Oppenheimer
California Tax-Exempt Fund
Prospectus dated April 20, 1996
Oppenheimer California Tax-Exempt Fund is a mutual fund that seeks
as high a level of current interest income exempt from Federal and
California income taxes for individual investors as is consistent
with preservation of capital. Under normal market conditions, the
Fund invests at least 80% of its assets in Municipal Securities and
at least 65% of its total assets in California Municipal
Securities. However, in times of unstable economic or market
conditions, the Fund's investment manager may deem it advisable to
temporarily invest an unlimited amount of the Fund's total assets
in certain taxable instruments. The Fund also uses "hedging"
instruments, to seek to reduce the risks of market fluctuations
that affect the value of the securities the Fund holds. You should
carefully review the risks associated with an investment in the
Fund. Please refer to "Investment Policies and Strategies" for more
information about the types of securities the Fund invests in and
the risks of investing in the Fund.
This Prospectus explains concisely what you should know before
investing in the Fund. Please read this Prospectus carefully and
keep it for future reference. You can find more detailed
information about the Fund in the April 20, 1996 Statement of
Additional Information. For a free copy, call OppenheimerFunds
Services, the Fund's Transfer Agent, at 1-800-525-7048, or write to
the Transfer Agent at the address on the back cover. The Statement
of Additional Information has been filed with the Securities and
Exchange Commission ("SEC") and is incorporated into this
Prospectus by reference (which means that it is legally part of
this Prospectus).
[Logo] OppenheimerFunds
Shares of the Fund are not deposits or obligations of any bank, are
not guaranteed by any bank, are not insured by the F.D.I.C. or any
other agency, and involve investment risks including the possible
loss of the principal amount invested.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.<PAGE>
<PAGE>
Contents
ABOUT THE FUND
Expenses
A Brief Overview of the Fund
Financial Highlights
Investment Objective and Policies
How the Fund is Managed
Performance of the Fund
ABOUT YOUR ACCOUNT
How to Buy Shares
Class A Shares
Class B Shares
Class C Shares
Special Investor Services
AccountLink
Automatic Withdrawal and Exchange Plans
Reinvestment Privilege
How to Sell Shares
By Mail
By Telephone
By Checkwriting
How to Exchange Shares
Shareholder Account Rules and Policies
Dividends, Capital Gains and Taxes
Appendix: Special Sales Charge Arrangements for
Certain Persons
<PAGE>
<PAGE>
ABOUT THE FUND
Expenses
The Fund pays a variety of expenses directly for management of
its assets, administration, distribution of its shares and other
services, and those expenses are subtracted from the Fund's assets
to calculate the Fund's net asset value per share. All shareholders
therefore pay those expenses indirectly. Shareholders pay other
expenses directly, such as sales charges and account transaction
charges. The following tables are provided to help you understand
your direct expenses of investing in the Fund and your share of the
Fund's business operating expenses that you will bear indirectly.
The numbers below are based on the Fund's expenses during its last
fiscal year ended December 31, 1995.
Shareholder Transaction Expenses are charges you pay when
you buy or sell shares of the Fund. Please refer to "About Your
Account," from pages ___ through ___ for an explanation of how and
when these charges apply.
<TABLE>
<CAPTION>
Class A Class B Class C
Shares Shares Shares
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Maximum Sales 4.75% None None
Charge on Purchases
(as a % of offering price)
- ---------------------------------------------------------------------------
Sales Charge on None None None
Reinvested Dividends
- ---------------------------------------------------------------------------
Deferred Sales Charge None(1) 5% in the 1% if
first year, shares are
declining to redeemed within
1% in the 12 months
sixth year of purchase(2)
and eliminated
thereafter(2)
- ---------------------------------------------------------------------------
Exchange Fee None None None
</TABLE>
(1) If you invest $1 million or more in Class A shares, you may
have to pay a sales charge of up to 1% if you sell your shares
within 18 calendar months from the end of the calendar month in
which you purchased those shares. See "How to Buy Shares - Buying
Class A Shares," below.
(2) See "How to Buy Shares - Buying Class B Shares" and "How to Buy
Shares - Buying Class C Shares," below for more information on the
contingent deferred sales charges.
Annual Fund Operating Expenses are paid out of the Fund's
assets and represent the Fund's expenses in operating its business.
For example, the Fund pays management fees to its investment
adviser, OppenheimerFunds, Inc. (referred to in this Prospectus as
the "Manager"). The rates of the Manager's fees are set forth in
"How the Fund is Managed," below. The Fund has other regular
expenses for services, such as transfer agent fees, custodial fees
paid to the bank that holds the Fund's portfolio securities, audit
fees and legal expenses. Those expenses are detailed in the Fund's
Financial Statements in the Statement of Additional Information.
Annual Fund Operating Expenses as a
Percentage of Average Net Assets
Class A Class B Class C
Shares Shares Shares
- -------------------------------------------------------------------
Management Fees 0.58% 0.58% 0.58%
- -------------------------------------------------------------------
12b-1 Plan Fees 0.25% 1.00% 1.00%
- -------------------------------------------------------------------
Other Expenses 0.12% 0.14% 0.14%
- -------------------------------------------------------------------
Total Fund Operating Expenses 0.95% 1.72% 1.72%
The numbers in the table above are based upon the Fund's
expenses in its last fiscal year ended December 31, 1995. These
amounts are shown as a percentage of the average net assets of each
class of the Fund's shares for that year. The 12b-1 Distribution
Plan Fees for Class A shares are Service Plan Fees (the maximum fee
is 0.25% of average annual net assets of that class), and for Class
B and Class C shares are the Distribution and Service Plan Fees
(the maximum service fee is 0.25% of average annual net assets of
that class) and the asset-based sales charge of 0.75%. These
plans are described in greater detail in "How to Buy Shares,"
below.
The actual expenses for each class of shares in future years
may be more or less than the numbers in the chart, depending on a
number of factors, including changes in the actual value of the
Fund's assets represented by each class of shares. Class C shares
were not publicly offered before November 1, 1995. Therefore, the
Annual Fund Operating Expenses for Class C shares are estimates
based on expenses that would have been payable if Class C shares
had been outstanding during the entire fiscal year.
Examples. To try to show the effect of these expenses on an
investment over time, we have created the hypothetical examples
shown below. Assume that you make a $1,000 investment in each class
of shares of the Fund, and that the Fund's annual return is 5%, and
that its operating expenses for each class are the ones shown in
the Annual Fund Operating Expenses table above. If you were to
redeem your shares at the end of each period shown below, your
investment would incur the following expenses by the end of 1, 3,
5 and 10 years:
1 year 3 years 5 years 10 years*
- ----------------------------------------------------------------
Class A Shares $57 $76 $98 $159
Class B Shares $67 $84 $113 $164
Class C Shares $27 $54 $ 93 $203
If you did not redeem your investment, it would incur the following
expenses:
1 year 3 years 5 years 10 years*
- ----------------------------------------------------------------
Class A Shares $57 $76 $98 $159
Class B Shares $17 $54 $93 $164
Class C Shares $17 $54 $93 $203
*The Class B expenses in years 7 through 10 are based on the Class
A expenses shown above, because the Fund automatically converts
your Class B shares into Class A shares after 6 years. Because of
the effect of the asset-based sales charge and contingent deferred
sales charge, long-term Class B and Class C shareholders could pay
the economic equivalent of more than the maximum front-end sales
charge allowed under applicable regulations. For Class B
shareholders, the automatic conversion of Class B shares to Class
A shares is designed to minimize the likelihood that this will
occur. Please refer to "How to Buy Shares - Buying Class B Shares"
for more information.
These examples show the effect of expenses on an investment,
but are not meant to state or predict actual or expected costs or
investment returns of the Fund, all of which may be more or less
than those shown.
A Brief Overview of the Fund
Some of the important facts about the Fund are summarized
below, with references to the section of this Prospectus where more
complete information can be found. You should carefully read the
entire Prospectus before making a decision about investing in the
Fund. Keep the Prospectus for reference after you invest,
particularly for information about your account, such as how to
sell or exchange shares.
What Is The Fund's Investment Objective? The Fund's
investment objective is to seek as high a level of current interest
income exempt from Federal and California income taxes for
individual investors as is consistent with preservation of capital.
What Does the Fund Invest In? To seek its objective, the
Fund primarily invests in municipal securities the interest from
which is exempt from Federal and California individual income tax.
The Fund may also use hedging instruments and certain derivative
investments to try to manage investment risks. These investments
are more fully explained in "Investment Objective and Policies"
starting on page __.
Who Manages the Fund? The Fund's investment adviser (the
"Manager") is OppenheimerFunds, Inc. Prior to January 5, 1996,
OppenheimerFunds, Inc. was known as Oppenheimer Management
Corporation. The Manager (including a subsidiary) manages
investment company portfolios having over $50 billion in assets at
March 1, 1996. The Manager is paid an advisory fee by the Fund,
based on its net assets. The Fund's portfolio manager, who is
employed by the Manager, is Jerry Webman. He is primarily
responsible for the selection of the Fund's securities. The Fund's
Board of Trustees, elected by shareholders, oversees the investment
adviser and the portfolio manager. Please refer to "How the Fund
is Managed," starting on page ___ for more information about the
Manager and its fees.
How Risky is the Fund? All investments carry risks to some
degree. The Fund's investments in municipal bonds are subject to
changes in their value from a number of factors such as changes in
general bond market movements, the change in value of particular
bonds because of an event affecting the issuer, or changes in
interest rates that can affect bond prices. These changes affect
the value of the Fund's investments and its price per share. The
fact that the Fund concentrates it investments in California
Municipal Securities or the Fund's ability to invest in a single
issuer or limited number of issuers entails greater risk than an
investment in a diversified investment company.
The Fund may invest in "inverse floater" variable rate bonds,
a type of derivative investment whose yields move in the opposite
direction as short-term interest rates change. In the
OppenheimerFunds spectrum, the Fund is generally more conservative
than high yield bond funds, but more aggressive than money market
funds. While the Manager tries to reduce risks by diversifying
investments, by carefully researching securities before they are
purchased for the portfolio, and in some cases by using hedging
techniques, there is no guarantee of success in achieving the
Fund's objectives and your shares may be worth more or less than
their original cost when you redeem them. Please refer to
"Investment Objective and Policies" starting on page for a more
complete discussion.
How Can I Buy Shares? You can buy shares through your
dealer or financial institution, or you can purchase shares
directly through the Distributor by completing an Application or by
using an Automatic Investment Plan under AccountLink. Please refer
to "How To Buy Shares" on page ___ for more details.
Will I Pay a Sales Charge to Buy Shares? The Fund has three
classes of shares. All three classes have the same investment
portfolio but different expenses. Class A shares are offered with
a front-end sales charge, starting at 4.75%, and reduced for larger
purchases. Class B shares and Class C shares are offered without
a front-end sales charge, but may be subject to a contingent
deferred sales charge if redeemed within 6 years or 12 months,
respectively, of purchase. There are also annual asset-based sales
charges on Class B and Class C shares. Please review "How To Buy
Shares" starting on page ___ for more details, including a
discussion about factors you and your financial advisor should
consider in determining which class may be appropriate for you.
How Can I Sell My Shares? Shares can be redeemed by mail or
by telephone call to the Transfer Agent on any business day, or
through your dealer, or by writing a check against your Fund
account (available for Class A shares only). Please refer to "How
To Sell Shares" on page ___. The Fund also offers exchange
privileges to other Oppenheimer funds, described in "How to
Exchange Shares" on page ____.
How Has the Fund Performed? The Fund measures its
performance by quoting its yield, tax-equivalent yield, average
annual total return and cumulative total return, which measure
historical performance. Those yields and returns can be compared
to the yields and returns (over similar periods) of other funds.
Of course, other funds may have different objectives, investments,
and levels of risk. The Fund's performance can also be compared to
a broad market index, which we have done on page ___. Please
remember that past performance does not guarantee future results.
Financial Highlights
The table on the following pages presents selected financial
information about the Fund, including per share data and expense
ratios and other data based on the Fund's average net assets. This
information has been audited by KPMG Peat Marwick LLP, the Fund's
independent auditors, whose report on the Fund's financial
statements for the fiscal year ended December 31, 1995, is included
in the Statement of Additional Information. Class C shares were
publicly offered for only a portion of the fiscal year ended
December 31, 1995, commencing on November 1, 1995.
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CLASS A
--------------------------------------------------
YEAR ENDED DECEMBER 31,
1995 1994 1993 1992
===========================================================================================================
<S> <C> <C> <C> <C>
PER SHARE OPERATING DATA:
Net asset value, beginning of period $ 9.45 $10.97 $10.35 $10.22
- -----------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .58 .60 .62 .61
Net realized and unrealized gain (loss) 1.25 (1.51) .72 .20
------- ------- ------- -------
Total income (loss) from
investment operations 1.83 (.91) 1.34 .81
- -----------------------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income (.58) (.61) (.65) (.60)
Dividends in excess of net investment income (.01) -- -- --
Distributions from net realized gain -- -- (.07) (.08)
------- ------- ------- -------
Total dividends and distributions
to shareholders (.59) (.61) (.72) (.68)
- -----------------------------------------------------------------------------------------------------------
Net asset value, end of period $10.69 $ 9.45 $10.97 $10.35
======= ======= ======= =======
===========================================================================================================
TOTAL RETURN, AT NET ASSET VALUE(4) 19.76% (8.49)% 13.26% 8.28%
===========================================================================================================
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) $285,307 $219,682 $266,490 $204,349
- -----------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $250,188 $248,850 $245,193 $174,055
- -----------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income 5.64% 5.99% 5.74% 6.07%
Expenses, before voluntary assumption
by the Manager .95% .96% .97% 1.07%
Expenses, net of voluntary assumption
by the Manager N/A N/A N/A N/A
- -----------------------------------------------------------------------------------------------------------
Portfolio turnover rate(6) 23.0% 21.9% 13.7% 26.8%
</TABLE>
1. For the period from November 1, 1995 (inception of offering) to December 31,
1995.
2. For the period from May 1, 1993 (inception of offering) to December 31,
1993.
3. For the period from November 3, 1988 (commencement of operations) to
December 31, 1988.
4. 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.
<PAGE>
<TABLE>
<CAPTION>
CLASS A
-----------------------------------------
YEAR ENDED DECEMBER 31,
1991 1990 1989 1988(3)
===============================================================================================
<S> <C> <C> <C> <C>
SHARE OPERATING DATA:
Net asset value, beginning of period $ 9.86 $9.94 $9.58 $9.53
- -----------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .66 .67 .71 .09
Net realized and unrealized gain (loss) .38 (.07) .37 .05
------- ------- ------- -------
Total income (loss) from
investment operations 1.04 .60 1.08 .14
- -----------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income (.62) (.68) (.70) (.09)
Dividends in excess of net investment income -- -- -- --
Distributions from net realized gain (.06) -- (.02) --
------- ------- ------- -------
Total dividends and distributions
to shareholders (.68) (.68) (.72) (.09)
- -----------------------------------------------------------------------------------------------
Net asset value, end of period $10.22 $9.86 $9.94 $9.58
======= ======= ======= =======
===============================================================================================
TOTAL RETURN, AT NET ASSET VALUE(4) 10.93% 6.38% 11.62% 1.43%
===============================================================================================
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) $145,163 $92,514 $52,342 $5,825
- -----------------------------------------------------------------------------------------------
Average net assets (in thousands) $115,661 $72,879 $29,308 $2,377
- -----------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income 6.52% 6.80% 7.11%
5.95%(5)
Expenses, before voluntary assumption
by the Manager 1.05% 1.05% 1.09%
2.25%(5)
Expenses, net of voluntary assumption
by the Manager .73% .53% .16% --(5)
- -----------------------------------------------------------------------------------------------
Portfolio turnover rate(6) 26.6% 14.5% 20.7% 0.0%
</TABLE>
<TABLE>
<CAPTION>
CLASS B CLASS C
---------------------------------- -------
PERIOD
ENDED
YEAR ENDED DECEMBER 31 DEC. 31,
1995 1994 1993(2) 1995(1)
======================================================================================================
<S> <C> <C> <C> <C>
SHARE OPERATING DATA:
Net asset value, beginning of period $ 9.44 $10.98 $10.72 $10.46
- ------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .51 .54 .35 .08
Net realized and unrealized gain (loss) 1.25 (1.55) .34 .22
------- ------- ------- -------
Total income (loss) from
investment operations 1.76 (1.01) .69 .30
- ------------------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income (.50) (.53) (.36) (.07)
Dividends in excess of net investment income (.01) -- -- (.01)
Distributions from net realized gain -- -- (.07) --
------- ------- ------- -------
Total dividends and distributions
to shareholders (.51) (.53) (.43) (.08)
- ------------------------------------------------------------------------------------------------------
Net asset value, end of period $10.69 $9.44 $10.98 $10.68
======= ======= ======= =======
======================================================================================================
TOTAL RETURN, AT NET ASSET VALUE(4) 18.97% (9.39)% 6.66% 2.90%
======================================================================================================
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) $41,224 $20,224 $9,921 $125
- ------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $29,918 $16,552 $5,218 $91
- ------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income 4.82% 5.17% 4.57%(5) 4.56%(5)
Expenses, before voluntary assumption
by the Manager 1.72% 1.73% 1.79%(5) 1.68%(5)
Expenses, net of voluntary assumption
by the Manager N/A N/A N/A N/A
- ------------------------------------------------------------------------------------------------------
Portfolio turnover rate(6) 23.0% 21.9% 13.7% 23.0%
</TABLE>
5. Annualized.
6. The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities
owned during the period. Securities with a maturity or expiration date at the
time of acquisition of one year or less are excluded from the calculation.
Purchases and sales of investment securities (excluding short-term securities)
for the period ended December 31, 1995 were $99,778,957 and $63,430,966,
respectively.
<PAGE>
Investment Objective and Policies
Objective. The Fund's objective is to seek as high a level of
current interest income exempt from Federal and California income
taxes for individual investors as is consistent with preservation
of capital. The Fund is not intended to be a complete investment
program, and there is no assurance that it will achieve its
objective.
Investment Policies and Strategies. Under normal market
conditions, the Fund attempts to invest 100% of its total assets,
and, as a matter of fundamental policy, to invest at least 80% of
its total assets, in Municipal Securities. In addition, under
normal market conditions, the Fund will invest at least 65% of its
total assets in California Municipal Securities.
Dividends paid by the Fund derived from interest attributable
to California Municipal Securities will be exempt from Federal
individual income taxes. Such dividends will also be exempt from
California individual income taxes provided that at the close of
each quarter, at least 50% of the value of the Fund's assets are
invested in obligations the interest of which is exempt from
taxation under California law when held by an individual.
Dividends derived from interest on Municipal Securities of other
governmental issuers will be exempt from Federal individual income
tax, but will be subject to California individual income taxes.
Any net interest income on taxable investments and repurchase
agreements will be taxable as ordinary income, and any capital
gains will be taxable as capital gains, when distributed to
shareholders.
Municipal Securities. Municipal Securities are municipal
bonds, municipal notes and municipal commercial paper, certificates
of participation and other debt obligations issued by or on behalf
of the State of California, other states and the District of
Columbia, their political subdivisions or any commonwealth,
territory or possession of the United States, or their respective
agencies, instrumentalities or authorities, the interest from which
is, in the opinion of bond counsel to the respective issuer at the
time of issue, not subject to Federal individual income tax.
California Municipal Securities are Municipal Securities, the
interest from which is, in the opinion of bond counsel to the
respective issuer at the time of issue, not subject to California
individual income tax. No independent investigation has been made
by the Manager as to the users of proceeds of bond offerings or the
application of such proceeds.
"Municipal bonds" are Municipal Securities that have a
maturity when issued of one year or more and "municipal notes" are
Municipal Securities that have a maturity when issued of less than
one year. The two principal classifications of Municipal
Securities are "general obligations" (secured by the issuer's
pledge of its full faith, credit and taxing power for the payment
of principal and interest) and "revenue obligations" (payable only
from the revenues derived from a particular facility or class of
facilities, or specific excise tax or other revenue source). The
Fund may invest in municipal securities of both classifications.
Special Considerations - California Municipal Securities.
Because the Fund concentrates its investments in California
Municipal Securities, the market value and marketability of such
Municipal Securities and the interest income to the Fund from them
could be adversely affected by a default or a financial crisis
relating to any of such issuers. Investors should consider these
matters as well as economic trends in California, summarized in
the Statement of Additional Information under "Special Investment
Considerations - California Municipal Securities."
Interest Rate Risks. In addition to credit risks, described
below, Municipal Securities are subject to changes in value due to
changes in prevailing interest rates. When prevailing interest
rates fall, the values of outstanding Municipal Securities
generally rise and (if purchased at principal amount) would sell at
a premium. Conversely, when interest rates rise, the values of
outstanding Municipal Securities generally decline and (if
purchased at principal amount) would sell at a discount. The
magnitude of these fluctuations will be greater when the average
maturity of the portfolio is longer.
Credit Risks. Municipal Securities are also subject to
credit risks. Credit risk relates to the ability of the issuer of
a Municipal Security to make interest or principal payments on the
security as they become due. The economic and other factors that
can affect that ability are summarized in the Statement of
Additional Information under "Special Investment Considerations-
California Municipal Securities." While the Manager may rely to
some extent on credit ratings by nationally recognized rating
agencies, such as Standard & Poor's Corporation ("S&P"), Moody's
Investors Service, Inc. ("Moody's") or Fitch Investors Service,
Inc. ("Fitch"), in evaluating the credit risk of securities
selected for the Fund's portfolio, it may also use its own research
and analysis. However, many factors affect an issuer's ability to
make timely payments, and there can be no assurance that the credit
risks of a particular security will not change over time.
Municipal Lease Obligations. The Fund may invest in
certificates of participation which are tax-exempt obligations that
evidence the holder's right to share in lease, installment loan or
other financing payments by a public entity. Projects financed
with certificates of participation generally are not subject to
state constitutional debt limitations or other statutory
requirements that may be applicable to Municipal Securities.
Payments by the public entity on the obligation underlying the
certificates are derived from available revenue sources; such
revenue may be diverted to the funding of other municipal service
projects. Payments of interest and/or principal with respect to
the certificates are not guaranteed. While some municipal lease
securities may be deemed to be "illiquid" securities (the purchase
of which would be limited as described below in "Illiquid and
Restricted Securities"), from time to time the Fund may invest more
than 5% of its net assets in municipal lease obligations that the
Manager has determined to be liquid under guidelines set by the
Board of Trustees.
Investments in Taxable Securities and Temporary Defensive
Investment Strategy. Under normal market conditions, the Fund may
invest up to 20% of its assets in taxable investments, including
(i) certain "Temporary Investments" (described immediately below);
(ii) covered call options and Hedging Instruments (described in
"Hedging" below); (iii) repurchase agreements (explained below);
and (iv) municipal securities issued to benefit a private user
("Private Activity Municipal Securities"), the interest from which
may be subject to Federal alternative minimum tax (see "Dividends,
Capital Gains and Taxes," below, and "Private Activity Municipal
Securities" in the Statement of Additional Information).
For temporary defensive purposes, the Fund may invest up to
100% of its total assets in "Temporary Investments," including: (i)
obligations issued or guaranteed by the U.S. Government or its
agencies or instrumentalities; (ii) corporate debt securities rated
within the three highest grades by Moody's, S&P, Fitch or another
nationally recognized rating agency; (iii) commercial paper rated
"A-1" by S&P, "Prime-1" by Moody's, "F-1" by Fitch or a comparable
rating by another nationally recognized rating agency; and (iv)
certificates of deposit of domestic banks with assets of $1 billion
or more. The Fund may hold Temporary Investments pending the
investment of proceeds from the sale of Fund shares or portfolio
securities, or to meet anticipated redemptions.
Floating Rate/Variable Rate Obligations. Some of the
Municipal Securities the Fund may purchase may have variable or
floating interest rates. Variable rates are adjusted at stated
periodic intervals. Floating rates are automatically adjusted
according to a specified market rate for such investments, such as
the percentage of the prime rate of a bank, or the 91-day U.S.
Treasury Bill rate. Such obligations may be secured by bank
letters of credit or other credit support arrangements.
Inverse Floaters and Other Derivative Investments. The Fund
may invest in variable rate bonds known as "inverse floaters."
These bonds pay interest at a rate that varies as the yields
generally available on short-term tax-exempt bonds change.
However, the yields on inverse floaters move in the opposite
direction of yields on short-term bonds in response to market
changes. When the yields on short-term tax-exempt bonds go up, the
interest rate on the inverse floater goes down. When the yields on
short-term tax-exempt bonds go down, the interest rate on the
inverse floater goes up. As interest rates rise, inverse floaters
produce less current income. Inverse floaters are a type of
"derivative security," which is a specially designed investment
whose performance is linked to the performance of another security
or investment. Some inverse floaters have a "cap" whereby if
interest rates rise above the "cap," the security pays additional
interest income. If rates do not rise above the "cap," the Fund
will have paid an additional amount for a feature that proves
worthless. The Fund anticipates that it would invest no more than
10% of its total assets in inverse floaters. The Fund may also
invest in municipal derivative securities that pay interest that
depends on an external pricing mechanism. Examples of external
pricing mechanisms are interest rate swaps, municipal bond indices
or swap indices.
The risks of investing in derivative investments include not
only the ability of the issuer of the derivative investment to pay
the amount due on the maturity of the investment, but also the risk
that the underlying security or investment might not perform the
way the Manager expected it to perform. That can mean that the
Fund will realize less income than expected. Another risk of
investing in derivative investments is that their market value
could be expected to vary to a much greater extent than the market
value of municipal securities that are not derivative investments
but have similar credit quality, redemption provisions and
maturities.
Ratings of Municipal Securities; Special Risks of Lower-
Rated Municipal Securities. No more than 25% of the Fund's total
assets will be invested in Municipal Securities that at the time of
purchase are not "investment grade." "Investment grade" are those
rated within the four highest rating categories of Moody's, S&P,
Fitch or another nationally recognized rating agency. If the
securities are not rated, the Manager will determine the equivalent
rating category for the purposes of this limitation. Municipal
securities that are "pre-refunded" generally are collateralized by
U.S. government securities placed in an escrow account, causing
such pre-refunded issue to have essentially the same low risks of
default as a triple-A rated security. (See Appendix A to the
Statement of Additional Information for a description of those
ratings). A reduction of the rating of a security after its
purchase by the Fund will not require the Fund to dispose of such
security.
Lower-grade Municipal Securities (sometimes called "municipal
junk bonds") may be subject to greater market fluctuations and are
subject to greater risks of loss of income and principal than
higher-rated Municipal Securities, and may be considered to have
some speculative characteristics. Securities that are or that have
fallen below investment grade entail a greater risk that the
ability of the issuers of such securities to meet their debt
obligations will be impaired. There may be less of a market for
lower-grade Municipal Securities and therefore they may be harder
to sell at an acceptable price. These risks mean that the Fund may
not achieve the expected income from lower-grade Municipal
Securities, and that the Fund's income and net asset value per
share may be affected by declines in value of these securities.
However, the Fund's limitations on investments in non-investment
grade Municipal Securities may reduce some of these risks.
Portfolio Turnover. A change in the securities held by the
Fund is known as "portfolio turnover." The Fund ordinarily does
not engage in the trading of securities for the purpose of
realizing short-term gains, but the Fund may sell securities as the
Manager deems advisable to take advantage of differentials in yield
to accomplish the Fund's investment objective. The "Financial
Highlights," above, show the Fund's portfolio turnover rate during
the past fiscal years. While short-term trading increases
portfolio turnover and may increase the Fund's transaction costs,
the Fund incurs little or no brokerage costs because most of the
Fund's portfolio transactions are principal trades without
brokerage commissions.
Can the Fund's Investment Objective and Policies Change?
The Fund has an investment objective, which is described above, as
well as investment policies that it follows to try to achieve its
objective. Additionally, the Fund uses certain investment
techniques and strategies in carrying out those investment
policies. The Fund's investment policies and practices are not
"fundamental" unless this Prospectus or the Statement of Additional
Information says that a particular policy is "fundamental." The
Fund's investment objective is a fundamental policy.
Fundamental policies are those that cannot be changed without
the approval of a "majority" of the Fund's outstanding voting
shares. The term "majority" is defined in the Investment Company
Act to be a particular percentage of outstanding voting shares (and
this term is explained in the Statement of Additional Information).
The Fund's Board of Trustees may change non-fundamental policies
without shareholder approval, although significant changes will be
described in amendments to this Prospectus.
Other Investment Techniques and Strategies. The Fund may also use
the investment techniques and strategies described below. These
techniques involve certain risks. The Statement of Additional
Information contains more information about these practices,
including limitations on their use that may help to reduce some of
the risks.
"When-Issued" and Delayed Delivery Transactions. The Fund
may purchase Municipal Securities on a "when-issued" basis, and may
purchase or sell such securities on a "delayed delivery" basis.
These terms refer to securities that have been created and for
which a market exists, but which are not available for immediate
delivery. The Fund does not intend to make such purchases for
speculative purposes. During the period between the purchase and
settlement, no payment is made for the security and no interest
accrues to the buyer from the investment. There may be a risk of
loss if the value of the security declines prior to the settlement
date.
Puts and Stand-By Commitments. The Fund may acquire "stand-
by commitments" or "puts" with respect to municipal obligations
held in its portfolio. Under a stand-by commitment or put option,
the Fund would have the right to sell specified securities at a
specific price on demand to the issuing broker-dealer or bank. The
Fund will acquire stand-by commitments or puts solely to facilitate
portfolio liquidity and does not intend to exercise its rights
thereunder for trading purposes.
Repurchase Agreements. The Fund may enter into repurchase
agreements. In a repurchase transaction, the Fund buys a security
and simultaneously sells it to the vendor for delivery at a future
date. Repurchase agreements must be fully collateralized. However,
if the vendor of the securities under a repurchase agreement fails
to pay the resale price on the delivery date, the Fund may incur
costs in disposing of the collateral and may experience losses if
there is any delay in its ability to do so. Repurchase agreements
having a maturity beyond seven days are subject to the limitation
on investments by the Fund in illiquid or restricted securities.
There is no limit on the amount of the Fund's net assets that may
be subject to repurchase agreements of seven days or less.
Illiquid and Restricted Securities. Under the policies and
procedures established by the Fund's Board of Trustees, the Manager
determines the liquidity of the Fund's investments. Investments
may be illiquid because of the absence of an active trading market,
making it difficult to value them or dispose of them promptly at an
acceptable price. A restricted security is one that has a
contractual restriction on its resale or which cannot be publicly
sold until it is registered under the Securities Act of 1933. The
Fund will not invest more than 10% of its net assets in illiquid or
restricted securities. The Fund's percentage limitation on these
investments does not apply to certain restricted securities that
are eligible for resale to qualified institutional buyers.
Loans of Portfolio Securities. To raise cash for liquidity
purposes, the Fund may lend its portfolio securities to brokers,
dealers and other financial institutions. The Fund must receive
collateral for a loan. These loans are limited to not more than 25%
of the value of the Fund's total assets and are subject to other
conditions described in the Statement of Additional Information.
There are some risks in connection with securities lending. The
Fund might experience a delay in receiving additional collateral to
secure a loan, or a delay in recovery of the loaned securities. The
Fund presently does not intend to engage in loans of securities
that will exceed 5% of the value of the Fund's total assets in the
coming year.
Hedging. As described below, the Fund may purchase and sell
certain kinds of futures contracts, put and call options, and
options on futures and broadly-based municipal bond indices, or
enter into interest rate swap agreements. These are referred to as
"hedging instruments." The Fund does not use hedging instruments
for speculative purposes, and has limits on the use of them,
described below. The hedging instruments the Fund may use are
described below and in greater detail in "Other Investment
Techniques and Strategies" in the Statement of Additional
Information.
The Fund may buy and sell options and futures for a number of
purposes. It may do so to try to manage its exposure to the
possibility that the prices of its portfolio securities may
decline, or to establish a position in the securities market as a
temporary substitute for purchasing individual securities. It may
do so to try to manage its exposure to changing interest rates.
Some of these strategies, such as selling futures, buying puts and
writing covered calls, hedge the Fund's portfolio against price
fluctuations.
Other hedging strategies, such as buying futures and call
options, tend to increase the Fund's exposure to the securities
market. Writing covered call options may also provide income to
the Fund for liquidity purposes, for defensive reasons, or to raise
cash to distribute to shareholders.
Futures. The Fund may buy and sell futures contracts that
relate to (1) municipal bond indices (these are referred to as
Municipal Bond Index Futures) and (2) interest rates (these are
referred to as Interest Rate Futures). The Fund may buy and sell
futures contracts in an attempt to benefit from any performance of
the future purchased relative to the performance of the future
sold. These types of futures are further described in "Hedging" in
the Statement of Additional Information.
Put and Call Options. The Fund may buy and sell certain
kinds of put options (puts) and call options (calls).
The Fund may buy calls only on debt securities, broadly-based
municipal bond indices, Municipal Bond Index Futures and Interest
Rate Futures, or to terminate its obligation on a call the Fund
previously wrote. The Fund may write (that is, sell) covered call
options. When the Fund writes a call, it receives cash (called a
premium). The call gives the buyer the ability to buy the
investment on which the call was written from the Fund at the call
price during the period in which the call may be exercised. If the
value of the investment does not rise above the call price, it is
likely that the call will lapse without being exercised, while the
Fund keeps the cash premium (and the investment).
The Fund may purchase put options. Buying a put on an
investment gives the Fund the right to sell the investment at a set
price to a seller of a put on that investment. The Fund can buy
only those puts that relate to (1) securities that the Fund owns,
(2) municipal bond indices, and (3) Interest Rate Futures and
Municipal Bond Index Futures whether or not the Fund owns the
particular Future in its portfolio. The Fund may not sell a put
other than a put that it previously purchased.
The Fund may buy and sell puts and calls only if certain
conditions are met: (1) after the Fund writes a call, not more
than 25% of the Fund's total assets may be subject to calls; (2)
calls the Fund buys or sells must be listed on a domestic
securities or commodities exchange or quoted on the Automated
Quotation System (NASDAQ) of The Nasdaq Stock Market, Inc., or
traded in the over-the-counter market; (3) each call the Fund
writes must be "covered" while it is outstanding (that means the
Fund must own the investment on which the call was written); (4)
the Fund may write calls on Futures contracts it owns, but these
calls must be covered by securities or other liquid assets the Fund
owns and segregates to enable it to satisfy its obligations if the
call is exercised; and (5) a call or put option may not be
purchased if the value of all of the Fund's put and call options
would exceed 5% of the Fund's total assets.
Interest Rate Swaps. In an interest rate swap, the Fund and
another party exchange their right to receive or their obligation
to pay interest on a security. For example, they may swap a right
to receive floating rate payments for fixed rate payments. The
Fund enters into swaps only on securities it owns. The Fund may
not enter into swaps with respect to more than 25% of its total
assets. Also, the Fund will segregate liquid assets (such as cash
or U.S. Government securities) to cover any amounts it could owe
under swaps that exceed the amounts it is entitled to receive, and
it will adjust that amount daily, as needed. Income from interest
rate swaps may be taxable.
Hedging instruments can be volatile investments and may
involve special risks. The use of hedging instruments requires
special skills and knowledge of investment techniques that are
different from what is required for normal portfolio management. If
the Manager uses a hedging instrument at the wrong time or judges
market conditions incorrectly, hedging strategies may reduce the
Fund's return. The Fund could also experience losses if the prices
of its futures and options positions were not correlated with its
other investments or if it could not close out a position because
of an illiquid market for the future or option. Such losses might
cause previously distributed short-term capital gains to be re-
characterized as a non-taxable return of capital to shareholders.
Options trading involves the payment of premiums and has
special tax effects on the Fund. There are also special risks in
particular hedging strategies. If a covered call written by the
Fund is exercised on an investment that has increased in value, the
Fund will be required to sell the investment at the call price and
will not be able to realize any profit if the investment has
increased in value above the call price. Interest rate swaps are
subject to credit risks (if the other party fails to meet its
obligations) and also to interest rate risks. The Fund could be
obligated to pay more under its swap agreements than it receives
under them, as a result of interest rate changes. These risks are
described in greater detail in the Statement of Additional
Information.
Non-diversification. The Fund is classified as a "non-
diversified" investment company under the Investment Company Act of
1940 so that the proportion of the Fund's assets that may be
invested in the securities of a single issuer is not limited by the
Investment Company Act. An investment in the Fund therefore will
entail greater risk than an investment in a diversified investment
company because a higher percentage of investments among fewer
issuers may result in greater fluctuation in the total market value
of the Fund's portfolio, and economic, political or regulatory
developments may have a greater impact on the value of the Fund's
portfolio than would be the case if the portfolio were diversified
among more issuers. However, the Fund intends to conduct its
operations so as to qualify as a "regulated investment company" for
purposes of the Internal Revenue Code, which will relieve the Fund
from liability for Federal income tax to the extent that more than
90% of its earnings are distributed to shareholders. Among the
requirements for such qualification are that at the end of each
fiscal quarter: (1) not more than 25% of the market value of the
Fund's total assets will be invested in the securities of a single
issuer, and (2) with respect to 50% of the market value of its
total assets, not more than 5% of the market value of its total
assets may be invested in the securities of a single issuer and the
Fund must not own more than 10% of the outstanding voting
securities of a single issuer.
Other Investment Restrictions. The Fund has other investment
restrictions that are fundamental policies. Under these
fundamental policies, the Fund cannot do any of the following:
invest in securities or any other investment other than
Municipal Securities, the taxable securities and Hedging
Instruments described in "Investment Objective and Policies"
above;
make loans, except through the purchase of portfolio
securities subject to repurchase agreements or through loans of
portfolio securities as described under "Loans of Portfolio
Securities";
borrow money in excess of 10% of the value of its total
assets, or make any additional investments whenever borrowings
exceed 5% of the Fund's assets; it may borrow only from banks as a
temporary measure for extraordinary or emergency purposes (not for
the purpose of leveraging its investments);
pledge, mortgage or otherwise encumber, transfer or assign
any of its assets to secure a debt; collateral arrangements for
premium and margin payments in connection with Hedging Instruments
are not deemed to be a pledge of assets;
concentrate investments to the extent of more than 25% of
its total assets in any industry (see "Diversification" in the
Statement of Additional Information); however, there is no
limitation as to investment in Municipal Securities, U.S.
Government obligations or California Municipal Securities; or
buy or sell futures contracts other than Interest Rate
Futures or Municipal Bond Index Futures.
All of the percentage restrictions described above and
elsewhere in this Prospectus and the Statement of Additional
Information, other than those that apply to borrowing, apply only
at the time the Fund purchases a security, and the Fund need not
dispose of a security merely because the Fund's assets have changed
or the security has increased in value relative to the size of the
Fund. There are other fundamental policies discussed in the
Statement of Additional Information.
How the Fund is Managed
Organization and History. The Fund is an open-end, non-diversified
management investment company organized as a Massachusetts business
trust in July, 1988.
The Fund is governed by a Board of Trustees, which is
responsible for protecting the interests of shareholders under
Massachusetts law. The Trustees meet periodically throughout the
year to oversee the Fund's activities, review its performance, and
review the actions of the Manager. "Trustees and Officers of the
Fund" in the Statement of Additional Information names the Trustees
and provides more information about them and the officers of the
Fund. Although the Fund will not normally hold annual meetings of
its shareholders, it may hold shareholder meetings from time to
time on important matters, and shareholders have the right to call
a meeting to remove a Trustee or to take other action described in
the Fund's Declaration of Trust.
The Board of Trustees has the power, without shareholder
approval, to divide unissued shares of this Fund into two or more
classes. The Board has done so, and the Fund currently has three
classes of shares, Class A, Class B and Class C. All classes
invest in the same investment portfolio. Each class has its own
dividends and distributions, and pays certain expenses which may be
different for the different classes. Each class may have a
different net asset value. Each share has one vote at shareholder
meetings, with fractional shares voting proportionally. Only
shares of a particular class vote as a class on matters that affect
that class alone. Shares are freely transferrable. Please refer to
"How the Fund is Managed" in the Statement of Additional
Information on voting of shares.
The Manager and Its Affiliates. The Fund is managed by the
Manager, OppenheimerFunds, Inc., which is responsible for selecting
the Fund's investments and handles its day-to-day business. The
Manager carries out its duties, subject to the policies established
by the Board of Trustees, under an Investment Advisory Agreement
which states the Manager's responsibilities. The Agreement sets
forth the fees paid by the Fund to the Manager, and describes the
expenses that the Fund is responsible to pay to conduct its
business.
The Manager has operated as an investment adviser since 1959.
The Manager (including a subsidiary) currently manages investment
companies, including other Oppenheimer funds, with assets of more
than $50 billion as of March 1, 1996, and with more than 2.8
million shareholder accounts. The Manager is owned by Oppenheimer
Acquisition Corp., a holding company that is owned in part by
senior officers of the Manager and controlled by Massachusetts
Mutual Life Insurance Company.
Portfolio Manager. The portfolio manager of the Fund is
Jerry Webman, Senior Vice President of the Manager. Mr. Webman is
the person principally responsible for the day-to-day management of
the Fund's portfolio. He has had this responsibility since April,
1996. Mr. Webman also serves as an officer and portfolio manager
for other Oppenheimer funds. Previously, Mr. Webman was an officer
and analyst with Prudential Securities.
Fees and Expenses. Under the Investment Advisory Agreement,
the Fund pays the Manager the following annual fees, which decline
on additional assets as the Fund grows: 0.60% of the first $200
million of aggregate net assets, 0.55% of the next $100 million,
0.50% of the next $200 million, 0.45% of the next $250 million,
0.40% of the next $250 million, and 0.35% of net assets over $1
billion. The Fund's management fee for its last fiscal year was
0.58% of average annual net assets for each of Class A, Class B and
Class C shares.
The Fund pays expenses related to its daily operations, such
as custodian fees, Trustees' fees, transfer agency fees, legal fees
and auditing costs. Those expenses are paid out of the Fund's
assets and are not paid directly by shareholders. However, those
expenses reduce the net asset value of shares, and therefore are
indirectly borne by shareholders through their investment. More
information about the Investment Advisory Agreement and the other
expenses paid by the Fund is contained in the Statement of
Additional Information.
There is also information about the Fund's brokerage policies
and practices in "Brokerage Policies of the Fund" in the Statement
of Additional Information. That section discusses how brokers and
dealers are selected for the Fund's portfolio transactions.
Because the Fund purchases most of its portfolio securities
directly from the sellers and not through brokers, it therefore
incurs relatively little expense for brokerage. From time to time,
however, it may use brokers when buying portfolio securities. When
deciding which brokers to use, the Manager is permitted by the
Investment Advisory Agreement to consider whether brokers have sold
shares of the Fund or any other funds for which the Manager serves
as investment adviser.
The Distributor. The Fund's shares are sold through dealers
and brokers that have a sales agreement with OppenheimerFunds
Distributor, Inc., a subsidiary of the Manager that acts as the
Fund's Distributor. The Distributor also distributes the shares of
other "Oppenheimer funds" and is sub-distributor for funds managed
by a subsidiary of the Manager.
The Transfer Agent. The Fund's transfer agent is
OppenheimerFunds Services, a division of the Manager, which acts as
the shareholder servicing agent for the Fund on an "at-cost" basis.
It also acts as the shareholder servicing agent for other
Oppenheimer funds. Shareholders should direct inquiries about
their accounts to the Transfer Agent at the address and toll-free
number shown below in this Prospectus and on the back cover.
Performance of the Fund
Explanation of Performance Terminology. The Fund uses the terms
"total return," "average annual total return," "standardized
yield," "dividend yield," "yield" and "tax-equivalent yield" to
illustrate its performance. The performance of each class of
shares is shown separately, because the performance of each class
of shares will usually be different, as a result of the different
kinds of expenses each class bears. These returns and yields
measure the performance of a hypothetical account in the Fund over
various periods, and do not show the performance of each
shareholder's account (which will vary if dividends are received in
cash, or shares are sold or purchased). The Fund's performance may
help you see how well your Fund has done over time and to compare
it to other funds or to a market index.
It is important to understand that the Fund's yields and total
returns represent past performance and should not be considered to
be predictions of future returns or performance. This performance
data is described below, but more detailed information about how
total returns and yields are calculated is contained in the
Statement of Additional Information, which also contains
information about indices and other ways to measure and compare the
Fund's performance. The Fund's investment performance will vary
over time, depending on market conditions, the composition of the
portfolio, expenses and which class of shares you purchase.
Total Returns. There are different types of "total returns"
used to measure the Fund's performance. Total return is the change
in value of a hypothetical investment in the Fund over a given
period, assuming that all dividends and capital gains distributions
are reinvested in additional shares. The cumulative total return
measures the change in value over the entire period (for example,
ten years). An average annual total return shows the average rate
of return for each year in a period that would produce the
cumulative total return over the entire period. However, average
annual total returns do not show the Fund's actual year-by-year
performance.
When total returns are quoted for Class A shares, normally the
current maximum initial sales charge has been deducted. When total
returns are shown for Class B or Class C shares, normally the
contingent deferred sales charge that applies to the period for
which total return is shown has been deducted. However, total
returns may also be quoted "at net asset value," without
considering the effect of the sales charge, and those returns would
be less if sales charges were deducted.
Yield. Each class of shares calculates its yield by
dividing the annualized net investment income per share from the
portfolio during a 30-day period by the maximum offering price on
the last day of the period. The tax-equivalent yield is the
equivalent yield that would be earned in the absence of taxes. It
is calculated by dividing that portion of the yield that is tax-
exempt by a factor equal to one minus the applicable tax rate. The
yield of each class will differ because of the different expenses
of each class of shares. The yield data represents a hypothetical
investment return on the portfolio, and does not measure an
investment return based on dividends actually paid to shareholders.
To show that return, a dividend yield may be calculated. Dividend
yield is calculated by dividing the dividends of a class derived
from net investment income during a stated period by the maximum
offering price on the last day of the period. Yields and dividend
yields for Class A shares reflect the deduction of the maximum
initial sales charge, but may also be shown based on the Fund's net
asset value per share. Yields for Class B and Class C shares do
not reflect the deduction of the contingent deferred sales charge.
How Has the Fund Performed? Below is a discussion by the Manager
of the Fund's performance during its last fiscal year ended
December 31, 1995, followed by a graphical comparison of the Fund's
performance to an appropriate broad-based market index.
Management's Discussion of Performance. During the Fund's
fiscal year ended December 31, 1995, the Fund's performance was
affected by several economic and market factors. Long-term
interest rates declined and the values of outstanding municipal
bonds generally appreciated in value. The Fund sold certain par
bonds and bonds purchased at a discount to take advantage of the
price increases of those bonds. The portfolio manager focused new
investments in revenue bonds (for example, transportation projects)
in lieu of general obligation bonds. In response to the
possibility of federal tax reform that may affect the tax status of
municipal securities, the Fund emphasized investments in issues
with shorter maturities and pre-refunded issues, because their
prices are generally less sensitive to changes in interest rates
than longer-term bonds.
Comparing the Fund's Performance to the Market. The graphs
below show the performance of a hypothetical $10,000 investment in
each class of shares of the Fund from the inception of the class
held through December 31, 1995. In each case, all dividends and
capital gains distributions were reinvested in additional shares.
The graphs reflect the deduction of the 4.75% maximum initial sales
charge on Class A shares, the applicable 3% contingent deferred
sales charge for Class B shares, and the 1% contingent deferred
sales charge on Class C shares during the first year.
Because the Fund invests in a variety of Municipal Securities,
the Fund's performance is compared to the performance of the Lehman
Brothers Municipal Bond Index. The Lehman Brothers Municipal Bond
Index is an unmanaged index of a broad range of investment grade
municipal bonds, widely regarded as a measure of the performance of
the general municipal bond market.
Index performance reflects reinvestment of income but does not
consider the effect of capital gains or transaction costs, and none
of the data below shows the effect of taxes. Also, the Fund's
performance data reflects the effect of Fund business and operating
expenses. While index comparisons may be useful to provide a
benchmark for the Fund's performance, it must be noted that the
Fund's investments are not limited to the securities in any one
index. Moreover, the index performance data does not reflect any
assessment of the risk of the investments included in the index.
Comparison of Change
In Value of $10,000
Hypothetical Investments in:
Oppenheimer California
Tax-Exempt Fund (Class A) and Lehman
Brothers Municipal Bond Index
[Graph with Class A shares of the Fund]
Avg Annual Total Return of the Fund at 12/31/951
A Shares 1 Year 5 Year Life
14.07% 7.27% 7.78%
Comparison of Change
In Value of $10,000
Hypothetical Investments in:
Oppenheimer California
Tax-Exempt Fund (Class B) and Lehman
Brothers Municipal Bond Index
[Graph with Class B shares of the Fund]
Average Annual Total Return of the Fund at 12/31/952
B Shares 1 Year Life
13.97% 4.33%
Comparison of Change
In Value of $10,000
Hypothetical Investments in:
Oppenheimer California
Tax-Exempt Fund (Class C) and Lehman
Brothers Municipal Bond Index
[Graph with Class C shares of the Fund]
Cumulative Total Return of the Fund at 12/31/953
C Shares Life
11.96%
1. The inception date of the Fund (Class A shares) was 11/3/88.
The average annual total returns and the ending account value in
the graphs reflect reinvestment of all dividends and capital gains
distributions and are shown net of the applicable 4.75% maximum
sales charge.
2. Class B shares of the Fund were first publicly offered on
5/1/93. The average annual total returns reflect reinvestment of
all dividends and capital gains distributions and are shown net of
the applicable 5% and 3% contingent deferred sales charges
respectively for the 1-year period and life-of-the-class. The
ending account value in the graph is net of the applicable 3% sales
charge.
3. Class C shares of the Fund were first publicly offered on
November 1, 1995. The performance information in the graph for the
Lehman Brothers Municipal Bond Index begins on the same date. The
cumulative total return of Class C shares reflects the reinvestment
of all dividends and capital gains distribution and is shown net of
the applicable 1% contingent deferred sales charge.
Past performance is not predictive of future performance.
Graphs are not drawn to same scale.
ABOUT YOUR ACCOUNT
How to Buy Shares
Classes of Shares. The Fund offers investors three different
classes of shares. The different classes of shares represent
investments in the same portfolio of securities but are subject to
different expenses and will likely have different share prices.
Class A Shares. If you buy Class A shares, you pay an
initial sales charge (on investments up to $1 million). If you
purchase Class A shares as part of an investment of at least $1
million in shares of one or more Oppenheimer funds, you will not
pay an initial sales charge, but if you sell any of those shares
within 18 months of buying them, you may pay a contingent deferred
sales charge. The amount of that sales charge will vary depending
on the amount you invested. Sales charge rates are described in
"Buying Class A Shares," below.
Class B Shares. If you buy Class B shares, you pay no sales
charge at the time of purchase, but if you sell your shares within
six years of buying them, you will normally pay a contingent
deferred sales charge. That sales charge varies depending on how
long you own your shares, as described in "Buying Class B Shares,"
below
Class C Shares. If you buy Class C shares, you pay no sales
charge at the time of purchase, but if you sell your shares within
12 months of buying them, you will normally pay a contingent
deferred sales charge of 1%, as described in "Buying Class C
Shares," below.
Which Class of Shares Should You Choose? Once you decide that the
Fund is an appropriate investment for you, the decision as to which
class of shares is better suited to your needs depends on a number
of factors which you should discuss with your financial advisor.
The Fund's operating costs that apply to a class of shares and the
effect of the different types of sales charges on your investment
will vary your investment results over time. The most important
factors are how much you plan to invest and how long you plan to
hold your investment. If your goals and objectives change over
time and you plan to purchase additional shares, you should re-
evaluate those factors to see if you should consider another class
of shares.
In the following discussion, to help provide you and your
financial advisor with a framework in which to choose a class, we
have made some assumptions using a hypothetical investment in the
Fund. We used the sales charge rates that apply to each class of
shares, considering the effect of the annual asset-based sales
charge on Class B and Class C expenses (which, like all expenses,
will affect your investment return). For the sake of comparison,
we have assumed that there is a 10% rate of appreciation in the
investment each year. Of course, the actual performance of your
investment cannot be predicted and will vary, based on the Fund's
actual investment returns and the operating expenses borne by each
class of shares, and which class you invest in.
The factors discussed below are not intended to be investment
advice or recommendations, because each investor's financial
considerations are different. The discussion below of the factors
to consider in purchasing a particular class of shares assumes that
you will purchase only one class of shares, and not a combination
of shares of different classes.
How Long Do You Expect To Hold Your Investment? While
future financial needs cannot be predicted with certainty, knowing
how long you expect to hold your investment will assist you in
selecting the appropriate class of shares. The effect of the sales
charge over time, using our assumptions, will generally depend on
the amount invested. Because of the effect of class-based
expenses, your choice will also depend on how much you plan to
invest. For example, the reduced sales charges available for
larger purchases of Class A shares may, over time, offset the
effect of paying an initial sales charge on your investment (which
reduces the amount of your investment dollars used to buy shares
for your account), compared to the effect over time of higher
class-based expenses on shares of Class B or C for which no initial
sales charge is paid.
Investing for the Short Term. If you have a short-term
investment horizon (that is, you plan to hold your shares for not
more than six years), you should probably consider purchasing Class
A or Class C shares rather than Class B shares, because of the
effect of the Class B contingent deferred sales charge if you
redeem in less than 7 years, as well as the effect of the Class B
asset-based sales charge on the investment return for that class in
the short-term. Class C shares might be the appropriate choice
(especially for investments of less than $100,000), because there
is no initial sales charge on Class C shares, and the contingent
deferred sales charge does not apply to amounts you sell after
holding them one year.
However, if you plan to invest more than $100,000 for the
shorter term, then the more you invest and the more your investment
horizon increases toward six years, Class C shares might not be as
advantageous as Class A shares. That is because the annual asset-
based sales charge on Class C shares will have a greater economic
impact on your account over the longer term than the reduced front-
end sales charge available for larger purchases of Class A shares.
For example, Class A might be more advantageous than Class C (as
well as Class B) for investments of more than $100,000 expected to
be held for 5 or 6 years (or more). For investments over $250,000
expected to be held 4 to 6 years (or more), Class A shares may
become more advantageous than Class C (and B). If investing
$500,000 or more, Class A may be more advantageous as your
investment horizon approaches 3 years or more.
And for investors who invest $1 million or more, in most cases
Class A shares will be the most advantageous choice, no matter how
long you intend to hold your shares. For that reason, the
Distributor normally will not accept purchase orders of $500,000 or
more of Class B shares, or $1 million or more of Class C shares,
from a single investor.
Investing for the Longer Term. If you are investing for the
longer-term, for example, for retirement, and do not expect to need
access to your money for seven years or more, Class B shares may be
an appropriate consideration, if you plan to invest less than
$100,000. If you plan to invest more than $100,000 over the long
term, Class A shares will likely be more advantageous than Class B
shares or C shares, as discussed above, because of the effect of
the expected lower expenses for Class A shares and the reduced
initial sales charges available for larger investments in Class A
shares under the Fund's Right of Accumulation.
Of course, these examples are based on approximations of the
effect of current sales charges and expenses on a hypothetical
investment over time, using the assumed annual performance return
stated above, and therefore you should analyze your options
carefully.
Are There Differences In Account Features That Matter To
You? Because some account features may not be available for Class
B or Class C shareholders, you should carefully review how you plan
to use your investment account before deciding which class of
shares is better for you. For example, share certificates are not
available for Class B or Class C shares and if you are considering
using your shares as collateral for a loan, that may be a factor to
consider. Also, checkwriting privileges are not available for
Class B or Class C shares. Additionally, the dividends payable to
Class B and Class C shareholders will be reduced by the additional
expenses borne solely by that class, such as the asset-based sales
charge, as described below and in the Statement of Additional
Information.
How Does It Affect Payments To My Broker? A salesperson,
such as a broker, or any other person who is entitled to receive
compensation for selling Fund shares may receive different
compensation for selling one class of shares than for selling
another class. It is important that investors understand that the
purpose of the Class B or Class C contingent deferred sales charge
and asset-based sales charge is the same as the purpose of the
front-end sales charge on sales of Class A shares, that is, to
compensate the Distributor for commissions it pays to dealers and
financial institutions for selling shares.
How Much Must You Invest? You can open a Fund account with a
minimum initial investment of $1,000 and make additional
investments at any time with as little as $25. There are reduced
minimum investments under special investment plans.
With Asset Builder Plans, Automatic Exchange Plans and
military allotment plans, you can make initial and subsequent
investments for as little as $25; and subsequent purchases of at
least $25 can be made by telephone through AccountLink.
There is no minimum investment requirement if you are buying
shares by reinvesting dividends from the Fund or other Oppenheimer
funds (a list of them appears in the Statement of Additional
Information, or you can ask your dealer or call the Transfer
Agent), or by reinvesting distributions from unit investment trusts
that have made arrangements with the Distributor.
How Are Shares Purchased? You can buy shares several ways --
through any dealer, broker or financial institution that has a
sales agreement with the Distributor, or directly through the
Distributor, or automatically from your bank account through an
Asset Builder Plan under the Oppenheimer funds AccountLink service.
When you buy shares, be sure to specify Class A, Class B or Class
C shares. If you do not choose, your investment will be made in
Class A shares.
Buying Shares Through Your Dealer. Your dealer will place
your order with the Distributor on your behalf.
Buying Shares Through the Distributor. Complete an
OppenheimerFunds New Account Application and return it with a check
payable to "OppenheimerFunds Distributor, Inc." Mail it to P.O. Box
5270, Denver, Colorado 80217. If you don't list a dealer on the
application, the Distributor will act as your agent in buying the
shares. However, we recommend that you discuss your investment
first with a financial advisor, to be sure it is appropriate for
you.
Buying Shares Through OppenheimerFunds AccountLink. You can
use AccountLink to link your Fund account with an account at a U.S.
bank or other financial institution that is an Automated Clearing
House (ACH) member. You can then transmit funds electronically to
purchase shares, or have the Transfer Agent send redemption
proceeds or to transmit dividends and distributions.
Shares are purchased for your account on AccountLink on the
regular business day the Distributor is instructed by you to
initiate the ACH transfer to buy shares. You can provide those
instructions automatically, under an Asset Builder Plan, described
below, or by telephone instructions using OppenheimerFunds
PhoneLink, also described below. You should request AccountLink
privileges on the application or dealer settlement instructions
used to establish your account. Please refer to "AccountLink,"
below for more details.
Asset Builder Plans. You may purchase shares of the Fund
(and up to four other Oppenheimer funds) automatically each month
from your account at a bank or other financial institution under an
Asset Builder Plan with AccountLink. Details are on the
Application and in the Statement of Additional Information.
At What Price Are Shares Sold? Shares are sold at the
public offering price based on the net asset value (and any initial
sales charge that applies) that is next determined after the
Distributor receives the purchase order in Denver, Colorado. In
most cases, to enable you to receive that day's offering price, the
Distributor must receive your order by the time of day The New York
Stock Exchange closes, which is normally 4:00 P.M., New York time
but may be earlier on some days (all references to time in this
Prospectus mean "New York time"). The net asset value of each
class of shares is determined as of that time on each day The New
York Stock Exchange is open (which is a "regular business day").
If you buy shares through a dealer, the dealer must receive
your order by the close of The New York Stock Exchange on a regular
business day and transmit it to the Distributor so that it is
received before the Distributor's close of business that day, which
is normally 5:00 P.M. The Distributor, in its sole discretion,
may reject any purchase order for the Fund's shares.
Special Sales Charge Arrangements for Certain Persons. Appendix A
to this Prospectus sets forth conditions for the waiver of, or
exemption from, sales charges or the special sales charge rates
that apply to purchases of shares of the Fund (including purchases
by exchange) by a person who was a shareholder of one of the Former
Quest for Value Funds (as defined in that Appendix).
Buying Class A Shares. Class A shares are sold at their offering
price, which is normally net asset value plus an initial sales
charge. However, in some cases, described below, purchases are not
subject to an initial sales charge, and the offering price will be
the net asset value. In some cases, reduced sales charges may be
available, as described below. Out of the amount you invest, the
Fund receives the net asset value to invest for your account. The
sales charge varies depending on the amount of your purchase. A
portion of the sales charge may be retained by the Distributor and
allocated to your dealer. The current sales charge rates and
commissions paid to dealers and brokers are as follows:
<TABLE>
<CAPTION>
Front-End Front-End Commission
Sales Charge as Sales Charge as as Percentage
Percentage of Percentage of of Offering
Amount of Purchase Offering Price Amount Invested Price
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $50,000 4.75% 4.98% 4.00%
- ---------------------------------------------------------------------------
$50,000 or more but
less than $100,000 4.50% 4.71% 4.00%
- ---------------------------------------------------------------------------
$100,000 or more but
less than $250,000 3.50% 3.63% 3.00%
- ---------------------------------------------------------------------------
$250,000 or more but
less than $500,000 2.50% 2.56% 2.25%
- ---------------------------------------------------------------------------
$500,000 or more but
less than $1 million 2.00% 2.04% 1.80%
- ---------------------------------------------------------------------------
</TABLE>
The Distributor reserves the right to reallow the entire commission
to dealers. If that occurs, the dealer may be considered an
"underwriter" under Federal securities laws.
Class A Contingent Deferred Sales Charge. There is no
initial sales charge on purchases of Class A shares of any one or
more Oppenheimer funds aggregating $1 million or more. The
Distributor pays dealers of record commissions on those purchases
in an amount equal to the sum of 1.0% of the first $2.5 million,
plus 0.50% of the next $2.5 million, plus 0.25% of purchases over
$5 million. That commission will be paid only on the amount of
those purchases in excess of $1 million that were not previously
subject to a front-end sales charge and dealer commission.
If you redeem any of those shares within 18 months of the end
of the calendar month of their purchase, a contingent deferred
sales charge (called the "Class A contingent deferred sales
charge") will be deducted from the redemption proceeds. That sales
charge will be equal to 1.0% of either (1) the aggregate net asset
value of the redeemed shares (not including shares purchased by
reinvestment of dividends or capital gain distributions) or (2) the
original cost of the shares, whichever is less. However, the Class
A contingent deferred sales charge will not exceed the aggregate
commissions the Distributor paid to your dealer on all Class A
shares of all Oppenheimer funds you purchased subject to the Class
A contingent deferred sales charge.
In determining whether a contingent deferred sales charge is
payable, the Fund will first redeem shares that are not subject to
the sales charge, including shares purchased by reinvestment of
dividends and capital gains, and then will redeem other shares in
the order that you purchased them. The Class A contingent deferred
sales charge is waived in certain cases described in "Waivers of
Class A Sales Charges" below.
No Class A contingent deferred sales charge is charged on
exchanges of shares under the Fund's exchange privilege (described
below). However, if the shares acquired by exchange are redeemed
within 18 months of the end of the calendar month of the purchase
of the exchanged shares, the sales charge will apply.
Special Arrangements with Dealers. The Distributor may
advance up to 13 months commissions to dealers that have
established special arrangements with the Distributor for Asset
Builder Plans for their clients.
Reduced Sales Charges for Class A Share Purchases. You may be
eligible to buy Class A shares at reduced sales charge rates in one
or more of the following ways:
Right of Accumulation. To qualify for the lower sales
charge rates that apply to larger purchases of Class A shares, you
and your spouse can add together Class A and Class B shares you
purchase for your individual accounts, or jointly or for trust or
custodial accounts on behalf of your children who are minors. A
fiduciary can count all shares purchased for a trust, estate or
other fiduciary account (including one or more employee benefit
plans of the same employer) that has multiple accounts.
Additionally, you can add together current purchases of Class
A and Class B shares of the Fund and other Oppenheimer funds to
reduce the sales charge rate that applies to current purchases of
Class A shares. You can also count Class A and Class B shares of
Oppenheimer funds you previously purchased subject to an initial or
contingent deferred sales charge to reduce the sales charge rate
for current purchases of Class A shares, provided that you still
hold that investment in one of the Oppenheimer funds. The value of
those shares will be based on the greater of the amount you paid
for the shares or their current value (at offering price.) The
Oppenheimer funds are listed in "Reduced Sales Charges" in the
Statement of Additional Information, or a list can be obtained from
the Distributor. The reduced sales charge will apply only to
current purchases and must be requested when you buy your shares.
Letter of Intent. Under a Letter of Intent, if you purchase
Class A shares or Class A shares and Class B shares of the Fund and
other Oppenheimer funds during a 13-month period, you can reduce
the sales charge rate that applies to your purchases of Class A
shares. The total amount of your intended purchases of both Class
A and Class B shares will determine the reduced sales charge rate
for the Class A shares purchased during that period. This can
include purchases made up to 90 days before the date of the Letter.
More information is contained in the Application and in "Reduced
Sales Charges" in the Statement of Additional Information.
Waivers of Class A Sales Charges. The Class A sales charges
are not imposed in the circumstances described below. There is an
explanation of this policy in "Reduced Sales Charges" in the
Statement of Additional Information.
Waivers of Initial and Contingent Deferred Sales Charges for
Certain Purchasers. Class A shares purchased by the following
investors are not subject to any Class A sales charges:
the Manager or its affiliates;
present or former officers, directors, trustees and
employees (and their "immediate families" as defined in "Reduced
Sales Charges" in the Statement of Additional Information) of the
Fund, the Manager and its affiliates;
registered management investment companies, or separate
accounts of insurance companies having an agreement with the
Manager or the Distributor for that purpose;
dealers or brokers that have a sales agreement with the
Distributor, if they purchase shares for their own accounts or for
retirement plans for their employees;
employees and registered representatives (and their spouses)
of dealers or brokers described above or financial institutions
that have entered into sales arrangements with such dealers or
brokers (and are identified to the Distributor) or with the
Distributor; the purchaser must certify to the Distributor at the
time of purchase that the purchase is for the purchaser's own
account (or for the benefit of such employee's spouse or minor
children);
dealers, brokers or registered investment advisers that have
entered into an agreement with the Distributor providing
specifically for the use of shares of the Fund in particular
investment products made available to their clients (those clients
may be charged a transaction fee by their dealer, broker or adviser
on the purchase or sales of Fund shares);
directors, trustees, officers or full-time employees of
OpCap Advisors or its affiliates, their relatives or any trust,
pension, profit sharing or other benefit plan which beneficially
owns shares for those persons;
accounts for which Oppenheimer Capital is the investment
adviser (the Distributor must be advised of this arrangement) and
persons who are directors or trustees of the company or trust which
is the beneficial owner of such accounts; or
any unit investment trust that has entered into an
appropriate agreement with the Distributor.
Waivers of Initial and Contingent Deferred Sales Charges in
Certain Transactions. Class A shares issued or purchased in the
following transactions are not subject to Class A sales
charges:
shares issued in plans of reorganization, such as mergers,
asset acquisitions and exchange offers, to which the Fund is a
party;
shares purchased by the reinvestment of dividends or other
distributions reinvested from the Fund or other Oppenheimer funds
(other than Oppenheimer Cash Reserves) or unit investment trusts
for which reinvestment arrangements have been made with the
Distributor;
shares purchased and paid for with the proceeds of shares
redeemed in the prior 12 months from a mutual fund (other than a
fund managed by the Manager or any of its subsidiaries) on which an
initial sales charge or contingent deferred sales charge was paid
(this waiver also applies to shares purchased by exchange of shares
of Oppenheimer Money Market Fund, Inc. that were purchased and paid
for in this manner); this waiver must be requested when the
purchase order is placed for your shares of the Fund, and the
Distributor may require evidence of your qualification for this
waiver; or
shares purchased with the proceeds of maturing principal of
units of any Qualified Unit Investment Liquid Trust Series.
Waivers of the Class A Contingent Deferred Sales Charge for
Certain Redemptions. The Class A contingent deferred sales charge
is also waived if shares that would otherwise be subject to the
contingent deferred sales charge are redeemed in the following
cases:
to make Automatic Withdrawal Plan payments that are limited
annually to no more than 12% of the original account value;
involuntary redemptions of shares by operation of law or
involuntary redemptions of small accounts (see "Shareholder Account
Rules and Policies," below); or
if, at the time a purchase order is placed for Class A
shares that would otherwise be subject to the Class A contingent
deferred sales charge, the dealer agrees in writing to accept the
dealer's portion of the commission payable on the sale in
installments of 1/18th of the commission per month (and no further
commission will be payable if the shares are redeemed within 18
months of purchase).
Service Plan for Class A Shares. The Fund has adopted a
Service Plan for Class A shares to reimburse the Distributor for a
portion of its costs incurred in connection with the personal
service and maintenance of accounts that hold Class A shares.
Reimbursement is made quarterly at an annual rate that may not
exceed 0.25% of the average annual net assets of Class A shares of
the Fund. The Distributor uses all of those fees to compensate
dealers, brokers, banks and other financial institutions quarterly
for providing personal service and maintenance of accounts of their
customers that hold Class A shares and to reimburse itself (if the
Fund's Board of Trustees authorizes such reimbursements, which it
has not yet done) for its other expenditures under the Plan.
Services to be provided include, among others, answering
customer inquiries about the Fund, assisting in establishing and
maintaining accounts in the Fund, making the Fund's investment
plans available and providing other services at the request of the
Fund or the Distributor. Payments are made by the Distributor
quarterly at an annual rate not to exceed 0.25% of the average
annual net assets of Class A shares held in accounts of the dealer
or its customers. The payments under the Plan increase the annual
expenses of Class A shares. For more details, please refer to
"Distribution and Service Plans" in the Statement of Additional
Information.
Buying Class B Shares. Class B shares are sold at net asset value
per share without an initial sales charge. However, if Class B
shares are redeemed within 6 years of their purchase, a contingent
deferred sales charge will be deducted from the redemption
proceeds. That sales charge will not apply to shares purchased by
the reinvestment of dividends or capital gains distributions. The
charge will be assessed on the lesser of the net asset value of the
shares at the time of redemption or the original purchase price.
The contingent deferred sales charge is not imposed on the amount
of your account value represented by the increase in net asset
value over the initial purchase price. The Class B contingent
deferred sales charge is paid to compensate the Distributor for its
expenses of providing distribution-related services to the Fund in
connection with the sale of Class B shares.
To determine whether the contingent deferred sales charge
applies to a redemption, the Fund redeems shares in the following
order: (1) shares acquired by reinvestment of dividends and capital
gains distributions, (2) shares held for over 6 years, and (3)
shares held the longest during the 6-year period. The contingent
deferred sales charge is not imposed in the circumstances described
below in "Waivers of Class B and Class C Sales Charges."
The amount of the contingent deferred sales charge will depend
on the number of years since you invested and the dollar amount
being redeemed, according to the following schedule:
Years Since Beginning of Contingent Deferred Sales Charge
Month in Which Purchase On Redemptions in that Year
Order Was Accepted (As % of Amount Subject to Charge)
0-1 5.0%
1-2 4.0%
2-3 3.0%
3-4 3.0%
4-5 2.0%
5-6 1.0%
6 and following None
In the table, a "year" is a 12-month period. All purchases are
considered to have been made on the first regular business day of
the month in which the purchase was made.
Automatic Conversion of Class B Shares. 72 months after you
purchase Class B shares, those shares will automatically convert to
Class A shares. This conversion feature relieves Class B
shareholders of the asset-based sales charge that applies to Class
B shares under the Class B Distribution and Service Plan, described
below. The conversion is based on the relative net asset value of
the two classes, and no sales load or other charge is imposed. When
Class B shares convert, any other Class B shares that were acquired
by the reinvestment of dividends and distributions on the converted
shares will also convert to Class A shares. The conversion feature
is subject to the continued availability of a tax ruling described
in "Alternative Sales Arrangements - Class A, Class B and Class C
Shares" in the Statement of Additional Information.
Waivers of Class B Sales Charges. The Class B contingent
deferred sales charge will not apply to shares purchased in certain
types of transactions, nor will it apply to shares redeemed in
certain circumstances, as described below under "Buying Class C
Shares - Waivers of Class B and Class C Sales Charges."
Distribution and Service Plan for Class B Shares. The Fund
has adopted a Distribution and Service Plan for Class B shares to
compensate the Distributor for distributing Class B shares and
servicing accounts. This Plan is described below under "Buying
Class C Shares - Distribution and Service Plans for Class B and
Class C Shares."
Buying Class C Shares. Class C shares are sold at net asset value
per share without an initial sales charge. However, if the Class
C shares are redeemed within 12 months of their purchase, a
contingent deferred sales charge of 1.0% will be deducted from the
redemption proceeds. That sales charge will not apply to shares
purchased by the reinvestment of dividends or capital gains
distributions. The charge will be assessed on the lesser of the
net asset value of the shares at the time of redemption or the
original purchase price. The contingent deferred sales charge is
not imposed on the amount of your account value represented by the
increase in net asset value over the initial purchase price. The
Class C contingent deferred sales charge is paid to compensate the
Distributor for its expenses of providing distribution-related
services to the Fund in connection with the sales of Class C
shares.
To determine whether the contingent deferred sales charge
applies to a redemption, the Fund redeems shares in the following
order: (1) shares acquired by reinvestment of dividends and capital
gains distributions, (2) shares held for over 12 months, and (3)
shares held the longest during the 12-month period.
Waivers of Class B and Class C Sales Charges. The Class B
and Class C contingent deferred sales charges will not be applied
to shares purchased in certain types of transactions nor will it
apply to Class B and Class C shares redeemed in certain
circumstances as described below. The reasons for this policy are
in "Reduced Sales Charges" in the Statement of Additional
Information.
Waivers for Redemptions in Certain Cases. The Class B and
Class C contingent deferred sales charges will be waived for
redemption of shares in the following cases:
redemption from accounts following the death or disability
of the last surviving shareholder, including a trustee of a
"grantor" trust or revocable living trust for which the trustee is
also the sole beneficiary (the death or disability must have
occurred after the account was established, and for disability you
must provide evidence of a determination of disability by the
Social Security Administration); or
shares redeemed involuntarily, as described in "Shareholder
Account Rules and Policies," below.
Waivers for Shares Sold or Issued in Certain Transactions.
The contingent deferred sales charge is also waived on Class B and
Class C shares sold or issued in the following cases:
shares sold to the Manager or its affiliates;
shares sold to registered management investment companies or
separate accounts of insurance companies having an agreement with
the Manager or the Distributor for that purpose; or
shares issued in plans of reorganization to which the Fund
is a party.
Distribution and Service Plans for Class B and Class C
Shares. The Fund has adopted Distribution and Service Plans for
Class B and Class C shares to compensate the Distributor for its
services and costs in distributing Class B and C shares and
servicing accounts. Under the Plans, the Fund pays the Distributor
an annual "asset-based sales charge" of 0.75% per year on Class B
shares that are outstanding for 6 years or less and on Class C
shares. The Distributor also receives a service fee of 0.25% per
year under each plan.
Under each Plan, both fees are computed on the average of the
net asset value of shares in the respective class, determined as
of the close of each regular business day during the period. The
asset-based sales charge and service fees increase Class B and
Class C expenses by up to 1.00% of the net assets per year of the
respective class.
The Distributor uses the service fees to compensate dealers
for providing personal services for accounts that hold Class B or
C shares. Those services are similar to those provided under the
Class A Service Plan, described above. The Distributor pays the
0.25% service fees to dealers in advance for the first year after
Class B or Class C shares have been sold by the dealer. After the
shares have been held for a year, the Distributor pays the service
fees to dealers on a quarterly basis.
The asset-based sales charge allows investors to buy Class B
or C shares without a front-end sales charge while allowing the
Distributor to compensate dealers that sell those shares. The Fund
pays the asset-based sales charge to the Distributor for its
services rendered in distributing Class B and Class C shares.
Those payments are at a fixed rate that is not related to the
Distributor's expenses. The services rendered by the Distributor
include paying and financing the payment of sales commissions,
service fees and other costs of distributing and selling Class B
and Class C shares.
The Distributor currently pays sales commission of 3.75% of
the purchase price of Class B shares to dealers from its own
resources at the time of sale. Including the advance of the
service fee, the total amount paid by the Distributor to the dealer
at the time of sales of Class B shares is therefore 4.00% of the
purchase price. The Distributor retains the Class B asset-based
sales charge.
The Distributor currently pays sales commissions of 0.75% of
the purchase price of Class C shares to dealers from its own
resources at the time of sale. Including the advance of the
service fee, the total amount paid by the Distributor to the dealer
at the time of sale of Class C shares is therefore 1.00% of the
purchase price. The Distributor plans to pay the asset-based sales
charge as an ongoing commission to the dealer on Class C shares
that have been outstanding for a year or more.
The Distributor's actual expenses in selling Class B and C
shares may be more than the payments it receives from contingent
deferred sales charges collected on redeemed shares and from the
Fund under the Distribution and Service Plans for Class B and C
shares. At December 31, 1995, the end of the Class B and Class C
Plan year, the Distributor had incurred unreimbursed expenses under
the class B Plan of $1,573,295 (equal to 3.82% of the Fund's net
assets represented by Class B shares on that date), and
unreimbursed expenses under the Class C Plan of $4,120 (equal to
3.31% of the Fund's net assets represented by Class C shares on
that date) which have been carried over into the present Plan year.
If either Plan is terminated by the Fund, the Board of Directors
may allow the Fund to continue payments of the asset-based sales
charge to the Distributor for distributing shares before the Plan
was terminated.
Special Investor Services
AccountLink. OppenheimerFunds AccountLink links your Fund account
to your account at your bank or other financial institution to
enable you to send money electronically between those accounts to
perform a number of types of account transactions. These include
purchases of shares by telephone (either through a service
representative or by PhoneLink, described below), automatic
investments under Asset Builder Plans, and sending dividends and
distributions or Automatic Withdrawal Plan payments directly to
your bank account. Please refer to the Application for details or
call the Transfer Agent for more information.
AccountLink privileges should be requested on the Application
you use to buy shares, or on your dealer's settlement instructions
if you buy your shares through your dealer. After your account is
established, you can request AccountLink privileges by sending
signature-guaranteed instructions to the Transfer Agent.
AccountLink privileges will apply to each shareholder listed in the
registration on your account as well as to your dealer
representative of record unless and until the Transfer Agent
receives written instructions terminating or changing those
privileges. After you establish AccountLink for your account, any
change of bank account information must be made by signature-
guaranteed instructions to the Transfer Agent signed by all
shareholders who own the account.
Using AccountLink to Buy Shares. Purchases may be made by
telephone only after your account has been established. To purchase
shares in amounts up to $250,000 through a telephone
representative, call the Distributor at 1-800-852-8457. The
purchase payment will be debited from your bank account.
PhoneLink. PhoneLink is the OppenheimerFunds automated
telephone system that enables shareholders to perform a number of
account transactions automatically using a touch-tone phone.
PhoneLink may be used on already-established Fund accounts after
you obtain a Personal Identification Number (PIN), by calling the
special PhoneLink number: 1-800-533-3310.
Purchasing Shares. You may purchase shares in amounts up to
$100,000 by phone, by calling 1-800-533-3310. You must have
established AccountLink privileges to link your bank account with
the Fund, to pay for these purchases.
Exchanging Shares. With the OppenheimerFunds exchange
privilege, described below, you can exchange shares automatically
by phone from your Fund account to another Oppenheimer fund account
you have already established by calling the special PhoneLink
number. Please refer to "How to Exchange Shares," below, for
details.
Selling Shares. You can redeem shares by telephone
automatically by calling the PhoneLink number and the Fund will
send the proceeds directly to your AccountLink bank account.
Please refer to "How to Sell Shares," below for details.
Automatic Withdrawal and Exchange Plans. The Fund has several
plans that enable you to sell shares automatically or exchange them
to another Oppenheimer fund account on a regular basis:
Automatic Withdrawal Plans. If your Fund account is $5,000
or more, you can establish an Automatic Withdrawal Plan to receive
payments of at least $50 on a monthly, quarterly, semi-annual or
annual basis. Automatic Withdrawal Plans are not advisable for
Class B and Class C shares subject to a contingent deferred sales
charge ("CDSC") unless waivers of the CDSC apply. The checks may
be sent to you or sent automatically to your bank account on
AccountLink. You may even set up certain types of withdrawals of
up to $1,500 per month by telephone. You should consult the
Application and Statement of Additional Information for more
details.
Automatic Exchange Plans. You can authorize the Transfer
Agent to automatically exchange an amount you establish in advance
for shares of up to five other Oppenheimer funds on a monthly,
quarterly, semi-annual or annual basis under an Automatic Exchange
Plan. The minimum purchase for each Oppenheimer fund account is
$25. These exchanges are subject to the terms of the exchange
privilege, described below.
Reinvestment Privilege. If you redeem some or all of your Class A
or B shares of the Fund, you have up to 6 months to reinvest all or
part of the redemption proceeds in Class A shares of the Fund or
other Oppenheimer funds without paying a sales charge. This
privilege applies only to Class A shares that you purchased subject
to an initial sales charge and to Class A or Class B shares on
which you paid a contingent deferred sales charge when you redeemed
them. This privilege does not apply to Class C shares. You must be
sure to ask the Distributor for this privilege when you send your
payment. Please consult the Statement of Additional Information for
more details.
How to Sell Shares
You can arrange to take money out of your account by selling
(redeeming) some or all of your shares on any regular business day.
Your shares will be sold at the next net asset value calculated
after your order is received and accepted by the Transfer Agent.
The Fund offers you a number of ways to sell your shares: in
writing, by using the Fund's checkwriting privilege or by
telephone. You can also set up Automatic Withdrawal Plans to
redeem shares on a regular basis, as described above. If you have
questions about any of these procedures, and especially if you are
redeeming shares in a special situation, such as due to the death
of the owner, please call the Transfer Agent first, at 1-800-525-
7048, for assistance.
Certain Requests Require a Signature Guarantee. To protect
you and the Fund from fraud, certain redemption requests must be in
writing and must include a signature guarantee in the following
situations (there may be other situations also requiring a
signature guarantee):
You wish to redeem more than $50,000 worth of shares and
receive a check
The redemption check is not payable to all shareholders
listed on the account statement
The redemption check is not sent to the address of record on
your account statement
Shares are being transferred to a Fund account with a
different owner or name
Shares are redeemed by someone other than the owners (such
as an Executor)
Where Can I Have My Signature Guaranteed? The Transfer
Agent will accept a guarantee of your signature by a number of
financial institutions, including: a U.S. bank, trust company,
credit union or savings association, or by a foreign bank that has
a U.S. correspondent bank, or by a U.S. registered dealer or broker
in securities, municipal securities or government securities, or by
a U.S. national securities exchange, a registered securities
association or a clearing agency. If you are signing on behalf of
a corporation, partnership or other business or as a fiduciary, you
must also include your title in the signature.
Selling Shares by Mail. Write a "letter of instructions" that
includes:
Your name
The Fund's name
Your Fund account number (from your account statement)
The dollar amount or number of shares to be redeemed
Any special payment instructions
Any share certificates for the shares you are selling,
The signatures of all registered owners exactly as the
account is registered, and
Any special requirements or documents requested by the
Transfer Agent to assure proper authorization of the person asking
to sell shares.
Use the following address for Send courier or Express Mail
requests by mail: requests to:
OppenheimerFunds Services OppenheimerFunds Services
P.O. Box 5270 10200 E. Girard Avenue, Bldg. D
Denver, Colorado 80217 Denver, Colorado 80231
Selling Shares by Telephone. You and your dealer representative of
record may also sell your shares by telephone. To receive the
redemption price on a regular business day, your call must be
received by the Transfer Agent by the close of The New York Stock
Exchange that day, which is normally 4:00 P.M., but may be earlier
on some days. Please call your dealer for more information about
this procedure. You may not redeem shares held under a share
certificate by telephone.
To redeem shares through a service representative, call
1-800-852-8457
To redeem shares automatically on PhoneLink, call 1-800-533-
3310
Whichever method you use, you may have a check sent to the
address on the account statement, or, if you have linked your Fund
account to your bank account on AccountLink, you may have the
proceeds wired to that bank account.
Telephone Redemptions Paid by Check. Up to $50,000 may be
redeemed by telephone in any 7-day period. The check must be
payable to all owners of record of the shares and must be sent to
the address on the account statement. This service is not
available within 30 days of changing the address on an account.
Telephone Redemptions Through AccountLink. There are no
dollar limits on telephone redemption proceeds sent to a bank
account designated when you establish AccountLink. Normally the
ACH transfer to your bank is initiated on the business day after
the redemption. You do not receive dividends on the proceeds of
the shares you redeemed while they are waiting to be transferred.
Checkwriting. To be able to write checks against your Fund
account, you may request that privilege on your account
Application, or you can contact the Transfer Agent for signature
cards which must be signed (with a signature guarantee) by all
owners of the account and returned to the Transfer Agent so that
checks can be sent to you to use. Shareholders with joint accounts
can elect in writing to have checks paid over the signature of one
owner. If you previously signed a signature card to establish
Checkwriting in another Oppenheimer fund, simply call 1-800-525-
7048 to request Checkwriting for an account in this Fund with the
same registration as the previous Checkwriting account.
Checks can be written to the order of whomever you wish, but
may not be cashed at the Fund's bank or custodian.
Checkwriting privileges are not available for accounts
holding Class B shares or Class C shares, or Class A shares that
are subject to a contingent deferred sales charge.
Checks must be written for at least $100.
Checks cannot be paid if they are written for more than your
account value. Remember: your shares fluctuate in value and you
should not write a check close to the total account value.
You may not write a check that would require the Fund to
redeem shares that were purchased by check or Asset Builder Plan
payments within the prior 10 days.
Don't use your checks if you changed your Fund account
number.
Selling Shares Through Your Dealer. The Distributor has made
arrangements to repurchase Fund shares from dealers and brokers on
behalf of their customers. Brokers or dealers may charge for that
service. Please refer to "Special Arrangements for Repurchase of
Shares from Dealers and Brokers" in the Statement of Additional
Information for more details.
How to Exchange Shares
Shares of the Fund may be exchanged for shares of certain
Oppenheimer funds at net asset value per share at the time of
exchange, without sales charge. To exchange shares, you must meet
several conditions:
Shares of the fund selected for exchange must be available
for sale in your state of residence.
The prospectuses of this Fund and the fund whose shares you
want to buy must offer the exchange privilege.
You must hold the shares you buy when you establish your
account for at least 7 days before you can exchange them; after the
account is open 7 days, you can exchange shares every regular
business day.
You must meet the minimum purchase requirements for the fund
you purchase by exchange.
Before exchanging into a fund, you should obtain and read
its prospectus.
Shares of a particular class of the Fund may be exchanged only
for shares of the same class in the other Oppenheimer funds. For
example, you can exchange Class A shares of this Fund only for
Class A shares of another fund. At present, Oppenheimer Money
Market Fund, Inc. offers only one class of shares, which are
considered Class A shares for this purpose. In some cases, sales
charges may be imposed on exchange transactions. Please refer to
"How to Exchange Shares" in the Statement of Additional Information
for more details.
Exchanges may be requested in writing or by telephone:
Written Exchange Requests. Submit an OppenheimerFunds
Exchange Request form, signed by all owners of the account. Send
it to the Transfer Agent at the addresses listed in "How to Sell
Shares."
Telephone Exchange Requests. Telephone exchange requests may
be made either by calling a service representative at
1-800-852-8457, or by using PhoneLink for automated exchanges by
calling 1-800-533-3310. Telephone exchanges may be made only
between accounts that are registered with the same name(s) and
address. Shares held under certificates may not be exchanged by
telephone.
You can find a list of Oppenheimer funds currently available
for exchanges in the Statement of Additional Information or obtain
one by calling a service representative at 1-800-525-7048. That
list can change from time to time.
There are certain exchange policies you should be aware of:
Shares are normally redeemed from one fund and purchased
from the other fund in the exchange transaction on the same regular
business day on which the Transfer Agent receives an exchange
request that is in proper form by the close of The New York Stock
Exchange that day, which is normally 4:00 P.M., but may be earlier
on some days. However, either fund may delay the purchase of
shares of the fund you are exchanging into up to 7 days if it
determines it would be disadvantaged by a same-day transfer of the
proceeds to buy shares. For example, the receipt of multiple
exchange requests from a dealer in a "market-timing" strategy might
require the disposition of securities at a time or price
disadvantageous to the Fund.
Because excessive trading can hurt fund performance and harm
shareholders, the Fund reserves the right to refuse any exchange
request that will disadvantage it, or to refuse multiple exchange
requests submitted by a shareholder or dealer.
The Fund may amend, suspend or terminate the exchange
privilege at any time. Although the Fund will attempt to provide
you notice whenever it is reasonably able to do so, it may impose
these changes at any time.
For tax purposes, exchanges of shares involve a redemption
of the shares of the fund you own and a purchase of the shares of
the other fund, which may result in a capital gain or loss. For
more information about taxes affecting exchanges, please refer to
"How to Exchange Shares" in the Statement of Additional
Information.
If the Transfer Agent cannot exchange all the shares you
request because of a restriction cited above, only the shares
eligible for exchange will be exchanged.
Shareholder Account Rules and Policies
Net Asset Value Per Share is determined for each class of
shares as of the close of The New York Stock Exchange, which is
normally 4:00 P.M. but may be earlier on some days, on each day the
Exchange is open by dividing the value of the Fund's net assets
attributable to a class by the number of shares of that class that
are outstanding. The Fund's Board of Trustees has established
procedures to value the Fund's securities to determine net asset
value. In general, securities values are based on market value.
There are special procedures for valuing illiquid and restricted
securities and obligations for which market values cannot be
readily obtained. These procedures are described more completely
in the Statement of Additional Information.
The offering of shares may be suspended during any period
in which the determination of net asset value is suspended, and the
offering may be suspended by the Board of Trustees at any time the
Board believes it is in the Fund's best interest to do so.
Telephone Transaction Privileges for purchases, redemptions
or exchanges may be modified, suspended or terminated by the Fund
at any time. If an account has more than one owner, the Fund and
the Transfer Agent may rely on the instructions of any one owner.
Telephone privileges apply to each owner of the account and the
dealer representative of record for the account unless and until
the Transfer Agent receives cancellation instructions from an owner
of the account.
The Transfer Agent will record any telephone calls to verify
data concerning transactions and has adopted other procedures to
confirm that telephone instructions are genuine, by requiring
callers to provide tax identification numbers and other account
data or by using PINs, and by confirming such transactions in
writing. If the Transfer Agent does not use reasonable procedures
it may be liable for losses due to unauthorized transactions, but
otherwise neither the Transfer Agent nor the Fund will be liable
for losses or expenses arising out of telephone instructions
reasonably believed to be genuine. If you are unable to reach the
Transfer Agent during periods of unusual market activity, you may
not be able to complete a telephone transaction and should consider
placing your order by mail.
Redemption or transfer requests will not be honored until
the Transfer Agent receives all required documents in proper form.
From time to time, the Transfer Agent in its discretion may waive
certain of the requirements for redemptions stated in this
Prospectus.
Dealers that can perform account transactions for their
clients by participating in NETWORKING through the National
Securities Clearing Corporation are responsible for obtaining their
clients' permission to perform those transactions and are
responsible to their clients who are shareholders of the Fund if
the dealer performs any transaction erroneously or improperly.
The redemption price for shares will vary from day to day
because the value of the securities in the Fund's portfolio
fluctuates, and the redemption price, which is the net asset value
per share, will normally be different for Class A, Class B and
Class C shares. Therefore, the redemption value of your shares may
be more or less than their original cost.
Payment for redeemed shares is made ordinarily in cash and
forwarded by check or through AccountLink (as elected by the
shareholder under the redemption procedures described above) within
7 days after the Transfer Agent receives redemption instructions in
proper form, except under unusual circumstances determined by the
Securities and Exchange Commission delaying or suspending such
payments. For accounts registered in the name of a broker-dealer,
payment will be forwarded within 3 business days. The Transfer
Agent may delay forwarding a check or processing a payment via
AccountLink for recently purchased shares, but only until the
purchase payment has cleared. That delay may be as much as 10 days
from the date the shares were purchased. That delay may be avoided
if you purchase shares by certified check or arrange to have your
bank provide telephone or written assurance to the Transfer Agent
that your purchase payment has cleared.
Involuntary redemptions of small accounts may be made by the
Fund if the account value has fallen below $200 for any reason
other than that the market value of shares has dropped, and in some
cases involuntary redemptions may be made to repay the Distributor
for losses from the cancellation of share purchase orders.
Under unusual circumstances, shares of the Fund may be
redeemed "in kind," which means that the redemption proceeds will
be paid with securities from the Fund's portfolio. Please refer to
"How to Sell Shares" in the Statement of Additional Information for
more details.
"Backup Withholding" of Federal income tax may be applied
at the rate of 31% from taxable dividends, distributions and
redemption proceeds (including exchanges) if you fail to furnish
the Fund a certified Social Security or Employer Identification
Number when you sign your application, or if you violate Internal
Revenue Service regulations on tax reporting of income.
The Fund does not charge a redemption fee, but if your
dealer or broker handles your redemption, they may charge a fee.
That fee can be avoided by redeeming your Fund shares directly
through the Transfer Agent. Under the circumstances described in
"How To Buy Shares," you may be subject to a contingent deferred
sales charges when redeeming certain Class A, Class B and Class C
shares.
To avoid sending duplicate copies of materials to
households, the Fund will mail only one copy of each annual and
semi-annual report to shareholders having the same last name and
address on the Fund's records. However, each shareholder may call
the Transfer Agent at 1-800-525-7048 to ask that copies of those
materials be sent personally to that shareholder.
Transfer Agent and Shareholder Servicing Agent. The transfer
agent and shareholder servicing agent is OppenheimerFunds Services.
Unified Management Corporation (1-800-346-4601) is the shareholder
servicing agent for former shareholders of the AMA Family of Funds
and clients of AMA Investment Advisers, L.P. who owned shares of
the Former Quest For Value Fund when it merged into the Fund on
November 24, 1995.
Dividends, Capital Gains and Taxes
Dividends. The Fund declares dividends separately for Class A,
Class B and Class C shares from net tax-exempt income and/or net
investment income each regular business day and pays such dividends
to shareholders monthly. Normally, dividends are paid on or about
the tenth business day of each month, but the Board of Trustees can
change that date. It is expected that distributions paid with
respect to Class A shares will generally be higher than for Class
B and Class C shares because expenses allocable to Class B and
Class C shares will generally be higher.
The Fund has adopted the practice, to the extent consistent
with the amount of the Fund's net investment income and other
distributable income, of attempting to pay dividends on Class A
shares at a constant level, although the amount of such dividends
may be subject to change 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 that Class. The practice
of attempting to pay dividends on Class A shares at a constant
level requires the Manager, consistent with the Fund's investment
objective and investment restrictions, to monitor the Fund's
portfolio and select higher yielding securities when deemed
appropriate to maintain necessary net investment income levels.
The Fund anticipates paying dividends at the targeted dividend
level from net investment income and other distributable income
without any impact on the Fund's net asset value per share. The
Board of Trustees may change the Fund's targeted dividend level at
any time, without prior notice to shareholders; the Fund does not
otherwise have a fixed dividend rate and there can be no assurance
as to the payment of any dividends or the realization of any
capital gains.
Capital Gains. Although the Fund does not seek capital gains, it
may realize capital gains on the sale of portfolio securities. If
it does, it may make distributions out of any net short-term or
long-term capital gains in December. The Fund may make
supplemental distributions of dividends and capital gains following
the end of its fiscal year (which ends December 31st). Long-term
capital gains will be separately identified in the tax information
the Fund sends you after the end of the year. Short-term capital
gains are treated as dividends for tax purposes. There can be no
assurance that the Fund will pay any capital gains distributions in
a particular year.
Distribution Options. When you open your account, specify on your
application how you want to receive your distributions. You have
four options:
Reinvest All Distributions in the Fund. You can elect to
reinvest all dividends and long-term capital gains distributions in
additional shares of the Fund.
Reinvest Long-Term Capital Gains Only. You can elect to
reinvest long-term capital gains in the Fund while receiving
dividends by check or sent to your bank account on AccountLink.
Receive All Distributions in Cash. You can elect to receive
a check for all dividends and long-term capital gains distributions
or have them sent to your bank on AccountLink.
Reinvest Your Distributions in Another Oppenheimer Fund
Account. You can reinvest all distributions in another Oppenheimer
fund account you have established.
Taxes. Long-term capital gains are taxable as long-term capital
gains when distributed to shareholders. It does not matter how
long you held your shares. Dividends paid from short-term capital
gains are taxable as ordinary income. Dividends paid from net
investment income earned by the Fund on Municipal Securities will
be excludable from your gross income for Federal income tax
purposes. A portion of the dividends paid by the Fund may be an
item of tax preference if you are subject to alternative minimum
tax. Certain distributions are subject to federal income tax and
may be subject to state or local taxes. Whether you reinvest your
distributions in additional shares or take them in cash, the tax
treatment is the same. Every year the Fund will send you and the
IRS a statement showing the amount of each taxable distribution you
received in the previous year as well as the amount of your tax-
exempt income.
"Buying a Dividend". When a fund goes ex-dividend, its
share price is reduced by the amount of the distribution. If you
buy shares on or just before the ex-dividend date, or just before
the Fund declares a capital gains distribution, you will pay the
full price for the shares and then receive a portion of the price
back as a taxable dividend or a capital gain.
Taxes on Transactions. Share redemptions, including
redemptions for exchanges, are subject to capital gains tax. Even
though the Fund seeks tax-exempt income for distribution to
shareholders, you may have a capital gain or loss when you sell or
exchange your shares. A capital gain or loss is the difference
between the price you paid for the shares and the price you
received when you sold them. Any capital gain is subject to
capital gains tax.
Returns of Capital. In certain cases, distributions made
by the Fund may be considered a non-taxable return of capital to
shareholders. If that occurs, it will be identified in notices to
shareholders. A non-taxable return of capital may reduce your tax
basis in your Fund shares.
This information is only a summary of certain federal tax
information about your investment. More information is contained
in the Statement of Additional Information, and in addition you
should consult with your tax adviser about the effect of an
investment in the Fund on your particular tax situation.
<PAGE>
APPENDIX A
Special Sales Charge Arrangements for Shareholders of the Fund
Who Were Shareholders of the Former Quest for Value Funds
The initial and contingent sales charge rates and waivers for
Class A, Class B and Class C shares of the Fund described elsewhere
in this Prospectus are modified as described below for those
shareholders of (i) Quest for Value Fund, Inc., Quest for Value
Growth and Income Fund, Quest for Value Opportunity Fund, Quest for
Value Small Capitalization Fund and Quest for Value Global Equity
Fund, Inc. on November 24, 1995, when OppenheimerFunds, Inc. became
the investment adviser to those funds, and (ii) Quest for Value
U.S. Government Income Fund, Quest for Value Investment Quality
Income Fund, Quest for Value Global Income Fund, Quest for Value
New York Tax-Exempt Fund, Quest for Value National Tax-Exempt Fund
and Quest for Value California Tax-Exempt Fund when those funds
merged into various Oppenheimer funds on November 24, 1995. The
funds listed above are referred to in this Prospectus as the
"Former Quest for Value Funds." The waivers of initial and
contingent deferred sales charges described in this Appendix apply
to shares of the Fund (i) acquired by such shareholder pursuant to
an exchange of shares of one of the Oppenheimer funds that was one
of the Former Quest for Value Funds or (ii) received by such
shareholder pursuant to the merger of any of the Former Quest for
Value Funds into an Oppenheimer fund on November 24, 1995.
Class A Sales Charges
Reduced Class A Initial Sales Charge Rates for Certain
Former Quest Shareholders
Purchases by Groups and Associations. The following table
sets forth the initial sales charge rates for Class A shares
purchased by members of "Associations" formed for any purpose other
than the purchase of securities if that Association purchased
shares of any of the Former Quest for Value Funds or received a
proposal to purchase such shares from OCC Distributors prior to
November 24, 1995.
Front-End Front-End
Sales Sales
Number of Charge as Charge as Commission
Eligible a Percentage a Percentage as Percentage
Employees of Offering of Amount of Offering
or Members Price Invested Price
- ---------------------------------------------------------------
9 or fewer 2.50% 2.56% 2.00%
- ---------------------------------------------------------------
At least 10 but
not more than 49 2.00% 2.04% 1.60%
For purchases by Associations having 50 or more eligible
employees or members, there is no initial sales charge on purchases
of Class A shares, but those shares are subject to the Class A
contingent deferred sales charge described on page 27 of this
Prospectus.
Purchases made under this arrangement qualify for the lower of
the sales charge rate in the table based on the number of members
of an Association or the sales charge rate that applies under the
Rights of Accumulation described above in the Prospectus.
Individuals who qualify under this arrangement for reduced sales
charge rates as members of Associations also may purchase shares
for their individual or custodial accounts at these reduced sales
charge rates, upon request to the Fund's Distributor.
Special Class A Contingent Deferred Sales Charge Rates
The contingent deferred sales charge applicable to Class A
shares of the Fund has been waived with respect to those shares of
the Fund issued in the reorganization on November 24, 1995 for
shares of Quest for Value California Tax-Exempt Fund. Class A
shares of the Fund purchased by exchange of shares of other
Oppenheimer funds that were acquired as a result of the merger of
Former Quest for Value Funds into those Oppenheimer funds, and
which shares were subject to a Class A contingent deferred sales
charge prior to November 24, 1995 will be subject to a contingent
deferred sales charge at the following rates: if they are redeemed
within 18 months of the end of the calendar month in which they
were purchased, at a rate equal to 1.0% if the redemption occurs
within 12 months of their initial purchase and at a rate of 0.50 of
1.0% if the redemption occurs in the subsequent six months. Class
A shares of any of the Former Quest for Value Funds purchased
without an initial sales charge on or before November 22, 1995 will
continue to be subject to the applicable contingent deferred sales
charge in effect as of that date as set forth in the then-current
prospectus for such fund.
Waiver of Class A Sales Charges for Certain Shareholders
Class A shares of the Fund purchased by the following
investors are not subject to any Class A initial or contingent
deferred sales charges:
Shareholders of the Fund who were shareholders of the AMA
Family of Funds on February 28, 1991 and who acquired shares of any
Former Quest for Value Fund by merger of a portfolio of the AMA
Family of Funds.
Shareholders of the Fund who acquired shares of any Former
Quest for Value Fund by merger of any of the portfolios of the
Unified Funds.
Waiver of Class A Contingent Deferred Sales Charge in
Certain Transactions
The Class A contingent deferred sales charge will not apply to
redemptions of Class A shares of the Fund purchased by the
following investors who were shareholders of any Former Quest for
Value Fund:
Investors who purchased Class A shares from a dealer that is
or was not permitted to receive a sales load or redemption fee
imposed on a shareholder with whom that dealer has a fiduciary
relationship under the Employee Retirement Income Security Act of
1974 and regulations adopted under that law.
Class A, Class B and Class C Contingent Deferred Sales Charge
Waivers
Waivers for Redemptions of Shares Purchased Prior to March
6, 1995
In the following cases, the contingent deferred sales charge
will be waived for redemptions of Class A, B or C shares of the
Fund acquired by merger of a Former Quest for Value Fund into the
Fund or by exchange from an Oppenheimer fund that was a Former
Quest for Value Fund or into which such fund merged, if those
shares were purchased prior to March 6, 1995 in connection with:
(i) withdrawals under an automatic withdrawal plan holding only
either Class B or C shares if the annual withdrawal does not exceed
10% of the initial value of the account, and (ii) liquidation of a
shareholder's account if the aggregate net asset value of shares
held in the account is less than the required minimum value of such
accounts.
Waivers for Redemptions of Shares Purchased on or After
March 6, 1995 but Prior to November 24, 1995.
In the following cases, the contingent deferred sales charge
will be waived for redemptions of Class A, B or C shares of the
Fund acquired by merger of a Former Quest for Value Fund into the
Fund or by exchange from an Oppenheimer fund that was a Former
Quest For Value Fund or into which such fund merged, if those
shares were purchased on or after March 6, 1995, but prior to
November 24, 1995: (1) redemptions following the death or
disability of the shareholder(s) (as evidenced by a determination
of total disability by the U.S. Social Security Administration);
(2) withdrawals under an automatic withdrawal plan (but only for
Class B or C shares) where the annual withdrawals do not exceed 10%
of the initial value of the account; and (3) liquidation of a
shareholder's account if the aggregate net asset value of shares
held in the account is less than the required minimum account
value. A shareholder's account will be credited with the amount of
any contingent deferred sales charge paid on the redemption of any
Class A, B or C shares of the Fund described in this section if
within 90 days after that redemption, the proceeds are invested in
the same Class of shares in this Fund or another Oppenheimer fund.
<PAGE>
APPENDIX TO PROSPECTUS OF
OPPENHEIMER CALIFORNIA TAX-EXEMPT FUND
Graphic material included in Prospectus of Oppenheimer
California Tax-Exempt Fund: "Comparison of Total Return of
Oppenheimer California Tax-Exempt Fund and the Lehman Brothers
Municipal Bond Index - Change in Value of a $10,000 Hypothetical
Investment"
A linear graph will be included in the Prospectus of
Oppenheimer California Tax-Exempt Fund (the "Fund") depicting the
initial account value and subsequent account value of a
hypothetical $10,000 investment in the Fund. In the case of the
Fund's class A shares, that graph will cover the period from the
commencement of the Fund's operations (11/3/88) through 12/31/95,
in the case of the Fund's Class B shares will cover the period from
the inception of the class (May 1, 1993) through December 31, 1995,
and in the case of the Fund's Class C shares will cover the period
from the inception of the class (November 1, 1995) through December
31, 1995. The graph will compare such values with hypothetical
$10,000 investments over the same time periods in the Lehman
Brothers Municipal Bond Index. Set forth below are the relevant
data points that will appear on the linear graph. Additional
information with respect to the foregoing, including a description
of the Lehman Brothers Municipal Bond Index, is set forth in the
Prospectus under "How Has the Fund Performed - Management's
Discussion of Performance."
Fiscal Year Oppenheimer California Lehman Brothers
(Period) Ended Tax-Exempt Fund A Municipal Bond Index
11/3/88 $9,525 $10,000
12/31/88 $9,661 $10,102
12/31/89 $10,783 $11,192
12/31/90 $11,468 $12,008
12/31/91 $12,719 $13,466
12/31/92 $13,768 $14,653
12/31/93 $15,557 $16,453
12/31/94 $14,279 $15,602
12/31/95 $17,100 $18,326
Fiscal Year Oppenheimer California Lehman Brothers
(Period) Ended Tax-Exempt Fund B Municipal Bond Index
5/1/93 $10,000 $10,000
12/31/93 $10,638 $10,718
12/31/94 $9,312 $10,164
12/31/95 $11,197 $11,939
Fiscal Year Oppenheimer California Lehman Brothers
(Period) Ended Tax-Exempt Fund C Municipal Bond Index
8/29/95 $10,000 $10,000
12/31/95 $10,190 $10,478
<PAGE>
Oppenheimer California Tax-Exempt Fund
Two World Trade Center
New York, New York 10048-0203
1-800-525-7048
Investment Advisor
OppenheimerFunds, Inc.
Two World Trade Center
New York, New York 10048-0203
Distributor
OppenheimerFunds Distributor, Inc.
Two World Trade Center
New York, New York 10048-0203
Transfer Agent
OppenheimerFunds Services
P.O. Box 5270
Denver, Colorado 80217
1-800-525-7048
Custodian of Portfolio Securities
Citibank, N.A.
One Citicorp Center
New York, New York 10154
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
No dealer, broker, salesperson or any other person has been
authorized to give any information or to make any representations
other than those contained in this Prospectus or the Statement of
Additional Information and, if given or made, such information and
representations must not be relied upon as having been authorized
by the Fund, OppenheimerFunds, Inc., OppenheimerFunds Distributor,
Inc., or any affiliate thereof. This Prospectus does not
constitute an offer to sell or a solicitation of an offer to buy
any of the securities offered hereby in any state to any person to
whom it is unlawful to make such offer in such state.
PR0790.001.0495 Printed on recycled paper
<PAGE>
Oppenheimer California Tax-Exempt Fund
Two World Trade Center, New York, New York 10048-0203
1-800-525-7048
Statement of Additional Information dated April 20, 1996
This Statement of Additional Information is not a Prospectus.
This document contains additional information about the Fund and
supplements information in the Prospectus dated April 20, 1996. It
should be read together with the Prospectus which may be obtained
by writing to the Fund's Transfer Agent, OppenheimerFunds Services
at P.O. Box 5270, Denver, Colorado 80217 or by calling the Transfer
Agent at the toll free number shown above.
Contents
Page
About the Fund
Investment Objective and Policies. . . . . . . . . . . . . . 2
Investment Policies and Strategies . . . . . . . . . . . . 2
Other Investment Techniques and Strategies. . . . . . . . . 9
Other Investment Restrictions . . . . . . . . . . . . . . . 18
How the Fund is Managed. . . . . . . . . . . . . . . . . . . 19
Organization and History. . . . . . . . . . . . . . . . . . 19
Trustees and Officers of the Fund . . . . . . . . . . . . . 19
The Manager and Its Affiliates. . . . . . . . . . . . . . . 25
Brokerage Policies of the Fund . . . . . . . . . . . . . . . 27
Performance of the Fund. . . . . . . . . . . . . . . . . . . 29
Distribution and Service Plans . . . . . . . . . . . . . . . 34
About Your Account
How To Buy Shares. . . . . . . . . . . . . . . . . . . . . . 36
How To Sell Shares . . . . . . . . . . . . . . . . . . . . . 43
How To Exchange Shares . . . . . . . . . . . . . . . . . . . 46
Dividends, Capital Gains and Taxes . . . . . . . . . . . . . 49
Additional Information About the Fund. . . . . . . . . . . . 51
Financial Information About the Fund
Financial Statements . . . . . . . . . . . . . . . . . . . . 53
Independent Auditors' Report . . . . . . . . . . . . . . . . 54
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 and the type
of securities in which the Fund may invest, as well as the
strategies the Fund may use to try to achieve its objective.
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 or other 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.
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.
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, OppenheimerFunds, Inc. (the
"Manager"), may determine that an unrated floating rate or variable
rate demand obligation meets the Fund's quality standards by reason
of being backed by a letter of credit or guarantee issued by a bank
that meets 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.
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.
In 1986, California voters approved an initiative known as
Proposition 62, which, among other things, requires that any tax
for general governmental purposes imposed by a local government be
approved by a two-thirds vote of the governmental entity's
legislative body and by a majority of its electorate and that any
special tax imposed by a local government be approved by a two-
thirds vote of the electorate. In September 1995 the California
Supreme Court upheld the constitutionality of Proposition 62,
creating uncertainty as to the legality of certain local taxes
enacted by non-charter cities in California without voter approval.
It is not possible to predict the impact of the decision.
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 some effects of a
recession. Unemployment has remained above the national average
since 1990, although the state experienced strong job growth in
1995. Substantial contraction 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 1996.
Economic data indicate that the state's economy grew at a modest
rate in 1995, and continued growth is expected in 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. Although the state's budget projects an operating
surplus of approximately $600 million, it continues to rely on
federal actions, both to fund programs relating to MediCal and
incarceration costs associated with illegal immigrants and to
relieve the state from federally mandated spending, which are not
certain of occurring. Accordingly, the surplus may not be realized
unless the economy outperforms expectations or spending falls below
planned levels.
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. However, in
February 1996, citing California's improving economy and budget
situation, Fitch raised its rating from A to A+.
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. Despite such efforts, the County
is facing a potential budget gap of $1.0 billion in the 1996-1997
fiscal year.
Other Investment Techniques and Strategies
Puts and Standby Commitments. The Fund may acquire
securities subject to repurchase agreements for liquidity purposes
to meet anticipated redemptions, or pending the investment of the
proceeds from sales of Fund shares, or pending the settlement of
portfolio securities. 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 identify to its Custodian 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.
Repurchase Agreements. The Fund may acquire securities
subject to repurchase agreements for liquidity purposes to meet
anticipated redemptions, or pending the investment of the proceeds
from sales of Fund shares, or pending the settlement of purchases
of portfolio securities. In a repurchase transaction, the Fund
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.
Illiquid and Restricted Securities. The Fund has percentage
limitations that apply to purchases of restricted and illiquid
securities, as stated in the Prospectus. Those percentage
restrictions do not limit purchases of restricted securities that
are eligible for sale to qualified institutional purchasers
pursuant to Rule 144A under the Securities Act of 1933, provided
that those securities have been determined to be liquid by the
Board of Trustees of the Fund or by the Manager under Board-
approved guidelines. Those guidelines take into account the
trading activity for such securities and the availability of
reliable pricing information, among other factors. If there is a
lack of trading interest in a particular Rule 144A security, the
Fund's holding of that security may be deemed to be illiquid.
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 to 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 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 pay
reasonable finder's, administrative and other fees in connection
with the loan. 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. As described in the Prospectus, the Fund may
employ one or more types of hedging instruments. 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. 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.
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. 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 exercise 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).
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 portfolio turnover rate. The exercise by the
Fund of puts on securities will cause the sale of related
investments, increasing portfolio turnover. Although such exercise
is within the Fund's control, holding a put might cause the Fund to
sell the related investments 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 put, sells a call, or buys or sells an
underlying investment in connection with the exercise of a call or
put. Such commissions may be higher on a relative basis than those
which would apply to direct purchases or sales of such underlying
investments. Premiums paid for options as to underlying
investments are small in relation to the market value of such
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 investment.
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 calls 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.
When the Fund writes an over-the-counter("OTC") option, it
intends to into an arrangement with a primary U.S. Government
securities dealer which would establish a formula price at which
the Fund would have the absolute right to repurchase that OTC
option. This formula price would generally be based on a multiple
of the premium received for the option, plus the amount by which
the option is exercisable below the market price of the underlying
security ("in-the-money"). For any OTC option the Fund writes, it
will treat as illiquid (for purposes of its restriction on illiquid
securities, stated in the Prospectus) the mark-to-market value of
any OTC option held by it. The Securities and Exchange Commission
is evaluating the general issue of whether or not OTC options
should be considered as liquid securities, and the procedure
described above could be affected by the outcome of that
evaluation.
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. The following additional investment
restrictions are fundamental policies. Fundamental policies,
including the Fund's investment objective, can be changed only by
the vote of a "majority" of the Fund's outstanding voting
securities. Under the Investment Company Act, such a "majority"
vote is defined as the vote of the holders of the lesser of (i) 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 (ii) more than 50% of the
outstanding shares.
Under these additional restrictions, the Fund cannot do any of
the following:
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 restrictions on investing in any
"issuer" above and in the Prospectus, 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.
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. These industry classifications are not
a fundamental policy. In applying the Fund's policy not to
concentrate its assets, 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. Should any such change be made, the Prospectus and/or
this Additional Statement will be supplemented to reflect the
change.
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 Enterprise Fund, Oppenheimer Target Fund,
Oppenheimer Asset Allocation Fund, Oppenheimer Global Emerging
Growth Fund, Oppenheimer Global Growth & Income Fund, Oppenheimer
International Growth Fund, Oppenheimer Tax-Free Bond Fund,
Oppenheimer New York Tax-Exempt Fund, Oppenheimer Multi-State Tax-
Exempt Trust, Oppenheimer Multi-Sector Income Trust and Oppenheimer
Multi-Government Trust (collectively, the "New York-based
Oppenheimer funds"). Ms. Macaskill and Messrs. Spiro, Donohue,
Bowen, Zack, Bishop and Farrar respectively, hold the same offices
with the other New York-based Oppenheimer funds as with the Fund.
As of April 22, 1996, the Trustees and officers of the Fund as a
group owned of record or beneficially less than 1% of each class of
shares of the Fund. 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 one of the Trustees and an
officer listed below, Ms. Macaskill, and one of the officers, Mr.
Donohue, 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
31 West 52nd Street, New York, New York 10019
General Partner of Odyssey Partners, L.P. (investment
partnership) and Chairman of Avatar Holdings Inc. (real estate
development).
Robert G. Galli, Trustee; Age 62
Vice Chairman of OppenheimerFunds, Inc. (the "Manager") and
Vice President and Counsel of Oppenheimer Acquisition Corp.
("OAC"), the Manager's parent holding company; formerly he
held the following positions: Executive Vice President &
General Counsel for the Manager and OppenheimerFunds
Distributor, Inc. (the "Distributor"), a director of the
Manager and 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, and an officer of other Oppenheimer funds.
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; a Director of
Sussex Publishers, Inc. (Publishers of Psychology Today and
Mother Earth News) and of Spy Magazine, L.P.
Bridget A. Macaskill, President and Trustee; Age 47*
President, Chief Executive Officer and a Director of the
Manager, Chairman and a Director of SSI, President and a
Director of OAC and HarbourView, a Director of Oppenheimer
Partnership Holdings, Inc., a holding company subsidiary of
the Manager; formerly an 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), and the 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; Senior Fellow 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 64
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.
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, Vice Chairman 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 83
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 65
1325 Merrie Ridge Road, McLean, Virginia 22101
Of Counsel to Hogan & Hartson (a law firm); a director of
B.A.T. Industries, Ltd. (tobacco and financial services),
Caterpillar, Inc. (machinery), ConAgra, Inc. (food and
agricultural products), Farmers Insurance Company
(insurance), FMC Corp. (chemicals and machinery), and Texas
Instruments, Inc. (electronics); 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.
Jerry A. Webman, Vice President and Portfolio Manager; Age 46
Senior Vice President of the Manager; an officer of other
Oppenheimer funds; previously an officer and analyst with
Prudential Mutual Funds -- Investment Management, Inc.
Andrew J. Donohue, Secretary; Age 45
Executive Vice President and General Counsel of the Manager
and the Distributor; President and a director of Centennial;
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), and a 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.
[FN]
- ----------------
*A Trustee who is an "interested person" of the Fund as defined in
the Investment Company Act.
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; Ms. Macaskill and Mr. Spiro are also officers) receive
no salary or fee from the Fund. The Trustees of the Fund
(excluding Ms. Macaskill, Messrs. Galli and Spiro) received the
total amounts shown below (i) from the Fund, during its fiscal year
ended December 31, 1995, and (ii) from all 17 of the New York-based
Oppenheimer funds (including the Fund) listed in the first
paragraph of this section (and from Oppenheimer Time Fund and
Oppenheimer Mortgage Income Fund, which ceased operation following
the acquisition of their assets by certain other Oppenheimer
funds).
<TABLE>
<CAPTION>
Retirement Total
Benefits Compensation
Aggregate Accrued From All
Compensation as Part of New York-based
Name and Position from Fund Fund Expenses Oppenheimer funds1
<S> <C> <C> <C>
Leon Levy $3,636 $10,453 $141,000.00
Chairman and Trustee
Benjamin Lipstein $2,223 $ 6,390 $ 86,200.00
Study Committee
Member and Trustee
Elizabeth B. Moynihan $2,223 $ 6,390 $ 86,200.00
Study Committee
Member and Trustee
Kenneth A. Randall $2,022 $ 5,812 $ 78,400.00
Audit Committee
Member and Trustee
Edward V. Regan $1,774 $ 5,100 $ 68,800.00
Audit Committee
Member2 and Trustee
Russell S. Reynolds, Jr. $1,344 $ 3,862 $ 52,100.00
Trustee
Sidney M. Robbins $3,149 $ 9,052 $122,100.00
Study Committee Chairman,
Audit Committee Vice-
Chairman and Trustee
Pauline Trigere $1,344 $ 3,862 $ 52,100.00
Trustee
Clayton K. Yeutter $1,344 $ 3,862 $ 52,100.00
Trustee
</TABLE>
[FN]
- ---------------
1For the 1995 calendar year.
2Committee position held during a portion of the period shown. The
Study and Audit Committees meet for all of the New York-based
Oppenheimer funds and the fees are allocated among the funds by the
Board.
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 Oppenheimer funds
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. During the fiscal year
ended December 31, 1995, $24,745 was accrued for the Fund's
projected retirement benefit obligations.
Major Shareholders. As of April 22, 1996, no person owned
of record or was known by the Fund to own beneficially 5% or more
of the Fund's oustanding Class A, Class B or Class C shares, except
as follows:
<TABLE>
<CAPTION>
Percentage of
Outstanding
Number Shares of
Name & Address of Shares the Class
<S> <C> <C>
Class C
Frances O'Farrell 8,461.747 5.53%
5333 Balboa Blvd., Apt. 156
Encino, CA 91316-2803
Alfred Goren TTEE 9,139.421 5.98%
Goren Family Living Trust
U/A 3/21/85
1483 S. Rexford Dr.
Los Angeles, CA 90035
Anna Fleishman TTEE Family Trust 9,359.383 6.12%
438 S. Highland Ave.
Los Angeles, CA 90036
E.C. Hiltman & Bethel L. Hiltman 9,526.645 6.23%
JT TEN WROS NOT TC
P.O. Box 306
Oregon House, CA 95962-0306
Malcolm S. White & Carol L. White 9,644.416 6.31%
JT TEN WROS NOT TC
4621 McGinnis Street
Bakersfield, CA 93308-1048
Merrill Lynch Pierce Fenner & Smith Inc. 9,653.000 6.31%
Attn: Book Entry Dept.
4800 Deer Lake Dr. E Fl. 3
Jacksonville, FL 32246-6484
Minnie Frederick 9,810.819 6.42%
Henry Frederick TTEE
Frederick Family Living Trust
155 S. Swall Dr.
Los Angeles, CA 90048
Jack Nierob 10,512.571 6.88%
214 N. Maple
Beverly Hills, CA 90210
Eckart Hammerle 19,717.171 12.90%
3531 Scofield Avenue
Simi Valley, CA 93063-1136
</TABLE>
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. A management fee is
payable monthly to the Manager under the terms of the Investment
Advisory Agreement between the Fund and the Manager and is computed
on the aggregate net assets of the Fund as of the close of business
each day. 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
Investment Advisory Agreement or by the Distributor under the
General Distributor's Agreement are paid by the Fund. The
Investment 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 Investment Advisory Agreement contains no provision
limiting the Fund's expenses. However, independently of the
Investment 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, 1993, 1994 and 1995,
there were no assumption of expenses, and the management fees paid
by the Fund to the Manager were $1,467,574, $1,560,360 and
$1,638,210, respectively.
The Investment 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 Investment 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, excluding payments under the Distribution and Service Plans
but including advertising and the cost of printing and mailing
prospectuses (other than those furnished to existing shareholders),
are borne by the Distributor. During the Fund's fiscal years ended
December 31, 1993, 1994 and 1995, the aggregate sales charges on
sales of the Fund's Class A shares were $1,831,469, $999,822 and
$984,851, respectively, of which the Distributor and an affiliated
broker-dealer retained $368,898, $193,221 and $165,771 in those
respective years. During the Fund's fiscal year ended December 31,
1995, the contingent deferred sales charge collected on the Fund's
Class B shares and Class C shares totaled $83,280 and $557,
respectively, all of which was retained by the Distributor. 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. The Fund's Transfer Agent,
OppenheimerFunds Services, a division of the Manager, is
responsible for maintaining the Fund's shareholder registry and
shareholder accounting records, and for shareholder servicing and
administrative functions.
Brokerage Policies of the Fund
Brokerage Provisions of the Investment Advisory Agreement. One of
the duties of the Manager under the Investment Advisory Agreement
is to arrange the portfolio transactions for the Fund. The
Investment Advisory Agreement contains provisions relating to the
employment of broker-dealers ("brokers") to effect the Fund's
portfolio transactions. In doing so, the Manager is authorized by
the Investment Advisory Agreement to employ 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 Investment 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 Investment Advisory Agreement and
the procedures and rules described above, allocations of brokerage
are generally made by the Manager's portfolio traders based upon
recommendations from the Manager's portfolio managers. In certain
instances, portfolio managers may directly place trades and
allocate brokerage, also subject to the provisions of the
Investment Advisory Agreement and the procedures and rules
described above. In either case, brokerage is allocated under the
supervision of the Manager's executive officers. As most purchases
made by the Fund are principal transactions at net prices, the Fund
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 of Trustees has permitted the
Manager to use concessions on fixed-price offerings to obtain
research, in the same manner as is permitted for agency
transactions. The Board has also permitted the Manager to use
stated commissions on secondary fixed-income 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 Investment 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.
Other funds advised by the Manager have investment objectives
and policies similar to those of the Fund. Such other funds may
purchase or sell the same securities at the same time as the Fund,
which could affect the supply and price of such securities. If two
or more of such funds purchase the same security on the same day
from the same dealer, the Manager may average the price of the
transactions and allocate the average among such funds.
Performance of the Fund
Yield and Total Return Information. As described in the
Prospectus, from time to time the "standardized yield," "tax-
equivalent yield," "dividend yield," "average annual total return",
"total return," and "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.
The Fund's advertisements of its performance data must, under
applicable rules of the Securities and Exchange Commission ("SEC"),
include the average annual total returns for each advertised class
of shares of the Fund for the 1, 5, and 10-year periods (or the
life of the class, if less) ending as of the most recently-ended
calendar quarter prior to the publication of the advertisement.
This enables an investor to compare the Fund's performance to the
performance of other funds for the same periods. However, a number
of factors should be considered before using such information as a
basis for comparison with other investments. An investment in the
Fund is not insured; its yield and total returns are not guaranteed
and normally will fluctuate on a daily basis. When redeemed, an
investor's shares may be worth more or less than their original
cost. Yield and total returns for any given past period are not a
prediction or representation by the Fund of future yields or rates
of return. The yield and total returns of each class of shares of
the Fund are affected by portfolio quality, portfolio maturity, the
type of investments the Fund holds, and its operating expenses
allocated to the particular class.
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
assumptions).
c = the average daily number of shares of that class
outstanding during the 30-day period that were entitled
to receive dividends.
d = the maximum offering price per share of that class on the
last day of the period, adjusted for undistributed net
investment income.
The standardized yield 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, 1995,
the standardized yields for the Fund's Class A, Class B and Class
C shares were 4.37%, 3.82% and 3.82%, 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. For the 30-day period ended December 31, 1995, the Fund's
tax-equivalent yield for an investor in the California/Federal
46.24% effective tax bracket for its Class A, Class B and Class C
shares was 8.13%, 7.11% and 7.11%, 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, 1995, were 4.98% and 5.38% when calculated at
maximum offering price and at net asset value, respectively. The
dividend yields on Class B and Class C shares for the 30-day period
ended December 31, 1995, were 4.61% and 4.61%, respectively, when
calculated at net asset value.
Total Return Information
Average Annual Total Returns. The "average annual total
return" of each class is an average annual compounded rate of
return for each year in a specified number of years. It is the
rate of return based on the change in value of a hypothetical
initial investment of $1,000 ("P" in the formula below) held for a
number of years ("n") to achieve an Ending Redeemable Value ("ERV")
of that investment, according to the following formula:
1/n
(ERV)
(---) -1 = Average Annual Total Return
( P )
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.
For Class C shares, payment of the 1% contingent deferred sales
charge for the first year 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, 1995 and for
the period from November 3, 1988 (commencement of operations) to
December 31, 1995, were 14.07%, 7.27% and 7.78%, respectively. The
cumulative "total return" on Class A shares for the latter period
was 71.00%. The average annual total returns on an investment in
Class B shares for the fiscal year ended December 31, 1995 and for
the period May 1, 1993 (date Class B shares were first publicly
offered) to December 31, 1995 were 13.97% and 4.33%. For the
fiscal period from May 1, 1993 through December 31, 1995, the
cumulative total return on an investment in Class B shares of the
Fund was 11.98%. The cumulative total return on an investment in
Class C shares for the period November 1, 1995 (date Class C shares
were first publicly offered) through December 31, 1995 was 1.90%.
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, 1995 and for the period from November 3, 1988
(commencement of operations) through December 31, 1995 were 19.76%,
8.31% and 8.52%, respectively. The average annual total returns at
net asset value on the Fund's Class B shares for the fiscal year
ended December 31, 1995 and for the period from May 3, 1993 (date
Class B shares were first publicly offered) through December 31,
1995 were 18.97% and 5.37%, respectively. The cumulative total
return at net asset value on Class C shares for the period from
November 1, 1995 (date Class C shares were first publicly offered)
through December 31, 1995 was 2.90%.
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, Class B and Class C shares
by Lipper Analytical Services, Inc. ("Lipper"), a widely-recognized
independent mutual fund monitoring service. Lipper monitors the
performance of regulated investment companies, including the Fund,
and ranks their performance for various periods based on categories
relating to investment objectives. The performance of the Fund is
ranked against (i) all other bond funds, other than money market
funds, and (ii) all other 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 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
measures 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.
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. The performance of the Fund's
Class A, Class B or Class C shares may be compared in publications
to (i) the performance of various market indices or to other
investments for which reliable performance data is available, and
(ii) to averages, performance rankings or other benchmarks prepared
by recognized mutual fund statistical services.
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 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.
From time to time, the Fund's Manager may publish rankings or
ratings of the Manager (or the Transfer Agent), by independent
third-parties, on the investor services provided by them to
shareholders of the Oppenheimer funds, other than the performance
rankings of the Oppenheimer funds themselves. Those ratings or
rankings of shareholder/investor services may compare the
Oppenheimer funds' services to those of other mutual fund families
selected by the rating or ranking services, and may be based upon
the opinions of the rating or ranking service itself, using its own
research or judgment, or based upon surveys of investors, brokers,
shareholders or others.
Distribution and Service Plans
The Fund has adopted a Service Plan for Class A shares and
Distribution and Service Plans for Class B and Class C shares 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 to Recipients from
their own resources.
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 payments under the 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 payments were made and the identity
of each Recipient that received any such payment. The report for
the Class B and Class C Plans shall also include the Distributor's
distribution costs for that quarter, and such costs for previous
fiscal periods that have been carried forward ("excess distribution
expenses"). The Board may consider whether to permit the
Distributor to recover the excess distribution expenses plus
financing costs from future payments of the asset-based sales
charge or service fee following termination of the Plan. 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, 1995, payments under
the Plan for Class A shares totaled $614,629, all of which was paid
by the Distributor to Recipients, including $20,230 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, 1995,
totalled $298,592, (including $1,197 paid to an affiliate of the
Distributor), of which $261,406 was retained by the Distributor.
Payments made under the Class C Plan for the fiscal year ended
December 31, 1995 totaled $149, all of which was retained by the
Distributor.
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. The Distributor retains the asset-based
sales charge on Class B shares. As to Class C shares, the
Distributor retains the asset-based sales charge during the first
year shares are outstanding, and pays the asset-based sales charge
as an ongoing commission to the dealer on Class C shares
outstanding for a year or more. Such payments are made to the
Distributor under the Plans in recognition that the Distributor (i)
pays sales commissions to authorized brokers and dealers at the
time of sale and pays service fees as described in the Prospectus,
(ii) may finance such commissions and/or the advance of the service
fee payment to Recipients under those Plans, or may provide such
financing from its own resources or from an affiliate, (iii)
employs personnel to support distribution of shares, and (iv) may
bear the costs of sales literature, advertising and prospectuses
(other than those furnished to current shareholders) and state
"blue sky" registration fees and certain other distribution
expenses.
ABOUT YOUR ACCOUNT
How To Buy Shares
Alternative Sales Arrangements - Class A, Class B and Class C
Shares. The availability of three classes of shares permits an
investor to choose the method of purchasing shares that is more
beneficial to the investor depending on the amount of the purchase,
the length of time the investor expects to hold shares and other
relevant circumstances. Investors should understand that the
purpose and function of the deferred sales charge and asset-based
sales charge with respect to Class B and Class C shares are the
same as those of the initial sales charge with respect to Class A
shares. Any salesperson or other person entitled to receive
compensation for selling Fund shares may receive different
compensation with respect to one class of shares than the other.
The Distributor will not accept any order for $500,000 or more of
Class B shares or $1 million or more of Class C shares on behalf of
a single investor (not including dealer "street name" or omnibus
accounts) because generally it will be more advantageous for that
investor to purchase Class A shares of the Fund instead.
The three classes of shares each represent an interest in the
same portfolio investments of the Fund. However, each class has
different shareholder privileges and features. The net income
attributable to Class B and Class C shares and the dividends
payable on 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 (a) Distribution and Service Plan
fees, (b) incremental transfer and shareholder servicing agent fees
and expenses, (c) registration fees and (d) shareholder meeting
expenses, to the extent that such expenses pertain to a specific
class rather than to the Fund as a whole.
Determination of Net Asset Values Per Share. The net asset values
per share of Class A, Class B and Class C shares of the Fund are
determined as of the close of business of The New York Stock
Exchange (the "Exchange") on each day that the Exchange is open, by
dividing the value of the Fund's net assets attributable to 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 having a remaining maturity in excess of
60 days are valued based on the mean between the "bid" and "asked"
prices determined by a portfolio pricing service approved by the
Fund's Board of Trustees or obtained from active market makers in
the security on the basis of reasonable inquiry; (ii) debt
instruments having a maturity of more than 397 days when issued,
and non-money market type instruments having a maturity of 397 days
or less when issued, which have a remaining maturity of 60 days or
less are valued at the mean between the "bid" and "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; (iii) money market-type debt
securities having a maturity of less than 397 days when issued that
have a remaining maturity of 60 days or less are valued at cost,
adjusted for amortization of premiums and accretion of discounts;
and (iv) securities (including restricted securities) not having
readily-available market quotations are valued at fair value 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 on which they are traded or on NASDAQ, as applicable, as
determined by a pricing service approved by the Board of Trustees
or by the Manager. If there were no sales that day, value shall be
the last sale price on the preceding trading day if it is within
the spread of the closing bid and asked prices on the principal
exchange or on NASDAQ on the valuation date, or if not, the closing
bid price on the principal exchange or on NASDAQ on the valuation
date. If the put, call or future is not traded on an exchange or
on NASDAQ, it shall be valued at the mean between bid and ask
prices from active market makers (which in certain cases may be the
bid price if no ask price is available). When the Fund writes an
option, an amount equal to the premium received is included in the
Fund's Statement of Assets and Liabilities as an asset, and an
equivalent 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. 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 be
purchased and dividends will begin to accrue on the next regular
business day. The proceeds of ACH transfers are normally received
by the Fund 3 days after the transfers are initiated. The
Distributor and the Fund are not responsible for any delays in
purchasing shares 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, a
sibling's spouse, aunts, uncles, nieces and nephews.
The Oppenheimer Funds. The Oppenheimer funds are those
mutual funds for which the Distributor acts as the distributor or
the sub-distributor and include the following:
Oppenheimer 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
Oppenheimer International Growth Fund
Oppenheimer Enterprise Fund
Oppenheimer Quest Growth & Income Value Fund
Oppenheimer Quest Officers Value Fund
Oppenheimer Quest Opportunity Value Fund
Oppenheimer Quest Small Cap Value Fund
Oppenheimer Quest Value Fund, Inc.
Oppenheimer Quest Global Value Fund, Inc.
Oppenheimer Bond Fund for Growth
Rochester Fund Municipals*
Rochester Portfolio Series - Limited-Term New York Municipal
Fund*
Oppenheimer Disciplined Value Fund
Oppenheimer Disciplined Allocation Fund
Oppenheimer LifeSpan Balanced Fund
Oppenheimer LifeSpan Income Fund
Oppenheimer LifeSpan Growth Fund
[FN]
- ------------
*Shares of the Fund are not presently exchangeable for shares of
these funds.
and the following "Money Market Funds":
Oppenheimer Money Market Fund, Inc.
Oppenheimer Cash Reserves
Centennial Money Market Trust
Centennial Tax Exempt Trust
Centennial Government Trust
Centennial New York Tax Exempt Trust
Centennial California Tax Exempt Trust
Centennial America Fund, L.P.
Daily Cash Accumulation Fund, Inc.
There is an initial sales charge on the purchase of Class A
shares of each of the Oppenheimer funds except Money Market Funds
(under certain circumstances described herein, redemption proceeds
of Money Market Fund shares may be subject to a contingent
deferred sales charge).
Letters of Intent. A Letter of Intent (referred to as a
"Letter") is an investor's statement in writing to the Distributor
of the intention to purchase Class A shares 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 of Class A shares under the Letter will be
made at the public offering price applicable to a single lump-sum
purchase of shares in the amount intended to be purchased under the
Letter.
In submitting a Letter, the investor makes no commitment to
purchase shares, but if the investor's purchases of shares within
the Letter of Intent period, when added to the value (at offering
price) of the investor's holdings of shares on the last day of that
period, do not equal or exceed the intended purchase amount, the
investor agrees to pay the additional amount of sales charge
applicable to such purchases, as set forth in "Terms of Escrow,"
below (as those terms may be amended from time to time). The
investor agrees that shares equal in value to 5% of the intended
purchase amount will be held in escrow by the Transfer Agent
subject to the Terms of Escrow. Also, the investor agrees to be
bound by the terms of the Prospectus, this Statement of Additional
Information and the Application used for such Letter of Intent, and
if such terms are amended, as they may be from time to time by the
Fund, that those amendments will apply automatically to existing
Letters of Intent.
If the total eligible purchases made during the Letter of
Intent period do not equal or exceed the intended purchase amount,
the commissions previously paid to the dealer of record for the
account and the amount of sales charge retained by the Distributor
will be adjusted to the rates applicable to actual 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,
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 Values 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
Class A shares or Class B shares that you purchased by reinvesting
dividends or distributions, or on which you paid an initial sales
charge when you purchased them, or on which you paid a contingent
deferred sales charge when you redeemed them. The reinvestment may
be made without sales charge only in Class A shares of the Fund or
any of the other Oppenheimer funds into which shares of the Fund
are exchangeable as described below, at the net asset value next
computed after the Transfer Agent receives the reinvestment order.
This reinvestment privilege does not apply to Class C shares. The
shareholder must ask the Distributor for that privilege at the time
of reinvestment. Any capital gain that was realized when the
shares were redeemed is taxable, and reinvestment will not alter
any capital gains tax payable on that gain. If there has been a
capital loss on the redemption, some or all of the loss may not be
tax deductible, depending on the timing and amount of the
reinvestment. Under the Internal Revenue Code, if the redemption
proceeds of Fund shares on which a sales charge was paid are
reinvested in shares of the Fund or another of the Oppenheimer
funds within 90 days of payment of the sales charge, the
shareholder's basis in the shares of the Fund that were redeemed
may not include the amount of the sales charge paid. However, in
that case the sales charge would be added to the basis of the
shares acquired by the reinvestment of the redemption proceeds.
The Fund may amend, suspend or cease offering this reinvestment
privilege at any time as to shares redeemed after the date of such
amendment, suspension or cessation.
Transfers of Shares. Shares are not subject to the payment of a
contingent deferred sales charge of any class at the time of
transfer to the name of another person or entity (whether the
transfer occurs by absolute assignment, gift or bequest, not
involving, directly or indirectly, a public sale). The transferred
shares will remain subject to the contingent deferred sales charge,
calculated as if the transferee shareholder had acquired the
transferred shares in the same manner and at the same time as the
transferring shareholder. If less than all shares held in an
account are transferred, and some but not all shares in the account
would be subject to a contingent deferred sales charge if redeemed
at the time of transfer, the priorities described in the Prospectus
under "How to Buy Shares" for the imposition of the Class B or
Class C contingent deferred sales charge will be followed in
determining the order in which shares are transferred.
Special Arrangements for Repurchase of Shares from Dealers and
Brokers. The Distributor is the Fund's agent to repurchase its
shares from authorized dealers or brokers on behalf of their
customers. The shareholder should contact the broker or dealer to
arrange this type of redemption. The repurchase price per share
will be the net asset value next computed after the Distributor
receives an order placed by the dealer or broker, except that if
the Distributor receives a repurchase order from a dealer or broker
after the close of The New York Stock Exchange on a regular
business day, it will be processed at that day's net asset value if
the order was received by the dealer or broker from its customers
prior to the time the Exchange closes (normally, that is 4:00 P.M.,
but may be earlier on some days) and the order was transmitted to
and received by the Distributor prior to its close of business that
day (normally 5:00 P.M.). Ordinarily, for accounts redeemed by a
broker-dealer under this procedure, payment will be made within
three business days after the shares have been redeemed upon the
Distributor's receipt of the required redemption documents in
proper form, with the signature(s) of the registered owners
guaranteed on the redemption document as described in the
Prospectus.
Automatic Withdrawal and Exchange Plans. Investors owning shares
of the Fund valued at $5,000 or more can authorize the Transfer
Agent to redeem shares (minimum $50) automatically on a monthly,
quarterly, semi-annual or annual basis under an Automatic
Withdrawal Plan. Shares will be redeemed three business days prior
to the date requested by the shareholder for receipt of the
payment. Automatic withdrawals of up to $1,500 per month may be
requested by telephone if payments are to be made by check payable
to all shareholders of record and sent to the address of record for
the account (and if the address has not been changed within the
prior 30 days). Required minimum distributions from
OppenheimerFunds-sponsored retirement plans may not be arranged on
this basis. Payments are normally made by check, but shareholders
having AccountLink privileges (see "How To Buy Shares") may arrange
to have Automatic Withdrawal Plan payments transferred to the bank
account designated on the OppenheimerFunds New Account Application
or signature-guaranteed instructions. 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 that would require the redemption of
shares purchased subject to a contingent deferred sales charge and
held less than 6 years or 12 months, respectively, because of the
imposition of the contingent deferred sales charge on such
withdrawals (except where the Class B or Class C contingent
deferred sales charge is waived as described in the Prospectus
under "Waivers of Class B and Class C Sales Charges").
By requesting an Automatic Withdrawal or Exchange Plan, the
shareholder agrees to the terms and conditions applicable to such
plans, as stated below and in the provisions of the
OppenheimerFunds Application relating to such Plans, as well as the
Prospectus. These provisions may be amended from time to time by
the Fund and/or the Distributor. When adopted, such amendments
will automatically apply to existing Plans.
Automatic Exchange Plans. Shareholders can authorize the
Transfer Agent (on the OppenheimerFunds Application or signature-
guaranteed instructions) to exchange a pre-determined amount of
shares of the Fund for shares (of the same class) of other
Oppenheimer funds automatically on a monthly, quarterly, semi-
annual or annual basis under an Automatic Exchange Plan. The
minimum amount that may be exchanged to each other fund account is
$25. Exchanges made under these plans are subject to the
restrictions that apply to exchanges as set forth in "How to
Exchange Shares" in the Prospectus and below in this Statement of
Additional Information.
Automatic Withdrawal Plans. Fund shares will be redeemed
as necessary to meet withdrawal payments. Shares acquired without
a sales charge will be redeemed first and 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 and the Fund
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
Oppenheimer funds having more than one class of shares may be
exchanged only for shares of the same class of other Oppenheimer
funds. Shares of the Oppenheimer funds that have a single class of
shares without a class designation are deemed "Class A" shares for
this purpose. All of the Oppenheimer funds offer Class A, B and C
shares except Oppenheimer Money Market Fund, Inc., Centennial Money
Market Trust, Centennial Tax Exempt Trust, Centennial Government
Trust, Centennial New York Tax Exempt Trust, Centennial California
Tax Exempt Trust, Centennial America Fund, L.P., and Daily Cash
Accumulation Fund, Inc., which only offer Class A shares, and
Oppenheimer Main Street California 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 current list showing
which funds offer which classes can be obtained by calling the
Distributor at 1-800-525-7048. Prior to May 1, 1996, Oppenheimer
Disciplined Value Fund, Oppenheimer Disciplined Allocation Fund,
Oppenheimer LifeSpan Balanced Fund, Oppenheimer LifeSpan Income
Fund and Oppenheimer LifeSpan Growth Fund offer only Class A and
Class B shares and are not eligible for exchange to or from other
Oppenheimer funds.
For accounts established on or before March 8, 1996 holding
Class M shares of Oppenheimer Bond Fund for Growth, Class M shares
can be exchanged only for class A shares of other Oppenheimer
funds, including Rochester Fund Municipals and Limited Term New
York Municipal Fund. Class A shares of Rochester Fund Municipals
or Limited Term New York Municipal Fund acquired on the exchange of
Class M shares of Oppenheimer Bond Fund for Growth may be exchanged
for Class M shares of that fund. For accounts of Oppenheimer Bond
Fund for Growth established after March 8, 1996, Class M shares may
be exchanged for Class a shares of other Oppenheimer funds except
Rochester Fund Municipals and Limited Term New York Municipals.
Exchanges to Class M shares of Oppenheimer Bond Fund for Growth are
permitted from Class A shares of Oppenheimer Money Market Fund,
Inc. or Oppenheimer Cash Reserves that were acquired by exchange
from Class M shares. Otherwise no exchanges of any class of any
Oppenheimer fund into Class M shares are permitted.
Class A shares of Oppenheimer funds may be exchanged 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 this privilege, the
investor or the investor's dealer must notify the Distributor of
eligibility for this privilege at the time the shares of
Oppenheimer Money Market Fund, Inc. are purchased, and, if
requested, must supply proof of entitlement to this privilege.
Shares of the Fund acquired by reinvestment of dividends or
distributions from any other of the Oppenheimer funds (except
Oppenheimer Cash Reserves) or from any unit investment trust for
which reinvestment arrangements have been made with the Distributor
may be exchanged at net asset value for shares of any of the
Oppenheimer funds. No contingent deferred sales charge is imposed
on exchanges of shares of either class purchased subject to a
contingent deferred sales charge. However, when Class A shares
acquired by exchange of Class A shares of other Oppenheimer funds
purchased subject to a Class A contingent deferred sales charge are
redeemed within 18 months of the end of the calendar month of the
initial purchase of the exchanged Class A shares, the Class A
contingent deferred sales charge is imposed on the redeemed shares
(see "Class A Contingent Deferred Sales Charge" in the Prospectus).
The Class B contingent deferred sales charge is imposed on Class B
shares acquired by exchange if they are redeemed within 6 years of
the initial purchase of the exchanged Class B shares. The Class C
contingent deferred sales charge is imposed on Class C shares
acquired by exchange if they are redeemed within 12 months of the
initial purchase of the exchanged Class C shares.
When Class B or Class C shares are redeemed to effect an
exchange, the priorities described in "How To Buy Shares" in the
Prospectus for the imposition of the Class B or Class C contingent
deferred sales charge will be followed in determining the order in
which the shares are exchanged. Shareholders should take into
account the effect of any exchange on the applicability and rate of
any contingent deferred sales charge that might be imposed in the
subsequent redemption of remaining shares. Shareholders owning
shares of more than one Class must specify whether they intend to
exchange Class A, Class B or Class C shares.
The Fund reserves the right to reject telephone or written
exchange requests submitted in bulk by anyone on behalf of more
than one account. The Fund may accept requests for exchanges of up
to 50 accounts per day from representatives of authorized dealers
that qualify for this privilege. In connection with any exchange
request, the number of shares exchanged may be less than the number
requested if the exchange or the number requested would include
shares subject to a restriction cited in the Prospectus or this
Statement of Additional Information or would include shares covered
by a share certificate that is not tendered with the request. In
those cases, only the shares available for exchange without
restriction will be exchanged.
When exchanging shares by telephone, a shareholder must either
have an existing account in, or 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 and Automatic
Withdrawal Plans will be switched to the new account unless the
Transfer Agent is instructed otherwise. If all telephone lines are
busy (which might occur, for example, during periods of substantial
market fluctuations), shareholders might not be able to request
exchanges by telephone and would have to submit written exchange
requests.
Shares to be exchanged are redeemed on the regular business
day the Transfer Agent receives an exchange request in proper form
(the "Redemption Date"). Normally, shares of the fund to be
acquired are purchased on the Redemption Date, but such purchases
may be delayed by either fund up to five business days if it
determines that it would be disadvantaged by an immediate transfer
of the redemption proceeds. The Fund reserves the right, in its
discretion, to refuse any exchange request that may disadvantage it
(for example, if the receipt of multiple exchange requests from a
dealer might require the disposition of portfolio securities at a
time or at a price that might be disadvantageous to the Fund).
The different Oppenheimer funds available for exchange have
different investment objectives, policies and risks, and a
shareholder should assure that the fund selected is appropriate for
his or her investment and should be aware of the tax consequences
of an exchange. For federal income tax purposes, an exchange
transaction is treated as a redemption of shares of one fund and a
purchase of shares of another. "Reinvestment Privilege," above,
discusses some of the tax consequences of reinvestment of
redemption proceeds in such cases. The Fund, the Distributor, and
the Transfer Agent are unable to provide investment, tax or legal
advice to a shareholder in connection with an exchange request or
any other investment transaction.
Dividends, Capital Gains and Taxes
Dividends and Distributions. Dividends will be payable on shares
held of record at the time of the previous determination of net
asset value, 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 1995 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; 9.3% of the Fund's dividends (excluding
distributions) paid during 1995 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
$1,236,690 at December 31, 1995. It will expire between 2001 and
2003.
Dividend Reinvestment in Another Fund. Shareholders of the Fund
may elect to reinvest all dividends and/or capital gains
distributions in shares of the same class of any of the other
Oppenheimer funds listed 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
Oppenheimer funds may be invested in shares of this Fund on the
same basis.
Additional Information About the Fund
The Custodian. Citibank, N.A. is the Custodian of the Fund's
assets. The Custodian's responsibilities include safeguarding and
controlling the Fund's portfolio securities, collecting income on
the portfolio securities and handling the delivery of such
securities to and from the Fund. The Manager has represented to
the Fund that the banking relationships 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. The Fund's cash balances in
excess of $100,000 are not protected by Federal Deposit Insurance.
Such uninsured balances may at times be substantial.
Independent Auditors. The independent auditors of the Fund audit
the Fund's financial statements and perform other related audit
services. They also act as auditors for certain other funds
advised by the Manager and its affiliates.
INDEPENDENT AUDITORS' REPORT
================================================================================
The Board of Trustees and Shareholders of Oppenheimer 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, 1995,
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 seven-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, 1995, 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,
1995, 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 seven-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 22, 1996
<PAGE>
STATEMENT OF INVESTMENTS December 31, 1995
<TABLE>
<CAPTION>
RATINGS: MOODY'S/
S&P'S/FITCH'S FACE MARKET VALUE
(UNAUDITED) AMOUNT SEE NOTE 1
==================================================================================================================================
<S> <C> <C> <C>
MUNICIPAL BONDS AND NOTES--98.4%
==================================================================================================================================
CALIFORNIA--90.2%
Anaheim, California Public Financing Authority Tax
Allocation Revenue Bonds, MBIA Insured, 6.45%, 12/28/18 Aaa/AAA $ 6,000,000 $ 6,634,247
- ----------------------------------------------------------------------------------------------------------------------------------
Avalon, California Community Improvement Agency
Tax Allocation Bonds, Series A, 7.25%, 8/1/21 NR/A-- 200,000 222,964
- ----------------------------------------------------------------------------------------------------------------------------------
Big Bear Lake, California Water Revenue
Refunding Bonds, FGIC Insured, 6.25%, 4/1/12 Aaa/AAA/AAA 400,000 427,308
- ----------------------------------------------------------------------------------------------------------------------------------
California Educational Facilities Authority
Revenue Refunding Bonds, Pooled Educational
Facilities Program, MBIA Insured, 7%, 3/1/16 Aaa/AAA 100,000 110,582
- ----------------------------------------------------------------------------------------------------------------------------------
California Educational Facilities Authority Revenue
Refunding Bonds, Stanford University, Series J, 6%, 11/1/16 Aaa/AAA 750,000 783,222
- ----------------------------------------------------------------------------------------------------------------------------------
California Health Facilities Financing Authority
Revenue Bonds, Children's Hospital of Los Angeles,
Prerefunded, Series A, 7.125%, 6/1/21 Aaa/A+ 1,000,000 1,151,460
- ----------------------------------------------------------------------------------------------------------------------------------
California Health Facilities Financing Authority
Revenue Bonds, Henry Mayo Newhall Project,
Series A, 8%, 10/1/18 NR/A 3,000,000 3,308,007
- ----------------------------------------------------------------------------------------------------------------------------------
California Health Facilities Financing Authority
Revenue Bonds, La Palma Hospital Medical Center,
7.10%, 2/1/13 NR/A 1,875,000 1,989,647
- ----------------------------------------------------------------------------------------------------------------------------------
California Health Facilities Financing Authority
Revenue Refunding Bonds, Adventist Health
System-West, Series B, MBIA Insured, 6.50%, 3/1/07 Aaa/AAA 315,000 345,238
- ----------------------------------------------------------------------------------------------------------------------------------
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 7,287,247
- ----------------------------------------------------------------------------------------------------------------------------------
California Health Facilities Financing Authority
Revenue Refunding Bonds, Hospital
of the Good Samaritan, 7%, 9/1/21 A/A-- 1,000,000 1,078,203
- ----------------------------------------------------------------------------------------------------------------------------------
California Housing Finance Agency Home Mtg.
Revenue Bonds:
Series A, 7.35%, 8/1/11 Aa/AA-- 80,000 85,782
Series C, 6.75%, 2/1/25 Aa/AA-- 10,000,000 10,588,899
Series C, 7.60%, 8/1/30 Aa/AA-- 1,655,000 1,799,557
Series E-1, 6.45%, 2/1/12 Aa/AA-- 750,000 792,559
- ----------------------------------------------------------------------------------------------------------------------------------
California Housing Finance Agency Single Family Mtg.
Purchase Revenue Bonds, Series A-2, 6.45%, 8/1/25 Aaa/AAA 8,000,000 8,339,064
- ----------------------------------------------------------------------------------------------------------------------------------
California Pollution Control Financing
Authority Revenue Bonds, Pacific Gas &
Electric Co. Project, Series B, 8.875%, 1/1/10 A2/A 2,275,000 2,508,433
- ----------------------------------------------------------------------------------------------------------------------------------
California Pollution Control Financing Authority
Revenue Refunding Bonds, Pacific Gas &
Electric Co. Project, Series A, 7.50%, 5/1/16 A2/A 1,450,000 1,498,698
- ----------------------------------------------------------------------------------------------------------------------------------
California Pollution Control Financing Authority
Solid Waste Disposal Revenue Refunding Bonds,
North County Recycling Center, Series A, 6.75%, 7/1/11 Aaa/AAA 500,000 521,653
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RATINGS: MOODY'S/
S&P'S/FITCH'S FACE MARKET VALUE
(UNAUDITED) AMOUNT SEE NOTE 1
==================================================================================================================================
<S> <C> <C> <C>
CALIFORNIA (CONTINUED)
California State Department of Water Resources
Central Valley Project Revenue Bonds, Water System,
Prerefunded, Series H, 6.90%, 12/1/25 Aaa/AA $ 3,595,000 $ 4,030,843
- ----------------------------------------------------------------------------------------------------------------------------------
California State Franchise Tax Board Refunding
Certificates of Participation, 6.90%, 10/1/06 A/A-- 1,000,000 1,087,301
- ----------------------------------------------------------------------------------------------------------------------------------
California State General Obligation Refunding
Bonds, AMBAC Insured, 5.15%, 10/1/19 Aaa/AAA/AAA 1,000,000 977,141
- ----------------------------------------------------------------------------------------------------------------------------------
California State Public Works Board Lease
Revenue Bonds, Department of Corrections-Madera
State Prison, Series E, 5.50%, 6/1/15 A1/A--/A-- 3,000,000 2,940,267
- ----------------------------------------------------------------------------------------------------------------------------------
California State Public Works Board Lease Revenue
Bonds, Regents of the University of California:
Prerefunded, Series A, 7%, 9/1/15 Aaa/AAA/AAA 9,650,000 10,948,088
Series A, AMBAC Insured, 6.40%, 12/1/16 Aaa/AAA/AAA 5,000,000 5,408,830
- ----------------------------------------------------------------------------------------------------------------------------------
Calleguas-Las Virgines, California Public
Financing Authority Installment Purchase
Revenue Refunding Bonds, Calleguas Municipal
Water District, FGIC Insured, 5.125%, 7/1/14 Aaa/AAA/AAA 750,000 740,291
- ----------------------------------------------------------------------------------------------------------------------------------
Campbell, California Certificates of Participation,
Civic Center Project, Unrefunded Balance,
6.75%, 10/1/17 A/A-- 1,130,000 1,217,619
- ----------------------------------------------------------------------------------------------------------------------------------
Campbell, California Certificates of Participation,
Civic Center Project, Prerefunded, 6.75%, 10/1/17 Aaa/NR 1,870,000 2,131,547
- ----------------------------------------------------------------------------------------------------------------------------------
Capistrano, California Unified School
District Community Facilities District Special
Tax Bonds, No. 87-1, 7.60%, 9/1/14 NR/NR 4,000,000 4,074,692
- ----------------------------------------------------------------------------------------------------------------------------------
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 2,036,259
- ----------------------------------------------------------------------------------------------------------------------------------
Contra Costa, California Transportation Authority
Sales Tax Revenue Bonds, Series A, FGIC Insured,
6.50%, 3/1/09 Aaa/AAA/AAA 750,000 855,190
- ----------------------------------------------------------------------------------------------------------------------------------
Corona, California Certificates of Participation,
Prerefunded, Series B, 10%, 11/1/20 Aaa/AAA 13,175,000 17,695,197
- ----------------------------------------------------------------------------------------------------------------------------------
East Bay, California Regional Park District
General Obligation Bonds, Series B, 6.375%, 9/1/10 Aa/AA-- 500,000 531,383
- ----------------------------------------------------------------------------------------------------------------------------------
Escondido, California Joint Powers Financing
Authority Revenue Bonds, AMBAC Insured,
6.125%, 9/1/11 Aaa/AAA/AAA 2,000,000 2,109,842
- ----------------------------------------------------------------------------------------------------------------------------------
Fairfield, California Public Finance Authority
Revenue Refunding Bonds, Municipal Park
Improvement District No. 1, FGIC Insured, 6.25%, 7/1/14 Aaa/AAA/AAA 1,000,000 1,066,482
- ----------------------------------------------------------------------------------------------------------------------------------
Foothill/Eastern Transportation Corridor
Agency California Toll Road Revenue Bonds,
Sr. Lien, Series A, 6.50%, 1/1/32 Baa/BBB--/BBB 4,600,000 4,727,365
</TABLE>
<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>
CALIFORNIA (CONTINUED)
Fresno, California Unified School District
Certificates of Participation, 7%, 5/1/12 A/BBB+ $ 250,000 $ 269,257
- --------------------------------------------------------------------------------------------------------------------------------
Fresno, California Water System Revenue Bonds,
Prerefunded, Series A, 7.30%, 6/1/20 NR/NR 1,500,000 1,642,581
- --------------------------------------------------------------------------------------------------------------------------------
Industry, California Improvement Bond Act of
1915 Bonds, Assessment District No. 91-1, 7.65%, 9/2/21 NR/NR 1,750,000 1,752,061
- --------------------------------------------------------------------------------------------------------------------------------
Industry, California Urban Development Agency
Tax Allocation Bonds, Transportation Distribution
Industrial Redevelopment Project No. 2, MBIA
Insured, 6.50%, 11/1/07 Aaa/AAA 260,000 287,932
- --------------------------------------------------------------------------------------------------------------------------------
Industry, California Urban Development Agency
Tax Allocation Bonds, Transportation
Distribution Project No. 3, 6.90%, 11/1/07 NR/A-- 500,000 541,024
- --------------------------------------------------------------------------------------------------------------------------------
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 1,085,177
- --------------------------------------------------------------------------------------------------------------------------------
La Quinta, California Redevelopment
Agency Refunding Tax Allocation Bonds,
La Quinta Project, 8.40%, 9/1/12 Aaa/AAA 1,000,000 1,193,351
- --------------------------------------------------------------------------------------------------------------------------------
Los Angeles County, California Certificates of
Participation, 6.50%, 3/1/10 Baa1/BBB 1,500,000 1,581,471
- --------------------------------------------------------------------------------------------------------------------------------
Los Angeles County, California Certificates of
Participation, Correctional Facilities Project,
MBIA Insured, 6.50%, 9/1/13 Aaa/AAA 3,600,000 3,845,138
- --------------------------------------------------------------------------------------------------------------------------------
Los Angeles County, California Transportation
Commission Sales Tax Revenue Bonds:
Prerefunded, Series A, 6.75%, 7/1/11 Aaa/AA--/A+ 4,260,000 4,834,243
Prerefunded, Series A, FGIC Insured, 6.75%, 7/1/18 Aaa/AAA/AAA 4,000,000 4,539,196
- --------------------------------------------------------------------------------------------------------------------------------
Los Angeles, California Community Redevelopment
Agency Financing Authority Revenue Bonds,
Grand Central Square Multifamily Housing:
Series A, 5.90%, 12/1/13 Baal/A 500,000 494,526
Series A, 5.90%, 12/1/26 Baal/A 2,600,000 2,475,957
- --------------------------------------------------------------------------------------------------------------------------------
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 2,168,882
- --------------------------------------------------------------------------------------------------------------------------------
Los Angeles, California Convention & Exhibition
Center Authority Refunding Certificates of Participation,
Prerefunded, Series A, 7.375%, 8/15/18 Aaa/AAA 9,450,000 10,603,541
- --------------------------------------------------------------------------------------------------------------------------------
Los Angeles, California Unified School District
Certificates of Participation, Dr. Francisco Bravo
Medical Project, 6.60%, 6/1/06 A/A--/A 250,000 273,635
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RATINGS: MOODY'S/
S&P'S/FITCH'S FACE MARKET VALUE
(UNAUDITED) AMOUNT SEE NOTE 1
================================================================================================================================
<S> <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/AAA $2,000,000 $2,094,660
- --------------------------------------------------------------------------------------------------------------------------------
M-S-R Public Power Agency of California
Revenue Refunding Bonds, San Juan Project,
Series C, 6.875%, 7/1/19 A/A 760,000 792,124
- --------------------------------------------------------------------------------------------------------------------------------
Merced, California Public Financing Authority
Tax Allocation Bonds, Series A-1, 5.50%, 12/1/10 NR/A-- 500,000 496,960
- --------------------------------------------------------------------------------------------------------------------------------
Metropolitan Water District of Southern
California Waterworks Revenue Refunding
Bonds, 5.55%, 10/30/20 Aa/AA 9,400,000 9,336,568
- --------------------------------------------------------------------------------------------------------------------------------
Northern California Transmission Agency
Revenue Bonds, California-Oregon Transmission
Project, Prerefunded, Series A, MBIA Insured, 7%, 5/1/24 Aaa/AAA 5,500,000 6,173,518
- --------------------------------------------------------------------------------------------------------------------------------
Oakland, California Redevelopment Agency Bonds,
MBIA Insured, Inverse Floater, 7.865%, 9/1/19(1) Aaa/AAA 4,300,000 4,450,465
- --------------------------------------------------------------------------------------------------------------------------------
Oakland, California Revenue Refunding Bonds,
Series A, FGIC Insured, 7.60%, 8/1/21 Aaa/AAA 2,000,000 2,187,000
- --------------------------------------------------------------------------------------------------------------------------------
Orange County, California Community Facilities
District Special Tax Bonds, No. 87-3, Prerefunded,
Series A, 8.05%, 8/15/08 NR/NR 3,000,000 3,359,685
- --------------------------------------------------------------------------------------------------------------------------------
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 1,687,449
Series A, 7.35%, 8/15/18 NR/AAA 8,000,000 9,473,512
- --------------------------------------------------------------------------------------------------------------------------------
Pittsburg, California Improvement Bond Act of 1915
Bonds, Assessment District 1990-01, 7.75%, 9/2/20 NR/NR 1,235,000 1,273,458
- --------------------------------------------------------------------------------------------------------------------------------
Pomona, California Single Family Mtg. Revenue
Refunding Bonds, Series B, 7.50%, 8/1/23 Aaa/AAA 500,000 637,687
- --------------------------------------------------------------------------------------------------------------------------------
Rancho California Water District Financing
Authority Revenue Refunding Bonds, AMBAC Insured,
5%, 8/15/14 Aaa/AAA/AAA 4,500,000 4,382,694
- --------------------------------------------------------------------------------------------------------------------------------
Redding, California Electric System Revenue
Certificates of Participation, FGIC Insured,
Inverse Floater, 7.13%, 6/1/19(1) Aaa/AAA/AAA 4,000,000 4,069,892
- --------------------------------------------------------------------------------------------------------------------------------
Redding, California Electric System Revenue
Certificates of Participation, MBIA Insured,
Inverse Floater, 8.295%, 7/8/22(1) Aaa/AAA 2,500,000 3,161,900
- --------------------------------------------------------------------------------------------------------------------------------
Regents of the University of California Revenue
Bonds, Multiple Purpose Projects, Prerefunded,
Series A, 6.875%, 9/1/16 NR/A-- 2,200,000 2,543,983
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<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>
CALIFORNIA (CONTINUED)
Riverside County, California Community Facilities
District Special Tax Bonds, No. 88-12, 7.55%, 9/1/17 NR/NR $ 3,000,000 $ 3,123,549
- --------------------------------------------------------------------------------------------------------------------------------
Riverside County, California Single Family Mtg.
Revenue Bonds, Series A, 7.80%, 5/1/21 Aaa/AAA 300,000 387,764
- --------------------------------------------------------------------------------------------------------------------------------
Sacramento County, California Single Family Mortgage
Revenue Bonds, Escrowed to Maturity, 8.125%, 7/1/16 Aaa/AAA 10,000,000 13,287,520
- --------------------------------------------------------------------------------------------------------------------------------
Sacramento, California Cogeneration Authority
Revenue Bonds, Procter & Gamble Project, 6.50%, 7/1/14 NR/BBB--/BBB-- 5,000,000 5,218,265
- --------------------------------------------------------------------------------------------------------------------------------
Sacramento, California Municipal Utility
District Electric Revenue Bonds,
Prerefunded, Series W, 7.50%, 8/15/18 Aaa/AAA/A-- 2,500,000 2,722,557
- --------------------------------------------------------------------------------------------------------------------------------
Sacramento, California Municipal Utility District
Electric Revenue Refunding Bonds, FGIC Insured,
Inverse Floater, 8.514%, 8/15/18(1) Aaa/AAA/AAA 5,500,000 6,076,818
- --------------------------------------------------------------------------------------------------------------------------------
Sacramento, California Power Authority Revenue
Bonds, Cogeneration Project, 5.875%, 7/1/15 NR/BBB--/BBB-- 5,000,000 5,000,000
- --------------------------------------------------------------------------------------------------------------------------------
Saddleback Community College District,
California Refunding Certificates of
Participation, BIG Insured, 7%, 8/1/19 Aaa/AAA 1,000,000 1,082,343
- --------------------------------------------------------------------------------------------------------------------------------
San Bernardino County, California
Certificates of Participation, Medical Center
Financing Project, 5.50%, 8/1/17 Baa1/A-- 7,500,000 7,031,752
- --------------------------------------------------------------------------------------------------------------------------------
San Diego County, California Certificates of
Participation, MBIA Insured, Inverse Floater,
8.071%, 11/18/19(1) Aaa/AAA 2,000,000 2,279,514
- --------------------------------------------------------------------------------------------------------------------------------
San Diego County, California Water Authority
Revenue Certificates of Participation, Series 91-B,
MBIA Insured, Inverse Floater, 8.27%, 4/8/21(1) Aaa/AAA 3,000,000 3,529,557
- --------------------------------------------------------------------------------------------------------------------------------
San Francisco, California City & County
Airports Commission International Airport
Revenue Refunding Bonds:
Second Series-Issue 1, AMBAC Insured, 6.30%, 5/1/11 Aaa/AAA/AAA 4,385,000 4,680,132
Second Series-Issue 3, MBIA Insured, 6.20%, 5/1/20 Aaa/AAA 750,000 792,364
- --------------------------------------------------------------------------------------------------------------------------------
San Francisco, California City & County
General Obligation Bonds, Library Facilities Project,
Series D, 6.25%, 6/15/11 A1/AA--/AA 400,000 425,849
- --------------------------------------------------------------------------------------------------------------------------------
San Francisco, California City & County General
Obligation Bonds, Series A, 6.70%, 12/15/08 A1/AA--/AA 250,000 274,555
- --------------------------------------------------------------------------------------------------------------------------------
San Joaquin Hills, California Transportation Corridor
Agency Toll Road Revenue Bonds, Sr. Lien:
5%, 1/1/33 NR/NR/BBB 8,000,000 6,921,495
6.75%, 1/1/32 NR/NR/BBB 7,000,000 7,361,227
- --------------------------------------------------------------------------------------------------------------------------------
San Jose, California Redevelopment Agency Tax
Allocation Bonds, Merged Area Redevelopment
Project, MBIA Insured, 5%, 8/1/20 Aaa/AAA/A 2,000,000 1,907,412
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RATINGS: MOODY'S/
S&P'S/FITCH'S FACE MARKET VALUE
(UNAUDITED) AMOUNT SEE NOTE 1
================================================================================================================================
<S> <C> <C> <C>
CALIFORNIA (CONTINUED)
Santa Margarita/Dana Point, California Authority
Revenue Bonds, Improvement Districts 3-3A-4 & 4A,
Series B, MBIA Insured, 7.25%, 8/1/14 Aaa/AAA $ 680,000 $ 833,687
- --------------------------------------------------------------------------------------------------------------------------------
Sonoma County, California Certificates of
Participation, 6.75%, 10/1/07 A1/A+ 150,000 163,545
- --------------------------------------------------------------------------------------------------------------------------------
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 3,174,072
- --------------------------------------------------------------------------------------------------------------------------------
Southern California Home Financing Authority
Single Family Mtg. Revenue Bonds, Series A, 7.35%, 9/1/24 NR/AAA 1,670,000 1,790,300
- --------------------------------------------------------------------------------------------------------------------------------
Southern California Public Power Authority
Transmission Project Revenue Bonds, Inverse Floater,
7.506%, 7/1/12(1) Aa/A+ 5,500,000 5,920,733
- --------------------------------------------------------------------------------------------------------------------------------
Stockton, California East Water District Certificates
of Participation, 1992 Project, Series A, 6.40%, 4/1/22 Aaa/AAA/AAA 1,000,000 1,079,463
- --------------------------------------------------------------------------------------------------------------------------------
Victorville, California Special Tax Bonds, Community
Facilities District No. 90-1, Series A, 8.30%, 9/1/16 NR/NR 1,265,000 1,153,774
- --------------------------------------------------------------------------------------------------------------------------------
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 2,880,624
-----------
294,859,505
================================================================================================================================
U.S. POSSESSIONS--8.2%
Guam Power Authority Revenue Bonds,
Series A, 6.625%, 10/1/14 NR/BBB 2,000,000 2,096,994
- --------------------------------------------------------------------------------------------------------------------------------
Puerto Rico Commonwealth General Obligation Bonds,
MBIA Insured, Inverse Floater, 7.284%, 7/1/08(1) Aaa/AAA 3,500,000 3,803,915
- --------------------------------------------------------------------------------------------------------------------------------
Puerto Rico Commonwealth Highway &
Transportation Authority Revenue Bonds,
Prerefunded, Series T, 6.50%, 7/1/22 NR/AAA 750,000 849,473
- --------------------------------------------------------------------------------------------------------------------------------
Puerto Rico Commonwealth Highway &
Transportation Authority Revenue Bonds,
Prerefunded, Series T, 6.625%, 7/1/18 NR/AAA 1,995,000 2,273,041
- --------------------------------------------------------------------------------------------------------------------------------
Puerto Rico Commonwealth Highway &
Transportation Authority Revenue Bonds,
Unrefunded Balance, Series T, 6.625%, 7/1/18 Baa1/A 4,005,000 4,289,739
- --------------------------------------------------------------------------------------------------------------------------------
Puerto Rico Commonwealth Highway &
Transportation Authority Revenue Refunding Bonds,
Series X, 5.25%, 7/1/21 Baa1/A 500,000 480,979
- --------------------------------------------------------------------------------------------------------------------------------
Puerto Rico Electric Power Authority
Revenue Bonds, Series P, 7%, 7/1/21 Baa1/A-- 4,000,000 4,606,932
- --------------------------------------------------------------------------------------------------------------------------------
Puerto Rico Housing Bank & Finance Agency
Single Family Mtg. Revenue Bonds, Affordable
Housing Mtg.--Portfolio I, 6.25%, 4/1/29 Aaa/AAA 6,600,000 6,781,823
</TABLE>
<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>
U.S. POSSESSIONS (CONTINUED)
Puerto Rico Housing Finance Corp. Single Family Mtg.
Revenue Bonds, Portfolio 1, Series B, 7.65%, 10/15/22 Aaa/AAA $970,000 $1,029,255
- --------------------------------------------------------------------------------------------------------------------------------
Puerto Rico Industrial, Medical & Environmental
Pollution Control Revenue Bonds, American Home
Products, 5.10%, 12/1/18 A2/NR 500,000 477,859
-----------
26,690,010
-----------
Total Municipal Bonds and Notes (Cost $305,016,086) 321,549,515
================================================================================================================================
SHORT-TERM TAX-EXEMPT OBLIGATIONS--0.3%
================================================================================================================================
Oceanside, California Multifamily Revenue Refunding Bonds,
Lakeridge Apts. Project, 5.45% (Cost $900,000)(2) 900,000 900,000
================================================================================================================================
TOTAL INVESTMENTS, AT VALUE (COST $305,916,086) 98.7% 322,449,515
================================================================================================================================
OTHER ASSETS NET OF LIABILITIES 1.3 4,206,088
------ ------------
NET ASSETS 100.0% $326,655,603
====== ============
</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
$33,292,794 or 10.19% of the Fund's net assets at December 31, 1995.
2. Floating or variable rate obligation maturing in more than one year. The
interest rate, which is based on specific, or an index of, market interest
rates, is subject to change periodically and is the effective rate on December
31, 1995. This instrument may also have a demand feature which allows the
recovery of principal at any time, or at specified intervals not exceeding one
year, on up to 30 days' notice. Maturity date shown represents effective
maturity based on variable rate and, if applicable, demand feature.
As of December 31, 1995, securities subject to the alternative minimum tax
amounted to $47,530,333 or 14.55% of the Fund's net assets.
Distribution of investments by industry, as a percentage of total investments
at value, is as follows:
<TABLE>
<CAPTION>
INDUSTRY MARKET VALUE PERCENT
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
Utilities $82,134,654 25.5%
Lease/Rental 66,144,865 20.5
Special Tax Bonds 60,034,787 18.6
Housing 49,390,693 15.3
Transportation 33,748,924 10.5
Hospitals 15,159,802 4.7
General Obligation Bonds 7,079,326 2.2
Pollution Control 4,007,131 1.2
Education 3,437,787 1.1
Revenue Bonds 833,687 0.3
Corporate-Backed Municipals 477,859 0.1
------------ ------
$322,449,515 100.0%
============ ======
</TABLE>
See accompanying Notes to Financial Statements.
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES December 31, 1995
<TABLE>
================================================================================================================================
<S> <C>
ASSETS
Investments, at value (cost $305,916,086)--see accompanying statement $322,449,515
- --------------------------------------------------------------------------------------------------------------------------------
Cash 401,542
- --------------------------------------------------------------------------------------------------------------------------------
Receivables:
Interest 6,310,699
Shares of beneficial interest sold 527,744
- --------------------------------------------------------------------------------------------------------------------------------
Other 36,409
------------
Total assets 329,725,909
================================================================================================================================
LIABILITIES
Payables and other liabilities:
Investments purchased 1,233,247
Dividends 1,011,054
Shares of beneficial interest redeemed 476,932
Distribution and service plan fees 193,135
Trustees' fees 71,986
Transfer and shareholder servicing agent fees 3,609
Other 80,343
------------
Total liabilities 3,070,306
================================================================================================================================
NET ASSETS $326,655,603
============
================================================================================================================================
COMPOSITION OF
NET ASSETS
Paid-in capital $310,516,219
- --------------------------------------------------------------------------------------------------------------------------------
Undistributed net investment income 756,370
- --------------------------------------------------------------------------------------------------------------------------------
Accumulated net realized loss on investment transactions (1,150,415)
- --------------------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation on investments--Note 3 16,533,429
------------
Net assets $326,655,603
============
================================================================================================================================
NET ASSET VALUE
PER SHARE
Class A Shares:
Net asset value and redemption price per share (based on net assets of
$285,307,053 and 26,699,566 shares of beneficial interest outstanding) $10.69
Maximum offering price per share (net asset value plus sales charge
of 4.75% of offering price) $11.22
- --------------------------------------------------------------------------------------------------------------------------------
Class B Shares:
Net asset value, redemption price and offering price per share (based on net
assets of $41,223,917 and 3,856,567 shares of beneficial interest outstanding) $10.69
- --------------------------------------------------------------------------------------------------------------------------------
Class C Shares:
Net asset value, redemption price and offering price per share (based on net
assets of $124,633 and 11,669 shares of beneficial interest outstanding) $10.68
</TABLE>
See accompanying Notes to Financial Statements.
<PAGE>
STATEMENT OF OPERATIONS For the Year Ended December 31, 1995
<TABLE>
================================================================================================================================
<S> <C>
INVESTMENT INCOME
Interest $18,437,507
================================================================================================================================
EXPENSES
Management fees--Note 4 1,638,210
- --------------------------------------------------------------------------------------------------------------------------------
Distribution and service plan fees--Note 4:
Class A 614,629
Class B 298,592
Class C 149
- --------------------------------------------------------------------------------------------------------------------------------
Transfer and shareholder servicing agent fees--Note 4 142,732
- --------------------------------------------------------------------------------------------------------------------------------
Shareholder reports 83,457
- --------------------------------------------------------------------------------------------------------------------------------
Legal and auditing fees 35,209
- --------------------------------------------------------------------------------------------------------------------------------
Trustees' fees and expenses 22,260
- --------------------------------------------------------------------------------------------------------------------------------
Registration and filing fees:
Class A 12,414
Class B 6,003
Class C 4
- --------------------------------------------------------------------------------------------------------------------------------
Insurance expenses 16,860
- --------------------------------------------------------------------------------------------------------------------------------
Custodian fees and expenses 12,060
- --------------------------------------------------------------------------------------------------------------------------------
Other 5,783
-----------
Total expenses 2,888,362
Less reimbursement of expenses by OppenheimerFunds, Inc.--Note 4 (9,646)
-----------
Net expenses 2,878,716
================================================================================================================================
NET INVESTMENT INCOME 15,558,791
================================================================================================================================
REALIZED AND UNREALIZED
GAIN (LOSS)
Net realized loss on investments (187,865)
- --------------------------------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation or depreciation on investments 33,596,236
-----------
Net realized and unrealized gain 33,408,371
================================================================================================================================
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $48,967,162
===========
</TABLE>
See accompanying Notes to Financial Statements.
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1995 1994
================================================================================================================================
<S> <C> <C>
OPERATIONS
Net investment income $ 15,558,791 $ 15,748,324
- --------------------------------------------------------------------------------------------------------------------------------
Net realized loss (187,865) (999,410)
- --------------------------------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation or depreciation 33,596,236 (39,209,125)
------------ ------------
Net increase (decrease) in net assets resulting from operations 48,967,162 (24,460,211)
================================================================================================================================
DIVIDENDS AND
DISTRIBUTIONS TO
SHAREHOLDERS
Dividends from net investment income:
Class A (13,975,299) (14,920,148)
Class B (1,412,825) (857,567)
Class C (556) --
- --------------------------------------------------------------------------------------------------------------------------------
Dividends in excess of net investment income:
Class A (350,447) --
Class B (50,636) --
Class C (153) --
================================================================================================================================
BENEFICIAL INTEREST
TRANSACTIONS
Net increase in net assets resulting from beneficial interest
transactions--Note 2:
Class A 35,765,117 (8,912,194)
Class B 17,684,830 12,644,856
Class C 122,526 --
================================================================================================================================
NET ASSETS
Total increase (decrease) 86,749,719 (36,505,264)
- --------------------------------------------------------------------------------------------------------------------------------
Beginning of period 239,905,884 276,411,148
------------ ------------
End of period [including undistributed (overdistributed) net investment
income of $756,370 and ($170,011), respectively] $326,655,603 $239,905,884
============ ============
</TABLE>
See accompanying Notes to Financial Statements.
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CLASS A
--------------------------------------------------
YEAR ENDED DECEMBER 31,
1995 1994 1993 1992
===========================================================================================================
<S> <C> <C> <C> <C>
PER SHARE OPERATING DATA:
Net asset value, beginning of period $ 9.45 $10.97 $10.35 $10.22
- -----------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .58 .60 .62 .61
Net realized and unrealized gain (loss) 1.25 (1.51) .72 .20
------- ------- ------- -------
Total income (loss) from
investment operations 1.83 (.91) 1.34 .81
- -----------------------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income (.58) (.61) (.65) (.60)
Dividends in excess of net investment income (.01) -- -- --
Distributions from net realized gain -- -- (.07) (.08)
------- ------- ------- -------
Total dividends and distributions
to shareholders (.59) (.61) (.72) (.68)
- -----------------------------------------------------------------------------------------------------------
Net asset value, end of period $10.69 $ 9.45 $10.97 $10.35
======= ======= ======= =======
===========================================================================================================
TOTAL RETURN, AT NET ASSET VALUE(4) 19.76% (8.49)% 13.26% 8.28%
===========================================================================================================
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) $285,307 $219,682 $266,490 $204,349
- -----------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $250,188 $248,850 $245,193 $174,055
- -----------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income 5.64% 5.99% 5.74% 6.07%
Expenses, before voluntary assumption
by the Manager .95% .96% .97% 1.07%
Expenses, net of voluntary assumption
by the Manager N/A N/A N/A N/A
- -----------------------------------------------------------------------------------------------------------
Portfolio turnover rate(6) 23.0% 21.9% 13.7% 26.8%
</TABLE>
1. For the period from November 1, 1995 (inception of offering) to December 31,
1995.
2. For the period from May 1, 1993 (inception of offering) to December 31,
1993.
3. For the period from November 3, 1988 (commencement of operations) to
December 31, 1988.
4. 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.
<PAGE>
<TABLE>
<CAPTION>
CLASS A
-----------------------------------------
YEAR ENDED DECEMBER 31,
1991 1990 1989 1988(3)
===============================================================================================
<S> <C> <C> <C> <C>
SHARE OPERATING DATA:
Net asset value, beginning of period $ 9.86 $9.94 $9.58 $9.53
- -----------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .66 .67 .71 .09
Net realized and unrealized gain (loss) .38 (.07) .37 .05
------- ------- ------- -------
Total income (loss) from
investment operations 1.04 .60 1.08 .14
- -----------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income (.62) (.68) (.70) (.09)
Dividends in excess of net investment income -- -- -- --
Distributions from net realized gain (.06) -- (.02) --
------- ------- ------- -------
Total dividends and distributions
to shareholders (.68) (.68) (.72) (.09)
- -----------------------------------------------------------------------------------------------
Net asset value, end of period $10.22 $9.86 $9.94 $9.58
======= ======= ======= =======
===============================================================================================
TOTAL RETURN, AT NET ASSET VALUE(4) 10.93% 6.38% 11.62% 1.43%
===============================================================================================
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) $145,163 $92,514 $52,342 $5,825
- -----------------------------------------------------------------------------------------------
Average net assets (in thousands) $115,661 $72,879 $29,308 $2,377
- -----------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income 6.52% 6.80% 7.11%
5.95%(5)
Expenses, before voluntary assumption
by the Manager 1.05% 1.05% 1.09%
2.25%(5)
Expenses, net of voluntary assumption
by the Manager .73% .53% .16% --(5)
- -----------------------------------------------------------------------------------------------
Portfolio turnover rate(6) 26.6% 14.5% 20.7% 0.0%
</TABLE>
<TABLE>
<CAPTION>
CLASS B CLASS C
---------------------------------- -------
PERIOD
ENDED
YEAR ENDED DECEMBER 31 DEC. 31,
1995 1994 1993(2) 1995(1)
======================================================================================================
<S> <C> <C> <C> <C>
SHARE OPERATING DATA:
Net asset value, beginning of period $ 9.44 $10.98 $10.72 $10.46
- ------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .51 .54 .35 .08
Net realized and unrealized gain (loss) 1.25 (1.55) .34 .22
------- ------- ------- -------
Total income (loss) from
investment operations 1.76 (1.01) .69 .30
- ------------------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income (.50) (.53) (.36) (.07)
Dividends in excess of net investment income (.01) -- -- (.01)
Distributions from net realized gain -- -- (.07) --
------- ------- ------- -------
Total dividends and distributions
to shareholders (.51) (.53) (.43) (.08)
- ------------------------------------------------------------------------------------------------------
Net asset value, end of period $10.69 $9.44 $10.98 $10.68
======= ======= ======= =======
======================================================================================================
TOTAL RETURN, AT NET ASSET VALUE(4) 18.97% (9.39)% 6.66% 2.90%
======================================================================================================
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) $41,224 $20,224 $9,921 $125
- ------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $29,918 $16,552 $5,218 $91
- ------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income 4.82% 5.17% 4.57%(5) 4.56%(5)
Expenses, before voluntary assumption
by the Manager 1.72% 1.73% 1.79%(5) 1.68%(5)
Expenses, net of voluntary assumption
by the Manager N/A N/A N/A N/A
- ------------------------------------------------------------------------------------------------------
Portfolio turnover rate(6) 23.0% 21.9% 13.7% 23.0%
</TABLE>
5. Annualized.
6. The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities
owned during the period. Securities with a maturity or expiration date at the
time of acquisition of one year or less are excluded from the calculation.
Purchases and sales of investment securities (excluding short-term securities)
for the period ended December 31, 1995 were $99,778,957 and $63,430,966,
respectively.
See accompanying Notes to Financial Statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
================================================================================
1. 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 objective is to seek as
high a level of current interest income exempt from federal and California
income taxes for individual investors as is consistent with preservation of
capital. The Fund's investment advisor is OppenheimerFunds, Inc. (the Manager).
The Fund offers Class A, Class B and Class C shares. Class A shares are sold
with a front-end sales charge. Class B and Class C shares may be subject to a
contingent deferred sales charge. 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 valuations provided the Manager is satisfied that the firm
rendering the quotes is reliable and that the quotes reflect current market
value, or are valued under consistently applied procedures established by the
Board of Trustees to determine fair value in good faith. Short-term ``money
market type'' debt securities having a remaining maturity of 60 days or less are
valued at cost (or last determined market value) adjusted for amortization to
maturity of any premium or discount.
- --------------------------------------------------------------------------------
ALLOCATION OF INCOME, EXPENSES, AND GAINS AND LOSSES. Income, expenses (other
than those attributable to a specific class) and gains and losses are allocated
daily to each class of shares based upon the relative proportion of net assets
represented by such class. Operating expenses directly attributable to a
specific class are charged against the operations of that class.
- --------------------------------------------------------------------------------
FEDERAL TAXES. The Fund intends to continue to comply with provisions of the
Internal Revenue Code applicable to regulated investment companies and to
distribute all of its taxable income, including any net realized gain on
investments not offset by loss carryovers, to shareholders. Therefore, no
federal income or excise tax provision is required. At December 31, 1995, the
Fund had available for federal income tax purposes an unused capital loss
carryover of $1,236,690, which expires between 2001 and 2003.
- --------------------------------------------------------------------------------
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, 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 December 31, 1995.
- --------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS. The Fund intends to declare dividends separately
for Class A, Class B and Class C shares from net investment income each day the
New York Stock Exchange is open for business and pay such dividends monthly.
Distributions from net realized gains on investments, if any, will be declared
at least once each year.
- --------------------------------------------------------------------------------
CLASSIFICATION OF DISTRIBUTIONS TO SHAREHOLDERS. Net investment income (loss)
and net realized gain (loss) may differ for financial statement and tax purposes
primarily because of premium amortization for tax purposes. The character of the
distributions made during the year from net investment income or net realized
gains may differ from their ultimate characterization for federal income tax
purposes. Also, due to timing of dividend distributions, the fiscal year in
which amounts are distributed may differ from the year that the income or
realized gain (loss) was recorded by the Fund.
During the year ended December 31, 1995, 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, during the year ended
December 31, 1995, amounts have been reclassified to reflect a decrease in
paid-in capital of $1,283,234, a decrease in overdistributed net investment
income of $1,157,506, and a decrease in accumulated net realized loss on
investments of $125,728.
<PAGE>
================================================================================
1. SIGNIFICANT
ACCOUNTING POLICIES
(CONTINUED)
OTHER. Investment transactions are accounted for on the date the investments
are purchased or sold (trade date). Original issue discount on securities
purchased is amortized over the life of the respective securities, in
accordance with federal income tax requirements. For bonds acquired after April
30, 1993, on disposition or maturity, taxable ordinary income is recognized to
the extent of the lesser of gain or market discount that would have accrued
over the holding period. Realized gains and losses on investments and
unrealized appreciation and depreciation are determined on an identified cost
basis, which is the same basis used for federal income tax purposes. The Fund
concentrates its investments in California and, therefore, may have more credit
risks related to the economic conditions of California than a portfolio with a
broader geographical diversification.
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of income and expenses during the reporting
period. Actual results could differ from those estimates.
================================================================================
2. SHARES OF
BENEFICIAL INTEREST
The Fund has authorized an unlimited number of no par value shares of
beneficial interest of each class. Transactions in shares of beneficial
interest were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995(1) YEAR ENDED DECEMBER 31, 1994
------------------------------- ------------------------------
SHARES AMOUNT SHARES AMOUNT
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A:
Sold 5,047,063 $ 51,814,441 4,682,338 $ 47,539,656
Issued in connection with the
acquisition of Quest California
Tax-Exempt Fund--Note 5 1,757,696 18,455,811 -- --
Dividends and distributions reinvested 805,760 8,234,996 895,069 9,014,619
Redeemed (4,166,682) (42,740,131) (6,611,428) (65,466,469)
---------- ------------ ---------- ------------
Net increase (decrease) 3,443,837 $ 35,765,117 (1,034,021) $ (8,912,194)
========== ============ ========== ============
- -------------------------------------------------------------------------------------------------------------------------
Class B:
Sold 1,996,884 $ 20,575,685 1,595,370 $ 16,152,328
Dividends reinvested 80,329 824,085 52,979 528,961
Redeemed (362,263) (3,714,940) (410,584) (4,036,433)
---------- ------------ ---------- ------------
Net increase 1,714,950 $ 17,684,830 1,237,765 $ 12,644,856
========== ============ ========== ============
- -------------------------------------------------------------------------------------------------------------------------
Class C:
Sold 11,729 $ 123,162 -- $ --
Dividends reinvested 36 383 -- --
Redeemed (96) (1,019) -- --
---------- ------------ ---------- ------------
Net increase 11,669 $ 122,526 -- $ --
========== ============ ========== ============
</TABLE>
1. For the year ended December 31, 1995 for both Class A and Class B shares and
for the period from November 1, 1995 (inception of offering) to December 31,
1995 for Class C shares.
================================================================================
3. UNREALIZED GAINS AND
LOSSES ON INVESTMENTS
At December 31, 1995, net unrealized appreciation on investments of $16,533,429
was composed of gross appreciation of $17,413,178, and gross depreciation of
$879,749.
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Continued)
================================================================================
4. MANAGEMENT FEES
AND OTHER TRANSACTIONS
WITH AFFILIATES
Management fees paid to the Manager were in accordance with the investment
advisory agreement with the Fund which provides for a fee of .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.
The Manager has agreed to reimburse the Fund for SEC fees
incurred in connection with the acquisition of Quest California Tax-Exempt
Fund.
For the year ended December 31, 1995, commissions (sales
charges paid by investors) on sales of Class A shares totaled $984,851, of
which $165,771 was retained by OppenheimerFunds Distributor, Inc. (OFDI), a
subsidiary of the Manager, as general distributor, and by an affiliated
broker/dealer. Sales charges advanced to broker/dealers by OFDI on sales of the
Fund's Class B and Class C shares totaled $629,047 and $1,220, of which $8,643
was paid to an affiliated broker/dealer. During the year ended December 31,
1995, OFDI received contingent deferred sales charges of $83,280 and $557,
respectively, upon redemption of Class B and Class C shares as reimbursement
for sales commissions advanced by OFDI at the time of sale of such shares.
OppenheimerFunds Services (OFS), a division of the Manager,
is the transfer and shareholder servicing agent for the Fund, and for other
registered investment companies. OFS's total costs of providing such services
are allocated ratably to these companies.
Under separate approved plans, each class may expend up to
.25% of its net assets annually to compensate 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 and Class C shares are subject to an
asset-based sales charge of .75% of net assets annually, to compensate 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 or Class C 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 or Class C shares sold prior to termination or
discontinuance of the plan. At December 31, 1995, OFDI had incurred
unreimbursed expenses of $1,573,295 for Class B and $4,120 for Class C. During
the year ended December 31, 1995, OFDI paid $20,230 and $1,197, respectively,
to an affiliated broker/dealer as compensation for Class A and Class B personal
service and maintenance expenses, and retained $261,406 and $153, respectively,
as compensation for Class B and Class C sales commissions and service fee
advances, as well as financing costs.
================================================================================
5. ACQUISITION OF
QUEST CALIFORNIA
TAX-EXEMPT FUND
On November 24, 1995, Oppenheimer California Tax-Exempt Fund acquired all of
the net assets of Quest California Tax-Exempt Fund, pursuant to an Agreement
and Plan of Reorganization approved by the Quest California Tax-Exempt Fund
shareholders on November 16, 1995. The Fund issued 1,757,696 shares of
beneficial interest, valued at $18,455,811, in exchange for the net assets,
resulting in combined net assets of $319,511,243 on November 24, 1995. The net
assets acquired included net unrealized appreciation of $602,361. The exchange
was tax-free.
<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.
<PAGE>
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,
1996. "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%.
Combined Taxable Income
<TABLE>
<CAPTION>
Joint Return Effective Tax Bracket Oppenheimer California Tax-Exempt Fund Yield of:
But Cali- 3.0% 3.5% 4.0% 4.5% 5.0% 5.5% 6.0%
Over Not Over Federal fornia Combined Is Approximately Equivalent to a Taxable Yield of:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 22,898 $ 36,138 15.00% 4.00% 18.40% 3.68% 4.29% 4.90% 5.51% 6.13% 6.74% 7.35%
$ 36,138 $ 40,100 15.00% 6.00% 20.10% 3.75% 4.38% 5.01% 5.63% 6.26% 6.88% 7.51%
$ 40,100 $ 50,166 28.00% 6.00% 32.32% 4.43% 5.17% 5.91% 6.65% 7.39% 8.13% 8.87%
$ 50,166 $ 63,400 28.00% 8.00% 33.76% 4.53% 5.28% 6.04% 6.79% 7.55% 8.30% 9.06%
$ 63,400 $ 96,900 28.00% 9.30% 34.70% 4.59% 5.36% 6.13% 6.89% 7.66% 8.42% 9.19%
$ 96,900 $147,700 31.00% 9.30% 37.42% 4.79% 5.59% 6.39% 7.19% 7.99% 8.79% 9.59%
$147,700 $219,872 36.00% 9.30% 41.95% 5.17% 6.03% 6.89% 7.75% 8.61% 9.47% 10.34%
$219,872 $263,750 36.00% 10.00% 42.40% 5.21% 6.08% 6.94% 7.81% 8.68% 9.55% 10.42%
$263,750 $439,744 39.60% 10.00% 45.64% 5.52% 6.44% 7.36% 8.28% 9.20% 10.12% 11.04%
$439,744 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:
But
Over Not Over
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 18,069 $ 24,000 15.00% 6.00% 20.10% 3.75% 4.38% 5.01% 5.63% 6.26% 6.88% 7.51%
$ 24,000 $ 25,083 28.00% 6.00% 32.32% 4.43% 5.17% 5.91% 6.65% 7.39% 8.13% 8.87%
$ 25,083 $ 31,700 28.00% 8.00% 33.76% 4.53% 5.28% 6.04% 6.79% 7.55% 8.30% 9.06%
$ 31,700 $ 58,150 28.00% 9.30% 34.70% 4.59% 5.36% 6.13% 6.89% 7.66% 8.42% 9.19%
$ 58,150 $109,936 31.00% 9.30% 37.42% 4.79% 5.59% 6.39% 7.19% 7.99% 8.79% 9.59%
$109,936 $121,300 31.00% 10.00% 37.90% 4.83% 5.64% 6.44% 7.25% 8.05% 8.86% 9.66%
$121,300 $219,872 36.00% 10.00% 42.40% 5.21% 6.08% 6.94% 7.81% 8.68% 9.55% 10.42%
$219,872 $263,750 36.00% 11.00% 43.04% 5.27% 6.14% 7.02% 7.90% 8.78% 9.66% 10.53%
$263,750 39.60% 11.00% 46.24% 5.58% 6.51% 7.44% 8.37% 9.30% 10.23% 11.16%
</TABLE>
<PAGE>
APPENDIX C
Municipal Bond 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
OppenheimerFunds, Inc.
Two World Trade Center
New York, New York 10048-0203
Distributor
OppenheimerFunds Distributor, Inc.
Two World Trade Center
New York, New York 10048-0203
Transfer Agent and Shareholder Servicing Agent
OppenheimerFunds Services
P.O. Box 5270
Denver, Colorado 80217
1-800-525-7048
Custodian of Portfolio Securities
Citibank, N.A.
399 Park Avenue
New York, New York 10043
Independent Auditors
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
PX0790.001
