------------
0-1 5.0%
- -----------------------------------------------------------------------
1-2 4.0%
- -----------------------------------------------------------------------
2-3 3.0%
- -----------------------------------------------------------------------
3-4 3.0%
- -----------------------------------------------------------------------
4-5 2.0%
- -----------------------------------------------------------------------
5-6 1.0%
- -----------------------------------------------------------------------
6 and following None
In the table, a "year" is a 12-month period. All purchases are
considered to have been made on the first regular business day of
the month in which the purchase was made.
Automatic Conversion of Class B Shares. 72 months after you
purchase Class B shares, those shares will automatically convert to
Class A shares. This conversion feature relieves Class B
shareholders of the asset-based sales charge that applies to Class
B shares under the Class B Distribution and Service Plan, described
below. The conversion is based on the relative net asset value of
the two classes, and no sales load or other charge is imposed.
When Class B shares convert, any other Class B shares that were
acquired by the reinvestment of dividends and distributions on the
converted shares will also convert to Class A shares. The
conversion feature is subject to the continued availability of a
tax ruling described in "Alternative Sales Arrangements - Class A,
Class B and Class C Shares" in the Statement of Additional
Information.
Waivers of Class B Sales Charges. The Class B contingent
deferred sales charge will not apply to shares purchased in certain
types of transactions, nor will it apply to shares redeemed in
certain circumstances, as described below under "Buying Class C
Shares - Waivers of Class B and Class C Sales Charges."
Buying Class C Shares. Class C shares are sold at net asset value
per share without an initial sales charge. However, if Class C
shares are redeemed within 12 months of their purchase, a
contingent deferred sales charge of 1.0% will be deducted from the
redemption proceeds. That sales charge will not apply to shares
purchased by the reinvestment of dividends or capital gains
distributions. The contingent deferred sales charge will be based
on the lesser of the net asset value of the redeemed shares at the
time of redemption or the original offering price (which is the
original net asset value). The contingent deferred sales charge is
not imposed on the amount of your account value represented by the
increase in net asset value over the initial purchase price. The
Class C contingent deferred sales charge is paid to compensate the
Distributor for its expenses of providing distribution-related
services to the Fund in connection with the sale of Class C shares.
To determine whether the contingent deferred sales charge
applies to a redemption, the Fund redeems shares in the following
order: (1) shares acquired by reinvestment of dividends and capital
gains distributions, (2) shares held for over 12 months, and (3)
shares held the longest during the 12-month period.
Distribution and Service Plans for Class B and Class C Shares.
The Fund has adopted Distribution and Service Plans for Class B and
Class C shares to compensate the Distributor for distributing Class
B and Class C shares and servicing accounts. Under the Plans, the
Fund pays the Distributor an annual "asset-based sales charge" of
0.75% per year on Class B shares and on Class C shares. The
Distributor also receives a service fee of 0.25% per year under
each plan.
Under each Plan, both fees are computed on the average of the
net asset value of shares in the respective class, determined as of
the close of each regular business day during the period. The
asset-based sales charge and service fees increase Class B and
Class C expenses by up to 1.00% of the net assets per year of the
respective class.
The Distributor uses the service fees to compensate dealers
for providing personal services for accounts that hold Class B or
Class C shares. Those services are similar to those provided under
the Class A Service Plan, described above. The Distributor pays
the 0.25% service fees to dealers in advance for the first year
after Class B or Class C shares have been sold by the dealer and
retains the service fee paid by the Fund in that year. After the
shares have been held for a year, the Distributor pays the service
fees to dealers on a quarterly basis.
The asset-based sales charge allows investors to buy Class B
or Class C shares without a front-end sales charge while allowing
the Distributor to compensate dealers that sell those shares. The
Fund pays the asset-based sales charges to the Distributor for its
services rendered in distributing Class B and Class C shares.
Those payments are at a fixed rate that is not related to the
Distributor's expenses. The services rendered by the Distributor
include paying and financing the payment of sales commissions,
service fees and other costs of distributing and selling Class B
and Class C shares.
The Distributor currently pays sales commissions of 3.75% of
the purchase price of Class B shares to dealers from its own
resources at the time of sale. Including the advance of the service
fee, the total amount paid by the Distributor to the dealer at the
time of sales of Class B shares is 4.00% of the purchase price. The
Distributor retains the Class B asset-based sales charge
The Distributor currently pays sales commissions of 0.75% of
the purchase price to dealers from its own resources at the time of
sale of Class C shares. Including the advance of the service fee,
the total amount paid by the Distributor to the dealer at the time
of sale of Class C shares is 1.00% of the purchase price. The
Distributor plans to pay the asset-based sales charge as an ongoing
commission to the dealer on Class C shares that have been
outstanding for a year or more.
The Distributor's actual expenses in selling Class B and Class
C shares may be more than the payments it receives from contingent
deferred sales charges collected on redeemed shares and from the
Fund under the Distribution and Service Plans for Class B and Class
C shares. If the Fund terminates either Plan, the Board of
Trustees may allow the Fund to continue payments of the asset-based
sales charge to the Distributor for distributing shares before the
Plan was terminated. At September 30, 1996, the end of the Class
B Plan years, the Distributor had incurred unreimbursed expenses
under the Class B Plan of $590,704respectively (equal to 3.99%,
respectively, of the Fund's net assets represented by Class B
shares), which have been carried over into the present plan year.
At September 30, 1996, the end of the Class C Plan years, the
Distributor had incurred unreimbursed expenses under the Class C
Plan of $13,289, respectively (equal to 2.15%, respectively, of the
Fund's net assets represented by Class C shares), which have been
carried over into the present plan year.
Waivers of Class B and Class C Sales Charges. The Class B
and Class C contingent deferred sales charges will not be applied
to shares purchased in certain types of transactions nor will it
apply to shares redeemed in certain circumstances as described
below. The reasons for this policy are in "Reduced Sales Charges"
in the Statement of Additional Information.
Waivers for Redemptions of Shares in Certain Cases. The Class
B and Class C contingent deferred sales charges will be waived for
redemptions of shares in the following cases:
redemptions from accounts following the death or disability
of the last surviving shareholder, including a trustee of a
"grantor" trust or revocable living trust for which the trustee is
also the sole beneficiary (the death or disability must have
occurred after the account was established and for disability you
must provide evidence of a determination of disability by the
Social Security Administration),
shares redeemed involuntarily, as described in "Shareholder
Account Rules and Policies," below.
Waivers for Shares Sold or Issued in Certain Transactions.
The contingent deferred sales charge is also waived on Class B and
Class C shares sold or issued in the following cases:
shares sold to the Manager or its affiliates;
shares sold to registered management investment companies or
separate accounts of insurance companies having an agreement with
the Manager or the Distributor for that purpose; or
shares issued in plans of reorganization to which the Fund
is a party.
Special Investor Services
AccountLink. OppenheimerFunds AccountLink links your Fund account
to your account at your bank or other financial institution to
enable you to send money electronically between those accounts to
perform a number of types of account transactions. These include
purchasing shares by telephone (either through a service
representative or by PhoneLink, described below), automatic
investments under Asset Builder Plans, and sending dividends and
distributions or Automatic Withdrawal Plan payments directly to
your bank account. Please call the Transfer Agent for more
information.
AccountLink privileges should be requested on your dealer's
settlement instructions if you buy your shares through your dealer.
After your account is established, you can request AccountLink
privileges by sending signature-guaranteed instructions to the
Transfer Agent. AccountLink privileges will apply to each
shareholder listed in the registration on your account as well as
to your dealer representative of record unless and until the
Transfer Agent receives written instructions terminating or
changing those privileges. After you establish AccountLink for your
account, any change of bank account information must be made by
signature-guaranteed instructions to the Transfer Agent signed by
all shareholders who own the account.
Using AccountLink to Buy Shares. Purchases may be made by
telephone only after your account has been established. To purchase
shares in amounts up to $250,000 through a telephone
representative, call the Distributor at 1-800-852-8457. The
purchase payment will be debited from your bank account.
PhoneLink. PhoneLink is the OppenheimerFunds automated
telephone system that enables shareholders to perform a number of
account transactions automatically using a touch-tone phone.
PhoneLink may be used on already-established Fund accounts after
you obtain a Personal Identification Number (PIN), by calling the
special PhoneLink number: 1-800-533-3310.
Purchasing Shares. You may purchase shares in amounts up to
$100,000 by phone, by calling 1-800-533-3310. You must have
established AccountLink privileges to link your bank account with
the Fund, to pay for these purchases.
Exchanging Shares. With the OppenheimerFunds Exchange
Privilege, described below, you can exchange shares automatically
by phone from your Fund account to another Oppenheimer fund account
you have already established by calling the special PhoneLink
number. Please refer to "How to Exchange Shares," below, for
details.
Selling Shares. You can redeem shares by telephone
automatically by calling the PhoneLink number and the Fund will
send the proceeds directly to your AccountLink bank account.
Please refer to "How to Sell Shares," below, for details.
Automatic Withdrawal and Exchange Plans. The Fund has several
plans that enable you to sell shares automatically or exchange them
to another Oppenheimer fund account on a regular basis:
Automatic Withdrawal Plans. If your Fund account is worth
$5,000 or more, you can establish an Automatic Withdrawal Plan to
receive payments of at least $50 on a monthly, quarterly, semi-
annual or annual basis. The checks may be sent to you or sent
automatically to your bank account on AccountLink. You may even set
up certain types of withdrawals of up to $1,500 per month by
telephone. You should consult the Statement of Additional
Information for more details.
Automatic Exchange Plans. You can authorize the Transfer
Agent automatically to exchange an amount you establish in advance
for shares of up to five other Oppenheimer funds on a monthly,
quarterly, semi-annual or annual basis under an Automatic Exchange
Plan. The minimum purchase for each Oppenheimer fund account is
$25. These exchanges are subject to the terms of the Exchange
Privilege, described below.
Reinvestment Privilege. If you redeem some or all of your Class A
or Class B shares of the Fund, you have up to 6 months to reinvest
all or part of the redemption proceeds in Class A shares of the
Fund or other Oppenheimer funds without paying a sales charge. This
privilege applies to Class A shares that you purchased subject to
an initial sales charge and to Class A or Class B shares on which
you paid a contingent deferred sales charge when you redeemed them.
This privilege does not apply to Class C shares. You must be sure
to ask the Distributor for this privilege when you send your
payment. 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. Please consult the Statement of
Additional Information for more details.
How to Sell Shares
You can arrange to take money out of your account by selling
(redeeming) some or all of your shares on any regular business day.
Your shares will be sold at the next net asset value calculated
after your order is received and accepted by the Transfer Agent.
The Fund offers you a number of ways to sell your shares: in
writing, by using the Fund's checkwriting privilege or by
telephone. You can also set up an Automatic Withdrawal Plans to
redeem shares on a regular basis, as described above. If you have
questions about any of these procedures, and especially if you are
redeeming shares in a special situation, such as due to the death
of the owner, please call the Transfer Agent first, at 1-800-525-
7048, for assistance.
Certain Requests Require a Signature Guarantee. To protect
you and the Fund from fraud, certain redemption requests must be in
writing and must include a signature guarantee in the following
situations (there may be other situations also requiring a
signature guarantee):
You wish to redeem more than $50,000 worth of shares and
receive a check
The redemption check is not payable to all shareholders
listed on the account statement
The redemption check is not sent to the address of record on
your account statement
Shares are being transferred to a Fund account with a
different owner or name
Shares are redeemed by someone other than the owners (such
as an Executor)
Where Can I Have My Signature Guaranteed? The Transfer
Agent will accept a guarantee of your signature by a number of
financial institutions, including: a U.S. bank, trust company,
credit union or savings association, or by a foreign bank that has
a U.S. correspondent bank, or by a U.S. registered dealer or broker
in securities, municipal securities or government securities, or by
a U.S. national securities exchange, a registered securities
association or a clearing agency. If you are signing on behalf of
a corporation, partnership or other business or as a fiduciary, you
must also include your title in the signature.
Selling Shares by Mail. Write a "letter of instructions" that
includes:
Your name
The Fund's name
Your Fund account number (from your account statement)
The dollar amount or number of shares to be redeemed
Any special payment instructions
Any share certificates for the shares you are selling,
The signatures of all registered owners exactly as the
account is registered, and
Any special requirements or documents requested by the
Transfer Agent to assure proper authorization of the person asking
to sell shares.
Use the following address for requests by mail:
OppenheimerFunds Services
P.O. Box 5270, Denver, Colorado 80217
Send courier or Express Mail requests to:
OppenheimerFunds Services
10200 E. Girard Avenue, Building D
Denver, Colorado 80231
Selling Shares by Telephone. You and your dealer representative of
record may also sell your shares by telephone. To receive the
redemption price on a regular business day, your request must be
received by the Transfer Agent or its agent by the close of The New
York Stock Exchange that day, which is normally 4:00 P.M., but
which may be earlier on some days. You may not redeem shares held
under a share certificate by telephone.
To redeem shares through a service representative, call 1-
800-852-8457
To redeem shares automatically on PhoneLink, call 1-800-533-
3310
Whichever method you use, you may have a check sent to the
address on the account statement, or, if you have linked your Fund
account to your bank account on AccountLink, you may have the
proceeds sent to that account.
Telephone Redemptions Paid by Check. Up to $50,000 may be
redeemed by telephone, in any 7-day period. The check must be
payable to all owners of record of the shares and must be sent to
the address on the account statement. This service is not
available within 30 days of changing the address on an account.
Telephone Redemptions Through AccountLink or By Wire. There
are no dollar limits on telephone redemption proceeds sent to a
bank account designated when you establish AccountLink. Normally,
the ACH transfer to your bank is initiated on the business day
after the redemption. You do not receive dividends on the proceeds
of the shares you redeemed while they are waiting to be
transferred. Shareholders may also have the Transfer Agent send
redemption proceeds of $2,500 or more by Federal Funds wire to a
designated commercial bank account. The bank must be a member of
the Federal Reserve wire system. There is a $10 fee for each
Federal Funds wire. To place a wire redemption request, call the
Transfer Agent at 1-800-852-8457. The wire will normally be
transmitted on the next bank business day after the shares are
redeemed. There is a possibility that the wire may be delayed up
to seven days to enable the Fund to sell securities to pay the
redemption proceeds. No dividends are accrued or paid on the
proceeds of shares that have been redeemed and are awaiting
transmittal by wire. To establish wire redemption privileges on an
account that is already established, please contact the Transfer
Agent for instructions.
Selling Shares Through Your Dealer. The Distributor has made
arrangements to repurchase Fund shares from dealers and brokers on
behalf of their customers. Brokers or dealers may charge for that
service. Please call your dealer for more information about this
procedure. Please refer to "Special Arrangements for Repurchase of
Shares from Dealers and Brokers" in the Statement of Additional
Information for more details.
Selling Shares by Wire. You may request that redemption proceeds
of $2,500 or more be wired to a previously designated account at a
commercial bank that is a member of the Federal Reserve wire
system. The wire will normally be transmitted on the next bank
business day after the redemption of shares. To place a wire
redemption request, call the Transfer Agent at 1-800-525-7048.
There is a $10 fee for each wire.
Checkwriting. To be able to write checks against your Fund
account, you may request that privilege on your account Application
or you can contact the Transfer Agent for signature cards, which
must be signed (with a signature guarantee) by all owners of the
account and returned to the Transfer Agent so that checks can be
sent to you to use. Shareholders with joint accounts can elect in
writing to have checks paid over the signature of one owner. If
you previously signed a signature card to establish checkwriting in
another Oppenheimer fund, simply call 1-800-525-7048 to request
checkwriting for an account in this Fund with the same registration
as the previous checkwriting account.
Checks can be written to the order of whomever you wish, but
may not be cashed at the Fund's bank or custodian.
Checkwriting privileges are not available for accounts
holding Class B shares or Class C shares, or Class A shares that
are subject to a contingent deferred sales charge.
Checks must be written for at least $100.
Checks cannot be paid if they are written for more than your
account value.
Remember: your shares fluctuate in value and you should not
write a check close to the total account value.
You may not write a check that would require the Fund to
redeem shares that were purchased by check or Asset Builder Plan
payments within the prior 10 days.
Don't use your checks if you changed your Fund account
number.
The Fund will charge a $10 fee for any check that is not paid
because (1) the owners of the account told the Fund not to pay the
check, or (2) the check was for more than the account balance, or
(3) the check did not have the proper signatures or (4) the check
was written for less than $100.
How to Exchange Shares
Shares of the Fund may be exchanged for shares of certain
Oppenheimer funds at net asset value per share at the time of
exchange, without sales charge. To exchange shares, you must meet
several conditions:
Shares of the fund selected for exchange must be available
for sale in your state of residence.
The prospectuses of this Fund and the fund whose shares you
want to buy must offer the exchange privilege.
You must hold the shares you buy when you establish your
account for at least 7 days before you can exchange them; after the
account is open 7 days, you can exchange shares every regular
business day.
You must meet the minimum purchase requirements for the fund
you purchase by exchange.
Before exchanging into a fund, you should obtain and read
its prospectus.
Shares of a particular class of the Fund may be exchanged only
for shares of the same class in the other Oppenheimer funds. For
example, you can exchange Class A shares of this Fund only for
Class A shares of another fund. At present, Oppenheimer Money
Market Fund, Inc. offers only one class of shares which are
considered to be Class A shares for this purpose. In some cases,
sales charges may be imposed on exchange transactions. Please
refer to "How to Exchange Shares" in the Statement of Additional
Information for more details.
Exchanges may be requested in writing or by telephone:
Written Exchange Requests. Submit an OppenheimerFunds
Exchange Request form, signed by all owners of the account. Send
it to the Transfer Agent at the addresses listed in "How to Sell
Shares."
Telephone Exchange Requests. Telephone exchange requests may
be made either by calling a service representative at 1-800-852-
8457 or by using PhoneLink for automated exchanges by calling 1-
800-533-3310. Telephone exchanges may be made only between accounts
that are registered with the same name(s) and address. Shares held
under certificates may not be exchanged by telephone.
You can find a list of Oppenheimer funds currently available
for exchanges in the Statement of Additional Information or obtain
one by calling a service representative at 1-800-525-7048. That
list can change from time to time.
There are certain exchange policies you should be aware of:
Shares are normally redeemed from one fund and purchased
from the other fund in the exchange transaction on the same regular
business day on which the Transfer Agent receives an exchange
request that is in proper form by the close of The New York Stock
Exchange that day, which is normally 4:00 P.M., but may be earlier
on some days. However, either fund may delay the purchase of
shares of the fund you are exchanging into up to seven days if it
determines it would be disadvantaged by a same-day transfer of the
proceeds to buy shares. For example, the receipt of multiple
exchange requests from a dealer in a "market-timing" strategy might
require the sale of portfolio securities at a time or price
disadvantageous to the Fund.
Because excessive trading can hurt fund performance and harm
shareholders, the Fund reserves the right to refuse any exchange
request that will disadvantage it, or to refuse multiple exchange
requests submitted by a shareholder or dealer.
The Fund may amend, suspend or terminate the exchange
privilege at any time. Although the Fund will attempt to provide
you notice whenever it is reasonably able to do so, it may impose
these changes at any time.
For tax purposes, exchanges of shares involve a redemption
of the shares of the fund you own and a purchase of the shares of
the other fund, which may result in a capital gain or loss. For
more information about taxes affecting exchanges, please refer to
"How to Exchange Shares," in the Statement of Additional
Information.
If the Transfer Agent cannot exchange all the shares you
request because of a restriction cited above, only the shares
eligible for exchange will be exchanged.
Shareholder Account Rules and Policies
Net Asset Value Per Share is determined for each class of
shares as of the close of The New York Stock Exchange, which is
normally 4:00 p.m. but may be earlier on some days on each day the
Exchange is open by dividing the value of the Fund's net assets
attributable to a class by the number of shares of that class that
are outstanding. The Trust's Board of Trustees has established
procedures to value the Fund's securities to determine net asset
value. In general, securities values are based on market value.
There are special procedures for valuing illiquid and restricted
securities, and obligations for which market values cannot be
readily obtained. These procedures are described more completely
in the Statement of Additional Information.
The offering of shares may be suspended during any period in
which the determination of net asset value is suspended, and the
offering may be suspended by the Board of Trustees at any time the
Board believes it is in the Fund's best interest to do so.
Telephone Transaction Privileges for purchases, redemptions
or exchanges may be modified, suspended or terminated by the Fund
at any time. If an account has more than one owner, the Fund and
the Transfer Agent may rely on the instructions of any one owner.
Telephone privileges apply to each owner of the account and the
dealer representative of record for the account unless and until
the Transfer Agent receives cancellation instructions from an owner
of the account.
The Transfer Agent will record any telephone calls to verify
data concerning transactions and has adopted other procedures to
confirm that telephone instructions are genuine, by requiring
callers to provide tax identification numbers and other account
data or by using PINs, and by confirming such transactions in
writing. If the Transfer Agent does not use reasonable procedures
it may be liable for losses due to unauthorized transactions, but
otherwise neither the Transfer Agent nor the Fund will be liable
for losses or expenses arising out of telephone instructions
reasonably believed to be genuine. If you are unable to reach the
Transfer Agent during periods of unusual market activity, you may
not be able to complete a telephone transaction and should consider
placing your order by mail.
Redemption or transfer requests will not be honored until
the Transfer Agent receives all required documents in proper form.
From time to time, the Transfer Agent in its discretion may waive
certain of the requirements for redemptions stated in this
Prospectus.
Dealers that can perform account transactions for their
clients by participating in NETWORKING through the National
Securities Clearing Corporation are responsible for obtaining their
clients' permission to perform those transactions and are
responsible to their clients who are shareholders of the Fund if
the dealer performs any transaction erroneously or improperly.
The redemption price for shares will vary from day to day
because the value of the securities in the Fund's portfolio
fluctuates, and the redemption price, which is the net asset value
per share, will normally be different for Class A, Class B and
Class C shares. Therefore, the redemption value of your shares may
be more or less than their original cost.
Payment for redeemed shares is made ordinarily in cash and
forwarded by check or through AccountLink (as elected by the
shareholder under the redemption procedures described above) within
seven days after the Transfer Agent receives redemption
instructions in proper form, except under unusual circumstances
determined by the Securities and Exchange Commission delaying or
suspending such payments. For accounts registered in the name of
a broker-dealer, payment will be forwarded within three business
days. The Transfer Agent may delay forwarding a check or
processing a payment via AccountLink for recently purchased shares,
but only until the purchase payment has cleared. That delay may be
as much as 10 days from the date the shares were purchased. That
delay may be avoided if you purchase shares by certified check or
arrange with your bank to provide telephone or written assurance to
the Transfer Agent that your purchase payment has cleared.
Involuntary redemptions of small accounts may be made by the
Fund if the account value has fallen below $200 for reasons other
than the fact that the market value of shares has dropped, and in
some cases involuntary redemptions may be made to repay the
Distributor for losses from the cancellation of share purchase
orders.
Under unusual circumstances, shares of the Fund may be
redeemed "in kind," which means that the redemption proceeds will
be paid with securities from the Fund's portfolio. Please refer to
"How to Sell Shares" in the Statement of Additional Information for
more details.
"Backup Withholding" of Federal income tax may be applied at
the rate of 31% from taxable dividends, distributions and
redemption proceeds (including exchanges) if you fail to furnish
the Fund a certified Social Security or Employer Identification
Number when you sign your application, or if you violate Internal
Revenue Service regulations on tax reporting of income.
The Fund does not charge a redemption fee, but if your
dealer or broker handles your redemption, they may charge a fee.
That fee can be avoided by redeeming your Fund shares directly
through the Transfer Agent. Under the circumstances described in
"How To Buy Shares," you may be subject to a contingent deferred
sales charge when redeeming certain Class A, Class B and Class C
shares.
To avoid sending duplicate copies of materials to
households, the Fund will mail only one copy of each annual and
semi-annual report to shareholders having the same last name and
address on the Fund's records. However, each shareholder may call
the Transfer Agent at 1-800-525-7048 to ask that copies of those
materials be sent personally to that shareholder.
Dividends, Capital Gains and Taxes
Dividends. The Fund declares dividends separately for Class A,
Class B and Class C shares from net investment income on each
regular business day and pays those dividends to shareholders
monthly on a date selected by the Board of Trustees. Dividends
paid on Class A shares generally are expected to be higher than for
Class B or Class C shares because expenses allocable to Class B or
Class C shares will generally be higher.
During the Fund's fiscal year ended September 30, 1995, 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 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. 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.
Capital Gains. Although the Fund does not seek capital gains, the
Fund may realize capital gains on the sale of portfolio
securities. If it does, it may make distributions annually in
December out of any net short-term or long-term capital gains. The
Fund may also make supplemental distributions of dividends and
capital gains following the end of its fiscal 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 capital gains
will be separately identified in the tax information the Fund sends
you after the end of the calendar year. Short-term capital gains
are treated as taxable dividends for tax purposes.
Distribution Options. When you open your account, specify on your
application how you want to receive your distributions. You have
four options:
Reinvest All Distributions in the Fund. You can elect to
reinvest all dividends and long-term capital gains distributions in
additional shares of the Fund.
Reinvest Long-Term Capital Gains Only. You can elect to
reinvest long-term capital gains in the Fund while receiving
dividends by check or sent to your bank account on AccountLink.
Receive All Distributions in Cash. You can elect to receive
a check for all dividends and long-term capital gains distributions
or have them sent to your bank on AccountLink.
Reinvest Your Distributions in Another Oppenheimer Fund
Account. You can reinvest all distributions in another Oppenheimer
fund account you have established.
Taxes. Long-term capital gains are taxable as long-term capital
gains when distributed to shareholders. It does not matter how
long you held your shares. Dividends paid from short-term capital
gains are taxable as ordinary income. Dividends paid from net
investment income earned by the Fund on Municipal Securities will
be excludable from your gross income for Federal income tax
purposes. A portion of the dividends paid by the Fund may be an
item of tax preference if you are subject to alternative minimum
tax. Taxable dividends and distributions are subject to federal
income tax and may be subject to state or local taxes. Whether you
reinvest your distributions in additional shares or take them in
cash, the tax treatment is the same. Every year the Fund will send
you and the IRS a statement showing the amount of any taxable
distribution you received in the previous year as well as the
amount of your tax-exempt dividends.
"Buying a Dividend": When a fund goes ex-dividend, its share
price is reduced by the amount of the distribution. If you buy
shares on or just before the Fund declares a capital gains
distribution, you will pay the full price for the shares and then
receive a portion of the price back as a taxable capital gain. To
the extent the Fund's dividends include taxable income, you will
pay taxes on that portion of the dividend.
Taxes on Transactions: Even though the Fund seeks tax-exempt
income for distribution to shareholders, you may have a capital
gain or loss when you sell or exchange your shares. A capital gain
or loss is the difference between the price you paid for the shares
and the price you received when you sold them. Any capital gain is
subject to capital gains tax.
Returns of Capital: In certain cases, distributions made by
the Fund may be considered a non-taxable return of capital to
shareholders. If that occurs, it will be identified in notices to
shareholders. A non-taxable return of capital may reduce your tax
basis in your Fund shares.
This information is only a summary of certain federal tax
information about your investment. More information is contained
in the Statement of Additional Information, and in addition you
should consult with your tax adviser about the effect of an
investment in the Fund on your particular tax situation.
<PAGE>
APPENDIX A
Special Sales Charge Arrangements for Shareholders of the Fund
Who Were Shareholders of the Former Quest for Value Funds
The initial and contingent deferred sales charge rates and
waivers for Class A, Class B and Class C shares of the Fund
described elsewhere in this Prospectus are modified as described
below for those shareholders of (i) Quest for Value Fund, Inc.,
Quest for Value Growth and Income Fund, Quest for Value Opportunity
Fund, Quest for Value Small Capitalization Fund and Quest for Value
Global Equity Fund, Inc. on November 24, 1995, when
OppenheimerFunds, Inc. became the investment adviser to those
funds, and (ii) Quest for Value U.S. Government Income Fund, Quest
for Value Investment Quality Income Fund, Quest for value Global
Income Fund, Quest for Value New York Tax-Exempt Fund, Quest for
Value National Tax-Exempt Fund and Quest for Value California Tax-
Exempt Fund when those funds merged into various Oppenheimer funds
on November 24, 1995. The funds listed above are referred to in
this Prospectus as the "Former Quest for Value Funds." The waivers
of initial and contingent deferred sales charges described in this
Appendix apply to shares of the Fund acquired by such shareholder
pursuant to an exchange of shares of one of the Oppenheimer funds
that was (i) one of the Former Quest for Value Funds or (ii)
received by such shareholder pursuant to the merger of any of the
Former Quest for Value Funds into an Oppenheimer fund on November
24, 1995.
Class A Sales Charges
Reduced Class A Initial Sales Charge Rates for Certain Former
Quest Shareholders
Purchases by Groups and Associations. The following table sets
forth the initial sales charge rates for Class A shares purchased
by members of "Associations" formed for any purpose other than the
purchase of securities if that Association purchased shares of any
of the Former Quest for Value Funds or received a proposal to
purchase such shares from OCC Distributors prior to November 24,
1995.
Front-End Front-End
Sales Sales Commission
Charge Charge as
as a as a Percentage
Number of Percentage Percentage of
Eligible Employees of Offering of Amount Offering
or Members Price Invested Price
__________________________________________________________________
9 or fewer 2.50% 2.56% 2.00%
__________________________________________________________________
At least 10 but not
more than 49 2.00% 2.04% 1.60%
For purchases by Associations having 50 or more eligible
employees or members, there is no initial sales charge on purchases
of Class A shares, but those shares are subject to the Class A
contingent deferred sales charge described on page __ of this
Prospectus.
Purchases made under this arrangement qualify for the lower of
the sales charge rate in the table based on the number of members
of an Association or the sales charge rate that applies under the
Rights of Accumulation described above in the Prospectus.
Individuals who qualify under this arrangement for reduced sales
charge rates as members of Associations also may purchase shares
for their individual or custodial accounts at these reduced sales
charge rates, upon request to the Fund's Distributor.
Special Class A Contingent Deferred Sales Charge Rates
Class A shares of the Fund purchased by exchange of shares of other
Oppenheimer funds that were acquired as a result of the merger of
Former Quest for Value Funds into those Oppenheimer funds, and
which shares were subject to a Class A contingent deferred sales
charge prior to November 24, 1995 will be subject to a contingent
deferred sales charge at the following rates: if they are redeemed
within 18 months of the end of the calendar month in which they
were purchased, at a rate equal to 1.0% if the redemption occurs
within 12 months of their initial purchase and at a rate of 0.50 of
1.0% if the redemption occurs in the subsequent six months. Class
A shares of any of the Former Quest for Value Funds purchased
without an initial sales charge on or before November 22, 1995 will
continue to be subject to the applicable contingent deferred sales
charge in effect as of that date as set forth in the then-current
prospectus for such fund.
Waiver of Class A Sales Charges for Certain Shareholders
Class A shares of the Fund purchased by the following investors are
not subject to any Class A initial or contingent deferred sales
charges:
Shareholders of the Fund who were shareholders of the AMA
Family of Funds on February 28, 1991 and who acquired shares of any
of the Former Quest for Value Funds by merger of a portfolio of the
AMA Family of Funds.
Shareholders of the Fund who acquired shares of any Former
Quest for Value Fund by merger of any of the portfolios of the
Unified Funds.
Waiver of Class A Contingent Deferred Sales Charge in Certain
Transactions
The Class A contingent deferred sales charge will not apply to
redemptions of Class A shares of the Fund purchased by the
following investors who were shareholders of any Former Quest for
Value Fund:
Investors who purchased Class A shares from a dealer that is
or was not permitted to receive a sales load or redemption fee
imposed on a shareholder with whom that dealer has a fiduciary
relationship under the Employee Retirement Income Security Act of
1974 and regulations adopted under that law.
Class A, Class B and Class C Contingent Deferred Sales Charge
Waivers
Waivers for Redemptions of Shares Purchased Prior to March 6,
1995
In the following cases, the contingent deferred sales charge will
be waived for redemptions of Class A, Class B or Class C shares of
the Fund acquired by the merger of a Former Quest for Value Fund
into the Fund or by exchange from an Oppenheimer fund that was a
Former Quest for Value Fund or into which such fund merged, if
those shares were purchased prior to March 6, 1995 in connection
with: (i) withdrawals under an automatic withdrawal plan holding
only either Class B or Class C shares if the annual withdrawal does
not exceed 10% of the initial value of the account, and
(ii) liquidation of a shareholder's account if the aggregate net
asset value of shares held in the account is less than the required
minimum value of such accounts.
Waivers for Redemptions of Shares Purchased on or After March 6,
1995 but Prior to November 24, 1995.
In the following cases, the contingent deferred sales charge will
be waived for redemptions of Class A, Class B or Class C shares of
the Fund acquired by the merger of a Former Quest for Value Fund
into the Fund or by exchange from an Oppenheimer fund that was a
Former Quest For Value Fund or into which such fund merged, if
those shares were purchased on or after March 6, 1995, but prior to
November 24, 1995: (1) redemptions following the death or
disability of the shareholder(s) (as evidenced by a determination
of total disability by the U.S. Social Security Administration);
(2) withdrawals under an automatic withdrawal plan (but only for
Class B or Class C shares) where the annual withdrawals do not
exceed 10% of the initial value of the account; and (3) liquidation
of a shareholder's account if the aggregate net asset value of
shares held in the account is less than the required minimum
account value. A shareholder's account will be credited with the
amount of any contingent deferred sales charge paid on the
redemption of any Class A, Class B or Class C shares of the Fund
described in this section if within 90 days after that redemption,
the proceeds are invested in the same Class of shares in this Fund
or another Oppenheimer fund.
<PAGE>
APPENDIX TO PROSPECTUS OF
OPPENHEIMER INSURED MUNICIPAL FUND
Graphic material included in Prospectus of Oppenheimer Insured
Municipal Fund: "Comparison of Total Return of Oppenheimer Insured
Tax-Exempt Fund and the Lehman Brothers Municipal Bond Index -
Change in Value of a $10,000 Hypothetical Investment"
A linear graph will be included in the Prospectus of
Oppenheimer Insured Tax-Exempt Fund (the "Fund") depicting the
initial account value and subsequent account value of a
hypothetical $10,000 investment in the Fund. In the case of the
Fund's class A shares, that graph will cover the period from the
commencement of the Fund's operations (11/11/86) through 9/30/96,
in the case of the Fund's Class B shares will cover the period from
the inception of the class (May 3, 1993) through September 30,
1996, and in the case of the Fund's Class C shares, that graph will
cover the period from the inception of the class (8/29/95) through
September 30, 1996. The graph will compare such values with
hypothetical $10,000 investments over the same time periods in the
Lehman Brothers Municipal Bond Index. Set forth below are the
relevant data points that will appear on the linear graph.
Additional information with respect to the foregoing, including a
description of the Lehman Brothers Municipal Bond Index, is set
forth in the Prospectus under "How Has the Fund Performed -
Management's Discussion of Performance."
Fiscal Year Oppenheimer Insured Lehman Brothers
(Period) Ended Municipal Fund A Municipal Bond Index
11/11/86 $ 9,525 $ 10,000
9/30/87 $ 8,729 $ 9,690
9/30/88 $ 10,184 $ 10,948
9/30/89 $ 11,138 $ 11,898
9/30/90 $ 11,786 $ 12,707
9/30/91 $ 13,326 $ 14,383
9/30/92 $ 14,758 $ 15,886
9/30/93 $ 16,777 $ 17,910
9/30/94 $ 15,860 $ 17,473
9/30/95 $ 17,551 $ 19,428
9/30/96
Fiscal Year Oppenheimer Insured Lehman Brothers
(Period) Ended Municipal Fund B Municipal Bond Index
5/3/93 $ 10,000 $ 10,000
9/30/93 $ 10,578 $ 10,511
9/30/94 $ 9,922 $ 10,255
9/30/95 $ 11,184 $ 11,403
9/30/96
Fiscal Year Oppenheimer Insured Lehman Brothers
(Period) Ended Municipal Fund C Municipal Bond Index
9/30/95 $ 10,230 $ 10,063
9/30/96
<PAGE>
Oppenheimer Insured Municipal Fund
6803 South Tucson Way
Englewood, Colorado 80012
1-800-525-7048
Investment Advisor
OppenheimerFunds, Inc.
Two World Trade Center
New York, New York 10048-0203
Distributor
OppenheimerFunds Distributor, Inc.
Two World Trade Center
New York, New York 10048-0203
Transfer Agent
OppenheimerFunds Services
P.O. Box 5270
Denver, Colorado 80217
1-800-525-7048
Custodian of Portfolio Securities
Citibank, N.A.
399 Park Avenue
New York, New York 10043
Independent Auditors
Deloitte & Touche LLP
555 Seventeenth Street
Denver, Colorado 80202
Legal Counsel
Myer, Swanson, Adams & Wolf, P.C.
1600 Broadway
Denver, Colorado 80202
No dealer, broker, 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 Statement of
Additional Information and, if given or made, such information and
representations must not be relied upon as having been authorized
by the Fund, OppenheimerFunds, Inc., OppenheimerFunds 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.
PR0865.001.0297.N Printed on Recycled Paper
<PAGE>
Oppenheimer Insured Municipal Fund
6803 South Tucson Way, Englewood, Colorado 80112
1-800-525-7048
Statement of Additional Information dated February 1, 1997
This Statement of Additional Information is not a Prospectus.
This document contains additional information about the Fund and
supplements information in the Prospectus dated February 1, 1997.
It should be read together with the Prospectus, which may be
obtained by writing to the Fund's Transfer Agent, OppenheimerFunds
Services, at P.O. Box 5270, Denver, Colorado 80217 or by calling
the Transfer Agent at the toll-free number shown above.
TABLE OF CONTENTS
Page
About the Fund
Investment Objective and Policies. . . . . . . . . . . . .
Investment Policies and Strategies. . . . . . . . . .
Other Investment Techniques and Strategies. . . . . .
Other Investment Restrictions . . . . . . . . . . . .
How the Fund is Managed . . . . . . . . . . . . . . . . .
Organization and History. . . . . . . . . . . . . . .
Trustees and Officers of the Trust. . . . . . . . . .
The Manager and Its Affiliates. . . . . . . . . . . .
Brokerage Policies of the Fund . . . . . . . . . . . . . .
Performance of the Fund. . . . . . . . . . . . . . . . . .
Distribution and Service Plans . . . . . . . . . . . . . .
About Your Account
How To Buy Shares. . . . . . . . . . . . . . . . . . . . .
How To Sell Shares . . . . . . . . . . . . . . . . . . . .
How To Exchange Shares . . . . . . . . . . . . . . . . . .
Dividends, Capital Gains and TaxesAdditional Information About the
Fund . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financial Information About the Fund
Independent Auditors' Report . . . . . . . . . . . . . . .
Financial Statements . . . . . . . . . . . . . . . . . . .
Appendix A (Description of Ratings). . . . . . . . . . A-1
Appendix B (Tax-Equivalent Yield Chart). . . . . . . . B-1
Appendix C (Industry Classifications). . . . . . . . .C-1
<PAGE>
ABOUT THE FUND
Investment Objective and Policies
Investment Policies and Strategies. The investment objectives and
policies of the Fund are described in the Prospectus. Set forth
below is supplemental information about those policies and the
types of securities in which the Fund may invest, as well as the
strategies the Fund may use to try to achieve its objective.
Certain capitalized terms used in this Statement of Additional
Information have the same meaning as those terms have in the
Prospectus.
Municipal Securities. There are variations in the security of
Municipal Securities, both within a particular classification and
between classifications, depending on numerous factors. The yields
of Municipal Securities depend on, among other things, general
conditions of the Municipal Securities market, size of a particular
offering, the maturity of the obligation and rating of the issue.
The market value of Municipal Securities will vary as a result of
changing evaluations of the ability of their issuers to meet
interest and principal payments, as well as changes in the interest
rates payable on new issues 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.
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, OppenheimerFunds, Inc. (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 Other Derivative Investments. Some
inverse floaters have a feature known as an interest rate "cap" as
part of the terms of the investment. Investing in inverse floaters
that have interest rate caps might be part of a portfolio strategy
to try to maintain a high current yield for the Fund when the Fund
has invested in inverse floaters that expose the Fund to the risk
of short-term interest rate fluctuation. Embedded caps hedge a
portion of the Fund's exposure to rising interest rates. When
interest rates exceed the pre-determined rate, the cap generates
additional cash flows that offset the decline in interest rates on
the inverse floater, and the hedge is successful. However, the
Fund bears the risk that if interest rates do not rise above the
pre-determined rate, the cap (which is purchased for additional
cost) will not provide additional cash flows and will expire
worthless.
Municipal Lease Obligations. From time to time the Fund may
invest more than 5% of its net assets in municipal lease
obligations, generally through the acquisition of certificates of
participation, 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.
Municipal leases may take the form of a lease or an installment
purchase contract issued by a state or local government authority
to obtain funds to acquire a wide variety of equipment and
facilities. 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. Projects financed with
certificates of participation generally are not subject to state
constitutional debt limitations or other statutory requirements
that may be applicable to Municipal Securities. Payments by the
public entity on the obligation underlying the certificates are
derived from available revenue sources; such revenue may be
diverted to the funding of other municipal service projects.
Payments of interest and/or principal with respect to the
certificates are not guaranteed and do not constitute an obligation
of the issuing municipality or any of its political subdivisions.
In addition to the risk of "non-appropriation," municipal
lease securities do not yet have a highly developed market to
provide the degree of liquidity of conventional municipal bonds.
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
affected 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.
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 does not change the tax treatment of
bonds issued 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. Furthermore, 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 state or municipal governmental unit.) Under
the test for a 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 issuers 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, which makes tax-exempt interest from
certain private activity bonds a tax preference item for purposes
of the alternative minimum tax on individuals and corporations
specifically states that 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. The Treasury is authorized to issue
regulations implementing the provision. 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 or other
rating organizations 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 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, and
mortgage-backed securities.
Financial Guaranty is currently authorized to write insurance
in 50 states and the District of Columbia, files reports with state
insurance regulatory agencies and is subject to audit and review by
such authorities. Financial Guaranty 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
State Street Bank and Trust Company, 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.
Additional 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.
Other Investment Techniques and Strategies.
"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 shall not exceed 120 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.
Repurchase Agreements. The Fund may acquire securities
subject to repurchase agreements for liquidity purposes to meet
anticipated redemptions, or pending the investment of the proceeds
from sales of Fund shares, or pending the settlement of purchases
of portfolio securities.
In a repurchase transaction, the Fund acquires a security
from, and simultaneously resells it to, an approved vendor. An
"approved vendor" is a U.S. commercial bank or the U.S. branch of
a foreign bank or a broker-dealer which has been designated a
primary dealer in government securities, which must meet credit
requirements set by the Trust's Board of Trustees from time to
time. The resale price exceeds the purchase price by an amount
that reflects an agreed-upon interest rate effective for the period
during which the repurchase agreement is in effect. 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, collateralized by the underlying security.
The Fund's repurchase agreements require that at all times while
the repurchase agreement is in effect, the value of the collateral
must equal or exceed the repurchase price to fully collateralize
the repayment obligation. Additionally, the Manager will impose
creditworthiness requirements to confirm that the vendor is
financially sound and will continuously monitor the collateral's
value.
Loans of Portfolio Securities. The Fund may lend its
portfolio securities subject to the restrictions stated in the
Prospectus. Under applicable regulatory requirements (which are
subject to change), the loan collateral on each business day must
at least equal the value of the loaned securities and must consist
of cash, bank letters of credit or securities of the U.S.
Government (or its agencies or instrumentalities). 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. When it lends securities, the Fund receives amounts
equal to the dividends or interest on loaned securities and also
receives one or more of (a) negotiated loan fees, (b) interest on
securities used as collateral, and (c) interest on short-term debt
securities purchased with such loan collateral. Either type of
interest may be shared with the borrower. The Fund may also pay
reasonable finder's, custodian and administrative fees. The terms
of the Fund's loans must meet applicable tests under the Internal
Revenue Code and must permit the Fund to reacquire loaned
securities on five days' notice or in time to vote on any important
matter.
Other Investment Restrictions
The Fund's most significant investment restrictions are set
forth in the Prospectus. There are additional investment
restrictions that the Fund must follow that are also fundamental
policies. Fundamental policies and the Fund's investment objective
cannot be changed 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) invest in real estate, but this shall not prevent the Fund
from investing in Municipal Instruments or other permissible
securities or instruments secured by real estate or interests
thereon;
(2) invest in interests in oil, gas, or other mineral
exploration or development programs;
(3) purchase securities, or other instruments, on margin;
however, the Fund may invest in options, futures, options on
futures and similar instruments and may make margin deposits
and payments in connection therewith;
(4) make short sales of securities;
(5) underwrite securities except to the extent the Fund may be
deemed to be an underwriter in connection with the sale of
securities held in its portfolio;
(6) invest in securities of other investment companies, except
as they may be acquired as part of a merger, consolidation or
other acquisition;
(7) make investments for the purpose of exercising control of
management; or
(8) purchase securities of any issuer if, to the knowledge of
the Fund, its officers and trustees and officers and directors
of the Manager who individually own more than 5% of the
securities of such issuer together own beneficially more than
5% of such issuer's outstanding securities.
As a matter of non-fundamental policy, the Fund shall not
purchase or retain securities if as a result the Fund would have
more than 5% of its total assets invested in securities of private
issuers having a record of less than three years' continuous
operation (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; or invest in common stock or any warrants related thereto.
For purposes of the Fund's policy not to concentrate described
under investment restriction number 4 in the Prospectus, the Fund
has adopted the industry classifications set forth in Appendix C to
this Statement of Additional Information. This is not a
fundamental policy.
How the Fund Is Managed
Organization and History. Oppenheimer Municipal Fund is a
Massachusetts business trust and is composed of two series. The
Fund is one of the series. The Trust is not required to hold, and
does not plan to hold, regular annual meetings of shareholders. The
Trust and/or Fund will hold meetings when required to do so by the
Investment Company Act or other applicable law, or when a
shareholder meeting is called by the Trustees or upon proper
request of the shareholders. Shareholders have the right, upon the
declaration in writing or vote of two-thirds of the outstanding
shares of the 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 record holders of 10% of the outstanding
shares of the Trust. In addition, if the Trustees receive a
request from at least 10 shareholders (who have been shareholders
for at least six months) holding shares of the Trust valued at
$25,000 or more or holding at least 1% of the Trust's outstanding
shares, whichever is less, stating that they wish to communicate
with other shareholders to request a meeting to remove a Trustee,
the Trustees will then either make the Trust'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 under Section 16(c) of the
Investment Company Act.
Each share of the Fund represents an interest in the Fund
proportionately equal to the interest of each other share of the
same class and entitle the holder to one vote per share (and a
fractional vote for a fractional share) on matters submitted to
their vote at shareholders' meetings. Shareholders of the Trust
vote together in the aggregate on certain matters at shareholders'
meetings, such as the election of Trustees and ratification of
appointment of auditors for the Trust. Shareholders of a
particular series or class vote separately on proposals which
affect that class, and shareholders of a series or class which is
not affected by that matter are not entitled to vote on the
proposal. Shareholders of a series or class vote on certain
amendments to the Distribution and/or Service Plans if the
amendments affect that class.
The Trustees are authorized to create new series and classes
of series. The Trustees may reclassify unissued shares of the
Trust or its series or classes into additional series or classes of
shares. The Trustees may also divide or combine the shares of a
class into a greater or lesser number of shares provided that the
proportionate beneficial interest of a shareholder in the Fund and
Trust is not changed. Shares do not have cumulative voting rights
or preemptive or subscription rights. Shares may be voted in
person or by proxy.
The Declaration of Trust contains an express disclaimer of
shareholder or 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 Massachusetts law permits a
shareholder of a business trust (such as the Fund) to 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
Trust, and any shareholder of the Trust, agrees under the Trust's
Declaration of Trust to look solely to the assets of the Trust for
satisfaction of any claim or demand which may arise out of any
dealings with the Trust, and the Trustees shall have no personal
liability to any such person, to the extent permitted by law.
Trustees And Officers of the Trust. The Trust's Trustees and
officers and their principal occupations and business affiliations
during the past five years are listed below. All of the Trustees
are also trustees, directors or managing general partners of
Oppenheimer Total Return Fund, Inc., Oppenheimer Equity Income
Fund, Oppenheimer High Yield Fund, Oppenheimer Integrity Funds,
Oppenheimer Cash Reserves, Oppenheimer Limited-Term Government
Fund, The New York Tax-Exempt Income Fund, Inc., Oppenheimer
Champion Income Fund, Oppenheimer Main Street Funds, Inc.,
Oppenheimer Strategic Income Fund, Oppenheimer Strategic Income &
Growth Fund, Oppenheimer Variable Account Funds, Oppenheimer
International Bond Fund and Panorama Series Fund, as well as the
following "Centennial Funds": Daily Cash Accumulation Fund, Inc.,
Centennial America Fund, L.P., Centennial Money Market Trust,
Centennial Government Trust, Centennial New York Tax Exempt Trust,
Centennial Tax Exempt Trust and Centennial California Tax Exempt
Trust, (all of the foregoing funds are collectively referred to as
the "Denver-based Oppenheimer funds") except for Mr. Fossel and Ms.
Macaskill, who is a Trustee, Director or Managing General Partner
of all the Denver-based Oppenheimer funds, except Oppenheimer
Integrity Fund, Oppenheimer Strategic Income Fund, Panorama Series
Fund and Oppenheimer Variable Account Funds, and except Mr. Fossel,
who is not a trustee of Centennial New York Tax-Exempt Trust or a
Managing General Partner of Centennial America Fund, L.P. Ms.
Macaskill is President and Mr. Swain is Chairman of the Denver-
based Oppenheimer funds.
As of December 31, 1996, the Trustees and officers of the Fund
as a group owned of record or beneficially less than 1% of each
class of shares of the Fund or the Trust. The foregoing statement
does not reflect ownership of shares held of record by an employee
benefit plan for employees of the Manager (for which plan a trustee
and an officer listed below, Ms. Macaskill and Mr. Donohue,
respectively, are trustees), other than the shares beneficially
owned under that Plan by the officers of the Fund listed above.
Robert G. Avis, Trustee;* Age 65.
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; Age 82.
197 Desert Lakes Drive, Palm Springs, California 92264
Management Consultant.
Charles Conrad, Jr., Trustee; Age 65.
1501 Quail Street, Newport Beach, California 92660
Chairman and CEO of Universal Space Lines, Inc. (a space services
management company); formerly Vice President of McDonnell Douglas
Space Systems, Co. and associated with the National Aeronautics and
Space Administration.
Jon S. Fossel, Trustee; Age 54.
Box 44, Mead Street, Waccabuc, New York 10597
Member of the Board of Governors of the Investment Company
Institute (a national trade association of investment companies);
Chairman of the Investment Company Institute Education Foundation;
formerly Chairman and a director of the Manager; President and a
director of Oppenheimer Acquisition Corp. ("OAC"), the Manager's
parent holding company; and Shareholder Services, Inc. ("SSI") and
Shareholder Financial Services, Inc. ("SFSI"), transfer agent
subsidiaries of the Manager.
Sam Freedman, Trustee; Age 56
4975 Lakeshore Drive, Littleton, Colorado 80123
Formerly Chairman and Chief Executive Officer of OppenheimerFunds
Services, Chairman, Chief Executive Officer and a director of
Shareholder Services, Inc., Chairman, Chief Executive and Officer
and director of Shareholder Financial Services, Inc., Vice
President and director of Oppenheimer Acquisition Corporation and
a director of OppenheimerFunds, Inc.
____________________
* A Trustee who is an "interested person" of the Fund as defined in
the Investment Company Act.
Raymond J. Kalinowski, Trustee; Age 67.
44 Portland Drive, St. Louis, Missouri 63131
Director of Wave Technologies International, Inc. (a computer
products training company); 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; Age 75.
2552 East Alameda, Denver, Colorado 80209
Formerly the Managing Partner of Deloitte, Haskins & Sells (an
accounting firm).
Robert M. Kirchner, Trustee; Age 75.
7500 E. Arapahoe Road, Englewood, Colorado 80112
President of The Kirchner Company (management consultants).
Bridget A. Macaskill, President; Age 48
President, Chief Executive Officer and a Director of the Manager
and HarbourView Asset Management Corporation ("HarbourView") (a
subsidiary of the Manager); Chairman and a Director of SSI and
Shareholder Financial Services, Inc. ("SFSI"), President and a
Director of OAC and Oppenheimer Partnership Holdings, Inc., a
holding company subsidiary of the Manager; a director of
Oppenheimer Real Asset Management, Inc.; formerly Executive Vice
President of the Manager.
Ned M. Steel, Trustee; Age 81.
3416 S. Race Street, Englewood, Colorado 80110
Chartered Property and Casualty Underwriter; Director of Visiting
Nurse Corporation of Colorado; formerly Senior Vice President and
a director of Van Gilder Insurance Corp. (insurance brokers).
James C. Swain, Chairman, Chief Executive Officer and Trustee;* Age
63.
6803 Tucson Way, Englewood, Colorado 80112
Vice Chairman of the Manager; formerly President and Director of
Centennial Asset Management Corporation, an investment adviser
subsidiary of the Manager ("Centennial"); and formerly Chairman of
the Board of SSI.
Andrew J. Donohue, Vice President and Secretary; Age 46
Executive Vice President and General Counsel of OppenheimerFunds,
Inc. (the "Manager") and OppenheimerFunds Distributor, Inc. (the
"Distributor"); President and a director of Centennial; Executive
Vice President, General Counsel and a director of HarbourView, SSI,
SFSI, and Oppenheimer Partnership Holdings, Inc.; President and
director of Oppenheimer Real Asset Management, Inc.; General
Counsel of OAC; Executive Vice President, Chief Legal Officer and
a director of MultiSource Services, Inc. (a broker-dealer); an
officer of other Oppenheimer funds; 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 advisor);
director and an officer of First Investors Family of Funds and
First Investors Life Insurance Company.
____________________
* A Trustee who is an "interested person" of the Fund as defined in
the Investment Company Act.
George C. Bowen, Vice President, Assistant Secretary and Treasurer;
Age 60
6803 South Tucson Way, Englewood, Colorado 80112
Senior Vice President and Treasurer of the Manager; Vice President
and Treasurer of the Distributor and HarbourView; Senior Vice
President, Treasurer, Assistant Secretary and a director of
Centennial; Vice President, Treasurer and Secretary of SSI and
SFSI; Treasurer of OAC; Vice President and Treasurer of Oppenheimer
Real Asset Management, Inc.; Chief Executive Officer, Treasurer and
a director of MultiSource Services, Inc.; an officer of other
Oppenheimer funds.
Caryn Halbrecht, Vice President and Portfolio Manager; Age 40.
Two World Trade Center, New York, N.Y. 10048-0203
Vice President of the Manager; an officer of other Oppenheimer
funds; formerly a Vice President of Fixed-Income portfolio
management at Bankers Trust.
Robert G. Zack, Assistant Secretary; Age 48.
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
Oppenheimer funds.
Robert J. Bishop, Assistant Treasurer; Age 38
6803 Tucson Way, Englewood, Colorado 80112
Vice President of the Manager/Mutual Fund Accounting; an officer of
other Oppenheimer funds; formerly a Fund Controller of the Manager,
prior to which he was an Accountant for Yale & Seffinger, P.C., and
previously an Accountant and Commissions Supervisor for Stuart
James Company Inc., a broker-dealer.
Scott Farrar, Assistant Treasurer; Age 31
6803 Tucson Way, Englewood, Colorado 80112
Vice President of the Manager/Mutual Fund Accounting, an officer of
other Oppenheimer funds; formerly a Fund Controller for the
Manager.
Remuneration of Trustees. The officers of the Trust and
certain Trustees of the Trust (Ms. Macaskill and Mr. Swain) who are
affiliated with the Manager receive no salary or fee from the Fund.
Mr. Fossel did not receive any salary or fees from the Fund prior
to January 1, 1997. The remaining Trustees of the Fund received
the compensation shown below. Mr. Freedman became a Trustee on
June 27, 1996, and received no compensation from the Fund before
that date. The compensation from the Fund was paid during its
fiscal year ended September 30, 1996. The compensation from all of
the Denver-based Oppenheimer funds includes the Fund and is
compensation received as a director, trustee, managing general
partner or member of a committee of the Board during the calendar
year 1996.
Total Compensation
Aggregate From All
Compensation Denver-based
Name and Position from Fund Oppenheimer funds1
Robert G. Avis $380 $58,003
Trustee
William A. Baker $527 $79,715
Audit and Review
Committee Chairman
and Trustee
Charles Conrad, Jr. $461 $74,717
Audit and Review
Committee Member
and Trustee
Raymond J. Kalinowski $466 $74,173
Risk Management
Oversight Committee Member
and Trustee
C. Howard Kast $466 $74,173
Risk Management
Oversight Committee Member
and Trustee
Robert M. Kirchner $490 $74,717
Audit and Review
Committee Member
and Trustee
Ned M. Steel $380 $58,003
Trustee
Sam Freedman $179 $29,502
Trustee
______________________
1 For the 1996 calendar year.
Major Shareholders. As of December 31, 1996, no person
owned of record or was known by the Trust to own beneficially 5% or
more of the shares of the Trust as a whole or either class of the
Fund's outstanding Class A and Class B shares. As of that date,
the only shareholders which owned of record or were known by the
Fund to own beneficially 5% or more of the Fund's Class C shares
were PaineWebber for the benefit of Arthur A. Newman, Joan R.
Newman and Laurie A. Newman, 2622 King Richard, El Dorado Hills,
California 95762-4126 who owned of record 12,455.516 Class C shares
(representing 19.49% of the Fund's outstanding Class C shares);
Margie H. Madak Trust, 8619 W. Sunnyside Ave., Chicago, IL 60656-
4149, who owned of record 8,796.384 Class C shares (representing
13.76% of the Fund's outstanding Class C shares); B&J Inc., Attn.
Bernard HY Fong, 15 Country Club Rd. #C, Honolulu, HI 96817-1408
who owned of record 5,950.806 Class C shares (representing 9.31% of
the Fund's outstanding Class C shares) and Richard Passick, 202
Lombard St., New Haven, CT 06513-2825 who owned of record 5,586.667
Class C shares (representing 8.74% of the Fund's outstanding Class
C shares).
The Manager and Its Affiliates. The Manager is wholly-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 officers, some of
whom also serve as officers of the Trust, and two of whom (Ms.
Macaskill and Mr. Swain) serve as Trustees of the Trust.
The Manager and the Fund have a Code of Ethics. It is
designed to detect and prevent improper personal trading by certain
employees, including portfolio managers, that would compete with or
take advantage of the Fund's portfolio transactions. Compliance
with the Code of Ethics is carefully monitored and strictly
enforced by the Manager.
The Investment Advisory Agreement. The Investment Advisory
Agreement between the Manager and the Trust on behalf of the Fund
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 corporate administration
for the Fund, including the compilation and maintenance of records
with respect to its operations, the preparation and filing of
specified reports, and the composition of proxy materials and
registration statements for continuous public sale of shares of the
Fund.
Expenses not expressly assumed by the Manager under the
Investment Advisory Agreement or by the Distributor under the
General Distributor's Agreement are paid by the Fund. Expenses
with respect to the Trust's two series, including the Fund, are
allocated in proportion to the net assets of the respective funds
except where allocations of direct expenses could be made. Certain
expenses are further allocated to certain classes of shares of a
series as explained in the Prospectus and under "How to Buy Shares"
below. The Investment Advisory Agreement lists examples of
expenses paid by the Fund, the major categories of which relate to
interest, taxes, brokerage commissions, fees to certain Trustees,
legal and audit expenses, transfer agent and custodian expenses,
share issuance costs, certain printing and registration costs and
non-recurring expenses, including litigation costs.
The Investment Advisory Agreement contains no expense
limitation. However, because of state regulations limiting fund
expenses that previously applied, the Manager had voluntarily
undertaken that the Fund's total expenses in any fiscal year
(including the investment advisory fee but exclusive of taxes,
interest, brokerage commissions, distribution plan payments and any
extraordinary non-recurring expenses, including litigation) would
not exceed the most stringent state regulatory limitation
applicable to the Fund. Due to changes in federal securities laws,
such state regulations no longer apply and the Manager's
undertaking is therefore inapplicable and has been withdrawn.
During the Fund's last fiscal year, the Fund's expenses did not
exceed the most stringent state regulatory limit and the voluntary
undertaking was not invoked.
The advisory agreement provides that in the absence of willful
misfeasance, bad faith or gross negligence in the performance of
its duties, or reckless disregard for its obligations and duties
under the advisory agreement, the Manager is not liable for any
loss resulting from a good faith error or omission on its part with
respect to any of its duties thereunder. The advisory agreement
permits the Manager to act as investment adviser for any other
person, firm or corporation and to use the name "Oppenheimer" in
connection with other investment companies for which it may act as
investment adviser or general distributor. If the Manager shall no
longer act as investment adviser to the Fund, the right of the Fund
to use the name "Oppenheimer" as part of its name may be withdrawn.
During the Fund's fiscal year ended September 30, 1996, the
management fees were $435,183.
The Distributor. Under its General Distributor's Agreement
with the Fund, the Distributor, OppenheimerFunds Distributor, Inc.
acts as the Fund's principal underwriter in the continuous public
offering of the Fund's Class A, Class B and Class C shares but is
not obligated to sell a specific number of shares. Expenses
normally attributable to sales, excluding payments under the
Distribution and Service Plans but including advertising and the
cost of printing and mailing prospectuses (other than those
furnished to existing shareholders) are borne by the Distributor.
During the Fund's fiscal years ended September 30, 1994, 1995
and 1996 the aggregate sales charges on sales of the Fund's Class
A shares was $376,541, $153,803 and $180,294, respectively, of
which the Distributor and an affiliated broker-dealer retained in
the aggregate $92,979, $43,162 and $41,094, in those respective
years. During the Fund fiscal year ended September 30, 1996, the
contingent deferred sales charge collected on the Fund's Class B
shares totalled $31,295, all of which the Distributor retained.
For additional information about distribution of the Fund's shares
and the expenses connected with such activities, please refer to
"Distribution and Service Plans," below. Sales charges advanced to
broker/dealers by the Distributor on sales of the Fund's Class B
shares during the fiscal year ended September 30, 1996 were
$164,506, of which $5,171 was paid to an affiliate. Sales charges
advanced to broker/dealers by the Distributor on sales of the
Fund's Class C shares during the fiscal year ended September 30,
1996 were $8,276, of which $100 was paid to an affiliate.
The Transfer Agent. The Fund's Transfer Agent,
OppenheimerFunds Services, a division of the Manager, is
responsible for maintaining the Fund's shareholder registry and
shareholder accounting records, and for shareholder servicing and
administrative functions.
Brokerage Policies of the Fund
Brokerage Provisions of the Investment Advisory Agreement. One of
the duties of the Manager under the Investment Advisory Agreement
is to arrange the portfolio transactions for the Fund. The
Investment Advisory Agreement contains provisions relating to the
employment of broker-dealers ("brokers") to effect the Fund's
portfolio transactions. In doing so, the Manager is authorized by
the Investment Advisory Agreement to employ such broker-dealers,
including "affiliated" brokers, as that term is defined in the
Investment Company Act, 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 as
established by its Board of Trustees.
Under the advisory agreement, the Manager is authorized to
select brokers other than affiliates 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 fair and reasonable
in relation to the services provided. Subject to the foregoing
considerations, the Manager may also consider sales of shares of
the Fund and other investment companies managed by the Manager or
its affiliates as a factor in the selection of brokers for the
Fund's portfolio transactions.
Description of Brokerage Practices Followed by the Manager.
Subject to the provisions of the Investment Advisory Agreement and
the procedures and rules described above, allocations of brokerage
are generally made by the Manager's portfolio traders based upon
recommendations from the Manager's portfolio managers. In certain
instances, portfolio managers may directly place trades and
allocate brokerage, also subject to the provisions of the
Investment Advisory Agreement and the procedures and rules
described above. In either case, brokerage is allocated under the
supervision of the Manager's executive officers. As most purchases
made by the Fund are principal transactions at net prices, the Fund
does not incur substantial 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 price. 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 transaction in the
securities to which the option relates. When 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. Other funds
advised by the Manager have investment objectives and policies
similar to those of the Fund. Such other funds may purchase or
sell the same securities at the same time as the Fund, which could
affect the supply and price of such securities. If two or more of
such funds purchase the same security on the same day from the same
dealer, the Manager may average the price of the transactions and
allocate the average among such funds.
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 received for the
commissions of those 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 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. 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 of Trustees permits the
Manager to use concessions on fixed-price offerings to obtain
research, in the same manner as is permitted for agency
transactions. The Board also permits the Manager to use stated
commissions on secondary fixed-income agency trades to obtain
research where the broker has represented to Manager that: (i) the
trade is not from or for the broker's own inventory, (ii) the trade
was not executed by the broker on an agency basis at the stated
commission, and (iii) the trade is not a riskless principal
transaction.
The research service provided by brokers broadens the scope
and supplement the research activities of the Manager, by making
available additional views for consideration and comparisons, and
by enabling the Manager to obtain market information for the
valuation of securities held in the Fund's portfolio or being
considered for purchase. The Manager provides information as to
the commissions paid to brokers furnishing such services together
with the Manager's representation that the amount of such
commissions was reasonably related to the value or benefit of such
services.
Performance of the Fund
As described in the Prospectus, from time to time the
"standardized yield," "dividend yield," "tax-equivalent yield,"
"average annual total return," "cumulative total return," "average
annual total return at net asset value" and "total return at net
asset value" of an investment in a class of Fund shares may be
advertised. An explanation of how standardized yields and total
returns are calculated for each class and the components of those
calculations is set forth below.
The Fund's advertisements of its performance data must, under
applicable rules of the Securities and Exchange Commission, include
the average annual total returns for each advertised class of
shares of the Fund for the 1, 5 and 10-year periods (or the life of
the class, if less) ending as of the most recently-ended calendar
quarter prior to the publication of the advertisement. This
enables an investor to compare the Fund's performance to the
performance of other funds for the same periods. However, a number
of factors should be considered before using such information as a
basis for comparison with other investments. An investment in the
Fund is not insured; its yield and total return are not guaranteed
and normally will fluctuate on a daily basis. When redeemed, an
investor's shares may be worth more or less than their original
cost. Yield and total returns for any given past period are not a
prediction or representation by the Fund of future yields or rates
of return. The yield and total returns of each class of shares of
the Fund are affected by portfolio quality, portfolio maturity, the
type of investments the Fund holds and its operating expenses
allocated to the particular class.
Standardized Yields.
Yield. The Fund's "yield" (referred to as "standardized
yield") for a given 30-day period for a class of shares is
calculated using the following formula set forth in rules adopted
by the Securities and Exchange Commission that apply to all funds
that quote yields:
(a-b) 6
Standardized Yield = 2 ((--- + 1) - 1)
( cd)
The symbols above represent the following factors:
a = dividends and interest earned during the 30-day
period.
b = expenses accrued for the period (net of any expense
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 per share of that class
on the last day of the period, adjusted for
undistributed net investment income.
The standardized 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 standardized yield for a 30-day period
occurs at a constant rate for a six-month period and is annualized
at the end of the six-month period. This standardized yield is not
based on actual distributions paid by the Fund to shareholders in
the 30-day period, but is a hypothetical yield based upon the net
investment income from the Fund's portfolio investments calculated
for that period. The standardized yield may differ from the
"dividend yield" of that class, described below. Additionally,
because each class of shares is subject to different expenses, it
is likely that the standardized yields of the Fund's classes of
shares will differ. For the 30-day period ended September 30,
1996, the standardized yields for the Fund's Class A, Class B and
Class C shares were 4.44%, 3.91% and 3.89%, respectively.
Tax-Equivalent Yield. The "tax-equivalent yield" of a class
of shares adjusts the Fund's current yield, as calculated above, by
a stated combined Federal and state tax rate. The tax equivalent
yield is based on a 30-day period, and is computed by dividing the
tax-exempt portion of the Fund's current yield (as calculated
above) by one minus a stated income tax rate and adding the result
to the portion (if any) of the Fund's current yield that is not
tax-exempt. The tax-equivalent yield may be used to compare the
tax effects of income derived from the Fund with income from
taxable investments at the tax rates stated. 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. For
taxpayers with income above certain levels, otherwise allowable
itemized deductions are limited. The Fund's tax-equivalent yields
for its Class A, Class B and Class C shares for the 30-day period
ended September 30, 1996 were 7.36%, 6.47% and 6.44%, respectively,
for an individual in the 39.6% Federal income tax bracket.
Dividend Yield and Distribution Return. From time to time
the Fund may quote a "dividend yield" or a "distribution return"
for each class. Dividend yield is based on the dividends paid on
shares of a class from dividends derived from net investment income
during a stated period. Distribution return includes dividends
derived from net investment income and from realized capital gains
declared during a stated period. Under those calculations, the
dividends and/or distributions 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. When the result
is annualized for a period of less than one year, the "dividend
yield" is calculated as follows:
Dividend Yield of the Class =
Dividends of the Class
-----------------------------------------------------
Max. Offering Price of the Class (last day of period)
divided by Number of days (accrual period) x 365
The maximum offering price for Class A shares includes the
maximum front-end sales charge. For Class B shares and Class C
shares, the maximum offering price is the net asset value per
share, without considering the effect of contingent deferred sales
charges.
From time to time, similar yield or distribution returns
calculations may also be made using the Class A net asset value
(instead of its maximum offering price) at the end of the period.
The dividend yields on Class A shares for the 30-day period ended
September 30, 1996 were 5.04% and 5.30% when calculated at maximum
offering price and at net asset value, respectively. The dividend
yield on Class B shares for the 30-day period ended September 30,
1996 was 4.55% when calculated at net asset value. The dividend
yield on Class C shares for the 30-day period ended September 30,
1996 was 4.55%.
Total Return Information.
Average Annual Total Returns. The "average annual total
return" of each class is an average annual compounded rate of
return for each year in a specified number of years. It is the
rate of return based on the change in value of a hypothetical
initial investment of $1,000 ("P" in the formula below) held for a
number of years ("n") to achieve an Ending Redeemable Value
("ERV"), according to the following formula:
1/n
(ERV)
(---) -1 = Average Annual Total Return
( P )
The "average annual total return" on an investment in Class A
shares of the Fund for the one and five year periods ended
September 30, 1996 was 1.60% and 6.00%, respectively and for the
period from inception of the Fund on November 11, 1986 through
September 30, 1996 was 6.55%. The "average annual total return" on
an investment in Class B shares of the Fund for the one year ended
September 30, 1996 was .87%. For the period from inception of
Class B shares on May 3, 1993 through September 30, 1996, the
average annual total return was 3.74%. The "Average Annual Total
Return" on an investment in Class C shares of the Fund for the one
year ended September 30, 1996 was 4.77%. For the period from
inception of Class C shares on August 29, 1995, through September
30, 1996, the average annual total return was 6.56%.
Cumulative Total Return. The "cumulative total return"
calculation measures the change in the value of a hypothetical
investment of $1,000 over an entire period of years. Its
calculation uses some of the same factors as average annual total
return, but it does not average the rate of return on an annual
basis. Cumulative total return is determined as follows:
ERV - P
------- = Total Return
P
In calculating total returns for Class A shares, the current
maximum sales charge of 4.75% (as a percentage of the offering
price) is deducted from the initial investment ("P") (unless the
return is shown at net asset value, as discussed below). For Class
B shares, the payment of the 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% in the fifth year, 1.0% in the sixth
year and none thereafter is applied, as described in the
Prospectus. For Class C shares, the payment of the 1.0% contingent
deferred sales charge for the first 12 months is applied, as
described in the Prospectus. Total returns also assume that all
dividends and capital gains distributions during the period are
reinvested to buy additional shares at net asset value per share,
and that the investment is redeemed at the end of the period. The
"total return" on an investment in Class A shares of the Fund
(using the method described above) for the period from November 11,
1986 (inception of the Fund) through September 30, 1996, was
87.20%. The cumulative total return on Class B shares for the
period from May 3, 1993 (inception of the class) through September
30, 1996 was 12.35%. The cumulative total return on the Class C
shares for the period from August 29, 1995 (inception of the class)
through September 30, 1996 was 7.14%.
Total Returns at Net Asset Value. From time to time the
Fund may also quote an average annual total return at net asset
value or a cumulative total return at net asset value for Class A,
Class B or Class C shares. Each is based on the difference in net
asset value per share at the beginning and the end of the period
for a hypothetical investment in that class of shares (without
considering front-end or contingent deferred sales charges) and
takes into consideration the reinvestment of dividends and capital
gains distributions. The "total return at net asset value" on the
Fund's Class A shares for the one-year period ended September 30,
1996 was 6.67%. The total return at net asset value for the Fund's
Class B shares for the year ended September 30, 1996 was 5.87%.
The total return at net asset value for the Fund's Class C shares
for the period ended September 30, 1996 was 5.77%.
Total return information may be useful to investors in
reviewing the performance of the Fund's Class A, Class B or Class
C shares. However, when comparing total return of an investment in
Class A, Class B or Class C shares of the Fund, a number of factors
should be considered before using such information as a basis for
comparison before using such information with other investments.
Other Performance Comparisons. From time to time, the Fund
may publish the ranking of its Class A, Class B or Class C shares
by Lipper Analytical Services, Inc. ("Lipper"), a widely-recognized
independent mutual fund monitoring service. Lipper monitors the
performance of regulated investment companies, including the Fund,
and ranks their performance for various periods based on categories
relating to investment objectives. The performance of the Fund is
ranked against (i) all other bond funds, other than money market
funds, and (ii) all other insured municipal debt funds. The Lipper
performance rankings are based on total returns that include the
reinvestment of capital gains distributions and income dividends
but do not take sales charges or taxes into consideration. From
time to time the Fund may include in its advertisement and sales
literature performance information about the Fund cited in other
newspapers and periodicals such as The New York Times, which may
include performance quotations from other sources, including Lipper
and Morningstar. The performance of the Fund's Class A, Class B or
Class C shares may be compared in publications to (i) the
performance of various market indices or to other investments for
which reliable performance data is available, and (ii) to averages,
performance rankings or other benchmarks prepared by recognized
mutual fund statistical services.
From time to time the Fund may publish the star ranking of the
performance of its Class A, Class B or Class C shares by
Morningstar, Inc., an independent mutual fund monitoring service.
Morningstar ranks mutual funds in broad investment categories
(domestic stock, international stock, taxable bond, municipal bond
and hybrid) based on risk-adjusted investment return. The Fund is
ranked among category funds. Investment return measures a fund's
or class's one, three, five and ten-year average annual total
returns (depending on the inception of the fund or class) in excess
of 90-day U.S. Treasury bill returns after considering sales
charges and expenses. Risk reflects fund performance below 90-day
U.S. Treasury bill monthly returns. Risk and investment return are
combined to produce star rankings reflecting performance relative
to the average fund in a fund's category. Five stars is the
"highest" ranking (top 10%), four stars is "above average" (next
22.5%), three stars is "average" (next 35%), two stars is "below
average" (next 22.5%) and one star is "lowest" (bottom 10%).
Morningstar ranks the Fund in relation to other rated municipal
bond funds. Rankings are subject to change monthly.
The Fund may also compare its performance to that of other
funds in its Morningstar Category. In addition to its star
rankings, Morningstar also categorizes and compares a fund's 3-year
performance based on Morningstar's classification of the fund's
investments and investment style, rather than how a fund defines
its investment objective. Morningstar's four broad categories
(domestic equity, international equity, municipal bond and taxable
bond) are each further subdivided into categories based on types of
investments and investment styles. Those comparisons by
Morningstar are based on the same risk and return measurements as
its star rankings but do not consider the effect of sales charges.
Investors may also wish to compare the Fund's Class A, Class
B or Class C return to the returns on fixed income investments
available from banks and thrift institutions, such as certificates
of deposit, ordinary interest-paying checking and savings accounts,
and other forms of fixed or variable time deposits, and various
other instruments such as Treasury bills. However, the Fund's
returns and share price are not guaranteed or insured by the FDIC
or any other agency and will fluctuate daily, while bank depository
obligations may be insured by the FDIC and may provide fixed rates
of return, and Treasury bills are guaranteed as to principal and
interest by the U.S. government. 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's Manager may publish rankings or
ratings of the Manager (or Transfer Agent), or, on the investor
services provided by them to shareholders of the Oppenheimer funds,
other than the performance rankings of the Oppenheimer funds
themselves. Those ratings or rankings of shareholder/investor
services by a third party may compare the Oppenheimer funds
services to those of other mutual fund families selected by the
rating or ranking services, and may be based upon the opinions of
the rating or ranking service itself, based on its research or
judgment, or based upon surveys of investors, brokers, shareholders
or others.
Distribution and Service Plans
The Fund has adopted a Service Plan for Class A shares and
Distribution and Service Plans for Class B and Class C shares of
the Fund under Rule 12b-1 of the Investment Company Act pursuant to
which the Fund will make payments to the Distributor for its
services in connection with the distribution and/or servicing of
the shares of that class, as described in the Prospectus. Each
Plan has been approved by a vote of (i) the Board of Trustees of
the Fund, including a majority of the Independent Trustees, 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 Class C shares, that vote was cast by the Manager
as the sole initial holder of Class C shares.
In addition, under the Plans, the Manager and the Distributor,
in their sole discretion, from time to time, may use their own
resources (which, in the case of the Manager, may include profits
from the advisory fee it receives from the Fund), at no cost to the
Fund to make payments to brokers, dealers, or other financial
institutions (each is referred to as a "Recipient" under the Plans)
for distribution and administrative services they perform. The
Distributor and the Manager may, in their sole discretion, increase
or decrease the amount of payments they make from their own
resources to Recipients.
Unless terminated as described below, each Plan continues in
effect from year to year but only as long as its continuance is
specifically approved at least annually by the 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. Each 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. No 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.
In addition, because Class B shares of the Fund automatically
convert into Class A shares after six years, the Fund is required
by a Securities and Exchange Commission Rule to obtain the approval
of Class B as well as Class A shareholders for a proposed amendment
to the Class A Plan that would materially increase payments under
the Plan. Such vote must be by a "majority" of the Class A and
Class B shares (as defined in the Investment Company Act), voting
separately by class. All material amendments must be approved by
the Board and the Independent Trustees.
While the Plans are in effect, the Treasurer of the Fund is to
provide separate written reports to the Fund's Board of Trustees at
least quarterly for its review, detailing 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 and Class C Plans
shall also include the Distributor's distribution costs for the
fiscal period, and such costs for previous quarters that have been
carried forward as explained in the Prospectus and below. Those
reports 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 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 as to 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 Fund's Independent Trustees. Initially, the
Board of Trustees has set the fee at the maximum rate allowed under
the Plans and set no minimum amount. For the fiscal year ended
September 30, 1996, payments under the Class A Plan totalled
$195,544, all of which was paid by the Distributor to Recipients,
including $7,947 paid to an affiliate of the Distributor. Any
unreimbursed expenses incurred with respect to Class A shares for
any fiscal year by the Distributor may not be recovered in
subsequent fiscal years. 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 and Class C Plans allow the service fee payment to
be paid by the Distributor to Recipients in advance for the first
year such shares are outstanding, and thereafter on a quarterly
basis, as described in the Prospectus. The advance payment is
based on the net asset value of shares sold. Pursuant to the
Plans, service fee payments by the Distributor to Recipients will
be made (i) in advance for the first year Class B and Class C
shares are outstanding, following the purchase of shares, in an
amount equal to 0.25% of the net asset value of the shares
purchased by the Recipient or its customers and (ii) thereafter, on
a quarterly basis, computed as of the close of business each day at
an annual rate of 0.25% of the average daily net asset value of
Class B and Class C shares held in accounts of the Recipient or its
customers. An exchange of shares does not entitle the Recipient to
an advance service fee payment. In the event Class B and Class C
shares are redeemed during the first year such shares are
outstanding, the Recipient will be obligated to repay a pro rata
portion of the advance of the service fee payment for those shares
to the Distributor. Payments made under the Class B Plan during
the fiscal year ended September 30, 1996 totalled $147,766,
including $2,071 paid to a dealer affiliated with the Distributor
and $120,185 retained by the Distributor. Payments under the Class
C Plan during the fiscal year ended September 30, 1996 totalled
$6,146, of which $6,138 was retained by the Distributor.
Although the Class B and the Class C Plans permit the
Distributor to retain both the asset-based sales charges and the
service fee on such shares, or to pay Recipients the service fee on
a quarterly basis, without payment in advance, the Distributor
presently 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 and Class C Plans
by the Board. Initially, the Board has set no minimum holding
period. All payments under the Class B Plan are subject to the
limitations imposed by the Conduct Rules of the National
Association of Securities Dealers, Inc. on payments of asset based
sales charges and service fees.
The Class B and Class C Plans provide for the Distributor to
be compensated at a flat rate, whether the Distributor's
distribution expenses are more or less than the amounts paid by the
Fund during that period. The Distributor retains the asset-based
sales charge on Class B shares outstanding for less than 6 years.
As to Class C shares, the Distributor retains the asset-based sales
charge during the first year shares are outstanding and pays the
asset-based sales charges as an ongoing commission to the dealer on
Class C shares outstanding for more than a year or more. Such
payments are made to the Distributor under the Plans in recognition
that the Distributor (i) pays sales commissions to authorized
brokers and dealers at the time of sale and pays service fees, as
described in the Prospectus, (ii) may finance such commissions
and/or the advance of the service fee payment to Recipients under
those Plans, or may provide such financing from its own resources,
or from an affiliate, (iii) employs personnel to support
distribution of shares, and (iv) may bear the costs of sales
literature, advertising and prospectuses (other than those
furnished to current shareholders), and state "blue sky"
registration fees and certain other distribution expenses.
ABOUT YOUR ACCOUNT
How To Buy Shares
Alternative Sales Arrangements - Class A, Class B and Class C
Shares. The availability of three classes of shares permits 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. Investors should understand that the
purpose and function of the deferred sales charge and asset-based
sales charge with respect to Class B and Class C shares are the
same as those of the initial sales charge with respect to Class A
shares. Any salesperson or other person entitled to receive
compensation for selling Fund shares may receive different
compensation with respect to one class of shares than the other.
The Distributor will not accept any order for $500,000 or more of
Class B shares or $1 million or more of Class C shares, on behalf
of a single investor (not including dealer "street name" or omnibus
accounts) because generally it will be more advantageous for that
investor to purchase Class A shares of the Fund instead.
The three classes of shares each represent an interest in the
same portfolio investments of the Fund. However, each class has
different shareholder privileges and features. The net income
attributable to Class B and Class C shares and the dividends
payable on such Class B and Class C shares will be reduced by
incremental expenses borne solely by that class, including the
asset-based sales charge to which Class B and Class C shares are
subject.
The conversion of Class B shares to Class A shares after six
years is subject to the continuing availability of a private letter
ruling from the Internal Revenue Service, or an opinion of counsel
or tax adviser, to the effect that the conversion of Class B shares
does not constitute a taxable event for the holder under Federal
income tax law. If such a revenue ruling or opinion is no longer
available, the automatic conversion feature may be suspended, in
which event no further conversions of Class B shares would occur
while such suspension remained in effect. Although Class B shares
could then be exchanged for Class A shares on the basis of relative
net asset value of the two classes, without the imposition of a
sales charge or fee, such exchange could constitute a taxable event
for the holder, and absent such exchange, Class B shares might
continue to be subject to the asset-based sales charge for longer
than six years.
The methodology for calculating the net asset value, dividends
and distributions of the Fund's Class A, Class B and Class C shares
recognizes two types of expenses. General expenses that do not
pertain specifically to any 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, Statements of Additional Information 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 and Service 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.
Determination of Net Asset Values Per Share. The net asset values
per share of Class A, Class B and Class C shares of the Fund are
determined as of the close of business of The New York Stock
Exchange on each day that the Exchange is open, by dividing the
value of the Fund's net assets attributable to that Class by the
number of shares of that class that are outstanding. The Exchange
normally closes at 4:00 P.M., New York time, but may close earlier
on some days (for example, in case of weather emergencies or on
days falling before a holiday). The Exchange's most recent annual
announcement (which is subject to change) states that it will close
on New Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
It may also close on other days. Dealers other than Exchange
members may conduct trading in Municipal Securities on certain days
on which the Exchange is closed (including weekends and holidays)
or after 4:00 p.m. on a regular business day. Because the Fund's
net asset values will not be calculated on those days, the Fund's
net asset value per share of each class may be significantly
affected at times when shareholders may not purchase or redeem
shares.
The Board of Trustees has established procedures for the
valuation of the Fund's securities, generally as follows: (i)
long-term debt securities having a remaining maturity in excess of
60 days are valued based on the mean between the "bid" and "ask"
prices determined by a portfolio pricing service approved by the
Board of Trustees or obtained by the Manager from two active market
makers in the security on the basis of reasonable inquiry; (ii)
debt instruments having a maturity of more than 397 days when
issued, and non-money market type instruments having a maturity of
397 days or less when issued, which have a remaining maturity of 60
days or less are valued at the mean between the "bid" and "ask"
prices determined by a pricing service approved by the Board of
Trustees or obtained by the Manager from two active market makers
in the security on the basis of reasonable inquiry; (iii) money
market debt securities that had a maturity of less than 397 days
when issued that have a remaining maturity of 60 days or less are
valued at cost, adjusted for amortization of premiums and accretion
of discounts; and (iv) securities (including restricted securities)
not having readily-available market quotations are valued at fair
value determined under the Board's procedures. If the Manager is
unable to locate two market makers willing to give quotes (see (i)
and (ii) above), the security may be priced at the mean between
the "bid" and "ask" prices provided by a single active market maker
(which in certain cases may be the "bid" price if no "ask" price is
available).
In the case of Municipal Securities, U.S. Government
securities and corporate bonds, 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). The Manager may use pricing services approved by the
Board of Trustees to price any of the types of securities described
above. The Manager will monitor the accuracy of such pricing
services, which may include 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.
Puts, calls, Interest Rate Futures and Municipal Bond Index
Futures are valued at the last sales price on the principal
exchange on which they are traded or on NASDAQ, as applicable, or
as determined by a pricing service approved by the Board of
Trustees. If there were no sales that day, the value is the last
sale price on the preceding trading day if it is within the spread
of the closing "bid" and "ask" prices on the principal exchange or
on NASDAQ on the valuation date, or, if not, the value is the
closing "bid" price on the principal exchange or on NASDAQ on the
valuation date. If the put, call or future is not traded on an
exchange or on NASDAQ, it is valued at the mean between "bid" and
"ask" prices obtained by the Manager from two active market makers
(which in certain cases may be the "bid" price if no "ask" price is
available).
When the Fund writes an option, an amount equal to the premium
received is included in the Fund's Statement of Assets and
Liabilities as an asset and an equivalent credit is included in the
liability section. The credit is adjusted ("marked-to-market") to
reflect the current market value of the call or put. In
determining the Fund's gain on investments, if a call or put
written by the Fund is exercised, the proceeds are increased by the
premium received. If a call or put written by the Fund expires,
the Fund has a gain in the amount of the premium; if the Fund
enters into a closing purchase transaction, it will have a gain or
loss, depending on whether the premium received was more or less
than the cost of the closing transaction. If the Fund exercises a
put it holds, the amount the Fund receives on its sale of the
underlying investment is reduced by the amount of premium paid by
the Fund.
AccountLink. When shares are purchased through AccountLink, each
purchase must be at least $25. Shares will be purchased on the
regular business day the Distributor is instructed to initiate the
Automated Clearing House transfer to buy the shares. Dividends
will begin to accrue on shares purchased by the proceeds of ACH
transfers on the business day the Fund receives Federal Funds for
the purchase through the ACH system before the close of The New
York Stock Exchange. The Exchange normally closes at 4:00 p.m.,
but may close earlier on certain days. If the Federal Funds are
received on a business day after the close of the Exchange, the
shares will be purchased and dividends will begin to accrue on the
next regular business day after such Federal Funds are received.
The proceeds of ACH transfers are normally received by the Fund
three days after the transfers are initiated. The Distributor and
the Fund are not responsible for any delays in purchasing shares
resulting from delays in ACH transmissions.
Reduced Sales Charges. As discussed in the Prospectus, a reduced
sales charge rate may be obtained for Class A shares under Right of
Accumulation and Letters of Intent because of the economies of
sales efforts and reduction in expenses realized by the
Distributor, dealers and brokers making such sales. No sales
charge is imposed in certain other circumstances described in the
Prospectus because the Distributor or broker or dealer 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,
a sibling's spouse, a spouse's siblings, aunts, uncles, nieces and
nephews.
The Oppenheimer Funds. The Oppenheimer funds are those
mutual funds for which the Distributor acts as the distributor or
the Sub-Distributor and include the following:
Oppenheimer Municipal Bond Fund
Oppenheimer New York Municipal Fund
Oppenheimer California Municipal Fund
Oppenheimer Intermediate Municipal Fund
Oppenheimer Insured Municipal Fund
Oppenheimer Main Street California
Municipal Fund
Oppenheimer Florida Municipal Fund
Oppenheimer Pennsylvania Municipal Fund
Oppenheimer New Jersey Municipal Fund
Oppenheimer Fund
Oppenheimer Discovery Fund
Oppenheimer Capital Appreciation Fund
Oppenheimer Growth Fund
Oppenheimer Equity Income Fund
Oppenheimer Value Stock Fund
Oppenheimer Asset Allocation Fund
Oppenheimer Total Return Fund, Inc.
Oppenheimer International Bond Fund
Oppenheimer Enterprise Fund
Oppenheimer Main Street Income & Growth Fund
Oppenheimer High Yield Fund
Oppenheimer Champion Income Fund
Oppenheimer Bond Fund
Oppenheimer U.S. Government Trust
Oppenheimer Limited-Term Government Fund
Oppenheimer Global Fund
Oppenheimer Global Emerging Growth Fund
Oppenheimer Global Growth & Income Fund
Oppenheimer Gold & Special Minerals Fund
Oppenheimer Strategic Income Fund
Oppenheimer Strategic Income & Growth Fund
Oppenheimer Bond Fund
Oppenheimer International Growth Fund
Oppenheimer Developing Markets Fund
Oppenheimer Bond Fund for Growth
Limited-Term New York Municipal Fund
Oppenheimer Quest Value Fund, Inc.
Oppenheimer Quest Opportunity Value Fund
Oppenheimer Quest Small Cap Value Fund
Oppenheimer Quest Officers Value Fund
Oppenheimer Quest Global Value Fund, Inc.
Oppenheimer Quest Growth & Income Value Fund
Oppenheimer Disciplined Value Fund
Oppenheimer Disciplined Allocation Fund
Oppenheimer LifeSpan Balanced Fund
Oppenheimer LifeSpan Income Fund
Oppenheimer LifeSpan Growth Fund
Rochester Fund Muncipals
and the following "Money Market Funds":
Oppenheimer Money Market Fund, Inc.
Oppenheimer Cash Reserves
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.
There is an initial sales charge on the purchase of Class A
shares of each of the Oppenheimer funds except Money Market Funds
(under certain circumstances described herein, redemption proceeds
of Money Market Fund shares may be subject to a contingent
deferred sales charge).
Letters of Intent. A Letter of Intent (referred to as a
"Letter") is an investor's statement in writing to the Distributor
of the intention to purchase Class A shares of the Fund or Class A
and Class B shares of the Fund (and other Oppenheimer funds) during
a 13-month period (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 Letter states the investor's
intention to make the aggregate amount of purchases of shares
which, when added to the investor's holdings of shares of those
funds, will equal or exceed the amount specified in the Letter.
Purchases made by reinvestment of dividends or distributions of
capital gains and purchases made at net asset value without sales
charge do not count toward satisfying the amount of the Letter. A
Letter enables an investor to count the Class A and Class B shares
purchased under the Letter to obtain the reduced sales charge rate
on purchases of Class A shares of the Fund (and other Oppenheimer
funds) that applies under the Right of Accumulation to current
purchases of Class A shares. Each purchase of Class A shares under
the Letter will be made at the public offering price (including the
sales charge) that applies to a single lump-sum purchase of shares
in the amount intended to be purchased under the letter.
In submitting a Letter, the investor makes no commitment to
purchase shares, 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 shares on the last day of that
period, do not equal or exceed the intended purchase amount, the
investor agrees to pay the additional amount of sales charge
applicable to such purchases, 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
purchase amount will be held in escrow by the Transfer Agent
subject to the Terms of Escrow. Also, the investor agrees to be
bound by the terms of the Prospectus, this Statement of Additional
Information and the Application used for such Letter of Intent, and
if such terms are amended, as they may be from time to time by the
Fund, that those amendments will apply automatically to existing
Letters of Intent.
If the total eligible purchases made during the Letter of
Intent period do not equal or exceed the intended purchase amount,
the commissions previously paid to the dealer of record for the
account and the amount of sales charge retained by the Distributor
will be adjusted to the rates applicable to actual total purchases.
If total eligible purchases during the Letter of Intent period
exceed the intended purchase amount and exceed the amount needed to
qualify for the next sales charge rate reduction set forth in the
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
advise the Distributor about the Letter in placing any purchase
orders for the investor during the Letter of Intent period. All
of such purchases must be made through the Distributor.
Terms of Escrow That Apply to Letters of Intent.
1. Out of the initial purchase (or subsequent purchases if
necessary) made pursuant to a Letter, shares of the Fund equal in
value up to 5% of the intended purchase amount specified in the
Letter shall be held in escrow by the Transfer Agent. For example,
if the intended purchase amount is $50,000, the escrow shall be
shares valued in the amount of $2,500 (computed at the public
offering price adjusted for a $50,000 purchase). Any dividends and
capital gains distributions on the escrowed shares will be credited
to the investor's account.
2. If the total minimum investment specified under the Letter
is completed within the thirteen-month Letter of Intent period, the
escrowed shares will be promptly released to the investor.
3. If, at the end of the thirteen-month Letter of Intent
period the total purchases pursuant to the Letter are less than the
intended purchase amount specified in the Letter, the investor must
remit to the Distributor an amount equal to the difference between
the dollar amount of sales charges actually paid and the amount of
sales charges which would have been paid if the total amount
purchased had been made at a single time. 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 as attorney-in-fact to
surrender for redemption any or all escrowed shares.
5. The shares eligible for purchase under the Letter (or the
holding of which may be counted toward completion of a Letter)
include (a) Class A shares sold with a front-end sales charge or
subject to a Class A contingent deferred sales charge, (b) Class B
shares of the other Oppenheimer funds acquired subject to a
contingent deferred sales charge, and (c) Class A or B shares
acquired in exchange for either (i) Class A shares of one of the
other Oppenheimer funds that were acquired subject to a Class A
initial or contingent deferred sales charge or (ii) Class B shares
of one of the other Oppenheimer funds that were acquired subject to
a contingent deferred sales charge.
6. Shares held in escrow hereunder will automatically be
exchanged for shares of another fund to which an exchange is
requested, as described in the section of the Prospectus entitled
"How to Exchange Shares," and the escrow will be transferred to
that other fund.
Asset Builder Plans. To establish an Asset Builder Plan 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 Sell
Shares," in the Prospectus. Asset Builder Plans also enable
shareholders of Oppenheimer Cash Reserves to use those accounts for
monthly automatic purchases of shares of up to four other
Oppenheimer funds. If you make payments from your bank account to
purchase shares of the Fund, your bank account will be
automatically debited normally four to five business days prior to
the investment dates selected in the Account Application. Neither
the Distributor, the Transfer Agent nor the Fund shall be
responsible for any delays in purchasing shares resulting from
delays in ACH transmission.
There is a front-end sales charge on the purchase of certain
Oppenheimer funds, or a contingent deferred sales charge may apply
to shares purchased by Asset Builder payments. An application
should be obtained from the Distributor, completed and returned,
and a prospectus of the selected fund(s) should be obtained from
the Distributor or your financial advisor before initiating Asset
Builder payments. The amount of the Asset Builder investment may
be changed or the automatic investments may be terminated at any
time by writing to the Transfer Agent. A reasonable period
(approximately 15 days) is required after the Transfer Agent's
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.
Cancellation of Purchase Orders. Cancellation of purchase orders
for the Fund's shares (for example, when a purchase check is
returned to the Fund unpaid) causes a loss to be incurred when the
net asset value of the Fund's shares on the cancellation date is
less than on the purchase date. That loss is equal to the amount
of the decline in the net asset value per share multiplied by the
number of shares in the purchase order. The investor is
responsible for that loss. If the investor fails to compensate the
Fund for the loss, the Distributor will do so. The Fund may
reimburse the Distributor for that amount by redeeming shares from
any account registered in that investor's name, or the Fund or the
Distributor may seek other redress.
Checkwriting. When a check is presented to the Bank for clearance,
the Bank will ask the Fund to redeem a sufficient number of full
and fractional shares in the shareholder's account to cover the
amount of the check. This enables the shareholder to continue
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 Checkwriting privileges at any time without
prior notice.
By choosing the Checkwriting privilege, whether you do so by
signing the Account Application or by completing a Checkwriting
card, the individuals signing (1) represent that they are either
the registered owner(s) of the shares of the Fund, or are an
officer, general partner, trustee or other fiduciary or agent, as
applicable, duly authorized to act on behalf of such registered
owner(s); (2) authorize the Fund, its Transfer Agent and any bank
through which the Fund s drafts ( checks ) are payable (the Bank ),
to pay all checks drawn on the Fund account of such person(s) and
to effect a redemption of sufficient shares in that account to
cover payment of such checks; (3) specifically acknowledge(s) that
if you choose to permit a single signature on checks drawn against
joint accounts, or accounts for corporations, partnerships, trusts
or other entities, the signature of any one signatory on a check
will be sufficient to authorize payment of that check and
redemption from an account even if that account is registered in
the names of more than one person or even if more than one
authorized signature appears on the Checkwriting card or the
Application, as applicable; and (4) understand(s) that the
Checkwriting privilege may be terminated or amended at any time by
the Fund and/or the Bank and neither shall incur any liability for
such amendment or termination or for effecting redemptions to pay
checks reasonably believed to be genuine, or for returning or not
paying checks which have not been accepted for any reason.
How to Sell Shares
Information on how to sell shares of the Fund is stated in the
Prospectus. The information below supplements the terms and
conditions for redemptions set forth in the Prospectus.
Selling Shares by Wire. The wire of redemptions 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.
Involuntary Redemptions. The Fund's Board of Trustees has
the right to cause the involuntary redemption of the shares held in
any account if the aggregate net asset value of those shares is
less than $1,000 or such lesser amount as the Board may fix. The
Board of Trustees will not cause the involuntary redemption of
shares in an account if the aggregate net asset value of the 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 the Board may set requirements
for granting permission to the shareholders to increase the
investment, and set other terms and conditions so that the shares
would not be involuntarily redeemed.
Payments "In Kind". The Prospectus states that payment for
shares tendered for redemption is ordinarily made in cash. However,
the Board of Trustees of the Trust may determine that it would be
detrimental to the best interests of the remaining shareholders of
the Fund to make payment of a redemption order wholly or partly in
cash. In that case, the Fund may pay the redemption proceeds in
whole or in part by a distribution "in kind" of securities from the
portfolio of the Fund, in lieu of cash, in conformity with
applicable rules of the Securities and Exchange Commission. The
Trust has elected to be governed by Rule 18f-1 under the Investment
Company Act, pursuant to which the Fund is obligated to redeem
shares solely in cash up to the lesser of $250,000 or 1% of the net
assets of the Fund during any 90-day period for any one
shareholder. If shares are redeemed in kind, the redeeming
shareholder might incur brokerage or other costs in selling the
securities for cash. The method of valuing securities used to make
redemptions in kind will be the same as the method the Fund uses to
value its portfolio securities described above under "Determination
of Net Asset Values Per Share" and that valuation will be made as
of the time the redemption price is determined.
Reinvestment Privilege. Within six months of a redemption, a
shareholder may reinvest all or part of the redemption proceeds of
(i) Class A shares that you purchase subject to an initial sales
charge or Class A contingent deferred sales charge, or (ii) Class
B shares that were subject to the Class B contingent deferred sales
charge when redeemed. The reinvestment may be made without sales
charge only in Class A shares of the Fund or any of the other
Oppenheimer funds into which shares of the Fund are exchangeable,
as described in "How to Exchange Shares "below, at the net asset
value next computed after the Transfer Agent receives the
reinvestment order. This privilege does not apply to Class C
shares. The shareholder must ask the Distributor for that
privilege at the time of reinvestment. Any capital gain that was
realized when the shares were redeemed is taxable, and reinvestment
will not alter any capital gains tax payable on that gain. If
there has been a capital loss on the redemption, some or all of the
loss may not be tax deductible, depending on the timing and amount
of the reinvestment. Under the Internal Revenue Code, if the
redemption proceeds of Fund shares on which a sales charge was paid
are reinvested in shares of the Fund or another of the Oppenheimer
funds within 90 days of payment of the sales charge, the
shareholder's basis in the shares of the Fund that were redeemed
may not include the amount of the sales charge paid. That would
reduce the loss or increase the gain recognized from the
redemption. However, in that case the sales charge would be added
to the basis of the shares acquired by the reinvestment of the
redemption proceeds. 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.
Transfers of Shares. Shares are not subject to the payment of a
contingent deferred sales charge of any class at the time of
transfer to the name of another person or entity (whether the
transfer occurs by absolute assignment, gift or bequest, not
involving, directly or indirectly, a public sale). The transferred
shares will remain subject to the contingent deferred sales charge,
calculated as if the transferee shareholder had acquired the
transferred shares in the same manner and at the same time as the
transferring shareholder. If less than all shares held in an
account are transferred, and some but not all shares in the account
would be subject to a contingent deferred sales charge if redeemed
at the time of transfer, the priorities described in the Prospectus
under "How to Buy Shares" for the imposition of the Class B or the
Class C contingent deferred sales charge will be followed in
determining the order in which shares are transferred.
Special Arrangements for Repurchase of Shares from Dealers and
Brokers. The Distributor is the Fund's agent to repurchase its
shares from authorized dealers or brokers on behalf of their
customers. The shareholder should contact the broker or dealer to
arrange this type of redemption. The repurchase price per share
will be the net asset value next computed after the Distributor
receives an order placed by the dealer or broker, except that if
the Distributor receives a repurchase order from a dealer or broker
after the close of The New York Stock Exchange on a regular
business day, it will be processed at that day's net asset value if
the order was received by the dealer or broker from its customers
prior to the time the Exchange closes (normally that is 4:00 p.m.,
but may be earlier on some days) and the order was transmitted to
and received by the Distributor prior to its close of business that
day (normally 5:00 p.m.). Ordinarily, for accounts redeemed by a
broker-dealer under this procedure, payment will be made within
three business days after the shares have been redeemed upon the
Distributor's receipt of the required redemption documents in
proper form, with the signature(s) of the registered owners
guaranteed on the redemption document as described in the
Prospectus.
Automatic Withdrawal and Exchange Plans. Investors owning shares
of the Fund valued at $5,000 or more can authorize the Transfer
Agent to redeem shares (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 to be made 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.
Shares are normally redeemed pursuant to an Automatic Withdrawal
Plan three business days before the date you select in the Account
Application. If a contingent deferred sales charge applies to the
redemption, the amount of the check or payment will be reduced
accordingly. The Fund cannot guarantee receipt of a payment on the
date requested and reserves the right to amend, suspend or
discontinue offering such plans at any time without prior notice.
Because of the sales charge assessed on Class A share purchases,
shareholders should not make regular additional Class A share
purchases while participating in an Automatic Withdrawal Plan.
Class B and Class C shareholders should not establish withdrawal
plans because of the imposition of the contingent deferred sales
charge on such withdrawals (except where the contingent deferred
sales charge is waived as described in the Prospectus under
"Waivers of Class B and Class C Contingent Deferred Sales
Charges").
By requesting an Automatic Withdrawal or Exchange Plan, the
shareholder agrees to the terms and conditions applicable to such
plans, as stated below and in the provisions of the
OppenheimerFunds Application relating to such Plans, as well as the
Prospectus. These provisions may be amended from time to time by
the Fund and/or the Distributor. When adopted, such amendments
will automatically apply to existing Plans.
Automatic Exchange Plans. Shareholders can authorize the
Transfer Agent (on the OppenheimerFunds Application or signature-
guaranteed instructions) to exchange a pre-determined amount of
shares of the Fund for shares (of the same class) of other
Oppenheimer funds automatically on a monthly, quarterly, semi-
annual or annual basis under an Automatic Exchange Plan. The
minimum amount that may be exchanged to each other fund account is
$25. Exchanges made under these plans are subject to the
restrictions that apply to exchanges as set forth in "How to
Exchange Shares" in the Prospectus and below in this Statement of
Additional Information.
Automatic Withdrawal 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 capital gains distributions will be
redeemed next, followed by shares acquired with a sales charge, to
the extent necessary to make withdrawal payments. Depending upon
the amount withdrawn, the investor's principal may be depleted.
Payments made under such plans should not be considered as a yield
or income on your investment. It may be desirable to purchase
additional shares of Class A while maintaining automatic
withdrawals because of the sales charges that apply to purchases
when made. Accordingly, a shareholder normally may not maintain an
Automatic Withdrawal Plan while simultaneously making regular
purchases of Class A shares.
The Transfer Agent will administer the investor's Automatic
Withdrawal Plan (the "Plan") as agent for the investor (the
"Planholder") who executed the Plan authorization and application
submitted to the Transfer Agent. Neither the Fund nor the Transfer
Agent shall incur any liability to the Planholder for any action
taken or omitted by the Transfer Agent in good faith to administer
the Plan. Certificates will not be issued for shares of the Fund
purchased for and held under the Plan, but the Transfer Agent will
credit all such shares to the account of the Planholder on the
records of the Fund. Any share certificates held by a Planholder
may be surrendered unendorsed to the Transfer Agent with the Plan
application so that the shares represented by the certificate may
be held under the Plan.
For accounts subject to Automatic Withdrawal Plans,
distributions of capital gains must be reinvested in shares of the
Fund, which will be done at net asset value without a sales charge.
Dividends on shares held in the account may be paid in cash or
reinvested.
Redemptions of shares needed to make withdrawal payments will
be made at the net asset value per share determined on the
redemption date. Checks or AccountLink payments of the proceeds of
Plan withdrawals will normally be transmitted three business days
prior to the date selected for receipt of the payment (receipt of
payment on the date selected cannot be guaranteed), according to
the choice specified in writing by the Planholder.
The amount and the interval of disbursement payments and the
address to which checks are to be mailed or AccountLink payments
are to be sent may be changed at any time by the Planholder by
writing to the Transfer Agent. The Planholder should allow at
least two weeks' time in mailing such notification for the
requested change to be put in effect. The Planholder may, at any
time, instruct the Transfer Agent by written notice (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 that 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 to the Planholder.
The Plan may be terminated at any time by the Planholder by
writing to the Transfer Agent. A Plan may also be terminated at
any time by the Transfer Agent upon receiving directions to that
effect from the Fund. The Transfer Agent will also terminate a
Plan upon receipt of evidence satisfactory to it of the death or
legal incapacity of the Planholder. Upon termination of a Plan by
the Transfer Agent or the Fund, shares that have not been redeemed
from the account will be held in uncertificated form 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 or his or her
executor or guardian, or other authorized person.
To use shares held under the Plan as collateral for a debt,
the Planholder may request issuance of a portion of the shares in
certificated form. Upon written request from the Planholder, the
Transfer Agent will determine the number of shares for which a
certificate may be issued without causing the withdrawal checks to
stop because of exhaustion of uncertificated shares needed to
continue payments. However, should such uncertificated shares
become exhausted, Plan withdrawals will terminate.
If the Transfer Agent ceases to act as transfer agent for the
Fund, the Planholder will be deemed to have appointed any successor
transfer agent to act as agent in administering the Plan.
How To Exchange Shares
As stated in the Prospectus, shares of a particular class of
Oppenheimer funds having more than one class of shares may be
exchanged only for shares of the same class of other Oppenheimer
funds. Shares of the Oppenheimer funds that have a single class
without a class designation are deemed "Class A" shares for this
purpose. All of the Oppenheimer funds offer Class A, B and C shares
except Oppenheimer Money Market Fund, Inc., Centennial Money Market
Trust, Centennial Tax Exempt Trust, Centennial Government Trust,
Centennial New York Tax Exempt Trust, Centennial California Tax
Exempt Trust, Centennial America Fund, L.P. and Daily Cash
Accumulation Fund Inc., which only offer Class A shares and
Oppenheimer Main Street California Municipal Fund which only offers
Class A and Class B shares (Class B and Class C shares of
Oppenheimer Cash Reserves are generally available only by exchange
from the same class of shares of other Oppenheimer funds or through
OppenheimerFunds sponsored 401 (k) plans). A current list showing
which funds offer which class can be obtained by calling the
Distributor at 1-800-525-7048.
For accounts established on or before March 8, 1996 holding
Class M shares of Oppenheimer Bond Fund for Growth, Class M shares
can be exchanged only for Class A shares of other Oppenheimer
funds, including Rochester Fund Municipals and Limited Term New
York Municipal Fund. Class A shares of Rochester Fund Municipals
or Limited Term New York Municipal Fund acquired on the exchange of
Class M shares of Oppenheimer Bond Fund for Growth may be exchanged
for Class M shares of that fund. For accounts of Oppenheimer Bond
Fund for Growth established after March 8, 1996, Class M shares may
be exchanged for Class A shares of other Oppenheimer funds shares
except Rochester Fund Municipals and Limited Term New York
Municipals. Exchanges to Class M shares of Oppenheimer Bond Fund
for Growth are permitted from Class A shares of Oppenheimer Money
Market Fund, Inc. or Oppenheimer Cash Reserves that were acquired
by exchange from Class M shares. Otherwise no exchanges of any
class of any Oppenheimer fund into Class M shares are permitted.
Class A shares of Oppenheimer funds may be exchanged at net
asset value for shares of any Money Market Fund. Shares of any
Money Market Fund purchased without a sales charge may be exchanged
for shares of Oppenheimer funds offered with a sales charge upon
payment of the sales charge (or, if applicable, may be used to
purchase shares of Oppenheimer funds subject to a contingent
deferred sales charge). However, if the Distributor receives, at
the time of purchase, notice that shares of Oppenheimer Money
Market Fund, Inc. are being purchased with the redemption proceeds
of shares of other mutual funds (other than other money market
funds) that are not part of the OppenheimerFunds family, those
shares of Oppenheimer Money Market Fund, Inc. may be exchanged for
shares of other Oppenheimer funds at net asset value without paying
a sales charge. However, shares of Oppenheimer Money Market Fund,
Inc. purchased with the redemption proceeds of shares of other
mutual funds (other than funds managed by the Manager or its
subsidiaries) redeemed within the 12 months prior to that purchase
may subsequently be exchanged for shares of other Oppenheimer funds
without being subject to an initial or contingent deferred sales
charge, whichever is applicable. To qualify for that privilege,
the investor or the investor's dealer must notify the Distributor
of eligibility for this privilege at the time the shares of
Oppenheimer Money Market Fund, Inc. are purchased, and, if
requested, must supply proof of entitlement to this privilege.
Shares of the Fund acquired by reinvestment of dividends or
distributions from any of the other Oppenheimer funds (except
Oppenheimer Cash Reserves) or from any unit investment trust for
which reinvestment arrangements have been made with the Distributor
may be exchanged at net asset value for shares of any of the
Oppenheimer funds. No contingent deferred sales charge is imposed
on exchanges of shares of any class purchased subject to a
contingent deferred sales charge. However, when Class A shares
acquired by exchange of Class A shares of other Oppenheimer funds
purchased subject to a Class A contingent deferred sales charge are
redeemed within 18 months of the end of the calendar month of the
initial purchase of the exchanged Class A shares, the Class A
contingent deferred sales charge is imposed on the redeemed shares.
(See "Class A Contingent Deferred Sales Charge" in the Prospectus).
The Class B contingent deferred sales charge is imposed on Class B
shares acquired by exchange if they are redeemed within 6 years of
the initial purchase of the exchanged Class B shares. The Class C
contingent deferred sales charge is imposed on Class C shares
acquired by exchange if they are redeemed within 12 months of the
initial purchase of the exchanged Class C shares.
When Class B or Class C shares are redeemed to effect an
exchange, the priorities described in "How To Buy Shares" in the
Prospectus for the imposition of the Class B or the Class C
contingent deferred sales charge will be followed in determining
the order in which the shares are exchanged. Shareholders should
take into account the effect of any exchange on the applicability
and rate of any contingent deferred sales charge that might be
imposed in the subsequent redemption of remaining shares.
Shareholders owning shares of more than one Class must specify
whether they intend to exchange Class A, Class B or Class C shares.
The Fund reserves the right to reject telephone or written
exchange requests submitted in bulk by anyone on behalf of more
than one account. The Fund may accept requests for exchanges of up
to 50 accounts per day from representatives of authorized dealers
that qualify for this privilege. In connection with any exchange
request, the number of shares exchanged may be less than the number
requested if the exchange or the number requested would include
shares subject to a restriction cited in the Prospectus or this
Statement of Additional Information or would include shares covered
by a share certificate that is not tendered with the request. In
those cases, only the shares available for exchange without
restriction will be exchanged.
When exchanging shares by telephone, a shareholder must either
have an existing account in, or have obtained and acknowledged
receipt of a prospectus of, the fund to which the exchange is to be
made. For full or partial exchanges of an account made by
telephone, any special account features such as Asset Builder Plans
and Automatic Withdrawal Plans will be switched to the new account
unless the Transfer Agent is instructed otherwise. If all
telephone lines are busy (which might occur, for example, during
periods of substantial market fluctuations), shareholders might not
be able to request exchanges by telephone and would have to submit
written exchange requests.
Shares to be exchanged are redeemed on the regular business
day the Transfer Agent receives an exchange request in proper form
(the "Redemption Date"). Normally, shares of the fund to be
acquired are purchased on the Redemption Date, but such purchases
may be delayed by either fund up to five business days if it
determines that it would be disadvantaged by an immediate transfer
of the redemption proceeds. The Fund reserves the right, in its
discretion, to refuse any exchange request that may disadvantage it
(for example, if the receipt of multiple exchange requests from a
dealer might require the disposition of portfolio securities at a
time or at a price that might be disadvantageous to the Fund).
The different Oppenheimer funds available for exchange have
different investment objectives, policies and risks, and a
shareholder should assure that the Fund selected is appropriate for
his or her investment and should be aware of the tax consequences
of an exchange. For federal income tax purposes, an exchange
transaction is treated as a redemption of shares of one fund and a
purchase of shares of another. "Reinvestment Privilege," above,
discusses some of the tax consequences of reinvestment of
redemption proceeds in such cases. The Fund, the Distributor, and
the Transfer Agent are unable to provide investment, tax or legal
advice to a shareholder in connection with an exchange request or
any other investment transaction.
Dividends, Capital Gains and Taxes
Dividends and Distributions. Dividends will be payable on shares
held of record at the time of the previous determination of net
asset value. 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 third business day following the placement of
the purchase order. Shares redeemed through the regular redemption
procedure will be paid dividends through and including the day on
which the redemption request is received by the Transfer Agent in
proper form. Dividends will be paid with respect to shares
repurchased by a dealer or broker for three 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.
Dividends, distributions and the proceeds of the redemption of
Fund shares represented by checks returned to the Transfer Agent by
the Postal Service as undeliverable will be invested in shares of
Oppenheimer Money Market Fund, Inc., 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.
The amount of a class's distributions may vary from time to
time depending on market conditions, the composition of the Fund's
portfolio, and expenses borne by the Fund or borne separately by a
class, as described in "Alternative Sales Arrangements -- Class A,
Class B and Class C," above. Dividends are calculated in the same
manner, at the same time and on the same day for shares of each
class. However, dividends on Class B and Class C shares are
expected to be lower than dividends on Class A shares as a result
of the asset-based sales charges on Class B and Class C shares, and
will also differ in amount as a consequence of any difference in
net asset value between the classes.
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 1995 were
exempt from Federal personal income taxes. The amount of any
dividends attributable to tax preference items for purposes of the
alternative minimum tax will be identified when tax information is
distributed by the Fund. Corporate shareholders and "substantial
users" of facilities financed by Private Activity Municipal
Securities should see "Private Activity Municipal Securities."
A shareholder receiving a dividend from income earned by the
Fund from one or more of: (1) certain taxable temporary investments
(such as certificates of deposit, repurchase agreements, commercial
paper and obligations of the U.S. government, its agencies and
instrumentalities); (2) income from securities loans; or (3) an
excess of net short-term capital gain over net long-term capital
loss from the Fund, 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 Sell 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.
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 as a regulated investment company in its last
fiscal year and intends to qualify in future years, but reserves
the right not to qualify. The Internal Revenue Code contains a
number of complex tests to determine whether the Fund will qualify,
and the Fund might not meet those tests in a particular 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 (see "Tax Aspects of Covered Calls and Hedging
Instruments," above). If it does not qualify, the Fund will be
treated for tax purposes as an ordinary corporation, will receive
no tax deduction for payments of dividends and distributions made
to shareholders and would be unable to pay "exempt-interest"
dividends as discussed above.
Under the Internal Revenue Code, by December 31 each year the
Fund must distribute 98% of its taxable investment income earned
from January 1 through December 31 of that year and 98% of its
capital gains realized in the period from November 1 of the prior
year through October 31 of the current year, or else the Fund must
pay an excise tax on the amounts not distributed. The Board and
the Manager might determine in a particular year that it might be
in the best interest of shareholders for the Fund not to make
distributions at the required levels and to pay the excise tax on
the undistributed amounts. That would reduce the amount of income
or capital gains available for distribution to shareholders.
Dividend Reinvestment in Another Fund. Shareholders of the Fund
may elect to reinvest all dividends and/or distributions in shares
of the same class of any of the other Oppenheimer funds (other than
Oppenheimer Cash Reserves) listed in "Reduced Sales Charges,"
above, at net asset value without sales charge. To elect this
option, a shareholder must notify the Transfer Agent in writing and
either must have an existing account in the fund selected for
investment or must obtain a prospectus for that fund and an
application from the Distributor to establish an account. The
investment will be made at the net asset value per share in effect
at the close of business on the payable date of the dividend or
distribution. Dividends and distributions from other Eligible
Funds may be invested in shares of this Fund on the same basis.
Additional Information About the Fund
The Custodian. Citibank, N.A. is the Custodian of the Fund's
assets. The Custodian's responsibilities include safeguarding and
controlling the Fund's portfolio securities, collecting income on
the portfolio securities and handling the delivery of such
securities to and from the Fund. The Manager has represented to
the Fund that the banking relationships between the Manager and 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 and its affiliates. The Fund's cash balances
with the Custodian in excess of $100,000 are not protected by
Federal Deposit Insurance. Such uninsured balances may at times be
substantial.
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 certain other funds
advised by the Manager and its affiliates.
INDEPENDENT AUDITORS' REPORT
================================================================================
The Board of Trustees and Shareholders of Oppenheimer Insured
Municipal Fund:
We have audited the accompanying statement of assets and liabilities,
including the statement of investments, of Oppenheimer Insured
Municipal Fund as of September 30, 1996, the related statement of
operations for the year then ended, the statements of changes in net
assets for the years ended September 30, 1996 and 1995 and the
financial highlights for the period October 1, 1991 to September 30,
1996. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to
express an opinion on these financial statements and financial
highlights based on our audits.
We conducted our audits in accordance with
generally accepted auditing standards. Those standards require that
we plan and perform the audit to obtain reasonable assurance about
whether the financial statements and financial highlights are free of
material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned
at September 30, 1996 by correspondence with the custodian and
brokers; where replies were not received from brokers, we performed
other auditing procedures. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such financial statements and
financial highlights present fairly, in all material respects, the
financial position of Oppenheimer Insured Municipal Fund at September
30, 1996, 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.
DELOITTE & TOUCHE LLP
Denver, Colorado
October 21, 1996
<PAGE>
STATEMENT OF INVESTMENTS September 30, 1996
<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--101.0%
- ----------------------------------------------------------------------------------------------------------------
- ---------------
ALABAMA--1.1%
Pelham, AL General Obligation Wts., AMBAC Insured,
7.10%, 8/1/15 Aaa/AAA/AAA $1,000,000
$ 1,125,350
- ----------------------------------------------------------------------------------------------------------------
- ---------------
ALASKA--3.2%
North Slope Borough, AK GORB, Series G, FSA Insured,
8.35%, 6/30/98 Aaa/AAA/A-- 3,000,000
3,210,840
- ----------------------------------------------------------------------------------------------------------------
- ---------------
ARIZONA--1.2%
AZ Educational LMC RRB, Series B, 7%, 3/1/05 A/NR 1,090,000
1,160,883
- ----------------------------------------------------------------------------------------------------------------
- ---------------
CALIFORNIA--11.6%
CA Public Capital Improvements Financing Authority RB,
Pooled Project, Series B, BIG Insured, 8.10%, 3/1/18(1) Aaa/AAA 230,000
242,696
- ----------------------------------------------------------------------------------------------------------------
- -----
CA Statewide CDA Revenue COP, Cedars-Sinai
Medical Center, MBIA Insured, 6.50%, 8/1/12(1) Aaa/AAA 1,000,000
1,113,170
- ----------------------------------------------------------------------------------------------------------------
- -----
CA Statewide CDC COP, 5%, 10/1/23 Aaa/AAA 2,000,000
1,786,780
- ----------------------------------------------------------------------------------------------------------------
- -----
Escondido, CA Union High School District Capital
Appreciation Bonds, Zero Coupon, 6%, 11/1/11(2) Aaa/AAA 2,200,000
934,054
- ----------------------------------------------------------------------------------------------------------------
- -----
Long Beach, CA Harbor RB, 5.125%, 5/15/18 Aa/AA-- 1,500,000
1,364,850
- ----------------------------------------------------------------------------------------------------------------
- -----
Metropolitan Water District of Southern CA
Waterworks RB, 5%, 7/1/20 Aa/AA 2,000,000
1,788,980
- ----------------------------------------------------------------------------------------------------------------
- -----
Redding, CA Electric System Revenue COP,
6.368%, 7/8/22 Aaa/AAA 3,000,000
3,259,560
- ----------------------------------------------------------------------------------------------------------------
- -----
Sacramento, CA Municipal Utilities District Electric
RRB, Series G, MBIA Insured, 6.50%, 9/1/13 Aaa/AAA/A 1,000,000
1,113,270
------------
11,603,360
- ----------------------------------------------------------------------------------------------------------------
- ---------------
COLORADO--3.2%
Centennial, CO Water & Sanitation District
Water & Sewer RRB, 5.75%, 6/15/15 Aa1/AA+ 2,000,000
1,997,520
- ----------------------------------------------------------------------------------------------------------------
- -----
Douglas Cnty., CO School District No. RE-1 Douglas &
Elbert Counties General Obligation Improvement Bonds,
Series A, MBIA Insured, 8%, 12/15/09 Aaa/AAA 1,000,000
1,253,480
------------
3,251,000
- ----------------------------------------------------------------------------------------------------------------
- ---------------
CONNECTICUT--2.0%
CT State HFA RB, Series A, Subseries A-2, 6.20%, 11/15/22 Aa/AA 1,000,000
1,004,020
- ----------------------------------------------------------------------------------------------------------------
- -----
CT State HFA RRB, Series A, Subseries D-2, 6.20%, 11/15/27 Aa/AA 1,000,000
1,003,200
------------
2,007,220
- ----------------------------------------------------------------------------------------------------------------
- ---------------
DELAWARE--2.1%
DE Transportation Authority Transportation System RB,
Prerefunded, 7.75%, 7/1/04 Aaa/AAA 2,000,000
2,148,020
- ----------------------------------------------------------------------------------------------------------------
- ---------------
FLORIDA--9.4%
Dade Cnty., FL Special Obligation RRB,
Series B, MBIA Insured, 5%, 10/1/35 Aaa/AAA/AAA 2,000,000
1,786,080
- ----------------------------------------------------------------------------------------------------------------
- -----
FL HFA RRB, MH, Series C, 6%, 8/1/11 NR/AAA 1,000,000
1,020,300
- ----------------------------------------------------------------------------------------------------------------
- -----
Lakeland, FL Electric & Water RB, 5.625%, 10/1/36 Aa/AA-- 2,000,000
1,941,240
- ----------------------------------------------------------------------------------------------------------------
- -----
Lee Cnty., FL Hospital Board of Directors RB,
6.35%, 3/26/20 Aaa/AAA 2,000,000
2,054,860
- ----------------------------------------------------------------------------------------------------------------
- -----
Orlando, FL Utilities Commission Water & Electric RRB,
Series A, 5%, 10/1/20 Aa/AA--/AA 2,000,000
1,804,840
- ----------------------------------------------------------------------------------------------------------------
- -----
Tampa, FL Utility Tax RB, AMBAC Insured,
Zero Coupon, 6.15%, 4/1/16(2) Aaa/AAA 2,500,000
820,975
------------
9,428,295
</TABLE>
5 Oppenheimer Insured Municipal Fund
<PAGE> 6
STATEMENT OF INVESTMENTS (Continued)
<TABLE>
<CAPTION>
RATINGS: MOODY'S/
S&P'S/FITCH'S FACE
MARKET VALUE
(UNAUDITED) AMOUNT
SEE NOTE 1
- ----------------------------------------------------------------------------------------------------------------
- --------------
<S> <C> <C>
<C>
ILLINOIS--9.8%
Cook Cnty., IL Community College District No. 508 COP,
FGIC Insured, 8.75%, 1/1/05 Aaa/AAA/AAA $ 500,000
$ 618,195
- ----------------------------------------------------------------------------------------------------------------
- -----
Cook Cnty., IL Community College District No. 508
Lease COP, Series C, MBIA Insured, 7.70%, 12/1/07 Aaa/AAA 2,500,000
3,017,375
- ----------------------------------------------------------------------------------------------------------------
- -----
Deerfield, IL RB, Jewish Federation of Metro Chicago,
AMBAC Insured, 5.375%, 8/15/20 Aaa/AAA/AAA 2,000,000
1,906,860
- ----------------------------------------------------------------------------------------------------------------
- -----
IL HFAU RB, Memorial Medical Center Project,
MBIA Insured, 6.75%, 10/1/11 Aaa/AAA 2,000,000
2,167,100
- ----------------------------------------------------------------------------------------------------------------
- -----
Metropolitan Pier & Exposition Authority of IL,
Dedicated State Tax RRB, McCormick Project, Series A,
MBIA Insured, Zero Coupon, 6%, 12/15/11(2)(3) Aaa/AAA/AAA 5,000,000
2,092,650
------------
9,802,180
- ----------------------------------------------------------------------------------------------------------------
- ---------------
INDIANA--4.1%
Hamilton Southeastern, IN Consolidated School Building
Corp. RRB, First Mtg., AMBAC Insured, 7%, 7/1/11 Aaa/AAA/AAA 500,000
549,680
- ----------------------------------------------------------------------------------------------------------------
- -----
IN State Office Building Commission Capital Complex RB,
Series B, MBIA Insured, 7.40%, 7/1/15 Aaa/AAA 2,500,000
3,016,375
- ----------------------------------------------------------------------------------------------------------------
- -----
Whitko, IN Middle School Building Corp. RB, First Mtg.,
AMBAC Insured, 6.75%, 7/15/12 Aaa/AAA/AAA 500,000
547,815
------------
4,113,870
- ----------------------------------------------------------------------------------------------------------------
- ---------------
MASSACHUSETTS--4.6%
MA State GOB, FGIC Insured, 7.875%, 6/1/97 Aaa/AAA/AAA 1,500,000
1,540,275
- ----------------------------------------------------------------------------------------------------------------
- -----
MA State Health & Educational Facilities Authority RB,
Mt. Auburn Hospital Issue, Series B-1, MBIA Insured,
6.25%, 8/15/14 Aaa/AAA 1,000,000
1,054,530
- ----------------------------------------------------------------------------------------------------------------
- -----
MA State HFA RB, Series A, AMBAC Insured,
6.60%, 7/1/14 Aaa/AAA/AAA 2,000,000
2,068,000
------------
4,662,805
- ----------------------------------------------------------------------------------------------------------------
- ---------------
MICHIGAN--2.1%
Greater Detroit, MI RR Authority RRB, Series A,
AMBAC Insured, 6.25%, 12/13/07 Aaa/AAA/AAA 2,000,000
2,153,520
- ----------------------------------------------------------------------------------------------------------------
- ---------------
NEBRASKA--0.6%
NE Investment Finance Authority Hospital RB,
NE Methodist Health System, MBIA Insured, 7%, 3/1/06 Aaa/AAA 500,000
550,685
- ----------------------------------------------------------------------------------------------------------------
- ---------------
NEVADA--3.3%
Clark Cnty., NV Passenger Facility Charge RB,
Las Vegas McCarran International Airport Project,
Series B, MBIA Insured, 6.50%, 7/1/12 Aaa/AAA 2,000,000
2,122,700
- ----------------------------------------------------------------------------------------------------------------
- -----
Humboldt Cnty., NV PC RB, ID Power Co. Project,
AMBAC Insured, 8.30%, 12/20/14 Aaa/AAA/AAA 1,000,000
1,210,610
------------
3,333,310
- ----------------------------------------------------------------------------------------------------------------
- ---------------
NEW HAMPSHIRE--0.6%
NH Turnpike System RRB, Series A, FGIC Insured,
6.75%, 11/1/11 Aaa/AAA/AAA 500,000
565,950
- ----------------------------------------------------------------------------------------------------------------
- ---------------
NEW JERSEY--0.7%
East Orange, NJ GOB, FSA Insured, 8.40%, 8/1/06 Aaa/AAA 550,000
687,747
- ----------------------------------------------------------------------------------------------------------------
- ---------------
OHIO--1.6%
Streetsboro, OH City School District GOB,
AMBAC Insured, 7.125%, 12/1/10 Aaa/AAA/AAA 500,000
587,055
- ----------------------------------------------------------------------------------------------------------------
- -----
Student Loan Funding Corp. of Cincinnati, OH RB,
Series A, AMBAC Insured, 5.75%, 8/1/03 Aaa/AAA/AAA 1,000,000
1,043,490
------------
1,630,545
</TABLE>
6 Oppenheimer Insured Municipal Fund
<PAGE> 7
<TABLE>
<CAPTION>
RATINGS: MOODY'S/
S&P'S/FITCH'S FACE
MARKET VALUE
(UNAUDITED) AMOUNT
SEE NOTE 1
- ----------------------------------------------------------------------------------------------------------------
- --------------
<S> <C> <C>
<C>
OKLAHOMA--2.4%
OK Baptist University Authority RB, FGIC Insured,
7.10%, 8/1/09 Aaa/AAA/AAA $ 150,000
$ 163,055
- ----------------------------------------------------------------------------------------------------------------
- -----
OK State Industrial Authority Health Systems RB,
Baptist Medical Center, Series C, AMBAC Insured,
7%, 8/15/05 Aaa/AAA/AAA 2,000,000
2,273,740
------------
2,436,795
- ----------------------------------------------------------------------------------------------------------------
- ---------------
PENNSYLVANIA--11.9%
Allegheny Cnty., PA HDA RB, Presbyterian
University Hospital, Prerefunded, Series A,
MBIA Insured, 7.60%, 3/1/08 Aaa/AAA 1,400,000
1,493,646
- ----------------------------------------------------------------------------------------------------------------
- -----
Berks Cnty., PA GOB, FGIC Insured, Inverse Floater,
8.681%, 11/10/20(4) Aaa/AAA/AAA 1,000,000
1,183,750
- ----------------------------------------------------------------------------------------------------------------
- -----
Delaware Cnty., PA HA RB, Memorial Hospital
Delaware Cnty., MBIA Insured, 5.50%, 8/15/19 Aaa/AAA 1,000,000
966,490
- ----------------------------------------------------------------------------------------------------------------
- -----
Keystone Oaks, PA School District RB,
AMBAC Insured, 5.829%, 9/1/16 Aaa/AAA/AAA 2,000,000
1,994,980
- ----------------------------------------------------------------------------------------------------------------
- -----
PA State HEAA Student Loan RB,
AMBAC Insured, 6.173%, 3/1/22 Aaa/AAA/AAA 2,500,000
2,501,375
- ----------------------------------------------------------------------------------------------------------------
- -----
Philadelphia, PA Regional Port Authority Lease RB,
Kidder Milled, MBIA Insured, 6.20%, 9/1/20 Aaa/AAA 3,800,000
3,838,760
------------
11,979,001
- ----------------------------------------------------------------------------------------------------------------
- ---------------
RHODE ISLAND--1.9%
RI Depositors Economic Protection Corp.
Special Obligation RB, Prerefunded, Series A,
MBIA Insured, 7.50%, 8/1/14 Aaa/AAA 1,700,000
1,928,004
- ----------------------------------------------------------------------------------------------------------------
- ---------------
SOUTH CAROLINA--0.6%
Sumter Cnty., SC School District No. 017 COP,
Series A, FGIC Insured, 7.125%, 1/1/11 Aaa/AAA 500,000
551,245
- ----------------------------------------------------------------------------------------------------------------
- ---------------
SOUTH DAKOTA--1.1%
SD State Lease Revenue Trust Certificates,
Series B, FSA Insured, 8%, 9/1/02 Aaa/AAA 1,000,000
1,150,370
- ----------------------------------------------------------------------------------------------------------------
- ---------------
TENNESSEE--3.3%
Chattanooga-Hamilton Cnty., TN HA RB,
Erlanger Medical Center, Prerefunded, 6.854%, 5/25/21 Aaa/AAA/AAA 3,000,000
3,299,520
- ----------------------------------------------------------------------------------------------------------------
- ---------------
TEXAS--10.2%
Cedar Hill, TX Independent School District Capital
Appreciation RB, Zero Coupon Bonds, 6.10%, 8/15/11(2)(3) Aaa/AAA/AAA 1,585,000
661,658
- ----------------------------------------------------------------------------------------------------------------
- -----
Grand Prairie, TX HF RRB, Dallas/Ft. Worth Medical
Center Project, AMBAC Insured, 6.875%, 11/1/10 Aaa/AAA 1,800,000
2,001,042
- ----------------------------------------------------------------------------------------------------------------
- -----
Harris Cnty., TX Toll Road Unlimited Tax & Sub. Lien RB,
Prerefunded, 10.375%, 8/1/14 Aaa/AAA 1,200,000
1,297,548
- ----------------------------------------------------------------------------------------------------------------
- -----
Lower Neches Valley, TX Industrial Development Corp.
Environmental Authority RB, Mobil Oil Refining
Corp. Project, 6.35%, 4/1/26 Aa2/AA 2,170,000
2,235,187
- ----------------------------------------------------------------------------------------------------------------
- -----
Lower Neches Valley, TX Industrial Development
Corp. Sewer Facilities RB, Mobil Oil Refining Corp.
Project, 6.40%, 3/1/30 Aa2/AA 1,000,000
1,030,200
- ----------------------------------------------------------------------------------------------------------------
- -----
Rio Grande Valley HFDC TX Retirement Facilities RB,
Golden Palms, Series A, MBIA Insured, 6.40%, 8/1/12 Aaa/AAA 2,000,000
2,116,420
- ----------------------------------------------------------------------------------------------------------------
- -----
Tarrant Cnty., TX HFDC RB, Harris Methodist Health
System Project, AMBAC Insured, 5.125%, 9/1/12 Aaa/AAA 1,000,000
933,360
------------
10,275,415
</TABLE>
7 Oppenheimer Insured Municipal Fund
<PAGE> 8
STATEMENT OF INVESTMENTS (Continued)
<TABLE>
<CAPTION>
RATINGS: MOODY'S/
S&P'S/FITCH'S FACE
MARKET VALUE
(UNAUDITED) AMOUNT
SEE NOTE 1
- ----------------------------------------------------------------------------------------------------------------
- --------------
<S> <C> <C>
<C>
WASHINGTON--2.1%
Tacoma, WA Electric Systems RB, AMBAC Insured,
Inverse Floater, 9.092%, 1/2/15(4) Aaa/AAA/AAA $1,000,000
$ 1,088,750
- ----------------------------------------------------------------------------------------------------------------
- -----
WA State Public Power Supply System RRB, Series A,
FGIC Insured, Zero Coupon, 5.50%, 7/1/09(2) Aaa/AAA/AAA 2,000,000
975,480
------------
2,064,230
- ----------------------------------------------------------------------------------------------------------------
- ---------------
WISCONSIN--1.4%
WI State Health & Educational Facilities Authority RB,
Aurora Medical Group, Inc. Project, FSA Insured,
6%, 11/15/11 Aaa/AAA 1,370,000
1,409,771
- ----------------------------------------------------------------------------------------------------------------
- ---------------
DISTRICT OF COLUMBIA--3.0%
DC GORB, Series A-1, MBIA Insured, 6%, 6/1/11 Aaa/AAA/BB 2,000,000
2,092,420
- ----------------------------------------------------------------------------------------------------------------
- -----
DC Hospital RRB, Medlantic Healthcare Group,
Series A, MBIA Insured, 5.25%, 8/15/12 Aaa/AAA 1,000,000
935,480
------------
3,027,900
- ----------------------------------------------------------------------------------------------------------------
- ---------------
U.S. POSSESSIONS--1.9%
PR Commonwealth HTA RB, Series Y, 5.50%, 7/1/36 Baa1/A 2,000,000
1,899,600
- ----------------------------------------------------------------------------------------------------------------
- ---------------
TOTAL INVESTMENTS, AT VALUE (COST $99,155,526) 101.0%
101,457,431
- ----------------------------------------------------------------------------------------------------------------
- ---------------
LIABILITIES IN EXCESS OF OTHER ASSETS (1.0)
(1,033,422)
----------
------------
NET ASSETS 100.0%
$100,424,009
==========
============
</TABLE>
1. Securities with an aggregate market value of $1,355,866 are held
in collateralized accounts to cover initial margin requirements on
open futures sales contracts. See Note 5 of Notes to Financial
Statements.
2. For zero coupon bonds, the interest rate shown is the effective
yield on the date of purchase.
3. When-issued security to be delivered and settled after September
30, 1996.
4. Represents the current interest rate for a variable rate bond.
These bonds known as "inverse floaters" pay interest at a rate that
varies inversely with short-term interest rates. As interest rates
rise, inverse floaters produce less current income. Their price may
be more volatile than the price of a comparable fixed-rate security.
Inverse floaters amount to $2,272,500 or 2.26% of the Fund's net
assets at September 30, 1996.
As of September 30, 1996, securities subject to the alternative
minimum tax amounted to $13,499,685 or 13.44% of the Fund's net
assets.
To simplify the listings of the Oppenheimer Insured Municipal Fund
holdings in the Statement of Investments, we have abbreviated the
descriptions of many of the securities per the table below:
<TABLE>
<S> <C> <C>
BOE -- Board of Education HFASC -- Housing Finance Agency Service
Contract
CDA -- Communities Development Authority HFAU -- Health Facilities Authority
CDC -- Community Development Corporation HFDC -- Health Facilities Development
Corporation
COP -- Certificates of Participation HTA -- Highway & Transportation Authority
CUS -- City University System IDA -- Industrial Development Authority
DA -- Dormitory Authority LMC -- Loan Marketing Corporation
EFCPC -- Environmental Facilities Corporation MCFFA -- Medical Care Facilities Finance Agency
Pollution Control MH -- Multifamily Housing
EPA -- Electric Power Authority MTA -- Metropolitan Transportation Authority
ERDAEF -- Energy Research & Development MWFA -- Municipal Water Finance Authority
Authority Electric Facilities NYC -- New York City
ERDAGF -- Energy Research & Development NYS -- New York State
Authority Gas Facilities PANYNJ -- Port Authority of New York & New
Jersey
FA -- Facilities Authority PAU -- Power Authority
GAC -- Government Assistance Corporation PC -- Pollution Control
GOB -- General Obligation Bonds RB -- Revenue Bonds
GORB -- General Obligation Refunding Bonds RR -- Resource Recovery
HA -- Hospital Authority RRB -- Revenue Refunding Bonds
HDA -- Hospital Development Authority SAC -- Student Assistance Corporation
HDC -- Housing Development Corporation SUEFS -- State University Educational
Facilities System
HEAA -- Higher Education Assistance Agency SWD -- Solid Waste Disposal
HEFA -- Higher Educational Facilities Authority TBTA -- Triborough Bridge & Tunnel Authority
HF -- Health Facilities UDC -- Urban Development Corporation
HFA -- Housing Finance Agency WSS -- Water & Sewer System
</TABLE>
See accompanying Notes to Financial Statements.
8 Oppenheimer Insured Municipal Fund
<PAGE> 9
STATEMENT OF ASSETS AND LIABILITIES September 30, 1996
<TABLE>
<S> <C>
============================================================================================================
ASSETS
Investments, at value (cost $99,155,526)--see accompanying statement $101,457,431
--------------------------------------------------------------------------------------------------
Cash 65,147
--------------------------------------------------------------------------------------------------
Receivables:
Interest 1,466,172
Shares of beneficial interest sold 4,888
Daily variation on futures contracts--Note 5 3,750
--------------------------------------------------------------------------------------------------
Other 21,815
------------
Total assets 103,019,203
============================================================================================================
LIABILITIES
Payables and other liabilities:
Investments purchased 2,037,350
Dividends 298,672
Shares of beneficial interest redeemed 146,381
Distribution and service plan fees 60,289
Transfer and shareholder servicing agent fees 3,554
Other 48,948
------------
Total liabilities 2,595,194
============================================================================================================
NET ASSETS $100,424,009
============
============================================================================================================
COMPOSITION OF
NET ASSETS
Paid-in capital $98,057,439
--------------------------------------------------------------------------------------------------
Undistributed net investment income 522,255
--------------------------------------------------------------------------------------------------
Accumulated net realized loss on investment transactions (441,339)
--------------------------------------------------------------------------------------------------
Net unrealized appreciation on investments--Notes 3 and 5 2,285,654
------------
Net assets $100,424,009
============
============================================================================================================
NET ASSET VALUE
PER SHARE
Class A Shares:
Net asset value and redemption price per share (based on net assets
of $83,516,386 and 4,892,206 shares of beneficial interest outstanding) $17.07
Maximum offering price per share (net asset value plus sales charge
of 4.75% of offering price) $17.92
--------------------------------------------------------------------------------------------------
Class B Shares:
Net asset value, redemption price and offering price per share (based on net assets
of $15,983,143 and 935,710 shares of beneficial interest outstanding) $17.08
--------------------------------------------------------------------------------------------------
Class C Shares:
Net asset value, redemption price and offering price per share (based on net assets
of $924,480 and 54,197 shares of beneficial interest outstanding) $17.06
</TABLE>
See accompanying Notes to Financial Statements.
9 Oppenheimer Insured Municipal Fund
<PAGE> 10
STATEMENT OF OPERATIONS For the Year Ended September 30, 1996
<TABLE>
<S> <C>
============================================================================================================
INVESTMENT INCOME
Interest $6,054,686
============================================================================================================
EXPENSES
Management fees--Note 4 435,183
--------------------------------------------------------------------------------------------------
Distribution and service plan fees--Note 4:
Class A 195,544
Class B 147,766
Class C 6,146
--------------------------------------------------------------------------------------------------
Shareholder reports 107,234
--------------------------------------------------------------------------------------------------
Transfer and shareholder servicing agent fees--Note 4 94,951
--------------------------------------------------------------------------------------------------
Registration and filing fees:
Class A 40,288
Class B 8,033
Class C 729
--------------------------------------------------------------------------------------------------
Legal and auditing fees 23,790
--------------------------------------------------------------------------------------------------
Custodian fees and expenses 16,739
--------------------------------------------------------------------------------------------------
Trustees' fees and expenses 3,170
--------------------------------------------------------------------------------------------------
Other 18,791
----------
Total expenses 1,098,364
Less expenses paid indirectly--Note 4 (17,043)
----------
Net expenses 1,081,321
============================================================================================================
NET INVESTMENT INCOME 4,973,365
============================================================================================================
REALIZED AND UNREALIZED
GAIN (LOSS)
Net realized gain (loss) on:
Investments 1,277,107
Closing of futures contracts (193,848)
----------
Net realized gain 1,083,259
--------------------------------------------------------------------------------------------------
Net change in unrealized appreciation or depreciation on investments 310
----------
Net realized and unrealized gain 1,083,569
============================================================================================================
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $6,056,934
==========
</TABLE>
See accompanying Notes to Financial Statements.
10 Oppenheimer Insured Municipal Fund
<PAGE> 11
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER
30,
1996
1995
================================================================================================================
===============
<S> <C>
<C>
OPERATIONS
Net investment income $ 4,973,365
$ 4,472,072
- ----------------------------------------------------------------------------------------------------------------
- --------
Net realized gain (loss) 1,083,259
(885,433)
- ----------------------------------------------------------------------------------------------------------------
- --------
Net change in unrealized appreciation or depreciation 310
4,568,736
------------
------------
Net increase in net assets resulting from operations 6,056,934
8,155,375
================================================================================================================
===============
DIVIDENDS AND
DISTRIBUTIONS TO
SHAREHOLDERS
Dividends from net investment income:
Class A (4,254,496)
(3,855,661)
Class B (663,202)
(562,560)
Class C (27,218)
(5)
- ----------------------------------------------------------------------------------------------------------------
- --------
Distributions from net realized gain:
Class A --
(5,059)
Class B --
(788)
================================================================================================================
===============
BENEFICIAL INTEREST
TRANSACTIONS
Net increase in net assets resulting from
beneficial interest transactions--Note 2:
Class A 5,885,988
5,681,837
Class B 2,468,411
1,255,100
Class C 714,886
211,000
================================================================================================================
===============
NET ASSETS
Total increase 10,181,303
10,879,239
- ----------------------------------------------------------------------------------------------------------------
- --------
Beginning of period 90,242,706
79,363,467
------------
-----------
End of period (including undistributed net investment income
of $522,255 and $28,628, respectively) $100,424,009
$90,242,706
============
===========
</TABLE>
See accompanying Notes to Financial Statements.
11 Oppenheimer Insured Municipal Fund
<PAGE> 12
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CLASS A
-------------------------------------------
YEAR ENDED SEPTEMBER 30,
1996 1995 1994
==============================================================================================================
<S> <C> <C> <C>
PER SHARE OPERATING DATA:
Net asset value, beginning of period $16.86 $16.14 $18.06
- ---------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .90 .90 .89
Net realized and unrealized gain (loss) .20 .71 (1.84)
------ ------ ------
Total income (loss) from investment operations 1.10 1.61 (.95)
- ---------------------------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income (.89) (.89) (.89)
Distributions from net realized gain -- -- (.08)
------ ------ ------
Total dividends and distributions to shareholders (.89) (.89) (.97)
- ---------------------------------------------------------------------------------------------------------------
Net asset value, end of period $17.07 $16.86 $16.14
====== ====== ======
===============================================================================================================
TOTAL RETURN, AT NET ASSET VALUE(3) 6.67% 10.29% (5.46)%
===============================================================================================================
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) $83,516 $76,691 $67,793
- ---------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $81,233 $70,650 $66,953
- ---------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income 5.27% 5.52% 5.23%
Expenses, before voluntary assumption by the Manager(5) 1.02% 0.95% 1.05%
Expenses, net of voluntary assumption by the Manager N/A N/A N/A
- ---------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(6) 93% 58% 99%
</TABLE>
1. For the period from August 29, 1995 (inception of offering) to September 30,
1995.
2. For the period from May 3, 1993 (inception of offering) to September 30,
1993.
3. Assumes a hypothetical initial investment on the business day before the
first day of the fiscal period (or inception of offering), with all dividends
and distributions reinvested in additional shares on the reinvestment date, and
redemption at the net asset value calculated on the last business day of the
fiscal period. Sales charges are not reflected in the total returns. Total
returns are not annualized for periods of less than one full year.
12 Oppenheimer Insured Municipal Fund
<PAGE> 13
<TABLE>
<CAPTION>
CLASS B CLASS C
- ----------------------------- ---------------------------------------------------
- ---------------------------
YEAR ENDED SEPTEMBER 30, YEAR ENDED
SEPTEMBER 30,
1993 1992 1996 1995 1994 1993(2) 1996
1995(1)
================================================================================================================
=============
<S> <C> <C> <C> <C> <C> <C>
<C>
$16.92 $16.17 $16.87 $16.15 $18.07 $17.33 $16.86
$16.72
- ----------------------------------------------------------------------------------------------------------------
- -------------
.93 .96 .77 .78 .77 .30 .75
.08
1.35 .73 .20 .71 (1.86) .74 .21
.14
- ------- ------ ------ ------ ------ ------ ------
------
2.28 1.69 .97 1.49 (1.09) 1.04 .96
.22
- ----------------------------------------------------------------------------------------------------------------
- -------------
(.96) (.91) (.76) (.77) (.75) (.30) (.76)
(.08)
(.18) (.03) -- -- (.08) -- --
--
- ------- ------ ------ ------ ------ ------ ------
------
(1.14) (.94) (.76) (.77) (.83) (.30) (.76)
(.08)
- ----------------------------------------------------------------------------------------------------------------
- -------------
$18.06 $16.92 $17.08 $16.87 $16.15 $18.07 $17.06
$16.86
======= ====== ====== ====== ====== ====== ======
======
================================================================================================================
=============
14.02% 10.74% 5.87% 9.47% (6.20)% 6.04% 5.77%
1.30%
================================================================================================================
=============
$62,158 $33,751 $15,983 $13,341 $11,571 $5,104 $924
$ 211
- ----------------------------------------------------------------------------------------------------------------
- -------------
$45,949 $27,811 $14,822 $11,987 $ 9,209 $2,298 $618
$ 1
- ----------------------------------------------------------------------------------------------------------------
- -------------
5.40% 5.81% 4.50% 4.75% 4.43% 3.99%(4) 4.38%
4.89%(4)
1.18% 1.35% 1.77% 1.71% 1.82% 1.96%(4) 1.81%
1.07%(4)
1.10% 0.95% N/A N/A N/A N/A N/A
N/A
- ----------------------------------------------------------------------------------------------------------------
- -------------
7% 47% 93% 58% 99% 7% 93%
58%
</TABLE>
4. Annualized.
5. Beginning in fiscal 1996, the expense ratio reflects the effect of expenses
paid indirectly by the Fund. Prior year expense ratios have not been adjusted.
6. The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities
owned during the period. Securities with a maturity or expiration date at the
time of acquisition of one year or less are excluded from the calculation.
Purchases and sales of investment securities (excluding short-term securities)
for the period ended September 30, 1996 were $101,039,632 and $89,667,451,
respectively.
See accompanying Notes to Financial Statements.
13 Oppenheimer Insured Municipal Fund
<PAGE> 14
NOTES TO FINANCIAL STATEMENTS
================================================================================
1. SIGNIFICANT
ACCOUNTING POLICIES
Oppenheimer Insured Municipal Fund (the Fund), operating under the
name Oppenheimer Insured Tax-Exempt Fund through October 9, 1996, is
a separate series of Oppenheimer Municipal Fund, operating under the
name Oppenheimer Tax-Exempt Fund through October 9, 1996, a
diversified, open-end management investment company registered under
the Investment Company Act of 1940, as amended. The Fund's investment
objective is to seek maximum current income exempt from Federal
income tax for individual investors that is consistent with the
preservation of capital. The Fund's investment adviser is
OppenheimerFunds, Inc. (the Manager). The Fund offers Class A, Class
B and Class C shares. Class A shares are sold with a front-end sales
charge. Class B and Class C shares may be subject to a contingent
deferred sales charge. All three classes of shares have identical
rights to earnings, assets and voting privileges, except that each
class has its own distribution and/or service plan, expenses directly
attributable to 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 the close of
the New York Stock Exchange on each trading day. Listed and unlisted
securities for which such information is regularly reported are
valued at the last sale price of the day or, in the absence of sales,
at values based on the closing bid or the last sale price on the
prior trading day. Long-term and short-term "non-money market" debt
securities are valued by a portfolio pricing service approved by the
Board of Trustees. Such securities which cannot be valued by the
approved portfolio pricing service are valued using dealer-supplied
valuations provided the Manager is satisfied that the firm rendering
the quotes is reliable and that the quotes reflect current market
value, or are valued under consistently applied procedures
established by the Board of Trustees to determine fair value in good
faith. Short-term "money market type" debt securities having a
remaining maturity of 60 days or less are valued at cost (or last
determined market value) adjusted for amortization to maturity of any
premium or discount.
----------------------------------------------------------------------
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 TAXES. The Fund intends to continue to comply with provisions
of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable income, including any
net realized gain on investments not offset by loss carryovers, to
shareholders. Therefore, no federal income or excise tax provision is
required. At September 30, 1996, the Fund had available for federal
income tax purposes an unused capital loss carryover of $458,000,
which expires in 2003.
----------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS. The Fund intends to declare dividends
separately for Class A, Class B and Class C shares from net
investment income each day the New York Stock Exchange is open for
business and pay such dividends monthly. Distributions from net
realized gains on investments, if any, will be declared at least once
each year.
----------------------------------------------------------------------
CLASSIFICATION OF DISTRIBUTIONS TO SHAREHOLDERS. Net investment
income (loss) and net realized gain (loss) may differ for financial
statement and tax purposes primarily because of premium amortization
for tax purposes. The character of the distributions made during the
year from net investment income or net realized gains may differ from
their ultimate characterization for federal income tax purposes.
Also, due to timing of dividend distributions, the fiscal year in
which amounts are distributed may differ from the year that the
income or realized gain (loss) was recorded by the Fund.
During the year ended September 30, 1996, the
Fund adjusted the classification of distributions to shareholders to
reflect the differences between financial statement amounts and
distributions determined in accordance with income tax regulations.
Accordingly, during the year ended September 30, 1996, amounts have
been reclassified to reflect a decrease in paid-in capital of
$595,644, an increase in undistributed net investment income of
$465,178 and a decrease in accumulated net realized loss on
investments of $130,466.
14 Oppenheimer Insured Municipal Fund
<PAGE> 15
================================================================================
1. SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
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. For bonds acquired after April 30, 1993, on disposition
or maturity, taxable ordinary income is recognized to the extent of
the lesser of gain or market discount that would have accrued over
the holding period. Realized gains and losses on investments and
unrealized appreciation and depreciation are determined on an
identified cost basis, which is the same basis used for federal
income tax purposes.
The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of income and expenses during the reporting period.
Actual results could differ from those estimates.
================================================================================
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, 1996 YEAR ENDED
SEPTEMBER 30, 1995(1)
-----------------------------
- --------------------------------
SHARES AMOUNT SHARES
AMOUNT
- ----------------------------------------------------------------------------------------------------------------
- ---------
<S> <C> <C> <C>
<C>
Class A:
Sold 1,069,278 $ 18,269,113 1,022,063
$ 16,640,954
Dividends and distributions reinvested 184,862 3,140,861 172,727
2,816,467
Redeemed (909,988) (15,523,986) (847,904)
(13,775,584)
--------- ------------- ---------
-------------
Net increase 344,152 $ 5,885,988 346,886
$ 5,681,837
========= ============= =========
=============
- ----------------------------------------------------------------------------------------------------------------
- ---------
Class B:
Sold 287,568 $ 4,899,080 242,343
$ 3,984,619
Dividends and distributions reinvested 24,663 419,151 22,203
362,232
Redeemed (167,327) (2,849,820) (190,378)
(3,091,751)
--------- ------------- ---------
-------------
Net increase 144,904 $ 2,468,411 74,168
$ 1,255,100
========= ============= =========
=============
- ----------------------------------------------------------------------------------------------------------------
- ---------
Class C:
Sold 48,380 $826,936 12,515
$ 211,000
Dividends and distributions reinvested 290 4,884 --
--
Redeemed (6,988) (116,934) --
--
--------- ------------- ---------
-------------
Net increase 41,682 $ 714,886 12,515
$ 211,000
========= ============= =========
=============
</TABLE>
1. For the year ended September 30, 1995 for Class A and Class B
shares and for the period from August 29, 1995 (inception of
offering) to September 30, 1995 for Class C shares.
================================================================================
3. UNREALIZED GAINS AND
LOSSES ON INVESTMENTS
At September 30, 1996, net unrealized appreciation on investments of
$2,301,905 was composed of gross appreciation of $3,303,709, and
gross depreciation of $1,001,804.
================================================================================
4. MANAGEMENT FEES
AND OTHER TRANSACTIONS
WITH AFFILIATES
Management fees paid to the Manager were in accordance with the
investment advisory agreement with the Fund which provides for a fee
of 0.45% on the first $100 million of average annual net assets,
0.40% on the next $150 million, 0.375% on the next $250 million and
0.35% 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.
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, 1996,
commissions (sales charges paid by investors) on sales of Class A
shares totaled $180,294, of which $41,099 was retained by
OppenheimerFunds Distributor, Inc. (OFDI), a subsidiary of the
Manager, as general distributor, and by an affiliated broker/dealer.
Sales charges advanced to broker/dealers by OFDI on sales of the
Fund's Class B and Class C shares totaled $164,506 and $8,276, of
which $5,171 and $100, respectively, was paid to an affiliated
broker/dealer. During the year ended September 30, 1996, OFDI
received contingent deferred sales charges of $31,295 upon redemption
of Class B shares, as reimbursement for sales commissions advanced by
OFDI at the time of sale of such shares.
15 Oppenheimer Insured Municipal Fund
<PAGE> 16
NOTES TO FINANCIAL STATEMENTS (Continued)
================================================================================
4. MANAGEMENT FEES
AND OTHER TRANSACTIONS
WITH AFFILIATES
(CONTINUED)
OppenheimerFunds Services (OFS), a division of the Manager, is the
transfer and shareholder servicing agent for the Fund, and for other
registered investment companies. OFS's total costs of providing such
services are allocated ratably to these companies.
Expenses paid indirectly represent a reduction
of custodian fees for earnings on cash balances maintained by the
Fund.
The Fund has adopted a Service Plan for Class A
shares to reimburse OFDI for a portion of its costs incurred in
connection with the personal service and maintenance of accounts that
hold Class A shares. Reimbursement is made quarterly at an annual
rate that may not exceed 0.25% of the average annual net assets of
Class A shares of the Fund. OFDI uses the service fee to reimburse
brokers, dealers, banks and other financial institutions quarterly
for providing personal service and maintenance of accounts of their
customers that hold Class A shares. During the year ended September
30, 1996, OFDI paid $7,947 to an affiliated broker/dealer as
reimbursement for Class A personal service and maintenance expenses.
The Fund has adopted compensation type
Distribution and Service Plans for Class B and Class C shares to
compensate OFDI for its services and costs in distributing Class B
and Class C shares and servicing accounts. Under the Plans, the Fund
pays OFDI an annual asset-based sales charge of 0.75% per year on
Class B shares that are outstanding for 6 years or less and on Class
C shares, as compensation for sales commissions paid from its own
resources at the time of sale and associated financing costs. If the
Plans are terminated by the Fund, the Board of Trustees may allow the
Fund to continue payments of the asset-based sales charge to OFDI for
certain expenses it incurred before the Plans were terminated. OFDI
also receives a service fee of 0.25% per year as compensation for
costs incurred in connection with the personal service and
maintenance of accounts that hold shares of the Fund, including
amounts paid to brokers, dealers, banks and other financial
institutions. Both fees are computed on the average annual net assets
of Class B and Class C shares, determined as of the close of each
regular business day. During the year ended September 30, 1996, OFDI
paid $2,071, to an affiliated broker/dealer as compensation for Class
B and Class C personal service and maintenance expenses and retained
$120,185 and $6,138, respectively, as compensation for Class B and
Class C sales commissions and service fee advances, as well as
financing costs. At September 30, 1996, OFDI had incurred
unreimbursed expenses of $590,704 for Class B and $13,289 for Class
C.
================================================================================
5. FUTURES CONTRACTS
The Fund may buy and sell interest rate futures contracts in order to
gain exposure to or protect against changes in interest rates. The
Fund may also buy or write put or call options on these futures
contracts.
The Fund generally sells futures contracts to
hedge against increases in interest rates and the resulting negative
effect on the value of fixed rate portfolio securities. The Fund may
also purchase futures contracts to gain exposure to changes in
interest rates as it may be more efficient or cost effective than
actually buying fixed income securities.
Upon entering into a futures contract, the Fund
is required to deposit either cash or securities in an amount
(initial margin) equal to a certain percentage of the contract value.
Subsequent payments (variation margin) are made or received by the
Fund each day. The variation margin payments are equal to the daily
changes in the contract value and are recorded as unrealized gains
and losses. The Fund recognizes a realized gain or loss when the
contract is closed or expires.
Securities held in collateralized accounts to
cover initial margin requirements on open futures contracts are noted
in the Statement of Investments. The Statement of Assets and
Liabilities reflects a receivable or payable for the daily mark to
market for variation margin.
Risks of entering into futures contracts (and
related options) include the possibility that there may be an
illiquid market and that a change in the value of the contract or
option may not correlate with changes in the value of the underlying
securities.
At September 30, 1996, the Fund had outstanding futures contracts to
sell debt securities as follows:
<TABLE>
<CAPTION>
EXPIRATION NUMBER OF VALUATION AS OF
UNREALIZED
DATE FUTURES CONTRACTS SEPTEMBER 30, 1996
DEPRECIATION
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Municipal Bonds 12/96 20 $2,278,750 $16,251
</TABLE>
Appendix A
DESCRIPTION OF RATINGS
Municipal Bond Ratings.
Moody's Investors Service, 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."
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,
1996. 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: Effective A Oppenheimer Insured Municipal 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:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Over Not Over
$ 0 $ 40,100 15.00% 4.12% 4.71% 5.29% 5.88% 6.47% 7.06% 7.65%
$ 40,100 $ 96,900 28.00% 4.86% 5.56% 6.25% 6.94% 7.64% 8.33% 9.03%
$ 96,900 $147,700 31.00% 5.07% 5.80% 6.52% 7.25% 7.97% 8.70% 9.42%
$147,700 $263,750 36.00% 5.47% 6.25% 7.03% 7.81% 8.59% 9.38% 10.16%
$263,750 and above 39.60% 5.79% 6.62% 7.45% 8.28% 9.11% 9.93% 10.76%
Single Return
Over Not Over
$ 0 $ 24,000 15.00% 4.12% 4.71% 5.29% 5.88% 6.47% 7.06% 7.65%
$ 24,000 $ 58,150 28.00% 4.86% 5.56% 6.25% 6.94% 7.64% 8.33% 9.03%
$ 58,150 $121,300 31.00% 5.07% 5.80% 6.52% 7.25% 7.97% 8.70% 9.42%
$121,300 $263,750 36.00% 5.47% 6.25% 7.03% 7.81% 8.59% 9.38% 10.16%
$263,750 and above 39.60% 5.79% 6.62% 7.45% 8.28% 9.11% 9.93% 10.76%
</TABLE>
<PAGE>
Appendix C
Municipal Bond Industry Classifications
Electric
Gas
Water
Sewer
Telephone
Adult Living Facilities
Hospital
General Obligation
Special Assessment
Sales Tax
Manufacturing, Non Durables
Manufacturing, Durables
Pollution Control
Resource Recovery
Higher Education
Education
Lease Rental
Non Profit Organization
Highways
Marine/Aviation Facilities
Multi Family Housing
Single Family Housing <PAGE>
Investment Adviser
OppenheimerFunds, Inc.
Two World Trade Center
New York, New York 10048-0203
Distributor
OppenheimerFunds Distributor, Inc.
Two World Trade Center
New York, New York 10048-0203
Transfer and Shareholder Servicing Agent
OppenheimerFunds 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 LLP
555 Seventeenth Street
Denver, Colorado 80202
Legal Counsel
Myer, Swanson, Adams & Wolf, P.C.
1600 Broadway
Denver, Colorado 80202
