OPPENHEIMER MAIN STREET CALIFORNIA MUNICIPAL FUND
Supplement dated April 11, 2000 to the
Prospectus dated December 22, 1999
The Prospectus is changed as follows:
1. Effective April 1, 2000, the Manager withdrew its voluntary undertaking to
limit its management fees to a maximum annual rate of 0.40%. Accordingly,
the last three sentences in the paragraph under the table entitled "Annual
Fund Operating Expenses" on page 6 are removed.
April 11, 2000 PS0725.014
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Oppenheimer Main Street California Municipal Fund(R)
6803 South Tucson Way, Englewood, Colorado 80112
1-800-525-7048
Statement of Additional Information dated December 22, 1999 - Revised April 11,
2000
This Statement of Additional Information is not a Prospectus. This
document contains additional information about the Fund and supplements
information in the Prospectus dated December 22, 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.......2
The Fund's Investment Policies..........................................2
Other Investment Techniques and Strategies.............................12
Investment Restrictions................................................25
How the Fund is Managed ...................................................28
Organization and History...............................................28
Directors and Officers.................................................29
The Manager............................................................34
Brokerage Policies of the Fund.............................................35
Distribution and Service Plans.............................................37
Performance of the Fund....................................................40
About Your Account
How To Buy Shares..........................................................45
How To Sell Shares.........................................................53
How To Exchange Shares.....................................................58
Dividends, Capital Gains and Taxes.........................................61
Additional Information About the Fund......................................63
Financial Information About the Fund
Independent Auditors' Report...............................................65
Financial Statements.......................................................66
Appendix A: Municipal Bond Ratings Definitions............................A-1
Appendix B: Industry Classifications......................................B-1
Appendix C: Special Sales Charge Arrangements and Waivers.................C-1
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A B O U T T H E F U N D
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Additional Information About the Fund's Investment Policies and Risks
The investment objective, the principal investment policies and the main risks
of the Fund are described in the Prospectus. This Statement of Additional
Information contains supplemental information about those policies and risks and
the types of securities that the Fund's investment Manager, OppenheimerFunds,
Inc., can select for the Fund. Additional information is also provided about the
strategies that the Fund can 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 can 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 in seeking its goal. It can
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, since that would generally be inconsistent with its goal of seeking
tax-exempt income. However, the value of the securities held by the Fund may be
affected by changes in general interest rates. Because the current value of debt
securities varies inversely with changes in prevailing interest rates, if
interest rates increased after a security was purchased, that security would
normally decline in value. Conversely, if interest rates decreased after a
security was purchased, normally its value would 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
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, or
because of other investment reasons, such as factors affecting the issuer that
cause the Manager to sell the particular security. In that case, the Fund could
experience 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. "Portfolio turnover" describes the rate at which the
Fund traded its portfolio securities during its last fiscal year. For example,
if a fund sold all of its securities during the year, its portfolio turnover
rate would have been 100%. 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. Additionally, the realization of capital gains from
selling portfolio securities may result in distributions of taxable long-term
capital gains to shareholders, since the Fund will normally distribute all of
its capital gains realized each year, to avoid excise taxes under the Internal
Revenue Code.
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The Fund ordinarily does not trade securities to achieve short-term capital
gains, because they would not be tax-exempt income. To a limited degree, the
Fund can engage in short-term trading to attempt to take advantage of short-term
market variations. It can 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 Fund believes such disposition
advisable or it 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 can
invest are described in the Prospectus under "About the Fund's Investments."
Municipal securities generally include general obligation bonds, revenue bonds
and notes, and municipal lease interests. A discussion of the general
characteristics of these principal types of municipal securities follows below.
|X| Municipal Bonds. We have classified longer term municipal securities
as "municipal bonds." The principal classifications of long-term municipal bonds
are "general obligation" and "revenue" (or "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 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 on 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 bonds have a wide range of security,
including partially or fully insured mortgages, rent
<PAGE>
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.
|_| Mello-Roos Bonds. These are bonds issued under the California
Mello-Roos Community Facilities Act. They are used to finance infrastructure
projects, such as roads or sewage treatment plants. In most cases they are
secured by real estate taxes levied on property located in the same community as
the project. This type of financing was created in response to statutory limits
on real property taxes that were enacted in California. The bonds do not
constitute an obligation of a municipal government. Timely payment of principal
and interest depends on the ability of the developer of the project or other
property owners to pay their real estate taxes. Therefore these bonds are
subject to risks of nonpayment as a result of a general economic of real estate
market decline or decline in the real estate market, as well as the credit risk
of the developer.
|_| 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 on the amount of private activity bonds that each
state may issue were revised downward by the Tax Reform Act, which has reduced
the supply of such bonds. The value of the Fund's portfolio could be affected if
there is a further 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
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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 based on
a ratio between the interest the Fund receives and the total amount of the
Fund's exempt interest dividends.
In addition, under some circumstances, corporate taxpayers subject to the
alternative minimum tax may have to include exempt-interest dividends in
calculating their alternative minimum taxable income. That could occur if the
"adjusted current earnings" of the corporation exceed 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 the 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 can 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.
<PAGE>
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
<PAGE>
Manager has determined to be liquid under guidelines set by the Board of
Directors. Those guidelines require the Manager to evaluate:
o the frequency of trades and price quotations for such securities;
o the number of dealers or other potential buyers willing to purchase
or sell such securities; o the availability of market-makers; and
o the nature of the trades for such securities.
While the Fund holds such securities, the Manager will also evaluate the
likelihood of a continuing market for these securities and their credit quality.
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.
|X| Ratings of Municipal Securities. Ratings by ratings organizations such
as Moody's Investors Service, Standard & Poor's Rating 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.
<PAGE>
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.
A list of the rating definitions of Moody's, S&P and Fitch for municipal
securities is contained in Appendix A to this Statement of Additional
Information. Because 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 will 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. The Fund can invest up to
25% of its total assets in "lower grade" debt securities. The Fund can do so to
seek current income. Because lower-rated securities tend to offer higher yields
than investment grade securities, the Fund can invest in lower grade securities
if the Manager is trying to achieve greater income.
"Lower-grade" municipal securities include municipal bonds and notes rated
below "investment grade." That includes municipal bonds that have a rating lower
than "Baa" by Moody's or lower than "BBB" by Standard & Poor's or Duff & Phelps,
or similar ratings by other rating organizations and municipal notes rated SP-2
by Standard & Poor's, MIG by Moody's or F-2 by Fitch. While securities rated
"Baa" by Moody's or "BBB" by Standard & Poor's are investment grade and are not
regarded as junk bonds, those securities may be subject to special risks, and
have some speculative characteristics. If municipal securities are unrated and
are determined by the Manager to be of comparable quality to debt securities
rated below investment grade, those municipal securities are included in the
limitation on the percentage of the Fund's assets that can be invested in
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.
<PAGE>
Some of the special credit risks of lower-grade securities are discussed in
the Prospectus. There is a greater risk that the issuer may default on its
obligation to pay interest or to repay principal than in the case of investment
grade securities. The issuer's low creditworthiness may increase the potential
for its insolvency. An overall decline in values in the high yield bond market
is also more likely during a period of a general economic downturn. An economic
downturn or an increase in interest rates could severely disrupt the market for
high yield bonds, adversely affecting the values of outstanding bonds as well as
the ability of issuers to pay interest or repay principal. However, the Fund's
limitations on these investments may reduce, to the Fund's exposure to those
risks.
Special Risks of Investing Primarily in California Municipal Securities. Because
the Trust focuses its investments primarily on California municipal securities,
the value of its portfolio investments will be highly sensitive to events
affecting the fiscal stability of the State of California and its
municipalities, authorities and other instrumentalities that issue securities.
There have been a number of political developments, voter initiatives, state
constitutional amendments and legislation in California in recent years that may
affect the ability of the State government and municipal governments to pay
interest and repay principal on the securities they have issued. In addition, in
recent years, the State of California has derived a significant portion of its
revenues from personal income and sales taxes. Because the amount collected from
these taxes is particularly sensitive to economic conditions, the State's
revenues have been volatile.
It is not possible to predict the future impact of the legislation and
economic considerations described below on the long-term ability of the State of
California or California municipal issuers to pay interest or repay principal on
their obligations. In part that is because of possible inconsistencies in the
terms of the various laws and Propositions and the applicability of other
statutes to these issues. The budgets of California counties and local
governments may be significantly affected by state budget decisions beyond their
control. The information below about these conditions is only a brief summary,
based upon information the Trust has drawn from sources that it believes are
reliable.
|_| Changes to the State Constitution. Changes to the state
constitution in recent years have raised general concerns about the ability of
the State and municipal governments in California to obtain sufficient revenues
to pay their bond obligations. In 1978, California voters approved Proposition
13, an amendment to the state constitution. The Proposition added a new section
to the constitution that limits ad valorem taxes on real property and restricts
the ability of local taxing entities to increase real property taxes. However,
legislation enacted after Proposition 13 provided help to California municipal
issuers to raise revenue to pay their bond obligations. During the severe
recession California experienced from 1991 to 1993, the State legislature
eliminated significant components of its aid to local governments. The State has
since increased aid to local governments and reduced certain mandates for local
services. Whether legislation will be enacted in the future to either increase
or reduce the redistribution of State revenues to local governments, or to make
them less dependent on State budget decisions, cannot be predicted. Even if
legislation increasing such redistribution is passed, it cannot be predicted
whether in every instance it will provide sufficient revenue for local municipal
issuers to pay their bond obligations.
<PAGE>
Another amendment to the state constitution may also have an adverse
impact on state and municipal bond obligations. That amendment restricts the
state government from spending amounts in excess of appropriation limits imposed
on each state and local government entity. If revenues exceed the appropriation
limit, those revenues must be returned, in the form of a revision in the tax
rates or fee schedules.
|_| Voter Initiatives. California voters have approved a number of
initiatives that affect the ability of the state and municipalities to finance
their bond obligations. In 1988, California voters approved Proposition 98,
which requires a minimum level of funding for public schools and community
colleges. In 1986, voters approved Proposition 62, which had a number of
effects. One requires that any special tax imposed by a local government must be
approved by a two-thirds vote of the electorate. In 1995, the California Supreme
Court upheld the constitutionality of that Proposition. That created uncertainty
as to the legality of certain local taxes enacted by non-charter cities without
voter approval. It is not possible to predict the eventual impact of that
decision.
In 1996, California voters approved Proposition 218. That initiative
applied the provisions of Proposition 62 to all government entities, including
cities having charters. It requires that all taxes for general purposes be
approved by a simple majority of the popular vote, and that taxes for special
purposes must be approved by a two-thirds majority vote. Proposition 218 also
limits the authority of local governments to impose property-related
assessments, fees and charges. It requires that such assessments be limited to
the special benefit conferred and prohibits their use for general governmental
services. The Proposition enables voters to use their initiative powers to
reduce or repeal previously-authorized taxes, assessments, fees and charges.
|_| Effect of other State Laws on Bond Obligations. Some of the
tax-exempt securities that the Trust can invest in may be obligations payable
solely from the revenues of a specific institution or secured by specific
properties. These are subject to provisions of California law that could
adversely affect the holders of such obligations. For example, the revenues of
California health care institutions may be adversely affected by State laws, and
California law limits the remedies of a creditor secured by a mortgage or deed
of trust on real property. Debt obligations payable solely from revenues of
health care institutions may also be insured by the State but no guarantee
exists that adequate reserve funds will be appropriated by the State legislature
for such purpose.
|_| The Effect of General Economic Conditions in the State. The
California economy has been recovering from a general economic recession of a
few years ago. In 1997, the rate of growth in new jobs has been generally high
compared to the rest of the country. The unemployment rate, while relatively
higher than the national average, fell to an average of 5.9% in 1998, compared
to over 10% during the recessionary period. Many of the new jobs were created in
industries such as computer services, software design, motion pictures and high
technology manufacturing. Business services, export trade and other
manufacturing also experienced growth. Recent economic reports indicate that,
while the rate of economic growth in California is expected to moderate over the
next year, the increases in employment and income may exceed those of the nation
as a whole. The unsettled financial situation occurring in certain Asian
economies, and its spillover effects elsewhere, may continue to adversely affect
the State's export-related industries and, therefore, the State's rate of
economic growth.
<PAGE>
On June 29, 1999, the Governor of California signed the 1999-2000 Budget
Act. The Budget Act estimated General Trust revenues and transfers of $63.0
billion, and contained expenditures totaling $63.7 billion. The Budget Act also
contained expenditures of $16.1 billion from special funds and $1.5 billion from
bond funds. The Administration estimated a budget reserve balance at June 30,
2000, of approximately $881 million. Not included in this amount was an
additional $300 million which (after the Governor's vetoes) was "set aside" to
provide funds for employee salary increases (to be negotiated in bargaining with
employee unions), and for litigation reserves. The Budget Act anticipates normal
cash flow borrowing during the fiscal year. Continued State economic expansion
and large revenue increases enabled the Governor and State legislature to
provide increases in spending programs in the 1999-2000 budget. These included
large increases in education and health and human services funding.
In recent past years the state has experienced reductions in the overall
credit ratings assigned to its General Obligation bonds by several major rating
agencies. In July 1994, the ratings of those bonds were downgraded from Aa to A1
by Moody's, from A+ to A by Standard & Poor's and from AA to A by Fitch. At the
time, the rating agencies all cited uncertainty about the State's ability to
balance its budget by 1996. In 1996, noting improvements in the economy in
California and the state budget, both Fitch and Standard & Poor's raised their
ratings of the State's General Obligation bonds from A to A+, in 1997 Fitch
raised its rating to AA-, in 1998 Moody's raised its rating to Aa3, and in 1999
Standard & Poor's raised its rating to AA-.
|_| Special Financial Problems of Local Governments. Some local
governments in California have experienced notable financial difficulties. On
December 6, 1994, Orange County, California, became the largest municipality in
the United States ever to have filed for protection under federal bankruptcy
laws. The filing stemmed from losses of about $1.7 billion in the County's
investment pool due to investments in high-risk derivative securities. In
September 1995 the state legislature approved legislation that permitted Orange
County to use for bankruptcy recovery $820 million in sales taxes over 20 years
that were previously earmarked for highways, transit and development. In June
1996 the County completed an $880 million bond offering secured by real property
owned by the County. On June 12, 1996, the County emerged from bankruptcy. On
January 7, 1997, Orange County returned to the bond market with a $136 million
bond issue. In December 1997, Moody's raised its ratings on $325 million of
Orange County pension obligation bonds to Baa3 from Ba. In February 1998, Fitch
assigned outstanding Orange County pension obligation bonds a BBB rating. In
September 1999, Moody's assigned the County an issuer (implied general
obligation) rating of Aa3 and, among other things, upgraded the ratings on the
County's pension obligation bonds to A1.
Los Angeles County, the nation's most populous county, has also
experienced financial difficulties. Between 1992 and 1995, the County's
long-term bonds were downgraded three times. This occurred as a result of a
number of factors, including severe operating deficits for the county's health
care system. In addition, the County was affected by a long-term loss of revenue
caused by state property tax shift initiatives in 1993 through 1995. The
County's improving financial condition has been reflected in improved general
obligation bond ratings. In June 1999, the Los Angeles County Board of
Supervisors approved a budget of approximately $15 billion for 1999-2000, up
from the $13.6 billion approved for the previous fiscal year. The County's
financial condition will continue to be affected by the large number of County
residents who are dependent on government services and by a structural deficit
in its health department.
<PAGE>
Year 2000 Concerns. In October 1997, the Governor of California issued an
executive order stating that solutions to the Year 2000 problem would be a state
government priority. Although the State reports that it is making substantial
progress overall toward the goal of Year 2000 compliance, the task is very
complex and will likely encounter unexpected difficulties. The State has not
predicted whether all mission critical system will be ready and tested by late
1999 or what impact failure of any particular IT system(s) or of outside
interfaces with State IT systems might have. The State has indicated that all
mission critical systems will have a contingency business plan in place to
mitigate potential system failures.
The State Treasurer's Office has reported that its systems for bond
payments are fully Y2K compliant. The State Controller's Office has reported
that it has completed the necessary Y2K remediation projects for the State
fiscal and accounting system. Both offices report they are actively working with
outside entities with which they interface to ensure they are also compliant.
There can be no assurance that the steps taken by state or local
governments or agencies to address the Year 2000 problem will be sufficient to
avoid any adverse impact on their budgets or operations. Therefore, the possible
impact of Year 2000 problems on the debt securities issued by those governments
and agencies, and which may be owned by the Trust, cannot be predicted with any
certainty.
Other Investment Techniques and Strategies. In seeking its objective, the Fund
can from time to time use the types of investment strategies and investments
described below. It is not required to use all of there 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 obligations.
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 can 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 no 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.
<PAGE>
|X| Inverse Floaters and Other Derivative Investments. The Fund can invest
in inverse floaters to seek higher tax-exempt yields than are available from
fixed-rate bonds that have comparable maturities and credit ratings. Inverse
floaters may offer relatively high current income, reflecting the spread between
short-term and long-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. 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 the Fund's exposure to changing security prices,
interest rates or other factors that affect the value of securities. However,
these investments 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 investments 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 can 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. The Fund does not use this technique for speculative
purposes.
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, from time to time, the Fund can 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 might cause a 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 can 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 for its portfolio or for
delivery pursuant to options contracts it has entered into, and not for the
purposes of investment leverage. Although the Fund normally would enter into
"when-issued" or delayed-delivery purchase transactions to acquire securities,
the Fund can 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 might 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 to its custodian bank, cash, U.S. government securities or
other high- grade debt obligations 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| Zero-Coupon Securities. The Fund can buy zero-coupon and delayed
interest municipal securities. Zero-coupon securities do not make periodic
interest payments and are sold at a deep discount from their face value. The
buyer recognizes a rate of return determined by the gradual appreciation of the
security, which is redeemed at face value on a specified maturity date. This
discount depends on the time remaining until maturity, as well as prevailing
interest rates, the liquidity of the security and the credit quality of the
issuer. In the absence of threats to the issuer's credit quality, the discount
typically decreases as the maturity date approaches. Some zero-coupon securities
are convertible, in that they are zero-coupon securities until a predetermined
date, at which time they convert to a security with a specified coupon rate.
<PAGE>
Because zero-coupon securities pay no interest and compound semi-annually
at the rate fixed at the time of their issuance, their value is generally more
volatile than the value of other debt securities. Their value may fall more
dramatically than the value of interest-bearing securities when interest rates
rise. When prevailing interest rates fall, zero-coupon securities tend to rise
more rapidly in value because they have a fixed rate of return.
The Fund's investment in zero-coupon securities may cause the Fund to
recognize income and make distributions to shareholders before it receives any
cash payments on the zero-coupon investment. To generate cash to satisfy those
distribution requirements, the Fund may have to sell portfolio securities that
it otherwise might have continued to hold or to use cash flows from other
sources such as the sale of Fund shares.
|X| Puts and Standby Commitments. If 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
would 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 might 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.
<PAGE>
|X| Repurchase Agreements. The Fund can 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 Directors 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. Because income earned on
repurchase transactions is not tax-exempt, under normal market conditions the
Fund will limit its repurchase transactions to 20% of its total assets. That
limit may be exceeded if the Fund uses repurchase agreements as temporary
defensive investments.
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. However, if the vendor fails to
pay the resale price on the delivery date, the Fund could incur costs in
disposing of the collateral and may experience losses if there is any delay in
its ability to do so. The Manager will monitor the vendor's creditworthiness to
confirm that the vendor is financially sound and will continuously monitor the
collateral's value.
|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.
<PAGE>
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. The Fund can lend its portfolio
securities to brokers, dealers and other financial institutions. The Fund might
do so to raise cash for liquidity purposes. These loans are limited to not more
than 10% of the value of the Fund's net assets. 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 engage in loans of securities
that will 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 can 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| Borrowing. The Fund can borrow up to 10% of the value of its total
assets. It can borrow only as a temporary measure for extraordinary or emergency
purposes. The Fund cannot make any investment when borrowings exceed 5% of its
total assets. The Fund can borrow only if it maintains a 300% ratio of assets to
borrowings at all times while a borrowing is outstanding. Interest on borrowed
money is an expense the Fund would not otherwise incur, so that it might have
reduced net income during periods of substantial borrowings.
|X| Hedging. The Fund can use hedging to attempt to protect against
declines in the market value of the 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:
o sell interest rate futures or municipal bond index futures,
o buy puts on such futures or securities, or
<PAGE>
o write covered calls on securities, interest rate futures or municipal
bond index futures. Covered calls can also be written 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:
o buy interest rate futures or municipal bond index futures, or
o 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 can employ new hedging instruments and strategies when they are developed,
if those investment methods are consistent with the Fund's investment objective
and are permissible under applicable regulations governing the Fund.
|_| 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").
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.
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 bank 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 can 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 can 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 bond resulting from a change in general interest rates
(measured by each 1% change in the rates on U.S. Treasury securities). For
example, if a bond has an effective duration of three years, a 1% increase in
general interest rates would be expected to cause the value of the bond to
decline 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 (in this case, the duration of municipal bonds relative to
U.S. Treasury Bonds might have been greater than anticipated).
|_| Put and Call Options. The Fund can buy and sell certain kinds of put
options (puts) and call options (calls). These strategies are described below.
|_| Writing Covered Call Options. The Fund can write (that is, sell) call
options. The Fund's call writing is subject to a number of restrictions:
(1) After the Fund writes a call, not more than 25% of the Fund's total assets
may be subject to calls.
(2) 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.
(3) The Fund can write calls on futures contracts that it owns, but
these calls must be covered by securities or other liquid assets
that the Fund owns and identifies on the Fund's books 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.
The Fund's custodian bank, or a securities depository acting for the
custodian bank, 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
<PAGE>
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 can
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 can 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 identifying in escrow
an equivalent dollar value of liquid assets on the Fund's books. The Fund will
identify additional liquid assets on its books 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 25% 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 liquid assets
identified on the Fund's books. 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 can 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 only 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. The Fund can buy a call or put only if, after the purchase, the value of
all call and put options held by the Fund will not exceed 5% of the Fund's total
assets.
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.
<PAGE>
Calls on municipal bond indices, interest rate futures and municipal bond
index futures are settled in cash rather than by delivering the underlying
investment. Gain or loss depends on changes in the securities included in the
index in question (and thus on price movements in the debt securities market
generally) rather than on changes in price of the individual futures contract.
The Fund can buy puts that relate to securities, broadly-based municipal
bond indices, municipal bond index futures or interest rate futures (whether or
not the Fund owns the underlying investment in its portfolio).
When the Fund purchases a put, it pays a premium. The Fund then has the
right to sell the underlying investment to a seller of a corresponding put on
the same investment during the put period at a fixed exercise price. Puts on
municipal bond indices are settled in cash. Buying a put on a debt security,
interest rate future or municipal bond index future the Fund owns enables it to
protect itself during the put period against a decline in the value of the
underlying investment below the exercise price. 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 lose its premium payment and the
right to sell the underlying investment. A put may be sold prior to expiration
(whether or not 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 may affect its portfolio turnover rate and
brokerage commissions. The exercise of calls written by the Fund may cause the
Fund to sell related portfolio securities, thus increasing its turnover rate.
The exercise by the Fund of puts on securities will cause the sale of underlying
investments, increasing portfolio turnover. Although the decision whether to
exercise a put it holds is within the Fund's control, holding a put might cause
the Fund to sell the related investments for reasons that would not exist in the
absence of the put.
The Fund 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 could 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.
<PAGE>
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 concluded not to invest in such securities because of
concerns that there might be further market decline or for other reasons, the
Fund would realize a loss on the hedging instruments that would not be 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. The Fund could
experience losses if it could not close out a position because of an illiquid
market for the future or option.
|_| 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 could 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 identify liquid assets on its
<PAGE>
books (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 can write or hold may be
affected by options written or held by other entities, including other
investment companies having the same advisor as the Fund (or an advisor that is
an affiliate of the Fund's advisor). 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.
<PAGE>
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:
o short-term municipal securities;
o obligations issued or guaranteed by the U.S. government or its
agencies or instrumentalities;
o short-term debt securities;
o repurchase agreements;
o commercial paper rated A-1 by Standard & Poor's, or a comparable
rating by another nationally recognized rating agency;
o certificates of deposit of domestic banks with assets of $1 billion or
more; and
o cash equivalents
|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 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, a "majority" vote is defined as the vote of
the holders of the lesser of:
o 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
o 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 Directors
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.
<PAGE>
o The Fund cannot lend money except in connection with the acquisition of
debt securities which the Fund's investment policies and restrictions
permit it to purchase. The Fund can also make loans of portfolio
securities, subject to the restrictions stated under "Loans of Portfolio
Securities."
o The Fund cannot concentrate investments. That means it cannot invest 25%
or more of its total assets in any industry. However, there is no
limitation on investments in municipal securities, obligations issued by
the State of California or its subdivisions, agencies, authorities or
instrumentalities, or securities issued or guaranteed by the U.S.
government or its agencies or instrumentalities. The Fund cannot invest in
any other securities other than municipal securities, temporary defensive
investments and hedging instruments.
o The Fund cannot invest in interests in oil or gas exploration or
development programs or in commodities. However, the Fund can buy and sell
any of the hedging instruments permitted by any of its other policies. It
does not matter if the hedging instrument is considered to be a commodity
or commodity contract.
o The Fund cannot invest in real estate or in interests in real estate.
However, the Fund can purchase securities of issuers holding real estate or
interests in real estate (including securities of real estate investment
trusts).
o The Fund cannot purchase securities on margin. However, the Fund can make
margin deposits when using hedging instruments permitted by any of its
other policies.
o The Fund cannot invest in companies for the purpose of acquiring control
or management of those companies.
o The Fund cannot underwrite securities of other companies. A permitted
exception is in case it is deemed to be an underwriter under the Securities
Act of 1933 when reselling any securities held in its own portfolio.
o The Fund cannot invest in or hold securities of any issuer if officers
and directors of the Fund or the Manager individually beneficially own more
than 1/2 of 1% of the securities of that issuer and together own more than
5% of the securities of that issuer.
o The Fund cannot invest in other open-end investment companies or invest
more than 5% of its net assets through open market purchases in closed-end
investment companies, including small business investment companies. The
Fund cannot make any such investment at commission rates in excess of
normal brokerage commissions.
o The Fund cannot pledge, mortgage or otherwise encumber, transfer or
assign any of its assets to secure a debt. Collateral arrangements for
premium and margin payments in connection with hedging instruments are not
deemed to be a pledge of assets.
o 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
<PAGE>
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.
Unless the Prospectus or this 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. 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.
Non-Diversification of the Fund's Investments. The Fund is "non-diversified" as
defined in the Investment Company Act. Funds that are diversified have
restrictions against investing too much of their assets in the securities of any
one "issuer." That means that the Fund can invest more of its assets in the
securities of a single issuer than a fund that is diversified.
Being non-diversified poses additional investment risks, because if the
Fund invests more of its assets in fewer issuers, the value of its shares is
subject to greater fluctuations from adverse conditions affecting any one of
those issuers. However, the Fund does limit its investments in the securities of
any one issuer to qualify for tax purposes as a "regulated investment company"
under the Internal Revenue Code. By qualifying, it does not have to pay federal
income taxes if more than 90% of its earnings are distributed to shareholders.
To qualify, the Fund must meet a number of conditions. First, not more than 25%
of the market value of the Fund's total assets can be invested in the securities
of a single issuer. Second, with respect to 50% of the market value of its total
assets, (1) not more than 5% of the market value of its total assets may be
invested in the securities of a single issuer, and (2) the Fund must not own
more than 10% of the outstanding voting securities of a single issuer.
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.
<PAGE>
How the Fund is Managed
Organization and History. The Fund is one of two investment portfolios, or
"series" of Oppenheimer Main Street Funds, Inc. That corporation is an open-end,
management investment company organized as a Maryland corporation in 1987. The
Fund is a non-diversified mutual fund and commenced operations on May 18, 1990.
The Fund's parent corporation is governed by a Board of Directors, which
is responsible for protecting the interests of shareholders under Maryland law.
The Directors meet periodically throughout the year to oversee the Fund's
activities, review its performance, and review the actions of the Manager.
|_| Classes of Shares. The Board of Directors 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 two classes of
shares: Class A and Class B. Both classes invest in the same investment
portfolio. Each class of shares:
o has its own dividends and distributions,
o pays certain expenses which may be different for the different classes,
o may have a different net asset value,
o may have separate voting rights on matters in which interests of one
class are different from interests of another class, and
o votes as a class on matters that affect that class alone.
Shares are freely transferable, and each share of each class has one vote
at shareholder meetings, with fractional shares voting proportionally on matters
submitted to the vote of shareholders. Each share of the Fund represents an
interest in the Fund proportionately equal to the interest of each other share
of the same class.
The Directors are authorized to create new series and classes of shares.
The Directors may reclassify unissued shares of the Fund's parent corporation or
its series or classes into additional series or classes of shares. The Directors
also may divide or combine the shares of a class into a greater or lesser number
of shares without changing the proportionate beneficial interest of a
shareholder in the Fund. Shares do not have cumulative voting rights or
preemptive or subscription rights. Shares may be voted in person or by proxy at
shareholder meetings.
|_| Meetings of Shareholders. Although the Fund is not required by
Maryland law to hold annual meetings, it may hold shareholder meetings from time
to time on important matters. The shareholders of the Fund's parent corporation
have the right to call a meeting to remove a Director or to take certain other
action described in the Articles of Incorporation or under Maryland law.
The Fund will hold meetings when required to do so by the Investment
Company Act or other applicable law. The Fund will hold a meeting when the
Directors call a meeting or upon proper request of shareholders. If the Fund's
parent corporation receives a written request of the record holders of at least
25% of the outstanding shares eligible to be voted at a meeting to call a
meeting for a specified purpose (which might include the removal of a Director),
the Directors will call a meeting of shareholders for that specified purpose.
The Fund's parent corporation has undertaken that it will then either give the
applicants access to the Fund's shareholder list or mail the applicants'
communication to all other shareholders at the applicants' expense.
<PAGE>
Shareholders of the Fund and of its parent corporation's other series vote
together in the aggregate on certain matters at shareholders' meetings. Those
matters include the election of Directors and ratification of appointment of the
independent auditors. Shareholders of a particular series or class vote
separately on proposals that affect that series or class. Shareholders of a
series or class that is not affected by a proposal are not entitled to vote on
the proposal. For example, only shareholders of a particular series vote on any
material amendment to the investment advisory agreement for that series. Only
shareholders of a particular class of a series vote on certain amendments to the
Distribution and/or Service Plans if the amendments affect only that class.
Directors and Officers of the Fund. The Directors of the Fund's parent
corporation and the Fund's officers and their principal occupations and business
affiliations during the past five years are listed below. Directors denoted with
an asterisk (*) below are deemed to be "interested persons" of the Fund under
the Investment Company Act. All of the Directors are also trustees, directors or
managing general partners of the following Denver-based Oppenheimer funds1:
1 Ms. 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.
Oppenheimer Cash Reserves Oppenheimer Senior Floating Rate Fund
Oppenheimer Champion Income Fund Oppenheimer Strategic Income Fund
Oppenheimer Capital Income Fund Oppenheimer Total Return Fund, Inc.
Oppenheimer High Yield Fund Oppenheimer Variable Account Funds
Oppenheimer International Bond Fund Panorama Series Fund, Inc.
Oppenheimer Integrity Funds Centennial America Fund, L. P.
Oppenheimer Limited-Term Government
Fund Centennial California Tax Exempt Trust
Oppenheimer Main Street Funds, Inc. Centennial Government Trust
Oppenheimer Main Street Small Cap
Fund. Centennial Money Market Trust
Oppenheimer Municipal Fund Centennial New York Tax Exempt Trust
Oppenheimer Real Asset Fund Centennial Tax Exempt Trust
Ms. Macaskill and Messrs. Swain, Bishop, Wixted, Donohue, Farrar and Zack,
who are officers of the Fund, respectively hold the same offices with the other
Denver-based Oppenheimer funds. As of December 10, 1999, the Directors 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.
Robert G. Avis*, Director, Age: 68
One North Jefferson Ave., St. Louis, Missouri 63103
Chairman, President and Chief Executive Officer of A.G. Edwards Capital, Inc.
(general partnership of private equity funds), Director of A.G. Edwards & Sons,
Inc. (a broker-dealer) and Director of A.G. Edwards Trust Companies (trust
companies), formerly, Vice Chairman of A.G. Edwards & Sons, Inc. and A.G.
Edwards, Inc. (its parent holding company) and Chairman of A.G.E. Asset
Management (an investment advisor).
<PAGE>
William A. Baker, Director, Age: 84
197 Desert Lakes Drive, Palm Springs, California 92264
Management Consultant.
George C. Bowen, Director, Age: 63
9224 Bauer Court, Lone Tree, Colorado 80124
Formerly (until April 1999) Mr. Bowen held the following positions: 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 Asset Management Corporation; Senior Vice President (since
February 1992), Treasurer (since July 1991) Assistant Secretary and a director
(since December 1991) of Centennial Asset Management Corporation; 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 Shareholder Services, Inc.; Vice President, Treasurer and Secretary of
Shareholder Financial Services, Inc. (since November 1989); Assistant Treasurer
of Oppenheimer Acquisition Corp. (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 OppenheimerFunds International Ltd. and
Oppenheimer Millennium Funds plc (since October 1997).
Jon S. Fossel, Director, Age: 57
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., the Manager's parent holding company, and
Shareholder Services, Inc. and Shareholder Financial Services, Inc., transfer
agent subsidiaries of the Manager.
Sam Freedman, Director, Age: 59
4975 Lakeshore Drive, Littleton, Colorado 80123
Formerly Chairman and Chief Executive Officer of OppenheimerFunds Services,
Chairman, Chief Executive Officer and a director of Shareholder Services, Inc.,
Chairman, Chief Executive Officer and director of Shareholder Financial
Services, Inc., Vice President and director of Oppenheimer Acquisition Corp. and
a director of OppenheimerFunds, Inc.
Raymond J. Kalinowski, Director, Age: 70
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, Director, Age: 78
2552 East Alameda, Denver, Colorado 80209
Formerly Managing Partner of Deloitte, Haskins & Sells (an accounting firm).
Robert M. Kirchner, Director, Age: 78
7500 E. Arapahoe Road, Englewood, Colorado 80112
President of The Kirchner Company (management consultants).
<PAGE>
Bridget A. Macaskill*, President and Director, Age: 51
Two World Trade Center, New York, New York 10048-0203
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 Asset Management Corporation, an investment advisor
subsidiary of the Manager; Chairman and a director of Shareholder Services, Inc.
(since August 1994) and Shareholder Financial Services, Inc. (since September
1995), transfer agent subsidiaries of the Manager; President (since September
1995) and a director (since October 1990) of Oppenheimer Acquisition Corp., the
Manager's parent holding company; 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 management
subsidiary of the Manager and of Oppenheimer Millennium Funds plc; President and
a director of other Oppenheimer funds; a director of Prudential Corporation plc
(a U.K. financial service company).
Ned M. Steel, Director, Age: 84
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 Director, Age: 66
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 advisor
subsidiary of the Manager and Chairman of the Board of Shareholder Services,
Inc.
Christian D. Smith, Senior Vice President and Portfolio Manager, Age: 37
Two World Trade Center, New York, New York 10048-0203
Senior Vice President of the Manager (since October 11, 1999); an officer of
other Oppenheimer funds. From January 1999 to September 1999 he was Co-Head of
the Municipal Portfolio Management Team of Prudential Global Asset Management
(an investment advisor), prior to which he was a portfolio manager for that firm
(January 1990 to January 1999).
Andrew J. Donohue, Vice President and Secretary, Age: 49
Two World Trade Center, New York, New York 10048-0203
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 Asset Management Corporation, Shareholder Services,
Inc., Shareholder Financial Services, Inc. and (since September 1995)
Oppenheimer Partnership Holdings, Inc.; President and a director of Centennial
Asset Management Corporation (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 Oppenheimer
Acquisition Corp.; Vice President and a director of OppenheimerFunds
International Ltd. and Oppenheimer Millennium Funds plc (since October 1997); an
officer of other Oppenheimer funds.
<PAGE>
Robert J. Bishop, Assistant Treasurer, Age: 41
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: 34
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.
Brian W. Wixted, Treasurer, Age: 40
6803 South Tucson Way, Englewood, Colorado 80112
Senior Vice President and Treasurer (since April 1999) of the Manager; Treasurer
of HarbourView Asset Management Corporation, Shareholder Services, Inc.,
Shareholder Financial Services, Inc. and Oppenheimer Partnership Holdings, Inc.
(since April 1999); Assistant Treasurer of Oppenheimer Acquisition Corp. (since
April 1999); Assistant Secretary of Centennial Asset Management Corporation
(since April 1999); formerly Principal and Chief Operating Officer, Bankers
Trust Company - Mutual Fund Services Division (March 1995 - March 1999); Vice
President and Chief Financial Officer of CS First Boston Investment Management
Corp. (September 1991 - March 1995); and Vice President and Accounting Manager,
Merrill Lynch Asset Management (November 1987 - September 1991).
Robert G. Zack, Assistant Secretary, Age: 51
Two World Trade Center, New York, New York 10048-0203
Senior Vice President (since May 1985) and Associate General Counsel (since May
1981) of the Manager, Assistant Secretary of Shareholder Services, Inc. (since
May 1985), and Shareholder Financial Services, Inc. (since November 1989);
Assistant Secretary of OppenheimerFunds International Ltd. and Oppenheimer
Millennium Funds plc (since October 1997); an officer of other Oppenheimer
funds.
|X| Remuneration of Directors. The officers of the Fund and three Directors
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 Directors of
the Fund received the compensation shown below. The compensation from the Fund
was paid during its fiscal year ended August 31, 1999. 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>
- ---------------------------------------------------------------------------
Aggregate Total Compensation
Compensation From all Denver-Based
Director's Name and Position From Fund Oppenheimer Funds1
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
Robert G. Avis $248 $67,998
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
William A. Baker $254 $69,998
- ---------------------------------------------------------------------------
<PAGE>
- ---------------------------------------------------------------------------
Aggregate Total Compensation
Compensation From all Denver-Based
Director's Name and Position From Fund Oppenheimer Funds1
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
George C. Bowen2 $43 NONE
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
Jon. S. Fossel
Review Committee Member $252 $67,496
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
Sam Freedman
Review Committee Member $270 $73,998
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
Raymond J. Kalinowski
Audit Committee Member $267 $73,998
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
C. Howard Kast
Audit and Review
Committee Chairman $286 $76,998
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
Robert M. Kirchner
Audit Committee Member $251 $67,998
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
Ned M. Steel $248 $67,998
- ---------------------------------------------------------------------------
1. For the 1998 calendar year.
2. Mr. Bowen did not receive compensation during the 1998 calendar year because
he was affiliated with the Manager during that period.
|X| Deferred Compensation Plan. The Board of Directors has adopted a Deferred
Compensation Plan for disinterested directors 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 Director
is periodically adjusted as though an equivalent amount had been invested in
shares of one or more Oppenheimer funds selected by the Director. The amount
paid to the Director under the plan will be determined based upon the
performance of the selected funds.
Deferral of Director's fees under the plan will not materially affect the
Fund's assets, liabilities and net income per share. The plan will not obligate
the Fund to retain the services of any Director or to pay any particular level
of compensation to any Director. Pursuant to an Order issued by the Securities
and Exchange Commission, the Fund may invest in the funds selected by the
Director under the plan without shareholder approval for the limited purpose of
determining the value of the Director's deferred fee account.
o Major Shareholders. As of December 10, 1999 there are no persons who
owned of record or where known by the Fund to own beneficially 5% or more of any
class of the Fund's outstanding shares.
<PAGE>
The Manager. The Manager is wholly-owned by Oppenheimer Acquisition Corp., a
holding company controlled by Massachusetts Mutual Life Insurance Company.
|X| Code of Ethics. The Fund, the Manager and the Distributor 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. Covered persons include persons
with knowledge of the investments and investment intentions of the Fund and
other funds advised by the Manager. The Code of Ethics does permit personnel
subject to the Code to invest in securities, including securities that may be
purchased or held by the Fund, subject to a number of restrictions and controls.
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 portfolio. Other members
of the Manager's Fixed Income Portfolio Department provide the portfolio manager
with counsel and support in managing the Fund's portfolio.
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 administration for the Fund.
Those responsibilities include the compilation and maintenance of records with
respect to its operations, the preparation and filing of specified reports, and
composition of proxy materials and registration statements for continuous public
sale of shares of the Fund.
The 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, brokerage commissions,
fees to certain Directors, legal and audit expenses, custodian bank and transfer
agent expenses, share issuance costs, certain printing and registration costs
and non-recurring expenses, including litigation costs.
Under the investment advisory agreement, the Manager is paid a fee based
on the average annual net assets of the Fund. The rates at which the Manager is
paid depend on the amount of the Fund's average annual net assets:
o When net assets are less than $25 million, no fee is paid to the
Manager.
o When net assets are $25 million or more but less than $50 million,
the rate of the fee is 0.15% of average annual net assets.
o When net assets are $50 million or more but less than $75 million, the
rate of the fee is 0.25% of average annual net assets.
o When net assets are $75 million or more but less that $100 million, the
rate of the is 0.40% of average annual net assets.
o When net assets are $100 million or more, the rate is 0.55% of average
annual net assets.
<PAGE>
Apart from the investment advisory agreement, the Manager previously had
voluntarily agreed to waive a portion of its fee, so that when the Fund's net
assets are $100 million or more, the Manager's fee was paid at a rate of 0.40%
of average annual net assets. The Manager withdrew that waiver on April 1, 2000.
The management fees paid by the Fund to the Manager are applied to the aggregate
assets of the Fund. 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 in the last three fiscal years
are shown in the chart below.
<PAGE>
- --------------------------------------------------------------------------------
Management fees Paid to
Fiscal Year ended Management Fee (Without OppenheimerFunds, Inc.
8/31: Voluntary Waiver) (After Waiver)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1997 $353,136 $353,136
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1998 $646,955 $470,845
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1999 $770,241 $560,175
- --------------------------------------------------------------------------------
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 of its obligations and duties under the investment advisory
agreement, the Manager is not liable for any loss the Fund sustains for any
investment, adoption of any investment policy, or the purchase, sale or
retention of any security.
The agreement permits the Manager to act as investment advisor for any
other person, firm or corporation and to use the names "Oppenheimer" and "Main
Street" in connection with other investment companies for which it may act as
investment advisor or general distributor. If the Manager shall no longer act as
investment advisor to the Fund, the Manager may withdraw the right of the Fund's
parent corporation to use the names "Oppenheimer" and "Main Street" as part of
its name and the name of the Fund.
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. The Manager may
employ broker-dealers that the Manager thinks, in its 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 Directors.
Under the investment advisory agreement, the Manager may select brokers
(other than affiliates) that provide brokerage and/or research services for the
Fund and/or the other accounts over which the Manager or its affiliates have
investment discretion. The commissions paid to such brokers may be higher than
another qualified broker would charge, if the Manager makes a
<PAGE>
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 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. If two or more of funds advised by the
Manager purchase the same security on the same day from the same dealer, 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 Directors has permitted the Manager to use concessions on
fixed-price offerings to obtain research, in the same manner as is permitted for
agency transactions. The Board has also permitted the Manager to use stated
commissions on secondary fixed-income
<PAGE>
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 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's
parent corporation, the Distributor acts as the Fund's principal underwriter in
the continuous public offering of the Fund's shares. 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 during the Fund's three most recent fiscal
years is shown in the table below.
<PAGE>
- ------------------------------------------------------------------------------
Aggregate Class A
Front-End Front-End Commissions on Commissions on
Sales Charges Sales Charges Class A Shares Class B Shares
Fiscal Year on Class A Retained by Advanced by Advanced by
Ended 8/31: Shares Distributor Distributor1 Distributor1
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
1997 $293,130 $46,207 N/A $213,863
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
1998 $406,963 $41,120 $71,099 $465,076
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
1999 $370,004 $65,422 $27,796 $426,112
- ------------------------------------------------------------------------------
1. The Distributor advances commission payments to dealers for certain sales of
Class A shares and for sales of Class B shares from its own resources at the
time of sale.
- ------------------------------------------------------------------------------
Class A Contingent Class B Contingent
Deferred Sales Charges Deferred Sales Charges
Fiscal Year Ended 8/31 Retained by Distributor Retained by Distributor
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
1999 $4,038 $95,508
- ------------------------------------------------------------------------------
For additional information about distribution of the Fund's shares,
including fees and expenses, please refer to "Distribution and Service Plans,"
below.
Distribution and Service Plan. The Fund has adopted a Distribution and Service
Plan for Class B shares Rule 12b-1 of the Investment Company Act. Under the plan
the Fund reimburses the Distributor for all or a portion of its costs incurred
in connection with the distribution and/or servicing of Class B shares.
<PAGE>
The plan has been approved by a vote of the Board of Directors, including
a majority of the Independent Directors2, cast in person at a meeting called for
the purpose of voting on that plan. The shareholder vote for the Distribution
and Service Plans for Class B shares was cast by the Manager as the sole initial
holder of Class B shares of the Fund.
2 In accordance with Rule 12b-1 of the Investment Company Act, the term
"Independent Directors" in this Statement of Additional Information refers
to those Directors who are not "interested persons" of the Fund (or its
parent corporation) 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 may make payments to
affiliates and, 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 its profits from the advisory fee it receives
from the Fund. In their sole discretion, the Distributor and the Manager may
increase or decrease the amount of payments they make from their own resources
to plan recipients.
Unless the plan is terminated as described below, the plan continues in
effect from year to year but only if the Fund's Board of Directors and its
Independent Directors 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. The plan may be terminated at any time by the
vote of a majority of the Independent Directors or by the vote of the holders of
a "majority" (as defined in the Investment Company Act) of the outstanding Class
B shares.
The Board of Directors and the Independent Directors must approve all
material amendments to the plan. An amendment to increase materially the amount
of payments to be made under the plan must be approved by shareholders of Class
B.
While the plan is in effect, the Treasurer of the Fund shall provide
written reports on the plan to the Board of Directors at least quarterly for its
review. The Reports shall detail the amount of all payments made under the plan
and the purpose for which the payments were made. Those reports are subject to
the review and approval of the Independent Directors.
The plan states that while it is in effect, the selection and nomination
of those Directors of the Fund's parent corporation who are not "interested
persons" of the corporation (or the Fund) is committed to the discretion of the
Independent Directors. This 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 Directors.
Under the plan, 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 Independent Directors. The Board of
Directors has set no minimum amount of assets to qualify for payments under the
plan.
<PAGE>
|_| Class B Service and Distribution Plan Fees. Under the plan,
service fees and distribution fees are computed on the average of the net asset
value of Class B shares, determined as of the close of each regular business day
during the period. The plan allows the Distributor to be reimbursed for its
services and costs in distributing Class B shares and servicing accounts.
Under the service plan, the services provided by recipients to their
customers 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 service plan permits reimbursements to the
Distributor at a rate of up to 0.25% of average annual net asset of Class B. The
Board has set the rate at that level.
The plan permits the Distributor to retain both the asset-based sales
charges and the service fees or to pay recipients the service fee on a quarterly
basis, without payment in advance. However, the Distributor currently intends to
pay the service fee to recipients in advance for the first year after the shares
are purchased. 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 the service fee payment. If Class B 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 of the service fee made on those shares.
The Distributor retains the asset-based sales charge on Class B shares. If
a dealer has a special agreement with the Distributor, the Distributor will pay
the Class B service fee and the asset-based sales charge to the dealer quarterly
in lieu of paying the sales commissions and service fee in advance at the time
of purchase.
The asset-based sales charges on Class B shares allow investors to buy
shares without a front-end sales charge while allowing the Distributor to
reimburse dealers that sell those shares. The Fund pays the asset-based sales
charges to the Distributor for its services rendered in distributing Class B
shares. The payments are made to the Distributor in recognition that the
Distributor:
o pays sales commissions to authorized brokers and dealers at the time of
sale and pays service fees as described above,
o 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,
o employs personnel to support distribution of Class B shares, and
o 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.
The Distributor's actual expenses in selling Class B shares may be more than
the payments it receives from the contingent deferred sales charges collected on
redeemed shares and from the Fund under the plans. If the Class B plan is
terminated by the Fund, the Board of Directors may allow the Fund to continue
payments of the asset-based sales charge to the Distributor for
<PAGE>
distributing shares before the plan was terminated. All payments under the Class
B plan is subject to the limitation imposed by the Conduct Rules of the National
Association of Securities Dealers, Inc. on payments of asset-based sales charges
and service fees.
- --------------------------------------------------------------------------------
Distribution Fees Paid to the Distributor for the Year Ended 8/31/99
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Distributor's
Distributor's Unreimbursed
Total Amount Aggregate Expenses as %
Payments Retained by Unreimbursed of Net Assets
Class: Under Plan Distributor Expenses Under Plan of Class
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Class B Plan $280,483 $238,366 $1,067,326 3.59%
- --------------------------------------------------------------------------------
1. Includes $1 paid to an affiliate of the Distributor's parent company.
All payments under the Class B plan are subject to the limitations imposed
by the Conduct Rules of the National Association of Securities Dealers, Inc. on
payments of asset-based sales charges and service fees.
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 the Fund's 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
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:
o 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.
<PAGE>
o An investment in the Fund is not insured by the FDIC or any other
government agency.
o 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.
o When an investor's shares are redeemed, they may be worth more or less
than their original cost.
o 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. |-|
<PAGE>
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 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 and state taxable income
(the net amount subject to federal and state 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 8/31/99
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Tax-Equivalent Yield
Class of (45.22% Combined
Shares Federal/California
Standardized Yield Dividend Yield Tax Bracket)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Without After Without After Without After
Sales Sales Sales Sales Sales Sales
Charge Charge Charge Charge Charge Charge
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Class A 5.26% 5.01% 5.26% 5.01% 9.60% 9.15%
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Class B 4.25% N/A 4.25% N/A 7.76% 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
<PAGE>
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.
|_| 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:
1/n
(ERV)
(---) -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 or Class B 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.
<PAGE>
- -------------------------------------------------------------------------------
The Fund's Total Returns for the Periods Ended 8/31/98
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Cumulative Total
Class of Returns (10
Shares years or Life of
Class) Average Annual Total Returns
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
5-Year 10-Year
(or (or
1-Year life-of-class) life-of-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 81.84% 90.90% -6.11% -1.42% 5.44% 6.47% 6.65%1 7.21%1
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Class B 24.52% 25.46% -7.10% -2.41% 5.09% 5.42% 3.83%2 3.96%2
- -------------------------------------------------------------------------------
1. Inception of Class A: 5/18/90
2. Inception of Class B: 10/29/93.
Because Class B shares convert to Class A shares 72 months after purchase, the
"Life-of-Class" return for Class B shares uses Class A performance for the
period after conversion.
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.
|_| Lipper Rankings. From time to time the Fund may publish the ranking
of the performance of its classes of 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 California 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.
|_| Morningstar Rankings. From time to time the Fund may publish the
ranking and/or star rating of the performance of its classes of shares by
Morningstar, Inc., an independent mutual fund monitoring service. Morningstar
rates and ranks mutual funds in broad investment categories: domestic stock
funds, international stock funds, taxable bond funds and municipal bond funds.
The Fund is included in the municipal bond category.
Morningstar proprietary star ratings reflect historical 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 ratings reflecting performance
relative to the other fund in the fund's category. Five stars is the "highest"
rating (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) overall rating, which is the fund's 3-year rating or its
combined 3- and 5-year rating (weighted 60%/40% respectively), or its combined
3-, 5-, and 10-year ranking (weighted 40%/30%/30%, respectively), depending on
the inception date of the fund (or class). Ratings are subject to change
monthly.
The Fund may also compare its total return ranking to that of other funds in its
Morningstar category, in addition to its star ratings. Those total return
rankings are percentages from one percent to one hundred percent and are not
risk adjusted. For example if a fund is in the 94th percentile, that means that
94% of the funds in the same category performed better than it did.
|_| 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 classes of 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 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.
- --------------------------------------------------------------------------------
A B O U T Y O U R A C C O U N T
- --------------------------------------------------------------------------------
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.
<PAGE>
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:
o 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
o 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
o 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 Main Street California
Oppenheimer Bond Fund Municipal Fund
Oppenheimer Main Street Growth & Income
Oppenheimer Capital Appreciation Fund Fund
Oppenheimer Capital Preservation Fund Oppenheimer Main Street Small Cap Fund
Oppenheimer California Municipal Fund Oppenheimer MidCap Fund
Oppenheimer Champion Income Fund Oppenheimer Multiple Strategies Fund
Oppenheimer Convertible Securities Fund Oppenheimer Municipal Bond Fund
Oppenheimer Developing Markets Fund Oppenheimer New York Municipal Fund
Oppenheimer Disciplined Allocation Fund Oppenheimer New Jersey Municipal Fund
Oppenheimer Disciplined Value Fund Oppenheimer Pennsylvania Municipal Fund
Oppenheimer Discovery Fund Oppenheimer Quest Balanced Value Fund
Oppenheimer Quest Capital Value Fund,
Oppenheimer Enterprise Fund Inc.
Oppenheimer Quest Global Value Fund,
Oppenheimer Capital Income Fund Inc.
Oppenheimer Europe Fund
Oppenheimer Quest Opportunity Value Fund
Oppenheimer Florida Municipal Fund
Oppenheimer Quest Small Cap Value Fund
Oppenheimer Global Fund
Oppenheimer Quest Value Fund, Inc.
Oppenheimer Global Growth & Income Fund
Oppenheimer Real Asset Fund
Oppenheimer Gold & Special Minerals Fund
Oppenheimer Senior Floating Rate Fund
Oppenheimer Growth Fund
Oppenheimer Strategic Income Fund
Oppenheimer High Yield Fund
Oppenheimer Total Return Fund, Inc.
Oppenheimer Insured Municipal Fund
Oppenheimer Trinity Core Fund
Oppenheimer Intermediate Municipal Fund
Oppenheimer Trinity Growth Fund
Oppenheimer International Bond Fund
Oppenheimer Trinity Value Fund
Oppenheimer International Growth Fund
Oppenheimer U.S. Government Trust
Oppenheimer International Small Company Fund
Oppenheimer World Bond Fund
Oppenheimer Large Cap Growth Fund
Limited-Term New York Municipal Fund
Oppenheimer Limited-Term Government Fund
Rochester Fund Municipals
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
<PAGE>
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 bound 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.
The Transfer Agent will not hold shares in escrow for purchases of shares
of the Fund and other Oppenheimer funds by OppenheimerFunds prototype 401(k)
plans under a Letter of Intent. If the intended purchase amount under a Letter
of Intent entered into by an OppenheimerFunds prototype 401(k) plan is not
purchased by the plan by the end of the Letter of Intent period, there will be
no adjustment of commissions paid to the broker-dealer or financial institution
of record for accounts held in the name of that plan.
<PAGE>
In determining the total amount of purchases made under a Letter, shares
redeemed by the investor prior to the termination of the Letter of Intent period
will be deducted. It is the responsibility of the dealer of record and/or the
investor to advise the Distributor about the Letter in placing any purchase
orders for the investor during the Letter of Intent period. All of such
purchases must be made through the Distributor.
|_| Terms of Escrow That Apply to Letters of Intent.
1. Out of the initial purchase (or subsequent purchases if necessary) made
pursuant to a Letter, shares of the Fund equal in value up to 5% of the intended
purchase amount specified in the Letter shall be held in escrow by the Transfer
Agent. For example, if the intended purchase amount is $50,000, the escrow shall
be shares valued in the amount of $2,500 (computed at the 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.
<PAGE>
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 (the minimum is $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 are only
available if your bank is an ACH member. Asset Builder Plans may not be used to
buy shares for OppenheimerFunds employer - sponsored qualified retirement
accounts. 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 debited automatically. Normally the debt will be
made two business days prior to the investment dates you selected in your
Application. Neither the Distributor, the Transfer Agent nor the Fund shall be
responsible for any delays in purchasing shares that result from delays in ACH
transmissions.
Before you establish Asset Builder payments, you should obtain a
prospectus of the selected fund(s) your financial advisor (or the Distributor)
and request an application from the Distributor. Complete the application and
return it. You may change the amount of the Asset Builder payment or you can
terminate these at any time by writing to the Transfer Agent. The Transfer Agent
requires a reasonable period (approximately 10 days) after receipt of your
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
shares and the dividends payable on Class B shares will be reduced by
incremental expenses borne solely by that class. Those expenses include the
asset-based sales charges to which Class B is subject.
The availability of different 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
shares have no initial sales charge, the purpose of the deferred sales charge
and asset-based sales charge on Class B 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
<PAGE>
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 rather than another.
The Distributor will not accept any order in the amount of $500,000 or
more for Class B 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.
|_| 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 shareholder 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 shareholder, and absent
such exchange, Class B shares might continue to be subject to the asset-based
sales charge for longer than six years.
|_| Allocation of Expenses. The Fund pays expenses related to its daily
operations, such as custodian bank fees, Directors' 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
Directors, custodian bank 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. The
calculation is done by dividing the value of the Fund's net assets attributable
to a class by the number of shares of that class that are outstanding. The
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).
<PAGE>
The Exchange's most recent annual announcement (which is subject to change)
states that it will close on New Year's Day, Presidents' Day, Martin Luther
King, Jr. 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 certain
securities on days on which the Exchange is closed (including weekends and U.S.
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 value of some of the Fund's
portfolio securities may change significantly on those days, when shareholders
may not purchase or redeem shares.
|X| Securities Valuation. The Fund's Board of Directors has established
procedures for the valuation of the Fund's securities. In general those
procedures are as follows:
o 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
Directors or obtained by the Manager from two active market makers in the
security on the basis of reasonable inquiry.
o 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
Directors 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.
o 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.
o Securities (including restricted securities) not having
readily-available market quotations are valued at fair value determined under
the Board's procedures.
If the Manager is unable to locate two market makers willing to give
quotes, 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 Directors. 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.
<PAGE>
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 Directors 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
Information on how to sell shares of the Fund is stated in the Prospectus. The
information below provides additional information about the procedures and
conditions for redeeming shares.
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)
<PAGE>
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:
o Class A shares purchased subject to an initial sales charge or Class A
shares on which a contingent deferred sales charge was paid, or
o 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. 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 Directors 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 liquid securities from the
portfolio of the Fund, in lieu of cash.
<PAGE>
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 Directors 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 $500 or such lesser amount as the
Board may fix. The Board 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
contingent deferred sales charge will be followed in determining the order in
which shares are transferred.
Sending Redemption Proceeds by Wire. The wire of redemption proceeds may be
delayed if the Fund's custodian bank is not open for business on a day when the
Fund would normally authorize the wire to be made, which is usually the Fund's
next regular business day following the redemption. In those circumstances, the
wire will not be transmitted until the next bank business day on which the Fund
is open for business. No dividends will be paid on the proceeds of redeemed
shares awaiting transfer by wire.
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
<PAGE>
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.
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
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).
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
<PAGE>
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.
<PAGE>
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.
o 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.
o Oppenheimer Main Street California Municipal Fund currently offers only
Class A and Class B shares.
o 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.
o Only certain Oppenheimer funds currently offer Class Y shares. Class Y
shares of Oppenheimer Real Asset Fund may not be exchanged for shares of
any other fund.
o Class M shares of Oppenheimer Convertible Securities Fund may be
exchanged only for Class A shares of other Oppenheimer funds. They may not
be acquired by exchange of shares of any class of any other Oppenheimer
funds except Class A shares of Oppenheimer Money Market Fund or Oppenheimer
Cash Reserves acquired by exchange of Class M shares.
o Class A shares of Senior Floating Rate Fund are not available by exchange
of Class A shares of other Oppenheimer funds. Class A shares of Senior
Floating Rate Fund that are exchanged for shares of the other Oppenheimer
funds may not be exchanged back for Class A shares of Senior Floating Rate
Fund.
o Class X shares of Limited Term New York Municipal Fund can be exchanged
only for Class B shares of other Oppenheimer funds and no exchanges may be
made to Class X shares.
o
<PAGE>
Shares of Oppenheimer Capital Preservation Fund may not be exchanged for
shares of Oppenheimer Money Market Fund, Inc., Oppenheimer Cash Reserves or
o Oppenheimer Limited-Term Government Fund. Only participants in certain
retirement plans may purchase shares of Oppenheimer Capital Preservation
Fund, and only those participants may exchange shares of other Oppenheimer
funds for shares of Oppenheimer Capital Preservation Fund.
Class A shares of Oppenheimer funds may be exchanged at net asset value
for shares of any money market fund offered by the Distributor. 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
an early withdrawal charge or 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 sales charge 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.
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.
The Fund may amend, suspend or terminate the exchange privilege at any
time. Although the Fund may impose these changes at any time, it will provide
you with notice of those changes whenever it is required to do so by applicable
law. It may be required to provide 60 days notice prior to materially amending
or terminating the exchange privilege. That 60 day notice is not required in
extraordinary circumstances.
|_| 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.
When Class B 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 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
<PAGE>
contingent deferred sales charge that might be imposed in the subsequent
redemption of remaining shares. Shareholders owning shares of more than one
Class must specify whether they intend to exchange Class A or Class B shares.
|_| 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 investor must obtain a Prospectus of that fund before
the exchange request may be submitted. 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. When you exchange some or all of your shares from one fund to another,
any special account feature such as an Asset Builder Plan or Automatic
Withdrawal Plan, will be switched to the new fund account unless you tell the
Transfer Agent not to do so. However, special redemption and exchange features
such as Automatic Exchange Plans and Automatic Withdrawal Plans cannot be
switched to an account in Oppenheimer Senior Floating Rate Fund.
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.
<PAGE>
Dividends, Capital Gains and Taxes
Dividends and Distributions. Dividends will be payable on shares held of record
at the time of the previous determination of net asset value, 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 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 shares. Those dividends will also differ in amount as a
consequence of any difference in net asset value among Class A and Class B
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.
<PAGE>
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: certain taxable temporary
investments (such as certificates of deposit, repurchase agreements, commercial
paper and obligations of the U.S. government, its agencies and
instrumentalities); (1) income from securities loans; (2) income or gains from
options or futures; 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.
In any year in which the Fund qualifies as a regulated investment company
under the Internal Revenue Code, the Fund will also be exempt from California
corporate income and franchise taxes. It will also be qualified under California
law to pay exempt interest dividends that will be exempt from California
personal income tax. That exemption applies to the extent that the Fund's
distributions are attributable to interest on California municipal securities
and qualifying obligations of the United States government, if at least 50% of
the Fund's assets are
<PAGE>
invested in such obligations at the close of each quarter in its tax year.
Distributions from the Fund attributable to income from sources other than
California municipal securities and U.S. government obligations will generally
be subject to California income tax as ordinary income.
Distributions by the Fund from investment income and long- and short-term
capital gains will generally not be excludable from taxable income in
determining California corporate franchise tax or income tax for corporate
shareholders of the Fund. Additionally, certain distributions paid to corporate
shareholders of the Fund may be includable in income subject to the California
alternative minimum tax.
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 Directors 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 without sales charge at the net asset value per share in effect at the
close of business on the payable date of the dividend or distribution. 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 first must obtain a prospectus for that fund and an application from
the Distributor to establish an account. Dividends and/or distributions from
shares of certain other Oppenheimer funds (other than Oppenheimer Cash Reserves)
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.
<PAGE>
The Custodian Bank. The Bank of New York is the custodian bank of the Fund's
assets. The custodian bank'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 bank in a manner uninfluenced by any banking relationship the
custodian bank may have with the Manager and its affiliates. The Fund's cash
balances with the custodian bank in excess of $100,000 are not protected by
federal deposit insurance. Those uninsured balances at times may 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 the Manager and certain other funds
advised by the Manager and its affiliates.
<PAGE>
INDEPENDENT AUDITORS' REPORT
=============================================================================
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF OPPENHEIMER MAIN STREET CALIFORNIA
MUNICIPAL FUND:
We have audited the accompanying statement of assets and liabilities, including
the statement of investments, of Oppenheimer Main Street California Municipal
Fund as of August 31, 1999, the related statement of operations for the year
then ended, the statements of changes in net assets for the years ended August
31, 1999 and 1998 and the financial highlights for the period July 1, 1994, to
August 31, 1999. 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 as of
August 31, 1999, 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
Main Street California Municipal Fund as of August 31, 1999, 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
September 22, 1999
<PAGE>
STATEMENT OF INVESTMENTS August 31, 1999
<TABLE>
<CAPTION>
RATINGS:
MOODY'S/ MARKET
S&P/FITCH FACE VALUE
(UNAUDITED)
AMOUNT SEE NOTE 1
- ------------------------------------------------------------------------------------------------------------------
MUNICIPAL BONDS AND NOTES--98.8%
- ------------------------------------------------------------------------------------------------------------------
<S> <C>
<C> <C>
CALIFORNIA--90.6%
Anaheim, CA PFAU TXAL RB, MBIA Insured,
Inverse Floater, 9.37%, 12/28/18(1) Aaa/AAA
$1,000,000 $1,167,500
- ------------------------------------------------------------------------------------------------------------------
Berkeley, CA HF RRB, Alta Bates Medical Center,
Prerefunded, Series A, 6.50%, 12/1/11 A2/NR
1,500,000 1,609,740
- ------------------------------------------------------------------------------------------------------------------
CA Assn. of Bay Area Governments FAU for
Non-profit Corps. Refunding COP, American
Baptist Homes, Series A, 6.20%, 10/1/27 NR/BBB
1,790,000 1,782,804
- ------------------------------------------------------------------------------------------------------------------
CA Assn. of Bay Area Governments FAU for
Non-profit Corps. Refunding COP, Episcopal
Homes Foundation, 5.125%, 7/1/18 NR/A-
1,500,000 1,383,975
- ------------------------------------------------------------------------------------------------------------------
CA Assn. of Bay Area Governments FAU for
Non-profit Corps. Refunding COP, Rhonda
Haas Goldman Plaza, 5.125%, 5/15/23
NR/AA- 700,000 638,218
- ------------------------------------------------------------------------------------------------------------------
CA CDAU Lease RB, United Airlines,
Series A, 5.70%, 10/1/33 Baa3/BB+
3,200,000 2,976,064
- ------------------------------------------------------------------------------------------------------------------
CA CDAU MH RB, Village Riviera Hills,
Series E, 5.45%, 2/1/25 NR/AAA
1,000,000 1,003,830
- ------------------------------------------------------------------------------------------------------------------
CA Foothill/Eastern Corridor Agency
Toll Road RB, Sr. Lien, Prerefunded,
Series A, 6.50%, 1/1/32 Baa3/BBB-/BBB
1,400,000 1,557,892
- ------------------------------------------------------------------------------------------------------------------
CA Foothill/Eastern Corridor Agency
Toll Road RRB, Zero Coupon, 5.98%, 1/15/21(2) Baa3/BBB-/BBB
5,000,000 1,343,350
- ------------------------------------------------------------------------------------------------------------------
CA Foothill/Eastern Corridor Agency
Toll Road RRB, Zero Coupon, 6%, 1/15/22(2) Baa3/BBB-/BBB
5,500,000 1,387,705
- ------------------------------------------------------------------------------------------------------------------
CA GOB, 5%, 10/1/27 Aa3/AA-/AA-
3,000,000 2,721,030
- ------------------------------------------------------------------------------------------------------------------
CA HFA SFM Purchase RB, Series A-2, 6.45%, 8/1/25 Aaa/AAA
2,340,000 2,416,752
- ------------------------------------------------------------------------------------------------------------------
CA HFA SFM RB, Series A, Cl. I, 5.40%, 8/1/26 Aaa/AAA
1,810,000 1,674,829
- ------------------------------------------------------------------------------------------------------------------
CA HFA SFM RB, Series C, 6.75%, 2/1/25 Aa2/AA-
4,790,000 4,963,254
- ------------------------------------------------------------------------------------------------------------------
CA Infrastructure & ED Bank RB,
American Center for Wine Food Arts, 5.55%, 12/1/12 NR/A/A
1,710,000 1,697,962
- ------------------------------------------------------------------------------------------------------------------
CA PCFAU RB, Pacific Gas & Electric Co. Project,
Series B, 6.35%, 6/1/09 A1/AA-
2,000,000 2,139,500
- ------------------------------------------------------------------------------------------------------------------
CA PWBL RB, State Prison Department of
Corrections, Series E, FSA Insured, 5.50%, 6/1/15 Aaa/AAA/AAA
2,000,000 2,038,960
- ------------------------------------------------------------------------------------------------------------------
CA Rural Home Mtg. FAU SFM RB,
Mtg.-Backed Securities Program,
Series A, 5.75%, 12/1/29 NR/AAA
1,905,000 1,999,793
- ------------------------------------------------------------------------------------------------------------------
CA Rural Home Mtg. FAU SFM RB,
Mtg.-Backed Securities Program,
Series B, 7.75%, 9/1/26
NR/AAA 920,000 1,001,770
</TABLE>
12 Oppenheimer Main Street California Municipal Fund
<PAGE>
<TABLE>
<CAPTION>
RATINGS:
MOODY'S/ MARKET
S&P/FITCH FACE VALUE
(UNAUDITED)
AMOUNT SEE NOTE 1
- ------------------------------------------------------------------------------------------------------------------
<S> <C>
<C> <C>
CALIFORNIA Continued
CA Rural Home Mtg. FAU SFM RB,
Mtg.-Backed Securities Program,
Series B-5, 6.35%, 12/1/29 NR/AAA
$1,470,000 $1,548,007
- ------------------------------------------------------------------------------------------------------------------
CA Rural Home Mtg. FAU SFM RB,
Mtg.-Backed Securities Program,
Series D, Cl. 5, 6.70%, 5/1/29 NR/AAA
1,890,000 2,057,983
- ------------------------------------------------------------------------------------------------------------------
CA SCDAU COP, The Internext Group, 5.375%, 4/1/17 NR/BBB
3,000,000 2,794,770
- ------------------------------------------------------------------------------------------------------------------
CA SCDAU COP, The Internext Group, 5.375%, 4/1/30 NR/BBB
1,500,000 1,348,110
- ------------------------------------------------------------------------------------------------------------------
CA SCDAU Revenue Refunding COP,
Inverse Floater, 7.63%, 11/1/15(1) A1/NR
1,200,000 1,101,000
- ------------------------------------------------------------------------------------------------------------------
Central CA Joint Powers Health FAU COP,
Community Hospitals of Central California
Project, 5%, 2/1/23
Baa1/NR 285,000 247,451
- ------------------------------------------------------------------------------------------------------------------
Contra Costa Cnty., CA SPTX RRB,
CFD 91-1, 5.58%, 8/1/16 NR/NR
3,075,000 2,916,853
- ------------------------------------------------------------------------------------------------------------------
Corona, CA SFM RB, Sub. Lien,
Series B, 6.30%, 11/1/28
A2/NR 800,000 823,472
- ------------------------------------------------------------------------------------------------------------------
Escondido, CA Union High SDI CAP GOB,
MBIA Insured, Zero Coupon, 6.20%, 11/1/19(2) Aaa/AAA
2,000,000 636,960
- ------------------------------------------------------------------------------------------------------------------
Fontana, CA RA TXAL GORB,
Jurupa Hills Redevelopment Project,
Prerefunded, Series A, 7.10%, 10/1/23 NR/BBB+
1,960,000 2,164,389
- ------------------------------------------------------------------------------------------------------------------
Fontana, CA RA TXAL Refunding Bonds,
Jurupa Hills Redevelopment Project,
Series A, 5.50%, 10/1/19 NR/BBB+
1,185,000 1,130,253
- ------------------------------------------------------------------------------------------------------------------
Fresno, CA HAU MH RB, Central Valley
Coalition Projects, Series A, 5.60%, 8/1/30 NR/AAA
3,075,000 3,107,472
- ------------------------------------------------------------------------------------------------------------------
Fresno, CA USD GORB, Series A,
MBIA Insured, 6.55%, 8/1/20 Aaa/AAA/AAA
1,225,000 1,366,353
- ------------------------------------------------------------------------------------------------------------------
Fresno, CA USD GOUN, Series A,
MBIA Insured, 6.40%, 8/1/16 Aaa/AAA/AAA
1,000,000 1,108,490
- ------------------------------------------------------------------------------------------------------------------
Irvine, CA Improvement Bond Act 1915
SPAST Bonds, Assessment District No. 94-13,
Group 2, 5.875%, 9/2/17 NR/NR
1,250,000 1,212,225
- ------------------------------------------------------------------------------------------------------------------
Irvine, CA Improvement Bonds Act 1915 RB,
Assessment District 95-12, 6%, 9/2/21 NR/NR
1,750,000 1,709,295
- ------------------------------------------------------------------------------------------------------------------
Lake Elsinore, CA PFAU TXAL Bonds,
Series A, 5.50%, 9/1/30 NR/BBB
2,500,000 2,290,650
- ------------------------------------------------------------------------------------------------------------------
Lake Elsinore, CA School FAU RRB,
Horsethief Canyon, 5.35%, 9/1/10 NR/NR
1,015,000 972,664
- ------------------------------------------------------------------------------------------------------------------
Las Virgenes, CA USD CAP Bonds, Series A,
MBIA Insured, Zero Coupon, 4.95%, 11/1/12(2) Aaa/AAA/AAA
2,095,000 1,044,714
</TABLE>
13 Oppenheimer Main Street California Municipal Fund
<PAGE>
STATEMENT OF INVESTMENTS (Continued)
<TABLE>
<CAPTION>
RATINGS:
MOODY'S/ MARKET
S&P/FITCH FACE VALUE
(UNAUDITED)
AMOUNT SEE NOTE 1
- ------------------------------------------------------------------------------------------------------------------
<S> <C>
<C> <C>
CALIFORNIA Continued
Long Beach, CA Harbor RRB, Series A,
FGIC Insured, 6%, 5/15/10 Aaa/AAA
$ 500,000 $ 533,960
- ------------------------------------------------------------------------------------------------------------------
Los Angeles Cnty., CA CAP COP, Disney
Parking Project, Zero Coupon, 6.95%, 9/1/11(2) Baa1/BBB/A-
2,340,000 1,198,384
- ------------------------------------------------------------------------------------------------------------------
Los Angeles Cnty., CA CAP COP, Disney
Parking Project, Zero Coupon, 5.67%, 9/1/16(2) Baa1/BBB /A-
1,745,000 631,934
- ------------------------------------------------------------------------------------------------------------------
Los Angeles Cnty., CA MTAU Sales Tax RRB,
Series A, FSA Insured, 5%, 7/1/12 Aaa/AAA/AAA
2,000,000 1,974,700
- ------------------------------------------------------------------------------------------------------------------
Los Angeles Cnty., CA MTAU Sales Tax RRB,
Series A, FSA Insured, 5%, 7/1/19 Aaa/AAA/AAA
2,000,000 1,862,880
- ------------------------------------------------------------------------------------------------------------------
Los Angeles Cnty., CA MTAU Sales Tax RRB,
Series A, MBIA Insured, 5.25%, 7/1/15 Aaa/AAA/AAA
2,000,000 1,970,000
- ------------------------------------------------------------------------------------------------------------------
Los Angeles Cnty., CA Public Works FAU RRB,
Regional Park & Open Space District,
Series A, 5%, 10/1/16 Aa3/AA
1,900,000 1,804,620
- ------------------------------------------------------------------------------------------------------------------
Los Angeles, CA USD GOB, Series A,
FGIC Insured, 6%, 7/1/15 Aaa/AAA/AAA
1,000,000 1,069,300
- ------------------------------------------------------------------------------------------------------------------
Los Angeles, CA USD GOB, Series B,
FGIC Insured, 5%, 7/1/23 Aaa/AAA/AAA
2,000,000 1,824,640
- ------------------------------------------------------------------------------------------------------------------
Palmdale, CA Civic Authority RRB,
Merged Redevelopment Project,
Prerefunded, Series A, 6.60%, 9/1/34
Aaa/AAA 595,000 666,317
- ------------------------------------------------------------------------------------------------------------------
Palmdale, CA Civic Authority RRB,
Merged Redevelopment Project,
Unrefunded Balance, Series A, 6.60%, 9/1/34
Aaa/AAA 405,000 429,029
- ------------------------------------------------------------------------------------------------------------------
Pittsburg, CA RA TXAL Refunding Bonds,
Los Medanos Community Development Project,
Sub. Lien, 6.20%, 8/1/19 NR/BBB
1,000,000 1,027,890
- ------------------------------------------------------------------------------------------------------------------
Pomona, CA SFM RRB, Escrowed to Maturity,
Series A, 7.60%, 5/1/23 Aaa/AAA
2,500,000 3,079,700
- ------------------------------------------------------------------------------------------------------------------
Pomona, CA USD GORB, Series A,
MBIA Insured, 6.15%, 8/1/15
Aaa/AAA 500,000 539,920
- ------------------------------------------------------------------------------------------------------------------
Redding, CA Electric System Revenue COP,
FGIC Insured, Inverse Floater, 7.97%, 6/1/19(1) Aaa/AAA/AAA
1,150,000 1,160,062
- ------------------------------------------------------------------------------------------------------------------
Redding, CA Electric System Revenue COP,
MBIA Insured, Inverse Floater, 9.01%, 7/8/22(1)
Aaa/AAA 500,000 590,625
- ------------------------------------------------------------------------------------------------------------------
Riverside Cnty., CA CFD No. 88-12 SPTX Bonds,
Prerefunded, 7.55%, 9/1/17 NR/NR
1,500,000 1,586,280
- ------------------------------------------------------------------------------------------------------------------
Riverside Cnty., CA PFAU TXAL RRB,
Redevelopment Projects, Series A, 5.625%, 10/1/33 Baa2/BBB-
1,650,000 1,580,106
- ------------------------------------------------------------------------------------------------------------------
Riverside Cnty., CA SFM RB, Escrowed to Maturity,
Series A, 7.80%, 5/1/21 Aaa/AAA
1,000,000 1,269,860
</TABLE>
14 Oppenheimer Main Street California Municipal Fund
<PAGE>
<TABLE>
<CAPTION>
RATINGS:
MOODY'S/ MARKET
S&P/FITCH FACE VALUE
(UNAUDITED)
AMOUNT SEE NOTE 1
- ------------------------------------------------------------------------------------------------------------------
<S> <C>
<C> <C>
CALIFORNIA Continued
Riverside, CA PFAU Lease RB, AMBAC Insured,
5.25%, 10/1/17 Aaa/AAA/AAA
$2,100,000 $2,046,093
- ------------------------------------------------------------------------------------------------------------------
Sacramento Cnty., CA SFM RB,
Escrowed to Maturity, 8%, 7/1/16(3) Aaa/AAA
2,810,000 3,576,315
- ------------------------------------------------------------------------------------------------------------------
Sacramento, CA MUD Electric RRB,
FGIC Insured, Inverse Floater, 9.375%, 8/15/18(1) Aaa/AAA/AAA
1,500,000 1,674,375
- ------------------------------------------------------------------------------------------------------------------
Sacramento, CA Cogeneration Authority RRB,
MBIA Insured, 5.25%, 7/1/12
Aaa/AAA/AAA 250,000 251,935
- ------------------------------------------------------------------------------------------------------------------
Salinas Valley, CA Solid Waste Authority RB,
5.80%, 8/1/27 Baa3/BBB
1,665,000 1,584,414
- ------------------------------------------------------------------------------------------------------------------
San Diego Cnty., CA Water Authority
Revenue COP, Prerefunded, Series 91-B,
MBIA Insured, Inverse Floater, 8.87%, 4/8/21(1) Aaa/AAA
1,000,000 1,197,500
- ------------------------------------------------------------------------------------------------------------------
San Francisco, CA Bay Area Rapid Transit District
Sales Tax RRB, AMBAC Insured, 6.75%, 7/1/11 Aaa/AAA/AAA
1,000,000 1,153,350
- ------------------------------------------------------------------------------------------------------------------
San Francisco, CA City & Cnty. International
Airport Commission RB, Second Series Issue 13-B,
MBIA Insured, 8%, 5/1/07 Aaa/AAA
1,140,000 1,353,864
- ------------------------------------------------------------------------------------------------------------------
San Francisco, CA City & Cnty. International
Airport Commission RB, Second Series Issue 14-A,
MBIA Insured, 8%, 5/1/07 Aaa/AAA
1,290,000 1,532,004
- ------------------------------------------------------------------------------------------------------------------
San Francisco, CA City & Cnty. RA Lease RB, CAP,
George R. Moscone Project, Zero Coupon,
5.36%, 7/1/10(2) A1/A-/A+
4,500,000 2,533,185
- ------------------------------------------------------------------------------------------------------------------
San Francisco, CA City & Cnty. Redevelopment
FAU TXAL CAP Refunding Bonds, Redevelopment
Projects, Series C, Zero Coupon, 5.20%, 8/1/13(2) A2/A
2,350,000 1,055,479
- ------------------------------------------------------------------------------------------------------------------
San Joaquin Hills, CA Transportation Corridor Agency
Toll Road CAP RRB, Series A, 0%/5.75%, 1/15/21(4) Baa3/BBB-/BBB
3,200,000 1,971,968
- ------------------------------------------------------------------------------------------------------------------
San Joaquin Hills, CA Transportation Corridor Agency
Toll Road RB, Sr. Lien, Prerefunded, 6.75%, 1/1/32 Aaa/AAA/AAA
3,500,000 3,844,225
- ------------------------------------------------------------------------------------------------------------------
San Ysidro, CA SDI GOB,
AMBAC Insured, 6.125%, 8/1/21
Aaa/AAA 700,000 747,635
- ------------------------------------------------------------------------------------------------------------------
South Orange Cnty., CA PFAU SPTX RB,
Foothill Area, Series C, FGIC Insured, 8%, 8/15/08 Aaa/AAA/AAA
1,500,000 1,845,420
- ------------------------------------------------------------------------------------------------------------------
Southern CA Home FAU SFM RB,
Series A, 7.35%, 9/1/24
NR/AAA 185,000 190,936
- ------------------------------------------------------------------------------------------------------------------
Southern CA Metropolitan Water District
Waterworks RB, Series A, 5%, 7/1/26 Aa2/AA
1,000,000 911,320
- ------------------------------------------------------------------------------------------------------------------
Southern CA Metropolitan Water District
Waterworks RRB, Inverse Floater, 7.42%, 10/30/20(1) Aa2/AA
1,200,000 1,152,000
</TABLE>
15 Oppenheimer Main Street California Municipal Fund
<PAGE>
STATEMENT OF INVESTMENTS (Continued)
<TABLE>
<CAPTION>
RATINGS:
MOODY'S/ MARKET
S&P/FITCH FACE VALUE
(UNAUDITED)
AMOUNT SEE NOTE 1
- ------------------------------------------------------------------------------------------------------------------
<S> <C>
<C> <C>
California Continued
Southern CA PPAU Transmission Project RB,
Inverse Floater, 7.615%, 7/1/12(1) Aa3/A+
$2,100,000 $ 2,299,500
- ------------------------------------------------------------------------------------------------------------------
Stanislaus, CA Waste-To-Energy Financing Agency Solid Waste Facilities RRB,
Ogden Martin System, Inc.
Project, 7.50%, 1/1/05 NR/A-
1,285,000 1,321,430
- ------------------------------------------------------------------------------------------------------------------
Suisun City, CA PFAU TXAL RB, Suisun City
Redevelopment Project, Series A, 5.20%, 10/1/28 NR/A-
2,500,000 2,278,875
- ------------------------------------------------------------------------------------------------------------------
Temecula, CA CFD No. 88-12-A SPTX Refunding Bonds,
5.625%, 9/1/17
NR/NR 535,000 506,629
- ------------------------------------------------------------------------------------------------------------------
West Covina, CA COP, Queen of the Valley Hospital,
Prerefunded, 6.50%, 8/15/19 A2/NR
1,120,000 1,248,363
- -------------
126,163,061
- ------------------------------------------------------------------------------------------------------------------
U.S. POSSESSIONS--8.2%
PR CMWLTH GOB, 5.375%, 7/1/25 Baa1/A
1,650,000 1,574,595
- ------------------------------------------------------------------------------------------------------------------
PR CMWLTH GORB, MBIA Insured,
Inverse Floater, 8.08%, 7/1/08(1) Aaa/AAA
1,500,000 1,620,000
- ------------------------------------------------------------------------------------------------------------------
PR CMWLTH HTAU RB,
Inverse Floater, 6.75%, 7/1/28(1,5) NR/NR
5,000,000 4,165,800
- ------------------------------------------------------------------------------------------------------------------
PR CMWLTH HTAU RRB, Series A,
AMBAC Insured, 5.50%, 7/1/13 Aaa/AAA/AAA
1,500,000 1,543,140
- ------------------------------------------------------------------------------------------------------------------
PR CMWLTH HTAU RRB, Series A,
AMBAC Insured, 5.50%, 7/1/14 Aaa/AAA/AAA
1,500,000 1,537,410
- ------------------------------------------------------------------------------------------------------------------
PR Housing Finance Corp. SFM RB,
Portfolio 1, Series B, 7.65%, 10/15/22
Aaa/AAA 125,000 129,595
- ------------------------------------------------------------------------------------------------------------------
PR Industrial, Medical & Environmental PC
Facilities Tourist RB, Mennonite General
Hospital Project, Series A, 6.50%, 7/1/12
NR/BBB-/BBB 590,000 603,446
- ------------------------------------------------------------------------------------------------------------------
PR Public Buildings Authority RB,
Government Facilities, Series B,
AMBAC Insured, 5%, 7/1/27
Aaa/AAA 300,000 275,337
- -------------
11,449,323
- ------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS, AT VALUE (COST
$138,482,564) 98.8% 137,612,384
- ------------------------------------------------------------------------------------------------------------------
OTHER ASSETS NET OF
LIABILITIES 1.2
1,693,187
- -----------------------------
NET
ASSETS
100.0% $139,305,571
=============================
</TABLE>
16 Oppenheimer Main Street California Municipal Fund
<PAGE>
FOOTNOTES TO STATEMENT OF INVESTMENTS
To simplify the listings of securities, abbreviations are used per the table
below:
<TABLE>
<S> <C> <C> <C>
CAP Capital Appreciation MUD Municipal Utility
District
CDAU Communities Development Authority PCFAU Pollution Control
Finance Authority
CFD Community Facilities District PFAU Public Finance
Authority
CMWLTH Commonwealth PPAU Public Power
Authority
COP Certificates of Participation PWBL Public Works Board
Lease
ED Economic Development RA Redevelopment
Agency
FAU Finance Authority RB Revenue Bonds
GOB General Obligation Bonds RRB Revenue Refunding
Bonds
GORB General Obligation Refunding Bonds SCDAU Statewide
Communities Development Authority
GOUN General Obligation Unlimited Nts. SDI School District
HAU Housing Authority SFM Single Family Mtg.
HF Health Facilities SPAST Special Assessment
HFA Housing Finance Agency SPTX Special Tax
HTAU Highway & Transportation Authority TXAL Tax Allocation
MH Multifamily Housing USD Unified School
District
MTAU Metropolitan Transportation 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 $16,128,362 or 11.58% of the
Fund's net assets as of August 31, 1999.
2. For zero coupon bonds, the interest rate shown is the effective yield on the
date of purchase.
3. Securities with an aggregate market value of $559,992 are held in
collateralized accounts to cover initial margin requirements on open futures
sales contracts. See Note 5 of Notes to Financial Statements.
4. Denotes a step bond: a zero coupon bond that converts to a fixed or variable
interest rate at a designated future date.
5. 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
Directors. These securities amount to $4,165,800 or 2.99% of the Fund's net
assets as of August 31, 1999.
AS OF AUGUST 31, 1999, SECURITIES SUBJECT TO THE ALTERNATIVE MINIMUM TAX AMOUNT
TO $34,930,607 OR 25.07% OF THE FUND'S NET ASSETS.
DISTRIBUTION OF INVESTMENTS BY INDUSTRY OF ISSUE, AS A PERCENTAGE OF TOTAL
INVESTMENTS AT VALUE, IS AS FOLLOWS:
<TABLE>
<CAPTION>
INDUSTRY MARKET VALUE
PERCENT
- ---------------------------------------------------------------------------------------
<S> <C>
<C>
Special Assessment $ 26,947,089
19.6%
Single Family Housing 24,732,266
17.9
Highways 17,351,490
12.6
General Obligation 14,253,636
10.4
Municipal Leases 8,723,894
6.3
Sales Tax 8,056,275
5.9
Adult Living Facilities 7,947,877
5.8
Electric Utilities 5,976,498
4.3
Pollution Control 5,115,564
3.7
Hospital/Healthcare 4,810,001
3.5
Multifamily Housing 4,111,302
3.0
Marine/Aviation Facilities 3,419,828
2.5
Water Utilities 3,260,820
2.4
Resource Recovery 2,905,844
2.1
- -----------------------------------
Total $137,612,384
100.0%
===================================
</TABLE>
See accompanying Notes to Financial Statements.
17 Oppenheimer Main Street California Municipal Fund
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES August 31, 1999
<TABLE>
<CAPTION>
==================================================================================================================
ASSETS
<S>
<C>
Investments, at value (cost $138,482,564)--see accompanying
statement $ 137,612,384
- ------------------------------------------------------------------------------------------------------------------
Cash
357,087
- ------------------------------------------------------------------------------------------------------------------
Receivables and other assets:
Investments
sold
2,007,893
Interest
1,763,865
Shares of capital stock
sold
214,653
Other
1,446
- --------------------
Total
assets
141,957,328
==================================================================================================================
LIABILITIES
Payables and other liabilities:
Investments
purchased
1,981,263
Dividends
372,159
Shares of capital stock
redeemed
213,863
Shareholder
reports
37,183
Distribution and service plan
fees 12,740
Transfer and shareholder servicing agent
fees 9,707
Daily variation on futures contracts--Note
5 6,438
Other
18,404
- -------------------
Total
liabilities
2,651,757
==================================================================================================================
NET
ASSETS
$139,305,571
===================
==================================================================================================================
COMPOSITION OF NET ASSETS
Par value of shares of capital
stock $ 114,096
- ------------------------------------------------------------------------------------------------------------------
Additional paid-in
capital
140,300,950
- ------------------------------------------------------------------------------------------------------------------
Overdistributed net investment
income (284,048)
- ------------------------------------------------------------------------------------------------------------------
Accumulated net realized loss on investment
transactions (28,997)
- ------------------------------------------------------------------------------------------------------------------
Net unrealized depreciation on investments--Notes 3 and
5 (796,430)
- -------------------
Net
assets
$139,305,571
===================
==================================================================================================================
NET ASSET VALUE PER SHARE
Class A Shares:
Net asset value and redemption price per share (based on net assets of
$109,575,128 and 8,971,989 shares of capital stock
outstanding) $12.21
Maximum offering price per share (net asset value plus sales charge
of 4.75% of offering
price)
$12.82
- ------------------------------------------------------------------------------------------------------------------
Class B Shares:
Net asset value, redemption price (excludes applicable contingent deferred
sales charge) and offering price per share (based on net assets of $29,730,443
and 2,437,647 shares of capital stock
outstanding) $12.20
</TABLE>
See accompanying Notes to Financial Statements.
18 Oppenheimer Main Street California Municipal Fund
<PAGE>
STATEMENT OF OPERATIONS For the Year Ended August 31, 1999
<TABLE>
<CAPTION>
<S> <C>
===============================================================================================
INVESTMENT INCOME
Interest
$ 7,761,775
===============================================================================================
EXPENSES
Management fees--Note
4 770,241
- -----------------------------------------------------------------------------------------------
Distribution and service plan fees--Note 4:
Class
B
280,483
- -----------------------------------------------------------------------------------------------
Transfer and shareholder servicing agent fees--Note
4 80,248
- -----------------------------------------------------------------------------------------------
Shareholder
reports 44,221
- -----------------------------------------------------------------------------------------------
Registration and filing fees:
Class
A
11,266
Class
B
4,659
- -----------------------------------------------------------------------------------------------
Legal, auditing and other professional
fees 11,998
- -----------------------------------------------------------------------------------------------
Custodian fees and
expenses 8,823
- -----------------------------------------------------------------------------------------------
Insurance
expenses 2,818
- -----------------------------------------------------------------------------------------------
Directors'
compensation 2,304
- -----------------------------------------------------------------------------------------------
Other
2,779
- ---------------
Total
expenses
1,219,840
Less expenses paid indirectly--Note
1 (8,088)
Less reimbursement of expenses by OppenheimerFunds, Inc.--Note
4 (210,066)
- ---------------
Net
expenses
1,001,686
===============================================================================================
NET INVESTMENT
INCOME 6,760,089
===============================================================================================
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) on:
Investments
(235,961)
Closing of futures
contracts 208,713
- ---------------
Net realized
loss (27,248)
- -----------------------------------------------------------------------------------------------
Net change in unrealized appreciation or depreciation on investments
(9,255,882)
- ---------------
Net realized and unrealized loss
(9,283,130)
===============================================================================================
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS
$(2,523,041)
===============
</TABLE>
See accompanying Notes to Financial Statements.
19 OPPENHEIMER MAIN STREET CALIFORNIA MUNICIPAL FUND
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
1999 1998
=======================================================================================================
<S>
<C> <C>
OPERATIONS
Net investment income $
6,760,089 $ 5,785,304
- -------------------------------------------------------------------------------------------------------
Net realized loss
(27,248) (147,181)
- -------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation or depreciation
(9,255,882) 4,576,330
- --------------------------------
Net increase (decrease) in net assets resulting from operations
(2,523,041) 10,214,453
=======================================================================================================
DIVIDENDS AND/OR DISTRIBUTIONS TO SHAREHOLDERS
Dividends from net investment income:
Class A
(5,577,537) (5,113,266)
Class B
(1,114,948) (736,400)
- -------------------------------------------------------------------------------------------------------
Distributions from net realized gain:
Class A
- -- (802,490)
Class B
- -- (131,382)
=======================================================================================================
CAPITAL STOCK TRANSACTIONS
Net increase in net assets resulting from capital stock transactions--Note 2:
Class A
7,019,301 16,887,977
Class B
8,515,921 10,757,185
=======================================================================================================
NET ASSETS
Total increase
6,319,696 31,076,077
- -------------------------------------------------------------------------------------------------------
Beginning of period
132,985,875 101,909,798
- --------------------------------
End of period (including overdistributed net investment
income of $284,048 and $351,652, respectively)
$139,305,571 $132,985,875
================================
</TABLE>
See accompanying Notes to Financial Statements.
20 OPPENHEIMER MAIN STREET CALIFORNIA MUNICIPAL FUND
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Year Year
Ended Ended
August 31, June 30,
Class A 1999 1998
1997 1996(1) 1996 1995
=========================================================================================================================
<S> <C> <C>
<C> <C> <C> <C>
PER SHARE OPERATING DATA
Net asset value, beginning of period $13.02 $12.64
$12.16 $12.15 $12.09 $11.82
- -------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .65 .65
.73 .12 .73 .73
Net realized and unrealized gain (loss) (.82) .51
.49 .01 .07 .27
- --------------------------------------------------------------------
Total income (loss) from
investment operations (.17) 1.16
1.22 .13 .80 1.00
- -------------------------------------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income (.64) (.67)
(.74) (.12) (.73) (.69)
Dividends in excess of
net investment income -- --
- -- -- -- (.04)
Distributions from net realized gain -- (.11)
- -- -- -- --
Distributions in excess of net realized gain -- --
- -- -- (.01) --
- --------------------------------------------------------------------
Total dividends and distributions
to shareholders (.64) (.78)
(.74) (.12) (.74) (.73)
- -------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $12.21 $13.02
$12.64 $12.16 $12.15 $12.09
====================================================================
=========================================================================================================================
TOTAL RETURN, AT NET ASSET VALUE(2) (1.42)% 9.33%
10.24% 1.12% 6.73% 8.93%
=========================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands) $109,575 $109,811
$89,991 $76,817 $76,913 $78,134
- -------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $111,996 $ 99,678
$80,311 $77,584 $78,676 $76,148
- -------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:(3)
Net investment income 5.03% 5.04%
5.91% 6.00% 5.99% 6.27%
Expenses, before voluntary assumption
and indirect expenses 0.67% 0.69%(4)
0.59%(4) 0.57%(4) 0.58%(4) 0.57%(4)
Expenses, after voluntary assumption
and indirect expenses 0.51% 0.53%
N/A N/A N/A N/A
- -------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(5) 25% 30%
46% 1% 33% 14%
</TABLE>
1. For the two months ended August 31, 1996. The Fund changed its fiscal year
end from June 30 to August 31.
2. Assumes a $1,000 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.
3. Annualized for periods of less than one full year.
4. Expense ratios reflect the effect of expenses paid indirectly by the Fund.
5. The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities owned
during the period. Securities with a maturity or expiration date at the time of
acquisition of one year or less are excluded from the calculation. Purchases and
sales of investment securities (excluding short-term securities) for the period
ended August 31, 1999 were $48,357,555 and $35,079,315, respectively.
See accompanying Notes to Financial Statements.
21 OPPENHEIMER MAIN STREET CALIFORNIA MUNICIPAL FUND
<PAGE>
FINANCIAL HIGHLIGHTS Continued
<TABLE>
<CAPTION>
YEAR YEAR
ENDED ENDED
AUGUST 31, JUNE 30,
CLASS B 1999 1998
1997 1996(1) 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
<C> <C> <C> <C>
PER SHARE OPERATING DATA
Net asset value, beginning of period $13.01 $12.63
$12.14 $12.14 $12.08 $11.80
- ----------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .53
.54 .60 .10 .61 .62
Net realized and unrealized gain (loss) (.83)
.49 .50 -- .07 .27
- --------------------------------------------------------------------------------
Total income (loss) from
investment operations (.30) 1.03
1.10 .10 .68 .89
- ----------------------------------------------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income (.51) (.54)
(.61) (.10) (.61) (.57)
Dividends in excess of
net investment income --
- -- -- -- -- (.04)
Distributions from net realized gain --
(.11) -- -- -- --
Distributions in excess of net realized gain --
- -- -- -- (.01) --
- --------------------------------------------------------------------------------
Total dividends and distributions
to shareholders (.51) (.65)
(.61) (.10) (.62) (.61)
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $12.20 $13.01
$12.63 $12.14 $12.14 $12.08
================================================================================
==================================================================================================================================
TOTAL RETURN, AT NET ASSET VALUE(2) (2.41)% 8.24%
9.24% 0.85% 5.66% 7.90%
==================================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands) $29,730 $23,175
$11,919 $5,928 $5,442 $2,648
- ----------------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $28,070 $18,087 $
8,129 $5,767 $3,848 $1,904
- ----------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:(3)
Net investment income 4.02% 4.19%
4.85% 4.92% 4.94% 5.17%
Expenses, before voluntary assumption
and indirect expenses 1.67% 1.70%(4)
1.60%(4) 1.62%(4) 1.60%(4) 1.55%(4)
Expenses, after voluntary assumption
and indirect expenses 1.52%
1.53% N/A N/A N/A N/A
- ----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(5) 25%
30% 46% 1% 33% 14%
</TABLE>
1. For the two months ended August 31, 1996. The Fund changed its fiscal year
end from June 30 to August 31.
2. Assumes a $1,000 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.
3. Annualized for period of less than one full year.
4. Expense ratios reflect the effect of expenses paid indirectly by the Fund.
5. The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities owned
during the period. Securities with a maturity or expiration date at the time of
acquisition of one year or less are excluded from the calculation. Purchases and
sales of investment securities (excluding short-term securities) for the period
ended August 31, 1999 were $48,357,555 and $35,079,315, respectively.
See accompanying Notes to Financial Statements.
22 OPPENHEIMER MAIN STREET CALIFORNIA MUNICIPAL FUND
<PAGE>
NOTES TO FINANCIAL STATEMENTS
===============================================================================
1. SIGNIFICANT ACCOUNTING POLICIES
Oppenheimer Main Street California Municipal Fund (the Fund) is a separate
series of Oppenheimer Main Street Funds, Inc., an open-end management investment
company registered under the Investment Company Act of 1940, as amended. The
Fund's investment objective is to seek as high a level of current income exempt
from federal and California personal income taxes as is available from investing
in municipal securities while attempting to preserve capital. The Fund's
investment advisor is OppenheimerFunds, Inc. (the Manager). The Fund offers
Class A and Class B shares. Class A shares are sold with a front-end sales
charge on investments up to $1 million. Class B shares may be subject to a
contingent deferred sales charge (CDSC). All classes of shares have identical
rights to earnings, assets and voting privileges, except that each class has its
own expenses directly attributable to that class and exclusive voting rights
with respect to matters affecting that class. Classes A and B have separate
distribution and/or service plans. 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.
- -------------------------------------------------------------------------------
SECURITIES 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 Directors. 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 Directors to
determine fair value in good faith. Short-term "money market type" debt
securities having a remaining maturity of 60 days or less are valued at cost (or
last determined market value) adjusted for amortization to maturity of any
premium or discount. Options are valued based upon the last sale price on the
principal exchange on which the option is traded or, in the absence of any
transactions that day, the value is based upon the last sale price on the prior
trading date if it is within the spread between the closing bid and asked
prices. If the last sale price is outside the spread, the closing bid is used.
23 OPPENHEIMER MAIN STREET CALIFORNIA MUNICIPAL FUND
<PAGE>
Notes to Financial Statements continued
===============================================================================
1. SIGNIFICANT ACCOUNTING POLICIES Continued
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.
- -------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS. Dividends and distributions to
shareholders, which are determined in accordance with income tax regulations,
are recorded on the ex-dividend date.
- -------------------------------------------------------------------------------
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 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.
- -------------------------------------------------------------------------------
EXPENSE OFFSET ARRANGEMENTS. Expenses paid indirectly represent a reduction of
custodian fees for earnings on cash balances maintained by the Fund.
- -------------------------------------------------------------------------------
OTHER. Investment transactions are accounted for as of trade date. Original
issue discount is accreted and premium is amortized in accordance with federal
income tax requirements. For municipal 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.
There are certain risks arising from geographic concentration in any
state. Certain revenue- or tax-related events in a state may impair the ability
of certain issuers of municipal securities to pay principal and interest on
their obligations.
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.
24 OPPENHEIMER MAIN STREET CALIFORNIA MUNICIPAL FUND
<PAGE>
===============================================================================
2. CAPITAL STOCK
The Fund has authorized 16,250,000 shares of $.01 par value capital stock of
each class. Transactions in shares of capital stock were as follows:
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31, 1999 YEAR ENDED AUGUST 31,
1998
SHARES AMOUNT SHARES
AMOUNT
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A
Sold 1,681,985 $ 21,674,388 2,165,645 $
27,847,918
Dividends and/or
distributions reinvested 281,702 3,627,456 290,138
3,721,102
Redeemed (1,423,149) (18,282,543) (1,141,736)
(14,681,043)
- ----------------------------------------------------------
Net increase 540,538 $ 7,019,301 1,314,047 $
16,887,977
==========================================================
- --------------------------------------------------------------------------------
CLASS B
Sold 964,557 $ 12,473,622 931,591 $
11,964,499
Dividends and/or
distributions reinvested 59,086 758,691 44,882
575,114
Redeemed (367,694) (4,716,392) (138,617)
(1,782,428)
- ----------------------------------------------------------
Net increase 655,949 $ 8,515,921 837,856 $
10,757,185
==========================================================
</TABLE>
===============================================================================
3. UNREALIZED GAINS AND LOSSES ON SECURITIES
As of August 31, 1999, net unrealized depreciation on securities of $870,180 was
composed of gross appreciation of $3,223,012, and gross depreciation of
$4,093,192.
===============================================================================
4. MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES
MANAGEMENT FEES. Management fees paid to the Manager were in accordance with the
investment advisory agreement with the Fund which provides for a fee of 0.55% of
average annual net assets if the Fund's net assets are $100 million or more (it
is reduced if assets are less). The Manager has voluntarily undertaken to limit
its fees to 0.40% of average annual net assets if the Fund's assets are $100
million or more. The Manager can terminate that waiver at any time. The Fund's
management fee for the year ended August 31, 1999 was 0.40% of average annual
net assets for each class of shares, after giving affect to the waiver.
- -------------------------------------------------------------------------------
TRANSFER AGENT FEES. 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.
- -------------------------------------------------------------------------------
DISTRIBUTION AND SERVICE PLAN FEES. Under its General Distributor's Agreement
with the Manager, the Distributor acts as the Fund's principal underwriter in
the continuous public offering of the different classes of shares of the Fund.
25 OPPENHEIMER MAIN STREET CALIFORNIA MUNICIPAL FUND
<PAGE>
NOTES TO FINANCIAL STATEMENTS Continued
===============================================================================
4. MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES CONTINUED
The compensation paid to (or retained by) the Distributor from the sale of
shares or on the redemption of shares is shown in the table below for the period
indicated.
<TABLE>
<CAPTION>
AGGREGATE CLASS A
COMMISSIONS COMMISSIONS
FRONT-END FRONT-END ON CLASS
A ON CLASS B
SALES CHARGES SALES CHARGES
SHARES SHARES
ON CLASS A RETAINED BY ADVANCED
BY ADVANCED BY
YEAR ENDED SHARES DISTRIBUTOR
DISTRIBUTOR(1) DISTRIBUTOR(1)
- --------------------------------------------------------------------------------
<S> <C> <C>
<C> <C>
August 31, 1999 $370,004 $65,422
$27,796 $426,112
</TABLE>
1. The Distributor advances commission payments to dealers for certain sales of
Class A shares and for sales of Class B shares from its own resources at the
time of sale.
<TABLE>
<CAPTION>
CLASS
A CLASS B
CONTINGENT DEFERRED
CONTINGENT DEFERRED
SALES
CHARGES SALES CHARGES
YEAR ENDED RETAINED BY DISTRIBUTOR
RETAINED BY DISTRIBUTOR
- --------------------------------------------------------------------------------
<S>
<C> <C>
August 31, 1999
$4,038 $95,508
</TABLE>
The Fund has adopted a Distribution and Service Plan for Class B shares
under Rule 12b-1 of the Investment Company Act. Under those plans the Fund pays
the Distributor for all or a portion of its costs incurred in connection with
the distribution and/or servicing of the shares of the particular class.
- -------------------------------------------------------------------------------
CLASS B DISTRIBUTION AND SERVICE PLAN FEES. 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 plan allows the Distributor to be reimbursed for
its services and costs in distributing Class B and servicing accounts.
The Distributor retains the asset-based sales charge on Class B shares.
The asset-based sales charges on Class B shares allow 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 shares may be more
than the payments it receives from the contingent deferred sales charges
collected on redeemed shares and from the Fund under the plan. If the Class B
plan is terminated by the Fund, the Board of Directors may allow the Fund to
continue payments of the asset-based sales charge to the Distributor for
distributing shares before the plan was terminated. The plan allows for the
carry-forward of distribution expenses, to be recovered from asset-based sales
charges in subsequent fiscal periods.
Distribution fees paid to the Distributor for the year ended August 31, 1999
were as follows:
<TABLE>
<CAPTION>
DISTRIBUTOR'S DISTRIBUTOR'S
AGGREGATE UNREIMBURSED
UNREIMBURSED EXPENSES AS %
TOTAL PAYMENTS AMOUNT RETAINED
EXPENSES OF NET ASSETS
UNDER PLAN BY DISTRIBUTOR UNDER
PLAN OF CLASS
- --------------------------------------------------------------------------------
<S> <C> <C>
<C> <C>
Class B Plan $280,483 $238,366
$1,067,326 3.59%
</TABLE>
26 OPPENHEIMER MAIN STREET CALIFORNIA MUNICIPAL FUND
<PAGE>
===============================================================================
5. FUTURES CONTRACTS
The Fund may buy and sell futures contracts in order to gain exposure to or to
seek to 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 may recognize a realized gain or loss when the contract is
closed or expires.
Securities held in collateralized accounts to cover initial margin
requirements on open futures contracts are noted in the Statement of
Investments. The Statement of Assets and Liabilities reflects a receivable
and/or payable for the daily mark to market for variation margin.
Risks of entering into futures contracts (and related options) include the
possibility that there may be an illiquid market and that a change in the value
of the contract or option may not correlate with changes in the value of the
underlying securities.
As of August 31, 1999, the Fund had outstanding futures contracts as follows:
<TABLE>
<CAPTION>
NUMBER OF VALUATION AS
OF UNREALIZED
CONTRACT DESCRIPTION EXPIRATION DATE CONTRACTS AUGUST 31,
1999 APPRECIATION
- --------------------------------------------------------------------------------
CONTRACTS TO SELL
- -----------------
<S> <C> <C>
<C> <C>
U.S. Treasury Bonds 9/21/99 40
$4,573,750 $73,750
</TABLE>
===============================================================================
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 August 31,
1999.
27 OPPENHEIMER MAIN STREET CALIFORNIA MUNICIPAL FUND
<PAGE>
A-6
Appendix A
- --------------------------------------------------------------------------------
RATINGS DEFINITIONS
- --------------------------------------------------------------------------------
Below are summaries of the rating definitions used by the nationally-recognized
rating agencies listed below. 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 (Taxable) 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.
<PAGE>
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.
Short-Term Ratings - Taxable Debt
These ratings apply to the ability of issuers to repay punctually senior debt
obligations having an original maturity not exceeding one year:
Prime-1: Issuer has a superior ability for repayment of senior short-term debt
obligations.
Prime-2: Issuer has a strong ability for repayment of senior short-term debt
obligations. Earnings trends and coverage, while sound, may be subject to
variation. Capitalization characteristics, while appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
Prime-3: Issuer has an acceptable ability for repayment of senior short-term
obligations. The effect of industry characteristics and market compositions may
be more pronounced. Variability in earnings and profitability may result in
changes in the level of debt protection measurements and may require relatively
high financial leverage. Adequate alternate liquidity is maintained.
Not Prime: Issuer does not fall within any Prime rating category.
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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>
B-1
Appendix B
Municipal Bond Industry Classifications
Adult Living Facilities
Bond Anticipation Notes
Education
Electric Utilities
Gas Utilities
General Obligation
Higher Education
Highways/Railways
Hospital/Healthcare
Manufacturing, Durable Goods
Manufacturing, Non Durable Goods Marine/Aviation Facilities Multi-Family Housing
Municipal Leases Non Profit Organization Parking Fee Revenue Pollution Control
Resource Recovery Revenue Anticipation Notes Sales Tax Revenue Sewer Utilities
Single Family Housing Special Assessment Special Tax Sports Facility Revenue
Student Loans Tax Anticipation Notes Tax & Revenue Anticipation Notes Telephone
Utilities Water Utilities
<PAGE>
Appendix C
OppenheimerFunds Special Sales Charge Arrangements and Waivers
In certain cases, the initial sales charge that applies to purchases of Class A
shares1 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.2 That is because
of the economies of sales efforts realized by OppenheimerFunds Distributor,
Inc., (referred to in this document as the "Distributor"), or by dealers or
other financial institutions that offer those shares to certain classes of
investors.
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.
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 plans3 (4)
Group Retirement Plans4 (5) 403(b)(7) custodial plan accounts (6) Individual
Retirement Accounts ("IRAs"), including traditional IRAs, Roth
IRAs, SEP-IRAs, SARSEPs or SIMPLE plans
The interpretation of these provisions as to the applicability of a special
arrangement or waiver in a particular case is in the sole discretion of the
Distributor or the transfer agent (referred to in this document as the "Transfer
Agent") of the particular Oppenheimer fund. These waivers and special
arrangements may be amended or terminated at any time by a particular fund, the
Distributor, and/or OppenheimerFunds, Inc. (referred to in this document as the
"Manager"). Waivers that apply at the time shares are redeemed must be requested
by the shareholder and/or dealer in the redemption request.
- --------------
1. Certain waivers also apply to Class M shares of Oppenheimer Convertible
Securities Fund.
2. In the case of Oppenheimer Senior Floating Rate Fund, a continuously-offered
closed-end fund, references to contingent deferred sales charges mean the
Fund's Early Withdrawal Charges and references to "redemptions" mean
"repurchases" of shares.
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>
I. 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 shares purchased under these waivers that are
subject to the Class A contingent deferred sales charge, the Distributor will
pay the applicable commission described in the Prospectus under "Class A
Contingent Deferred Sales Charge."3 This waiver provision applies to:
3 However, that commission will not be paid on purchases of shares in
amounts of $1 million or more (including any right of accumulation) by a
Retirement Plan that pays for the purchase with the redemption proceeds of
Class C shares of one or more Oppenheimer funds held by the Plan for more
than one year.
|_| Purchases of Class A shares aggregating $1 million or more. |_|
Purchases by a Retirement Plan (other than an IRA or 403(b)(7) custodial plan)
that:
(1) buys shares costing $500,000 or more, or
(2) has, at the time of purchase, 100 or more eligible employees 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.
|_| 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.
|_| 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).
|_| Purchases by a Retirement Plan whose record keeper had a
cost-allocation agreement with the Transfer Agent on or before May 1, 1999
<PAGE>
II. Waivers of Class A Sales Charges of Oppenheimer Funds
A. 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.
|-|
<PAGE>
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.
B. 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 through a broker-dealer that has entered into a
special agreement with the Distributor to allow the broker's customers to
purchase and pay for shares of Oppenheimer funds using 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.
C. 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 account value adjusted annually.
|_| Involuntary redemptions of shares by operation of law or involuntary
redemptions of small accounts (please refer to "Shareholder Account
Rules and Policies," in the applicable fund 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. To return contributions made
due to a mistake of fact.
(3) Hardship withdrawals, as defined in the plan.4
4 This provision does not apply to IRAs.
(4) Under a Qualified Domestic Relations Order, as defined in the
Internal Revenue Code, or, in the case of an IRA, a divorce or
separation agreement described in Section 71(b) of the Internal
Revenue Code.
(5) To meet the minimum distribution requirements of the Internal
Revenue Code.
(6) To make "substantially equal periodic payments" as described
in Section 72(t) of the Internal Revenue Code.
(7) For loans to participants or beneficiaries.
(8) Separation from service.5
5 This provision does not apply to 403(b)(7) custodial plans if the
participant is less than age 55, nor to IRAs.
(9) Participant-directed redemptions to purchase shares of a
mutual fund (other than a fund managed by the Manager or a
subsidiary of the Manager) if the plan has made special
arrangements with the Distributor.
(10) 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
employees, 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.
III. 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.
A. 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.
|_| 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.
|_| Distributions from accounts for which the broker-dealer of record has
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.
|_| Redemptions requested in writing by a Retirement Plan sponsor of Class
C shares of an Oppenheimer fund in amounts of $1 million or more held
by the Retirement Plan for more than one year, if the redemption
proceeds are invested in Class A shares of one or more Oppenheimer
funds.
|-|
<PAGE>
Distributions from Retirement 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 in an Oppenheimer fund.
(2) To return excess contributions made to a participant's account.
(3) To return contributions made due to a mistake of fact.
(4) To make hardship withdrawals, as defined in the plan.6
6 This provision does not apply to IRAs.
(5) To make distributions required under a Qualified Domestic Relations Order
or, in the case of an IRA, a divorce or separation agreement
described in Section 71(b) of the Internal Revenue Code.
(6) To meet the minimum distribution requirements of the Internal Revenue Code.
(7) To make "substantially equal periodic payments" as described in Section
72(t) of the Internal Revenue Code.
(8) For loans to participants or beneficiaries.7
7 This provision does not apply to loans from 403(b)(7) custodial plans.
(9) On account of the participant's separation from service.8
8 This provision does not apply to 403(b)(7) custodial plans if the
participant is less than age 55, nor to IRAs.
(10) Participant-directed redemptions to purchase shares of a mutual
fund (other than a fund managed by the Manager or a subsidiary
of the Manager) offered as an investment option in a Retirement
Plan if the plan has made special arrangements with the
Distributor.
(11) Distributions made on account of a plan termination or
"in-service" distributions," if the redemption proceeds are
rolled over directly to an OppenheimerFunds-sponsored IRA.
(12) Distributions from Retirement Plans having 500 or more eligible
employees, but excluding distributions made because of the
Plan's elimination as investment options under the Plan of all
of the Oppenheimer funds that had been offered.
(13) For distributions from a participant's account under an
Automatic Withdrawal Plan after the participant reaches age 59
1/2, as long as the aggregate value of the distributions does
not exceed 10% of the account's value, adjusted annually.
(14) Redemptions of Class B shares under an Automatic Withdrawal Plan
for an account other than a Retirement Plan, if the aggregate
value of the redeemed shares does not exceed 10% of the
account's value, adjusted annually.
|_| Redemptions of Class B shares or Class C shares under an Automatic
Withdrawal Plan from an account other than a Retirement Plan if the
aggregate value of the redeemed shares does not exceed 10% of the
account's value annually.
B. 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.
|_| Shares sold to present or former officers, directors, trustees or
employees (and their "immediate families" as defined above in Section
I.A.) of the Fund, the Manager and its affiliates and retirement plans
established by them for their employees.
<PAGE>
IV. Special Sales Charge Arrangements for Shareholders of Certain Oppenheimer
Funds Who Were Shareholders of 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:
<PAGE>
Oppenheimer Quest Value Fund, Inc.
Oppenheimer Quest Small Cap Value Fund
Oppenheimer Quest Balanced Value Fund
Oppenheimer Quest Global Value Fund
Oppenheimer Quest Opportunity Value Fund
These arrangements also apply to shareholders of the following funds when
they merged (were reorganized) into various Oppenheimer funds on November 24,
1995:
Quest for Value U.S. Government Income Fund
Quest for Value New York Tax-Exempt Fund
Quest for Value Investment Quality Income Fund
Quest for Value National Tax-Exempt Fund
Quest for Value Global Income Fund
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.
A. 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>
- --------------------------------------------------------------------------------
Initial Sales Initial Sales
Number of Eligible Charge as a % of Charge as a % of Commission as %
Employees or Members Offering Price Net Amount Invested of Offering Price
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
9 or Fewer 2.50% 2.56% 2.00%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
At least 10 but not 2.00% 2.04% 1.60%
more than 49
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
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.
B. 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 value, adjusted annually, 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);
|_|
<PAGE>
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 value; adjusted annually, 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.
V. 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 respective Prospectus (or this Appendix) of
the following Oppenheimer funds (each is referred to as a "Fund" in this
section):
o Oppenheimer U. S. Government Trust,
o Oppenheimer Bond Fund,
o Oppenheimer Disciplined Value Fund and
o Oppenheimer Disciplined Allocation Fund
are modified as described below for those Fund shareholders who were
shareholders of the following funds (referred to as the "Former Connecticut
Mutual Funds") on March 1, 1996, when OppenheimerFunds, Inc. became the
investment adviser to the Former Connecticut Mutual Funds:
Connecticut Mutual Liquid Account
Connecticut Mutual Total Return Account
Connecticut Mutual Government Securities Account
CMIA LifeSpan Capital Appreciation Account
Connecticut Mutual Income Account
CMIA LifeSpan Balanced Account
Connecticut Mutual Growth Account
CMIA Diversified Income Account
A. 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.
B. 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)
<PAGE>
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.
VI. 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%.
VII. Sales Charge Waivers on Purchases of Class M Shares of
Oppenheimer Convertible Securities Fund
Oppenheimer Convertible Securities Fund (referred to as the "Fund" in this
section) may sell Class M shares at net asset value without any initial sales
charge to the classes of investors listed below who, prior to March 11, 1996,
owned shares of the Fund's then-existing Class A and were permitted to purchase
those shares at net asset value without sales charge:
|_| the Manager and its affiliates,
|_| present or former officers, directors, trustees and employees (and
their "immediate families" as defined in the Fund's Statement of
Additional Information) of the Fund, the Manager and its affiliates,
and retirement plans established by them or the prior investment
advisor of the Fund for their employees,
|_| registered management investment companies or separate accounts of
insurance companies that had an agreement with the Fund's prior
investment advisor or 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 in the preceding section or financial institutions
that have entered into sales arrangements with those dealers or brokers
(and whose identity is made known to the Distributor) or with the
Distributor, but only if the purchaser certifies to the Distributor at
the time of purchase that the purchaser meets these qualifications,
|_| dealers, brokers, or registered investment advisors that had entered
into an agreement with the Distributor or the prior distributor of the
Fund specifically providing for the use of Class M shares of the Fund
in specific investment products made available to their clients, and
|_| dealers, brokers or registered investment advisors that had entered
into an agreement with the Distributor or prior distributor of the
Fund's shares to sell shares to defined contribution employee
retirement plans for which the dealer, broker, or investment advisor
provides administrative services.
|-|
<PAGE>
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Oppenheimer Main Street California Municipal Fund
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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
1-800-525-7048
Custodian Bank
The Bank of New York
One Wall Street
New York, New York 10015
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
PX725.001.1299
