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Oppenheimer Intermediate Municipal Fund
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Prospectus dated January 29, 1999
Oppenheimer Intermediate Municipal Fund is a mutual fund. It seeks a high
level of current income exempt from Federal income tax by investing in municipal
securities.
This Prospectus contains important information about the Fund's objective,
its investment policies, strategies and risks. It also contains important
information about how to buy and sell shares of the Fund and other account
features. Please read this Prospectus carefully before you invest and keep it
for future reference about your account.
(logo) OppenheimerFunds, Inc.
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved the Fund's securities nor has it been determined that
this Prospectus is accurate or complete. It is a criminal offense to represent
otherwise.
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Contents
About The Fund
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The Fund's Objective and Investment Strategies
Main Risks of Investing in the Fund
The Fund's Past Performance
Fees and Expenses of the Fund
About the Fund's Investments
How the Fund is Managed
About Your Account
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How to Buy Shares
Class A Shares
Class B Shares
Class C Shares
Special Investor Services
AccountLink
PhoneLink
OppenheimerFunds Web Site
How to Sell Shares
By Mail
By Telephone
By Checkwriting
How to Exchange Shares
Shareholder Account Rules and Policies
Dividends and Tax Information
Financial Highlights
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<PAGE>
About the Fund
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The Fund's Objective and Investment Strategies
What Does the Fund Invest In? The Fund normally invests at least 80% of its
total assets in investment-grade municipal securities. These securities include
municipal bonds (which are debt obligations having a maturity of more than one
year when issued), municipal notes (short term obligations), interests in
municipal leases, and tax-exempt commercial paper. "Investment-grade" securities
are securities rated in the four highest rating categories of national rating
organizations such as Moody's Investors Services or unrated securities judged by
he Fund's investment Manager, OppenheimerFunds, Inc., to be comparable to
securities rated as investment grade.
The Fund seeks to maintain an average effective portfolio duration
(measured on a dollar-weighted basis) of more than 4.5 years but not more than
8.0 years to try to reduce the volatility of the values of its securities
portfolio. However, the Fund can invest in securities that have short,
intermediate or long maturities. Because of events affecting the bond markets
and interest rate changes, the duration of the portfolio might not meet that
target at all times.
The Fund can also use hedging instruments and certain derivative
investments to a limited extent to try to manage duration and investment risks.
These investments are more fully explained in "About the Fund's Investments,"
below.
|X| How Does the Manager Decide What Securities to Buy or Sell? In
selecting securities for the Fund, the Manager currently looks nationwide for
municipal securities by considering a variety of factors which may change over
time and may vary in particular cases. Currently the Fund's portfolio manager
looks for:
|_| Securities that offer high income,
|_| A wide range of issuers and securities to provide portfolio
diversification,
|_| Securities having investment-grade credit characteristics, and
|_| Special situations among issuers that provide opportunities
for value.
Who Is the Fund Designed For? The Fund is designed for investors who are seeking
income exempt from federal income taxes. It does not seek capital gains or
growth. Because it invests in tax-exempt securities, the Fund is not appropriate
for retirement plan accounts or for investors who want to pursue capital growth.
Main Risks of Investing in the Fund
All investments carry risks to some degree. For bond funds one risk is that the
market prices of the fund's investments will fluctuate when general interest
rates change (this is known as "interest rate risk"). Another risk is that the
issuer of the bond will experience financial difficulties and may default on its
obligation 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.
These risks collectively form the risk profile of the Fund and can affect
the value of the Fund's investments, its investment performance, and the prices
of its shares. These risks mean that you can lose money by investing in the
Fund. When you redeem your shares, they may be worth more or less than what you
paid for them.
The Fund's Manager tries to reduce risks by diversifying investments, by
carefully researching securities before they are purchased and in some cases by
using hedging techniques. However, changes in the overall market prices of
municipal securities and the income they pay can occur at any time. The yield
and share price of the Fund will change daily based on changes in interest rates
and market conditions, and in response to other economic events. There is no
assurance that the Fund will achieve its investment objective.
An investment in the Fund is not a deposit of any bank, and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
|X| Credit Risk. Municipal securities are subject to credit risk. Credit
risk relates to the ability of the issuer of a municipal security to make
interest and principal payments on the security as they become due. If the
issuer fails to pay interest, the Fund's income might be reduced, and if the
issuer fails to repay principal, the value of that security and of the Fund's
shares might be reduced. To help reduce credit risks, the Fund focuses on
investing in investment-grade securities. However, credit ratings are not
guarantees of an issuer's timely payments of its obligations.
|X| Interest Rate Risks. In addition to credit risks, municipal securities
are subject to changes in value when prevailing interest rates change. When
interest rates fall, the values of outstanding municipal securities generally
rise, and the bonds may sell for more than their face amount. When interest
rates rise, the values of outstanding municipal securities generally fall, and
the bonds may sell at a discount from their face amount.
The magnitude of these price changes is generally greater for bonds with longer
maturities and durations. Although the Fund attempts to limit its effective
average portfolio duration to not more than 8 years, the Fund can hold
securities having maturities of more than 8 years to seek higher income. When
the Fund holds securities with long maturities, it will seek to manage its
average portfolio's duration with other investment techniques. When the average
duration of the Fund's portfolio is longer, its share price may fluctuate more
when interest rates change. However, the Fund's duration management strategy
could be unsuccessful, so that the prices of its portfolio securities could be
more volatile than anticipated.
|X| There Are Special Risks in Using Derivative Investments. The Fund can
use derivatives to seek increased returns or to try to hedge investment risks.
In general terms, a derivative investment is an investment contract whose value
depends on (or is derived from) the value of an underlying asset, interest rate
or index. Options, futures, "inverse floaters" and interest rate swaps are
examples of derivatives the Fund can use.
If the issuer of the derivative investment does not pay the amount due,
the Fund can lose money on its investment. Also, the underlying security or
investment on which the derivative is based, and the derivative itself, might
not perform the way the Manager expected it to perform. If that happens, the
Fund will get less income than expected or its share price could decline. The
Fund has limits on the amount of particular types of derivatives it can hold.
However, using derivatives can cause the Fund to lose money on its investments
and/or increase the volatility of its share prices.
How Risky Is the Fund Overall? The value of the Fund's investments in municipal
securities will change over time due to a number of factors. They include
changes in general bond market movements, the change in value of particular
bonds because of an event affecting the issuer, or changes in interest rates
that can affect bond prices overall. These changes can affect the value of the
Fund's investments and its price per share. While the Fund's goal of managing
the volatility of its portfolio by limiting its affective average portfolio
duration may help reduce fluctuations in the Fund's share price, unanticipated
events can affect the duration of bonds and reduce the effectiveness of that
strategy. The Fund can invest in derivative investments. These have additional
risks and can cause fluctuations in the Fund's share prices. In the
OppenheimerFunds spectrum, the Fund is more conservative than some types of
taxable bond funds, such as high yield bond funds, but more aggressive than
money market funds.
The Fund's Past Performance
The bar chart and table below show one measure of the risks of investing in the
Fund, by showing changes in the Fund's performance (for its Class A shares) from
year to year for the last ten calendar years and by showing how the average
annual total returns of the Fund's shares compare to those of a broad-based
market index. The Fund's past investment performance is not necessarily an
indication of how the Fund will perform in the future.
[see appendix to the prospectus for data in bar chart showing annual total
returns.]
Sales charges are not included in the calculations of return in this bar chart,
and if those charges were included, the returns would be less than those shown.
During the 10-year period shown in the bar chart, the highest return (not
annualized) for a calendar quarter was 6.06% (2nd Q '89) and the lowest return
for a calendar quarter (not annualized) was -4.59% (1st Q '94).
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Average Annual Total 5 Years 10 years
Returns for the periods (or life of (or life of
ended December 31, 1998 1 Year class, class,
if less) if less)
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Class A Shares (inception 2.43% 4.94% 7.28%
11/11/86)
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Lehman Brothers Municipal
Bond Index (from 12/31/88) 6.48% 6.22% 8.22%
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Class B Shares (inception 1.28% 5.66% N/A
9/11/95)
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Lehman Brothers Municipal
Bond Index (from 8/31/95) 6.48% 7.49% N/A
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Class C Shares 4.36% 4.82% 5.06%
(inception 12/1/93)
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Lehman Brothers Municipal
Bond Index (from 11/30/93) 6.48% 6.22% 6.55%
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The Fund's average annual total returns in the table include the applicable
sales charge: for Class A, the current maximum initial sales charge of 3.50%;
for Class B, the applicable contingent deferred sales charges of 4% (1-year) and
2.0% (life of class); for Class C, the 1% contingent deferred sales charge for
the 1-year period.
The returns measure the performance of a hypothetical account and assume that
all dividends and capital gains distributions have been reinvested in additional
shares. Because the Fund invests in a variety of municipal securities, the
Fund's performance is compared to the Lehman Brothers Municipal Bond Index, an
unmanaged index of a broad range of investment grade municipal bonds that is a
measure of the performance of the general municipal bond market. However, it
must be remembered that the index performance does not consider the effects of
transaction costs and that the Fund's investments are not limited to the
securities in the index.
Fees and Expenses of the Fund
The Fund pays a variety of expenses directly for management of its assets,
administration, distribution of its shares and other services. Those expenses
are subtracted from the Fund's assets to calculate the Fund's net asset 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
the fees and expenses you may pay if you buy and hold shares of the Fund. The
numbers below are based on the Fund's expenses during the fiscal year ended
September 30, 1998.
Shareholder Fees (charges paid directly from your investment):
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Class A Class B Class C
Shares Shares Shares
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Maximum Sales Charge (Load) 3.50% None None
on
Purchases (as a % of offering
price)
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Maximum Deferred Sales Charge None1 4%2 1%3
(Load) (as % of the lower of
the
original offering price or
redemption proceeds)
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1 A 1% contingent deferred sales charge may apply to redemptions of investments
of $1 million or more of Class A shares. See "How to Buy Shares" for details.
2 Applies to redemptions in first year after purchase. The contingent deferred
sales charge declines to 1% in the fifth year and is eliminated after that.
3 Applies to shares redeemed within 12 months of purchase.
Annual Fund Operating Expenses (deducted from Fund assets):
(% of average daily net assets)
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Class A Class B Class C
Shares Shares Shares
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Management Fees 0.49% 0.49% 0.49%
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Distribution and/or Service (12b-1) 0.24% 1.00% 1.00%
Fees
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Other Expenses 0.21% 0.20% 0.20%
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Total Annual Operating Expenses 0.94% 1.69% 1.69%
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Expenses may vary in future years. "Other expenses" include transfer agent fees,
custodial fees, and accounting and legal expenses the Fund pays.
Examples. These examples are intended to help you compare the cost of investing
in the Fund with the cost of investing in other mutual funds. The examples
assume that you invest $10,000 in a class of shares of the Fund for the time
periods indicated, and reinvest your dividends and distributions.
The first example assumes that you redeem all of your shares at the end of those
periods. The second example assumes you keep your shares. Both examples also
assume that your investment has a 5% return each year and that the class's
operating expenses remain the same. Your actual costs may be higher or lower
because expenses will vary over time. Based on these assumptions your expenses
would be as follows:
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If shares are redeemed: 1 year 3 years 5 years 10 years1
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Class A Shares $443 $639 $852 $1,464
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Class B Shares $572 $733 $1,018 $1,616
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Class C Shares $272 $533 $918 $1,998
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If shares are not redeemed: 1 year 3 years 5 years 10 years1
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Class A Shares $443 $639 $852 $1,464
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Class B Shares $172 $533 $918 $1,616
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Class C Shares $172 $533 $918 $1,998
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In the first example, expenses include the initial sales charge for Class A and
the applicable Class B or Class C contingent deferred sales charges. In the
second example, the Class A expenses include the sales charge, but Class B and
Class C expenses do not include contingent deferred sales charges.
1. Class B expense for years 7 through 10 are based on Class A expenses, since
Class B shares automatically convert to Class A after 6 years.
About the Fund's Investments
The Fund's Principal Investment Policies. The allocation of the Fund's portfolio
among the different types of investments the Fund is permitted to buy will vary
over time based on the Manager's evaluation of economic and market conditions.
The Fund's portfolio might not always include all of the different types of
investments described below. The Statement of Additional Information contains
more detailed information about the Fund's investment policies and risks.
|X| What Municipal Securities Does the Fund Invest In? The Fund buys
municipal bonds and notes, tax-exempt commercial paper, certificates of
participation in municipal leases and other debt obligations. These are debt
obligations issued by the governments of states, their political subdivisions
(such as cities, towns and counties), the District of Columbia, or by their
agencies, instrumentalities and authorities, if the interest paid on the
security is not subject to Federal individual income tax in the opinion of bond
counsel to the issuer at the time the security is issued. The Fund can also buy
securities issued by any commonwealths, territories or possessions of the United
States, or their respective agencies, instrumentalities or authorities, if the
interest paid on the security is not subject to Federal individual income tax
(in the opinion of bond counsel to the issuer at the time the security is
issued). All of these types of debt obligations are referred to as "municipal
securities" in this prospectus.
Municipal securities are issued to raise money for a variety of public or
private purposes, including financing state or local governments, specific
projects or public facilities. The Fund can invest in municipal securities that
are "general obligations," secured by the issuer's pledge of its full faith,
credit and taxing power for the payment of principal and interest.
The Fund can also buy "revenue obligations," whose interest is payable
only from the revenues derived from a particular facility or class of
facilities, or a specific excise tax or other revenue source. Some of these
revenue obligations are private activity bonds that pay interest that may be a
tax preference for investors subject to alternative minimum tax.
|X| What Does the "Duration" of the Fund's Portfolio Mean? "Effective
portfolio duration" refers to the expected percentage change in the value of a
debt security resulting from a change in general interest rates (measured by
each 1% change in the rates on U.S. Treasury securities). For example, if a bond
has an effective duration of three years, a 1% increase in general interest
rates would be expected to cause the bond to decline in value by 3%. The
"maturity" of a security (the date when its principal repayment is due) differs
from effective duration, which attempts to measure the expected volatility of a
security's price.
The Fund measures the duration of its entire portfolio of securities, on a
dollar-weighted basis, to try to maintain an effective average duration of its
portfolio between 4.5 and 8 years, under normal market conditions (that is, when
financial markets are not in an unstable to volatile state). However, duration
cannot be relied on as an prediction of future volatility. There can be no
assurance that the Fund will achieve its targeted portfolio duration at all
times.
Duration calculations rely on a number of assumptions and variables based
on the historic performance of similar securities. Therefore, duration can be
affected by unexpected economic events or conditions relating to a particular
security, and in times of great market volatility, the duration calculation for
a security might not be correct.
|X| Ratings of Municipal Securities the Fund Buys. Under normal market
conditions, the Fund will invest at least 80% of its total assets in "investment
grade" municipal securities. "Investment grade" securities are those rated
within the four highest rating categories of Moody's, Standard & Poor's, Fitch
or Duff & Phelps or another nationally recognized rating organization, or (if
unrated) judged by the Manager to be comparable to securities rated as
investment grade. Rating categories are described in Appendix A to the Statement
of Additional Information. If securities the Fund buys are not rated, the
Manager will use its judgment to assign a rating category that it believes is
equivalent to that of a rating agency.
The Manager relies to some extent on credit ratings by nationally
recognized rating agencies in evaluating the credit risk of securities selected
for the Fund's portfolio. It also uses its own research and analysis to evaluate
risks. Many factors affect an issuer's ability to make timely payments, and the
credit risks of a particular security might change over time. A reduction in the
rating of a security after its purchase by the Fund will not automatically
require the Fund to dispose of that security. However, the Manager will evaluate
those securities to determine whether to keep them in the Fund's portfolio.
|_| Special Credit Risks of Lower-Grade Securities. Lower-grade municipal
securities usually offer higher yields than investment grade securities buy they
are subject to greater market fluctuations and risks of loss of income and
principal than investment grade municipal securities. Securities that are (or
that have fallen) below investment grade have a greater risk that the issuers of
those securities might not meet their debt obligations. However, limiting its
investments in non-investment grade municipal securities to not more than 20% of
its total assets, helps the Fund reduce the effect of some of these risks on its
share price and income.
|X| Municipal Lease Obligations. Municipal leases are used by state and
local government authorities to obtain funds to acquire land, equipment or
facilities. The Fund may invest in certificates of participation that represent
a proportionate interest in payments made under municipal lease obligations. If
the government stops making payments or transfers its payment obligations to a
private entity, the obligation could lose value or become taxable. Some of these
obligations might not have an active trading market and would be subject to the
fund's limits on "illiquid" securities described below.
|X| Can the Fund's Investment Objective and Policies Change? The Fund's
Board of Trustees can change non-fundamental policies without shareholder
approval, although significant changes will be described in amendments to this
Prospectus. Fundamental policies are those that cannot be changed without the
approval of a majority of the Fund's outstanding voting shares. The Fund's
investment objective is a fundamental policy. The Statement of Additional
Information lists investment restrictions that are fundamental policies. An
investment policy is not fundamental unless this Prospectus or the Statement of
Additional Information says that it is.
Other Investment Strategies. To seek its objective, the Fund can also use the
investment techniques and strategies described below. The Manager might not
always use all of the different types of techniques and investments described
below. These techniques involve certain risks although some of them are designed
to help reduce investment or market the risks.
|X| Floating Rate/Variable Rate Obligations. Some of the municipal
securities the Fund can purchase have variable or floating interest rates.
Variable rates are adjustable at stated periodic intervals. Floating rates are
automatically adjusted according to a specified market rate for such
investments, such as the percentage of the prime rate of a bank, or the 91-day
U.S. Treasury Bill rate. These obligations may be secured by bank letters of
credit or other credit support arrangements.
|_| Inverse Floaters Have Special Risks. Certain types of variable rate
bonds known as "inverse floaters" pay interest at rates that vary 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. As interest rates rise, inverse floaters produce
less current income, and their market value can become volatile. Inverse
floaters are a type of "derivative security." Some have a "cap," so that if
interest rates rise above the "cap," the security pays additional interest
income. If rates do not rise above the "cap," the Fund will have paid an
additional amount for a feature that proves worthless. The Fund anticipates that
it will invest no more than 10% of its total assets in inverse floaters.
|X| Other Derivatives. The Fund can also invest in other municipal
derivative securities that pay interest that depends on changes in price or
value of an index or another investment. Examples of those derivatives are
interest rate swaps, and futures based on municipal bond indices.
|X| "When-Issued" and "Delayed-Delivery" Transactions. The Fund can
purchase municipal securities on a "when-issued" basis and may purchase or sell
such 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. The Fund does not intend to make such
purchases for speculative purposes. During the period between the purchase and
settlement, no payment is made for the security and no interest accrues to the
buyer from the investment. There is a risk of loss to the Fund if the value of
the security declines prior to the settlement date.
|X| Puts and Stand-By Commitments. The Fund can acquire "stand-by
commitments" or "puts" with respect to municipal securities. These investments
give the Fund the right to sell the securities at a set price on demand to the
issuing broker-dealer or bank. However, a security having this feature may have
a lower interest rate. The Fund will acquire stand-by commitments or puts solely
to enhance portfolio liquidity.
|X| Illiquid and Restricted Securities. Under the policies and procedures
established by the Fund's Board of Trustees, the Manager determines the
liquidity 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
precisely 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 can increase that limit to 15%). Certain restricted securities that
are eligible for resale to qualified institutional purchasers may not be subject
to that limit. The Manager monitors holdings of illiquid securities on an
ongoing basis to determine whether to sell any holdings to maintain adequate
liquidity.
|X| Hedging. The Fund can purchase and sell certain kinds of futures
contracts, put and call options, and options on futures and broadly-based
municipal bond indices, or enter into interest rate swap agreements. These are
all referred to as "hedging instruments." The Fund does not use hedging
instruments for speculative purposes, and has limits on the use of them. The
Fund does not use hedging instruments to a substantial degree and is not
required to use them in seeking its goal.
The Fund could buy and sell options and futures for a number of purposes.
It might do so to try to manage its exposure to the possibility that the prices
of its portfolio securities may decline, or to establish a position in the
securities market as a temporary substitute for purchasing individual
securities. It might do so to try to manage its exposure to changing interest
rates.
If the Manager used a hedging instrument at the wrong time or judged
market conditions incorrectly, the strategy could 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, interest rate swaps are subject to credit risks and
also to interest rate risks. The Fund could be obligated to pay more under its
swap agreements than it receives under them, as a result of interest rate
changes. The Fund may not enter into swaps with respect to more than 25% of its
total assets.
Temporary Defensive Investments. The Fund can invest up to 100% of its total
assets in temporary defensive investments from time to time. This could happen
during periods of volatile or adverse market conditions. Generally the Fund's
defensive investments would be short-term municipal securities but could be U.S.
government securities or highly-rated corporate debt securities. The income from
some of those temporary defensive investments might not be tax-exempt, and
therefore when making those investments the Fund might not achieve its
objective.
Under normal market conditions, the Fund can also hold these types of
investments for cash management purposes (in amounts not exceeding 20% of its
total assets) pending the investment of proceeds from the sale of Fund shares or
portfolio securities, or to meet anticipated redemptions of Fund shares. The
Fund may invest up to 20% of its assets in taxable investments under normal
market conditions.
Year 2000 Risks. Because many computer software systems in use today cannot
distinguish the year 2000 from the year 1900, the markets for securities in
which the Fund invests could be detrimentally affected by computer failures
beginning January 1, 2000. Failure of computer systems used for securities
trading could result in settlement and liquidity problems for the Fund and other
investors. That failure could have a negative impact on handling securities
trades, pricing and accounting services. Data processing errors by government
issuers of securities could result in economic uncertainties, and those issuers
could incur substantial costs in attempting to prevent or fix such errors, all
of which could have a negative effect on the Fund's investments and returns.
The Manager, the Distributor and the Transfer Agent have been working on
necessary changes to their computer systems to deal with the year 2000 and
expect that their systems will be adapted in time for that event, although there
cannot be assurance of success. Additionally, the services they provide depend
on the interaction of their computer systems with those of brokers, information
services, the Fund's custodian bank and other parties. Therefore, any failure of
the computer systems of those parties to deal with the year 2000 may also have a
negative effect on the services they provide to the Fund. The extent of that
risk cannot be ascertained at this time.
How the Fund is Managed
The Manager. The Fund's investment Manager, OppenheimerFunds, Inc., 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 Fund's Board of Trustees, under an Investment Advisory
Agreement that states the Manager's responsibilities. The Agreement lists that
the fees the Fund pays to the Manager and describes the expenses that the Fund
is responsible to pay to conduct its business.
The Manager has operated as an investment advisor since 1959. The Manager
(including subsidiaries) currently manages investment companies, including other
Oppenheimer funds, with assets of more than $95 billion as of December 31, 1998,
and with more than 4 million shareholder accounts. The Manager is located at Two
World Trade Center, 34th Floor, New York, New York 10048-0203.
|X| Portfolio Manager. The portfolio manager of the Fund is Caryn
Halbrecht, a Vice President of the Fund and of the Manager. She has been the
person principally responsible for the day-to-day management of the Fund's
portfolio, since October 18, 1993. Ms. Halbrecht also serves as an officer and
portfolio managers for other Oppenheimer funds.
|X| Advisory Fees. Under the Investment Advisory Agreement, the Fund pays
the Manager an advisory fee at an annual rate which declines on additional
assets as the Fund grows: 0.50% of the first $100 million of average annual net
assets, 0.45% of the next $150 million, 0.425% of the next $250 million, and
0.40% of average annual net assets in excess of $500 million. The Fund's
management fee for its last fiscal year ended September 30, 1998, was 0.49% of
average annual net assets for each class of shares.
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About Your Account
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How to Buy Shares
How Are Shares Purchased? You can buy shares several ways -- through any dealer,
broker or financial institution that has a sales agreement with the Fund's
Distributor, or directly through the Distributor, or automatically through an
Asset Builder Plan under the OppenheimerFunds AccountLink service. The
Distributor may appoint certain servicing agents to accept purchase (and
redemption) orders. The Distributor, in its sole discretion, may reject any
purchase order for the Fund's shares.
|X| Buying Shares Through Your Dealer. Your dealer will place your
order with the Distributor on your behalf.
|X| Buying Shares Through the Distributor. Complete an OppenheimerFunds
New Account Application and return it with a check payable to "OppenheimerFunds
Distributor, Inc." Mail it to P.O. Box 5270, Denver, Colorado 80217. If you
don't list a dealer on the application, the Distributor will act as your agent
in buying the shares. However, we recommend that you discuss your investment
with a financial advisor before you make a purchase to be sure that the Fund is
appropriate for you.
|X| Buying Shares by Federal Funds Wire. Shares purchased through the
Distributor may be paid for by Federal Funds wire. The minimum investment is
$2,500. Before sending a wire, call the Distributor's Wire Department at
1-800-525-7048 to notify the Distributor of the wire, and to receive further
instructions.
|X| Buying Shares Through OppenheimerFunds AccountLink. With AccountLink,
shares are purchased for your account on the regular business day the
Distributor is instructed by you to initiate the Automated Clearing House (ACH)
transfer to buy the shares. You can provide those instructions automatically,
under an Asset Builder Plan, described below, or by telephone instructions using
OppenheimerFunds PhoneLink, also described below. Please refer to "AccountLink,"
below for more details.
|X| Buying Shares Through Asset Builder Plans. You may purchase shares of
the Fund (and up to four other Oppenheimer funds) automatically each month from
your account at a bank or other financial institution under an Asset Builder
Plan with AccountLink. Details are in the Asset Builder Application and the
Statement of Additional Information.
How Much Must You Invest? You can 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. Subsequent purchases of at least $25 can be made by telephone through
AccountLink.
|_| The minimum investment requirement does not apply to reinvesting
dividends from the Fund or other Oppenheimer funds (a list of them appears in
the Statement of Additional Information, or you can ask your dealer or call the
Transfer Agent), or reinvesting distributions from unit investment trusts that
have made arrangements with the Distributor.
At What Price Are Shares Sold? Shares are sold at their offering price (the net
asset value per share plus any initial sales charge that applies). The offering
price that applies to a purchase order is based on the next calculation of the
net asset value per share that is made after the Distributor receives the
purchase order at its offices in Denver, Colorado, or after any agent appointed
by the Distributor receives the order and sends it to the Distributor.
|_| The net asset value of each class of shares is determined as of the
close of The New York Stock Exchange, on each day the Exchange is open for
trading (referred to in this Prospectus as a "regular business day"). The
Exchange normally closes at 4:00 P.M., New York time, but may close earlier on
some days. (All references to time in this Prospectus mean "New York time").
The net asset value per share is determined by dividing the value of the
Fund's net assets attributable to a class by the number of shares of that class
that are outstanding. To determine net asset value, the Fund's Board of Trustees
has established procedures to value the Fund's securities, in general based on
market value. The Board has adopted special procedures for valuing illiquid and
restricted securities and obligations for which market values cannot be readily
obtained.
|_| To receive the offering price for a particular day, in most cases the
Distributor or its designated agent must receive your order by the time of day
The New York Stock Exchange closes that day. If your order is received on a day
when the Exchange is closed or after it has closed, the order will receive the
next offering price that is determined after your order is received.
|_| If you buy shares through a dealer, your dealer must receive the order
by the close of The New York Stock Exchange and transmit it to the Distributor
so that it is received before the Distributor's close of business on a regular
business day (normally 5:00 P.M.) to receive that day's offering price.
Otherwise, the order will receive the next offering price that is determined.
- ------------------------------------------------------------------------------
What Classes of Shares Does the Fund Offer? The Fund offers investors three
different classes of shares. The different classes of shares represent
investments in the same portfolio of securities, but the classes are subject
to different expenses and will likely have different share prices. When you
buy shares, be sure to specify the class of shares. If you do not choose a
class, your investment will be made in Class A shares.
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- ------------------------------------------------------------------------------
|X| Class A Shares. If you buy Class A shares, you pay an initial
sales charge (on investments up to $1 million). The amount of that sales
charge will vary depending on the amount you invest. The sales charge rates are
listed in "How Can I Buy Class A Shares?" below.
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|X| Class B Shares. If you buy Class B shares, you pay no sales
charge at the time of purchase, but you will pay an annual asset-based sales
charge, and if you sell your shares within six years of buying them, you will
normally pay a contingent deferred sales charge. That contingent deferred
sales charge varies depending on how long you own your shares, as described in
"How Can I Buy Class B Shares?" below.
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- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
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|X| Class C Shares. If you buy Class C shares, you pay no sales
charge at the time of purchase, but you will pay an annual asset-based sales
charge, and if you sell your shares within 12 months of buying them, you will
normally pay a contingent deferred sales charge of 1%, as described in "How Can
I Buy Class C Shares?" below.
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Which Class of Shares Should You Choose? Once you decide that the Fund is an
appropriate investment for you, the decision as to which class of shares is best
suited to your needs depends on a number of factors that you should discuss with
your financial advisor. Some factors to consider are how much you plan to invest
and how long you plan to hold your investment. If your goals and objectives
change over time and you plan to purchase additional shares, you should
re-evaluate those factors to see if you should consider another class of shares.
The Fund's operating costs that apply to a class of shares and the effect of the
different types of sales charges on your investment will vary your investment
results over time.
The discussion below is not intended to be investment advice or a
recommendation, because each investor's financial considerations are different.
You should review these factors with your financial advisor. The discussion
below assumes that you will purchase only one class of shares, and not a
combination of shares of different classes.
|X| How Long Do You Expect to Hold Your Investment? While future financial
needs cannot be predicted with certainty, knowing how long you expect to hold
your investment will assist you in selecting the appropriate class of shares.
Because of the effect of class-based expenses, your choice will also depend on
how much you plan to invest. For example, the reduced sales charges available
for larger purchases of Class A shares may, over time, offset the effect of
paying an initial sales charge on your investment, compared to the effect over
time of higher class-based expenses on shares of Class B or Class C.
|_| Investing for the Short Term. If you have a relatively short-term
investment horizon (that is, you plan to hold your shares for not more than six
years), you should probably consider purchasing Class A or Class C shares rather
than Class B shares. That is because of the effect of the Class B contingent
deferred sales charge if you redeem within six years, as well as the effect of
the Class B asset-based sales charge on the investment return for that class in
the short-term. Class C shares might be the appropriate choice (especially for
investments of less than $100,000), because there is no initial sales charge on
Class C shares, and the contingent deferred sales charge does not apply to
amounts you sell after holding them one year.
However, if you plan to invest more than $100,000 for the shorter term,
then as your investment horizon increases toward six years, Class C shares might
not be as advantageous as Class A shares. That is because the annual asset-based
sales charge on Class C shares will have a greater impact on your account over
the longer term than the reduced front-end sales charge available for larger
purchases of Class A shares.
And for investors who invest $1 million or more, in most cases Class A
shares will be the most advantageous choice, no matter how long you intend to
hold your shares. For that reason, the Distributor normally will not accept
purchase orders of $500,000 or more of Class B shares or $1 million or more of
Class C shares from a single investor.
|_| Investing for the Longer Term. If you are investing less than
$100,000 for the longer-term, for example for retirement, and do not expect to
need access to your money for seven years or more, Class B shares may be
appropriate.
Of course, these examples are based on approximations of the effect of
current sales charges and expenses projected over time, and do not detail all of
the considerations in selecting a class of shares. You should analyze your
options carefully with your financial advisor before making that choice.
|X| Are There Differences in Account Features That Matter to You? Some
account features (such as checkwriting) may not be available to Class B or Class
C shareholders. Other features (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. Therefore, you should carefully review how you
plan to use your investment account before deciding which class of shares to
buy. Additionally, the dividends payable to Class B and Class C shareholders
will be reduced by the additional expenses borne by those classes that are not
borne by Class A shares, such as the Class B and Class C asset-based sales
charge described below and in the Statement of Additional Information. Share
certificates are not available for Class B and Class C shares, and if you are
considering using your shares as collateral for a loan, that may be a factor to
consider.
|X| How Does It Affect Payments to My Broker? A salesperson, such as a
broker, may receive different compensation for selling one class of shares than
for selling another class. It is important to remember that Class B and Class C
contingent deferred sales charges and asset-based sales charges have the same
purpose as the front-end sales charge on sales of Class A shares: to compensate
the Distributor for commissions and expenses it pays to dealers and financial
institutions for selling shares. The Distributor may pay additional compensation
from its own resources to securities dealers or financial institutions based
upon the value of shares of the Fund owned by the dealer or financial
institution for its own account or for its customers.
Special Sales Charge Arrangements and Waivers. Appendix C to the Statement of
Additional Information details the conditions for the waiver of sales charges
that apply in certain cases, and the special sales charge rates that apply to
purchases of shares of the Fund by certain groups, or under specified retirement
plan arrangements or in other special types of transactions.
How Can I Buy Class A Shares? Class A shares are sold at their offering price,
which is normally net asset value plus an initial sales charge. However, in some
cases, described below, purchases are not subject to an initial sales charge,
and the offering price will be the net asset value. In other cases, reduced
sales charges may be available, as described below or in the Statement of
Additional Information. Out of the amount you invest, the Fund receives the net
asset value to invest for your account.
The sales charge varies depending on the amount of your purchase. A
portion of the sales charge may be retained by the Distributor or allocated to
your dealer as commission. The Distributor reserves the right to reallow the
entire commission to dealers. The current sales charge rates and commissions
paid to dealers and brokers are as follows:
----------------------------------------------------------------------------
Front-end Sales Front End Sales Commission as
Charge As a Charge As a Percentage
Percentage of Percentage of of Offering
Amount of Purchase Offering Price Net Price
Amount Invested
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Less than $100,000 3.50% 3.63% 3.00%
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$100,000 or more but 3.00% 3.09% 2.50%
less than $250,000
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$250,000 or more but 2.50% 2.56% 2.00%
less than $500,000
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$500,000 or more but 2.00% 2.04% 1.50%
less than $1 million
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|X| Class A Contingent Deferred Sales Charge. There is no initial sales
charge on purchases of Class A shares of any one or more of the Oppenheimer
funds aggregating $1 million or more. The Distributor pays dealers of record
commissions in an amount equal to 1.0% of purchases of $1 million or more other
than by retirement accounts. That commission will be paid only on purchases that
were not previously subject to a front-end sales charge and dealer commission.
If you redeem any of those shares within 18 months of the end of the
calendar month of their purchase, a contingent deferred sales charge (called the
"Class A contingent deferred sales charge") may be deducted from the redemption
proceeds. That sales charge will be equal to 1.0% of the lesser of (1) the
aggregate net asset value of the redeemed shares at the time of redemption
(excluding shares purchased by reinvestment of dividends or capital gain
distributions) or (2) the original net asset value of the redeemed shares.
However, the Class A contingent deferred sales charge will not exceed the
aggregate amount of the commissions the Distributor paid to your dealer on all
purchases of Class A shares of all Oppenheimer funds you made that were subject
to the Class A contingent deferred sales charge.
In determining whether a contingent deferred sales charge is payable when
shares are redeemed, the Fund will first redeem shares that are not subject to
the sales charge, including shares purchased by reinvestment of dividends and
capital gains. Then the Fund will redeem other shares in the order in which you
purchased them. The Class A contingent deferred sales charge is waived in
certain cases described in Appendix C to the Statement of Additional
Information.
The Class A contingent deferred sales charge is not charged on exchanges
of shares under the Fund's exchange privilege (described below). However, if the
shares acquired by exchange are redeemed within 18 calendar months of the end of
the calendar month in which the exchanged shares were originally purchased, then
the sales charge will apply.
How Can I Reduce Sales Charges for Class A Share Purchases? You may be eligible
to buy Class A shares at reduced sales charge rates under the Fund's "Right of
Accumulation" or a Letter of Intent, as described in "Reduced Sales Charges" in
the Statement of Additional Information.
|X| Waivers of Class A Sales Charges. The Class A initial and contingent
deferred sales charges are not imposed in the circumstances described in
Appendix C to 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 when purchasing shares whether any of the special conditions
apply.
How Can I Buy Class B Shares? Class B shares are sold at net asset value per
share without an initial sales charge. However, if Class B shares are redeemed
within 5 years of their purchase, a contingent deferred sales charge will be
deducted from the redemption proceeds. The Class B contingent deferred sales
charge is paid to compensate the Distributor for its expenses of providing
distribution-related services to the Fund in connection with the sale of Class B
shares.
The contingent deferred sales charge will be based on the lesser of the
net asset value of the redeemed shares at the time of redemption or the original
net asset value. The contingent deferred sales charge is not imposed on:
|_| the amount of your account value represented by an increase in
net asset value over the initial purchase price,
|_| shares purchased by the reinvestment of dividends or capital
gains distributions, or
|_| shares redeemed in the special circumstances described in Appendix C
to the Statement of Additional Information.
To determine whether the contingent deferred sales charge applies to a
redemption, the Fund redeems shares in the following order:
(1) shares acquired by reinvestment of dividends and capital gains
distributions,
(2) shares held for over 6 years, and
(3) shares held the longest during the 6-year period.
The amount of the contingent deferred sales charge will depend on the
number of years since you invested and the dollar amount being redeemed,
according to the following schedule:
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Contingent Deferred Sales Charge on
Years Since Beginning of Month in Redemptions in That Year
which Purchase Order was Accepted (As % of Amount Subject to Charge)
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0 - 1 4.0%
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1 - 2 3.0%
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2 - 3 2.0%
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3 - 4 2.0%
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4 - 5 1.0%
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5 and following None
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In the table, a "year" is a 12-month period. In applying the sales charge, all
purchases are considered to have been made on the first regular business day of
the month in which the purchase was made.
|X| Automatic Conversion of Class B Shares. Class B shares automatically
convert to Class A shares 72 months after you purchase them. This conversion
feature relieves Class B shareholders of the asset-based sales charge that
applies to Class B shares under the Class B Distribution and Service Plan,
described below. The conversion is based on the relative net asset value of the
two classes, and no sales load or other charge is imposed. When 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 the Statement of Additional Information.
How Can I Buy Class C Shares? Class C shares are sold at net asset value per
share without an initial sales charge. However, if Class C shares are redeemed
within 12 months of their purchase, a contingent deferred sales charge of 1.0%
will be deducted from the redemption proceeds. The Class C contingent deferred
sales charge is paid to compensate the Distributor for its expenses of providing
distribution-related services to the Fund in connection with the sale of Class C
shares.
The contingent deferred sales charge will be based on the lesser of the
net asset value of the redeemed shares at the time of redemption or the original
net asset value. The contingent deferred sales charge is not imposed on:
|_| the amount of your account value represented by the increase in
net asset value over the initial purchase price,
o shares purchased by the reinvestment of dividends or capital gains
distributions, or
o shares redeemed in the special circumstances described in Appendix C to
the Statement of Additional Information.
To determine whether the contingent deferred sales charge applies to a
redemption, the Fund redeems shares in the following order:
(1) shares acquired by reinvestment of dividends and capital gains
distributions,
(2) shares held for over 12 months, and
(3) shares held the longest during the 12-month period.
Distribution and Service (12b-1) Plans.
|X| Service Plan for Class A Shares. The Fund has adopted a Service Plan
for Class A shares. It reimburses the Distributor for a portion of its costs
incurred for services provided to accounts that hold Class A shares.
Reimbursement is made quarterly at an annual rate of up to 0.25% of the average
annual net assets of Class A shares of the Fund. The Distributor currently uses
all of those fees to pay dealers, brokers, banks and other financial
institutions quarterly for providing personal service and maintenance of
accounts of their customers that hold Class A shares.
|X| Distribution and Service Plans for Class B and Class C Shares. The
Fund has adopted Distribution and Service Plans for Class B and Class C shares
to compensate the Distributor for its services and costs in distributing Class B
and Class C shares and servicing accounts. Under the plans, the Fund pays the
Distributor an annual "asset-based sales charge" of 0.75% per year on Class B
shares and on Class C shares. The Distributor also receives a service fee of
0.25% per year under each plan.
The asset-based sales charge and service fees increase Class B and Class C
expenses by 1.00% of the net assets per year of the respective class. Because
these fees are paid out of the Fund's assets on an on-going basis, over time
these fees will increase the cost of your investment and may cost you more than
other types of sales charges.
The Distributor uses the service fees to compensate dealers for providing
personal services for accounts that hold Class B or Class C shares. The
Distributor pays the 0.25% service fees to dealers in advance for the first year
after the shares were sold by the dealer. After the shares have been held for a
year, the Distributor pays the service fees to dealers on a quarterly basis.
The Distributor currently pays sales commission 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 therefore
3.00% of the purchase price. The Distributor retains the Class B asset-based
sales charge.
The Distributor currently pays sales commissions of 0.75% of the purchase
price of Class C shares to dealers from its own resources at the time of sale.
Including the advance of the service fee, the total amount paid by the
Distributor to the dealer at the time of sale of Class C shares is therefore
1.00% of the purchase price. The Distributor pays the asset-based sales charge
as an ongoing commission to the dealer on Class C shares that have been
outstanding for a year or more. Special Investor Services
AccountLink. You can use our AccountLink feature to link your Fund account
with an account at a U.S. bank or other financial institution. It must be an
Automated Clearing House (ACH) member. AccountLink lets you:
|_| transmit funds electronically to purchase shares by telephone (through
a service representative or by PhoneLink) or automatically under Asset
Builder Plans, or
|_| have the Transfer Agent send redemption proceeds or transmit dividends
and distributions directly to your bank account. Please call the Transfer
Agent for more information.
You may purchase shares by telephone only after your account has been
established. To purchase shares in amounts up to $250,000 through a telephone
representative, call the Distributor at 1-800-852-8457. The purchase payment
will be debited from your bank account.
AccountLink privileges should be requested on your Application or your
dealer's settlement instructions if you buy your shares through a dealer. After
your account is established, you can request AccountLink privileges by sending
signature-guaranteed instructions to the Transfer Agent. AccountLink privileges
will apply to each shareholder listed in the registration on your account as
well as to your dealer representative of record unless and until the Transfer
Agent receives written instructions terminating or changing those privileges.
After you establish AccountLink for your account, any change of bank account
information must be made by signature-guaranteed instructions to the Transfer
Agent signed by all shareholders who own the account.
PhoneLink. PhoneLink is the OppenheimerFunds automated telephone system that
enables shareholders to perform a number of account transactions automatically
using a touch-tone phone. PhoneLink may be used on already-established Fund
accounts after you obtain a Personal Identification Number (PIN), by calling the
special PhoneLink number, 1-800-533-3310.
|X| 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.
|X| Exchanging Shares. With the OppenheimerFunds exchange privilege,
described below, you can exchange shares automatically by phone from your Fund
account to another OppenheimerFunds account you have already established by
calling the special PhoneLink number.
|X| Selling Shares. You can redeem shares by telephone automatically by
calling the PhoneLink number and the Fund will send the proceeds directly to
your AccountLink bank account. Please refer to "How to Sell Shares," below for
details.
Can I Submit Transaction Requests by Fax? You may send requests for certain
types of account transactions to the Transfer Agent by fax (telecopier). Please
call 1-800-525-7048 for information about which transactions may be handled this
way. Transaction requests submitted by fax are subject to the same rules and
restrictions as written and telephone requests described in this Prospectus.
OppenheimerFunds Internet Web Site. You can obtain information about the Fund,
as well as your account balance, on the OppenheimerFunds Internet web site, at
http://www.oppenheimerfunds.com. Additionally, shareholders listed in the
account registration (and the dealer of record) may request certain account
transactions through a special section of that web site. To perform account
transactions, you must first obtain a personal identification number (PIN) by
calling the Transfer Agent at 1-800-533-3310. If you do not want to have
Internet account transaction capability for your account, please call the
Transfer Agent at 1-800-525-7048.
Automatic Withdrawal and Exchange Plans. The Fund has several plans that enable
you to sell shares automatically or exchange them to another OppenheimerFunds
account on a regular basis. Please call the Transfer Agent or consult the
Statement of Additional Information for details.
Reinvestment Privilege. If you redeem some or all of your Class A or Class B
shares of the Fund, you have up to 6 months to reinvest all or part of the
redemption proceeds in Class A shares of the Fund or other Oppenheimer funds
without paying a sales charge. This privilege applies only to Class A shares
that you purchased subject to an initial sales charge and to Class A or Class B
shares on which you paid a contingent deferred sales charge when you redeemed
them. This privilege does not apply to Class C shares. You must be sure to ask
the Distributor for this privilege when you send your payment.
How to Sell Shares
You can sell (redeem) some or all of your shares on any regular business day.
Your shares will be sold at the next net asset value calculated after your order
is received in proper form (which means that it must comply with the procedures
described below) and is accepted by the Transfer Agent. The Fund lets you sell
your shares by writing a letter, by using the Fund's checkwriting privilege or
by telephone. You can also set up Automatic Withdrawal Plans to redeem shares on
a regular basis. If you have questions about any of these procedures, and
especially if you are redeeming shares in a special situation, such as due to
the death of the owner, please call the Transfer Agent first, at 1-800-525-7048,
for assistance.
|X| Certain Requests Require a Signature Guarantee. To protect you and the
Fund from fraud, the following redemption requests must be in writing and must
include a signature guarantee (although there may be other situations that also
require a signature guarantee):
|_| You wish to redeem $50,000 or more and receive a check
|_| The redemption check is not payable to all shareholders listed on
the account statement
|_| The redemption check is not sent to the address of record on your
account statement
|_| Shares are being transferred to a Fund account with a different
owner or name
|_| Shares are being redeemed by someone (such as an Executor) other
than the owners
|X| 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.
How Do I Sell Shares by Mail? Write a "letter of instructions" that
includes:
|_| Your name
|_| The Fund's name
|_| Your Fund account number (from your account statement)
|_| The dollar amount or number of shares to be redeemed
|_| Any special payment instructions
|_| Any share certificates for the shares you are selling
|_| The signatures of all registered owners exactly as the account is
registered, and
|_| Any special documents requested by the Transfer Agent to assure proper
authorization of the person asking to sell the shares.
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Use the following address for requests by mail:
OppenheimerFunds Services
P.O. Box 5270
Denver, Colorado 80217-5270
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Send courier or express mail requests to:
- ------------------------------------------------------------------------------
OppenheimerFunds Services
10200 E. Girard Avenue, Building D
Denver, Colorado 80231
How Do I Sell 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
may be earlier on some days. You may not redeem shares held under a share
certificate by telephone.
|_| To redeem shares through a service representative, call
1-800-852-8457
|_| To redeem shares automatically on PhoneLink, call 1-800-533-3310
Whichever method you use, you may have a check sent to the address on the
account statement, or, if you have linked your Fund account to your bank account
on AccountLink, you may have the proceeds sent to that bank account.
Are There Limits on Amounts Redeemed by Telephone?
|X| 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.
|X| Telephone Redemptions Through AccountLink. 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.
Checkwriting Against Your Account. To write checks against your Fund account,
request that privilege on your account Application, or contact the Transfer
Agent for signature cards. They must be signed (with a signature guarantee) by
all owners of the account and returned to the Transfer Agent so that checks can
be sent to you to use. Shareholders with joint accounts can elect in writing to
have checks paid over the signature of one owner. If you previously signed a
signature card to establish checkwriting in another Oppenheimer fund, simply
call 1-800-525-7048 to request checkwriting for an account in this Fund with the
same registration as the other account.
|_| Checks can be written to the order of whomever you wish, but may not
be cashed at the Fund's bank or Custodian.
|_| Checkwriting privileges are not available for accounts holding Class B
shares or Class C shares, or Class A shares that are subject to a contingent
deferred sales charge.
|_| Checks must be written for at least $100.
|_| Checks cannot be paid if they are written for more than your
account value. Remember: your shares fluctuate in value and you should not
write a check close to the total account value.
|_| You may not write a check that would require the Fund to redeem shares
that were purchased by check or Asset Builder Plan payments within the prior 10
days.
|_| Don't use your checks if you changed your Fund account number, until
you receive new checks.
Can I Sell Shares Through My Dealer? The Distributor has made arrangements to
repurchase Fund shares from dealers and brokers on behalf of their customers.
Brokers or dealers may charge for that service. If your shares are held in the
name of your dealer, you must redeem them through your dealer.
How to Exchange Shares
Shares of the Fund may be exchanged for shares of certain Oppenheimer funds at
net asset value per share at the time of exchange, without sales charge.
To exchange shares, you must meet several conditions:
|_| Shares of the fund selected for exchange must be available
for sale in your state of residence.
|_| The prospectuses of this Fund and the fund whose shares you want to
buy must offer the exchange privilege.
|_| You must hold the shares you buy when you establish your account for
at least 7 days before you can exchange them. After the account is open 7 days,
you can exchange shares every regular business day.
|_| You must meet the minimum purchase requirements for the fund you
purchase by exchange.
|_| Before exchanging into a fund, you should obtain and read its
prospectus.
Shares of a particular class of the Fund may be exchanged only for shares
of the same class in the other Oppenheimer funds. For example, you can exchange
Class A shares of this Fund only for Class A shares of another fund. In some
cases, sales charges may be imposed on exchange transactions. For tax purposes,
exchanges of shares involve a sale of the shares of the fund you own and a
purchase of the shares of the other fund, which may result in a capital gain or
loss. Please refer to "How to Exchange Shares" in the Statement of Additional
Information for more details.
How Do I Submit Exchange Requests? Exchanges may be requested in writing or
by telephone:
|X| Written Exchange Requests. Submit an OppenheimerFunds
Exchange Request form, signed by all owners of the account. Send it to the
Transfer Agent at the address on the Back Cover. Exchanges of shares held
under certificates cannot be processed unless the Transfer Agent receives the
certificates with the request.
|X| 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.
Are There Limitations on Exchanges? There are certain exchange policies you
should be aware of:
|_| Shares are normally redeemed from one fund and purchased from the
other fund in the exchange transaction on the same regular business day on which
the Transfer Agent receives an exchange request that conforms to the policies
described above. It must be received by the close of The New York Stock Exchange
that day, which is normally 4:00 P.M. but may be earlier on some days. However,
either fund may delay the purchase of shares of the fund you are exchanging into
up to seven days if it determines it would be disadvantaged by a same-day
exchange. For example, the receipt of multiple exchange requests from a "market
timer" might require the Fund to sell securities at a disadvantageous time
and/or price.
|_| Because excessive trading can hurt fund performance and harm
shareholders, the Fund reserves the right to refuse any exchange request that it
believes will disadvantage it, or to refuse multiple exchange requests submitted
by a shareholder or dealer.
|_| 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.
|_| 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
More information about the Fund's policies and procedures for buying, selling
and exchanging shares is contained in the Statement of Additional Information.
|X| 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.
|X| Telephone Transaction Privileges for purchases, redemptions or
exchanges may be modified, suspended or terminated by the Fund at any time. If
an account has more than one owner, the Fund and the Transfer Agent may rely on
the instructions of any one owner. Telephone privileges apply to each owner of
the account and the dealer representative of record for the account unless the
Transfer Agent receives cancellation instructions from an owner of the account.
|X| The Transfer Agent will record any telephone calls to verify data
concerning transactions and has adopted other procedures to confirm that
telephone instructions are genuine, by requiring callers to provide tax
identification numbers and other account data or by using PINs, and by
confirming such transactions in writing. The Transfer Agent and the Fund will
not be liable for losses or expenses arising out of telephone instructions
reasonably believed to be genuine.
|X| 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.
|X| 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.
|X| The redemption price for shares will vary from day to day because the
value of the securities in the Fund's portfolio fluctuates. The redemption
price, which is the net asset value per share, will normally differ for Class A,
Class B and Class C shares. The redemption value of your shares may be more or
less than their original cost.
|X| Payment for redeemed shares ordinarily is made in cash. It is
forwarded by check or through AccountLink (as elected by the shareholder) within
seven days after the Transfer Agent receives redemption instructions in proper
form. However, under unusual circumstances determined by the Securities and
Exchange Commission, payment may be delayed or suspended. For accounts
registered in the name of a broker-dealer, payment will normally be forwarded
within three business days after redemption.
|X| The Transfer Agent may delay forwarding a check or processing a
payment via AccountLink for recently purchased shares, but only until the
purchase payment has cleared. That delay may be as much as 10 days from the date
the shares were purchased. That delay may be avoided if you purchase shares by
Federal Funds wire or certified check, or arrange with your bank to provide
telephone or written assurance to the Transfer Agent that your purchase payment
has cleared.
|X| 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. In some cases involuntary redemptions may be
made to repay the Distributor for losses from the cancellation of share purchase
orders.
|X| Shares may be "redeemed in kind" under unusual circumstances (such as
a lack of liquidity in the Fund's portfolio to meet redemptions). This means
that the redemption proceeds will be paid with securities from the Fund's
portfolio.
|X| "Backup Withholding" of Federal income tax may be applied against
taxable dividends, distributions and redemption proceeds (including exchanges)
if you fail to furnish the Fund your correct, certified Social Security or
Employer Identification Number when you sign your application, or if you
under-report your income to the Internal Revenue Service.
|X| To avoid sending duplicate copies of materials to households, the Fund
will mail only one copy of each annual and semi-annual report to shareholders
having the same last name and address on the Fund's records. However, each
shareholder may call the Transfer Agent at 1-800-525-7048 to ask that copies of
those materials be sent personally to that shareholder.
Dividends and Tax Information
Dividends. The Fund intends to declare dividends separately for each class of
shares from net tax-exempt income and/or net investment income each regular
business day and to pay those dividends to shareholders monthly on a date
selected by the Board of Trustees. Daily dividends will not be declared or paid
on newly-purchased shares until Federal Funds are available to the Fund from the
purchase payment for such shares.
The Fund attempts to pay dividends on Class A shares at a constant level.
There is no assurance that it will be able to do so. The Board of Trustees may
change the targeted dividend level at any time, without prior notice to
shareholders. Dividends and distributions paid on Class A shares will generally
be higher than for Class B and Class C shares, which normally have higher
expenses than Class A. The Fund cannot guarantee that it will pay any dividends
or distributions.
Capital Gains. Although the Fund does not seek capital gains, it may realize
capital gains on the sale of portfolio securities. If it does, it may make
distributions out of any net short-term or long-term capital gains in December
of each year. The Fund may make supplemental distributions of dividends and
capital gains following the end of its fiscal year. Long-term capital gains will
be separately identified in the tax information the Fund sends you after the end
of the calendar year.
What Choices Do I Have for Receiving Distributions? When you open your account,
specify on your application how you want to receive your dividends and
distributions. You have four options:
|X| 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.
|X| Reinvest Long-Term Capital Gains Only. You can elect to reinvest
long-term capital gains distributions in the Fund while receiving dividends by
check or having them sent to your bank account through AccountLink.
|X| 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 through AccountLink.
|X| Reinvest Your Distributions in Another OppenheimerFunds
Account. You can reinvest all distributions in the same class of shares of
another OppenheimerFunds account you have established.
Taxes. Dividends paid from net investment income earned by the Fund on municipal
securities will be excludable from gross income for Federal income tax purposes.
A portion of a dividend that is derived from interest paid on certain "private
activity bonds" may be an item of tax preference if you are subject to the
alternative minimum tax. If the Fund earns interest on taxable investments, any
dividends derived from those earnings will be taxable as ordinary income to
shareholders.
Dividends and capital gains distributions may be subject to state or local
taxes. Long-term capital gains are taxable as long-term capital gains when
distributed to shareholders. It does not matter how long you have held your
shares. Dividends paid from short-term capital gains and non-tax exempt net
investment income are taxable as ordinary income. Whether you reinvest your
distributions in additional shares or take them in cash, the tax treatment is
the same. Every year the Fund will send you and the IRS a statement showing the
amount of any taxable distribution you received in the previous year as well as
the amount of your tax-exempt income.
|X| Remember, There May be Taxes on Transactions. Even though the Fund
seeks to distribute tax-exempt income to shareholders, you may have a capital
gain or loss when you sell or exchange your shares. A capital gain or loss is
the difference between the price you paid for the shares and the price you
received when you sold them. Any capital gain is subject to capital gains tax.
|X| Returns of Capital Can Occur. In certain cases,
distributions made by the Fund may be considered a non-taxable return of
capital to shareholders. If that occurs, it will be identified in notices to
shareholders.
This information is only a summary of certain federal tax information
about your investment. You should consult with your tax adviser about the effect
of an investment in the Fund on your particular tax situation.
<PAGE>
Financial Highlights
The Financial Highlights Table is presented to help you understand the Fund's
financial performance for the past 5 fiscal years. Certain information reflects
financial results for a single Fund share. The total returns in the table
represent the rate that an investor would have earned [or lost] on an investment
in the Fund (assuming reinvestment of all dividends and distributions). This
information has been audited by Deloitte & Touche, LLP, the Fund's independent
auditors, whose report, along with the Fund's financial statements, is included
in the Statement of Additional Information, which is available on request.
<PAGE>
<TABLE>
<CAPTION>
Financial Highlights Class A
--------------------------------------------
Year Ended September 30,
1998 1997 1996 1995 1994
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per Share Operating Data
Net asset value, beginning of
period $17.72 $17.07 $16.86 $16.14 $18.06
- -------------------------------------------------------------------------------
Income (loss) from investment
operations:
Net investment income .80 .91 .90 .90 .89
Net realized and unrealized
gain (loss) .75 .63 .20 .71 (1.84)
------ ------ ------ ------ ------
Total income (loss) from
investment operations 1.55 1.54 1.10 1.61 (.95)
- -------------------------------------------------------------------------------
Dividends and distributions to
shareholders:
Dividends from net investment
income (.84) (.89) (.89) (.89) (.89)
Distributions from net realized
gain (.12) -- -- -- (.08)
------ ----- ----- ----- ------
Total dividends and
distributions to shareholders (.96) (.89) (.89) (.89) (.97)
- -------------------------------------------------------------------------------
Net asset value, end of period $18.31 $17.72 $17.07 $16.86 $16.14
====== ====== ====== ====== ======
- -------------------------------------------------------------------------------
Total Return, at Net Asset
Value(/3/) 9.01% 9.25% 6.67% 10.29% (5.46)%
- -------------------------------------------------------------------------------
Ratios/Supplemental Data
Net assets, end of period (in
thousands) $102,687 $91,051 $83,516 $76,691 $67,793
- -------------------------------------------------------------------------------
Average net assets (in
thousands) $ 96,458 $86,511 $81,233 $70,650 $66,953
- -------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income 4.49% 5.25% 5.27% 5.52% 5.23%
Expenses(/5/) 0.89% 0.95% 1.02% 0.95% 1.05%
- -------------------------------------------------------------------------------
Portfolio turnover rate(/6/) 73% 77% 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. Assumes a hypothetical initial investment on the business day before the
first day of the fiscal period (or inception of offering), with all dividends
and distributions reinvested in additional shares on the reinvestment date, and
redemption at the net asset value calculated on the last business day of the
fiscal period. Sales charges are not reflected in the total returns. Total
returns are not annualized for periods of less than one full year.
4. Annualized.
5. Beginning in fiscal 1996, the expense ratio reflects the effect of expenses
paid indirectly by the Fund. Prior year expense ratios have not been adjusted.
6. The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities
owned during the period. Securities with a maturity or expiration date at the
time of acquisition of one year or less are excluded from the calculation.
Purchases and sales of investment securities (excluding short-term securities)
for the period ended September 30, 1998 were $102,480,896 and $90,478,993,
respectively.
31
<PAGE>
<TABLE>
<CAPTION>
Financial Highlights (continued) Class B
-------------------------------------------
Year Ended September 30,
1998 1997 1996 1995 1994
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per Share Operating Data
Net asset value, beginning of
period $17.73 $17.08 $16.87 $16.15 $18.07
- -------------------------------------------------------------------------------
Income (loss) from investment
operations:
Net investment income .67 .76 .77 .78 .77
Net realized and unrealized gain
(loss) .74 .65 .20 .71 (1.86)
------ ------ ------ ------ ------
Total income (loss) from
investment operations 1.41 1.41 .97 1.49 (1.09)
- -------------------------------------------------------------------------------
Dividends and distributions to
shareholders:
Dividends from net investment
income (.70) (.76) (.76) (.77) (.75)
Distributions from net realized
gain (.12) -- -- -- (.08)
------ ----- ----- ----- ------
Total dividends and
distributions to shareholders (.82) (.76) (.76) (.77) (.83)
- -------------------------------------------------------------------------------
Net asset value, end of period $18.32 $17.73 $17.08 $16.87 $16.15
====== ====== ====== ====== ======
- -------------------------------------------------------------------------------
Total Return, at Net Asset
Value(/3/) 8.18% 8.43% 5.87% 9.47% (6.20)%
- -------------------------------------------------------------------------------
Ratios/Supplemental Data
Net assets, end of period (in
thousands) $27,392 $19,974 $15,983 $13,341 $11,571
- -------------------------------------------------------------------------------
Average net assets (in
thousands) $23,817 $17,309 $14,822 $11,987 $ 9,209
- -------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income 3.76% 4.48% 4.50% 4.75% 4.43%
Expenses(/5/) 1.64% 1.71% 1.77% 1.71% 1.82%
- -------------------------------------------------------------------------------
Portfolio turnover rate(/6/) 73% 77% 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. Assumes a hypothetical initial investment on the business day before the
first day of the fiscal period (or inception of offering), with all dividends
and distributions reinvested in additional shares on the reinvestment date, and
redemption at the net asset value calculated on the last business day of the
fiscal period. Sales charges are not reflected in the total returns. Total
returns are not annualized for periods of less than one full year.
4. Annualized.
5. Beginning in fiscal 1996, the expense ratio reflects the effect of expenses
paid indirectly by the Fund. Prior year expense ratios have not been adjusted.
6. The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities
owned during the period. Securities with a maturity or expiration date at the
time of acquisition of one year or less are excluded from the calculation.
Purchases and sales of investment securities (excluding short-term securities)
for the period ended September 30, 1998 were $102,480,896 and $90,478,993,
respectively.
32
<PAGE>
<TABLE>
<CAPTION>
Financial Highlights (continued) Class C
------------------------------------------
Year Ended September 30,
1998 1997(/2/) 1996 1995(/1/)
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share Operating Data
Net asset value, beginning of
period $17.72 $17.06 $16.86 $16.72
- -------------------------------------------------------------------------------
Income (loss) from investment
operations:
Net investment income .70 .76 .75 .08
Net realized and unrealized gain
(loss) .71 .65 .21 .14
------ ------ ------ ------
Total income (loss) from investment
operations 1.41 1.41 .96 .22
- -------------------------------------------------------------------------------
Dividends and distributions to
shareholders:
Dividends from net investment
income (.70) (.75) (.76) (.08)
Distributions from net realized
gain (.12) -- -- --
---- ----- ----- -----
Total dividends and distributions
to shareholders (.82) (.75) (.76) (.08)
- -------------------------------------------------------------------------------
Net asset value, end of period $18.31 $17.72 $17.06 $16.86
====== ====== ====== ======
- -------------------------------------------------------------------------------
Total Return, at Net Asset
Value(/3/) 8.18% 8.48% 5.77% 1.30%
- -------------------------------------------------------------------------------
Ratios/Supplemental Data
Net assets, end of period (in
thousands) $4,923 $2,554 $ 924 $ 211
- -------------------------------------------------------------------------------
Average net assets (in thousands) $3,661 $1,720 $ 618 $ 1
- -------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income 3.82% 4.45% 4.38% 4.89%(/4/)
Expenses(/5/) 1.64% 1.72% 1.81% 1.07%(/4/)
- -------------------------------------------------------------------------------
Portfolio turnover rate(/6/) 73% 77% 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. Assumes a hypothetical initial investment on the business day before the
first day of the fiscal period (or inception of offering), with all dividends
and distributions reinvested in additional shares on the reinvestment date, and
redemption at the net asset value calculated on the last business day of the
fiscal period. Sales charges are not reflected in the total returns. Total
returns are not annualized for periods of less than one full year.
4. Annualized.
5. Beginning in fiscal 1996, the expense ratio reflects the effect of expenses
paid indirectly by the Fund. Prior year expense ratios have not been adjusted.
6. The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities
owned during the period. Securities with a maturity or expiration date at the
time of acquisition of one year or less are excluded from the calculation.
Purchases and sales of investment securities (excluding short-term securities)
for the period ended September 30, 1998 were $102,480,896 and $90,478,993,
respectively.
33
<PAGE>
For More Information About Oppenheimer Intermediate Municipal Fund: The
following additional information about the Fund is available without charge upon
request:
Statement of Additional Information
This document includes additional information about the Fund's investment
policies, risks, and operations. It is incorporated by reference into this
Prospectus (which means it is legally part of this Prospectus).
Annual and Semi-Annual Reports
Additional information about the Fund's investments and performance is available
in the Fund's Annual and Semi-Annual Reports to shareholders. The Annual Report
includes a discussion of market conditions and investment strategies that
significantly affected the Fund's performance during its last fiscal year.
How to Get More Information:
You can request the Statement of Additional Information, the Annual and
Semi-Annual Reports, and other information about the Fund or your account:
By Telephone:
Call OppenheimerFunds Services toll-free:
1-800-525-7048
By Mail:
Write to:
OppenheimerFunds Services
P.O. Box 5270
Denver, Colorado 80217-5270
On the Internet:
You can read or down-load documents on the OppenheimerFunds web site:
http://www.oppenheimerfunds.com
You can also obtain copies of the Statement of Additional Information and other
Fund documents and reports by visiting the SEC's Public Reference Room in
Washington, D.C. (Phone 1-800-SEC-0330) or the SEC's Internet web site at
http://www.sec.gov. Copies may be obtained upon payment of a duplicating fee by
writing to the SEC's Public Reference Section, Washington, D.C. 20549-6009.
No one has been authorized to provide any information about the Fund or to
make any representations about the Fund other than what is contained in
this Prospectus. This Prospectus is not an offer to sell shares of the
Fund, nor a solicitation of an offer to buy shares of the Fund, to any
person in any state or other jurisdiction where it is unlawful to make
such an offer.
The Fund's shares are distributed by:
(logo)OppenheimerFunds Distributor, Inc.
SEC File No. 811-2668
PR0860.001.0199 Printed on recycled paper.
<PAGE>
APPENDIX TO PROSPECTUS OF
OPPENHEIMER INTERMEDIATE MUNICIPAL FUND
Graphic material included in Prospectus of Oppenheimer Intermediate
Municipal Fund: "Annual Total Returns (Class A) (as of 12/31 each year).
A bar chart will be included in the Prospectus of Oppenheimer Intermediate
Municipal Fund (the "Fund") depicting the annual total returns of a hypothetical
$10,000 investment in Class A shares of the Fund for each of the ten most recent
calendar years without deducting sales charges. Set forth below are the relevant
data points that will appear on the bar chart.
Calendar Oppenheimer Intermediate
Year Municipal Fund
Ended Class A Shares
12/31/89 11.23%
12/31/90 6.12%
12/31/91 11.87%
12/31/92 9.32%
12/31/93 9.91%
12/31/94 -4.36%
12/31/95 13.40%
12/31/96 5.06%
12/31/97 9.02%
12/31/98 6.15%
<PAGE>
- ------------------------------------------------------------------------------
Oppenheimer Intermediate Municipal Fund
- ------------------------------------------------------------------------------
6803 South Tucson Way, Englewood, Colorado 80112
1-800-525-7048
Statement of Additional Information dated January 29, 1999
This Statement of Additional Information is not a Prospectus. This
document contains additional information about the Fund and supplements
information in the Prospectus dated January 29, 1999. It should be read together
with the Prospectus, which may be obtained by writing to the Fund's Transfer
Agent, OppenheimerFunds Services, at P.O. Box 5270, Denver, Colorado 80217 or by
calling the Transfer Agent at the toll-free number shown above or by downloading
it from the OppenheimerFunds Internet web site at www.oppenheimerfunds.com.
Contents Page
About the Fund
Additional Information About the Fund's Investment Policies and Risks.........
The Fund's Investment Policies...........................................
Municipal Securities.....................................................
Other Investment Techniques and Strategies...............................
Investment Restrictions..................................................
How the Fund is Managed.......................................................
Organization and History.................................................
Trustees and Officers of the Fund........................................
The Manager .............................................................
Brokerage Policies of the Fund................................................
Distribution and Service Plans................................................
Performance of the Fund.......................................................
About Your Account
How To Buy Shares.............................................................
How To Sell Shares............................................................
How to Exchange Shares........................................................
Dividends and Taxes...........................................................
Additional Information About the Fund.........................................
Financial Information About the Fund
Independent Auditors' Report..................................................
Financial Statements .........................................................
Appendix A: Municipal Bond Rating Definitions..............................A-1
Appendix B: Industry Classifications.......................................B-1
Appendix C: Special Sales Charge Arrangements and Waivers..................C-1
<PAGE>
- ------------------------------------------------------------------------------
ABOUT THE FUND
- ------------------------------------------------------------------------------
Additional Information About the Fund's Investment Policies and Risks
The investment objective and the principal investment policies of the Fund are
described in the Prospectus. This Statement of Additional Information contains
supplemental information about those policies and the types of securities that
the Fund's investment Manager, OppenheimerFunds, Inc., can select for the Fund.
Additional explanations are also provided about the strategies the Fund may use
to try to achieve its objective.
The Fund's Investment Policies. The composition of the Fund's portfolio and the
techniques and strategies that the Fund's Manager uses in selecting portfolio
securities will vary over time. The Fund is not required to use all of the
investment techniques and strategies described below at all times in seeking its
goal. It may use some of the special investment techniques and strategies at
some times or not at all.
The Fund does not make investments with the objective of seeking capital
growth. However, the values of the securities held by the Fund may be affected
by changes in general interest rates and other factors, prior to their maturity.
Because the current values of debt securities vary inversely with changes in
prevailing interest rates, if interest rates increase after a security is
purchased, that security will normally fall in value. Conversely, should
interest rates decrease after a security is purchased, normally its value will
rise.
However, those fluctuations in value will not generally result in realized
gains or losses to the Fund unless the Fund sells the security prior to the
security's maturity. A debt security held to maturity is redeemable by its
issuer at full principal value plus accrued interest. The Fund does not usually
intend to dispose of securities prior to their maturity, but may do so for
liquidity purposes, or because of other factors affecting the issuer that cause
the Manager to sell the particular security. In that case, the Fund could
realize a capital gain or loss on the sale.
There are variations in the credit quality of municipal securities, both
within a particular rating classification and between classifications. These
variations depend on numerous factors. The yields of municipal securities depend
on a number of factors, including general conditions in the municipal securities
market, the size of a particular offering, the maturity of the obligation and
rating (if any) of the issue. These factors are discussed in greater detail
below.
|X| Portfolio Turnover. A change in the securities held by the Fund from
buying and selling investments is known as "portfolio turnover." Short-term
trading increases the rate of portfolio turnover and could increase the Fund's
transaction costs. However, the Fund ordinarily incurs little or no brokerage
expense because most of the Fund's portfolio transactions are principal trades
that do not require payment of brokerage commissions.
The Fund ordinarily does not trade securities to achieve capital gains, because
they would not be tax-exempt income. To a limited degree, the Fund may engage in
short-term trading to attempt to take advantage of short-term market variations.
It may also do so to dispose of a portfolio security prior to its maturity. That
might be done if, on the basis of a revised credit evaluation of the issuer or
other considerations, the Manager believes such disposition is advisable or the
Fund needs to generate cash to satisfy requests to redeem Fund shares. In those
cases, the Fund may realize a capital gain or loss on its investments. The
Fund's annual portfolio turnover rate normally is not expected to exceed 100%.
Municipal Securities. The types of municipal securities in which the Fund may
invest are described in the Prospectus under "About the Fund's Investments."
Municipal securities are generally classified as general obligation bonds,
revenue bonds and notes. A discussion of the general characteristics of these
principal types of municipal securities follows below.
|X| Municipal Bonds. We have classified municipal securities having a
maturity (when the security is issued) of more than one year as "municipal
bonds." The principal classifications of long-term municipal bonds are "general
obligation" and "revenue" (including "industrial development") bonds. They may
have fixed, variable or floating rates of interest, as described below.
Some bonds may be "callable," allowing the issuer to redeem them
before their maturity date. To protect bondholders, callable bonds may be issued
with provisions that prevent them from being called for a period of time.
Typically, that is 5 to 10 years from the issuance date. When interest rates
decline, if the call protection on a bond has expired, it is more likely that
the issuer may call the bond. If that occurs, the Fund might have to reinvest
the proceeds of the called bond in bonds that pay a lower rate of return.
|_| General Obligation Bonds. The basic security behind general
obligation bonds is the issuer's pledge of its full faith and credit and taxing
power, if any, for the repayment of principal and the payment of interest.
Issuers of general obligation bonds include states, counties, cities, towns, and
regional districts. The proceeds of these obligations are used to fund a wide
range of public projects, including construction or improvement of schools,
highways and roads, and water and sewer systems. The rate of taxes that can be
levied for the payment of debt service on these bonds may be limited or
unlimited. Additionally, there may be limits as to the rate or amount of special
assessments that can be levied to meet these obligations.
|_| Revenue Bonds. The principal security for a revenue bond is
generally the net revenues derived from a particular facility, group of
facilities, or, in some cases, the proceeds of a special excise tax or other
specific revenue source. Revenue bonds are issued to finance a wide variety of
capital projects. Examples include electric, gas, water and sewer systems;
highways, bridges, and tunnels; port and airport facilities; colleges and
universities; and hospitals.
Although the principal security for these types of bonds may vary from
bond to bond, many provide additional security in the form of a debt service
reserve fund that may be used to make principal and interest payments on the
issuer's obligations. Housing finance authorities have a wide range of security,
including partially or fully insured mortgages, rent subsidized and/or
collateralized mortgages, and/or the net revenues from housing or other public
projects. Some authorities provide further security in the form of a state's
ability (without obligation) to make up deficiencies in the debt service reserve
fund.
|_| Industrial Development Bonds. Industrial development bonds are
considered municipal bonds if the interest paid is exempt from federal income
tax. They are issued by or on behalf of public authorities to raise money to
finance various privately operated facilities for business and manufacturing,
housing, sports, and pollution control. These bonds may also be used to finance
public facilities such as airports, mass transit systems, ports, and parking.
The payment of the principal and interest on such bonds is dependent solely on
the ability of the facility's user to meet its financial obligations and the
pledge, if any, of real and personal property financed by the bond as security
for those payments.
|_| Private Activity Municipal Securities. The Tax Reform Act of 1986 (the
"Tax Reform Act") reorganized, as well as amended, the rules governing tax
exemption for interest on certain types of municipal securities. The Tax Reform
Act generally did not change the tax treatment of bonds issued in order to
finance governmental operations. Thus, interest on general obligation bonds
issued by or on behalf of state or local governments, the proceeds of which are
used to finance the operations of such governments, continues to be tax-exempt.
However, the Tax Reform Act limited the use of tax-exempt bonds for
non-governmental (private) purposes. More stringent restrictions were placed on
the use of proceeds of such bonds. Interest on certain private activity bonds is
taxable under the revised rules. There is an exception for "qualified"
tax-exempt private activity bonds, for example, exempt facility bonds including
certain industrial development bonds, qualified mortgage bonds, qualified
Section 501(c)(3) bonds, and qualified student loan bonds.
In addition, limitations as to the amount of private activity bonds which
each state may issue were revised downward by the Tax Reform Act, which will
reduce the supply of such bonds. The value of the Fund's portfolio could be
affected if there is a reduction in the availability of such bonds.
Interest on certain private activity bonds issued after August 7, 1986,
which continues to be tax-exempt, will be treated as a tax preference item
subject to the alternative minimum tax (discussed below) to which certain
taxpayers are subject. The Fund may hold municipal securities the interest on
which (and thus a proportionate share of the exempt-interest dividends paid by
the Fund) will be subject to the Federal alternative minimum tax on individuals
and corporations.
The Federal alternative minimum tax is designed to ensure that all persons
who receive income pay some tax, even if their regular tax is zero. This is
accomplished in part by including in taxable income certain tax preference items
that are used to calculate alternative minimum taxable income. The Tax Reform
Act made tax-exempt interest from certain private activity bonds a tax
preference item for purposes of the alternative minimum tax on individuals and
corporations. Any exempt-interest dividend paid by a regulated investment
company will be treated as interest on a specific private activity bond to the
extent of the proportionate relationship the interest the investment company
receives on such bonds bears to all its exempt interest dividends.
In addition, corporate taxpayers subject to the alternative minimum tax
may, under some circumstances, have to include exempt-interest dividends in
calculating their alternative minimum taxable income. That could occur in
situations where the "adjusted current earnings" of the corporation exceeds its
alternative minimum taxable income.
To determine whether a municipal security is treated as a taxable private
activity bond, it is subject to a test for: (a) a trade or business use and
security interest, or (b) a private loan restriction. Under the trade or
business use and security interest test, an obligation is a private activity
bond if: (i) more than 10% of the bond proceeds are used for private business
purposes and (ii) 10% or more of the payment of principal or interest on the
issue is directly or indirectly derived from such private use or is secured by
the privately used property or the payments related to the use of the property.
For certain types of uses, a 5% threshold is substituted for this 10% threshold.
The term "private business use" means any direct or indirect use in a
trade or business carried on by an individual or entity other than a state or
municipal governmental unit. Under the private loan restriction, the amount of
bond proceeds that may be used to make private loans is limited to the lesser of
5% or $5.0 million of the proceeds. Thus, certain issues of municipal securities
could lose their tax-exempt status retroactively if the issuer fails to meet
certain requirements as to the expenditure of the proceeds of that issue or the
use of the bond-financed facility. The Fund makes no independent investigation
of the users of such bonds or their use of proceeds of the bonds. If the Fund
should hold a bond that loses its tax-exempt status retroactively, there might
be an adjustment to the tax-exempt income previously distributed to
shareholders.
Additionally, a private activity bond that would otherwise be a qualified
tax-exempt private activity bond will not, under Internal Revenue Code Section
147(a), be a qualified bond for any period during which it is held by a person
who is a "substantial user" of the facilities or by a "related person" of such a
substantial user. This "substantial user" provision applies primarily to exempt
facility bonds, including industrial development bonds. The Fund may invest in
industrial development bonds and other private activity bonds. Therefore, the
Fund may not be an appropriate investment for entities which are "substantial
users" (or persons related to "substantial users") of such exempt facilities.
Those entities and persons should consult their tax advisers before purchasing
shares of the Fund.
A "substantial user" of such facilities is defined generally as a
"non-exempt person who regularly uses part of a facility" financed from the
proceeds of exempt facility bonds. Generally, an individual will not be a
"related person" under the Internal Revenue Code unless such individual or the
individual's immediate family (spouse, brothers, sisters and immediate
descendants) own directly or indirectly in the aggregate more than 50% in value
of the equity of a corporation or partnership which is a "substantial user" of a
facility financed from the proceeds of exempt facility bonds.
|X| Municipal Notes. Municipal securities having a maturity (when the
security is issued) of less than one year are generally known as municipal
notes. Municipal notes generally are used to provide for short-term working
capital needs. Some of the types of municipal notes the Fund can invest in are
described below.
|_| Tax Anticipation Notes. These are issued to finance working capital
needs of municipalities. Generally, they are issued in anticipation of various
seasonal tax revenue, such as income, sales, use or other business taxes, and
are payable from these specific future taxes.
|_| Revenue Anticipation Notes. These are notes issued in
expectation of receipt of other types of revenue, such as Federal revenues
available under Federal revenue-sharing programs.
|_| Bond Anticipation Notes. Bond anticipation notes are issued to
provide interim financing until long-term financing can be arranged. The
long-term bonds that are issued typically also provide the money for the
repayment of the notes.
|_| Construction Loan Notes. These are sold to provide project
construction financing until permanent financing can be secured. After
successful completion and acceptance of the project, it may receive permanent
financing through public agencies, such as the Federal Housing Administration.
|X| Tax Exempt Commercial Paper. This type of short-term obligation
(usually having a maturity of 270 days or less) is issued by a municipality
to meet current working capital needs.
|X| Municipal Lease Obligations. The Fund's investments in municipal lease
obligations may be through certificates of participation that are offered to
investors by public entities. Municipal leases may take the form of a lease or
an installment purchase contract issued by a state or local government authority
to obtain funds to acquire a wide variety of equipment and facilities.
Some municipal lease securities may be deemed to be "illiquid" securities.
Their purchase by the Fund would be limited as described below in "Illiquid
Securities." From time to time the Fund may invest more than 5% of its net
assets in municipal lease obligations that the Manager has determined to be
liquid under guidelines set by the Board of Trustees. Those guidelines require
the Manager to evaluate:
|_| the frequency of trades and price quotations for such securities;
|_| the number of dealers or other potential buyers willing to purchase or
sell such securities;
|_| the availability of market-makers; and
|_| the nature of the trades for such securities.
Municipal leases have special risk considerations. Although lease
obligations do not constitute general obligations of the municipality for which
the municipality's taxing power is pledged, a lease obligation is ordinarily
backed by the municipality's covenant to budget for, appropriate and make the
payments due under the lease obligation. However, certain lease obligations
contain "non-appropriation" clauses which provide that the municipality has no
obligation to make lease or installment purchase payments in future years unless
money is appropriated for that purpose on a yearly basis. While the obligation
might be secured by the lease, it might be difficult to dispose of that property
in case of a default.
Projects financed with certificates of participation generally are not
subject to state constitutional debt limitations or other statutory requirements
that may apply to other municipal securities. Payments by the public entity on
the obligation underlying the certificates are derived from available revenue
sources. That revenue might be diverted to the funding of other municipal
service projects. Payments of interest and/or principal with respect to the
certificates are not guaranteed and do not constitute an obligation of a state
or any of its political subdivisions.
In addition to the risk of "non-appropriation," municipal lease securities
do not have as highly liquid a market as conventional municipal bonds. Municipal
leases, like other municipal debt obligations, are subject to the risk of
non-payment of interest or repayment of principal by the issuer. The ability of
issuers of municipal leases to make timely lease payments may be adversely
affected in general economic downturns and as relative governmental cost burdens
are reallocated among federal, state and local governmental units. A default in
payment of income would result in a reduction of income to the Fund. It could
also result in a reduction in the value of the municipal lease and that, as well
as a default in repayment of principal, could result in a decrease in the net
asset value of the Fund. While the Fund holds such securities, the Manager will
also evaluate the likelihood of a continuing market for these securities and
their credit quality.
|X| Duration of the Fund's Portfolio. The Fund can invest in debt
securities of any maturity or duration but currently has an operating policy to
maintain a dollar-weighted average effective portfolio duration of 4.5 to 8
years. The goal is to try to manage the sensitivity of the Fund's portfolio to
changes in interest rates, and in doing so to manage the volatility of the
Fund's share prices in response to those changes. However, unanticipated events
may change the effective duration of a security after the Fund buys it, and
there can be no assurance that the Fund will achieve its targeted duration at
all times.
The Manager determines the effective duration of debt obligations
purchased by the Fund considering various factors that apply to a particular
type of debt obligation, including those described below. Duration is a measure
of the expected life of a security on a current-value basis expressed in years,
using calculations that consider the security's yield, coupon interest payments,
final maturity and call features.
While a debt security's maturity can be used to measure the sensitivity of
the security's price to changes in interest rates, the term to maturity of a
security does not take into account the pattern (or expected pattern) of the
security's payments of interest or principal prior to maturity. Duration, on the
other hand, measures the length of the time interval from the present to the
time when the interest and principal payments are scheduled to be received (or,
in the case of a callable bond, when the interest payments are expected to be
received). Duration calculations weigh them by the present value of the cash to
be received at each future point in time. If the interest payments on a debt
security occur prior to the repayment of principal, the duration of the security
is less than its stated maturity. For zero-coupon securities, duration and term
to maturity are equal.
Absent other factors, the lower the stated or coupon rate of interest on a
debt security or the longer the maturity or the lower the yield-to-maturity of
the debt security, the longer the duration of the security. Conversely, the
higher the stated or coupon rate of interest, the shorter the maturity or the
higher the yield-to-maturity of a debt security, the shorter the duration of the
security.
Futures, options and options on futures in general have durations that are
closely related to the duration of the securities that underlie them. Holding
long futures positions or call option positions (backed by liquid assets) will
tend to lengthen the portfolio's duration.
In some cases the standard effective duration calculation does not
properly reflect the interest rate exposure of a security. For example, floating
and variable rate securities often have final maturities of ten or more years.
However, their exposure to interest rate changes corresponds to the frequency of
the times at which their interest coupon rate is reset. In these and other
similar situations, the Manager will use other analytical techniques that
consider the economic life of the security as well as relevant macroeconomic
factors in determining the Fund's effective duration.
|X| Ratings of Municipal Securities. Ratings by ratings organizations such
as Moody's Investors Service, Standard & Poor's Ratings Service and Fitch IBCA,
Inc. represent the respective rating agency's opinions of the credit quality of
the municipal securities they undertake to rate. However, their ratings are
general opinions and are not guarantees of quality. Municipal securities that
have the same maturity, coupon and rating may have different yields, while other
municipal securities that have the same maturity and coupon but different
ratings may have the same yield.
Subsequent to its purchase by the Fund, a municipal security may cease to
be rated or its rating may be reduced below the minimum required for purchase by
the Fund. Neither event requires the Fund to sell the security, but the Manager
will consider such events in determining whether the Fund should continue to
hold the security. To the extent that ratings given by Moody's, Standard &
Poor's, or Fitch change as a result of changes in those rating organizations or
their rating systems, the Fund will attempt to use comparable ratings as
standards for investments in accordance with the Fund's investment policies.
The Fund can buy municipal securities that are "pre-refunded." The
issuer's obligation to repay the principal value of the security is generally
collateralized with U.S. government securities placed in an escrow account. This
causes the pre-refunded security to have essentially the same risks of default
as a AAA-rated security.
The rating definitions of Moody's, Standard & Poor's, Duff & Phelps and
Fitch for municipal securities are contained in Appendix A to this Statement of
Additional Information. The Fund can purchase securities that are unrated by
nationally recognized rating organizations. The Manager will make its own
assessment of the credit quality of unrated issues the Fund buys. The Manager
will use criteria similar to those used by the rating agencies, and assign a
rating category to a security that is comparable to what the Manager believes a
rating agency would assign to that security. However, the Manager's rating does
not constitute a guarantee of the quality of a particular issue.
|_| Special Risk of Lower-Grade Securities. Lower grade securities may
have a higher yield than securities rated in the higher rating categories. In
addition to having a greater risk of default than higher-grade securities, there
may be less of a market for these securities. As a result they may be harder to
sell at an acceptable price. The additional risks mean that the Fund may not
receive the anticipated level of income from these securities, and the Fund's
net asset value may be affected by declines in the value of lower-grade
securities. However, because the added risk of lower quality securities might
not be consistent with the Fund's policy of preservation of capital, the Fund
limits its investments in lower quality securities. While securities rated "Baa"
by Moody's or "BBB" by Standard & Poor's or Duff & Phelps are investment grade,
they may be subject to special risks and have some speculative characteristics.
Other Investment Techniques and Strategies. In seeking its objective, the
Fund may from time to time employ the types of investment strategies and
investments described below. It is not required to use all of the strategies at
all times and at times may not use them.
|X| Floating Rate and Variable Rate Obligations. Variable rate demand
obligations have a demand feature that allows the Fund to tender the obligation
to the issuer or a third party prior to its maturity. The tender may be at par
value plus accrued interest, according to the terms of the obligation.
The interest rate on a floating rate demand note is based on a stated
prevailing market rate, such as a bank's prime rate, the 91-day U.S. Treasury
Bill rate, or some other standard, and is adjusted automatically each time such
rate is adjusted. The interest rate on a variable rate demand note is also based
on a stated prevailing market rate but is adjusted automatically at specified
intervals of not less than one year. Generally, the changes in the interest rate
on such securities reduce the fluctuation in their market value. As interest
rates decrease or increase, the potential for capital appreciation or
depreciation is less than that for fixed-rate obligations of the same maturity.
The Manager may determine that an unrated floating rate or variable rate demand
obligation meets the Fund's quality standards by reason of being backed by a
letter of credit or guarantee issued by a bank that meets those quality
standards.
Floating rate and variable rate demand notes that have a stated maturity
in excess of one year may have features that permit the holder to recover the
principal amount of the underlying security at specified intervals not exceeding
one year and upon not more than 30 days' notice. The issuer of that type of note
normally has a corresponding right in its discretion, after a given period, to
prepay the outstanding principal amount of the note plus accrued interest.
Generally the issuer must provide a specified number of days' notice to the
holder.
|X| Inverse Floaters and Other Derivative Investments. Inverse floaters
may offer relatively high current income, reflecting the spread between
long-term and short-term tax exempt interest rates. As long as the municipal
yield curve remains relatively steep and short-term rates remain relatively low,
owners of inverse floaters will have the opportunity to earn interest at
above-market rates because they receive interest at the higher long-term rates
but have paid for bonds with lower short-term rates. If the yield curve flattens
and shifts upward, an inverse floater will lose value more quickly than a
conventional long-term bond. The Fund will invest in inverse floaters to seek
higher tax-exempt yields than are available from fixed-rate bonds that have
comparable maturities and credit ratings. In some cases the holder of an inverse
floater may have an option to convert the floater to a fixed-rate bond, pursuant
to a "rate-lock option."
Some inverse floaters have a feature known as an interest rate "cap" as
part of the terms of the investment. Investing in inverse floaters that have
interest rate caps might be part of a portfolio strategy to try to maintain a
high current yield for the Fund when the Fund has invested in inverse floaters
that expose the Fund to the risk of short-term interest rate fluctuations.
"Embedded" caps can be used to hedge a portion of the Fund's exposure to rising
interest rates. When interest rates exceed a pre-determined rate, the cap
generates additional cash flows that offset the decline in interest rates on the
inverse floater, and the hedge is successful. However, the Fund bears the risk
that if interest rates do not rise above the pre-determined rate, the cap (which
is purchased for additional cost) will not provide additional cash flows and
will expire worthless.
Inverse floaters are a form of derivative investment. Certain derivatives,
such as options, futures, indexed securities and entering into swap agreements,
can be used to increase or decrease the Fund's exposure to changing security
prices, interest rates or other factors that affect the value of securities.
However, these techniques could result in losses to the Fund, if the Manager
judges market conditions incorrectly or employs a strategy that does not
correlate well with the Fund's other investments. These techniques can cause
losses if the counterparty does not perform its promises. An additional risk of
investing in municipal securities that are derivative investments is that their
market value could be expected to vary to a much greater extent than the market
value of municipal securities that are not derivative investments but have
similar credit quality, redemption provisions and maturities.
|X| "When-Issued" and "Delayed-Delivery" Transactions. The Fund can
purchase securities on a "when-issued" basis, and may purchase or sell such
securities on a "delayed-delivery" (or "forward commitment") basis.
"When-issued" or "delayed-delivery" refers to securities whose terms and
indenture are available and for which a market exists, but which are not
available for immediate delivery.
When such transactions are negotiated the price (which is generally
expressed in yield terms) is fixed at the time the commitment is made. Delivery
and payment for the securities take place at a later date. Normally the
settlement date is within six months of the purchase of municipal bonds and
notes. However, the Fund may, from time to time, purchase municipal securities
having a settlement date more than six months and possibly as long as two years
or more after the trade date. The securities are subject to change in value from
market fluctuation during the settlement period. The value at delivery may be
less than the purchase price. For example, changes in interest rates in a
direction other than that expected by the Manager before settlement will affect
the value of such securities and may cause loss to the Fund. No income begins to
accrue to the Fund on a when-issued security until the Fund receives the
security at settlement of the trade.
The Fund will engage in when-issued transactions in order to secure what
is considered to be an advantageous price and yield at the time of entering into
the obligation. When the Fund engages in when-issued or delayed-delivery
transactions, it relies on the buyer or seller, as the case may be, to complete
the transaction. Its failure to do so may cause the Fund to lose the opportunity
to obtain the security at a price and yield it considers advantageous.
When the Fund engages in when-issued and delayed-delivery transactions, it
does so for the purpose of acquiring or selling securities consistent with its
investment objective and policies or for delivery pursuant to options contracts
it has entered into, and not for the purposes of investment leverage. Although
the Fund will enter into when-issued or delayed-delivery purchase transactions
to acquire securities, the Fund may dispose of a commitment prior to settlement.
If the Fund chooses to dispose of the right to acquire a when-issued security
prior to its acquisition or to dispose of its right to deliver or receive
against a forward commitment, it may incur a gain or loss.
At the time the Fund makes a commitment to purchase or sell a security on
a when-issued or forward commitment basis, it records the transaction on its
books and reflects the value of the security purchased. In a sale transaction,
it records the proceeds to be received, in determining its net asset value. The
Fund will identify on its books liquid assets at least equal to the value of
purchase commitments until the Fund pays for the investment.
When-issued transactions and forward commitments can be used by the Fund
as a defensive technique to hedge against anticipated changes in interest rates
and prices. For instance, in periods of rising interest rates and falling
prices, the Fund might sell securities in its portfolio on a forward commitment
basis to attempt to limit its exposure to anticipated falling prices. In periods
of falling interest rates and rising prices, the Fund might sell portfolio
securities and purchase the same or similar securities on a when-issued or
forward commitment basis, to obtain the benefit of currently higher cash yields.
|X| Puts and Standby Commitments. When the Fund buys a municipal security
subject to a standby commitment to repurchase the security, the Fund is entitled
to same-day settlement from the purchaser. The Fund receives an exercise price
equal to the amortized cost of the underlying security plus any accrued interest
at the time of exercise. A put purchased in conjunction with a municipal
security enables the Fund to sell the underlying security within a specified
period of time at a fixed exercise price.
The Fund might purchase a standby commitment or put separately in cash or
it might acquire the security subject to the standby commitment or put (at a
price that reflects that additional feature).
The Fund will enter into these transactions only with banks and securities
dealers that, in the Manager's opinion, present minimal credit risks. The Fund's
ability to exercise a put or standby commitment will depend on the ability of
the bank or dealer to pay for the securities if the put or standby commitment is
exercised. If the bank or dealer should default on its obligation, the Fund
might not be able to recover all or a portion of any loss sustained from having
to sell the security elsewhere.
Puts and standby commitments are not transferable by the Fund. They
terminate if the Fund sells the underlying security to a third party. The Fund
intends to enter into these arrangements to facilitate portfolio liquidity,
although such arrangements might enable the Fund to sell a security at a
pre-arranged price that may be higher than the prevailing market price at the
time the put or standby commitment is exercised. However, the Fund might refrain
from exercising a put or standby commitment if the exercise price is
significantly higher than the prevailing market price, to avoid imposing a loss
on the seller that could jeopardize the Fund's business relationships with the
seller.
A put or standby commitment increases the cost of the security and reduces
the yield otherwise available from the security. Any consideration paid by the
Fund for the put or standby commitment will be reflected on the Fund's books as
unrealized depreciation while the put or standby commitment is held, and a
realized gain or loss when the put or commitment is exercised or expires.
Interest income received by the Fund from municipal securities subject to puts
or stand-by commitments may not qualify as tax exempt in its hands if the terms
of the put or stand-by commitment cause the Fund not to be treated as the tax
owner of the underlying municipal securities.
|X| Repurchase Agreements. The Fund may acquire securities subject to
repurchase agreements. It may do so for liquidity purposes to meet anticipated
redemptions of Fund shares, or pending the investment of the proceeds from sales
of Fund shares, or pending the settlement of portfolio securities transactions.
In a repurchase transaction, the Fund acquires a security from, and
simultaneously resells it to an approved vendor for delivery on an agreed upon
future date. The resale price exceeds the purchase price by an amount that
reflects an agreed-upon interest rate effective for the period during which the
repurchase agreement is in effect. Approved vendors include U.S. commercial
banks, U.S. branches of foreign banks or broker-dealers that have been
designated a primary dealer in government securities, which meet the credit
requirements set by the Fund's Board of Trustees from time to time.
The majority of these transactions run from day to day. Delivery pursuant
to resale typically will occur within one to five days of the purchase.
Repurchase agreements having a maturity beyond seven days are subject to the
Fund's limits on holding illiquid investments. The Fund will not enter into
transactions that will cause more than 25% of the Fund's total assets to be
subject to repurchase agreements.
Repurchase agreements, considered "loans" under the Investment Company
Act, are collateralized by the underlying security. The Fund's repurchase
agreements require that at all times while the repurchase agreement is in
effect, the collateral's value must equal or exceed the repurchase price to
fully collateralize the repayment obligation. Additionally, the Manager will
impose creditworthiness requirements to confirm that the vendor is financially
sound and will continuously monitor the collateral's value. However, if the
vendor fails to pay the resale price on the delivery date, the Fund may incur
costs in disposing of the collateral and may experience losses if there is any
delay in its ability to do so.
|X| Illiquid and Restricted Securities. To enable the Fund to sell its
holdings of a restricted security not registered under the Securities Act of
1933, the Fund might have to cause those securities to be registered. The
expenses of registering restricted securities may be negotiated by the Fund with
the issuer at the time the Fund buys the securities. When the Fund must arrange
registration because the Fund wishes to sell the security, a considerable period
may elapse between the time the decision is made to sell the security and the
time the security is registered so that the Fund could sell it. The Fund would
bear the risks of any downward price fluctuation during that period.
The Fund has percentage limitations that apply to purchases of restricted
and illiquid securities, as stated in the Prospectus. Those percentage
restrictions do not limit purchases of restricted securities that are eligible
for resale to qualified institutional purchasers pursuant to Rule 144A under the
Securities Act of 1933, provided that those securities have been determined to
be liquid by the Board of Directors of the Fund or by the Manager. Those
guidelines take into account the trading activity for such securities and the
availability of reliable pricing information, among other factors. If there is a
lack of trading interest in a particular Rule 144A security, the Fund's holding
of that security may be deemed to be illiquid.
The Fund can also acquire restricted securities through private
placements. Those securities have contractual restrictions on their public
resale. Those restrictions might limit the Fund's ability to dispose of the
securities and might lower the amount the Fund could realize upon the sale.
|X| Loans of Portfolio Securities. To attempt to raise income or raise
cash for liquidity purposes, the Fund may lend its portfolio securities to
brokers, dealers and other financial institutions. There are risks in connection
with securities lending. The Fund might experience a delay in receiving
additional collateral to secure a loan, or a delay in recovery of the loaned
securities. The Fund presently does not intend to lend securities; but if it
does, these loans cannot exceed 5% of the value of the Fund's total assets.
Income from securities loans does not constitute exempt-interest income for the
purpose of paying tax-exempt dividends.
The Fund must receive collateral for a loan. Under current applicable
regulatory requirements (which are subject to change), on each business day the
loan collateral must be at least equal to the value of the loaned securities. It
must consist of cash, bank letters of credit, securities of the U.S. government
or its agencies or instrumentalities, or other cash equivalents in which the
Fund is permitted to invest. To be acceptable as collateral, letters of credit
must obligate a bank to pay amounts demanded by the Fund if the demand meets the
terms of the letter. The terms of the letter of credit and the issuing bank both
must be satisfactory to the Fund.
When it lends securities, the Fund receives amounts equal to the dividends
or interest on the loaned securities. It also receives one or more of (a)
negotiated loan fees, (b) interest on securities used as collateral, and (c)
interest on short-term debt securities purchased with the loan collateral.
Either type of interest may be shared with the borrower. The Fund may pay
reasonable finder's, administrative or other fees in connection with these
loans. The terms of the Fund's loans must meet applicable tests under the
Internal Revenue Code and must permit the Fund to reacquire loaned securities on
five days' notice or in time to vote on any important matter.
|X| Hedging. The Fund can use hedging to attempt to protect against
declines in the market value of its portfolio, to permit the Fund to retain
unrealized gains in the value of portfolio securities that have appreciated, or
to facilitate selling securities for investment reasons. To do so the Fund
could:
|_| sell interest rate futures or municipal bond index futures,
|_| buy puts on such futures or securities, or
|_| write covered calls on securities, interest rate futures or municipal
bond index futures. The Fund can also write covered calls on debt securities to
attempt to increase the Fund's income, but that income would not be tax-exempt.
Therefore it is unlikely that the Fund would write covered calls for that
purpose.
The Fund can also use hedging to establish a position in the debt
securities market as a temporary substitute for purchasing individual debt
securities. In that case the Fund would normally seek to purchase the
securities, and then terminate that hedging position. For this type of hedging,
the Fund could:
|_| buy interest rate futures or municipal bond index futures, or
|_| buy calls on such futures or on securities.
The Fund is not obligated to use hedging instruments, even though it is
permitted to use them in the Manager's discretion, as described below. The
Fund's strategy of hedging with futures and options on futures will be
incidental to the Fund's investment activities in the underlying cash market.
The particular hedging instruments the Fund can use are described below. The
Fund may employ new hedging instruments and strategies when they are developed,
if those investment methods are consistent with the Fund's investment objective,
are approved by its Board, and are permissible under the Fund's investment
restrictions and applicable regulations.
|_| Futures. The Fund can buy and sell futures contracts relating to
debt securities (these are called "interest rate futures") and municipal bond
indices (these are referred to as "municipal bond index futures"), but only as a
hedge against interest rate changes.
An interest rate future obligates the seller to deliver (and the purchaser
to take) cash or a specific type of debt security to settle the futures
transaction. Either party could also enter into an offsetting contract to close
out the futures position.
A "municipal bond index" assigns relative values to the municipal bonds in
the index, and is used as the basis for trading long-term municipal bond futures
contracts. Municipal bond index futures are similar to interest rate futures
except that settlement is made only in cash. The obligation under the contract
may also be satisfied by entering into an offsetting contract. The strategies
which the Fund employs in using municipal bond index futures are similar to
those with regard to interest rate futures.
No money is paid by or received by the fund on the purchase or sale of a
futures contract. Upon entering into a futures transaction, the Fund will be
required to deposit an initial margin payment in cash or U.S. government
securities with the futures commission merchant (the "futures broker"). Initial
margin payments will be deposited with the Fund's Custodian in an account
registered in the futures broker's name. However, the futures broker can gain
access to that account only under certain specified conditions. As the future is
marked to market (that is, its value on the Fund's books is changed) to reflect
changes in its market value, subsequent margin payments, called variation
margin, will be paid to or by the futures broker daily.
At any time prior to the expiration of the future, the Fund may elect to
close out its position by taking an opposite position at which time a final
determination of variation margin is made and additional cash is required to be
paid by or released to the Fund. Any gain or loss is then realized by the Fund
on the Future for tax purposes. Although interest rate futures by their terms
call for settlement by the delivery of debt securities, in most cases the
obligation is fulfilled without such delivery by entering into an offsetting
transaction. All futures transactions are effected through a clearing house
associated with the exchange on which the contracts are traded.
The Fund may concurrently buy and sell futures contracts in a strategy
anticipating that the future the Fund purchased will perform better than the
future the Fund sold. For example, the Fund might buy municipal bond futures and
concurrently sell U.S. Treasury bond futures (a type of interest rate future).
The Fund would benefit if municipal bonds outperform U.S. Treasury bonds on a
duration-adjusted basis. There are risks that this type of futures strategy will
not be successful. U.S. Treasury bonds might perform better on a
duration-adjusted basis than municipal bonds, and the assumptions about duration
that were used might be incorrect (for example, the duration of municipal bonds
relative to U.S. Treasury bonds might turn out to be greater than anticipated).
|_| Put and Call Options. The Fund can buy and sell certain kinds of put
options (puts) and call options (calls), including index options, securities
options and options on futures. These strategies are described below.
|_| Writing Covered Call Options. The Fund can write (that is, sell) call
options. Calls the Fund sells may be listed on a securities or commodities
exchange or quoted on NASDAQ, the automated quotation system of The Nasdaq Stock
Market, Inc. or traded in the over-the-counter market. Each call the Fund writes
must be "covered" while it is outstanding. That means the Fund must own the
investment on which the call was written. The Fund may write calls on futures
contracts, but if it does not own the futures contract or deliverable
securities, these calls must be covered by securities or other liquid assets
that the Fund owns and segregates to enable it to satisfy its obligations if the
call is exercised. Up to 20% of the Fund's total assets may be subject to calls.
When the Fund writes a call on a security, it receives cash (a
premium).The Fund agrees to sell the underlying investment to a purchaser of a
corresponding call on the same security during the call period at a fixed
exercise price regardless of market price changes during the call period. The
call period is usually not more than nine months. The exercise price may differ
from the market price of the underlying security. The Fund has retained the risk
of loss that the price of the underlying security may decline during the call
period. That risk may be offset to some extent by the premium the Fund receives.
If the value of the investment does not rise above the call price, it is likely
that the call will lapse without being exercised. In that case the Fund would
keep the cash premium and the investment.
When the Fund writes a call on an index, it receives cash (a premium). If
the buyer of the call exercises it, the Fund will pay an amount of cash equal to
the difference between the closing price of the call and the exercise price,
multiplied by the specified multiple that determines the total value of the call
for each point of difference. If the value of the underlying investment does not
rise above the call price, it is likely that the call will lapse without being
exercised. In that case the Fund would keep the cash premium.
The Fund's Custodian, or a securities depository acting for the Custodian,
will act as the Fund's escrow agent through the facilities of the Options
Clearing Corporation ("OCC"), as to the investments on which the Fund has
written calls traded on exchanges, or as to other acceptable escrow securities.
In that way, no margin will be required for such transactions. OCC will release
the securities on the expiration of the calls or upon the Fund's entering into a
closing purchase transaction.
When the Fund writes an over-the-counter ("OTC") option, it will enter
into an arrangement with a primary U.S. Government securities dealer which will
establish a formula price at which the Fund will have the absolute right to
repurchase that OTC option. The formula price would generally be based on a
multiple of the premium received for the option, plus the amount by which the
option is exercisable below the market price of the underlying security (that
is, the option is "in-the-money"). When the Fund writes an OTC option, it will
treat as illiquid (for purposes of its restriction on illiquid securities) the
mark-to-market value of any OTC option held by it, unless the option is subject
to a buy-back agreement by the executing broker. The Securities and Exchange
Commission is evaluating whether OTC options should be considered liquid
securities. The procedure described above could be affected by the outcome of
that evaluation.
To terminate its obligation on a call it has written, the Fund may
purchase a corresponding call in a "closing purchase transaction." The Fund will
then realize a profit or loss, depending upon whether the net of the amount of
the option transaction costs and the premium received on the call the Fund wrote
was more or less than the price of the call the Fund purchased to close out the
transaction. A profit may also be realized if the call lapses unexercised,
because the Fund retains the underlying investment and the premium received. Any
such profits are considered short-term capital gains for Federal tax purposes,
as are premiums on lapsed calls. When distributed by the Fund they are taxable
as ordinary income.
The Fund may also write calls on futures contracts without owning the
futures contract or securities deliverable under the contract. To do so, at the
time the call is written, the Fund must cover the call by segregating in escrow
an equivalent dollar value of liquid assets. The Fund will segregate additional
liquid assets if the value of the escrowed assets drops below 100% of the
current value of the future. Because of this escrow requirement, in no
circumstances would the Fund's receipt of an exercise notice as to that future
put the Fund in a "short" futures position.
|_| Writing Put Options. The Fund can sell put options. A put option on
securities gives the purchaser the right to sell, and the writer the obligation
to buy, the underlying investment at the exercise price during the option
period. The Fund will not write puts if, as a result, more than 20% of the
Fund's total assets would be required to be segregated to cover such put
options.
If the Fund writes a put, the put must be covered by segregated liquid
assets. The premium the Fund receives from writing a put represents a profit, as
long as the price of the underlying investment remains equal to or above the
exercise price of the put. However, the Fund also assumes the obligation during
the option period to buy the underlying investment from the buyer of the put at
the exercise price, even if the value of the investment falls below the exercise
price. If a put the Fund has written expires unexercised, the Fund realizes a
gain in the amount of the premium less the transaction costs incurred. If the
put is exercised, the Fund must fulfill its obligation to purchase the
underlying investment at the exercise price. That price will usually exceed the
market value of the investment at that time. In that case, the Fund may incur a
loss if it sells the underlying investment. That loss will be equal to the sum
of the sale price of the underlying investment and the premium received minus
the sum of the exercise price and any transaction costs the Fund incurred.
When writing a put option on a security, to secure its obligation to pay
for the underlying security the Fund will deposit in escrow liquid assets with a
value equal to or greater than the exercise price of the underlying securities.
The Fund therefore forgoes the opportunity of investing the segregated assets or
writing calls against those assets.
As long as the Fund's obligation as the put writer continues, it may be
assigned an exercise notice by the broker-dealer through which the put was sold.
That notice will require the Fund to take delivery of the underlying security
and pay the exercise price. The Fund has no control over when it may be required
to purchase the underlying security, since it may be assigned an exercise notice
at any time prior to the termination of its obligation as the writer of the put.
That obligation terminates upon expiration of the put. It may also terminate if,
before it receives an exercise notice, the Fund effects a closing purchase
transaction by purchasing a put of the same series as it sold. Once the Fund has
been assigned an exercise notice, it cannot effect a closing purchase
transaction.
The Fund may decide to effect a closing purchase transaction to realize a
profit on an outstanding put option it has written or to prevent the underlying
security from being put. Effecting a closing purchase transaction will also
permit the Fund to write another put option on the security, or to sell the
security and use the proceeds from the sale for other investments. The Fund will
realize a profit or loss from a closing purchase transaction depending on
whether the cost of the transaction is less or more than the premium received
from writing the put option. Any profits from writing puts are considered
short-term capital gains for Federal tax purposes, and when distributed by the
Fund, are taxable as ordinary income.
|_| Purchasing Calls and Puts. The Fund can buy calls on securities,
broadly-based municipal bond indices, municipal bond index futures and interest
rate futures. It can also buy calls to close out a call it has written, as
discussed above. Calls the Fund buys may be listed on a securities or
commodities exchange, or quoted on NASDAQ, or traded in the over-the-counter
market. A call or put option may not be purchased if the purchase would cause
the value of all the Fund's put and call options to exceed 5% of its total
assets.
When the Fund purchases a call (other than in a closing purchase
transaction), it pays a premium. For calls on securities that the Fund buys, it
has the right to buy the underlying investment from a seller of a corresponding
call on the same investment during the call period at a fixed exercise price.
The Fund benefits only if (1) the call is sold at a profit or (2) the call is
exercised when the market price of the underlying investment is above the sum of
the exercise price plus the transaction costs and premium paid for the call. If
the call is not either exercised or sold (whether or not at a profit), it will
become worthless at its expiration date. In that case the Fund will lose its
premium payment and the right to purchase the underlying investment.
The Fund can buy puts on debt securities, municipal bond indices, and
interest rate or municipal bond index futures, whether or not it owns the
underlying investment. When the Fund purchases a put, it pays a premium and,
except as to puts on indices, has the right to sell the underlying investment to
a seller of a put on a corresponding investment during the put period at a fixed
exercise price. Puts on municipal bond indices are settled in cash.
Buying a put on an investment the Fund does not own (such as an index or
future) permits the Fund either to resell the put or to buy the underlying
investment and sell it at the exercise price. The resale price will vary
inversely to the price of the underlying investment. If the market price of the
underlying investment is above the exercise price and, as a result, the put is
not exercised, the put will become worthless on its expiration date.
Buying a put on a debt security, interest rate future or municipal bond
index future the Fund owns enables the Fund to protect itself during the put
period against a decline in the value of the underlying investment below the
exercise price by selling the investment at the exercise price to a seller of
corresponding put. If the market price of the underlying investment is equal to
or above the exercise price and, as a result, the put is not exercised or
resold, the put will become worthless at its expiration date. In that case the
Fund will, have paid the premium but lost the right to sell the underlying
investment. However, the Fund may sell the put prior to its expiration. That
sale may or may not be at a profit
|_| Risks of Hedging with Options and Futures. The use of hedging
instruments requires special skills and knowledge of investment techniques that
are different than what is required for normal portfolio management. If the
Manager uses a hedging instrument at the wrong time or judges market conditions
incorrectly, hedging strategies may reduce the Fund's returns.
The Fund's option activities could affect its portfolio turnover rate and
brokerage commissions. The exercise of calls written by the Fund may cause the
Fund to sell related portfolio securities, thus increasing its turnover rate.
The exercise by the Fund of puts on securities will cause the sale of underlying
investments, increasing portfolio turnover. Although the decision whether to
exercise a put it holds is within the Fund's control, holding a put might cause
the Fund to sell the related investments for reasons that would not exist in the
absence of the put.
The Fund could pay a brokerage commission each time it buys a call or put,
sells a call, or buys or sells an underlying investment in connection with the
exercise of a call or put. Such commissions might be higher on a relative basis
than the commissions for direct purchases or sales of the underlying
investments. Premiums paid for options are small in relation to the market value
of the underlying investments. Consequently, put and call options offer large
amounts of leverage. The leverage offered by trading in options could result in
the Fund's net asset value being more sensitive to changes in the value of the
underlying investment.
If a covered call written by the Fund is exercised on an investment that
has increased in value, the Fund will be required to sell the investment at the
call price. It will not be able to realize any profit if the investment has
increased in value above the call price.
There is a risk in using short hedging by selling interest rate futures
and municipal bond index futures or purchasing puts on municipal bond indices or
futures to attempt to protect against declines in the value of the Fund's
securities. The risk is that the prices of such futures or the applicable index
will correlate imperfectly with the behavior of the cash (that is, market)
prices of the Fund's securities. It is possible for example, that while the Fund
has used hedging instruments in a short hedge, the market might advance and the
value of debt securities held in the Fund's portfolio might decline. If that
occurred, the Fund would lose money on the hedging instruments and also
experience a decline in value of its debt securities. However, while this could
occur over a brief period or to a very small degree, over time the value of a
diversified portfolio of debt securities will tend to move in the same direction
as the indices upon which the hedging instruments are based.
The risk of imperfect correlation increases as the composition of the
Fund's portfolio diverges from the securities included in the applicable index.
To compensate for the imperfect correlation of movements in the price of debt
securities being hedged and movements in the price of the hedging instruments,
the Fund might use hedging instruments in a greater dollar amount than the
dollar amount of debt securities being hedged. It might do so if the historical
volatility of the prices of the debt securities being hedged is greater than the
historical volatility of the applicable index.
The ordinary spreads between prices in the cash and futures markets are
subject to distortions due to differences in the natures of those markets. All
participants in the futures markets are subject to margin deposit and
maintenance requirements. Rather than meeting additional margin deposit
requirements, investors may close out futures contracts through offsetting
transactions which could distort the normal relationship between the cash and
futures markets. From the point of view of speculators, the deposit requirements
in the futures markets are less onerous than margin requirements in the
securities markets. Therefore, increased participation by speculators in the
futures markets may cause temporary price distortions.
The Fund can use hedging instruments to establish a position in the
municipal securities markets as a temporary substitute for the purchase of
individual securities (long hedging). It is possible that the market might
decline. If the Fund then concludes not to invest in such securities because of
concerns that there might be further market decline or for other reasons, the
Fund will realize a loss on the hedging instruments that is not offset by a
reduction in the purchase price of the securities.
An option position may be closed out only on a market that provides
secondary trading for options of the same series. There is no assurance that a
liquid secondary market will exist for a particular option. If the Fund could
not effect a closing purchase transaction due to a lack of a market, it would
have to hold the callable investment until the call lapsed or was exercised, and
could incur losses.
|_| Interest Rate Swap Transactions. In an interest rate swap, the Fund
and another party exchange their right to receive or their obligation to pay
interest on a security. For example, they may swap a right to receive floating
rate payments for fixed rate payments. The Fund can enter into swaps only on
securities it owns. The Fund may not enter into swaps with respect to more than
25% of its total assets. Also, the Fund will segregate liquid assets (such as
cash or U.S. Government securities) to cover any amounts it could owe under
swaps that exceed the amounts it is entitled to receive, and it will adjust that
amount daily, as needed. Income from interest rate swaps may be taxable.
Swap agreements entail both interest rate risk and credit risk. There is a
risk that, based on movements of interest rates in the future, the payments made
by the Fund under a swap agreement will have been greater than those received by
it. Credit risk arises from the possibility that the counterparty will default.
If the counterparty to an interest rate swap defaults, the Fund's loss will
consist of the net amount of contractual interest payments that the Fund has not
yet received. The Manager will monitor the creditworthiness of counterparties to
the Fund's interest rate swap transactions on an ongoing basis.
The Fund can enter into swap transactions with appropriate counterparties
pursuant to master netting agreements. A master netting agreement provides that
all swaps done between the Fund and that counterparty under the master agreement
shall be regarded as parts of an integral agreement. If on any date amounts are
payable under one or more swap transactions, the net amount payable on that date
shall be paid. In addition, the master netting agreement may provide that if one
party defaults generally or on one swap, the counterparty can terminate the
swaps with that party. Under master netting agreements, if there is a default
resulting in a loss to one party, that party's damages are calculated by
reference to the average cost of a replacement swap with respect to each swap.
The gains and losses on all swaps are then netted, and the result is the
counterparty's gain or loss on termination. The termination of all swaps and the
netting of gains and losses on termination is generally referred to as
"aggregation."
|_| Regulatory Aspects of Hedging Instruments. When using futures and
options on futures, the Fund is required to operate within certain guidelines
and restrictions established by the Commodity Futures Trading Commission (the
"CFTC"). In particular, the Fund is exempted from registration with the CFTC as
a "commodity pool operator" if the Fund complies with the requirements of Rule
4.5 adopted by the CFTC. That Rule does not limit the percentage of the Fund's
assets that may be used for Futures margin and related options premiums for a
bona fide hedging position. However, under the Rule the Fund must limit its
aggregate initial futures margin and related options premiums to no more than 5%
of the Fund's net assets for hedging strategies that are not considered bona
fide hedging strategies under the Rule. Under the Rule, the Fund also must use
short futures and options on futures positions solely for bona fide hedging
purposes within the meaning and intent of the applicable provisions of the
Commodity Exchange Act.
Transactions in options by the Fund are subject to limitations established
by the option exchanges. The exchanges limit the maximum number of options that
may be written or held by a single investor or group of investors acting in
concert. Those limits apply regardless of whether the options were written or
purchased on the same or different exchanges, or are held in one or more
accounts or through one or more different exchanges or through one or more
brokers. Thus, the number of options that the Fund may write or hold may be
affected by options written or held by other entities, including other
investment companies having the same adviser as the Fund (or an adviser that is
an affiliate of the Fund's adviser). The exchanges also impose position limits
on futures transactions. An exchange may order the liquidation of positions
found to be in violation of those limits and may impose certain other sanctions.
Under the Investment Company Act, when the Fund purchases an interest rate
future or municipal bond index future, it must maintain cash or readily
marketable short-term debt instruments in an amount equal to the market value of
the investments underlying the future, less the margin deposit applicable to it.
|X| Temporary Defensive Investments. The securities the Fund can
invest in for temporary defensive purposes include the following:
|_| short-term municipal securities;
|_| obligations issued or guaranteed by the U.S. government or its agencies
or instrumentalities;
|_| corporate debt securities rated within the three highest grades by a
nationally recognized rating agency;
|_| commercial paper rated "A-1" by Standard & Poor's, or having a
comparable rating by another nationally recognized-rating agency; and
|_| certificates of deposit of domestic banks with assets of $1 billion or
more.
|X| Taxable Investments. While the Fund can invest up to 20% of its total
assets in investments that generate income subject to income taxes, it does not
anticipate investing substantial amounts of its assets in taxable investments
under normal market conditions or as part of its normal trading strategies and
policies. To the extent it invests in taxable securities, the Fund would not be
able to meet its objective of providing tax exempt income to its shareholders.
Taxable investments include, for example, hedging instruments, repurchase
agreements, and some of the types of securities it would buy for temporary
defensive purposes.
Investment Restrictions
|X| What Are "Fundamental Policies?" Fundamental policies are those
policies that the Fund has adopted to govern its investments that can be changed
only by the vote of a "majority" of the Fund's outstanding voting securities.
Under the Investment Company Act, such a "majority" vote is defined as the vote
of the holders of the lesser of:
|_| 67% or more of the shares present or represented by proxy at a
shareholder meeting, if the holders of more than 50% of the outstanding
shares are present or represented by proxy, or
|_| more than 50% of the outstanding shares.
The Fund's investment objective is a fundamental policy. Other policies
described in the Prospectus or this Statement of Additional Information are
"fundamental" only if they are identified as such. The Fund's Board of Trustees
can change non-fundamental policies without shareholder approval. However,
significant changes to investment policies will be described in supplements or
updates to the Prospectus or this Statement of Additional Information, as
appropriate. The Fund's most significant investment policies are described in
the Prospectus.
|X| Does the Fund Have Additional Fundamental Policies? The following
investment restrictions are fundamental policies of the Fund:
|_| The Fund cannot borrow money, except from banks for temporary purposes
in amounts not in excess of 5% of the value of the Fund's assets. No assets of
the Fund may be pledged, mortgaged or hypothecated except to secure a borrowing,
and in that case no more 10% of the Fund's total assets may be pledged,
mortgaged or hypothecated. Borrowings may not be made for leverage, but only for
liquidity purposes to satisfy redemption requests when liquidation of portfolio
securities is considered inconvenient or disadvantageous. However, the Fund can
enter into when-issued and delayed-delivery transactions as described in this
Statement of Additional Information.
|_| The Fund cannot make loans. However, the Fund can purchase or hold
debt obligations, repurchase agreements and other instruments and securities it
is permitted to own and may lend its portfolio securities and other investments
it owns.
|_| With respect to 75% of its total assets, the Fund cannot buy
securities issued or guaranteed by any one issuer (except the U.S. government or
any of its agencies or instrumentalities), if more than 5% of the Fund's total
assets would be invested in securities of that issuer or the Fund would own more
than 10% of that issuer's voting securities.
|_| The Fund cannot invest more than 25% of its total assets in a single
industry. As an operating policy, the Fund applies this restriction to 25% or
more of its total assets. However, the Fund can invest more than 25% of its
assets in a particular segment of the municipal bond market, but it will not
invest more than 25% of its total assets in industrial revenue bonds in a single
industry.
|_| The Fund cannot invest in real estate. However, the Fund can invest in
municipal securities or other permissible securities or instruments secured by
real estate or interests in real estate.
|_| The Fund cannot invest in interests in oil, gas, or other mineral
exploration or development programs.
|_| The Fund cannot purchase securities, or other instruments, on margin.
However, the Fund can invest in options, futures, options on futures and similar
instruments and may make margin deposits and payments in connection with those
investments.
|_| The Fund cannot make short sales of securities.
|_| The Fund cannot underwrite securities. A permitted exception is in
case it is deemed to be an underwriter under the Securities Act of 1933 when
reselling in securities held in its portfolio.
|_| The Fund cannot invest in securities of other investment companies,
except is they are acquired as part of a merger, consolidation or other
acquisition.
|_| The Fund cannot make investments for the purpose of exercising control
of management.
|_| The Fund cannot purchase securities of any issuer if officers,
trustees and directors of the Fund or the Manager individually beneficially own
more than 0.5% of the securities of that issuer and together own beneficially
more than 5% of the outstanding securities.
|_| The Fund cannot issue "senior securities," but this does not prohibit
certain investment activities for which assets of the Fund are designated as
segregated or margin collateral or escrow arrangements are established to cover
the related obligations. Examples of those activities include borrowing money,
reverse repurchase agreements, delayed-delivery and when-issued arrangements for
portfolio securities transactions, and contracts to buy or sell derivatives,
hedging instruments, options or futures.
The Fund will not purchase or retain securities if, as a result, the Fund
would have more than 5% of its total assets invested in securities of private
issuers having a record of less than three years' continuous operation, or in
industrial development bonds if the private entity on whose credit the security
is based, directly or indirectly, is less than three years old, unless the
security is rated by a nationally-recognized rating service. In each case, that
period may include the operation of predecessor companies or enterprises.
Additionally, the Fund will not invest in common stock or any warrants related
to common stocks. These operating policies are not fundamental policies.
Unless the Prospectus or Statement of Additional Information states that a
percentage restriction applies on an ongoing basis, it applies only at the time
the Fund makes an investment. In that case the Fund need not sell securities to
meet the percentage limits if the value of the investment increases in
proportion to the size of the Fund.
Diversification. The Fund intends to be "diversified" as defined in the
Investment Company Act and to satisfy the restrictions against investing too
much of its assets in any "issuer" as set forth in the restrictions above. In
implementing this policy, the identification of the issuer of a municipal
security depends on the terms and conditions of the security. When the assets
and revenues of an agency, authority, instrumentality or other political
subdivision are separate from those of the government creating it and the
security is backed only by the assets and revenues of the subdivision, agency,
authority or instrumentality, the latter would be deemed to be the sole issuer.
Similarly, if an industrial development bond is backed only by the assets and
revenues of the non-governmental user, then that user would be deemed to be the
sole issuer. However, if in either case the creating government or some other
entity guarantees a security, the guarantee would be considered a separate
security and would be treated as an issue of such government or other entity.
Applying the Restriction Against Concentration. To implement its policy not to
concentrate its investments, the Fund has adopted the industry classifications
set forth in Appendix B to this Statement of Additional Information. Those
industry classifications are not a fundamental policy.
In implementing the Fund's policy not to concentrate its investments, the
Manager will consider a non-governmental user of facilities financed by
industrial development bonds as being in a particular industry. That is done
even though the bonds are municipal securities, as to which the Fund has no
concentration limitation. Although this application of the concentration
restriction is not a fundamental policy of the Fund, it will not be changed
without shareholder approval.
How the Fund Is Managed
Organization and History. The Fund is one of two diversified investment
portfolios, or "series" of Oppenheimer Municipal Fund, an open-end, diversified
management investment company organized as a Massachusetts business trust in
1986, with an unlimited number of authorized shares of beneficial interest.
Oppenheimer Municipal Fund (and therefore, the Fund, as one of its series)
is governed by a Board of Trustees, which is responsible for protecting the
interests of shareholders under Massachusetts law. The Trustees meet
periodically throughout the year to oversee the Fund's activities, review its
performance, and review the actions of the Manager. Although the Fund will not
normally hold annual meetings of its shareholders, it may hold shareholder
meetings from time to time on important matters. Shareholders of Oppenheimer
Municipal Fund have the right to call a meeting to remove a Trustee or to take
other action described in the Declaration of Trust.
|X| Classes of Shares. The Board of Trustees has the power, without
shareholder approval, to divide unissued shares of the Fund into two or more
classes. The Board has done so, and the Fund currently has three classes of
shares, Class A, Class B and Class C. All classes invest in the same investment
portfolio. Shares are freely transferable. Each share has one vote at
shareholder meetings, with fractional shares voting proportionally on matters
submitted to the vote of shareholders. Each class of shares:
|_| has its own dividends and distributions,
|_| pays certain expenses which may be different for the different classes,
|_| may have a different net asset value, may have separate voting rights
on matters in which the interests of one class are different from the interests
of another class, and
|_| votes as a class on matters that affect that class alone.
|X| Meetings of Shareholders. As a series of a Massachusetts business
trust, the Fund is not required to hold, and does not plan to hold, regular
annual meetings of shareholders. The Fund will hold meetings when required to do
so by the Investment Company Act or other applicable law. It will also do so
when a shareholder meeting is called by the Trustees or upon proper request of
the shareholders.
Shareholders have the right, upon the declaration in writing or vote of
two-thirds of the outstanding shares of Oppenheimer Municipal Fund, to remove a
Trustee. The Trustees will call a meeting of shareholders to vote on the removal
of a Trustee upon the written request of the record holders of 10% of the
outstanding shares of Oppenheimer Municipal Fund. If the Trustees receive a
request from at least 10 shareholders stating that they wish to communicate with
other shareholders to request a meeting to remove a Trustee, the Trustees will
then either make the shareholder lists of Oppenheimer Municipal Fund available
to the applicants or mail their communication to all other shareholders at the
applicants' expense. The shareholders making the request must have been
shareholders for at least six months and must hold shares of series of
Oppenheimer Municipal Fund valued at $25,000 or more or constituting at least 1%
of the outstanding shares of Oppenheimer Municipal Fund, whichever is less. The
Trustees may also take other action as permitted by the Investment Company Act.
|_| Shareholder and Trustee Liability. The Declaration of Trust contains
an express disclaimer of shareholder or Trustee liability for the Fund's
obligations. It also provides for indemnification and reimbursement of expenses
out of the Fund's property for any shareholder held personally liable for its
obligations. The Declaration of Trust also states that upon request, the Fund
shall assume the defense of any claim made against a shareholder for any act or
obligation of the Fund and shall satisfy any judgment on that claim.
Massachusetts law permits a shareholder of a business trust (such as the Fund)
to be held personally liable as a "partner" under certain circumstances.
However, the risk that a Fund shareholder will incur financial loss from being
held liable as a "partner" of the Fund is limited to the relatively remote
circumstances in which the Fund would be unable to meet its obligations.
The Fund's contractual arrangements state that any person doing business
with the Fund (and each shareholder of the Fund) agrees under the Declaration of
Trust to look solely to the assets of the Fund for satisfaction of any claim or
demand that may arise out of any dealings with the Fund. The contracts further
state that the Trustees shall have no personal liability to any such person, to
the extent permitted by law.
Trustees and Officers of the Fund. The Fund's Trustees and officers and their
principal occupations and business affiliations during the past five years are
listed below. Trustees denoted with an asterisk (*) below are deemed to be
"interested persons" of the Fund under the Investment Company Act. All of the
Trustees are also trustee, directors or managing general partners of the
following Denver-based Oppenheimer funds1:
Oppenheimer Cash Reserves Oppenheimer Total Return Fund, Inc.
Oppenheimer Champion Income Fund Oppenheimer Variable Account Funds
Oppenheimer Equity Income Fund Panorama Series Fund, Inc.
Oppenheimer High Yield Fund Centennial America Fund, L. P.
Oppenheimer International Bond Fund Centennial California Tax Exempt Trust
Oppenheimer Integrity Funds Centennial Government Trust
Oppenheimer Limited-Term Government Centennial Money Market Trust
Fund
Oppenheimer Main Street Funds, Inc. Centennial New York Tax Exempt Trust
Oppenheimer Municipal Fund Centennial Tax Exempt Trust
Oppenheimer Real Asset Fund The New York Tax-Exempt Income Fund, Inc.
Oppenheimer Strategic Income Fund
Ms. Macaskill and Messrs. Swain, Bishop, Bowen , Donohue, Farrar and Zack,
who are officers of the Fund, respectively hold the same offices with the other
Denver-based Oppenheimer funds. As of January 4, 1999, the Trustees and officers
of the Fund as a group owned less than 1% of the outstanding shares of the Fund.
The foregoing statement does not reflect shares held of record by an employee
benefit plan for employees of the Manager other than shares beneficially owned
under that plan by the officers of the Fund listed below. Ms. Macaskill and Mr.
Donohue are trustees of that plan.
1Ms. Macaskill and Mr. Bowen are not Trustees or Directors of Oppenheimer
Integrity Funds, Oppenheimer Strategic Income Fund, Panorama Series Fund, Inc.
or Oppenheimer Variable Account Funds. Mr. Fossel and Mr. Bowen are not Trustees
of Centennial New York Tax Exempt Trust or Managing General Partners of
Centennial America Fund, L.P.
Robert G. Avis*, Trustee; Age 67
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:84
197 Desert Lakes Drive, Palm Springs, California 92264
Management Consultant.
George C. Bowen*, Vice President, Treasurer, Assistant Secretary and Trustee;
Age 62
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); Assistant Treasurer of OAC (since March 1998); Treasurer
of Oppenheimer Partnership Holdings, Inc. (since November 1989); Vice President
and Treasurer of Oppenheimer Real Asset Management, Inc. (since July 1996);
Chief Executive Officer, Treasurer; Treasurer of OFIL and Oppenheimer Millennium
Funds plc (since October 1997); an officer of other Oppenheimer funds; formerly
Treasurer of OAC (June 1990-March 1998).
Charles Conrad, Jr., Trustee; Age 68
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., prior
to which he was associated with the National Aeronautics and Space
Administration.
Jon S. Fossel, Trustee; Age 56
P.O. Box 44, Mead Street, Waccabuc, New York 10597
Formerly Chairman and a director of the Manager, President and a director of
Oppenheimer Acquisition Corp. ("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 58
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 69
44 Portland Drive, St. Louis, Missouri 63131
Director of Wave Technologies International, Inc. (a computer products
training company), self-employed consultant (securities matters).
C. Howard Kast, Trustee; Age 77
2552 East Alameda, Denver, Colorado 80209
Formerly Managing Partner of Deloitte, Haskins & Sells (an accounting firm).
Robert M. Kirchner, Trustee; Age 77
7500 E. Arapahoe Road, Englewood, Colorado 80112
President of The Kirchner Company (management consultants).
Bridget A. Macaskill*, President and Trustee; Age 50
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"); Chairman, President and a director of
Oppenheimer Millennium Funds plc (since October 1997); President and a director
of other Oppenheimer funds; Member, Board of Governors, NASD, Inc.; a director
of Hillsdown Holdings plc (a U.K. food company); formerly a director of NASDAQ
Stock Market, Inc.
Ned M. Steel, Trustee; Age 83
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 65
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.
Caryn Halbrecht, Vice President and Portfolio Manager; Age 42
Vice President of the Manager (since March 1994); an officer of other
Oppenheimer funds.
Andrew J. Donohue, Vice President and Secretary; Age 48
Executive Vice President (since January 1993), General Counsel (since October
1991) and a Director (since September 1995) of the Manager; Executive Vice
President and General Counsel (since September 1993) and a director (since
January 1992) of the Distributor; Executive Vice President, General Counsel and
a director of HarbourView, SSI, SFSI and Oppenheimer Partnership Holdings, Inc.
(since September 1995) and a director of Centennial (since September 1995);
President, General Counsel and a director of Oppenheimer Real Asset Management,
Inc. (since July 1996); General Counsel (since May 1996) and Secretary (since
April 1997) of OAC; Vice President and a director of OFIL and Oppenheimer
Millennium Funds plc (since October 1997); an officer of other Oppenheimer
funds.
Robert J. Bishop, Assistant Treasurer; Age 40
6803 South Tucson Way, Englewood, Colorado 80112
Vice President of the Manager/Mutual Fund Accounting (since May 1996); an
officer of other Oppenheimer funds; formerly an Assistant Vice President of the
Manager/Mutual Fund Accounting (April 1994-May 1996), and a Fund
Controller for the Manager.
Scott T. Farrar, Assistant Treasurer; Age 33
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 50
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 OFIL and Oppenheimer Millennium
Funds plc (since October 1997); an officer of other Oppenheimer funds.
*Trustee who is an "interest person" of the Fund and the Manager
|X| Remuneration of Trustees. The officers of the Fund and three Trustees
of the Fund (Ms. Macaskill and Messrs. Bowen and Swain) are affiliated with the
Manager and receive no salary or fee from the Fund. The remaining Trustees of
the Fund received the compensation shown below. The compensation from the Fund
was paid during its fiscal year ended September 30, 1998. The compensation from
all of the Denver-based Oppenheimer funds includes the compensation from the
Fund and represents compensation received as a director, trustee, managing
general partner or member of a committee of the Board during the calendar year
1998.
-----------------------------------------------------------------------------
Aggregate Total Compensation
Trustee's Name Compensation from all Denver-Based
and Other Positions from Fund Oppenheimer Funds1
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
Robert G. Avis $407 $67,998.00
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
William A. Baker $439 $69,998.00
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
Charles Conrad, Jr. $420 $67,998.00
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
John S. Fossel $403 $67,496.04
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
Sam Freedman $439 $73,998.00
Audit and Review
Committee Member
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
Raymond J. Kalinowski $447 $73,998.00
Audit and Review
Committee Member
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
C. Howard Kast $468 $76,998.00
Audit and Review
Committee Chairman
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
Robert M. Kirchner $420 $67,998.00
-----------------------------------------------------------------------------
Ned M. Steel $407 $67,998.00
-----------------------------------------------------------------------------
(1) For the 1998 calendar year.
|X| Deferred Compensation Plan for Trustees. The Board of Trustees has
adopted a Deferred Compensation Plan for disinterested trustees that enables
them to elect to defer receipt of all or a portion of the annual fees they are
entitled to receive from the Fund. Under the plan, the compensation deferred by
a Trustee is periodically adjusted as though an equivalent amount had been
invested in shares of one or more Oppenheimer funds selected by the Trustee. The
amount paid to the Trustee under the plan will be determined based upon the
performance of the selected funds.
Deferral of Trustees' fees under the plan will not materially affect the
Fund's assets, liabilities or net income per share. The plan will not obligate
the Fund to retain the services of any Trustee or to pay any particular level of
compensation to any Trustee. Pursuant to an Order issued by the Securities and
Exchange Commission, the Fund may invest in the funds selected by the Trustee
under the plan without shareholder approval for the limited purpose of
determining the value of the Trustee's deferred fee account.
|X| Major Shareholders. As of January 4, 1999, the only person who
owned of record or who was known by the Fund to own beneficially 5% or more
of any class of the Fund's outstanding shares was:
Merrill Lynch Pierce Fenner & Smith, Inc. (which advised the Fund that
such shares were held beneficially for its customers) 4800 Deer Lake Drive East,
Floor 3, Jacksonville, Florida 32246, which owned 63,993.123 Class B shares
(approximately 6.48% of the Class B shares then outstanding) and 94,609.387
Class C shares (approximately 7.32% of the Class C shares then outstanding).
The Manager. The Manager is wholly-owned by Oppenheimer Acquisition Corp., a
holding company controlled by Massachusetts Mutual Life Insurance Company. 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 enforced by the
Manager.
|X| The Investment Advisory Agreement. The Manager provides investment
advisory and management services to the Fund under an investment advisory
agreement between the Manager and the Fund. The Manager selects securities for
the Fund's portfolio and handles its day-to day business. The portfolio manager
of the Fund is employed by the Manager and is the person who is principally
responsible for the day-to-day management of the Fund's investment portfolio.
Other members of the Manager's Fixed-Income Portfolio Team provide the portfolio
manager with research and counsel in managing the Fund's investments.
The agreement requires the Manager, at its expense, to provide the Fund
with adequate office space, facilities and equipment. It also requires the
Manager to provide and supervise the activities of all administrative and
clerical personnel required to provide effective corporate administration for
the Fund. Those responsibilities include the compilation and maintenance of
records with respect to the Fund's operations, the preparation and filing of
specified reports, and the composition of proxy materials and registration
statements for continuous public sale of shares of the Fund.
The Fund pays expenses not expressly assumed by the Manager under the
advisory agreement. The advisory agreement lists examples of expenses paid by
the Fund. The major categories relate to interest, taxes, fees to disinterested
Trustees, legal and audit expenses, custodian and transfer agent expenses, share
issuance costs, certain printing and registration costs, brokerage commissions,
and non-recurring expenses, including litigation costs. The management fees paid
by the Fund to the Manager are calculated at the rates described in the
Prospectus, which are applied to the assets of the Fund as a whole. The fees are
allocated to each class of shares based upon the relative proportion of the
Fund's net assets represented by that class. The management fees paid by the
Fund to the Manager during its last three fiscal years are listed below.
-----------------------------------------------------------------------------
Fiscal Year Ending 9/30 Management Fee Paid to OppenheimerFunds,
Inc.
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
1996 $463,582
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
1997 $509,834
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
1998 $608,528
-----------------------------------------------------------------------------
The investment advisory agreement states that in the absence of willful
misfeasance, bad faith, gross negligence in the performance of its duties, or
reckless disregard for its obligations and duties under the investment advisory
agreement, the Manager is not liable for any loss sustained by reason of any
investment of the Fund assets made with due care and in good faith.
The agreement permits the Manager to act as investment adviser for any
other person, firm or corporation. The Manager can use the name "Oppenheimer" in
connection with other investment companies for which it or an affiliate is the
investment adviser or general distributor. If the Manager shall no longer act as
investment adviser to the Fund, the Manager can withdraw its permission to the
Fund (and to Oppenheimer Municipal Fund) to use the name "Oppenheimer" as part
of its name.
-----------------------------------------------------------------------------
Fiscal Year Ended 9/30 Total Brokerage Commissions Paid by the Fund1
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
1996 None
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
1997 None
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
1998 $56,8382
-----------------------------------------------------------------------------
1. Amounts do not include spreads or concessions on principal amounts on a net
trade basis.
2. In the fiscal year ended 9/30/98, no transactions directed to brokers for
research services.
Brokerage Policies of the Fund
Brokerage Provisions of the Investment Advisory Agreement. One of the duties of
the Manager under the investment advisory agreement is to buy and sell portfolio
securities for the Fund. The investment advisory agreement allows the Manager to
use broker-dealers to effect the Fund's portfolio transactions. Under the
agreement, the Manager may employ those broker-dealers (including "affiliated"
brokers, as that term is defined in the Investment Company Act) that, in the
Manager's best judgment based on all relevant factors, will implement the Fund's
policy to obtain, at reasonable expense, the "best execution" of portfolio
transactions. "Best execution" refers to prompt and reliable execution at the
most favorable price obtainable. The Manager need not seek competitive
commission bidding. However, the Manager is expected to minimize the commissions
paid to the extent consistent with the interest and policies of the Fund as
established by its Board of Trustees.
Under the investment advisory agreement, the Manager may select brokers
that provide brokerage and/or research services for the Fund and/or the other
accounts over which the Manager or its affiliates have investment discretion.
The commissions paid to such brokers may be higher than another qualified broker
would charge, if the Manager makes a good faith determination that the
commission is fair and reasonable in relation to the services provided. Subject
to those other considerations, as a factor in selecting brokers for the Fund's
portfolio transactions, the Manager may also consider sales of shares of the
Fund and other investment companies managed by the Manager or its affiliates.
Brokerage Practices Followed by the Manager. The Manager allocates brokerage for
the Fund subject to the provisions of the investment advisory agreement and the
procedures and rules described above. Generally the Manager's portfolio traders
allocate brokerage upon recommendations from the Manager's portfolio managers.
In certain instances, portfolio managers may directly place trades and allocate
brokerage. In either case, the Manager's executive officers supervise the
allocation of brokerage.
Most securities purchases made by the Fund are in principal transactions
at net prices. The Fund usually deals directly with the selling or purchasing
principal or market maker without incurring charges for the services of a broker
on its behalf unless the Manager determines that a better price or execution may
be obtained by using the services of a broker. Therefore, the Fund does not
incur substantial brokerage costs. Portfolio securities purchased from
underwriters include a commission or concession paid by the issuer to the
underwriter in the price of the security. Portfolio securities purchased from
dealers include a spread between the bid and asked price.
The Fund seeks to obtain prompt execution of orders at the most favorable
net prices. In an option transaction, the Fund ordinarily uses the same broker
for the purchase or sale of the option and any transaction in the investment to
which the option relates. Other funds advised by the Manager have investment
objectives and policies similar to those of the Fund. Those other funds may
purchase or sell the same securities as the Fund at the same time as the Fund,
which could affect the supply and price of the securities. When possible, the
Manager tries to combine concurrent orders to purchase or sell the same security
by more than one of the accounts managed by the Manager or its affiliates. The
transactions under those combined orders are averaged as to price and allocated
in accordance with the purchase or sale orders actually placed for each account.
The investment advisory agreement permits the Manager to allocate
brokerage for research services. The research services provided by a particular
broker may be useful only to one or more of the advisory accounts of the Manager
and its affiliates. Investment research received by the Manager for the
commissions paid by those other accounts may be useful both to the Fund and one
or more of the Manager's other accounts. Investment research services may be
supplied to the Manager by a third party at the instance of a broker through
which trades are placed. Investment research services include information and
analyses on particular companies and industries as well as market or economic
trends and portfolio strategy, market quotations for portfolio evaluations,
information systems, computer hardware and similar products and services. If a
research service also assists the Manager in a non-research capacity (such as
bookkeeping or other administrative functions), then only the percentage or
component that provides assistance to the Manager in the investment
decision-making process may be paid in commission dollars.
The Board permits the Manager to use stated commissions on secondary
fixed-income agency trades to obtain research if the broker represents to the
Manager that: (i) the trade is not from or for the broker's own inventory, (ii)
the trade was executed by the broker on an agency basis at the stated
commission, and (iii) the trade is not a riskless principal transaction. The
Board of Trustees permits the Manager to use concessions on fixed-price
offerings to obtain research, in the same manner as is permitted for agency
transactions.
The research services provided by brokers broaden the scope and supplement
the research activities of the Manager. That research provides additional views
and comparisons for consideration and helps the Manager to obtain market
information for the valuation of securities that are either held in the Fund's
portfolio or are being considered for purchase. The Manager provides information
to the Board of the Fund about the commissions paid to brokers furnishing
research services, together with the Manager's representation that the amount of
such commissions was reasonably related to the value or benefit of such
services.
Distribution and Service Plans
The Distributor. Under its General Distributor's Agreement with the Fund, the
Distributor acts as the Fund's principal underwriter in the continuous public
offering of the different classes of shares of the Fund. The Distributor is not
obligated to sell a specific number of shares. Expenses normally attributable to
sales are borne by the Distributor.
The compensation paid to (or retained by) the Distributor from the sale of
shares or on the redemption of shares is discussed in the table below:
-----------------------------------------------------------------------------
Aggregate Class A Commissions Commissions Commissions
Fiscal Front-End Front-End on Class A on Class B on Class C
Year Sales Charges Sales Shares Shares Shares
Ended on Class A Charges Advanced by Advanced by Advanced by
9/30: Shares Retained by Distributor1 Distributor1 Distributor1
Distributor
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
1996 $160,206 $85,052 $ 8,186 $ 69,798 $54,827
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
1997 $173,050 $75,561 $ 6,440 $133,554 $57,363
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
1998 $303,538 $55,035 $118,176 $166,461 $74,498
-----------------------------------------------------------------------------
(1)The Distributor advances commission payments to dealers for certain sales of
Class A shares and for sales of Class B and Class C shares from its own
resources at the time of sale.
-----------------------------------------------------------------------------
Fiscal Class A Contingent Class B Contingent Class C Contingent
Year Deferred Sales Deferred Sales Deferred Sales
Ended Charges Charges Charges
9/30: Retained by Retained by Retained by
Distributor Distributor Distributor
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
1998 $0 $11,878 $12,321
-----------------------------------------------------------------------------
Distribution and Service Plans. The Fund has adopted a Service Plan for its
Class A shares and Distribution and Service Plans for its Class B and Class C
shares under Rule 12b-1 of the Investment Company Act. Under those plans, the
Fund makes payments to the Distributor in connection with the distribution
and/or servicing of the shares of the particular class.
Each plan has been approved by a vote of the Board of Trustees of the
Fund, including a majority of the Independent Trustees,o cast in person at a
meeting called for the purpose of voting on that plan. Each plan has also been
approved by a vote of the holders of a "majority" (as defined in the Investment
Company Act) of the shares of each class. The Manager cast the vote to approve
the Class C plan as the sole initial holder of Class C shares.
o In accordance with Rule 12b-1 of the Investment Company Act, the term
"Independent Trustees" in this Statement of Additional Information refers to
those Trustees who are not "interested persons" of the Fund or its parent trust
and who do not have any direct or indirect financial interest in the operation
of the distribution plan or any agreement under the plan.
Under the plans the Manager and the Distributor, in their sole discretion,
from time to time may use their own resources (at no direct cost to the Fund) to
make payments to brokers, dealers or other financial institutions for
distribution and administrative services they perform. The Manager may use
profits from the advisory fee it receives from the Fund. The Distributor and the
Manager may, in their sole discretion, increase or decrease the amount of
payments they make to plan recipients from their own resources.
Unless a plan is terminated as described below, the plan continues in
effect from year to year, but only if the Fund's Board of Trustees and its
Independent Trustees specifically vote annually to approve its continuance.
Approval must be by a vote cast in person at a meeting called for the purpose of
voting on continuing the plan. A plan may be terminated at any time by the vote
of a majority of the Independent Trustees or by the vote of the holders of a
"majority" (as defined in the Investment Company Act) of the outstanding shares
of that class.
The Board and the Independent Trustees must approve all material
amendments to a plan. An amendment to increase materially the amount of payments
to be made under the plan must be approved by shareholders of the class affected
by the amendment. Because Class B shares automatically convert into Class A
shares after six years, the Fund must obtain the approval of both Class A and
Class B shareholders for an amendment to the Class A plan that would materially
increase the amount to be paid under that plan. That approval must be by a
"majority" (as defined in the Investment Company Act) of the shares of each
class, voting separately by Class.
While the plans are in effect, the Treasurer of the Fund shall provide
separate written reports on the plans to the Fund's Board of Trustees at least
quarterly for its review. The reports shall detail the amount of all payments
made under a plan and the purpose for which the payments were made. The report
on the Class B and Class C plans shall also include the Distributor's
distribution costs for the quarter, and any costs for previous fiscal periods
that have been carried forward. Those reports are subject to the review and
approval of the Independent Trustees in the exercise of their fiduciary duty.
Each plan states that while it is in effect, the selection or replacement
and nomination of those Trustees of the Fund who are not "interested persons" of
the Fund is committed to the discretion of the Independent Trustees. This
provision does not prevent the involvement of others in the selection and
nomination process as long as the final decision as to selection or nomination
is approved by a majority of the Independent Trustees.
Under the plan for a class, no payment will be made to any recipient in
any quarter in which the aggregate net asset value of all Fund shares held by
the recipient for itself and its customers does not exceed a minimum amount, if
any, that may be set from time to time by a majority of the Fund's Independent
Trustees. The Board of Trustees has set the fees at the maximum rate allowed
under the plans and has set no minimum asset amount needed to qualify for
payments.
|X| Class A Service Plan. Under the Class A service plan, the
Distributor currently uses the fees it receives from the Fund to pay brokers,
dealers and other financial institutions (they are referred to as "recipients")
for personal services and account maintenance services they provide for their
customers who hold Class A shares. The services include, among others, answering
customer inquiries about the Fund, assisting in establishing and maintaining
accounts in the Fund, making the Fund's investment plans available and providing
other services at the request of the Fund or the Distributor. The Distributor
makes payments to plan recipients quarterly at an annual rate not to exceed
0.25% of the average annual net assets of Class A shares held in accounts of the
service providers or their customers.
For the fiscal year ended September 30, 1998, payments under the Plan for
Class A shares totaled $235,579, all of which was paid by the Distributor to
recipients. That included $30,812 paid to an affiliate of the Distributor. Any
unreimbursed expenses the Distributor incurs with respect to Class A shares for
any fiscal year may not be recovered in subsequent years. The Distributor may
not use payments received under the Class A plan to pay any of its interest
expenses, carrying charges, other financial costs, or allocation of overhead.
|X| Class B and Class C Service and Distribution Plans. Under each plan,
service fees and distribution fees are computed on the average of the net asset
value of shares in the respective class, determined as of the close of each
regular business day during the period. The Class B and Class C plans provide
for the Distributor to be compensated at a flat rate, whether the Distributor's
distribution expenses are more or less than the amounts paid by the Fund under
the plans during that period. The types of services that recipients provide are
similar to the services provided under the Class A plan, described above.
The Class B and Class C plans permit the Distributor to retain both the
asset-based sales charges and the service fee on shares or to pay recipients the
service fee on a quarterly basis, without payment in advance. The types of
services that recipients provide are similar to the services provided under the
Class A plan, described above. However, the Distributor presently intends to pay
recipients the service fee on Class B and Class C shares in advance for the
first year the shares are outstanding. After the first year shares are
outstanding, the Distributor makes service fee payments quarterly on those
shares. The advance payment is based on the net asset value of shares sold.
Shares purchased by exchange do not qualify for an advance service fee payment.
If Class B or Class C shares are redeemed during the first year after their
purchase, the recipient of the service fees on those shares will be obligated to
repay the Distributor a pro rata portion of the advance payment made on those
shares.
The Distributor retains the asset-based sales charge on Class B shares.
The Distributor retains the asset-based sales charge on Class C shares during
the first year the shares are outstanding. It pays the asset-based sales charge
as an ongoing commission to the dealer on Class C shares outstanding for a year
or more. If a dealer has a special agreement with the Distributor, the
Distributor will pay the Class B and/or Class C service fees and the asset-based
sales charge to the dealer quarterly in lieu of paying the sales commission and
service fee in advance at the time of purchase.
The asset-based sales charge on Class B and Class C shares allows
investors to buy shares without a front-end sales charge while allowing the
Distributor to compensate dealers that sell those shares. The Distributor's
actual expenses in selling Class B and Class C shares may be more than the
payments it receives from contingent deferred sales charges collected on
redeemed shares and from the Fund under the plans. The Fund pays the asset-based
sales charge to the Distributor for its services rendered in distributing Class
B and Class C shares. The payments are made to the Distributor in recognition
that the Distributor:
|_|pays sales commissions to authorized brokers and dealers at the time
of sale and pays service fees as described in the Prospectus,
|_|may finance payment of sales commissions and/or the advance of the
service fee payment to recipients under the plans, or may provide such
financing from its own resources or from the resources of an affiliate,
|_| employs personnel to support distribution of shares, and
|_| bears the costs of sales literature, advertising and prospectuses
(other than those furnished to current shareholders) and state "blue
sky" registration fees and certain other distribution expenses.
Payments made under the Class B plan for the fiscal year ended September
30, 1998, totaled $108,144 (including $403 paid to an affiliate of the
Distributor). The Distributor retained $94,754 of the total paid. Payments made
under the Class C Plan for the fiscal year ended September 30, 1998 totaled
$163,567 (including $3,923 paid to an affiliate by the Distributor). The
Distributor retained $84,598 of the total paid. At September 30, 1998, the
Distributor had incurred unreimbursed expenses under the Class B plan in the
amount of $273,649 (equal to 2.02% of the Fund's net assets represented by Class
B shares on that date). At September 30, 1998, the Distributor had incurred
unreimbursed expenses under the Class C plan of $259,730 (equal to 1.47% of the
Fund's net assets
represented by Class C shares on that date). 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 the Distributor to compensate it for its expenses
incurred for distributing shares before the plan was terminated.
All payments under the Class B and Class C plans are subject to the
limitations imposed by the Conduct Rules of the National Association of
Securities Dealers, Inc. on payments of asset-based sales charges and service
fees to NASD members.
Performance of the Fund
Explanation of Performance Terminology. The Fund uses a variety of terms to
illustrate its performance. These terms include "standardized yield,"
"tax-equivalent yield," "dividend yield," "average annual total return,"
"cumulative total return," "average annual total return at net asset value" and
"total return at net asset value." An explanation of how yields and total
returns are calculated is set forth below. The charts below show the Fund's
performance as of its most recent fiscal year end. You can obtain current
performance information by calling the Fund's Transfer Agent at 1-800-525-7048
or by visiting the OppenheimerFunds Internet web site at
http://www.oppenheimerfunds.com.
The Fund's illustrations of its performance data in advertisements must
comply with rules of the Securities and Exchange Commission. Those rules
describe the types of performance data that may be used and how it is to be
calculated. In general, any advertisement by the Fund of its performance data
must include the average annual total returns for the advertised class of shares
of the Fund. Those returns must be shown for the 1, 5 and 10-year periods (or
the life of the class, if less) ending as of the most recently ended calendar
quarter prior to the publication of the advertisement (or its submission for
publication). Certain types of yields may also be shown, provided that they are
accompanied by standardized average annual total returns.
Use of standardized performance calculations enables an investor to
compare the Fund's performance to the performance of other funds for the same
periods. However, a number of factors should be considered before using the
Fund's performance information as a basis for comparison with other investments:
|_| Yields and total returns measure the performance of a hypothetical
account in the Fund over various periods and do not show the performance of each
shareholder's account. Your account's performance will vary from the model
performance data if your dividends are received in cash, or you buy or sell
shares during the period, or you bought your shares at a different time and
price than the shares used in the model.
|_| The Fund's performance returns do not reflect the effect of taxes
on distributions.
|_| An investment in the Fund is not insured by the FDIC or any other
government agency.
|_| The principal value of the Fund's shares, and its yields and total
returns are not guaranteed and normally will fluctuate on a daily basis.
|_| When an investor's shares are redeemed, they may be worth more or less
than their original cost.
|_| Yields and total returns for any given past period represent
historical performance information and are not, and should not be considered, a
prediction of future yields or returns.
The performance of each class of shares is shown separately, because the
performance of each class of shares will usually be different. That is because
of the different kinds of expenses each class bears. The yields and total
returns of each class of shares of the Fund are affected by market conditions,
the quality of the Fund's investments, the maturity of those investments, the
types of investments the Fund holds, and its operating expenses that are
allocated to the particular class.
|X| Yields. The Fund uses a variety of different yields to illustrate its
current returns. Each class of shares calculates its yield separately because of
the different expenses that affect each class.
|_| Standardized Yield. The "standardized yield" (sometimes referred to
just as "yield") is shown for a class of shares for a stated 30-day period. It
is not based on actual distributions paid by the Fund to shareholders in the
30-day period, but is a hypothetical yield based upon the net investment income
from the Fund's portfolio investments for that period. It may therefore differ
from the "dividend yield" for the same class of shares, described below.
Standardized yield 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:
- ------------------------------------------------------------------------------
a-b 6
Standardized Yield = 2 ((------ + 1) - 1)
cd
- ------------------------------------------------------------------------------
The symbols above represent the following factors:
a = dividends and interest earned during the 30-day period.
b = expenses accrued for the period (net of any expense assumptions).
c = the average daily number of shares of that class outstanding during
the 30-day period that were entitled to receive dividends.
d = the maximum offering price per share of that class on the last day
of the period, adjusted for undistributed net investment income.
The standardized yield for a particular 30-day period may differ from the
yield for other periods. The SEC formula assumes that the standardized yield for
a 30-day period occurs at a constant rate for a six-month period and is
annualized at the end of the six-month period. Additionally, because each class
of shares is subject to different expenses, it is likely that the standardized
yields of the Fund's classes of shares will differ for any 30-day period.
|_| Dividend Yield. The Fund may quote a "dividend yield" for each class
of its shares. Dividend yield is based on the dividends paid on a class of
shares during the actual dividend period. To calculate dividend yield, the
dividends of a class declared during a stated period are added together, and the
sum is multiplied by 12 (to annualize the yield) and divided by the maximum
offering price on the last day of the dividend period. The formula is shown
below:
Dividend Yield = Dividends paid x 12
---------------------------------------------
Maximum Offering Price (payment date)
The maximum offering price for Class A shares includes the current maximum
initial sales charge. The maximum offering price for Class B and Class C shares
is the net asset value per share, without considering the effect of contingent
deferred sales charges. The Class A dividend yield may also be quoted without
deducting the maximum initial sales charge.
|_| Tax-Equivalent Yield. The "tax-equivalent yield" of a class of
shares is the equivalent yield that would have to be earned on a taxable
investment to achieve the after-tax results represented by the Fund's
tax-equivalent yield. It adjusts the Fund's standardized yield, as calculated
above, by a stated Federal tax rate. Using different tax rates to show different
tax equivalent yields shows investors in different tax brackets the tax
equivalent yield of the Fund based on their own tax bracket.
The tax-equivalent yield is based on a 30-day period, and is computed by
dividing the tax-exempt portion of the Fund's current yield (as calculated
above) by one minus a stated income tax rate. The result is added to the portion
(if any) of the Fund's current yield that is not tax-exempt.
The tax-equivalent yield may be used to compare the tax effects of income
derived from the Fund with income from taxable investments at the tax rates
stated. Your tax bracket is determined by your Federal taxable income (the net
amount subject to Federal income tax after deductions and exemptions). The
tax-equivalent yield table assumes that the investor is taxed at the highest
bracket, regardless of whether a switch to non-taxable investments would cause a
lower bracket to apply.
----------------------------------------------------------------------------
The Fund's Yields for the 30-Day Periods Ended 9/30/98
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Tax-Equivalent Yield
Standardized Yield Dividend Yield (39.6% Fed. Tax
Bracket)
Class of
Shares
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Without After Without After Without After
Sales Sales Sales Sales Sales Sales
Charge Charge Charge Charge Charge Charge
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Class A 3.99% 3.85% 4.55% 4.39% 6.61% 6.37%
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Class B 3.24% N/A 3.78% N/A 5.36% N/A
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Class C 3.24% N/A 3.79% N/A 5.36% N/A
----------------------------------------------------------------------------
|X| Total Return Information. There are different types of "total returns"
to measure the Fund's performance. Total return is the change in value of a
hypothetical investment in the Fund over a given period, assuming that all
dividends and capital gains distributions are reinvested in additional shares
and that the investment is redeemed at the end of the period. Because of
differences in expenses for each class of shares, the total returns for each
class are separately measured. The cumulative total return measures the change
in value over the entire period (for example, ten years). An average annual
total return shows the average rate of return for each year in a period that
would produce the cumulative total return over the entire period. However,
average annual total returns do not show actual year-by-year performance. The
Fund uses standardized calculations for its total returns as prescribed by the
SEC. The methodology is discussed below.
In calculating total returns for Class A shares, the current maximum
sales charge of 3.5% (as a percentage of the offering price) is deducted from
the initial investment ("P") (unless the return is shown without sales charge,
as described below). For Class B shares, payment of the applicable contingent
deferred sales charge is applied, depending on the period for which the return
is shown: 4.0% in the first year, 3.0% in the second year, 2.0% in the third and
fourth years, 1.0% in the fifth year, and none thereafter. For Class C shares,
the 1% contingent deferred sales charge is deducted for returns for the 1-year
period.
|_| Average Annual Total Return. The "average annual total return" of
each class is an average annual compounded rate of return for each year in a
specified number of years. It is the rate of return based on the change in value
of a hypothetical initial investment of $1,000 ("P" in the formula below) held
for a number of years ("n") to achieve an Ending Redeemable Value ("ERV" in the
formula) of that investment, according to the following formula:
- ------------------------------------------------------------------------------
( ERV ) 1/n
(-----) -1 = Average Annual Total Return
( P )
- ------------------------------------------------------------------------------
|_| Cumulative Total Return. The "cumulative total return" calculation
measures the change in value of a hypothetical investment of $1,000 over an
entire period of years. Its calculation uses some of the same factors as average
annual total return, but it does not average the rate of return on an annual
basis. Cumulative total return is determined as follows:
- ------------------------------------------------------------------------------
ERV - P
------- = Total Return
P
- ------------------------------------------------------------------------------
|_| Total Returns at Net Asset Value. From time to time the Fund may
also quote a cumulative or an average annual total return "at net asset value"
(without deducting sales charges) for Class A, Class B or Class C shares. Each
is based on the difference in net asset value per share at the beginning and the
end of the period for a hypothetical investment in that class of shares (without
considering front-end or contingent deferred sales charges) and takes into
consideration the reinvestment of dividends and capital gains distributions.
------------------------------------------------------------------------------
The Fund's Total Returns for the Periods Ended 9/30/98
------------------------------------------------------------------------------
------------------------------------------------------------------------------
Cumulative Average Annual Total Returns
Total Returns
(10 years or
life of class)
Class of
Shares
------------------------------------------------------------------------------
------------------------------------------------------------------------------
5-Year 10-Year
1-Year (or life of (or life of
class) class)
------------------------------------------------------------------------------
------------------------------------------------------------------------------
After Without After Without After Without After Without
Sales Sales Sales Sales Sales Sales Sales Sales
Charge Charge Charge Charge Charge Charge Charge Charge
------------------------------------------------------------------------------
------------------------------------------------------------------------------
Class A 105.45% 112.92% 4.35% 8.14% 5.00% 5.75% 7.47% 7.85%
------------------------------------------------------------------------------
------------------------------------------------------------------------------
Class B 19.22% 21.22% 3.32% 7.32% 5.93%* 6.51%* N/A N/A
------------------------------------------------------------------------------
------------------------------------------------------------------------------
Class C 27.67% 27.67% 6.34% 7.34% 5.19%** 5.19%** N/A N/A
------------------------------------------------------------------------------
Inception of Class A: 11/11/86
*Inception of Class B: 9/11/95
**Inception of Class C: 12/1/93
Other Performance Comparisons. The Fund compares its performance annually to
that of an appropriate broadly based market index in its Annual Report to
shareholders. You can obtain that information by contacting the Transfer Agent
at the addresses or telephone numbers shown on the cover of this Statement of
Additional Information. The Fund may also compare its performance to that of
other investments, including other mutual funds, or use rankings of its
performance by independent ranking entities. Examples of these performance
comparisons are set forth below.
|X| Lipper Rankings. From time to time the Fund may publish the ranking of
the performance of its shares by Lipper Analytical Services, Inc. ("Lipper").
Lipper is a widely-recognized independent mutual fund monitoring service. Lipper
monitors the performance of regulated investment companies, including the Fund,
and ranks their performance for various periods based on categories relating to
investment objectives. The performance of the Fund is ranked by Lipper against
all other 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. Lipper also publishes "peer-group" indices of the performance of
all mutual funds in a category that it monitors and averages of the performance
of the funds in particular categories.
|X| Morningstar Rankings. From time to time the Fund may publish the star
ranking of the performance of its classes of shares by Morningstar, Inc., an
independent mutual fund monitoring service. Morningstar ranks mutual funds in
broad investment categories: domestic stock funds, international stock funds,
taxable bond funds and municipal bond funds. The Fund is ranked among municipal
bond funds.
Morningstar star rankings are based on risk-adjusted total investment
return. Investment return measures a fund's (or class's) one, three, five and
ten-year average annual total returns (depending on the inception of the fund or
class) in excess of 90-day U.S. Treasury bill returns after considering the
fund's sales charges and expenses. Risk measures a fund's (or class's)
performance below 90-day U.S. Treasury bill returns. Risk and investment return
are combined to produce star rankings reflecting performance relative to the
average fund in a fund's category. Five stars is the "highest" ranking (top 10%
of funds in a category), four stars is "above average" (next 22.5%), three stars
is "average" (next 35%), two stars is "below average" (next 22.5%) and one star
is "lowest" (bottom 10%). The current star ranking is the fund's (or class's)
3-year ranking or its combined 3- and 5-year ranking (weighted 60%/40%
respectively), or its combined 3-, 5-, and 10-year ranking (weighted 40%, 30%
and 30%, respectively), depending on the inception date of the fund (or class).
Rankings are subject to change monthly.
The Fund may also compare its 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.
|X| Performance Rankings and Comparisons by Other Entities and
Publications. From time to time the Fund may include in its advertisements and
sales literature performance information about the Fund cited in newspapers and
other periodicals such as The New York Times, The Wall Street Journal, Barron's,
or similar publications. That information may include performance quotations
from other sources, including Lipper and Morningstar. The performance of the
Fund's Class A, Class B or Class C shares may be compared in publications to the
performance of various market indices or other investments, and averages,
performance rankings or other benchmarks prepared by recognized mutual fund
statistical services.
Investors may also wish to compare the Fund's Class A, Class B or Class C
returns to the return on fixed-income investments available from banks and
thrift institutions. Those include certificates of deposit, ordinary
interest-paying checking and savings accounts, and other forms of fixed or
variable time deposits, and various other instruments such as Treasury bills.
However, the Fund's returns and share price are not guaranteed or insured by the
FDIC or any other agency and will fluctuate daily, while bank depository
obligations may be insured by the FDIC and may provide fixed rates of return.
Repayment of principal and payment of interest on Treasury securities is backed
by the full faith and credit of the U.S. government.
From time to time, the Fund may publish rankings or ratings of the Manager
or Transfer Agent, and of the investor services provided by them to shareholders
of the Oppenheimer funds, other than performance rankings of the Oppenheimer
funds themselves. Those ratings or rankings of shareholder and investor services
by third parties may include comparisons of their services to those provided by
other mutual fund families selected by the rating or ranking services. They may
be based upon the opinions of the rating or ranking service itself, using its
research or judgment, or based upon surveys of investors, brokers, shareholders
or others.
ABOUT YOUR ACCOUNT
How to Buy Shares
Additional information is presented below about the methods that can be used to
buy shares of the Fund. Appendix C contains more information about the special
sales charge arrangements offered by the Fund, and the circumstances in which
sales charges may be reduced or waived for certain classes of investors.
AccountLink. When shares are purchased through AccountLink, each purchase must
be at least $25. Shares will be purchased on the regular business day the
Distributor is instructed to initiate the Automated Clearing House ("ACH")
transfer to buy the shares. Dividends will begin to accrue on shares purchased
with the proceeds of ACH transfers on the business day the Fund receives Federal
Funds for the purchase through the ACH system before the close of The New York
Stock Exchange. The Exchange normally closes at 4:00 P.M., but may close earlier
on certain days. If Federal Funds are received on a business day after the close
of the Exchange, the shares will be purchased and dividends will begin to accrue
on the next regular business day. The proceeds of ACH transfers are normally
received by the Fund 3 days after the transfers are initiated. The Distributor
and the Fund are not responsible for any delays in purchasing shares resulting
from delays in ACH transmissions.
Reduced Sales Charges. As discussed in the Prospectus, a reduced sales charge
rate may be obtained for Class A shares under Right of Accumulation and Letters
of Intent because of the economies of sales efforts and reduction in expenses
realized by the Distributor, dealers and brokers making such sales. No sales
charge is imposed in certain other circumstances described in Appendix C to this
Statement of Additional Information because the Distributor or dealer or broker
incurs little or no selling expenses.
|X| Right of Accumulation. To qualify for the lower sales charge rates
that apply to larger purchases of Class A shares, you and your spouse can add
together:
|_|Class A and Class B shares you purchase for your individual accounts,
or for your joint accounts, or for trust or custodial accounts on
behalf of your children who are minors, and
|_|Current purchases of Class A and Class B shares of the Fund and other
Oppenheimer funds to reduce the sales charge rate that applies to
current purchases of Class A shares, and
|_|Class A and Class B shares of Oppenheimer funds you previously
purchased subject to an initial or contingent deferred sales charge to
reduce the sales charge rate for current purchases of Class A shares,
provided that you still hold your investment in one of the Oppenheimer
funds.
A fiduciary can count all shares purchased for a trust, estate or other
fiduciary account (including one or more employee benefit plans of the same
employer) that has multiple accounts. The Distributor will add the value, at
current offering price, of the shares you previously purchased and currently own
to the value of current purchases to determine the sales charge rate that
applies. The reduced sales charge will apply only to current purchases. You must
request it when you buy shares.
|X| The Oppenheimer Funds. The Oppenheimer funds are those mutual
funds for which the Distributor acts as the distributor or the
sub-distributor and currently include the following:
Oppenheimer Bond Fund Oppenheimer Limited-Term Government Fund
Oppenheimer Capital Appreciation Fund Oppenheimer Main Street California
Municipal Fund
Oppenheimer California Municipal Fund Oppenheimer Main Street Growth & Income
Fund
Oppenheimer Champion Income Fund Oppenheimer MidCap Fund
Oppenheimer Convertible Securities Fund Oppenheimer Multiple Strategies Fund
Oppenheimer Developing Markets Fund Oppenheimer Municipal Bond Fund
Oppenheimer Disciplined Allocation
Fund Oppenheimer New York Municipal Fund
Oppenheimer Disciplined Value Fund Oppenheimer New Jersey Municipal Fund
Oppenheimer Discovery Fund Oppenheimer Pennsylvania Municipal Fund
Oppenheimer Enterprise Fund Oppenheimer Quest Balanced Value Fund
Oppenheimer Equity Income Fund Oppenheimer Quest Capital Value Fund,
Inc.
Oppenheimer Florida Municipal Fund Oppenheimer Quest Global Value Fund,
Inc.
Oppenheimer Global Fund Oppenheimer Quest Opportunity Value Fund
Oppenheimer Global Growth & Income
Fund Oppenheimer Quest Small Cap Value Fund
Oppenheimer Gold & Special Minerals Oppenheimer Quest Value Fund, Inc.
Fund
Oppenheimer Growth Fund Oppenheimer Real Asset Fund
Oppenheimer High Yield Fund Oppenheimer Strategic Income Fund
Oppenheimer Insured Municipal Fund Oppenheimer Total Return Fund, Inc.
Oppenheimer Intermediate Municipal
Fund Oppenheimer U.S. Government Trust
Oppenheimer International Bond Fund Oppenheimer World Bond Fund
Oppenheimer International Growth Fund Limited-Term New York Municipal Fund
Oppenheimer International Small Rochester Fund Municipals
Company Fund
Oppenheimer Large Cap Growth Fund
and the following money market funds:
Centennial America Fund, L. P. Centennial New York Tax Exempt Trust
Centennial California Tax Exempt Trust Centennial Tax Exempt Trust
Centennial Government Trust Oppenheimer Cash Reserves
Centennial Money Market Trust Oppenheimer Money Market Fund, Inc.
There is an initial sales charge on the purchase of Class A shares of each
of the Oppenheimer funds except the money market funds. Under certain
circumstances described in this Statement of Additional Information, redemption
proceeds of certain money market fund shares may be subject to a contingent
deferred sales charge.
Letters of Intent. Under a Letter of Intent, if you purchase Class A shares or
Class A and Class B shares of the Fund and other Oppenheimer funds during a
13-month period, you can reduce the sales charge rate that applies to your
purchases of Class A shares. The total amount of your intended purchases of both
Class A and Class B shares will determine the reduced sales charge rate for the
Class A shares purchased during that period. You can include purchases made up
to 90 days before the date of the Letter.
A Letter of Intent is an investor's statement in writing to the
Distributor of the intention to purchase Class A shares or Class A and Class B
shares of the Fund (and other Oppenheimer funds) during a 13-month period (the
"Letter of Intent period"). At the investor's request, this may include
purchases made up to 90 days prior to the date of the Letter. The Letter states
the investor's intention to make the aggregate amount of purchases of shares
which, when added to the investor's holdings of shares of those funds, will
equal or exceed the amount specified in the Letter. Purchases made by
reinvestment of dividends or distributions of capital gains and purchases made
at net asset value without sales charge do not count toward satisfying the
amount of the Letter.
A Letter enables an investor to count the Class A and Class B shares
purchased under the Letter to obtain the reduced sales charge rate on purchases
of Class A shares of the Fund (and other Oppenheimer funds) that applies under
the Right of Accumulation to current purchases of Class A shares. Each purchase
of Class A shares under the Letter will be made at the offering price (including
the sales charge) that applies to a single lump-sum purchase of shares in the
amount intended to be purchased under the Letter.
In submitting a Letter, the investor makes no commitment to purchase
shares. However, if the investor's purchases of shares within the Letter of
Intent period, when added to the value (at offering price) of the investor's
holdings of shares on the last day of that period, do not equal or exceed the
intended purchase amount, the investor agrees to pay the additional amount of
sales charge applicable to such purchases. That amount is described in "Terms of
Escrow," below (those terms may be amended by the Distributor from time to
time). The investor agrees that shares equal in value to 5% of the intended
purchase amount will be held in escrow by the Transfer Agent subject to the
Terms of Escrow. Also, the investor agrees to be bound by the terms of the
Prospectus, this Statement of Additional Information and the Application used
for a Letter of Intent. If those terms are amended, as they may be from time to
time by the Fund, the investor agrees to be bounded by the amended terms and
that those amendments will apply automatically to existing Letters of Intent.
If the total eligible purchases made during the Letter of Intent period do
not equal or exceed the intended purchase amount, the commissions previously
paid to the dealer of record for the account and the amount of sales charge
retained by the Distributor will be adjusted to the rates applicable to actual
total purchases. If total eligible purchases during the Letter of Intent period
exceed the intended purchase amount and exceed the amount needed to qualify for
the next sales charge rate reduction set forth in the Prospectus, the sales
charges paid will be adjusted to the lower rate. That adjustment will be made
only if and when the dealer returns to the Distributor the excess of the amount
of commissions allowed or paid to the dealer over the amount of commissions that
apply to the actual amount of purchases. The excess commissions returned to the
Distributor will be used to purchase additional shares for the investor's
account at the net asset value per share in effect on the date of such purchase,
promptly after the Distributor's receipt thereof.
In determining the total amount of purchases made under a Letter, shares
redeemed by the investor prior to the termination of the Letter of Intent period
will be deducted. It is the responsibility of the dealer of record and/or the
investor to advise the Distributor about the Letter in placing any purchase
orders for the investor during the Letter of Intent period. All of such
purchases must be made through the Distributor.
|X| Terms of Escrow That Apply to Letters of Intent.
1. Out of the initial purchase (or subsequent purchases if necessary) made
pursuant to a Letter, shares of the Fund equal in value up to 5% of the intended
purchase amount specified in the Letter shall be held in escrow by the Transfer
Agent. For example, if the intended purchase amount is $50,000, the escrow shall
be shares valued in the amount of $2,500 (computed at the offering price
adjusted for a $50,000 purchase). Any dividends and capital gains distributions
on the escrowed shares will be credited to the investor's account.
2. If the total minimum investment specified under the Letter is completed
within the thirteen-month Letter of Intent period, the escrowed shares will be
promptly released to the investor.
3. If, at the end of the thirteen-month Letter of Intent period the total
purchases pursuant to the Letter are less than the intended purchase amount
specified in the Letter, the investor must remit to the Distributor an amount
equal to the difference between the dollar amount of sales charges actually paid
and the amount of sales charges which would have been paid if the total amount
purchased had been made at a single time. That sales charge adjustment will
apply to any shares redeemed prior to the completion of the Letter. If the
difference in sales charges is not paid within twenty days after a request from
the Distributor or the dealer, the Distributor will, within sixty days of the
expiration of the Letter, redeem the number of escrowed shares necessary to
realize such difference in sales charges. Full and fractional shares remaining
after such redemption will be released from escrow. If a request is received to
redeem escrowed shares prior to the payment of such additional sales charge, the
sales charge will be withheld from the redemption proceeds.
4. By signing the Letter, the investor irrevocably constitutes and
appoints the Transfer Agent as attorney-in-fact to surrender for redemption any
or all escrowed shares.
5. The shares eligible for purchase under the Letter (or the holding
of which may be counted toward completion of a Letter) include:
(a) Class A shares sold with a front-end sales charge or subject to a
Class A contingent deferred sales charge,
(b) Class B shares of other Oppenheimer funds acquired subject to a
contingent deferred sales charge, and
(c) Class A or Class B shares acquired by exchange of either (1) Class A
shares of one of the other Oppenheimer funds that were acquired
subject to a Class A initial or contingent deferred sales charge or
(2) Class B shares of one of the other Oppenheimer funds that were
acquired subject to a contingent deferred sales charge.
6. Shares held in escrow hereunder will automatically be exchanged for
shares of another fund to which an exchange is requested, as described in the
section of the Prospectus entitled "How to Exchange Shares" and the escrow will
be transferred to that other fund.
Asset Builder Plans. To establish an Asset Builder Plan to buy shares directly
from a bank account, you must enclose a check (minimum $25) for the initial
purchase with your application. Shares purchased by Asset Builder Plan payments
from bank accounts are subject to the redemption restrictions for recent
purchases described in the Prospectus. Asset Builder Plans also enable
shareholders of Oppenheimer Cash Reserves to use their fund account to make
monthly automatic purchases of shares of up to four other Oppenheimer funds.
If you make payments from your bank account to purchase shares of the
Fund, your bank account will be automatically debited, normally four to five
business days prior to the investment dates selected in the Application. Neither
the Distributor, the Transfer Agent nor the Fund shall be responsible for any
delays in purchasing shares resulting from delays in ACH transmissions.
Before initiating Asset Builder payments, obtain a prospectus of the
selected fund(s) from the Distributor or your financial advisor and request an
application from the Distributor, complete it and return it. 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. The Transfer Agent
requires a reasonable period (approximately 15 days) after receipt of such
instructions to implement them. The Fund reserves the right to amend, suspend,
or discontinue offering Asset Builder plans at any time without prior notice.
Cancellation of Purchase Orders. Cancellation of purchase orders for the Fund's
shares (for example, when a purchase check is returned to the Fund unpaid)
causes a loss to be incurred when the net asset value of the Fund's shares on
the cancellation date is less than on the purchase date. That loss is equal to
the amount of the decline in the net asset value per share multiplied by the
number of shares in the purchase order. The investor is responsible for that
loss. If the investor fails to compensate the Fund for the loss, the Distributor
will do so. The Fund may reimburse the Distributor for that amount by redeeming
shares from any account registered in that investor's name, or the Fund or the
Distributor may seek other redress.
Classes of Shares. Each class of shares of the Fund represents an interest in
the same portfolio of investments of the Fund. However, each class has different
shareholder privileges and features. The net income attributable to Class B or
Class C shares and the dividends payable on Class B or Class C shares will be
reduced by incremental expenses borne solely by that class. Those expenses
include the asset-based sales charges to which Class B and Class C are subject.
The availability of three classes of shares permits an investor to choose
the method of purchasing shares that is more appropriate for the investor. That
may depend on the amount of the purchase, the length of time the investor
expects to hold shares, and other relevant circumstances. Class A shares
normally are sold subject to an initial sales charge. While Class B and Class C
shares have no initial sales charge, the purpose of the deferred sales charge
and asset-based sales charge on Class B and Class C shares is the same as that
of the initial sales charge on Class A shares-to compensate the Distributor and
brokers, dealers and financial institutions that sell shares of the Fund. A
salesperson who is entitled to receive compensation from his or her firm for
selling Fund shares may receive different levels of compensation for selling one
class of shares than another.
The Distributor will not accept any order in the amount of $500,000 or
more for Class B shares or $1 million or more for Class C shares on behalf of a
single investor (not including dealer "street name" or omnibus accounts). That
is because generally it will be more advantageous for that investor to purchase
Class A shares of the Fund.
|X| Class B Conversion. The conversion of Class B shares to Class A shares
after six years is subject to the continuing availability of a private letter
ruling from the Internal Revenue Service, or an opinion of counsel or tax
adviser, to the effect that the conversion of Class B shares does not constitute
a taxable event for the holder under Federal income tax law. If such a revenue
ruling or opinion is no longer available, the automatic conversion feature may
be suspended, in which event no further conversions of Class B shares would
occur while such suspension remained in effect. Although Class B shares could
then be exchanged for Class A shares on the basis of relative net asset value of
the two classes, without the imposition of a sales charge or fee, such exchange
could constitute a taxable event for the holder, and absent such exchange, Class
B shares might continue to be subject to the asset-based sales charge for longer
than six years.
|X| Allocation of Expenses. The Fund pays expenses related to its daily
operations, such as custodian fees, trustees' fees, transfer agency fees, legal
fees and auditing costs. Those expenses are paid out of the Fund's assets and
are not paid directly by shareholders. However, those expenses reduce the net
asset value of shares, and therefore are indirectly borne by shareholders
through their investment.
The methodology for calculating the net asset value, dividends and
distributions of the Fund's share classes recognizes two types of expenses.
General expenses that do not pertain specifically to any one class are allocated
pro rata to the shares of all classes. The allocation is based on the percentage
of the Fund's total assets that is represented by the assets of each class, and
then equally to each outstanding share within a given class. Such general
expenses include management fees, legal, bookkeeping and audit fees, printing
and mailing costs of shareholder reports, Prospectuses, Statements of Additional
Information and other materials for current shareholders, fees to unaffiliated
Trustees, custodian expenses, share issuance costs, organization and start-up
costs, interest, taxes and brokerage commissions, and non-recurring expenses,
such as litigation costs.
Other expenses that are directly attributable to a particular class are
allocated equally to each outstanding share within that class. Examples of such
expenses include distribution and service plan (12b-1) fees, transfer and
shareholder servicing agent fees and expenses, and shareholder meeting expenses
(to the extent that such expenses pertain only to a specific class).
Determination of Net Asset Values Per Share. The net asset values per share of
each class of shares of the Fund are determined as of the close of business of
The New York Stock Exchange on each day that the Exchange is open. It is done by
dividing the value of the Fund's net assets attributable to that class by the
number of shares of that class that are outstanding. The Exchange normally
closes at 4:00 P.M., New York time, but may close earlier on some other days
(for example, in case of weather emergencies or on days falling before a
holiday). The Exchange's most recent annual announcement (which is subject to
change) states that it will close on New Year's Day, Martin Luther King, Jr.
Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day. It may also close on other days.
Dealers other than Exchange members may conduct trading in municipal
securities on days on which the Exchange is closed (including weekends and
holidays) or after 4:00 P.M. on a regular business day. The Fund's net asset
values will not be calculated on those days, and the values of some of Fund's
portfolio securities may change significantly on those days, when shareholders
cannot purchase or redeem shares.
|X| Securities Valuation. The Fund's Board of Trustees has
established procedures for the valuation of the Fund's securities. In general
those procedures are as follows:
|_| Long-term debt securities having a remaining maturity in excess of 60
days are valued based on the mean between the "bid" and "asked" prices
determined by a portfolio pricing service approved by the Fund's Board of
Trustees or obtained by the Manager from two active market makers in the
security on the basis of reasonable inquiry.
|_| The following securities are valued at the mean between the "bid"
and "asked" prices determined by a pricing service approved by the Fund's Board
of Trustees or obtained by the Manager from two active market makers in the
security on the basis of reasonable inquiry:
(1) debt instruments that have a maturity of more than 397 days
when-issued,
(2) debt instruments that had a maturity of 397 days or less when-issued
and have a remaining maturity of more than 60 days, and
(3) non-money market debt instruments that had a maturity of 397 days or
less when-issued and which have a remaining maturity of 60 days or
less.
|_| The following securities are valued at cost, adjusted for amortization
of premiums and accretion of discounts:
(1) money market debt securities held by a non-money market fund that had a
maturity of less than 397 days when-issued that have a remaining
maturity of 60 days or less, and
(2) debt instruments held by a money market fund that have a remaining
maturity of 397 days or less.
|_| Securities not having readily-available market quotations are valued
at fair value determined under the Board's procedures.
If the Manager is unable to locate two market makers willing to give
quotes, a security may be priced at the mean between the "bid" and "asked"
prices provided by a single active market maker (which in certain cases may be
the "bid" price if no "asked" price is available).
In the case of municipal securities, when last sale information is not
generally available, the Manager may use pricing services approved by the Board
of Trustees. The pricing service may use "matrix" comparisons to the prices for
comparable instruments on the basis of quality, yield, maturity. Other special
factors may be involved (such as the tax-exempt status of the interest paid by
municipal securities). The Manager will monitor the accuracy of the pricing
services. That monitoring may include comparing prices used for portfolio
valuation to actual sales prices of selected securities.
Puts, calls, interest rate futures and municipal bond index futures are
valued at the last sale price on the principal exchange on which they are traded
or on NASDAQ, as applicable, as determined by a pricing service approved by the
Board of Trustees or by the Manager. If there were no sales that day, they shall
be valued at the last sale price on the preceding trading day if it is within
the spread of the closing "bid" and "asked" prices on the principal exchange or
on NASDAQ on the valuation date. If not, the value shall be the closing bid
price on the principal exchange or on NASDAQ on the valuation date. If the put,
call or future is not traded on an exchange or on NASDAQ, it shall be valued by
the mean between "bid" and "asked" prices obtained by the Manager from two
active market makers. In certain cases that may be at the "bid" price if no
"asked" price is available.
When the Fund writes an option, an amount equal to the premium received is
included in the Fund's Statement of Assets and Liabilities as an asset. An
equivalent credit is included in the liability section. The credit is adjusted
("marked-to-market") to reflect the current market value of the option. In
determining the Fund's gain on investments, if a call or put written by the Fund
is exercised, the proceeds are increased by the premium received. If a call or
put written by the Fund expires, the Fund has a gain in the amount of the
premium. If the Fund enters into a closing purchase transaction, it will have a
gain or loss, depending on whether the premium received was more or less than
the cost of the closing transaction. If the Fund exercises a put it holds, the
amount the Fund receives on its sale of the underlying investment is reduced by
the amount of premium paid by the Fund.
How to Sell Shares
The information below supplements the terms and conditions for redeeming shares
set forth in the Prospectus.
Checkwriting. When a check is presented to the Fund's bank for clearance, the
bank will ask the Fund to redeem a sufficient number of full and fractional
shares in the shareholder's account to cover the amount of the check. This
enables the shareholder to continue to receive dividends on those shares until
the check is presented to the Fund. Checks may not be presented for payment at
the offices of the bank listed on the check or at the Fund's custodian bank.
That limitation does not affect the use of checks for the payment of bills or to
obtain cash at other banks. The Fund reserves the right to amend, suspend or
discontinue offering Checkwriting privileges at any time without prior notice.
In choosing to take advantage of the Checkwriting privilege by signing the
Account Application or by completing a Checkwriting card, each individual who
signs:
(1) for individual accounts, represents that they are the registered
owner(s) of the shares of the Fund in that account;
(2) for accounts for corporations, partnerships, trusts and other entities,
represents that they are an officer, general partner, trustee or other
fiduciary or agent, as applicable, duly authorized to act on behalf of
such registered owner(s);
(3) authorizes the Fund, its Transfer Agent and any bank through which the
Fund's drafts (checks) are payable to pay all checks drawn on the Fund
account of such person(s) and to redeem a sufficient amount of shares
from that account to cover payment of each check;
(4) specifically acknowledges that if they choose to permit checks to be
honored if there is a single signature on checks drawn against joint
accounts, or accounts for corporations, partnerships, trusts or other
entities, the signature of any one signatory on a check will be
sufficient to authorize payment of that check and redemption from the
account, even if that account is registered in the names of more than
one person or more than one authorized signature appears on the
Checkwriting card or the Application, as applicable;
(5) understands that the Checkwriting privilege may be terminated or
amended at any time by the Fund and/or the Fund's bank; and
(6) acknowledges and agrees that neither the Fund nor its bank shall incur
any liability for that amendment or termination of checkwriting
privileges or for redeeming shares to pay checks reasonably believed by
them to be genuine, or for returning or not paying checks that have not
been accepted for any reason.
Reinvestment Privilege. Within six months of a redemption, a shareholder may
reinvest all or part of the redemption proceeds of:
|_| Class A shares purchased subject to an initial sales charge or Class A
shares on which a contingent deferred sales charge was paid, or
|_| Class B shares that were subject to the Class B contingent deferred sales
charge when redeemed.
The reinvestment may be made without sales charge only in Class A shares
of the Fund or any of the other Oppenheimer funds into which shares of the Fund
are exchangeable as described in "How to Exchange Shares" below. Reinvestment
will be at the net asset value next computed after the Transfer Agent receives
the reinvestment order. The shareholder must ask the Transfer Agent for that
privilege at the time of reinvestment. This privilege does not apply to Class C
shares. The Fund may amend, suspend or cease offering this reinvestment
privilege at any time as to shares redeemed after the date of such amendment,
suspension or cessation.
Any capital gain that was realized when the shares were redeemed is
taxable, and reinvestment will not alter any capital gains tax payable on that
gain. If there has been a capital loss on the redemption, some or all of the
loss may not be tax deductible, depending on the timing and amount of the
reinvestment. Under the Internal Revenue Code, if the redemption proceeds of
Fund shares on which a sales charge was paid are reinvested in shares of the
Fund or another of the Oppenheimer funds within 90 days of payment of the sales
charge, the shareholder's basis in the shares of the Fund that were redeemed may
not include the amount of the sales charge paid. That would reduce the loss or
increase the gain recognized from the redemption. However, in that case the
sales charge would be added to the basis of the shares acquired by the
reinvestment of the redemption proceeds.
Payments "In Kind". The Prospectus states that payment for shares tendered for
redemption is ordinarily made in cash. However, the Board of Trustees of the
Fund may determine that it would be detrimental to the best interests of the
remaining shareholders of the Fund to make payment of a redemption order wholly
or partly in cash. In that case, the Fund may pay the redemption proceeds in
whole or in part by a distribution "in kind" of securities from the portfolio of
the Fund, in lieu of cash.
The Fund has elected to be governed by Rule 18f-1 under the Investment
Company Act. Under that rule, the Fund is obligated to redeem shares solely in
cash up to the lesser of $250,000 or 1% of the net assets of the Fund during any
90-day period for any one shareholder. If shares are redeemed in kind, the
redeeming shareholder might incur brokerage or other costs in selling the
securities for cash. The Fund will value securities used to pay redemptions in
kind using the same method the Fund uses to value its portfolio securities
described above under "Determination of Net Asset Values Per Share." That
valuation will be made as of the time the redemption price is determined.
Involuntary Redemptions. The Fund's Board of Trustees has the right to cause the
involuntary redemption of the shares held in any account if the aggregate net
asset value of those shares is less than $200 or such lesser amount as the Board
may fix. The Board of Trustees will not cause the involuntary redemption of
shares in an account if the aggregate net asset value of such shares has fallen
below the stated minimum solely as a result of market fluctuations. If the Board
exercises this right, it may also fix the requirements for any notice to be
given to the shareholders in question (not less than 30 days). The Board may
alternatively set requirements for the shareholder to increase the investment,
or set other terms and conditions so that the shares would not be involuntarily
redeemed.
Transfers of Shares. A transfer of shares to a different registration is not an
event that triggers the payment of sales charges. Therefore, shares are not
subject to the payment of a contingent deferred sales charge of any class at the
time of transfer to the name of another person or entity. It does not matter
whether the transfer occurs by absolute assignment, gift or bequest, as long as
it does not involve, directly or indirectly, a public sale of the shares. When
shares subject to a contingent deferred sales charge are transferred, the
transferred shares will remain subject to the contingent deferred sales charge.
It will be calculated as if the transferee shareholder had acquired the
transferred shares in the same manner and at the same time as the transferring
shareholder.
If less than all shares held in an account are transferred, and some but
not all shares in the account would be subject to a contingent deferred sales
charge if redeemed at the time of transfer, the priorities described in the
Prospectus under "How to Buy Shares" for the imposition of the Class B or Class
C contingent deferred sales charge will be followed in determining the order in
which shares are transferred.
Special Arrangements for Repurchase of Shares from Dealers and Brokers. The
Distributor is the Fund's agent to repurchase its shares from authorized dealers
or brokers on behalf of their customers. Shareholders should contact their
broker or dealer to arrange this type of redemption. The repurchase price per
share will be the net asset value next computed after the Distributor receives
an order placed by the dealer or broker. However, if the Distributor receives a
repurchase order from a dealer or broker after the close of The New York Stock
Exchange on a regular business day, it will be processed at that day's net asset
value if the order was received by the dealer or broker from its customers prior
to the time the Exchange closes. Normally, the Exchange closes at 4:00 P.M., but
may do so earlier on some days. Additionally, the order must have been
transmitted to and received by the Distributor prior to its close of business
that day (normally 5:00 P.M.).
Ordinarily, for accounts redeemed by a broker-dealer under this procedure,
payment will be made within three business days after the shares have been
redeemed upon the Distributor's receipt of the required redemption documents in
proper form. The signature(s) of the registered owners on the redemption
documents must be guaranteed as described in the Prospectus.
Automatic Withdrawal and Exchange Plans. Investors owning shares of the Fund
valued at $5,000 or more can authorize the Transfer Agent to redeem shares
(having a value of at least $50) automatically on a monthly, quarterly,
semi-annual or annual basis under an Automatic Withdrawal Plan. Shares will be
redeemed three business days prior to the date requested by the shareholder for
receipt of the payment. Automatic withdrawals of up to $1,500 per month may be
requested by telephone if payments are to be made by check payable to all
shareholders of record. Payments must also be sent to the address of record for
the account and the address must not have been changed within the prior 30 days.
Required minimum distributions from OppenheimerFunds-sponsored retirement plans
may not be arranged on this basis.
Payments are normally made by check, but shareholders having
AccountLink privileges (see "How To Buy Shares") may arrange to have Automatic
Withdrawal Plan payments transferred to the bank account designated on the
Account Application or by signature-guaranteed instructions sent to the Transfer
Agent. Shares are normally redeemed pursuant to an Automatic Withdrawal Plan
three business days before the payment transmittal date you select in the
Account Application. If a contingent deferred sales charge applies to the
redemption, the amount of the check or payment will be reduced accordingly.
The Fund cannot guarantee receipt of a payment on the date requested. The
Fund reserves the right to amend, suspend or discontinue offering these plans at
any time without prior notice. Because of the sales charge assessed on Class A
share purchases, shareholders should not make regular additional Class A share
purchases while participating in an Automatic Withdrawal Plan. Class B and Class
C shareholders should not establish withdrawal plans, because of the imposition
of the contingent deferred sales charge on such withdrawals (except where the
contingent deferred sales charge is waived as described in Appendix C below).
By requesting an Automatic Withdrawal or Exchange Plan, the shareholder
agrees to the terms and conditions that apply to such plans, as stated below.
These provisions may be amended from time to time by the Fund and/or the
Distributor. When adopted, any amendments will automatically apply to existing
Plans.
|X| Automatic Exchange Plans. Shareholders can authorize the Transfer
Agent to exchange a pre-determined amount of shares of the Fund for shares (of
the same class) of other Oppenheimer funds automatically on a monthly,
quarterly, semi-annual or annual basis under an Automatic Exchange Plan. The
minimum amount that may be exchanged to each other fund account is $25.
Instructions should be provided on the OppenheimerFunds Application or
signature-guaranteed instructions. Exchanges made under these plans are subject
to the restrictions that apply to exchanges as set forth in "How to Exchange
Shares" in the Prospectus and below in this Statement of Additional Information.
|X| Automatic Withdrawal Plans. Fund shares will be redeemed as necessary
to meet withdrawal payments. Shares acquired without a sales charge will be
redeemed first. Shares acquired with reinvested dividends and capital gains
distributions will be redeemed next, followed by shares acquired with a sales
charge, to the extent necessary to make withdrawal payments. Depending upon the
amount withdrawn, the investor's principal may be depleted. Payments made under
these plans should not be considered as a yield or income on your investment.
The Transfer Agent will administer the investor's Automatic Withdrawal
Plan as agent for the shareholder(s) (the "Planholder") who executed the Plan
authorization and application submitted to the Transfer Agent. Neither the Fund
nor the Transfer Agent shall incur any liability to the Planholder for any
action taken or not taken by the Transfer Agent in good faith to administer the
Plan. Share certificates will not be issued for shares of the Fund purchased for
and held under the Plan, but the Transfer Agent will credit all such shares to
the account of the Planholder on the records of the Fund. Any share certificates
held by a Planholder may be surrendered unendorsed to the Transfer Agent with
the Plan application so that the shares represented by the certificate may be
held under the Plan.
For accounts subject to Automatic Withdrawal Plans, distributions of
capital gains must be reinvested in shares of the Fund, which will be done at
net asset value without a sales charge. Dividends on shares held in the account
may be paid in cash or reinvested.
Shares will be redeemed to make withdrawal payments at the net asset value
per share determined on the redemption date. Checks or AccountLink payments
representing the proceeds of Plan withdrawals will normally be transmitted three
business days prior to the date selected for receipt of the payment, according
to the choice specified in writing by the Planholder. Receipt of payment on the
date selected cannot be guaranteed.
The amount and the interval of disbursement payments and the address to
which checks are to be mailed or AccountLink payments are to be sent may be
changed at any time by the Planholder by writing to the Transfer Agent. The
Planholder should allow at least two weeks' time after mailing such notification
for the requested change to be put in effect. The Planholder may, at any time,
instruct the Transfer Agent by written notice to redeem all, or any part of, the
shares held under the Plan. That notice must be in proper form in accordance
with the requirements of the then-current Prospectus of the Fund. In that case,
the Transfer Agent will redeem the number of shares requested at the net asset
value per share in effect and will mail a check for the proceeds to the
Planholder.
The Planholder may terminate a Plan at any time by writing to the Transfer
Agent. The Fund may also give directions to the Transfer Agent to terminate a
Plan. The Transfer Agent will also terminate a Plan upon its receipt of evidence
satisfactory to it that the Planholder has died or is legally incapacitated.
Upon termination of a Plan by the Transfer Agent or the Fund, shares that have
not been redeemed will be held in uncertificated form in the name of the
Planholder. The account will continue as a dividend-reinvestment, uncertificated
account unless and until proper instructions are received from the Planholder,
his or her executor or guardian, or another authorized person.
To use shares held under the Plan as collateral for a debt, the Planholder
may request issuance of a portion of the shares in certificated form. Upon
written request from the Planholder, the Transfer Agent will determine the
number of shares for which a certificate may be issued without causing the
withdrawal checks to stop. However, should such uncertificated shares become
exhausted, Plan withdrawals will terminate.
If the Transfer Agent ceases to act as transfer agent for the Fund, the
Planholder will be deemed to have appointed any successor transfer agent to act
as agent in administering the Plan.
How to Exchange Shares
As stated in the Prospectus, shares of a particular class of Oppenheimer funds
having more than one class of shares may be exchanged only for shares of the
same class of other Oppenheimer funds. Shares of Oppenheimer funds that have a
single class without a class designation are deemed "Class A" shares for this
purpose. You can obtain a current list showing which funds offer which classes
by calling the Distributor at 1-800-525-7048.
|_| All of the Oppenheimer funds currently offer Class A, B and C shares
except Oppenheimer Money Market Fund, Inc., Centennial Money Market Trust,
Centennial Tax Exempt Trust, Centennial Government Trust, Centennial New York
Tax Exempt Trust, Centennial California Tax Exempt Trust, and Centennial America
Fund, L.P., which only offer Class A shares.
|_| Oppenheimer Main Street California Municipal Fund currently offers
only Class A and Class B shares.
|_| Class B and Class C shares of Oppenheimer Cash Reserves are generally
available only by exchange from the same class of shares of other Oppenheimer
funds or through OppenheimerFunds-sponsored 401 (k) plans.
|_| Class Y shares of Oppenheimer Real Asset Fund are not
exchangeable.
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. They may also be used to
purchase shares of Oppenheimer funds subject to a contingent deferred sales
charge.
Shares of Oppenheimer Money Market Fund, Inc. purchased with the
redemption proceeds of shares of other mutual funds (other than funds managed by
the Manager or its subsidiaries) redeemed within the 30 days prior to that
purchase may subsequently be exchanged for shares of other Oppenheimer funds
without being subject to an initial or contingent deferred sales charge. To
qualify for that privilege, the investor or the investor's dealer must notify
the Distributor of eligibility for this privilege at the time the shares of
Oppenheimer Money Market Fund, Inc. are purchased. If requested, they must
supply proof of entitlement to this privilege.
For accounts established on or before March 8, 1996 holding Class M shares
of Oppenheimer Convertible Securities Fund, Class M shares can be exchanged only
for Class A shares of other Oppenheimer funds. Exchanges to Class M shares of
Oppenheimer Convertible Securities Fund are permitted from Class A shares of
Oppenheimer Money Market Fund, Inc. or Oppenheimer Cash Reserves that were
acquired by exchange of Class M shares. No other exchanges may be made to Class
M shares.
Shares of the Fund acquired by reinvestment of dividends or distributions
from any of the other Oppenheimer funds or from any unit investment trust for
which reinvestment arrangements have been made with the Distributor may be
exchanged at net asset value for shares of any of the Oppenheimer funds.
|X| How Exchanges Affect Contingent Deferred Sales Charges. No contingent
deferred sales charge is imposed on exchanges of shares of any class purchased
subject to a contingent deferred sales charge. However, when Class A shares
acquired by exchange of Class A shares of other Oppenheimer funds purchased
subject to a Class A contingent deferred sales charge are redeemed within 18
months of the end of the calendar month of the initial purchase of the exchanged
Class A shares, the Class A contingent deferred sales charge is imposed on the
redeemed shares. The Class B contingent deferred sales charge is imposed on
Class B shares acquired by exchange if they are redeemed within 6 years of the
initial purchase of the exchanged Class B shares. The Class C contingent
deferred sales charge is imposed on Class C shares acquired by exchange if they
are redeemed within 12 months of the initial purchase of the exchanged Class C
shares.
When Class B or Class C shares are redeemed to effect an exchange, the
priorities described in "How To Buy Shares" in the Prospectus for the imposition
of the Class B or the Class C contingent deferred sales charge will be followed
in determining the order in which the shares are exchanged. Before exchanging
shares, shareholders should take into account how the exchange may affect any
contingent deferred sales charge that might be imposed in the subsequent
redemption of remaining shares. Shareholders owning shares of more than one
class must specify which class of shares they wish to exchange.
|X| Limits on Multiple Exchange Orders. The Fund reserves the right to
reject telephone or written exchange requests submitted in bulk by anyone on
behalf of more than one account. The Fund may accept requests for exchanges of
up to 50 accounts per day from representatives of authorized dealers that
qualify for this privilege.
|X| Telephone Exchange Requests. When exchanging shares by telephone, a
shareholder must have an existing account in the fund to which the exchange is
to be made. Otherwise, the investors must obtain a Prospectus of that fund
before the exchange request may be submitted. 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.
|X| Processing Exchange Requests. Shares to be exchanged are redeemed on
the regular business day the Transfer Agent receives an exchange request in
proper form (the "Redemption Date"). Normally, shares of the fund to be acquired
are purchased on the Redemption Date, but such purchases may be delayed by
either fund up to five business days if it determines that it would be
disadvantaged by an immediate transfer of the redemption proceeds. The Fund
reserves the right, in its discretion, to refuse any exchange request that may
disadvantage it. For example, if the receipt of multiple exchange requests from
a dealer might require the disposition of portfolio securities at a time or at a
price that might be disadvantageous to the Fund, the Fund may refuse the
request.
In connection with any exchange request, the number of shares exchanged
may be less than the number requested if the exchange or the number requested
would include shares subject to a restriction cited in the Prospectus or this
Statement of Additional Information, or would include shares covered by a share
certificate that is not tendered with the request. In those cases, only the
shares available for exchange without restriction will be exchanged.
The different Oppenheimer funds available for exchange have different
investment objectives, policies and risks. A shareholder should assure that the
fund selected is appropriate for his or her investment and should be aware of
the tax consequences of an exchange. For federal income tax purposes, an
exchange transaction is treated as a redemption of shares of one fund and a
purchase of shares of another. "Reinvestment Privilege," above, discusses some
of the tax consequences of reinvestment of redemption proceeds in such cases.
The Fund, the Distributor, and the Transfer Agent are unable to provide
investment, tax or legal advice to a shareholder in connection with an exchange
request or any other investment transaction.
Dividends and Taxes
Dividends and Distributions. Dividends will be payable on shares held of record
at the time of the previous determination of net asset value, or as otherwise
described in "How to Buy Shares." Daily dividends will not be declared or paid
on newly purchased shares until such time as Federal Funds (funds credited to a
member bank's account at the Federal Reserve Bank) are available from the
purchase payment for such shares. Normally, purchase checks received from
investors are converted to Federal Funds on the next business day. Shares
purchased through dealers or brokers normally are paid for by the third business
day following the placement of the purchase order.
Shares redeemed through the regular redemption procedure will be paid
dividends through and including the day on which the redemption request is
received by the Transfer Agent in proper form. Dividends will be declared on
shares repurchased by a dealer or broker for three business days following the
trade date (that is, up to and including the day prior to settlement of the
repurchase). If all shares in an account are redeemed, all dividends accrued on
shares of the same class in the account will be paid together with the
redemption proceeds.
The Fund's practice of attempting to pay dividends on Class A shares at a
constant level requires the Manager to monitor the Fund's portfolio and, if
necessary, to select higher-yielding securities when it is deemed appropriate to
seek income at the level needed to meet the target. Those securities must be
within the Fund's investment parameters, however. The Fund expects to pay
dividends at a targeted level from its net investment income and other
distributable income without any impact on the net asset values per share.
Dividends, distributions and the proceeds of the redemption of Fund shares
represented by checks returned to the Transfer Agent by the Postal Service as
undeliverable will be invested in shares of Oppenheimer Money Market Fund, Inc.
Reinvestment will be made as promptly as possible after the return of such
checks to the Transfer Agent, to enable the investor to earn a return on
otherwise idle funds. Unclaimed accounts may be subject to state escheatment
laws, and the Fund and the Transfer Agent will not be liable to shareholders or
their representatives for compliance with those laws in good faith.
The amount of a distribution paid on a class of shares may vary from time
to time depending on market conditions, the composition of the Fund's portfolio,
and expenses borne by the Fund or borne separately by a class. Dividends are
calculated in the same manner, at the same time and on the same day for shares
of each class. However, dividends on Class B and Class C shares are expected to
be lower than dividends on Class A shares. That is due to the effect of the
asset-based sales charge on Class B and Class C shares. Those dividends will
also differ in amount as a consequence of any difference in net asset value
among the different class of shares.
Tax Status of the Fund's Dividends and Distributions. The Fund intends to
qualify under the Internal Revenue Code during each fiscal year to pay
"exempt-interest dividends" to its shareholders. Exempt-interest dividends that
are derived from net investment income earned by the Fund on municipal
securities will be excludable from gross income of shareholders for Federal
income tax purposes.
Net investment income includes the allocation of amounts of income from
the municipal securities in the Fund's portfolio that are free from Federal
income taxes. This allocation will be made by the use of one designated
percentage applied uniformly to all income dividends paid during the Fund's tax
year. That designation will normally be made following the end of each fiscal
year as to income dividends paid in the prior year. The percentage of income
designated as tax-exempt may substantially differ from the percentage of the
Fund's income that was tax-exempt for a given period.
A portion of the exempt-interest dividends paid by the Fund may be an item
of tax preference for shareholders subject to the alternative minimum tax. The
amount of any dividends attributable to tax preference items for purposes of the
alternative minimum tax will be identified when tax information is distributed
by the Fund.
A shareholder receiving a dividend from income earned by the Fund from one
or more of the following sources treats the dividend as a receipt of either
ordinary income or long-term capital gain in the computation of gross income,
regardless of whether the dividend is reinvested:
(1) certain taxable temporary investments (such as certificates of
deposit, repurchase agreements, commercial paper and obligations of
the U.S. government, its agencies and instrumentalities);
(2) income from securities loans; or
(3) an excess of net short-term capital gain over net long-term capital
loss from the Fund.
The Fund's dividends will not be eligible for the dividends-received
deduction for corporations. Shareholders receiving Social Security benefits
should be aware that exempt-interest dividends are a factor in determining
whether such benefits are subject to Federal income tax. Losses realized by
shareholders on the redemption of Fund shares within six months of purchase
(which period may be shortened by regulation) will be disallowed for Federal
income tax purposes to the extent of exempt-interest dividends received on such
shares.
If the Fund qualifies as a "regulated investment company" under the
Internal Revenue Code, it will not be liable for Federal income taxes on amounts
paid by it as dividends and distributions. That qualification enables the Fund
to "pass through" its income and realized capital gains to shareholders without
having to pay tax on them. The Fund qualified as a regulated investment company
in its last fiscal year and intends to qualify in future years, but reserves the
right not to qualify. The Internal Revenue Code contains a number of complex
tests to determine whether the Fund qualifies. The Fund might not meet those
tests in a particular year. If it does not qualify, the Fund will be treated for
tax purposes as an ordinary corporation and will receive no tax deduction for
payments of dividends and distributions made to shareholders.
Under the Internal Revenue Code, by December 31 each year the Fund must
distribute 98% of its taxable investment income earned from January 1 through
December 31 of that year and 98% of its capital gains realized in the period
from November 1 of the prior year through October 31 of the current year. If it
does not, the Fund must pay an excise tax on the amounts not distributed. It is
presently anticipated that the Fund will meet those requirements. However, the
Fund's Board of Trustees and the Manager might determine in a particular year
that it would be in the best interest of shareholders not to make distributions
at the required levels and to pay the excise tax on the undistributed amounts.
That would reduce the amount of income or capital gains available for
distribution to shareholders.
Dividend Reinvestment in Another Fund. Shareholders of the Fund may elect to
reinvest all dividends and/or capital gains distributions in shares of the same
class of any of the other Oppenheimer funds listed above. Reinvestment will be
made at net asset value without sales charge. To elect this option, the
shareholder must notify the Transfer Agent in writing and must have an existing
account in the fund selected for reinvestment. Otherwise the shareholder must
first obtain a prospectus for that fund and an application from the Transfer
Agent to establish an account. The investment will be made at the net asset
value per share in effect at the close of business on the payable date of the
dividend or distribution. Dividends and/or distributions from certain of the
other Oppenheimer funds may be invested in shares of this Fund on the same
basis.
Additional Information About the Fund
The Distributor. The Fund's shares are sold through dealers, brokers and other
financial institutions that have a sales charge agreement with OppenheimerFunds
Distributor, Inc. a subsidiary of the Manager that acts as the Fund's
Distributor. The Distributor also distributes shares of the other Oppenheimer
funds and is sub-distributor for funds managed by a subsidiary of the Manager.
The Transfer Agent. The Fund's Transfer Agent, OppenheimerFunds Services, is a
division of the Manager. It is responsible for maintaining the Fund's
shareholder registry and shareholder accounting records, and for paying
dividends and distributions to shareholders of the Fund. It also handles
shareholder servicing and administrative functions. It is paid on an "at-cost"
basis.
The Custodian. Citibank, N.A. is the Custodian of the Fund's assets. The
Custodian's responsibilities include safeguarding and controlling the Fund's
portfolio securities and handling the delivery of such securities to and from
the Fund. It will be the practice of the Fund to deal with the Custodian in a
manner uninfluenced by any banking relationship the Custodian may have with the
Manager and its affiliates. The Fund's cash balances with the Custodian in
excess of $100,000 are not protected by Federal Deposit Insurance. Those
uninsured balances may at times be substantial.
Independent Auditors. Deloitte & Touche LLP are the independent auditors of the
Fund. They audit the Fund's financial statements and perform other related audit
services. They also act as auditors for certain other funds advised by the
Manager and its affiliates.
<PAGE>
- --------------------------------------------------------------------------------
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, 1998, the related statement of operations for the year then ended,
the statements of changes in net assets for the years ended September 30, 1998
and 1997, and the financial highlights for the period October 1, 1993 to
September 30, 1998. 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, 1998, 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, 1998, the results of its
operations, the changes in its net assets, and the financial highlights for the
respective stated periods, in conformity with generally accepted accounting
principles.
Deloitte & Touche LLP
Denver, Colorado
October 21, 1998
<PAGE>
Financials
- --------------------------------------------------------------------------------
12 Oppenheimer Intermediate Municipal Fund
<PAGE>
- --------------------------------------------------------------------------------
Statement of Investments September 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Ratings
Moody's/
S&P/Fitch Face Market Value
(Unaudited) Amount See Note 1
===============================================================================================
<S> <C> <C> <C>
Municipal Bonds and Notes--99.8%
- -----------------------------------------------------------------------------------------------
Alabama--0.8%
Huntsville, AL Health Care Authority RRB, Series A,
MBIA Insured, 5.50%, 6/1/08 Aaa/AAA $ 1,000,000 $ 1,095,300
- -----------------------------------------------------------------------------------------------
Arizona--2.5%
AZ Educational LMC RRB, Jr. Subseries, 6.30%, 12/1/08 Aa2/NR/A 3,155,000 3,387,681
- -----------------------------------------------------------------------------------------------
California--17.6%
Berkeley, CA HF RRB, Alta Bates Medical Center,
Series A, 6.50%, 12/1/11 A2/NR 3,000,000 3,321,900
- -----------------------------------------------------------------------------------------------
CA Assn. of Bay Area Governments FAU for
Non-profit Corps. Refunding COP, Episcopal Homes
Foundation, 5.125%, 7/1/13 NR/A- 2,000,000 2,057,720
- -----------------------------------------------------------------------------------------------
CA SCDAU Revenue Refunding COP, Cedars-Sinai
Medical Center, 5.40%, 11/1/15 A1/NR 3,000,000 3,092,250
- -----------------------------------------------------------------------------------------------
CA SCDAU Revenue Refunding COP, Cedars-Sinai
Medical Center, MBIA Insured, 6.50%, 8/1/12 Aaa/AAA 1,000,000 1,219,920
- -----------------------------------------------------------------------------------------------
CA SCDAU Revenue Refunding COP, Inverse Floater,
7.066%, 11/1/15(1) A1/NR 2,000,000 2,122,500
- -----------------------------------------------------------------------------------------------
Long Beach, CA Harbor RRB, Series A, FGIC Insured,
6%, 5/15/09 Aaa/AAA 1,000,000 1,150,630
- -----------------------------------------------------------------------------------------------
Pomona, CA USD GORB, Series A, MBIA Insured,
5.95%, 8/1/10 Aaa/AAA 1,000,000 1,167,440
- -----------------------------------------------------------------------------------------------
Riverside Cnty., CA Refunding COP, Air Force Village
West, Inc., Series A, 8.125%, 6/15/12 NR/NR 2,290,000 2,553,327
- -----------------------------------------------------------------------------------------------
Sacramento Cnty., CA SPTX Refunding Bonds, CFD
No. 1, 5.60%, 12/1/11 NR/NR 1,435,000 1,478,753
- -----------------------------------------------------------------------------------------------
Sacramento Cnty., CA SPTX Refunding Bonds, CFD
No. 1, 5.80%, 9/1/09 NR/NR 790,000 836,436
- -----------------------------------------------------------------------------------------------
Sacramento Cnty., CA SPTX Refunding Bonds, CFD
No. 1, 5.90%, 9/1/10 NR/NR 785,000 834,683
- -----------------------------------------------------------------------------------------------
Sacramento, CA Cogeneration Authority RB,
Procter & Gamble Project, 6.375%, 7/1/10 NR/BBB- 1,100,000 1,261,546
- -----------------------------------------------------------------------------------------------
San Joaquin Hills, CA Transportation Corridor
Agency Toll Road CAP RRB, Series A, MBIA Insured,
Zero Coupon, 5.25%, 1/15/11(2) Aaa/AAA 5,450,000 3,144,378
------------
24,241,483
</TABLE>
13 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>
Colorado--1.1%
Denver, CO City & Cnty. Airport RB, Series A, 7%,
11/15/99 Baa2/BBB $ 1,000,000 $ 1,035,110
- --------------------------------------------------------------------------------------------------
Meridian Metropolitan District, CO GORB, 7.50%,
12/1/11 A3/NR 500,000 548,425
------------
1,583,535
- --------------------------------------------------------------------------------------------------
Connecticut--3.3%
CT DAU RB, Mystic Marinelife Aquarium Project,
Series A, 6.875%, 12/1/17 NR/NR 1,000,000 1,085,820
- --------------------------------------------------------------------------------------------------
Mashantucket, CT Western Pequot Tribe Special RB,
Prerefunded, Series A, 6.50%, 9/1/05(3) Aaa/AAA 1,240,000 1,428,542
- --------------------------------------------------------------------------------------------------
Mashantucket, CT Western Pequot Tribe Special RB,
Sub. Lien, Series B, 5.60%, 9/1/09(3) Baa3/NR 600,000 640,770
- --------------------------------------------------------------------------------------------------
Mashantucket, CT Western Pequot Tribe Special RB,
Unrefunded Balance, Series A, 6.50%, 9/1/05(3) Baa3/BBB- 1,260,000 1,430,780
------------
4,585,912
- --------------------------------------------------------------------------------------------------
Delaware--1.5%
DE HFAU RB, Christiana Care Health Services,
AMBAC Insured, 5.25%, 10/1/12 Aaa/AAA 2,000,000 2,112,140
- --------------------------------------------------------------------------------------------------
Florida--2.0%
FL HFA MH RRB, Series C, 6%, 8/1/11 NR/AAA 1,000,000 1,090,630
- --------------------------------------------------------------------------------------------------
Grand Haven, FL CDD SPAST RB, Series A, 6.30%,
5/1/02 NR/NR 1,645,000 1,696,373
------------
2,787,003
- --------------------------------------------------------------------------------------------------
Illinois--11.9%
Chicago, IL BOE GOB, Chicago School Reform
Project, MBIA Insured, 6.25%, 12/1/11 Aaa/AAA 1,000,000 1,185,010
- --------------------------------------------------------------------------------------------------
Cook Cnty., IL Community College District No. 508
Lease COP, Series C, MBIA Insured, 7.70%, 12/1/07 Aaa/AAA 1,000,000 1,271,970
- --------------------------------------------------------------------------------------------------
Cook Cnty., IL High SDI Refunding CAP GOB,
Series D, FSA Insured, Zero Coupon, 5%, 12/1/08(2) Aaa/NR 5,040,000 3,250,397
- --------------------------------------------------------------------------------------------------
Cook Cnty., IL RB, Series 413, Inverse Floater, 6.40%,
11/15/15(1) NR/NR 5,000,000 5,227,750
- --------------------------------------------------------------------------------------------------
IL HFAU RRB, Franciscan Sisters Health Care
Project, Series C, MBIA Insured, 6%, 9/1/09 Aaa/AAA 2,000,000 2,177,800
</TABLE>
14 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>
Illinois (continued)
IL HFAU RRB, Methodist Medical Center, MBIA
Insured, 5.50%, 11/15/12 Aaa/AAA $ 1,500,000 $ 1,618,485
- --------------------------------------------------------------------------------------------
Southwestern IL DAU Hospital RB, St. Elizabeth
Medical Center, 8%, 6/1/10 NR/A 500,000 536,685
- --------------------------------------------------------------------------------------------
Waukegan, IL GOB, MBIA Insured,
7.50%, 12/30/03 A1/NR 1,000,000 1,141,760
------------
16,409,857
- --------------------------------------------------------------------------------------------
Indiana--2.5%
IN Bond Bank RB, State Revolving Fund
Program, Series A, 6.875%, 2/1/12 NR/AAA 1,135,000 1,312,503
- --------------------------------------------------------------------------------------------
IN HFFAU RRB, Holy Cross Health System
Corp., MBIA Insured, 5.375%, 12/1/12 Aaa/AAA/AAA 2,000,000 2,141,540
------------
3,454,043
- --------------------------------------------------------------------------------------------
Maine--0.6%
ME Educational LMC Student Loan RRB,
Series A-4, 6.05%, 11/1/04 Aaa/NR 750,000 812,363
- --------------------------------------------------------------------------------------------
Michigan--5.3%
Detroit, MI GORB, Series B, FGIC Insured,
7%, 4/1/04 Aaa/AAA 2,000,000 2,297,460
- --------------------------------------------------------------------------------------------
MI Hospital FAU RRB, Greater Detroit Sinai
Hospital, Series 1995, 6%, 1/1/08 A3/NR/BBB 2,500,000 2,780,700
- --------------------------------------------------------------------------------------------
MI Strategic Fund SWD RRB, Genesee Power
Station Project, 7.50%, 1/1/21 NR/NR 2,000,000 2,186,860
------------
7,265,020
- --------------------------------------------------------------------------------------------
Nebraska--1.5%
NE Higher Education Loan Program RB, Jr. Sub.
Lien, Series A-6, MBIA Insured, 5.90%, 6/1/03 Aa/NR/A 2,000,000 2,128,900
- --------------------------------------------------------------------------------------------
Nevada--1.5%
Clark Cnty., NV PC RRB, Nevada Power Co.
Project, Series D, 5.30%, 10/1/11 NR/BBB-/BBB 2,000,000 2,026,360
- --------------------------------------------------------------------------------------------
New Jersey--3.9%
East Orange, NJ BOE COP, FSA Insured,
5.50%, 8/1/12 Aaa/AAA 1,250,000 1,378,300
- --------------------------------------------------------------------------------------------
NJ EDAU RRB, First Mortgage-Franciscan Oaks
Project, 5.60%, 10/1/12 NR/NR 2,500,000 2,549,525
- --------------------------------------------------------------------------------------------
NJ HCF FAU RB, Columbus Hospital, Series A,
7.50%, 7/1/21 Baa3/BBB- 1,330,000 1,395,263
------------
5,323,088
</TABLE>
15 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>
New Mexico--0.4%
NM Hospital Equipment Loan Council RB,
San Juan Regional Medical Center, Inc.
Project, 7.90%, 6/1/11 A3/NR $ 500,000 $ 561,600
- ---------------------------------------------------------------------------------------------
New York--17.0%
NYC GOB, Prerefunded, Series F, 8.40%, 11/15/07 Aaa/AAA 2,490,000 2,871,119
- ---------------------------------------------------------------------------------------------
NYC GOB, Unrefunded Balance, Series F,
8.40%, 11/15/07 A3/A- 10,000 11,425
- ---------------------------------------------------------------------------------------------
NYC GORB, Series A, AMBAC Insured, 7%, 8/1/07 Aaa/AAA 2,000,000 2,395,860
- ---------------------------------------------------------------------------------------------
NYC GORB, Series B, AMBAC Insured,
6.20%, 8/15/06 Aaa/AAA 1,500,000 1,702,860
- ---------------------------------------------------------------------------------------------
NYC IDAU SPF RB, Terminal One Group Assn.
Project, 6%, 1/1/08 A3/A/A- 2,000,000 2,176,840
- ---------------------------------------------------------------------------------------------
NYC IDAU SPF RB, Terminal One Group Assn.
Project, 6.10%, 1/1/09 A3/A/A- 2,000,000 2,176,280
- ---------------------------------------------------------------------------------------------
NYS DA RRB, Second Hospital-Jamaica
Hospital, Series F, 5.10%, 2/15/12 Baa1/BBB+/A 3,000,000 3,105,450
- ---------------------------------------------------------------------------------------------
NYS DA RRB, Second Hospital-North General
Hospital, Series G, 5.10%, 2/15/11 Baa1/BBB+/A 3,000,000 3,132,360
- ---------------------------------------------------------------------------------------------
NYS HFA RRB, NYC HF, Series A, 6.375%,
11/1/04 Baa1/BBB+ 2,000,000 2,250,820
- ---------------------------------------------------------------------------------------------
Oneida-Herkimer, NY Solid Waste Management
Authority RRB, FSA Insured, 5.50%, 4/1/10 Aaa/AAA/AAA 3,330,000 3,668,961
------------
23,491,975
- ---------------------------------------------------------------------------------------------
Ohio--2.8%
Cleveland, OH COP, Stadium Project, AMBAC
Insured, 6%, 11/15/09 Aaa/AAA 1,000,000 1,149,490
- ---------------------------------------------------------------------------------------------
Montgomery Cnty., OH HCF RRB, Series B,
6%, 2/1/10 NR/NR 1,000,000 1,036,630
- ---------------------------------------------------------------------------------------------
OH Solid Waste RB, Republic Engineered
Steels, Inc. Project, 9%, 6/1/21 NR/NR 1,600,000 1,739,344
------------
3,925,464
</TABLE>
16 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>
Oklahoma--0.8%
OK Industrial Authority Health Systems RB,
Baptist Medical Center, Series C, AMBAC
Insured, 7%, 8/15/05 Aaa/AAA/AAA $ 955,000 $ 1,117,847
- -----------------------------------------------------------------------------------------------
Pennsylvania--8.8%
Lehigh Cnty., PA GP RRB, Kidspeace Obligation
Group, 6%, 11/1/18 NR/NR 2,165,000 2,201,935
- -----------------------------------------------------------------------------------------------
PA EDFAU RR RB, Northampton Generating,
Sr. Lien, Series A, 6.40%, 1/1/09 NR/NR 2,000,000 2,138,480
- -----------------------------------------------------------------------------------------------
Philadelphia, PA Airport RB, Series 387A,
Inverse Floater, 6.95%, 6/15/12(1) Aaa/AAA/AAA 2,000,000 2,236,800
- -----------------------------------------------------------------------------------------------
Philadelphia, PA Hospitals & HEFAU RRB,
Jeanes Health System Project, 6.20%, 7/1/00 Baa3/BBB+ 1,360,000 1,398,094
- -----------------------------------------------------------------------------------------------
Philadelphia, PA Hospitals & HEFAU RRB,
Jefferson Health System, Series A, 5%, 5/15/12 A1/AA-/AA- 1,000,000 1,020,740
- -----------------------------------------------------------------------------------------------
Schuylkill Cnty., PA IDAU RR RRB, Schuylkill
Energy Resources, Inc., 6.50%, 1/1/10(4) NR/NR/BB 3,095,000 3,128,766
------------
12,124,815
- -----------------------------------------------------------------------------------------------
South Carolina--1.4%
Florence Cnty., SC IDV RB, Stone Container
Project, 7.375%, 2/1/07 NR/NR 1,730,000 1,871,306
- -----------------------------------------------------------------------------------------------
Tennessee--2.1%
Chattanooga-Hamilton Cnty., TN HA RB, Erlanger
Medical Center, Prerefunded, Series B, FSA
Insured, Inverse Floater, 9.956%, 5/25/21(1) Aaa/AAA 1,500,000 1,777,500
- -----------------------------------------------------------------------------------------------
Memphis Shelby Cnty., TN Airport Authority RRB,
Series A, MBIA Insured, 6.25%, 2/15/11 Aaa/AAA 1,000,000 1,169,280
------------
2,946,780
- -----------------------------------------------------------------------------------------------
Texas--3.3%
Port Corpus Christi, TX IDV Corp. RRB, Valero
Energy Corp., Series D, 5.125%, 4/1/09 Baa3/BBB- 2,000,000 2,020,060
- -----------------------------------------------------------------------------------------------
Tarrant Cnty., TX HFDC RB, Texas Health
Resources System, Series A, MBIA Insured,
5.75%, 2/15/11 Aaa/AAA 2,330,000 2,589,888
------------
4,609,948
</TABLE>
17 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>
Utah--1.5%
Davis Cnty., UT Solid Waste Management &
Recovery RRB, Special Service District,
6.125%, 6/15/09 Baa2/BBB+ $ 2,000,000 $ 2,124,020
- ----------------------------------------------------------------------------------------------------
Vermont--0.7%
VT SAC Educational Loan RB, Series A-3, FSA
Insured, 6.25%, 6/15/03 Aaa/AAA 900,000 974,016
- ----------------------------------------------------------------------------------------------------
Virginia--2.2%
Pocahontas Parkway Assn., VA Toll Road CAP RB,
Sub. Lien, Series C, 5%, 8/15/11 NR/A/A 3,000,000 3,033,330
- ----------------------------------------------------------------------------------------------------
Washington--0.8%
WA PP Supply System RRB, Nuclear Project No. 1,
5.40%, 7/1/12 Aa1/AA-/AA- 1,000,000 1,044,060
- ----------------------------------------------------------------------------------------------------
District of Columbia--0.8%
DC Hospital RRB, Medlantic Healthcare Group,
Series A, MBIA Insured, 6%, 8/15/12 Aaa/AAA 1,000,000 1,151,820
- ----------------------------------------------------------------------------------------------------
U.S. Possessions--1.2%
PR CMWLTH GOB, 6.35%, 7/1/10 Aaa /AAA 1,500,000 1,716,930
------------
Total Municipal Bonds and Notes (Cost $128,910,329) 137,906,596
====================================================================================================
Short-Term Tax-Exempt Obligations--0.8%
- ----------------------------------------------------------------------------------------------------
IA FAU SWD RB, Cedar River Paper Co. Project,
Series A, 4.35%, 10/1/98(5) (Cost $1,100,000) 1,100,000 1,100,000
- ----------------------------------------------------------------------------------------------------
Total Investments, at Value (Cost $130,010,329) 100.6% 139,006,596
- ----------------------------------------------------------------------------------------------------
Liabilities in Excess of Other Assets (.6) (888,259)
----------- ------------
Net Assets 100.0% $138,118,337
=========== ============
</TABLE>
18 Oppenheimer Intermediate Municipal Fund
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
To simplify the listings of securities, abbreviations are used per the table
below:
<TABLE>
<S> <C>
BOE --Board of Education HFFAU--Health Facilities Finance Authority
CAP --Capital Appreciation IDV --Industrial Development
CDD --Community Development District IDAU --Industrial Development Authority
CFD --Community Facilities District LMC --Loan Marketing Corp.
CMWLTH--Commonwealth MH --Multifamily Housing
COP --Certificates of Participation NYC --New York City
DA --Dormitory Authority NYS --New York State
DAU --Development Authority PC --Pollution Control
EDAU --Economic Development Authority PP --Public Power
EDFAU --Economic Development Finance Authority RB --Revenue Bonds
FAU --Finance Authority RR --Resource Recovery
GP --General Purpose RRB --Revenue Refunding Bonds
GOB --General Obligation Bonds SAC --Student Assistance Corp.
GORB --General Obligation Refunding Bonds SCDAU--Statewide Communities Development Authority
HA --Hospital Authority SDI --School District
HCF --Health Care Facilities SPAST--Special Assessment
HEFAU --Higher Educational Facilities Authority SPF --Special Facilities
HF --Health Facilities SPTX --Special Tax
HFA --Housing Finance Agency SWD --Solid Waste Disposal
HFAU --Health Facilities Authority USD --Unified School District
HFDC --Health Facilities Development Corp.
</TABLE>
1. Represents the current interest rate for a variable rate bond known as an
"inverse floater" which pays interest at a rate that varies inversely with
short-term interest rates. As interest rates rise, inverse floaters produce less
current income. Their price may be more volatile than the price of a comparable
fixed-rate security. Inverse floaters amount to $11,364,550 or 8.23% of the
Fund's net assets as of September 30, 1998.
2. For zero coupon bonds, the interest rate shown is the effective yield on the
date of purchase.
3. Represents securities sold under Rule 144A, which are exempt from
registration under the Securities Act of 1933, as amended. These securities have
been determined to be liquid under guidelines established by the Board of
Trustees. These securities amount to $3,500,092 or 2.53% of the Fund's net
assets as of September 30, 1998.
4. Identifies issues considered to be illiquid or restricted--See Note 6 of
Notes to Financial Statements.
5. Variable rate security. The interest rate, which is based on specific, or an
index of, market interest rates, is subject to change periodically and is the
effective rate on September 30, 1998.
As of September 30, 1998, securities subject to the alternative minimum tax
amount to $29,561,410 or 21.40% of the Fund's net assets.
See accompanying Notes to Financial Statements.
19 Oppenheimer Intermediate Municipal Fund
<PAGE>
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities September 30, 1998
- --------------------------------------------------------------------------------
===============================================================================
Assets
Investments, at value (cost $130,010,329)--
see accompanying statement $ 139,006,596
- -------------------------------------------------------------------------------
Cash 526,963
- -------------------------------------------------------------------------------
Receivables:
Investments sold 2,109,957
Interest 1,888,045
Shares of beneficial interest sold 405,709
- -------------------------------------------------------------------------------
Other 13,645
-------------
Total assets 143,950,915
===============================================================================
Liabilities
Payables and other liabilities:
Investments purchased 5,085,403
Dividends 318,961
Shares of beneficial interest redeemed 238,708
Distribution and service plan fees 82,087
Transfer and shareholder servicing agent fees 15,752
Other 91,667
-------------
Total liabilities 5,832,578
===============================================================================
Net Assets $ 138,118,337
=============
===============================================================================
Composition of Net Assets
Paid-in capital $ 129,168,432
- -------------------------------------------------------------------------------
Overdistributed net investment income (108,367)
- -------------------------------------------------------------------------------
Accumulated net realized gain on investment transactions 62,005
- -------------------------------------------------------------------------------
Net unrealized appreciation on investments--Note 3 8,996,267
-------------
Net assets $ 138,118,337
=============
20 Oppenheimer Intermediate Municipal Fund
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
================================================================================
Net Asset Value Per Share
Class A Shares:
Net asset value and redemption price per share (based on net assets of
$106,909,030 and 6,830,303 shares of beneficial interest outstanding) $15.65
Maximum offering price per share (net asset value plus sales charge
of 3.50% of offering price) $16.22
- --------------------------------------------------------------------------------
Class B Shares:
Net asset value, redemption price (excludes applicable contingent
deferred sales charge) and offering price per share (based on net assets
of $13,536,747 and 865,057 shares of beneficial interest outstanding) $15.65
- --------------------------------------------------------------------------------
Class C Shares:
Net asset value, redemption price (excludes applicable contingent
deferred sales charge) and offering price per share (based on net assets
of $17,672,560 and 1,131,105 shares of beneficial interest outstanding) $15.62
See accompanying Notes to Financial Statements.
21 Oppenheimer Intermediate Municipal Fund
<PAGE>
- --------------------------------------------------------------------------------
Statement of Operations For the Year Ended September 30, 1998
- --------------------------------------------------------------------------------
===============================================================================
Investment Income
Interest $ 6,868,143
===============================================================================
Expenses
Management fees--Note 4 608,528
- -------------------------------------------------------------------------------
Distribution and service plan fees--Note 4:
Class A 235,579
Class B 108,141
Class C 163,567
- -------------------------------------------------------------------------------
Transfer and shareholder servicing agent fees--Note 4 101,294
- -------------------------------------------------------------------------------
Registration and filing fees 65,968
- -------------------------------------------------------------------------------
Shareholder reports 34,769
- -------------------------------------------------------------------------------
Custodian fees and expenses 16,414
- -------------------------------------------------------------------------------
Legal, auditing and other professional fees 12,467
- -------------------------------------------------------------------------------
Accounting service fees--Note 4 12,000
- -------------------------------------------------------------------------------
Trustees' fees and expenses 3,850
- -------------------------------------------------------------------------------
Other 6,046
-----------
Total expenses 1,368,623
===============================================================================
Net Investment Income 5,499,520
===============================================================================
Realized and Unrealized Gain (Loss)
Net realized gain (loss) on:
Investments 1,314,919
Closing of futures contracts (832,344)
-----------
Net realized gain 482,575
- -------------------------------------------------------------------------------
Net change in unrealized appreciation or depreciation
on investments 3,511,405
-----------
Net realized and unrealized gain 3,993,980
===============================================================================
Net Increase in Net Assets Resulting from Operations $ 9,493,500
===========
See accompanying Notes to Financial Statements.
22 Oppenheimer Intermediate Municipal Fund
<PAGE>
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended September 30,
1998 1997
===============================================================================================
<S> <C> <C>
Operations
Net investment income $ 5,499,520 $ 5,342,423
- -----------------------------------------------------------------------------------------------
Net realized gain (loss) 482,575 (151,731)
- -----------------------------------------------------------------------------------------------
Net change in unrealized appreciation or depreciation 3,511,405 3,309,533
------------- -------------
Net increase in net assets resulting from operations 9,493,500 8,500,225
===============================================================================================
Dividends and Distributions to Shareholders
Dividends from net investment income:
Class A (4,499,560) (4,467,924)
Class B (417,763) (209,401)
Class C (635,072) (533,387)
===============================================================================================
Beneficial Interest Transactions
Net increase in net assets resulting from
beneficial interest transactions--Note 2:
Class A 16,735,997 1,131,907
Class B 5,486,022 4,656,894
Class C 3,214,639 2,643,754
===============================================================================================
Net Assets
Total increase 29,377,763 11,722,068
- -----------------------------------------------------------------------------------------------
Beginning of period 108,740,574 97,018,506
------------- -------------
End of period [including undistributed (overdistributed) net
investment income of $(108,367) and $616,172, respectively] $ 138,118,337 $ 108,740,574
============= =============
</TABLE>
See accompanying Notes to Financial Statements.
23 Oppenheimer Intermediate Municipal Fund
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A
-----------------------------------------
Year Ended September 30,
1998 1997 1996
==============================================================================================
<S> <C> <C> <C>
Per Share Operating Data
Net asset value, beginning of period $ 15.16 $ 14.69 $ 14.69
- ----------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .69 .80 .79
Net realized and unrealized gain (loss) .51 .45 (.01)
-------- -------- --------
Total income (loss) from investment operations 1.20 1.25 .78
- ----------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income (.71) (.78) (.78)
Distributions in excess of net realized gain -- -- --
-------- -------- --------
Total dividends and distributions to shareholders (.71) (.78) (.78)
- ----------------------------------------------------------------------------------------------
Net asset value, end of period $ 15.65 $ 15.16 $ 14.69
======== ======== ========
==============================================================================================
Total Return, at Net Asset Value(4) 8.14% 8.72% 5.41%
==============================================================================================
Ratios/Supplemental Data
Net assets, end of period (in thousands) $106,909 $ 87,111 $ 83,253
- ----------------------------------------------------------------------------------------------
Average net assets (in thousands) $ 97,001 $ 85,590 $ 82,217
- ----------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income 4.58% 5.35% 5.35%
Expenses(6) 0.94% 1.02% 1.02%
- ----------------------------------------------------------------------------------------------
Portfolio turnover rate(7) 53% 31% 53%
</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.
24 Oppenheimer Intermediate Municipal Fund
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class B
--------------------- ---------------------------------------------
Year Ended September 30,
1995 1994 1998 1997(3) 1996 1995(2)
============================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating Data
Net asset value, beginning of period $ 14.23 $ 15.34 $ 15.16 $ 14.69 $ 14.69 $ 14.71
- ----------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .79 .72 .59 .67 .66 .06
Net realized and unrealized gain (loss) .42 (1.00) .50 .46 -- (.04)
-------- -------- -------- -------- -------- --------
Total income (loss) from investment operations 1.21 (.28) 1.09 1.13 .66 .02
- ----------------------------------------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income (.75) (.76) (.60) (.66) (.66) (.04)
Distributions in excess of net realized gain -- (.07) -- -- -- --
-------- -------- -------- -------- -------- --------
Total dividends and distributions to shareholders (.75) (.83) (.60) (.66) (.66) (.04)
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 14.69 $ 14.23 $ 15.65 $ 15.16 $ 14.69 $ 14.69
======== ======== ======== ======== ======== ========
============================================================================================================================
Total Return, at Net Asset Value(4) 8.78% (1.92)% 7.32% 7.88% 4.56% 0.13%
============================================================================================================================
Ratios/Supplemental Data
Net assets, end of period (in thousands) $ 80,535 $ 83,456 $ 13,537 $ 7,690 $ 2,858 $ 119
- ----------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $ 79,681 $ 79,076 $ 10,830 $ 4,763 $ 1,440 $ 37
- ----------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income 5.55% 5.05% 3.92% 4.54% 4.51% 3.87%(5)
Expenses(6) 0.98% 1.00% 1.69% 1.79% 1.81% 1.54%(5)
- ----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(7) 55% 51% 53% 31% 53% 55%
</TABLE>
(5). Annualized.
(6). 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.
(7). The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities owned
during the period. Securities with a maturity or expiration date at the time of
acquisition of one year or less are excluded from the calculation. Purchases and
sales of investment securities (excluding short-term securities) for the period
ended September 30, 1998, were $82,864,303 and $65,551,124, respectively.
25 Oppenheimer Intermediate Municipal Fund
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights (Continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class C
-----------------------------------------------------------------------
Year Ended September 30,
1998 1997 1996 1995 1994(1)
===========================================================================================================================
<S> <C> <C> <C> <C> <C>
Per Share Operating Data
Net asset value, beginning of period $ 15.13 $ 14.67 $ 14.67 $ 14.18 $ 15.14
- ---------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .58 .66 .68 .69 .46
Net realized and unrealized gain (loss) .51 .47 (.01) .43 (.83)
-------- -------- -------- -------- --------
Total income (loss) from investment
operations 1.09 1.13 .67 1.12 (.37)
- ---------------------------------------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income (.60) (.67) (.67) (.63) (.52)
Distributions in excess of net realized gain -- -- -- -- (.07)
-------- -------- -------- -------- --------
Total dividends and distributions
to shareholders (.60) (.67) (.67) (.63) (.59)
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 15.62 $ 15.13 $ 14.67 $ 14.67 $ 14.18
======== ======== ======== ======== ========
===========================================================================================================================
Total Return, at Net Asset Value(4) 7.34% 7.85% 4.63% 8.13% (2.54)%
===========================================================================================================================
Ratios/Supplemental Data
Net assets, end of period (in thousands) $ 17,673 $ 13,940 $ 10,908 $ 7,618 $ 8,511
- ---------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $ 16,367 $ 11,970 $ 9,015 $ 7,437 $ 4,686
- ---------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income 3.85% 4.57% 4.56% 4.64% 3.77%(5)
Expenses(6) 1.69% 1.77% 1.78% 1.88% 2.24%(5)
- ---------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(7) 53% 31% 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. Assumes a hypothetical initial investment on the business day before the
first day of the fiscal period (or inception of offering), with all dividends
and distributions reinvested in additional shares on the reinvestment date, and
redemption at the net asset value calculated on the last business day of the
fiscal period. Sales charges are not reflected in the total returns. Total
returns are not annualized for periods of less than one full year.
5. Annualized.
6. Beginning in fiscal 1995, the expense ratio reflects the effect of expenses
paid indirectly by the Fund. Prior year expense ratios have not been adjusted.
7. The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities owned
during the period. Securities with a maturity or expiration date at the time of
acquisition of one year or less are excluded from the calculation. Purchases and
sales of investment securities (excluding short-term securities) for the period
ended September 30, 1998, were $82,864,303 and $65,551,124, respectively.
See accompanying Notes to Financial Statements.
26 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 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. 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.
- --------------------------------------------------------------------------------
Allocation of Income, Expenses, Gains and Losses. Income, expenses (other than
those attributable to a specific class), gains and losses are allocated daily to
each class of shares based upon the relative proportion of net assets
represented by such class. Operating expenses directly attributable to a
specific class are charged against the operations of that class.
27 Oppenheimer Intermediate Municipal Fund
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (Continued)
- --------------------------------------------------------------------------------
================================================================================
1. Significant Accounting Policies (continued)
Federal Taxes. The Fund intends to continue to comply with provisions of the
Internal Revenue Code applicable to regulated investment companies and to
distribute all of its taxable income, 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. 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 ended September 30, 1998, amounts have been reclassified to reflect a
decrease in undistributed net investment income of $671,664, a decrease in
accumulated net realized loss on investments of $321,410, and an increase in
paid-in capital of $350,254.
- --------------------------------------------------------------------------------
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. As of November
4, 1997, in order to conform book and tax bases, the Fund began amortization of
premiums on securities for book purposes. Such cumulative change was limited to
a reclassification adjustment and had no impact on net assets or total increase
(decrease) in net assets. Accordingly, during the year ended September 30, 1998,
amounts have been reclassified to reflect an increase in unrealized appreciation
of $671,664. Paid-in capital was decreased by the same amount. 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.
28 Oppenheimer Intermediate Municipal Fund
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
================================================================================
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of income and expenses during the reporting period. Actual
results could differ from those estimates.
================================================================================
2. Shares of Beneficial Interest
The Fund has authorized an unlimited number of no par value shares of beneficial
interest of each class. Transactions in shares of beneficial interest were as
follows:
<TABLE>
<CAPTION>
Year Ended September 30, 1998 Year Ended September 30, 1997
----------------------------- -----------------------------
Shares Amount Shares Amount
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A:
Sold 2,064,197 $ 31,773,631 1,232,638 $ 18,373,341
Dividends and distributions
reinvested 206,433 3,166,314 202,901 3,016,871
Redeemed (1,186,120) (18,203,948) (1,357,416) (20,258,305)
---------- ------------ ---------- ------------
Net increase 1,084,510 $ 16,735,997 78,123 $ 1,131,907
========== ============ ========== ============
- ----------------------------------------------------------------------------------------------
Class B:
Sold 412,276 $ 6,321,930 337,796 $ 5,030,661
Dividends and distributions
reinvested 18,206 279,283 8,821 131,375
Redeemed (72,787) (1,115,191) (33,826) (505,142)
---------- ------------ ---------- ------------
Net increase 357,695 $ 5,486,022 312,791 $ 4,656,894
========== ============ ========== ============
- ----------------------------------------------------------------------------------------------
Class C:
Sold 517,496 $ 7,934,925 397,151 $ 5,901,848
Dividends and distributions
reinvested 32,194 492,861 27,933 414,837
Redeemed (339,701) (5,213,147) (247,738) (3,672,931)
---------- ------------ ---------- ------------
Net increase 209,989 $ 3,214,639 177,346 $ 2,643,754
========== ============ ========== ============
</TABLE>
================================================================================
3. Unrealized Gains and Losses on Investments
As of September 30, 1998, net unrealized appreciation on investments of
$8,996,267 was composed of gross appreciation of $9,009,735, and gross
depreciation of $13,468.
29 Oppenheimer Intermediate Municipal Fund
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (Continued)
- --------------------------------------------------------------------------------
================================================================================
4. Management Fees and Other Transactions with Affiliates
Management fees paid to the Manager were in accordance with the investment
advisory agreement with the Fund which provides for a fee of 0.50% of the first
$100 million of average annual net assets, 0.45% of the next $150 million,
0.425% of the next $250 million and 0.40% of average annual net assets in excess
of $500 million. The Fund's management fee for the year ended September 30, 1998
was 0.49% of average annual net assets for Class A, Class B and Class C shares.
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, 1998, commissions (sales charges
paid by investors) on sales of Class A shares totaled $303,538, of which $55,035
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 $166,461 and $74,498, respectively, of which $3,386 was
paid to an affiliated broker/dealer for Class C shares. During the year ended
September 30, 1998, OFDI received contingent deferred sales charges of $11,878
and $12,321, 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 other Oppenheimer
funds. OFS's total costs of providing such services are allocated ratably to
these funds.
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 maintenance of accounts of their customers that
hold Class A shares. During the year ended September 30, 1998, OFDI paid $30,812
to an affiliated broker/dealer as reimbursement for Class A personal service and
maintenance expenses.
30 Oppenheimer Intermediate Municipal Fund
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
================================================================================
The Fund has adopted Distribution and Service Plans for Class B and Class C
shares to compensate OFDI for its 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 and Class C shares for its
services rendered in distributing Class B and Class C shares. OFDI also receives
a service fee of 0.25% per year to compensate dealers for providing personal
services for accounts that hold Class B and Class C shares. Each fee is computed
on the average annual net assets of Class B or Class C shares, determined as of
the close of each regular business day. During the year ended September 30,
1998, OFDI paid $3,923, to an affiliated broker/dealer as compensation for Class
C personal service and maintenance expenses and retained $94,754 and $84,398,
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. As of September 30, 1998, OFDI had incurred excess distribution and
servicing costs of $273,649 for Class B and $259,730 for Class C.
================================================================================
5. Futures Contracts
The Fund may buy and sell interest rate futures contracts in order to gain
exposure to or protect against changes in interest rates. The Fund may also buy
or write put or call options on these futures contracts.
The Fund generally sells futures contracts to hedge against
increases in interest rates and the resulting negative effect on the value of
fixed rate portfolio securities. The Fund may also purchase futures contracts to
gain exposure to changes in interest rates as it may be more efficient or cost
effective than actually buying fixed income securities.
Upon entering into a futures contract, the Fund is required to
deposit either cash or securities (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.
31 Oppenheimer Intermediate Municipal Fund
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (Continued)
- --------------------------------------------------------------------------------
================================================================================
6. Illiquid and Restricted Securities
As of September 30, 1998, investments in securities included issues that are
illiquid or restricted. Restricted securities are often purchased in private
placement transactions, are not registered under the Securities Act of 1933, may
have contractual restrictions on resale, and are valued under methods approved
by the Board of Trustees as reflecting fair value. A security may also be
considered illiquid if it lacks a readily available market or if its valuation
has not changed for a certain period of time. The Fund intends to invest no more
than 10% of its net assets (determined at the time of purchase and reviewed
periodically) in illiquid or restricted securities. Certain restricted
securities, eligible for resale to qualified institutional investors, are not
subject to that limit. The aggregate value of illiquid or restricted securities
subject to this limitation at September 30, 1998, was $3,128,766, which
represents 2.27% of the Fund's net assets.
================================================================================
7. Bank Borrowings
The Fund may borrow from a bank for temporary or emergency purposes including,
without limitation, funding of shareholder redemptions provided asset coverage
for borrowings exceeds 300%. The Fund has entered into an agreement which
enables it to participate with other Oppenheimer funds in an unsecured line of
credit with a bank, which permits borrowings up to $400 million, collectively.
Interest is charged to each fund, based on its borrowings, at a rate equal to
the Federal Funds Rate plus 0.35%. Borrowings are payable 30 days after such
loan is executed. The Fund also pays a commitment fee equal to its pro rata
share of the average unutilized amount of the credit facility at a rate of
0.0575% per annum.
The Fund had no borrowings outstanding during the year ended
September 30, 1998.
32 Oppenheimer Intermediate Municipal Fund
<PAGE>
Appendix A
- ------------------------------------------------------------------------------
MUNICIPAL BOND RATINGS DEFINITIONS
- ------------------------------------------------------------------------------
Below are summaries of the rating definitions used by the nationally-recognized
rating agencies listed below for municipal securities. Those ratings represent
the opinion of the agency as to the credit quality of issues that they rate. The
summaries below are based upon publicly-available information provided by the
rating organizations.
Moody's Investors Service, Inc.
- ------------------------------------------------------------------------------
Long-Term Bond Ratings
Aaa: Bonds rated Aaa are judged to be the best quality. They carry the smallest
degree of investment risk. Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, the changes that can be expected are
most unlikely to impair the fundamentally strong position of such issues.
Aa: Bonds rated Aa are judged to be of high quality by all standards. Together
with the Aaa group, they comprise what are generally known as high-grade bonds.
They are rated lower than the best bonds because margins of protection may not
be as large as with Aaa securities or fluctuation of protective elements may be
of greater amplitude or there may be other elements present which make the
long-term risks appear somewhat larger than those of Aaa securities.
A: Bonds rated A possess many favorable investment attributes and are to be
considered as upper-medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
Baa: Bonds rated Baa are considered medium grade obligations; that is, they are
neither highly protected nor poorly secured. Interest payments and principal
security appear adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and have speculative
characteristics as well.
Ba: Bonds rated Ba are judged to have speculative elements. Their future cannot
be considered well-assured. Often the protection of interest and principal
payments may be very moderate and not well safeguarded during both good and bad
times over the future. Uncertainty of position characterizes bonds in this
class.
B: Bonds rated B generally lack characteristics of desirable investment.
Assurance of interest and principal payments or of maintenance of other terms of
the contract over any long period of time may be small.
Caa: Bonds rated Caa are of poor standing and may be in default or there may
be present elements of danger with respect to principal or interest.
Ca: Bonds rated Ca represent obligations which are speculative in a high
degree and are often in default or have other marked shortcomings.
C: Bonds rated C are the lowest class of rated bonds and can be regarded as
having extremely poor prospects of ever attaining any real investment standing.
Con. (...): Bonds for which the security depends on the completion of some act
or the fulfillment of some condition are rated conditionally. These bonds are
secured by (a) earnings of projects under construction, (b) earnings of projects
unseasoned in operating experience, (c) rentals that begin when facilities are
completed, or (d) payments to which some other limitation attaches.
Parenthetical rating denotes probable credit stature upon completion of
construction or elimination of basis of condition. Moody's applies numerical
modifiers 1, 2, and 3 in each generic rating classification from Aa through Caa.
The modifier "1" indicates that the obligation ranks in the higher end of its
category; the modifier "2" indicates a mid-range ranking and the modifier "3"
indicates a ranking in the lower end of the category. Advanced refunded issues
that are secured by certain assets are identified with a # symbol.
Short-Term Ratings - U.S. Tax-Exempt Municipals
There are four ratings below for short-term obligations that are investment
grade. Short-term speculative obligations are designated SG. For variable rate
demand obligations, a two-component rating is assigned. The first (MIG) element
represents an evaluation by Moody's of the degree of risk associated with
scheduled principal and interest payments, and the other (VMIG) represents an
evaluation of the degree of risk associated with the demand feature.
MIG 1/VMIG 1: Denotes best quality. There is strong protection by established
cash flows, superior liquidity support or demonstrated broad-based access to the
market for refinancing..
MIG 2/VMIG 2: Denotes high quality. Margins of protection are ample although not
as large as in the preceding group.
MIG 3/VMIG 3: Denotes favorable quality. All security elements are accounted for
but there is lacking the undeniable strength of the preceding grades. Liquidity
and cash flow protection may be narrow and market access for refinancing is
likely to be less well established.
MIG 4/VMIG 4: Denotes adequate quality. Protection commonly regarded as required
of an investment security is present and although not distinctly or
predominantly speculative, there is specific risk.
SG: Denotes speculative quality. Debt instruments in this category lack
margins of protection.
Standard & Poor's Rating Services
- ------------------------------------------------------------------------------
Long-Term Credit Ratings
AAA: Bonds rated "AAA" have the highest rating assigned by Standard & Poor's.
The obligor's capacity to meet its financial commitment on the obligation is
extremely strong.
AA: Bonds rated "AA" differ from the highest rated obligations only in small
degree. The obligor's capacity to meet its financial commitment on the
obligation is very strong.
A: Bonds rated "A" are somewhat more susceptible to adverse effects of changes
in circumstances and economic conditions than obligations in higher-rated
categories. However, the obligor's capacity to meet its financial commitment on
the obligation is still strong.
BBB: Bonds rated BBB exhibit adequate protection parameters. However, adverse
economic conditions or changing circumstances are more likely to lead to a
weakened capacity of the obligor to meet its financial commitment on the
obligation.
Bonds rated BB, B, CCC, CC and C are regarded as having significant speculative
characteristics. BB indicates the least degree of speculation and C the highest.
While such obligations will likely have some quality and protective
characteristics, these may be outweighed by large uncertainties or major
exposures to adverse conditions.
BB: Bonds rated BB are less vulnerable to nonpayment than other speculative
issues. However, these face major uncertainties or exposure to adverse business,
financial, or economic conditions which could lead to the obligor's inadequate
capacity to meet its financial commitment on the obligation.
B: A bond rated B is more vulnerable to nonpayment than an obligation rated BB,
but the obligor currently has the capacity to meet its financial commitment on
the obligation.
CCC: A bond rated CCC is currently vulnerable to nonpayment, and is dependent
upon favorable business, financial, and economic conditions for the obligor to
meet its financial commitment on the obligation. In the event of adverse
business, financial or economic conditions, the obligor is not likely to have
the capacity to meet its financial commitment on the obligation.
CC: An obligation rated CC is currently highly vulnerable to nonpayment.
C: The C rating may used where a bankruptcy petition has been filed or similar
action has been taken, but payments on this obligation are being continued.
D: Bonds rated D are in default. Payments on the obligation are not being
made on the date due.
The ratings from AA to CCC may be modified by the addition of a plus (+) or
minus (-) sign to show relative standing within the major rating categories. The
"r" symbol is attached to the ratings of instruments with significant noncredit
risks.
Short-Term Issue Credit Ratings
A-1: Rated in the highest category. The obligor's capacity to meet its financial
commitment on the obligation is strong. Within this category, a plus (+) sign
designation indicates the issuer's capacity to meet its financial obligation is
very strong.
A-2: Obligation is somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than obligations in higher rating
categories. However, the obligor's capacity to meet its financial commitment on
the obligation is satisfactory.
A-3: Exhibits adequate protection parameters. However, adverse economic
conditions or changing circumstances are more likely to lead to a weakened
capacity of the obligor to meet its financial commitment on the obligation.
B: Regarded as having significant speculative characteristics. The obligor
currently has the capacity to meet its financial commitment on the obligation.
However, it faces major ongoing uncertainties which could lead to the obligor's
inadequate capacity to meet its financial commitment on the obligation.
C: Currently vulnerable to nonpayment and is dependent upon favorable
business, financial, and economic conditions for the obligor to meet its
financial commitment on the obligation.
D: In payment default. Payments on the obligation have not been made on the
due date. The rating may also be used if a bankruptcy petition has been filed
or similar actions jeopardize payments on the obligation.
Fitch IBCA, Inc.
- ------------------------------------------------------------------------------
International Long-Term Credit Ratings
Investment Grade:
AAA: Highest Credit Quality. "AAA" ratings denote the lowest expectation of
credit risk. They are assigned only in the case of exceptionally strong
capacity for timely payment of financial commitments. This capacity is highly
unlikely to be adversely affected by foreseeable events.
AA: Very High Credit Quality. "AA" ratings denote a very low expectation of
credit risk. They indicate a very strong capacity for timely payment of
financial commitments. This capacity is not significantly vulnerable to
foreseeable events.
A: High Credit Quality. "A" ratings denote a low expectation of credit risk.
The capacity for timely payment of financial commitments is considered
strong. This capacity may, nevertheless, be more vulnerable to changes in
circumstances or in economic conditions than is the case for higher ratings.
BBB: Good Credit Quality. "BBB" ratings indicate that there is currently a
low expectation of credit risk. The capacity for timely payment of financial
commitments is considered adequate, but adverse changes in circumstances and
in economic conditions are more likely to impair this capacity. This is the
lowest investment-grade category.
Speculative Grade:
BB: Speculative. "BB" ratings indicate that there is a possibility of credit
risk developing, particularly as the result of adverse economic change over
time. However, business or financial alternatives may be available to allow
financial commitments to be met.
B: Highly Speculative. "B" ratings indicate that significant credit risk is
present, but a limited margin of safety remains. Financial commitments are
currently being met. However, capacity for continued payment is contingent
upon a sustained, favorable business and economic environment.
CCC, CC C: High Default Risk. Default is a real possibility. Capacity for
meeting financial commitments is solely reliant upon sustained, favorable
business or economic developments. A "CC" rating indicates that default of
some kind appears probable. "C" ratings signal imminent default.
DDD, DD, and D: Default. Securities are not meeting current obligations and
are extremely speculative. "DDD" designates the highest potential for
recovery of amounts outstanding on any securities involved.
Plus (+) and minus (-) signs may be appended to a rating symbol to denote
relative status within the rating category. Plus and minus signs are not added
to the "AAA" category or to categories below "CCC."
International Short-Term Credit Ratings
F1: Highest credit quality. Strongest capacity for timely payment. May have an
added "+" to denote exceptionally strong credit feature.
F2: Good credit quality. A satisfactory capacity for timely payment, but the
margin of safety is not as great as in higher ratings.
F3: Fair credit quality. Capacity for timely payment is adequate. However,
near-term adverse changes could result in a reduction to non-investment grade.
B: Speculative. Minimal capacity for timely payment, plus vulnerability to
near-term adverse changes in financial and economic conditions.
C: High default risk. Default is a real possibility, Capacity for
meeting financial commitments is solely reliant upon a sustained, favorable
business and economic environment.
D: Default. Denotes actual or imminent payment default.
Duff & Phelps Credit Rating Co. Ratings
Long-Term Debt and Preferred Stock
AAA: Highest credit quality. The risk factors are negligible, being only
slightly more than for risk-free U.S. Treasury debt.
AA+, AA, AA-: High credit quality. Protection factors are strong. Risk is modest
but may vary slightly from time to time because of economic conditions.
A+, A & A-: Protection factors are average but adequate. However, risk factors
are more variable in periods of greater economic stress.
BBB+, BBB & BBB-: Below average protection factors but still considered
sufficient for prudent investment. Considerable variability in risk during
economic cycles.
BB+, BB & BB-: Below investment grade but deemed likely to meet obligations when
due. Present or prospective financial protection factors fluctuate according to
industry conditions. Overall quality may move up or down frequently within the
category.
B+, B & B-: Below investment grade and possessing risk that obligations will not
be met when due. Financial protection factors will fluctuate widely according to
economic cycles, industry conditions and/or company fortunes. Potential exists
for frequent changes in the rating within this category or into a higher of
lower rating grade.
CCC: Well below investment-grade securities. Considerable uncertainty exists as
to timely payment of principal, interest or preferred dividends. Protection
factors are narrow and risk can be substantial with unfavorable
economic/industry conditions, and/or with unfavorable company developments.
DD: Defaulted debt obligations. Issuer failed to meet scheduled principal
and/or interest payments.
DP: Preferred stock with dividend arrearages.
Short-Term Debt:
High Grade:
D-1+: Highest certainty of timely payment. Safety is just below risk-free
U.S. Treasury short-term debt.
D-1: Very high certainty of timely payment. Risk factors are minor.
D-1-: High certainty of timely payment. Risk factors are very small.
Good Grade:
D-2: Good certainty of timely payment. Risk factors are small.
Satisfactory Grade:
D-3: Satisfactory liquidity and other protection factors qualify issues as to
investment grade. Risk factors are larger and subject to more variation.
Nevertheless, timely payment is expected.
Non-Investment Grade:
D-4: Speculative investment characteristics. Liquidity is not sufficient to
insure against disruption in debt service.
Default:
D-5: Issuer failed to meet scheduled principal and/or interest payments.
<PAGE>
Appendix B
- ------------------------------------------------------------------------------
Industry Classifications
- ------------------------------------------------------------------------------
Adult Living Facilities
Education
Electric
Gas
General
Obligation
Higher Education
Highways
Hospital
Lease Rental Manufacturing,
Durables Manufacturing,
Non Durables
Marine/Aviation Facilities
Multi-Family Housing
Pollution Control
Resource
Recovery
Sales
Tax
Sewer
Single Family Housing
Special Assessment
Telephone
Water
<PAGE>
Appendix C
- ------------------------------------------------------------------------------
OppenheimerFunds Special Sales Charge Arrangements and Waivers
- ------------------------------------------------------------------------------
In certain cases, the initial sales charge that applies to purchases of
Class A shares of the Oppenheimer funds or the contingent deferred sales charge
that may apply to Class A, Class B or Class C shares may be waived. That is
because of the economies of sales efforts realized by the Distributor or the
dealers or other financial institutions offering those shares to certain classes
of investors or in certain transactions.
Not all waivers apply to all funds. For example, waivers relating to
Retirement Plans do not apply to Oppenheimer municipal funds, because shares of
those funds are not available for purchase by or on behalf of retirement plans.
Other waivers apply only to shareholders of certain funds that were merged into
or became Oppenheimer funds.
For the purposes of some of the waivers described below and in the
Prospectus and Statement of Additional Information of the applicable Oppenheimer
funds, the term "Retirement Plan" refers to the following types of plans: (1)
plans qualified under Sections 401(a) or 401(k) of the Internal
Revenue Code,
(2) non-qualified deferred compensation plans, (3) employee benefit plans1 (4)
Group Retirement Plans2 (5) 403(b)(7) custodial plan accounts (6) SEP-IRAs,
SARSEPs or SIMPLE plans
The interpretation of these provisions as to the applicability of a
waiver in a particular case is determined solely by the Distributor or the
Transfer Agent of the fund. These waivers and special arrangements may be
amended or terminated at any time by the applicable Fund and/or the Distributor.
Waivers that apply at the time shares are redeemed must be requested by the
shareholder and/or dealer in the redemption request.
- --------------
1. An "employee benefit plan" means any plan or arrangement, whether or not it
is "qualified" under the Internal Revenue Code, under which Class A shares of
an Oppenheimer fund or funds are purchased by a fiduciary or other
administrator for the account of participants who are employees of a single
employer or of affiliated employers. These may include, for example, medical
savings accounts, payroll deduction plans or similar plans. The fund accounts
must be registered in the name of the fiduciary or administrator purchasing
the shares for the benefit of participants in the plan.
2. The term "Group Retirement Plan" means any qualified or non-qualified
retirement plan for employees of a corporation or sole proprietorship,
members and employees of a partnership or association or other organized
group of persons (the members of which may include other groups), if the
group has made special arrangements with the Distributor and all members of
the group participating in (or who are eligible to participate in) the plan
purchase Class A shares of an Oppenheimer fund or funds through a single
investment dealer, broker or other financial institution designated by the
group. Such plans include 457 plans, SEP-IRAs, SARSEPs, SIMPLE plans and
403(b) plans other than plans for public school employees. The term "Group
Retirement Plan" also includes qualified retirement plans and non-qualified
deferred compensation plans and IRAs that purchase Class A shares of an
Oppenheimer fund or funds through a single investment dealer, broker or other
financial institution that has made special arrangements with the Distributor
enabling those plans to purchase Class A shares at net asset value but
subject to the Class A contingent deferred sales charge.
<PAGE>
- ------------------------------------------------------------------------------
Applicability of Class A Contingent Deferred Sales Charges in Certain Cases
- ------------------------------------------------------------------------------
Purchases of Class A Shares of Oppenheimer Funds That Are Not Subject to Initial
Sales Charge but May Be Subject to the Class A Contingent Deferred Sales Charge
(unless a waiver applies).
There is no initial sales charge on purchases of Class A shares of any of
the Oppenheimer funds in the cases listed below. However, these purchases may be
subject to the Class A contingent deferred sales charge if redeemed within 18
months of the end of the calendar month of their purchase, as described in the
Prospectus (unless a waiver described elsewhere in this Appendix applies to the
redemption). Additionally, on these purchases the Distributor will pay the
applicable commission described in the Prospectus under "Class A Contingent
Deferred Sales Charge":
|_| Purchases of Class A shares aggregating $1 million or more.
o Purchases by a Retirement Plan that:
(1) buys shares costing $500,000 or more, or
(2) has, at the time of purchase, 100 or more eligible participants or
total plan assets of $500,000 or more, or
(3) certifies to the Distributor that it projects to have annual plan
purchases of $200,000 or more.
o Purchases by an OppenheimerFunds-sponsored Rollover IRA, if the
purchases are made:
(1) through a broker, dealer, bank or registered investment adviser that
has made special arrangements with the Distributor for those
purchases, or
(2) by a direct rollover of a distribution from a qualified Retirement
Plan if the administrator of that Plan has made special arrangements
with the Distributor for those purchases.
o Purchases of Class A shares by Retirement Plans that have any of the
following record-keeping arrangements:
(1) The record keeping is performed by Merrill Lynch Pierce Fenner & Smith,
Inc. ("Merrill Lynch") on a daily valuation basis for the
Retirement Plan. On the date the plan sponsor signs the
record-keeping service agreement with Merrill Lynch, the Plan
must have $3 million or more of its assets invested in (a) mutual
funds, other than those advised or managed by Merrill Lynch Asset
Management, L.P. ("MLAM"), that are made available under a
Service Agreement between Merrill Lynch and the mutual fund's
principal underwriter or distributor, and (b) funds advised or
managed by MLAM (the funds described in (a) and (b) are referred
to as "Applicable Investments").
(2) The record keeping for the Retirement Plan is performed on a daily
valuation basis by a record keeper whose services are provided
under a contract or arrangement between the Retirement Plan and
Merrill Lynch. On the date the plan sponsor signs the record
keeping service agreement with Merrill Lynch, the Plan must have
$3 million or more of its assets (excluding assets invested in
money market funds) invested in Applicable Investments.
(3) The record keeping for a Retirement Plan is handled under a service
agreement with Merrill Lynch and on the date the plan sponsor signs
that agreement, the Plan has 500
or more eligible employees (as determined by the Merrill Lynch
plan conversion manager).
- ------------------------------------------------------------------------------
Waivers of Class A Sales Charges of Oppenheimer Funds
- ------------------------------------------------------------------------------
Waivers of Initial and Contingent Deferred Sales Charges for Certain
Purchasers.
Class A shares purchased by the following investors are not subject to any Class
A sales charges (and no commissions are paid by the Distributor on such
purchases):
|_| The Manager or its affiliates.
|_| Present or former officers, directors, trustees and employees (and
their "immediate families") of the Fund, the Manager and its affiliates, and
retirement plans established by them for their employees. The term "immediate
family" refers to one's spouse, children, grandchildren, grandparents, parents,
parents-in-law, brothers and sisters, sons- and daughters-in-law, a sibling's
spouse, a spouse's siblings, aunts, uncles, nieces and nephews; relatives by
virtue of a remarriage (step-children, step-parents, etc.) are included.
|_| Registered management investment companies, or separate accounts of
insurance companies having an agreement with the Manager or the Distributor for
that purpose.
|_| Dealers or brokers that have a sales agreement with the Distributor,
if they purchase shares for their own accounts or for retirement plans for their
employees.
|_| Employees and registered representatives (and their spouses) of
dealers or brokers described above or financial institutions that have entered
into sales arrangements with such dealers or brokers (and which are identified
as such to the Distributor) or with the Distributor. The purchaser must certify
to the Distributor at the time of purchase that the purchase is for the
purchaser's own account (or for the benefit of such employee's spouse or minor
children).
|_| Dealers, brokers, banks or registered investment advisors that have
entered into an agreement with the Distributor providing specifically for the
use of shares of the Fund in particular investment products made available to
their clients. Those clients may be charged a transaction fee by their dealer,
broker, bank or advisor for the purchase or sale of Fund shares.
|_| Investment advisors and financial planners who have entered into an
agreement for this purpose with the Distributor and who charge an advisory,
consulting or other fee for their services and buy shares for their own accounts
or the accounts of their clients.
|_| "Rabbi trusts" that buy shares for their own accounts, if the
purchases are made through a broker or agent or other financial intermediary
that has made special arrangements with the Distributor for those purchases.
|_| Clients of investment advisors or financial planners (that have
entered into an agreement for this purpose with the Distributor) who buy shares
for their own accounts may also purchase shares without sales charge but only if
their accounts are linked to a master account of their investment advisor or
financial planner on the books and records of the broker, agent or financial
intermediary with which the Distributor has made such special arrangements .
Each of these investors may be charged a fee by the broker, agent or financial
intermediary for purchasing shares.
|_| Directors, trustees, officers or full-time employees of OpCap Advisors
or its affiliates, their relatives or any trust, pension, profit sharing or
other benefit plan which beneficially owns shares for those persons.
|_| Accounts for which Oppenheimer Capital (or its successor) is the
investment advisor (the Distributor must be advised of this arrangement) and
persons who are directors or trustees of the company or trust which is the
beneficial owner of such accounts.
|_| A unit investment trust that has entered into an appropriate agreement
with the Distributor.
|_| Dealers, brokers, banks, or registered investment advisers that have
entered into an agreement with the Distributor to sell shares to defined
contribution employee retirement plans for which the dealer, broker or
investment adviser provides administration services.
|_| Retirement plans and deferred compensation plans and trusts used to
fund those plans (including, for example, plans qualified or created under
sections 401(a), 401(k), 403(b) or 457 of the Internal Revenue Code), in each
case if those purchases are made through a broker, agent or other financial
intermediary that has made special arrangements with the Distributor for those
purchases.
|_| A TRAC-2000 401(k) plan (sponsored by the former Quest for Value
Advisors) whose Class B or Class C shares of a Former Quest for Value Fund were
exchanged for Class A shares of that Fund due to the termination of the Class B
and Class C TRAC-2000 program on November 24, 1995.
|_| A qualified Retirement Plan that had agreed with the former Quest for
Value Advisors to purchase shares of any of the Former Quest for Value Funds at
net asset value, with such shares to be held through DCXchange, a sub-transfer
agency mutual fund clearinghouse, if that arrangement was consummated and share
purchases commenced by December 31, 1996.
Waivers of Initial and Contingent Deferred Sales Charges in Certain
Transactions.
Class A shares issued or purchased in the following transactions are not subject
to sales charges (and no commissions are paid by the Distributor on such
purchases):
|_| Shares issued in plans of reorganization, such as mergers, asset
acquisitions and exchange offers, to which the Fund is a party.
|_| Shares purchased by the reinvestment of dividends or other
distributions reinvested from the Fund or other Oppenheimer funds (other than
Oppenheimer Cash Reserves) or unit investment trusts for which reinvestment
arrangements have been made with the Distributor.
|_| Shares purchased 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 shares of the Fund, and the Distributor may require evidence
of qualification for this waiver.
|_| Shares purchased with the proceeds of maturing principal units of any
Qualified Unit Investment Liquid Trust Series.
|_| Shares purchased by the reinvestment of loan repayments by a
participant in a Retirement Plan for which the Manager or an affiliate acts as
sponsor.
Waivers of the Class A Contingent Deferred Sales Charge for Certain
Redemptions.
The Class A contingent deferred sales charge is also waived if shares that would
otherwise be subject to the contingent deferred sales charge are redeemed in the
following cases:
|_| To make Automatic Withdrawal Plan payments that are limited annually
to no more than 12% of the original account value.
|_| Involuntary redemptions of shares by operation of law or involuntary
redemptions of small accounts (see "Shareholder Account Rules and Policies," in
the Prospectus).
|_| For distributions from Retirement Plans, deferred compensation
plans or other employee benefit plans for any of the following purposes:
(1) Following the death or disability (as defined in the Internal Revenue
Code) of the participant or beneficiary. The death or disability
must occur after the participant's account was established.
(2) To return excess contributions.
(3) To return contributions made due to a mistake of fact. (4) Hardship
withdrawals, as defined in the plan. (5) Under a Qualified Domestic Relations
Order, as defined in the Internal
Revenue Code.
(6) To meet the minimum distribution requirements of the Internal
Revenue Code.
(7) To establish "substantially equal periodic payments" as described in
Section 72(t) of the Internal Revenue Code.
(8) For retirement distributions or loans to participants or beneficiaries. (9)
Separation from service.
(10)Participant-directed redemptions to purchase shares of a mutual
fund other than a fund managed by the Manager or a subsidiary. The fund
must be one that is offered as an investment option in a Retirement
Plan in which Oppenheimer funds are also offered as investment options
under a special arrangement with the Distributor. (11) Plan termination
or "in-service distributions," if the redemption proceeds are rolled
over directly to an OppenheimerFunds-sponsored IRA.
|_| For distributions from Retirement Plans having 500 or more eligible
participants, except distributions due to termination of all of the Oppenheimer
funds as an investment option under the Plan.
|_| For distributions from 401(k) plans sponsored by broker-dealers that
have entered into a special agreement with the Distributor allowing this waiver.
- ------------------------------------------------------------------------------
Waivers of Class B and Class C Sales Charges of Oppenheimer Funds
- ------------------------------------------------------------------------------
The Class B and Class C contingent deferred sales charges will not be
applied to shares purchased in certain types of transactions or redeemed in
certain circumstances described below.
Waivers for Redemptions in Certain Cases.
The Class B and Class C contingent deferred sales charges will be waived for
redemptions of shares in the following cases:
|_| Shares redeemed involuntarily, as described in "Shareholder Account
Rules and Policies," in the applicable Prospectus.
|_| Distributions to participants or beneficiaries from Retirement
Plans, if the distributions are made:
(a) under an Automatic Withdrawal Plan after the participant reaches age
59-1/2, as long as the payments are no more than 10% of the account
value annually (measured from the date the Transfer Agent receives
the request), or
(b) following the death or disability (as defined in the Internal
Revenue Code) of the participant or beneficiary (the death or
disability must have occurred after the account was established).
|_| Redemptions from accounts other than Retirement Plans following the
death or disability of the last surviving shareholder, including a trustee of a
grantor trust or revocable living trust for which the trustee is also the sole
beneficiary. The death or disability must have occurred after the account was
established, and for disability you must provide evidence of a determination of
disability by the Social Security Administration.
|_| Returns of excess contributions to Retirement Plans.
|_| Distributions from Retirement Plans to make "substantially equal
periodic payments" as permitted in Section 72(t) of the Internal Revenue Code
that do not exceed 10% of the account value annually, measured from the date the
Transfer Agent receives the request.
|_| Distributions from OppenheimerFunds prototype 401(k) plans and from
certain Massachusetts Mutual Life Insurance Company prototype 401(k) plans:
(1) for hardship withdrawals;
(2) under a Qualified Domestic Relations Order, as defined in the Internal
Revenue Code;
(3) to meet minimum distribution requirements as defined in the Internal
Revenue Code;
(4) to make "substantially equal periodic payments" as described in Section
72(t) of the Internal Revenue Code;
(5) for separation from service; or (6) for loans to participants or
beneficiaries.
|_| Distributions from 401(k) plans sponsored by broker-dealers that have
entered into a special agreement with the Distributor allowing this waiver.
|_| Redemptions of Class B shares held by Retirement Plans whose records
are maintained on a daily valuation basis by Merrill Lynch or an independent
record keeper under a contract with Merrill Lynch.
|_| Redemptions of Class C shares of Oppenheimer U.S. Government Trust
from accounts of clients of financial institutions that have entered into a
special arrangement with the Distributor for this purpose.
Waivers for Shares Sold or Issued in Certain Transactions.
The contingent deferred sales charge is also waived on Class B and Class C
shares sold or issued in the following cases:
|_| Shares sold to the Manager or its affiliates.
|_| Shares sold to registered management investment companies or separate
accounts of insurance companies having an agreement with the Manager or the
Distributor for that purpose.
|_| Shares issued in plans of reorganization to which the Fund is a
party.
<PAGE>
- ------------------------------------------------------------------------------
Special Sales Charge Arrangements for Shareholders of Certain Oppenheimer
Funds 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 described in the Prospectus or Statement of
Additional Information of the Oppenheimer funds are modified as described below
for certain persons who were shareholders of the former Quest for Value Funds.
To be eligible, those persons must have been shareholders on November 24, 1995,
when OppenheimerFunds, Inc. became the investment advisor to those former Quest
for Value Funds. Those funds include:
Oppenheimer Quest Value Fund, Inc., Oppenheimer Quest Balanced Value Fund,
Oppenheimer Quest Opportunity Value Fund, Oppenheimer Quest Small Cap
Value Fund and Oppenheimer Quest Global Value Fund, Inc.
These arrangements also apply to shareholders of the following funds when
they merged into various Oppenheimer funds on November 24, 1995:
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
All of the funds listed above are referred to in this Appendix as the
"Former Quest for Value Funds." The waivers of initial and contingent deferred
sales charges described in this Appendix apply to shares of an Oppenheimer fund
that are either:
|_| acquired by such shareholder pursuant to an exchange of shares of
an Oppenheimer fund that was one of the Former Quest for Value Funds or
|_| purchased by such shareholder by exchange of shares of another
Oppenheimer fund that were acquired pursuant to the merger of any of the Former
Quest for Value Funds into that other Oppenheimer fund on November 24, 1995.
Reductions or Waivers of Class A Sales Charges.
|X| Reduced Class A Initial Sales Charge Rates for Certain Former Quest
for Value Funds Shareholders
Purchases by Groups and Associations. The following table sets forth the initial
sales charge rates for Class A shares purchased by members of "Associations"
formed for any purpose other than the purchase of securities. The rates in the
table apply if that Association purchased shares of any of the Former Quest for
Value Funds or received a proposal to purchase such shares from OCC Distributors
prior to November 24, 1995.
<PAGE>
------------------------------------------------------------------------------
Number of Eligible Initial Sales Initial Sales
Employees or Members Charge as a % of Charge as a % of Commission as %
Offering Price Net Amount of Offering Price
Invested
------------------------------------------------------------------------------
------------------------------------------------------------------------------
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 in the applicable fund's Prospectus.
Purchases made under this arrangement qualify for the lower of either the
sales charge rate in the table based on the number of members of an Association,
or the sales charge rate that applies under the Right of Accumulation described
in the applicable fund's Prospectus and Statement of Additional Information.
Individuals who qualify under this arrangement for reduced sales charge rates as
members of Associations also may purchase shares for their individual or
custodial accounts at these reduced sales charge rates, upon request to the
Distributor.
|X| Waiver of Class A Sales Charges for Certain Shareholders. Class A
shares purchased by the following investors are not subject to any Class A
initial or contingent deferred sales charges:
|_| Shareholders who were shareholders of the AMA Family of Funds on
February 28, 1991 and who acquired shares of any of the Former Quest for Value
Funds by merger of a portfolio of the AMA Family of Funds.
|_| Shareholders who acquired shares of any Former Quest for Value Fund by
merger of any of the portfolios of the Unified Funds.
|X| Waiver of Class A Contingent Deferred Sales Charge in Certain
Transactions. The Class A contingent deferred sales charge will not apply to
redemptions of Class A shares purchased by the following investors who were
shareholders of any Former Quest for Value Fund:
Investors who purchased Class A shares from a dealer that is or was not
permitted to receive a sales load or redemption fee imposed on a shareholder
with whom that dealer has a fiduciary relationship, under the Employee
Retirement Income Security Act of 1974 and regulations adopted under that law.
Class A, Class B and Class C Contingent Deferred Sales Charge Waivers
|X| Waivers for Redemptions of Shares Purchased Prior to March 6, 1995. In
the following cases, the contingent deferred sales charge will be waived for
redemptions of Class A, Class B or Class C shares of an Oppenheimer fund. The
shares must have been acquired by the merger of a Former Quest for Value Fund
into the fund or by exchange from an Oppenheimer fund that was a Former Quest
for Value Fund or into which such fund merged. Those shares must have been
purchased prior to March 6, 1995 in connection with:
|_| withdrawals under an automatic withdrawal plan holding only either
Class B or Class C shares if the annual withdrawal does not exceed 10% of the
initial value of the account, and
|_| liquidation of a shareholder's account if the aggregate net asset
value of shares held in the account is less than the required minimum value of
such accounts.
|X| Waivers for Redemptions of Shares Purchased on or After March 6, 1995
but Prior to November 24, 1995. In the following cases, the contingent deferred
sales charge will be waived for redemptions of Class A, Class B or Class C
shares of an Oppenheimer fund. The shares must have been acquired by the merger
of a Former Quest for Value Fund into the fund or by exchange from an
Oppenheimer fund that was a Former Quest For Value Fund or into which such
Former Quest for Value Fund merged. Those shares must have been purchased on or
after March 6, 1995, but prior to November 24, 1995:
|_| redemptions following the death or disability of the
shareholder(s) (as evidenced by a determination of total disability by the
U.S. Social Security Administration);
|_| withdrawals under an automatic withdrawal plan (but only for Class B
or Class C shares) where the annual withdrawals do not exceed 10% of the initial
value of the account; and
|_| liquidation of a shareholder's account if the aggregate net asset
value of shares held in the account is less than the required minimum account
value.
A shareholder's account will be credited with the amount of any contingent
deferred sales charge paid on the redemption of any Class A, Class B or Class C
shares of the Oppenheimer fund described in this section if the proceeds are
invested in the same Class of shares in that fund or another Oppenheimer fund
within 90 days after redemption.
- ------------------------------------------------------------------------------
Special Sales Charge Arrangements for Shareholders of Certain Oppenheimer Funds
Who Were Shareholders of Connecticut Mutual Investment Accounts, Inc.
- ------------------------------------------------------------------------------
The initial and contingent deferred sale charge rates and waivers for
Class A and Class B shares described in the Prospectus or this Appendix for
Oppenheimer U. S. Government Trust, Oppenheimer Bond Fund, Oppenheimer
Disciplined Value Fund and Oppenheimer Disciplined Allocation Fund (each is
included in the reference to "Fund" below) are modified as described below for
those shareholders who were shareholders of Connecticut Mutual Liquid Account,
Connecticut Mutual Government Securities Account, Connecticut Mutual Income
Account, Connecticut Mutual Growth Account, Connecticut Mutual Total Return
Account, CMIA LifeSpan Capital Appreciation Account, CMIA LifeSpan Balanced
Account and CMIA Diversified Income Account (the "Former Connecticut Mutual
Funds") on March 1, 1996, when OppenheimerFunds, Inc. became the investment
adviser to the Former Connecticut Mutual Funds.
Prior Class A CDSC and Class A Sales Charge Waivers
|_| Class A Contingent Deferred Sales Charge. Certain shareholders of a
Fund and the other Former Connecticut Mutual Funds are entitled to continue to
make additional purchases of Class A shares at net asset value without a Class A
initial sales charge, but subject to the Class A contingent deferred sales
charge that was in effect prior to March 18, 1996 (the "prior Class A CDSC").
Under the prior Class A CDSC, if any of those shares are redeemed within one
year of purchase, they will be assessed a 1% contingent deferred sales charge on
an amount equal to the current market value or the original purchase price of
the shares sold, whichever is smaller (in such redemptions, any shares not
subject to the prior Class A CDSC will be redeemed first).
Those shareholders who are eligible for the prior Class A CDSC are: (1)
persons whose purchases of Class A shares of a Fund and other Former
Connecticut Mutual Funds were $500,000 prior to March 18, 1996, as a
result of direct purchases or purchases pursuant to the Fund's policies
on Combined Purchases or Rights of Accumulation, who still hold those
shares in that Fund or other Former Connecticut Mutual Funds, and
(2) persons whose intended purchases under a Statement of Intention entered
into prior to March 18, 1996, with the former general distributor of
the Former Connecticut Mutual Funds to purchase shares valued at
$500,000 or more over a 13-month period entitled those persons to
purchase shares at net asset value without being subject to the Class A
initial sales charge.
Any of the Class A shares of a Fund and the other Former Connecticut
Mutual Funds that were purchased at net asset value prior to March 18, 1996,
remain subject to the prior Class A CDSC, or if any additional shares are
purchased by those shareholders at net asset value pursuant to this arrangement
they will be subject to the prior Class A CDSC.
|_| Class A Sales Charge Waivers. Additional Class A shares of a Fund may
be purchased without a sales charge, by a person who was in one (or more) of the
categories below and acquired Class A shares prior to March 18, 1996, and still
holds Class A shares: (1) any purchaser, provided the total initial amount
invested in the Fund
or any one or more of the Former Connecticut Mutual Funds totaled
$500,000 or more, including investments made pursuant to the Combined
Purchases, Statement of Intention and Rights of Accumulation features
available at the time of the initial purchase and such investment is
still held in one or more of the Former Connecticut Mutual Funds or a
Fund into which such Fund merged;
(2) any participant in a qualified plan, provided that the total initial
amount invested by the plan in the Fund or any one or more of the
Former Connecticut Mutual Funds totaled $500,000 or more;
(3) Directors of the Fund or any one or more of the Former Connecticut
Mutual Funds and members of their immediate families;
(4) employee benefit plans sponsored by Connecticut Mutual Financial
Services, L.L.C. ("CMFS"), the prior distributor of the Former
Connecticut Mutual Funds, and its affiliated companies;
(5) one or more members of a group of at least 1,000 persons (and persons
who are retirees from such group) engaged in a common business,
profession, civic or charitable endeavor or other activity, and the
spouses and minor dependent children of such persons, pursuant to a
marketing program between CMFS and such group; and
(6) an institution acting as a fiduciary on behalf of an individual or
individuals, if such institution was directly compensated by the
individual(s) for recommending the purchase of the shares of the Fund
or any one or more of the Former Connecticut Mutual Funds, provided the
institution had an agreement with CMFS.
Purchases of Class A shares made pursuant to (1) and (2) above may be
subject to the Class A CDSC of the Former Connecticut Mutual Funds described
above.
Additionally, Class A shares of a Fund may be purchased without a sales
charge by any holder of a variable annuity contract issued in New York State by
Connecticut Mutual Life Insurance Company through the Panorama Separate Account
which is beyond the applicable surrender charge period and which was used to
fund a qualified plan, if that holder exchanges the variable annuity contract
proceeds to buy Class A shares of the Fund.
Class A and Class B Contingent Deferred Sales Charge Waivers
In addition to the waivers set forth in the Prospectus and in this Appendix,
above, the contingent deferred sales charge will be waived for redemptions of
Class A and Class B shares of a Fund and exchanges of Class A or Class B shares
of a Fund into Class A or Class B shares of a Former Connecticut Mutual Fund
provided that the Class A or Class B shares of the Fund to be redeemed or
exchanged were (i) acquired prior to March 18, 1996 or (ii) were acquired by
exchange from an Oppenheimer fund that was a Former Connecticut Mutual Fund.
Additionally, the shares of such Former Connecticut Mutual Fund must have been
purchased prior to March 18, 1996: (1) by the estate of a deceased shareholder;
(2) upon the disability of a shareholder, as defined in Section 72(m)(7) of
the Internal Revenue Code;
(3) for retirement distributions (or loans) to participants or
beneficiaries from retirement plans qualified under Sections 401(a) or
403(b)(7)of the Code, or from IRAs, deferred compensation plans created
under Section 457 of the Code, or other employee benefit plans;
(4) as tax-free returns of excess contributions to such retirement or
employee benefit plans;
(5) in whole or in part, in connection with shares sold to any state,
county, or city, or any instrumentality, department, authority, or
agency thereof, that is prohibited by applicable investment laws from
paying a sales charge or commission in connection with the purchase of
shares of any registered investment management company;
(6) in connection with the redemption of shares of the Fund due to a
combination with another investment company by virtue of a merger,
acquisition or similar reorganization transaction;
(7) in connection with the Fund's right to involuntarily redeem or
liquidate the Fund;
(8) in connection with automatic redemptions of Class A shares and Class B
shares in certain retirement plan accounts pursuant to an Automatic
Withdrawal Plan but limited to no more than 12% of the original value
annually; or
(9) as involuntary redemptions of shares by operation of law, or under
procedures set forth in the Fund's Articles of Incorporation, or as
adopted by the Board of Directors of the Fund.
- ------------------------------------------------------------------------------
Special Reduced Sales Charge for Former Shareholders of Advance America
Funds, Inc.
- ------------------------------------------------------------------------------
Shareholders of Oppenheimer Municipal Bond Fund,
Oppenheimer U.S. Government Trust, Oppenheimer Strategic Income Fund and
Oppenheimer Equity Income Fund who acquired (and still hold) shares of those
funds as a result of the reorganization of series of Advance America Funds, Inc.
into those Oppenheimer funds on October 18, 1991, and who held shares of Advance
America Funds, Inc. on March 30, 1990, may purchase Class A shares of those four
Oppenheimer funds at a maximum sales charge rate of 4.50%.
<PAGE>
- ------------------------------------------------------------------------------
Oppenheimer Intermediate Municipal Fund
- ------------------------------------------------------------------------------
Internet Web Site:
www.oppenheimerfunds.com
Investment Adviser
OppenheimerFunds, Inc.
Two World Trade Center
New York, New York 10048-0203
Distributor
OppenheimerFunds Distributor, Inc.
Two World Trade Center
New York, New York 10048-0203
Transfer Agent
OppenheimerFunds Services
P.O. Box 5270
Denver, Colorado 80217-5270
1-800-525-7048
Custodian Bank
Citibank, N.A.
399 Park Avenue
New York, New York 10043
Independent Auditors
Deloitte & Touche LLP
555 Seventeenth Street
Denver, Colorado 80202
Legal Counsel
Myer, Swanson, Adams & Wolf, P.C.
1600 Broadway
Denver, Colorado 80202
67890
PX0860.1198
<PAGE>
- ------------------------------------------------------------------------------
Oppenheimer Insured Municipal Fund
- ------------------------------------------------------------------------------
Prospectus dated January 29, 1999
Oppenheimer Insured Municipal Fund is a mutual fund. It seeks a high level
of current income exempt from Federal income tax by investing in municipal
securities.
This Prospectus contains important information about the Fund's objective,
its investment policies, strategies and risks. It also contains important
information about how to buy and sell shares of the Fund and other account
features. Please read this Prospectus carefully before you invest and keep it
for future reference about your account.
(logo) OppenheimerFunds, Inc.
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved the Fund's securities nor has it determined that this
Prospectus is accurate or complete. It is a criminal offense to represent
otherwise.
<PAGE>
Contents
About The Fund
- ------------------------------------------------------------------------------
The Fund's Objective and Investment Strategies
Main Risks of Investing in the Fund
The Fund's Past Performance
Fees and Expenses of the Fund
About the Fund's Investments
How the Fund is Managed
About Your Account
- ------------------------------------------------------------------------------
How to Buy Shares
Class A Shares
Class B Shares
Class C Shares
Special Investor Services
AccountLink
PhoneLink
OppenheimerFunds Web Site
How to Sell Shares
By Mail
By Telephone
By Checkwriting
How to Exchange Shares
Shareholder Account Rules and Policies
Dividends and Tax Information
Financial Highlights
- ------------------------------------------------------------------------------
<PAGE>
About the Fund
- ------------------------------------------------------------------------------
The Fund's Objective and Investment Strategies
- -------------------------------------------------------------------------------
What Is the Fund's Investment Objective? The Fund's investment objective is to
provide a high level of current income exempt from Federal income tax.
- -------------------------------------------------------------------------------
What Does the Fund Invest In? The Fund invests mainly in municipal securities
that pay interest exempt from Federal individual income tax. These include
municipal bonds (which are debt obligations having a maturity of more than one
year when issued), municipal notes (short term obligations), interests in
municipal leases, and tax-exempt commercial paper.
Under normal market conditions the Fund:
|_| will invest at least 80% of its assets in municipal securities,
|_| does not invest more than 10% of its total assets in securities that
are not "investment grade" (which means they are rated in one of the four
highest rating categories of national rating organizations such as Moody's
Investors Services), and
|_| will normally invest at least 65% of its assets in insured and
"pre-refunded" municipal securities.
The Fund does not limit its investments in securities of a particular
maturity range. Therefore it can hold securities that have short or long
maturities. The Fund can also use hedging instruments and certain derivative
investments to a limited extent to try to manage investment risks. These
investments are more fully explained in "About the Fund's Investments," below.
How Does the Manager Decide What Securities to Buy or Sell? In selecting
securities for the Fund, the Manager currently looks nationwide for municipal
securities by considering a variety of factors which may change over time and
may vary in particular cases.
Currently the Fund's portfolio manager searches for:
|_| Insured and pre-refunded securities that offer high income,
|_| A wide range of issuers and securities to provide portfolio
diversification,
|_| Issues having favorable credit characteristics,
o Special situations among issuers that provide opportunities for value,
and
o Bonds with protection against being called by the issuer.
Who Is the Fund Designed For? The Fund is designed for investors who are seeking
income exempt from federal income taxes. It does not seek capital gains or
growth. Because it invests in tax-exempt securities, the Fund is not appropriate
for retirement plan accounts or for investors who want to pursue capital growth.
Main Risks of Investing in the Fund
All investments carry risks to some degree. For bond funds one risk is that the
market prices of the fund's investments will fluctuate when general interest
rates change (this is known as "interest rate risk"). Another risk is that the
issuer of the bond will experience financial difficulties and may default on its
obligation 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.
These risks collectively form the risk profile of the Fund and can affect
the value of the Fund's investments, its investment performance, and the prices
of its shares. These risks mean that you can lose money by investing in the
Fund. When you redeem your shares, they may be worth more or less than what you
paid for them.
The Fund's investment Manager, OppenheimerFunds, Inc., tries to reduce
risks by diversifying investments, by carefully researching securities before
they are purchased and in some cases by using hedging techniques. However,
changes in the overall market prices of municipal securities and the income they
pay can occur at any time. The yield and share price of the Fund will change
daily based on changes in interest rates and market conditions, and in response
to other economic events. There is no assurance that the Fund will achieve its
investment objective.
An investment in the Fund is not a deposit of any bank, and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
|X| Credit Risk. Municipal securities are subject to credit risk. Credit
risk relates to the ability of the issuer of a municipal security to make
interest and principal payments on the security as they become due. If the
issuer fails to pay interest, the Fund's income may be reduced and if the issuer
fails to repay principal, the value of that security and of the Fund's shares
might be reduced. The Fund's investments in insured municipal securities help
reduce this risk. The Fund limits its investments in securities that are not
investment grade to 10% of its total assets.
|X| Interest Rate Risks. In addition to credit risks, municipal securities
are subject to changes in value when prevailing interest rates change. When
interest rates fall, the values of outstanding municipal securities generally
rise, and the bonds may sell for more than their face amount. When interest
rates rise, the values of outstanding municipal securities generally fall, and
the bonds may sell at a discount from their face amount.
The magnitude of these price changes is generally greater for bonds with
longer maturities. There are no restrictions on the range of maturities of the
municipal securities in which the Fund may invest. Currently, the Fund focuses
on long-term securities to seek higher income. When the average maturity of the
Fund's portfolio is longer, its share price will fluctuate more when interest
rates change. Insurance on municipal securities in which the Fund invests does
not insure against fluctuations in the values of the securities or the Fund's
share price.
|X| There Are Special Risks in Using Derivative Investments. The Fund can
use derivatives to seek increased returns or to try to hedge investment risks.
In general terms, a derivative investment is an investment contract whose value
depends on (or is derived from) the value of an underlying asset, interest rate
or index. Options, futures, "inverse floaters," and interest rate swaps are
examples of derivatives the Fund can use.
If the issuer of the derivative investment does not pay the amount due,
the Fund can lose money on its investment. Also, the underlying security or
investment on which the derivative is based, and the derivative itself, might
not perform the way the Manager expected it to perform. If that happens, the
Fund will get less income than expected or its share price could decline. The
Fund has limits on the amount of particular types of derivatives it can hold.
However, using derivatives can cause the Fund to lose money on its investments
and/or increase the volatility of its share prices.
How Risky Is the Fund Overall? The value of the Fund's investments in municipal
securities will change over time due to a number of factors. They include
changes in general bond market movements, the change in value of particular
bonds because of an event affecting the issuer, or changes in interest rates
that can affect bond prices overall. These changes can affect the value of the
Fund's investments and its price per share. The Fund can invest in derivative
investments. These have additional risks and can cause fluctuations in the
Fund's share prices.
The Fund's investments in insured municipal securities help reduce the
risk of loss from a default because payments of principal and interest on those
securities is insured. Neither the market value of those securities nor the net
asset value of shares of the Fund is insured or guaranteed. In the
OppenheimerFunds spectrum, the Fund is more conservative with respect to default
risk than some types of taxable bond funds, such as high yield bond funds, but
more aggressive than money market funds.
The Fund's Past Performance
The bar chart and table below show one measure of the risks of investing in the
Fund, by showing changes in the Fund's performance (for its Class A shares) from
year to year for the last ten calendar years and by showing how the average
annual total returns of the Fund's shares compare to those of a broad-based
market index. The Fund's past investment performance is not necessarily an
indication of how the Fund will perform in the future.
[see appendix to the prospectus]
Sales charges are not included in the calculations of return in this bar chart,
and if those charges were included the returns would be less than those shown.
During the 10-year period shown in the bar chart, the highest return (not
annualized) for a calendar quarter was 7.17% (1st Q '95) and the lowest return
(not annualized) for a calendar quarter was -6.63% (1st Q '94).
--------------------------------------------------------------------------
Average Annual Total 5 Years 10 years
Returns for the periods (or life of (or life of
ended December 31, 1998 1 Year class, class,
if less) if less)
--------------------------------------------------------------------------
--------------------------------------------------------------------------
(Class A Shares)
(inception 11/11/86) 0.71% 4.57% 7.34%
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Lehman Brothers Municipal
Bond 6.48% 6.22% 8.22%
Index (from 12/31/88)
--------------------------------------------------------------------------
--------------------------------------------------------------------------
(Class B Shares)
(inception 5/3/93) -0.07% 4.47% 5.34%
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Lehman Brothers Municipal
Bond 6.48% 6.22% 6.76%
Index (from 4/30/93)
--------------------------------------------------------------------------
--------------------------------------------------------------------------
(Class C Shares)
(inception 8/29/95) 3.93% 7.10% N/A
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Lehman Brothers Municipal
Bond 6.48% 7.49% N/A
Index (from 8/31/95)
--------------------------------------------------------------------------
The Fund's average annual total returns in the table include the applicable
sales charge: for Class A, the current maximum initial sales charge of 4.75%;
for Class B, the applicable contingent deferred sales charges of 5% (1-year) 2%
(5-years) and 1% (life-of-class); for Class C, the 1% contingent deferred sales
charge for the 1-year period.
The returns measure the performance of a hypothetical account and assume that
all dividends and capital gains distributions have been reinvested in additional
shares. Because the Fund invests in a variety of municipal securities, the
Fund's performance is compared to the Lehman Brothers Municipal Bond Index, an
unmanaged index of a broad range of investment grade municipal bonds that is a
measure of the performance of the general municipal bond market. However, it
must be remembered that the index performance does not consider the effects of
transaction costs and that the Fund's investments are not limited to the
securities in the index.
Fees and Expenses of the Fund
The Fund pays a variety of expenses directly for management of its assets,
administration, distribution of its shares and other services. Those expenses
are subtracted from the Fund's assets to calculate the Fund's net asset 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
the fees and expenses you may pay if you buy and hold shares of the Fund. The
numbers below are based on the Fund's expenses during the fiscal year ended
September 30, 1998.
Shareholder Fees (charges paid directly from your investment):
---------------------------------------------------------------------------
Class A Class B Class C
Shares Shares Shares
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Maximum Sales Charge (Load) 4.75% None None
on
purchases (as a % of offering
price)
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Maximum Deferred Sales Charge None1 5%2 1%3
(Load) (as % of the lower of
the
original offering price or
redemption proceeds)
---------------------------------------------------------------------------
4 A 1% contingent deferred sales charge may apply to redemptions of investments
of $1 million or more of Class A shares. See "How to Buy Shares" for details.
5 Applies to redemptions in first year after purchase. The contingent deferred
sales charge declines to 1% in the sixth year and is eliminated after that.
6 Applies to shares redeemed within 12 months of purchase.
Annual Fund Operating Expenses (deducted from Fund assets):
(% of average daily net assets)
---------------------------------------------------------------------------
Class A Class B Class C
Shares Shares Shares
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Management Fees 0.44% 0.44% 0.44%
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Distribution and/or Service (12b-1) 0.24% 1.00% 1.00%
Fees
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Other Expenses 0.21% 0.20% 0.20%
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Total Annual Operating Expenses 0.89% 1.64% 1.64%
---------------------------------------------------------------------------
Expenses may vary in future years. "Other expenses" include transfer agent fees,
custodial fees, and accounting and legal expenses the Fund pays.
Examples. These examples are intended to help you compare the cost of investing
in the Fund with the cost of investing in other mutual funds. The examples
assume that you invest $10,000 in a class of shares of the Fund for the time
periods indicated, and reinvest your dividends and distributions.
The first example assumes that you redeem all of your shares at the end of
those periods. The second example assumes you keep your shares. Both examples
also assume that your investment has a 5% return each year and that the class's
operating expenses remain the same. Your actual costs may be higher or lower
because expenses will vary over time. Based on these assumptions your expenses
would be as follows:
-----------------------------------------------------------------------------
If shares are redeemed: 1 year 3 years 5 years 10 years1
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
Class A Shares $561 $742 $ 939 $1,508
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
Class B Shares $667 $817 $1,092 $1,554
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
Class C Shares $267 $517 $ 892 $1,944
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
If shares are not redeemed: 1 year 3 years 5 years 10 years1
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
Class A Shares $561 $742 $939 $1,508
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
Class B Shares $167 $517 $892 $1,554
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
Class C Shares $167 $517 $892 $1,944
-----------------------------------------------------------------------------
In the first example, expenses include the initial sales charge for Class A and
the applicable Class B or Class C contingent deferred sales charges. In the
second example, the Class A expenses include the sales charge, but Class B and
Class C expenses do not include contingent deferred sales charges.
1. Class B expense for years 7 through 10 are based on Class A expenses, since
Class B shares automatically convert to Class A after 6 years.
About the Fund's Investments
The Fund's Principal Investment Policies. The allocation of the Fund's portfolio
among the different types of investments the Fund is permitted to buy will vary
over time based on the Manager's evaluation of economic and market condition.
The Fund's portfolio might not always include all of the different types of
investments described below. The Statement of Additional Information contains
more detailed information about the Fund's investment policies and risks.
|X| What Municipal Securities Does the Fund Invest In? The Fund buys
municipal bonds and notes, tax-exempt commercial paper, certificates of
participation in municipal leases and other debt obligations. These are debt
obligations issued by the governments of states, their political subdivisions
(such as cities, towns and counties), or the District of Columbia, or by their
agencies, instrumentalities and authorities.
The Fund can also buy securities issued by any commonwealths, territories
or possessions of the United States, or their respective agencies,
instrumentalities or authorities, if the interest paid on the security is not
subject to Federal individual income tax (in the opinion of bond counsel to the
issuer at the time the security is issued). All of these types of debt
obligations are referred to as "municipal securities" in this Prospectus.
Municipal securities are issued to raise money for a variety of public or
private purposes, including financing state or local governments, specific
projects or public facilities. The Fund can invest in municipal securities that
are "general obligations," secured by the issuer's pledge of its full faith,
credit and taxing power for the payment of principal and interest.
The Fund can also buy "revenue obligations," whose interest is payable
only from the revenues derived from a particular facility or class of
facilities, or a specific excise tax or other revenue source. Some of these
revenue obligations are private activity bonds that pay interest that may be a
tax preference item for investors subject to alternative minimum tax.
|X| Ratings of Municipal Securities the Fund Buys. Most of the municipal
securities the Fund buys are "investment grade" at the time of purchase. The
Fund limits its investments in municipal securities that at the time of purchase
are not "investment-grade" to not more than 10% of its total assets. "Investment
grade" securities are those rated within the four highest rating categories of
Moody's, Standard & Poor's, Fitch or Duff & Phelps or another nationally
recognized rating organization, or (if unrated) judged by the Manager to be
comparable to securities rated as investment grade. Rating categories are
described in Appendix A to the Statement of Additional Information.
The Manager relies to some extent on credit ratings by nationally
recognized rating agencies in evaluating the credit risk of securities selected
for the Fund's portfolio. It also uses its own research and analysis to evaluate
risks. Many factors affect an issuer's ability to make timely payments, and the
credit risks of a particular security might change over time. A reduction in the
rating of a security after its purchase by the Fund will not automatically
require the Fund to dispose of that security. However, the Manager will evaluate
those securities to determine whether to keep them in the Fund's portfolio.
|_| Special Credit Risks of Lower-Grade Securities. Lower-grade
municipal securities usually offer higher yields than investment grade
securities but they are subject to greater market fluctuations and risks of loss
of income and principal than investment grade municipal securities. Securities
that are (or that have fallen) below investment grade have a greater risk that
the issuers of those securities might not meet their debt obligations. However,
limiting its investments in non-investment grade municipal securities to not
more than 10% of its assets, helps the Fund reduce the effect of some of these
risks on its share price and income.
|X| Insured Municipal Securities. Within the category of "insured"
municipal securities the Fund buys are (1) those securities that have an
insurance policy covering the payment of all installments of interest and
repayment of principal and (2) "pre-refunded" municipal securities. While
insurance reduces the effects of risks of default, insurance on municipal
securities the Fund buys does not guarantee or insure the market value of those
securities or the Fund's share prices.
If an issuer defaults on an insured municipal security, the payment of the
claim under the insurance policy depends on the claims-paying ability of the
insurance company. There is a more detailed discussion of insurance on municipal
securities, including information about the costs, limitations and risks that
apply to these policies, in the Statement of Additional Information.
Insured municipal securities the Fund buys are covered by insurance in one
of several ways:
o The Fund might buy (at its expense) a portfolio insurance policy issued
by Financial Guaranty Insurance Company, which covers the security as
long as the Fund owns it. If the Fund buys an insurance policy on a
security, the cost of that policy increase the Fund's expenses and
reduces its yield.
o The Fund might buy (at its expense) a secondary market insurance policy
from Financial Guaranty to cover payments of interest and principal
for the remaining term of the security, whether or not the Fund owns
the security. The Fund would buy this type of insurance to enable
the Fund to sell the security to a third party as the equivalent of
an "AAA"-rated security at a higher market price than if the
security were sold without the insurance. It might replace a
portfolio insurance policy previously obtained.
o Some municipal securities are covered by an insurance policy obtained
by the issuer or its underwriter at the time the security is issued.
This insurance, paid for by the issuer or its underwriter, covers the
interest and principal payments as long as the security is outstanding.
The Fund limits these purchases to securities insured by insurance
companies having an "AAA" or comparable credit rating at the time the
Fund buys them.
In a "pre-refunding" the issuer of a municipal bond floats a second bond
to raise cash to pay off the first bond at its call date or dates. The proceeds
of the second bond are invested in U.S. Treasury securities that mature on the
call date as security for the payment. Because of the collateral arrangement,
these bonds typically are rated in the highest rating category of national
rating organizations and are considered by the Fund to have the equivalent
credit protection of insured securities. However, these securities also
typically offer a lower interest rate than the rate prevailing in the market for
comparable issues.
|X| Municipal Lease Obligations. Municipal leases are one method used by
state and local government authorities to obtain funds to acquire land,
equipment or facilities. The Fund may invest in certificates of participation
that represent a proportionate interest in payments made under municipal lease
obligations. If the government stops making payments or transfers its payment
obligations to a private entity, the obligation could lose value or become
taxable. Some of these obligations might not have an active trading market and
would be subject to the Fund's limits on "illiquid" securities described below.
|X| Can the Fund's Investment Objective and Policies Change? The Fund's
Board of Trustees can change non-fundamental policies without shareholder
approval, although significant changes will be described in amendments to this
Prospectus. Fundamental policies are those that cannot be changed without the
approval of a majority of the Fund's outstanding voting shares. The Fund's
investment objective is a fundamental policy. The Statement of Additional
Information lists investment restrictions that are fundamental policies. An
investment policy is not fundamental unless this Prospectus or the Statement of
Additional Information says that it is.
Other Investment Strategies. To seek its objective, the Fund can also use the
investment techniques and strategies described below. The Manager might not
always use all of the different types of techniques and investments described
below. These techniques involve certain risks although some of them are designed
to help reduce investment or market risks.
|X| Floating Rate/Variable Rate Obligations. Some of the municipal
securities the Fund can purchase have variable or floating interest rates.
Variable rates are adjustable at stated periodic intervals. Floating rates are
automatically adjusted according to a specified market rate for such
investments, such as the percentage of the prime rate of a bank, or the 91-day
U.S. Treasury Bill rate. These obligations may be secured by bank letters of
credit or other credit support arrangements.
|_| Inverse Floaters Have Special Risks. Certain types of variable rate
bonds known as "inverse floaters" pay interest at rates that vary 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. As interest rates rise, inverse floaters produce
less current income, and their market value can become volatile. Inverse
floaters are a type of "derivative security." Some have a "cap," so that if
interest rates rise above the "cap," the security pays additional interest
income. If rates do not rise above the "cap," the Fund will have paid an
additional amount for a feature that proves worthless. The Fund anticipates that
it will invest no more than 10% of its total assets in inverse floaters.
|X| Other Derivatives. The Fund can also invest in other municipal
derivative securities that pay interest that depends on changes in price or
value of an index or another investment. Examples of these derivatives are
interest rate swaps, and futures based on municipal bond indices.
|X| "When-Issued" and "Delayed-Delivery" Transactions. The Fund can
purchase municipal securities on a "when-issued" basis and can purchase or sell
such 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. The Fund does not intend to make such
purchases for speculative purposes. During the period between the purchase and
settlement, no payment is made for the security and no interest accrues to the
buyer from the investment. There is a risk of loss to the Fund if the value of
the security declines prior to the settlement date.
|X| Puts and Stand-By Commitments. The Fund can acquire "stand-by
commitments" or "puts" with respect to municipal securities. These investments
give the Fund the right to sell the securities at a set price on demand to the
issuing broker-dealer or bank. However, securities having this feature may have
a lower interest rate. The Fund will acquire stand-by commitments or puts solely
to enhance portfolio liquidity.
|X| Illiquid and Restricted Securities. Under the policies and procedures
established by the Fund's Board of Trustees, the Manager determines the
liquidity 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 can increase that limit to 15%). Certain restricted securities that
are eligible for resale to qualified institutional purchasers may not be subject
to that limit. The Manager monitors holdings of illiquid securities on an
ongoing basis to determine whether to sell any holdings to maintain adequate
liquidity.
|X| Hedging. The Fund can purchase and sell certain kinds of futures
contracts, put and call options, and options on futures and broadly-based
municipal bond indices, or enter into interest rate swap agreements. These are
all referred to as "hedging instruments." The Fund does not use hedging
instruments for speculative purposes, and has limits on the use of them. The
Fund does not use hedging instruments to a substantial degree and is not
required to use them in seeking its goal.
The Fund could buy and sell options and futures for a number of purposes.
It might do so to try to manage its exposure to the possibility that the prices
of its portfolio securities may decline, or to establish a position in the
securities market as a temporary substitute for purchasing individual
securities. It might do so to try to manage its exposure to changing interest
rates.
If the Manager used a hedging instrument at the wrong time or judged
market conditions incorrectly, the strategy could 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, interest rate swaps are subject to credit risks and
also to interest rate risks. The Fund could be obligated to pay more under its
swap agreements than it receives under them, as a result of interest rate
changes. The Fund will not enter into swaps with respect to more than 25% of its
total assets.
Temporary Defensive Investments. The Fund can invest up to 100% of its total
assets in temporary defensive investments from time to time. This could happen
during periods of volatile or adverse market conditions. Generally the Fund's
defensive Investments would be short-term municipal securities but could be U.S.
government securities or highly-rated corporate debt securities. These
investments are not insured. The income from some of those temporary defensive
investments might not be tax-exempt, and therefore when making those investments
the Fund might not achieve its objective.
The Fund can also hold these types of investments pending the investments
for cash management purposes under normal market conditions, of proceeds from
the sale of Fund shares or portfolio securities, or to meet anticipated
redemptions of Fund shares.
Year 2000 Risks. Because many computer software systems in use today cannot
distinguish the year 2000 from the year 1900, the markets for securities in
which the Fund invests could be detrimentally affected by computer failures
beginning January 1, 2000. Failure of computer systems used for securities
trading could result in settlement and liquidity problems for the Fund and other
investors. That failure could have a negative impact on handling securities
trades, pricing and accounting services. Data processing errors by government
issuers of securities could result in economic uncertainties, and those issuers
could incur substantial costs in attempting to prevent or fix such errors, all
of which could have a negative effect on the Fund's investments and returns.
The Manager, the Distributor and the Transfer Agent have been working on
necessary changes to their computer systems to deal with the year 2000 and
expect that their systems will be adapted in time for that event, although there
cannot be assurance of success. Additionally, the services they provide depend
on the interaction of their computer systems with those of brokers, information
services, the Fund's custodian bank and other parties. Therefore, any failure of
the computer systems of those parties to deal with the year 2000 may also have a
negative effect on the services they provide to the Fund. The extent of that
risk cannot be ascertained at this time.
How the Fund is Managed
The Manager. The Fund's investment Manager, OppenheimerFunds, Inc., 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 Fund's Board of Trustees, under an Investment Advisory
Agreement that states the Manager's responsibilities. The Agreement lists the
fees the Fund pays to the Manager and describes the expenses that the Fund is
responsible to pay to conduct its business.
The Manager has operated as an investment advisor since 1959. The Manager
(including subsidiaries) currently manages investment companies, including other
Oppenheimer funds, with assets of more than $95 billion as of December 31, 1998,
and with more than 4 million shareholder accounts. The Manager is located at Two
World Trade Center, 34th Floor, New York, New York 10048-0203.
|X| Portfolio Manager. The portfolio manager of the Fund is Caryn
Halbrecht, a Vice President of the Fund and of the Manager. She has been the
person principally responsible for the day-to-day management of the Fund's
portfolio since October 18, 1993. Ms. Halbrecht also serves as an officer and
portfolio manager for other Oppenheimer funds.
|X| Advisory Fees. Under the Investment Advisory Agreement, the Fund pays
the Manager an advisory fee at an annual rate which declines on additional
assets as the Fund grows: 0.450% of the first $100 million of average annual net
assets, 0.400% of the next $150 million, 0.375% of the next $250 million, and
0.350% of average annual net assets in excess of $500 million. The Fund's
management fee for its last fiscal year ended September 30, 1998, was 0.440% of
average annual net assets for each class of shares.
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About Your Account
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How to Buy Shares
How Are Shares Purchased? You can buy shares several ways -- through any dealer,
broker or financial institution that has a sales agreement with the Fund's
Distributor, or directly through the Distributor, or automatically through an
Asset Builder Plan under the OppenheimerFunds AccountLink service. The
Distributor may appoint certain servicing agents to accept purchase (and
redemption) orders. The Distributor, in its sole discretion, may reject any
purchase order for the Fund's shares.
|X|Buying Shares Through Your Dealer. Your dealer will place your
order with the Distributor on your behalf.
|X|Buying Shares Through the Distributor. Complete an OppenheimerFunds New
Account Application and return it with a check payable to "OppenheimerFunds
Distributor, Inc." Mail it to P.O. Box 5270, Denver, Colorado 80217. If you
don't list a dealer on the application, the Distributor will act as your agent
in buying the shares. However, we recommend that you discuss your investment
with a financial advisor before you make a purchase to be sure that the Fund is
appropriate for you.
|X|Buying Shares by Federal Funds Wire. Shares purchased through the
Distributor may be paid for by Federal Funds wire. The minimum investment is
$2,500. Before sending a wire, call the Distributor's Wire Department at
1-800-525-7048 to notify the Distributor of the wire, and to receive further
instructions.
|X|Buying Shares Through OppenheimerFunds AccountLink. With AccountLink,
shares are purchased for your account on the regular business day the
Distributor is instructed by you to initiate the Automated Clearing House (ACH)
transfer to buy the shares. You can provide those instructions automatically,
under an Asset Builder Plan, described below, or by telephone instructions using
OppenheimerFunds PhoneLink, also described below. Please refer to "AccountLink,"
below for more details.
|X|Buying Shares Through Asset Builder Plans. You may purchase shares of
the Fund (and up to four other Oppenheimer funds) automatically each month from
your account at a bank or other financial institution under an Asset Builder
Plan with AccountLink. Details are in the Asset Builder Application and the
Statement of Additional Information.
How Much Must You Invest? You can 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. Subsequent purchases of at least $25 can be made by telephone through
AccountLink.
|_|The minimum investment requirement does not apply to reinvesting
dividends from the Fund or other Oppenheimer funds (a list of them appears in
the Statement of Additional Information, or you can ask your dealer or call the
Transfer Agent), or reinvesting distributions from unit investment trusts that
have made arrangements with the Distributor.
At What Price Are Shares Sold? Shares are sold at their offering price (the net
asset value per share plus any initial sales charge that applies). The offering
price that applies to a purchase order is based on the next calculation of the
net asset value per share that is made after the Distributor receives the
purchase order at its offices in Denver, Colorado, or after any agent appointed
by the Distributor receives the order and sends it to the Distributor.
|_|The net asset value of each class of shares is determined as of the
close of The New York Stock Exchange, on each day the Exchange is open for
trading (referred to in this Prospectus as a "regular business day"). The
Exchange normally closes at 4:00 P.M., New York time, but may close earlier on
some days. (All references to time in this Prospectus mean "New York time").
The net asset value per share is determined by dividing the value of the
Fund's net assets attributable to a class by the number of shares of that class
that are outstanding. To determine net asset value, the Fund's Board of Trustees
has established procedures to value the Fund's securities, in general based on
market value. The Board has adopted special procedures for valuing illiquid
securities and obligations for which market values cannot be readily obtained.
|_|To receive the offering price for a particular day, in most cases the
Distributor or its designated agent must receive your order by the time of day
The New York Stock Exchange closes that day. If your order is received on a day
when the Exchange is closed or after it has closed, the order will receive the
next offering price that is determined after your order is received.
|_|If you buy shares through a dealer, your dealer must receive the order
by the close of The New York Stock Exchange and transmit it to the Distributor
so that it is received before the Distributor's close of business on a regular
business day (normally 5:00 P.M.) to receive that day's offering price.
Otherwise, the order will receive the next offering price that is determined.
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What Classes of Shares Does the Fund Offer? The Fund offers investors three
different classes of shares. The different classes of shares represent
investments in the same portfolio of securities, but the classes are subject
to different expenses and will likely have different share prices. When you
buy shares, be sure to specify the class of shares. If you do not choose a
class, your investment will be made in Class A shares.
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|X| Class A Shares. If you buy Class A shares, you pay an initial
sales charge (on investments up to $1 million). The amount of that sales
charge will vary depending on the amount you invest. The sales charge rates are
listed in "How Can I Buy Class A Shares?" below.
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|X| Class B Shares. If you buy Class B shares, you pay no sales
charge at the time of purchase, but you will pay an annual asset-based sales
charge, and if you sell your shares within six years of buying them, you will
normally pay a contingent deferred sales charge. That contingent deferred
sales charge varies depending on how long you own your shares, as described in
"How Can I Buy Class B Shares?" below.
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|X|Class C Shares. If you buy Class C shares, you pay no sales charge
at the time of purchase, but you will pay an annual asset-based sales charge,
and if you sell your shares within 12 months of buying them, you will
normally pay a contingent deferred sales charge of 1%, as described in "How Can
I Buy Class C Shares?" below.
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Which Class of Shares Should You Choose? Once you decide that the Fund is an
appropriate investment for you, the decision as to which class of shares is best
suited to your needs depends on a number of factors that you should discuss with
your financial advisor. Some factors to consider are how much you plan to invest
and how long you plan to hold your investment. If your goals and objectives
change over time and you plan to purchase additional shares, you should
re-evaluate those factors to see if you should consider another class of shares.
The Fund's operating costs that apply to a class of shares and the effect of the
different types of sales charges on your investment will vary your investment
results over time.
The discussion below is not intended to be investment advice or a
recommendation, because each investor's financial considerations are different.
You should review these factors with your financial advisor. The discussion
below assumes that you will purchase only one class of shares, and not a
combination of shares of different classes.
|X|How Long Do You Expect to Hold Your Investment? While future financial
needs cannot be predicted with certainty, knowing how long you expect to hold
your investment will assist you in selecting the appropriate class of shares.
Because of the effect of class-based expenses, your choice will also depend on
how much you plan to invest. For example, the reduced sales charges available
for larger purchases of Class A shares may, over time, offset the effect of
paying an initial sales charge on your investment, compared to the effect over
time of higher class-based expenses on shares of Class B or Class C .
|_| Investing for the Short Term. If you have a relatively short-term
investment horizon (that is, you plan to hold your shares for not more than six
years), you should probably consider purchasing Class A or Class C shares rather
than Class B shares. That is because of the effect of the Class B contingent
deferred sales charge if you redeem within six years, as well as the effect of
the Class B asset-based sales charge on the investment return for that class in
the short-term. Class C shares might be the appropriate choice (especially for
investments of less than $100,000), because there is no initial sales charge on
Class C shares, and the contingent deferred sales charge does not apply to
amounts you sell after holding them one year.
However, if you plan to invest more than $100,000 for the shorter term,
then as your investment horizon increases toward six years, Class C shares might
not be as advantageous as Class A shares. That is because the annual asset-based
sales charge on Class C shares will have a greater impact on your account over
the longer term than the reduced front-end sales charge available for larger
purchases of Class A shares.
And for investors who invest $1 million or more, in most cases Class A
shares will be the most advantageous choice, no matter how long you intend to
hold your shares. For that reason, the Distributor normally will not accept
purchase orders of $500,000 or more of Class B shares or $1 million or more of
Class C shares from a single investor.
|_| Investing for the Longer Term. If you are investing less than
$100,000 for the longer-term, for example for retirement, and do not expect to
need access to your money for seven years or more, Class B shares may be
appropriate.
Of course, these examples are based on approximations of the effect of
current sales charges and expenses projected over time, and do not detail all of
the considerations in selecting a class of shares. You should analyze your
options carefully with your financial advisor before making that choice.
|X|Are There Differences in Account Features That Matter to You? Some
account features (such as checkwriting) may not be available to Class B or Class
C shareholders. Other features (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. Therefore, you should carefully review how you
plan to use your investment account before deciding which class of shares to
buy. Additionally, the dividends payable to Class B and Class C shareholders
will be reduced by the additional expenses borne by those classes that are not
borne by Class A shares, such as the Class B and Class C asset-based sales
charge described below and in the Statement of Additional Information. Share
certificates are not available for Class B and Class C shares, and if you are
considering using your shares as collateral for a loan, that may be a factor to
consider.
|X|How Does It Affect Payments to My Broker? A salesperson, such as a
broker, may receive different compensation for selling one class of shares than
for selling another class. It is important to remember that Class B and Class C
contingent deferred sales charges and asset-based sales charges have the same
purpose as the front-end sales charge on sales of Class A shares: to compensate
the Distributor for commissions it pays to dealers and financial institutions
for selling shares. The Distributor may pay additional compensation from its own
resources to securities dealers or financial institutions based upon the value
of shares of the Fund owned by the dealer or financial institution for its own
account or for its customers.
Special Sales Charge Arrangements and Waivers. Appendix C to the Statement of
Additional Information details the conditions for the waiver of sales charges
that apply in certain cases, and the special sales charge rates that apply to
purchases of shares of the Fund by certain groups, or under specified retirement
plan arrangements or in other special types of transactions.
How Can I Buy Class A Shares? Class A shares are sold at their offering price,
which is normally net asset value plus an initial sales charge. However, in some
cases, described below, purchases are not subject to an initial sales charge,
and the offering price will be the net asset value. In other cases, reduced
sales charges may be available, as described below or in the Statement of
Additional Information. Out of the amount you invest, the Fund receives the net
asset value to invest for your account.
The sales charge varies depending on the amount of your purchase. A
portion of the sales charge may be retained by the Distributor or allocated to
your dealer as commission. The Distributor reserves the right to reallow the
entire commission to dealers. The current sales charge rates and commissions
paid to dealers and brokers are as follows:
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----------------- Front-End Sales Commission as
Front-End Sales Charge As a Percentage
----------------- Percentage of of Offering
Amount of Purchase Charge As a Net Price
Percentage of Amount Invested
Offering Price
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Less than $50,000 4.75% 4.98% 4.00%
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$50,000 or more but 4.50% 4.71% 4.00%
less than $100,000
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$100,000 or more but 3.50% 3.63% 3.00%
less than $250,000
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$250,000 or more but 2.50% 2.56% 2.25%
less than $500,000
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$500,000 or more but 2.00% 2.04% 1.80%
less than $1 million
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|X| Class A Contingent Deferred Sales Charge. There is no initial sales
charge on purchases of Class A shares of any one or more of the Oppenheimer
funds aggregating $1 million or more. The Distributor pays dealers of record
commissions in an amount equal to 1.0% of purchases of $1 million or more other
than by retirement accounts. That commission will be paid only on purchases that
were not previously subject to a front-end sales charge and dealer commission.
If you redeem any of those shares within 18 months of the end of the
calendar month of their purchase, a contingent deferred sales charge (called the
"Class A contingent deferred sales charge") may be deducted from the redemption
proceeds. That sales charge will be equal to 1.0% of the lesser of (1) the
aggregate net asset value of the redeemed shares at the time of redemption
(excluding shares purchased by reinvestment of dividends or capital gain
distributions) or (2) the original net asset value of the redeemed shares.
However, the Class A contingent deferred sales charge will not exceed the
aggregate amount of the commissions the Distributor paid to your dealer on all
purchases of Class A shares of all Oppenheimer funds you made that were subject
to the Class A contingent deferred sales charge.
In determining whether a contingent deferred sales charge is payable when
shares are redeemed, the Fund will first redeem shares that are not subject to
the sales charge, including shares purchased by reinvestment of dividends and
capital gains. Then the Fund will redeem other shares in the order in which you
purchased them. The Class A contingent deferred sales charge is waived in
certain cases described in Appendix C to the Statement of Additional
Information.
The Class A contingent deferred sales charge is not charged on exchanges
of shares under the Fund's exchange privilege (described below). However, if the
shares acquired by exchange are redeemed within 18 calendar months of the end of
the calendar month in which the exchanged shares were originally purchased, then
the sales charge will apply.
How Can I Reduce Sales Charges for Class A Share Purchases? You may be eligible
to buy Class A shares at reduced sales charge rates under the Fund's "Right of
Accumulation" or a Letter of Intent, as described in "Reduced Sales Charges" in
the Statement of Additional Information.
|X| Waivers of Class A Sales Charges. The Class A initial and contingent
deferred sales charges are not imposed in the circumstances described in
Appendix C to 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 when purchasing shares whether any of the special conditions
apply.
How Can I Buy Class B Shares? Class B shares are sold at net asset value per
share without an initial sales charge. However, if Class B shares are redeemed
within 6 years of their purchase, a contingent deferred sales charge will be
deducted from the redemption proceeds. The Class B contingent deferred sales
charge is paid to compensate the Distributor for its expenses of providing
distribution-related services to the Fund in connection with the sale of Class B
shares.
The contingent deferred sales charge will be based on the lesser of the
net asset value of the redeemed shares at the time of redemption or the
original 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 an increase in
net asset value over the initial purchase price,
|_| shares purchased by the reinvestment of dividends or capital
gains distributions, or
|_| shares redeemed in the special circumstances described in Appendix C
to the Statement of Additional Information.
To determine whether the contingent deferred sales charge applies to a
redemption, the Fund redeems shares in the following order:
(1) shares acquired by reinvestment of dividends and capital gains
distributions,
(2) shares held for over 6 years, and
(3) shares held the longest during the 6-year period.
The amount of the contingent deferred sales charge will depend on the
number of years since you invested and the dollar amount being redeemed,
according to the following schedule:
----------------------------------------------------------------------------
Contingent Deferred Sales Charge on
Years Since Beginning of Month in Redemptions in That Year
Which Purchase Order was Accepted (As % of Amount Subject to Charge)
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0 - 1 5.0%
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1 - 2 4.0%
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2 - 3 3.0%
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3 - 4 3.0%
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4 - 5 2.0%
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5 - 6 1.0%
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6 and following None
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In the table, a "year" is a 12-month period. In applying the sales charge, all
purchases are considered to have been made on the first regular business day of
the month in which the purchase was made.
|X| Automatic Conversion of Class B Shares. Class B shares automatically
convert to Class A shares 72 months after you purchase them. This conversion
feature relieves Class B shareholders of the asset-based sales charge that
applies to Class B shares under the Class B Distribution and Service Plan,
described below. The conversion is based on the relative net asset value of the
two classes, and no sales load or other charge is imposed. When 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 the Statement of Additional Information.
How Can I Buy Class C Shares? Class C shares are sold at net asset value per
share without an initial sales charge. However, if Class C shares are redeemed
within 12 months of their purchase, a contingent deferred sales charge of 1.0%
will be deducted from the redemption proceeds. The Class C contingent deferred
sales charge is paid to compensate the Distributor for its expenses of providing
distribution-related services to the Fund in connection with the sale of Class C
shares.
The contingent deferred sales charge will be based on the lesser of the
net asset value of the redeemed shares at the time of redemption or the original
net asset value. The contingent deferred sales charge is not imposed on:
|_| the amount of your account value represented by the increase in
net asset value over the initial purchase price,
o shares purchased by the reinvestment of dividends or capital gains
distributions, or
o shares redeemed in the special circumstances described in Appendix C to
the Statement of Additional Information.
To determine whether the contingent deferred sales charge applies to a
redemption, the Fund redeems shares in the following order:
(1) shares acquired by reinvestment of dividends and capital gains
distributions,
(2) shares held for over 12 months, and
(4) shares held the longest during the 12-month period.
Distribution and Service (12b-1) Plans.
|X| Service Plan for Class A Shares. The Fund has adopted a Service Plan
for Class A shares. It reimburses the Distributor for a portion of its costs
incurred for services provided to accounts that hold Class A shares.
Reimbursement is made quarterly at an annual rate of up to 0.25% of the average
annual net assets of Class A shares of the Fund. The rate is 0.15% of average
annual net assets represented by shares acquired before that date. The
Distributor currently uses all of those fees to pay dealers, brokers, banks and
other financial institutions quarterly for providing personal service and
maintenance of accounts of their customers that hold Class A shares.
|X| Distribution and Service Plans for Class B and Class C Shares. The
Fund has adopted Distribution and Service Plans for Class B and Class C shares
to compensate the Distributor for its services and costs in distributing Class B
and Class C shares and servicing accounts. Under the plans, the Fund pays the
Distributor an annual "asset-based sales charge" of 0.75% per year on Class B
shares and on Class C shares. The Distributor also receives a service fee of
0.25% per year under each plan.
The asset-based sales charge and service fees increase Class B and Class C
expenses by 1.00% of the net assets per year of the respective class. Because
these fees are paid out of the Fund's assets on an on-going basis, over time
these fees will increase the cost of your investment and may cost you more than
other types of sales charges.
The Distributor uses the service fees to compensate dealers for providing
personal services for accounts that hold Class B or Class C shares. The
Distributor pays the 0.25% service fees to dealers in advance for the first year
after the shares were sold by the dealer. After the shares have been held for a
year, the Distributor pays the service fees to dealers on a quarterly basis.
The Distributor currently pays sales commission of 3.75% of the purchase
price of Class B shares to dealers from its own resources at the time of sale.
Including the advance of the service fee, the total amount paid by the
Distributor to the dealer at the time of sales of Class B shares is therefore
4.00% of the purchase price. The Distributor retains the Class B asset-based
sales charge.
The Distributor currently pays sales commissions of 0.75% of the purchase
price of Class C shares to dealers from its own resources at the time of sale.
Including the advance of the service fee, the total amount paid by the
Distributor to the dealer at the time of sale of Class C shares is therefore
1.00% of the purchase price. The Distributor pays the asset-based sales charge
as an ongoing commission to the dealer on Class C shares that have been
outstanding for a year or more.
Special Investor Services
AccountLink. You can use our AccountLink feature to link your Fund account
with an account at a U.S. bank or other financial institution. It must be an
Automated Clearing House (ACH) member. AccountLink lets you:
|_| transmit funds electronically to purchase shares by telephone (through
a service representative or by PhoneLink) or automatically under Asset
Builder Plans, or
|_| have the Transfer Agent send redemption proceeds or transmit dividends
and distributions directly to your bank account. Please call the Transfer
Agent for more information.
You may purchase shares by telephone only after your account has been
established. To purchase shares in amounts up to $250,000 through a telephone
representative, call the Distributor at 1-800-852-8457. The purchase payment
will be debited from your bank account.
AccountLink privileges should be requested on your Application or your
dealer's settlement instructions if you buy your shares through a dealer. After
your account is established, you can request AccountLink privileges by sending
signature-guaranteed instructions to the Transfer Agent. AccountLink privileges
will apply to each shareholder listed in the registration on your account as
well as to your dealer representative of record unless and until the Transfer
Agent receives written instructions terminating or changing those privileges.
After you establish AccountLink for your account, any change of bank account
information must be made by signature-guaranteed instructions to the Transfer
Agent signed by all shareholders who own the account.
PhoneLink. PhoneLink is the OppenheimerFunds automated telephone system that
enables shareholders to perform a number of account transactions automatically
using a touch-tone phone. PhoneLink may be used on already-established Fund
accounts after you obtain a Personal Identification Number (PIN), by calling the
special PhoneLink number, 1-800-533-3310.
|X| 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.
|X| Exchanging Shares. With the OppenheimerFunds exchange privilege,
described below, you can exchange shares automatically by phone from your Fund
account to another OppenheimerFunds account you have already established by
calling the special PhoneLink number.
|X| Selling Shares. You can redeem shares by telephone automatically by
calling the PhoneLink number and the Fund will send the proceeds directly to
your AccountLink bank account. Please refer to "How to Sell Shares," below for
details.
Can I Submit Transaction Requests by Fax? You may send requests for certain
types of account transactions to the Transfer Agent by fax (telecopier). Please
call 1-800-525-7048 for information about which transactions may be handled this
way. Transaction requests submitted by fax are subject to the same rules and
restrictions as written and telephone requests described in this Prospectus.
OppenheimerFunds Internet Web Site. You can obtain information about the Fund,
as well as your account balance, on the OppenheimerFunds Internet web site, at
http://www.oppenheimerfunds.com. Additionally, shareholders listed in the
account registration (and the dealer of record) may request certain account
transactions through a special section of that web site. To perform account
transactions, you must first obtain a personal identification number (PIN) by
calling the Transfer Agent at 1-800-533-3310. If you do not want to have
Internet account transaction capability for your account, please call the
Transfer Agent at 1-800-525-7048.
Automatic Withdrawal and Exchange Plans. The Fund has several plans that enable
you to sell shares automatically or exchange them to another OppenheimerFunds
account on a regular basis. Please call the Transfer Agent or consult the
Statement of Additional Information for details.
Reinvestment Privilege. If you redeem some or all of your Class A or Class B
shares of the Fund, you have up to 6 months to reinvest all or part of the
redemption proceeds in Class A shares of the Fund or other Oppenheimer funds
without paying a sales charge. This privilege applies only to Class A shares
that you purchased subject to an initial sales charge and to Class A or Class B
shares on which you paid a contingent deferred sales charge when you redeemed
them. This privilege does not apply to Class C shares. You must be sure to ask
the Distributor for this privilege when you send your payment.
How to Sell Shares
You can sell (redeem) some or all of your shares on any regular business day.
Your shares will be sold at the next net asset value calculated after your order
is received in proper form (which means that it must comply with the procedures
described below) and is accepted by the Transfer Agent. The Fund lets you sell
your shares by writing a letter, by using the Fund's checkwriting privilege or
by telephone. You can also set up Automatic Withdrawal Plans to redeem shares on
a regular basis. If you have questions about any of these procedures, and
especially if you are redeeming shares in a special situation, such as due to
the death of the owner, please call the Transfer Agent first, at 1-800-525-7048,
for assistance.
|X| Certain Requests Require a Signature Guarantee. To protect you and the
Fund from fraud, the following redemption requests must be in writing and must
include a signature guarantee (although there may be other situations that also
require a signature guarantee):
|_| You wish to redeem $50,000 or more and receive a check
|_| The redemption check is not payable to all shareholders listed on
the account statement
|_| The redemption check is not sent to the address of record on your
account statement
|_| Shares are being transferred to a Fund account with a different
owner or name
|_| Shares are being redeemed by someone (such as an Executor) other
than the owners
|X| 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.
How Do I Sell Shares by Mail? Write a "letter of instructions" that includes:
|_| Your name
|_| The Fund's name
|_| Your Fund account number (from your account statement)
|_| The dollar amount or number of shares to be redeemed
|_| Any special payment instructions
|_| Any share certificates for the shares you are selling
|_| The signatures of all registered owners exactly as the account is
registered, and
|_| Any special documents requested by the Transfer Agent to assure proper
authorization of the person asking to sell the shares.
- ------------------------------------------------------------------------------
Use the following address for requests by mail:
- ------------------------------------------------------------------------------
OppenheimerFunds Services
P.O. Box 5270
Denver, Colorado 80217-5270
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Send courier or express mail requests to:
- ------------------------------------------------------------------------------
OppenheimerFunds Services
10200 E. Girard Avenue, Building D
Denver, Colorado 80231
How Do I Sell 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
may be earlier on some days. You may not redeem shares held under a share
certificate by telephone.
|_| To redeem shares through a service representative, call
1-800-852-8457
|_| To redeem shares automatically on PhoneLink, call 1-800-533-3310
Whichever method you use, you may have a check sent to the address on the
account statement, or, if you have linked your Fund account to your bank account
on AccountLink, you may have the proceeds sent to that bank account.
Are There Limits on Amounts Redeemed by Telephone?
|X| 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.
|X| Telephone Redemptions Through AccountLink. 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.
Checkwriting Against Your Account. To write checks against your Fund account,
request that privilege on your account Application, or contact the Transfer
Agent for signature cards. They must be signed (with a signature guarantee) by
all owners of the account and returned to the Transfer Agent so that checks can
be sent to you to use. Shareholders with joint accounts can elect in writing to
have checks paid over the signature of one owner. If you previously signed a
signature card to establish checkwriting in another Oppenheimer fund, simply
call 1-800-525-7048 to request checkwriting for an account in this Fund with the
same registration as the other account.
|_| Checks can be written to the order of whomever you wish, but may not
be cashed at the Fund's bank or Custodian.
|_| Checkwriting privileges are not available for accounts holding Class B
shares or Class C shares, or Class A shares that are subject to a contingent
deferred sales charge.
|_| Checks must be written for at least $100.
|_| Checks cannot be paid if they are written for more than your
account value. Remember: your shares fluctuate in value and you should not
write a check close to the total account value.
|_| You may not write a check that would require the Fund to redeem shares
that were purchased by check or Asset Builder Plan payments within the prior 10
days.
|_| Don't use your checks if you changed your Fund account number, until
you receive new checks.
Can I Sell Shares Through My Dealer? The Distributor has made arrangements to
repurchase Fund shares from dealers and brokers on behalf of their customers.
Brokers or dealers may charge for that service. If your shares are held in the
name of your dealer, you must redeem them through your dealer.
How to Exchange Shares
Shares of the Fund may be exchanged for shares of certain Oppenheimer funds at
net asset value per share at the time of exchange, without sales charge.
To exchange shares, you must meet several conditions:
|_| Shares of the fund selected for exchange must be available
for sale in your state of residence.
|_| The prospectuses of this Fund and the fund whose shares you want to
buy must offer the exchange privilege.
|_| You must hold the shares you buy when you establish your account for
at least 7 days before you can exchange them. After the account is open 7 days,
you can exchange shares every regular business day.
|_| You must meet the minimum purchase requirements for the
fund you purchase by exchange.
|_| Before exchanging into a fund, you should obtain and read
its prospectus.
Shares of a particular class of the Fund may be exchanged only for shares
of the same class in the other Oppenheimer funds. For example, you can exchange
Class A shares of this Fund only for Class A shares of another fund. In some
cases, sales charges may be imposed on exchange transactions. For tax purposes,
exchanges of shares involve a sale of the shares of the fund you own and a
purchase of the shares of the other fund, which may result in a capital gain or
loss. Please refer to "How to Exchange Shares" in the Statement of Additional
Information for more details.
How Do I Submit Exchange Requests? Exchanges may be requested in writing or
by telephone:
|X| Written Exchange Requests. Submit an OppenheimerFunds
Exchange Request form, signed by all owners of the account. Send it to the
Transfer Agent at the address on the Back Cover. Exchanges of shares held
under certificates cannot be processed unless the Transfer Agent receives the
certificates with the request.
|X| Telephone Exchange Requests. Telephone exchange requests may be made
either by calling a service representative at 1-800-552-8457, 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.
Are There Limitations on Exchanges? There are certain exchange policies you
should be aware of:
|_| Shares are normally redeemed from one fund and purchased from the
other fund in the exchange transaction on the same regular business day on which
the Transfer Agent receives an exchange request that conforms to the policies
described above. It must be received by the close of The New York Stock Exchange
that day, which is normally 4:00 P.M. but may be earlier on some days. However,
either fund may delay the purchase of shares of the fund you are exchanging into
up to seven days if it determines it would be disadvantaged by a same-day
exchange. For example, the receipt of multiple exchange requests from a "market
timer" might require the Fund to sell securities at a disadvantageous time
and/or price.
|_| Because excessive trading can hurt fund performance and harm
shareholders, the Fund reserves the right to refuse any exchange request that it
believes will disadvantage it, or to refuse multiple exchange requests submitted
by a shareholder or dealer.
|_| 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.
|_| 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
More information about the fund's policies and procedures for buying, selling
and exchanging shares is contained in the Statement of Additional Information.
|X| 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.
|X| Telephone Transaction Privileges for purchases, redemptions or
exchanges may be modified, suspended or terminated by the Fund at any time. If
an account has more than one owner, the Fund and the Transfer Agent may rely on
the instructions of any one owner. Telephone privileges apply to each owner of
the account and the dealer representative of record for the account unless the
Transfer Agent receives cancellation instructions from an owner of the account.
|X| The Transfer Agent will record any telephone calls to verify data
concerning transactions and has adopted other procedures to confirm that
telephone instructions are genuine, by requiring callers to provide tax
identification numbers and other account data or by using PINs, and by
confirming such transactions in writing. The Transfer Agent and the Fund will
not be liable for losses or expenses arising out of telephone instructions
reasonably believed to be genuine.
|X| 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.
|X| 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.
|X| The redemption price for shares will vary from day to day because the
value of the securities in the Fund's portfolio fluctuates. The redemption
price, which is the net asset value per share, will normally differ for Class A,
Class B and Class C shares. The redemption value of your shares may be more or
less than their original cost.
|X| Payment for redeemed shares ordinarily is made in cash. It is
forwarded by check or through AccountLink (as elected by the shareholder) within
seven days after the Transfer Agent receives redemption instructions in proper
form. However, under unusual circumstances determined by the Securities and
Exchange Commission, payment may be delayed or suspended. For accounts
registered in the name of a broker-dealer, payment will normally be forwarded
within three business days after redemption.
|X| The Transfer Agent may delay forwarding a check or processing a
payment via AccountLink for recently purchased shares, but only until the
purchase payment has cleared. That delay may be as much as 10 days from the date
the shares were purchased. That delay may be avoided if you purchase shares by
Federal Funds wire or certified check, or arrange with your bank to provide
telephone or written assurance to the Transfer Agent that your purchase payment
has cleared.
|X| 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. In some cases involuntary redemptions may be
made to repay the Distributor for losses from the cancellation of share purchase
orders.
|X| Shares may be "redeemed in kind" under unusual circumstances (such as
a lack of liquidity in the Fund's portfolio to meet redemptions). This means
that the redemption proceeds will be paid with securities from the Fund's
portfolio.
|X| "Backup Withholding" of Federal income tax may be applied against
taxable dividends, distributions and redemption proceeds (including exchanges)
if you fail to furnish the Fund your correct, certified Social Security or
Employer Identification Number when you sign your application, or if you
under-report your income to the Internal Revenue Service.
|X| To avoid sending duplicate copies of materials to households, the Fund
will mail only one copy of each annual and semi-annual report to shareholders
having the same last name and address on the Fund's records. However, each
shareholder may call the Transfer Agent at 1-800-525-7048 to ask that copies of
those materials be sent personally to that shareholder.
Dividends and Tax Information
Dividends. The Fund intends to declare dividends separately for each class of
shares from net tax-exempt income and/or net investment income each regular
business day and to pay those dividends to shareholders monthly on a date
selected by the Board of Trustees. Daily dividends will not be declared or paid
on newly-purchased shares until Federal Funds are available to the Fund from the
purchase payment for such shares.
The Fund attempts to pay dividends on Class A shares at a constant level.
There is no assurance that it will be able to do so. The Board of Trustees may
change the targeted dividend level at any time, without prior notice to
shareholders. Dividends and distributions paid on Class A shares will generally
be higher than for Class B and Class C shares, which normally have higher
expenses than Class A. The Fund cannot guarantee that it will pay any dividends
or distributions.
Capital Gains. Although the Fund does not seek capital gains, it may realize
capital gains on the sale of portfolio securities. If it does, it may make
distributions out of any net short-term or long-term capital gains in December
of each year. The Fund may make supplemental distributions of dividends and
capital gains following the end of its fiscal year. Long-term capital gains will
be separately identified in the tax information the Fund sends you after the end
of the calendar year.
What Choices Do I Have for Receiving Distributions? When you open your account,
specify on your application how you want to receive your dividends and
distributions. You have four options:
|X| 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.
|X| Reinvest Long-Term Capital Gains Only. You can elect to reinvest
long-term capital gains distributions in the Fund while receiving dividends by
check or having them sent to your bank account through AccountLink.
|X| 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 through AccountLink.
|X| Reinvest Your Distributions in Another OppenheimerFunds
Account. You can reinvest all distributions in the same class of shares of
another OppenheimerFunds account you have established.
Taxes. Dividends paid from net investment income earned by the Fund on municipal
securities will be excludable from gross income for Federal income tax purposes.
A portion of a dividend that is derived from interest paid on certain "private
activity bonds" may be an item of tax preference if you are subject to the
alternative minimum tax. If the Fund earns interest on taxable investments, any
dividends derived from those earnings will be taxable as ordinary income to
shareholders.
Dividends and capital gains distributions may be subject to state or local
taxes. Long-term capital gains are taxable as long-term capital gains when
distributed to shareholders. It does not matter how long you have held your
shares. Dividends paid from short-term capital gains and non-tax-exempt net
investment income are taxable as ordinary income. Whether you reinvest your
distributions in additional shares or take them in cash, the tax treatment is
the same. Every year the Fund will send you and the IRS a statement showing the
amount of any taxable distribution you received in the previous year as well as
the amount of your tax-exempt income.
|X| Remember, There May be Taxes on Transactions. Even though the Fund
seeks to distribute tax-exempt income to shareholders, you may have a capital
gain or loss when you sell or exchange your shares. A capital gain or loss is
the difference between the price you paid for the shares and the price you
received when you sold them. Any capital gain is subject to capital gains tax.
|X| Returns of Capital Can Occur. In certain cases,
distributions made by the Fund may be considered a non-taxable return of
capital to shareholders. If that occurs, it will be identified in notices to
shareholders.
This information is only a summary of certain federal tax information
about your investment. You should consult with your tax adviser about the effect
of an investment in the Fund on your particular tax situation.
<PAGE>
Financial Highlights
The Financial Highlights Table is presented to help you understand the Fund's
financial performance for the past 5 fiscal years. Certain information reflects
financial results for a single Fund share. The total returns in the table
represent the rate that an investor would have earned [or lost] on an investment
in the Fund (assuming reinvestment of all dividends and distributions). This
information has been audited by Deloitte & Touche LLP, the Fund's independent
auditors, whose report, along with the Fund's financial statements, is included
in the Statement of Additional Information, which is available on request.
<PAGE>
<TABLE>
<CAPTION>
Financial Highlights Class A
--------------------------------------------
Year Ended September 30,
1998 1997 1996 1995 1994
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per Share Operating Data
Net asset value, beginning of
period $17.72 $17.07 $16.86 $16.14 $18.06
- -------------------------------------------------------------------------------
Income (loss) from investment
operations:
Net investment income .80 .91 .90 .90 .89
Net realized and unrealized
gain (loss) .75 .63 .20 .71 (1.84)
------ ------ ------ ------ ------
Total income (loss) from
investment operations 1.55 1.54 1.10 1.61 (.95)
- -------------------------------------------------------------------------------
Dividends and distributions to
shareholders:
Dividends from net investment
income (.84) (.89) (.89) (.89) (.89)
Distributions from net realized
gain (.12) -- -- -- (.08)
------ ----- ----- ----- ------
Total dividends and
distributions to shareholders (.96) (.89) (.89) (.89) (.97)
- -------------------------------------------------------------------------------
Net asset value, end of period $18.31 $17.72 $17.07 $16.86 $16.14
====== ====== ====== ====== ======
- -------------------------------------------------------------------------------
Total Return, at Net Asset
Value(/3/) 9.01% 9.25% 6.67% 10.29% (5.46)%
- -------------------------------------------------------------------------------
Ratios/Supplemental Data
Net assets, end of period (in
thousands) $102,687 $91,051 $83,516 $76,691 $67,793
- -------------------------------------------------------------------------------
Average net assets (in
thousands) $ 96,458 $86,511 $81,233 $70,650 $66,953
- -------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income 4.49% 5.25% 5.27% 5.52% 5.23%
Expenses(/5/) 0.89% 0.95% 1.02% 0.95% 1.05%
- -------------------------------------------------------------------------------
Portfolio turnover rate(/6/) 73% 77% 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. Assumes a hypothetical initial investment on the business day before the
first day of the fiscal period (or inception of offering), with all dividends
and distributions reinvested in additional shares on the reinvestment date, and
redemption at the net asset value calculated on the last business day of the
fiscal period. Sales charges are not reflected in the total returns. Total
returns are not annualized for periods of less than one full year.
4. Annualized.
5. Beginning in fiscal 1996, the expense ratio reflects the effect of expenses
paid indirectly by the Fund. Prior year expense ratios have not been adjusted.
6. The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities
owned during the period. Securities with a maturity or expiration date at the
time of acquisition of one year or less are excluded from the calculation.
Purchases and sales of investment securities (excluding short-term securities)
for the period ended September 30, 1998 were $102,480,896 and $90,478,993,
respectively.
31
<PAGE>
<TABLE>
<CAPTION>
Financial Highlights (continued) Class B
-------------------------------------------
Year Ended September 30,
1998 1997 1996 1995 1994
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per Share Operating Data
Net asset value, beginning of
period $17.73 $17.08 $16.87 $16.15 $18.07
- -------------------------------------------------------------------------------
Income (loss) from investment
operations:
Net investment income .67 .76 .77 .78 .77
Net realized and unrealized gain
(loss) .74 .65 .20 .71 (1.86)
------ ------ ------ ------ ------
Total income (loss) from
investment operations 1.41 1.41 .97 1.49 (1.09)
- -------------------------------------------------------------------------------
Dividends and distributions to
shareholders:
Dividends from net investment
income (.70) (.76) (.76) (.77) (.75)
Distributions from net realized
gain (.12) -- -- -- (.08)
------ ----- ----- ----- ------
Total dividends and
distributions to shareholders (.82) (.76) (.76) (.77) (.83)
- -------------------------------------------------------------------------------
Net asset value, end of period $18.32 $17.73 $17.08 $16.87 $16.15
====== ====== ====== ====== ======
- -------------------------------------------------------------------------------
Total Return, at Net Asset
Value(/3/) 8.18% 8.43% 5.87% 9.47% (6.20)%
- -------------------------------------------------------------------------------
Ratios/Supplemental Data
Net assets, end of period (in
thousands) $27,392 $19,974 $15,983 $13,341 $11,571
- -------------------------------------------------------------------------------
Average net assets (in
thousands) $23,817 $17,309 $14,822 $11,987 $ 9,209
- -------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income 3.76% 4.48% 4.50% 4.75% 4.43%
Expenses(/5/) 1.64% 1.71% 1.77% 1.71% 1.82%
- -------------------------------------------------------------------------------
Portfolio turnover rate(/6/) 73% 77% 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. Assumes a hypothetical initial investment on the business day before the
first day of the fiscal period (or inception of offering), with all dividends
and distributions reinvested in additional shares on the reinvestment date, and
redemption at the net asset value calculated on the last business day of the
fiscal period. Sales charges are not reflected in the total returns. Total
returns are not annualized for periods of less than one full year.
4. Annualized.
5. Beginning in fiscal 1996, the expense ratio reflects the effect of expenses
paid indirectly by the Fund. Prior year expense ratios have not been adjusted.
6. The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities
owned during the period. Securities with a maturity or expiration date at the
time of acquisition of one year or less are excluded from the calculation.
Purchases and sales of investment securities (excluding short-term securities)
for the period ended September 30, 1998 were $102,480,896 and $90,478,993,
respectively.
32
<PAGE>
<TABLE>
<CAPTION>
Financial Highlights (continued) Class C
------------------------------------------
Year Ended September 30,
1998 1997(/2/) 1996 1995(/1/)
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share Operating Data
Net asset value, beginning of
period $17.72 $17.06 $16.86 $16.72
- -------------------------------------------------------------------------------
Income (loss) from investment
operations:
Net investment income .70 .76 .75 .08
Net realized and unrealized gain
(loss) .71 .65 .21 .14
------ ------ ------ ------
Total income (loss) from investment
operations 1.41 1.41 .96 .22
- -------------------------------------------------------------------------------
Dividends and distributions to
shareholders:
Dividends from net investment
income (.70) (.75) (.76) (.08)
Distributions from net realized
gain (.12) -- -- --
---- ----- ----- -----
Total dividends and distributions
to shareholders (.82) (.75) (.76) (.08)
- -------------------------------------------------------------------------------
Net asset value, end of period $18.31 $17.72 $17.06 $16.86
====== ====== ====== ======
- -------------------------------------------------------------------------------
Total Return, at Net Asset
Value(/3/) 8.18% 8.48% 5.77% 1.30%
- -------------------------------------------------------------------------------
Ratios/Supplemental Data
Net assets, end of period (in
thousands) $4,923 $2,554 $ 924 $ 211
- -------------------------------------------------------------------------------
Average net assets (in thousands) $3,661 $1,720 $ 618 $ 1
- -------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income 3.82% 4.45% 4.38% 4.89%(/4/)
Expenses(/5/) 1.64% 1.72% 1.81% 1.07%(/4/)
- -------------------------------------------------------------------------------
Portfolio turnover rate(/6/) 73% 77% 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. Assumes a hypothetical initial investment on the business day before the
first day of the fiscal period (or inception of offering), with all dividends
and distributions reinvested in additional shares on the reinvestment date, and
redemption at the net asset value calculated on the last business day of the
fiscal period. Sales charges are not reflected in the total returns. Total
returns are not annualized for periods of less than one full year.
4. Annualized.
5. Beginning in fiscal 1996, the expense ratio reflects the effect of expenses
paid indirectly by the Fund. Prior year expense ratios have not been adjusted.
6. The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities
owned during the period. Securities with a maturity or expiration date at the
time of acquisition of one year or less are excluded from the calculation.
Purchases and sales of investment securities (excluding short-term securities)
for the period ended September 30, 1998 were $102,480,896 and $90,478,993,
respectively.
33
<PAGE>
For More Information About Oppenheimer Insured Municipal Fund: The following
additional information about the Fund is available without charge upon request:
Statement of Additional Information
This document includes additional information about the Fund's investment
policies, risks, and operations. It is incorporated by reference into this
Prospectus (which means it is legally part of this Prospectus).
Annual and Semi-Annual Reports
Additional information about the Fund's investments and performance is available
in the Fund's Annual and Semi-Annual Reports to shareholders. The Annual Report
includes a discussion of market conditions and investment strategies that
significantly affected the Fund's performance during its last fiscal year.
How to Get More Information:
You can request the Statement of Additional Information, the Annual and
Semi-Annual Reports, and other information about the Fund or your account:
By Telephone:
Call OppenheimerFunds Services toll-free:
1-800-525-7048
By Mail:
Write to:
OppenheimerFunds Services
P.O. Box 5270
Denver, Colorado 80217-5270
On the Internet:
You can read or down-load documents on the OppenheimerFunds web site:
http://www.oppenheimerfunds.com
You can also obtain copies of the Statement of Additional Information and other
Fund documents and reports by visiting the SEC's Public Reference Room in
Washington, D.C. (Phone 1-800-SEC-0330) or the SEC's Internet web site at
http://www.sec.gov. Copies may be obtained upon payment of a duplicating fee by
writing to the SEC's Public Reference Section, Washington, D.C. 20549-6009.
No one has been authorized to provide any information about the Fund or to make
any representations about the Fund other than what is contained in this
Prospectus. This Prospectus is not an offer to sell shares of the Fund, nor a
solicitation of an offer to buy shares of the Fund, to any person in any state
or other jurisdiction where it is unlawful to make such an offer.
The Fund's shares are distributed by:
(logo)OppenheimerFunds Distributor, Inc.
SEC File No. 811-2668
PR0865.001.0199 Printed on recycled paper.
<PAGE>
APPENDIX TO PROSPECTUS OF
OPPENHEIMER INSURED MUNICIPAL FUND
Graphic material included in Prospectus of Oppenheimer Insured
Municipal Fund: "Annual Total Returns (Class A) (as of 12/31 each year)."
A bar chart will be included in the Prospectus of Oppenheimer Insured
Municipal Fund (the "Fund") depicting the annual total returns of a hypothetical
$10,000 investment in Class A shares of the Fund for each of the ten most recent
calendar years without deducting sales charges. Set forth below are the relevant
data points that will appear on the bar chart.
Calendar Oppenheimer Insured
Year Municipal Fund
Ended Class A Shares
12/31/89 10.93%
12/31/90 6.18%
12/31/91 11.40%
12/31/92 9.54%
12/31/93 12.99%
12/31/94 -8.09%
12/31/95 17.12%
12/31/96 5.11%
12/31/97 9.77%
12/31/98 5.73%
<PAGE>
- ------------------------------------------------------------------------------
Oppenheimer Insured Municipal Fund
- ------------------------------------------------------------------------------
6803 South Tucson Way, Englewood, Colorado 80112
1-800-525-7048
Statement of Additional Information dated January 29, 1999
This Statement of Additional Information is not a Prospectus. This
document contains additional information about the Fund and supplements
information in the Prospectus dated January 29, 1999. It should be read together
with the Prospectus, which may be obtained by writing to the Fund's Transfer
Agent, OppenheimerFunds Services, at P.O. Box 5270, Denver, Colorado 80217 or by
calling the Transfer Agent at the toll-free number shown above or by downloading
it from the OppenheimerFunds Internet web site at www.oppenheimerfunds.com.
Contents Page
About the Fund
Additional Information About the Fund's Investment Policies and Risks.........
The Fund's Investment Policies...........................................
Municipal Securities.....................................................
Other Investment Techniques and Strategies...............................
Investment Restrictions..................................................
How the Fund is Managed.......................................................
Organization and History.................................................
Trustees and Officers of the Fund........................................
The Manager .............................................................
Brokerage Policies of the Fund................................................
Distribution and Service Plans................................................
Performance of the Fund.......................................................
About Your Account
How To Buy Shares.............................................................
How To Sell Shares............................................................
How to Exchange Shares........................................................
Dividends and Taxes...........................................................
Additional Information About the Fund.........................................
Financial Information About the Fund
Independent Auditors' Report..................................................
Financial Statements .........................................................
Appendix A: Municipal Bond Ratings Definitions.............................A-1
Appendix B: Industry Classifications.......................................B-1
Appendix C: Special Sales Charge Arrangements and Waivers..................C-1
<PAGE>
- ------------------------------------------------------------------------------
ABOUT THE FUND
- ------------------------------------------------------------------------------
Additional Information About the Fund's Investment Policies and Risks
The investment objective and the principal investment policies of the Fund are
described in the Prospectus. This Statement of Additional Information contains
supplemental information about those policies and the types of securities that
the Fund's investment Manager, OppenheimerFunds, Inc., can select for the Fund.
Additional explanations are also provided about the strategies the Fund may use
to try to achieve its objective.
The Fund's Investment Policies. The composition of the Fund's portfolio and the
techniques and strategies that the Fund's Manager may use in selecting portfolio
securities will vary over time. The Fund is not required to use all of the
investment techniques and strategies described below at all times in seeking its
goal. It may use some of the special investment techniques and strategies at
some times or not at all. The Fund does not make investments with the objective
of seeking capital growth. However, the values of the securities held by the
Fund may be affected by changes in general interest rates and other factors,
prior to their maturity. Because the current values of debt securities vary
inversely with changes in prevailing interest rates, if interest rates increase
after a security is purchased, that security will normally fall in value.
Conversely, should interest rates decrease after a security is purchased,
normally its value will rise.
However, those fluctuations in value will not generally result in realized
gains or losses to the Fund unless the Fund sells the security prior to the
security's maturity. A debt security held to maturity is redeemable by its
issuer at full principal value plus accrued interest. The Fund does not usually
intend to dispose of securities prior to their maturity, but may do so for
liquidity purposes, or because of other factors affecting the issuer that cause
the Manager to sell the particular security. In that case, the Fund could
realize a capital gain or loss on the sale.
There are variations in the credit quality of municipal securities, both
within a particular rating classification and between classifications. These
variations depend on numerous factors. The yields of municipal securities depend
on a number of factors, including general conditions in the municipal securities
market, the size of a particular offering, the maturity of the obligation and
rating (if any) of the issue. These factors are discussed in greater detail
below.
|X| Portfolio Turnover. A change in the securities held by the Fund from
buying and selling investments is known as "portfolio turnover." Short-term
trading increases the rate of portfolio turnover and could increase the Fund's
transaction costs. However, the Fund ordinarily incurs little or no brokerage
expense because most of the Fund's portfolio transactions are principal trades
that do not require payment of brokerage commissions.
The Fund ordinarily does not trade securities to achieve capital gains,
because they would not be tax-exempt income. To a limited degree, the Fund may
engage in short-term trading to attempt to take advantage of short-term market
variations. It may also do so to dispose of a portfolio security prior to its
maturity. That might be done if, on the basis of a revised credit evaluation of
the issuer or other considerations, the Manager believes such disposition is
advisable or the Fund needs to generate cash to satisfy requests to redeem Fund
shares. In those cases, the Fund may realize a capital gain or loss on its
investments. The Fund's annual portfolio turnover rate normally is not expected
to exceed 100%.
Municipal Securities. The types of municipal securities in which the Fund may
invest are described in the Prospectus under "About the Fund's Investments."
Municipal securities are generally classified as general obligation bonds,
revenue bonds and notes. A discussion of the general characteristics of these
principal types of municipal securities follows below.
|X| Municipal Bonds. We have classified municipal securities having a
maturity (when-issued) of more than one year as "municipal bonds." The principal
classifications of long-term municipal bonds are "general obligation" and
"revenue" (including "industrial development") bonds. They may have fixed,
variable or floating rates of interest, as described below.
Some bonds may be "callable," allowing the issuer to redeem them before
their maturity date. To protect bondholders, callable bonds may be issued with
provisions that prevent them from being called for a period of time. Typically,
that is 5 to 10 years from the issuance date. When interest rates decline, if
the call protection on a bond has expired, it is more likely that the issuer may
call the bond. If that occurs, the Fund might have to reinvest the proceeds of
the called bond in bonds that pay a lower rate of return.
|_| General Obligation Bonds. The basic security behind general
obligation bonds is the issuer's pledge of its full faith and credit and taxing
power, if any, for the repayment of principal and the payment of interest.
Issuers of general obligation bonds include states, counties, cities, towns, and
regional districts. The proceeds of these obligations are used to fund a wide
range of public projects, including construction or improvement of schools,
highways and roads, and water and sewer systems. The rate of taxes that can be
levied for the payment of debt service on these bonds may be limited or
unlimited. Additionally, there may be limits as to the rate or amount of special
assessments that can be levied to meet these obligations.
|_| Revenue Bonds. The principal security for a revenue bond is
generally the net revenues derived from a particular facility, group of
facilities, or, in some cases, the proceeds of a special excise tax or other
specific revenue source. Revenue bonds are issued to finance a wide variety of
capital projects. Examples include electric, gas, water and sewer systems;
highways, bridges, and tunnels; port and airport facilities; colleges and
universities; and hospitals.
Although the principal security for these types of bonds may vary from
bond to bond, many provide additional security in the form of a debt service
reserve fund that may be used to make principal and interest payments on the
issuer's obligations. Housing finance authorities have a wide range of security,
including partially or fully insured mortgages, rent subsidized and/or
collateralized mortgages, and/or the net revenues from housing or other public
projects. Some authorities provide further security in the form of a state's
ability (without obligation) to make up deficiencies in the debt service reserve
fund.
|_| Industrial Development Bonds. Industrial development bonds are
considered municipal bonds if the interest paid is exempt from federal income
tax. They are issued by or on behalf of public authorities to raise money to
finance various privately operated facilities for business and manufacturing,
housing, sports, and pollution control. These bonds may also be used to finance
public facilities such as airports, mass transit systems, ports, and parking.
The payment of the principal and interest on such bonds is dependent solely on
the ability of the facility's user to meet its financial obligations and the
pledge, if any, of real and personal property financed by the bond as security
for those payments.
|_| Private Activity Municipal Securities. The Tax Reform Act of 1986 (the
"Tax Reform Act") reorganized, as well as amended, the rules governing tax
exemption for interest on certain types of municipal securities. The Tax Reform
Act generally did not change the tax treatment of bonds issued in order to
finance governmental operations. Thus, interest on general obligation bonds
issued by or on behalf of state or local governments, the proceeds of which are
used to finance the operations of such governments, continues to be tax-exempt.
However, the Tax Reform Act limited the use of tax-exempt bonds for
non-governmental (private) purposes. More stringent restrictions were placed on
the use of proceeds of such bonds. Interest on certain private activity bonds is
taxable under the revised rules. There is an exception for "qualified"
tax-exempt private activity bonds, for example, exempt facility bonds including
certain industrial development bonds, qualified mortgage bonds, qualified
Section 501(c)(3) bonds, and qualified student loan bonds. 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.
In addition, limitations as to the amount of private activity bonds which
each state may issue were revised downward by the Tax Reform Act, which will
reduce the supply of such bonds. The value of the Fund's portfolio could be
affected if there is a reduction in the availability of such bonds.
Interest on certain private activity bonds issued after August 7, 1986,
which continues to be tax-exempt, will be treated as a tax preference item
subject to the alternative minimum tax (discussed below) to which certain
taxpayers are subject. The Fund may hold municipal securities the interest on
which (and thus a proportionate share of the exempt-interest dividends paid by
the Fund) will be subject to the Federal alternative minimum tax on individuals
and corporations.
The Federal alternative minimum tax is designed to ensure that all persons
who receive income pay some tax, even if their regular tax is zero. This is
accomplished in part by including in taxable income certain tax preference items
that are used to calculate alternative minimum taxable income. The Tax Reform
Act made tax-exempt interest from certain private activity bonds a tax
preference item for purposes of the alternative minimum tax on individuals and
corporations. Any exempt-interest dividend paid by a regulated investment
company will be treated as interest on a specific private activity bond to the
extent of the proportionate relationship the interest the investment company
receives on such bonds bears to all its exempt interest dividends.
In addition, corporate taxpayers subject to the alternative minimum tax
may, under some circumstances, have to include exempt-interest dividends in
calculating their alternative minimum taxable income. That could occur in
situations where the "adjusted current earnings" of the corporation exceeds its
alternative minimum taxable income.
To determine whether a municipal security is treated as a taxable private
activity bond, it is subject to a test for: (a) a trade or business use and
security interest, or (b) a private loan restriction. Under the trade or
business use and security interest test, an obligation is a private activity
bond if: (i) more than 10% of the bond proceeds are used for private business
purposes and (ii) 10% or more of the payment of principal or interest on the
issue is directly or indirectly derived from such private use or is secured by
the privately used property or the payments related to the use of the property.
For certain types of uses, a 5% threshold is substituted for this 10% threshold.
The term "private business use" means any direct or indirect use in a
trade or business carried on by an individual or entity other than a state or
municipal governmental unit. Under the private loan restriction, the amount of
bond proceeds that may be used to make private loans is limited to the lesser of
5% or $5.0 million of the proceeds. Thus, certain issues of municipal securities
could lose their tax-exempt status retroactively if the issuer fails to meet
certain requirements as to the expenditure of the proceeds of that issue or the
use of the bond-financed facility. The Fund makes no independent investigation
of the users of such bonds or their use of proceeds of the bonds. If the Fund
should hold a bond that loses its tax-exempt status retroactively, there might
be an adjustment to the tax-exempt income previously distributed to
shareholders.
Additionally, a private activity bond that would otherwise be a qualified
tax-exempt private activity bond will not, under Internal Revenue Code Section
147(a), be a qualified bond for any period during which it is held by a person
who is a "substantial user" of the facilities or by a "related person" of such a
substantial user. This "substantial user" provision applies primarily to exempt
facility bonds, including industrial development bonds. The Fund may invest in
industrial development bonds and other private activity bonds. Therefore, the
Fund may not be an appropriate investment for entities which are "substantial
users" (or persons related to "substantial users") of such exempt facilities.
Those entities and persons should consult their tax advisers before purchasing
shares of the Fund.
A "substantial user" of such facilities is defined generally as a
"non-exempt person who regularly uses part of a facility" financed from the
proceeds of exempt facility bonds. Generally, an individual will not be a
"related person" under the Internal Revenue Code unless such individual or the
individual's immediate family (spouse, brothers, sisters and immediate
descendants) own directly or indirectly in the aggregate more than 50% in value
of the equity of a corporation or partnership which is a "substantial user" of a
facility financed from the proceeds of exempt facility bonds.
|X| Municipal Notes. Municipal securities having a maturity (when the
security is issued) of less than one year are generally known as municipal
notes. Municipal notes generally are used to provide for short-term working
capital needs. Some of the types of municipal notes the Fund can invest in are
described below.
|_| Tax Anticipation Notes. These are issued to finance working capital
needs of municipalities. Generally, they are issued in anticipation of various
seasonal tax revenue, such as income, sales, use or other business taxes, and
are payable from these specific future taxes.
|_| Revenue Anticipation Notes. These are notes issued in
expectation of receipt of other types of revenue, such as Federal revenues
available under Federal revenue-sharing programs.
|_| Bond Anticipation Notes. Bond anticipation notes are issued to
provide interim financing until long-term financing can be arranged. The
long-term bonds that are issued typically also provide the money for the
repayment of the notes.
|_| Construction Loan Notes. These are sold to provide project
construction financing until permanent financing can be secured. After
successful completion and acceptance of the project, it may receive permanent
financing through public agencies, such as the Federal Housing Administration.
|X| Tax Exempt Commercial Paper. This type of short-term obligation
(usually having a maturity of 270 days or less) is issued by a municipality
to meet current working capital needs.
|X| Municipal Lease Obligations. The Fund's investments in municipal lease
obligations may be through certificates of participation that are offered to
investors by public entities. Municipal leases may take the form of a lease or
an installment purchase contract issued by a state or local government authority
to obtain funds to acquire a wide variety of equipment and facilities.
Some municipal lease securities may be deemed to be "illiquid" securities.
Their purchase by the Fund would be limited as described below in "Illiquid
Securities." From time to time the Fund may invest more than 5% of its net
assets in municipal lease obligations that the Manager has determined to be
liquid under guidelines set by the Board of Trustees. Those guidelines require
the Manager to evaluate:
|_| the frequency of trades and price quotations for such securities;
|_| the number of dealers or other potential buyers willing to
purchase or sell such securities;
|_| the availability of market-makers; and
|_| the nature of the trades for such securities.
Municipal leases have special risk considerations. Although lease
obligations do not constitute general obligations of the municipality for which
the municipality's taxing power is pledged, a lease obligation is ordinarily
backed by the municipality's covenant to budget for, appropriate and make the
payments due under the lease obligation. However, certain lease obligations
contain "non-appropriation" clauses which provide that the municipality has no
obligation to make lease or installment purchase payments in future years unless
money is appropriated for that purpose on a yearly basis. While the obligation
might be secured by the lease, it might be difficult to dispose of that property
in case of a default.
Projects financed with certificates of participation generally are not
subject to state constitutional debt limitations or other statutory requirements
that may apply to other municipal securities. Payments by the public entity on
the obligation underlying the certificates are derived from available revenue
sources. That revenue might be diverted to the funding of other municipal
service projects. Payments of interest and/or principal with respect to the
certificates are not guaranteed and do not constitute an obligation of a state
or any of its political subdivisions.
In addition to the risk of "non-appropriation," municipal lease securities do
not have as highly liquid a market as conventional municipal bonds. Municipal
leases, like other municipal debt obligations, are subject to the risk of
non-payment of interest or repayment of principal by the issuer. The ability of
issuers of municipal leases to make timely lease payments may be adversely
affected in general economic downturns and as relative governmental cost burdens
are reallocated among federal, state and local governmental units. A default in
payment of income would result in a reduction of income to the Fund. It could
also result in a reduction in the value of the municipal lease and that, as well
as a default in repayment of principal, could result in a decrease in the net
asset value of the Fund. While the Fund holds such securities, the Manager will
also evaluate the likelihood of a continuing market for these securities and
their credit quality.
|X| Ratings of Municipal Securities. Ratings by ratings organizations such
as Moody's Investors Service, Standard & Poor's Ratings Service and Fitch IBCA,
Inc. represent the respective rating agency's opinions of the credit quality of
the municipal securities they undertake to rate. However, their ratings are
general opinions and are not guarantees of quality. Municipal securities that
have the same maturity, coupon and rating may have different yields, while other
municipal securities that have the same maturity and coupon but different
ratings may have the same yield.
Subsequent to its purchase by the Fund, a municipal security may cease to
be rated or its rating may be reduced below the minimum required for purchase by
the Fund. Neither event requires the Fund to sell the security, but the Manager
will consider such events in determining whether the Fund should continue to
hold the security. To the extent that ratings given by Moody's, Standard &
Poor's, or Fitch change as a result of changes in those rating organizations or
their rating systems, the Fund will attempt to use comparable ratings as
standards for investments in accordance with the Fund's investment policies.
The Fund can buy municipal securities that are "pre-refunded." The
issuer's obligation to repay the principal value of the security is generally
collateralized with U.S. government securities placed in an escrow account. This
causes the pre-refunded security to have essentially the same risks of default
as a AAA-rated security.
The rating definitions of Moody's, Standard & Poor's, Duff & Phelps and
Fitch for municipal securities are contained in Appendix A to this Statement of
Additional Information. The Fund can purchase securities that are unrated by
nationally recognized rating organizations, the Manager will make its own
assessment of the credit quality of unrated issues the Fund buys. The Manager
will use criteria similar to those used by the rating agencies, and assign a
rating category to a security that is comparable to what the Manager believes a
rating agency would assign to that security. However, the Manager's rating does
not constitute a guarantee of the quality of a particular issue.
|_| Special Risks of Lower-Grade Securities. Lower grade securities may
have a higher yield than securities rated in the higher rating categories. In
addition to having a greater risk of default than higher-grade securities, there
may be less of a market for these securities. As a result they may be harder to
sell at an acceptable price. The additional risks mean that the Fund may not
receive the anticipated level of income from these securities, and the Fund's
net asset value may be affected by declines in the value of lower-grade
securities. However, because the added risk of lower quality securities might
not be consistent with the Fund's policy of preservation of capital, the Fund
limits its investments in lower quality securities.
While securities rate "Baa" by Moody's or "BBB" by Standard & Poor's or
Duff & Phelps are investment grade, they may be subject to special risks and
have some speculative characteristics.
|X| Insured Municipal Securities. Not all of the Fund's holdings of
municipal securities are insured. As noted in the Prospectus, within the
category of "insured" municipal securities, the Fund includes "pre-refunded"
municipal securities, because of the additional credit security offered by the
U.S. government securities that collateralize the issuer's obligation to pay its
debt. To the extent that municipal securities in the Fund's portfolio are
insured, they will at all times be fully insured as to the scheduled payment of
all installments of interest and principal. This insurance substantially reduces
the risks to the Fund and its shareholders from defaults in the payment of
principal and interest on portfolio securities owned by the Fund.
Insurance coverage can be in one of three methods:
a mutual fund "Portfolio Insurance Policy" issued by Financial
Guaranty Insurance Company,
a "Secondary Market Insurance Policy," or
a "New Issue Insurance Policy" obtained by the issuer or the underwriter
of the security at the time of its original issuance.
If a municipal security is already covered by a New Issue Insurance
Policy or Secondary Market Insurance Policy, then that security typically will
not be additionally insured under a Portfolio Insurance Policy issued by
Financial Guaranty Insurance Company. New Issue Insurance Policies or Secondary
Market Insurance Policies may be issued by Financial Guaranty Insurance Company
or by other insurers.
The insurance policies discussed above insure the scheduled payments of
all principal and interest on the covered municipal securities as those payments
fall due. The insurance does not guarantee the market value of the municipal
securities or the value of the shares of the Fund. Except as described below,
insurance of municipal securities the Fund buys has no effect on the net asset
value or redemption price of the shares of the Fund.
The insurance of principal refers to the face or par value of the
security, and is not affected by the price paid therefor by the Fund or the
market value of the security. Payment of a claim under an insurance policy
depends on the claims-paying ability of the insurer and by the Fund makes no
representations that any insurer will be able to meet its commitments.
|_| New Issue Insurance Policies. A New Issue Insurance Policy, on a
municipal security is obtained by the issuer or underwriters of that security.
All premiums on the insurance for a security is paid in advance by the issuer or
underwriter. Those policies are non-cancelable and continue in force so long as
the security is outstanding and the insurer remains in business. Since New Issue
Insurance remains in effect as long as the security insured by the policy is
outstanding, the insurance may have an effect on the resale value of the
security by the Fund. Therefore, New Issue Insurance may be considered to
represent an element of market value for a security insured by that policy, but
the exact effect, if any, of that insurance on the security's market value
cannot be estimated. The Fund will acquire a municipal security subject to New
Issue Insurance Policies only if the claims-paying ability of the insurer under
the policy is rated "AAA" by S&P, or has a comparable rating from another rating
organization on the date the Fund buys the security.
|_| Portfolio Insurance Policies. A Portfolio Insurance Policy obtained
by the Fund from Financial Guaranty Insurance Company will be effective only so
long as the Fund is in existence, Financial Guaranty Insurance Company is in
business, and the municipal security covered by the policy continues to be held
by the Fund. If the Fund sells the insured municipal security or if the security
is called or redeemed prior to its stated maturity the Portfolio Insurance
Policy terminates on the security.
A Portfolio Insurance Policy obtained by the Fund is non-cancellable
except for the Fund's failure to pay the premium. Nonpayment of premiums on a
Portfolio Insurance Policy obtained by the Fund will, under certain
circumstances, result in the cancellation of the Portfolio Insurance Policy and
also will permit Financial Guaranty Insurance Company to take action against the
Fund to recover premium payments that are due. The premium rate for a security
covered by a Portfolio Insurance Policy is fixed for the life of the security at
the time the Fund buys it. The insurance premiums are payable monthly by the
Fund and are adjusted for purchases, sales and payments prior to maturity of
covered securities during the month. Financial Guaranty Insurance Company cannot
cancel coverage already in force with respect to municipal securities owned by
the Fund and covered by the Portfolio Insurance Policy except for non-payment of
premiums. If any insurance for a municipal security is canceled, the Manager
will then determine as promptly as possible whether the Fund should sell that
security.
In determining whether to insure a municipal security, Financial Guaranty
Insurance Company applies its own standards, which are not necessarily the same
as the criteria used by the Manager when selecting securities for the Fund's
portfolio. The decision whether to insure a security is made prior to the Fund's
purchase of that security. A contract to purchase a security is not covered by
the Portfolio Insurance Policy for that security although securities underlying
such contracts are covered by the insurance upon physical delivery of the
securities to the Fund or the Fund's custodian bank. The Fund does not obtain
insurance on investments made for temporary liquidity and defensive purposes and
pending investment in longer term municipal securities.
Premiums are paid from the Fund's assets, and will therefore reduce the
Fund's current yield. When the Fund purchases a Secondary Market Insurance
Policy, the single premium is added to the cost basis of the municipal security
and is not considered an item of expense for the Fund.
|_| Secondary Market Insurance. The Fund might decide to purchase from
Financial Guaranty Insurance Company a Secondary Market Insurance Policy on any
municipal security can purchased by the Fund owns that is already covered by a
Portfolio Insurance Policy. The Fund obtain a Secondary Market Insurance Policy
on a security even if it is covered by a Portfolio Insurance Policy. However,
the coverage (and obligation to pay monthly premiums) under the Portfolio
Insurance Policy with respect to that security would cease when the purchases a
Secondary Market Insurance Policy on that security.
When purchasing a Secondary Market Insurance Policy, the Fund pays a
single pre-determined premium. The Fund thereby obtains insurance against
non-payment of scheduled principal and interest for the remaining term of the
security, regardless of whether the Fund owns the security. That insurance
coverage will be non-cancellable and will continue in force so long as the
insured security is outstanding. Acquiring that type of policy enables the Fund
to sell the municipal security to a third party as an "AAA"-rated insured
security at a market price higher than what otherwise might be obtainable if the
security were sold without the insurance coverage. That rating is not automatic,
however, and must specifically be requested from Standard & Poor's for a
security. This type of policy likely would be purchased if, the Manager, thinks
that the market value or net proceeds of a sale of the insured security would
exceed the current value of the security (without insurance) plus the cost of
the policy. Any difference between a security's market value as an "AAA"-rated
security and its market value without that rating, including the cost of the
insurance single premium, would inure to the Fund in determining its net
realized capital gain or loss the sale of the security.
The Fund can purchase insurance under a Secondary Market Insurance Policy
in lieu of a Portfolio Insurance Policy at any time, regardless of the effect on
the market value of the underlying municipal security, if the Manager believes
such insurance would best serve the Fund's interests in meeting its objectives
and policies. The Fund can purchase a Secondary Market Insurance Policy on a
security that is currently in default as to payments by the issuer to enable the
Fund to sell the security on an insured basis rather than be obligated to hold
the defaulted security in its portfolio in order to continue in force a
Portfolio Insurance Policy on that security.
|_| Financial Guaranty Insurance Company. The information below about
Financial Guaranty Insurance Company is derived from publicly-available sources
believed reliable by the Manager. Financial Guaranty Insurance Company is a New
York stock insurance company, with principal offices at 115 Broadway, New York,
New York, 10006. Financial Guaranty Insurance Company, domiciled in the State of
New York, commenced its business of providing insurance and financial guaranties
for a variety of investment instruments in January, 1984. Financial Guaranty
Insurance Company is a subsidiary of FGIC Corporation, a Delaware holding
company. FGIC Corporation is a wholly-owned subsidiary of General Electric
Capital Corporation. Neither FGIC Corporation nor General Electric Capital
Corporation are obligated to pay the debts of or the claims against Financial
Guaranty Insurance Company.
In addition to providing insurance for the payment of interest on and
principal of municipal bonds and notes held in unit investment trust and mutual
fund portfolios, Financial Guaranty Insurance Company provides insurance for
new issues and secondary market issues of municipal bonds and notes and for
portions of those issues. Financial Guaranty Insurance Company also provides
credit enhancements for asset-backed securities and mortgage-backed securities.
Financial Guaranty Insurance Company is currently authorized to write
insurance in 50 states and the District of Columbia, files reports with state
insurance regulatory agencies and is subject to audit and review by such
authorities. Financial Guaranty Insurance Company is also subject to regulation
by the State of New York Insurance Department. That regulation is no guarantee
that Financial Guaranty Insurance Company will be able to perform on its
commitments or contracts of insurance if a claim under them at some time in the
future.
Under the provisions of a Portfolio Insurance Policy, Financial Guaranty
Insurance Company unconditionally and irrevocably agrees to pay to State Street
Bank and Trust Company or its successor, as its agent, that portion of the
principal of and interest on the security that becomes due for payment but is
unpaid because of nonpayment by the issuer. Financial Guaranty Insurance Company
will make those payments to the agent on the date the principal or interest
becomes due for payment or on the business day next following the day on which
Financial Guaranty Insurance Company receives notice of nonpayment, whichever is
later.
The agent will disburse to the Fund the face amount of principal and
interest which is then due for payment but is unpaid by reason of nonpayment by
the issuer. However it will do so only upon receipt by the agent of (i) evidence
of the Fund's right to receive payment of the principal or interest due for
payment and (ii) evidence, including any appropriate instruments of assignment,
that all of the rights to payment of the principal or interest due for payment
thereupon shall vest in Financial Guaranty Insurance Company. The proceeds
attributable to interest payments will be tax-exempt. Upon such payment by the
agent, Financial Guaranty Insurance Company will be fully subrogated to all of
the Fund's rights under the defaulted obligation, which includes the right of
Financial Guaranty Insurance Company to obtain payment from the issuer to the
extent of amounts paid by Financial Guaranty Insurance Company to the Fund.
Other Investment Techniques and Strategies. In seeking its objective, the Fund
may from time to time employ the types of investment strategies and investments
described below. It is not required to use all of the strategies at all times
and at times may not use them.
|X| Floating Rate and Variable Rate Obligations. Variable rate demand
obligations have a demand feature that allows the Fund to tender the obligation
to the issuer or a third party prior to its maturity. The tender may be at par
value plus accrued interest, according to the terms of the obligation.
The interest rate on a floating rate demand note is based on a stated
prevailing market rate, such as a bank's prime rate, the 91-day U.S. Treasury
Bill rate, or some other standard, and is adjusted automatically each time such
rate is adjusted. The interest rate on a variable rate demand note is also based
on a stated prevailing market rate but is adjusted automatically at specified
intervals of not less than one year. Generally, the changes in the interest rate
on such securities reduce the fluctuation in their market value. As interest
rates decrease or increase, the potential for capital appreciation or
depreciation is less than that for fixed-rate obligations of the same maturity.
The Manager may determine that an unrated floating rate or variable rate demand
obligation meets the Fund's quality standards by reason of being backed by a
letter of credit or guarantee issued by a bank that meets those quality
standards.
Floating rate and variable rate demand notes that have a stated maturity
in excess of one year may have features that permit the holder to recover the
principal amount of the underlying security at specified intervals not exceeding
one year and upon not more than 30 days' notice. The issuer of that type of note
normally has a corresponding right in its discretion, after a given period, to
prepay the outstanding principal amount of the note plus accrued interest.
Generally the issuer must provide a specified number of days' notice to the
holder.
|X| Inverse Floaters and Other Derivative Investments. Inverse floaters
may offer relatively high current income, reflecting the spread between
long-term and short-term tax exempt interest rates. As long as the municipal
yield curve remains relatively steep and short-term rates remain relatively low,
owners of inverse floaters will have the opportunity to earn interest at
above-market rates because they receive interest at the higher long-term rates
but have paid for bonds with lower short-term rates. If the yield curve flattens
and shifts upward, an inverse floater will lose value more quickly than a
conventional long-term bond. The Fund will invest in inverse floaters to seek
higher tax-exempt yields than are available from fixed-rate bonds that have
comparable maturities and credit ratings. In some cases the holder of an inverse
floater may have an option to convert the floater to a fixed-rate bond, pursuant
to a "rate-lock option."
Some inverse floaters have a feature known as an interest rate "cap" as
part of the terms of the investment. Investing in inverse floaters that have
interest rate caps might be part of a portfolio strategy to try to maintain a
high current yield for the Fund when the Fund has invested in inverse floaters
that expose the Fund to the risk of short-term interest rate fluctuations.
"Embedded" caps can be used to hedge a portion of the Fund's exposure to rising
interest rates. When interest rates exceed a pre-determined rate, the cap
generates additional cash flows that offset the decline in interest rates on the
inverse floater, and the hedge is successful. However, the Fund bears the risk
that if interest rates do not rise above the pre-determined rate, the cap (which
is purchased for additional cost) will not provide additional cash flows and
will expire worthless.
Inverse floaters are a form of derivative investment. Certain derivatives,
such as options, futures, indexed securities and entering into swap agreements,
can be used to increase or decrease the Fund's exposure to changing security
prices, interest rates or other factors that affect the value of securities.
However, these techniques could result in losses to the Fund, if the Manager
judges market conditions incorrectly or employs a strategy that does not
correlate well with the Fund's other investments. These techniques can cause
losses if the counterparty does not perform its promises. An additional risk of
investing in municipal securities that are derivative investments is that their
market value could be expected to vary to a much greater extent than the market
value of municipal securities that are not derivative investments but have
similar credit quality, redemption provisions and maturities.
|X| "When-Issued" and "Delayed-Delivery" Transactions. The Fund can
purchase securities on a "when-issued" basis, and may purchase or sell such
securities on a "delayed-delivery" (or "forward commitment") basis.
"When-issued" or "delayed-delivery" refers to securities whose terms and
indenture are available and for which a market exists, but which are not
available for immediate delivery.
When such transactions are negotiated the price (which is generally
expressed in yield terms) is fixed at the time the commitment is made. Delivery
and payment for the securities take place at a later date. Normally the
settlement date is within six months of the purchase of municipal bonds and
notes. However, the Fund may, from time to time, purchase municipal securities
having a settlement date more than six months and possibly as long as two years
or more after the trade date. The securities are subject to change in value from
market fluctuation during the settlement period. The value at delivery may be
less than the purchase price. For example, changes in interest rates in a
direction other than that expected by the Manager before settlement will affect
the value of such securities and may cause loss to the Fund. No income begins to
accrue to the Fund on a when issued security until the Fund receives the
security at settlement of the trade.
The Fund will engage in when-issued transactions in order to secure what
is considered to be an advantageous price and yield at the time of entering into
the obligation. When the Fund engages in when-issued or delayed-delivery
transactions, it relies on the buyer or seller, as the case may be, to complete
the transaction. Its failure to do so may cause the Fund to lose the opportunity
to obtain the security at a price and yield it considers advantageous.
When the Fund engages in when-issued and delayed-delivery transactions, it
does so for the purpose of acquiring or selling securities consistent with its
investment objective and policies or for delivery pursuant to options contracts
it has entered into, and not for the purposes of investment leverage. Although
the Fund will enter into when-issued or delayed-delivery purchase transactions
to acquire securities, the Fund may dispose of a commitment prior to settlement.
If the Fund chooses to dispose of the right to acquire a when-issued security
prior to its acquisition or to dispose of its right to deliver or receive
against a forward commitment, it may incur a gain or loss.
At the time the Fund makes a commitment to purchase or sell a security on
a when-issued or forward commitment basis, it records the transaction on its
books and reflects the value of the security purchased. In a sale transaction,
it records the proceeds to be received, in determining its net asset value. The
Fund will identify on its books liquid assets at least equal to the value of
purchase commitments until the Fund pays for the investment.
When-issued transactions and forward commitments can be used by the Fund
as a defensive technique to hedge against anticipated changes in interest rates
and prices. For instance, in periods of rising interest rates and falling
prices, the Fund might sell securities in its portfolio on a forward commitment
basis to attempt to limit its exposure to anticipated falling prices. In periods
of falling interest rates and rising prices, the Fund might sell portfolio
securities and purchase the same or similar securities on a when-issued or
forward commitment basis, to obtain the benefit of currently higher cash yields.
|X| Puts and Standby Commitments. When the Fund buys a municipal security
subject to a standby commitment to repurchase the security, the Fund is entitled
to same-day settlement from the purchaser. The Fund receives an exercise price
equal to the amortized cost of the underlying security plus any accrued interest
at the time of exercise. A put purchased in conjunction with a municipal
security enables the Fund to sell the underlying security within a specified
period of time at a fixed exercise price.
The Fund might purchase a standby commitment or put separately in cash or
it might acquire the security subject to the standby commitment or put (at a
price that reflects that additional feature). The Fund will enter into these
transactions only with banks and securities dealers that, in the Manager's
opinion, present minimal credit risks. The Fund's ability to exercise a put or
standby commitment will depend on the ability of the bank or dealer to pay for
the securities if the put or standby commitment is exercised. If the bank or
dealer should default on its obligation, the Fund might not be able to recover
all or a portion of any loss sustained from having to sell the security
elsewhere.
Puts and standby commitments are not transferable by the Fund. They
terminate if the Fund sells the underlying security to a third party. The Fund
intends to enter into these arrangements to facilitate portfolio liquidity,
although such arrangements might enable the Fund to sell a security at a
pre-arranged price that may be higher than the prevailing market price at the
time the put or standby commitment is exercised. However, the Fund might refrain
from exercising a put or standby commitment if the exercise price is
significantly higher than the prevailing market price, to avoid imposing a loss
on the seller that could jeopardize the Fund's business relationships with the
seller.
A put or standby commitment increases the cost of the security and reduces
the yield otherwise available from the security. Any consideration paid by the
Fund for the put or standby commitment will be reflected on the Fund's books as
unrealized depreciation while the put or standby commitment is held, and a
realized gain or loss when the put or commitment is exercised or expires.
Interest income received by the Fund from municipal securities subject to puts
or stand-by commitments may not qualify as tax exempt in its hands if the terms
of the put or stand-by commitment cause the Fund not to be treated as the tax
owner of the underlying municipal securities.
|X| Repurchase Agreements. The Fund may acquire securities subject to
repurchase agreements. It may do so for liquidity purposes to meet anticipated
redemptions of Fund shares, or pending the investment of the proceeds from sales
of Fund shares, or pending the settlement of portfolio securities transactions.
In a repurchase transaction, the Fund acquires a security from, and
simultaneously resells it to an approved vendor for delivery on an agreed upon
future date. The resale price exceeds the purchase price by an amount that
reflects an agreed-upon interest rate effective for the period during which the
repurchase agreement is in effect. Approved vendors include U.S. commercial
banks, U.S. branches of foreign banks or broker-dealers that have been
designated a primary dealer in government securities, which meet the credit
requirements set by the Fund's Board of Trustees from time to time.
The majority of these transactions run from day to day. Delivery pursuant
to resale typically will occur within one to five days of the purchase.
Repurchase agreements having a maturity beyond seven days are subject to the
Fund's limits on holding illiquid investments. The Fund will not enter into
transactions that will cause more than 25% of the Fund's net assets to be
subject to repurchase agreements.
Repurchase agreements, considered "loans" under the Investment Company
Act, are collateralized by the underlying security. The Fund's repurchase
agreements require that at all times while the repurchase agreement is in
effect, the collateral's value must equal or exceed the repurchase price to
fully collateralize the repayment obligation. Additionally, the Manager will
impose creditworthiness requirements to confirm that the vendor is financially
sound and will continuously monitor the collateral's value. However, if the
vendor fails to pay the resale price on the delivery date, the Fund may incur
costs in disposing of the collateral and may experience losses if there is any
delay in its ability to do so.
|X| Illiquid and Restricted Securities. To enable the Fund to sell its
holdings of a restricted security not registered under the Securities Act of
1933, the Fund might have to cause those securities to be registered. The
expenses of registering restricted securities may be negotiated by the Fund with
the issuer at the time the Fund buys the securities. When the Fund must arrange
registration because the Fund wishes to sell the security, a considerable period
may elapse between the time the decision is made to sell the security and the
time the security is registered so that the Fund could sell it. The Fund would
bear the risks of any downward price fluctuation during that period.
The Fund has percentage limitations that apply to purchases of restricted
and illiquid securities, as stated in the Prospectus. Those percentage
restrictions do not limit purchases of restricted securities that are eligible
for resale to qualified institutional purchasers pursuant to Rule 144A under the
Securities Act of 1933, provided that those securities have been determined to
be liquid by the Board of Directors of the Fund or by the Manager. Those
guidelines take into account the trading activity for such securities and the
availability of reliable pricing information, among other factors. If there is a
lack of trading interest in a particular Rule 144A security, the Fund's holding
of that security may be deemed to be illiquid.
The Fund can also acquire restricted securities through private
placements. Those securities have contractual restrictions on their public
resale. Those restrictions might limit the Fund's ability to dispose of the
securities and might lower the amount the Fund could realize upon the sale.
|X| Loans of Portfolio Securities. To attempt to raise income or raise
cash for liquidity purposes, the Fund may lend its portfolio securities to
brokers, dealers and other financial institutions. These loans cannot exceed 5%
of the value of the Fund's total assets. The Fund currently does not intend to
lend securities. There are risks in connection with securities lending. The Fund
might experience a delay in receiving additional collateral to secure a loan, or
a delay in recovery of the loaned securities. Income from securities loans does
not constitute exempt-interest income for the purpose of paying tax-exempt
dividends.
The Fund must receive collateral for a loan. Under current applicable
regulatory requirements (which are subject to change), on each business day the
loan collateral must be at least equal to the value of the loaned securities. It
must consist of cash, bank letters of credit, securities of the U.S. government
or its agencies or instrumentalities, or other cash equivalents in which the
Fund is permitted to invest. To be acceptable as collateral, letters of credit
must obligate a bank to pay amounts demanded by the Fund if the demand meets the
terms of the letter. The terms of the letter of credit and the issuing bank both
must be satisfactory to the Fund.
When it lends securities, the Fund receives amounts equal to the dividends
or interest on the loaned securities. It also receives one or more of (a)
negotiated loan fees, (b) interest on securities used as collateral, and (c)
interest on short-term debt securities purchased with the loan collateral.
Either type of interest may be shared with the borrower. The Fund may pay
reasonable finder's, administrative or other fees in connection with these
loans. The terms of the Fund's loans must meet applicable tests under the
Internal Revenue Code and must permit the Fund to reacquire loaned securities on
five days' notice or in time to vote on any important matter.
|X| Hedging. The Fund can use hedging to attempt to protect against
declines in the market value of its portfolio, to permit the Fund to retain
unrealized gains in the value of portfolio securities that have appreciated, or
to facilitate selling securities for investment reasons. To do so the Fund
could:
|_| sell interest rate futures or municipal bond index futures,
|_| buy puts on such futures or securities, or
|_| write covered calls on securities, interest rate futures or
municipal bond index futures. The Fund can also write covered calls on debt
securities to attempt to increase the Fund's income, but that income would
not be tax-exempt. Therefore it is unlikely that the Fund would write
covered calls for that purpose.
The Fund can also use hedging to establish a position in the debt
securities market as a temporary substitute for purchasing individual debt
securities. In that case the Fund would normally seek to purchase the
securities, and then terminate that hedging position. For this type of hedging,
the Fund could:
|_| buy interest rate futures or municipal bond index futures, or
|_| buy calls on such futures or on securities.
The Fund is not obligated to use hedging instruments, even though it is
permitted to use them in the Manager's discretion, as described below. The
Fund's strategy of hedging with futures and options on futures will be
incidental to the Fund's investment activities in the underlying cash market.
The particular hedging instruments the Fund can use are described below. The
Fund may employ new hedging instruments and strategies when they are developed,
if those investment methods are consistent with the Fund's investment objective,
are approved by its Board, and are permissible under the Fund's investment
restrictions and applicable regulations.
|_| Futures. The Fund can buy and sell futures contracts relating to
debt securities (these are called "interest rate futures") and municipal bond
indices (these are referred to as "municipal bond index futures"), but only as a
hedge against interest rate changes.
An interest rate future obligates the seller to deliver (and the purchaser
to take) cash or a specific type of debt security to settle the futures
transaction. Either party could also enter into an offsetting contract to close
out the futures position.
A "municipal bond index" assigns relative values to the municipal bonds in
the index, and is used as the basis for trading long-term municipal bond futures
contracts. Municipal bond index futures are similar to interest rate futures
except that settlement is made only in cash. The obligation under the contract
may also be satisfied by entering into an offsetting contract. The strategies
which the Fund employs in using municipal bond index futures are similar to
those with regard to interest rate futures.
No money is paid by or received by the Fund on the purchase or sale of a
futures contract. Upon entering into a futures transaction, the Fund will be
required to deposit an initial margin payment in cash or U.S. government
securities with the futures commission merchant (the "futures broker"). Initial
margin payments will be deposited with the Fund's Custodian in an account
registered in the futures broker's name. However, the futures broker can gain
access to that account only under certain specified conditions. As the future is
marked to market (that is, its value on the Fund's books is changed) to reflect
changes in its market value, subsequent margin payments, called variation
margin, will be paid to or by the futures broker daily.
At any time prior to the expiration of the future, the Fund may elect to
close out its position by taking an opposite position at which time a final
determination of variation margin is made and additional cash is required to be
paid by or released to the Fund. Any gain or loss is then realized by the Fund
on the Future for tax purposes. Although interest rate futures by their terms
call for settlement by the delivery of debt securities, in most cases the
obligation is fulfilled without such delivery by entering into an offsetting
transaction. All futures transactions are effected through a clearing house
associated with the exchange on which the contracts are traded.
The Fund may concurrently buy and sell futures contracts in a strategy
anticipating that the future the Fund purchased will perform better than the
future the Fund sold. For example, the Fund might buy municipal bond futures and
concurrently sell U.S. Treasury Bond futures (a type of interest rate future).
The Fund would benefit if municipal bonds outperform U.S. Treasury Bonds on a
duration-adjusted basis.
Duration is a volatility measure that refers to the expected percentage
change in the value of a debt security resulting from a change in general
interest rates (measured by each 1% change in the rates on U.S. Treasury
securities). For example, if a bond has an effective duration of three years, a
1% increase in general interest rates would be expected to cause the value of
the bond to fall about 3%. There are risks that this type of futures strategy
will not be successful. U.S. Treasury bonds might perform better on a
duration-adjusted basis than municipal bonds, and the assumptions about duration
that were used might be incorrect (for example, the duration of municipal bonds
relative to U.S. Treasury Bonds might turn out to be greater than anticipated).
|_| Put and Call Options. The Fund can buy and sell certain kinds of put
options (puts) and call options (calls), including exchange-traded and
over-the-counter put and call options. These can include index options,
securities options and futures options. These strategies are described below.
|_| Writing Covered Call Options. The Fund can write (that is, sell) call
options. After the Fund writes a call, not more than 20% of the fund's total
assets may be subject to calls. Each call the Fund writes must be "covered"
while it is outstanding. That means the Fund must own the investment on which
the call was written. The Fund may write calls on futures contracts, but if it
does not own the futures contract or delivery securities, these calls must be
covered by securities or other liquid assets that the Fund owns and segregates
to enable it to satisfy its obligations if the call is exercised.
When the Fund writes a call on a security, it receives cash (a
premium).The Fund agrees to sell the underlying investment to a purchaser of a
corresponding call on the same security during the call period at a fixed
exercise price regardless of market price changes during the call period. The
call period is usually not more than nine months. The exercise price may differ
from the market price of the underlying security. The Fund has retained the risk
of loss that the price of the underlying security may decline during the call
period. That risk may be offset to some extent by the premium the Fund receives.
If the value of the investment does not rise above the call price, it is likely
that the call will lapse without being exercised. In that case the Fund would
keep the cash premium and the investment.
When the Fund writes a call on an index, it receives cash (a premium). If
the buyer of the call exercises it, the Fund will pay an amount of cash equal to
the difference between the closing price of the call and the exercise price,
multiplied by the specified multiple that determines the total value of the call
for each point of difference. If the value of the underlying investment does not
rise above the call price, it is likely that the call will lapse without being
exercised. In that case the Fund would keep the cash premium.
The Fund's Custodian, or a securities depository acting for the Custodian,
will act as the Fund's escrow agent through the facilities of the Options
Clearing Corporation ("OCC"), as to the investments on which the Fund has
written calls traded on exchanges, or as to other acceptable escrow securities.
In that way, no margin will be required for such transactions. OCC will release
the securities on the expiration of the calls or upon the Fund's entering into a
closing purchase transaction.
When the Fund writes an over-the-counter ("OTC") option, it will enter
into an arrangement with a primary U.S. Government securities dealer which will
establish a formula price at which the Fund will have the absolute right to
repurchase that OTC option. The formula price would generally be based on a
multiple of the premium received for the option, plus the amount by which the
option is exercisable below the market price of the underlying security (that
is, the option is "in-the-money"). When the Fund writes an OTC option, it will
treat as illiquid (for purposes of its restriction on illiquid securities) the
mark-to-market value of any OTC option held by it, unless the option is subject
to a buy-back agreement by the executing broker. The Securities and Exchange
Commission is evaluating whether OTC options should be considered liquid
securities. The procedure described above could be affected by the outcome of
that evaluation.
To terminate its obligation on a call it has written, the Fund may
purchase a corresponding call in a "closing purchase transaction." The Fund will
then realize a profit or loss, depending upon whether the net of the amount of
the option transaction costs and the premium received on the call the Fund wrote
was more or less than the price of the call the Fund purchased to close out the
transaction. A profit may also be realized if the call lapses unexercised,
because the Fund retains the underlying investment and the premium received. Any
such profits are considered short-term capital gains for Federal tax purposes,
as are premiums on lapsed calls. When distributed by the Fund they are taxable
as ordinary income.
The Fund may also write calls on futures contracts without owning the
futures contract or securities deliverable under the contract. To do so, at the
time the call is written, the Fund must cover the call by segregating in escrow
an equivalent dollar value of liquid assets. The Fund will segregate additional
liquid assets if the value of the escrowed assets drops below 100% of the
current value of the future. Because of this escrow requirement, in no
circumstances would the Fund's receipt of an exercise notice as to that future
put the Fund in a "short" futures position.
|_| Writing Put Options. The Fund can sell put options. A put option on
securities gives the purchaser the right to sell, and the writer the obligation
to buy, the underlying investment at the exercise price during the option
period. The Fund will not write puts if, as a result, more than 20% of the
Fund's total assets would be required to be segregated to cover such put
options.
If the Fund writes a put, the put must be covered by segregated liquid
assets. The premium the Fund receives from writing a put represents a profit, as
long as the price of the underlying investment remains equal to or above the
exercise price of the put. However, the Fund also assumes the obligation during
the option period to buy the underlying investment from the buyer of the put at
the exercise price, even if the value of the investment falls below the exercise
price. If a put the Fund has written expires unexercised, the Fund realizes a
gain in the amount of the premium less the transaction costs incurred. If the
put is exercised, the Fund must fulfill its obligation to purchase the
underlying investment at the exercise price. That price will usually exceed the
market value of the investment at that time. In that case, the Fund may incur a
loss if it sells the underlying investment. That loss will be equal to the sum
of the sale price of the underlying investment and the premium received minus
the sum of the exercise price and any transaction costs the Fund incurred.
When writing a put option on a security, to secure its obligation to pay
for the underlying security the Fund will deposit in escrow liquid assets with a
value equal to or greater than the exercise price of the underlying securities.
The Fund therefore forgoes the opportunity of investing the segregated assets or
writing calls against those assets.
As long as the Fund's obligation as the put writer continues, it may be
assigned an exercise notice by the broker-dealer through which the put was sold.
That notice will require the Fund to take delivery of the underlying security
and pay the exercise price. The Fund has no control over when it may be required
to purchase the underlying security, since it may be assigned an exercise notice
at any time prior to the termination of its obligation as the writer of the put.
That obligation terminates upon expiration of the put. It may also terminate if,
before it receives an exercise notice, the Fund effects a closing purchase
transaction by purchasing a put of the same series as it sold. Once the Fund has
been assigned an exercise notice, it cannot effect a closing purchase
transaction.
The Fund may decide to effect a closing purchase transaction to realize a
profit on an outstanding put option it has written or to prevent the underlying
security from being put. Effecting a closing purchase transaction will also
permit the Fund to write another put option on the security, or to sell the
security and use the proceeds from the sale for other investments. The Fund will
realize a profit or loss from a closing purchase transaction depending on
whether the cost of the transaction is less or more than the premium received
from writing the put option. Any profits from writing puts are considered
short-term capital gains for Federal tax purposes, and when distributed by the
Fund, are taxable as ordinary income.
|_| Purchasing Calls and Puts. The Fund can buy calls on securities,
broadly-based municipal bond indices, municipal bond index futures and interest
rate futures. It can also buy calls to close out a call it has written, as
discussed above. Calls the Fund buys must be listed on a securities or
commodities exchange, or quoted on NASDAQ, or traded in the over-the-counter
market. A call or put option may not be purchased if the purchase would cause
the value of all the Fund's put and call options to exceed 5% of its total
assets.
When the Fund purchases a call (other than in a closing purchase
transaction), it pays a premium. For calls on securities that the Fund buys, it
has the right to buy the underlying investment from a seller of a corresponding
call on the same investment during the call period at a fixed exercise price.
The Fund benefits only if (1) the call is sold at a profit or (2) the call is
exercised when the market price of the underlying investment is above the sum of
the exercise price plus the transaction costs and premium paid for the call. If
the call is not either exercised or sold (whether or not at a profit), it will
become worthless at its expiration date. In that case the Fund will lose its
premium payment and the right to purchase the underlying investment.
The Fund may buy puts on debt securities, municipal bond indices, and
interest rate or municipal bond index futures, whether or not it owns the
underlying investment. When the Fund purchases a put, it pays a premium and,
except as to puts on indices, has the right to sell the underlying investment to
a seller of a put on a corresponding investment during the put period at a fixed
exercise price. Puts on municipal bond indices are settled in cash.
Buying a put on an investment the Fund does not own (such as an index or
future) permits the Fund either to resell the put or to buy the underlying
investment and sell it at the exercise price. The resale price will vary
inversely to the price of the underlying investment. If the market price of the
underlying investment is above the exercise price and, as a result, the put is
not exercised, the put will become worthless on its expiration date.
Buying a put on a debt security, interest rate future or municipal bond
index future the Fund owns enables the Fund to protect itself during the put
period against a decline in the value of the underlying investment below the
exercise price by selling the investment at the exercise price to a seller of a
corresponding put. If the market price of the underlying investment is equal to
or above the exercise price and, as a result, the put is not exercised or
resold, the put will become worthless at its expiration date. In that case the
Fund will have paid the premium but lost the right to sell the underlying
investment. However, the Fund may sell the put prior to its expiration. That
sale may or may not be at a profit
|_| Risks of Hedging with Options and Futures. The use of hedging
instruments requires special skills and knowledge of investment techniques that
are different than what is required for normal portfolio management. If the
Manager uses a hedging instrument at the wrong time or judges market conditions
incorrectly, hedging strategies may reduce the Fund's returns.
The Fund's option activities could affect its portfolio turnover rate and
brokerage commissions. The exercise of calls written by the Fund may cause the
Fund to sell related portfolio securities, thus increasing its turnover rate.
The exercise by the Fund of puts on securities will cause the sale of underlying
investments, increasing portfolio turnover. Although the decision whether to
exercise a put it holds is within the Fund's control, holding a put might cause
the Fund to sell the related investments for reasons that would not exist in the
absence of the put.
The Fund could pay a brokerage commission each time it buys a call or put,
sells a call, or buys or sells an underlying investment in connection with the
exercise of a call or put. Such commissions might be higher on a relative basis
than the commissions for direct purchases or sales of the underlying
investments. Premiums paid for options are small in relation to the market value
of the underlying investments. Consequently, put and call options offer large
amounts of leverage. The leverage offered by trading in options could result in
the Fund's net asset value being more sensitive to changes in the value of the
underlying investment.
If a covered call written by the Fund is exercised on an investment that
has increased in value, the Fund will be required to sell the investment at the
call price. It will not be able to realize any profit if the investment has
increased in value above the call price.
There is a risk in using short hedging by selling interest rate futures
and municipal bond index futures or purchasing puts on municipal bond indices or
futures to attempt to protect against declines in the value of the Fund's
securities. The risk is that the prices of such futures or the applicable index
will correlate imperfectly with the behavior of the cash (that is, market)
prices of the Fund's securities. It is possible for example, that while the Fund
has used hedging instruments in a short hedge, the market might advance and the
value of debt securities held in the Fund's portfolio might decline. If that
occurred, the Fund would lose money on the hedging instruments and also
experience a decline in value of its debt securities. However, while this could
occur over a brief period or to a very small degree, over time the value of a
diversified portfolio of debt securities will tend to move in the same direction
as the indices upon which the hedging instruments are based.
The risk of imperfect correlation increases as the composition of the
Fund's portfolio diverges from the securities included in the applicable index.
To compensate for the imperfect correlation of movements in the price of debt
securities being hedged and movements in the price of the hedging instruments,
the Fund might use hedging instruments in a greater dollar amount than the
dollar amount of debt securities being hedged. It might do so if the historical
volatility of the prices of the debt securities being hedged is greater than the
historical volatility of the applicable index.
The ordinary spreads between prices in the cash and futures markets are
subject to distortions due to differences in the natures of those markets. All
participants in the futures markets are subject to margin deposit and
maintenance requirements. Rather than meeting additional margin deposit
requirements, investors may close out futures contracts through offsetting
transactions which could distort the normal relationship between the cash and
futures markets. From the point of view of speculators, the deposit requirements
in the futures markets are less onerous than margin requirements in the
securities markets. Therefore, increased participation by speculators in the
futures markets may cause temporary price distortions.
The Fund can use hedging instruments to establish a position in the
municipal securities markets as a temporary substitute for the purchase of
individual securities (long hedging). It is possible that the market might
decline. If the Fund then concludes not to invest in such securities because of
concerns that there might be further market decline or for other reasons, the
Fund will realize a loss on the hedging instruments that is not offset by a
reduction in the purchase price of the securities.
An option position may be closed out only on a market that provides
secondary trading for options of the same series. There is no assurance that a
liquid secondary market will exist for a particular option. If the Fund could
not effect a closing purchase transaction due to a lack of a market, it would
have to hold the callable investment until the call lapsed or was exercised and
could incur losses.
|_| Interest Rate Swap Transactions. In an interest rate swap, the Fund
and another party exchange their right to receive or their obligation to pay
interest on a security. For example, they may swap a right to receive floating
rate payments for fixed rate payments. The Fund enters into swaps only on
securities it owns. The Fund may not enter into swaps with respect to more than
25% of its total assets. Also, the Fund will segregate liquid assets (such as
cash or U.S. Government securities) to cover any amounts it could owe under
swaps that exceed the amounts it is entitled to receive, and it will adjust that
amount daily, as needed. Income from interest rate swaps may be taxable.
Swap agreements entail both interest rate risk and credit risk. There is a
risk that, based on movements of interest rates in the future, the payments made
by the Fund under a swap agreement will have been greater than those received by
it. Credit risk arises from the possibility that the counterparty will default.
If the counterparty to an interest rate swap defaults, the Fund's loss will
consist of the net amount of contractual interest payments that the Fund has not
yet received. The Manager will monitor the creditworthiness of counterparties to
the Fund's interest rate swap transactions on an ongoing basis.
The Fund can enter into swap transactions with appropriate counterparties
pursuant to master netting agreements. A master netting agreement provides that
all swaps done between the Fund and that counterparty under the master agreement
shall be regarded as parts of an integral agreement. If on any date amounts are
payable under one or more swap transactions, the net amount payable on that date
shall be paid. In addition, the master netting agreement may provide that if one
party defaults generally or on one swap, the counterparty can terminate the
swaps with that party. Under master netting agreements, if there is a default
resulting in a loss to one party, that party's damages are calculated by
reference to the average cost of a replacement swap with respect to each swap.
The gains and losses on all swaps are then netted, and the result is the
counterparty's gain or loss on termination. The termination of all swaps and the
netting of gains and losses on termination is generally referred to as
"aggregation."
|_| Regulatory Aspects of Hedging Instruments. When using futures and
options on futures, the Fund is required to operate within certain guidelines
and restrictions established by the Commodity Futures Trading Commission (the
"CFTC"). In particular, the Fund is exempted from registration with the CFTC as
a "commodity pool operator" if the Fund complies with the requirements of Rule
4.5 adopted by the CFTC. That Rule does not limit the percentage of the Fund's
assets that may be used for Futures margin and related options premiums for a
bona fide hedging position. However, under the Rule the Fund must limit its
aggregate initial futures margin and related options premiums to no more than 5%
of the Fund's net assets for hedging strategies that are not considered bona
fide hedging strategies under the Rule. Under the Rule, the Fund also must use
short futures and options on futures positions solely for bona fide hedging
purposes within the meaning and intent of the applicable provisions of the
Commodity Exchange Act.
Transactions in options by the Fund are subject to limitations established
by the option exchanges. The exchanges limit the maximum number of options that
may be written or held by a single investor or group of investors acting in
concert. Those limits apply regardless of whether the options were written or
purchased on the same or different exchanges, or are held in one or more
accounts or through one or more different exchanges or through one or more
brokers. Thus, the number of options that the Fund may write or hold may be
affected by options written or held by other entities, including other
investment companies having the same adviser as the Fund (or an adviser that is
an affiliate of the Fund's adviser). The exchanges also impose position limits
on futures transactions. An exchange may order the liquidation of positions
found to be in violation of those limits and may impose certain other sanctions.
Under the Investment Company Act, when the Fund purchases an interest rate
future or municipal bond index future, it must maintain cash or readily
marketable short-term debt instruments in an amount equal to the market value of
the investments underlying the future, less the margin deposit applicable to it.
|X| Temporary Defensive Investments. The securities the Fund can
invest in for temporary defensive purposes include the following:
|_| short-term municipal securities;
|_| obligations issued or guaranteed by the U.S. government or its agencies
or instrumentalities;
|_| corporate debt securities rated within the three highest grades by a
nationally recognized rating agency;
|_| commercial paper rated "A-1" by S&P, or a comparable rating by
another nationally recognized rating agency; and
|_| certificates of deposit of domestic banks with assets of $1 billion or
more.
|X| Taxable Investments. While the Fund can invest up to 20% of its total
assets in investments that generate income subject to income taxes, it does not
anticipate investing substantial amounts of its assets in taxable investments
under normal market conditions or as part of its normal trading strategies and
policies. To the extent it invests in taxable securities, the Fund would not be
able to meet its objective of providing tax exempt income to its shareholders.
Taxable investments include, for example, hedging instruments, repurchase
agreements, and some of the types of securities the Fund could buy for temporary
defensive purposes.
Investment Restrictions
|X| What Are "Fundamental Policies?" Fundamental policies are those
policies that the Fund has adopted to govern its investments that can be changed
only by the vote of a "majority" of the Fund's outstanding voting securities.
Under the Investment Company Act, such a "majority" vote is defined as the vote
of the holders of the lesser of:
|_| 67% or more of the shares present or represented by proxy at a shareholder
meeting, if the holders of more than 50% of the outstanding shares are
present or represented by proxy, or
|_| more than 50% of the outstanding shares.
The Fund's investment objective is a fundamental policy. Other policies
described in the Prospectus or this Statement of Additional Information are
"fundamental" only if they are identified as such. The Fund's Board of Trustees
can change non-fundamental policies without shareholder approval. However,
significant changes to investment policies will be described in supplements or
updates to the Prospectus or this Statement of Additional Information, as
appropriate. The Fund's most significant investment policies are described in
the Prospectus.
|_| The Fund cannot invest in real estate. However, the Fund can invest in
municipal securities or other permissible securities or instruments secured by
real estate or interests in real estate.
|_| The Fund cannot invest in interests in oil, gas, or other mineral
exploration or development programs.
|_| The Fund cannot purchase securities, or other instruments, on margin.
However, the Fund can invest in options, futures, options on futures and similar
instruments and may make margin deposits and payments in connection with those
investments.
|_| The Fund cannot make short sales of securities.
|_| The Fund cannot underwrite securities. A permitted exception is in the
case it is deemed to be an underwriter under the Securities Act of 1933 when
reselling securities held in its portfolio.
|_| The Fund cannot invest in securities of other investment companies,
except if they are acquired as part of a merger, consolidation or other
acquisition.
|_| The Fund cannot borrow money, except from banks for temporary purposes
in amounts not in excess of 5% of the value of the Fund's assets. No assets of
the Fund may be pledged, mortgaged or hypothecated except to secure a borrowing,
and in that case no more than 10% of the Fund's total assets may be pledged,
mortgaged or hypothecated. Borrowings may not be made for leverage, but only for
liquidity purposes to satisfy redemption requests when the liquidation of
portfolio securities is considered inconvenient or disadvantageous. However, the
Fund can enter into when-issued and delayed-delivery transactions as described
in this Statement of Additional Information.
|_| The Fund cannot make loans. However, the Fund can purchase or hold
debt obligations, repurchase agreements and other instruments and securities it
is permitted to own and may lend its portfolio securities and other investments
it owns.
|_| With respect to 75% of its total assets, the Fund cannot buy
securities issued or guaranteed by any one issuer (except the U.S. Government or
any of its agencies or instrumentalities) if more than 5% of the Fund's total
assets would be invested in securities of that issuer or the Fund would then own
more than 10% of that issuer's voting securities.
|_| The Fund cannot invest more than 25% of its total assets in a single
industry. As an operating policy, the Fund applies this restriction to 25% or
more of its total assets. However, the Fund can invest more than 25% of its
assets in a particular segment of the municipal bond market, but it will not
invest more than 25% of its total assets in industrial development bonds in a
single industry.
|_| The Fund cannot make investments for the purpose of exercising control
of management.
|_| The Fund cannot purchase securities of any issuer if, officers,
trustees and directors of the Fund or the Manager individually beneficially own
more than .5% of the securities of that issuer and together own beneficially
more than 5% of the outstanding securities of that issuer.
|_| The Fund cannot issue "senior securities," but this does not prohibit
certain investment activities for which assets of the Fund are designated as
segregated or margin collateral or escrow arrangements are established to cover
the related obligations. Examples of those activities include borrowing money,
reverse repurchase agreements, delayed-delivery and when-issued arrangements for
portfolio securities transactions, and contracts to buy or sell derivatives,
hedging instruments, options or futures.
The Fund will not purchase or retain securiites if, as a result, the Fund
would have more than 5% of its total assets invested in securities of private
issuers haveing a record of less than three years' continuous operation, or in
industrial development bonds if the private entity on whose credit the security
is based, directly or indirectly, is less than three years old, unless the
security is rated by a nationally-recognized rating service. In each case, that
period may include the operation of predecessor companies or enterprises.
Additionally, the Fund willnot invest in common stock or any warrants related to
common stocks. These operating policies are not fundamental policies.
Unless the Prospectus or Statement of Additional Information states that a
percentage restriction applies on an ongoing basis, it applies only at the time
the Fund makes an investment. In that case the Fund need not sell securities to
meet the percentage limits if the value of the investment increases in
proportion to the size of the Fund.
Diversification. The Fund intends to be "diversified" as defined in the
Investment Company Act and to satisfy the restrictions against investing too
much of its assets in any "issuer" as set forth in the restrictions above. In
implementing this policy, the identification of the issuer of a municipal
security depends on the terms and conditions of the security. When the assets
and revenues of an agency, authority, instrumentality or other political
subdivision are separate from those of the government creating it and the
security is backed only by the assets and revenues of the subdivision, agency,
authority or instrumentality, the latter would be deemed to be the sole issuer.
Similarly, if an industrial development bond is backed only by the assets and
revenues of the non-governmental user, then that user would be deemed to be the
sole issuer. However, if in either case the creating government or some other
entity guarantees a security, the guarantee would be considered a separate
security and would be treated as an issue of such government or other entity.
Applying the Restriction Against Concentration. To implement its policy not to
concentrate its investments, the Fund has adopted the industry classifications
set forth in Appendix B to this Statement of Additional Information. Those
industry classifications are not a fundamental policy.
In implementing the Fund's policy not to concentrate its investments, the
Manager will consider a non-governmental user of facilities financed by
industrial development bonds as being in a particular industry. That is done
even though the bonds are municipal securities, as to which the Fund has no
concentration limitation. Although this application of the concentration
restriction is not a fundamental policy of the Fund, it will not be changed
without shareholder approval.
How the Fund Is Managed
Organization and History. The Fund is one of two diversified investment
portfolios or "series" of Oppenheimer Municipal Fund, an open-end, diversified
management investment company organized as a Massachusetts business trust in
1986, with an unlimited number of authorized shares of beneficial interest.
Oppenheimer Municipal Fund (and therefore, the Fund, as one of its series)
is governed by a Board of Trustees, which is responsible for protecting the
interests of shareholders under Massachusetts law. The Trustees meet
periodically throughout the year to oversee the Fund's activities, review its
performance, and review the actions of the Manager. Although the Fund will not
normally hold annual meetings of its shareholders, it may hold shareholder
meetings from time to time on important matters. Shareholders of Oppenheimer
Municipal Fund have the right to call a meeting to remove a Trustee or to take
other action described in the Declaration of Trust.
|X| Classes of Shares. The Board of Trustees has the power, without
shareholder approval, to divide unissued shares of the Fund into two or more
classes. The Board has done so, and the Fund currently has three classes of
shares, Class A, Class B and Class C. All classes invest in the same investment
portfolio. Shares are freely transferable. Each share has one vote at
shareholder meetings, with fractional shares voting proportionally on matters
submitted to the vote of shareholders. Each class of shares:
|_| has its own dividends and distributions,
|_| pays certain expenses which may be different for
the different classes,
|_| may have a different net asset value,
|_| may have separate voting rights on matters in which
the interests of one class are different from the interests of
another class, and
|_| votes as a class on matters that affect that class
alone.
|X| Meetings of Shareholders. As a series of a Massachusetts business
trust, the Fund is not required to hold, and does not plan to hold, regular
annual meetings of shareholders. The Fund will hold meetings when required to do
so by the Investment Company Act or other applicable law. It will also do so
when a shareholder meeting is called by the Trustees or upon proper request of
the shareholders.
Shareholders have the right, upon the declaration in writing or vote of
two-thirds of the outstanding shares of Oppenheimer Municipal Fund, to remove a
Trustee. The Trustees will call a meeting of shareholders to vote on the removal
of a Trustee upon the written request of the record holders of 10% of the
outstanding shares of Oppenheimer Municipal Fund. If the Trustees receive a
request from at least 10 shareholders stating that they wish to communicate with
other shareholders to request a meeting to remove a Trustee, the Trustees will
then either make the shareholder lists of a series of Oppenheimer Municipal Fund
available to the applicants or mail their communication to all other
shareholders at the applicants' expense. The shareholders making the request
must have been shareholders for at least six months and must hold shares of a
series of Oppenheimer Municipal Fund valued at $25,000 or more or constituting
at least 1% of the outstanding shares of Oppenheimer Municipal Fund, whichever
is less. The Trustees may also take other action as permitted by the Investment
Company Act.
|X| Shareholder and Trustee Liability. The Declaration of Trust contains
an express disclaimer of shareholder or Trustee liability for the Fund's
obligations. It also provides for indemnification and reimbursement of expenses
out of the Fund's property for any shareholder held personally liable for its
obligations. The Declaration of Trust also states that upon request, the Fund
shall assume the defense of any claim made against a shareholder for any act or
obligation of the Fund and shall satisfy any judgment on that claim.
Massachusetts law permits a shareholder of a business trust to be held
personally liable as a "partner" under certain circumstances. However, the risk
that a Fund shareholder will incur financial loss from being held liable as a
"partner" of the Fund is limited to the relatively remote circumstances in which
the Fund would be unable to meet its obligations.
The Fund's contractual arrangements state that any person doing business
with the Fund (and each shareholder of the Fund) agrees under the Declaration of
Trust to look solely to the assets of the Fund for satisfaction of any claim or
demand that may arise out of any dealings with the Fund. The contracts further
state that the Trustees shall have no personal liability to any such person, to
the extent permitted by law.
Trustees and Officers of the Fund. The Fund's Trustees and officers and their
principal occupations and business affiliations during the past five years are
listed below. Trustees denoted with an asterisk (*) below are deemed to be
"interested persons" of the Fund under the Investment Company Act. All of the
Trustees are also trustee, directors or managing general partners of the
following Denver-based Oppenheimer funds2:
Oppenheimer Cash Reserves Oppenheimer Total Return Fund, Inc.
Oppenheimer Champion Income Fund Oppenheimer Variable Account Funds
Oppenheimer Equity Income Fund Panorama Series Fund, Inc.
Oppenheimer High Yield Fund Centennial America Fund, L. P.
Oppenheimer International Bond Fund Centennial California Tax Exempt Trust
Oppenheimer Integrity Funds Centennial Government Trust
Oppenheimer Limited-Term Government Centennial Money Market Trust
Fund
Oppenheimer Main Street Funds, Inc. Centennial New York Tax Exempt Trust
Oppenheimer Municipal Fund Centennial Tax Exempt Trust
Oppenheimer Real Asset Fund The New York Tax-Exempt Income Fund, Inc.
Oppenheimer Strategic Income Fund
Ms. Macaskill and Messrs. Swain, Bishop, Bowen, Donohue, Farrar and Zack,
who are officers of the Fund, respectively hold the same offices with the other
Denver-based Oppenheimer funds. As of January 4, 1999, the Trustees and officers
of the Fund as a group owned less than 1% of the outstanding shares of the Fund.
The foregoing statement does not reflect shares held of record by an employee
benefit plan for employees of the Manager other than shares beneficially owned
under that plan by the officers of the Fund listed below. Ms. Macaskill and Mr.
Donohue are trustees of that plan.
1Ms. Macaskill and Mr. Bowen are not Trustees or Directors of Oppenheimer
Integrity Funds, Oppenheimer Strategic Income Fund, Panorama Series Fund, Inc.
or Oppenheimer Variable Account Funds. Mr. Fossel and Mr. Bowen are not Trustees
of Centennial New York Tax Exempt Trust or Managing General Partners of
Centennial America Fund, L.P.
Robert G. Avis*, Trustee; Age 67
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:84
197 Desert Lakes Drive, Palm Springs, California 92264
Management Consultant.
George C. Bowen*, Vice President, Treasurer, Assistant Secretary and Trustee;
Age 62
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); Assistant Treasurer of OAC (since March 1998); Treasurer
of Oppenheimer Partnership Holdings, Inc. (since November 1989); Vice President
and Treasurer of Oppenheimer Real Asset Management, Inc. (since July 1996);
Chief Executive Officer, Treasurer; Treasurer of OFIL and Oppenheimer Millennium
Funds plc (since October 1997); an officer of other Oppenheimer funds; formerly
Treasurer of OAC (June 1990-March 1998).
Charles Conrad, Jr., Trustee; Age 68
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., prior
to which he was associated with the National Aeronautics and Space
Administration.
Jon S. Fossel, Trustee; Age 56
P.O. Box 44, Mead Street, Waccabuc, New York 10597
Formerly Chairman and a director of the Manager, President and a director of
Oppenheimer Acquisition Corp. ("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 58
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 69
44 Portland Drive, St. Louis, Missouri 63131
Director of Wave Technologies International, Inc. (a computer products
training company), self-employed consultant (securities matters).
C. Howard Kast, Trustee; Age 77
2552 East Alameda, Denver, Colorado 80209
Formerly Managing Partner of Deloitte, Haskins & Sells (an accounting firm).
Robert M. Kirchner, Trustee; Age 77
7500 E. Arapahoe Road, Englewood, Colorado 80112
President of The Kirchner Company (management consultants).
Bridget A. Macaskill*, President and Trustee; Age 50
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"); Chairman, President and a director of
Oppenheimer Millennium Funds plc (since October 1997); President and a director
of other Oppenheimer funds; Member, Board of Governors, NASD, Inc.; a director
of Hillsdown Holdings plc (a U.K. food company); formerly a director of NASDAQ
Stock Market, Inc.
Ned M. Steel, Trustee; Age 83
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 65
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.
Caryn Halbrecht, Vice President and Portfolio Manager; Age 42
Vice President of the Manager (since March 1994); an officer of other
Oppenheimer funds.
Andrew J. Donohue, Vice President and Secretary; Age 48
Executive Vice President (since January 1993), General Counsel (since October
1991) and a Director (since September 1995) of the Manager; Executive Vice
President and General Counsel (since September 1993) and a director (since
January 1992) of the Distributor; Executive Vice President, General Counsel and
a director of HarbourView, SSI, SFSI and Oppenheimer Partnership Holdings, Inc.
(since September 1995) and a director of Centennial (since September 1995);
President, General Counsel and a director of Oppenheimer Real Asset Management,
Inc. (since July 1996); General Counsel (since May 1996) and Secretary (since
April 1997) of OAC; Vice President and a director of OFIL and Oppenheimer
Millennium Funds plc (since October 1997); an officer of other Oppenheimer
funds.
Robert J. Bishop, Assistant Treasurer; Age 40
6803 South Tucson Way, Englewood, Colorado 80112
Vice President of the Manager/Mutual Fund Accounting (since May 1996); an
officer of other Oppenheimer funds; formerly an Assistant Vice President of the
Manager/Mutual Fund Accounting (April 1994-May 1996), and a Fund
Controller for the Manager.
Scott T. Farrar, Assistant Treasurer; Age 33
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 50
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 OFIL and Oppenheimer Millennium
Funds plc (since October 1997); an officer of other Oppenheimer funds.
*Trustee who is an "interest person" of the Fund and the Manager.
|X| Remuneration of Trustees. The officers of the Fund and three Trustees
of the Fund (Ms. Macaskill and Messrs. Bowen and Swain) are affiliated with the
Manager and receive no salary or fee from the Fund. The remaining Trustees of
the Fund received the compensation shown below. The compensation from the Fund
was paid during its fiscal year ended September 30, 1998. The compensation from
all of the Denver-based Oppenheimer funds includes the compensation from the
Fund and represents compensation received as a director, trustee, managing
general partner or member of a committee of the Board during the calendar year
1998.
<PAGE>
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Aggregate Total Compensation
Trustee's Name Compensation from all Denver-Based
and Other Positions from Fund Oppenheimer Funds1
-----------------------------------------------------------------------------
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Robert G. Avis $428 $67,998.00
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
William A. Baker $460 $69,998.00
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
Charles Conrad, Jr. $442 $67,998.00
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
John S. Fossel $425 $67,496.04
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
Sam Freedman $462 $73,998.00
Audit and Review
Committee Member
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
Raymond J. Kalinowski $470 $73,998.00
Audit and Review
Committee Member
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
C. Howard Kast $491 $76,998.00
Audit and Review
Committee Chairman
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
Robert M. Kirchner $442 $67,998.00
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
Ned M. Steel $428 $67,998.00
-----------------------------------------------------------------------------
(2) For the 1998 calendar year.
|X| Deferred Compensation Plan for Trustees. The Board of Trustees has
adopted a Deferred Compensation Plan for disinterested trustees that enables
them to elect to defer receipt of all or a portion of the annual fees they are
entitled to receive from the Fund. Under the plan, the compensation deferred by
a Trustee is periodically adjusted as though an equivalent amount had been
invested in shares of one or more Oppenheimer funds selected by the Trustee. The
amount paid to the Trustee under the plan will be determined based upon the
performance of the selected funds.
Deferral of Trustees' fees under the plan will not materially affect the
Fund's assets, liabilities or net income per share. The plan will not obligate
the Fund to retain the services of any Trustee or to pay any particular level of
compensation to any Trustee. Pursuant to an Order issued by the Securities and
Exchange Commission, the Fund may invest in the funds selected by the Trustee
under the plan without shareholder approval for the limited purpose of
determining the value of the Trustee's deferred fee account.
|X| Major Shareholders. As of January 4, 1999, the only persons who owned
of record or who were known by the Fund to own beneficially 5% or more of the
Fund's outstanding shares were:
Merrill Lynch Pierce Fenner & Smith Inc. (which advised the Fund that such
shares were held beneficially for its customers) 4800 Deer Lake Drive
East, Floor 3, Jacksonville, Florida 32246, which owned 101,068.085 Class
B shares (approximately 6.32% of the Class B shares then outstanding)and
69,127.099 Class C shares (approximately 22.11% of the Class C shares then
outstanding).
Margie H. Madak Trustee V/A 8/22/91 FBO
Margie H. Madak, 8619 W. Sunnyside Avenue, Chicago, IL 60656, who owned
28,611.084 Class C shares (approximately 9.15% of the Class C shares then
outstanding).
The Manager. The Manager is wholly-owned by Oppenheimer Acquisition Corp., a
holding company controlled by Massachusetts Mutual Life Insurance Company. 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| The Investment Advisory Agreement. The Manager provides investment
advisory and management services to the Fund under an investment advisory
agreement between the Manager and the Fund. The Manager selects securities for
the Fund's portfolio and handles its day-to day business. The portfolio manager
of the Fund is employed by the Manager and is the person who is principally
responsible for the day-to-day management of the Fund's investment portfolio.
Other members of the Manager's Fixed-Income Portfolio Team provide the portfolio
manager with research and counsel in managing the Fund's investments. The
agreement requires the Manager, at its expense, to provide the Fund with
adequate office space, facilities and equipment. It also requires the Manager to
provide and supervise the activities of all administrative and clerical
personnel required to provide effective corporate administration for the Fund.
Those responsibilities include the compilation and maintenance of records with
respect to the Fund's operations, the preparation and filing of specified
reports, and the composition of proxy materials and registration statements for
continuous public sale of shares of the Fund.
The Fund pays expenses not expressly assumed by the Manager under the
advisory agreement. The advisory agreement lists examples of expenses paid by
the Fund. The major categories relate to interest, taxes, fees to disinterested
Trustees, legal and audit expenses, custodian and transfer agent expenses, share
issuance costs, certain printing and registration costs, brokerage commissions,
and non-recurring expenses, including litigation costs. The management fees paid
by the Fund to the Manager are calculated at the rates described in the
Prospectus, which are applied to the assets of the Fund as a whole. The fees are
allocated to each class of shares based upon the relative proportion of the
Fund's net assets represented by that class. The management fees paid by the
Fund to the Manager during its last three fiscal years are listed below.
-----------------------------------------------------------------------------
Fiscal Year Ending 9/30 Management Fee Paid to OppenheimerFunds,
Inc.
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
1996 $435,183
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
1997 $471,703
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
1998 $545,563
-----------------------------------------------------------------------------
The investment advisory agreement states that in the absence of willful
misfeasance, bad faith, gross negligence in the performance of its duties, or
reckless disregard for its obligations and duties under the investment advisory
agreement, the Manager is not liable for any loss sustained by reason of any
investment of the Fund assets made with due care and in good faith.
The agreement permits the Manager to act as investment adviser for any
other person, firm or corporation. The Manager uses the name "Oppenheimer" in
connection with other investment companies for which it or an affiliate is the
investment adviser or general distributor. If the Manager shall no longer act as
investment adviser to the Fund, the Manager can withdraw its permission to the
Fund (and to Oppenheimer Municipal Fund) to use the name "Oppenheimer" as part
of its name.
Brokerage Policies of the Fund
Brokerage Provisions of the Investment Advisory Agreement. One of the duties of
the Manager under the investment advisory agreement is to buy and sell portfolio
securities for the Fund. The investment advisory agreement allows the Manager to
use broker-dealers to effect the Fund's portfolio transactions. Under the
agreement, the Manager may employ those broker-dealers (including "affiliated"
brokers, as that term is defined in the Investment Company Act) that, in the
Manager's best judgment based on all relevant factors, will implement the Fund's
policy to obtain, at reasonable expense, the "best execution" of portfolio
transactions. "Best execution" refers to prompt and reliable execution at the
most favorable price obtainable. The Manager need not seek competitive
commission bidding. However, the Manager is expected to minimize the commissions
paid to the extent consistent with the interest and policies of the Fund as
established by its Board of Trustees.
Under the investment advisory agreement, the Manager may select brokers
that provide brokerage and/or research services for the Fund and/or the other
accounts over which the Manager or its affiliates have investment discretion.
The commissions paid to such brokers may be higher than another qualified broker
would charge, if the Manager makes a good faith determination that the
commission is fair and reasonable in relation to the services provided. Subject
to those other considerations, as a factor in selecting brokers for the Fund's
portfolio transactions, the Manager may also consider sales of shares of the
Fund and other investment companies managed by the Manager or its affiliates.
Brokerage Practices Followed by the Manager. The Manager allocates brokerage for
the Fund subject to the provisions of the investment advisory agreement and the
procedures and rules described above. Generally the Manager's portfolio traders
allocate brokerage upon recommendations from the Manager's portfolio managers.
In certain instances, portfolio managers may directly place trades and allocate
brokerage. In either case, the Manager's executive officers supervise the
allocation of brokerage.
Most securities purchases made by the Fund are in principal transactions
at net prices. The Fund usually deals directly with the selling or purchasing
principal or market maker without incurring charges for the services of a broker
on its behalf unless the Manager determines that a better price or execution may
be obtained by using the services of a broker. Therefore, the Fund does not
incur substantial brokerage costs. Portfolio securities purchased from
underwriters include a commission or concession paid by the issuer to the
underwriter in the price of the security. Portfolio securities purchased from
dealers include a spread between the bid and asked price.
The Fund seeks to obtain prompt execution of orders at the most favorable
net prices. In an option transaction, the Fund ordinarily uses the same broker
for the purchase or sale of the option and any transaction in the investment to
which the option relates. Other funds advised by the Manager have investment
objectives and policies similar to those of the Fund. Those other funds may
purchase or sell the same securities as the Fund at the same time as the Fund,
which could affect the supply and price of the securities. When possible, the
Manager tries to combine concurrent orders to purchase or sell the same security
by more than one of the accounts managed by the Manager or its affiliates. The
transactions under those combined orders are averaged as to price and allocated
in accordance with the purchase or sale orders actually placed for each account.
The investment advisory agreement permits the Manager to allocate
brokerage for research services. The research services provided by a particular
broker may be useful only to one or more of the advisory accounts of the Manager
and its affiliates. Investment research received by the Manager for the
commissions paid by those other accounts may be useful both to the Fund and one
or more of the Manager's other accounts. Investment research services may be
supplied to the Manager by a third party at the instance of a broker through
which trades are placed. Investment research services include information and
analyses on particular companies and industries as well as market or economic
trends and portfolio strategy, market quotations for portfolio evaluations,
information systems, computer hardware and similar products and services. If a
research service also assists the Manager in a non-research capacity (such as
bookkeeping or other administrative functions), then only the percentage or
component that provides assistance to the Manager in the investment
decision-making process may be paid in commission dollars.
The Board of Trustees permits the Manager to use stated commissions on
secondary fixed-income agency trades to obtain research if the broker represents
to the Manager that: (i) the trade is not from or for the broker's own
inventory, (ii) the trade was executed by the broker on an agency basis at the
stated commission, and (iii) the trade is not a riskless principal transaction.
The Board of Trustees has permits the Manager to use concessions on fixed-price
offerings to obtain research, in the same manner as is permitted for agency
transactions.
The research services provided by brokers broaden the scope and supplement
the research activities of the Manager. That research provides additional views
and comparisons for consideration and helps the Manager to obtain market
information for the valuation of securities that are either held in the Fund's
portfolio or are being considered for purchase. The Manager provides information
to the Board of the Fund about the commissions paid to brokers furnishing
research services, together with the Manager's representation that the amount of
such commissions was reasonably related to the value or benefit of such
services.
------------------------------------------------------------------------------
Fiscal Year Ended 9/30 Total Brokerage Commissions Paid by the Fund1
------------------------------------------------------------------------------
------------------------------------------------------------------------------
1996 None
------------------------------------------------------------------------------
------------------------------------------------------------------------------
1997 None
------------------------------------------------------------------------------
------------------------------------------------------------------------------
1998 $73,0592
------------------------------------------------------------------------------
3. Amounts do not include spreads or concessions on principal amounts on a net
trade basis.
4. In the fiscal year ended 9/30/98, no transactions directed to brokers for
research services.
Distribution and Service Plans
The Distributor. Under its General Distributor's Agreement with the Fund, the
Distributor acts as the Fund's principal underwriter in the continuous public
offering of the different classes of shares of the Fund. The Distributor is not
obligated to sell a specific number of shares. Expenses normally attributable to
sales are borne by the Distributor.
The compensation paid to (or retained by) the Distributor from the sale of
shares or on the redemption of shares is discussed in the table below:
------------------------------------------------------------------------------
Aggregate Class A Commissions Commissions Commissions
Fiscal Front-End Front-End on Class A on Class B on Class C
Year Sales Sales Shares Shares Shares
Ended Charges Charges Advanced by Advanced by Advanced by
9/30: on Class A Retained by Distributor1 Distributor1 Distributor1
Shares Distributor
------------------------------------------------------------------------------
------------------------------------------------------------------------------
1996 $180,294 $41,099 $15,558 $164,506 $ 8,276
------------------------------------------------------------------------------
------------------------------------------------------------------------------
1997 $164,201 $35,272 $ 5,001 $222,466 $18,115
------------------------------------------------------------------------------
------------------------------------------------------------------------------
1998 $197,201 $47,360 $ 1,663 $350,427 $27,494
------------------------------------------------------------------------------
(1)The Distributor advances commission payments to dealers for certain sales of
Class A shares and for sales of Class B and Class C shares from its own
resources at the time of sale.
----------------------------------------------------------------------------
Fiscal Class A Contingent Class B Contingent Class C Contingent
Year Deferred Sales Deferred Sales Deferred Sales
Ended Charges Retained by Charges Retained by Charges Retained by
9/30: Distributor Distributor Distributor
----------------------------------------------------------------------------
----------------------------------------------------------------------------
1998 $7,304 $80,736 $1,564
----------------------------------------------------------------------------
Distribution and Service Plans. The Fund has adopted a Service Plan for its
Class A shares and Distribution and Service Plans for its Class B and Class C
shares under Rule 12b-1 of the Investment Company Act. Under those plans, the
Fund makes payments to the Distributor in connection with the distribution
and/or servicing of the shares of the particular class.
Each plan has been approved by a vote of the Board of Trustees of the
Fund, including a majority of the Independent Trustees,o cast in person at a
meeting called for the purpose of voting on that plan. Each plan has also been
approved by a vote of the holders of a "majority" (as defined in the Investment
Company Act) of the shares of each class. The Manager cast the vote to approve
the Class C plan as the sole initial holder of Class C shares.
o In accordance with Rule 12b-1 of the Investment Company Act, the term
"Independent Trustees" in this Statement of Additional Information refers to
those Trustees who are not "interested persons" of the Fund or its parent trust
and who do not have any direct or indirect financial interest in the operation
of the distribution plan or any agreement under the plan.
Under the plans the Manager and the Distributor, in their sole discretion,
from time to time may use their own resources (at no direct cost to the Fund) to
make payments to brokers, dealers or other financial institutions for
distribution and administrative services they perform. The Manager may use
profits from the advisory fee it receives from the Fund. The Distributor and the
Manager may, in their sole discretion, increase or decrease the amount of
payments they make to plan recipients from their own resources.
Unless a plan is terminated as described below, the plan continues in
effect from year to year, but only if the Fund's Board of Trustees and its
Independent Trustees specifically vote annually to approve its continuance.
Approval must be by a vote cast in person at a meeting called for the purpose of
voting on continuing the plan. A plan may be terminated at any time by the vote
of a majority of the Independent Trustees or by the vote of the holders of a
"majority" (as defined in the Investment Company Act) of the outstanding shares
of that class.
The Board and the Independent Trustees must approve all material
amendments to a plan. An amendment to increase materially the amount of payments
to be made under the plan must be approved by shareholders of the class affected
by the amendment. Because Class B shares automatically convert into Class A
shares after six years, the Fund must obtain the approval of both Class A and
Class B shareholders for an amendment to the Class A plan that would materially
increase the amount to be paid under that plan. That approval must be by a
"majority" (as defined in the Investment Company Act) of the shares of each
class, voting separately by Class.
While the plans are in effect, the Treasurer of the Fund shall provide
separate written reports on the plans to the Fund's Board of Trustees at least
quarterly for its review. The reports shall detail the amount of all payments
made under a plan and the purpose for which the payments were made. The report
on the Class B and Class C plans shall also include the Distributor's
distribution costs for the quarter, and any costs for previous fiscal periods
that have been carried forward. Those reports are subject to the review and
approval of the Independent Trustees in the exercise of their fiduciary duty.
Each plan states that while it is in effect, the selection or replacement
and nomination of those Trustees of the Fund who are not "interested persons" of
the Fund is committed to the discretion of the Independent Trustees. This
provision does not prevent the involvement of others in the selection and
nomination process as long as the final decision as to selection or nomination
is approved by a majority of the Independent Trustees.
Under the plan for a class, no payment will be made to any recipient in
any quarter in which the aggregate net asset value of all Fund shares held by
the recipient for itself and its customers does not exceed a minimum amount, if
any, that may be set from time to time by a majority of the Fund's Independent
Trustees. The Board of Trustees has set the fees at the maximum rate allowed
under the plans and has set no minimum asset amount needed to qualify for
payments.
|X| Class A Service Plan. Under the Class A service plan, the Distributor
currently uses the fees it receives from the Fund to pay brokers, dealers and
other financial institutions (they are referred to as "recipients") for personal
services and account maintenance services they provide for their customers who
hold Class A shares. The services include, among others, answering customer
inquiries about the Fund, assisting in establishing and maintaining accounts in
the Fund, making the Fund's investment plans available and providing other
services at the request of the Fund or the Distributor. The Distributor makes
payments to plan recipients quarterly at an annual rate not to exceed 0.25% of
the average annual net assets of Class A shares held in accounts of the service
provider or their customers.
For the fiscal year ended September 30, 1998, payments under the Plan for
Class A shares totaled $231,419, all of which was paid by the Distributor to
recipients. That included $11,269 paid to an affiliate of the Distributor. Any
unreimbursed expenses the Distributor incurs with respect to Class A shares for
any fiscal year may not be recovered in subsequent years. The Distributor may
not use payments received under the Class A plan to pay any of its interest
expenses, carrying charges, other financial costs, or allocation of overhead.
|X| Class B and Class C Service and Distribution Plans. Under each plan,
service fees and distribution fees are computed on the average of the net asset
value of shares in the respective class, determined as of the close of each
regular business day during the period. The Class B and Class C plans provide
for the Distributor to be compensated at a flat rate, whether the Distributor's
distribution expenses are more or less than the amounts paid by the Fund under
the plans during that period. The Class B and Class C plans permit the
Distributor to retain both the asset-based sales charges and the service fee on
shares or to pay recipients the service fee on a quarterly basis, without
payment in advance. The types of services that recipients provide are similar to
the services provided under the Class A plan, described above.
The Distributor presently intends to pay recipients the service fee on
Class B and Class C shares in advance for the first year the shares are
outstanding. After the first year shares are outstanding, the Distributor makes
payments quarterly on those shares. The advance payment is based on the net
asset value of shares sold. Shares purchased by exchange do not qualify for an
advance service fee payment. If Class B or Class C shares are redeemed during
the first year after their purchase, the recipient of the service fees on those
shares will be obligated to repay the Distributor a pro rata portion of the
advance payment made on those shares.
The Distributor retains the asset-based sales charge on Class B shares.
The Distributor retains the asset-based sales charge on Class C shares during
the first year the shares are outstanding. It pays the asset-based sales charge
as an ongoing commission to the dealer on Class C shares outstanding for a year
or more. If a dealer has a special agreement with the Distributor, the
Distributor will pay the Class B and/or Class C service fees and the asset-based
sales charge to the dealer quarterly in lieu of paying the sales commission and
service fee in advance at the time of purchase.
The asset-based sales charge on Class B and Class C shares allows
investors to buy shares without a front-end sales charge while allowing the
Distributor to compensate dealers that sell those shares. The Distributor's
actual expenses in selling Class B and Class C shares may be more than the
payments it receives from contingent deferred sales charges collected on
redeemed shares and from the Fund under the plans. The Fund pays the asset-based
sales charge to the Distributor for its services rendered in distributing Class
B and Class C shares. The payments are made to the Distributor in recognition
that the Distributor:
|_|pays sales commissions to authorized brokers and dealers at the time
of sale and pays service fees as described in the Prospectus,
|_|may finance payment of sales commissions and/or the advance of the
service fee payment to recipients under the plans, or may provide such
financing from its own resources or from the resources of an affiliate,
|_| employs personnel to support distribution of shares, and
|_| bears the costs of sales literature, advertising and prospectuses
(other than those furnished to current shareholders) and state "blue
sky" registration fees and certain other distribution expenses.
Payments made under the Class B plan for the fiscal year ended September
30, 1998, totaled $237,967 (including $2,503 paid to an affiliate of the
Distributor). The Distributor retained $197,544 of the total paid. Payments made
under the Class C Plan for the fiscal year ended September 30, 1998 totaled
$36,548 (including $134 paid to an affiliate by the Distributor). The
Distributor retained $25,438 of the total paid. At September 30, 1998, the
Distributor had incurred unreimbursed expenses under the Class B plan in the
amount of $875,951 (equal to 3.20% of the Fund's net assets represented by Class
B shares on that date). At September 30, 1998, the Distributor had incurred
unreimbursed expenses under the Class C plan of $67,456 (equal to 1.37% of the
Fund's net assets represented by Class C shares on that date). 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 the Distributor to compensate it for
its expenses incurred for distributing shares before the plan was terminated.
All payments under the Class B and Class C plans are subject to the
limitations imposed by the Conduct Rules of the National Association of
Securities Dealers, Inc. on payments of asset-based sales charges and service
fees to NASD members.
Performance of the Fund
Explanation of Performance Terminology. The Fund uses a variety of terms to
illustrate its performance. These terms include "standardized yield,"
"tax-equivalent yield," "dividend yield," "average annual total return,"
"cumulative total return," "average annual total return at net asset value" and
"total return at net asset value." An explanation of how yields and total
returns are calculated is set forth below. The charts below show the Fund's
performance as of its most recent fiscal year end. You can obtain current
performance information by calling the Fund's Transfer Agent at 1-800-525-7048
or by visiting the OppenheimerFunds Internet web site at
http://www.oppenheimerfunds.com.
The Fund's illustrations of its performance data in advertisements must
comply with rules of the Securities and Exchange Commission. Those rules
describe the types of performance data that may be used and how it is to be
calculated. In general, any advertisement by the Fund of its performance data
must include the average annual total returns for the advertised class of shares
of the Fund. Those returns must be shown for the 1, 5 and 10-year periods (or
the life of the class, if less) ending as of the most recently ended calendar
quarter prior to the publication of the advertisement (or its submission for
publication). Certain types of yields may also be shown, provided that they are
accompanied by standardized average annual total returns.
Use of standardized performance calculations enables an investor to
compare the Fund's performance to the performance of other funds for the same
periods. However, a number of factors should be considered before using the
Fund's performance information as a basis for comparison with other investments:
|_| Yields and total returns measure the performance of a hypothetical
account in the Fund over various periods and do not show the performance of each
shareholder's account. Your account's performance will vary from the model
performance data if your dividends are received in cash, or you buy or sell
shares during the period, or you bought your shares at a different time and
price than the shares used in the model.
|_| The Fund's performance returns do not reflect the effect of taxes
on distributions.
|_| An investment in the Fund is not insured by the FDIC or any other
government agency.
|_| The principal value of the Fund's shares, and its yields and total
returns are not guaranteed and normally will fluctuate on a daily basis.
|_| When an investor's shares are redeemed, they may be worth more or less
than their original cost.
|_| Yields and total returns for any given past period represent
historical performance information and are not, and should not be considered, a
prediction of future yields or returns.
The performance of each class of shares is shown separately, because the
performance of each class of shares will usually be different. That is because
of the different kinds of expenses each class bears. The yields and total
returns of each class of shares of the Fund are affected by market conditions,
the quality of the Fund's investments, the maturity of those investments, the
types of investments the Fund holds, and its operating expenses that are
allocated to the particular class.
|X| Yields. The Fund uses a variety of different yields to illustrate its
current returns. Each class of shares calculates its yield separately because of
the different expenses that affect each class.
|_| Standardized Yield. The "standardized yield" (sometimes referred to
just as "yield") is shown for a class of shares for a stated 30-day period. It
is not based on actual distributions paid by the Fund to shareholders in the
30-day period, but is a hypothetical yield based upon the net investment income
from the Fund's portfolio investments for that period. It may therefore differ
from the "dividend yield" for the same class of shares, described below.
Standardized yield 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:
- ------------------------------------------------------------------------------
a-b 6
Standardized Yield = 2 ((------ + 1) - 1)
cd
- ------------------------------------------------------------------------------
The symbols above represent the following factors:
a = dividends and interest earned during the 30-day period.
b = expenses accrued for the period (net of any expense assumptions).
c = the average daily number of shares of that class outstanding during
the 30-day period that were entitled to receive dividends.
d = the maximum offering price per share of that class on the last day
of the period, adjusted for undistributed net investment income.
The standardized yield for a particular 30-day period may differ from the
yield for other periods. The SEC formula assumes that the standardized yield for
a 30-day period occurs at a constant rate for a six-month period and is
annualized at the end of the six-month period. Additionally, because each class
of shares is subject to different expenses, it is likely that the standardized
yields of the Fund's classes of shares will differ for any 30-day period.
|_| Dividend Yield. The Fund may quote a "dividend yield" for each class
of its shares. Dividend yield is based on the dividends paid on a class of
shares during the actual dividend period. To calculate dividend yield, the
dividends of a class declared during a stated period are added together, and the
sum is multiplied by 12 (to annualize the yield) and divided by the maximum
offering price on the last day of the dividend period. The formula is shown
below:
Dividend Yield = Dividends paid x 12
---------------------------------------------
Maximum Offering Price (payment date)
The maximum offering price for Class A shares includes the current maximum
initial sales charge. The maximum offering price for Class B and Class C shares
is the net asset value per share, without considering the effect of contingent
deferred sales charges. The Class A dividend yield may also be quoted without
deducting the maximum initial sales charge.
|_| Tax-Equivalent Yield. The "tax-equivalent yield" of a class of
shares is the equivalent yield that would have to be earned on a taxable
investment to achieve the after-tax results represented by the Fund's
tax-equivalent yield. It adjusts the Fund's standardized yield, as calculated
above, by a stated Federal tax rate. Using different tax rates to show different
tax equivalent yields shows investors in different tax brackets the tax
equivalent yield of the Fund based on their own tax bracket.
The tax-equivalent yield is based on a 30-day period, and is computed by
dividing the tax-exempt portion of the Fund's current yield (as calculated
above) by one minus a stated income tax rate. The result is added to the portion
(if any) of the Fund's current yield that is not tax-exempt.
The tax-equivalent yield may be used to compare the tax effects of income
derived from the Fund with income from taxable investments at the tax rates
stated. Your tax bracket is determined by your Federal taxable income (the net
amount subject to Federal income tax after deductions and exemptions). The
tax-equivalent yield table assumes that the investor is taxed at the highest
bracket, regardless of whether a switch to non-taxable investments would cause a
lower bracket to apply.
----------------------------------------------------------------------------
The Fund's Yields for the 30-Day Periods Ended 9/30/98
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Tax-Equivalent Yield
Standardized Yield Dividend Yield (39.6% Fed. Tax
Bracket)
Class of
Shares
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Without After Without After Without After
Sales Sales Sales Sales Sales Sales
Charge Charge Charge Charge Charge Charge
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Class A 4.19% 3.99% 4.35% 4.15% 6.94% 6.61%
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Class B 3.44% N/A 3.58% N/A 5.70% N/A
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Class C 3.44% N/A 3.59% N/A 5.70% N/A
----------------------------------------------------------------------------
|X| Total Return Information. There are different types of "total returns"
to measure the Fund's performance. Total return is the change in value of a
hypothetical investment in the Fund over a given period, assuming that all
dividends and capital gains distributions are reinvested in additional shares
and that the investment is redeemed at the end of the period. Because of
differences in expenses for each class of shares, the total returns for each
class are separately measured. The cumulative total return measures the change
in value over the entire period (for example, ten years). An average annual
total return shows the average rate of return for each year in a period that
would produce the cumulative total return over the entire period. However,
average annual total returns do not show actual year-by-year performance. The
Fund uses standardized calculations for its total returns as prescribed by the
SEC. The methodology is discussed below.
In calculating total returns for Class A shares, the current maximum
sales charge of 4.75% (as a percentage of the offering price) is deducted from
the initial investment ("P") (unless the return is shown without sales charge,
as described below). For Class B shares, payment of the applicable contingent
deferred sales charge is applied, depending on the period for which the return
is shown: 5.0% in the first year, 4.0% in the second year, 3.0% in the third and
fourth years, 2.0% in the fifth year, 1.0% in the sixth year and none
thereafter. For Class C shares, the 1% contingent deferred sales charge is
deducted for returns for the 1-year period.
|_| Average Annual Total Return. The "average annual total return" of
each class is an average annual compounded rate of return for each year in a
specified number of years. It is the rate of return based on the change in value
of a hypothetical initial investment of $1,000 ("P" in the formula below) held
for a number of years ("n") to achieve an Ending Redeemable Value ("ERV" in the
formula) of that investment, according to the following formula:
- ------------------------------------------------------------------------------
( ERV ) 1/n
(-----) -1 = Average Annual Total Return
( P )
- ------------------------------------------------------------------------------
|_| Cumulative Total Return. The "cumulative total return" calculation
measures the change in value of a hypothetical investment of $1,000 over an
entire period of years. Its calculation uses some of the same factors as average
annual total return, but it does not average the rate of return on an annual
basis. Cumulative total return is determined as follows:
- ------------------------------------------------------------------------------
ERV - P
------- = Total Return
P
- ------------------------------------------------------------------------------
|_| Total Returns at Net Asset Value. From time to time the Fund may
also quote a cumulative or an average annual total return "at net asset value"
(without deducting sales charges) for Class A, Class B or Class C shares. Each
is based on the difference in net asset value per share at the beginning and the
end of the period for a hypothetical investment in that class of shares (without
considering front-end or contingent deferred sales charges) and takes into
consideration the reinvestment of dividends and capital gains distributions.
------------------------------------------------------------------------------
The Fund's Total Returns for the Periods Ended 9/30/98
------------------------------------------------------------------------------
------------------------------------------------------------------------------
Cumulative Average Annual Total Returns
Total Returns
(10 years or
life of class)
Class of
Shares
------------------------------------------------------------------------------
------------------------------------------------------------------------------
5-Year 10-Year
1-Year (or life of (or life of
class) class)
------------------------------------------------------------------------------
------------------------------------------------------------------------------
After Without After Without After Without After Without
Sales Sales Sales Sales Sales Sales Sales Sales
Charge Charge Charge Charge Charge Charge Charge Charge
------------------------------------------------------------------------------
------------------------------------------------------------------------------
Class A 108.52% 118.92% 3.83% 9.01% 4.77% 5.79% 7.63% 8.15%
------------------------------------------------------------------------------
------------------------------------------------------------------------------
Class B 34.25% 35.25% 3.18% 8.18% 4.66% 4.99% 5.60%* 5.74%*
------------------------------------------------------------------------------
------------------------------------------------------------------------------
Class C 25.74% 25.74% 7.18% 8.18% 7.70%** 7.70%** N/A N/A
------------------------------------------------------------------------------
Inception of Class A: 11/11/86
*Inception of Class B: 5/3/93
**Inception of Class C: 8/29/95
Other Performance Comparisons. The Fund compares its performance annually to
that of an appropriate broadly based market index in its Annual Report to
shareholders. You can obtain that information by contacting the Transfer Agent
at the addresses or telephone numbers shown on the cover of this Statement of
Additional Information. The Fund may also compare its performance to that of
other investments, including other mutual funds, or use rankings of its
performance by independent ranking entities. Examples of these performance
comparisons are set forth below.
|X| Lipper Rankings. From time to time the Fund may publish the ranking of
the performance of its Class A, Class B or Class C shares by Lipper Analytical
Services, Inc. ("Lipper"). Lipper is a widely-recognized independent mutual fund
monitoring service. Lipper monitors the performance of regulated investment
companies, including the Fund, and ranks their performance for various periods
based on categories relating to investment objectives. The performance of the
Fund is ranked by Lipper against all other insured municipal debt funds. The
Lipper performance rankings are based on total returns that include the
reinvestment of capital gain distributions and income dividends but do not take
sales charges or taxes into consideration. Lipper also publishes "peer-group"
indices of the performance of all mutual funds in a category that it monitors
and averages of the performance of the funds in particular categories.
|X| Morningstar Rankings. From time to time the Fund may publish the star
ranking of the performance of its classes of shares by Morningstar, Inc., an
independent mutual fund monitoring service. Morningstar ranks mutual funds in
broad investment categories: domestic stock funds, international stock funds,
taxable bond funds and municipal bond funds. The Fund is ranked among municipal
bond funds.
Morningstar star rankings are based on risk-adjusted total investment
return. Investment return measures a fund's (or class's) one, three, five and
ten-year average annual total returns (depending on the inception of the fund or
class) in excess of 90-day U.S. Treasury bill returns after considering the
fund's sales charges and expenses. Risk measures a fund's (or class's)
performance below 90-day U.S. Treasury bill returns. Risk and investment return
are combined to produce star rankings reflecting performance relative to the
average fund in a fund's category. Five stars is the "highest" ranking (top 10%
of funds in a category), four stars is "above average" (next 22.5%), three stars
is "average" (next 35%), two stars is "below average" (next 22.5%) and one star
is "lowest" (bottom 10%). The current star ranking is the fund's (or class's)
3-year ranking or its combined 3- and 5-year ranking (weighted 60%/40%
respectively), or its combined 3-, 5-, and 10-year ranking (weighted 40%, 30%
and 30%, respectively), depending on the inception date of the fund (or class).
Rankings are subject to change monthly.
The Fund may also compare its 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.
|X| Performance Rankings and Comparisons by Other Entities and
Publications. From time to time the Fund may include in its advertisements and
sales literature performance information about the Fund cited in newspapers and
other periodicals such as The New York Times, The Wall Street Journal, Barron's,
or similar publications. That information may include performance quotations
from other sources, including Lipper and Morningstar. The performance of the
Fund's Class A, Class B or Class C shares may be compared in publications to the
performance of various market indices or other investments, and averages,
performance rankings or other benchmarks prepared by recognized mutual fund
statistical services.
Investors may also wish to compare the Fund's Class A, Class B or Class C
returns to the return on fixed-income investments available from banks and
thrift institutions. Those include certificates of deposit, ordinary
interest-paying checking and savings accounts, and other forms of fixed or
variable time deposits, and various other instruments such as Treasury bills.
However, the Fund's returns and share price are not guaranteed or insured by the
FDIC or any other agency and will fluctuate daily, while bank depository
obligations may be insured by the FDIC and may provide fixed rates of return.
Repayment of principal and payment of interest on Treasury securities is backed
by the full faith and credit of the U.S. government.
From time to time, the Fund may publish rankings or ratings of the Manager
or Transfer Agent, and of the investor services provided by them to shareholders
of the Oppenheimer funds, other than performance rankings of the Oppenheimer
funds themselves. Those ratings or rankings of shareholder and investor services
by third parties may include comparisons of their services to those provided by
other mutual fund families selected by the rating or ranking services. They may
be based upon the opinions of the rating or ranking service itself, using its
research or judgment, or based upon surveys of investors, brokers, shareholders
or others.
ABOUT YOUR ACCOUNT
How to Buy Shares
Additional information is presented below about the methods that can be used to
buy shares of the Fund. Appendix C contains more information about the special
sales charge arrangements offered by the Fund, and the circumstances in which
sales charges may be reduced or waived for certain classes of investors.
AccountLink. When shares are purchased through AccountLink, each purchase must
be at least $25. Shares will be purchased on the regular business day the
Distributor is instructed to initiate the Automated Clearing House ("ACH")
transfer to buy the shares. Dividends will begin to accrue on shares purchased
with the proceeds of ACH transfers on the business day the Fund receives Federal
Funds for the purchase through the ACH system before the close of The New York
Stock Exchange. The Exchange normally closes at 4:00 P.M., but may close earlier
on certain days. If Federal Funds are received on a business day after the close
of the Exchange, the shares will be purchased and dividends will begin to accrue
on the next regular business day. The proceeds of ACH transfers are normally
received by the Fund 3 days after the transfers are initiated. The Distributor
and the Fund are not responsible for any delays in purchasing shares resulting
from delays in ACH transmissions.
Reduced Sales Charges. As discussed in the Prospectus, a reduced sales charge
rate may be obtained for Class A shares under Right of Accumulation and Letters
of Intent because of the economies of sales efforts and reduction in expenses
realized by the Distributor, dealers and brokers making such sales. No sales
charge is imposed in certain other circumstances described in Appendix C to this
Statement of Additional Information because the Distributor or dealer or broker
incurs little or no selling expenses.
|X| Right of Accumulation. To qualify for the lower sales charge rates
that apply to larger purchases of Class A shares, you and your spouse can add
together:
|_|Class A and Class B shares you purchase for your individual accounts,
or for your joint accounts, or for trust or custodial accounts on
behalf of your children who are minors, and
|_|Current purchases of Class A and Class B shares of the Fund and other
Oppenheimer funds to reduce the sales charge rate that applies to
current purchases of Class A shares, and
|_|Class A and Class B shares of Oppenheimer funds you previously
purchased subject to an initial or contingent deferred sales charge to
reduce the sales charge rate for current purchases of Class A shares,
provided that you still hold your investment in one of the Oppenheimer
funds.
A fiduciary can count all shares purchased for a trust, estate or other
fiduciary account (including one or more employee benefit plans of the same
employer) that has multiple accounts. The Distributor will add the value, at
current offering price, of the shares you previously purchased and currently own
to the value of current purchases to determine the sales charge rate that
applies. The reduced sales charge will apply only to current purchases. You must
request it when you buy shares.
|X| The Oppenheimer Funds. The Oppenheimer funds are those mutual
funds for which the Distributor acts as the distributor or the
sub-distributor and currently include the following:
Oppenheimer Bond Fund Oppenheimer Limited-Term Government Fund
Oppenheimer Capital Appreciation Fund Oppenheimer Main Street California
Municipal Fund
Oppenheimer California Municipal Fund Oppenheimer Main Street Growth & Income
Fund
Oppenheimer Champion Income Fund Oppenheimer MidCap Fund Oppenheimer Convertible
Securities Fund Oppenheimer Multiple Strategies Fund Oppenheimer Developing
Markets Fund Oppenheimer Municipal Bond Fund Oppenheimer Disciplined Allocation
Fund Oppenheimer New York Municipal Fund Oppenheimer Disciplined Value Fund
Oppenheimer New Jersey Municipal Fund Oppenheimer Discovery Fund Oppenheimer
Pennsylvania Municipal Fund Oppenheimer Enterprise Fund Oppenheimer Quest
Balanced Value Fund Oppenheimer Equity Income Fund Oppenheimer Quest Capital
Value Fund,
Inc.
Oppenheimer Florida Municipal Fund Oppenheimer Quest Global Value Fund,
Inc.
Oppenheimer Global Fund Oppenheimer Quest Opportunity Value Fund
Oppenheimer Global Growth & Income
Fund Oppenheimer Quest Small Cap Value Fund
Oppenheimer Gold & Special Minerals Oppenheimer Quest Value Fund, Inc. Fund
Oppenheimer Growth Fund Oppenheimer Real Asset Fund
Oppenheimer High Yield Fund Oppenheimer Strategic Income Fund
Oppenheimer Insured Municipal Fund Oppenheimer Total Return Fund, Inc.
Oppenheimer Intermediate Municipal
Fund Oppenheimer U.S. Government Trust
Oppenheimer International Bond Fund Oppenheimer World Bond Fund
Oppenheimer International Growth Fund Limited-Term New York Municipal Fund
Oppenheimer International Small Rochester Fund Municipals
Company Fund
Oppenheimer Large Cap Growth Fund
and the following money market funds:
Centennial America Fund, L. P. Centennial New York Tax Exempt Trust
Centennial California Tax Exempt Trust Centennial Tax Exempt Trust
Centennial Government Trust Oppenheimer Cash Reserves
Centennial Money Market Trust Oppenheimer Money Market Fund, Inc.
There is an initial sales charge on the purchase of Class A shares of each
of the Oppenheimer funds except the money market funds. Under certain
circumstances described in this Statement of Additional Information, redemption
proceeds of certain money market fund shares may be subject to a contingent
deferred sales charge.
Letters of Intent. Under a Letter of Intent, if you purchase Class A shares or
Class A and Class B shares of the Fund and other Oppenheimer funds during a
13-month period, you can reduce the sales charge rate that applies to your
purchases of Class A shares. The total amount of your intended purchases of both
Class A and Class B shares will determine the reduced sales charge rate for the
Class A shares purchased during that period. You can include purchases made up
to 90 days before the date of the Letter.
A Letter of Intent is an investor's statement in writing to the
Distributor of the intention to purchase Class A shares or Class A and Class B
shares of the Fund (and other Oppenheimer funds) during a 13-month period (the
"Letter of Intent period"). At the investor's request, this may include
purchases made up to 90 days prior to the date of the Letter. The Letter states
the investor's intention to make the aggregate amount of purchases of shares
which, when added to the investor's holdings of shares of those funds, will
equal or exceed the amount specified in the Letter. Purchases made by
reinvestment of dividends or distributions of capital gains and purchases made
at net asset value without sales charge do not count toward satisfying the
amount of the Letter.
A Letter enables an investor to count the Class A and Class B shares
purchased under the Letter to obtain the reduced sales charge rate on purchases
of Class A shares of the Fund (and other Oppenheimer funds) that applies under
the Right of Accumulation to current purchases of Class A shares. Each purchase
of Class A shares under the Letter will be made at the offering price (including
the sales charge) that applies to a single lump-sum purchase of shares in the
amount intended to be purchased under the Letter.
In submitting a Letter, the investor makes no commitment to purchase
shares. However, if the investor's purchases of shares within the Letter of
Intent period, when added to the value (at offering price) of the investor's
holdings of shares on the last day of that period, do not equal or exceed the
intended purchase amount, the investor agrees to pay the additional amount of
sales charge applicable to such purchases. That amount is described in "Terms of
Escrow," below (those terms may be amended by the Distributor from time to
time). The investor agrees that shares equal in value to 5% of the intended
purchase amount will be held in escrow by the Transfer Agent subject to the
Terms of Escrow. Also, the investor agrees to be bound by the terms of the
Prospectus, this Statement of Additional Information and the Application used
for a Letter of Intent. If those terms are amended, as they may be from time to
time by the Fund, the investor agrees to be bounded by the amended terms and
that those amendments will apply automatically to existing Letters of Intent.
If the total eligible purchases made during the Letter of Intent period do
not equal or exceed the intended purchase amount, the commissions previously
paid to the dealer of record for the account and the amount of sales charge
retained by the Distributor will be adjusted to the rates applicable to actual
total purchases. If total eligible purchases during the Letter of Intent period
exceed the intended purchase amount and exceed the amount needed to qualify for
the next sales charge rate reduction set forth in the Prospectus, the sales
charges paid will be adjusted to the lower rate. That adjustment will be made
only if and when the dealer returns to the Distributor the excess of the amount
of commissions allowed or paid to the dealer over the amount of commissions that
apply to the actual amount of purchases. The excess commissions returned to the
Distributor will be used to purchase additional shares for the investor's
account at the net asset value per share in effect on the date of such purchase,
promptly after the Distributor's receipt thereof.
In determining the total amount of purchases made under a Letter, shares
redeemed by the investor prior to the termination of the Letter of Intent period
will be deducted. It is the responsibility of the dealer of record and/or the
investor to advise the Distributor about the Letter in placing any purchase
orders for the investor during the Letter of Intent period. All of such
purchases must be made through the Distributor.
|X| Terms of Escrow That Apply to Letters of Intent.
1. Out of the initial purchase (or subsequent purchases if necessary) made
pursuant to a Letter, shares of the Fund equal in value up to 5% of the intended
purchase amount specified in the Letter shall be held in escrow by the Transfer
Agent. For example, if the intended purchase amount is $50,000, the escrow shall
be shares valued in the amount of $2,500 (computed at the public offering price
adjusted for a $50,000 purchase). Any dividends and capital gains distributions
on the escrowed shares will be credited to the investor's account.
2. If the total minimum investment specified under the Letter is completed
within the thirteen-month Letter of Intent period, the escrowed shares will be
promptly released to the investor.
3. If, at the end of the thirteen-month Letter of Intent period the total
purchases pursuant to the Letter are less than the intended purchase amount
specified in the Letter, the investor must remit to the Distributor an amount
equal to the difference between the dollar amount of sales charges actually paid
and the amount of sales charges which would have been paid if the total amount
purchased had been made at a single time. That sales charge adjustment will
apply to any shares redeemed prior to the completion of the Letter. If the
difference in sales charges is not paid within twenty days after a request from
the Distributor or the dealer, the Distributor will, within sixty days of the
expiration of the Letter, redeem the number of escrowed shares necessary to
realize such difference in sales charges. Full and fractional shares remaining
after such redemption will be released from escrow. If a request is received to
redeem escrowed shares prior to the payment of such additional sales charge, the
sales charge will be withheld from the redemption proceeds.
4. By signing the Letter, the investor irrevocably constitutes and
appoints the Transfer Agent as attorney-in-fact to surrender for redemption any
or all escrowed shares.
5. The shares eligible for purchase under the Letter (or the holding
of which may be counted toward completion of a Letter) include:
(a) Class A shares sold with a front-end sales charge or subject to a
Class A contingent deferred sales charge,
(b) Class B shares of other Oppenheimer funds acquired subject to a
contingent deferred sales charge, and
(c) Class A or Class B shares acquired by exchange of either (1) Class
A shares of one of the other Oppenheimer funds that were acquired
subject to a Class A initial or contingent deferred sales charge or
(2) Class B shares of one of the other Oppenheimer funds that were
acquired subject to a contingent deferred sales charge.
6. Shares held in escrow hereunder will automatically be exchanged for
shares of another fund to which an exchange is requested, as described in the
section of the Prospectus entitled "How to Exchange Shares" and the escrow will
be transferred to that other fund.
Asset Builder Plans. To establish an Asset Builder Plan to buy shares directly
from a bank account, you must enclose a check (minimum $25) for the initial
purchase with your application. Shares purchased by Asset Builder Plan payments
from bank accounts are subject to the redemption restrictions for recent
purchases described in the Prospectus. Asset Builder Plans also enable
shareholders of Oppenheimer Cash Reserves to use their fund account to make
monthly automatic purchases of shares of up to four other Oppenheimer funds.
If you make payments from your bank account to purchase shares of the
Fund, your bank account will be automatically debited, normally four to five
business days prior to the investment dates selected in the Application. Neither
the Distributor, the Transfer Agent nor the Fund shall be responsible for any
delays in purchasing shares resulting from delays in ACH transmissions.
Before initiating Asset Builder payments, obtain a prospectus of the
selected fund(s) from the Distributor or your financial advisor and request an
application from the Distributor, complete it and return it. 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. The Transfer Agent
requires a reasonable period (approximately 15 days) after receipt of such
instructions to implement them. The Fund reserves the right to amend, suspend,
or discontinue offering Asset Builder plans at any time without prior notice.
Cancellation of Purchase Orders. Cancellation of purchase orders for the Fund's
shares (for example, when a purchase check is returned to the Fund unpaid)
causes a loss to be incurred when the net asset value of the Fund's shares on
the cancellation date is less than on the purchase date. That loss is equal to
the amount of the decline in the net asset value per share multiplied by the
number of shares in the purchase order. The investor is responsible for that
loss. If the investor fails to compensate the Fund for the loss, the Distributor
will do so. The Fund may reimburse the Distributor for that amount by redeeming
shares from any account registered in that investor's name, or the Fund or the
Distributor may seek other redress.
Classes of Shares. Each class of shares of the Fund represents an interest in
the same portfolio of investments of the Fund. However, each class has different
shareholder privileges and features. The net income attributable to Class B or
Class C shares and the dividends payable on Class B or Class C shares will be
reduced by incremental expenses borne solely by that class. Those expenses
include the asset-based sales charges to which Class B and Class C are subject.
The availability of three classes of shares permits an investor to choose
the method of purchasing shares that is more appropriate for the investor. That
may depend on the amount of the purchase, the length of time the investor
expects to hold shares, and other relevant circumstances. Class A shares
normally are sold subject to an initial sales charge. While Class B and Class C
shares have no initial sales charge, the purpose of the deferred sales charge
and asset-based sales charge on Class B and Class C shares is the same as that
of the initial sales charge on Class A shares - to compensate the Distributor
and brokers, dealers and financial institutions that sell shares of the Fund. A
salesperson who is entitled to receive compensation for from his or her firm
selling Fund shares may receive different levels of compensation for selling one
class of shares than another.
The Distributor will not accept any order in the amount of $500,000 or
more for Class B shares or $1 million or more for Class C shares on behalf of a
single investor (not including dealer "street name" or omnibus accounts). That
is because generally it will be more advantageous for that investor to purchase
Class A shares of the Fund.
|X| Class B Conversion. The conversion of Class B shares to Class A shares
after six years is subject to the continuing availability of a private letter
ruling from the Internal Revenue Service, or an opinion of counsel or tax
adviser, to the effect that the conversion of Class B shares does not constitute
a taxable event for the holder under Federal income tax law. If such a revenue
ruling or opinion is no longer available, the automatic conversion feature may
be suspended, in which event no further conversions of Class B shares would
occur while such suspension remained in effect. Although Class B shares could
then be exchanged for Class A shares on the basis of relative net asset value of
the two classes, without the imposition of a sales charge or fee, such exchange
could constitute a taxable event for the holder, and absent such exchange, Class
B shares might continue to be subject to the asset-based sales charge for longer
than six years.
|X| Allocation of Expenses. The Fund pays expenses related to its daily
operations, such as custodian fees, trustees' fees, transfer agency fees, legal
fees and auditing costs. Those expenses are paid out of the Fund's assets and
are not paid directly by shareholders. However, those expenses reduce the net
asset value of shares, and therefore are indirectly borne by shareholders
through their investment.
The methodology for calculating the net asset value, dividends and
distributions of the Fund's share classes recognizes two types of expenses.
General expenses that do not pertain specifically to any one class are allocated
pro rata to the shares of all classes. The allocation is based on the percentage
of the Fund's total assets that is represented by the assets of each class, and
then equally to each outstanding share within a given class. Such general
expenses include management fees, legal, bookkeeping and audit fees, printing
and mailing costs of shareholder reports, Prospectuses, Statements of Additional
Information and other materials for current shareholders, fees to unaffiliated
Trustees, custodian expenses, share issuance costs, organization and start-up
costs, interest, taxes and brokerage commissions, and non-recurring expenses,
such as litigation costs.
Other expenses that are directly attributable to a particular class are
allocated equally to each outstanding share within that class. Examples of such
expenses include distribution and service plan (12b-1) fees, transfer and
shareholder servicing agent fees and expenses, and shareholder meeting expenses
(to the extent that such expenses pertain only to a specific class).
Determination of Net Asset Values Per Share. The net asset values per share of
each class of shares of the Fund are determined as of the close of business of
The New York Stock Exchange on each day that the Exchange is open. It is done by
dividing the value of the Fund's net assets attributable to that class by the
number of shares of that class that are outstanding. The Exchange normally
closes at 4:00 P.M., New York time, but may close earlier on some other days
(for example, in case of weather emergencies or on days falling before a
holiday). The Exchange's most recent annual announcement (which is subject to
change) states that it will close on New Year's Day, Martin Luther King, Jr.
Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day. It may also close on other days.
Dealers other than Exchange members may conduct trading in municipal
securities on days on which the Exchange is closed (including weekends and
holidays) or after 4:00 P.M. on a regular business day. The Fund's net asset
values will not be calculated on those days, and the values of some of Fund's
portfolio securities may change significantly on those days, when shareholders
cannot purchase or redeem shares.
|X| Securities Valuation. The Fund's Board of Trustees has
established procedures for the valuation of the Fund's securities. In general
those procedures are as follows:
|_| Long-term debt securities having a remaining maturity in excess of 60
days are valued based on the mean between the "bid" and "asked" prices
determined by a portfolio pricing service approved by the Fund's Board of
Trustees or obtained by the Manager from two active market makers in the
security on the basis of reasonable inquiry.
|_| The following securities are valued at the mean between the "bid" and
"asked" prices determined by a pricing service approved by the Fund's Board of
Trustees or obtained by the Manager from two active market makers in the
security on the basis of reasonable inquiry:
(4) debt instruments that have a maturity of more than 397 days
when-issued,
(5) debt instruments that had a maturity of 397 days or less when-issued
and have a remaining maturity of more than 60 days, and
(6) non-money market debt instruments that had a maturity of 397 days or
less when-issued and which have a remaining maturity of 60 days or
less.
|_| The following securities are valued at cost, adjusted
for amortization of premiums and accretion of discounts:
(3) money market debt securities held by a non-money market fund that had a
maturity of less than 397 days when-issued that have a remaining
maturity of 60 days or less, and
(4) debt instruments held by a money market fund that have a remaining
maturity of 397 days or less.
|_| Securities not having readily-available market quotations are valued
at fair value determined under the Board's procedures.
If the Manager is unable to locate two market makers willing to give
quotes, a security may be priced at the mean between the "bid" and "asked"
prices provided by a single active market maker (which in certain cases may be
the "bid" price if no "asked" price is available).
In the case of municipal securities, when last sale information is not
generally available, the Manager may use pricing services approved by the Board
of Trustees. The pricing service may use "matrix" comparisons to the prices for
comparable instruments on the basis of quality, yield, maturity. Other special
factors may be involved (such as the tax-exempt status of the interest paid by
municipal securities). The Manager will monitor the accuracy of the pricing
services. That monitoring may include comparing prices used for portfolio
valuation to actual sales prices of selected securities.
Puts, calls, interest rate futures and municipal bond index futures are
valued at the last sale price on the principal exchange on which they are traded
or on NASDAQ, as applicable, as determined by a pricing service approved by the
Board of Trustees or by the Manager. If there were no sales that day, they shall
be valued at the last sale price on the preceding trading day if it is within
the spread of the closing "bid" and "asked" prices on the principal exchange or
on NASDAQ on the valuation date. If not, the value shall be the closing bid
price on the principal exchange or on NASDAQ on the valuation date. If the put,
call or future is not traded on an exchange or on NASDAQ, it shall be valued by
the mean between "bid" and "asked" prices obtained by the Manager from two
active market makers. In certain cases that may be at the "bid" price if no
"asked" price is available.
When the Fund writes an option, an amount equal to the premium received is
included in the Fund's Statement of Assets and Liabilities as an asset. An
equivalent credit is included in the liability section. The credit is adjusted
("marked-to-market") to reflect the current market value of the option. In
determining the Fund's gain on investments, if a call or put written by the Fund
is exercised, the proceeds are increased by the premium received. If a call or
put written by the Fund expires, the Fund has a gain in the amount of the
premium. If the Fund enters into a closing purchase transaction, it will have a
gain or loss, depending on whether the premium received was more or less than
the cost of the closing transaction. If the Fund exercises a put it holds, the
amount the Fund receives on its sale of the underlying investment is reduced by
the amount of premium paid by the Fund.
How to Sell Shares
The information below supplements the terms and conditions for redeeming shares
set forth in the Prospectus.
Checkwriting. When a check is presented to the Fund's bank for clearance, the
bank will ask the Fund to redeem a sufficient number of full and fractional
shares in the shareholder's account to cover the amount of the check. This
enables the shareholder to continue to receive dividends on those shares until
the check is presented to the Fund. Checks may not be presented for payment at
the offices of the bank listed on the check or at the Fund's custodian bank.
That limitation does not affect the use of checks for the payment of bills or to
obtain cash at other banks. The Fund reserves the right to amend, suspend or
discontinue offering Checkwriting privileges at any time without prior notice.
In choosing to take advantage of the Checkwriting privilege by signing the
Account Application or by completing a Checkwriting card, each individual who
signs:
(7) for individual accounts, represents that they are the registered
owner(s) of the shares of the Fund in that account;
(8) for accounts for corporations, partnerships, trusts and other entities,
represents that they are an officer, general partner, trustee or other
fiduciary or agent, as applicable, duly authorized to act on behalf of
such registered owner(s);
(9) authorizes the Fund, its Transfer Agent and any bank through which the
Fund's drafts (checks) are payable to pay all checks drawn on the Fund
account of such person(s) and to redeem a sufficient amount of shares
from that account to cover payment of each check;
(10) specifically acknowledges that if they choose to permit checks to be
honored if there is a single signature on checks drawn against joint
accounts, or accounts for corporations, partnerships, trusts or other
entities, the signature of any one signatory on a check will be
sufficient to authorize payment of that check and redemption from the
account, even if that account is registered in the names of more than
one person or more than one authorized signature appears on the
Checkwriting card or the Application, as applicable;
(11) understands that the Checkwriting privilege may be terminated or
amended at any time by the Fund and/or the Fund's bank; and
(12) acknowledges and agrees that neither the Fund nor its bank shall incur
any liability for that amendment or termination of checkwriting
privileges or for redeeming shares to pay checks reasonably believed by
them to be genuine, or for returning or not paying checks that have not
been accepted for any reason.
Reinvestment Privilege. Within six months of a redemption, a shareholder may
reinvest all or part of the redemption proceeds of:
|_| Class A shares purchased subject to an initial sales charge or Class A
shares on which a contingent deferred sales charge was paid, or
|_| Class B shares that were subject to the Class B contingent deferred sales
charge when redeemed.
The reinvestment may be made without sales charge only in Class A shares
of the Fund or any of the other Oppenheimer funds into which shares of the Fund
are exchangeable as described in "How to Exchange Shares" below. Reinvestment
will be at the net asset value next computed after the Transfer Agent receives
the reinvestment order. The shareholder must ask the Transfer Agent for that
privilege at the time of reinvestment. This privilege does not apply to Class C
shares. The Fund may amend, suspend or cease offering this reinvestment
privilege at any time as to shares redeemed after the date of such amendment,
suspension or cessation.
Any capital gain that was realized when the shares were redeemed is
taxable, and reinvestment will not alter any capital gains tax payable on that
gain. If there has been a capital loss on the redemption, some or all of the
loss may not be tax deductible, depending on the timing and amount of the
reinvestment. Under the Internal Revenue Code, if the redemption proceeds of
Fund shares on which a sales charge was paid are reinvested in shares of the
Fund or another of the Oppenheimer funds within 90 days of payment of the sales
charge, the shareholder's basis in the shares of the Fund that were redeemed may
not include the amount of the sales charge paid. That would reduce the loss or
increase the gain recognized from the redemption. However, in that case the
sales charge would be added to the basis of the shares acquired by the
reinvestment of the redemption proceeds.
Payments "In Kind." The Prospectus states that payment for shares tendered for
redemption is ordinarily made in cash. However, the Board of Trustees of the
Fund may determine that it would be detrimental to the best interests of the
remaining shareholders of the Fund to make payment of a redemption order wholly
or partly in cash. In that case, the Fund may pay the redemption proceeds in
whole or in part by a distribution "in kind" of securities from the portfolio of
the Fund, in lieu of cash.
The Fund has elected to be governed by Rule 18f-1 under the Investment
Company Act. Under that rule, the Fund is obligated to redeem shares solely in
cash up to the lesser of $250,000 or 1% of the net assets of the Fund during any
90-day period for any one shareholder. If shares are redeemed in kind, the
redeeming shareholder might incur brokerage or other costs in selling the
securities for cash. The Fund will value securities used to pay redemptions in
kind using the same method the Fund uses to value its portfolio securities
described above under "Determination of Net Asset Values Per Share." That
valuation will be made as of the time the redemption price is determined.
Involuntary Redemptions. The Fund's Board of Trustees has the right to cause the
involuntary redemption of the shares held in any account if the aggregate net
asset value of those shares is less than $200 or such lesser amount as the Board
may fix. The Board of Trustees will not cause the involuntary redemption of
shares in an account if the aggregate net asset value of such shares has fallen
below the stated minimum solely as a result of market fluctuations. If the Board
exercises this right, it may also fix the requirements for any notice to be
given to the shareholders in question (not less than 30 days). The Board may
alternatively set requirements for the shareholder to increase the investment,
or set other terms and conditions so that the shares would not be involuntarily
redeemed.
Transfers of Shares. A transfer of shares to a different registration is not an
event that triggers the payment of sales charges. Therefore, shares are not
subject to the payment of a contingent deferred sales charge of any class at the
time of transfer to the name of another person or entity. It does not matter
whether the transfer occurs by absolute assignment, gift or bequest, as long as
it does not involve, directly or indirectly, a public sale of the shares. When
shares subject to a contingent deferred sales charge are transferred, the
transferred shares will remain subject to the contingent deferred sales charge.
It will be calculated as if the transferee shareholder had acquired the
transferred shares in the same manner and at the same time as the transferring
shareholder.
If less than all shares held in an account are transferred, and some but
not all shares in the account would be subject to a contingent deferred sales
charge if redeemed at the time of transfer, the priorities described in the
Prospectus under "How to Buy Shares" for the imposition of the Class B or Class
C contingent deferred sales charge will be followed in determining the order in
which shares are transferred.
Special Arrangements for Repurchase of Shares from Dealers and Brokers. The
Distributor is the Fund's agent to repurchase its shares from authorized dealers
or brokers on behalf of their customers. Shareholders should contact their
broker or dealer to arrange this type of redemption. The repurchase price per
share will be the net asset value next computed after the Distributor receives
an order placed by the dealer or broker. However, if the Distributor receives a
repurchase order from a dealer or broker after the close of The New York Stock
Exchange on a regular business day, it will be processed at that day's net asset
value if the order was received by the dealer or broker from its customers prior
to the time the Exchange closes. Normally, the Exchange closes at 4:00 P.M., but
may do so earlier on some days. Additionally, the order must have been
transmitted to and received by the Distributor prior to its close of business
that day (normally 5:00 P.M.).
Ordinarily, for accounts redeemed by a broker-dealer under this procedure,
payment will be made within three business days after the shares have been
redeemed upon the Distributor's receipt of the required redemption documents in
proper form. The signature(s) of the registered owners on the redemption
documents must be guaranteed as described in the Prospectus.
Automatic Withdrawal and Exchange Plans. Investors owning shares of the Fund
valued at $5,000 or more can authorize the Transfer Agent to redeem shares
(having a value of at least $50) automatically on a monthly, quarterly,
semi-annual or annual basis under an Automatic Withdrawal Plan. Shares will be
redeemed three business days prior to the date requested by the shareholder for
receipt of the payment. Automatic withdrawals of up to $1,500 per month may be
requested by telephone if payments are to be made by check payable to all
shareholders of record. Payments must also be sent to the address of record for
the account and the address must not have been changed within the prior 30 days.
Required minimum distributions from OppenheimerFunds-sponsored retirement plans
may not be arranged on this basis.
Payments are normally made by check, but shareholders having
AccountLink privileges (see "How To Buy Shares") may arrange to have Automatic
Withdrawal Plan payments transferred to the bank account designated on the
Account Application or by signature-guaranteed instructions sent to the Transfer
Agent. Shares are normally redeemed pursuant to an Automatic Withdrawal Plan
three business days before the payment transmittal date you select in the
Account Application. If a contingent deferred sales charge applies to the
redemption, the amount of the check or payment will be reduced accordingly.
The Fund cannot guarantee receipt of a payment on the date requested. The
Fund reserves the right to amend, suspend or discontinue offering these plans at
any time without prior notice. Because of the sales charge assessed on Class A
share purchases, shareholders should not make regular additional Class A share
purchases while participating in an Automatic Withdrawal Plan. Class B and Class
C shareholders should not establish withdrawal plans, because of the imposition
of the contingent deferred sales charge on such withdrawals (except where the
contingent deferred sales charge is waived as described in Appendix C below).
By requesting an Automatic Withdrawal or Exchange Plan, the shareholder
agrees to the terms and conditions that apply to such plans, as stated below.
These provisions may be amended from time to time by the Fund and/or the
Distributor. When adopted, any amendments will automatically apply to existing
Plans.
|X| Automatic Exchange Plans. Shareholders can authorize the Transfer
Agent to exchange a pre-determined amount of shares of the Fund for shares (of
the same class) of other Oppenheimer funds automatically on a monthly,
quarterly, semi-annual or annual basis under an Automatic Exchange Plan. The
minimum amount that may be exchanged to each other fund account is $25.
Instructions should be provided on the OppenheimerFunds Application or
signature-guaranteed instructions. Exchanges made under these plans are subject
to the restrictions that apply to exchanges as set forth in "How to Exchange
Shares" in the Prospectus and below in this Statement of Additional Information.
|X| Automatic Withdrawal Plans. Fund shares will be redeemed as necessary
to meet withdrawal payments. Shares acquired without a sales charge will be
redeemed first. Shares acquired with reinvested dividends and capital gains
distributions will be redeemed next, followed by shares acquired with a sales
charge, to the extent necessary to make withdrawal payments. Depending upon the
amount withdrawn, the investor's principal may be depleted. Payments made under
these plans should not be considered as a yield or income on your investment.
The Transfer Agent will administer the investor's Automatic Withdrawal
Plan as agent for the shareholder(s) (the "Planholder") who executed the Plan
authorization and application submitted to the Transfer Agent. Neither the Fund
nor the Transfer Agent shall incur any liability to the Planholder for any
action taken or not taken by the Transfer Agent in good faith to administer the
Plan. Share certificates will not be issued for shares of the Fund purchased for
and held under the Plan, but the Transfer Agent will credit all such shares to
the account of the Planholder on the records of the Fund. Any share certificates
held by a Planholder may be surrendered unendorsed to the Transfer Agent with
the Plan application so that the shares represented by the certificate may be
held under the Plan.
For accounts subject to Automatic Withdrawal Plans, distributions of
capital gains must be reinvested in shares of the Fund, which will be done at
net asset value without a sales charge. Dividends on shares held in the account
may be paid in cash or reinvested.
Shares will be redeemed to make withdrawal payments at the net asset value
per share determined on the redemption date. Checks or AccountLink payments
representing the proceeds of Plan withdrawals will normally be transmitted three
business days prior to the date selected for receipt of the payment, according
to the choice specified in writing by the Planholder. Receipt of payment on the
date selected cannot be guaranteed.
The amount and the interval of disbursement payments and the address to
which checks are to be mailed or AccountLink payments are to be sent may be
changed at any time by the Planholder by writing to the Transfer Agent. The
Planholder should allow at least two weeks' time after mailing such notification
for the requested change to be put in effect. The Planholder may, at any time,
instruct the Transfer Agent by written notice to redeem all, or any part of, the
shares held under the Plan. That notice must be in proper form in accordance
with the requirements of the then-current Prospectus of the Fund. In that case,
the Transfer Agent will redeem the number of shares requested at the net asset
value per share in effect and will mail a check for the proceeds to the
Planholder.
The Planholder may terminate a Plan at any time by writing to the Transfer
Agent. The Fund may also give directions to the Transfer Agent to terminate a
Plan. The Transfer Agent will also terminate a Plan upon its receipt of evidence
satisfactory to it that the Planholder has died or is legally incapacitated.
Upon termination of a Plan by the Transfer Agent or the Fund, shares that have
not been redeemed will be held in uncertificated form in the name of the
Planholder. The account will continue as a dividend-reinvestment, uncertificated
account unless and until proper instructions are received from the Planholder,
his or her executor or guardian, or another authorized person.
To use shares held under the Plan as collateral for a debt, the Planholder
may request issuance of a portion of the shares in certificated form. Upon
written request from the Planholder, the Transfer Agent will determine the
number of shares for which a certificate may be issued without causing the
withdrawal checks to stop. However, should such uncertificated shares become
exhausted, Plan withdrawals will terminate.
If the Transfer Agent ceases to act as transfer agent for the Fund, the
Planholder will be deemed to have appointed any successor transfer agent to act
as agent in administering the Plan.
How to Exchange Shares
As stated in the Prospectus, shares of a particular class of Oppenheimer funds
having more than one class of shares may be exchanged only for shares of the
same class of other Oppenheimer funds. Shares of Oppenheimer funds that have a
single class without a class designation are deemed "Class A" shares for this
purpose. You can obtain a current list showing which funds offer which classes
by calling the Distributor at 1-800-525-7048.
|_| All of the Oppenheimer funds currently offer Class A, B and C shares
except Oppenheimer Money Market Fund, Inc., Centennial Money Market Trust,
Centennial Tax Exempt Trust, Centennial Government Trust, Centennial New York
Tax Exempt Trust, Centennial California Tax Exempt Trust, and Centennial America
Fund, L.P., which only offer Class A shares.
|_| Oppenheimer Main Street California Municipal Fund currently offers
only Class A and Class B shares.
|_| Class B and Class C shares of Oppenheimer Cash Reserves are generally
available only by exchange from the same class of shares of other Oppenheimer
funds or through OppenheimerFunds-sponsored 401 (k) plans.
|_| Class Y shares of Oppenheimer Real Asset Fund are not
exchangeable.
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. They may also be used to
purchase shares of Oppenheimer funds subject to a contingent deferred sales
charge.
Shares of Oppenheimer Money Market Fund, Inc. purchased with the
redemption proceeds of shares of other mutual funds (other than funds managed by
the Manager or its subsidiaries) redeemed within the 30 days prior to that
purchase may subsequently be exchanged for shares of other Oppenheimer funds
without being subject to an initial or contingent deferred sales charge. To
qualify for that privilege, the investor or the investor's dealer must notify
the Distributor of eligibility for this privilege at the time the shares of
Oppenheimer Money Market Fund, Inc. are purchased. If requested, they must
supply proof of entitlement to this privilege.
For accounts established on or before March 8, 1996 holding Class M shares
of Oppenheimer Convertible Securities Fund, Class M shares can be exchanged only
for Class A shares of other Oppenheimer funds. Exchanges to Class M shares of
Oppenheimer Convertible Securities Fund are permitted from Class A shares of
Oppenheimer Money Market Fund, Inc. or Oppenheimer Cash Reserves that were
acquired by exchange of Class M shares. No other exchanges may be made to Class
M shares.
Shares of the Fund acquired by reinvestment of dividends or distributions
from any of the other Oppenheimer funds or from any unit investment trust for
which reinvestment arrangements have been made with the Distributor may be
exchanged at net asset value for shares of any of the Oppenheimer funds.
|X| How Exchanges Affect Contingent Deferred Sales Charges. No contingent
deferred sales charge is imposed on exchanges of shares of any class purchased
subject to a contingent deferred sales charge. However, when Class A shares
acquired by exchange of Class A shares of other Oppenheimer funds purchased
subject to a Class A contingent deferred sales charge are redeemed within 18
months of the end of the calendar month of the initial purchase of the exchanged
Class A shares, the Class A contingent deferred sales charge is imposed on the
redeemed shares. The Class B contingent deferred sales charge is imposed on
Class B shares acquired by exchange if they are redeemed within 6 years of the
initial purchase of the exchanged Class B shares. The Class C contingent
deferred sales charge is imposed on Class C shares acquired by exchange if they
are redeemed within 12 months of the initial purchase of the exchanged Class C
shares.
When Class B or Class C shares are redeemed to effect an exchange, the
priorities described in "How To Buy Shares" in the Prospectus for the imposition
of the Class B or the Class C contingent deferred sales charge will be followed
in determining the order in which the shares are exchanged. Before exchanging
shares, shareholders should take into account how the exchange may affect any
contingent deferred sales charge that might be imposed in the subsequent
redemption of remaining shares. Shareholders owning shares of more than one
class must specify which class of shares they wish to exchange.
|X| Limits on Multiple Exchange Orders. The Fund reserves the right to
reject telephone or written exchange requests submitted in bulk by anyone on
behalf of more than one account. The Fund may accept requests for exchanges of
up to 50 accounts per day from representatives of authorized dealers that
qualify for this privilege.
|_| Telephone Exchange Requests. When exchanging shares by telephone, a
shareholder must have an existing account in the fund to which the exchange is
to be made. Otherwise, the investors must obtain a Prospectus of that fund
before the exchange request may be submitted. For full or partial exchanges of
an account made by telephone, any special account features such as Asset Builder
Plans and Automatic Withdrawal Plans will be switched to the new account unless
the Transfer Agent is instructed otherwise. If all telephone lines are busy
(which might occur, for example, during periods of substantial market
fluctuations), shareholders might not be able to request exchanges by telephone
and would have to submit written exchange requests.
|_| Processing Exchange Requests. Shares to be exchanged are redeemed on
the regular business day the Transfer Agent receives an exchange request in
proper form (the "Redemption Date"). Normally, shares of the fund to be acquired
are purchased on the Redemption Date, but such purchases may be delayed by
either fund up to five business days if it determines that it would be
disadvantaged by an immediate transfer of the redemption proceeds. The Fund
reserves the right, in its discretion, to refuse any exchange request that may
disadvantage it. For example, if the receipt of multiple exchange requests from
a dealer might require the disposition of portfolio securities at a time or at a
price that might be disadvantageous to the Fund, the Fund may refuse the
request.
In connection with any exchange request, the number of shares exchanged
may be less than the number requested if the exchange or the number requested
would include shares subject to a restriction cited in the Prospectus or this
Statement of Additional Information, or would include shares covered by a share
certificate that is not tendered with the request. In those cases, only the
shares available for exchange without restriction will be exchanged.
The different Oppenheimer funds available for exchange have different
investment objectives, policies and risks. A shareholder should assure that the
fund selected is appropriate for his or her investment and should be aware of
the tax consequences of an exchange. For federal income tax purposes, an
exchange transaction is treated as a redemption of shares of one fund and a
purchase of shares of another. "Reinvestment Privilege," above, discusses some
of the tax consequences of reinvestment of redemption proceeds in such cases.
The Fund, the Distributor, and the Transfer Agent are unable to provide
investment, tax or legal advice to a shareholder in connection with an exchange
request or any other investment transaction.
Dividends and Taxes
Dividends and Distributions. Dividends will be payable on shares held of record
at the time of the previous determination of net asset value, or as otherwise
described in "How to Buy Shares." Daily dividends will not be declared or paid
on newly purchased shares until such time as Federal Funds (funds credited to a
member bank's account at the Federal Reserve Bank) are available from the
purchase payment for such shares. Normally, purchase checks received from
investors are converted to Federal Funds on the next business day. Shares
purchased through dealers or brokers normally are paid for by the third business
day following the placement of the purchase order.
Shares redeemed through the regular redemption procedure will be paid
dividends through and including the day on which the redemption request is
received by the Transfer Agent in proper form. Dividends will be declared on
shares repurchased by a dealer or broker for three business days following the
trade date (that is, up to and including the day prior to settlement of the
repurchase). If all shares in an account are redeemed, all dividends accrued on
shares of the same class in the account will be paid together with the
redemption proceeds.
The Fund's practice of attempting to pay dividends on Class A shares at a
constant level requires the Manager to monitor the Fund's portfolio and, if
necessary, to select higher-yielding securities when it is deemed appropriate to
seek income at the level needed to meet the target. Those securities must be
within the Fund's investment parameters, however. The Fund expects to pay
dividends at a targeted level from its net investment income and other
distributable income without any impact on the net asset values per share.
Dividends, distributions and the proceeds of the redemption of Fund shares
represented by checks returned to the Transfer Agent by the Postal Service as
undeliverable will be invested in shares of Oppenheimer Money Market Fund, Inc.
Reinvestment will be made as promptly as possible after the return of such
checks to the Transfer Agent, to enable the investor to earn a return on
otherwise idle funds. Unclaimed accounts may be subject to state escheatment
laws, and the Fund and the Transfer Agent will not be liable to shareholders or
their representatives for compliance with those laws in good faith.
The amount of a distribution paid on a class of shares may vary from time
to time depending on market conditions, the composition of the Fund's portfolio,
and expenses borne by the Fund or borne separately by a class. Dividends are
calculated in the same manner, at the same time and on the same day for shares
of each class. However, dividends on Class B and Class C shares are expected to
be lower than dividends on Class A shares. That is due to the effect of the
asset-based sales charge on Class B and Class C shares. Those dividends will
also differ in amount as a consequence of any difference in net asset value
among the different classes of shares.
Tax Status of the Fund's Dividends and Distributions. The Fund intends to
qualify under the Internal Revenue Code during each fiscal year to pay
"exempt-interest dividends" to its shareholders. Exempt-interest dividends that
are derived from net investment income earned by the Fund on municipal
securities will be excludable from gross income of shareholders for Federal
income tax purposes.
Net investment income includes the allocation of amounts of income from
the municipal securities in the Fund's portfolio that are free from Federal
income taxes. This allocation will be made by the use of one designated
percentage applied uniformly to all income dividends paid during the Fund's tax
year. That designation will normally be made following the end of each fiscal
year as to income dividends paid in the prior year. The percentage of income
designated as tax-exempt may substantially differ from the percentage of the
Fund's income that was tax-exempt for a given period.
A portion of the exempt-interest dividends paid by the Fund may be an item
of tax preference for shareholders subject to the alternative minimum tax. The
amount of any dividends attributable to tax preference items for purposes of the
alternative minimum tax will be identified when tax information is distributed
by the Fund.
A shareholder receiving a dividend from income earned by the Fund from one
or more of the following sources treats the dividend as a receipt of either
ordinary income or long-term capital gain in the computation of gross income,
regardless of whether the dividend is reinvested:
(4) certain taxable temporary investments (such as certificates of
deposit, repurchase agreements, commercial paper and obligations of
the U.S. government, its agencies and instrumentalities);
(5) income from securities loans; or
(6) an excess of net short-term capital gain over net long-term capital
loss from the Fund.
The Fund's dividends will not be eligible for the dividends-received
deduction for corporations. Shareholders receiving Social Security benefits
should be aware that exempt-interest dividends are a factor in determining
whether such benefits are subject to Federal income tax. Losses realized by
shareholders on the redemption of Fund shares within six months of purchase
(which period may be shortened by regulation) will be disallowed for Federal
income tax purposes to the extent of exempt-interest dividends received on such
shares.
If the Fund qualifies as a "regulated investment company" under the
Internal Revenue Code, it will not be liable for Federal income taxes on amounts
paid by it as dividends and distributions. That qualification enables the Fund
to "pass through" its income and realized capital gains to shareholders without
having to pay tax on them. The Fund qualified as a regulated investment company
in its last fiscal year and intends to qualify in future years, but reserves the
right not to qualify. The Internal Revenue Code contains a number of complex
tests to determine whether the Fund qualifies. The Fund might not meet those
tests in a particular year. If it does not qualify, the Fund will be treated for
tax purposes as an ordinary corporation and will receive no tax deduction for
payments of dividends and distributions made to shareholders.
Under the Internal Revenue Code, by December 31 each year the Fund must
distribute 98% of its taxable investment income earned from January 1 through
December 31 of that year and 98% of its capital gains realized in the period
from November 1 of the prior year through October 31 of the current year. If it
does not, the Fund must pay an excise tax on the amounts not distributed. It is
presently anticipated that the Fund will meet those requirements. However, the
Fund's Board of Trustees and the Manager might determine in a particular year
that it would be in the best interest of shareholders not to make distributions
at the required levels and to pay the excise tax on the undistributed amounts.
That would reduce the amount of income or capital gains available for
distribution to shareholders.
Dividend Reinvestment in Another Fund. Shareholders of the Fund may elect to
reinvest all dividends and/or capital gains distributions in shares of the same
class of any of the other Oppenheimer funds listed above. Reinvestment will be
made at net asset value without sales charge. To elect this option, the
shareholder must notify the Transfer Agent in writing and must have an existing
account in the fund selected for reinvestment. Otherwise the shareholder must
first obtain a prospectus for that fund and an application from the Transfer
Agent to establish an account. The investment will be made at the net asset
value per share in effect at the close of business on the payable date of the
dividend or distribution. Dividends and/or distributions from certain of the
other Oppenheimer funds may be invested in shares of this Fund on the same
basis.
Additional Information About the Fund
The Distributor. The Fund's shares are sold through dealers, brokers and other
financial institutions that have a sales agreement with OppenheimerFunds
Distributor, Inc. a subsidiary of the Manager that acts as the Fund's
Distributor. The Distributor also distributes shares of the other Oppenheimer
funds and is sub-distributor for funds managed by a subsidiary of the Manager.
The Transfer Agent. OppenheimerFunds Services, the Fund's Transfer Agent, is a
division of the Manager. It is responsible for maintaining the Fund's
shareholder registry and shareholder accounting records, and for paying
dividends and distributions to shareholders. It also handles shareholder
servicing and administrative functions. It acts on an "at-cost" basis. It also
acts as shareholder servicing agent for the other Oppenheimer funds.
Shareholders should direct inquiries about their accounts to the Transfer Agent
at the address and toll-free numbers shown on the back cover.
The Custodian. The Bank of New York. is the Custodian of the Fund's assets. The
Custodian's responsibilities include safeguarding and controlling the Fund's
portfolio securities and handling the delivery of such securities to and from
the Fund. It will be the practice of the Fund to deal with the Custodian in a
manner uninfluenced by any banking relationship the Custodian may have with the
Manager and its affiliates. The Fund's cash balances with the Custodian in
excess of $100,000 are not protected by Federal Deposit Insurance. Those
uninsured balances may at times be substantial.
Independent Auditors. Deloitte & Touche LLP are the independent auditors of the
Fund. They audit the Fund's financial statements and perform other related audit
services. They also act as auditors for certain other funds advised by the
Manager and its affiliates.
<PAGE>
================================================================================
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, 1998, the related statement of operations for the year then
ended, the statements of changes in net assets for the years ended September
30, 1998 and 1997, and the financial highlights for the period October 1, 1993,
to September 30, 1998. 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, 1998, 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, 1998, 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, 1998
<PAGE>
Financials
--------------------------------------
12 Oppenheimer Insured Municipal Fund
<PAGE>
================================================================================
Statement of Investments September 30, 1998
================================================================================
<TABLE>
<CAPTION>
Ratings:
Moody's/
S&P/Fitch Face Market Value
(Unaudited) Amount See Note 1
- -----------------------------------------------------------------------------------------------
Municipal Bonds and Notes--101.3%
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Alaska--3.5%
AK Export & IDAU RB, Snettisham
Hydroelectric Power, First Series,
AMBAC Insured, 5.50%, 1/1/16 Aaa/AAA $1,145,000 $1,212,910
- -----------------------------------------------------------------------------------------------
AK Export & IDAU RB, Snettisham
Hydroelectric Power, First Series,
AMBAC Insured, 5.50%, 1/1/17 Aaa/AAA 1,265,000 1,336,865
- -----------------------------------------------------------------------------------------------
AK Student Loan Corp. RRB, Series A,
AMBAC Insured, 5.30%, 7/1/15 Aaa/AAA 2,165,000 2,235,925
----------
4,785,700
- -----------------------------------------------------------------------------------------------
Arizona--0.9%
AZ Educational LMC RRB, Series B,
7%, 3/1/05 Aa2/NR 1,090,000 1,177,407
- -----------------------------------------------------------------------------------------------
California--7.3%
CA SCDAU Revenue Refunding COP,
Cedars-Sinai Medical Center, MBIA Insured,
6.50%, 8/1/12 Aaa/AAA 1,000,000 1,219,920
- -----------------------------------------------------------------------------------------------
Pomona, CA USD GORB, Series A,
MBIA Insured, 6.15%, 8/1/15 Aaa/AAA 1,000,000 1,202,230
- -----------------------------------------------------------------------------------------------
Redding, CA Electric System Revenue COP,
MBIA Insured, Inverse Floater, 8.803%, 7/8/22(1) Aaa/AAA 1,500,000 2,064,375
- -----------------------------------------------------------------------------------------------
Sacramento, CA MUD Electric RRB, Series G,
MBIA Insured, 6.50%, 9/1/13 Aaa/AAA/A 1,000,000 1,231,010
- -----------------------------------------------------------------------------------------------
San Francisco, CA City & Cnty. International
Airport Commission RB, Second Series
Issue 14-A, MBIA Insured, 8%, 5/1/09 Aaa/AAA 1,455,000 1,812,406
- -----------------------------------------------------------------------------------------------
Turlock, CA Irrigation District RRB, Series A,
MBIA Insured, 5%, 1/1/13 Aaa/AAA/AAA 2,175,000 2,294,647
----------
9,824,588
- -----------------------------------------------------------------------------------------------
Colorado--5.6%
Centennial Water & Sanitation District CO,
Water & Sewer RB, 5.75%, 6/15/15 Aaa/AAA 1,775,000 1,938,513
- -----------------------------------------------------------------------------------------------
CO Housing FAU MH RB, Series B-2,
5.90%, 10/1/38 Aa2/AA 1,000,000 1,044,170
- -----------------------------------------------------------------------------------------------
CO Housing FAU SFM CAP RB, Series C-1,
Zero Coupon, 5.625%, 11/1/29(2) Aa2/NR 5,000,000 912,150
- -----------------------------------------------------------------------------------------------
CO Housing FAU SFM RB, Sr. Lien, Series C-2,
6.875%, 11/1/28 Aa2/NR 2,000,000 2,268,020
</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>
Colorado (continued)
Douglas and Elbert Cntys., CO SDI No. RE-1,
Improvement GOB, Series A, MBIA
Insured, 8%, 12/15/09 Aaa/AAA $1,000,000 $1,337,380
-----------
7,500,233
- ----------------------------------------------------------------------------------------------
Connecticut--3.1%
CT Housing FAU RB, Series A, Subseries A-2,
6.20%, 11/15/22 Aa2/AA 960,000 1,032,662
- ----------------------------------------------------------------------------------------------
CT Housing FAU RRB, Series A, Subseries D-2,
6.20%, 11/15/27 Aa2/AA 995,000 1,067,187
- ----------------------------------------------------------------------------------------------
CT Housing FAU RRB, Subseries C-2,
5.85%, 11/15/28 Aa2/AA 2,000,000 2,113,840
----------
4,213,689
- ----------------------------------------------------------------------------------------------
Florida--2.7%
FL HFA MH RRB, Series C, 6%, 8/1/11 NR/AAA 1,000,000 1,090,630
- ----------------------------------------------------------------------------------------------
Lee Cnty., FL Hospital Board of Directors
RRB, MBIA Insured, Inverse Floater,
8.548%, 3/26/20(1) Aaa/AAA 1,000,000 1,181,250
- ----------------------------------------------------------------------------------------------
Miami-Dade Cnty., FL SPO RRB, Sub. Lien,
Series A, MBIA Insured, Zero Coupon,
5.45%, 10/1/15(2) Aaa/AAA 3,000,000 1,314,690
----------
3,586,570
- ----------------------------------------------------------------------------------------------
Georgia--4.4%
Dalton, GA DAU RB, MBIA Insured,
5.50%, 8/15/26 Aaa/AAA 1,000,000 1,109,370
- ----------------------------------------------------------------------------------------------
GA MEAU RRB, Project One, Sub. Lien,
Series A, AMBAC Insured, 5.375%, 1/1/13 Aaa/AAA/A- 2,285,000 2,442,825
- ----------------------------------------------------------------------------------------------
Richmond Cnty., GA DAU RB, Sub. Lien,
Series C, Zero Coupon, 5.82%, 12/1/21(2) Aaa/NR 8,000,000 2,429,680
----------
5,981,875
- ----------------------------------------------------------------------------------------------
Illinois--11.3%
Chicago, IL BOE GOB, Chicago School
Reform Project, Series A, AMBAC Insured,
5.25%, 12/1/22 Aaa/AAA/AAA 2,000,000 2,044,840
- ----------------------------------------------------------------------------------------------
Chicago, IL Midway Airport RRB, Series A,
MBIA Insured, 5.125%, 1/1/35 Aaa/AAA 2,000,000 1,999,840
- ----------------------------------------------------------------------------------------------
Chicago, IL O'Hare International Airport
RRB, General Airport, Second Lien, Series A,
AMBAC Insured, 5.50%, 1/1/16 Aaa/AAA/AAA 2,500,000 2,641,250
- ----------------------------------------------------------------------------------------------
Chicago, IL SFM RB, Series B, 6.95%, 9/1/28 Aaa/NR 1,890,000 2,156,339
</TABLE>
14 Oppenheimer Insured Municipal Fund
<PAGE>
================================================================================
================================================================================
<TABLE>
<CAPTION>
Ratings:
Moody's/
S&P/Fitch Face Market Value
(Unaudited) Amount See Note 1
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Illinois (continued)
Cook Cnty., IL Community College
District No. 508 Chicago COP, FGIC Insured,
8.75%, 1/1/05 Aaa/AAA/AAA $ 500,000 $ 627,295
- -----------------------------------------------------------------------------------------------
Cook Cnty., IL Community College District
No. 508 Lease COP, Series C, MBIA Insured,
7.70%, 12/1/07 Aaa/AAA 1,500,000 1,907,955
- -----------------------------------------------------------------------------------------------
Cook Cnty., IL SDI No. 99 Cicero GOB,
FGIC Insured, 8.50%, 12/1/05 Aaa/AAA 1,170,000 1,487,725
- -----------------------------------------------------------------------------------------------
IL HFAU RRB, Northwestern Medical
Facilities, MBIA Insured, 5%, 11/15/10 Aaa/NR/AAA 2,285,000 2,388,488
----------
15,253,732
- -----------------------------------------------------------------------------------------------
Indiana--6.3%
Hamilton Southeastern, IN Consolidated
School Building Corp. RRB, First Mtg.,
AMBAC Insured, 7%, 7/1/11 Aaa/AAA/AAA 500,000 542,870
- -----------------------------------------------------------------------------------------------
IN HFAU RRB, Holy Cross Health Systems
Corp., MBIA Insured, 5%, 12/1/22 Aaa/AAA/AAA 2,500,000 2,470,450
- -----------------------------------------------------------------------------------------------
IN HFFAU Hospital RB, Clarian Health
Partners, Inc., Series A, 6%, 2/15/21 Aa3/AA/AA 2,000,000 2,200,160
- -----------------------------------------------------------------------------------------------
IN Office Building Commission Capital
Complex RB, Series B, MBIA Insured,
7.40%, 7/1/15 Aaa/AAA 2,500,000 3,304,525
---------
8,518,005
- -----------------------------------------------------------------------------------------------
Massachusetts--4.2%
MA Health & Educational FA RB, Mt. Auburn
Hospital Issue, Series B-1, MBIA Insured,
6.25%, 8/15/14 Aaa/AAA 1,000,000 1,118,860
- -----------------------------------------------------------------------------------------------
MA HFA RB, Series A, AMBAC Insured,
6.60%, 7/1/14 Aaa/AAA/AAA 1,905,000 2,069,268
- -----------------------------------------------------------------------------------------------
MA TUAU Metropolitan Highway System
RRB, Sr. Lien, Series A, MBIA Insured,
5%, 1/1/37 Aaa/AAA/AAA 2,500,000 2,493,450
---------
5,681,578
- -----------------------------------------------------------------------------------------------
Nevada--1.6%
Clark Cnty., NV Passenger Facility Charge RB,
Las Vegas McCarran International Airport
Project, Series B, MBIA Insured, 6.50%, 7/1/12 Aaa/AAA 2,000,000 2,192,600
- -----------------------------------------------------------------------------------------------
New Hampshire--0.4%
NH Turnpike System RRB, Series A,
FGIC Insured, 6.75%, 11/1/11 Aaa/AAA/AAA 500,000 592,065
</TABLE>
15 Oppenheimer Insured Municipal Fund
<PAGE>
================================================================================
Statement of Investments (Continued)
================================================================================
<TABLE>
<CAPTION>
Ratings:
Moody's/
S&P/Fitch Face Market Value
(Unaudited) Amount See Note 1
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
New Jersey--1.2%
Bergen Cnty., NJ Utilities WPCAU RRB,
Series A, FGIC Insured, 5%, 12/15/14 Aaa/AAA $1,545,000 $1,591,613
- ----------------------------------------------------------------------------------------------
New York--5.2%
L.I., NY PAU Electric Systems RRB, Series A,
FSA Insured, 5.125%, 12/1/22 Aaa/AAA/AAA 4,000,000 4,055,880
- ----------------------------------------------------------------------------------------------
NYS United Nations Development Corp.RRB,
Sr.Lien, Series B, 5.60%, 7/1/26 A2/NR/A 3,000,000 3,013,860
----------
7,069,740
- ----------------------------------------------------------------------------------------------
North Carolina--2.6%
NC Medical Care Community HCF RB,
Duke University Health Systems, Series B,
5%, 6/1/28 Aa3/AA/AA 3,500,000 3,470,320
- ----------------------------------------------------------------------------------------------
Ohio--2.1%
OH HFA Mtg.RB, 6.10%, 9/1/28 NR/AAA 1,990,000 2,132,584
Streetsboro, OH SDI GOB, AMBAC Insured,
7.125%, 12/1/10 Aaa/AAA/AAA 500,000 636,710
----------
2,769,294
- ----------------------------------------------------------------------------------------------
Oklahoma--1.7%
OK Industrial Authority Health Systems RB,
Baptist Medical Center, Series C, AMBAC
Insured, 7%, 8/15/05 Aaa/AAA/AAA 2,000,000 2,341,040
- ----------------------------------------------------------------------------------------------
Pennsylvania--14.0%
Allegheny Cnty., PA Airport RRB, Pittsburgh
International Airport, Series A, MBIA Insured,
5.75%, 1/1/08 Aaa/AAA 1,000,000 1,109,250
- ----------------------------------------------------------------------------------------------
Berks Cnty., PA GOB, Prerefunded, FGIC
Insured, Inverse Floater, 8.672%, 11/10/20(1) Aaa/AAA/AAA 1,000,000 1,217,500
- ----------------------------------------------------------------------------------------------
Chester Cnty., PA Education & HFAU RRB,
Series B, 5.375%, 5/15/27 A1/AA-/AA- 3,575,000 3,664,947
- ----------------------------------------------------------------------------------------------
Delaware Valley, PA Regional FAU Local
Government RB, Series B, AMBAC Insured,
5.70%, 7/1/27 Aaa/AAA 2,000,000 2,294,400
- ----------------------------------------------------------------------------------------------
PA HEAA Student Loan RB, Series B, AMBAC
Insured, Inverse Floater, 8.419%, 3/1/22(1) Aaa/AAA/AAA 1,250,000 1,437,500
- ----------------------------------------------------------------------------------------------
Philadelphia, PA Airport IDAU RB,
Philadelphia Airport System Project, Series A,
FGIC Insured, 5.125%, 7/1/28 Aaa/AAA 3,000,000 3,012,930
- ----------------------------------------------------------------------------------------------
Philadelphia, PA Airport RB, Series 387A,
Inverse Floater, 6.95%, 6/15/12(1) Aaa/AAA/AAA 1,565,000 1,750,296
- ----------------------------------------------------------------------------------------------
Philadelphia, PA Airport RB, Series 387B,
Inverse Floater, 6.95%, 6/15/14(1) Aaa/AAA/AAA 1,960,000 2,156,039
</TABLE>
16 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>
Pennsylvania (continued)
Philadelphia, PA Regional POAU Lease RB,
MBIA Insured, Inverse Floater, 8.50%, 9/1/20(1) Aaa/AAA $1,900,000 $2,256,250
----------
18,899,112
- ----------------------------------------------------------------------------------------------
South Dakota--0.8%
SD Lease Revenue Trust Certificates, Series B,
FSA Insured, 8%, 9/1/02 Aaa/AAA 1,000,000 1,147,440
- ----------------------------------------------------------------------------------------------
Texas--12.0%
Cedar Hill, TX ISD CAP RRB, Zero Coupon,
6.10%, 8/15/11(2) Aaa/AAA/AAA 1,585,000 858,071
- ----------------------------------------------------------------------------------------------
Grand Prairie, TX HFDC RRB, Dallas/Ft.Worth
Medical Center Project, AMBAC Insured,
6.875%, 11/1/10 Aaa/AAA 1,800,000 2,072,538
- ----------------------------------------------------------------------------------------------
Harris Cnty., TX Hospital District RRB,
AMBAC Insured, 7.40%, 2/15/10 Aaa/AAA/AAA 2,000,000 2,440,740
- ----------------------------------------------------------------------------------------------
Harris Cnty., TX Houston Sports Authority
Special CAP RB, Jr. Lien, Series B, MBIA
Insured, Zero Coupon, 11.013%, 11/15/13(2) Aaa/AAA/AAA 4,360,000 2,071,349
- ----------------------------------------------------------------------------------------------
Lower Neches Valley, TX IDAU Corp. RRB,
Mobil Oil Refining Corp., 5.55%, 3/1/33 Aa2/AA 3,000,000 3,151,860
- ----------------------------------------------------------------------------------------------
Lower Neches Valley, TX IDAU Corp. Sewer
Facilities RB, Mobil Oil Refining Corp. Project,
6.40%, 3/1/30 Aa2/AA 1,000,000 1,104,250
- ----------------------------------------------------------------------------------------------
Rio Grande Valley TX HFDC Retirement
Facilities RB, Golden Palms, Series B, MBIA
Insured, 6.40%, 8/1/12 Aaa/AAA 2,000,000 2,192,700
- ----------------------------------------------------------------------------------------------
Tarrant Cnty., TX HFDC RB, Texas Health
Resources System, Series A, MBIA Insured,
5.75%, 2/15/11 Aaa/AAA 2,130,000 2,367,580
----------
16,259,088
- ----------------------------------------------------------------------------------------------
Washington--4.5%
Chelan Cnty., WA Public Utilities District
No.1 RB, Chelan Hydro Conservation
System-Division III, Series A, 5.60%, 7/1/32 Aa3/AA 2,000,000 2,111,500
- ----------------------------------------------------------------------------------------------
Tacoma, WA Electric Systems RB,
Prerefunded, AMBAC Insured, Inverse
Floater, 9.013%, 1/2/15(1) Aaa/AAA/AAA 1,000,000 1,152,500
- ----------------------------------------------------------------------------------------------
WA PP Supply System RRB, Nuclear Project
No.1, Series A, 5%, 7/1/13 Aa1/AA-/AA- 1,500,000 1,527,270
</TABLE>
17 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>
Washington (continued)
WA PP Supply System RRB, Nuclear Project
No.2, Series A, FGIC Insured, Zero Coupon,
5.50%, 7/1/09(2) Aaa/AAA/AAA $2,000,000 $1,240,720
------------
6,031,990
- -----------------------------------------------------------------------------------------------
Wisconsin--1.2%
WI Health & Educational FA RB, Aurora
Medical Group, Inc. Project, FSA Insured,
6%, 11/15/11 Aaa/AAA 1,370,000 1,596,406
- -----------------------------------------------------------------------------------------------
District of Columbia--4.7%
DC Convention Center Authority Dedicated
Tax RB, Sr. Lien, AMBAC Insured, 5%, 10/1/21 Aaa/AAA/AAA 3,000,000 2,993,880
- -----------------------------------------------------------------------------------------------
DC Hospital RRB, Medlantic Healthcare
Group, Series A, MBIA Insured, 5.25%, 8/15/12 Aaa/AAA 1,000,000 1,049,040
- -----------------------------------------------------------------------------------------------
DC RRB, Prerefunded, Series A-1, MBIA
Insured, 6%, 6/1/11 Aaa/AAA 100,000 115,670
- -----------------------------------------------------------------------------------------------
DC RRB, Unrefunded Balance, Series A-1,
MBIA Insured, 6%, 6/1/11 Aaa/AAA 1,900,000 2,171,814
------------
6,330,404
- -----------------------------------------------------------------------------------------------
Total Investments, at Value (Cost $126,698,612) 101.3% 136,814,489
- -----------------------------------------------------------------------------------------------
Liabilities in Excess of Other Assets (1.3) (1,812,306)
--------- ------------
Net Assets 100.0% $135,002,183
========= ============
</TABLE>
18 Oppenheimer Insured Municipal Fund
<PAGE>
================================================================================
================================================================================
- --------------------------------------------------------------------------------
To simplify the listings of securities, abbreviations are used per the table
below:
<TABLE>
<CAPTION>
<S> <C> <C>
BOE --Board of Education LMC --Loan Marketing Corp.
CAP --Capital Appreciation MEAU --Municipal Electric Authority
COP --Certificates of Participation MH --Multifamily Housing
DAU --Development Authority MUD --Municipal Utility District
FA --Facilities Authority NYS --New York State
FAU --Finance Authority PAU --Power Authority
GOB --General Obligation Bonds POAU --Port Authority
GORB --General Obligation Refunding Bonds PP --Public Power
HCF --Health Care Facilities RB --Revenue Bonds
HEAA --Higher Education Assistance Agency RRB --Revenue Refunding Bonds
HFA --Housing Finance Agency SCDAU --Statewide Communities Development Authority
HFAU --Health Facilities Authority SDI --School District
HFDC --Health Facilities Development Corp. SFM --Single Family Mtg.
HFFAU --Health Facilities Finance Authority SPO --Special Obligations
IDAU --Industrial Development Authority TUAU --Turnpike Authority
ISD --Independent School District USD --Unified School District
L.I. --Long Island WPCAU --Water Pollution Control Authority
</TABLE>
1. Represents the current interest rate for a variable rate bond known as an
"inverse floater" which pays interest at a rate that varies inversely with
short-term interest rates. As interest rates rise, inverse floaters produce less
current income. Their price may be more volatile than the price of a comparable
fixed-rate security. Inverse floaters amount to $13,215,710 or 9.79% of the
Fund's net assets as of September 30,1998.
2. For zero coupon bonds, the interest rate shown is the effective yield on the
date of purchase.
As of September 30, 1998, securities subject to the alternative minimum tax
amount to $45,239,049 or 33.51% of the Fund's net assets.
See accompanying Notes to Financial Statements.
19 Oppenheimer Insured Municipal Fund
<PAGE>
================================================================================
Statement of Assets and Liabilities September 30, 1998
================================================================================
<TABLE>
<CAPTION>
====================================================================================================
Assets
- ----------------------------------------------------------------------------------------------------
<S> <C>
Investments, at value (cost $126,698,612)--see accompanying statement $ 136,814,489
- ----------------------------------------------------------------------------------------------------
Cash 18,819
- ----------------------------------------------------------------------------------------------------
Receivables:
Interest 1,656,357
Shares of beneficial interest sold 333,128
Investments sold 99,107
- ----------------------------------------------------------------------------------------------------
Other 16,310
-----------
Total assets 138,938,210
====================================================================================================
Liabilities
Payables and other liabilities:
Investments purchased 3,421,063
Dividends 297,350
Distribution and service plan fees 79,900
Shares of beneficial interest redeemed 70,535
Transfer and shareholder servicing agent fees 15,223
Other 51,956
---------
Total liabilities 3,936,027
====================================================================================================
Net Assets $ 135,002,183
=============
====================================================================================================
Composition of Net Assets
Paid-in capital $ 124,052,041
- ----------------------------------------------------------------------------------------------------
Overdistributed net investment income (297,350)
- ----------------------------------------------------------------------------------------------------
Accumulated net realized gain on investment transactions 1,131,615
- ----------------------------------------------------------------------------------------------------
Net unrealized appreciation on investments--Note 3 10,115,877
-------------
Net assets $ 135,002,183
=============
</TABLE>
20 Oppenheimer Insured 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
$102,687,383 and 5,607,969 shares of beneficial interest outstanding) $18.31
Maximum offering price per share (net asset value plus sales charge
of 4.75% of offering price) $19.22
- ---------------------------------------------------------------------------------------------
Class B Shares:
Net asset value, redemption price (excludes applicable contingent deferred sales
charge) and offering price per share (based on net assets of $27,391,541 and
1,495,409 shares of beneficial interest outstanding) $18.32
- ---------------------------------------------------------------------------------------------
Class C Shares:
Net asset value, redemption price (excludes applicable contingent deferred sales
charge) and offering price per share (based on net assets of $4,923,259 and
268,917 shares of beneficial interest outstanding) $18.31
</TABLE>
See accompanying Notes to Financial Statements
21 Oppenheimer Insured Municipal Fund
<PAGE>
================================================================================
Statement of Operations For the Year Ended September 30, 1998
================================================================================
<TABLE>
<CAPTION>
====================================================================================================
<S> <C>
Investment Income
Interest $ 6,659,055
====================================================================================================
Expenses
Management fees--Note 4 545,563
- ----------------------------------------------------------------------------------------------------
Distribution and service plan fees--Note 4:
Class A 231,419
Class B 237,967
Class C 36,548
- ----------------------------------------------------------------------------------------------------
Transfer and shareholder servicing agent fees--Note 4 101,131
- ----------------------------------------------------------------------------------------------------
Shareholder reports 47,288
- ----------------------------------------------------------------------------------------------------
Registration and filing fees 44,748
- ----------------------------------------------------------------------------------------------------
Custodian fees and expenses 26,754
- ----------------------------------------------------------------------------------------------------
Legal, auditing and other professional fees 12,920
- ----------------------------------------------------------------------------------------------------
Accounting service fees--Note 4 12,000
- ----------------------------------------------------------------------------------------------------
Trustees' fees and expenses 4,048
- ----------------------------------------------------------------------------------------------------
Other 7,848
---------
Total expenses 1,308,234
Less expenses paid indirectly--Note 4 (17,548)
---------
Net expenses 1,290,686
====================================================================================================
Net Investment Income 5,368,369
====================================================================================================
Realized and Unrealized Gain (Loss)
Net realized gain (loss) on:
Investments 2,061,528
Closing of futures contracts (879,746)
---------
Net realized gain 1,181,782
- ----------------------------------------------------------------------------------------------------
Net change in unrealized appreciation or depreciation on investments 3,993,214
---------
Net realized and unrealized gain 5,174,996
====================================================================================================
Net Increase in Net Assets Resulting from Operations $ 10,543,365
=============
</TABLE>
See accompanying Notes to Financial Statements.
22 Oppenheimer Insured Municipal Fund
<PAGE>
================================================================================
Statements of Changes in Net Assets
================================================================================
<TABLE>
<CAPTION>
Year Ended September 30,
1998 1997
===============================================================================================
<S> <C> <C>
Operations
Net investment income $ 5,368,369 $ 5,398,040
- -----------------------------------------------------------------------------------------------
Net realized gain 1,181,782 559,776
- -----------------------------------------------------------------------------------------------
Net change in unrealized appreciation or depreciation 3,993,214 3,288,007
------------- -------------
Net increase in net assets resulting from operations 10,543,365 9,245,823
===============================================================================================
Dividends and Distributions to Shareholders
Dividends from net investment income:
Class A (4,498,622) (4,428,263)
Class B (921,805) (753,073)
Class C (140,882) (72,828)
- -----------------------------------------------------------------------------------------------
Distributions from net realized gain:
Class A (646,115) --
Class B (149,337) --
Class C (19,416) --
===============================================================================================
Beneficial Interest Transactions
Net increase in net assets resulting from
beneficial interest transactions--Note 2:
Class A 8,417,042 4,293,559
Class B 6,601,026 3,315,084
Class C 2,237,718 1,554,898
===============================================================================================
Net Assets
Total increase 21,422,974 13,155,200
- -----------------------------------------------------------------------------------------------
Beginning of period 113,579,209 100,424,009
------------- -----------
End of period [including undistributed (overdistributed) net
investment income of $(297,350) and $310,788, respectively] $ 135,002,183 $ 113,579,209
============= =============
</TABLE>
See accompanying Notes to Financial Statements.
23 Oppenheimer Insured Municipal Fund
<PAGE>
================================================================================
Financial Highlights
================================================================================
<TABLE>
<CAPTION>
Class A
------------------------------------------------------------------
Year Ended September 30,
1998 1997 1996 1995 1994
=======================================================================================================================
<S> <C> <C> <C> <C> <C>
Per Share Operating Data
Net asset value, beginning of period $ 17.72 $ 17.07 $ 16.86 $ 16.14 $ 18.06
- -----------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .80 .91 .90 .90 .89
Net realized and unrealized gain (loss) .75 .63 .20 .71 (1.84)
----------- ----------- ----------- ----------- -----------
Total income (loss) from
investment operations 1.55 1.54 1.10 1.61 (.95)
- -----------------------------------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income (.84) (.89) (.89) (.89) (.89)
Distributions from net realized gain (.12) -- -- -- (.08)
----------- ----------- ----------- ----------- -----------
Total dividends and distributions
to shareholders (.96) (.89) (.89) (.89) (.97)
- -----------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 18.31 $ 17.72 $ 17.07 $ 16.86 $ 16.14
=========== =========== =========== =========== ===========
=======================================================================================================================
Total Return, at Net Asset Value(3) 9.01% 9.25% 6.67% 10.29% (5.46)%
=======================================================================================================================
Ratios/Supplemental Data
Net assets, end of period
(in thousands) $ 102,687 $ 91,051 $ 83,516 $ 76,691 $ 67,793
- -----------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $ 96,458 $ 86,511 $ 81,233 $ 70,650 $ 66,953
- -----------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income 4.49% 5.25% 5.27% 5.52% 5.23%
Expenses(5) 0.89% 0.95% 1.02% 0.95% 1.05%
- -----------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(6) 73% 77% 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. Assumes a hypothetical initial investment on the business day before the
first day of the fiscal period (or inception of offering), with all dividends
and distributions reinvested in additional shares on the reinvestment date, and
redemption at the net asset value calculated on the last business day of the
fiscal period. Sales charges are not reflected in the total returns. Total
returns are not annualized for periods of less than one full year.
4. Annualized.
24 Oppenheimer Insured Municipal Fund
<PAGE>
================================================================================
================================================================================
<TABLE>
<CAPTION>
Class B Class C
- ---------------------------------------------------------------------- --------------------------------------------------
Year Ended September 30, Year Ended September 30,
1998 1997 1996 1995 1994 1998 1997(2) 1996 1995(1)
==============================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 17.73 $ 17.08 $ 16.87 $ 16.15 $ 18.07 $ 17.72 $ 17.06 $ 16.86 $ 16.72
- -----------------------------------------------------------------------------------------------------------------------------
.67 .76 .77 .78 .77 .70 .76 .75 .08
.74 .65 .20 .71 (1.86) .71 .65 .21 .14
- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
1.41 1.41 .97 1.49 (1.09) 1.41 1.41 .96 .22
- -----------------------------------------------------------------------------------------------------------------------------
(.70) (.76) (.76) (.77) (.75) (.70) (.75) (.76) (.08)
(.12) -- -- -- (.08) (.12) -- -- --
- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
(.82) (.76) (.76) (.77) (.83) (.82) (.75) (.76) (.08)
- -----------------------------------------------------------------------------------------------------------------------------
$ 18.32 $ 17.73 $ 17.08 $ 16.87 $ 16.15 $ 18.31 $ 17.72 $ 17.06 $ 16.86
========== ========== ========== ========== ========== ========== ========== ========== ==========
=============================================================================================================================
8.18% 8.43% 5.87% 9.47% (6.20)% 8.18% 8.48% 5.77% 1.30%
=============================================================================================================================
$ 27,392 $ 19,974 $ 15,983 $ 13,341 $ 11,571 $ 4,923 $ 2,554 $ 924 $ 211
- -----------------------------------------------------------------------------------------------------------------------------
$ 23,817 $ 17,309 $ 14,822 $ 11,987 $ 9,209 $ 3,661 $ 1,720 $ 618 $ 1
- -----------------------------------------------------------------------------------------------------------------------------
3.76% 4.48% 4.50% 4.75% 4.43% 3.82% 4.45% 4.38% 4.89%(4)
1.64% 1.71% 1.77% 1.71% 1.82% 1.64% 1.72% 1.81% 1.07%(4)
- -----------------------------------------------------------------------------------------------------------------------------
73% 77% 93% 58% 99% 73% 77% 93% 58%
</TABLE>
5. Beginning in fiscal 1996, the expense ratio reflects the effect of expenses
paid indirectly by the Fund. Prior year expense ratios have not been adjusted.
6. The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities owned
during the period. Securities with a maturity or expiration date at the time of
acquisition of one year or less are excluded from the calculation. Purchases and
sales of investment securities (excluding short-term securities) for the period
ended September 30, 1998, were $102,480,896 and $90,478,993, respectively.
See accompanying Notes to Financial Statements.
25 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 a high level of current income exempt
from Federal income tax. 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 total assets in insured Municipal Securities. The Fund's investment
advisor is Oppenheimer Funds, 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.
- --------------------------------------------------------------------------------
Allocation of Income, Expenses, Gains and Losses. Income, expenses (other than
those attributable to a specific class), gains and losses are allocated daily to
each class of shares based upon the relative proportion of net assets
represented by such class. Operating expenses directly attributable to a
specific class are charged against the operations of that class.
- --------------------------------------------------------------------------------
Federal Taxes. The Fund intends to continue to comply with provisions of the
Internal Revenue Code applicable to regulated investment companies and to
distribute all of its taxable income, including any net realized gain on
investments not offset by loss carryovers, to shareholders. Therefore, no
federal income or excise tax provision is required.
26 Oppenheimer Insured Municipal Fund
<PAGE>
================================================================================
================================================================================
- --------------------------------------------------------------------------------
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.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 ended September 30, 1998, amounts have been reclassified to reflect an
increase in paid-in capital of $420,762, a decrease in undistributed net
investment income of $415,198, and a decrease in accumulated net realized gain
on investments of $5,564.
- --------------------------------------------------------------------------------
Other. Investment transactions are accounted for on the date the investments are
purchased or sold (trade date). Original issue discount on securities purchased
is amortized over the life of the respective securities, in accordance with
federal income tax requirements.As of November 4, 1997, in order to conform book
and tax bases, the Fund began amortization of premiums on securities for book
purposes. Such cumulative change was limited to a reclassification adjustment
and had no impact on net assets or total increase (decrease) in net assets.
Accordingly, during the year ended September 30, 1998, amounts have been
reclassified to reflect an increase in net unrealized appreciation on
investments of $549,002. Paid-in capital was decreased by the same amount. 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.
27 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, 1998 Year Ended September 30, 1997
----------------------------- -----------------------------
Shares Amount Shares Amount
- ------------------------------------------------------------------------------------------------
Class A:
<S> <C> <C> <C> <C>
Sold 955,728 $ 17,118,675 925,621 $ 16,067,826
Dividends and distributions
reinvested 212,388 3,794,412 190,616 3,300,646
Redeemed (698,348) (12,496,045) (870,242) (15,074,913)
------- ------------ ------- ------------
Net increase 469,768 $ 8,417,042 245,995 $ 4,293,559
======= ============ ======= ============
- ------------------------------------------------------------------------------------------------
Class B:
Sold 543,004 $ 9,724,208 328,196 $ 5,695,198
Dividends and distributions
reinvested 39,547 706,671 28,559 494,913
Redeemed (213,910) (3,829,853) (165,697) (2,875,027)
------- ------------ ------- ------------
Net increase 368,641 $ 6,601,026 191,058 $ 3,315,084
======= ============ ======= ============
- ------------------------------------------------------------------------------------------------
Class C:
Sold 156,606 $ 2,808,699 106,290 $ 1,838,223
Dividends and distributions
reinvested 7,178 128,230 2,660 46,164
Redeemed (39,038) (699,211) (18,976) (329,489)
------- ------------ ------- ------------
Net increase 124,746 $ 2,237,718 89,974 $ 1,554,898
======= ============ ======= ============
</TABLE>
================================================================================
3. Unrealized Gains and Losses on Investments
As of September 30, 1998, net unrealized appreciation on investments of
$10,115,877 was composed of gross appreciation of $10,115,877.
================================================================================
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% of the first
$100 million of average annual net assets, 0.40% of the next $150 million,
0.375% of the next $250 million and 0.35% of net assets in excess of $500
million. The Fund's management fee for the year ended September 30, 1998, was
0.44% of average annual net assets for its Class A, Class B and Class C shares.
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.
28 Oppenheimer Insured Municipal Fund
<PAGE>
================================================================================
================================================================================
- --------------------------------------------------------------------------------
For the year ended September 30, 1998, commissions (sales charges paid by
investors) on sales of Class A shares totaled $197,210, of which $47,360 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 $350,427 and $27,494, respectively, of which $5,664 and
$2,600, respectively, was paid to an affiliated broker/deal or Class B and Class
C shares. During the year ended September 30, 1998, OFDI received contingent
deferred sales charges of $80,736 and $1,564, 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 Oppenheimer funds.
OFS's total costs of providing such services are allocated ratably to these
funds.
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 maintenance of accounts of their customers that hold Class
A shares. During the year ended September 30, 1998, OFDI paid $11,269 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 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 and Class C shares for its
services rendered in distributing Class B and Class C shares. OFDI also receives
a service fee of 0.25% per year to compensate dealers for providing personal
services for accounts that hold Class B and Class C shares. Each fee is
computed on the average annual net assets of Class B or Class C shares,
determined as of the close of each regular business day. During the year ended
September 30, 1998, OFDI paid $2,503 to an affiliated broker/dealer as
compensation for Class B personal service and maintenance expenses and retained
$197,544 and $25,438, 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. As of September 30, 1998, OFDI had
incurred excess distribution and servicing costs of $875,951 for Class B and
$67,456 for Class C.
29 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 Oppenheimer funds in an unsecured line of
credit with a bank, which permits borrowings up to $400 million, collectively.
Interest is charged to each fund, based on its borrowings, at a rate equal to
the Federal Funds Rate plus 0.35%. Borrowings are payable 30 days after such
loan is executed. The Fund also pays a commitment fee equal to its pro rata
share of the average unutilized amount of the credit facility at a rate of
0.0575% per annum.
The Fund had no borrowings outstanding during the year ended September 30,
1998.
30 Oppenheimer Insured Municipal Fund
<PAGE>
Appendix A
- ------------------------------------------------------------------------------
MUNICIPAL BOND RATINGS DEFINITIONS
- ------------------------------------------------------------------------------
Below are summaries of the rating definitions used by the nationally-recognized
rating agencies listed below for municipal securities. Those ratings represent
the opinion of the agency as to the credit quality of issues that they rate. The
summaries below are based upon publicly-available information provided by the
rating organizations.
Moody's Investors Service, Inc.
- ------------------------------------------------------------------------------
Long-Term Bond Ratings
Aaa: Bonds rated Aaa are judged to be the best quality. They carry the smallest
degree of investment risk. Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, the changes that can be expected are
most unlikely to impair the fundamentally strong position of such issues.
Aa: Bonds rated Aa are judged to be of high quality by all standards. Together
with the Aaa group, they comprise what are generally known as high-grade bonds.
They are rated lower than the best bonds because margins of protection may not
be as large as with Aaa securities or fluctuation of protective elements may be
of greater amplitude or there may be other elements present which make the
long-term risks appear somewhat larger than those of Aaa securities.
A: Bonds rated A possess many favorable investment attributes and are to be
considered as upper-medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
Baa: Bonds rated Baa are considered medium grade obligations; that is, they are
neither highly protected nor poorly secured. Interest payments and principal
security appear adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and have speculative
characteristics as well.
Ba: Bonds rated Ba are judged to have speculative elements. Their future cannot
be considered well-assured. Often the protection of interest and principal
payments may be very moderate and not well safeguarded during both good and bad
times over the future. Uncertainty of position characterizes bonds in this
class.
B: Bonds rated B generally lack characteristics of desirable investment.
Assurance of interest and principal payments or of maintenance of other terms of
the contract over any long period of time may be small.
Caa: Bonds rated Caa are of poor standing and may be in default or there may
be present elements of danger with respect to principal or interest.
Ca: Bonds rated Ca represent obligations which are speculative in a high
degree and are often in default or have other marked shortcomings.
C: Bonds rated C are the lowest class of rated bonds and can be regarded as
having extremely poor prospects of ever attaining any real investment standing.
Con. (...): Bonds for which the security depends on the completion of some act
or the fulfillment of some condition are rated conditionally. These bonds are
secured by (a) earnings of projects under construction, (b) earnings of projects
unseasoned in operating experience, (c) rentals that begin when facilities are
completed, or (d) payments to which some other limitation attaches.
Parenthetical rating denotes probable credit stature upon completion of
construction or elimination of basis of condition. Moody's applies numerical
modifiers 1, 2, and 3 in each generic rating classification from Aa through Caa.
The modifier "1" indicates that the obligation ranks in the higher end of its
category; the modifier "2" indicates a mid-range ranking and the modifier "3"
indicates a ranking in the lower end of the category. Advanced refunded issues
that are secured by certain assets are identified with a # symbol.
Short-Term Ratings - U.S. Tax-Exempt Municipals
There are four ratings below for short-term obligations that are investment
grade. Short-term speculative obligations are designated SG. For variable rate
demand obligations, a two-component rating is assigned. The first (MIG) element
represents an evaluation by Moody's of the degree of risk associated with
scheduled principal and interest payments, and the other (VMIG) represents an
evaluation of the degree of risk associated with the demand feature.
MIG 1/VMIG 1: Denotes best quality. There is strong protection by established
cash flows, superior liquidity support or demonstrated broad-based access to the
market for refinancing..
MIG 2/VMIG 2: Denotes high quality. Margins of protection are ample although not
as large as in the preceding group.
MIG 3/VMIG 3: Denotes favorable quality. All security elements are accounted for
but there is lacking the undeniable strength of the preceding grades. Liquidity
and cash flow protection may be narrow and market access for refinancing is
likely to be less well established.
MIG 4/VMIG 4: Denotes adequate quality. Protection commonly regarded as required
of an investment security is present and although not distinctly or
predominantly speculative, there is specific risk.
SG: Denotes speculative quality. Debt instruments in this category lack
margins of protection.
Standard & Poor's Rating Services
- ------------------------------------------------------------------------------
Long-Term Credit Ratings
AAA: Bonds rated "AAA" have the highest rating assigned by Standard & Poor's.
The obligor's capacity to meet its financial commitment on the obligation is
extremely strong.
AA: Bonds rated "AA" differ from the highest rated obligations only in small
degree. The obligor's capacity to meet its financial commitment on the
obligation is very strong.
A: Bonds rated "A" are somewhat more susceptible to adverse effects of changes
in circumstances and economic conditions than obligations in higher-rated
categories. However, the obligor's capacity to meet its financial commitment on
the obligation is still strong.
BBB: Bonds rated BBB exhibit adequate protection parameters. However, adverse
economic conditions or changing circumstances are more likely to lead to a
weakened capacity of the obligor to meet its financial commitment on the
obligation.
Bonds rated BB, B, CCC, CC and C are regarded as having significant speculative
characteristics. BB indicates the least degree of speculation and C the highest.
While such obligations will likely have some quality and protective
characteristics, these may be outweighed by large uncertainties or major
exposures to adverse conditions.
BB: Bonds rated BB are less vulnerable to nonpayment than other speculative
issues. However, these face major uncertainties or exposure to adverse business,
financial, or economic conditions which could lead to the obligor's inadequate
capacity to meet its financial commitment on the obligation.
B: A bond rated B is more vulnerable to nonpayment than an obligation rated BB,
but the obligor currently has the capacity to meet its financial commitment on
the obligation.
CCC: A bond rated CCC is currently vulnerable to nonpayment, and is dependent
upon favorable business, financial, and economic conditions for the obligor to
meet its financial commitment on the obligation. In the event of adverse
business, financial or economic conditions, the obligor is not likely to have
the capacity to meet its financial commitment on the obligation.
CC: An obligation rated CC is currently highly vulnerable to nonpayment.
C: The C rating may used where a bankruptcy petition has been filed or similar
action has been taken, but payments on this obligation are being continued.
D: Bonds rated D are in default. Payments on the obligation are not being
made on the date due.
The ratings from AA to CCC may be modified by the addition of a plus (+) or
minus (-) sign to show relative standing within the major rating categories. The
"r" symbol is attached to the ratings of instruments with significant noncredit
risks.
Short-Term Issue Credit Ratings
A-1: Rated in the highest category. The obligor's capacity to meet its financial
commitment on the obligation is strong. Within this category, a plus (+) sign
designation indicates the issuer's capacity to meet its financial obligation is
very strong.
A-2: Obligation is somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than obligations in higher rating
categories. However, the obligor's capacity to meet its financial commitment on
the obligation is satisfactory.
A-3: Exhibits adequate protection parameters. However, adverse economic
conditions or changing circumstances are more likely to lead to a weakened
capacity of the obligor to meet its financial commitment on the obligation.
B: Regarded as having significant speculative characteristics. The obligor
currently has the capacity to meet its financial commitment on the obligation.
However, it faces major ongoing uncertainties which could lead to the obligor's
inadequate capacity to meet its financial commitment on the obligation.
C: Currently vulnerable to nonpayment and is dependent upon favorable
business, financial, and economic conditions for the obligor to meet its
financial commitment on the obligation.
D: In payment default. Payments on the obligation have not been made on the
due date. The rating may also be used if a bankruptcy petition has been filed
or similar actions jeopardize payments on the obligation.
Fitch IBCA, Inc.
- ------------------------------------------------------------------------------
International Long-Term Credit Ratings
Investment Grade:
AAA: Highest Credit Quality. "AAA" ratings denote the lowest expectation of
credit risk. They are assigned only in the case of exceptionally strong
capacity for timely payment of financial commitments. This capacity is highly
unlikely to be adversely affected by foreseeable events.
AA: Very High Credit Quality. "AA" ratings denote a very low expectation of
credit risk. They indicate a very strong capacity for timely payment of
financial commitments. This capacity is not significantly vulnerable to
foreseeable events.
A: High Credit Quality. "A" ratings denote a low expectation of credit risk.
The capacity for timely payment of financial commitments is considered
strong. This capacity may, nevertheless, be more vulnerable to changes in
circumstances or in economic conditions than is the case for higher ratings.
BBB: Good Credit Quality. "BBB" ratings indicate that there is currently a
low expectation of credit risk. The capacity for timely payment of financial
commitments is considered adequate, but adverse changes in circumstances and
in economic conditions are more likely to impair this capacity. This is the
lowest investment-grade category.
Speculative Grade:
BB: Speculative. "BB" ratings indicate that there is a possibility of credit
risk developing, particularly as the result of adverse economic change over
time. However, business or financial alternatives may be available to allow
financial commitments to be met.
B: Highly Speculative. "B" ratings indicate that significant credit risk is
present, but a limited margin of safety remains. Financial commitments are
currently being met. However, capacity for continued payment is contingent
upon a sustained, favorable business and economic environment.
CCC, CC C: High Default Risk. Default is a real possibility. Capacity for
meeting financial commitments is solely reliant upon sustained, favorable
business or economic developments. A "CC" rating indicates that default of
some kind appears probable. "C" ratings signal imminent default.
DDD, DD, and D: Default. Securities are not meeting current obligations and
are extremely speculative. "DDD" designates the highest potential for
recovery of amounts outstanding on any securities involved.
Plus (+) and minus (-) signs may be appended to a rating symbol to denote
relative status within the rating category. Plus and minus signs are not added
to the "AAA" category or to categories below "CCC."
International Short-Term Credit Ratings
F1: Highest credit quality. Strongest capacity for timely payment. May have an
added "+" to denote exceptionally strong credit feature.
F2: Good credit quality. A satisfactory capacity for timely payment, but the
margin of safety is not as great as in higher ratings.
F3: Fair credit quality. Capacity for timely payment is adequate. However,
near-term adverse changes could result in a reduction to non-investment grade.
B: Speculative. Minimal capacity for timely payment, plus vulnerability to
near-term adverse changes in financial and economic conditions.
C: High default risk. Default is a real possibility, Capacity for
meeting financial commitments is solely reliant upon a sustained, favorable
business and economic environment.
D: Default. Denotes actual or imminent payment default.
Duff & Phelps Credit Rating Co. Ratings
- ------------------------------------------------------------------------------
Long-Term Debt and Preferred Stock
AAA: Highest credit quality. The risk factors are negligible, being only
slightly more than for risk-free U.S. Treasury debt.
AA+, AA, AA-: High credit quality. Protection factors are strong. Risk is modest
but may vary slightly from time to time because of economic conditions.
A+, A & A-: Protection factors are average but adequate. However, risk factors
are more variable in periods of greater economic stress.
BBB+, BBB & BBB-: Below average protection factors but still considered
sufficient for prudent investment. Considerable variability in risk during
economic cycles.
BB+, BB & BB-: Below investment grade but deemed likely to meet obligations when
due. Present or prospective financial protection factors fluctuate according to
industry conditions. Overall quality may move up or down frequently within the
category.
B+, B & B-: Below investment grade and possessing risk that obligations will not
be met when due. Financial protection factors will fluctuate widely according to
economic cycles, industry conditions and/or company fortunes. Potential exists
for frequent changes in the rating within this category or into a higher of
lower rating grade.
CCC: Well below investment-grade securities. Considerable uncertainty exists as
to timely payment of principal, interest or preferred dividends. Protection
factors are narrow and risk can be substantial with unfavorable
economic/industry conditions, and/or with unfavorable company developments.
DD: Defaulted debt obligations. Issuer failed to meet scheduled principal
and/or interest payments.
DP: Preferred stock with dividend arrearages.
Short-Term Debt:
High Grade:
D-1+: Highest certainty of timely payment. Safety is just below risk-free
U.S. Treasury short-term debt.
D-1: Very high certainty of timely payment. Risk factors are minor.
D-1-: High certainty of timely payment. Risk factors are very small.
Good Grade:
D-2: Good certainty of timely payment. Risk factors are small.
Satisfactory Grade:
D-3: Satisfactory liquidity and other protection factors qualify issues as to
investment grade. Risk factors are larger and subject to more variation.
Nevertheless, timely payment is expected.
Non-Investment Grade:
D-4: Speculative investment characteristics. Liquidity is not sufficient to
insure against disruption in debt service.
Default:
D-5: Issuer failed to meet scheduled principal and/or interest payments.
<PAGE>
Appendix B
- ------------------------------------------------------------------------------
Industry Classifications
- ------------------------------------------------------------------------------
Adult Living Facilities
Education
Electric
Gas
General Obligation
Higher Education
Highways
Hospital
Lease Rental Manufacturing
Durables Manufacturing
Non Durables
Marine/Aviation Facilities
Multi-Family Housing
Pollution Control
Resource Recovery
Sales Tax
Sewer
Single Family Housing
Special Assessment
Telephone
Water
<PAGE>
Appendix C
- ------------------------------------------------------------------------------
OppenheimerFunds Special Sales Charge Arrangements and Waivers
- ------------------------------------------------------------------------------
In certain cases, the initial sales charge that applies to purchases of
Class A shares of the Oppenheimer funds or the contingent deferred sales charge
that may apply to Class A, Class B or Class C shares may be waived. That is
because of the economies of sales efforts realized by the Distributor or the
dealers or other financial institutions offering those shares to certain classes
of investors or in certain transactions.
Not all waivers apply to all funds. For example, waivers relating to
Retirement Plans do not apply to Oppenheimer municipal funds, because shares of
those funds are not available for purchase by or on behalf of retirement plans.
Other waivers apply only to shareholders of certain funds that were merged into
or became Oppenheimer funds.
For the purposes of some of the waivers described below and in the
Prospectus and Statement of Additional Information of the applicable Oppenheimer
funds, the term "Retirement Plan" refers to the following types of plans: (7)
plans qualified under Sections 401(a) or 401(k) of the Internal
Revenue Code,
(8) non-qualified deferred compensation plans, (9) employee benefit plans1 (10)
Group Retirement Plans2 (11) 403(b)(7) custodial plan accounts (12) SEP-IRAs,
SARSEPs or SIMPLE plans
The interpretation of these provisions as to the applicability of a
waiver in a particular case is determined solely by the Distributor or the
Transfer Agent of the fund. These waivers and special arrangements may be
amended or terminated at any time by the applicable Fund and/or the Distributor.
Waivers that apply at the time shares are redeemed must be requested by the
shareholder and/or dealer in the redemption request.
- --------------
3. An "employee benefit plan" means any plan or arrangement, whether or not it
is "qualified" under the Internal Revenue Code, under which Class A shares of
an Oppenheimer fund or funds are purchased by a fiduciary or other
administrator for the account of participants who are employees of a single
employer or of affiliated employers. These may include, for example, medical
savings accounts, payroll deduction plans or similar plans. The fund accounts
must be registered in the name of the fiduciary or administrator purchasing
the shares for the benefit of participants in the plan.
4. The term "Group Retirement Plan" means any qualified or non-qualified
retirement plan for employees of a corporation or sole proprietorship,
members and employees of a partnership or association or other organized
group of persons (the members of which may include other groups), if the
group has made special arrangements with the Distributor and all members of
the group participating in (or who are eligible to participate in) the plan
purchase Class A shares of an Oppenheimer fund or funds through a single
investment dealer, broker or other financial institution designated by the
group. Such plans include 457 plans, SEP-IRAs, SARSEPs, SIMPLE plans and
403(b) plans other than plans for public school employees. The term "Group
Retirement Plan" also includes qualified retirement plans and non-qualified
deferred compensation plans and IRAs that purchase Class A shares of an
Oppenheimer fund or funds through a single investment dealer, broker or other
financial institution that has made special arrangements with the Distributor
enabling those plans to purchase Class A shares at net asset value but
subject to the Class A contingent deferred sales charge.
<PAGE>
- ------------------------------------------------------------------------------
Applicability of Class A Contingent Deferred Sales Charges in Certain Cases
- ------------------------------------------------------------------------------
Purchases of Class A Shares of Oppenheimer Funds That Are Not Subject to Initial
Sales Charge but May Be Subject to the Class A Contingent Deferred Sales Charge
(unless a waiver applies).
There is no initial sales charge on purchases of Class A shares of any of
the Oppenheimer funds in the cases listed below. However, these purchases may be
subject to the Class A contingent deferred sales charge if redeemed within 18
months of the end of the calendar month of their purchase, as described in the
Prospectus (unless a waiver described elsewhere in this Appendix applies to the
redemption). Additionally, on these purchases the Distributor will pay the
applicable commission described in the Prospectus under "Class A Contingent
Deferred Sales Charge":
|_| Purchases of Class A shares aggregating $1 million or more.
o Purchases by a Retirement Plan that:
(4) buys shares costing $500,000 or more, or
(5) has, at the time of purchase, 100 or more eligible participants or
total plan assets of $500,000 or more, or
(6) certifies to the Distributor that it projects to have annual plan
purchases of $200,000 or more.
o Purchases by an OppenheimerFunds-sponsored Rollover IRA, if the
purchases are made:
(3) through a broker, dealer, bank or registered investment adviser that
has made special arrangements with the Distributor for those
purchases, or
(4) by a direct rollover of a distribution from a qualified Retirement
Plan if the administrator of that Plan has made special arrangements
with the Distributor for those purchases.
o Purchases of Class A shares by Retirement Plans that have any of the
following record-keeping arrangements:
(4) The record keeping is performed by Merrill Lynch Pierce Fenner & Smith,
Inc. ("Merrill Lynch") on a daily valuation basis for the
Retirement Plan. On the date the plan sponsor signs the
record-keeping service agreement with Merrill Lynch, the Plan
must have $3 million or more of its assets invested in (a) mutual
funds, other than those advised or managed by Merrill Lynch Asset
Management, L.P. ("MLAM"), that are made available under a
Service Agreement between Merrill Lynch and the mutual fund's
principal underwriter or distributor, and (b) funds advised or
managed by MLAM (the funds described in (a) and (b) are referred
to as "Applicable Investments").
(5) The record keeping for the Retirement Plan is performed on a daily
valuation basis by a record keeper whose services are provided
under a contract or arrangement between the Retirement Plan and
Merrill Lynch. On the date the plan sponsor signs the record
keeping service agreement with Merrill Lynch, the Plan must have
$3 million or more of its assets (excluding assets invested in
money market funds) invested in Applicable Investments.
(6) The record keeping for a Retirement Plan is handled under a service
agreement with Merrill Lynch and on the date the plan sponsor signs
that agreement, the Plan has 500 or more eligible employees (as
determined by the Merrill Lynch plan conversion manager).
- ------------------------------------------------------------------------------
Waivers of Class A Sales Charges of Oppenheimer Funds
- ------------------------------------------------------------------------------
Waivers of Initial and Contingent Deferred Sales Charges for Certain
Purchasers.
Class A shares purchased by the following investors are not subject to any Class
A sales charges (and no commissions are paid by the Distributor on such
purchases):
|_| The Manager or its affiliates.
|_| Present or former officers, directors, trustees and employees (and
their "immediate families") of the Fund, the Manager and its affiliates, and
retirement plans established by them for their employees. The term "immediate
family" refers to one's spouse, children, grandchildren, grandparents, parents,
parents-in-law, brothers and sisters, sons- and daughters-in-law, a sibling's
spouse, a spouse's siblings, aunts, uncles, nieces and nephews; relatives by
virtue of a remarriage (step-children, step-parents, etc.) are included.
|_| Registered management investment companies, or separate accounts of
insurance companies having an agreement with the Manager or the Distributor for
that purpose.
|_| Dealers or brokers that have a sales agreement with the Distributor,
if they purchase shares for their own accounts or for retirement plans for their
employees.
|_| Employees and registered representatives (and their spouses) of
dealers or brokers described above or financial institutions that have entered
into sales arrangements with such dealers or brokers (and which are identified
as such to the Distributor) or with the Distributor. The purchaser must certify
to the Distributor at the time of purchase that the purchase is for the
purchaser's own account (or for the benefit of such employee's spouse or minor
children).
|_| Dealers, brokers, banks or registered investment advisors that have
entered into an agreement with the Distributor providing specifically for the
use of shares of the Fund in particular investment products made available to
their clients. Those clients may be charged a transaction fee by their dealer,
broker, bank or advisor for the purchase or sale of Fund shares.
|_| Investment advisors and financial planners who have entered into an
agreement for this purpose with the Distributor and who charge an advisory,
consulting or other fee for their services and buy shares for their own accounts
or the accounts of their clients.
|_| "Rabbi trusts" that buy shares for their own accounts, if the
purchases are made through a broker or agent or other financial intermediary
that has made special arrangements with the Distributor for those purchases.
|_| Clients of investment advisors or financial planners (that have
entered into an agreement for this purpose with the Distributor) who buy shares
for their own accounts may also purchase shares without sales charge but only if
their accounts are linked to a master account of their investment advisor or
financial planner on the books and records of the broker, agent or financial
intermediary with which the Distributor has made such special arrangements .
Each of these investors may be charged a fee by the broker, agent or financial
intermediary for purchasing shares.
|_| Directors, trustees, officers or full-time employees of OpCap Advisors
or its affiliates, their relatives or any trust, pension, profit sharing or
other benefit plan which beneficially owns shares for those persons.
|_| Accounts for which Oppenheimer Capital (or its successor) is the
investment advisor (the Distributor must be advised of this arrangement) and
persons who are directors or trustees of the company or trust which is the
beneficial owner of such accounts.
|_| A unit investment trust that has entered into an appropriate agreement
with the Distributor.
|_| Dealers, brokers, banks, or registered investment advisers that have
entered into an agreement with the Distributor to sell shares to defined
contribution employee retirement plans for which the dealer, broker or
investment adviser provides administration services.
|_| Retirement plans and deferred compensation plans and trusts used to
fund those plans (including, for example, plans qualified or created under
sections 401(a), 401(k), 403(b) or 457 of the Internal Revenue Code), in each
case if those purchases are made through a broker, agent or other financial
intermediary that has made special arrangements with the Distributor for those
purchases.
|_| A TRAC-2000 401(k) plan (sponsored by the former Quest for Value
Advisors) whose Class B or Class C shares of a Former Quest for Value Fund were
exchanged for Class A shares of that Fund due to the termination of the Class B
and Class C TRAC-2000 program on November 24, 1995.
|_| A qualified Retirement Plan that had agreed with the former Quest for
Value Advisors to purchase shares of any of the Former Quest for Value Funds at
net asset value, with such shares to be held through DCXchange, a sub-transfer
agency mutual fund clearinghouse, if that arrangement was consummated and share
purchases commenced by December 31, 1996.
Waivers of Initial and Contingent Deferred Sales Charges in Certain
Transactions.
Class A shares issued or purchased in the following transactions are not subject
to sales charges (and no commissions are paid by the Distributor on such
purchases):
|_| Shares issued in plans of reorganization, such as mergers, asset
acquisitions and exchange offers, to which the Fund is a party.
|_| Shares purchased by the reinvestment of dividends or other
distributions reinvested from the Fund or other Oppenheimer funds (other than
Oppenheimer Cash Reserves) or unit investment trusts for which reinvestment
arrangements have been made with the Distributor.
|_| Shares purchased 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 shares of the Fund, and the Distributor may require evidence
of qualification for this waiver.
|_| Shares purchased with the proceeds of maturing principal units of any
Qualified Unit Investment Liquid Trust Series.
|_| Shares purchased by the reinvestment of loan repayments by a
participant in a Retirement Plan for which the Manager or an affiliate acts as
sponsor.
Waivers of the Class A Contingent Deferred Sales Charge for Certain
Redemptions.
The Class A contingent deferred sales charge is also waived if shares that would
otherwise be subject to the contingent deferred sales charge are redeemed in the
following cases:
|_| To make Automatic Withdrawal Plan payments that are limited annually
to no more than 12% of the original account value.
|_| Involuntary redemptions of shares by operation of law or involuntary
redemptions of small accounts (see "Shareholder Account Rules and Policies," in
the Prospectus).
|_| For distributions from Retirement Plans, deferred compensation
plans or other employee benefit plans for any of the following purposes:
(10) Following the death or disability (as defined in the Internal Revenue
Code) of the participant or beneficiary. The death or disability
must occur after the participant's account was established.
(11) To return excess contributions.
(12) To return contributions made due to a mistake of fact. (13) Hardship
withdrawals, as defined in the plan. (14) Under a Qualified Domestic Relations
Order, as defined in the Internal
Revenue Code.
(15) To meet the minimum distribution requirements of the Internal
Revenue Code.
(16) To establish "substantially equal periodic payments" as described in
Section 72(t) of the Internal Revenue Code.
(17) For retirement distributions or loans to participants or beneficiaries.
(18) Separation from service.
(10)Participant-directed redemptions to purchase shares of a mutual
fund other than a fund managed by the Manager or a subsidiary. The fund
must be one that is offered as an investment option in a Retirement
Plan in which Oppenheimer funds are also offered as investment options
under a special arrangement with the Distributor. (11) Plan termination
or "in-service distributions," if the redemption proceeds are rolled
over directly to an OppenheimerFunds-sponsored IRA.
|_| For distributions from Retirement Plans having 500 or more eligible
participants, except distributions due to termination of all of the Oppenheimer
funds as an investment option under the Plan.
|_| For distributions from 401(k) plans sponsored by broker-dealers that
have entered into a special agreement with the Distributor allowing this waiver.
- ------------------------------------------------------------------------------
Waivers of Class B and Class C Sales Charges of Oppenheimer Funds
- ------------------------------------------------------------------------------
The Class B and Class C contingent deferred sales charges will not be
applied to shares purchased in certain types of transactions or redeemed in
certain circumstances described below.
Waivers for Redemptions in Certain Cases.
The Class B and Class C contingent deferred sales charges will be waived for
redemptions of shares in the following cases:
|_| Shares redeemed involuntarily, as described in "Shareholder Account
Rules and Policies," in the applicable Prospectus.
|_| Distributions to participants or beneficiaries from Retirement
Plans, if the distributions are made:
(c) under an Automatic Withdrawal Plan after the participant reaches age
59-1/2, as long as the payments are no more than 10% of the account
value annually (measured from the date the Transfer Agent receives
the request), or
(d) following the death or disability (as defined in the Internal
Revenue Code) of the participant or beneficiary (the death or
disability must have occurred after the account was established).
|_| Redemptions from accounts other than Retirement Plans following the
death or disability of the last surviving shareholder, including a trustee of a
grantor trust or revocable living trust for which the trustee is also the sole
beneficiary. The death or disability must have occurred after the account was
established, and for disability you must provide evidence of a determination of
disability by the Social Security Administration.
|_| Returns of excess contributions to Retirement Plans.
|_| Distributions from Retirement Plans to make "substantially equal
periodic payments" as permitted in Section 72(t) of the Internal Revenue Code
that do not exceed 10% of the account value annually, measured from the date the
Transfer Agent receives the request.
|_| Distributions from OppenheimerFunds prototype 401(k) plans and from
certain Massachusetts Mutual Life Insurance Company prototype 401(k) plans:
(7) for hardship withdrawals;
(8) under a Qualified Domestic Relations Order, as defined in the Internal
Revenue Code;
(9) to meet minimum distribution requirements as defined in the Internal
Revenue Code;
(10) to make "substantially equal periodic payments" as described in Section
72(t) of the Internal Revenue Code;
(11) for separation from service; or (12) for loans to participants or
beneficiaries.
|_| Distributions from 401(k) plans sponsored by broker-dealers that have
entered into a special agreement with the Distributor allowing this waiver.
|_| Redemptions of Class B shares held by Retirement Plans whose records
are maintained on a daily valuation basis by Merrill Lynch or an independent
record keeper under a contract with Merrill Lynch.
|_| Redemptions of Class C shares of Oppenheimer U.S. Government Trust
from accounts of clients of financial institutions that have entered into a
special arrangement with the Distributor for this purpose.
Waivers for Shares Sold or Issued in Certain Transactions.
The contingent deferred sales charge is also waived on Class B and Class C
shares sold or issued in the following cases:
|_| Shares sold to the Manager or its affiliates.
|_| Shares sold to registered management investment companies or separate
accounts of insurance companies having an agreement with the Manager or the
Distributor for that purpose.
|_| Shares issued in plans of reorganization to which the Fund is a
party.
<PAGE>
- ------------------------------------------------------------------------------
Special Sales Charge Arrangements for Shareholders of Certain Oppenheimer
Funds 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 described in the Prospectus or Statement of
Additional Information of the Oppenheimer funds are modified as described below
for certain persons who were shareholders of the former Quest for Value Funds.
To be eligible, those persons must have been shareholders on November 24, 1995,
when OppenheimerFunds, Inc. became the investment advisor to those former Quest
for Value Funds. Those funds include:
Oppenheimer Quest Value Fund, Inc., Oppenheimer Quest Balanced Value Fund,
Oppenheimer Quest Opportunity Value Fund, Oppenheimer Quest Small Cap
Value Fund and Oppenheimer Quest Global Value Fund, Inc.
These arrangements also apply to shareholders of the following funds when
they merged into various Oppenheimer funds on November 24, 1995:
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
All of the funds listed above are referred to in this Appendix as the
"Former Quest for Value Funds." The waivers of initial and contingent deferred
sales charges described in this Appendix apply to shares of an Oppenheimer fund
that are either:
|_| acquired by such shareholder pursuant to an exchange of shares of
an Oppenheimer fund that was one of the Former Quest for Value Funds or
|_| purchased by such shareholder by exchange of shares of another
Oppenheimer fund that were acquired pursuant to the merger of any of the Former
Quest for Value Funds into that other Oppenheimer fund on November 24, 1995.
Reductions or Waivers of Class A Sales Charges.
|X| Reduced Class A Initial Sales Charge Rates for Certain Former Quest
for Value Funds Shareholders
Purchases by Groups and Associations. The following table sets forth the initial
sales charge rates for Class A shares purchased by members of "Associations"
formed for any purpose other than the purchase of securities. The rates in the
table apply if that Association purchased shares of any of the Former Quest for
Value Funds or received a proposal to purchase such shares from OCC Distributors
prior to November 24, 1995.
<PAGE>
------------------------------------------------------------------------------
Number of Eligible Initial Sales Initial Sales
Employees or Members Charge as a % of Charge as a % of Commission as %
Offering Price Net Amount of Offering Price
Invested
------------------------------------------------------------------------------
------------------------------------------------------------------------------
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 in the applicable fund's Prospectus.
Purchases made under this arrangement qualify for the lower of either the
sales charge rate in the table based on the number of members of an Association,
or the sales charge rate that applies under the Right of Accumulation described
in the applicable fund's Prospectus and Statement of Additional Information.
Individuals who qualify under this arrangement for reduced sales charge rates as
members of Associations also may purchase shares for their individual or
custodial accounts at these reduced sales charge rates, upon request to the
Distributor.
|X| Waiver of Class A Sales Charges for Certain Shareholders. Class A
shares purchased by the following investors are not subject to any Class A
initial or contingent deferred sales charges:
|_| Shareholders who were shareholders of the AMA Family of Funds on
February 28, 1991 and who acquired shares of any of the Former Quest for Value
Funds by merger of a portfolio of the AMA Family of Funds.
|_| Shareholders who acquired shares of any Former Quest for Value Fund by
merger of any of the portfolios of the Unified Funds.
|X| Waiver of Class A Contingent Deferred Sales Charge in Certain
Transactions. The Class A contingent deferred sales charge will not apply to
redemptions of Class A shares purchased by the following investors who were
shareholders of any Former Quest for Value Fund:
Investors who purchased Class A shares from a dealer that is or was not
permitted to receive a sales load or redemption fee imposed on a shareholder
with whom that dealer has a fiduciary relationship, under the Employee
Retirement Income Security Act of 1974 and regulations adopted under that law.
Class A, Class B and Class C Contingent Deferred Sales Charge Waivers
|X| Waivers for Redemptions of Shares Purchased Prior to March 6, 1995. In
the following cases, the contingent deferred sales charge will be waived for
redemptions of Class A, Class B or Class C shares of an Oppenheimer fund. The
shares must have been acquired by the merger of a Former Quest for Value Fund
into the fund or by exchange from an Oppenheimer fund that was a Former Quest
for Value Fund or into which such fund merged. Those shares must have been
purchased prior to March 6, 1995 in connection with:
|_| withdrawals under an automatic withdrawal plan holding only either
Class B or Class C shares if the annual withdrawal does not exceed 10% of the
initial value of the account, and
|_| liquidation of a shareholder's account if the aggregate net asset
value of shares held in the account is less than the required minimum value of
such accounts.
|X| Waivers for Redemptions of Shares Purchased on or After March 6, 1995
but Prior to November 24, 1995. In the following cases, the contingent deferred
sales charge will be waived for redemptions of Class A, Class B or Class C
shares of an Oppenheimer fund. The shares must have been acquired by the merger
of a Former Quest for Value Fund into the fund or by exchange from an
Oppenheimer fund that was a Former Quest For Value Fund or into which such
Former Quest for Value Fund merged. Those shares must have been purchased on or
after March 6, 1995, but prior to November 24, 1995:
|_| redemptions following the death or disability of the
shareholder(s) (as evidenced by a determination of total disability by the
U.S. Social Security Administration);
|_| withdrawals under an automatic withdrawal plan (but only for Class B
or Class C shares) where the annual withdrawals do not exceed 10% of the initial
value of the account; and
|_| liquidation of a shareholder's account if the aggregate net asset
value of shares held in the account is less than the required minimum account
value.
A shareholder's account will be credited with the amount of any contingent
deferred sales charge paid on the redemption of any Class A, Class B or Class C
shares of the Oppenheimer fund described in this section if the proceeds are
invested in the same Class of shares in that fund or another Oppenheimer fund
within 90 days after redemption.
- ------------------------------------------------------------------------------
Special Sales Charge Arrangements for Shareholders of Certain Oppenheimer Funds
Who Were Shareholders of Connecticut Mutual Investment Accounts, Inc.
- ------------------------------------------------------------------------------
The initial and contingent deferred sale charge rates and waivers for
Class A and Class B shares described in the Prospectus or this Appendix for
Oppenheimer U. S. Government Trust, Oppenheimer Bond Fund, Oppenheimer
Disciplined Value Fund and Oppenheimer Disciplined Allocation Fund (each is
included in the reference to "Fund" below) are modified as described below for
those shareholders who were shareholders of Connecticut Mutual Liquid Account,
Connecticut Mutual Government Securities Account, Connecticut Mutual Income
Account, Connecticut Mutual Growth Account, Connecticut Mutual Total Return
Account, CMIA LifeSpan Capital Appreciation Account, CMIA LifeSpan Balanced
Account and CMIA Diversified Income Account (the "Former Connecticut Mutual
Funds") on March 1, 1996, when OppenheimerFunds, Inc. became the investment
adviser to the Former Connecticut Mutual Funds.
Prior Class A CDSC and Class A Sales Charge Waivers
|_| Class A Contingent Deferred Sales Charge. Certain shareholders of a
Fund and the other Former Connecticut Mutual Funds are entitled to continue to
make additional purchases of Class A shares at net asset value without a Class A
initial sales charge, but subject to the Class A contingent deferred sales
charge that was in effect prior to March 18, 1996 (the "prior Class A CDSC").
Under the prior Class A CDSC, if any of those shares are redeemed within one
year of purchase, they will be assessed a 1% contingent deferred sales charge on
an amount equal to the current market value or the original purchase price of
the shares sold, whichever is smaller (in such redemptions, any shares not
subject to the prior Class A CDSC will be redeemed first).
Those shareholders who are eligible for the prior Class A CDSC are: (3)
persons whose purchases of Class A shares of a Fund and other Former
Connecticut Mutual Funds were $500,000 prior to March 18, 1996, as a
result of direct purchases or purchases pursuant to the Fund's policies
on Combined Purchases or Rights of Accumulation, who still hold those
shares in that Fund or other Former Connecticut Mutual Funds, and
(4) persons whose intended purchases under a Statement of Intention entered
into prior to March 18, 1996, with the former general distributor of
the Former Connecticut Mutual Funds to purchase shares valued at
$500,000 or more over a 13-month period entitled those persons to
purchase shares at net asset value without being subject to the Class A
initial sales charge.
Any of the Class A shares of a Fund and the other Former Connecticut
Mutual Funds that were purchased at net asset value prior to March 18, 1996,
remain subject to the prior Class A CDSC, or if any additional shares are
purchased by those shareholders at net asset value pursuant to this arrangement
they will be subject to the prior Class A CDSC.
|_| Class A Sales Charge Waivers. Additional Class A shares of a Fund may
be purchased without a sales charge, by a person who was in one (or more) of the
categories below and acquired Class A shares prior to March 18, 1996, and still
holds Class A shares: (7) any purchaser, provided the total initial amount
invested in the Fund
or any one or more of the Former Connecticut Mutual Funds totaled
$500,000 or more, including investments made pursuant to the Combined
Purchases, Statement of Intention and Rights of Accumulation features
available at the time of the initial purchase and such investment is
still held in one or more of the Former Connecticut Mutual Funds or a
Fund into which such Fund merged;
(8) any participant in a qualified plan, provided that the total initial
amount invested by the plan in the Fund or any one or more of the
Former Connecticut Mutual Funds totaled $500,000 or more;
(9) Directors of the Fund or any one or more of the Former Connecticut
Mutual Funds and members of their immediate families;
(10) employee benefit plans sponsored by Connecticut Mutual Financial
Services, L.L.C. ("CMFS"), the prior distributor of the Former
Connecticut Mutual Funds, and its affiliated companies;
(11) one or more members of a group of at least 1,000 persons (and persons
who are retirees from such group) engaged in a common business,
profession, civic or charitable endeavor or other activity, and the
spouses and minor dependent children of such persons, pursuant to a
marketing program between CMFS and such group; and
(12) an institution acting as a fiduciary on behalf of an individual or
individuals, if such institution was directly compensated by the
individual(s) for recommending the purchase of the shares of the Fund
or any one or more of the Former Connecticut Mutual Funds, provided the
institution had an agreement with CMFS.
Purchases of Class A shares made pursuant to (1) and (2) above may be
subject to the Class A CDSC of the Former Connecticut Mutual Funds described
above.
Additionally, Class A shares of a Fund may be purchased without a sales
charge by any holder of a variable annuity contract issued in New York State by
Connecticut Mutual Life Insurance Company through the Panorama Separate Account
which is beyond the applicable surrender charge period and which was used to
fund a qualified plan, if that holder exchanges the variable annuity contract
proceeds to buy Class A shares of the Fund.
Class A and Class B Contingent Deferred Sales Charge Waivers
In addition to the waivers set forth in the Prospectus and in this Appendix,
above, the contingent deferred sales charge will be waived for redemptions of
Class A and Class B shares of a Fund and exchanges of Class A or Class B shares
of a Fund into Class A or Class B shares of a Former Connecticut Mutual Fund
provided that the Class A or Class B shares of the Fund to be redeemed or
exchanged were (i) acquired prior to March 18, 1996 or (ii) were acquired by
exchange from an Oppenheimer fund that was a Former Connecticut Mutual Fund.
Additionally, the shares of such Former Connecticut Mutual Fund must have been
purchased prior to March 18, 1996: (10) by the estate of a deceased shareholder;
(11) upon the disability of a shareholder, as defined in Section 72(m)(7) of
the Internal Revenue Code;
(12) for retirement distributions (or loans) to participants or
beneficiaries from retirement plans qualified under Sections 401(a) or
403(b)(7)of the Code, or from IRAs, deferred compensation plans created
under Section 457 of the Code, or other employee benefit plans;
(13) as tax-free returns of excess contributions to such retirement or
employee benefit plans;
(14) in whole or in part, in connection with shares sold to any state,
county, or city, or any instrumentality, department, authority, or
agency thereof, that is prohibited by applicable investment laws from
paying a sales charge or commission in connection with the purchase of
shares of any registered investment management company;
(15) in connection with the redemption of shares of the Fund due to a
combination with another investment company by virtue of a merger,
acquisition or similar reorganization transaction;
(16) in connection with the Fund's right to involuntarily redeem or
liquidate the Fund;
(17) in connection with automatic redemptions of Class A shares and Class B
shares in certain retirement plan accounts pursuant to an Automatic
Withdrawal Plan but limited to no more than 12% of the original value
annually; or
(18) as involuntary redemptions of shares by operation of law, or under
procedures set forth in the Fund's Articles of Incorporation, or as
adopted by the Board of Directors of the Fund.
- ------------------------------------------------------------------------------
Special Reduced Sales Charge for Former Shareholders of Advance America
Funds, Inc.
- ------------------------------------------------------------------------------
Shareholders of Oppenheimer Municipal Bond Fund,
Oppenheimer U.S. Government Trust, Oppenheimer Strategic Income Fund and
Oppenheimer Equity Income Fund who acquired (and still hold) shares of those
funds as a result of the reorganization of series of Advance America Funds, Inc.
into those Oppenheimer funds on October 18, 1991, and who held shares of Advance
America Funds, Inc. on March 30, 1990, may purchase Class A shares of those four
Oppenheimer funds at a maximum sales charge rate of 4.50%.
<PAGE>
- ------------------------------------------------------------------------------
Oppenheimer Insured Municipal Fund
- ------------------------------------------------------------------------------
Internet Web Site:
www.oppenheimerfunds.com
Investment Adviser
OppenheimerFunds, Inc.
Two World Trade Center
New York, New York 10048-0203
Distributor
OppenheimerFunds Distributor, Inc.
Two World Trade Center
New York, New York 10048-0203
Transfer Agent
OppenheimerFunds Services
P.O. Box 5270
Denver, Colorado 80217-5270
1-800-525-7048
Custodian Bank
Citibank, N.A.
399 Park Avenue
New York, New York 10043
Independent Auditors
Deloitte & Touche LLP
555 Seventeenth Street, Suite 3600
Denver, Colorado 80202-3942
Legal Counsel
Myer, Swanson, Adams & Wolf, P.C.
1600 Broadway
Denver, Colorado 80202
67890
PX0865.0199
