Oppenheimer California Tax-Exempt Fund
Two World Trade Center, New York, New York 10048-0203
1-800-525-7048
Statement of Additional Information dated November 1, 1995
This Statement of Additional Information is not a Prospectus. This
document contains additional information about the Fund and supplements
information in the Prospectus dated November 1, 1995. It should be read
together with the Prospectus which may be obtained by writing to the
Fund's Transfer Agent, Oppenheimer Shareholder Services at P.O. Box 5270,
Denver, Colorado 80217 or by calling the Transfer Agent at the toll free
number shown above.
Contents
Page
About the Fund
Investment Objective and Policies 2
Investment Policies and Strategies 2
Other Investment Techniques and Strategies 10
Other Investment Restrictions 17
How the Fund is Managed 18
Organization and History 18
Trustees and Officers of the Fund 19
The Manager and Its Affiliates 24
Brokerage Policies of the Fund 26
Performance of the Fund 27
Distribution and Service Plans 31
About Your Account
How To Buy Shares 33
How To Sell Shares 40
How To Exchange Shares 43
Dividends, Capital Gains and Taxes 45
Additional Information About the Fund 48
Financial Information About the Fund
Financial Statements 49, 62
Independent Auditors' Report 61
Appendix A: Municipal Bond Ratings A-1
Appendix B: Equivalent Yield Chart B-1
Appendix C: Industry Classifications C-1
<PAGE>
ABOUT THE FUND
Investment Objective and Policies
Investment Policies and Strategies. The investment objective and policies
of the Fund are discussed in the Prospectus. Set forth below is
supplemental information about those policies. Capitalized terms used in
this Statement of Additional Information have the same meanings as those
terms have in the Prospectus.
The Fund will not make investments with the objective of seeking
capital growth. 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 increase after a security is purchased,
that security would normally decline in value. Conversely, should
interest rates decrease after a security is purchased, normally its value
would rise. However, those fluctuations in value will not generally
result in realized gains or losses to the Fund since the Fund does not
usually intend to dispose of securities prior to their maturity. A debt
security held to maturity is redeemable by its issuer at full principal
value plus accrued interest. To a limited degree, the Fund may engage in
short-term trading to attempt to take advantage of short-term market
variations, or may dispose of a portfolio security prior to its maturity
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 redemptions. In such cases, the Fund may
realize a capital gain or loss. The annual rate of portfolio turnover is
not expected to exceed 100%.
There are, of course, variations in the security of Municipal
Securities, both within a particular classification and between
classifications, depending on numerous factors. The yields of Municipal
Securities depend on, among other things, general conditions of the
Municipal Securities market, size of a particular offering, the maturity
of the obligation and rating of the issue.
Municipal Securities. The types of Municipal Securities in which the Fund
may invest are described in the Prospectus under "Investment Objective and
Policies." A discussion of the general characteristics of types of
Municipal Securities follows below.
-- Municipal Bonds. The principal classifications of long-term
municipal bonds in which the Fund may invest are "general obligation" and
"revenue" or "industrial development" bonds. In California, municipal
bonds may also be funded by property taxes in specially created districts,
(Mello-Roos or Special Assessment Bonds), tax allocations based on
increased property tax assessments over a specified period (frequently for
redevelopment projects) or specified redevelopment area sales allocations.
-- General Obligation Bonds. Issuers of general obligation
bonds include states, counties, cities, towns, and regional districts.
The proceeds of these obligations are used to fund a wide range of public
projects, including construction or improvement of schools, highways and
roads, and water and sewer systems. The basic security behind general
obligation bonds is the issuer's pledge of its full faith and credit and
taxing power for the payment of principal and interest. The taxes that
can be levied for the payment of debt service may be limited or unlimited
as to the rate or amount of special assessments.
-- Revenue Bonds. The principal security for a revenue bond is
generally the net revenues derived from a particular facility, group of
facilities, or, in some cases, the proceeds of a special excise or other
specific revenue source. Revenue bonds are issued to finance a wide
variety of capital projects including: electric, gas, water and sewer
systems; highways, bridges, and tunnels; port and airport facilities;
colleges and universities; and hospitals. Although the principal security
behind these bonds may vary, many provide additional security in the form
of a debt service reserve fund the money from which may be used to make
principal and interest payments on the issuer's obligations. Housing
finance authorities have a wide range of security, including partially or
fully insured mortgages, rent subsidized and/or collateralized mortgages,
and/or the net revenues from housing or other public projects. Some
authorities provide further security in the form of a state's ability
(without obligation) to make up deficiencies in the debt service reserve
fund.
-- Industrial Development Bonds. Industrial development bonds,
which are considered municipal bonds if the interest paid is exempt from
federal income tax, are issued by or on behalf of public authorities to
raise money to finance various privately operated facilities for business
and manufacturing, housing, sports, and pollution control. These bonds
are also used to finance public facilities such as airports, mass transit
systems, ports, and parking. The payment of the principal and interest
on such bonds is dependent solely on the ability of the facility's user
to meet its financial obligations and the pledge, if any, of real and
personal property so financed as security for such payment.
-- Mello-Roos Bonds. Bonds issued pursuant to the California Mello-
Roos Community Facilities Act ("Mello-Roos bonds") are used to finance
infrastructure projects (such as roads or sewage treatment plants) and are
primarily secured by real estate taxes levied on property located in the
same community as that project. Mello-Roos bond financing arose in
response to limitations contained in California's statutory limitations
on real property taxes (see "Special Investment Considerations --
California Municipal Securities" below), and do not constitute obligations
of a municipality. Timely payment of such bonds depends on the developer
or other property owners' ability to pay their real estate taxes which
could be adversely affected by a declining economy and/or real estate
market.
-- Municipal Notes. Municipal Securities having a maturity when
issued of less than one year are generally known as municipal notes.
Municipal notes generally are used to provide for short-term working
capital needs and include:
-- Tax Anticipation Notes. Tax anticipation notes are issued
to finance working capital needs of municipalities. Generally, they are
issued in anticipation of various seasonal tax revenue, such as income,
sales, use of business taxes, and are payable from these specific future
taxes.
-- Revenue Anticipation Notes. Revenue anticipation notes are
issued in expectation of receipt of other types of revenue, such as
federal revenues available under the Federal revenue sharing programs.
-- Bond Anticipation Notes. Bond anticipation notes are issued
to provide interim financing until long-term financing can be arranged.
In most cases, the long-term bonds then provide the money for the
repayment of the notes.
-- Construction Loan Notes. Construction loan notes are sold
to provide construction financing. After successful completion and
acceptance, many projects receive permanent financing through the Federal
Housing Administration.
-- Tax-Exempt Commercial Paper. Tax-exempt commercial paper is a
short-term obligation with a stated maturity of 365 days or less. It is
issued by state and local governments or their agencies to finance
seasonal working capital needs or as short-term financing in anticipation
of longer-term financing.
-- Floating Rate/Variable Rate Obligations. Floating rate and
variable rate demand notes are tax-exempt obligations which may have a
stated maturity in excess of one year, but may include features that
permit the holder to recover the principal amount of the underlying
security at specified intervals not exceeding one year and upon no more
than 30 days' notice. The issuer of such notes normally has a
corresponding right, after a given period, to prepay in its discretion the
outstanding principal amount of the note plus accrued interest upon a
specified number of days notice to the holder. The interest rate on a
floating rate demand note is based on a stated prevailing market rate,
such as a bank's prime rate, the 90-day U.S. Treasury Bill rate, or some
other standard, and is adjusted automatically each time such rate is
adjusted. The interest rate on a variable rate demand note is also based
on a stated prevailing market rate but is adjusted automatically at
specified intervals of no 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 Fund's investment adviser,
Oppenheimer Management Corporation (the "Manager"), may determine that an
unrated floating rate or variable rate demand obligation meets the Fund's
quality standards by reason of being backed by a letter of credit or
guarantee issued by a bank that meets those quality standards.
-- Inverse Floaters and Other Derivative Investments. Some inverse
floaters have a feature known as an interest rate "cap" as part of the
terms of the investment. Investing in inverse floaters that have interest
rate caps might be part of a portfolio strategy to try to maintain a high
current yield for the Fund when the Fund has invested in inverse floaters
that expose the Fund to the risk of short-term interest rate fluctuation.
Embedded caps hedge a portion of the Fund's exposure to rising interest
rates. When interest rates exceed the pre-determined rate, the cap
generates additional cash flows that offset the decline in interest rates
on the inverse floater, and the hedge is successful. However, the Fund
bears the risk that if interest rates do not rise above the pre-determined
rate, the cap (which is purchased for additional cost) will not provide
additional cash flows and will expire worthless.
-- Municipal Lease Obligations. While some municipal lease
obligations purchased by the Fund may be deemed to be illiquid securities
(the purchases of which will be limited as described in the Prospectus),
from time to time the Fund may invest more than 5% of its net assets in
municipal lease obligations that the Manager has determined to be liquid
under guidelines set by the Board of Trustees. Those guidelines require
the Manager to evaluate: (1) the frequency of trades and price quotations
for such securities; (2) the number of dealers or other potential buyers
willing to purchase or sell such securities; (3) the availability of
market-makers; and (4) the nature of the trades for such securities. The
Manager will also evaluate the likelihood of a continuing market for such
securities throughout the time they are held by the Fund and the credit
quality of the instrument. Municipal leases may take the form of a lease
or an installment purchase contract issued by a state or local government
authority to obtain funds to acquire a wide variety of equipment and
facilities. Although lease obligations do not constitute general
obligations of the municipality for which the municipality's taxing power
is pledged, a lease obligation is ordinarily backed by the municipality's
covenant to budget for, appropriate and make the payments due under the
lease obligation. However, certain lease obligations contain "non-
appropriation" clauses which provide that the municipality has no
obligation to make lease or installment purchase payments in future years
unless money is appropriated for such purpose on a yearly basis. Projects
financed with certificates of participation generally are not subject to
state constitutional debt limitations or other statutory requirements that
may be applicable to Municipal Securities. Payments by the public entity
on the obligation underlying the certificates are derived from available
revenue sources; such revenue may be diverted to the funding of other
municipal service projects. Payments of interest and/or principal with
respect to the certificates are not guaranteed and do not constitute an
obligation of the State of California or any of its political
subdivisions.
In addition to the risk of "non-appropriation," municipal lease
securities do not yet have a highly developed market to provide the degree
of liquidity of conventional municipal bonds. Municipal leases, like
other municipal debt obligations, are subject to the risk of non-payment.
The ability of issuers of municipal leases to make timely lease payments
may be adversely affected in general economic downturns and as relative
governmental cost burdens are reallocated among federal, state and local
governmental units. Such non-payment would result in a reduction of
income to the Fund, and could result in a reduction in the value of the
municipal lease experiencing non-payment and a potential decrease in the
net asset value of the Fund.
-- Puts and Standby Commitments. When the Fund buys Municipal
Securities, it may obtain a standby commitment to repurchase the
securities that entitles it to achieve same-day settlement from the
purchaser and to receive an exercise price equal to the amortized cost of
the underlying security plus accrued interest, if any, 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 may pay for a standby
commitment or put either separately in cash or by paying a higher price
for the securities acquired subject to the standby commitment or put. The
Fund will enter into these transactions only with banks and dealers which,
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 transferrable by the Fund, and therefore
terminate if the Fund sells the underlying security to a third party. The
Fund intends to enter into these arrangements to facilitate portfolio
liquidity, although such arrangements may enable the Fund to sell a
security at a pre-arranged price which 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 which
could jeopardize the Fund's business relationships with the seller. Any
consideration paid by the Fund for the put or standby commitment (which
increases the cost of the security and reduces the yield otherwise
available from the security) will be reflected on the Fund's books as
unrealized depreciation while the put or standby commitment is held, and
a realized gain or loss when the put or commitment is exercised or
expires. Interest income received by the Fund from Municipal Securities
subject to puts or stand-by commitments may not qualify as tax exempt in
its hands if the terms of the put or stand-by commitment cause the Fund
not to be treated as the tax owner of the underlying Municipal Securities.
-- When-Issued and Delayed Delivery Transactions. The Fund may
purchase Municipal Securities on a "when-issued" basis, and may buy or
sell such securities on a "delayed delivery" basis. Although the Fund
will enter into such transactions for the purpose of acquiring securities
for its portfolio or for delivery pursuant to options contracts it has
entered into, the Fund may dispose of a commitment prior to settlement.
"When-issued" or "delayed delivery" refers to securities whose terms and
indenture are available and for which a market exists, but which are not
available for immediate delivery. When such transactions are negotiated,
the price (which is generally expressed in yield terms) is fixed at the
time the commitment is made, but delivery and payment for the securities
take place at a later date. The Fund does not intend to make such
purchases for speculative purposes. The commitment to purchase a security
for which payment will be made on a future date may be deemed a separate
security and involve risk of loss if the value of the security declines
prior to the settlement date. During the period between commitment by the
Fund and settlement (generally within two months but not to exceed 120
days), no payment is made for the securities purchased by the purchaser,
and no interest accrues to the purchaser from the transaction. Such
securities are subject to market fluctuation; the value at delivery may
be less than the purchase price. The Fund will maintain a segregated
account with its Custodian, consisting of cash, U.S. Government securities
or other high grade debt obligations at least equal to the value of
purchase commitments until payment is made.
The Fund will engage in when-issued transactions in order to secure
what is considered to be an advantageous price and yield at the time of
entering into the obligation. When the Fund engages in when-issued or
delayed delivery transactions, it relies on the buyer or seller, as the
case may be, to consummate the transaction. Failure of the buyer or
seller to do so may result in the Fund losing the opportunity to obtain
a price and yield considered to be advantageous. 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 and reflects the
value of the security purchased, or if a sale, the proceeds to be
received, in determining its net asset value. If the Fund chooses to (i)
dispose of the right to acquire a when-issued security prior to its
acquisition or (ii) dispose of its right to deliver or receive against a
forward commitment, it may incur a gain or loss.
To the extent the Fund engages in when-issued and delayed delivery
transactions, it will do so for the purpose of acquiring or selling
securities consistent with its investment objective and policies and not
for the purposes of investment leverage. The Fund enters into such
transactions only with the intention of actually receiving or delivering
the securities, although (as noted above), when-issued securities and
forward commitments may be sold prior to settlement date. In addition,
changes in interest rates before settlement in a direction other than that
expected by the Manager will affect the value of such securities and may
cause a loss to the Fund.
When-issued transactions and forward commitments allow the Fund a
technique to use 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, thereby obtaining the benefit of
currently higher cash yields.
-- Private Activity Municipal Securities. The Tax Reform Act of 1986
(the "Tax Reform Act") reorganized, as well as amended, the rules
governing tax exemption for interest on Municipal Securities. The Tax
Reform Act generally does not change the tax treatment of bonds issued in
order to finance governmental operations. Thus, interest on obligations
issued by or on behalf of state or local governments, the proceeds of
which are used to finance the operations of such governments (e.g.,
general obligation bonds) continues to be tax-exempt. However, the Tax
Reform Act further limited the use of tax-exempt bonds for non-
governmental (private) purposes. More stringent restrictions were placed
on the use of proceeds of such bonds. Interest on certain private
activity bonds (other than those specified as "qualified" tax-exempt
private activity bonds, e.g., exempt facility bonds including certain
industrial development bonds, qualified mortgage bonds, qualified Section
501(c)(3) bonds, qualified student loan bonds, etc.) is taxable under the
revised rules.
Interest on certain private activity bonds issued after August 7,
1986, which continues to be tax-exempt will be treated as a tax preference
item subject to the alternative minimum tax (discussed below) to which
certain taxpayers are subject. Furthermore, a private activity bond which
would otherwise be a qualified tax-exempt private activity bond will not,
under Internal Revenue Code Section 147(a), be a qualified bond for any
period during which it is held by a person who is a "substantial user" of
the facilities or by a "related person" of such a substantial user. This
"substantial user" provision is applicable primarily to exempt facility
bonds and industrial development bonds. The Fund may not be an
appropriate investment for entities which are "substantial users" (or
persons related thereto) of such exempt facilities, and such persons
should consult their own tax advisers before purchasing shares. A
"substantial user" of such facilities is defined generally as a "non-
exempt person who regularly uses part of a facility" financed from the
proceeds of exempt facility bonds. Generally, an individual will not be
a "related person" under the Internal Revenue Code unless such investor
or the investor's immediate family (spouse, brothers, sisters and
immediate descendants) own directly or indirectly in the aggregate more
than 50% in value of the equity of a corporation or partnership which is
a "substantial user" of a facility financed from the proceeds of exempt
facility bonds. In addition, the Tax Reform Act revised downward that
limitations as to the amount of private activity bonds which each state
may issue, which will reduce the supply of such bonds. The value of the
Fund's portfolio could be affected if there is a reduction in the
availability of such bonds. That value may also be affected by a 1988
U.S. Supreme Court decision upholding the constitutionality of the
imposition of a Federal tax on the interest earned on Municipal Securities
issued in bearer form.
A Municipal Security is treated as a taxable private activity bond
under a test for (a) a trade or business use and security interest, or (b)
a private loan restriction. Under the trade or business use and security
interest test, an obligation is a private activity bond if (i) more than
10% of bond proceeds are used for private business purposes and (ii) 10%
or more of the payment of principal or interest on the issue is directly
or indirectly derived from such private use or is secured by the privately
used property or the payments related to the use of the property. For
certain types of uses, a 5% threshold is substituted for 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 of municipal governmental unit.) Under the private loan
restriction, the amount of bond proceeds which may be used to make private
loans is limited to the lesser of 5% or $5 million of the proceeds. Thus,
certain issues of Municipal Securities could lose their tax-exempt status
retroactively if the issuer fails to meet certain requirements as to the
expenditure of the proceeds of that issue or use of the bond-financed
facility. The Fund makes no independent investigation of the users of
such bonds or their use of proceeds. If the Fund should hold a bond that
loses the tax exempt status retroactively, there might be an adjustment
to the tax-exempt income previously paid to shareholders.
The Federal alternative minimum tax is designed to ensure that all
taxpayers pay some tax, even if their regular tax is zero. This is
accomplished in part by including in taxable income certain tax preference
items in arriving at alternative minimum taxable income. The Tax Reform
Act made tax-exempt interest from certain private activity bonds a tax
preference item for purposes of the alternative minimum tax on individuals
and corporations. Any exempt-interest dividend paid by a regulated
investment company will be treated as interest on a specific private
activity bond to the extent of its proportionate share of the interest on
such bonds received by the regulated investment company. The U.S.Treasury
is authorized to issue regulations implementing this provision. In
addition, corporate taxpayers subject to the alternative minimum tax may,
under some circumstances, have to include exempt-interest dividends in
calculating their alternative minimum taxable income in situations where
the "adjusted current earnings" of the corporation exceeds its alternative
minimum taxable income. The Fund may hold Municipal Securities the
interest on which (and thus a proportionate share of the exempt-interest
dividends paid by the Fund) will be subject to the Federal alternative
minimum tax on individuals and corporations. The Fund anticipates that
under normal circumstances it will not purchase any such securities in an
amount greater than 20% of its total assets.
-- Ratings of Municipal Securities. Ratings by Moody's, S&P and
Fitch (see Appendix A) represent their respective opinions of the quality
of the Municipal Securities they undertake to rate. However, such ratings
are general and are not absolute standards of quality. Consequently,
Municipal Securities with the same maturity, coupon and rating may have
different yields, while Municipal Securities of the same maturity and
coupon with different ratings may have the same yield. Investment in
lower quality securities may produce a higher yield than securities rated
in the higher rating categories described in the Prospectus (or judged by
the Manager to be of comparable quality). However, the added risk of lower
quality securities might not be consistent with a policy of preservation
of capital.
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, S&P, or Fitch change as a result of changes in such
organizations or their rating systems, the Fund will attempt to use
comparable ratings as standards for investments in accordance
Special Investment Considerations - California Municipal Securities. As
stated in the Prospectus, the values of the Fund's California Municipal
Securities are highly sensitive to the fiscal stability of California and
its subdivisions, agencies, instrumentalities or authorities, which issue
the Municipal Securities in which the Trust concentrates its investments.
Certain amendments to the California State constitution, legislative
measures, executive orders, civil actions and voter initiatives in recent
years that could adversely affect the ability of California issuers to pay
interest and principal on Municipal Securities are described below. The
following constitutes only a brief summary, and is based on information
drawn from the relevant statutes and certain other publicly available
information. The Fund has not independently verified such information.
Changes in California constitutional and other laws during the last
several years have caused concerns about the ability of California state
and municipal issuers to obtain sufficient revenue to pay their bond
obligations. In 1978, California voters approved an amendment to the
California Constitution known as Proposition 13, which added Article XIIIA
to the California Constitution. Article XIIIA limits ad valorem taxes on
real property and restricts the ability of taxing entities to increase
real property taxes. However, legislation passed subsequent to
Proposition 13 provided for the redistribution of California's General
Fund surplus to local agencies, the reallocation of revenues to local
agencies and the assumption of certain local obligations by the state so
as to help California municipal issuers raise revenue to pay their bond
obligations. It is unknown whether additional revenue redistribution
legislation will be enacted in the future and whether, if enacted, such
legislation will provide sufficient revenue for such California issuers
to pay their obligations.
The state is also subject to another constitutional amendment,
Article XIIIB, which may have an adverse impact on California state and
municipal issuers. Article XIIIB restricts the state from spending
certain appropriations in excess of an appropriations limit imposed for
each state and local government entity. If revenues exceed such
appropriations limit, such revenues must be returned either as revisions
in the tax rates or fee schedules. In 1988, California voters approved
an initiative known as Proposition 98, which in addition to amending
Article XIIIB, amended Article XVI to require a minimum level of funding
for public schools and community colleges.
Because of the uncertain impact of the aforementioned legislation,
the possible inconsistencies in the respective terms of the statutes and
the impossibility of predicting the level of future appropriations and
applicability of related statutes to such questions, it is not currently
possible to assess the impact of such legislation and policies on the long
term ability of the State of California and California municipal issuers
to pay interest or repay principal on their obligations.
Although the national economic recovery is continuing at a strong
pace, California is still experiencing the effects of a recession.
Unemployment has remained above the national average since 1990.
Substantial contracting in California's defense related industries,
overbuilding in commercial real estate, and consolidation and decline in
the state's financial services industry will likely produce slower overall
growth in 1995 and 1996.
These economic difficulties have exacerbated the budget imbalance
which has been evident since 1985-86, during which time the state has
recorded General Fund operating deficits in several fiscal years. Many
of these problems have been attributable to a great population increase
which has increased demand for educational and social services at a pace
far greater than the growth in revenues.
By June 1995 the state's General Fund had an accumulated deficit, on
a budgeted basis, of approximately $1 billion. On August 3, 1995, the
Governor signed into law a new $57.5 billion budget which, among other
things, reduces welfare payments and increases education spending from the
previous fiscal year. The budget forecasts levels of revenues and
expenditures which are expected to result in an operating surplus in the
1995-96 fiscal year, and to lead to the elimination of the budget deficit
by June 30, 1996.
Because of the State of California's continuing budget problems, the
state's General Obligation bonds were downgraded in July 1994 from Aa to
A1 by Moody's, from A+ to A by S&P and from AA to A by Fitch. All three
rating agencies expressed uncertainty in the state's ability to balance
its budget by 1996.
On December 6, 1994, Orange County (California) became the largest
municipality in the United States to file for protection under the Federal
bankruptcy laws. The filing stemmed from approximately $1.7 billion in
losses suffered by the County's investment pool due to investments in high
risk "derivative" securities. In September 1995 the state legislature
approved legislation permitting Orange County to use for bankruptcy
recovery $820 million over 20 years in sales taxes previously earmarked
for highways, transit and development. Such legislation also permits the
Governor to appoint a trustee to take over Orange County's financial
affairs if the county does not have a full recovery plan filed with the
Bankruptcy Court by May 1996.
Los Angeles County, the nation's largest county, is also experiencing
financial difficulty. In August 1995 the credit rating of the country's
long-term bonds was downgraded for the third time since 1992 as a result
of, among other things, severe operating deficits for the county's health
care system. In September 1995, federal and state aid to Los Angeles
County totalling $514 million was pledged, providing a short-term solution
to the country's budget problems.
Other Investment Techniques and Strategies
- - Repurchase Agreements. In a repurchase transaction, the Fund
purchases a security from, and simultaneously resells it to, an approved
vendor (a U.S. commercial bank, the U.S. branch of a foreign bank or a
broker-dealer which has been designated a primary dealer in government
securities, which must meet the credit requirements set by the Fund's
Board of Trustees from time to time) for delivery on an agreed-on 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. The majority of these
transactions run from day to day, and delivery pursuant to the resale
typically will occur within one to five days of the purchase. Repurchase
agreements are considered "loans" under the Investment Company Act,
collateralized by the underlying security. The Fund's repurchase
agreements require that at all times while the repurchase agreement is in
effect, the value of the collateral must equal or exceed the repurchase
price to fully collateralize the repayment obligation. Additionally, the
Manager will impose creditworthiness requirements to confirm that the
vendor is financially sound and will continuously monitor the collateral's
value.
-- Loans of Portfolio Securities. The Fund may lend its portfolio
securities subject to the restrictions stated in the Prospectus. Under
applicable regulatory requirements (which are subject to change), the loan
collateral must, on each business day, be at least equal the market value
of the loaned securities and 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.
Such terms and the issuing bank must be satisfactory to the Fund. When
it lends securities the Fund receives amounts equal to the dividends or
interest on loaned securities and the issuing bank must be satisfactory
to the Fund. When it lends securities, the Fund receives amounts equal
to the dividends or interest on loaned securities and also receives one
or more of (a) negotiated loan fees, (b) interest on securities used as
collateral, and (c) interest on short-term debt securities purchased with
such loan collateral. Either type of interest may be shared with the
borrower. The Fund may also pay reasonable finder's, custodian and
administrative fees. The terms of the Fund's loans must meet certain
tests under the Internal Revenue Code and permit the Fund to reacquire
loaned securities on five days' notice or in time to vote on any important
matter.
-- Hedging. The Fund may use hedging instruments for the purposes
described in the Prospectus. When hedging to attempt to protect against
declines in the market value of the Fund's portfolio, to permit the Fund
to retain unrealized gains in the value of portfolio securities which have
appreciated, or to facilitate selling securities for investment reasons,
the Fund may: (i) sell Interest Rate Futures or Municipal Bond Index
Futures, (ii) buy puts on such Futures or securities, or (iii) write
covered calls on securities, Interest Rate Futures or Municipal Bond Index
Futures (as described in the Prospectus). Covered calls may also be
written on debt securities to attempt to increase the Fund's income. When
hedging to permit the Fund to establish a position in the debt securities
market as a temporary substitute for purchasing individual debt securities
(which the Fund will normally purchase, and then terminate that hedging
position), the Fund may: (i) buy Interest Rate Futures or Municipal Bond
Index Futures, or (ii) buy calls on such Futures or on securities.
The Fund's strategy of hedging with Futures and options on Futures
will be incidental to the Fund's investment activities in the underlying
cash market. In the future, the Fund may employ hedging instruments and
strategies that are not presently contemplated, but which may be
developed, to the extent such investment methods are consistent with the
Fund's investment objective and are legally permissible and disclosed in
the Prospectus. Additional information about the hedging instruments the
Fund may use is provided below.
-- Writing Covered Call Options. As described in the Prospectus, the
Fund may write covered calls. When the Fund writes a call on a security,
it receives a premium and agrees to sell the underlying investment to a
purchaser of a corresponding call during the call period (usually not more
than nine months) at a fixed exercise price (which may differ from the
market price of the underlying investment) regardless of market price
changes during the call period. The Fund has retained the risk of loss
should the price of the underlying security decline during the call
period, which may be offset to some extent by the premium.
To terminate its obligation on a call it has written, the Fund may
purchase a corresponding call in a "closing purchase transaction." A
profit or loss will be realized, depending upon whether the net of the
amount of the option transaction costs and the premium received on the
call written was more or less than the price of the call subsequently
purchased. 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, and when
distributed by the Fund are taxable as ordinary income. An option
position may be closed out only on a market that provides secondary
trading for options of the same series, and there is no assurance that a
liquid secondary market will exist for any particular option. If the Fund
could not effect a closing purchase transaction due to a lack of a market,
it would have to hold the underlying investment securities until the call
lapsed or were exercised.
The Fund may also write calls on Futures without owning a futures
contract or deliverable securities, provided that at the time the call is
written, the Fund covers the call by segregating in escrow an equivalent
dollar value of liquid assets. The Fund will segregate additional liquid
assets if the value of the escrowed assets drops below 100% of the current
value of the Future. In no circumstances would an exercise notice as to
that Future put the Fund in a short futures position.
-- Interest Rate Futures. The Fund may buy and sell futures
contracts relating to debt securities ("Interest Rate Futures") and
municipal bond indices ("Municipal Bond Index Futures," discussed below).
An Interest Rate Future obligates the seller to deliver and the purchaser
to take a specific type of debt security or cash to settle the futures
transaction, or to enter into an offsetting contract. Upon entering into
a Futures transaction, the Fund will be required to deposit an initial
margin payment in cash or U.S. Treasury bills, with the futures commission
merchant (the "futures broker"). Initial margin payments will be
deposited with the Fund's Custodian in an account registered in the
futures broker's name; however, the futures broker can gain access to that
account only under certain specified conditions. As the Future is marked
to market to reflect changes in its market value, (that is, its value on
the Fund's books is changed) subsequent margin payments, called variation
margin, will be paid to or by the futures broker on a daily basis.
The Fund may concurrently buy and sell Futures contracts in an
attempt to benefit from any outperformance of the Future purchased
relative to the performance of the Future sold. For example, the Fund
might buy Municipal Bond Futures and sell U.S. Treasury Bond Futures (a
type of Interest Rate Future). This type of transaction would generally
be profitable to the Fund if municipal bonds outperform U.S. Treasury
bonds after duration has been considered. Duration is a volatility
measure that refers to the expected percentage change in the value of a
bond resulting from a change in general interest rates (measured by each
1% change in the rates on U.S. Treasury securities). For example, if a
bond has an effective duration of three years, a 1% increase in general
interest rates would be expected to cause the bond to decline about 3%.
Risks of this type of Futures transaction, using the example above, would
include (1) outperformance of U.S. Treasuries relative to municipal bonds,
on a duration-adjusted basis, and (2) duration mismatch, with duration of
municipal bonds relative to U.S. Treasuries being greater than
anticipated.
Upon entering into a Futures transaction, the Fund will be required
to deposit an initial margin payment, in cash or U.S. Treasury bills, with
the futures commission merchant (the "futures broker"). Initial margin
payments will be deposited with the Fund's Custodian in an account
registered in the future broker's name; however, the futures broker can
gain access to that account only under certain specified conditions. As
the Future is marked to market (that is, its value on the Fund's books is
changed) to reflect changes in its market value, subsequent margin
payments, called variation margin, will be paid to or by the futures
broker on a daily basis.
At any time prior to the expiration of the Future, the Fund may elect
to close out its position by taking an opposite position at which time a
final determination of variation margin is made and additional cash is
required to be paid by or released to the Fund. Any gain or loss is then
realized by the Fund on the Future for tax purposes. Although Interest
Rate Futures 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's option activities may affect its portfolio turnover rate
and brokerage commissions. The exercise of calls written by the Fund may
cause the Fund to sell related portfolio securities, thus increasing its
turnover rate. The exercise by the Fund of puts on securities will cause
the sale of underlying investments, increasing portfolio turnover.
Although the decision whether to exercise a put it holds is within the
Fund's control, holding a put might cause the Fund to sell the related
investments for reasons that would not exist in the absence of the put.
The Fund will pay a brokerage commission each time it buys or sell a call,
or an underlying investment in connection with the exercise of a put or
call. Those commissions may be higher than the commissions for direct
purchases or sales of the underlying investments.
Premiums paid for options are small in relation to the market value
of the underlying investments and, consequently, put and call options
offer large amounts of leverage. The leverage offered by trading in
options could result in the Fund's net asset value being more sensitive
to changes in the value of the underlying investments.
-- Municipal Bond Index Futures. A "municipal bond index" assigns
relative values to the municipal bonds included in that index, and is used
to serve as the basis for trading long-term municipal bond futures
contracts. Municipal Bond Index Futures are similar to Interest Rate
Futures except that settlement is made in cash. The obligation under such
contracts may also be satisfied by entering into an offsetting contract
to close out the futures position. Net gain or loss on options on
Municipal Bond Index Futures depends on the price movements of the
securities included in the index. The strategies which the Fund employs
regarding Municipal Bond Index Futures are similar to those described
above with regard to Interest Rate Futures.
-- Purchasing Calls and Puts. When the Fund purchases a call (other
than in a closing purchase transaction), it pays a premium and, except as
to calls on Municipal Bond Index Futures, has the right to buy the
underlying investment from a seller of a corresponding call on the same
investment during the call period at a fixed exercise price. In
purchasing a call, the Fund benefits only if the call is sold at a profit
or if, during the call period, the market price of the underlying
investment is above the sum of the call price plus the transaction costs
and premium paid for the call, and the call is exercised. If the call is
not exercised or sold (whether or not at a profit), it will become
worthless at its expiration date and the Fund will lose its premium
payment and the right to purchase the underlying investment. When the
Fund purchases a call or put a municipal bond index, Municipal Bond Index
Future or Interest Rate Future, it pays a premium, but settlement is in
cash rather than by delivery of the underlying investment to the Fund.
Gain or loss depends on changes in the index in question (and thus on
price movements in the debt securities market generally) rather than on
price movements in individual futures contracts.
When the Fund purchases a put, it pays a premium and, except as to
puts on municipal bond indices, has the right to sell the underlying
investment to a seller of a corresponding put on the same investment
during the put period at a fixed exercise price. Buying a put on a debt
security, Interest Rate Future or Municipal Bond Index Future the Fund
owns enables the Fund to protect itself during the put period against a
decline in the value of the underlying investment below the exercise price
by selling such underlying investment at the exercise price to a seller
of a corresponding put. If the market price of the underlying investment
is equal to or above the exercise price and as a result the put is not
exercised or resold, the put will become worthless at its expiration date
and the Fund will lose its premium payment and the right to sell the
underlying investment. The put may, however, be sold prior to expiration
(whether or not at a profit).
An option position may be closed out only on a market which provides
secondary trading for options of the same series, and there is no
assurance that a liquid secondary market will exist for any particular
option. The Fund's option activities may affect its turnover rate and
brokerage commissions. The exercise of calls written by the Fund may
cause it to sell underlying investments, thus increasing its turnover rate
in a manner beyond its control. The exercise by the Fund of puts may also
cause the sale of underlying investments, also causing turnover, since the
underlying investment might be sold for reasons which would not exist in
the absence of the put. The Fund will pay a brokerage commission each
time it buys a call or a put or sells a call. Premiums paid for options
are small in relation to the market value of the related investments and,
consequently, put and call options offer large amounts of leverage. The
leverage offered by trading in options could cause the Fund's net asset
value to be more sensitive to changes in the value of the underlying
investments.
-- Interest Rate Swap Transactions. Swap agreements entail both
interest rate risk and credit risk. There is a risk that, based on
movements of interest rates in the future, the payments made by the Fund
under a swap agreement will have been greater than those received by it.
Credit risk arises from the possibility that the counterparty will
default. If the counterparty to an interest rate swap defaults, the
Fund's loss will consist of the net amount of contractual interest
payments that the Fund has not yet received. The Manager will monitor the
creditworthiness of counterparties to the Fund's interest rate swap
transactions on an ongoing basis. The Fund will enter into swap
transactions with appropriate counterparties pursuant to master netting
agreements.
A master netting agreement provides that all swaps done between the
Fund and that counterparty under the master agreement shall be regarded
as parts of an integral agreement. If on any date amounts are payable in
the same currency in respect of one or more swap transactions, the net
amount payable on that date in that currency shall be paid. In addition,
the master netting agreement may provide that if one party defaults
generally or on one swap, the counterparty may terminate the swaps with
that party. Under such agreements, if there is a default resulting in a
loss to one party, the measure of that party's damages is calculated by
reference to the average cost of a replacement swap with respect to each
swap (i.e., the mark-to-market value at the time of the termination of
each swap). The gains and losses on all swaps are then netted, and the
result is the counterparty's gain or loss on termination. The termination
of all swaps and the netting of gains and losses on termination is
generally referred to as "aggregation." The Fund will not invest more
than 25% of its assets in interest rate swap transactions.
-- Additional Information About Hedging Instruments and Their Use.
The Fund's Custodian, or a securities depository acting for the Custodian,
will act as the Fund's escrow agent through the facilities of the Options
Clearing Corporation ("OCC"), as to the investments on which the Fund has
written options traded on exchanges, or as to other acceptable escrow
securities, so that no margin will be required for such transactions. OCC
will release the securities covering a call on the expiration of the call
or when the Fund enters into a closing purchase transaction. Call writing
affects the Fund's turnover rate and the brokerage commissions it pays.
Commissions are payable on writing or purchasing a call.
The Fund's option activities may affect its turnover rate and
brokerage commissions. The exercise of calls written by the Fund may
cause it to sell underlying investments, thus increasing its turnover rate
in a manner beyond its control. The exercise by the Fund of puts may also
cause the sale of underlying investments, also causing turnover, since the
underlying investment might be sold for reasons which would not exist in
the absence of the put. The Fund will pay a brokerage commission each
time it buys a call or a put or sells a call. Premiums paid for options
are small in relation to the market value of the related investments and,
consequently, put and call options offer large amounts of leverage. The
leverage offered by trading in options could cause the Fund's net asset
value to be more sensitive to changes in the value of the underlying
investments.
-- Regulatory Aspects of Hedging Instruments. The Fund is required
to operate within certain guidelines and restrictions with respect to its
use of Futures and options on Futures as established by the Commodity
Futures Trading Commission ("CFTC"). In particular, the Fund is exempted
from registration with the CFTC as a "commodity pool operator" if the Fund
complies with the requirements of Rule 4.5 adopted by the CFTC. The Rule
does not limit the percentage of the Fund's assets that may be used for
Futures margin and related options premiums for a bona fide hedging
position. However, under the Rule the Fund must limit its aggregate
initial futures margin and related option premiums to no more than 5% of
the Fund's net assets for hedging strategies that are not considered bona
fide hedging strategies under the Rule. Under the Rule, the Fund also must
use short futures and 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 governing the maximum number of
options that may be written or held by a single investor or group of
investors acting in concert, regardless of whether the options were
written or purchased on the same or different exchanges or are held in one
or more accounts or through one or more different exchanges or through one
or more brokers. Thus, the number of options which the Fund may write or
hold may be affected by options written or held by other entities,
including other investment companies having the same adviser as the Fund
(or an adviser that is an affiliate of the Fund's adviser). The exchanges
also impose position limits also apply to Futures transactions. An
exchange may order the liquidation of positions found to be in violation
of these limits and may impose certain other sanctions.
Due to requirements under the Investment Company Act, when the Fund
purchases an Interest Rate Future or Municipal Bond Index Future, the Fund
will maintain, in a segregated account or accounts with its Custodian,
cash or readily-marketable, short-term (maturing in one year or less) debt
instruments in an amount equal to the market value of the investments
underlying such Future, less the margin deposit applicable to it.
-- Tax Aspects of Hedging Instruments and Covered Calls. The Fund
intends to qualify as a "regulated investment company" under the Internal
Revenue Code (although it reserves the right not to qualify). One of the
tests for such qualification is that less than 30% of its gross income
must be derived from gains realized on the sale of securities held for
less than three months. To comply with this 30% cap, the Fund will limit
the extent to which it engages in the following activities, but will not
be precluded from them: (i) selling investments, including Interest Rate
Futures and Municipal Bond Index Futures, held for less than three months,
whether or not they were purchased on the exercise of a call held by the
Fund; (ii) writing calls on investments held less than three months; (iii)
purchasing calls or puts which expire in less than three months; (iv)
effecting closing transactions with respect to calls or puts purchased
less than three months previously; and (v) exercising puts or calls held
by the Fund for less than three months.
-- Risks of Hedging with Options and Futures. In addition to the
risks with respect to hedging discussed in the Prospectus and above, there
is a risk in using short hedging by (i) selling Interest Rate Futures and
Municipal Bond Index Futures or (ii) 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 will
correlate imperfectly with the behavior of the cash (i.e., market value)
prices of the Fund's securities. The ordinary spreads between prices in
the cash and futures markets are subject to distortions due to
differences in the natures of those markets. First, all participants in
the futures market are subject to margin deposit and maintenance
requirements. Rather than meeting additional margin deposit requirements,
investors may close out futures contracts through offsetting transactions
which could distort the normal relationship between the cash and futures
markets. Second, the liquidity of the futures market depends on
participants entering into offsetting transactions rather than making or
taking delivery. To the extent participants decide to make or take
delivery, liquidity in the futures market could be reduced, thus producing
distortion. Third, from the point of view of speculators, the deposit
requirements in the futures market are less onerous than margin
requirements in the securities market. Therefore, increased participation
by speculators in the futures market may cause temporary price
distortions.
The risk of imperfect correlation increases as the composition of the
Fund's portfolio diverges from the securities included in the applicable
index. To compensate for the imperfect correlation of movements in the
price of the debt securities being hedged and movements in the price of
the Hedging Instruments, the Fund may use Hedging Instruments in a greater
dollar amount than the dollar amount of debt securities being hedged if
the historical volatility of the prices of such debt securities being
hedged is more than the historical volatility of the applicable index.
It is also possible that if the Fund has used Hedging Instruments in a
short hedge, the market may advance and the value of the debt securities
held in the Fund's portfolio may decline. If this 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 for a
very brief period or to a very small degree, over time the value of a
diversified portfolio of debt securities will tend to move in the same
direction as the indices upon which the Hedging Instruments are based.
If the Fund uses Hedging Instruments to establish a position in the
debt securities markets as a temporary substitute for the purchase of
individual debt securities (long hedging) by buying Interest Rate Futures,
Municipal Bond Index Futures and/or calls on such Futures or debt
securities, it is possible that the market may decline; if the Fund then
concludes not to invest in such securities at that time because of
concerns as to possible further market decline or for other reasons, the
Fund will realize a loss on the Hedging Instruments that is not offset by
a reduction in the price of the debt securities purchased.
Other Investment Restrictions
The Fund's most significant investment restrictions are set forth in
the Prospectus. There are additional investment restrictions that the Fund
must follow that are also fundamental policies. Fundamental policies and
the Fund's investment objective cannot be changed without the vote of a
"majority" of the Fund's outstanding voting securities. Under the
Investment Company Act, such a "majority" vote is defined as the vote of
the holders of the lesser of (1) 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 (2) more than 50% of the
outstanding shares.
Under these additional restrictions, the Fund cannot:
-- invest in real estate, but this shall not prevent the Fund from
investing in Municipal Securities or other permitted securities secured
by real estate or interests therein;
-- purchase securities other than Hedging Instruments on margin;
however, the Fund may obtain such short-term credits as may be necessary
for the clearance of purchases and sales of securities;
-- make short sales of securities;
-- underwrite securities or invest in securities subject to
restrictions on resale;
-- invest in or hold securities of any "issuer" (see
"Diversification," below) if officers and Trustees or Directors of the
Fund and the Manager individually owning more than 1/2 of 1% of the
securities of such issuer together own more than 5% of the securities of
such issuer; or
-- invest in securities of any other investment company, except in
connection with a merger with another investment company.
In connection with the qualification of its shares in certain states,
the Fund has undertaken that in addition to the above, as a non-
fundamental policy, it will not invest (1) more than 5% of its total
assets in securities of unseasoned issuers, including their predecessors,
which have been in operation for less than three years; (2) more than 5%
of its total assets in equity securities of issuers that are not readily
marketable; (3) in interests in oil, gas, or other mineral leases or
exploration or development programs; or (4) in real estate limited
partnership interests.
- - Diversification. For purposes of diversification under the
Investment Company Act and the restriction on investing in any "issuer"
above, 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 the subdivision and the
security is backed only by the assets and revenues of the subdivision,
such subdivision would be deemed to be the sole issuer. Similarly, in the
case of an industrial development bond, if that bond is backed only by the
assets and revenues of the nongovernmental user, then such nongovernmental
user would be deemed the sole issuer. However, if in either case the
creating government or some other entity guarantees a security, such a
guarantee would be considered a separate security and is to be treated as
an issue of such government or other agency.
In applying the Fund's policy not to concentrate its investments,
described in the Prospectus, the Manager will consider a nongovernmental
user of facilities financed by industrial development bonds as being in
a particular industry, despite the fact that such bonds are Municipal
Securities as to which there is no industry concentration limitation.
Although this application of the restriction is not technically a
fundamental policy under the Investment Company Act, it will not be
changed without shareholder approval. Neither of these are fundamental
policies, and therefore either of them may be changed without shareholder
approval. Should any such change be made, the Prospectus and/or this
Additional Statement will be supplemented to reflect the change.
For purposes of the Fund's policy not to concentrate its assets
described in the Prospectus, the Fund has adopted the industry
classifications set forth in Appendix C to the Statement of Additional
Information. This is not a fundamental policy.
How the Fund Is Managed
Organization and History. As a Massachusetts business trust, the Fund is
not required to hold, and does not plan to hold, regular annual meetings
of shareholders. The Fund will hold meetings when required to do so by the
Investment Company Act or other applicable law, or when a shareholder
meeting is called by the Trustees or upon proper request of the
shareholders. Shareholders have the right, upon the declaration in
writing or vote of two-thirds of the outstanding shares of the Fund, to
remove a Trustee. The Trustees will call a meeting of shareholders to
vote on the removal of a Trustee upon the written request of the record
holders of 10% of its outstanding shares. In addition, if the Trustees
receive a request from at least 10 shareholders (who have been
shareholders for at least six months) holding shares of the Fund valued
at $25,000 or more or holding at least 1% of the Fund's outstanding
shares, whichever is less, stating that they wish to communicate with
other shareholders to request a meeting to remove a Trustee, the Trustees
will then either make the Fund's shareholder list available to the
applicants or mail their communication to all other shareholders at the
applicants' expense, or the Trustees may take such other action as set
forth under Section 16(c) of the Investment Company Act.
The Fund's Declaration of Trust contains an express disclaimer of
shareholder or Trustee liability for the Fund's obligations, and provides
for indemnification and reimbursement of expenses out of its property for
any shareholder held personally liable for its obligations. The
Declaration of Trust also provides that the Fund shall, upon request,
assume the defense of any claim made against any shareholder for any act
or obligation of the Fund and satisfy any judgment thereon. Thus, while
Massachusetts law permits a shareholder of a business trust (such as the
Fund) to be held personally liable as a "partner" under certain
circumstances, the risk of a Fund shareholder incurring financial loss on
account of shareholder liability is limited to the relatively remote
circumstances in which the Fund would be unable to meet its obligations
described above. Any person doing business with the Trust, and any
shareholder of the Trust, agrees under the Trust's Declaration of Trust
to look solely to the assets of the Trust for satisfaction of any claim
or demand which may arise out of any dealings with the Trust, and the
Trustees shall have no personal liability to any such person, to the
extent permitted by law.
Trustees and Officers of the Fund. The Fund's Trustees and officers and
their principal occupations and business affiliations during the past five
years are listed below. The address of each Trustee and officer is Two
World Trade Center, New York, New York 10048-0203, unless another address
is listed below. All of the Trustees are also trustees or directors of
Oppenheimer Fund, Oppenheimer Growth Fund, Oppenheimer Global Fund,
Oppenheimer Money Market Fund, Inc., Oppenheimer U.S. Government Trust,
Oppenheimer Gold & Special Minerals Fund, Oppenheimer Discovery Fund,
Oppenheimer Target Fund, Oppenheimer Asset Allocation Fund, Oppenheimer
Global Emerging Growth Fund, Oppenheimer Global Growth & Income Fund,
Oppenheimer Tax-Free Bond Fund, Oppenheimer New York Tax-Exempt Fund,
Oppenheimer Pennsylvania Tax-Exempt Fund, Oppenheimer Multi-Sector Income
Trust and Oppenheimer Multi-Government Trust (collectively, the "New York-
based OppenheimerFunds). Messrs. Spiro, Donohue, Bowen, Zack, Bishop and
Farrar respectively, hold the same offices with the other New York-based
OppenheimerFunds as with the Fund. As of October 6, 1995, the Trustees
and officers of the Fund as a group owned of record or beneficially less
than 1% of each class of shares of the Fund. The foregoing statement does
not reflect ownership of shares held of record by an employee benefit plan
for employees of the Manager (for which plan a Trustee and an officer
listed below, Ms. Macaskill and Mr. Donohue, respectively are trustees),
other than the shares beneficially owned under the plan by the officers
of the Fund listed above.
Leon Levy, Chairman of the Board of Trustees; Age 70
General Partner of Odyssey Partners, L.P. (investment partnership) and
Chairman of Avatar Holdings Inc. (real estate development).
Leo Cherne, Trustee; Age 83
122 East 42nd Street, New York, New York 10168
Chairman Emeritus of the International Rescue Committee (philanthropic
organization); formerly Executive Director of The Research Institute of
America.
Robert G. Galli, Trustee; Age 62
Vice Chairman of the Manager and Vice President and Counsel of Oppenheimer
Acquisition Corp. ("OAC") the Manager's parent holding company; formerly
he held the following positions: a director of the Manager and
OppenheimerFunds Distributor, Inc. (the "Distributor"), Vice President and
a director of HarbourView Asset Management Corporation ("HarbourView") and
Centennial Asset Management Corporation ("Centennial"), investment adviser
subsidiaries of the Manager, a director of Shareholder Financial Services,
Inc. ("SFSI") and Shareholder Services, Inc. ("SSI"), transfer agent
subsidiaries of the Manager, an officer of other Oppenheimer funds and
Executive Vice President & General Counsel of the Manager and the
Distributor.
______________________
*A Trustee who is an "interested person" of the Fund as defined in the
Investment Company Act.
Benjamin Lipstein, Trustee; Age 72
591 Breezy Hill Road, Hillsdale, New York 12529
Professor Emeritus of Marketing, Stern Graduate School of Business
Administration, New York University; Director of Sussex Publishers, Inc.
(Publishers of Psychology Today and Mother Earth News) and a Director of
Spy Magazine, L.P.
Bridget A. Macaskill, Trustee; Age 47*
President, CEO and a Director of the Manager, Chairman and a Director of
SSI, Vice President and a Director of OAC; a Director of HarbourView, and
Oppenheimer Partnership Holdings, Inc., a holding company subsidiary of
the Manager; formerly Executive Vice President of the Manager.
Elizabeth B. Moynihan, Trustee; Age 66
801 Pennsylvania Avenue, N.W., Washington, D.C. 20004
Author and architectural historian; a trustee of the Freer Gallery of Art
(Smithsonian Institution), the Institute of Fine Arts (New York
University), National Building Museum; a member of the Trustees Council,
the Preservation League of New York State; a member of the Indo-U.S. Sub-
Commission on Education and Culture.
Kenneth A. Randall, Trustee; Age 68
6 Whittaker's Mill, Williamsburg, Virginia 23185
A director of Dominion Resources, Inc. (electric utility holding company),
Dominion Energy, Inc. (electric power and oil and gas producer), Enron-
Dominion Cogen Corp. (cogeneration company), Kemper Corporation
(insurance and financial services company), Fidelity Life Association
(mutual life insurance company); formerly Chairman of the Board of ICL,
Inc. (information systems), and President and Chief Executive Officer of
The Conference Board, Inc. (international economic and business research).
Edward V. Regan, Trustee; Age 65
40 Park Avenue, New York, New York 10016
Chairman of Municipal Assistance Corporation for the City of New York;
President of Jerome Levy Economics Institute; a member of the U.S.
Competitiveness Policy Council; a director of GranCare, Inc. (health care
provider); formerly New York State Comptroller and a trustee, New York
State and Local Retirement Fund.
Russell S. Reynolds, Jr., Trustee; Age 63
200 Park Avenue, New York, New York 10166
Founder Chairman of Russell Reynolds Associates, Inc. (executive
recruiting); Chairman of Directors Publication, Inc. (consulting and
publishing); a trustee of Mystic Seaport Museum, International House,
Greenwich Historical Society and Greenwich Hospital.
_______________________
*A Trustee who is an "interested person" of the Fund as defined in the
Investment Company Act.
Sidney M. Robbins, Trustee; Age 83
50 Overlook Road, Ossining, New York 10562
Chase Manhattan Professor Emeritus of Financial Institutions, Graduate
School of Business, Columbia University; Visiting Professor of Finance,
University of Hawaii; a director of The Korea Fund, Inc. (a closed-end
investment company); a member of the Board of Advisors, Olympus Private
Placement Fund, L.P.; Professor Emeritus of Finance, Adelphi University.
Donald W. Spiro, President and Trustee; Age 69*
Chairman Emeritus and a director of the Manager; formerly Chairman of the
Manager and Oppenheimer Funds Distributor, Inc. (the "Distributor").
Pauline Trigere, Trustee; Age 82
498 Seventh Avenue, New York, New York 10018
Chairman and Chief Executive Officer of Trigere, Inc. (design and sale of
women's fashions).
Clayton K. Yeutter, Trustee; Age 64
1325 Merrie Ridge Road, McLean, Virginia 22101
Of Counsel to Hogan & Hartson (a law firm); a director of B.A.T. Indu
stries, Ltd. (tobacco and financial services), Caterpillar, Inc.
(machinery), ConAgra, Inc. (food and agricultural products), Farmers
Insurance Company (insurance), FMC Corp. (chemicals and machinery),
Lindsay Manufacturing Co. (irrigation equipment), Texas Instruments, Inc.
(electronics) and the Vigoro Corporation (fertilizer manufacturer);
formerly (in descending chronological order) Counsellor to the President
(Bush) for Domestic Policy, Chairman of the Republican National Committee,
Secretary of the U.S. Department of Agriculture, and U.S. Trade
Representative.
Robert E. Patterson, Vice President and Portfolio Manager; Age 52
Senior Vice President of the Manager; an officer of other Oppenheimer
funds.
_______________________
*A Trustee who is an "interested person" of the Fund as defined in the
Investment Company Act.
Andrew J. Donohue, Secretary; Age 45
Executive Vice President and General Counsel of Oppenheimer Management
Corporation (the "Manager") and Oppenheimer Funds Distributor, Inc. (the
"Distributor"); an officer of other Oppenheimer funds; formerly Senior
Vice President and Associate General Counsel of the Manager and the
Distributor, partner in Kraft & McManimon (a law firm), an officer of
First Investors Corporation (a broker-dealer) and First Investors
Management Company, Inc. (broker-dealer and investment adviser), director
and an officer of First Investors Family of Funds and First Investors Life
Insurance Company.
George C. Bowen, Treasurer; Age 59
3410 South Galena Street, Denver, Colorado 80231
Senior Vice President and Treasurer of the Manager; Vice President and
Treasurer of the Distributor and HarbourView; Senior Vice President,
Treasurer, Assistant Secretary and a director of Centennial; Vice
President, Secretary and Treasurer of SSI and SFSI; an officer of other
Oppenheimer funds.
Robert G. Zack, Assistant Secretary; Age 47
Senior Vice President and Associate General Counsel of the Manager;
Assistant Secretary of SSI, SFSI; an officer of other Oppenheimer funds.
Robert Bishop, Assistant Treasurer; Age 36
3410 South Galena Street, Denver, Colorado, 80231
Assistant Vice President of the Manager/Mutual Fund Accounting; an officer
of other Oppenheimer funds; previously a Fund Controller for the Manager,
prior to which he was an Accountant for Resolution Trust Corporation and
previously an Accountant and Commissions Supervisor for Stuart James
Company Inc., a broker-dealer.
Scott Farrar, Assistant Treasurer; Age 30
3410 South Galena Street, Denver, Colorado, 80231
Assistant Vice President of the Manager/Mutual Fund Accounting; an officer
of other Oppenheimer funds; previously a Fund Controller for the Manager,
prior to which he was an International Mutual Fund Supervisor for Brown
Brothers Harriman Co., a bank, and previously a Senior Fund Accountant for
State Street Bank & Trust Company.
-- Remuneration of Trustees. The officers of the Fund are affiliated
with the Manager; they and the Trustees of the Fund who are affiliated
with the Manager (Ms. Macaskill and Messrs. Galli and Spiro; Mr. Spiro is
also an officer) receive no salary or fee from the Fund. The Trustees of
the Fund (including Mr. Delaney, a former Trustee, but excluding Ms.
Macaskill, Messrs. Galli and Spiro) received the total amounts shown below
(i) from the Fund, during its fiscal year ended December 31, 1994, and
(ii) from all 17 of the New York-based OppenheimerFunds (including the
Fund) listed in the first paragraph of this section (and from Oppenheimer
Global Environment Fund, Oppenheimer Time Fund and Oppenheimer Mortgage
Income Fund, which ceased operation following the acquisition of their
assets by certain other Oppenheimer funds).
Aggregate Total Compensation
Compensation From All
Name and from New York-based
Position Fund OppenheimerFunds1
Leon Levy $9,151 $141,000.00
Chairman and
Trustee
Leo Cherne $4,467 $ 68,800.00
Audit Committee
Member and
Trustee
Benjamin Lipstein $5,595 $ 86,200.00
Study Committee
Member and Trustee
Elizabeth B. Moynihan $3,934 $ 60,625.00
Study Committee
Member 2 and Trustee
Kenneth A. Randall $5,089 $ 78,400.00
Audit Committee
Member and Trustee
Edward V. Regan $3,650 $ 56,275.00
Audit Committee
Member 2 and Trustee
Russell S. Reynolds, Jr. $3,384 $ 52,100.00
Trustee
Sidney M. Robbins $7,929 $122,100.00
Study Committee
Chairman, Audit
Committee Vice-Chairman
and Trustee
Pauline Trigere $3,384 $ 52,100.00
Trustee
Clayton K. Yeutter $3,384 $ 52,100.00
Trustee
______________________
1 For the 1994 calendar year.
2 Committee position held during a portion of the period shown.
The Fund has adopted a retirement plan that provides for payment to
a retired Trustee of up to 80% of the average compensation paid during
that Trustee's five years of service in which the highest compensation was
received. A Trustee must serve in that capacity for any of the New York-
based OppenheimerFunds for at least 15 years to be eligible for the
maximum payment. Because each Trustee's retirement benefits will be depend
on the amount of the Trustee's future compensation and length of service,
the amount of those benefits cannot be determined at this time, nor can
the Fund estimate the number of years of credited service that will be
used to determine those benefits. No sums were accrued during the fiscal
year ended December 31, 1994 for the Fund's projected retirement benefit
obligations.
-- Major Shareholders. As of October 6, 1995, no person owned of
record or was known by the Fund to own beneficially 5% or more shares of
the Fund as a whole or either class of the Fund's outstanding shares.
The Manager and Its Affiliates. The Manager is wholly-owned by
Oppenheimer Acquisition Corp. ("OAC"), a holding company controlled by
Massachusetts Mutual Life Insurance Company. OAC is also owned in part
by certain of the Manager's directors and officers, some of whom may also
serve as officers of the Fund, and three of whom (Ms. Macaskill and
Messrs. Galli and Spiro) serve as Trustees of the Fund.
The Manager and the Fund have a Code of Ethics. It is designed to
detect and prevent improper personal trading by certain employees,
including portfolio managers, that would compete with or take advantage
of the Fund's portfolio transactions. Compliance with the Code of Ethics
is carefully monitored and strictly enforced.
-- The Investment Advisory Agreement. The investment advisory
agreement between the Manager and the Fund requires the Manager, at its
expense, to provide the Fund with adequate office space, facilities and
equipment, and to provide and supervise the activities of all
administrative and
clerical personnel required to provide effective corporate administration
for the Fund, including the compilation and maintenance of records with
respect to its operations, the preparation and filing of specified
reports, and the composition of proxy materials and registration
statements for continuous public sale of shares of the Fund.
Expenses not expressly assumed by the Manager under the advisory
agreement or by the Distributor under the General Distributor's Agreement
are paid by the Fund. The advisory agreement lists examples of expenses
paid by the Fund, the major categories of which relate to interest, taxes,
fees to certain Trustees, legal and audit expenses, custodian and transfer
agent expenses, share issuance costs, certain printing and registration
costs, brokerage commissions, and non-recurring expenses, such as
litigation.
The advisory agreement contains no provision limiting the Fund's
expenses. However, independently of the advisory agreement, the Manager
has voluntarily undertaken that the total expenses of the Fund in any
fiscal year (including the management fee, but excluding taxes, interest,
brokerage commissions, distribution plan payments and extraordinary
expenses such as litigation costs) shall not exceed the most stringent
expense limitation imposed under state law applicable to the Fund.
Currently, the most stringent state expense limitation is imposed by
California, and limits the Fund's expenses (with specified exclusions) to
2.5% of the first $30 million of average annual net assets, 2% of the next
$70 million, and 1.5% of average annual net assets in excess of $100
million. The Manager reserves the right to terminate or amend the
undertaking at any time. Any assumption of the Fund's expenses under this
limitation would lower the Fund's overall expense ratio and increase its
total return during any period in which expenses are limited. Prior to
November 1, 1993, independently of the Agreement, the Manager had
undertaken to assume the Fund's expenses (exclusive of any non-recurring
expenses, such as litigation) to the extent required to maintain the
Fund's dividend rate at $.0498 per share every 28 days. Effective
November 1, 1993, the Manager terminated this undertaking.
For the fiscal years ended December 31, 1992, 1993, and 1994 there
were no assumption of expenses, and the management fees were $1,044,275,
$1,467,574, and $1,560,360, respectively.
The advisory agreement provides that in the absence of willful
misfeasance, bad faith, gross negligence or reckless disregard for its
obligations thereunder, the Manager is not liable for any loss sustained
by reason of any investment of Fund assets made with due care and in good
faith. The advisory agreement permits the Manager to act as investment
adviser for any other person, firm or corporation and to use the name
"Oppenheimer" in connection with one or more additional companies for
which it may act as investment adviser or general distributor. If the
Manager shall no longer act as investment adviser to the Fund, the right
of the Fund to use the name "Oppenheimer" as part of its name may be
withdrawn.
-- The Distributor. Under its General Distributor's Agreement with
the Fund, the Distributor acts as the Fund's principal underwriter in the
continuous public offering of the Fund's Class A, Class B and Class C
shares, but is not obligated to sell a specific number of shares.
Expenses normally attributable to sales, (other than those paid under the
Distribution and Service Plan) but including advertising and the cost of
printing and mailing prospectuses other than those furnished to existing
shareholders, are borne by the Distributor. During the Fund's fiscal
years ended December 31, 1992, 1993, and 1994 the aggregate sales charges
on sales of the Fund's Class A shares were $1,863,832, $1,831,469, and
$999,822 respectively, of which the Distributor and an affiliated broker-
dealer retained $400,938, $368,898 and $193,221 in those respective years.
During the Fund's fiscal year ended December 31, 1994, the contingent
deferred sales charge collected on the Fund's Class B shares totaled
$79,893, all of which the Distributor retained. For additional
information about distribution of the Fund's shares and the expenses
connected with such activities, please refer to "Distribution and Service
Plans," below.
-- The Transfer Agent. Oppenheimer Shareholder Services, the Fund's
Transfer Agent, is responsible for maintaining the Fund's shareholder
registry and shareholder accounting records, and for shareholder servicing
and administrative functions.
Brokerage Policies of the Fund
Brokerage Provisions of the Investment Advisory Agreement. One of the
duties of the Manager under the advisory agreement is to arrange the
portfolio transactions for the Fund. The advisory agreement contains
provisions relating to the employment of broker-dealers ("brokers") to
effect the Fund's portfolio transactions. In doing so, the Manager is
authorized by the advisory agreement to employ broker-dealers, including
"affiliated" brokers, as that term is defined in the Investment Company
Act, as may, in its best judgment based on all relevant factors,
implement the policy of the Fund to obtain, at reasonable expense, the
"best execution" (prompt and reliable execution at the most favorable
price obtainable) of such transactions. The Manager need not seek
competitive commission bidding but is expected to minimize the commissions
paid to the extent consistent with the interest and policies of the Fund
as established by its Board of Trustees. Purchases of securities from
underwriters include a commission or concession paid by the issuer to the
underwriter, and purchases from dealers include a spread between the bid
and the asked price.
Under the advisory agreement, the Manager is authorized to select
brokers that provide brokerage and/or research services for the Fund
and/or the other accounts over which the Manager or its affiliates have
investment discretion. The commissions paid to such brokers may be higher
than another qualified broker would have charged if a good faith
determination is made by the Manager that the commission is fair and
reasonable in relation to the services provided. Subject to the foregoing
considerations, the Manager may also consider sales of shares of the Fund
and other investment companies managed by the Manager or its affiliates
as a factor in the selection of brokers for the Fund's portfolio
transactions.
Description of Brokerage Practices Followed by the Manager. Subject to
the provisions of the advisory agreement and the procedures and rules
described above, allocations of brokerage are generally made by the
Manager's portfolio traders based upon recommendations from the Manager's
portfolio managers. In certain instances, portfolio managers may directly
place trades and allocate brokerage, also subject to the provisions of the
advisory agreement and the procedures and rules described above. In
either case, brokerage is allocated under the supervision of the Manager's
executive officers. As most purchases made by the Fund are principal
transactions at net prices, the Fund incurs little or no brokerage costs.
The Fund usually deals directly with the selling or purchasing principal
or market maker without incurring charges for the services of a broker on
its behalf unless it is determined that better price or execution may be
obtained by utilizing the services of a broker. Purchases of portfolio
securities from underwriters include a commission or concession paid by
the issuer to the underwriter, and purchases from dealers include a spread
between the bid and asked price. The Fund seeks to obtain prompt
execution of orders at the most favorable net price. When the Fund
engages in an option transaction, ordinarily the same broker will be used
for the purchase or sale of the option and any transaction in the
securities to which the option relates. When possible, concurrent orders
to purchase or sell the same security by more than one of the accounts
managed by the Manager or its affiliates are combined. The transactions
effected pursuant to such combined orders are averaged as to price and
allocated in accordance with the purchase or sale orders actually placed
for each account.
The research services provided by a particular broker may be useful
only to one or more of the advisory accounts of the Manager and its
affiliates, and investment research received for the commissions of those
other accounts may be useful both to the Fund and one or more of such
other accounts. Such research, which may be supplied by a third party at
the instance of a broker, includes information and analyses on particular
companies and industries as well as market or economic trends and
portfolio strategy, receipt of market quotations for portfolio
evaluations, information systems, computer hardware and similar products
and services. If a research service also assists the Manager in a non-
research capacity (such as bookkeeping or other administrative functions),
then only the percentage or component that provides assistance to the
Manager in the investment decision-making process may be paid in
commission dollars. The Board has also permitted the Manager to use
stated commissions on secondary fixed-income agency trades to obtain
research where the broker has represented to Manager that: (i) the trade
is not from or for the broker's own inventory, (ii) the trade was executed
by the broker on an agency basis at the stated commission, and (iii) the
trade is not a riskless principal transaction.
The research services provided by brokers broadens the scope and
supplement the research activities of the Manager, by making available
additional views for consideration and comparisons, and by enabling the
Manager to obtain market information for the valuation of securities held
in the Fund's portfolio or being considered for purchase. The Board of
Trustees, including the "independent" Trustees of the Fund (those Trustees
of the Fund who are not "interested persons" as defined in the Investment
Company Act, and who have no direct or indirect financial interest in the
operation of the advisory agreement or the Distribution Plans described
below) annually reviews information furnished by the Manager as to the
commissions paid to brokers furnishing such services so that the Board may
ascertain whether the amount of such commissions was reasonably related
to the value or benefit of such services.
Performance of the Fund
Yield and Total Return Information. As described in the Prospectus,
from time to time the "standardized yield," "dividend yield," "tax-
equivalent yield," "average annual total return", "cumulative total
return," and "cumulative total return at net asset value" of an investment
in each class of Fund shares may be advertised. An explanation of how
yields and total returns are calculated for each class and the components
of those calculations is set forth below. No total return and yield
calculations are presented below for Class C shares because no shares of
that Class were publicly issued during the Fund's fiscal year ended
December 31, 1994.
The Fund's advertisements of its performance data must, under
applicable rules of the Securities and Exchange Commission, include the
average annual total returns for each class of shares of the Fund for the
1, 5, and 10-year periods (or the life of the class, if less) ending as
of the most recently-ended calendar quarter prior to the publication of
the advertisement. This enables an investor to compare the Fund's
performance to the performance of other funds for the same periods.
However, a number of factors should be considered before using such
information as a basis for comparison with other investments. An
investment in the Fund is not insured; its returns and share prices are
not guaranteed and normally will fluctuate on a daily basis. When
redeemed, an investor's shares may be worth more or less than their
original cost. Returns for any given past period are not a prediction or
representation by the Fund of future returns. The yield and total returns
of the Class A, Class B and Class C shares of the Fund are affected by
portfolio quality, portfolio maturity, the type of investments the Fund
holds and its operating expenses allocated to the particular class.
-- Standardized Yields
- - Yield. The Fund's "yield" (referred to as "standardized yield")
for a given 30-day period for a class of shares is calculated using the
following formula set forth in rules adopted by the Securities and
Exchange Commission that apply to all funds that quote yields:
a-b 6
Standardized Yield = 2 ((------ + 1) - 1)
cd
The symbols above represent the following factors:
a = dividends and interest earned during the 30-day period.
b = expenses accrued for the period (net of any expense
reimbursements).
c = the average daily number of shares of that class outstanding
during the 30-day period that were entitled to receive
dividends.
d = the maximum offering price per share of that class on the last
day of the period, adjusted for undistributed net investment
income.
The standardized yield of a class of shares for a 30-day period may
differ from its yield for any other period. The SEC formula assumes that
the standardized yield for a 30-day period occurs at a constant rate for
a six-month period and is annualized at the end of the six-month period.
This standardized yield is not based on actual distributions paid by the
Fund to shareholders in the 30-day period, but is a hypothetical yield
based upon the net investment income from the Fund's portfolio investments
calculated for that period. The standardized yield may differ from the
"dividend yield" of that class, described below. Additionally, because
each class of shares is subject to different expenses, it is likely that
the standardized yields of the Fund's classes of shares will differ. For
the 30-day period ended December 31, 1994, the standardized yields for the
Fund's Class A and Class B shares were 5.74% and 5.28%, respectively.
-- Tax-Equivalent Yield. The "tax-equivalent yield" of a class of
shares adjusts the Fund's current yield, as calculated above, by a stated
combined Federal, state and city tax rate. The tax equivalent yield is
based on a 30-day period, and is computed by dividing the tax-exempt
portion of the Fund's current yield (as calculated above) by one minus a
stated income tax rate and adding the result to the portion (if any) of
the Fund's current yield that is not tax exempt. The tax equivalent yield
may be used to compare the tax effects of income derived from the Fund
with income from taxable investments at the tax rates stated. Appendix
B includes a tax equivalent yield table, based on various effective tax
brackets for individual taxpayers. Such tax brackets are determined by
a taxpayer's Federal and state taxable income (the net amount subject to
Federal, state and city income taxes after deductions and exemptions).
The tax equivalent yield table assumes that the investor is taxed at the
highest bracket, regardless of whether a switch to non-taxable investments
would cause a lower bracket to apply and that state income tax payments
are fully deductible for income tax purposes. For taxpayers with income
above certain levels, otherwise allowable itemized deductions are limited.
The Fund's tax-equivalent yield (after expense assumptions by the Manager)
for its Class A and Class B shares for the 30-day period ended
December 31, 1994, for an investor in the California/Federal 46.24%
effective tax bracket were 10.68% and 9.82%, respectively.
-- Dividend Yield and Distribution Return. From time to time the
Fund may quote a "dividend yield" or a "distribution return" for each
class. Dividend yield is based on the Class A, Class B or Class C share
dividends derived from net investment income during a stated period.
Distribution return includes dividends derived from net investment income
and from realized capital gains declared during a stated period. Under
those calculations, the dividends and/or distributions for that class
declared during a stated period of one year or less (for example, 30 days)
are added together, and the sum is divided by the maximum offering price
per share of that class on the last day of the period. When the result
is annualized for a period of less than one year, the "dividend yield" is
calculated as follows:
Dividend Yield of the Class =
Dividends of the Class
- ----------------------------------------------------
Max Offering Price of the Class (last day of period)
Divided by number of days (accrual period) x 365
The maximum offering price for Class A shares includes the maximum
front-end sales charge. For Class B and Class C shares, the maximum
offering price is the net asset value per share, without considering the
effect of contingent deferred sales charges.
From time to time similar yield or distribution return calculations
may also be made using the Class A net asset value (instead of its
respective maximum offering price) at the end of the period. The dividend
yields on Class A shares for the 30-day period ended December 31, 1994,
were 6.31% and 6.63% when calculated at maximum offering price and at net
asset value, respectively. The dividend yield on Class B shares for the
30-day period ended December 31, 1994, was 5.86% when calculated at net
asset value.
-- Total Return Information
-- Average Annual Total Returns. The "average annual total return"
of each class is an average annual compounded rate of return for each year
in a specified number of years. It is the rate of return based on the
change in value of a hypothetical initial investment of $1,000 ("P" in the
formula below) held for a number of years ("n") to achieve an Ending
Redeemable Value ("ERV") of that investment, according to the following
formula:
( ERV ) 1/n
(-----) -1 = Average Annual Total Return
( P )
- -- Cumulative Total Returns. 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
In calculating total returns for Class A shares, the current maximum
sales charge of 4.75% (as a percentage of the offering price) is deducted
from the initial investment ("P") (unless the return is shown at net asset
value, as described below). For Class B shares, payment of contingent
deferred sales charge of 5.0% for the first year, 4.0% for the second
year, 3.0% for the third and fourth years, 2.0% for the fifth year, and
1.0% for the sixth year, and none thereafter is applied, as described in
the Prospectus. Total returns also assume that all dividends and capital
gains distributions during the period are reinvested to buy additional
shares at net asset value per share, and that the investment is redeemed
at the end of the period. The average annual total returns on an
investment in Class A shares of the Fund for the one and five year periods
ended December 31, 1994 and for the period from November 3, 1988
(commencement of operations) to December 31, 1994, were -12.83%, 4.75% and
5.95%, respectively. The cumulative "total return" on Class A shares for
the latter period was 42.79%. The average annual total return on an
investment in Class B shares for the fiscal year ended December 31, 1994
and for the period May 1, 1993 (inception of class) to December 31, 1994
were -13.69% and -4.19%. For the fiscal period from May 1, 1993, through
December 31, 1994, the cumulative total return on an investment in Class
B shares of the Fund was -6.88%.
-- Total Returns At Net Asset Value. From time to time the Fund may
also quote an average annual total return at net asset value or a
cumulative total return at net asset value for Class A, Class B or Class
C shares. Each is based on the difference in net asset value per share
at the beginning and the end of the period for a hypothetical investment
in that class of shares (without considering front-end or contingent
deferred sales charges) and takes into consideration the reinvestment of
dividends and capital gains distributions. The average annual returns at
net asset value on the Fund's Class A shares for the one and five year
periods ended December 31, 1994 and for the period from November 3, 1988
(commencement of operations) through December 31, 1994 were -8.49%, 5.78%
and 6.79%, respectively. The average annual total returns at net asset
value on the Fund's Class B shares for the fiscal year ended December 31,
1994 and for the period from May 3, 1993 (commencement of operations)
through December 31, 1994 were -9.39% and -2.03%, respectively.
Total return information may be useful to investors in reviewing the
performance of the Fund's Class A, Class B or Class C shares. However,
when comparing total return of an investment in Class A, Class B or Class
C shares of the Fund, a number of factors should be considered before
using such information as a basis for comparison before using such
information as a basis for comparison with other investments.
-- Other Performance Comparisons. From time to time the Fund may
publish the ranking of its Class A or Class B shares by Lipper Analytical
Services, Inc. ("Lipper"), a widely-recognized independent mutual fund
monitoring service. Lipper monitors the performance of regulated
investment companies, including the Fund, and ranks their performance for
various periods based on categories relating to investment objectives.
The performance of the Fund is ranked against (i) all other funds,
excluding money market funds, and (ii) all other California municipal bond
funds. The Lipper performance rankings are based on total returns that
include the reinvestment of capital gains distributions and income
dividends but do not take sales charges or taxes into consideration.
From time to time the Fund may include in its advertisements and
sales literature performance information about the Fund cited in other
newspapers and periodicals such as The New York Times, which may include
performance quotations from other sources, including Lipper and
Morningstar.
From time to time the Fund may publish the ranking of the performance
of its Class A, Class B or Class C shares by Morningstar, Inc., an
independent mutual fund monitoring service that ranks mutual funds,
including the Fund, monthly in broad investment categories (equity,
taxable bond, municipal bond and hybrid) based on risk-adjusted investment
return. Investment return measures fund's three, five and ten-year
average annual total returns (when available) in excess of 90-day U.S.
Treasury bill returns after considering sales charge and expenses. Risk
reflects fund performance below 90-day U.S. Treasury bill monthly returns.
Risk and return are combined to produce star rankings reflecting
performance relative to the average fund in a fund's category. Five stars
is the "highest" ranking (top 10%), four stars is "above average" (next
22.5%), three stars is "average" (next 35%), two stars is "below average"
(next 22.5%) and one star is "lowest" (bottom 10%). Morningstar ranks
the Fund in relation to other rated municipal bond funds. Rankings are
subject to change.
Investors may also wish to compare the Fund's Class A, Class B or
Class C return to the returns on fixed income investments available from
banks and thrift institutions, such as certificates of deposit, ordinary
interest-paying checking and savings accounts, and other forms of fixed
or variable time deposits, and various other instruments such as Treasury
bills. However, the Fund's returns and share price are not guaranteed by
the FDIC or any other agency and will fluctuate daily, while bank
depository obligations may be insured by the FDIC and may provide fixed
rates of return, and Treasury bills are guaranteed as to principal and
interest by the U.S. government. When redeemed, an investor's shares may
be worth more or less than their original cost. Returns for any given past
period are not a prediction or representation by the Fund of future
returns. The returns of Class A, Class B or Class C shares of the Fund are
affected by portfolio quality, the type of investments the Fund holds and
its operating expenses allocated to a particular class. The performance
of the Fund's Class A, Class B or Class C shares may also be compared in
publications to (i) the performance of various market indices or to other
investments for which reliable performance data is available, and (ii) to
averages, performance rankings or other benchmarks prepared by recognized
mutual fund statistical services.
Distribution and Service Plans
The Fund has adopted a Service Plan for Class A shares and
Distribution and Service Plans for Class B and Class C shares under Rule
12b-1 of the Investment Company Act pursuant to which the Fund will make
payments to the Distributor for all or a portion of its costs incurred in
connection with the distribution and/or servicing of the shares of that
class as described in the Prospectus. Each Plan has been approved by a
vote of (i) the Board of Trustees of the Fund, including a majority of the
Independent Trustees, cast in person at a meeting called for the purpose
of voting on that Plan, and (ii) the holders of a "majority" (as defined
in the Investment Company Act) of the shares of each class. For the
Distribution and Service Plan for Class C shares, that vote was cast by
the Manager as the sole initial holder of Class C shares.
In addition, under the Plans the Manager and the Distributor, in
their sole discretion from time to time may use their own resources
(which, in the case of the Manager, may include profits from the advisory
fee it receives from the Fund) to make payments to brokers, dealers or
other financial institutions (each is referred to as a "Recipient" under
the Plans) for distribution and administrative services they perform at
no cost to the Fund. The Distributor and the Manager may, in their sole
discretion, increase or decrease the amount of payments they make from
their own resources to Recipients.
Unless terminated as described below, each Plan continues in effect
from year to year but only as long as its continuance is specifically
approved at least annually by the Fund's Board of Trustees and its
Independent Trustees by a vote cast in person at a meeting called for the
purpose of voting on such continuance. Any Plan may be terminated at any
time by the vote of a majority of the Independent Trustees or by the vote
of the holders of a "majority" (as defined in the Investment Company Act)
of the outstanding shares of that class. No Plan may be amended to
increase materially the amount of payments to be made unless such
amendment is approved by shareholders of the class affected by the
amendment. In addition, because Class B shares of the Fund automatically
convert into Class A shares after six years, the Fund is required to
obtain the approval of Class B as well as Class A shareholders for a
proposed amendment to the Class A Plan that would materially increase the
amount to be paid by Class A shareholders under the Class A Plan. Such
approval must be by a "majority" of the Class A and Class B shares (as
defined in the Investment Company Act), voting separately by class. All
material amendments must be approved by the Independent Trustees.
While the Plans are in effect, the Treasurer of the Fund shall
provide separate written reports to the Fund's Board of Trustees at least
quarterly on the amount of all payments made pursuant to each Plan, the
purpose for which the payment was made and the identity of each Recipient
that received any such payment. The report for the Class B Plan shall
also include the Distributor's distribution costs for that quarter, and
such costs for previous fiscal periods that have been carried forward, as
explained in the Prospectus and below. Those reports, including the
allocations on which they are based, will be subject to the review and
approval of the Independent Trustees in the exercise of their fiduciary
duty. Each Plan further provides that while it is in effect, the
selection and nomination of those Trustees of the Fund who are not
"interested persons" of the Fund is committed to the discretion of the
Independent Trustees. This does not prevent the involvement of others in
such selection and nomination if the final decision on selection or
nomination is approved by a majority of the Independent Trustees.
Under the Plans, no payment will be made to any Recipient in any
quarter if the aggregate net asset value of all Fund shares held by the
Recipient for itself and its customers did not exceed a minimum amount,
if any, that may be determined from time to time by a majority of the
Fund's Independent Trustees. Initially, the Board of Trustees has set the
fees at the maximum rate allowed under the Plans and set no minimum
amount.
For the fiscal year ended December 31, 1994, payments under the Plan
for Class A shares totaled $611,139, all of which was paid by the
Distributor to Recipients, including $19,407 paid to an affiliate of the
Distributor. Any unreimbursed expenses by the Distributor incurred with
respect to Class A shares for any fiscal year by the Distributor may not
be recovered in subsequent fiscal years. Payments received by the
Distributor under the Plan for Class A shares will not be used to pay any
interest expense, carrying charges, or other financial costs, or
allocation of overhead by the Distributor.
The Class B and Class C Plans allow the service fee payment to be
paid by the Distributor to Recipients in advance for the first year such
shares are outstanding, and thereafter on a quarterly basis, as described
in the Prospectus. The advance payment is based on the net assets of
shares sold. An exchange of shares does not entitle the Recipient to an
advance service fee payment. In the event shares are redeemed during the
first year such shares are outstanding, the Recipient will be obligated
to repay a pro rata portion of such advance payment to the Distributor.
Payments made under the Class B Plan for the fiscal year ended December
31, 1994, totalled $165,277, of which $157,962 was retained by the
Distributor. Since no Class C shares were outstanding during the Fund's
fiscal year ended December 31, 1994, no payments were made under the Class
C Plan.
Although the Class B and Class C Plans permit the Distributor to
retain both the asset-based sales charges and the service fee on such
shares, or to pay Recipients the service fee on a quarterly basis, without
payment in advance, the Distributor presently intends to pay the service
fee to Recipients in the manner described above. A minimum holding period
may be established from time to time under the Class B and the Class C
Plans by the Board. Initially, the Board has set no minimum holding
period. All payments under the Class B plan are subject to the
limitations imposed by the Rules of Fair Practice of the National
Association of Securities Dealers, Inc. on payments of asset-based sales
charges and service fees.
The Class B and Class C Plans provide for the Distributor to be
compensated at a flat rate, whether the Distributor's distribution
expenses are more or less than the amounts paid by the Fund during that
period. Such payments are made in recognition that the Distributor (i)
pays sales commissions to authorized brokers and dealers at the time of
sale and pays service fees as described in the Prospectus, (ii) may
finance such commissions and/or the advance of the service fee payment to
Recipients under those Plans, or may provide such financing from its own
resources or from an affiliate, (iii) employs personnel to support
distribution of shares, and (iv) may bear the costs of sales literature,
advertising and prospectuses (other than those furnished to current
shareholders) and state "blue sky" registration fees and certain other
distribution expenses.
ABOUT YOUR ACCOUNT
How To Buy Shares
Alternative Sales Arrangements - Class A, Class B and Class C Shares. The
availability of three classes of shares permits an investor to choose the
method of purchasing shares that is more beneficial to the investor
depending on the amount of the purchase, the length of time the investor
expects to hold shares and other relevant circumstances. Investors should
understand that the purpose and function of the deferred sales charge and
asset-based sales charge with respect to Class B and Class C shares are
the same as those of the initial sales charge with respect to Class A
shares. Any salesperson or other person entitled to receive compensation
for selling Fund shares may receive different compensation with respect
to one class of shares than the other. The Distributor will not accept
any order for $500,000 or more of Class B shares or $1 million or more of
Class C shares on behalf of a single investor (not including dealer
"street name" or omnibus accounts) because generally it will be more
advantageous for that investor to purchase Class A shares of the Fund
instead.
The three classes of shares each represent an interest in the same
portfolio investments of the Fund. However, each class has different
shareholder privileges and features. The net income attributable to Class
B and Class C shares and the dividends payable on Class B and Class C
shares will be reduced by incremental expenses borne solely by that class,
including the asset-based sales charge to which Class B and Class C shares
are subject.
The conversion of Class B shares to Class A shares after six years
is subject to the continuing availability of a private letter ruling from
the Internal Revenue Service, or an opinion of counsel or tax adviser, to
the effect that the conversion of Class B shares does not constitute a
taxable event for the holder under Federal income tax law. If such a
revenue ruling or opinion is no longer available, the automatic conversion
feature may be suspended, in which event no further conversions of Class
B shares would occur while such suspension remained in effect. Although
Class B shares could then be exchanged for Class A shares on the basis of
relative net asset value of the two classes, without the imposition of a
sales charge or fee, such exchange could constitute a taxable event for
the holder, and absent such exchange, Class B shares might continue to be
subject to the asset-based sales charge for longer than six years.
The methodology for calculating the net asset value, dividends and
distributions of the Fund's Class A, Class B and Class C shares recognizes
two types of expenses. General expenses that do not pertain specifically
to any class are allocated pro rata to the shares of each class, based on
the percentage of the net assets of such class to the Fund's total net
assets, and then equally to each outstanding share within a given class.
Such general expenses include (i) management fees, (ii) legal, bookkeeping
and audit fees, (iii) printing and mailing costs of shareholder reports,
Prospectuses, Statements of Additional Information and other materials for
current shareholders, (iv) fees to Independent Trustees, (v) custodian
expenses, (vi) share issuance costs, (vii) organization and start-up
costs, (viii) interest, taxes and brokerage commissions, and (ix) non-
recurring expenses, such as litigation costs. Other expenses that are
directly attributable to a class are allocated equally to each outstanding
share within that class. Such expenses include (i) Distribution Plan
fees, (ii) incremental transfer and shareholder servicing agent fees and
expenses, (iii) registration fees and (iv) shareholder meeting expenses,
to the extent that such expenses pertain to a specific class rather than
to the Fund as a whole.
Determination of Net Asset Value Per Share. The net asset values per
share of Class A, Class B and Class C shares of the Fund are determined
as of the close of business of The New York Stock Exchange (the
"Exchange") on each day that the Exchange is open, by dividing the value
of the Fund's net assets attributable to 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 days (for example, in
case of weather emergencies or on days falling before a holiday). The
Exchange's most recent annual holiday schedule (which is subject to
change) states that it will close on New Year's Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day. It may also close on other days. Dealers other than
Exchange members may conduct trading in Municipal Securities on certain
days on which the Exchange is closed (including weekends and holidays) or
after 4:00 P.M. on a regular business day. Because the Fund's net asset
value will not be calculated on those days, the Fund's net asset value per
share of each class may be significantly affected at times when
shareholders may not purchase or redeem shares.
The Fund's Board of Trustees has established procedures for the
valuation of the Fund's securities, generally as follows: (i) long-term
debt securities, and short-term debt securities having a remaining
maturity in excess of 60 days, are valued at the mean between the bid and
asked prices determined by a portfolio pricing service approved by the
Fund's Board or obtained from active market makers in the security on the
basis of reasonable inquiry; (ii) long-term debt securities having a
remaining maturity in excess of 60 days are valued at the mean between the
"bid" and "asked" prices determined by a portfolio pricing service
approved by the Fund's Board of Trustees or obtained from active market
makers in the security on the basis of reasonable inquiry; (iii) debt
instruments having a maturity of more than one year when issued, and non-
money market type instruments having a maturity of one year or less when
issued, which have a remaining maturity of 60 days or less are valued at
the mean between the "bid" and "asked" prices determined by a pricing
service approved by the Fund's Board of Trustees or obtained from active
market makers in the security on the basis of reasonable inquiry; (iv)
money market-type debt securities having a maturity of less than one year
when issued that having a remaining maturity of 60 days or less are valued
at cost, adjusted for amortization of premiums and accretion of discounts;
and (v) securities (including restricted securities) not having readily-
available market quotations are valued at fair value under the Board's
procedures.
In the case of Municipal Securities, when last sale information is
not generally available, such pricing procedures may include "matrix"
comparisons to the prices for comparable instruments on the basis of
quality, yield, maturity, and other special factors involved (such as the
tax-exempt status of the interest paid by Municipal Securities). The
Fund's Board of Trustees has authorized the Manager to employ a pricing
service, bank or broker-dealer experienced in such matters to price any
of the types of securities described above. The Trustees will monitor the
accuracy of such pricing services by comparing prices used for portfolio
evaluation to actual sales prices of selected securities.
Puts, calls, Interest Rate Futures and Municipal Bond Index Futures
are valued at the last sales price on the principal exchange or on the
NASDAQ on which they are traded. If there were no sales on the principal
exchange, the last sale on any exchange is used. In the absence of any
sales that day, value shall be the last reported sales price on the prior
trading day or closing bid or asked prices on the principal exchange
closest to the last reported sales price. When the Fund writes an option,
an amount equal to the premium received is included in the Fund's
Statement of Assets and Liabilities as an asset, and an equivalent
deferred credit is included in the liability section. The deferred credit
is adjusted ("marked-to-market") to reflect the current market value of
the call.
AccountLink. When shares are purchased through AccountLink, each purchase
must be at least $25.00. Shares will be purchased on the regular business
day the Distributor is instructed to initiate the Automated Clearing House
transfer to buy the shares. Dividends will begin to accrue on shares
purchased by the proceeds of ACH transfers on the business day the Fund
receives Federal Funds for the purchase through the ACH system before the
close of the New York Stock Exchange. The Exchange normally closes at
4:00 P.M., but may close earlier on certain days. If Federal Funds are
received after the close of the Exchange, the shares will begin to accrue
dividends 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 from delays in ACH transmissions.
Reduced Sales Charges. As discussed in the Prospectus, a reduced sales
charge rate may be obtained for Class A shares under Right of Accumulation
and Letters of Intent because of the economies of sales efforts and
reduction in expenses realized by the Distributor, dealers and brokers
making such sales. No sales charge is imposed in certain other
circumstances described in the Prospectus because the Distributor incurs
little or no selling expenses. The term "immediate family" refers to
one's spouse, children, grandchildren, grandparents, parents, parents-in-
law, sons-and daughters-in-law, siblings, a spouse's siblings and a
sibling's spouse.
-- The Oppenheimer Funds. The OppenheimerFunds are those mutual
funds for which the Distributor acts as the distributor or the sub-
distributor and include the following:
Oppenheimer Tax-Free Bond Fund
Oppenheimer New York Tax-Exempt Fund
Oppenheimer California Tax-Exempt Fund
Oppenheimer Intermediate Tax-Exempt Fund
Oppenheimer Insured Tax-Exempt Fund
Oppenheimer Main Street California Tax-Exempt Fund
Oppenheimer Florida Tax-Exempt Fund
Oppenheimer Pennsylvania Tax-Exempt Fund
Oppenheimer Fund
Oppenheimer Discovery Fund
Oppenheimer Target Fund
Oppenheimer Growth Fund
Oppenheimer Equity Income Fund
Oppenheimer Value Stock Fund
Oppenheimer Asset Allocation Fund
Oppenheimer Total Return Fund, Inc.
Oppenheimer Main Street Income & Growth Fund
Oppenheimer New Jersey Tax-Exempt Fund
Oppenheimer High Yield Fund
Oppenheimer Champion Income Fund
Oppenheimer Bond Fund
Oppenheimer U.S. Government Trust
Oppenheimer Limited-Term Government Fund
Oppenheimer Global Fund
Oppenheimer Global Emerging Growth Fund
Oppenheimer Global Growth & Income Fund
Oppenheimer Gold & Special Minerals Fund
Oppenheimer Strategic Income Fund
Oppenheimer Strategic Income & Growth Fund
Oppenheimer International Bond Fund
and the following "Money Market Funds":
Oppenheimer Money Market Fund, Inc.
Oppenheimer Cash Reserves
Centennial Money Market Trust
Centennial Tax Exempt Trust
Centennial Government Trust
Centennial New York Tax Exempt Trust
Centennial California Tax Exempt Trust
Centennial America Fund, L.P.
Daily Cash Accumulation Fund, Inc.
There is an initial sales charge on the purchase of Class A shares
of each of the OppenheimerFunds except Money Market Funds (under certain
circumstances described herein, redemption proceeds of Money Market Fund
shares may be subject to a contingent deferred sales charge).
-- Letters of Intent. A Letter of Intent (referred to as a "Letter")
is an investor's statement in writing to the Distributor of the intention
to purchase Class A shares or Class A and Class B shares of the Fund (and
other Oppenheimer funds) during a 13-month period (the "Letter of Intent
period"), which may, at the investor's request, include purchases made up
to 90 days prior to the date of the Letter. The Letter states the
investor's intention to make the aggregate amount of purchases of shares
which, when added to the investor's holdings of shares of those funds,
will equal or exceed the amount specified in the Letter. Purchases made
by reinvestment of dividends or distributions of capital gains and
purchases made at net asset value without sales charge do not count toward
satisfying the amount of the Letter. A Letter enables an investor to
count the Class A and Class B shares purchased under the Letter to obtain
the reduced sales charge rate on purchases of Class A shares of the Fund
(and other Oppenheimer funds) that applies under the Right of Accumulation
to current purchases of Class A shares. This enables the investor to
obtain the reduced sales charge rate (as set forth in the Prospectus)
applicable to purchases of shares in that amount (the "intended purchase
amount"). Each purchase under the Letter will be made at the public
offering price applicable to a single lump-sum purchase of shares in the
intended purchase amount, as described in the Prospectus.
In submitting a Letter, the investor makes no commitment to purchase
shares, but if the investor's purchases of shares within the Letter of
Intent period, when added to the value (at offering price) of the
investor's holdings of shares on the last day of that period, do not equal
or exceed the intended purchase amount, the investor agrees to pay the
additional amount of sales charge applicable to such purchases, as set
forth in "Terms of Escrow," below (as those terms may be amended from time
to time). The investor agrees that shares equal in value to 5% of the
intended purchase amount will be held in escrow by the Transfer Agent
subject to the Terms of Escrow. Also, the investor agrees to be bound by
the terms of the Prospectus, this Statement of Additional Information and
the Application used for such Letter of Intent, and if such terms are
amended, as they may be from time to time by the Fund, that those
amendments will apply automatically to existing Letters of Intent.
If the total eligible purchases made during the Letter of Intent
period do not equal or exceed the intended purchase amount, the
commissions previously paid to the dealer of record for the account and
the amount of sales charge retained by the Distributor will be adjusted
to the rates applicable to actual purchases. If total eligible purchases
during the Letter of Intent period exceed the intended purchase amount and
exceed the amount needed to qualify for the next sales charge rate
reduction set forth in the applicable prospectus, the sales charges paid
will be adjusted to the lower rate, but only if and when the dealer
returns to the Distributor the excess of the amount of commissions allowed
or paid to the dealer over the amount of commissions that apply to the
actual amount of purchases. The excess commissions returned to the
Distributor will be used to purchase additional shares for the investor's
account at the net asset value per share in effect on the date of such
purchase, promptly after the Distributor's receipt thereof.
In determining the total amount of purchases made under a Letter,
shares redeemed by the investor prior to the termination of the Letter of
Intent period will be deducted. It is the responsibility of the dealer
of record and/or the investor to advise the Distributor about the Letter
in placing any purchase orders for the investor during the Letter of
Intent period. All of such purchases must be made through the
Distributor.
-- Terms of Escrow That Apply to Letters of Intent.
1. Out of the initial purchase (or subsequent purchases if necessary)
made pursuant to a Letter, shares of the Fund equal in value to 5% of the
intended purchase amount specified in the Letter shall be held in escrow
by the Transfer Agent. For example, if the intended purchase amount is
$50,000, the escrow shall be shares valued in the amount of $2,500
(computed at the public offering price adjusted for a $50,000 purchase).
Any dividends and capital gains distributions on the escrowed shares will
be credited to the investor's account.
2. If the intended purchase amount specified under the Letter is
completed within the thirteen-month Letter of Intent period, the escrowed
shares will be promptly released to the investor.
3. If, at the end of the thirteen-month Letter of Intent period the
total purchases pursuant to the Letter are less than the intended purchase
amount specified in the Letter, the investor must remit to the Distributor
an amount equal to the difference between the dollar amount of sales
charges actually paid and the amount of sales charges which would have
been paid if the total amount purchased had been made at a single time.
Such sales charge adjustment will apply to any shares redeemed prior to
the completion of the Letter. If such difference in sales charges is not
paid within twenty days after a request from the Distributor or the
dealer, the Distributor will, within sixty days of the expiration of the
Letter, redeem the number of escrowed shares necessary to realize such
difference in sales charges. Full and fractional shares remaining after
such redemption will be released from escrow. If a request is received
to redeem escrowed shares prior to the payment of such additional sales
charge, the sales charge will be withheld from the redemption proceeds.
4. By signing the Letter, the investor irrevocably constitutes and
appoints the Transfer Agent as attorney-in-fact to surrender for
redemption any or all escrowed shares.
5. The shares eligible for purchase under the Letter (or the holding
of which may be counted toward completion of a Letter) include (a) Class
A shares sold with a front-end sales charge or subject to a Class A
contingent deferred sales charge, (b) Class B shares acquired subject to
a contingent deferred sales charge, and (c) Class A or B shares acquired
in exchange for either (i) Class A shares of one of the other Oppenheimer
funds that were acquired subject to a Class A initial or contingent
deferred sales charge or (ii) Class B shares of one of the other
Oppenheimer funds that were acquired subject to a contingent deferred
sales charge.
6. Shares held in escrow hereunder will automatically be exchanged
for shares of another fund to which an exchange is requested, as described
in the section of the Prospectus entitled "Exchange Privilege," and the
escrow will be transferred to that other fund.
Asset Builder Plans. To establish an Asset Builder Plan from a bank
account, a check (minimum $25) for the initial purchase must accompany the
application. Shares purchased by Asset Builder Plan payments from bank
accounts are subject to the redemption restrictions for recent purchases
described in "How To Sell Shares," in the Prospectus. Asset Builder Plans
also enable shareholders of Oppenheimer Cash Reserves to use those
accounts for monthly automatic purchases of shares of up to four other
Eligible Funds.
There is a front-end sales charge on the purchase of certain
Oppenheimer funds, or a contingent deferred sales charge may apply to
shares purchased by Asset Builder payments. An application should be
obtained from the Distributor, completed and returned, and a prospectus
of the selected fund(s) (available from the Distributor) or your financial
adviser before initiating Asset Builder payments. The amount of the Asset
Builder investment may be changed or the automatic investments may be
terminated at any time by writing to the Transfer Agent. A reasonable
period (approximately 15 days) is required after the Transfer Agent's
receipt of such instructions to implement them. The Fund reserves the
right to amend, suspend, or discontinue offering such plans at any time
without prior notice.
Cancellation of Purchase Orders. Cancellation of purchase orders for the
Fund's shares (for example, when a purchase check is returned to the Fund
unpaid) causes a loss to be incurred when the net asset value of the
Fund's shares on the cancellation date is less than on the purchase date.
That loss is equal to the amount of the decline in the net asset value per
share multiplied by the number of shares in the purchase order. The
investor is responsible for that loss. If the investor fails to
compensate the Fund for the loss, the Distributor will do so. The Fund
may reimburse the Distributor for that amount by redeeming shares from any
account registered in that investor's name, or the Fund or the Distributor
may seek other redress.
Checkwriting. When a check is presented to the Bank for clearance, the
Bank will ask the Fund to redeem a sufficient number of full and
fractional shares in the shareholder's account to cover the amount of the
check. This enables the shareholder to continue receiving dividends on
those shares until the check is presented to the Fund. Checks may not be
presented for payment at the offices of the Bank or the Fund's Custodian.
This limitation does not affect the use of checks for the payment of bills
or to obtain cash at other banks. The Fund reserves the right to amend,
suspend or discontinue offering checkwriting privileges at any time
without prior notice.
How To Sell Shares
Information on how to sell shares of the Fund is stated in the
Prospectus. The information below supplements the terms and conditions for
redemptions set forth in the Prospectus.
-- Payments "In Kind". The Prospectus states that payment for shares
tendered for redemption is ordinarily made in cash. However, if the Board
of Trustees of the Fund may determine that it would be detrimental to the
best interests of the remaining shareholders of the Fund to make payment
of a redemption order wholly or partly in cash. In that case, the Fund
may pay the redemption proceeds in whole or in part by a distribution "in
kind" of securities from the portfolio of the Fund, in lieu of cash, in
conformity with applicable rules of the Securities and Exchange
Commission. The Fund has elected to be governed by Rule 18f-1 under the
Investment Company Act, pursuant to which the Fund is obligated to redeem
shares solely in cash up to the lesser of $250,000 or 1% of the net assets
of the Fund during any 90-day period for any one shareholder. If shares
are redeemed in kind, the redeeming shareholder might incur brokerage or
other costs in selling the securities for cash. The method of valuing
securities used to make redemptions in kind will be the same as the method
the Fund uses to value its portfolio securities described above under
"Determination of Net Asset Value Per Share" and that valuation will be
made as of the time the redemption price is determined.
-- Involuntary Redemptions. The Fund's Board of Trustees has the
right to cause the involuntary redemption of the shares held in any
account if the aggregate net asset value of these shares is less than $200
or such lesser amount as the Board may fix. The Board of Trustees will
not cause the involuntary redemption of shares in an account if the
aggregate net asset value of the shares has fallen below the stated
minimum solely as a result of market fluctuations. Should the Board elect
to exercise this right, it may also fix, in accordance with the Investment
Company Act, the requirements for any notice to be given to the
shareholders in question (not less than 30 days), or the Board may set
requirements for granting permission to the shareholder to increase the
investment, and set other terms and conditions so that the shares would
not be involuntarily redeemed.
Reinvestment Privilege. Within six months of a redemption, a shareholder
may reinvest all or part of the redemption proceeds of (i) Class A shares,
or (ii) Class B shares that were subject to the Class B 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
OppenheimerFunds into which shares of the Fund are exchangeable as
described below, at the net asset value next computed after the Transfer
Agent receives the reinvestment order. The shareholder must ask the
Distributor for that privilege at the time of reinvestment. Any capital
gain that was realized when the shares were redeemed is taxable, and
reinvestment will not alter any capital gains tax payable on that gain.
If there has been a capital loss on the redemption, some or all of the
loss may not be tax deductible, depending on the timing and amount of the
reinvestment. Under the Internal Revenue Code, if the redemption proceeds
of Fund shares on which a sales charge was paid are reinvested in shares
of the Fund or another of the OppenheimerFunds within 90 days of payment
of the sales charge, the shareholder's basis in the shares of the Fund
that were redeemed may not include the amount of the sales charge paid.
That would reduce the loss or increase the gain recognized from the
redemption. However, in that case the sales charge would be added to the
basis of the shares acquired by the reinvestment of the redemption
proceeds. The Fund may amend, suspend or cease offering this reinvestment
privilege at any time as to shares redeemed after the date of such
amendment, suspension or cessation.
Transfers of Shares. Shares are not subject to the payment of a
contingent deferred sales charge of either class at the time of transfer
to the name of another person or entity (whether the transfer occurs by
absolute assignment, gift or bequest, not involving, directly or
indirectly, a public sale). The transferred shares will remain subject
to the contingent deferred sales charge, calculated as if the transferee
shareholder had acquired the transferred shares in the same manner and at
the same time as the transferring shareholder. If less than all shares
held in an account are transferred, and some but not all shares in the
account would be subject to a contingent deferred sales charge if redeemed
at the time of transfer, the priorities described in the Prospectus under
"How to Buy Shares" for the imposition of the Class B contingent deferred
sales charge will be followed in determining the order in which shares are
transferred.
Special Arrangements for Repurchase of Shares from Dealers and Brokers.
The Distributor is the Fund's agent to repurchase its shares from
authorized dealers or brokers. The repurchase price per share will be the
net asset value next computed after the Distributor receives an order
placed by the dealer or broker, except that if the Distributor receives
a repurchase order from a dealer or broker after the close of The New York
Stock Exchange on a regular business day, it will be processed at that
day's net asset value if the order was received by the dealer or broker
from its customers prior to the time the Exchange closes (normally, that
is 4:00 P.M., but may be earlier on some days) and the order was
transmitted to and received by the Distributor prior to its close of
business that day (normally 5:00 P.M.). Ordinarily, for accounts redeemed
by a broker-dealer under this procedure, payment will be made within three
business days after the shares have been redeemed upon the Distributor's
receipt of the required redemption documents in proper form, with the
signature(s) of the registered owners guaranteed on the redemption
document as described in the Prospectus.
Automatic Withdrawal and Exchange Plans. Investors owning shares of the
Fund valued at $5,000 or more can authorize the Transfer Agent to redeem
shares (minimum $50) automatically on a monthly, quarterly, semi-annual
or annual basis under an Automatic Withdrawal Plan. Shares will be
redeemed three business days prior to the date requested by the
shareholder for receipt of the payment. Automatic withdrawals of up to
$1,500 per month may be requested by telephone if payments are to be made
by check payable to all shareholders of record and sent to the address of
record for the account (and if the address has not been changed within the
prior 30 days). Required minimum distributions from OppenheimerFunds-
sponsored retirement plans may not be arranged on this basis. Payments
are normally made by check, but shareholders having AccountLink privileges
(see "How To Buy Shares") may arrange to have Automatic Withdrawal Plan
payments transferred to the bank account designated on the
OppenheimerFunds New Account Application or signature-guaranteed
instructions. The Fund cannot guarantee receipt of a payment on the date
requested and reserves the right to amend, suspend or discontinue offering
such plans at any time without prior notice. Because of the sales charge
assessed on Class A share purchases, shareholders should not make regular
additional Class A share purchases while participating in an Automatic
Withdrawal Plan. Class B and Class C shareholders should not establish
withdrawal plans because of the imposition of the contingent deferred
sales charge on such withdrawals (except where the Class B and Class C
contingent deferred sales charge is waived as described in the Prospectus
under "Class B Contingent Deferred Sales Charge" and "Class C Contingent
Deferred Sales Charge").
By requesting an Automatic Withdrawal or Exchange Plan, the
shareholder agrees to the terms and conditions applicable to such plans,
as stated below and in the provisions of the OppenheimerFunds Application
relating to such Plans, as well as the Prospectus. These provisions may
be amended from time to time by the Fund and/or the Distributor. When
adopted, such amendments will automatically apply to existing Plans.
-- Automatic Exchange Plans. Shareholders can authorize the Transfer
Agent (on the OppenheimerFunds Application or signature-guaranteed
instructions) to exchange a pre-determined amount of shares of the Fund
for shares (of the same class) of other OppenheimerFunds automatically on
a monthly, quarterly, semi-annual or annual basis under an Automatic
Exchange Plan. The minimum amount that may be exchanged to each other
fund account is $25. Exchanges made under these plans are subject to the
restrictions that apply to exchanges as set forth in "How to Exchange
Shares" in the Prospectus and below in this Statement of Additional
Information.
-- Automatic Withdrawal Plans. Fund shares will be redeemed as
necessary to meet withdrawal payments. Shares acquired without a sales
charge will be redeemed first and 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 withdrawal plans should
not be considered as a yield or income on your investment.
The Transfer Agent will administer the investor's Automatic
Withdrawal Plan (the "Plan") as agent for the investor (the "Planholder")
who executed the Plan authorization and application submitted to the
Transfer Agent. The Transfer Agent shall incur no liability to the
Planholder for any action taken or omitted by the Transfer Agent in good
faith to administer the Plan. Certificates will not be issued for shares
of the Fund purchased for and held under the Plan, but the Transfer Agent
will credit all such shares to the account of the Planholder on the
records of the Fund. Any share certificates held by a Planholder may be
surrendered unendorsed to the Transfer Agent with the Plan application so
that the shares represented by the certificate may be held under the Plan.
For accounts subject to Automatic Withdrawal Plans, distributions of
capital gains must be reinvested in shares of the Fund, which will be done
at net asset value without a sales charge. Dividends on shares held in
the account may be paid in cash or reinvested.
Redemptions of shares needed to make withdrawal payments will be made
at the net asset value per share determined on the redemption date.
Checks or AccountLink payments of the proceeds of Plan withdrawals will
normally be transmitted three business days prior to the date selected for
receipt of the payment (receipt of payment on the date selected cannot be
guaranteed), according to the choice specified in writing by the
Planholder.
The amount and the interval of disbursement payments and the address
to which checks are to be mailed or AccountLink payments are to be sent
may be changed at any time by the Planholder by writing to the Transfer
Agent. The Planholder should allow at least two weeks' time in mailing
such notification for the requested change to be put in effect. The
Planholder may, at any time, instruct the Transfer Agent by written notice
(in proper form in accordance with the requirements of the then-current
Prospectus of the Fund) to redeem all, or any part of, the shares held
under the Plan. In that case, the Transfer Agent will redeem the number
of shares requested at the net asset value per share in effect in
accordance with the Fund's usual redemption procedures and will mail a
check for the proceeds to the Planholder.
The Plan may be terminated at any time by the Planholder by writing
to the Transfer Agent. A Plan may also be terminated at any time by the
Transfer Agent upon receiving directions to that effect from the Fund.
The Transfer Agent will also terminate a Plan upon receipt of evidence
satisfactory to it of the death or legal incapacity of the Planholder.
Upon termination of a Plan by the Transfer Agent or the Fund, shares that
have not been redeemed from the account will be held in uncertificated
form in the name of the Planholder, and the account will continue as a
dividend-reinvestment, uncertificated account unless and until proper
instructions are received from the Planholder or his or her executor or
guardian, or other authorized person.
To use shares held under the Plan as collateral for a debt, the
Planholder may request issuance of a portion of the shares in certificated
form. Upon written request from the Planholder, the Transfer Agent will
determine the number of shares for which a certificate may be issued
without causing the withdrawal checks to stop because of exhaustion of
uncertificated shares needed to continue payments. However, should such
uncertificated shares become exhausted, Plan withdrawals will terminate.
If the Transfer Agent ceases to act as transfer agent for the Fund,
the Planholder will be deemed to have appointed any successor transfer
agent to act as agent in administering the Plan.
How To Exchange Shares
As stated in the Prospectus, shares of a particular class of
OppenheimerFunds having more than one class of shares may be exchanged
only for shares of the same class of other OppenheimerFunds. Shares of
the OppenheimerFunds that have a single class of shares without a class
designation are deemed "Class A" shares for this purpose. Shares of
Oppenheimer funds that have a single class without a class designated are
deemed "Class A" shares for this purpose. All of the Oppenheimer funds
offer Class A, B and C shares except Oppenheimer Money Market Fund, Inc.,
Centennial Money Market Trust, Centennial Tax Exempt Trust, Centennial
Government Trust, Centennial New York Tax Exempt Trust, Centennial
California Tax Exempt Trust, Centennial America Fund, L.P., and Daily Cash
Accumulation Fund, Inc., which only offer Class A shares and Oppenheimer
Main Street California Tax-Exempt Fund which only offers Class A and Class
B shares, (Class B and Class C shares of Oppenheimer Cash Reserves are
generally available only by exchange from the same class of shares of
other Oppenheimer funds or through OppenheimerFunds sponsored 401(k)
plans). A list showing which funds offer which class can be obtained by
calling the Distributor at 1-800-525-7048.
Class A shares of OppenheimerFunds may be exchanged at net asset
value for shares of any Money Market Fund. Shares of any Money Market
Fund purchased without a sales charge may be exchanged for shares of
Oppenheimer funds offered with a sales charge upon payment of the sales
charge (or, if applicable, may be used to purchase shares of Oppenheimer
funds subject to a contingent deferred sales charge). However, shares of
Oppenheimer Money Market Fund, Inc. purchased with the redemption proceeds
of shares of other mutual funds (other than funds managed by the Manager
or its subsidiaries) redeemed within the 12 months prior to that purchase
may subsequently be exchanged for shares of other Oppenheimer funds
without being subject to an initial or contingent deferred sales charge,
whichever is applicable. To qualify for that privilege, the investor or
the investor's dealer must notify the Distributor of eligibility for this
privilege at the time the shares of Oppenheimer Money Market Fund, Inc.
are purchased, and, if requested, must supply proof of entitlement to this
privilege. Shares of this Fund acquired by reinvestment of dividends or
distributions from any other of the Oppenheimer funds or from any unit
investment trust for which reinvestment arrangements have been made with
the Distributor may be exchanged at net asset value for shares of any of
the Oppenheimer funds. No contingent deferred sales charge is imposed on
exchanges of shares of either class purchased subject to a contingent
deferred sales charge. However, when Class A shares acquired by exchange
of Class A shares of other OppenheimerFunds purchased subject to a Class
A contingent deferred sales charge are redeemed within 18 months of the
end of the calendar month of the initial purchase of the exchanged Class
A shares, the Class A contingent deferred sales charge is imposed on the
redeemed shares (see "Class A Contingent Deferred Sales Charge" in the
Prospectus). The Class B contingent deferred sales charge is imposed on
Class B shares acquired by exchange if they are redeemed within six years
of the initial purchase of the exchanged Class B shares. The Class C
contingent deferred sales charge is imposed on Class C shares acquired by
exchange if they are redeemed within 12 months of the initial purchase of
the exchanged Class C shares.
The Fund reserves the right to reject telephone or written exchange
requests submitted in bulk by anyone on behalf of 10 or more accounts. The
Fund may accept requests for exchanges of up to 50 accounts per day from
representatives of authorized dealers that qualify for this privilege. In
connection with any exchange request, the number of shares exchanged may
be less than the number requested if the exchange or the number requested
would include shares subject to a restriction cited in the Prospectus or
this Statement of Additional Information or would include shares covered
by a share certificate that is not tendered with the request. In those
cases, only the shares available for exchange without restriction will be
exchanged.
When Class B or Class C shares are redeemed to effect an exchange,
the priorities described in "How To Buy Shares" in the Prospectus for the
imposition of the Class B or Class C contingent deferred sales charge will
be followed in determining the order in which the shares are exchanged.
Shareholders should take into account the effect of any exchange on the
applicability and rate of any contingent deferred sales charge that might
be imposed in the subsequent redemption of remaining shares. Shareholders
owning shares of more than one Class must specify whether they intend to
exchange Class A, Class B or Class C shares.
When exchanging shares by telephone, a shareholder must either have
an existing account in, or obtain and acknowledge receipt of a prospectus
of, the fund to which the exchange is to be made. For full or partial
exchanges of an account made by telephone, any special account features
such as Asset Builder Plans, Automatic Withdrawal Plans and retirement
plan contributions will be switched to the new account unless the Transfer
Agent is instructed otherwise. If all telephone lines are busy (which
might occur, for example, during periods of substantial market
fluctuations), shareholders might not be able to request exchanges by
telephone and would have to submit written exchange requests.
Shares to be exchanged are redeemed on the regular business day the
Transfer Agent receives an exchange request in proper form (the
"Redemption Date"). Normally, shares of the fund to be acquired are
purchased on the Redemption Date, but such purchases may be delayed by
either fund up to five business days if it determines that it would be
disadvantaged by an immediate transfer of the redemption proceeds. The
Fund reserves the right, in its discretion, to refuse any exchange request
that may disadvantage it (for example, if the receipt of multiple exchange
requests from a dealer might require the disposition of portfolio
securities at a time or at a price that might be disadvantageous to the
Fund).
The different OppenheimerFunds available for exchange have different
investment objectives, policies and risks, and a shareholder should assure
that the Fund selected is appropriate for his or her investment and should
be aware of the tax consequences of an exchange. For federal income tax
purposes, an exchange transaction is treated as a redemption of shares of
one fund and a purchase of shares of another. "Reinvestment Privilege,"
above, discusses some of the tax consequences of reinvestment of
redemption proceeds in such cases. The Fund, the Distributor, and the
Transfer Agent are unable to provide investment, tax or legal advice to
a shareholder in connection with an exchange request or any other
investment transaction.
Dividends, Capital Gains and Taxes
Dividends and Distributions. Dividends will be payable on shares held of
record at the time of the previous determination of net asset value, or
as otherwise described in "How to Buy Shares." Daily dividends on newly
purchased shares will not be declared or paid 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 (i.e., 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.
Dividends, distributions and the proceeds of the redemption of Fund
shares represented by checks returned to the Transfer Agent by the Postal
Service as undeliverable will be invested in shares of Oppenheimer Money
Market Fund, Inc., as promptly as possible after the return of such checks
to the Transfer Agent in order to enable the investor to earn a return on
otherwise idle funds.
The amount of a class's distributions may vary from time to time
depending on market conditions, the composition of the Fund's portfolio,
and expenses borne by the Fund or borne separately by a class, as
described in "Alternative Sales Arrangements -- Class A, Class B and Class
C Shares," above. Dividends are calculated in the same manner, at the same
time and on the same day for shares of each class. However, dividends on
Class B and Class C shares are expected to be lower as a result of the
asset-based sales charge on Class B and Class C shares, and Class B and
Class C dividends will also differ in amount as a consequence of any
difference in net asset value between Class A, Class B and Class C 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 which are derived from net investment income earned by the Fund
on Municipal Securities will be excludable from gross income of
shareholders for Federal income tax purposes. Net investment income
includes the allocation of amounts of income from the Municipal Securities
in the Fund's portfolio which are free from Federal income taxes. This
allocation will be made by the use of one designated percentage applied
uniformly to all income dividends made during the Fund's tax year. Such
designation will normally be made following the end of each fiscal year
as to income dividends paid in the prior year. The percentage of income
designated as tax-exempt may substantially differ from the percentage of
the Fund's income that was tax-exempt for a given period. A portion of
the exempt-interest dividends paid by the Fund may be an item of tax
preference for shareholders subject to the alternative minimum tax. All
of the Fund's dividends (excluding capital gains distributions) paid
during 1994 were exempt from Federal and California income taxes. The
amount of any dividends attributable to tax preference items for purposes
of the alternative minimum tax will be identified when tax information is
distributed by the Fund. 3.2% of the Fund's dividends (excluding
distributions) paid during 1994 were a tax preference item for
shareholders subject to the alternative minimum tax.
A shareholder receiving a dividend from income earned by the Fund
from one or more of: (1) certain taxable temporary investments (such as
certificates of deposit, repurchase agreements, commercial paper and
obligations of the U.S. government, its agencies and instrumentalities);
(2) income from securities loans; (3) income or gains from options or
Futures; or (4) an excess of net short-term capital gain over net long-
term capital loss from the Fund, treats the dividend as a receipt of
either ordinary income or long-term capital gain in the computation of
gross income, regardless of whether the dividend is reinvested. The
Fund's dividends will not be eligible for the dividends-received deduction
for corporations. Shareholders receiving Social Security benefits should
be aware that exempt-interest dividends are a factor in determining
whether such benefits are subject to Federal income tax. Losses realized
by shareholders on the redemption of Fund shares within six months of
purchase (which period may be shortened by regulation) will be disallowed
for Federal income tax purposes to the extent of exempt-interest dividends
received on such shares.
If the Fund qualifies as a "regulated investment company" under the
Internal Revenue Code, it will not be liable for Federal income taxes on
amounts paid by it as dividends and distributions. The Fund qualified as
a regulated investment company in its last fiscal year and intends to
qualify in future years, but reserves the right not to qualify. The
Internal Revenue Code contains a number of complex tests to determine
whether the Fund will qualify, and the Fund might not meet those tests in
a particular year. For example, if the Fund derives 30% or more of its
gross income from the sale of securities held less than three months, it
may fail to qualify (see "Tax Aspects of Covered Calls and Hedging
Instruments," above). If it does not qualify, the Fund will be treated for
tax purposes as an ordinary corporation 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 and is exempt from Federal income
tax, (1) the Fund will also be exempt from the California corporate income
and franchise taxes and (2) the Fund will be qualified under California
law to pay certain exempt interest dividends which will be exempt from the
California personal income tax. Individual shareholders of the Fund will
generally not be subject to California personal income tax on exempt-
interest dividends received from the Fund to the extent such distributions
are attributable to interest on California Municipal Securities (and
qualifying obligations of the United States Government), provided that at
least 50% of the Fund's assets at the close of each quarter of its taxable
year are invested in such obligations. Distributions from the Fund
attributable to sources other than California Municipal Securities will
generally be taxable to such shareholders as ordinary income. In
addition, certain distributions to corporate shareholders 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, or else the Fund must pay an excise tax on the amounts not
distributed. While it is presently anticipated that the Fund will meet
those requirements, the Fund's Board of Trustees and the Manager might
determine in a particular year that it would be in the best interest of
shareholders for the Fund not to make such 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.
Distributions by the Fund from investment income and long-term and
short-term capital gains will generally not be excludable from taxable
income in determining the California corporate franchise or income tax for
corporate shareholders of the Fund. Certain distributions may also be
includable in income subject to the corporate alternative minimum tax.
The Internal Revenue Code requires that a holder (such as the Fund)
of a zero coupon security accrue as income each year a portion of the
discount at which the security was purchased even though the Fund receives
no interest payment in cash on the security during the year. As an
investment company, the Fund must pay out substantially all of its net
investment income each year or be subject to excise taxes, as described
above. Accordingly, when the Fund holds zero coupon securities, it may
be required to pay out as an income distribution each year an amount which
is greater than the total amount of cash interest the Fund actually
received during that year. Such distributions will be made from the cash
assets of the Fund or by liquidation of portfolio securities, if
necessary. The Fund may realize a gain or loss from such sales. In the
event the Fund realizes net capital gains from such transactions, its
shareholders may receive a larger capital gain distribution than they
would have had in the absence of such transactions.
The Fund had an unused capital loss carryover of approximately
$841,000 at December 31, 1994. It will expire in 2002.
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 OppenheimerFunds listed in "Reduced
Sales Charges," above, at net asset value without sales charge. To elect
this option, the shareholder must notify the Transfer Agent in writing and
must either have an existing account in the fund selected for reinvestment
or must obtain a prospectus for that fund and an application from the
Distributor to establish an account. The investment will be made at the
net asset value per share in effect at the close of business on the
payable date of the dividend or distribution. Dividends and/or
distributions from shares of other OppenheimerFunds may be invested in
shares of this Fund on the same basis.
Additional Information About the Fund
The Custodian. Citibank, N.A. is the Custodian of the Fund's assets. The
Custodian's responsibilities include safeguarding and controlling the
Fund's portfolio securities, securities and handling the delivery of such
securities to and from the Fund. The Manager has represented to the Fund
that the banking relationships with the Custodian have been and will
continue to be unrelated to and unaffected by the relationship between the
Fund and the Custodian. It will be the practice of the Fund to deal with
the Custodian in a manner uninfluenced by any banking relationship the
Custodian may have with the Manager and its affiliates.
Independent Auditors. The independent auditors of the Fund audit the
Fund's financial statements and perform other related audit services.
They also act as auditors for certain other funds advised by the Manager
and its affiliates.
<PAGE>
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------
STATEMENT OF INVESTMENTS June 30, 1995 (Unaudited)
---------------------------------------------------------------------------------------------------------
RATINGS: MOODY'S/
S&P'S/FITCH'S FACE MARKET VALUE
(UNAUDITED) AMOUNT SEE NOTE 1
==========================================================
==========================================================
==============
<S> <C> <C> <C> <C>
MUNICIPAL BONDS AND NOTES--99.5%
- ----------------------------------------------------------------------------------------------------------------------------------
CALIFORNIA--89.6% Anaheim, California Public Financing Authority
Tax Allocation Revenue Bonds, MBIA Insured,
6.45%, 12/28/18 Aaa/AAA $ 6,000,000 $ 6,222,341
---------------------------------------------------------------------------------------------------------
California Health Facilities Financing Authority
Revenue Bonds, Children's Hospital of
Los Angeles, Prerefunded, Series A, 7.125%, 6/1/21 NR/A+ 1,000,000 1,144,522
---------------------------------------------------------------------------------------------------------
California Health Facilities Financing Authority
Revenue Bonds, Henry Mayo Newhall Project,
Series A, OSHPD Insured, 8%, 10/1/18 NR/A 3,000,000 3,267,696
---------------------------------------------------------------------------------------------------------
California Health Facilities Financing Authority
Revenue Bonds, La Palma Hospital Medical Center,
OSHPD Insured, 7.10%, 2/1/13 NR/A 1,875,000 1,950,827
---------------------------------------------------------------------------------------------------------
California Health Facilities Financing Authority
Revenue Refunding Bonds, Catholic Health
Care West, Series A, MBIA Insured, 5%, 7/1/11 Aaa/AAA 7,500,000 6,821,556
---------------------------------------------------------------------------------------------------------
California Housing Finance Agency Revenue Bonds,
Home Mtg., Series C, 6.75%, 2/1/25 Aa/AA- 10,000,000 10,131,540
---------------------------------------------------------------------------------------------------------
California Housing Finance Agency Revenue Bonds,
Home Mtg., Series C, FHA Insured, 7.60%, 8/1/30 Aa/AA- 1,655,000 1,756,546
---------------------------------------------------------------------------------------------------------
California Housing Finance Agency Single
Family Mtg. Purchase Revenue Bonds, Series A-2,
6.45%, 8/1/25 Aaa/AAA 8,000,000 8,038,559
---------------------------------------------------------------------------------------------------------
California Pollution Control Financing Authority
Revenue Bonds, Pacific Gas & Electric Co.,
Series B, 8.875%, 1/1/10 A2/A 2,275,000 2,506,381
---------------------------------------------------------------------------------------------------------
California Pollution Control Financing Authority
Revenue Refunding Bonds, Pacific Gas & Electric Co.,
Series A, 7.50%, 5/1/16 A2/A 1,450,000 1,511,410
---------------------------------------------------------------------------------------------------------
California State Franchise Tax Board Refunding
Certificates of Participation, 6.90%, 10/1/06 A/A- 1,000,000 1,067,034
---------------------------------------------------------------------------------------------------------
California State General Obligation Bonds,
FSA Insured, 5.50%, 4/1/19 Aaa/AAA/A 5,500,000 5,101,250
---------------------------------------------------------------------------------------------------------
California State Public Works Board Lease
Revenue Bonds, Department of Corrections-
California State Prison, Series B, MBIA Insured,
5.50%, 12/1/12 Aaa/AAA/A- 3,600,000 3,448,152
---------------------------------------------------------------------------------------------------------
California State Public Works Board Lease
Revenue Bonds, Regents of the University of
California, Prerefunded, Series A, 7%, 9/1/15 Aaa/AAA/AAA 2,650,000 2,987,867
</TABLE>
6 Oppenheimer California Tax-Exempt Fund
<PAGE>
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------
RATINGS: MOODY'S/
S&P'S/FITCH'S FACE MARKET VALUE
(UNAUDITED) AMOUNT SEE NOTE 1
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CALIFORNIA (continued) California State Public Works Board Lease
Revenue Bonds, University of California Project,
Series A, AMBAC Insured, 6.40%, 12/1/16 Aaa/AAA/AAA $ 5,000,000 $
5,185,695
---------------------------------------------------------------------------------------------------------
Campbell, California Certificates of Participation,
Civic Center Project, 6.75%, 10/1/17 A/A- 1,130,000 1,168,060
---------------------------------------------------------------------------------------------------------
Campbell, California Certificates of Participation,
Civic Center Project, Prerefunded, 6.75%, 10/1/17 Aaa/NR 1,870,000 2,109,932
---------------------------------------------------------------------------------------------------------
Capistrano, California Unified School District
Community Facilities District Special Tax Bonds,
No. 87-1, 7.60%, 9/1/14 NR/NR 4,000,000 3,843,791
---------------------------------------------------------------------------------------------------------
Cathedral City, California Improvement Bond
Act of 1915 Bonds, Limited Obligation Assessment
District No. 88-3, 7.85%, 9/2/11 NR/NR 1,975,000 2,034,694
---------------------------------------------------------------------------------------------------------
Corona, California Certificates of Participation,
Prerefunded, Series B, 10%, 11/1/20 Aaa/AAA 13,175,000 17,612,365
---------------------------------------------------------------------------------------------------------
Escondido, California Joint Powers Financing
Authority Revenue Bonds, AMBAC Insured,
6.125%, 9/1/11 Aaa/AAA/AAA 3,500,000 3,585,435
---------------------------------------------------------------------------------------------------------
Foothill/Eastern Transportation Corridor Agency
California Toll Road Revenue Bonds, Sr. Lien,
Series A, 6.50%, 1/1/32 NR/BBB- /BBB 4,600,000 4,438,687
---------------------------------------------------------------------------------------------------------
Fresno, California Water System Revenue Bonds,
Prerefunded, Series A, 7.30%, 6/1/20 NR/NR 1,500,000 1,649,086
---------------------------------------------------------------------------------------------------------
Industry, California Improvement Bond Act
of 1915 Bonds, Assessment District No. 91-1,
7.65%, 9/2/21 NR/NR 1,750,000 1,751,291
---------------------------------------------------------------------------------------------------------
Intermodal Container Transfer Facility Joint
Power Authority California Revenue Refunding
Bonds, Southern Pacific Transportation Co.,
Series A, 7.70%, 11/1/14 NR/A+ 1,000,000 1,066,773
---------------------------------------------------------------------------------------------------------
La Quinta, California Redevelopment Agency
Refunding Tax Allocation Bonds, La Quinta Project,
8.40%, 9/1/12 Aaa/AAA 1,000,000 1,189,285
---------------------------------------------------------------------------------------------------------
Los Angeles County, California Certificates of
Participation, 6.50%, 3/1/10 A/A 1,500,000 1,538,913
---------------------------------------------------------------------------------------------------------
Los Angeles County, California Certificates of
Participation, Correctional Facilities Project,
MBIA Insured, 6.50%, 9/1/13 Aaa/AAA 3,600,000 3,760,747
---------------------------------------------------------------------------------------------------------
Los Angeles County, California Transportation
Revenue Bonds, Commission Sales Tax,
Prerefunded, Series A, 6.75%, 7/1/11 Aaa/AA- /A+ 4,260,000 4,793,343
---------------------------------------------------------------------------------------------------------
Los Angeles County, California Transportation
Revenue Bonds, Commission Sales Tax,
Prerefunded, Series A, FGIC Insured, 6.75%, 7/1/18 Aaa/AAA/AAA 4,000,000
4,500,792
</TABLE>
7 Oppenheimer California Tax-Exempt Fund
<PAGE>
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------
STATEMENT OF INVESTMENTS (Unaudited)(Continued)
---------------------------------------------------------------------------------------------------------
RATINGS: MOODY'S/
S&P'S/FITCH'S FACE MARKET VALUE
(UNAUDITED) AMOUNT SEE NOTE 1
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CALIFORNIA (continued) Los Angeles, California Community Redevelopment
Agency Financing Authority Revenue Bonds,
Grand Century Qualified Redevelopment, Series A,
5.90%, 12/1/26 A/A $ 2,600,000 $ 2,291,739
---------------------------------------------------------------------------------------------------------
Los Angeles, California Community Redevelopment
Agency Tax Allocation Refunding Bonds,
North Hollywood, Series C, MBIA Insured, 7%, 7/1/15 Aaa/AAA 2,000,000 2,113,518
---------------------------------------------------------------------------------------------------------
Los Angeles, California Convention & Exhibition
Center Authority Refunding Certificates of
Participation, Prerefunded, Series A,
7.375%, 8/15/18 Aaa/AAA 3,000,000 3,361,710
---------------------------------------------------------------------------------------------------------
M-S-R Public Power Agency of California Revenue
Bonds, San Juan Project, Series C, AMBAC Insured,
6.875%, 7/1/19 Aaa/AAA/AAA 2,000,000 2,095,094
---------------------------------------------------------------------------------------------------------
Metropolitan Water District of Southern California
Revenue Bonds, Waterworks Project, 5%, 7/1/20 Aa/AA 7,750,000 6,725,915
---------------------------------------------------------------------------------------------------------
Metropolitan Water District of Southern California
Revenue Bonds, Waterworks Project, Inverse Floater,
6.05%, 10/30/20(1) Aa/AA 4,700,000 3,948,000
---------------------------------------------------------------------------------------------------------
Northern California Transmission Agency Revenue
Bonds, California-Oregon Transmission Project,
Prerefunded, Series A, MBIA Insured, 7%, 5/1/24 Aaa/AAA 5,500,000 6,132,279
---------------------------------------------------------------------------------------------------------
Oakland, California Redevelopment Agency
Tax Allocation Refunding Bonds, MBIA Insured,
Inverse Floater, 7.713%, 9/1/19(1) Aaa/AAA 4,300,000 3,855,384
---------------------------------------------------------------------------------------------------------
Oakland, California Revenue Refunding Bonds,
Series A, FGIC Insured, 7.60%, 8/1/21 Aaa/AAA/AAA 2,000,000 2,161,498
---------------------------------------------------------------------------------------------------------
Orange County, California Community Facilities
District No. 87-3 Special Tax Bonds, Prerefunded,
Series A, 8.05%, 8/15/08 NR/NR 3,000,000 3,379,878
---------------------------------------------------------------------------------------------------------
Orange County, California Community Facilities
District Special Tax Bonds, No. 88-1 Aliso Viejo,
Prerefunded, Series A, 7.10%, 8/15/05 NR/AAA 1,440,000 1,667,782
---------------------------------------------------------------------------------------------------------
Orange County, California Community Facilities
District Special Tax Bonds, No. 88-1 Aliso Viejo,
Prerefunded, Series A, 7.35%, 8/15/18 NR/AAA 8,000,000 9,369,383
---------------------------------------------------------------------------------------------------------
Pittsburg, California Improvement Bond Act of 1915
Bonds, Assessment District 1990-01, 7.75%, 9/2/20 NR/NR 1,235,000 1,272,123
---------------------------------------------------------------------------------------------------------
Rancho California Water District Financing
Authority Revenue Refunding Bonds,
AMBAC Insured, 5%, 8/15/14 Aaa/AAA/AAA 4,500,000 4,001,193
---------------------------------------------------------------------------------------------------------
Redding, California Electric System Revenue
Certificates of Participation, FGIC Insured,
Inverse Floater, 7.10%, 6/28/19(1) Aaa/AAA/AAA 4,000,000 3,567,524
---------------------------------------------------------------------------------------------------------
Redding, California Electric System Revenue
Certificates of Participation, MBIA Insured,
Inverse Floater, 8.396%, 7/8/22(1) Aaa/AAA 2,500,000 2,677,927
</TABLE>
8 Oppenheimer California Tax-Exempt Fund
<PAGE>
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------
RATINGS: MOODY'S/
S&P'S/FITCH'S FACE MARKET VALUE
(UNAUDITED) AMOUNT SEE NOTE 1
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CALIFORNIA (continued) Riverside County, California Community Facilities
District Bonds, Special Tax No. 88-12, 7.55%, 9/1/17 NR/NR $ 3,000,000 $ 3,014,319
---------------------------------------------------------------------------------------------------------
Sacramento, California Cogeneration Authority
Revenue Bonds, Procter & Gamble Project,
6.50%, 7/1/14 NR/BBB- 5,000,000 4,956,960
---------------------------------------------------------------------------------------------------------
Sacramento, California Municipal Utility District
Electric Revenue Bonds, Prerefunded, Series W,
7.50%, 8/15/18 Aaa/AAA/A- 2,500,000 2,735,252
---------------------------------------------------------------------------------------------------------
Sacramento, California Municipal Utility District
Electric Revenue Refunding Bonds, Series B,
FGIC Insured, Inverse Floater, 8.261%, 8/15/18(1) Aaa/AAA/AAA 5,500,000 5,439,659
---------------------------------------------------------------------------------------------------------
Sacramento, California Municipal Utility District
Electric Revenue Refunding Bonds, Series D,
MBIA Insured, 5.25%, 11/15/20 Aaa/AAA/A- 2,500,000 2,248,052
---------------------------------------------------------------------------------------------------------
Saddleback Community College District,
California Refunding Certificates of Participation,
BIG Insured, 7%, 8/1/19 Aaa/AAA 1,000,000 1,059,241
---------------------------------------------------------------------------------------------------------
San Bernardino County, California Certificates
of Participation, Medical Center Financing Project,
5.50%, 8/1/17 Baa1/A- 7,500,000 6,446,497
---------------------------------------------------------------------------------------------------------
San Diego County, California Certificates of
Participation, MBIA Insured, Inverse Floater,
8.446%, 11/18/19(1) Aaa/AAA 2,000,000 2,095,948
---------------------------------------------------------------------------------------------------------
San Diego County, California Water Authority
Revenue Certificates of Participation, Series B,
MBIA Insured, Inverse Floater, 8.07%, 4/8/21(1) Aaa/AAA 3,000,000 3,034,515
---------------------------------------------------------------------------------------------------------
San Francisco, California City & County Airport
Commission International Airport Revenue
Refunding Bonds, Second Series, Issue I,
AMBAC Insured, 6.30%, 5/1/11 Aaa/AAA/AAA 4,385,000 4,549,836
---------------------------------------------------------------------------------------------------------
San Francisco, California City & County Sewer
Revenue Refunding Bonds, FGIC Insured,
5.375%, 10/1/16 Aaa/AAA/AAA 2,000,000 1,854,106
---------------------------------------------------------------------------------------------------------
San Joaquin Hills, California Transportation
Corridor Agency Toll Road Revenue Bonds,
Sr. Lien, 5%, 1/1/33 NR/NR/BBB 8,000,000 6,115,320
---------------------------------------------------------------------------------------------------------
San Joaquin Hills, California Transportation
Corridor Agency Toll Road Revenue Bonds,
Sr. Lien, 6.75%, 1/1/32 NR/NR/BBB 7,000,000 6,990,535
---------------------------------------------------------------------------------------------------------
San Jose, California Redevelopment Agency Tax
Allocation Bonds, Merged Area Redevelopment
Project, MBIA Insured, 5%, 8/1/20 Aaa/AAA/A 2,000,000 1,735,236
---------------------------------------------------------------------------------------------------------
South Orange County, California Public Financing
Authority Special Tax Revenue Bonds, Sr. Lien,
Series A, MBIA Insured, 6.20%, 9/1/13 Aaa/AAA 3,000,000 3,006,177
</TABLE>
9 Oppenheimer California Tax-Exempt Fund
<PAGE>
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------
STATEMENT OF INVESTMENTS (Unaudited)(Continued)
---------------------------------------------------------------------------------------------------------
RATINGS: MOODY'S/
S&P'S/FITCH'S FACE MARKET VALUE
(UNAUDITED) AMOUNT SEE NOTE 1
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CALIFORNIA (continued) Southern California Home Financing Authority
Single Family Mtg. Revenue Bonds, GNMA and
FNMA Mtg.-Backed Securities, Series A, 7.35%, 9/1/24 NR/AAA $ 1,670,000 $
1,747,299
---------------------------------------------------------------------------------------------------------
Southern California Public Power Authority
Power Project Revenue Bonds, San Juan Unit 3,
Series A, MBIA Insured, 5%, 1/1/20 Aaa/AAA 3,000,000 2,572,932
---------------------------------------------------------------------------------------------------------
Southern California Public Power Authority
Power Project Revenue Refunding Bonds, Series A,
5.50%, 7/1/12 Aa/AA 1,000,000 954,332
---------------------------------------------------------------------------------------------------------
Southern California Public Power Authority
Transmission Project Revenue Bonds, Inverse Floater,
6.644%, 7/1/12(1) Aa/AA-- 5,500,000 5,288,162
---------------------------------------------------------------------------------------------------------
University of California Revenue Bonds,
Multiple Purpose Projects, Prerefunded, Series A,
6.875%, 9/1/16 NR/A-- 2,200,000 2,511,834
---------------------------------------------------------------------------------------------------------
Victorville, California Special Tax Bonds,
Community Facilities District No. 90-1, Series A,
8.30%, 9/1/16 NR/NR 2,250,000 2,140,294
---------------------------------------------------------------------------------------------------------
West & Central Basin Financing Authority
California Revenue Refunding Bonds, West Basin
Refunding Project, Series A, AMBAC Insured,
5%, 8/1/16 Aaa/AAA/AAA 3,000,000 2,650,125
------------
247,952,148
- ----------------------------------------------------------------------------------------------------------------------------------
U.S. Possessions--9.9% Guam Power Authority Revenue Bonds, Series A,
6.625%, 10/1/14 NR/BBB 2,000,000 2,020,272
---------------------------------------------------------------------------------------------------------
Puerto Rico Commonwealth General Obligation Bonds,
Yield Curve Notes, MBIA Insured, Inverse Floater,
7.384%, 7/1/08(1) Aaa/AAA 3,500,000 3,567,028
---------------------------------------------------------------------------------------------------------
Puerto Rico Commonwealth Highway &
Transportation Authority Revenue Bonds,
Prerefunded, Series T, 6.50%, 7/1/22 NR/AAA 2,250,000 2,522,266
---------------------------------------------------------------------------------------------------------
Puerto Rico Commonwealth Highway &
Transportation Authority Revenue Bonds,
Prerefunded, Series T, 6.625%, 7/1/18 NR/AAA 1,995,000 2,250,585
---------------------------------------------------------------------------------------------------------
Puerto Rico Commonwealth Highway &
Transportation Authority Revenue Bonds, Series T,
6.625%, 7/1/18 Baa1/A 4,005,000 4,164,495
---------------------------------------------------------------------------------------------------------
Puerto Rico Electric Power Authority Revenue Bonds,
Series P, 7%, 7/1/21 Baa1/A-- 4,000,000 4,309,844
---------------------------------------------------------------------------------------------------------
Puerto Rico Housing Bank & Finance Agency
Single Family Mtg. Revenue Bonds,
Affordable Housing Mtg.--Portfolio I, 6.25%, 4/1/29 Aaa/AAA 7,600,000 7,567,281
---------------------------------------------------------------------------------------------------------
Puerto Rico Housing Finance Corp.
Single Family Mtg. Revenue Bonds,
Portfolio 1, Series B, 7.65%, 10/15/22 Aaa/AAA 995,000 1,053,593
------------
27,455,364
</TABLE>
10 Oppenheimer California Tax-Exempt Fund
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------
- ----------------------------------------------------------------------
MARKET VALUE
SEE NOTE 1
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Total Investments, at Value (Cost $273,220,805) 99.5% $275,407,512
- ----------------------------------------------------------------------------------------------------------------------------------
Other Assets Net of Liabilities 0.5 1,287,003
----------- ------------
Net Assets 100.0% $276,694,515
</TABLE>
----------- ------------
----------- ------------
1. Represents the current interest rate for a variable rate bond. Variable
rate bonds known as "inverse floaters" pay interest at a rate that varies
inversely with short-term interest rates. As interest rates rise, inverse
floaters produce less current income. Their price may be more volatile
than the price of a comparable fixed-rate security. Inverse floaters
amount to $33,474,147 or 12.1% of the Fund's net assets, at June 30, 1995.
Distribution of investments by industry, as a percentage of total
investments at value, is as follows:
Industry
Market Value Percent
- --------------------------------------------------------------
Utilities
$72,139,220 26.2%
Lease/Rental
53,251,860 19.3
Special Tax Bonds
52,448,081 19.0
Transportation
36,599,289 13.3
Housing
32,586,558 11.8
Hospitals
13,184,601 4.8
General Obligation Bonds
8,668,278 3.1
Pollution Control
4,017,791 1.6
Education
2,511,834 0.9
------------ -----
$275,407,512 100.0%
------------ -----
------------ -----
See accompanying Notes to Financial Statements.
11 Oppenheimer California Tax-Exempt Fund
<PAGE>
- ---------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES June 30, 1995 (Unaudited)
- -------------------------------------------------------------------
==========================================================
==========================================================
==============
<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS Investments, at value (cost $273,220,805)--see accompanying statement $275,407,512
---------------------------------------------------------------------------------------------------------
Cash 120,704
---------------------------------------------------------------------------------------------------------
Receivables:
Interest 5,251,676
Shares of beneficial interest sold 589,770
---------------------------------------------------------------------------------------------------------
Other 75,591
------------
Total assets 281,445,253
==========================================================
==========================================================
==============
LIABILITIES Payables and other liabilities:
Shares of beneficial interest redeemed 3,528,957
Dividends 931,521
Distribution and service plan fees--Note 4 171,584
Trustees' fees 7,558
Transfer and shareholder servicing agent fees 2,855
Other 108,263
------------
Total liabilities 4,750,738
==========================================================
==========================================================
==============
NET ASSETS $276,694,515
------------
------------
==========================================================
==========================================================
==============
COMPOSITION OF Paid-in capital $275,873,392
NET ASSETS ---------------------------------------------------------------------------------------------------------
Overdistributed net investment income (498,939)
---------------------------------------------------------------------------------------------------------
Accumulated net realized loss from investment transactions (866,645)
---------------------------------------------------------------------------------------------------------
Net unrealized appreciation on investments--Note 3 2,186,707
------------
Net assets $276,694,515
------------
------------
==========================================================
==========================================================
==============
NET ASSET VALUE Class A Shares:
PER SHARE Net asset value and redemption price per share (based on net assets of $246,731,968
and 24,142,217 shares of beneficial interest outstanding) $10.22
Maximum offering price per share (net asset value plus sales charge of 4.75% of offering price) $10.73
---------------------------------------------------------------------------------------------------------
Class B Shares:
Net asset value, redemption price and offering price per share (based on net assets
of $29,962,547 and 2,930,799 shares of beneficial interest outstanding) $10.22
</TABLE>
See accompanying Notes to Financial Statements.
12 Oppenheimer California Tax-Exempt Fund
<PAGE>
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------
STATEMENT OF OPERATIONS For the Six Months Ended June 30, 1995 (Unaudited)
---------------------------------------------------------------------------------------------------------
==========================================================
==========================================================
==============
<C> <S> <C>
INVESTMENT INCOME Interest $ 8,800,543
==========================================================
==========================================================
==============
EXPENSES Management fees--Note 4 772,064
---------------------------------------------------------------------------------------------------------
Distribution and service plan fees:
Class A--Note 4 293,047
Class B--Note 4 123,986
---------------------------------------------------------------------------------------------------------
Transfer and shareholder servicing agent fees--Note 4 61,024
---------------------------------------------------------------------------------------------------------
Shareholder reports 28,000
---------------------------------------------------------------------------------------------------------
Legal and auditing fees 14,121
---------------------------------------------------------------------------------------------------------
Registration and filing fees:
Class A 1,609
Class B 2,670
---------------------------------------------------------------------------------------------------------
Custodian fees and expenses 4,185
---------------------------------------------------------------------------------------------------------
Trustees' fees and expenses 177
---------------------------------------------------------------------------------------------------------
Other 10,706
------------
Total expenses 1,311,589
==========================================================
==========================================================
==============
NET INVESTMENT INCOME 7,488,954
==========================================================
==========================================================
==============
REALIZED AND UNREALIZED Net realized gain on investments 221,633
GAIN ON INVESTMENTS ---------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation or depreciation on investments 19,851,875
------------
Net realized and unrealized gain on investments 20,073,508
==========================================================
==========================================================
==============
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS
$ 27,562,462
------------
------------
</TABLE>
See accompanying Notes to Financial Statements.
13 Oppenheimer California Tax-Exempt Fund
<PAGE>
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
---------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1995 DECEMBER 31,
(UNAUDITED) 1994
==========================================================
==========================================================
==============
<C> <S> <C> <C>
OPERATIONS Net investment income $ 7,488,954 $ 15,748,324
---------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments 221,633 (999,410)
---------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation or depreciation
on investments 19,851,875 (39,209,125)
------------ ------------
Net increase (decrease) in net assets resulting from operations 27,562,462 (24,460,211)
==========================================================
==========================================================
==============
DIVIDENDS AND Dividends from net investment income:
DISTRIBUTIONS TO Class A ($.302 and $.605 per share, respectively) (7,171,123)
(14,920,148)
SHAREHOLDERS Class B ($.263 and $.526 per share, respectively) (646,759) (857,567)
==========================================================
==========================================================
==============
BENEFICIAL INTEREST Net increase (decrease) in net assets resulting from Class A
TRANSACTIONS beneficial interest transactions--Note 2 9,013,391 (8,912,194)
---------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from Class B
beneficial interest transactions--Note 2 8,030,660 12,644,856
==========================================================
==========================================================
==============
NET ASSETS Total increase (decrease) 36,788,631 (36,505,264)
---------------------------------------------------------------------------------------------------------
Beginning of period 239,905,884 276,411,148
------------ ------------
End of period (including overdistributed net investment
income of $498,939 and $170,011, respectively) $276,694,515 $239,905,884
------------ ------------
------------ ------------
</TABLE>
See accompanying Notes to Financial Statements.
14 Oppenheimer California Tax-Exempt Fund
<PAGE>
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
---------------------------------------------------------------------------------------------------------
CLASS A CLASS B
---------------------------------------------------------------------- ----------------------------------
SIX MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
1995 YEAR ENDED DECEMBER 31, 1995 YEAR ENDED
DECEMBER 31,
(UNAUDITED) 1994 1993 1992 1991 1990 (UNAUDITED) 1994 1993(1)
==========================================================
==========================================================
==============
<S> <C> <C> <C> <C> <C> <C> <C> <C>
<C>
PER SHARE OPERATING DATA:
Net asset value,
beginning of period $ 9.45 $10.97 $10.35 $10.22 $ 9.86 $ 9.94 $ 9.44 $10.98 $10.72
- ----------------------------------------------------------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .29 .60 .62 .61 .66 .67 .25 .54 .35
Net realized and
unrealized gain (loss)
on investments .78 (1.51) .72 .20 .38 (.07) .79 (1.55) .34
------ ------ ------ ------ ------ ------ ------ ------ ------
Total income (loss) from
investment operations 1.07 (.91) 1.34 .81 1.04 .60 1.04 (1.01) .69
- ----------------------------------------------------------------------------------------------------------------------------------
Dividends and distributions
to shareholders:
Dividends from net
investment income (.30) (.61) (.65) (.60) (.62) (.68) (.26) (.53) (.36)
Distributions from net
realized gain on
investments -- -- (.07) (.08) (.06) -- -- -- (.07)
------ ------ ------ ------ ------ ------ ------ ------ ------
Total dividends and
distributions
to shareholders (.30) (.61) (.72) (.68) (.68) (.68) (.26) (.53) (.43)
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $10.22 $ 9.45 $10.97 $10.35 $10.22 $ 9.86 $10.22 $ 9.44 $10.98
------ ------ ------ ------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------ ------ ------ ------
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT
NET ASSET VALUE(2) 11.45% (8.49)% 13.26% 8.28% 10.93% 6.38% 11.14% (9.39)%
.66%
- ----------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(in thousands) $246,732 $219,682 $266,490 $204,349 $145,163 $92,514 $29,963 $20,224 $9,921
- ----------------------------------------------------------------------------------------------------------------------------------
Average net assets
(in thousands) $240,049 $248,850 $245,193 $174,055 $115,661 $72,879 $25,049 $16,552 $5,218
- ----------------------------------------------------------------------------------------------------------------------------------
Number of shares
outstanding at end of
period (in thousands) 24,142 23,256 24,290 19,738 14,200 9,386 2,931 2,142 904
- ----------------------------------------------------------------------------------------------------------------------------------
Ratios to average
net assets:
Net investment income 5.78%(3) 5.99% 5.74% 6.07% 6.52% 6.80% 4.95%(3) 5.17%
4.57%(3)
Expenses, before
voluntary assumption
by the Manager .93%(3) .96% .97% 1.07% 1.05% 1.05% 1.69%(3) 1.73%
1.79%(3)
Expenses, net of
voluntary assumption
by the Manager N/A N/A N/A N/A .73% .53% N/A N/A N/A
- ----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(4) 11.3% 21.9% 13.7% 26.8% 26.6% 14.5% 11.3% 21.9%
13.7%
</TABLE>
1. For the period from May 1, 1993 (inception of offering) to December 31,
1993.
2. Assumes a hypothetical initial investment on the business day before
the first day of the fiscal period, with all dividends and distributions
reinvested in additional shares on the reinvestment date, and redemption
at the net asset value calculated on the last business day of the fiscal
period. Sales charges are not reflected in the total returns. Total
returns are not annualized for periods of less than one full year.
3. Annualized.
4. 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 June 30, 1995 were $50,535,439
and $29,167,489, respectively.
See accompanying Notes to Financial Statements.
NOTES TO FINANCIAL STATEMENTS (Unaudited)
SIGNIFICANT ACCOUNTING POLICIES
Oppenheimer California Tax-Exempt Fund (the Fund) is registered under the
Investment Company Act of 1940, as amended, as a non-diversified, open-end
management investment company. The Fund's investment advisor is
Oppenheimer Management Corporation (the Manager). The Fund offers both
Class A and Class B shares. Class A shares are sold with a front-end sales
charge. Class B shares may be subject to a contingent deferred sales
charge. Both classes of shares have identical rights to earnings, assets
and voting privileges, except that each class has its own distribution
and/or service plan, expenses directly attributable to a particular class
and exclusive voting rights with respect to matters affecting a single
class. Class B shares will automatically convert to Class A shares six
years after the date of purchase. The following is a summary of
significant accounting policies consistently followed by the Fund.
INVESTMENT VALUATION. Portfolio securities are valued at the close of the
New York Stock Exchange on each trading day. Listed and unlisted
securities for which such information is regularly reported are valued at
the last sale price of the day or, in the absence of sales, at values
based on the closing bid or asked price or the last sale price on the
prior trading day. Long-term and short-term "non-money market" debt
securities are valued by a portfolio pricing service approved by the Board
of Trustees. Such securities which cannot be valued by the approved
portfolio pricing service are valued using dealer-supplied transactions
provided the Manager is satisfied that the fir rendering the quotes is
reliable and that the quotes reflect current market value, or under
consistently applied procedures established by the Board of Trustees to
determine fair value in good faith. Short-term ``money market type'' debt
securities having a remaining maturity of 60 days or less are valued at
cost (or last determined market value) adjusted for amortization to
maturity of any premium or discount.
ALLOCATION OF INCOME, EXPENSES AND GAINS AND LOSSES.
Income, expenses (other than those attributable to a specific class) and
gains and losses are allocated daily to each class of shares based upon
the relative proportion of net assets represented by such class. Operating
expenses directly attributable to a specific class are charged against the
operations of that class.
FEDERAL TAXES. The Fund intends to continue to comply with provisions of
the Internal Revenue Code applicable to regulated investment companies and
to distribute all of its taxable income, including any net realized gain
on investments not offset by loss carryovers, to shareholders. Therefore,
no federal income or excise tax provision is required.
TRUSTEES' FEES AND EXPENSES. The Fund has adopted a nonfunded retirement
plan for the Fund's independent trustees. Benefits are based on years of
service and fees paid to each trustee during the years of service. During
the six months ended June 30, 1995, a provision of $24,745 was made for
the Fund's projected benefit obligations, and a payment of $1,182 was made
to a retired trustee, resulting in an accumulated liability of $63,985 at
June 30, 1995.
DISTRIBUTIONS TO SHAREHOLDERS. The Fund intends to declare dividends
separately for Class A and Class B shares from net investment income each
day the New York Stock Exchange is open for business and pay such
dividends monthly. Distributions from net realized gains on investments,
if any, will be declared at least once each year.
CLASSIFICATION OF DISTRIBUTIONS TO SHAREHOLDERS. Net investment income
(loss) and net realized gain (loss) may differ for financial statement and
tax purposes primarily because of premium amortization. The character of
the distributions made during the year from net investment income or net
realized gains may differ from their ultimate characterization for federal
income tax purposes. Also, due to timing of dividend distributions, the
fiscal year in which amounts are distributed may differ from the year that
the income or realized gain (loss) was recorded by the Fund.
SIGNIFICANT ACCOUNTING POLICIES
(continued)
OTHER. Investment transactions are accounted for on the date the
investments are purchased or sold (trade date). Original issue discount
on securities purchased is amortized over the life of the respective
securities, in accordance with federal income tax requirements. For bonds
acquired after April 30, 1993, accrued market discount is recognized at
maturity or disposition as taxable ordinary income. Taxable ordinary
income is realized to the extent of the lesser of gain or accrued market
discount. Realized gains and losses on investments and unrealized
appreciation and depreciation are determined on an identified cost basis,
which is the same basis used for federal income tax purposes.
2. SHARES OF BENEFICIAL INTEREST
The Fund has authorized an unlimited number of no par value shares of
beneficial interest of each class. Transactions in shares of beneficial
interest were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1995 YEAR ENDED DECEMBER
31, 1994
------------------------------ ------------------------------
SHARES AMOUNT SHARES AMOUNT
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A:
Sold 2,360,220 $ 23,922,201 4,682,338 $ 47,539,656
Dividends reinvested 415,546 4,179,053 895,069 9,014,619
Redeemed (1,889,278) (19,087,863) (6,611,428) (65,466,469)
---------- ------------ ---------- ------------
Net increase (decrease) 886,488 $ 9,013,391 (1,034,021) $ (8,912,194)
---------- ------------ ---------- ------------
---------- ------------ ---------- ------------
---------------------------------------------------------------------------------------------------------
Class B:
Sold 868,896 $8,833,596 1,595,370 $16,152,328
Dividends reinvested 36,161 364,403 52,979 528,961
Redeemed (115,875) (1,167,339) (410,584) (4,036,433)
---------- ------------ ---------- ------------
Net increase 789,182 $8,030,660 1,237,765 $12,644,856
---------- ------------ ---------- ------------
---------- ------------ ---------- ------------
</TABLE>
3. UNREALIZED GAINS AND LOSSES ON INVESTMENTS
At June 30, 1995, net unrealized appreciation on nvestments of $2,186,707
as composed of gross appreciation of $7,530,816, and gross depreciation
of $5,344,109.
4. MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES
Management fees paid to the Manager were in accordance with the investment
advisory agreement with the Fund which provides for a fee of .60% on the
first $200 million of average annual net assets, .55% on the next $100
million, .50% on the next $200 million, .45% on the next $250 million,
.40% on the next $250 million and .35% on net assets in excess of $1
billion. The Manager has agreed to assume Fund expenses (with specified
exceptions) in excess of the regulatory limitation of the State of
California. For the six months ended June 30, 1995, commissions (sales
charges paid by investors) on sales of Class A shares totaled $434,871,
of which $74,571 was retained by Oppenheimer Funds Distributor,
Inc.(OFDI), a subsidiary of the Manager, as general distributor, and by
an affiliated broker/dealer. Sales charges advanced to broker/dealers by
OFDI on sales of the Fund's Class B shares totaled $332,024, of which $804
was paid to an affiliated broker/dealer. During the six months ended June
30, 1995, OFDI received contingent deferred sales charges of $27,525 upon
redemption of Class B shares, as reimbursement for sales commissions
advanced by OFDI at the time of sale of such shares. Oppenheimer
Shareholder Services (OSS), a division of the Manager, is the transfer and
shareholder servicing agent for the Fund, and for other registered
investment companies. OSS's total costs of providing such services are
allocated ratably to these companies. Under separate approved plans, each
class may expend up to .25% of its net assets annually to reimburse OFDI
for costs incurred in connection with the personal service and maintenance
of accounts that hold shares of the Fund, including amounts paid to
brokers, dealers, banks and other institutions. In addition, Class B
shares are subject to an asset-based sales charge of .75% of net assets
annually, to reimburse OFDI for sales commissions paid from its own
resources at the time of sale and associated financing costs. In the event
of termination or discontinuance of the Class B plan, the Board of
Trustees may allow the Fund to continue payment of the asset-based sales
charge to OFDI for distribution expenses incurred on Class B shares sold
prior to termination or discontinuance of the plan. During the six months
ended June 30, 1995, OFDI paid $10,107 and $550 to an affiliated
broker/dealer as reimbursement for Class A and Class B personal service
and maintenance expenses, respectively, and retained $109,680 as
reimbursement for Class B sales commissions and service fee advances, as
well as financing costs.
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Trustees and Shareholders of Oppenheimer
California Tax-Exempt Fund:
We have audited the accompanying statements of investments and assets and
liabilities of Oppenheimer California Tax-Exempt Fund as of December 31,
1994, and the related statement of operations for the year then ended, the
statements of changes in net assets for each of the years in the two-year
period then ended and the financial highlights for each of the years in
the six-year period then ended and the period from November 3, 1988
(commencement of operations) to December 31, 1988. 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 December 31, 1994, by
correspondence with the custodian and brokers; and where confirmations
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, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position
of Oppenheimer California Tax-Exempt Fund as of December 31, 1994, the
results of its operations for the year then ended, the changes in its net
assets for each of the years in the two-year period then ended, and the
financial highlights for each of the years in the six-year period then
ended and the period from November 3, 1988 (commencement of operations)
to December 31, 1988, in conformity with generally accepted accounting
principles.
/s/ KPMG Peat Marwick LLP
-------------------------------
KPMG PEAT MARWICK LLP
Denver, Colorado
January 23, 1995
<PAGE>
STATEMENT OF INVESTMENTS December 31, 1994
<TABLE>
<CAPTION>
RATINGS: MOODY'S/
S&P'S/FITCH'S FACE MARKET VALUE
(UNAUDITED) AMOUNT SEE NOTE 1
----------------- ------ ------------
<S> <C> <C> <C>
MUNICIPAL BONDS AND NOTES--97.5%
CALIFORNIA--90.2% Anaheim, California Public Financing Authority
Tax Allocation Revenue Bonds, MBIA Insured,
8.37%, 12/28/18(1) Aaa/AAA $ 3,000,000 $ 2,725,323
California Educational Facilities Authority
Revenue Bonds, Stanford University Project,
Series J, 6%, 11/1/09 Aaa/AAA 2,205,000 2,110,915
California Health Facilities Financing Authority
Revenue Bonds, Children's Hospital of
Los Angeles, Prerefunded, Series A, 7.125%, 6/1/21 NR/A+ 1,000,000 1,086,512
California Health Facilities Financing Authority
Revenue Bonds, Henry Mayo Newhall Project,
Series A, OSHPD Insured, 8%, 10/1/18 NR/A 3,000,000 3,195,495
California Health Facilities Financing Authority
Revenue Bonds, La Palma Hospital Medical Center,
OSHPD Insured, 7.10%, 2/1/13 NR/A 1,875,000 1,839,345
California Health Facilities Financing Authority
Revenue Refunding Bonds, Catholic Health
Facilities, Series A, MBIA Insured, 5%, 7/1/11 Aaa/AAA 7,500,000 6,238,372
California Housing Finance Agency Revenue Bonds,
Home Mtg., Series C, 6.75%, 2/1/25 Aa/AA-- 10,000,000 9,554,669
California Housing Finance Agency Revenue Bonds,
Home Mtg., Series C, FHA Insured, 7.60%, 8/1/30 Aa/AA-- 1,655,000 1,674,746
California Pollution Control Financing Authority
Revenue Bonds, Pacific Gas and Electric Co.,
Series B, 8.875%, 1/1/10 A1/A 2,275,000 2,485,587
California Pollution Control Financing Authority
Revenue Refunding Bonds, Pacific Gas and
Electric Co., Series A, 7.50%, 5/1/16 A1/A 1,450,000 1,511,783
California State Franchise Tax Board Refunding
Certificates of Participation, 6.90%, 10/1/06 A/A-- 1,000,000 1,026,916
California State General Obligation Bonds,
FSA Insured, 5.50%, 4/1/19 Aaa/AAA/A 5,500,000 4,627,056
California State Public Works Board Lease
Revenue Bonds, Department of Corrections
California State Prison, Series B, MBIA Insured,
5.50%, 12/1/12 Aaa/AAA/A-- 4,600,000 4,024,424
California State Public Works Board Lease
Revenue Bonds, Regents of the University of
California, Prerefunded, Series A, 7%, 9/1/15 Aaa/AAA/AAA 2,650,000 2,855,836
California State Public Works Board Lease
Revenue Bonds, University of California Project,
Series A, AMBAC Insured, 6.40%, 12/1/16 Aaa/AAA/AAA 5,000,000 4,795,374
Campbell, California Certificates of Participation,
Civic Center Project, 6.75%, 10/1/17 A/A-- 1,130,000 1,092,930
Campbell, California Certificates of Participation,
Civic Center Project, Prerefunded, 6.75%, 10/1/17 Aaa/NR 1,870,000 1,994,381
</TABLE>
6 Oppenheimer California Tax-Exempt Fund
<PAGE>
<TABLE>
<CAPTION>
RATINGS: MOODY'S/
S&P'S/FITCH'S FACE MARKET VALUE
(UNAUDITED) AMOUNT SEE NOTE 1
---------------- ------ ------------
<S> <C> <C> <C> <C>
CALIFORNIA (CONTINUED)
Capistrano, California University School District
Community Facilities Special Tax Bonds,
No. 87-1, 7.60%, 9/1/14 NR/NR $ 4,000,000 $ 3,785,467
Cathedral City, California Improvement Bond
Act of 1915 Bonds, Limited Obligation Assessment
District No. 88-3, 7.85%, 9/2/11 NR/NR 1,980,000 1,976,018
Contra Costa, California Water District Revenue
Bonds, Series E, AMBAC Insured, 5.75%, 10/1/18 Aaa/AAA/AAA 3,340,000
2,929,210
Corona, California Certificates of Participation,
Prerefunded, Series B, 10%, 11/1/20 Aaa/AAA 8,175,000 10,362,287
Escondido, California Joint Powers Financing Authority
Revenue Bonds, AMBAC Insured, 6.125%, 9/1/11 Aaa/AAA/AAA 3,500,000
3,327,908
Fresno, California Water System Revenue Bonds,
Prerefunded, Series A, 7.30%, 6/1/20 NR/NR 1,500,000 1,610,379
Industry, California Improvement Bond Act of
1915 Bonds, Assessment District No. 91-1, 7.65%, 9/2/21 NR/NR 1,750,000 1,749,582
Intermodal Container Transfer Facility Joint
Power Authority California Revenue Refunding
Bonds, Southern Pacific Transportation Co.,
Series A, 7.70%, 11/1/14 NR/A+ 1,000,000 1,013,241
La Quinta, California Redevelopment Agency
Refunding Tax Allocation Bonds, La Quinta Project,
Prerefunded, 8.40%, 9/1/12 Aaa/AAA 1,000,000 1,144,185
Los Angeles County, California Certificates of
Participation, 6.50%, 3/1/10 A/A 1,500,000 1,445,295
Los Angeles County, California Certificates of
Participation, Correctional Facilities Project,
MBIA Insured, 6.50%, 9/1/13 Aaa/AAA 3,600,000 3,523,503
Los Angeles County, California Transportation
Revenue Bonds, Commission Sales Tax,
Prerefunded, Series A, 6.75%, 7/1/11 Aaa/AA-- 4,260,000 4,537,778
Los Angeles County, California Transportation
Revenue Bonds, Commission Sales Tax,
Prerefunded, Series A, FGIC Insured, 6.75%, 7/1/18 Aaa/AAA/AAA 4,000,000
4,263,068
Los Angeles, California Community Redevelopment
Agency Finance Revenue Bonds, Grand Century
Qualified Redevelopment, Series A, 5.90%, 12/1/26 A/A 2,600,000 2,100,665
Los Angeles, California Community Redevelopment
Agency Refunding Tax Allocation Bonds,
North Hollywood, Series C, MBIA Insured, 7%, 7/1/15 Aaa/AAA 2,000,000
2,037,116
Los Angeles, California Department of
Water & Power Electric Plant Revenue Bonds,
Second Issue 1991, 6%, 6/1/12 Aa/AA 2,500,000 2,309,447
Los Angeles, California Department of
Water & Power Electric Plant Revenue Bonds,
Second Issue 1991, 6%, 6/1/13 Aa/AA 3,200,000 2,948,909
</TABLE>
7 Oppenheimer California Tax-Exempt Fund
<PAGE>
STATEMENT OF INVESTMENTS (Continued)
<TABLE>
<CAPTION>
RATINGS: MOODY'S/
S&P'S/FITCH'S FACE MARKET VALUE
(UNAUDITED) AMOUNT SEE NOTE 1
---------------- ------ ------------
<S> <C> <C> <C> <C>
CALIFORNIA (CONTINUED) M-S-R Public Power Agency of California Revenue
Bonds, San Juan Project, Series C, AMBAC Insured,
6.875%, 7/1/19 Aaa/AAA $2,000,000 $2,003,446
Metropolitan Water District Revenue Bonds,
Southern California Waterworks Project, 5%, 7/1/20 Aa/AA 7,750,000 5,956,293
Metropolitan Water District Revenue Bonds,
Southern California Waterworks Project, 6%, 7/1/21 Aa/AA 5,000,000 4,455,845
Metropolitan Water District Revenue Bonds, Southern
California Waterworks Project, 6.557%, 10/30/20(1) Aa/AA 4,700,000 3,226,827
Oakland, California Redevelopment Agency
Tax Allocation Refunding Bonds, MBIA Insured,
7.472%, 9/1/19(1) Aaa/AAA 4,300,000 3,308,729
Oakland, California Special Edition Revenue
Refunding Bonds, Series A, FGIC Insured, 7.60%, 8/1/21 Aaa/AAA/AAA 2,000,000
2,117,466
Orange County, California Community Facilities
District No. 87-3 Special Tax Bonds, Mission Viejo,
Prerefunded, Series A, 8.05%, 8/15/08 A/NR 3,000,000 3,298,365
Orange County, California Community Facilities
District Special Tax Bonds, No. 88-1 Aliso Viejo,
Prerefunded, Series A, 7.10%, 8/15/05 NR/AAA 1,440,000 1,567,876
Orange County, California Community Facilities
District Special Tax Bonds, No. 88-1 Aliso Viejo,
Prerefunded, Series A, 7.35%, 8/15/18 NR/AAA 8,000,000 8,816,407
Paramount, California Redevelopment Agency
Tax Allocation Revenue Bonds, Redevelopment
Project No. 1, Prerefunded, Series A, 9.65%, 6/1/16 NR/AAA/BBB 6,000,000 6,240,240
Pittsburg, California Improvement Bond Act of 1915
Bonds, Assessment District 1990-01, 7.75%, 9/2/20 NR/NR 1,235,000 1,218,556
Rancho, California Water District Financing Authority
Revenue Refunding Bonds, AMBAC Insured, 5%, 8/15/14 Aaa/AAA/AAA 4,500,000
3,629,128
Redding, California Electric System Revenue Certificates
of Participation, FGIC Insured, 6.279%, 6/1/19(1) Aaa/AAA/AAA 4,000,000 2,912,375
Redding, California Electric System Revenue Certificates
of Participation, MBIA Insured, 8.264%, 7/8/22(1) Aaa/AAA 2,500,000 2,278,397
Riverside County, California Community Facilities
District Bonds, Special Tax No. 88-12, 7.55%, 9/1/17 NR/NR 3,000,000 2,868,294
Sacramento, California Municipal Utility District
Electric Revenue Refunding Bonds, Series B,
FGIC Insured, 7.247%, 8/15/18(1) Aaa/AAA/AAA 5,500,000 4,814,678
Sacramento, California Municipal Utility District
Electric Revenue Refunding Bonds, Series D,
MBIA Insured, 5.25%, 11/15/20 Aaa/AAA/A-- 2,500,000 2,020,630
</TABLE>
8 Oppenheimer California Tax-Exempt Fund
<PAGE>
<TABLE>
<CAPTION>
RATINGS: MOODY'S/
S&P'S/FITCH'S FACE MARKET VALUE
(UNAUDITED) AMOUNT SEE NOTE 1
---------------- ------ ------------
<S> <C> <C> <C> <C>
CALIFORNIA (CONTINUED) Saddleback Community College District,
California Refunding Certificates of Participation,
BIG Insured, 7%, 8/1/19 Aaa/AAA $ 1,000,000 $ 1,018,614
San Bernardino County, California Certificates
of Participation, Medical Center Financing Project,
5.50%, 8/1/17 Baa1/A-- 7,500,000 5,946,885
San Diego County, California Certificates of
Participation, MBIA Insured, 7.321%, 11/18/19(1) Aaa/AAA 2,000,000 1,816,736
San Diego County, California Water Authority
Revenue Certificates of Participation, Series B,
MBIA Insured, 8.22%, 4/8/21(1) Aaa/AAA 3,000,000 2,642,967
San Francisco, California City & County Airport
Commission International Airport Revenue
Refunding Bonds, Second Series, Issue I,
AMBAC Insured, 6.30%, 5/1/11 Aaa/AAA/AAA 4,385,000 4,254,191
San Francisco, California City & County Sewer
Revenue Refunding Bonds, FGIC Insured,
5.375%, 10/1/16 Aaa/AAA/AAA 2,000,000 1,677,392
San Joaquin Hills, California Transportation Corridor
Agency Toll Road Revenue Bonds, Sr. Lien, 5%, 1/1/33 NR/NR/BBB 8,000,000
4,963,848
San Joaquin Hills, California Transportation Corridor
Agency Toll Road Revenue Bonds, Sr. Lien, 6.75%, 1/1/32 NR/NR/BBB 7,000,000
5,757,191
San Jose, California Redevelopment Agency Tax
Allocation Bonds, Merged Area Redevelopment
Project, MBIA Insured, 5%, 8/1/20 Aaa/AAA/A 2,000,000 1,546,236
South Orange County, California Public Financing
Authority Special Tax Revenue Bonds, Sr. Lien,
Series A, MBIA Insured, 6.20%, 9/1/13 Aaa/AAA/NR 3,000,000 2,781,072
Southern California Home Financing Authority
Single Family Mtg. Revenue Bonds, GNMA and
FNMA Mtg.-Backed Securities, Series A, 7.35%, 9/1/24 NR/AAA 1,670,000
1,684,004
Southern California Public Power Authority
Power Project Revenue Bonds, Prerefunded, 6%, 7/1/18 Aaa/AAA 5,500,000
5,576,994
Southern California Public Power Authority
Power Project Revenue Refunding Bonds,
Series A, 5.50%, 7/1/12 Aa/AA 1,000,000 863,544
Southern California Public Power Authority
Revenue Bonds, San Juan Unit 3, Series A,
MBIA Insured, 5%, 1/1/20 Aaa/AAA 3,000,000 2,325,408
Southern California Public Power Authority
Revenue Refunding Bonds, 8.012%, 7/1/12(1) Aa/AA-- 5,500,000 4,613,531
University of California Revenue Bonds,
Multiple Purpose Projects, Prerefunded,
Series A, 6.875%, 9/1/16 NR/A-- 2,200,000 2,365,123
Victorville, California Special Tax Bonds,
Community Facilities District No. 90-1
(Western Addition), Series A, 8.30%, 9/1/16 NR/NR 2,250,000 2,016,508
------------
216,487,518
</TABLE>
9 Oppenheimer California Tax-Exempt Fund
<PAGE>
STATEMENT OF INVESTMENTS (Continued)
<TABLE>
<CAPTION>
RATINGS: MOODY'S/
S&P'S/FITCH'S FACE MARKET VALUE
(UNAUDITED) AMOUNT SEE NOTE 1
---------------- ------ ------------
<S> <C> <C> <C> <C>
U.S. POSSESSIONS--7.3% Guam Power Authority Revenue Bonds, Series A,
6.625%, 10/1/14 NR/BBB $ 2,000,000 $ 1,914,920
Puerto Rico Commonwealth Highway &
Transportation Authority Revenue Bonds,
Prerefunded, Series T, 6.50%, 7/1/22 NR/AAA 2,250,000 2,372,316
Puerto Rico Commonwealth Highway &
Transportation Authority Revenue Bonds,
Prerefunded, Series T, 6.625%, 7/1/18 NR/AAA 995,000 1,056,283
Puerto Rico Commonwealth Highway &
Transportation Authority Revenue Bonds,
Series T, 6.625%, 7/1/18 Baa1/A 4,005,000 3,957,997
Puerto Rico Commonwealth Public
Improvement General Obligation Bonds,
YCNS, MBIA Insured, 7.384%, 7/1/08(1) Aaa/AAA 3,500,000 2,938,047
Puerto Rico Electric Power Authority Revenue
Bonds, Series P, 7%, 7/1/21 Baa1/A-- 4,000,000 4,058,727
Puerto Rico Housing Finance Corp.
Single Family Mtg. Revenue Bonds, Portfolio 1,
Series B, 7.65%, 10/15/22 Aaa/AAA 1,100,000 1,133,097
------------
17,431,387
------------ ------------
TOTAL INVESTMENTS, AT VALUE (COST $251,584,072) 97.5%
233,918,905
------------ ------------
OTHER ASSETS NET OF LIABILITIES 2.5 5,986,979
------------ ------------
NET ASSETS 100.0% $239,905,884
============
</TABLE>
1. Represents the current interest rate for a variable rate bond. These
variable rate bonds known as "inverse floaters" pay interest at a rate
that varies inversely with short-term interest rates. As interest rates
rise, inverse floaters produce less current income. Their price may be
more volatile than the price of a comparable fixed-rate security. Inverse
floaters amount to $31,277,610 or 13% of the Fund's net assets, at
December 31, 1994.
See accompanying Notes to Financial Statements.
10 Oppenheimer California Tax-Exempt Fund
<PAGE>
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES December 31, 1994
<S> <C> <C>
ASSETS Investments, at value (cost $251,584,072)--see accompanying statement $ 233,918,905
Cash 337,526
Receivables:
Interest 5,314,901
Investments sold 2,137,060
Shares of beneficial interest sold 295,248
Other 45,415
-------------
Total assets 242,049,055
LIABILITIES Payables and other liabilities:
Shares of beneficial interest redeemed 911,990
Dividends 901,768
Distribution and service plan fees--Note 4 158,414
Other 170,999
-------------
Total liabilities 2,143,171
NET ASSETS $ 239,905,884
=============
COMPOSITION OF Paid-in capital $ 258,829,341
NET ASSETS Undistributed (overdistributed) net investment income (170,011)
Accumulated net realized gain (loss) from investment transactions (1,088,278)
Net unrealized appreciation (depreciation) on investments--Note 3 (17,665,168)
-------------
Net assets $ 239,905,884
=============
NET ASSET VALUE Class A Shares:
PER SHARE Net asset value and redemption price per share
(based on net assets of $219,682,026 and 23,255,729
shares of beneficial interest outstanding) $9.45
Maximum offering price per share (net asset
value plus sales charge of 4.75% of offering price) $9.92
Class B Shares:
Net asset value, redemption price and offering price per share (based on net assets
of $20,223,858 and 2,141,617 shares of beneficial interest outstanding) $9.44
</TABLE>
See accompanying Notes to Financial Statements.
11 Oppenheimer California Tax-Exempt Fund
<PAGE>
STATEMENT OF OPERATIONS For the Year Ended December
31, 1994
<TABLE>
<S> <C> <C>
INVESTMENT INCOME Interest $18,420,122
EXPENSES Management fees--Note 4 1,560,360
Distribution and service plan fees:
Class A--Note 4 611,139
Class B--Note 4 165,277
Transfer and shareholder servicing agent fees--Note 4 140,732
Trustees' fees and expenses 55,562
Shareholder reports 45,421
Legal and auditing fees 33,707
Custodian fees and expenses 23,145
Registration and filing fees--Class B 4,090
Other 32,365
------------
Total expenses 2,671,798
NET INVESTMENT INCOME (LOSS) 15,748,324
REALIZED AND UNREALIZED Net realized gain (loss) on investments (999,410)
GAIN (LOSS) ON Net change in unrealized appreciation or depreciation on investments (39,209,125)
INVESTMENTS ------------
Net realized and unrealized gain (loss) on investments (40,208,535)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS
$(24,460,211)
============
</TABLE>
See accompanying Notes to Financial Statements.
12 Oppenheimer California Tax-Exempt Fund
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Year Ended December 31,
1994 1993
-----------------------------
<S> <C> <C> <C>
OPERATIONS Net investment income (loss) $ 15,748,324 $ 14,239,272
Net realized gain (loss) on investments (999,410) 1,489,475
Net change in unrealized appreciation or depreciation
on investments (39,209,125) 14,305,322
------------ ------------
Net increase (decrease) in net assets resulting from operations (24,460,211) 30,034,069
DIVIDENDS AND Dividends from net investment income:
DISTRIBUTIONS TO Class A ($.605 and $.648 per share, respectively) (14,920,148)
(14,653,931)
SHAREHOLDERS Class B ($.526 and $.361 per share, respectively) (857,567) (163,836)
Distributions from net realized gain on investments:
Class A ($.072 per share) -- (1,740,286)
Class B ($.072 per share) -- (60,371)
BENEFICIAL INTEREST Net increase (decrease) in net assets resulting from Class A
TRANSACTIONS beneficial interest transactions--Note 2 (8,912,194) 48,808,693
Net increase (decrease) in net assets resulting from Class B
beneficial interest transactions--Note 2 12,644,856 9,837,578
NET ASSETS Total increase (decrease) (36,505,264) 72,061,916
Beginning of period 276,411,148 204,349,232
------------ ------------
End of period [including undistributed (overdistributed) net investment
income of $(170,011) and $275,259, respectively] $239,905,884 $276,411,148
============
============
</TABLE>
See accompanying Notes to Financial Statements.
13 Oppenheimer California Tax-Exempt Fund
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
CLASS A
------------------------------------------------------------------------
YEAR ENDED
DECEMBER 31,
1994 1993 1992 1991 1990 1989
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING DATA:
Net asset value, beginning of period $ 10.97 $ 10.35 $ 10.22 $ 9.86 $ 9.94 $ 9.58
Income (loss) from investment operations:
Net investment income .60 .62 .61 .66 .67 .71
Net realized and unrealized gain
(loss) on investments (1.51) .72 .20 .38 (.07) .37
------- ------- ------- ------- ------ -------
Total income (loss) from investment
operations (.91) 1.34 .81 1.04 .60 1.08
Dividends and distributions to shareholders:
Dividends from net investment income (.61) (.65) (.60) (.62) (.68) (.70)
Distributions from net realized
gain on investments -- (.07) (.08) (.06) -- (.02)
------- ------- ------- ------- ------ -------
Total dividends and distributions
to shareholders (.61) (.72) (.68) (.68) (.68) (.72)
Net asset value, end of period $ 9.45 $ 10.97 $ 10.35 $ 10.22 $ 9.86 $ 9.94
======= ======= ======= =======
====== =======
TOTAL RETURN, AT NET ASSET VALUE(3) (8.49)% 13.26% 8.28% 10.93% 6.38%
11.62%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(in thousands) $219,682 $266,490 $204,349 $145,163 $92,514 $52,342
Average net assets (in thousands) $248,850 $245,193 $174,055 $115,661 $72,879 $29,308
Number of shares outstanding at
end of period (in thousands) 23,256 24,290 19,738 14,200 9,386 5,268
Ratios to average net assets:
Net investment income 5.99% 5.74% 6.07% 6.52% 6.80% 7.11%
Expenses, before voluntary
assumption by the Manager .96% .97% 1.07% 1.05% 1.05% 1.09%
Expenses, net of voluntary
assumption by the Manager N/A N/A N/A .73% .53% .16%
Portfolio turnover rate(5) 21.9% 13.7% 26.8% 26.6% 14.5% 20.7%
</TABLE>
<TABLE>
<CAPTION>
CLASS B
--------------------------
YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31,
1988(2) 1994 1993(1)
------ ---- ------
<S> <C> <C> <C>
PER SHARE OPERATING DATA:
Net asset value, beginning of period $9.53 $10.98 $10.72
Income (loss) from investment operations:
Net investment income .09 .54 .35
Net realized and unrealized gain
(loss) on investments .05 (1.55) .34
------ ------- ------
Total income (loss) from investment
Operations .14 (1.01) .69
Dividends and distributions to shareholders:
Dividends from net investment income (.09) (.53) (.36)
Distributions from net realized
gain on investments -- -- (.07)
------ ------- ------
Total dividends and distributions
to shareholders (.09) (.53) (.43)
Net asset value, end of period $9.58 $ 9.44 $10.98
====== ======= ======
TOTAL RETURN, AT NET ASSET VALUE(3) 1.43% (9.39)% 6.66%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(in thousands) $5,825 $20,224 $9,921
Average net assets (in thousands) $2,377 $16,552 $5,218
Number of shares outstanding at
end of period (in thousands) 608 2,142 904
Ratios to average net assets:
Net investment income 5.95%(4) 5.17% 4.57%(4)
Expenses, before voluntary
assumption by the Manager 2.25%(4) 1.73% 1.79%(4)
Expenses, net of voluntary
assumption by the Manager --(4) N/A N/A
Portfolio turnover rate(5) 0.0% 21.9% 13.7%
</TABLE>
1. For the period from May 1, 1993 (inception of offering) to December 31,
1993.
2. For the period from November 3, 1988 (commencement of operations) to
December 31, 1988.
3. Assumes a hypothetical initial investment on the business day before
the first day of the fiscal period, with all dividends and distributions
reinvested in additional shares on the reinvestment date, and redemption
at the net asset value calculated on the last business day of the fiscal
period. Sales charges are not reflected in the total returns.
4. Annualized.
5. The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities
owned during the period. Securities with a maturity or expiration date at
the time of acquisition of one year or less are excluded from the
calculation. Purchases and sales of investment securities (excluding
short-term securities) for the year ended December 31, 1994 were
$57,137,136 and $58,857,084, respectively.
See accompanying Notes to Financial Statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
Openheimer California Tax-Exempt Fund (the Fund) is registered under the
Investment Company Act of 1940, as amended, as a non-diversified, open-end
management investment company. The Fund's investment advisor is
Oppenheimer Management Corporation (the Manager). The Fund offers both
Class A and Class B shares. Class A shares are sold with a front-end sales
charge. Class B shares may be subject to a contingent deferred sales
charge. Both classes of shares have identical rights to earnings, assets
and voting privileges, except that each class has its own distribution
and/or service plan, expenses directly attributable to a particular class
and exclusive voting rights with respect to matters affecting a single
class. Class B shares will automatically convert to Class A shares six
years after the date of purchase. The following is a summary of
significant accounting policies consistently followed by the Fund.
INVESTMENT VALUATION. Portfolio securities are valued at 4:00 p.m. (New
York time) 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 asked price or the last sale price on the prior trading day. Long-term
debt securities are valued by a portfolio pricing service approved by the
Board of Trustees. Long-term debt securities which cannot be valued by the
approved portfolio pricing service are valued 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
under consistently applied procedures established by the Board of Trustees
to determine fair value in good faith. Short-term debt securities having
a remaining maturity of 60 days or less are valued at cost (or last
determined market value) adjusted for amortization to maturity of any
premium or discount.
ALLOCATION OF INCOME, EXPENSES AND GAINS AND LOSSES.
Income, expenses (other than those attributable to a specific class) and
gains and losses are allocated daily to each class of shares based upon
the relative proportion of net assets represented by such class. Operating
expenses directly attributable to a specific class are charged against the
operations of that class.
FEDERAL INCOME TAXES. The Fund intends to continue to comply with
provisions of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable income, including any net
realized gain on investments not offset by loss carryovers, to
shareholders. Therefore, no federal income tax provision is required. At
December 31, 1994, the Fund had available for federal income tax purposes
an unused capital loss carryover of approximately $841,000 which will
expire in 2002.
TRUSTEES' FEES AND EXPENSES. The Fund has adopted a nonfunded retirement
plan for the Fund's independent trustees. Benefits are based on years of
service and fees paid to each trustee during the years of service. During
the year ended December 31, 1994, the Fund's projected benefit obligations
were reduced by $23,924, resulting in an accumulated liability of $40,422.
No payments have been made under the plan.
DISTRIBUTIONS TO SHAREHOLDERS. The Fund intends to declare dividends
separately for Class A and Class B shares from net investment income each
day the New York Stock Exchange is open for business and pay such
dividends monthly. Distributions from net realized gains on investments,
if any, will be declared at least once each year.
CHANGE IN ACCOUNTING CLASSIFICATION OF DISTRIBUTIONS TO SHAREHOLDERS. Net
investment income (loss) and net realized gain (loss) may differ for
financial statement and tax purposes primarily because of premium
amortization. The character of the distributions made during the year from
net investment income or net realized gains may differ from their ultimate
characterization for federal income tax purposes. Also, due to timing of
dividend distributions, the fiscal year in which amounts are distributed
may differ from the year that the income or realized gain (loss) was
recorded by the Fund. Effective January 1, 1994, the Fund adopted
Statement of Position 93-2: Determination, Disclosure, and Financial
Statement Presentation of Income, Capital Gain, and Return of Capital
Distributions by Investment Companies. As a result, the Fund changed the
classification of distributions to shareholders to better disclose the
differences between financial statement amounts and distributions
determined in accordance with income tax regulations. Accordingly,
subsequent to December 31, 1993, amounts have been reclassified to reflect
a decrease in undistributed net investment income of $293,771 and an
increase in accumulated net realized gain on investments of $293,771.
During the year ended December 31, 1994, in accordance with Statement of
Position 13-2, undistributed net investment income was decreased by
$122,108 and accumulated net realized loss on investments was decreased
by the same amount.
Oppenheimer California Tax-Exempt Fund
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Continued)
1. SIGNIFICANT ACCOUNTING POLICIES (continued)
Investment transactions are accounted for on the date the investments are
purchased or sold (trade date). Original issue discount on securities
purchased is amortized over the life of the respective securities, in
accordance with federal income tax requirements. Realized gains and losses
on investments and unrealized appreciation and depreciation are determined
on an identified cost basis, which is the same basis used for federal
income tax purposes. For bonds acquired after April 30, 1993, accrued
market discount is recognized at maturity or disposition as taxable
ordinary income. Taxable ordinary income is realized to the extent of the
lesser of gain or accrued market discount.
2. SHARES OF BENEFICIAL INTEREST
The Fund has authorized an unlimited number of no par Value shares of
beneficial interest of each class. Transactions in shares of beneficial
interest were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1994 YEAR ENDED DECEMBER
31, 1993(1)
---------------------------- ------------------------------
SHARES AMOUNT SHARES AMOUNT
------ ------ ------ ------
<S> <C> <C> <C> <C>
Class A:
Sold 4,682,338 $ 47,539,656 7,029,778 $ 75,603,080
Dividends and distributions reinvested 895,069 9,014,619 913,845 9,891,046
Redeemed (6,611,428) (65,466,469) (3,391,817) (36,685,433)
---------- ------------ ---------- ------------
Net increase (decrease) (1,034,021) $ (8,912,194) 4,551,806 $ 48,808,693
========== ============
========== ============
Class B:
Sold 1,595,370 $ 16,152,328 916,412 $ 9,977,857
Dividends and distributions reinvested 52,979 528,961 12,695 139,138
Redeemed (410,584) (4,036,433) (25,255) (279,417)
---------- ------------ ---------- ------------
Net increase 1,237,765 $ 12,644,856 903,852 $ 9,837,578
========== ============
========== ============
</TABLE>
1. For the year ended December 31, 1993 for Class A shares and for the
period from May 1, 1993 (inception of offering) to December 31, 1993 for
Class B Shares.
3. UNREALIZED GAINS AND LOSSES ON INVESTMENTS
At December 31, 1994, net unrealized depreciation on investments of
$17,665,168 was composed of gross appreciation of $2,660,707, and gross
depreciation of $20,325,875.
4. MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES
Management fees paid to the Manager were in accordance with the investment
advisory agreement with the Fund which provides for an annual fee of .60%
on the first $200 million of net assets, .55% on the next $100 million,
.50% on the next $200 million, .45% on the next $250 million, .40% on the
next $250 million and .35% on net assets in excess of $1 billion. The
Manager has agreed to assume Fund expenses (with specified exceptions) in
excess of the regulatory limitation of the State of California.
For the year ended December 31, 1994, commissions (sales charges paid by
investors) on sales of Class A shares totaled $999,822, of which $193,221
was retained by Oppenheimer Funds Distributor, Inc. (OFDI), a subsidiary
of the Manager, as general distributor, and by an affiliated
broker/dealer. During the year ended December 31, 1994, OFDI received
contingent deferred sales charges of $79,893 upon redemption of Class B
shares.
Oppenheimer Shareholder Services (OSS), a division of the Manager, is the
transfer and shareholder servicing agent for the Fund, and for other
registered investment companies. OSS's total costs of providing such
services are allocated ratably to these companies.
Under separate approved plans, each class may expend up to .25% of its net
assets annually reimburse OFDI for costs incurred in connection with the
personal service and maintenance of accounts that hold shares of the Fund,
including amounts paid to brokers, dealers, banks and other institutions.
In addition, Class B shares are subject to an asset-based sales charge of
.75% of net assets annually, to reimburse OFDI for sales commissions paid
from its own resources at the time of sale and associated financing costs.
In the event of termination or discontinuance of the Class B plan, the
Board of Trustees may allow the Fund to continue payment of the
asset-based sales charge to OFDI for distribution expenses incurred on
Class B shares sold prior to termination or discontinuance of the plan.
During the year ended December 31, 1994, OFDI paid $19,407 to an
affiliated broker/dealer as reimbursement for Class A personal service and
maintenance expenses and retained $157,962 as reimbursement for Class B
sales commissions and service fee advances, as well as financing costs.
<PAGE>
APPENDIX A
Description of Ratings Categories
Municipal Bonds
- -- Moody's Investor Services, Inc. The ratings of Moody's
Investors Service, Inc. ("Moody's") for Municipal Bonds are Aaa,
Aa, A, Baa, Ba, B, Caa, Ca and C. Municipal Bonds rated "Aaa" are
judged to be of the "best quality." The rating of Aa is assigned
to bonds which are of "high quality by all standards," but as to
which margins of protection or other elements make long-term risks
appear somewhat larger than "Aaa" rated Municipal Bonds. The "Aaa"
and "Aa" rated bonds comprise what are generally known as "high
grade bonds." Municipal Bonds which are rated "A"
by Moody's possess many favorable investment attributes and are
considered "upper medium grade obligations." Factors giving
security to principal and interest of A rated bonds are considered
adequate, but elements may be present which suggest a
susceptibility to impairment at some time in the future. Municipal
Bonds rated "Baa" are considered "medium grade" obligations. They
are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and in fact have speculative
characteristics as well. Bonds which are rated "Ba" are judged to
have speculative elements; their future cannot be considered as
well assured. Often the protection of interest and principal
payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class. Bonds which are rated
"B" generally lack characteristics of the desirable investment.
Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be
small. Bonds which are rated "Caa" are of poor standing. Such
issues may be in default or there may be present elements of danger
with respect to principal or interest. Bonds which are rated "Ca"
represent obligations which are speculative in a high degree.
Such issues are often in default or have other marked shortcomings.
Bonds which are rated "C" are the lowest rated class of bonds, and
issues so rated can be regarded as having extremely poor prospects
of ever attaining any real investment standing. Those bonds in the
Aa, A, Baa, Ba and B groups which Moody's believes possess the
strongest investment attributes are designated Aa1, A1, Baa1, Ba1
and B1 respectively.
In addition to the alphabetic rating system described above,
Municipal Bonds rated by Moody's which have a demand feature that
provides the holder with the ability to periodically tender ("put")
the portion of the debt covered by the demand feature, may also
have a short-term rating assigned to such demand feature. The
short-term rating uses the symbol VMIG to distinguish
characteristics which include payment upon periodic demand rather
than fund or scheduled maturity dates and potential reliance upon
external liquidity, as well as other factors. The highest
investment quality is designated by the VMIG 1 rating and the
lowest by VMIG 4.
- -- Standard & Poor's Corporation. The ratings of Standard & Poor's
Corporation ("S&P") for Municipal Bonds are AAA (Prime), AA (High
Grade), A (Good Grade), BBB (Medium Grade), BB, B, CCC, CC, and C
(speculative grade). Bonds rated in the top four categories (AAA,
AA, A, BBB) are commonly referred to as "investment grade."
Municipal Bonds rated AAA are "obligations of the highest quality."
The rating of AA is accorded issues with investment
characteristics "only slightly less marked than those of the prime
quality issues." The rating of A describes "the third strongest
capacity for payment of debt service." Principal and interest
payments on bonds in this category are regarded as safe. It
differs from the two higher ratings because, with respect to
general obligations bonds, there is some weakness, either in the
local economic base, in debt burden, in the balance between
revenues and expenditures, or in quality of management. Under
certain adverse circumstances, any one such weakness might impair
the ability of the issuer to meet debt obligations at some future
date. With respect to revenue bonds, debt service coverage is
good, but not exceptional. Stability of the pledged revenues could
show some variations because of increased competition or economic
influences on revenues. Basic security provisions, while
satisfactory, are less stringent. Management performance appears
adequate. The BBB rating is the lowest "investment grade" security
rating. The difference between A and BBB ratings is that the
latter shows more than one fundamental weakness, or one very
substantial fundamental weakness, whereas the former shows only one
deficiency among the factors considered. With respect to revenue
bonds, debt coverage is only fair. Stability of the pledged
revenues could show variations, with the revenue flow possibly
being subject to erosion over time. Basic security provisions are
no more than adequate. Management performance could be stronger.
Bonds rated "BB" have less near-term vulnerability to default than
other speculative issues. However, it faces major ongoing
uncertainties or exposure to adverse business, financial, or
economic conditions which would lead to inadequate capacity to meet
timely interest and principal payments. Bonds rated "B" have a
greater vulnerability to default, but currently has the capacity to
meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. Bonds rated "CCC"
have a current identifiable vulnerability to default, and is
dependent upon favorable business, financial, and economic
conditions to meet timely payment of interest and repayment of
principal. In the event of adverse business, financial, or
economic conditions, it is not likely to have the capacity to pay
interest and repay principal. Bonds noted "CC" typically are debt
subordinated to senior debt which is assigned on actual or implied
"CCC" debt rating. Bonds rated "C" typically are debt subordinated
to senior debt which is assigned an actual or implied "CCC-" debt
rating. The "C" rating may be used to cover a situation where a
bankruptcy petition has been filed, but debt service payments are
continued. Bonds rated "D" are in payment default. The "D" rating
category is used when interest payments or principal payments are
not made on the date due even if the applicable grace period has
not expired, unless S&P believes that such payments will be made
during the grace period. The "D" rating also will be used upon the
filing of a bankruptcy petition if debt service payments are
jeopardized.
The ratings from AA to CCC may be modified by the addition of a
plus or minus sign to show relative standing within the major
rating categories.
- -- Fitch. The ratings of Fitch Investors Service, Inc. for
Municipal Bonds are AAA, AA, A, BBB, BB, B, CCC, CC, C, DDD, DD,
and D. Municipal Bonds rated AAA are judged to be of the "highest
credit quality." The rating of AA is assigned to bonds of "very
high credit quality." Municipal Bonds which are rated A by Fitch
are considered to be of "high credit quality." The rating of BBB
is assigned to bonds of "satisfactory credit quality." The A and
BBB rated bonds are more vulnerable to adverse changes in economic
conditions than bonds with higher ratings. Bonds rated AAA, AA, A
and BBB are considered to be of investment grade quality. Bonds
rated below BBB are considered to be of speculative quality. The
ratings of "BB" is assigned to bonds considered by Fitch to be
"speculative." The rating of "B" is assigned to bonds considered
by Fitch to be "highly speculative." Bonds rated "CCC" have
certain identifiable characteristics which, if not remedied, may
lead to default. Bonds rated "CC" are minimally protected.
Default in payment of interest and/or principal seems probable over
time. Bonds rated "C" are in imminent default in payment of
interest or principal. Bonds rated "DDD", "DD" and "D" are in
default on interest and/or principal payments. DDD represents the
highest potential for recovery on these bonds, and D represents the
lowest potential for recovery.
Municipal Notes
-- Moody's ratings for state and municipal notes and other
short-term loans are designated Moody's Investment Grade ("MIG").
Notes bearing the designation MIG-1 are of the best quality,
enjoying strong protection from established cash flows of funds for
their servicing or from established and broad-based access to the
market for financing. Notes bearing the designation "MIG-2" are of
high quality with ample margins of protection, although not as
large as notes rated "MIG." Such short-term notes which have
demand features may also carry a rating using the symbol VMIG as
described above, with the designation MIG-1/VMIG 1 denoting best
quality, with superior liquidity support in addition to those
characteristics attributable to the designation MIG-1.
-- S&P's rating for Municipal Notes due in three years or less
are SP-1, SP-2, and SP-3. SP-1 describes issues with a very strong
capacity to pay principal and interest and compares with bonds
rated A by S&P; if modified by a plus sign, it compares with bonds
rated AA or AAA by S&P. SP-2 describes issues with a satisfactory
capacity to pay principal and interest, and compares with bonds
rated BBB by S&P. SP-3 describes issues that have a speculative
capacity to pay principal and interest.
-- Fitch's rating for Municipal Notes due in three years or
less are F-1+, F-1, F-2, F-3, F-S and D. F-1+ describes notes with
an exceptionally strong credit quality and the strongest degree of
assurance for timely payment. F-1 describes notes with a very
strong credit quality and assurance of timely payment is only
slightly less in degree than issues rated F-1+. F-2 describes
notes with a good credit quality and a satisfactory assurance of
timely payment, but the margin of safety is not as great for issues
assigned F-1+ or F-1 ratings. F-3 describes notes with a fair
credit quality and an adequate assurance of timely payment, but
near-term adverse changes could cause such securities to be rated
below investment grade. F-S describes notes with weak credit
quality. Issues rated D are in actual or imminent payment default.
Corporate Debt
The "other debt securities" included in the definition of
temporary investments are corporate (as opposed to municipal) debt
obligations. The Moody's, S&P and Fitch corporate debt ratings
shown do not differ materially from those set forth above for
Municipal Bonds.
Commercial Paper
-- Moody's The ratings of commercial paper by Moody's are
Prime-1, Prime-2, Prime-3 and Not Prime. Issuers rated Prime-1
have a superior capacity for repayment of short-term promissory
obligations. Issuers rated Prime-2 have a strong capacity for
repayment of short-term promissory obligations. Issuers rated
Prime-3 have an acceptable capacity for repayment of short-term
promissory obligations. Issuers rated Not Prime do not fall within
any of the Prime rating categories.
-- S&P The ratings of commercial paper by S&P are A-1, A-2,
A-3, B, C, and D. A-1 indicates that the degree of safety
regarding timely payment is strong.A-2 indicates capacity for
timely payment is satisfactory. However, the relative degree of
safety is not as high as for issues designated A-1. A-3 indicates
an adequate capacity for timely payments. They are, however, more
vulnerable to the adverse effects of changes in circumstances than
obligations carrying the higher designations. B indicates only
speculative capacity for timely payment. C indicates a doubtful
capacity for payment. D is assigned to issues in default.
-- Fitch The ratings of commercial paper by Fitch are similar
to its ratings of Municipal Notes, above.
Appendix B
TAX-EQUIVALENT YIELDS
The equivalent yield tables below compare tax-free income with taxable
income under Federal individual income tax rates, and California state
individual income tax rates effective January 1, 1995. "Combined Taxable
Income" refers to the net amount subject to Federal and California income
taxes after deductions and exemptions. The tables assume that an
investor's highest tax bracket applies to the change in taxable income
resulting from a switch between taxable and non-taxable investments, and
that state tax payments are currently deductible for Federal tax purposes
and that the investor is not subject to Federal or state alternative
minimum tax. The income tax brackets are subject to indexing in future
years to reflect changes in the Consumer Price Index. The brackets do not
reflect the phaseout of itemized deductions and personal exemptions at
higher income levels, resulting in higher effective tax rates (and tax
equivalent yields). For years beginning after January 1, 1996 the top
marginal California personal tax rate will be reduced to 9.3% and the top
combined marginal tax rate will be 45.22%.
<TABLE>
<CAPTION>
Combined Taxable Income
Oppenheimer California Tax-Exempt Fund Yield of:
Joint Return Effective Tax Bracket 3.0% 3.5% 4.0% 4.5% 5.0% 5.5% 6.0%
But
Over Not Over Federal Cal. Combined Is Approximately Equivalent to a Taxable Yield of:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 22,384 $ 35,324 15.00% 4.00% 18.40% 3.68% 4.29% 4.90% 5.51% 6.13% 6.74% 7.35%
$ 35,324 $ 39,000 15.00% 6.00% 20.10% 3.75% 4.38% 5.01% 5.63% 6.26% 6.88% 7.51%
$ 39,000 $ 49,038 28.00% 6.00% 32.32% 4.43% 5.17% 5.91% 6.65% 7.39% 8.13% 8.87%
$ 49,038 $ 61,974 28.00% 8.00% 33.76% 4.53% 5.28% 6.04% 6.79% 7.55% 8.30% 9.06%
$ 61,974 $ 94,250 28.00% 9.30% 34.70% 4.59% 5.36% 6.13% 6.89% 7.66% 8.42% 9.19%
$ 94,250 $143,600 31.00% 9.30% 37.42% 4.79% 5.59% 6.39% 7.19% 7.99% 8.79% 9.59%
$143,600 $214,928 36.00% 9.30% 41.95% 5.17% 6.03% 6.89% 7.75% 8.61% 8.47% 10.34%
$214,928 $256,500 36.00% 10.00% 42.40% 5.21% 6.08% 6.94% 7.81% 8.68% 9.55% 10.42%
$256,500 $429,858 39.60% 10.00% 45.64% 5.52% 6.44% 7.36% 8.28% 9.20% 10.12% 11.04%
$429,858 39.60% 11.00% 46.24% 5.58% 6.51% 7.44% 8.37% 9.30% 10.23% 11.16%
</TABLE>
<TABLE>
<CAPTION>
Combined Taxable Income
Oppenheimer California Tax-Exempt Fund Yield of:
Joint Return Effective Tax Bracket 6.5% 7.0%
But
Over Not Over Federal Cal. Combined Is Approximately Equivalent to a Taxable Yield of:
<S> <C> <C> <C> <C> <C> <C>
$ 22,384 $ 35,324 15.00% 4.00% 18.40% 7.97% 8.58%
$ 35,324 $ 39,000 15.00% 6.00% 20.10% 8.14% 8.76%
$ 39,000 $ 49,038 28.00% 6.00% 32.32% 9.60% 10.34%
$ 49,038 $ 61,974 28.00% 8.00% 33.76% 9.81% 10.57%
$ 61,974 $ 94,250 28.00% 9.30% 34.70% 9.95% 10.72%
$ 94,250 $143,600 31.00% 9.30% 37.42% 10.39% 11.19%
$143,600 $214,928 36.00% 9.30% 41.95% 11.20% 12.06%
$214,928 $256,500 36.00% 10.00% 42.40% 11.28% 12.15%
$256,500 $429,858 39.60% 10.00% 45.64% 11.96% 12.88%
$429,858 39.60% 11.00% 46.24% 12.09% 13.02%
</TABLE>
<TABLE>
<CAPTION>
Single Return:
Oppenheimer California Tax-Exempt Fund Yield of:
Effective Tax Bracket 3.0% 3.5% 4.0% 4.5% 5.0% 5.5% 6.0%
But
Over Not Over Federal Cal. Combined Is Approximately Equivalent to a Taxable Yield of:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 17,662 $ 23,350 15.00% 6.00% 20.10% 3.75% 4.38% 5.01% 5.63% 6.26% 6.88% 7.51%
$ 23,350 $ 24,519 28.00% 6.00% 32.32% 4.43% 5.17% 5.91% 6.65% 7.39% 8.13% 8.87%
$ 24,519 $ 30,987 28.00% 8.00% 33.76% 4.53% 5.28% 6.04% 6.79% 7.55% 8.30% 9.06%
$ 30,987 $ 56,550 28.00% 9.30% 34.70% 4.59% 5.36% 6.13% 6.89% 7.66% 8.42% 9.19%
$ 56,550 $107,464 31.00% 9.30% 37.42% 4.79% 5.59% 6.39% 7.19% 7.99% 8.79% 9.59%
$107,464 $117,950 31.00% 10.00% 37.90% 4.83% 5.64% 6.44% 7.25% 8.05% 8.86% 9.66%
$117,950 $214,928 36.00% 9.30% 41.95% 5.17% 6.03% 6.89% 7.75% 8.61% 8.47% 10.34%
$214,928 $256,500 36.00% 10.00% 42.40% 5.21% 6.08% 6.94% 7.81% 8.68% 9.55% 10.42%
$256,500 $429,858 39.60% 10.00% 45.64% 5.52% 6.44% 7.36% 8.28% 9.20% 10.12% 11.04%
$429,858 39.60% 11.00% 46.24% 5.58% 6.51% 7.44% 8.37% 9.30% 10.23% 11.16%
</TABLE>
<TABLE>
<CAPTION>
Single Return:
Oppenheimer California Tax-Exempt Fund Yield of:
Effective Tax Bracket 6.5% 7.0%
But
Over Not Over Federal Cal. Combined Is Approximately Equivalent to a Taxable Yield of:
<S> <C> <C> <C> <C> <C> <C>
$ 17,662 $ 23,350 15.00% 6.00% 20.10% 8.14% 8.76%
$ 23,350 $ 24,519 28.00% 6.00% 32.32% 9.60% 10.34%
$ 24,519 $ 30,987 28.00% 8.00% 33.76% 9.81% 10.57%
$ 30,987 $ 56,550 28.00% 9.30% 34.70% 9.95% 10.72%
$ 56,550 $107,464 31.00% 9.30% 37.42% 10.39% 11.19%
$107,464 $117,950 31.00% 10.00% 37.90% 10.47% 11.27%
$117,950 $214,928 36.00% 9.30% 41.95% 11.28% 12.15%
$214,928 $256,500 36.00% 10.00% 42.40% 11.41% 12.29%
$256,500 $429,858 39.60% 10.00% 45.64% 12.09% 13.02%
Appendix C
Industry Classifications
Industry Classifications
General Obligation Bonds
Special Tax Bonds
Lease/Rental
Revenue
Education
Hospitals
Housing
Transportation
Utilities
Student Loans
Corporate Backed Municipals
Industrial Development
Pollution Control
<PAGE>
Investment Adviser
Oppenheimer Management Corporation
Two World Trade Center
New York, New York 10048-0203
Distributor
Oppenheimer Funds Distributor, Inc.
Two World Trade Center
New York, New York 10048-0203
Transfer Agent and Shareholder Servicing Agent
Oppenheimer Shareholder Services
P.O. Box 5270
Denver, Colorado 80217
1-800-525-7048
Custodian of Portfolio Securities
Citibank, N.A.
399 Park Avenue
New York, New York 10043
Independent Auditors
KPMG Peat Marwick LLP
707 Seventeenth Street
Denver, Colorado 80202
Legal Counsel
Gordon Altman Butowsky Weitzen
Shalov & Wein
114 West 47th Street
New York, New York 10036
</TABLE>
