OPPENHEIMER
Intermediate Municipal Fund
Prospectus dated January 26, 1998
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 January
26, 1998 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 NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
-1-
<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
-2-
<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
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, 1997.
o 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 3.50% None None
on Purchases (as a % of
offering price)
- -------------------------------------------------------------------------
Maximum Deferred Sales None(1) 4% in the first1% if
shares are
Charge (as a % of the year, declining
redeemed within
lower of the original to 1% in the12 months
of
offering price or fifth year and
purchase(2)
redemption 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 12 calendar months (18
months for shares purchased prior to May 1, 1997) 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 checkwriting privileges
are used (see "How To Sell Shares").
o 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 advisor, 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% 0.29%
0.27%
- -------------------------------------------------------------------
Total Fund Operating 1.02% 1.79%
1.77%
Expenses
The numbers in the chart above are based upon the Fund's expenses in its
last fiscal year ended September 30, 1997. 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 Plan Fees for Class A shares are Service Plan Fees. For Class B
and for Class C shares the 12b-1 Plan Fees are the Service Plan Fees and
asset-based sales charge. The service fee for each class is a maximum of 0.25%
of average annual net assets of the 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.
o 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 table 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 $107 $173
- -------------------------------------------------------------------
Class C Shares $28 $56 $ 96 $208
If you did not redeem your investment, it would incur the following
expenses:
Class A Shares $45 $66 $89 $155
- -------------------------------------------------------------------
Class B Shares $18 $56 $97 $172
- -------------------------------------------------------------------
Class C Shares $18 $56 $96 $208
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 imposed on Class B and Class C shares,
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 - Buying Class B 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.
o 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.
o 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 __.
o Who Manages the Fund? The Fund's investment advisor (the "Manager") is
OppenheimerFunds, Inc. The Manager (including subsidiaries) advises investment
company portfolios having over $75 billion in assets as of December 31, 1997.
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
advisor and the portfolio manager. Please refer to "How the Fund is Managed,"
starting on page __ for more information about the Manager and its fees.
o 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.
o 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.
o 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.
o 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 __.
o 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, 1997, is included
in the Statement of Additional Information.
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
CLASS A
----------------------------------------------
YEAR ENDED SEPTEMBER 30,
1997 1996 1995 1994
==================================================================================================
<S> <C> <C> <C> <C>
PER SHARE OPERATING DATA:
Net asset value, beginning of period $14.69 $14.69 $14.23 $15.34
- --------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .80 .79 .79 .72
Net realized and unrealized gain (loss) .45 (.01) .42 (1.00)
------ ------ ------ ------
Total income (loss) from investment
operations 1.25 .78 1.21 (.28)
- --------------------------------------------------------------------------------------------------
Dividends and distributions to
shareholders:
Dividends from net investment income (.78) (.78) (.75) (.76)
Distributions from net realized gain -- -- -- --
Distributions in excess of net realized gain -- -- -- (.07)
------ ------ ------ ------
Total dividends and distributions to
shareholders (.78) (.78) (.75) (.83)
- --------------------------------------------------------------------------------------------------
Net asset value, end of period $15.16 $14.69 $14.69 $14.23
====== ====== ====== ======
==================================================================================================
TOTAL RETURN, AT NET ASSET VALUE(4) 8.72% 5.41% 8.78% (1.92)%
==================================================================================================
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) $87,111 $83,253 $80,535 $83,456
- --------------------------------------------------------------------------------------------------
Average net assets (in thousands) $85,590 $82,217 $79,681 $79,076
- --------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income 5.35% 5.35% 5.55% 5.05%
Expenses, before voluntary assumption by
the Manager(7) 1.02% 1.02% 0.98% 1.00%
Expenses, net of voluntary assumption by
the Manager N/A N/A N/A N/A
- --------------------------------------------------------------------------------------------------
Portfolio turnover rate(8) 31.1% 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. Per share amounts calculated based on the average shares
outstanding during the period. 4. On April 7, 1990, OppenheimerFunds, Inc.
became the investment advisor to the Fund.
8
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1993 1992 1991 1990(3) 1989 1988
================================================================================
<S> <C> <C> <C> <C> <C>
$15.09 $14.40 $13.51 $13.57 $13.33 $12.56
- --------------------------------------------------------------------------------
.77 .86 .83 .90 .98 1.05
.70 .69 .91 (.08) .24 .77
------ ------ ------ ------ ------ ------
1.47 1.55 1.74 .82 1.22 1.82
- --------------------------------------------------------------------------------
(.75) (.86) (.85) (.88) (.98) (1.05)
(.47) -- -- -- -- --
-- -- -- -- -- --
------ ------ ------ ------ ------ ------
(1.22) (.86) (.85) (.88) (.98) (1.05)
- --------------------------------------------------------------------------------
$15.34 $15.09 $14.40 $13.51 $13.57 $13.33
====== ====== ====== ====== ====== ======
================================================================================
10.31% 11.10% 13.20% 6.14% 9.54% 14.96%
================================================================================
$70,136 $29,724 $23,675 $20,287 $19,350 $13,480
- --------------------------------------------------------------------------------
$48,915 $25,153 $22,071 $20,576 $17,188 $12,220
- --------------------------------------------------------------------------------
5.08% 5.87% 5.93% 6.56% 7.09% 8.01%
1.07% 1.25% 1.35% 1.41% 1.56% 1.75%
1.05% 1.16% 1.16% 0.66% 0.23% N/A
- --------------------------------------------------------------------------------
21% 93% 75% 102% 180% 148%
</TABLE>
5. 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.
6. Annualized.
9
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS (CONTINUED)
CLASS B
---------------------------------
YEAR ENDED SEPTEMBER 30,
1997(3) 1996 1995(2)
================================================================================
<S> <C> <C> <C>
PER SHARE OPERATING DATA:
Net asset value, beginning of period $14.69 $14.69 $14.71
- -------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .66 .66 .06
Net realized and unrealized gain (loss) .47 -- (.02)
------ ------ ------
Total income (loss) from investment
operations 1.13 .66 .04
- -------------------------------------------------------------------------------
Dividends and distributions to
shareholders:
Dividends from net investment income (.66) (.66) (.06)
Distributions from net realized gain -- -- --
Distributions in excess of net realized gain -- -- --
------ ------ ------
Total dividends and distributions to
shareholders (.66) (.66) (.06)
- -------------------------------------------------------------------------------
Net asset value, end of period $15.16 $14.69 $14.69
====== ====== ======
================================================================================
TOTAL RETURN, AT NET ASSET VALUE(4) 7.88% 4.56% 0.83%
================================================================================
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) $7,690 $2,858 $119
- -------------------------------------------------------------------------------
Average net assets (in thousands) $4,763 $1,440 $37
- -------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income 4.54% 4.51% 3.87%(5)
Expenses, before voluntary assumption by
the Manager(7) 1.79% 1.81% 1.54%(5)
Expenses, net of voluntary assumption by
the Manager N/A N/A N/A
- -------------------------------------------------------------------------------
Portfolio turnover rate(8) 31.1% 53% 55%
<CAPTION>
FINANCIAL HIGHLIGHTS (CONTINUED)
CLASS C
-------------------------------------------
YEAR ENDED SEPTEMBER 30,
1997 1996 1995 1994(1)
==========================================================================================
<S> <C> <C> <C> <C>
PER SHARE OPERATING DATA:
Net asset value, beginning of period $14.67 $14.67 $14.18 $15.14
- ------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .66 .68 .69 .46
Net realized and unrealized gain (loss) .47 (.01) .43 (.83)
------ ------ ------ ------
Total income (loss) from investment
operations 1.13 .67 1.12 (.37)
- ------------------------------------------------------------------------------------------
Dividends and distributions to
shareholders:
Dividends from net investment income (.67) (.67) (.63) (.52)
Distributions from net realized gain -- -- -- --
Distributions in excess of net realized gain -- -- -- (.07)
------ ------ ----- -----
Total dividends and distributions to
shareholders . (.67) (.67) (.63) (.59)
- ------------------------------------------------------------------------------------------
Net asset value, end of period $15.13 $14.67 $14.67 $14.18
====== ====== ====== ======
==========================================================================================
TOTAL RETURN, AT NET ASSET VALUE(4) 7.85% 4.63% 8.13% (2.54)%
==========================================================================================
Ratios/Supplemental Data:
Net assets, end of period (in thousands) $13,940 $10,908 $7,618 $8,511
- ------------------------------------------------------------------------------------------
Average net assets (in thousands) $11,970 $ 9,015 $7,437 $4,686
- ------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income 4.57% 4.56% 4.64% 3.77%(5)
Expenses, before voluntary assumption by
the Manager(7) 1.77% 1.78% 1.88% 2.24%(5)
Expenses, net of voluntary assumption by
the Manager N/A N/A N/A N/A
- ------------------------------------------------------------------------------------------
Portfolio turnover rate(8) 31.1% 53% 55% 51%
</TABLE>
7. Beginning in fiscal 1995, the expense ratio reflects the effect of expenses
paid indirectly by the Fund. Prior year expense ratios have not been adjusted.
8. 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, 1997 were $48,749,221 and $31,937,283, respectively.
<PAGE>
-3-
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.
o 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.
o 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.
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.
o 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.
o 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 or 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.
o 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.
o 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.
o 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.
o 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.
o 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.
o 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.
o "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.
o 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.
o 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").
o 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.
o 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 to determine
whether to sell any holdings to maintain adequate liquidity. Illiquid securities
include repurchase agreements maturing in more than seven days, or certain
participation interests other than those with puts exercisable within seven
days.
o 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.
o 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.
o Put and Call Options. The Fund may buy and sell exchange-traded and
over-the-counter put and call options, including index options, securities
options, and options on the other types of futures described in "Futures,"
above. A call or put may be purchased only if, after the purchase, the value of
all call and put options held by the Fund will not exceed 5% of the Fund's total
assets.
If the Fund sells (that is, writes) a call option, it must be "covered."
That means the Fund must own the security subject to the call while the call is
outstanding, or, for other types of written calls, the Fund must segregate
liquid assets to enable it to satisfy its obligations if the call is exercised.
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). Up to 20% of the Fund's total assets may be
subject to calls.
The Fund may buy puts whether or not it holds the underlying investment in
the portfolio. 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. If the
Fund writes a put, the put must be covered by segregated liquid assets. The Fund
will not write puts if more than 20% of the Fund's total assets would have to be
segregated to cover put options.
o 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:
o 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;
o 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;
o 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
o 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
officers of the Trust and provides more information about them . 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 advisor since 1959. The Manager
(including subsidiaries) currently manages investment companies, including other
Oppenheimer funds, with assets of more than $75 billion as of December 31, 1997,
with more than 3.5 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.
The management services provided to the Fund by the Manager, and the
services provided by the Distributor and the Transfer Agent to shareholders,
depend on the smooth functioning of their computer systems. Many computer
software systems in use today cannot distinguish the year 2000 from the year
1900 because of the way dates are encoded and calculated. That failure could
have a negative impact on handling securities trades, pricing and account
services. The Manager, the Distributor and Transfer Agent have been actively
working on necessary changes to their computer systems to deal with the year
2000 and expect that their systems will be adapted in time for that event,
although there cannot be assurance of success.
o 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.
o 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 ended September 30, 1997 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 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 advisor.
o The Distributor. The Fund's shares are sold through dealers , brokers
and financial institutions that have a sales agreement with OppenheimerFunds
Distributor, Inc., a subsidiary of the Manager that acts as the Fund's
Distributor. The Distributor also distributes the shares of other Oppenheimer
funds and is sub- distributor for funds managed by a subsidiary of the Manager.
o 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 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 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.
o 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.
o Yield. Different types of yields may be quoted to show performance. Each
Class of shares calculates its standardized 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. 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 paid for a stated period by the
maximum offering price on the last day of the period and annualizing the result.
Yields for Class A shares normally reflect the deduction of the maximum initial
sales charge, but may also be shown without deducting sales charge. Yields for
Class B and Class C shares do not reflect the deduction of the contingent
deferred sales charge. 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.
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, 1997, followed by a
graphical comparison of the Fund's performance to an appropriate broad-based
market index.
o Management's Discussion of Performance. During the past fiscal year
ended September 30, 1997, the Fund's performance was affected by an
overweighting in a diversified portfolio of slightly lower-quality credits,
which added yield. The second factor was the qualification of several Triple
B-rated bonds for insurance. This insurance raises the credit worthiness of the
bond, boosting its price. Further, an overweighting in non-callable securities,
which perform better than callable securities when interest rates are falling
added yield to the portfolio during this period. Lastly, the portfolio was able
to enjoy several credit-quality upgrades in the hospital sector. The Fund's
portfolio holdings, allocations and strategies are subject to change.
o 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 from the inception of the Class until September 30, 1997. In the
case of Class A shares, performance is measured over a ten-year period, 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
9/30/971
1 Year 5 Years Life
- -------------------------------------------------------------------
4.91% 5.42% 8.15%
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
9/30/972
Life
- -------------------------------------------------------------------
3.88% 5.19%
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
9/30/973
1 Year Life
- ------------------------------------------------------------------
6.85% 4.63%
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.
The performance information for the Lehman Brothers Municipal Bond Index in the
Class B graph begins on 8/31/95 and the Class C graph begins on 11/30/93.
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 one year period 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.
o 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 12 months of buying them (18 months if the shares were purchased
prior to May 1, 1997), 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.
o 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.
o 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.
o 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.
o 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 within six years, as well as the effect of the Class B asset-based
sales charge on the investment return for that class in the short-term. Class C
shares might be the appropriate choice (especially for investments of less than
$100,000) because there is no initial sales charge on Class C shares, and the
contingent deferred sales charge does not apply to amounts you sell after
holding them one year.
However, if you plan to invest more than $100,000 for the shorter term,
then 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.
o 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.
o 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.
o 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.
The Distributor may pay additional periodic compensation from its own resources
to securities dealers or financial institutions based upon the value of shares
of the Fund owned by the dealer or financial institution for its own account or
for its customers.
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.
o 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.
o Buying Shares Through Your Dealer. Your dealer will place your order
with the Distributor on your behalf.
o 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.
o 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.
o 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 to
transmit funds electronically to purchase shares, to have the Transfer Agent
send redemption proceeds or to transmit dividends and distributions. Shares are
purchased for your account on AccountLink 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.
o 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.
o 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, or the order is received and transmitted to the Distributor by
an entity authorized by the Fund to accept purchase or redemption orders. The
Fund has authorized the Distributor, certain broker-dealers and agents or
intermediaries designated by the Distributor or those broker-dealers to accept
orders. In most cases, to enable you to receive that day's offering price, the
Distributor or an authorized entity 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 normally
your order must be transmitted 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, in its sole discretion, may reject any purchase order for the
Fund's shares.
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.
o 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 purchased prior to May 1, 1997, 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. A Class A contingent deferred
sales charge may be deducted from the redemption proceeds of any of those shares
purchased on or after May 1, 1997 that are redeemed within 12 months of the end
of the calendar month of their purchase. That sales charge may 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 12 calendar months (18 months
for shares purchased prior to May 1, 1997) of the end of the calendar month of
the purchase of the exchanged shares, the sales charge will apply.
o 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:
o 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 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 Distributor will add the value,
at current offering price, of the shares you previously purchased and currently
own to the value of current purchases to determine the sales charge rate that
applies. The 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.
o 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.
o 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. In
order to receive a waiver of the Class A contingent deferred sales charge, you
must notify the Transfer Agent which conditions apply.
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:
o the Manager or its affiliates;
o 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; and
retirement plans established by them for their employees;
o registered management investment companies, or separate accounts of
insurance companies having an agreement with the Manager or the Distributor for
that purpose;
o dealers or brokers that have a sales agreement with the Distributor, if
they purchase shares for their own accounts; or for retirement plans for their
employees;
o employees and registered representatives (and their spouses) of dealers
or brokers described above or financial institutions that have entered into
sales arrangements with such dealers or brokers (and 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);
o dealers, brokers, banks or registered investment advisers advisors that
have entered into an agreement with the Distributor providing specifically for
the use of shares of the Fund in particular investment products made available
to their clients (those clients may be charged a transaction fee by their
dealer, broker, bank or advisor for the purchase or sale of Fund shares);
o (1) investment advisors and financial planners who have entered into an
agreement for this purpose with the Distributor and who charge an advisory,
consulting or other fee for their services and buy shares for their own accounts
or the accounts of their clients, (2) "rabbi trusts" that buy shares for their
own accounts, in each case if those purchases are made through a broker or agent
or other financial intermediary that has made special arrangements with the
Distributor for those purchases; and (3) clients of such investment advisors or
financial planners (that have entered into an agreement for this purpose with
the Distributor) who buy shares for their own accounts may also purchase shares
without sales charge but only if their accounts are linked to a master account
of their investment advisor or financial planner on the books and records of the
broker, agent or financial intermediary with which the Distributor has made such
special arrangements (each of these investors may be charged a fee by the
broker, agent or financial intermediary for purchasing shares);
o directors, trustees, officers or full-time employees of OpCap Advisors
or its affiliates, their relatives or any trust, pension, profit sharing or
other benefit plan which beneficially owns shares for those persons;
o accounts for which Oppenheimer Capital is the investment advisor (the
Distributor must be advised of this arrangement) and persons who are directors
or trustees of the company or trust which is the beneficial owner of such
accounts; or
o 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:
o shares issued in plans of reorganization, such as mergers, asset
acquisitions and exchange offers, to which the Fund is a party;
o shares purchased by the reinvestment of dividends or other distributions
reinvested from the Fund or other Oppenheimer funds (other than Oppenheimer Cash
Reserves) or unit investment trusts for which reinvestment arrangements have
been made with the Distributor;
o shares purchased and paid for with the proceeds of shares redeemed in
the prior 30 days from a mutual fund (other than a fund managed by the Manager
or any of its subsidiaries) on which an initial sales charge or contingent
deferred sales charge was paid (this waiver also applies to shares purchased by
exchange of shares of Oppenheimer Money Market Fund, Inc. that were purchased
and paid for in this manner); this waiver must be requested when the purchase
order is placed for your shares of the Fund, and the Distributor may require
evidence of your qualification for this waiver; or
o 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:
o to make Automatic Withdrawal Plan payments that are limited annually to
no more than 12% of the original account value;
o involuntary redemptions of shares by operation of law or involuntary
redemptions of small accounts (see "Shareholders Account Rules and Policies,"
below); or
o if, at the time of purchase of shares (prior to May 1, 1997) the dealer
agrees in writing to accept the dealer's portion of the sales commission 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);
o if, at the time of purchase of shares (if purchased during the period
May 1, 1997 through December 31, 1997) the dealer agrees in writing to accept
the dealer's portion of the sales commission in installments of 1/12th of the
commission per month (and no further commission will be payable if the shares
are redeemed within 12 months of purchase);
o 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 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 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.
o 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. 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.
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 may pay the Class B service fee and the asset-based sales charge
to the dealer quarterly in lieu of paying the sales commission and service fee
advance at the time of purchase.
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 shall pay the Class C service fee and
asset-based sales charge to the dealer quarterly in lieu of paying the sales
commission and service fee advance at the time of purchase.
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, 1997, the end of the Class B Plan year,
the Distributor had incurred unreimbursed expenses in connection with sales of
Class B shares of $167,478, respectively (equal to 2.18%, respectively, of the
Fund's net assets represented by Class B shares on that date). At September 30,
1997, the end of the Class C Plan year, the Distributor had incurred
unreimbursed expenses in connection with sales of Class C shares of $186,693,
respectively (equal to 1.34%, respectively, of the Fund's net assets represented
by Class C shares on that date).
o 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. In order to receive a waiver of the Class B and Class C contingent
deferred sales charge, you must notify the Transfer Agent which conditions
apply.
Waivers for Redemptions of Shares in Certain Cases. The Class B and Class
C contingent deferred sales charges will be waived for redemption of shares in
the following cases:
o 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); or
o 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:
o shares sold to the Manager or its affiliates; o shares sold to registered
management investment companies or separate accounts of insurance companies
having an agreement with the Manager or the Distributor for that purpose; or o
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.
o 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.
o 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.
o 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.
o 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.
o 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.
Shareholder Transactions by Fax. Beginning May 30, 1997, requests for certain
account transactions may be sent to the Transfer Agent by fax (telecopier).
Please call 1-800-525-7048 for information about which transactions are
included. Transaction requests submitted by fax are subject to the same rules
and restrictions as written and telephone requests described in this Prospectus.
OppenheimerFunds Internet Web Site. Information about the Fund, including your
account balance, daily share prices, market and Fund portfolio information, may
be obtained by visiting the OppenheimerFunds Internet Web Site, at the following
Internet address: http://www.oppenheimerfunds.com. In 1998, the Transfer Agent
anticipates offering certain account transactions through the Internet Web Site.
To find out more information about those transactions and procedures, please
visit the Web Site.
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:
o 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.
o 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 only to Class A shares
that you purchased subject to an initial sales charge and to Class A or Class B
shares on which you paid a contingent deferred sales charge when you redeemed
them. This privilege does not apply to Class C shares. You must be sure to ask
the Distributor for this privilege when you send your payment. 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 Plan 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.
o 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):
o You wish to redeem more than $50,000 worth of shares and receive a check
o The redemption check is not payable to all shareholders
listed on the account statement
o The redemption check is not sent to the address of
record on your account statement
o Shares are being transferred to a Fund account with a
different owner or name
o Shares are redeemed by someone other than the owners
(such as an Executor)
o 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:
o Your name
o The Fund's name
o Your Fund account number (from your account statement) o The dollar
amount or number of shares to be redeemed o Any special payment
instructions o Any share certificates for the shares you are selling,
and
o The signatures of all registered owners exactly as the
account is registered, and
o 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 call must be received by the Transfer Agent by the close of
The New York Stock Exchange that day, which is normally 4:00 P.M., but which may
be earlier on some days. You may not redeem shares held under a share
certificate by telephone.
o To redeem shares through a service representative, call 1- 800-852-8457.
o To redeem shares automatically on PhoneLink, call
1-800-533-
3310.
Whichever method you use, you may have a check sent to the address on the
account statement, or, if you have linked your Fund account to your bank account
on AccountLink, you may have the proceeds sent to that account.
o 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.
o 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 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.
o Checks can be written to the order of whomever you wish, but may not be
cashed at the Fund's bank or custodian.
o 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.
o Checks must be written for at least $100.
o Checks cannot be paid if they are written for more than your account
value. Remember: your shares fluctuate in value and you should not write a check
close to the total account value.
o You may not write a check that would require the Fund to redeem shares
that were purchased by check or Asset Builder Plan payments within the prior 10
days.
o Don't use your checks if you changed your Fund account number.
How to Exchange Shares
Shares of the Fund may be exchanged for shares of certain Oppenheimer
funds at net asset value per share at the time of exchange, without sales
charge. To exchange shares, you must meet several conditions:
o Shares of the fund selected for exchange must be available for sale in
your state of residence
o The prospectuses of this Fund and the fund whose shares you want to buy
must offer the exchange privilege
o You must hold the shares you buy when you establish your account for at
least 7 days before you can exchange them; after the account is open 7 days, you
can exchange shares every regular business day
o You must meet the minimum purchase requirements for the
fund you purchase by exchange
o 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:
o 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."
o 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:
o Shares are normally redeemed from one fund and purchased from the other
fund in the exchange transaction on the same regular business day on which the
Transfer Agent receives an exchange request that 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.
o 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.
o 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.
o 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.
o If the Transfer Agent cannot exchange all the shares you request because
of a restriction cited above, only the shares eligible for exchange will be
exchanged.
Shareholder Account Rules and Policies
o 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.
o 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.
o 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.
o 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.
o 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.
o 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.
o 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.
o 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 federal funds wire, certified check or arrange with your bank
to provide telephone or written assurance to the Transfer Agent that your
purchase payment has cleared.
o 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.
o 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.
o "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 current and properly certified
Social Security or Employer Identification Number when you sign your
application, or if you underreport your income to the Internal Revenue Service .
o 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.
o 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, 1997, 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:
o 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. o 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. o 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.
o Reinvest Your Distributions in Another Oppenheimer Funds Account. You can
reinvest all distributions in the same class of shares of 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 income.
So that the Fund will not have to pay taxes on amounts it distributes to
shareholders as dividends and capital gains, the Fund intends to manage its
investments so that it will qualify as a "regulated investment company" under
the Internal Revenue Code, although it reserves the right not to qualify in a
particular year.
o "Buying a Dividend": 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.
o 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.
o 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 advisor
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)
Oppenheimer Quest Value Fund, Inc., Oppenheimer Quest Growth & Income Fund,
Oppenheimer Quest Opportunity Value Fund, Oppenheimer Quest Small Cap value Fund
and Oppenheimer Quest Global Value Fund, Inc. on November 24, 1995, when
OppenheimerFunds, Inc. became the investment advisor 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 (i) acquired by such shareholder pursuant to an exchange of shares of
one of the Oppenheimer funds that was one of the Former Quest for Value Funds or
(ii) purchased by such shareholder by exchange of shares of other Oppenheimer
funds that were acquired 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
o Reduced Class A Initial Sales Charge Rates for Certain Former
Quest Shareholders
o 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 Employeesof 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.
o 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:
o 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.
o 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.
o 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:
o 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
o 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.
o 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 ten-year period
ended September 30, 1997, in the case of the Fund's Class B shares will cover
the period from inception of the class (September 11, 1995) through September
30, 1997 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, 1997. The
graph will compare such values with hypothetical $10,000 investments over the
time periods indicated below 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
9/30/87 $ 9,650 $10,000
9/30/88 $11,094 $11,298
9/30/89 $12,152 $12,279
9/30/90 $12,898 $13,113
9/30/91 $14,601 $14,842
9/30/92 $16,220 $16,394
9/30/93 $17,892 $18,482
9/30/94 $17,553 $18,031
9/30/95 $19,096 $20,051
9/30/96 $20,129 $21,261
9/30/97 $21,883 $23,176
Fiscal Oppenheimer Intermediate Lehman Brothers
Period Ended Municipal Fund B Municipal Bond Index(1)
9/11/95 $10,000 $10,000
9/30/95 $10,011 $10,063
9/30/96 $10,469 $10,671
9/30/97 $11,095 $11,631
Fiscal Oppenheimer Intermediate Lehman Brothers
Period Ended Municipal Fund C Municipal Bond Index (2)
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 $11,584
9/30/97 $11,894 $12,627
- ----------------
(1) Performance information for the Lehman Brothers Municipal Bond Index begins
on 8/31/95. (2) Performance information for the Lehman Brothers Municipal Bond
Index begins on 11/30/93.
<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
OppenheimerFunds Internet Web Site:
http://www.oppenheimerfunds.com
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.
PR0860.001.0198 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 January 26, 1998
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
January 26, 1998. 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 objective 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.
o Municipal Bonds. The principal classifications of long-term municipal
bonds are "general obligation" and "revenue" or "industrial development" bonds.
o 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.
o 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.
o 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.
o 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:
o 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.
o 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.
o 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.
o 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.
o 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.
o 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.
|X| 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.
|X| 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.
o 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.
o Ratings of Municipal Securities. Moody's , S&P's, Fitch's and Duff &
Phelps' 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.
o 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
o 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.
o 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.
o 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.
o 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.
o 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.
o 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.
o 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.
o 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. This avoids a "double tax" on that income and
capital gains, since shareholders normally will be taxed on the dividends and
capital gains they receive from the Fund (unless the Fund's shares are held in a
retirement account or the shareholder is otherwise exempt from tax).
o 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.
o 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 normally
occurs within six months of the purchase of municipal bonds and notes. However,
the Fund may, from time to time, purchase municipal securities whose settlement
extends beyond six months and possibly as long as two years or more beyond trade
date. 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 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.
o 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.
o 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.
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 and occupations 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 Variable
Account Funds, Oppenheimer International Bond Fund , Panorama Series Fund, Inc.
and Oppenheimer Real Asset Fund; as well as the following "Centennial Funds":
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
(i) Ms. Macaskill, who is a Trustee, Director, or Managing General Partner of
all the Denver-based Oppenheimer funds, except Oppenheimer Integrity Funds,
Oppenheimer Strategic Income Fund, Panorama Series Fund, Inc. and Oppenheimer
Variable Account Funds, (ii) 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. and (iii) Mr. Bowen, who is not a Trustee, Director or Managing General
Partner of Oppenheimer Integrity Funds, Oppenheimer Strategic Income Fund,
Panorama Series Fund, Inc., Oppenheimer Variable Account Funds, Centennial New
York Tax- Exempt Trust and Centennial America Fund, L.P. Ms. Macaskill is
President and Mr. Swain is Chairman and Chief Executive Officer of the
Denver-based Oppenheimer funds.
As of December 31, 1997, 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 66
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 83
197 Desert Lakes Drive, Palm Springs, California 92264
Management Consultant.
GEORGE C. BOWEN, Trustee, Vice President, Treasurer, and Assistant Secretary*;
Age 61
6803 South Tucson Way, Englewood, Colorado 80112
Senior Vice President
(since September 1987) and Treasurer (since March 1985) of the Manager; Vice
President (since June 1983) and Treasurer (since March 1985) of the Distributor;
Vice President (since October 1989) and Treasurer (since April 1986) of
HarbourView; Senior Vice
President (since February 1992), Treasurer (since July 1991)and a director
(since December 1991) of Centennial; President, Treasurer and a director of
Centennial Capital Corporation (since June 1989); Vice President and Treasurer
(since August 1978) and Secretary (since April 1981) of SSI; Vice President,
Treasurer and Secretary of SFSI (since November 1989); Treasurer of OAC (since
June 1990); Treasurer of Oppenheimer Partnership Holdings, Inc. (since November
1989); Vice President and Treasurer of Oppenheimer Real Asset Management, Inc.
(since July 1996); Chief Executive Officer, Treasurer and a director of
MultiSource Services, Inc., a broker-dealer (since December 1995); an officer of
other Oppenheimer funds.
CHARLES CONRAD, JR., Trustee; Age 67
1501 Quail Street, Newport Beach, CA 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 55
P.O. 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 57
4975 Lakeshore Drive, Littleton, Colorado 80123
Formerly Chairman and Chief Executive Officer of OppenheimerFunds Services,
Chairman, Chief Executive Officer and a director of SSI, Chairman, Chief
Executive and Officer and director of SFSI, Vice President and director of OAC
and a director of OppenheimerFunds, Inc.
- ------------------
* Trustee who is an "interested person" of the Fund.
+ Not a Trustee of Centennial New York Tax-Exempt Trust nor a
Managing General Partner of Centennial America Fund, L.P.
RAYMOND J. KALINOWSKI, Trustee; Age 68
44 Portland Drive, St. Louis, Missouri 63131
Director of Wave Technologies International, Inc. (a computer
products training company)
C. HOWARD KAST, Trustee; Age 76
2552 East Alameda, Denver, Colorado 80209
Formerly Managing Partner of Deloitte, Haskins & Sells (an
accounting firm).
ROBERT M. KIRCHNER, Trustee; Age 76
7500 E. Arapahoe Road, Englewood, Colorado 80112
President of The Kirchner Company (management consultants).
BRIDGET A. MACASKILL, President and Trustee*#; Age 49 President (since June
1991), Chief Executive Officer (since September 1995) and a Director (since
December 1994) of the Manager; President and director (since June 1991) of
HarbourView; Chairman and a director of SSI (since August 1994), and SFSI
(September 1995); President (since September 1995) and a director (since October
1990) of OAC; President (since September 1995) and a director (since November
1989) of Oppenheimer Partnership Holdings, Inc., a holding company subsidiary of
the Manager; a director of Oppenheimer Real Asset Management, Inc. (since July
1996); President and a director (since October 1997) of OppenheimerFunds
International Ltd., an offshore fund manager subsidiary of the Manager ("OFIL")
and Oppenheimer Millennium Funds plc (since October 1997); President and a a
director of other Oppenheimer funds; a director of the NASDAQ Stock Market, Inc.
and of Hillsdown Holdings plc (a U.K. food company); formerly an Executive Vice
President of the Manager.
NED M. STEEL, Trustee; Age 82
3416 South Race Street, Englewood, Colorado 80110
Chartered Property and Casualty Underwriter; a director
of Visiting Nurse Corporation of Colorado
JAMES C. SWAIN, Chairman, Chief Executive Officer and Trustee*; Age 64 6803
South Tucson Way, Englewood, Colorado 80112 Vice Chairman of the Manager (since
September 1988); formerly President and a director of Centennial Asset
Management Corporation, an investment adviser subsidiary of the Manager
("Centennial"), and Chairman of the Board of SSI.
- -----------------
* Trustee who is an "interested person" of the Fund . # Not a Trustee of
Oppenheimer Strategic Income Fund, Oppenheimer Variable Account Funds,
Oppenheimer Integrity Funds, Panorama Series Fund, Inc., Centennial New York
Tax-Exempt Trust nor a Managing General Partner of Centennial America Fund, L.P.
II. Officers
ANDREW J. DONOHUE, Vice President and Secretary; Age 47 Executive Vice President
(since January 1993), General Counsel (since October 1991) and a Director (since
September 1995) of the Manager; Executive Vice President (since September 1993),
and a director (since January 1992) of the Distributor; Executive Vice
President, General Counsel and a director of HarbourView, SSI, SFSI and
Oppenheimer Partnership Holdings, Inc. since (September 1995) and MultiSource
Services, Inc. (a broker-dealer) (since December 1995); President and a director
of Centennial (since September 1995); President and a director of Oppenheimer
Real Asset Management, Inc. (since July 1996); General Counsel (since May 1996)
and Secretary (since April 1997) of OAC; Vice President of OFIL and Oppenheimer
Millennium Funds plc (since October 1997); an officer of other Oppenheimer funds
CARYN HALBRECHT, Vice President and Portfolio
Manager; Age 41
Vice President of the Manager (since March 1994); an officer of other
Oppenheimer funds; formerly Vice President of Fixed Income Portfolio Management
at Bankers Trust.
ROBERT J. BISHOP, Assistant Treasurer; Age 39 6803 South Tucson Way, Englewood,
Colorado 80112 Vice President of the Manager/Mutual Fund Accounting (since May
1996); an officer of other Oppenheimer funds; formerly an Assistant Vice
President of the Manager/Mutual Fund Accounting (April 1994-May 1996), and a
Fund Controller for the Manager.
SCOTT T. FARRAR, Assistant Treasurer; Age 32 6803 South Tucson Way, Englewood,
Colorado 80112 Vice President of the Manager/Mutual Fund Accounting (since May
1996); Assistant Treasurer of Oppenheimer Millennium Funds plc (since October
1997); an officer of other Oppenheimer funds; formerly an Assistant Vice
President of the Manager/Mutual Fund Accounting (April 1994-May 1996), and a
Fund Controller for the Manager.
ROBERT G. ZACK, Assistant Secretary; Age 49
Senior Vice President (since May 1985) and Associate General Counsel (since May
1981) of the Manager, Assistant Secretary of SSI (since May 1985), and SFSI
(since November 1989); Assistant Secretary of Oppenheimer Millennium Funds plc
(since October 1997); an officer of other Oppenheimer funds.
o Remuneration of Trustees. The officers of the Fund and certain Trustees
of the Fund (Ms. Macaskill and Messrs. Swain and Bowen) who are affiliated with
the Manager receive no salary or fee from the Fund. The remaining Trustees of
the Fund received the compensation shown below.
The compensation from the Fund was paid during its fiscal year ended
September 30, 1997. 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 1997.
Total Compensation
Aggregate From All
Compensation Denver-based
Name and Position from Fund Oppenheimer funds1
- ----------------- ------------ ------------------
Robert G. Avis $427 $63,501.00
Trustee
William A. Baker $587 77,502.00
Audit and Review
Committee
Ex-Officio Member2
and Trustee
Charles Conrad, Jr. $550 72,000.00
Trustee3
Jon S. Fossel $0 63,277.18
Trustee
Sam Freedman $217 66,501.00
Audit and Review Committee
Member2 and Trustee
Raymond J. Kalinowski $546 71,561.00
Audit and Review Committee
Member2 and Trustee
C. Howard Kast $546 76,503.00
Audit and Review Committee
Chairman2 and Trustee
Robert M. Kirchner $550 72,000.00
Trustee3
Ned M. Steel $427 63,501.00
Trustee
- ----------------------
1 For the 1997 calendar year.
2 Committee positions effective July 1, 1997. 3 Prior to July 1, 1997, Messrs.
Conrad and Kirchner were also members of the Audit and Review Committee.
o Deferred Compensation Plan. The Board of Trustees has adopted a Deferred
Compensation Plan for disinterested Trustees that enables Trustees to elect to
defer receipt of all or a portion of the annual fees they are entitled to
receive from the Fund. Under the plan, the compensation deferred by a Trustee is
periodically adjusted as though an equivalent amount had been invested in shares
of one or more Oppenheimer funds selected by the Trustee. The amount paid to the
Trustee under the plan will be determined based upon the performance of the
selected funds. Deferral of Trustees' fees under the plan will not materially
affect the Fund's assets, liabilities or net income per share. The plan will not
obligate the Fund to retain the services of any Trustee or to pay any particular
amount of compensation to any Trustee. Pursuant to an Order issued by the
Securities and Exchange Commission, the Fund may, without shareholder approval
and notwithstanding its fundamental policy restricting investment in other
open-end investment companies, as described above on page 12, invest in the
funds selected by a Trustee under the plan for the limited purpose of
determining the value of the Trustee's deferred fee account.
o Major Shareholders. As of December 31, 1997, (i) Merrill Lynch Pierce
Fenner & Smith, 4800 Deer Lake Drive EFL3, Jacksonville, Florida, 32246, owned
49,500.000 Class B shares (representing 7.94% of the Fund's outstanding Class B
shares and (ii) Merrill Lynch Pierce Fenner & Smith, 4800 Deer Lake Drive EFL3,
Jacksonville, Florida, 32246, owned 100,188.000 Class C shares (representing
10.19% 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
three of whom (Ms. Macaskill, Mr. Swain and Mr. Bowen) 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.
|X| Portfolio Management. The portfolio manager of the Fund is Caryn
Halbrecht, who is principally responsible for the day-to-day management of the
Fund's portfolio. The background of Ms. Halbrecht is described in the Prospectus
under "Portfolio Manager." Other members of the Manager's fixed-income portfolio
department, particularly portfolio analysts, traders and other portfolio
managers having broad experience with domestic and international government and
corporate fixed-income securities, provide the Fund's portfolio managers with
support in managing the Fund's portfolio.
o 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, 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, 1995 , 1996 and 1997, the management fees paid by the
Fund to the Manager were $435,665 , $463,582 and $509,834, 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 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.
o 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, 1995 , 1996 and 1997,
the aggregate sales charges on sales of the Fund's Class A shares were $160,045
, $160,206 and $173,050, respectively, of which the Distributor and an
affiliated broker-dealer retained in the aggregate $62,159 , $85,052 and $75,561
in these respective years. During the Fund's fiscal year ended September 30,
1997, the contingent deferred sales charges collected on the Fund's Class B
shares totalled $13,462 and the contingent deferred sales charges collected on
Class C shares totalled $8,862, 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.
o 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 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 prices. 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
returns 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.
o Yield
o Standardized
Yield. The "standardized yield" (referred to as "yield") is shown for a class of
shares for a stated 30-day period. It is not based on actual distributions paid
by the Fund to shareholders in the 30-day period, but is a hypothetical yield
based upon the net investment income from the Fund's portfolio investments for
that period. It may therefore differ from the "dividend yield" for the same
class of shares, described below. It is calculated using the following formula
set forth in rules adopted by the Securities and Exchange Commission , designed
to assure uniformity in the way that all funds calculate their yields:
Standardized ~Yield ~ = ~ 2~ [~ (~ {a-b} over cd ~ +~ 1~ ) SUP 6~ -~ 1~ ]
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 for a 30-day period may differ from the yield for
other periods. The SEC formula assumes that the standardized yield for a 30-day
period occurs at a constant rate for a six-month period and is annualized at the
end of the six-month period. Additionally, because each class of shares is
subject to different expenses, it is likely that the standardized yields of the
Fund's classes of shares will differ for any 30-day period. For the 30-day
period ended September 30, 1997, the standardized yields for the Fund's classes
of shares were as follows:
Without Deducting Sales Charge With Sales Charge Deducted
Class A: 4.16% 4.32%
Class B: 3.56% N/A
Class C: 3.56% N/A
o 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, 1997 were 6.89%, 5.89% and 5.89%, respectively, for an individual
in the 39.6% Federal tax bracket.
o Dividend Yield . The Fund may quote a "dividend yield" for each class of
its shares. Dividend yield is based on the dividends paid on shares of a class
during the actual dividend period. To calculate dividend yield, the dividends of
a class declared during a stated period are added together and the sum is
multiplied by 12 (to annualize the yield) and divided by the maximum offering
price on the last day of the dividend period. The formula is shown below:
Dividend Yield = dividends paid x 12/maximum offering price
(payment date)
The maximum offering price for Class A shares includes the maximum initial
sales charge. The maximum offering price for Class B and Class C shares is the
net asset value per share, without considering the effect of contingent deferred
sales charges. The Class A dividend yield may also be quoted without deducting
the maximum initial sales charge .
The dividend yields for the 30-day period ended September 30, 1997 were as
follows:
Without Deducting Sales Charge With Sales Charge Deducted
Class A: 5.00% 5.18%
Class B: 4.42% N/A
Class C: 4.42% N/A
o Total Return Information.
o 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:
LEFT ( {~ERV~} OVER P~ right) SUP
{1/n}~-1~=~Average~Annual~Total~ Return
The "average annual total return" on an investment in Class A shares of
the Fund for the one , five and ten year periods ended September 30, 1997 were
4.91%, 5.42% and 8.15%, respectively. The "average annual total return" on an
investment in Class B shares for the year ended September 30, 1997 was 3.89%.
The "average annual total return" on an investment in Class B shares for the
period from inception on September 11, 1995 through September 30, 1997 was
5.19%. The "average annual total return" on an investment in Class C shares for
the year ended September 30, 1997 was 6.85%, and for the period from inception
on December 1, 1993 through September 30, 1997 was 4.63%.
o 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} over P ~ =~Total~Return
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 ""cumulative total return" on an
investment in Class A shares of the Fund (using the method described above) for
the one year , five year and ten year periods ended September 30, 1997 were
4.91%, 30.19% and 118.83%. The cumulative total return on Class B shares for the
one year period ended September 30, 1997 was 3.88%. The cumulative total return
on Class B shares for the period September 11, 1995 (the inception of the Class)
through September 30, 1997 was 10.95%. The cumulative total return on Class C
shares for the one year period ended September 30, 1997 was 6.85% and for the
period from December 1, 1993 (the inception of the class) through September 30,
1997 was 18.94%. 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.
o 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
"average annual total return at net asset value" on the Fund's Class A shares
for the one-year , five-year and ten-year periods ended September 30, 1997 was
8.72%, 6.17% and 8.53%, respectively. The cumulative total return at net asset
value for Class A shares for the ten-year period ended September 30, 1997 was
126.78%. The "average annual total return at net asset value" on the Fund's
Class B shares from September 11, 1995 (inception of the Class) through
September 30, 1997 was 6.11%. 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, 1997 was 12.95%. The average annual total return at
net asset value for the Fund's Class C shares year ended September 30, 1997 was
7.85%.
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.
o Other Performance Comparisons. From time to time the Fund may publish
the ranking of the performance of its Class A, Class B or Class C shares by
Lipper Analytical Services, Inc. ("Lipper"), 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 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 monthly in broad
investment categories: domestic stock funds, international stock funds, taxable
bond funds and municipal bond funds, based on risk-adjusted total investment
return. The Fund is ranked among the municipal bond funds. Investment return
measures a fund's or class's one, three, five and ten-year average annual total
returns available)(depending on the inception of the fund or class) in excess of
90-day U.S. Treasury bill returns after considering the fund's sales charges and
expenses. Risk measures a fund's or class's performance below 90-day U.S.
Treasury bill returns. Risk and investment return are combined to produce star
rankings reflecting performance relative to the average fund in a fund's
category. Five stars is the "highest" ranking (top 10%), four stars is "above
average" (next 22.5%), three stars is "average" (next 35%), two stars is "below
average" (next 22.5%) and one star is "lowest" (bottom 10%). The current star
ranking is the fund's or class's 3-year ranking or its combined 3- and 5-year
ranking (weighted 60%/40% respectively, or its combined 3-. 5- and 10-year
ranking (weighted 40%, 30% and 30%, respectively), depending on the inception of
the fund or class. 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.
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 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 Plan 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, 1997, payments under the Class A Plan totaled $207,364, all of which was
paid to Recipients, including $26,107 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 year ended September 30, 1997
totaled $47,538, of which $43,231 was retained by the Distributor as
reimbursement for Class B distribution-related expenses and sales commissions.
For the year ended September 30, 1997, payments made under the Class C Plan
totalled $119,537, of which $52,002 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 (the "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, Martin Luther
King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day and Christmas Day. It may also close on other days.
Dealers other than Exchange members may conduct trading in Municipal Securities
on 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 may be significantly affected on such days 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"asked" 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) a non-money
market fund will value (a) debt instruments that had a maturity of more than 397
days when issued, (b) debt instruments that had a maturity of 397 days or less
when issued and have a remaining maturity in excess of 60 days, and (c)
non-money market type debt instruments that had a maturity of 397 days or less
when issued and have a remaining maturity of sixty days or less , at the mean
between "bid" and "ask"asked" prices determined by a pricing service approved by
the Fund's Board of Trustees or, if unavailable, obtained by the Manager from
two active market makers in the security on the basis of reasonable inquiry;
(iii) money market-type debt securities held by a non-money market fund that had
a maturity of less than 397 days when issued that have a remaining maturity of
60 days or less and debt instruments held by a money market fund that have a
remaining maturity of 397 days or less, shall be 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 "asked"
prices provided by a single active market maker (which in certain cases may be
the "bid" price if no "asked" price is available) provided that the Manager is
satisfied that the firm rendering the quotes is reliable and that the quotes
reflect the current market value.
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, as determined by a pricing service approved
by the Board of Trustees or by the Manager. If there were no sales that day,
value shall be the last sale price on the preceding trading day if it is within
the spread of the closing "bid" and "asked" prices on the principal exchange or
on NASDAQ on the valuation date, or, if not, value shall be the closing "bid"
price on the principal exchange or on NASDAQ on the valuation date. If the put,
call or future is not traded on an exchange or on NASDAQ, it shall be valued at
the mean between "bid" and "asked" prices obtained by the Manager from two
active market makers (which in certain cases may be the "bid" price if no
"asked" price is available).
When the Fund writes an option, an amount equal to the premium received is
included in the Fund's Statement of Assets and Liabilities as an asset, 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 the 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. Relations by virtue of a remarriage
(step-children, step-parents, etc.) are included.
o 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 Discovery Fund Oppenheimer
Capital Appreciation Fund Oppenheimer Growth Fund Oppenheimer Equity Income Fund
Oppenheimer Multiple Strategies 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 Growth & Income Fund Oppenheimer Gold & Special Minerals
Fund Oppenheimer Strategic Income Fund Oppenheimer International Bond Fund
Oppenheimer Enterprise Fund Oppenheimer International Growth Fund Oppenheimer
Developing Markets Fund Oppenheimer Real Asset Fund Oppenheimer International
Small Company Fund Oppenheimer MidCap 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 Quest Capital Value Fund,
Inc. 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
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.
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).
o 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.
o 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 Class B shares acquired
in exchange for either (i) Class A shares sold with a front-end sales charge of
one of the other Oppenheimer funds that were acquired subject to a 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.
o 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.
o 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.
o 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 which was paid, 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). Required minimum distributions from
OppenheimerFunds-sponsored retirement plans may not be arranged on this basis.
Payments are normally made by check, but shareholders having AccountLink
privileges (see "How To Buy Shares") may arrange to have Automatic Withdrawal
Plan payments transferred to the bank account designated on the 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.
o 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.
o 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 . 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, 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 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 12 months of the end of the calendar month of the initial purchase of the
exchanged Class A shares (18 months if the shares were initially purchased prior
to May 1, 1997), 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 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 1997 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. 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, 1997, the related statement of operations for the year then ended,
the statements of changes in net assets for the years ended September 30, 1997
and 1996, and the financial highlights for the period October 1, 1992 to
September 30, 1997. 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, 1997 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, 1997, the results of its
operations, the changes in its net assets, and the financial highlights for the
respective stated periods, in conformity with generally accepted accounting
principles.
/s/ DELOITTE & TOUCHE LLP
- -------------------------
DELOITTE & TOUCHE LLP
Denver, Colorado
October 21, 1997
<PAGE>
STATEMENT OF INVESTMENTS September 30, 1997
<TABLE>
<CAPTION>
RATINGS:
MOODY'S/
S&P/FITCH FACE MARKET VALUE
(UNAUDITED) AMOUNT SEE NOTE 1
===================================================================================================
<S> <C> <C> <C>
MUNICIPAL BONDS AND NOTES 106.6%
- ---------------------------------------------------------------------------------------------------
ALASKA--1.0%
North Slope Borough, AK GOB, Series B,
FSA Insured, 7.50%, 6/30/01 Aaa/AAA $1,000,000 $ 1,111,650
- ---------------------------------------------------------------------------------------------------
CALIFORNIA--16.2%
Berkeley, CA HF RRB, Alta Bates Medical
Center, Series A, 6.50%, 12/1/11 A2/A+ 3,000,000 3,368,820
- ---------------------------------------------------------------------------------------------------
CA SCDAU Revenue COP, Cedars-Sinai
Medical Center, MBIA Insured, 6.50%, 8/1/12 Aaa/AAA 1,000,000 1,159,730
- ---------------------------------------------------------------------------------------------------
CA SCDAU Revenue Refunding COP,
Cedars-Sinai Medical Center, 5.40%, 11/1/15 A1/NR 4,000,000 3,900,680
- ---------------------------------------------------------------------------------------------------
Long Beach, CA Aquarium of the Pacific RB,
Series 1995-A, 5.75%, 7/1/05 NR/BBB 1,500,000 1,579,320
- ---------------------------------------------------------------------------------------------------
Pomona, CA USD GORB, Series A,
MBIA Insured, 5.95%, 8/1/10 Aaa/AAA 1,000,000 1,113,250
- ---------------------------------------------------------------------------------------------------
Riverside Cnty., CA Refunding COP, Air Force
Village West, Inc., Series A, 8.125%, 6/15/12 NR/NR 2,290,000 2,496,352
- ---------------------------------------------------------------------------------------------------
Sacramento, CA Cogeneration Authority RB,
Procter & Gamble Project, 6.375%, 7/1/10 NR/BBB- 1,100,000 1,199,220
- ---------------------------------------------------------------------------------------------------
San Joaquin Hills, CA Transportation Corridor
Agency Toll Road CAP RRB, Series A,
MBIA Insured, Zero Coupon, 5.25%, 1/15/11(1) Aaa/AAA 5,450,000 2,754,648
-----------
17,572,020
- ---------------------------------------------------------------------------------------------------
COLORADO--1.5%
Denver, CO City & Cnty. Airport RB,
Series A, 7%, 11/15/99 Baa2/BBB 1,000,000 1,053,580
- ---------------------------------------------------------------------------------------------------
Meridian Metropolitan District, CO GORB,
7.50%, 12/1/11 A3/NR 500,000 549,490
-----------
1,603,070
- ---------------------------------------------------------------------------------------------------
CONNECTICUT--4.1%
CT DAU RB, Mystic Marinelife Aquarium
Project, Series A, 6.875%, 12/1/17 NR/NR 1,000,000 1,043,490
- ---------------------------------------------------------------------------------------------------
Mashantucket, CT Western Pequot Tribe
Special RB, Series A, 6.50%, 9/1/05(2) Baa3/BBB 2,500,000 2,763,275
- ---------------------------------------------------------------------------------------------------
Mashantucket, CT Western Pequot Tribe
Special RB, Sub. Lien, Series B, 5.60%, 9/1/09(2) Baa3/NR 600,000 609,888
-----------
4,416,653
</TABLE>
8 Oppenheimer Intermediate Municipal Fund
<PAGE>
<TABLE>
<CAPTION>
RATINGS:
MOODY'S/
S&P/FITCH FACE MARKET VALUE
(UNAUDITED) AMOUNT SEE NOTE 1
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FLORIDA--2.9%
FL HFA RRB, MH, Series C, 6%, 8/1/11 NR/AAA $1,000,000 $1,059,600
- ---------------------------------------------------------------------------------------------------
Grand Haven, FL CDD SPAST RB,
Series A, 6.30%, 5/1/02 NR/NR 2,000,000 2,044,240
-----------
3,103,840
- ---------------------------------------------------------------------------------------------------
GEORGIA--2.0%
GA MEAU RRB, Project One, Sub. Lien,
Series B, AMBAC Insured, 6%, 1/1/06 Aaa/AAA/AAA 2,000,000 2,186,000
- ---------------------------------------------------------------------------------------------------
ILLINOIS--8.2%
Chicago, IL BOE GOB, School Reform Project,
MBIA Insured, 6.25%, 12/1/11 Aaa/AAA 1,000,000 1,131,190
- ---------------------------------------------------------------------------------------------------
Cook Cnty., IL Community College District No.
508 Chicago COP, FGIC Insured, 8.75%, 1/1/03 Aaa/AAA 2,250,000 2,691,855
- ---------------------------------------------------------------------------------------------------
Cook Cnty., IL Community College
District No. 508 Lease COP, Series C,
MBIA Insured, 7.70%, 12/1/07 Aaa/AAA 1,000,000 1,238,760
- ---------------------------------------------------------------------------------------------------
IL HFAU RRB, Franciscan Sisters Health Care
Project, Series C, MBIA Insured, 6%, 9/1/09 Aaa/AAA 2,000,000 2,129,280
- ---------------------------------------------------------------------------------------------------
Southwestern IL DAU Hospital RB,
St. Elizabeth Medical Center, 8%, 6/1/10 NR/A 500,000 540,925
- ---------------------------------------------------------------------------------------------------
Waukegan, IL GOB, MBIA Insured,
7.50%, 12/30/03 A1/NR 1,000,000 1,145,080
-----------
8,877,090
- ---------------------------------------------------------------------------------------------------
INDIANA--1.2%
IN Bond Bank RB, State Revolving Fund
Program, Series A, 6.875%, 2/1/12 NR/A 1,135,000 1,274,083
- ---------------------------------------------------------------------------------------------------
LOUISIANA--1.0%
LA GOB, Series A, AMBAC Insured, 8%, 5/1/99 Aaa/AAA/AAA 1,000,000 1,062,180
- ---------------------------------------------------------------------------------------------------
MAINE--1.2%
ME Educational LMC Student Loan RRB,
Series A-4, 6.05%, 11/1/04 Aaa/NR 750,000 785,767
- ---------------------------------------------------------------------------------------------------
ME SHAU RB, Mtg. Purchase Project,
Series A, 7.50%, 11/15/22 Aaa/AAA 500,000 529,950
-----------
1,315,717
- ---------------------------------------------------------------------------------------------------
MARYLAND--0.4%
Howard Cnty., MD COP, Series A, 8.05%, 2/15/21 Aa1/AA+ 350,000 481,043
</TABLE>
9 Oppenheimer Intermediate Municipal Fund
<PAGE>
STATEMENT OF INVESTMENTS (Continued)
<TABLE>
<CAPTION>
RATINGS:
MOODY'S/
S&P/FITCH FACE MARKET VALUE
(UNAUDITED) AMOUNT SEE NOTE 1
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
MICHIGAN--8.5%
Detroit, MI GORB, Series B,
FGIC Insured, 7%, 4/1/04 Aaa/AAA $2,000,000 $ 2,275,560
- ---------------------------------------------------------------------------------------------------
MI Hospital FAU RRB, Detroit Medical Group,
Series A, AMBAC Insured, 5%, 8/15/05 Aaa/AAA/AAA 2,180,000 2,232,603
- ---------------------------------------------------------------------------------------------------
MI Hospital FAU RRB, Greater Detroit
Sinai Hospital, Series 1995, 6%, 1/1/08 Baa2/NR/BBB 2,500,000 2,584,825
- ---------------------------------------------------------------------------------------------------
MI Strategic Fund SWD RRB, Genesee Power
Station Project, 7.50%, 1/1/21 NR/NR 2,000,000 2,125,240
-----------
9,218,228
- ---------------------------------------------------------------------------------------------------
NEBRASKA--1.9%
NE Higher Education Loan Program,
Series A-6, 5.90%, 6/1/03 A/NR/A 2,000,000 2,082,240
- ---------------------------------------------------------------------------------------------------
NEW MEXICO--0.5%
NM Hospital Equipment Loan Council RB,
San Juan Regional Medical Center, Inc.
Project, 7.90%, 6/1/11 A3/NR 500,000 569,285
- ---------------------------------------------------------------------------------------------------
NEW YORK--15.5%
NYC GOB, Prerefunded, Series F,
8.40%, 11/15/07 Aaa/AAA 2,140,000 2,508,765
- ---------------------------------------------------------------------------------------------------
NYC GOB, Prerefunded, Series H,
7.20%, 2/1/15 NR/BBB+/A- 1,200,000 1,352,976
- ---------------------------------------------------------------------------------------------------
NYC GOB, Unrefunded Balance,
Series F, 8.40%, 11/15/07 Baa1/BBB+ 360,000 412,243
- ---------------------------------------------------------------------------------------------------
NYC GORB, Series A, AMBAC Insured,
7%, 8/1/07 Aaa/AAA 2,000,000 2,349,240
- ---------------------------------------------------------------------------------------------------
NYC GORB, Series B, AMBAC Insured,
6.20%, 8/15/06 Aaa/AAA 1,500,000 1,663,245
- ---------------------------------------------------------------------------------------------------
NYC IDAU SPF RB, Terminal One
Group Assn. Project, 6%, 1/1/08 A/A/A- 2,000,000 2,123,980
- ---------------------------------------------------------------------------------------------------
NYC IDAU SPF RB, Terminal One
Group Assn. Project, 6.10%, 1/1/09 A/A/A- 2,000,000 2,123,480
- ---------------------------------------------------------------------------------------------------
NYC Municipal Assistance Corp. RRB,
Series L, 6%, 7/1/04 Aa2/AA-/AA 1,000,000 1,090,080
- ---------------------------------------------------------------------------------------------------
NYS GORB, 7.80%, 11/15/99 A/A- 1,000,000 1,076,480
- ---------------------------------------------------------------------------------------------------
NYS HFA RRB, NYC HF, Series A,
6.375%, 11/1/04 Baa/BBB+ 2,000,000 2,193,520
-----------
16,894,009
</TABLE>
10 Oppenheimer Intermediate Municipal Fund
<PAGE>
<TABLE>
<CAPTION>
RATINGS:
MOODY'S/
S&P/FITCH FACE MARKET VALUE
(UNAUDITED) AMOUNT SEE NOTE 1
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OHIO--2.5%
Cleveland, OH COP, Stadium Project,
AMBAC Insured, 6%, 11/15/09 Aaa/AAA $1,000,000 $ 1,106,800
- ---------------------------------------------------------------------------------------------------
OH Solid Waste RB, Republic Engineered
Steels, Inc. Project, 9%, 6/1/21 NR/NR 1,600,000 1,663,600
-----------
2,770,400
- ---------------------------------------------------------------------------------------------------
OKLAHOMA--1.1%
OK Industrial Authority Health Systems RB,
Baptist Medical Center, Series C,
AMBAC Insured, 7%, 8/15/05 Aaa/AAA/AAA 955,000 1,096,426
- ---------------------------------------------------------------------------------------------------
Oklahoma Cnty., OK Home FAU RB,
7.65%, 1/1/23 NR/AA- 125,000 132,310
-----------
1,228,736
- ---------------------------------------------------------------------------------------------------
OREGON--1.5%
OR Emerald Peoples Utilities District RRB,
FGIC Insured, 7.20%, 11/1/04 Aaa/AAA 1,420,000 1,659,739
- ---------------------------------------------------------------------------------------------------
PENNSYLVANIA--9.2%
PA EDFAU RR RB, Northampton Generating,
Sr. Lien, Series A, 6.40%, 1/1/09 NR/NR 2,000,000 2,061,740
- ---------------------------------------------------------------------------------------------------
PA IDAU ED RB, Escrowed to Maturity,
Series A, 6.80%, 7/1/01 NR/NR/AAA 3,000,000 3,254,400
- ---------------------------------------------------------------------------------------------------
Philadelphia, PA Hospitals & HEFAU RRB,
Jeanes Health System Project, 6.20%, 7/1/00 Baa3/BBB 1,360,000 1,412,659
- ---------------------------------------------------------------------------------------------------
Schuylkill Cnty., PA IDAU RR RRB, Schuylkill
Energy Resources, Inc., 6.50%, 1/1/10 NR/NR 3,265,000 3,321,452
-----------
10,050,251
- ---------------------------------------------------------------------------------------------------
SOUTH CAROLINA--4.8%
Florence Cnty., SC IDV RB, Stone Container
Project, 7.375%, 2/1/07 NR/NR 1,890,000 2,021,242
- ---------------------------------------------------------------------------------------------------
Piedmont, SC MPA Electric RRB,
Escrowed to Maturity, 6.05%, 1/1/04 Aaa/BBB 2,675,000 2,914,546
- ---------------------------------------------------------------------------------------------------
Richland Cnty., SC Hospital Facilities RB,
Community Provider Pooled Loan Program,
Escrowed to Maturity, Series A, FSA
Insured, 7.125%, 7/1/17 Aaa/AAA 250,000 276,040
-----------
5,211,828
</TABLE>
11 Oppenheimer Intermediate Municipal Fund
<PAGE>
STATEMENT OF INVESTMENTS (Continued)
<TABLE>
<CAPTION>
RATINGS:
MOODY'S/
S&P/FITCH FACE MARKET VALUE
(UNAUDITED) AMOUNT SEE NOTE 1
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SOUTH DAKOTA--1.4%
SD Student Loan Finance RB,
Series A, 5.95%, 8/1/01 NR/A+ $1,500,000 $ 1,555,155
- ---------------------------------------------------------------------------------------------------
TENNESSEE--4.1%
Chattanooga-Hamilton Cnty., TN HA RB,
Erlanger Medical Center, Prerefunded,
6.85%, 5/25/21 Aaa/AAA 3,000,000 3,310,320
- ---------------------------------------------------------------------------------------------------
Memphis Shelby Cnty., TN Airport Authority
RRB, Series A, MBIA Insured, 6.25%, 2/15/11(3) Aaa/AAA 1,000,000 1,109,430
-----------
4,419,750
- ---------------------------------------------------------------------------------------------------
TEXAS--6.7%
Austin, TX ISD GORB, 7%, 8/1/06 Aaa/AAA 2,000,000 2,357,880
- ---------------------------------------------------------------------------------------------------
Humble, TX ISD CAP GORB, Zero Coupon,
5.15%, 2/15/08(1) Aaa/AAA 2,370,000 1,424,133
- ---------------------------------------------------------------------------------------------------
San Antonio, TX Airport System RRB,
AMBAC Insured, 7.125%, 7/1/05 Aaa/AAA/AAA 1,000,000 1,144,940
- ---------------------------------------------------------------------------------------------------
Tarrant Cnty., TX HFDC RB, Texas Health
Resources System, Series A, MBIA
Insured, 5.75%, 2/15/11 Aaa/AAA 2,230,000 2,370,089
-----------
7,297,042
- ---------------------------------------------------------------------------------------------------
UTAH--1.9%
Davis Cnty., UT Solid Waste Management &
Recovery RRB, Special Service District,
6.125%, 6/15/09 Baa2/BBB+ 2,000,000 2,078,500
- ---------------------------------------------------------------------------------------------------
VERMONT--0.9%
VT SAC Educational Loan RB, Series A-3,
FSA Insured, 6.25%, 6/15/03 Aaa/AAA 900,000 949,707
- ---------------------------------------------------------------------------------------------------
WEST VIRGINIA--0.8% WV School Building Authority RB, Prerefunded, Series A, MBIA
Insured,
7.25%, 7/1/15 Aaa/AAA 750,000 824,363
- ---------------------------------------------------------------------------------------------------
DISTRICT OF COLUMBIA--2.0%
DC GORB, Series A, AMBAC Insured,
6.50%, 6/1/06 Aaa/AAA/AAA 1,000,000 1,125,360
- ---------------------------------------------------------------------------------------------------
DC Hospital RRB, Medlantic Healthcare Group,
Series A, MBIA Insured, 6%, 8/15/12 Aaa/AAA 1,000,000 1,097,360
-----------
2,222,720
</TABLE>
12 Oppenheimer Intermediate Municipal Fund
<PAGE>
<TABLE>
<CAPTION>
RATINGS:
MOODY'S/
S&P/FITCH FACE MARKET VALUE
(UNAUDITED) AMOUNT SEE NOTE 1
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. POSSESSIONS--3.5%
PR CMWLTH GOB, 6.35%, 7/1/10 Baa1/A $1,500,000 $ 1,637,145
- ---------------------------------------------------------------------------------------------------
PR EPAU RB, Series P, 6.75%, 7/1/03 Baa1/BBB+ 2,000,000 2,179,840
-----------
3,816,985
-----------
Total Municipal Bonds and Notes (Cost $111,059,994) 115,852,284
</TABLE>
<TABLE>
<CAPTION>
DATE STRIKE CONTRACTS
===================================================================================================
<S> <C> <C> <C> <C>
CALL OPTIONS PURCHASE--0.1%
- ---------------------------------------------------------------------------------------------------
U.S. Treasury, 30 yr. Futures, 12/97 Call Opt. 11/97 $118 179 83,906
- ---------------------------------------------------------------------------------------------------
U.S. Treasury, 30 yr. Futures, 12/97 Call Opt. 11/97 $120 89 15,297
-----------
Total Call Options Purchased (Cost $78,295) 99,203
- ---------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS, AT VALUE (COST $111,138,289) 106.6% 115,951,487
- ---------------------------------------------------------------------------------------------------
LIABILITIES IN EXCESS OF OTHER ASSETS (6.6) (7,210,913)
---- -----------
NET ASSETS 100.0% $108,740,574
===== ============
</TABLE>
To simplify the listing of securities, abbreviations are used per the table
below:
<TABLE>
<S> <C> <C> <C>
BOE -- Board of Education IDAU -- Industrial Development Authority
CAP -- Capital Appreciation ISD -- Independent School District
CDD -- Community Development District LMC -- Loan Marketing Corp.
CMWLTH -- Commonwealth MEAU -- Municipal Electric Authority
COP -- Certificates of Participation MH -- Multifamily Housing
DAU -- Development Authority MPA -- Municipal Power Agency
ED -- Economic Development NYC -- New York City
EDFAU -- Economic Development Finance Authority NYS -- New York State
EPAU -- Electric Power Authority RB -- Revenue Bonds
FAU -- Finance Authority RR -- Resource Recovery
GOB -- General Obligation Bonds RRB -- Revenue Refunding Bonds
GORB -- General Obligation Refunding Bonds SAC -- Student Assistance Corp.
HA -- Hospital Authority SCDAU -- Statewide Communities Development
HEFAU -- Higher Educational Facilities Authority Authority
HF -- Health Facilities SHAU -- State Housing Authority
HFA -- Housing Finance Agency SPAST -- Special Asset
HFAU -- Health Facilities Authority SPF -- Special Facilities
HFDC -- Health Facilities Development Corp. SWD -- Solid Waste Disposal
IDV -- Industrial Development USD -- Unified School District
</TABLE>
1. For zero coupon bonds, the interest rate shown is the effective yield on the
date of purchase.
2. Represents securities sold under Rule 144A, which are exempt from
registration under the Securities Act of 1933, as amended. These securities have
been determined to be liquid under guidelines established by the Board of
Trustees. These securities amount to $3,373,163 or 3.10% of the Fund's net
assets, at September 30, 1997.
3. When-issued security to be delivered and settled after September 30, 1997.
As of September 30, 1997, securities subject to the alternative minimum tax
amounted to $21,087,681 or 19.39% of the Fund's net assets.
See accompanying Notes to Financial Statements.
13 Oppenheimer Intermediate Municipal Fund
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES September 30, 1997
<TABLE>
<S> <C>
=================================================================================================
ASSETS
Investments, at value (cost $111,138,289) see accompanying statement $115,951,487
- -------------------------------------------------------------------------------------------------
Receivables:
Investments sold 2,185,560
Interest 1,632,003
Shares of beneficial interest sold 292,136
- -------------------------------------------------------------------------------------------------
Other 33,317
---------------
Total assets 120,094,503
=================================================================================================
LIABILITIES
Bank overdraft 6,443
- -------------------------------------------------------------------------------------------------
Payables and other liabilities:
Investments purchased 10,526,222
Shares of beneficial interest redeemed 361,845
Dividends 281,137
Distribution and service plan fees 65,836
Transfer and shareholder servicing agent fees 9,345
Other 103,101
---------------
Total liabilities 11,353,929
=================================================================================================
NET ASSETS $108,740,574
===============
=================================================================================================
COMPOSITION OF NET ASSETS
Paid-in capital $104,053,184
- -------------------------------------------------------------------------------------------------
Undistributed net investment income 616,172
- -------------------------------------------------------------------------------------------------
Accumulated net realized loss on investment transactions (741,980)
- -------------------------------------------------------------------------------------------------
Net unrealized appreciation on investments Note 3 4,813,198
---------------
Net assets $108,740,574
===============
</TABLE>
14 Oppenheimer Intermediate Municipal Fund
<PAGE>
<TABLE>
<S> <C>
====================================================================================================
NET ASSET VALUE PER SHARE
Class A Shares:
Net asset value and redemption price per share (based on net assets of
$87,110,620 and 5,745,793 shares of beneficial interest outstanding) $15.16
Maximum offering price per share (net asset value plus sales charge of
3.50% of offering price) $15.71
- ----------------------------------------------------------------------------------------------------
Class B Shares:
Net asset value, redemption price (excludes applicable contingent deferred sales
charge) and offering price per share (based on net assets
of $7,689,555 and 507,362 shares of beneficial interest outstanding) $15.16
- ----------------------------------------------------------------------------------------------------
Class C Shares:
Net asset value, redemption price (excludes applicable contingent deferred sales
charge) and offering price per share (based on net assets
of $13,940,399 and 921,116 shares of beneficial interest outstanding) $15.13
</TABLE>
See accompanying Notes to Financial Statements.
15 Oppenheimer Intermediate Municipal Fund
<PAGE>
STATEMENT OF OPERATIONS For the Year Ended September 30, 1997
<TABLE>
<S> <C>
=================================================================================================
INVESTMENT INCOME
Interest $6,497,963
=================================================================================================
EXPENSES
Management fees--Note 4 509,834
- -------------------------------------------------------------------------------------------------
Distribution and service plan fees--Note 4:
Class A 207,364
Class B 47,538
Class C 119,537
- -------------------------------------------------------------------------------------------------
Shareholder reports 97,956
- -------------------------------------------------------------------------------------------------
Transfer and shareholder servicing agent fees--Note 4 94,483
- -------------------------------------------------------------------------------------------------
Registration and filing fees:
Class A 32,933
Class B 2,698
Class C 4,973
- -------------------------------------------------------------------------------------------------
Legal and auditing fees 25,463
- -------------------------------------------------------------------------------------------------
Custodian fees and expenses 14,278
- -------------------------------------------------------------------------------------------------
Trustees' fees and expenses 3,853
- -------------------------------------------------------------------------------------------------
Other 6,266
----------
Total expenses 1,167,176
Less expenses paid indirectly--Note 4 (11,636)
----------
Net expenses 1,155,540
=================================================================================================
NET INVESTMENT INCOME 5,342,423
=================================================================================================
REALIZED AND UNREALIZED GAIN (LOSS) Net realized gain (loss) on:
Investments (160,387)
Closing of futures contracts 8,656
----------
Net realized loss (151,731)
- -------------------------------------------------------------------------------------------------
Net change in unrealized appreciation or depreciation on investments 3,309,533
----------
Net realized and unrealized gain 3,157,802
=================================================================================================
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $8,500,225
==========
</TABLE>
See accompanying Notes to Financial Statements.
16 Oppenheimer Intermediate Municipal Fund
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
1997 1996
===============================================================================================
<S> <C> <C>
OPERATIONS
Net investment income $ 5,342,423 $ 4,872,668
- -----------------------------------------------------------------------------------------------
Net realized gain (loss) (151,731) 635,204
- -----------------------------------------------------------------------------------------------
Net change in unrealized appreciation or depreciation 3,309,533 (734,901)
------------ -----------
Net increase in net assets resulting from operations 8,500,225 4,772,971
===============================================================================================
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS Dividends from net investment
income:
Class A (4,467,924) (4,349,156)
Class B (209,401) (63,816)
Class C (533,387) (407,791)
===============================================================================================
BENEFICIAL INTEREST TRANSACTIONS
Net increase in net assets resulting from beneficial
interest transactions--Note 2:
Class A 1,131,907 2,742,813
Class B 4,656,894 2,744,970
Class C 2,643,754 3,306,779
===============================================================================================
NET ASSETS
Total increase 11,722,068 8,746,770
- -----------------------------------------------------------------------------------------------
Beginning of period 97,018,506 88,271,736
------------ -----------
End of period (including undistributed net investment
income of $616,172 and $658,246, respectively) $108,740,574 $97,018,506
============ ===========
</TABLE>
See accompanying Notes to Financial Statements.
17 Oppenheimer Intermediate Municipal Fund
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CLASS A
----------------------------------------------------------
YEAR ENDED SEPTEMBER 30,
1997 1996 1995 1994 1993
==============================================================================================================
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING DATA:
Net asset value, beginning of period $14.69 $14.69 $14.23 $15.34 $15.09
- --------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .80 .79 .79 .72 .77
Net realized and unrealized
gain (loss) .45 (.01) .42 (1.00) .70
------ ------ ------ -------- -------
Total income (loss) from
investment operations 1.25 .78 1.21 (.28) 1.47
- --------------------------------------------------------------------------------------------------------------
Dividends and distributions
to shareholders:
Dividends from net
investment income (.78) (.78) (.75) (.76) (.75)
Distributions from net realized gain -- -- -- -- (.47)
Distributions in excess of net
realized gain -- -- -- (.07) --
------ ------ ------ -------- -------
Total dividends and distributions
to shareholders (.78) (.78) (.75) (.83) (1.22)
- --------------------------------------------------------------------------------------------------------------
Net asset value, end of period $15.16 $14.69 $14.69 $14.23 $15.34
====== ====== ====== ======== =======
==============================================================================================================
TOTAL RETURN, AT NET ASSET VALUE(4) 8.72% 5.41% 8.78% (1.92)% 10.31%
==============================================================================================================
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(in thousands) $87,111 $83,253 $80,535 $83,456 $70,136
- --------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $85,590 $82,217 $79,681 $79,076 $48,915
- --------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income 5.35% 5.35% 5.55% 5.05% 5.08%
Expenses(7) 1.02% 1.02% 0.98% 1.00% 1.07%(6)
- --------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(8) 31.1% 53% 55% 51% 21%
</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. Per share amounts calculated based on the average shares outstanding during
the period.
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.
18 Oppenheimer Intermediate Municipal Fund
<PAGE>
<TABLE>
<CAPTION>
CLASS B CLASS C
- ---------------------------------- -----------------------------------------
YEAR ENDED SEPTEMBER 30, YEAR ENDED SEPTEMBER 30,
1997(3) 1996 1995(2) 1997 1996 1995 1994(1)
===============================================================================
<S> <C> <C> <C> <C> <C> <C>
$14.69 $14.69 $14.71 $14.67 $14.67 $14.18 $15.14
- -------------------------------------------------------------------------------
.67 .66 .06 .66 .68 .69 .46
.46 -- (.02) .47 (.01) .43 (.83)
------ ------- ------ ------ -------- ----- -----
1.13 .66 .04 1.13 .67 1.12 (.37)
- -------------------------------------------------------------------------------
(.66) (.66) (.06) (.67) (.67) (.63) (.52)
-- -- -- -- -- -- --
-- -- -- -- -- -- (.07)
------ ------- ------ ------ -------- ----- -----
(.66) (.66) (.06) (.67) (.67) (.63) (.59)
- -------------------------------------------------------------------------------
$15.16 $14.69 $14.69 $15.13 $14.67 $14.67 $14.18
====== ======= ====== ====== ======== ====== ======
===============================================================================
7.88% 4.56% 0.83% 7.85% 4.63% 8.13% (2.54)%
===============================================================================
$7,690 $2,858 $119 $13,940 $10,908 $7,618 $8,511
- -------------------------------------------------------------------------------
$4,763 $1,440 $ 37 $11,970 $ 9,015 $7,437 $4,686
- -------------------------------------------------------------------------------
4.54% 4.51% 3.87%(5) 4.57% 4.56% 4.64% 3.77%(5)
1.79% 1.81% 1.54%(5) 1.77% 1.78% 1.88% 2.24%(5)
- -------------------------------------------------------------------------------
31.1% 53% 55% 31.1% 53% 55% 51%
</TABLE>
6. The expense ratio was 1.05% net of the voluntary assumption by the Manager.
7. Beginning in fiscal 1995, the expense ratio reflects the effect of expenses
paid indirectly by the Fund. Prior year expense ratios have not been adjusted.
8. 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, 1997 were $48,749,221 and $31,937,283, respectively.
See accompanying Notes to Financial Statements.
19 Oppenheimer Intermediate Municipal Fund
<PAGE>
NOTES TO FINANCIAL STATEMENTS
==============================================================================
1. SIGNIFICANT ACCOUNTING POLICIES
Oppenheimer Intermediate Municipal Fund (the Fund) is a separate series of
Oppenheimer Municipal Fund, a diversified, open-end management investment
company registered under the Investment Company Act of 1940, as amended. The
Fund's investment objective is to seek maximum current income exempt from
federal income tax for individual investors that is consistent with the
preservation of capital by investing primarily in intermediate term municipal
bonds. The Fund's investment advisor is OppenheimerFunds, Inc. (the Manager).
The Fund offers Class A, Class B and Class C shares. Class A shares are sold
with a front-end sales charge. Class B and Class C shares may be subject to a
contingent deferred sales charge. All 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 that class
and exclusive voting rights with respect to matters affecting that 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 an approved
portfolio pricing service are valued using dealer-supplied valuations provided
the Manager is satisfied that the firm rendering the quotes is reliable and that
the quotes reflect current market value, or are valued under consistently
applied procedures established by the Board of Trustees to determine fair value
in good faith. Short-term money market type debt securities having a remaining
maturity of 60 days or less are valued at cost (or last determined market value)
adjusted for amortization to maturity of any premium or discount. Options are
valued based upon the last sale price on the principal exchange on which the
option is traded or, in the absence of any transactions that day, the value is
based upon the last sale price on the prior trading date if it is within the
spread between the closing bid and asked prices. If the last sale price is
outside the spread, the closing bid is used.
- ------------------------------------------------------------------------------
ALLOCATION OF INCOME, EXPENSES, 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.
20 Oppenheimer Intermediate Municipal Fund
<PAGE>
==============================================================================
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, 1997, the
Fund had available for federal income tax purposes an unused capital loss
carryover of approximately $742,000, 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 on long-term bonds for tax purposes.
The character of the distributions made during the year from net investment
income or net realized gains may differ from its ultimate characterization for
federal income tax purposes. Also, due to timing of dividend distributions, the
fiscal year in which amounts are distributed may differ from the fiscal year in
which the income or realized gain was recorded by the Fund.
The Fund adjusts the classification of distributions to shareholders
to reflect the differences between financial statement amounts and distributions
determined in accordance with income tax regulations. Accordingly, during the
period ended September 30, 1997, amounts have been reclassified to reflect a
decrease in undistributed net investment income of $173,785, a decrease in
accumulated net realized loss on investments of $547,316, and a decrease in
paid-in capital of $373,531.
- ------------------------------------------------------------------------------
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 using the effective
yield method, 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.
21 Oppenheimer Intermediate Municipal Fund
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Continued)
==============================================================================
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, 1997 YEAR ENDED SEPTEMBER 30, 1996
-------------------------------- -----------------------------------
SHARES AMOUNT SHARES AMOUNT
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A:
Sold 1,232,638 $ 18,373,341 974,292 $ 14,353,015
Dividends and
distributions reinvested 202,901 3,016,871 203,597 2,998,589
Redeemed (1,357,416) (20,258,305) (993,272) (14,608,791)
---------- ------------ -------- ------------
Net increase 78,123 $ 1,131,907 184,617 $ 2,742,813
========== ============ ======== ============
- --------------------------------------------------------------------------------------------------------------
Class B:
Sold 337,796 $ 5,030,661 193,861 $ 2,852,627
Dividends and
distributions reinvested 8,821 131,375 2,577 37,785
Redeemed (33,826) (505,142) (9,964) (145,442)
---------- ------------ -------- ------------
Net increase 312,791 $ 4,656,894 186,474 $ 2,744,970
========== ============ ======== ============
- --------------------------------------------------------------------------------------------------------------
Class C:
Sold 397,151 $ 5,901,848 380,233 $ 5,600,605
Dividends and
distributions reinvested 27,933 414,837 20,909 307,116
Redeemed (247,738) (3,672,931) (176,779) (2,600,942)
---------- ------------ -------- ------------
Net increase 177,346 $ 2,643,754 224,363 $ 3,306,779
========== ============ ======== ============
</TABLE>
==============================================================================
3. UNREALIZED GAINS AND LOSSES ON INVESTMENTS
At September 30, 1997, net unrealized appreciation on investments of $4,813,198
was composed of gross appreciation of $5,225,559, and gross depreciation of
$412,361.
==============================================================================
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 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, 1997, commissions (sales charges
paid by investors) on sales of Class A shares totaled $173,050, of which $75,561
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 $133,554 and $57,363, respectively, of which $6,814 was
paid to an affiliated broker/dealer for Class B shares.
22 Oppenheimer Intermediate Municipal Fund
<PAGE>
==============================================================================
During the year ended September 30, 1997, OFDI received contingent deferred
sales charges of $13,462 and $8,862, 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.
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 shareholder 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 maintaining accounts of their customers that hold
Class A shares. During the year ended September 30, 1997, OFDI paid $26,107 to
an affiliated broker/dealer as reimbursement for Class A personal service and
maintenance expenses.
The Fund has adopted 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
and Class C shares, as compensation for sales commissions paid from its own
resources at the time of sale and associated financing costs. 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, 1997, OFDI paid $4,191 to an affiliated
broker/dealer as compensation for Class C personal service and maintenance
expenses and retained $43,231 and $52,002, respectively, as compensation for
Class B and Class C sales commissions and service fee advances, as well as
financing costs. If either Plan is terminated by the Fund, the Board of Trustees
may allow the Fund to continue payments of the asset-based sales charge to OFDI
for distributing shares before the Plan was terminated. At September 30, 1997,
OFDI had incurred unreimbursed expenses of $167,478 for Class B and $186,693 for
Class C.
23 Oppenheimer Intermediate Municipal Fund
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Continued)
==============================================================================
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 (initial margin) in an amount equal to a
certain percentage of the contract value. Subsequent payments (variation margin)
are made or received by the Fund each day. The variation margin payments are
equal to the daily changes in the contract value and are recorded as unrealized
gains and losses. The Fund 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.
==============================================================================
6. BANK BORROWINGS
The Fund may borrow from a bank for temporary or emergency purposes including,
without limitation, funding of shareholder redemptions provided asset coverage
for borrowings exceeds 300%. The Fund has entered into an agreement which
enables it to participate with other OppenheimerFunds in an unsecured line of
credit with a bank, which permits borrowings up to $400 million, collectively.
Interest is charged to each fund, based on its borrowings, at a rate equal to
the Federal Funds Rate plus 0.35%. Borrowings are payable 30 days after such
loan is executed. The Fund also pays a commitment fee equal to its pro rata
share of the average unutilized amount of the credit facility at a rate of
0.0575% per annum.
The Fund had no borrowings outstanding during the year ended
September 30, 1997.
<PAGE>
-3-
APPENDIX A
Descriptions of Ratings Categories
Municipal
Bonds
|X| Moody's Investor Services, Inc. The ratings of Moody's Investors
Service, Inc. ("Moody's") for Municipal Bonds are Aaa, Aa, A, Baa, Ba, B, Caa,
Ca and C. Municipal Bonds rated "Aaa" are judged to be of the "best quality."
The rating of 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 Bonds. The
"Aaa" and "Aa" rated bonds comprise what are generally known as "high grade
bonds." Municipal Bonds 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 A rated bonds are
considered adequate, but elements may be present which suggest a susceptibility
to impairment at some time in the future. Municipal Bonds 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. Such bonds lack
outstanding investment characteristics and in fact have speculative
characteristics as well. Bonds which are rated "Ba" are judged to have
speculative elements; their future cannot be considered as well assured. Often
the protection of interest and principal payments may be very moderate and
thereby not well safeguarded during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class. Bonds which are rated
"B" generally lack characteristics of the desirable investment. Assurance of
interest and principal payments or of maintenance of other terms of the contract
over any long period of time may be small. Bonds which are rated "Caa" are of
poor standing. Such issues may be in default or there may be present elements of
danger with respect to principal or interest. Bonds which are rated "Ca"
represent obligations which are speculative in a high degree. Such issues are
often in default or have other marked shortcomings. Bonds which are rated "C"
are the lowest rated class of bonds, and issues so rated can be regarded as
having extremely poor prospects of ever attaining any real investment standing.
Those bonds in the Aa, A, Baa, Ba and B groups which Moody's believes possess
the strongest investment attributes are designated Aa1, A1, Baa1, Ba1 and B1
respectively.
In addition to the alphabetic rating system described above, Municipal
Bonds rated by Moody's which have a demand feature that provides the holder with
the ability to periodically 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.
|X| Standard & Poor's Corporation. The ratings of Standard & Poor's
Corporation ("S&P") for Municipal Bonds are AAA (Prime), AA (High Grade), A
(Good Grade), BBB (Medium Grade), BB, B, CCC, CC, and C (speculative grade).
Bonds rated in the top four categories (AAA, AA, A, BBB) are commonly referred
to as "investment grade." Municipal Bonds rated AAA are "obligations of the
highest quality." The rating of AA is accorded issues with investment
characteristics "only slightly less marked than those of the prime quality
issues." The rating of 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 obligations 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 , 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. Bonds rated "BB" have
less near-term vulnerability to default than other speculative issues. However,
it faces major ongoing uncertainties or exposure to adverse business, financial,
or economic conditions which would lead to inadequate capacity to meet timely
interest and principal payments. Bonds rated "B" have a greater vulnerability to
default, but currently has the capacity to meet interest payments and principal
repayments. Adverse business, financial, or economic conditions will likely
impair capacity or willingness to pay interest and repay principal. Bonds rated
"CCC" have a current identifiable vulnerability to default, and is dependent
upon favorable business, financial, and economic conditions to meet timely
payment of interest and repayment of principal. In the event of adverse
business, financial, or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. Bonds noted "CC" typically are
debt subordinated to senior debt which is assigned on actual or implied "CCC"
debt rating.
Bonds rated "C" typically are debt subordinated to senior debt which is
assigned an actual or implied "CCC-" debt rating. The "C" rating may be used to
cover a situation where a bankruptcy petition has been filed, but debt service
payments are continued. Bonds rated "D" are in payment default. The "D" rating
category is used when interest payments or principal payments are not made on
the date due even if the applicable grace period has not expired, unless S&P
believes that such payments will be made during the grace period. The "D" rating
also will be used upon the filing of a bankruptcy petition if debt service
payments are jeopardized. The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
|X| Fitch. The ratings of Fitch Investors Service, Inc. for Municipal
Bonds are AAA, AA, A, BBB, BB, B, CCC, CC, C, DDD, DD, and D. Municipal Bonds
rated AAA are judged to be of the "highest credit quality." The rating of AA is
assigned to bonds of "very high credit quality." Municipal Bonds which are rated
A by Fitch are considered to be of "high credit quality." The rating of BBB is
assigned to bonds of "satisfactory credit quality." The A and BBB rated bonds
are more vulnerable to adverse changes in economic conditions than bonds with
higher ratings. Bonds rated AAA, AA, A and BBB are considered to be of
investment grade quality. Bonds rated below BBB are considered to be of
speculative quality. The ratings of "BB" is assigned to bonds considered by
Fitch to be "speculative." The rating of "B" is assigned to bonds considered by
Fitch to be "highly speculative." Bonds rated "CCC" have certain identifiable
characteristics which, if not remedied, may lead to default. Bonds rated "CC"
are minimally protected. Default in payment of interest and/or principal seems
probable over time. Bonds rated "C" are in imminent default in payment of
interest or principal. Bonds rated "DDD", "DD" and "D" are in default on
interest and/or principal payments. DDD represents the highest potential for
recovery on these bonds, and D represents the lowest potential for recovery.
o Duff & Phelps. The ratings of Duff & Phelps are as follows: AAA which are
judged to be the "highest credit quality". The risk factors are negligible,
being only slightly more than for risk-free US Treasury debt. AA+, AA & AA- High
credit quality protection factors are strong. Risk is modest but may vary
slightly from time to time because of economic conditions. A+, A & A-Protection
factors are average but adequate. However, risk factors are more variable and
greater in periods of economic stress. BBB+, BBB & BBB- Below average protection
factors but still considered sufficient for prudent investment. Considerable
variability in risk during economic cycles. BB+, BB & BB- Below investment grade
but deemed to meet obligations when due. Present or prospective financial
protection factors fluctuate according to industry conditions or company
fortunes. Overall quality may move up or down frequently within the category.
B+, B & B- Below investment grade and possessing risk that obligations will not
be met when due. Financial protection factors will fluctuate widely according to
economic cycles, industry conditions and/or company fortunes. Potential exists
for frequent changes in the rating within this category or into a higher of
lower rating grade. CCC Well below investment grade securities. Considerable
uncertainty exists as to timely payment of principal interest or preferred
dividends. Protection factors are narrow and risk can be substantial with
unfavorable economic industry conditions, and/or with unfavorable company
developments. DD Defaulted debt obligations issuer failed to meet scheduled
principal and/or interest payments. DP Preferred stock with dividend averages.
Municipal Notes
|X| 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 as
large as notes rated "MIG ." 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.
|X| S&P's rating for Municipal Notes due in three years or less are SP-1,
SP-2, and SP-3. SP-1 describes issues with a very strong capacity to pay
principal and interest and compares with bonds rated A by S&P; if modified by a
plus sign, it compares with bonds rated "SP2" AA or AAA by S&P. SP-2 describes
issues with a satisfactory capacity to pay principal and interest, and compares
with bonds rated BBB by S&P. SP-3 describes issues that have a speculative
capacity to pay principal and interest.
|X| Fitch's rating for Municipal Notes due in three years or less are
F-1+, F-1, F-2, F-3, F-S and D. F-1+ describes notes with an exceptionally
strong credit quality and the strongest degree of assurance for timely payment.
F-1 describes notes with a very strong credit quality and assurance of timely
payment is only slightly less in degree than issues rated F-1+. F-2 describes
notes with a good credit quality and a satisfactory assurance of timely payment,
but the margin of safety is not as great for issues assigned F-1+ or F-1
ratings. F-3 describes notes with a fair credit quality and an adequate
assurance of timely payment, but near-term adverse changes could cause such
securities to be rated below investment grade. F-S describes notes with weak
credit quality. Issues rated D are in actual or imminent payment default.
Corporate Debt
The "other debt securities" included in the definition of temporary
investments are corporate (as opposed to municipal) debt obligations. The
Moody's, S&P and Fitch corporate debt ratings shown do not differ materially
from those set forth above for Municipal Bonds.
Commercial Paper
|X| Moody's The ratings of commercial paper by Moody's are Prime-1,
Prime-2, Prime-3 and Not Prime. Issuers rated Prime-1 have a superior capacity
for repayment of short-term promissory obligations. Issuers rated Prime-2 have a
strong capacity for repayment of short-term promissory obligations. Issuers
rated Prime-3 have an acceptable capacity for repayment of short-term promissory
obligations. Issuers rated Not Prime do not fall within any of the Prime rating
categories.
|X| S&P The ratings of commercial paper by S&P are A-1, A-2, A-3, B, C, and
D. A-1 indicates that the degree of safety regarding timely payment is strong.
A-2 indicates capacity for timely payment is satisfactory. However, the relative
degree of safety is not as high as for issues designated A-1. A-3 indicates an
adequate capacity for timely payments. They are, however, more vulnerable to the
adverse effects of changes in circumstances than obligations carrying the higher
designations. B indicates only speculative capacity for timely payment. C
indicates a doubtful capacity for payment. D is assigned to issues in default.
|X| Fitch The ratings of commercial paper by Fitch are similar to its
ratings of Municipal Notes, above.
<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, 1997. 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.
Federal
Effective An Oppenheimer Intermediate Municipal Fund Yield of : TaxablTax 3.00%
3.50% 3.56% 3.88% 4.00% 4.16% 4.29% 4.30% 4.50% Income Bracket Is Approximately
Equivalent To a Taxable Yield of:
JOINT RETURN
Over Not over
$ $ 41,20015.00% 3.53% 4.12% 4.19% 4.56%4.71% 4.89% 5.05%5.06%
5.29%
$ 41,200 $ 99,60028.00% 4.17% 4.86% 4.94% 5.39%5.56% 5.78% 5.96%5.97%
6.25%
$ 99,600 $151,75031.00% 4.35% 5.07% 5.16% 5.62%5.80% 6.03% 6.22%6.23%
6.52%
$151,750 $271,05036.00% 4.69% 5.47% 5.56% 6.06%6.25% 6.50% 6.70%6.72%
7.03%
$271,050 and abov39.60% 4.97% 5.79% 5.89% 6.42%6.62% 6.89% 7.10%7.12%
7.45%
4.82% 6.50% 7.00% 7.50%
5.67% 7.65% 8.24% 8.82% 6.69% 9.03% 9.72%10.42% 6.99%
9.42% 10.14%10.87% 7.53% 10.16% 10.94%11.72% 7.98%
10.76% 11.59%12.42%
SINGLE RETURN
Over Not over 3.00% 3.50% 3.56% 3.88%4.00% 4.16% 4.29% 4.30%
- ---- --------
4.50%
$ $ 24,65015.00% 3.53% 4.12% 4.19% 4.56%4.71% 4.89% 5.05%5.06%
5.29%
$ 24,650 $ 59,75028.00% 4.17% 4.86% 4.94% 5.39%5.56% 5.78% 5.96%5.97%
6.25%
$ 59,750 $124,65031.00% 4.35% 5.07% 5.16% 5.62%5.80% 6.03% 6.22%6.23%
6.52%
$124,650 $271,05036.00% 4.69% 5.47% 5.56% 6.06%6.25% 6.50% 6.70%6.72%
7.03%
$271,050 and abov39.60% 4.97% 5.79% 5.89% 6.42%6.62% 6.89% 7.10%7.12%
7.45%
4.82% 6.50% 7.00% 7.50%
5.67% 7.65% 8.24% 8.82% 6.69% 9.03% 9.72%10.42% 6.99%
9.42% 10.14%10.87% 7.53% 10.16% 10.94%11.72% 7.98%
10.76% 11.59%12.42%
B-1
<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
C-1
<PAGE>
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 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 January 26, 1998
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 market 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 __.
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 January
26, 1998 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 NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
-1-
<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
-2-
<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
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, 1997.
o 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 year, declining redeemed within of 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 12 calendar months (18
months for shares purchased prior to May 1, 1997) 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 through AccountLink, or for
which checkwriting privileges are used
(see "How To Sell Shares").
o 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 advisor, 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 0.26% 0.26% 0.27%
- -------------------------------------------------------------------
Total Fund Operating 0.95% 1.71% 1.72%
Expenses
The numbers in the chart above are based upon the Fund's expenses in its
last fiscal year ended September 30, 1997. 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 Plan Fees for Class A shares are Service Plan Fees . For Class B
and Class C shares the 12b-1 Plan Fees are Service Plan Fees and asset-based
sales charges. The service fee for each class is a maximum of 0.25% of the
average annual net assets of the class and the asset-based sales charge s B and
Class C shares 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.
o 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 table 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 $76 $ 98 $159
- -------------------------------------------------------------------
Class B Shares $67 $84 $113 $163
- -------------------------------------------------------------------
Class C Shares $27 $54 $ 93 $203
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 $76 $98 $159
- -------------------------------------------------------------------
Class B Shares $17 $54 $93 $163
- -------------------------------------------------------------------
Class C Shares $17 $54 $93 $203
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 imposed on Class B and Class C shares,
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 - Buying Class B 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.
o 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.
o 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 __.
o Who Manages the Fund? The Fund's investment advisor is OppenheimerFunds,
Inc., which (including subsidiaries) manages investment company portfolios
having over $75 billion in assets at December 31, 1997. 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 advisor and the portfolio manager.
Please refer to "How the Fund is Managed," starting on page __ for more
information about the Manager and its fees.
o How Risky is the Fund? All investments carry risks to some degree. The
risk of loss from issuer default is substantially reduced 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.
o How Can I Buy Shares? You can buy shares through your 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.
o 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 advisor
should consider in determining which class may be appropriate for you.
o 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 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 __.
o 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 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, 1997, is included
in the Statement of Additional Information.
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS CLASS A
--------------------------------------------
YEAR ENDED SEPTEMBER 30,
1997 1996 1995 1994
========================================================================================================
<S> <C> <C> <C> <C>
PER SHARE OPERATING DATA:
Net asset value, beginning of period $17.07 $16.86 $16.14 $18.06
- --------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .91 .90 .90 .89
Net realized and unrealized gain (loss) .63 .20 .71 (1.84)
------ ------ ------ ------
Total income (loss) from investment operations 1.54 1.10 1.61 (.95)
- --------------------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income (.89) (.89) (.89) (.89)
Distributions from net realized gain -- -- -- (.08)
------ ------ ------ ------
Total dividends and distributions to shareholders (.89) (.89) (.89) (.97)
- --------------------------------------------------------------------------------------------------------
Net asset value, end of period $17.72 $17.07 $16.86 $16.14
====== ====== ====== ======
========================================================================================================
TOTAL RETURN, AT NET ASSET VALUE(5) 9.25% 6.67% 10.29% (5.46)%
========================================================================================================
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) $91,051 $83,516 $76,691 $67,793
- --------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $86,511 $81,233 $70,650 $66,953
- --------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income 5.25% 5.27% 5.52% 5.23%
Expenses, before voluntary assumption by the Manager(7) 0.95% 1.02% 0.95% 1.05%
Expenses, net of voluntary assumption by the Manager N/A N/A N/A N/A
- --------------------------------------------------------------------------------------------------------
Portfolio turnover rate(8) 76.5% 93% 58% 99%
</TABLE>
1. For the period from August 29, 1995 (inception of offering) to September 30,
1995. 2. Per share amounts calculated based on the average shares outstanding
during the period. 3. For the period from May 3, 1993 (inception of offering) to
September 30, 1993. 4. On April 7, 1990, OppenheimerFunds, Inc. became the
investment advisor to the Fund. 5. 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.
8
<PAGE>
<TABLE>
<CAPTION>
CLASS B
- -------------------------------------------------------------------------------- -----------------------
YEAR ENDED SEPTEMBER 30,
1993 1992 1991 1990(4) 1989 1988 1997 1996
==============================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C>
$16.92 $16.17 $15.16 $15.27 $14.96 $13.79 $17.08 $16.87
-------------------------------------------------------------------------------------------------------------
.93 .96 .92 .98 1.06 1.07 .76 .77
1.35 .73 1.01 (.11) .31 1.17 .65 .20
------ ------ ------ ------ ------ ------ ------ ------
2.28 1.69 1.93 .87 1.37 2.24 1.41 .97
-------------------------------------------------------------------------------------------------------------
(.96) (.91) (.92) (.98) (1.06) (1.07) (.76) (.76)
(.18) (.03) -- -- -- -- -- --
------ ------ ------ ------ ------ ------ ------ ------
(1.14) (.94) (.92) (.98) (1.06) (1.07) (.76) (.76)
-------------------------------------------------------------------------------------------------------------
$18.06 $16.92 $16.17 $15.16 $15.27 $14.96 $17.73 $17.08
====== ====== ====== ====== ====== ====== ====== =====
==============================================================================================================
14.02% 10.74% 13.08% 5.81% 9.37% 16.67% 8.43% 5.87%
==============================================================================================================
$62,158 $33,751 $23,791 $16,863 $13,105 $8,483 $19,974 $15,983
-------------------------------------------------------------------------------------------------------------
$45,949 $27,811 $19,936 $15,145 $11,200 $6,936 $17,309 $14,822
-------------------------------------------------------------------------------------------------------------
5.40% 5.81% 5.83% 6.43% 6.87% 7.34% 4.49% 4.50%
1.18% 1.35% 1.60% 1.62% 2.04% 2.50% 1.71% 1.77%
1.10% 0.95% 0.91% 0.62% 0.42% 0.13% N/A N/A
-------------------------------------------------------------------------------------------------------------
7% 47% 67% 62% 142% 141% 76.5% 93%
</TABLE>
6. Annualized.
7. 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.
8. 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, 1997 were $93,793,427 and $80,614,521, respectively.
9
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS (CONTINUED) CLASS B CLASS C
-------------------------------------- ---------------------------------
YEAR ENDED SEPTEMBER 30, YEAR ENDED SEPTEMBER 30,
1995 1994 1993(3) 1997(2) 1996 1995(1)
===========================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING DATA:
Net asset value, beginning of period $16.15 $18.07 $17.33 $17.06 $16.86 $16.72
- ---------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .78 .77 .30 .75 .75 .08
Net realized and unrealized gain (loss) .71 (1.86) .74 .66 .21 .14
------ ------ ------ ------ ------ ------
Total income (loss) from investment
operations 1.49 (1.09) 1.04 1.41 .96 .22
- ---------------------------------------------------------------------------------------------------------------------------
Dividends and distributions to
shareholders:
Dividends from net investment income (.77) (.75) (.30) (.75) (.76) (.08)
Distributions from net realized gain -- (.08) -- -- -- --
------ ------ ------ ------ ------ ------
Total dividends and distributions to
shareholders (.77) (.83) (.30) (.75) (.76) (.08)
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $16.87 $16.15 $18.07 $17.72 $17.06 $16.86
====== ====== ====== ====== ====== ======
===========================================================================================================================
TOTAL RETURN, AT NET ASSET VALUE(5) 9.47% (6.20)% 6.04% 8.48% 5.77% 1.30%
===========================================================================================================================
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) $13,341 $11,571 $5,104 $2,554 $924 $211
- ---------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $11,987 $ 9,209 $2,298 $1,720 $618 $ 1
- ---------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income 4.75% 4.43% 3.99%(6) 4.45% 4.38% 4.89%(6)
Expenses, before voluntary assumption by
the Manager(7) 1.71% 1.82% 1.96%(6) 1.72% 1.81% 1.07%(6)
Expenses, net of voluntary assumption by
the Manager N/A N/A N/A N/A N/A N/A
- ---------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(8) 58% 99% 7% 76.5% 93% 58%
</TABLE>
1. For the period from August 29, 1995 (inception of offering) to September 30,
1995. 2. Per share amounts calculated based on the average shares outstanding
during the period. 3. For the period from May 3, 1993 (inception of offering) to
September 30, 1993. 4. On April 7, 1990, OppenheimerFunds, Inc. became the
investment advisor to the Fund. 5. 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. 6. Annualized. 7. 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. 8. 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, 1997 were $93,793,427
and $80,614,521, respectively.
<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.
o 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.
o 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 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.
o 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.
o 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
substantially reduces 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, or has a similar rating from another
rating organization 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.
o 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.
o 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.
o 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 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.
o 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.
o 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 is or will be 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.
o 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 investments 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.
o 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.
o 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 90-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.
o 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. 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.
o "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 with its custodian
Municipal Securities having a total value equal to the amount of the Fund's
purchase commitments until payment is made.
o 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").
o 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 to determine whether to sell
any holdings to maintain adequate liquidity. Illiquid securities include
repurchase agreements maturing in more than seven days, or certain participation
interests other than those with puts exercisable within seven days.
o Loans of Portfolio Securities. To attempt to increase its income, the
Fund may lend its portfolio securities to brokers, dealers, and other financial
institutions.
If it does the Fund must receive collateral for such loans. 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.
o 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.
o 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.
o 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.
o Put and Call Options. The Fund may buy and sell exchange-traded and
over-the-counter put and call options, including index options, securities
options, and options on the other types of futures described in "Futures,"
above. A call or put may be purchased only if, after the purchase, the value of
all call and put options held by the Fund will not exceed 5% of the Fund's total
assets.
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.
If the Fund sells (that is, writes) a call option, it must be "covered."
That means the Fund must own the security subject to the call while the call is
outstanding, or, for other types of written calls, the Fund must segregate
liquid assets to enable it to satisfy its obligations if the call is exercised.
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). Up to 20% of the Fund's total assets may be
subject to calls.
The Fund may buy puts whether or not it holds the underlying investment in
the portfolio.
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. If the Fund
writes a put, the put must be covered by segregated liquid assets. The Fund will
not write puts if more than 20% of the Fund's total assets would have to be
segregated to cover put options.
o 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:
o 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;
o 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;
o 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
o 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
officers of the Trust and provides more information about them . 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 advisor since 1959. The Manager
(including subsidiaries) currently manages investment companies, including other
Oppenheimer funds, with assets of more than $75 billion as of December 31, 1997,
and held in more than 3.5 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.
The management services provided to the Fund by the Manager, and the
services provided by the Distributor and the Transfer Agent to shareholders,
depend on the smooth functioning of their computer systems. Many computer
software systems in use today cannot distinguish the year 2000 from the year
1900 because of the way dates are encoded and calculated. That failure could
have a negative impact on handling securities trades, pricing and account
services. The Manager, the Distributor and Transfer Agent have been actively
working on necessary changes to their computer systems to deal with the year
2000 and expect that their systems will be adapted in time for that event,
although there cannot be assurance of success.
o 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.
o 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, 1997 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 advisor.
o The Distributor. The Fund's shares are sold through dealers , brokers
and financial institutions that have a sales agreement with OppenheimerFunds
Distributor, Inc., a subsidiary of the Manager that acts as the Fund's
Distributor. The Distributor also distributes the shares of other Oppenheimer
funds and is sub- distributor for funds managed by a subsidiary of the Manager.
o 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 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 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 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.
o 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.
|X| Yield. Different types of yields may be quoted to show performance.
Each Class of shares calculates its standardized 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. 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 paid for a
stated period by the maximum offering price on the last day of the period and
annualizing the result. Yields for Class A shares normally reflect the deduction
of the maximum initial sales charge, but may also be shown without deducting the
sales charge. Yields for Class B and Class C shares do not reflect the deduction
of the contingent deferred sales charge. 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.
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, 1997, followed by a
graphical comparison of the Fund's performance to an appropriate broad-based
market index.
|X| Management's Discussion of Performance. During the past fiscal year
ended September 30, 1997 the Fund performed well. The Fund's performance was
affected by volatile interest rates which required constant adjustment of the
portfolio duration. Duration describes a portfolio's sensitivity to interest
rates. The longer a portfolio's duration, the more sensitive its price is to
change in interest rates. During this period there were many periods in which
interest rates changed direction. This provided the Fund an opportunity to add
value to the portfolio by adjusting the portfolio's duration . In addition, the
Fund participated in new issue underwriting during the occasional period of
increased supply in the municipal market. According to the laws of supply and
demand, when the supply of bonds increases, their prices tend to drop. As a
result, the Fund was able to buy bonds at attractive prices during this period.
The Fund's portfolio holdings, allocations and strategies are subject to change.
|X| 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, 1997. In the
case of Class A shares, performance is measured 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 9/30/97
1-Year 5-Year Life
Class A:1 4.06% 5.71% 8.36%
Class B:2 3.43% 4.81%
Class C:3 7.48% 7.47%
- ------------------------------
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.
The performance information for the Lehman Brothers Municipal Bond Index in the
Class B graph begins on 4/30/93 and the Class C graph begins on 8/31/95.
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 and are shown net of the applicable 5% and 2% 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 2% sales charge.
3Class C shares of the Fund were first publicly offered on 8/29/95. The one year
period is shown net of the applicable 1% contingent deferred sales charge.
Past performance is not predictive of future performance. Graphs are not drawn
to 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.
o 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 12 months of buying them (18 months if the shares were purchased
prior to May 1, 1997), you may pay a contingent deferred sales charge. The
amount of that sales charge will vary depending on the amount you invested.
These sales charges are described in "Buying Class A Shares" below.
o 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.
o 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.
o 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.
o 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 within six years, as well as the effect of the Class B asset-based
sales charge on the investment return for that class in the short-term. Class C
shares might be the appropriate choice (especially for investments of less than
$100,000) because there is no initial sales charge on Class C shares, and the
contingent deferred sales charge does not apply to amounts you sell after
holding them one year.
However, if you plan to invest more than $100,000 for the shorter term,
then 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.
o 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.
o 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 or Class C shares and if you are
considering using your shares as collateral for a loan, that may be a factor to
consider.
o 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.
The Distributor may pay additional periodic compensation from its own resources
to securities dealers or financial institutions based upon the value of shares
of the Fund owned by the dealer or financial institution for its own account or
for its customers.
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.
o 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.
o Buying Shares Through Your Dealer. Your dealer will place your order
with the Distributor on your behalf.
o 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.
o 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.
o 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 to
transmit funds electronically to purchase shares, to have the Transfer Agent
send redemption proceeds or to transmit dividends and distributions to your bank
account. 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.
o 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.
o 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, or the order is received and transmitted to the Distributor by
an entity authorized by the Fund to accept purchase or redemption orders. The
Fund has authorized the Distributor, certain broker-dealers and agents or
intermediaries designated by the Distributor or those broker-dealers to accept
orders. In most cases, to enable you to receive that day's offering price, the
Distributor or an authorized entity 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 normally
your order must be transmitted 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, in its sole discretion, may reject any purchase order for the
Fund's shares.
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 paid 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 4.50% 4.71% 4.00%
less than $100,000
- -----------------------------------------------------------------------
$100,000 or more but 3.50% 3.63% 3.00%
less than $250,000
- -----------------------------------------------------------------------
$250,000 or more but 2.50% 2.56% 2.25%
less than $500,000
- -----------------------------------------------------------------------
$500,000 or more but 2.00% 2.04% 1.80%
less 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.
o 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 purchased prior to May 1, 1997, 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. A Class A contingent deferred
sales charge may be deducted from the redemption proceeds of any of those shares
purchased on or after May 1, 1997 that are redeemed within 12 months of the end
of the calendar month of their purchase. That sales charge may 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 12 calendar months (18 months
for shares purchased prior to May 1, 1997) of the end of the calendar month of
the purchase of the exchanged shares, the sales charge will apply.
o 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:
o 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 Distributor will add the value,
at current offering price, of the shares you previously purchased and currently
own to the value of current purchases to determine the sales charge rate that
applies. The 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.
o 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.
o 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. In
order to receive a waiver of the Class A contingent deferred sales charge, you
must notify the Transfer Agent which conditions apply.
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:
o the Manager or its affiliates;
o 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; and retirement plans established by them for their employees;
o registered management investment companies, or separate accounts of
insurance companies having an agreement with the Manager or the
Distributor for that purpose;
o dealers or brokers that have a sales agreement with the Distributor, if
they purchase shares for their own accounts; or for retirement plans for
their employees;
o employees and registered representatives (and their spouses) of dealers
or brokers described above or financial institutions that have entered
into sales arrangements with such dealers or brokers (and 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);
o dealers, brokers, banks or registered investment advisers advisors that
have entered into an agreement with the Distributor providing specifically
for the use of shares of the Fund in particular investment products made
available to their clients (those clients may be charged a transaction fee
by their dealer, broker, bank, or advisor for the purchase or sale of Fund
shares); o (1) investment advisors and financial planners who have entered
into an agreement for this purpose with the Distributor and who charge an
advisory, consulting or other fee for their services and buy shares for
their own accounts or the accounts of their clients, (2) "rabbi trusts"
that buy shares for their own accounts, in each case if those purchases
are made through a broker or agent or other financial intermediary that
has made special arrangements with the Distributor for those purchases;
and (3) clients of such investment advisors or financial planners (that
have entered into an agreement for this purpose with the Distributor) who
buy shares for their own accounts may also purchase shares without sales
charge but only if their accounts are linked to a master account of their
investment advisor or financial planner on the books and records of the
broker, agent or financial intermediary with which the Distributor has
made such special arrangements (each of these investors may be charged a
fee by the broker, agent or financial intermediary for purchasing shares);
o directors, trustees, officers or full-time employees of OpCap Advisors
or its affiliates, their relatives or any trust, pension, profit sharing
or other benefit plan which beneficially owns shares for those persons;
o accounts for which Oppenheimer Capital is the investment advisor (the
Distributor must be advised of this arrangement) and persons who are
directors or trustees of the company or trust which is the beneficial
owner of such accounts; or
o 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:
o shares issued in plans of reorganization, such as mergers, asset
acquisitions and exchange offers, to which the Fund is a party;
o shares purchased by the reinvestment of dividends or other distributions
reinvested from the Fund or other Oppenheimer funds (other than Oppenheimer Cash
Reserves) or unit investment trusts for which reinvestment arrangements have
been made with the Distributor;
o shares purchased and paid for with the proceeds of shares redeemed in
the prior 30 days from a mutual fund (other than a fund managed by the Manager
or any of its subsidiaries) on which an initial sales charge or contingent
deferred sales charge was paid (this waiver also applies to shares purchased by
exchange of shares of Oppenheimer Money Market Fund, Inc. that were purchased
and paid for in this manner); this waiver must be requested when the purchase
order is placed for your shares of the Fund, and the Distributor may require
evidence of your qualification for this waiver; or
o 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:
o to make Automatic Withdrawal Plan payments that are limited annually to
no more than 12% of the original account value,
o involuntary redemptions of shares by operation of law or involuntary
redemptions of small accounts (see "Shareholder Account Rules and Policies"); or
o if, at the time of purchase of shares (prior to May 1, 1997) the dealer
agrees in writing to accept the dealer's portion of the sales commission 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);
o if, at the time of purchase of shares (if purchased during the period
May 1, 1997 through December 31, 1997) the dealer agrees in writing to accept
the dealer's portion of the sales commission in installments of 1/12th of the
commission per month (and no further commission will be payable if the shares
are redeemed within 12 months of purchase);
o 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, and (2) 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.
|X| 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.
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 1.00% of the net assets per year
of the respective class.
The Distributor uses the service fees to compensate dealers for providing
personal and account maintenance 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 may pay the Class B service fee and the asset-based sales charge
to the dealer quarterly in lieu of paying the sales commission and service fee
advance at the time of purchase.
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 may pay the Class C service fee and
asset-based sales charge to the dealer quarterly in lieu of paying the sales
commission and service fee advance at the time of purchase.
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, 1997, the end of the Class B Plan year,
the Distributor had incurred unreimbursed expenses in connection with sales of
Class B shares of $695,667 (equal to 3.48%, of the Fund's net assets represented
by Class B shares on that date). At September 30, 1997, the end of the Class C
Plan year, the Distributor had incurred unreimbursed expenses in connection with
sales of Class C shares of $36,319 (equal to 1.42%, of the Fund's net assets
represented by Class C shares on that date).
o Waivers of Class B and Class C Sales Charges. The Class B and Class C
contingent deferred sales charge 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. In order to receive a
waiver of the Class B and Class C contingent deferred sales charge, you must
notify the Transfer Agent which conditions apply.
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:
o 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); and
o 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:
o shares sold to the Manager or its affiliates; o shares sold to registered
management investment companies or separate accounts of insurance companies
having an agreement with the Manager or the Distributor for that purpose; or o
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.
o 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.
o 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.
o 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.
o 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.
o 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.
Shareholder Transactions by Fax. Beginning May 30, 1997, requests for certain
account transactions may be sent to the Transfer Agent by fax (telecopier).
Please call 1-800-525-7048 for information about which transactions are
included. Transaction requests submitted by fax are subject to the same rules
and restrictions.
OppenheimerFunds Internet Web Site. Information about the Fund, including your
account balance, daily share prices, market and Fund portfolio information, may
be obtained by visiting the OppenheimerFunds Internet Web Site, at the following
Internet address: http://www.oppenheimerfunds.com. In 1998, the Transfer Agent
anticipates offering certain account transactions through the Internet Web Site.
To find out more information about those transactions and procedures, please
visit the Web Site.
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:
o 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.
o 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 only to Class A shares
that you purchased subject to an initial sales charge and to Class A or Class B
shares on which you paid a contingent deferred sales charge when you redeemed
them. This privilege does not apply to Class C shares. You must be sure to ask
the Distributor for this privilege when you send your payment. 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.
o 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):
o You wish to redeem more than $50,000 worth of shares and receive a check
o The redemption check is not payable to all shareholders
listed on the account statement
o The redemption check is not sent to the address of
record on your account statement
o Shares are being transferred to a Fund account with a
different owner or name
o Shares are redeemed by someone other than the owners
(such as an Executor)
o 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:
o Your name
o The Fund's name
o Your Fund account number (from your account statement) o The dollar
amount or number of shares to be redeemed o Any special payment
instructions o Any share certificates for the shares you are selling, o
The signatures of all registered owners exactly as the
account is registered, and
o Any special 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 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.
o To redeem shares through a service representative, call
1-800-852-8457
o To redeem shares automatically on PhoneLink, call
1-800-533-3310
Whichever method you use, you may have a check sent to the address on the
account statement, or, if you have linked your Fund account to your bank account
on AccountLink, you may have the proceeds sent to that account.
o 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.
o 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 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.
o Checks can be written to the order of whomever you wish, but may not be
cashed at the Fund's bank or custodian.
o 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.
o Checks must be written for at least $100.
o Checks cannot be paid if they are written for more than
your account value.
Remember: your shares fluctuate in value and you should
not write a check close to the total account value.
o You may not write a check that would require the Fund to redeem shares
that were purchased by check or Asset Builder Plan payments within the prior 10
days.
o Don't use your checks if you changed your Fund account number.
How to Exchange Shares
Shares of the Fund may be exchanged for shares of certain Oppenheimer
funds at net asset value per share at the time of exchange, without sales
charge. To exchange shares, you must meet several conditions:
o Shares of the fund selected for exchange must be available for sale in
your state of residence.
o The prospectuses of this Fund and the fund whose shares you want to buy
must offer the exchange privilege.
o You must hold the shares you buy when you establish your account for at
least 7 days before you can exchange them; after the account is open 7 days, you
can exchange shares every regular business day.
o You must meet the minimum purchase requirements for the fund you
purchase by exchange.
o 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:
o 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."
o 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:
o Shares are normally redeemed from one fund and purchased from the other
fund in the exchange transaction on the same regular business day on which the
Transfer Agent receives an exchange request that 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.
o 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.
o 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.
o 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.
o If the Transfer Agent cannot exchange all the shares you request because
of a restriction cited above, only the shares eligible for exchange will be
exchanged.
Shareholder Account Rules and Policies
o 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.
o 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.
o 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.
o 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.
o 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.
o 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.
o 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.
o 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 federal funds wire, certified check or arrange with your bank
to provide telephone or written assurance to the Transfer Agent that your
purchase payment has cleared.
o 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.
o 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.
o "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 correct and properly certified
Social Security or Employer Identification Number when you sign your
application, or if you underreport your income to the Internal Revenue Service .
o 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.
o 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, 1997, 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:
o 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.
o 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. o 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.
o Reinvest Your Distributions in Another Oppenheimer Fund Account. You can
reinvest all distributions in the same class of shares of 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. So that the Fund will not have to pay taxes in the amounts it
distributes to shareholders as dividends and capital gains, the Fund intends to
manage its investments so that it will qualify as a "regulated investment
company" under the Internal Revenue Code, although it reserves the right not to
qualify in a particular year.
o "Buying a Dividend": 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.
o 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.
o 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.
-3-
<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)
Oppenheimer Quest Value Fund, Inc., Oppenheimer Quest Growth & Income Fund,
Oppenheimer Quest Opportunity Value Fund, Oppenheimer Quest Small Cap Value Fund
and Oppenheimer Quest Global Value Fund, Inc. on November 24, 1995, when
OppenheimerFunds, Inc. became the investment advisor 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 (i) acquired by such shareholder pursuant to an exchange of shares of
one of the Oppenheimer funds that was one of the Former Quest for Value Funds or
(ii) purchased by such shareholder by exchange of shares of other Oppenheimer
funds that were acquired 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
o Reduced Class A Initial Sales Charge Rates for Certain Former
Quest Shareholders
o 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 Employeesof Offering of Amount Offering
or Members Price InvestedPrice
- ------------------------------------------------------------------
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.
o 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:
o 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.
o 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.
o 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:
o 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
o 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.
o 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 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 Insured
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 ten year period ended
September 30, 1997, 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, 1997,
and in the case of the Fund's Class C shares, that graph will cover the period
from the inception of the class (August 29, 1995) through September 30, 1997.
The graph will compare such values with hypothetical $10,000 investments over
the time periods indicated below 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
9/30/87 $ 9,525 $10,000
9/30/88 $11,113 $11,298
9/30/89 $12,154 $12,279
9/30/90 $12,860 $13,113
9/30/91 $14,542 $14,842
9/30/92 $16,103 $16,394
9/30/93 $18,360 $18,482
9/30/94 $17,363 $18,031
9/30/95 $19,152 $20,051
9/30/96 $20,428 $21,261
9/30/97 $22,318 $23,176
Fiscal Year Oppenheimer Insured Lehman Brothers
(Period) Ended Municipal Fund B Municipal Bond Index(1)
5/3/93 $10,000 $10,000
9/30/93 $10,604 $10,569
9/30/94 $ 9,949 $10,312
9/30/95 $10,892 $11,466
9/30/96 $11,531 $12,159
9/30/97 $12,302 $13,254
Fiscal Year Oppenheimer Insured Lehman Brothers
(Period) Ended Municipal Fund C Municipal Bond Index(2)
8/29/95 $10,000 $10,000
9/30/95 $10,130 $10,063
9/30/96 $10,714 $10,671
9/30/97 $11,622 $11,631
- -----------------
(1) Performance information for the Lehman Brothers Municipal Bond Index begins
on 4/30/93. (2) Performance information for the Lehman Brothers Municipal Bond
Index begins on 8/31/95.
<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
OppenheimerFunds Internet Web Site:
http://www.oppenheimerfunds.com
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.
PR0865.001.0198.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 January 26, 1998
This Statement of Additional Information is not a Prospectus. This
document contains additional information about the Fund and supplements
information in the Prospectus dated January 26, 1998. 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 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 objective 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.
o Municipal Bonds. The principal classifications of long-term municipal
bonds are "general obligation" and "revenue" or "industrial development" bonds.
o 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.
o 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.
o 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.
o 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:
o 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.
o 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.
o 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.
o 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.
o 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.
o 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.
|X| 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.
|X| 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.
o 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.
o Ratings of Municipal Securities. Moody's , S&P's, Fitch's and Duff &
Phelps' 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.
o 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 CitiBank, N.A. or its
successor, as its agent (the "Fiscal Agent") that portion of the principal of
and interest on the securities which shall become due for payment but shall be
unpaid by reason of nonpayment by the issuer. Financial Guaranty will make such
payments to the Fiscal Agent on the date such principal or interest becomes due
for payment or on the business day next following the day on which Financial
Guaranty shall have received notice of nonpayment, whichever is later. The
Fiscal Agent will disburse to the Fund the face amount of principal and interest
which is then due for payment but is unpaid by reason of nonpayment by the
issuer but only upon receipt by the Fiscal Agent of (i) evidence of the Fund's
right to receive payment of the principal or interest due for payment and (ii)
evidence, including any appropriate instruments of assignment, that all of the
rights to payment of such principal or interest due for payment thereupon shall
vest in Financial Guaranty. (The proceeds attributable to interest payments will
be tax-exempt.) Upon such a payment by the Fiscal Agent, Financial Guaranty will
be fully subrogated to all of the Fund's rights under the defaulted obligation
which includes the right of Financial Guaranty to obtain payment from the issuer
to the extent of amounts paid by Financial Guaranty to the Fund.
o 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.
o 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.
o 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.
o 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.
o 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.
o 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.
o 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.
o 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.
o 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. This avoids a "double tax" on that income and
capital gains, since shareholders normally will be taxed on the dividends and
capital gains they receive from the Fund (unless the Fund's shares are held in a
retirement account or the shareholder is otherwise exempt from tax).
o 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.
o 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 normally
occurs within six months of the purchase of municipal bonds and notes. However,
the Fund may, from time to time, purchase municipal securities whose settlement
extends beyond six months and possibly as long as two years or more beyond trade
date. 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 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.
o 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.
o 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
"Other Investment Restrictions" 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 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 and occupations 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 Variable Account Funds, Oppenheimer International Bond Fund ,
Panorama Series Fund and Oppenheimer Real Asset Fund, as well as the following
"Centennial Funds": 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 (i) Ms. Macaskill, who is a Trustee, Director, or
Managing General Partner of all the Denver-based Oppenheimer funds, except
Oppenheimer Integrity Funds, Oppenheimer Strategic Income Fund, Panorama Series
Fund, Inc. and Oppenheimer Variable Account Funds, (ii) 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. and (iii) Mr. Bowen, who is not a Trustee,
Director or Managing General Partner of Oppenheimer Integrity Funds, Oppenheimer
Strategic Income Fund, Panorama Series Fund, Inc., Oppenheimer Variable Account
Funds, Centennial New York Tax- Exempt Trust and Centennial America Fund, L.P.
Ms. Macaskill is President and Mr. Swain is Chairman and Chief Executive Officer
of the Denver-based Oppenheimer funds.
As of December 31, 1997, 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 66
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 83
197 Desert Lakes Drive, Palm Springs, California 92264
Management Consultant.
GEORGE C. BOWEN, Trustee, Vice President, Treasurer, and Assistant Secretary*;
Age 61 6803 South Tucson Way, Englewood, Colorado 80112 Senior Vice President
(since September 1987) and Treasurer (since March 1985) of the Manager; Vice
President (since June 1983) and Treasurer (since March 1985) of the Distributor;
Vice President (since October 1989) and Treasurer (since April 1986) of
HarbourView; Senior Vice
President (since February 1992), Treasurer (since July 1991)and a director
(since December 1991) of Centennial; President, Treasurer and a director of
Centennial Capital Corporation (since June 1989); Vice President and Treasurer
(since August 1978) and Secretary (since April 1981) of SSI; Vice President,
Treasurer and Secretary of SFSI (since November 1989); Treasurer of OAC (since
June 1990); Treasurer of Oppenheimer Partnership Holdings, Inc. (since November
1989); Vice President and Treasurer of Oppenheimer Real Asset Management, Inc.
(since July 1996); Chief Executive Officer, Treasurer and a director of
MultiSource Services, Inc., a broker-dealer (since December 1995); an officer of
other Oppenheimer funds.
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* Trustee who is an "interested person" of the Fund.
CHARLES CONRAD, JR., Trustee; Age 67
1501 Quail Street, Newport Beach, CA 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 55
P.O. 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 57
4975 Lakeshore Drive, Littleton, Colorado 80123
Formerly Chairman and Chief Executive Officer of OppenheimerFunds Services,
Chairman, Chief Executive Officer and a director of SSI, Chairman, Chief
Executive and Officer and director of SFSI, Vice President and director of OAC
and a director of OppenheimerFunds, Inc.
RAYMOND J. KALINOWSKI, Trustee; Age 68
44 Portland Drive, St. Louis, Missouri 63131
Director of Wave Technologies International, Inc. (a computer
products training company)
C. HOWARD KAST, Trustee; Age 76
2552 East Alameda, Denver, Colorado 80209
Formerly Managing Partner of Deloitte, Haskins & Sells (an
accounting firm).
ROBERT M. KIRCHNER, Trustee; Age 76
7500 E. Arapahoe Road, Englewood, Colorado 80112
President of The Kirchner Company (management consultants).
BRIDGET A. MACASKILL, President and Trustee*#; Age 49
President (since June 1991), Chief Executive Officer (since September 1995) and
a Director (since December 1994) of the Manager; President and director (since
June 1991) of HarbourView; Chairman and a director of SSI (since August 1994),
and SFSI (September 1995); President (since September 1995) and a director
(since October 1990) of OAC; President (since September 1995) and a director
(since November 1989) of Oppenheimer Partnership Holdings, Inc., a holding
company subsidiary of the Manager; a director of Oppenheimer Real Asset
Management, Inc. (since July 1996) ; President and a director (since October
1997) of OppenheimerFunds International Ltd., an offshore fund manager
subsidiary of the Manager ("OFIL") and Oppenheimer Millennium Funds plc (since
October 1997); President and a a director of other Oppenheimer funds; a director
of the NASDAQ Stock Market, Inc. and of Hillsdown Holdings plc (a U.K. food
company); formerly an Executive Vice President of the Manager.
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* Trustee who is an "interested person" of the Fund.
+ Not a Trustee of Centennial New York Tax-Exempt Trust nor a
Managing General Partner of Centennial America Fund, L.P.
# Not a Trustee of Oppenheimer Strategic Income Fund, Oppenheimer
Variable Account Funds, Oppenheimer Integrity Funds or Panorama
Series Fund, Inc.
NED M. STEEL, Trustee; Age 82
3416 South Race Street, Englewood, Colorado 80110
Chartered Property and Casualty Underwriter; a director
of Visiting Nurse Corporation of Colorado
JAMES C. SWAIN, Chairman, Chief Executive Officer and Trustee*; Age 64 6803
South Tucson Way, Englewood, Colorado 80112 Vice Chairman of the Manager (since
September 1988); formerly President and a director of Centennial Asset
Management Corporation, an investment adviser subsidiary of the Manager
("Centennial"), and Chairman of the Board of SSI.
II. Officers
ANDREW J. DONOHUE , Vice President and Secretary; Age 47 Executive Vice
President (since January 1993), General Counsel (since October 1991) and a
Director (since September 1995) of the Manager; Executive Vice President (since
September 1993), and a director (since January 1992) of the Distributor;
Executive Vice President, General Counsel and a director of HarbourView, SSI,
SFSI and Oppenheimer Partnership Holdings, Inc. since (September 1995) and
MultiSource Services, Inc. (a broker-dealer) (since December 1995); President
and a director of Centennial (since September 1995); President and a director of
Oppenheimer Real Asset Management, Inc. (since July 1996); General Counsel
(since May 1996) and Secretary (since April 1997) of OAC; Vice President of OFIL
and Oppenheimer Millennium Funds plc (since October 1997); an officer of other
Oppenheimer funds.
CARYN HALBRECHT, Vice President and Portfolio Manager; Age 41 Vice President of
the Manager (since March 1994); an officer of other Oppenheimer funds; formerly
Vice President of Fixed Income Portfolio Management at Bankers Trust.
ROBERT J. BISHOP, Assistant Treasurer; Age 39 6803 South Tucson Way, Englewood,
Colorado 80112 Vice President of the Manager/Mutual Fund Accounting (since May
1996); an officer of other Oppenheimer funds; formerly an Assistant Vice
President of the Manager/Mutual Fund Accounting (April 1994-May 1996), and a
Fund Controller for the Manager.
SCOTT T. FARRAR, Assistant Treasurer; Age 32 6803 South Tucson Way, Englewood,
Colorado 80112 Vice President of the Manager/Mutual Fund Accounting (since May
1996); Assistant Treasurer of Oppenheimer Millennium Funds plc (since October
1997); an officer of other Oppenheimer funds; formerly an Assistant
Vice President of the Manager/Mutual Fund Accounting (April 1994-May 1996), and
a Fund Controller for the Manager.
ROBERT G. ZACK, Assistant Secretary; Age 49
Senior Vice President (since May 1985) and Associate General Counsel (since May
1981) of the Manager, Assistant Secretary of SSI (since May 1985), and SFSI
(since November 1989); Assistant Secretary of Oppenheimer Millennium Funds plc
(since October 1997); an officer of other Oppenheimer funds.
- -----------------
* Trustee who is an "interested person" of the Fund.
o Remuneration of Trustees. The officers of the Fund and certain Trustees
of the Fund (Ms. Macaskill and Messrs. Swain and Bowen) who are affiliated with
the Manager receive no salary or fee from the Fund. The remaining Trustees of
the Fund received the compensation shown below.
The compensation from the Fund was paid during its fiscal year ended
September 30, 1997. 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 1997.
Total Compensation
Aggregate From All
Compensation Denver-based
Name and Position from Fund Oppenheimer funds1
- ----------------- ------------ ------------------
Robert G. Avis $400 $63,501.00
Trustee
William A. Baker $550 77,502.00
Audit and Review
Committee
Ex-Officio Member2
and Trustee
Charles Conrad, Jr. $515 72,000.00
Trustee3
Jon S. Fossel $0 63,277.18
Trustee
Sam Freedman $204 66,501.00
Audit and Review Committee
Member2 and Trustee
Raymond J. Kalinowski $512 71,561.00
Audit and Review Committee
Member2 and Trustee
C. Howard Kast $512 76,503.00
Audit and Review Committee
Chairman2 and Trustee
Robert M. Kirchner $515 72,000.00
Trustee3
Ned M. Steel $400 63,501.00
Trustee
- ----------------------
1 For the 1997 calendar year. 2 Committee positions effective July 1, 1997.
3 Prior to July 1, 1997, Messrs. Conrad and Kirchner were also members of the
Audit and Review Committee.
o Deferred Compensation Plan. The Board of Trustees has adopted a Deferred
Compensation Plan for disinterested Trustees that enables Trustees to elect to
defer receipt of all or a portion of the annual fees they are entitled to
receive from the Fund. Under the plan, the compensation deferred by a Trustee is
periodically adjusted as though an equivalent amount had been invested in shares
of one or more Oppenheimer funds selected by the Trustee. The amount paid to the
Trustee under the plan will be determined based upon the performance of the
selected funds. Deferral of Trustees' fees under the plan will not materially
affect the Fund's assets, liabilities or net income per share. The plan will not
obligate the Fund to retain the services of any Trustee or to pay any particular
amount of compensation to any Trustee. Pursuant to an Order issued by the
Securities and Exchange Commission, the Fund may, without shareholder approval
and notwithstanding its fundamental policy restricting investment in other
open-end investment companies, as described above on page 13, invest in the
funds selected by the Trustee under the plan for the limited purpose of
determining the value of the Trustee's deferred fee account.
o Major Shareholders. As of December 31, 1997, 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 Merrill Lynch Pierce Fenner & Smith for the Sole Benefit of its Customers,
4800 Deer Lake Drive E. Fl. 3, Jacksonville, FL 32246-6484, who owned of record
39,020.000 Class C shares (representing 22.56% of the Fund's outstanding Class C
shares); Margie H. Madak Trust, 8619 W. Sunnyside Ave.,
Chicago, IL 60656-4149, who owned of record 19,285.502 Class C shares
(representing 11.15% of the Fund's outstanding Class C shares); B&J Inc., 15
Country Club Rd. #C, Honolulu, HI 96817-1408 who owned of record 12,133.371
Class C shares (representing 7.13% of the Fund's outstanding Class C shares)
Donaldson Lufkin Jenrette Securities Corporation, Inc., P.O. Box 2052, Jersey
City, NJ 07303- 9978, who owned of record 581 Class C shares (representing 6.69%
of the Fund's outstanding Class C shares) and NFSC FBO Charles & Margaret Gash
Co. Trust, 1137 Damico, Chicago Heights, IL 60411, who owned of record 9,703.826
Class C shares (representing 5.61% 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
three of whom (Ms. Macaskill, Mr. Swain and Mr. Bowen) 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.
|X| Portfolio Management. The portfolio manager of the Fund is Caryn
Halbrecht, who is principally responsible for the day-to-day management of the
Fund's portfolio. The background of Ms. Halbrecht is described in the Prospectus
under "Portfolio Manager." Other members of the Manager's fixed-income portfolio
department, particularly portfolio analysts, traders and other portfolio
managers having broad experience with domestic and international government and
corporate fixed-income securities, provide the Fund's portfolio managers with
support in managing the Fund's portfolio.
o 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.
Under the Investment Advisory Agreement , the Manager had agreed 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 . During the Fund's last fiscal year, the Fund's expenses did not
exceed the most stringent state regulatory limit and the expense limitation 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 . Pursuant to a non-exclusive license agreement, the Manager
permits the Trust and the Fund 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, 1997, the
management fees were $471,703.
o The Distributor. Under its General Distributor's Agreement with the
Trust, 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, 1995 , 1996 and 1997
the aggregate sales charges on sales of the Fund's Class A shares was $153,803 ,
$180,294 and $164,201, respectively, of which the Distributor and an affiliated
broker-dealer retained in the aggregate $43,162 , $41,094 and $35,272, in those
respective years. During the Fund fiscal year ended September 30, 1997, the
contingent deferred sales charge collected on the Fund's Class B shares totaled
$53,881, 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, 1997 were $222,466, of
which $2,152 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, 1997 were $18,115, of which $1,686 was paid to an affiliate.
o 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
prices. 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 executed by the broker on an agency basis at the
stated commission, and (iii) the trade is not a riskless principal transaction.
The research services provided by brokers broaden the scope and supplement
the research activities of the Manager, 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 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
returns 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.
o Yield
o Standardized
Yield. The "standardized yield" (referred to as "yield") is shown for a class of
shares for a stated 30-day period. It is not based on actual distributions paid
by the Fund to shareholders in the 30-day period, but is a hypothetical yield
based upon the net investment income from the Fund's portfolio investments for
that period. It may therefore differ from the "dividend yield" for the same
class of shares, described below. It is calculated using the following formula
set forth in rules adopted by the Securities and Exchange Commission , designed
to assure uniformity in the way that all funds calculate their yields:
Standardized ~Yield ~ = ~ 2~ [~ (~ {a-b} over cd ~ +~ 1~ ) SUP 6~ -~ 1~ ]
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 for a 30-day period may differ from the yield for
other periods. The SEC formula assumes that the standardized yield for a 30-day
period occurs at a constant rate for a six-month period and is annualized at the
end of the six-month period. Additionally, because each class of shares is
subject to different expenses, it is likely that the standardized yields of the
Fund's classes of shares will differ for any 30-day period. For the 30-day
period ended September 30, 1997, the standardized yields for the Fund's classes
of shares were as follows:
Without Deducting Sales Charge With Sales Charge Deducted
Class A: 4.82% 5.06%
Class B: 4.30% N/A
Class C: 4.29% N/A
o 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
and 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.
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, 1997 were 7.98%,
7.12% and 7.10%, respectively, for an individual in the 39.6% Federal income tax
bracket.
o Dividend Yield . The Fund may quote a "dividend yield" for each class of
its shares. Dividend yield is based on the dividends paid on shares of a class
during the actual dividend period. To calculate dividend yield, the dividends of
a class declared during a stated period are added together and the sum is
multiplied by 12 (to annualize the yield) and divided by the maximum offering
price on the last day of the dividend period. The formula is shown below:
Dividend Yield = dividends paid x 12/maximum offering
price (payment date)
The maximum offering price for Class A shares includes the maximum initial
sales charge. The maximum offering price for Class B and Class C shares is the
net asset value per share, without considering the effect of contingent deferred
sales charges. The Class A dividend yield may also be quoted without deducting
the maximum initial sales charge .
The dividend yields for the 30-day period ended September 30, 1997 were as
follows:
Without Deducting Sales Charge With Sales Charge Deducted
Class A: 4.83% 5.07%
Class B: 4.31% N/A
Class C: 4.31% N/A
o Total Return Information.
o 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:
LEFT ( {~ERV~} OVER P~ right) SUP
{1/n}~-1~=~Average~Annual~Total~ Return
The "average annual total return" on an investment in Class A shares of
the Fund for the one , five and ten year periods ended September 30, 1997 was
4.07%, 5.71% and 8.36%, respectively. The "average annual total return" on an
investment in Class B shares of the Fund for the one year ended September 30,
1997 was 3.43%. For the period from inception of Class B shares on May 3, 1993
through September 30, 1997, the average annual total return was 4.81%. The
"average annual total return" on an investment in Class C shares of the Fund for
the one year ended September 30, 1997 was 7.48%. For the period from inception
of Class C shares on August 29, 1995, through September 30, 1997, the average
annual total return was 7.47%.
o 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} over P ~ =~Total~Return
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, 1997, was
123.18%. The cumulative total return on Class B shares for the period from May
3, 1993 (inception of the class) through September 30, 1997 was 23.03%. The
cumulative total return on the Class C shares for the period from August 29,
1995 (inception of the class) through September 30, 1997 was 16.23%.
o 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, 1997 was 9.25%. The total return at net asset value
for the Fund's Class B shares for the year ended September 30, 1997 was 6.75%.
The total return at net asset value for the Fund's Class C shares for the period
ended September 30, 1997 was 8.89%.
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.
o Other Performance Comparisons. From time to time, the Fund may publish
the ranking of the performance of its Class A, Class B or Class C shares by
Lipper Analytical Services, Inc. ("Lipper"), 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
funds, international stock funds, taxable bond funds and municipal bond funds,
based on risk-adjusted total investment return. The Fund is ranked among the
municipal bond 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 the 90-day U.S. Treasury bill returns after
considering the fund's sales charges and expenses. Risk measures a fund's or
class's performance below the 90-day U.S. Treasury bill returns. Risk and
investment return are combined to produce star rankings reflecting performance
relative to the average fund in a fund's category. Five stars is the "highest"
ranking (top 10%), four stars is "above average" (next 22.5%), three stars is
"average" (next 35%), two stars is "below average" (next 22.5%) and one star is
"lowest" (bottom 10%). The current star ranking is the fund's or class's 3-year
ranking or its combined 3- and 5-year ranking (weighted 60%/40% respectively, or
its combined 3-. 5- and 10-year ranking (weighted 40%, 30% and 30%,
respectively), depending on the inception of the fund or class. 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 , 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 Trust is to provide
separate written reports to the 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 Plan 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 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, 1997, payments under the Class A Plan totaled $208,515, all of which was
paid by the Distributor to Recipients, including $9,873 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, 1997 totaled $172,866, including $2,397 paid to a dealer
affiliated with the Distributor and $141,004 retained by the Distributor.
Payments under the Class C Plan during the fiscal year ended September 30, 1997
totaled $17,146, of which $12,061 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 and
Class C Plans are subject to the limitations imposed by the Conduct Rules of the
National Association of Securities Dealers, Inc. on payments of asset based
sales charges and service fees.
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/or Service Plan fees, (b) 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 (the "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 or after a holiday). The Exchange's most recent annual
announcement (which is subject to change) states that it will close on New
Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. It may
also close on other days. Dealers other than Exchange members may conduct
trading in Municipal Securities on 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 may be significantly affected on such days 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 "asked" 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) a non-money market fund
will value (a) debt instruments that had a maturity of more than 397 days when
issued, (b) debt instruments that had a maturity of 397 days or less when issued
and have a remaining maturity in excess of 60 days, and (c) non-money market
type debt instruments that had a maturity of 397 days or less when issued and
have a remaining maturity of sixty days or less , at the mean between "bid" and
"ask"asked" prices determined by a pricing service approved by the Fund's Board
of Trustees or, if unavailable, obtained by the Manager from two active market
makers in the security on the basis of reasonable inquiry; (iii) money
market-type debt securities held by a non- money market fund that had a maturity
of less than 397 days when issued that have a remaining maturity of 60 days or
less and debt instruments held by a money market fund that have a remaining
maturity of 397 days or less, shall be 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 "asked" prices provided
by a single active market maker (which in certain cases may be the "bid" price
if no "asked" price is available) provided that the Manager is satisfied that
the firm rendering the quotes is reliable and that the quotes reflect the
current market value.
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 or by the Manager. If there were no sales that
day, value shall be the last sale price on the preceding trading day if it is
within the spread of the closing "bid" and "asked" prices on the principal
exchange or on NASDAQ on the valuation date, or, if not, value shall be the
closing "bid" price on the principal exchange or on NASDAQ on the valuation
date. If the put, call or future is not traded on an exchange or on NASDAQ, it
shall be valued at the mean between "bid" and "asked" prices obtained by the
Manager from two active market makers (which in certain cases may be the "bid"
price if no "asked" price is available).
When the Fund writes an option, an amount equal to the premium received is
included in the Fund's Statement of Assets and Liabilities as an asset 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 the 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. Relations by virtue of a remarriage (step-children,
step-parents, etc.) are included.
o 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 Discovery Fund Oppenheimer
Capital Appreciation Fund Oppenheimer Growth Fund Oppenheimer Equity Income Fund
Oppenheimer Multiple Strategies 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 Growth &
Income Fund Oppenheimer Gold & Special Minerals Fund Oppenheimer Strategic
Income Fund Oppenheimer International Growth Fund Oppenheimer Developing Markets
Fund Oppenheimer Real Asset Fund Oppenheimer International Small Company Fund
Oppenheimer MidCap 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 Quest Capital Value Fund, Inc. 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.
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).
o 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 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.
o 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 Class B shares
acquired in exchange for either (i) Class A shares sold with a front-end sales
charge of one of the other Oppenheimer funds that were acquired subject to a
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.
o Selling Shares by Wire. The wire of redemption proceeds may be delayed
if the Fund's custodian bank is not open for business on a day when the Fund
would normally authorize the wire to be made, which is usually the Fund's next
regular business day following the redemption. In those circumstances, the wire
will not be transmitted until the next bank business day on which the Fund is
open for business. No dividends will be paid on the proceeds of redeemed shares
awaiting transfer by wire.
o 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.
o 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 which was paid, 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 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). Required minimum distributions from
OppenheimerFunds-sponsored retirement plans may not be arranged on this basis.
Payments are normally made by check, but shareholders having AccountLink
privileges (see "How To Buy Shares") may arrange to have Automatic Withdrawal
Plan payments transferred to the bank account designated on the 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 those stated in 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.
o 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.
o 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 Class A 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 and Centennial America Fund, L.P.
, 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 . 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, 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 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 12 months of the end of the calendar month of the initial purchase of the
exchanged Class A shares (18 months if the shares were initially purchased prior
to May 1, 1997), 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 dividends 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 1997 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 ordinary income
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. 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 the Manager and for certain other funds advised by the Manager and
its affiliates.
<PAGE>
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, 1997, the related statement of operations for the year then ended,
the statements of changes in net assets for the years ended September 30, 1997
and 1996 and the financial highlights for the period October 1, 1992 to
September 30, 1997. 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, 1997 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, 1997, the results of its
operations, the changes in its net assets, and the financial highlights for the
respective stated periods, in conformity with generally accepted accounting
principles.
/s/ DELOITTE & TOUCHE LLP
- -------------------------
DELOITTE & TOUCHE LLP
Denver, Colorado
October 21, 1997
<PAGE>
- --------------------------------------------------------------------------------
Statement of Investments
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Ratings:
Moody's/
S&P/Fitch Face Market Value
(Unaudited) Amount See Note 1
=============================================================================================
<S> <C> <C> <C>
Municipal Bonds and Notes--104.6%
- ---------------------------------------------------------------------------------------------
Alabama--1.9%
AL Docks Department Facilities RRB, MBIA
Insured, 5.50%, 10/1/02 Aaa/AAA $1,000,000 $ 1,035,340
- ---------------------------------------------------------------------------------------------
Pelham, AL GORB, AMBAC Insured, 7.10%, 8/1/15 Aaa/AAA/AAA 1,000,000 1,111,950
------------
2,147,290
- ---------------------------------------------------------------------------------------------
Arizona--1.0%
AZ Educational LMC RRB, Series B, 7%, 3/1/05 A/NR 1,090,000 1,185,092
- ---------------------------------------------------------------------------------------------
California--11.8%
Anaheim, CA PFAU Lease RB, Sr. Public
Improvements Project, Series A,
FSA Insured, 5%, 3/1/37 Aaa/AAA 1,000,000 939,590
- ---------------------------------------------------------------------------------------------
CA Public Capital Improvements FAU RB, Pooled
Project, Series B, BIG Insured, 8.10%, 3/1/18 Aaa/AAA 230,000 238,551
- ---------------------------------------------------------------------------------------------
CA SCDAU Revenue COP, Cedars-Sinai
Medical Center, MBIA Insured, 6.50%, 8/1/12 Aaa/AAA 1,000,000 1,159,730
- ---------------------------------------------------------------------------------------------
Center, CA USD CAP GOB, Series C, MBIA
Insured, Zero Coupon, 5.80%, 9/1/19(1) Aaa/AAA 2,500,000 777,500
- ---------------------------------------------------------------------------------------------
Pomona, CA USD GORB, Series A,
MBIA Insured, 6.15%, 8/1/15 Aaa/AAA 1,000,000 1,133,050
- ---------------------------------------------------------------------------------------------
Redding, CA Electric System Revenue
COP, 6.37%, 7/1/22 Aaa/AAA 3,000,000 3,424,590
- ---------------------------------------------------------------------------------------------
Sacramento, CA MUD Electric RRB,
Series G, MBIA Insured, 6.50%, 9/1/13 Aaa/AAA/A 1,000,000 1,171,130
- ---------------------------------------------------------------------------------------------
San Francisco, CA City & Cnty. Airport Commission
International Airport RB, Second Series
Issue 14-A, MBIA Insured, 8%, 5/1/09 Aaa/AAA 1,455,000 1,763,285
- ---------------------------------------------------------------------------------------------
San Joaquin Hills, CA Transportation Corridor
Agency Toll Road CAP RRB, Series A,
MBIA Insured, Zero Coupon, 5.65%, 1/15/26(1) Aaa/AAA/AAA 4,000,000 838,400
- ---------------------------------------------------------------------------------------------
Southern CA Metropolitan Water District
Waterworks RB, Series C, 5%, 7/1/27 Aa/AA 2,000,000 1,896,200
------------
13,342,026
- ---------------------------------------------------------------------------------------------
Colorado--3.6%
Centennial Water & Sanitation District CO,
Water & Sewer RB, 5.75%, 6/15/15 Aa1/AA+ 1,775,000 1,823,404
- ---------------------------------------------------------------------------------------------
CO Housing FAU RB, MH Insured Mtg.-B-2,
5.90%, 10/1/38 Aa2/AA 1,000,000 1,004,390
- ---------------------------------------------------------------------------------------------
Douglas Cnty., CO SDI No. RE-1 Douglas &
Elbert Cntys. Improvement GOB, Series A,
MBIA Insured, 8%, 12/15/09 Aaa/AAA 1,000,000 1,300,540
------------
4,128,334
</TABLE>
9 Oppenheimer Insured Municipal Fund
<PAGE>
- --------------------------------------------------------------------------------
Statement of Investments (Continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Ratings:
Moody's/
S&P/Fitch Face Market Value
(Unaudited) Amount See Note 1
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Connecticut--3.6%
CT Housing FAU RB, Series A, Subseries A-2,
6.20%, 11/15/22 Aa3/AA $1,000,000 $ 1,040,170
- ---------------------------------------------------------------------------------------------
CT Housing FAU RRB, Series A, Subseries D-2,
6.20%, 11/15/27 Aa3/AA 1,000,000 1,034,520
- ---------------------------------------------------------------------------------------------
CT Housing FAU RRB, Subseries C-2,
5.85%, 11/15/28 Aa3/AA 2,000,000 2,015,400
------------
` 4,090,090
- ---------------------------------------------------------------------------------------------
Florida--8.4%
FL BOE Capital Outlay Public Education
GOB, Series A, 7%, 6/1/00 Aa2/AA+/AA 1,000,000 1,074,380
- ---------------------------------------------------------------------------------------------
FL HFA RRB, MH, Series C, 6%, 8/1/11 NR/AAA 1,000,000 1,059,600
- ---------------------------------------------------------------------------------------------
Jacksonville, FL Electric Authority RRB, WSS,
Series A, 5.625%, 10/1/37 Aa3/AA- 3,000,000 3,012,870
- ---------------------------------------------------------------------------------------------
Lee Cnty., FL Hospital Board of Directors RRB,
MBIA Insured, 3.705%, 3/26/20 Aaa/AAA 1,000,000 1,000,000
- ---------------------------------------------------------------------------------------------
Lee Cnty., FL Hospital Board of Directors RRB,
MBIA Insured, Inverse Floater, 8.71%, 3/26/20(2) Aaa/AAA 1,000,000 1,156,250
- ---------------------------------------------------------------------------------------------
Orange Cnty., FL HFAU RB, Orlando Regional
Healthcare, Series A, MBIA Insured,
6.25%, 10/1/18(3) Aaa/AAA 2,000,000 2,272,000
------------
9,575,100
- ---------------------------------------------------------------------------------------------
Georgia--2.7%
Dalton, GA DAU RB, MBIA Insured,
5.50%, 8/15/26 Aaa/AAA 1,000,000 1,027,840
- ---------------------------------------------------------------------------------------------
Richmond Cnty., GA DAU RB, Sub. Lien,
Series C, Zero Coupon, 5.82%, 12/1/21(1) Aaa/NR 8,000,000 2,085,760
------------
3,113,600
- ---------------------------------------------------------------------------------------------
Illinois--8.1%
Chicago, IL SFM RB, Series B, 6.95%, 9/1/28 Aaa/NR 2,000,000 2,196,260
- ---------------------------------------------------------------------------------------------
Cook Cnty., IL Community College District No
508 Chicago COP, FGIC Insured, 8.75%, 1/1/03 Aaa/AAA 750,000 897,285
- ---------------------------------------------------------------------------------------------
Cook Cnty., IL Community College District No
508 Chicago COP, FGIC Insured, 8.75%, 1/1/05 Aaa/AAA/AAA 500,000 623,600
- ---------------------------------------------------------------------------------------------
Cook Cnty., IL Community College District No
508 Lease COP, Series C, MBIA Insured,
7.70%, 12/1/07 Aaa/AAA 1,500,000 1,858,140
- ---------------------------------------------------------------------------------------------
Cook Cnty., IL SDI No. 99 Cicero GOB, FGIC
Insured, 8.50%, 12/1/05 Aaa/AAA 1,170,000 1,469,976
- ---------------------------------------------------------------------------------------------
IL HFAU RB, Memorial Medical Center Project,
MBIA Insured, 6.75%, 10/1/11 Aaa/AAA 2,000,000 2,162,720
------------
9,207,981
</TABLE>
10 Oppenheimer Insured Municipal Fund
<PAGE>
- --------------------------------------------------------------------------------
Statement of Investments (Continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Ratings:
Moody's/
S&P/Fitch Face Market Value
(Unaudited) Amount See Note 1
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Indiana--5.6%
Hamilton Southeastern, IN Consolidated School
Building Corp. RRB, First Mtg., AMBAC
Insured, 7%, 7/1/11 Aaa/AAA/AAA $ 500,000 $ 546,995
- ---------------------------------------------------------------------------------------------
IN HFFAU Hospital RB, Clarian Health
Partners, Inc., Series A, 6%, 2/15/21 Aa3/AA /AA 2,000,000 2,071,600
- ---------------------------------------------------------------------------------------------
IN Office Building Commission Capital Complex
RB, Series B, MBIA Insured, 7.40%, 7/1/15 Aaa/AAA 2,500,000 3,164,325
- ---------------------------------------------------------------------------------------------
Whitko, IN Middle School Building Corp. RB,
First Mtg., Prerefunded, AMBAC Insured,
6.75%, 7/15/12 Aaa/AAA/AAA 500,000 548,770
------------
6,331,690
- ---------------------------------------------------------------------------------------------
Massachusetts--4.5%
MA Health & Educational FA RB, Mt. Auburn
Hospital Issue, Series B-1, MBIA Insured,
6.25%, 8/15/14 Aaa/AAA 1,000,000 1,076,430
- ---------------------------------------------------------------------------------------------
MA HFA RB, Series A, AMBAC Insured,
6.60%, 7/1/14 Aaa/AAA/AAA 2,000,000 2,121,060
- ---------------------------------------------------------------------------------------------
MA TUAU Metropolitan Highway System RRB,
Sr. Lien, Series A, MBIA Insured, 5%, 1/1/37 Aaa/NR/AAA 2,000,000 1,851,680
------------
5,049,170
- ---------------------------------------------------------------------------------------------
Nebraska--0.5%
NE Investment FAU Hospital RB, NE Methodist
Health System, MBIA Insured, 7%, 3/1/06 Aaa/AAA 500,000 548,775
- ---------------------------------------------------------------------------------------------
Nevada--3.0%
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 2,167,580
- ---------------------------------------------------------------------------------------------
Humboldt Cnty., NV PC RB, Idaho Power Co.
Project, AMBAC Insured, 8.30%, 12/20/14 Aaa/AAA/AAA 1,000,000 1,204,880
------------
3,372,460
- ---------------------------------------------------------------------------------------------
New Hampshire--0.5%
NH Turnpike System RRB, Series A,
FGIC Insured, 6.75%, 11/1/11 Aaa/AAA/AAA 500,000 573,590
- ---------------------------------------------------------------------------------------------
New York--6.8%
NY United Nations Development Corp. RRB,
Sr. Lien, Series B, 5.60%, 7/1/26 A2/NR/A 3,000,000 2,986,950
- ---------------------------------------------------------------------------------------------
NYC GOB, Prerefunded, Series H, 7.20%, 2/1/15 NR/BBB+/A- 2,800,000 3,156,944
- ---------------------------------------------------------------------------------------------
NYC MWFAU WSS RB, Series B, MBIA Insured,
5.75%, 6/15/29 Aaa/AAA/AAA 1,500,000 1,547,055
------------
7,690,949
</TABLE>
11 Oppenheimer Insured Municipal Fund
<PAGE>
- --------------------------------------------------------------------------------
Statement of Investments (Continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Ratings:
Moody's/
S&P/Fitch Face Market Value
(Unaudited) Amount See Note 1
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Ohio--4.3%
Cincinnati, OH Student Loan Funding Corp. RB,
Series A, AMBAC Insured, 5.75%, 8/1/03 Aaa/AAA/AAA $1,000,000 $ 1,065,580
- ---------------------------------------------------------------------------------------------
Cleveland, OH COP, Stadium Project,
AMBAC Insured, 6%, 11/15/09 Aaa/AAA 1,000,000 1,106,800
- ---------------------------------------------------------------------------------------------
OH HFA Mtg. RB, 6.10%, 9/1/28 NR/AAA 2,000,000 2,100,660
- ---------------------------------------------------------------------------------------------
Streetsboro, OH SDI GOB, AMBAC Insured,
7.125%, 12/1/10 Aaa/AAA/AAA 500,000 613,015
------------
4,886,055
- ---------------------------------------------------------------------------------------------
Oklahoma--2.2%
OK Baptist University Authority RB,
FGIC Insured, 7.10%, 8/1/09 Aaa/AAA/AAA 150,000 160,432
- ---------------------------------------------------------------------------------------------
OK Industrial Authority Health Systems RB,
Baptist Medical Center, Series C,
AMBAC Insured, 7%, 8/15/05 Aaa/AAA/AAA 2,000,000 2,296,180
------------
2,456,612
- ---------------------------------------------------------------------------------------------
Pennsylvania--9.5%
Allegheny Cnty., PA Airport RRB, Pittsburgh
International Airport, Series A, MBIA Insured,
5.75%, 1/1/08 Aaa/AAA 1,000,000 1,077,820
- ---------------------------------------------------------------------------------------------
Berks Cnty., PA GOB, FGIC Insured,
6.30%, 11/10/20 Aaa/AAA 2,000,000 2,214,760
- ---------------------------------------------------------------------------------------------
Delaware Valley, PA Regional FAU Local
Government RB, Series B, AMBAC Insured,
5.70%, 7/1/27 Aaa/AAA 2,000,000 2,124,840
- ---------------------------------------------------------------------------------------------
PA HEAA Student Loan RB, Series B,
AMBAC Insured, Inverse Floater, 8.11%, 3/1/22(2) Aaa/AAA/AAA 1,250,000 1,335,938
- ---------------------------------------------------------------------------------------------
Philadelphia, PA Regional POAU Lease RB,
MBIA Insured, Inverse Floater, 8.50%, 9/1/20(2) Aaa/AAA 1,900,000 2,135,125
- ---------------------------------------------------------------------------------------------
Philadelphia, PA Regional POAU Lease
RRB, 3.70%, 9/1/20 Aaa/AAA 1,900,000 1,900,000
------------
10,788,483
- ---------------------------------------------------------------------------------------------
South Dakota--1.0%
SD Lease Revenue Trust Certificates, Series B,
FSA Insured, 8%, 9/1/02 Aaa/AAA 1,000,000 1,155,720
- ---------------------------------------------------------------------------------------------
Tennessee--1.6%
Chattanooga-Hamilton Cnty., TN HA RB,
Erlanger Medical Center, Prerefunded, Series B,
FSA Insured, Inverse Floater, 9.87%, 5/25/21(2) Aaa/AAA 1,500,000 1,809,375
</TABLE>
12 Oppenheimer Insured Municipal Fund
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Ratings:
Moody's/
S&P/Fitch Face Market Value
(Unaudited) Amount See Note 1
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------
Texas--13.6%
Cedar Hill, TX ISD CAP RRB, Zero Coupon,
6.10%, 8/15/11(1) Aaa/AAA/AAA $1,585,000 $ 761,878
- ---------------------------------------------------------------------------------------------
Grand Prairie, TX HFDC RRB, Dallas/Ft. Worth
Medical Center Project, AMBAC Insured,
6.875%, 11/1/10 Aaa/AAA 1,800,000 2,037,276
- ---------------------------------------------------------------------------------------------
Harris Cnty., TX Hospital District RRB,
AMBAC Insured, 7.40%, 2/15/10 Aaa/AAA/AAA 2,000,000 2,384,920
- ---------------------------------------------------------------------------------------------
Harris Cnty., TX Toll Road Sr. Lien RRB,
FGIC Insured, 5%, 8/15/16 Aaa/AAA/AAA 1,000,000 965,580
- ---------------------------------------------------------------------------------------------
Humble, TX ISD CAP GORB, Zero Coupon,
5.15%, 2/15/08(1) Aaa/AAA 2,365,000 1,421,129
- ---------------------------------------------------------------------------------------------
Lower Neches Valley, TX IDV Corp.
Environmental Authority RB, Mobil Oil
Refining Corp. Project, 6.35%, 4/1/26 Aa2/AA 2,170,000 2,303,216
- ---------------------------------------------------------------------------------------------
Lower Neches Valley, TX IDV Corp. Sewer
Facilities RB, Mobil Oil Refining Corp. Project,
6.40%, 3/1/30 Aa2/AA 1,000,000 1,068,450
- ---------------------------------------------------------------------------------------------
Rio Grande Valley TX HFDC Retirement
Facilities RB, Golden Palms, Series B,
MBIA Insured, 6.40%, 8/1/12 Aaa/AAA 2,000,000 2,177,340
- ---------------------------------------------------------------------------------------------
Tarrant Cnty., TX HFDC RB, Texas Health
Resources System, Series A, MBIA Insured,
5.75%, 2/15/11 Aaa/AAA 2,230,000 2,370,089
------------
15,489,878
- ---------------------------------------------------------------------------------------------
Washington--2.0%
Tacoma, WA Electric Systems RB, Prerefunded,
AMBAC Insured, Inverse Floater, 8.84%, 1/2/15(2) Aaa/AAA/AAA 1,000,000 1,171,250
- ---------------------------------------------------------------------------------------------
WA PP Supply System RRB, Nuclear Project
No. 2, Series A, FGIC Insured, Zero Coupon,
5.50%, 7/1/09(1) Aaa/AAA/AAA 2,000,000 1,102,780
------------
2,274,030
- ---------------------------------------------------------------------------------------------
Wisconsin--1.3%
WI Health & Educational FA RB, Aurora Medical
Group, Inc. Project, FSA Insured, 6%, 11/15/11 Aaa/AAA 1,370,000 1,526,687
- ---------------------------------------------------------------------------------------------
District of Columbia--5.7%
DC GORB, Series A, AMBAC Insured, 6.50%, 6/1/06 Aaa/AAA/AAA 2,915,000 3,280,424
- ---------------------------------------------------------------------------------------------
DC GORB, Series A-1, MBIA Insured, 6%, 6/1/11 Aaa/AAA/BB 2,000,000 2,187,860
- ---------------------------------------------------------------------------------------------
DC Hospital RRB, Medlantic Healthcare Group,
Series A, MBIA Insured, 5.25%, 8/15/12 Aaa/AAA 1,000,000 1,001,580
------------
6,469,864
</TABLE>
13 Oppenheimer Insured Municipal Fund
<PAGE>
- --------------------------------------------------------------------------------
Statement of Investments (Continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Ratings:
Moody's/
S&P/Fitch Face Market Value
(Unaudited) Amount See Note 1
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------
U.S. Possessions--1.4%
PR Public Buildings Authority RB, Government
Facilities, Series B, AMBAC Insured, 5%, 7/1/27 Aaa/AAA $1,650,000 $ 1,576,163
------------
Total Municipal Bonds and Notes
(Cost $113,239,920) 118,789,014
<CAPTION>
Date Strike Contracts
=============================================================================================
<S> <C> <C> <C> <C>
Call Options Purchased--0.0%
- ---------------------------------------------------------------------------------------------
U.S. Treasury, 30 yr. Futures, 12/97 Call Opt. 11/97 $118 134 62,813
- ---------------------------------------------------------------------------------------------
U.S. Treasury, 30 yr. Futures, 12/97 Call Opt. 11/97 $120 45 7,734
------------
Total Call Options Purchased (Cost $45,980) 70,547
- ---------------------------------------------------------------------------------------------
Total Investments, at Value (Cost $113,285,900) 104.6% 118,859,561
- ---------------------------------------------------------------------------------------------
Liabilities in Excess of Other Assets (4.6) (5,280,352)
---------- ------------
Net Assets 100.0% $113,579,209
========== ============
</TABLE>
To simplify the listing of securities, abbreviations are used per the table
below:
BOE --Board of Education
CAP --Capital Appreciation
COP --Certificates of Participation DAU --Development Authority FA --Facilities
Authority FAU --Finance Authority GOB --General Obligation Bonds GORB --General
Obligation Refunding Bonds HA --Hospital Authority HEAA --Higher Education
Assistance Agency HFA --Housing Finance Agency HFAU --Health Facilities
Authority HFDC --Health Facilities Development Corp. HFFAU--Health Facilities
Finance Authority IDV --Industrial Development ISD --Independent School District
LMC --Loan Marketing Corp. MH --Multifamily Housing MUD --Municipal Utility
District MWFAU--Municipal Water Finance Authority NYC --New York City PC
- --Pollution Control PFAU --Public Finance Authority POAU --Port Authority PP
- --Public Power RB --Revenue Bonds RRB --Revenue Refunding Bonds SCDAU--Statewide
Communities Development Authority SDI --School District SFM --Single Family
Mortgage TUAU --Turnpike Authority USD --Unified School District WSS --Water &
Sewer System
14 Oppenheimer Insured Municipal Fund
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1. For zero coupon bonds, the interest rate shown is the effective yield on the
date of purchase. 2. Represents the current interest rate for a variable rate
bond known as an "inverse floater" which pays interest at a rate that varies
inversely with short-term interest rates. As interest rates rise, inverse
floaters produce less current income. Their price may be more volatile than the
price of a comparable fixed-rate security. Inverse floaters amount to $7,607,938
or 6.70% of the Fund's net assets at September 30, 1997. 3. Represents
securities sold under Rule 144A, which are exempt from registration under the
Securities Act of 1933, as amended. These securities have been determined to be
liquid under guidelines established by the Board of Trustees. These securities
amount to $2,272,000 or 2.00% of the Fund's net assets, at September 30, 1997.
As of September 30, 1997, securities subject to the alternative minimum tax
amounted to $21,370,801 or 18.82% of the Fund's net assets.
See accompanying Notes to Financial Statements.
15 Oppenheimer Insured Municipal Fund
<PAGE>
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities September 30, 1997
- --------------------------------------------------------------------------------
================================================================================
Assets
Investments, at value (cost $113,285,900)--
see accompanying statement $118,859,561
- --------------------------------------------------------------------------------
Cash 2,365,146
- --------------------------------------------------------------------------------
Receivables:
Interest 1,581,210
Shares of beneficial interest sold 396,947
- --------------------------------------------------------------------------------
Other 5,649
------------
Total assets 123,208,513
================================================================================
Liabilities Payables and other liabilities:
Investments purchased 9,119,085
Dividends 286,526
Shares of beneficial interest redeemed 72,115
Distribution and service plan fees 67,589
Transfer and shareholder servicing agent fees 13,954
Other 70,035
------------
Total liabilities 9,629,304
================================================================================
Net Assets $113,579,209
============
================================================================================
Composition of Net Assets
Paid-in capital $106,924,495
- --------------------------------------------------------------------------------
Undistributed net investment income 310,788
- --------------------------------------------------------------------------------
Accumulated net realized gain on investment transactions 770,265
- --------------------------------------------------------------------------------
Net unrealized appreciation on investments--Note 3 5,573,661
------------
Net assets $113,579,209
============
16 Oppenheimer Insured Municipal Fund
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
================================================================================
Net Asset Value Per Share
Class A Shares:
Net asset value and redemption price per share (based on net assets of
$91,050,755 and 5,138,201 shares of beneficial interest outstanding) $17.72
Maximum offering price per share (net asset value plus sales charge of 4.75% of
offering price) $18.60
- --------------------------------------------------------------------------------
Class B Shares:
Net asset value, redemption price (excludes applicable contingent deferred sales
charge) and offering price per share (based on net assets of $19,974,464 and
1,126,768 shares of beneficial interest outstanding) $17.73
- --------------------------------------------------------------------------------
Class C Shares:
Net asset value, redemption price (excludes applicable contingent deferred sales
charge) and offering price per share (based on net assets of $2,553,990 and
144,171 shares of beneficial interest outstanding) $17.72
See accompanying Notes to Financial Statements.
17 Oppenheimer Insured Municipal Fund
<PAGE>
- -------------------------------------------------------------------------------
Statement of Operations For the Year Ended September 30, 1997
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Investment Income
Interest $ 6,547,674
- -------------------------------------------------------------------------------
Expenses
Management fees--Note 4 471,703
- -------------------------------------------------------------------------------
Distribution and service plan fees--Note 4:
Class A 208,515
Class B 172,866
Class C 17,146
- -------------------------------------------------------------------------------
Transfer and shareholder servicing agent fees--Note 4 114,560
- -------------------------------------------------------------------------------
Shareholder reports 77,865
- -------------------------------------------------------------------------------
Registration and filing fees:
Class A 32,265
Class B 6,816
Class C 925
- -------------------------------------------------------------------------------
Legal and auditing fees 25,409
- -------------------------------------------------------------------------------
Custodian fees and expenses 9,969
- -------------------------------------------------------------------------------
Trustees' fees and expenses 3,608
- -------------------------------------------------------------------------------
Other 7,987
------------
Total expenses 1,149,634
- -------------------------------------------------------------------------------
Net Investment Income 5,398,040
- -------------------------------------------------------------------------------
Realized and Unrealized Gain (Loss) Net realized gain (loss) on:
Investments 605,147
Closing of futures contracts (45,371)
------------
Net realized gain 559,776
- -------------------------------------------------------------------------------
Net change in unrealized appreciation or depreciation
on investments 3,288,007
------------
Net realized and unrealized gain 3,847,783
- -------------------------------------------------------------------------------
Net Increase in Net Assets Resulting from Operations $ 9,245,823
============
See accompanying Notes to Financial Statements.
18 Oppenheimer Insured Municipal Fund
<PAGE>
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended September 30,
1997 1996
==============================================================================================
<S> <C> <C>
Operations
Net investment income $ 5,398,040 $ 4,973,365
- ----------------------------------------------------------------------------------------------
Net realized gain 559,776 1,083,259
- ----------------------------------------------------------------------------------------------
Net change in unrealized appreciation or depreciation 3,288,007 310
------------- -------------
Net increase in net assets resulting from operations 9,245,823 6,056,934
==============================================================================================
Dividends and Distributions to Shareholders Dividends from net investment
income:
Class A (4,428,263) (4,254,496)
Class B (753,073) (663,202)
Class C (72,828) (27,218)
==============================================================================================
Beneficial Interest Transactions Net increase in net assets resulting from
beneficial interest transactions--Note 2:
Class A 4,293,559 5,885,988
Class B 3,315,084 2,468,411
Class C 1,554,898 714,886
==============================================================================================
Net Assets
Total increase 13,155,200 10,181,303
- ----------------------------------------------------------------------------------------------
Beginning of period 100,424,009 90,242,706
------------- -------------
End of period (including undistributed net investment
income of $310,788 and $522,255, respectively) $ 113,579,209 $ 100,424,009
============= =============
</TABLE>
See accompanying Notes to Financial Statements.
19 Oppenheimer Insured Municipal Fund
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A
---------------------------------------------------
Year Ended September 30,
1997 1996 1995 1994 1993
=================================================================================================
<S> <C> <C> <C> <C> <C>
Per Share Operating Data:
Net asset value, beginning of period $17.07 $16.86 $16.14 $18.06 $16.92
- -------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .91 .90 .90 .89 .93
Net realized and unrealized gain (loss) .63 .20 .71 (1.84) 1.35
------ ------ ------ ------ ------
Total income (loss) from investment
operations 1.54 1.10 1.61 (.95) 2.28
- -------------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income (.89) (.89) (.89) (.89) (.96)
Distributions from net realized gain -- -- -- (.08) (.18)
------ ------ ------ ------ ------
Total dividends and distributions
to shareholders (.89) (.89) (.89) (.97) (1.14)
- -------------------------------------------------------------------------------------------------
Net asset value, end of period $17.72 $17.07 $16.86 $16.14 $18.06
====== ====== ====== ====== ======
=================================================================================================
Total Return, at Net Asset Value(4) 9.25% 6.67% 10.29% (5.46)% 14.02%
=================================================================================================
Ratios/Supplemental Data:
Net assets, end of period (in thousands) $91,051 $83,516 $76,691 $67,793 $62,158
- -------------------------------------------------------------------------------------------------
Average net assets (in thousands) $86,511 $81,233 $70,650 $66,953 $45,949
- -------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income 5.25% 5.27% 5.52% 5.23% 5.40%
Expenses(7) 0.95% 1.02% 0.95% 1.05% 1.18%(6)
- -------------------------------------------------------------------------------------------------
Portfolio turnover rate(8) 76.5% 93% 58% 99% 7%
</TABLE>
1. For the period from August 29, 1995 (inception of offering) to September 30,
1995. 2. Per share amounts calculated based on the average shares outstanding
during the period. 3. For the period from May 3, 1993 (inception of offering) to
September 30, 1993. 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. The expense ratio was 1.10% net of the voluntary
assumption by the Manager.
20 Oppenheimer Insured Municipal Fund
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class B Class C
- ------------------------------------------------------ -----------------------------
Year Ended September 30, Year Ended September 30,
1997 1996 1995 1994 1993(3) 1997(2) 1996 1995(1)
=======================================================================================
<S> <C> <C> <C> <C> <C> <C> <C>
$17.08 $16.87 $16.15 $18.07 $17.33 $17.06 $16.86 $16.72
- ---------------------------------------------------------------------------------------
.76 .77 .78 .77 .30 .76 .75 .08
.65 .20 .71 (1.86) .74 .65 .21 .14
------ ------ ------ ------ ------ ------ ------ ------
1.41 .97 1.49 (1.09) 1.04 1.41 .96 .22
- ---------------------------------------------------------------------------------------
(.76) (.76) (.77) (.75) (.30) (.75) (.76) (.08)
-- -- -- (.08) -- -- -- --
------ ------ ------ ------ ------ ------ ------ ------
(.76) (.76) (.77) (.83) (.30) (.75) (.76) (.08)
- ---------------------------------------------------------------------------------------
$17.73 $17.08 $16.87 $16.15 $18.07 $17.72 $17.06 $16.86
====== ====== ====== ====== ====== ====== ====== ======
=======================================================================================
8.43% 5.87% 9.47% (6.20)% 6.04% 8.48% 5.77% 1.30%
=======================================================================================
$19,974 $15,983 $13,341 $11,571 $5,104 $2,554 $924 $211
- ---------------------------------------------------------------------------------------
$17,309 $14,822 $11,987 $9,209 $2,298 $1,720 $618 $1
- ---------------------------------------------------------------------------------------
4.48% 4.50% 4.75% 4.43% 3.99%(5) 4.45% 4.38% 4.89%(5)
1.71% 1.77% 1.71% 1.82% 1.96%(5) 1.72% 1.81% 1.07%(5)
- ---------------------------------------------------------------------------------------
76.5% 93% 58% 99% 7% 76.5% 93% 58%
</TABLE>
7. 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.
8. 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, 1997 were $93,793,427 and $80,614,521, respectively.
See accompanying Notes to Financial Statements.
21 Oppenheimer Insured Municipal Fund
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements
- --------------------------------------------------------------------------------
================================================================================
1. Significant Accounting Policies
Oppenheimer Insured Municipal Fund (the Fund) is a separate series of
Oppenheimer Municipal Fund, a diversified, open-end management investment
company registered under the Investment Company Act of 1940, as amended. The
Fund's investment objective is to seek maximum current income exempt from
federal income tax for individual investors that is consistent with the
preservation of capital by investing primarily in insured municipal bonds. The
Fund's investment advisor is OppenheimerFunds, Inc. (the Manager). The Fund
offers Class A, Class B and Class C shares. Class A shares are sold with a
front-end sales charge. Class B and Class C shares may be subject to a
contingent deferred sales charge. All 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 that class
and exclusive voting rights with respect to matters affecting that 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 an
approved portfolio pricing service are valued using dealer-supplied valuations
provided the Manager is satisfied that the firm rendering the quotes is reliable
and that the quotes reflect current market value, or are valued under
consistently applied procedures established by the Board of Trustees to
determine fair value in good faith. Short-term "money market type" debt
securities having a remaining maturity of 60 days or less are valued at cost (or
last determined market value) adjusted for amortization to maturity of any
premium or discount. Options are valued based upon the last sale price on the
principal exchange on which the option is traded or, in the absence of any
transactions that day, the value is based upon the last sale price on the prior
trading date if it is within the spread between the closing bid and asked
prices. If the last sale price is outside the spread, the closing bid is used.
- --------------------------------------------------------------------------------
Allocation of Income, Expenses, 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.
22 Oppenheimer Insured Municipal Fund
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
================================================================================
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.
- --------------------------------------------------------------------------------
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 on long-term bonds for tax purposes.
The character of the distributions made during the year from net investment
income or net realized gains may differ from its ultimate characterization for
federal income tax purposes. Also, due to timing of dividend distributions, the
fiscal year in which amounts are distributed may differ from the fiscal year in
which the income or realized gain was recorded by the Fund.
The Fund adjusts the classification of distributions to
shareholders to reflect the differences between financial statement amounts and
distributions determined in accordance with income tax regulations. Accordingly,
during the year September 30, 1997, amounts have been reclassified to reflect a
decrease in undistributed net investment income of $355,343, an increase in
accumulated net realized gain on investments of $651,828, and a decrease in
paid-in capital of $296,485.
- --------------------------------------------------------------------------------
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 using the effective
yield method, 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.
23 Oppenheimer Insured Municipal Fund
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (Continued)
- --------------------------------------------------------------------------------
================================================================================
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, 1997 Year Ended September 30, 1996
--------------------------- -----------------------------
Shares Amount Shares Amount
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A:
Sold 925,621 $16,067,826 1,069,278 $18,269,113
Dividends and distributions
reinvested 190,616 3,300,646 184,862 3,140,861
Redeemed (870,242) (15,074,913) (909,988) (15,523,986)
-------- ------------ --------- -----------
Net increase 245,995 $ 4,293,559 344,152 $ 5,885,988
======== ============ ========= ===========
- -------------------------------------------------------------------------------------------
Class B:
Sold 328,196 $ 5,695,198 287,568 $ 4,899,080
Dividends and distributions
reinvested 28,559 494,913 24,663 419,151
Redeemed (165,697) (2,875,027) (167,327) (2,849,820)
-------- ------------ --------- -----------
Net increase 191,058 $ 3,315,084 144,904 $ 2,468,411
======== ============ ========= ===========
- -------------------------------------------------------------------------------------------
Class C:
Sold 106,290 $ 1,838,223 48,380 $ 826,936
Dividends and distributions
reinvested 2,660 46,164 290 4,884
Redeemed (18,976) (329,489) (6,988) (116,934)
-------- ------------ --------- -----------
Net increase 89,974 $ 1,554,898 41,682 $ 714,886
======== ============ ========= ===========
</TABLE>
================================================================================
3. Unrealized Gains and Losses on Investments
At September 30, 1997, net unrealized appreciation on investments of $5,573,661
was composed of gross appreciation of $5,715,604, and gross depreciation of
$141,943.
================================================================================
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 acts as the accounting agent for the Fund at an
annual fee of $12,000, plus out-of-pocket costs and expenses reasonably
incurred.
24 Oppenheimer Insured Municipal Fund
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
================================================================================
For the year ended September 30, 1997, commissions (sales charges paid by
investors) on sales of Class A shares totaled $164,201, of which $35,272 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 $222,466 and $18,115, respectively, of which $2,152 and
$1,686, respectively, was paid to an affiliated broker/dealer for Class B and
Class C shares. During the year ended September 30, 1997, OFDI received
contingent deferred sales charges of $53,881 upon redemption of Class B shares,
as reimbursement for sales commissions advanced by OFDI at the time of sale of
such shares.
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.
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 shareholder 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 maintaining accounts
of their customers that hold Class A shares. During the year ended September 30,
1997, OFDI paid $9,873 to an affiliated broker/dealer as reimbursement for Class
A personal service and maintenance expenses.
The Fund has adopted 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
and Class C shares, as compensation for sales commissions paid from its own
resources at the time of sale and associated financing costs. 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, 1997, OFDI paid $2,397, to an affiliated
broker/dealer as compensation for Class B personal service and maintenance
expenses and retained $141,004 and $12,061, respectively, as compensation for
Class B and Class C sales commissions and service fee advances, as well as
financing costs. If either Plan is terminated by the Fund, the Board of Trustees
may allow the Fund to continue payments of the asset-based sales charge to OFDI
for distributing shares before the Plan was terminated. At September 30, 1997,
OFDI had incurred unreimbursed expenses of $695,667 for Class B and $36,319 for
Class C.
25 Oppenheimer Insured Municipal Fund
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (Continued)
- --------------------------------------------------------------------------------
================================================================================
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 (initial margin) in an amount equal to a
certain percentage of the contract value. Subsequent payments (variation margin)
are made or received by the Fund each day. The variation margin payments are
equal to the daily changes in the contract value and are recorded as unrealized
gains and losses. The Fund 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.
================================================================================
6. Bank Borrowings
The Fund may borrow from a bank for temporary or emergency purposes including,
without limitation, funding of shareholder redemptions provided asset coverage
for borrowings exceeds 300%. The Fund has entered into an agreement which
enables it to participate with other OppenheimerFunds in an unsecured line of
credit with a bank, which permits borrowings up to $400 million, collectively.
Interest is charged to each fund, based on its borrowings, at a rate equal to
the Federal Funds Rate plus 0.35%. Borrowings are payable 30 days after such
loan is executed. The Fund also pays a commitment fee equal to its pro rata
share of the average unutilized amount of the credit facility at a rate of
0.0575% per annum.
The Fund had no borrowings outstanding during the year ended
September 30, 1997.
APPENDIX A
Descriptions of Ratings Categories
Municipal Bonds
|X| Moody's Investor Services, Inc. The ratings of Moody's Investors
Service, Inc. ("Moody's") for Municipal Bonds are Aaa, Aa, A, Baa, Ba, B, Caa,
Ca and C. Municipal Bonds rated "Aaa" are judged to be of the "best quality."
The rating of 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 Bonds. The
"Aaa" and "Aa" rated bonds comprise what are generally known as "high grade
bonds." Municipal Bonds 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 A rated bonds are
considered adequate, but elements may be present which suggest a susceptibility
to impairment at some time in the future. Municipal Bonds 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. Such bonds lack
outstanding investment characteristics and in fact have speculative
characteristics as well. Bonds which are rated "Ba" are judged to have
speculative elements; their future cannot be considered as well assured. Often
the protection of interest and principal payments may be very moderate and
thereby not well safeguarded during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class. Bonds which are rated
"B" generally lack characteristics of the desirable investment. Assurance of
interest and principal payments or of maintenance of other terms of the contract
over any long period of time may be small. Bonds which are rated "Caa" are of
poor standing. Such issues may be in default or there may be present elements of
danger with respect to principal or interest. Bonds which are rated "Ca"
represent obligations which are speculative in a high degree. Such issues are
often in default or have other marked shortcomings. Bonds which are rated "C"
are the lowest rated class of bonds, and issues so rated can be regarded as
having extremely poor prospects of ever attaining any real investment standing.
Those bonds in the Aa, A, Baa, Ba and B groups which Moody's believes possess
the strongest investment attributes are designated Aa1, A1, Baa1, Ba1 and B1
respectively.
In addition to the alphabetic rating system described above, Municipal
Bonds rated by Moody's which have a demand feature that provides the holder with
the ability to periodically 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.
|X| Standard & Poor's Corporation. The ratings of Standard & Poor's
Corporation ("S&P") for Municipal Bonds are AAA (Prime), AA (High Grade), A
(Good Grade), BBB (Medium Grade), BB, B, CCC, CC, and C (speculative grade).
Bonds rated in the top four categories (AAA, AA, A, BBB) are commonly referred
to as "investment grade." Municipal Bonds rated AAA are "obligations of the
highest quality." The rating of AA is accorded issues with investment
characteristics "only slightly less marked than those of the prime quality
issues." The rating of 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 obligations 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 , 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. Bonds rated "BB" have
less near-term vulnerability to default than other speculative issues. However,
it faces major ongoing uncertainties or exposure to adverse business, financial,
or economic conditions which would lead to inadequate capacity to meet timely
interest and principal payments. Bonds rated "B" have a greater vulnerability to
default, but currently has the capacity to meet interest payments and principal
repayments. Adverse business, financial, or economic conditions will likely
impair capacity or willingness to pay interest and repay principal. Bonds rated
"CCC" have a current identifiable vulnerability to default, and is dependent
upon favorable business, financial, and economic conditions to meet timely
payment of interest and repayment of principal. In the event of adverse
business, financial, or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. Bonds noted "CC" typically are
debt subordinated to senior debt which is assigned on actual or implied "CCC"
debt rating.
Bonds rated "C" typically are debt subordinated to senior debt which is
assigned an actual or implied "CCC-" debt rating. The "C" rating may be used to
cover a situation where a bankruptcy petition has been filed, but debt service
payments are continued. Bonds rated "D" are in payment default. The "D" rating
category is used when interest payments or principal payments are not made on
the date due even if the applicable grace period has not expired, unless S&P
believes that such payments will be made during the grace period. The "D" rating
also will be used upon the filing of a bankruptcy petition if debt service
payments are jeopardized. The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
|X| Fitch. The ratings of Fitch Investors Service, Inc. for Municipal
Bonds are AAA, AA, A, BBB, BB, B, CCC, CC, C, DDD, DD, and D. Municipal Bonds
rated AAA are judged to be of the "highest credit quality." The rating of AA is
assigned to bonds of "very high credit quality." Municipal Bonds which are rated
A by Fitch are considered to be of "high credit quality." The rating of BBB is
assigned to bonds of "satisfactory credit quality." The A and BBB rated bonds
are more vulnerable to adverse changes in economic conditions than bonds with
higher ratings. Bonds rated AAA, AA, A and BBB are considered to be of
investment grade quality. Bonds rated below BBB are considered to be of
speculative quality. The ratings of "BB" is assigned to bonds considered by
Fitch to be "speculative." The rating of "B" is assigned to bonds considered by
Fitch to be "highly speculative." Bonds rated "CCC" have certain identifiable
characteristics which, if not remedied, may lead to default. Bonds rated "CC"
are minimally protected. Default in payment of interest and/or principal seems
probable over time. Bonds rated "C" are in imminent default in payment of
interest or principal. Bonds rated "DDD", "DD" and "D" are in default on
interest and/or principal payments. DDD represents the highest potential for
recovery on these bonds, and D represents the lowest potential for recovery.
o Duff & Phelps. The ratings of Duff & Phelps are as follows: AAA which
are judged to be the "highest credit quality". The risk factors are negligible,
being only slightly more than for risk-free US Treasury debt. AA+, AA & AA- High
credit quality protection factors are strong. Risk is modest but may vary
slightly from time to time because of economic conditions. A+, A & A-Protection
factors are average but adequate. However, risk factors are more variable and
greater in periods of economic stress. BBB+, BBB & BBB- Below average protection
factors but still considered sufficient for prudent investment. Considerable
variability in risk during economic
cycles. BB+, BB & BB- Below
investment grade but deemed to meet obligations when due. Present or prospective
financial protection factors fluctuate according to industry conditions or
company fortunes. Overall quality may move up or down frequently within the
category. B+, B & B- Below investment grade and possessing risk that obligations
will not be met when due. Financial protection factors will fluctuate widely
according to economic cycles, industry conditions and/or company fortunes.
Potential exists for frequent changes in the rating within this category or into
a higher of lower rating grade. CCC Well below investment grade securities.
Considerable uncertainty exists as to timely payment of principal interest or
preferred dividends. Protection factors are narrow and risk can be substantial
with unfavorable economic industry conditions, and/or with unfavorable company
developments. DD Defaulted debt obligations issuer failed to meet scheduled
principal and/or interest payments. DP Preferred stock with dividend averages.
Municipal Notes
|X| 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 as
large as notes rated "MIG ." 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.
|X| S&P's rating for Municipal Notes due in three years or less are SP-1,
SP-2, and SP-3. SP-1 describes issues with a very strong capacity to pay
principal and interest and compares with bonds rated A by S&P; if modified by a
plus sign, it compares with bonds rated "SP2" AA or AAA by S&P. SP-2 describes
issues with a satisfactory capacity to pay principal and interest, and compares
with bonds rated BBB by S&P. SP-3 describes issues that have a speculative
capacity to pay principal and interest.
|X| Fitch's rating for Municipal Notes due in three years or less are
F-1+, F-1, F-2, F-3, F-S and D. F-1+ describes notes with an exceptionally
strong credit quality and the strongest degree of assurance for timely payment.
F-1 describes notes with a very strong credit quality and assurance of timely
payment is only slightly less in degree than issues rated F-1+. F-2 describes
notes with a good credit quality and a satisfactory assurance of timely payment,
but the margin of safety is not as great for issues assigned F-1+ or F-1
ratings. F-3 describes notes with a fair credit quality and an adequate
assurance of timely payment, but near-term adverse changes could cause such
securities to be rated below investment grade. F-S describes notes with weak
credit quality. Issues rated D are in actual or imminent payment default.
Corporate Debt
The "other debt securities" included in the definition of temporary
investments are corporate (as opposed to municipal) debt obligations. The
Moody's, S&P and Fitch corporate debt ratings shown do not differ materially
from those set forth above for Municipal Bonds.
Commercial Paper
|X| Moody's The ratings of commercial paper by Moody's are Prime-1,
Prime-2, Prime-3 and Not Prime. Issuers rated Prime-1 have a superior capacity
for repayment of short-term promissory obligations. Issuers rated Prime-2 have a
strong capacity for repayment of short-term promissory obligations. Issuers
rated Prime-3 have an acceptable capacity for repayment of short-term promissory
obligations. Issuers rated Not Prime do not fall within any of the Prime rating
categories.
|X| S&P The ratings of commercial paper by S&P are A-1, A-2, A-3, B, C,
and D. A-1 indicates that the degree of safety regarding timely payment is
strong. A-2 indicates capacity for timely payment is satisfactory. However, the
relative degree of safety is not as high as for issues designated A-1. A-3
indicates an adequate capacity for timely payments. They are, however, more
vulnerable to the adverse effects of changes in circumstances than obligations
carrying the higher designations. B indicates only speculative capacity for
timely payment. C indicates a doubtful capacity for payment. D is assigned to
issues in default.
|X| Fitch The ratings of commercial paper by Fitch are similar to its
ratings of Municipal Notes, above.
<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, 1997. 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.
Federal
Effective An Oppenheimer Insured Municipal Fund Yield of
:
Taxabl3.00%3.50% 3.56% 3.88% 4.00% 4.16% 4.29% 4.30% 4.50% Income Bracket Is
Approximately Equivalent To a Taxable Yield of:
JOINT RETURN
Over Not over
$ $ 41,20015.00% 3.53% 4.12% 4.19% 4.56%4.71% 4.89% 5.05%5.06%
5.29%
$ 41,200 $ 99,60028.00% 4.17% 4.86% 4.94% 5.39%5.56% 5.78% 5.96%5.97%
6.25%
$ 99,600 $151,75031.00% 4.35% 5.07% 5.16% 5.62%5.80% 6.03% 6.22%6.23%
6.52%
$151,750 $271,05036.00% 4.69% 5.47% 5.56% 6.06%6.25% 6.50% 6.70%6.72%
7.03%
$271,050 and abov39.60% 4.97% 5.79% 5.89% 6.42%6.62% 6.89% 7.10%7.12%
7.45%
4.82% 6.50% 7.00% 7.50%
5.67% 7.65% 8.24% 8.82% 6.69% 9.03% 9.72%10.42% 6.99%
9.42% 10.14%10.87% 7.53% 10.16% 10.94%10.94% 7.98%
10.76% 11.59%12.42%
SINGLE RETURN
Over Not over 3.00% 3.50% 3.56% 3.88%4.00% 4.16% 4.29% 4.30%
- ---- --------
4.50%
$ $ 24,65015.00% 3.53% 4.12% 4.19% 4.56%4.71% 4.89% 5.05%5.06%
5.29%
$ 24,650 $ 59,75028.00% 4.17% 4.86% 4.94% 5.39%5.56% 5.78% 5.96%5.97%
6.25%
$ 59,750 $124,65031.00% 4.35% 5.07% 5.16% 5.62%5.80% 6.03% 6.22%6.23%
6.52%
$124,650 $271,05036.00% 4.69% 5.47% 5.56% 6.06%6.25% 6.50% 6.70%6.72%
7.03%
$271,050 and abov39.60% 4.97% 5.79% 5.89% 6.42%6.62% 6.89% 7.10%7.12%
7.45%
4.82% 6.50% 7.00% 7.50%
5.67% 7.65% 8.24% 8.82% 6.69% 9.03% 9.72%10.42% 6.99%
9.42% 10.14%10.87% 7.53% 10.16% 10.94%10.94% 7.98%
10.76% 11.59%12.42%
B-1
<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
