As filed with the Securities and Exchange Commission on August 17, 2000
--------------------------------------------------------------------------------
Registration No. 33-23566
U.S. SECURITIES AND EXCHANGE
COMMISSION
WASHINGTON, D.C. 20549
FORM N-14
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
/ X /
PRE-EFFECTIVE AMENDMENT NO. 1 / X /
POST-EFFECTIVE AMENDMENT NO. ___ / /
OPPENHEIMER CALIFORNIA MUNCIPAL FUND
(Exact Name of Registrant as Specified in Charter)
Two World Trade Center, New York, New York 10048-0203
(Address of Principal Executive Offices)
212-323-0200
(Registrant's Telephone Number)
Andrew J. Donohue, Esq.
Executive Vice President and General Counsel
OppenheimerFunds, Inc.
Two World Trade Center, New York, New York 10048-0203
212-323-0256
(Name and Address of Agent for Service)
As soon as practicable after the Registration Statement becomes effective.
(Approximate Date of Proposed Public Offering)
Title of Securities Being Registered: Class A, Class B
and Class C shares
It is proposed that this filing will become effective on September 28, 2000
pursuant to Rule 488.
No filing fee is due because of reliance on Section 24(f) of the Investment
Company Act of 1940.
<PAGE>
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement contains the following pages and documents:
Front Cover
Contents Page
Shareholder Letter
Notice of Shareholder Meeting
Part A
Prospectus for Oppenheimer California Municipal Fund
Proxy Statement for Oppenheimer Main Street Funds, Inc. on behalf of its series,
Oppenheimer Main Street California Municipal Fund
Part B
Statement of Additional Information
Part C
Other Information
Signatures
Exhibits
<PAGE>
PRELIMINARY COPY
OPPENHEIMER MAIN STREET CALIFORNIA MUNICIPAL FUND
6803 South Tucson Way, Englewood, Colorado 80112
1-800-525-7048
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON OCTOBER 12, 2000
To the Shareholders of Oppenheimer Main Street California Municipal Fund:
Notice is hereby given that a Special Meeting of the Shareholders of
Oppenheimer Main Street California Municipal Fund ("Main Street California
Municipal Fund"), a series of the Oppenheimer Main Street Funds, Inc. (the
"Company"), a registered management investment company, will be held at 6803
South Tucson Way, Englewood, Colorado 80112 at 10:00 A.M., Denver time, on
October 12, 2000, or any adjournments thereof (the "Meeting"), for the
following purposes:
1. To approve an Agreement and Plan of Reorganization between the Company on
behalf of its series Main Street California Municipal Fund and Oppenheimer
California Municipal Fund ("California Municipal Fund"), and the
transactions contemplated thereby, including (a) the transfer of
substantially all the assets of Main Street California Municipal Fund to
California Municipal Fund in exchange for Class A and Class B shares of
California Municipal Fund, (b) the distribution of such shares of California
Municipal Fund to the corresponding Class A and Class B shareholders of Main
Street California Municipal Fund in complete liquidation of Main Street
California Municipal Fund and (c) the cancellation of the outstanding shares
of Main Street California Municipal Fund (the "Proposal").
2. To act upon such other matters as may properly come before the Meeting.
Shareholders of record at the close of business on August 16, 2000 are
entitled to notice of, and to vote at, the Meeting. The Proposal is more
fully discussed in the Proxy Statement and Prospectus. Please read it
carefully before telling us, through your proxy or in person, how you wish
your shares to be voted. The Board of Directors of the Company recommends a
vote in favor of the Proposal. WE URGE YOU TO SIGN, DATE AND MAIL THE
ENCLOSED PROXY PROMPTLY.
By Order of the Board of Directors,
Andrew J. Donohue, Secretary
September 11, 2000
----------------------------------------------------------------------
Shareholders who do not expect to attend the Meeting are requested to
indicate voting instructions on the enclosed proxy and to date, sign and
return it in the accompanying postage-paid envelope. To avoid unnecessary
duplicate mailings, we ask your cooperation in promptly mailing your proxy
no matter how large or small your holdings may be.
PRELIMINARY COPY
COMBINED PROSPECTUS AND PROXY STATEMENT
DATED AUGUST 31, 2000
Acquisition of the Assets of OPPENHEIMER MAIN STREET CALIFORNIA MUNICIPAL
FUND, a series of Oppenheimer Main Street Funds, Inc.
By and in exchange for Class A and Class B shares of
OPPENHEIMER CALIFORNIA MUNICIPAL FUND
This combined Prospectus and Proxy Statement solicits proxies from the
shareholders of Oppenheimer Main Street California Municipal Fund ("Main Street
California Municipal Fund") to be voted at a Special Meeting of Shareholders
(the "Meeting") to approve the Agreement and Plan of Reorganization (the
"Reorganization Agreement") and the transactions contemplated thereby (the
"Reorganization") between Main Street Funds, Inc. (the "Company") on behalf of
Main Street California Municipal Fund and Oppenheimer California Municipal Fund
("California Municipal Fund"). This combined Prospectus/Proxy Statement
constitutes the Prospectus of California Municipal Fund and the Proxy Statement
of Main Street California Municipal Fund filed on Form N-14 with the Securities
and Exchange Commission ("SEC"). If shareholders vote to approve the
Reorganization Agreement and the Reorganization, the net assets of Main Street
California Municipal Fund will be acquired by and in exchange for shares of
California Municipal Fund. The Meeting will be held at the offices of the
Company at 6803 South Tucson Way, Englewood, Colorado 80112 on October 12, 2000
at 10:00 A.M. Denver time. The Board of Directors of the Company is soliciting
these proxies on behalf of Main Street California Municipal Fund. This
Prospectus/Proxy Statement will first be sent to shareholders on or about
September 11, 2000.
If the shareholders vote to approve the Reorganization Agreement and the
transaction is consummated, you will receive Class A shares of California
Municipal Fund equal in value to the value as of the valuation date of your
Class A shares of Main Street California Municipal Fund and Class B shares of
California Municipal Fund equal in value to the value as of the valuation date
of your Class B shares of Main Street California Municipal Fund. Main Street
California Fund will then be liquidated.
California Municipal Fund's investment objective is to seek as high a
level of current income exempt from federal and California personal income
taxes, as is available from investing in municipal securities, that is
consistent with the preservation of capital. California Municipal Fund as a
matter of fundamental policy invests at least 80% of its assets, in municipal
securities, and at least 65% of its total assets in California municipal
securities. California Municipal Fund limits its investments in below investment
grades securities to 25% or less of its total assets. California Municipal Fund
emphasizes California municipal securities with longer term maturities for the
purpose of seeking higher yields.
This Prospectus/Proxy Statement gives information about Class A, Class B
and Class C shares of California Municipal Fund that you should know before
investing. You should retain it for future reference. A Statement of Additional
Information relating to the Reorganization described in this Proxy Statement and
Prospectus, dated August 31, 2000 (the "Prospectus/Proxy Statement of
Additional Information") has been filed with the Securities and Exchange
Commission ("SEC") as part of the Registration Statement on Form N-14 (the
"Registration Statement") and is incorporated herein by reference. You may
receive a copy by written request to the Transfer Agent or by calling toll-free
as detailed above. The Prospectus/Proxy Statement of Additional Information
includes the following documents: (i) Annual Report and Semi-Annual Report of
California Municipal Fund, as of July 31, 1999 and January 31, 2000; (ii) Annual
Report and Semi-Annual Report of Main Street California Municipal Fund, as
August 31, 1999 and February 29, 2000; (iii) the California Municipal Fund
Statement of Additional Information; and (iv) the Main Street California
Municipal Fund Statement of Additional Information.
The Prospectus of California Municipal Fund dated November 22, 1999 is
attached to and considered a part of this Prospectus/Proxy Statement and is
intended to provide you with information about California Municipal Fund.
The following documents have been filed with the SEC and are available
without charge upon written request to OppenheimerFunds Services (the "Transfer
Agent") or by calling the toll-free number shown above: (i) a Prospectus for
Main Street California Municipal Fund, dated December 22, 1999; (ii) a Statement
of Additional Information for Main Street California Municipal Fund, dated
December 22, 1999; and (iii) a Statement of Additional Information for
California Municipal Fund, dated November 22, 1999.
Like all mutual funds, the Securities and Exchange Commission has not approved
or disapproved these securities or passed upon the adequacy of this
Prospectus/Proxy Statement. Any representation to the contrary is a criminal
offense.
Mutual fund shares are not deposits or obligations of, or guaranteed or endorsed
by, any bank, and are not federally insured by the Federal Deposit Insurance
Corporation, the Federal Reserve Board, or any other U.S. government agency.
Mutual fund shares involve investment risks including the possible loss of
principal.
This Proxy Statement and Prospectus is dated August 31, 2000.
<PAGE>
TABLE OF CONTENTS
COMBINED PROSPECTUS AND PROXY STATEMENT
Cover Page Page
Synopsis
What am I being asked to vote on?
What are the general tax consequences of the Transaction?
Comparisons of Some Important Features
How do the investment objectives and policies of the Funds compare?
Who manages the Funds?
What are the fees and expenses of each Fund and those expected after the
Reorganization?
Where can I find more financial information about the Funds? How have the
Funds performed? What are other key features of the Funds?
Investment Management and Fees
Transfer Agency and Custody Services
Distribution Services
Purchases, Redemptions, Exchanges and other Shareholder Services
Dividends and Distributions
What are the risks of an investment in the California Municipal Fund?
Reasons for the Reorganization
Information about the Reorganization
How will the Reorganization be carried out? Who will pay the expenses of
the Reorganization? What are the tax consequences of the Reorganization?
What should I know about California Municipal Fund - Class A and Class B
shares Fund?
What are the capitalizations of the Funds and what might the
capitalization be after the Reorganization?
Comparison of Investment Objectives and Policies
Are there any significant differences between the investment objectives
and strategies of the Funds?
How do the investment policies of the Funds compare?
Municipal Securities
Ratings of Municipal Securities the Fund Buys
Special Credit Risks of Lower-Grade Securities
Municipal Lease Obligations
Other Investment Strategies
What are the fundamental investment restrictions of the Funds? What are
the risk factors associated with investment in the Funds?
Credit Risk
Interest Rate Risk
Risks of Non-Diversification
Risks in Using Derivative Investments
Special Credit Risks of Lower-Grade Securities
How do the Account Features and Shareholder Services for the Funds Compare?
Investment Management
Distribution
Purchases and Redemptions
Shareholder Services
Dividends and Distributions
Voting Information
How many votes are necessary to approve the Reorganization Agreement? How
do I ensure my vote is accurately recorded?
Can I revoke my proxy?
What other matters will be voted upon at the Meeting? Who is entitled to
vote? What other solicitations will be made?
Are there appraisal rights?
Information about California Municipal Fund
Information about Main Street California Municipal Fund
Principal Shareholders
Exhibit A - Agreement and Plan of Reorganization by and between Oppenheimer Main
Street Funds, Inc., on behalf of its series, Oppenheimer Main Street California
Municipal Fund, and Oppenheimer California Municipal Fund Enclosures
- Prospectus of Oppenheimer California Municipal Fund, dated November 22, 1999
<PAGE>
SYNOPSIS
This is only a summary and is qualified in its entirety by the more
detailed information contained in or incorporated by reference in this
Prospectus and Proxy Statement and by the Reorganization Agreement which is
attached as Exhibit A. Shareholders should carefully review this Prospectus and
Proxy Statement and the Reorganization Agreement in their entirety and, in
particular, the current Prospectus of California Municipal Fund which
accompanies this Prospectus and Proxy Statement and is incorporated herein by
reference.
What am I being asked to vote on?
OppenheimerFunds, Inc. (the "Manager") proposed to the Board of Main
Street Funds, Inc., a reorganization of Main Street California Municipal Fund
with and into California Municipal Fund for the purpose of providing
shareholders with a stronger fund. The reorganization will also serve to
consolidate the Oppenheimer funds California municipal bond product line. If the
Reorganization is approved, shareholders will be in a larger fund with virtually
identical investment objective and policies. In addition, the portfolio
management of the surviving California Municipal Fund will be the same as that
who manages the Main Street California Municipal Fund. Because of the relatively
low demand for shares of Main Street California Municipal Fund, we do not expect
such Fund to grow and recommend shareholders approve this Reorganization.
By approving the reorganization, shareholders of Main Street California
Municipal Fund will be accepting a Rule 12b-1 service plan for the Class A
shares of the California Municipal Fund because of the existence of such a plan
on the Class A shares of the surviving California Municipal Fund. Currently,
shareholders of Main Street California Municipal Fund do not have a Rule 12b-1
service plan applicable to their Class A shares.
Main Street California Municipal Fund was primarily created for the
purpose of selling its shares through various financial institutions in the
State of California. As a result of this particular structure, Main Street
California Municipal Fund was not established with a service fee on its Class A
shares. It is also the only open-end, non-money market retail Oppenheimer fund
not to have a Class A share service plan. As a result of changes in the
marketing and selling of fund shares, the absence of a service fee on Class A
shares adversely affects sales of Main Street California Municipal Fund. Without
a service plan on Class A shares, dealers may lack the appropriate incentive to
properly service fund shares due to the absence of compensation received for
providing certain administrative and shareholder services. Under an Oppenheimer
fund Class A service plan, the Distributor will use the fees its receives from
the particular fund to pay brokers, dealers and other financial institutions for
personal services and account maintenance services provided for their customers
who hold Class A shares of an Oppenheimer fund. A Class A share service plan in
the OppenheimerFunds complex permits payments to the Distributor at a rate of up
to 0.25% of the average annual net assets of Class A Shares of such fund.
A reorganization of Main Street California Municipal Fund with and into
California Municipal Fund is recommended by the Board based on the fact that
both Funds are essentially the same investment with the same portfolio
management team, objective and investment policies. The Board also notes the
importance of service plans on Class A shares for the delivery of shareholder
services. Therefore, had the proposed reorganization was undertaken, the Manager
would have proposed the adoption of a service plan for Class A shares of Main
Street California Municipal Fund for Board and shareholder approval.
The Board considered the fact that the reorganization will increase the
expense ratio experienced by shareholders of Class A shares of Main Street
California Municipal Fund. The Board noted that the lower expense ratio for Main
Street California Municipal Fund Class A shares was largely due to the Manager's
previous voluntary waiver of its investment management fee and the absence of a
service fee. Especially without a Rule 12b-1 Service Plan for its Class A
shares, the Manager and Board expect Main Street California Municipal Fund to
continue to experience net redemptions. With the removal of the Manager's
voluntary fee waiver in February 2000 and the proposal by the Manager
(regardless of this reorganization) to adopt a Rule 12b-1 Service Plan for Class
A shares, the Board considered that the expense ratios of the Funds would
essentially be the same. The Board also considered that the Reorganization would
be a tax-free reorganization, and that no sales charge would be imposed in
effecting the Reorganization.
At a meeting held on February 29, 2000, the Board of Directors of the
Company on behalf of Main Street California Municipal Fund approved a
reorganization transaction that will, if approved by shareholders, result in the
transfer of the net assets of Main Street California Municipal Fund to
California Municipal Fund, in exchange for an equal value of shares of
California Municipal Fund. The shares of California Municipal Fund will then be
distributed to Main Street California Municipal Fund shareholders and Main
Street California Municipal Fund will be liquidated. As a result of the
Reorganization, you will cease to be a shareholder of Main Street California
Municipal Fund and will become a shareholder of California Municipal Fund. This
exchange will occur on the Closing Date of the Reorganization.
Approval of the Reorganization means your shares of Main Street California
Municipal Fund will be exchanged for an equal value of shares of California
Municipal Fund. You will receive Class A shares of California Municipal Fund
equal in value to the value as of the valuation date of your Class A shares of
Main Street California Municipal Fund and Class B shares of California Municipal
Fund equal in value to the value as of the valuation date of your Class B shares
of Main Street California Municipal Fund. The shares you receive will be issued
at net asset value without a sales charge or the payment of a contingent
deferred sales charge ("CDSC") although if your shares of Main Street California
Municipal Fund are subject to a CDSC, your California Municipal Fund shares will
continue to be subject to the CDSC applicable to your shares. However, former
Class A shareholders of Main Street California Municipal Fund whose shares are
represented by outstanding share certificates will not be allowed to redeem
shares of California Municipal Fund until the certificates have been returned.
For the reasons set forth in the "Reasons for the Reorganization" section,
the Board of Main Street California Municipal Fund has determined that the
Reorganization is in the best interests of the shareholders of Main Street
California Municipal Fund. The Board concluded that no dilution in value would
result to shareholders of Main Street California Municipal Fund as a result of
the Reorganization.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE
TO APPROVE THE AGREEMENT AND PLAN OF REORGANIZATION
What are the general tax consequences of the Transaction?
It is expected that shareholders of Main Street California Municipal Fund
who are U.S. citizens will not recognize any gain or loss for federal income tax
purposes, as a result of the exchange of their shares for shares of California
Municipal Fund. You should, however, consult your tax advisor regarding the
effect, if any, of the Reorganization in light of your individual circumstances.
You should also consult your tax advisor about state and local tax consequences.
For further information about the tax consequences of the Reorganization, please
see the "Information About the Reorganization--What are the tax consequences of
the Reorganization?"
COMPARISONS OF SOME IMPORTANT FEATURES
How do the investment objectives and policies of the Funds compare?
Main Street California Municipal Fund and California Municipal Fund have
virtually identical investment objectives. Each Fund seeks as high a level of
current income exempt from federal and California personal income taxes that is
consistent with the preservation of capital.
In seeking their investment objectives, Main Street California Municipal
Fund and California Municipal Fund utilize a similar investing strategy and
invest primarily in municipal securities. Main Street California Municipal Fund,
as a matter of fundamental investment policy, invests at least 80% of its total
assets in California municipal securities. California Municipal Fund, as a
fundamental investment policy, invests at least 80% of its assets in municipal
securities, and at least 65% of its total assets in California municipal
securities. As of March 31, 2000, Main Street California Municipal Fund had
98.16% of its total assets invested in California municipal securities and
California Municipal Fund had 98.03% of its total assets invested in California
municipal securities.
With respect to below investment grade investments (referred to as "junk
bonds"), both Funds limit such investments to 25% or less of total assets, and
Main Street California Municipal Fund limits its holding of unrated municipal
securities to 20% of total assets. "Investment grade" securities are those rated
within the first four (4) highest rating categories of Moody's, Standard &
Poor's, Fitch or Duff & Phelps or another nationally recognized rating
organization, or if unrated, judged by the Manager to be comparable to rated
investment grade securities. Rating categories are specifically described in
each Fund's Statement of Additional Information. Both Funds currently emphasize
investment in municipal securities with long-term maturities for the purpose of
seeking higher yields.
Who Manages the Funds?
The day-to-day management of the business and affairs of each Fund is the
responsibility of the Manager. Main Street California Municipal Fund is a series
of the Company, which was organized in April 1987 as a Maryland corporation.
Main Street California Municipal Fund is a non-diversified, open-end mutual fund
which commenced operations on May 18, 1990. The Fund is governed by Articles of
Incorporation and By-Laws and is under the direction of a Board of Directors
which is responsible for protecting the interests of shareholders. The Company
is located at 6803 South Tucson Way, Englewood, Colorado 80112.
California Municipal Fund was organized as a Massachusetts business trust
in July 1988 and is also a non-diversified, open-end mutual fund. It is governed
by a Declaration of Trust and By-Laws and is under the direction of a Board of
Trustees which is responsible for protecting the interests of shareholders.
California Municipal Fund is located at Two World Trade Center, New York, New
York 10048-0203
The Manager, located at Two World Trade Center, New York, New York 10048,
acts as investment advisor to both Funds. The portfolio management group
consisting of the portfolio manager and a team of analysts and investment
researchers is also the same for each Fund and will continue in this capacity
for the surviving California Municipal Fund.
Additional information about the Funds and the Manager is set forth below.
There are certain differences between Maryland corporations and Massachusetts
business trusts. Such differences, as well as additional information about the
Funds and the Manager, is set forth below in "Comparison of Investment
Objectives and Policies."
What are the fees and expenses of each Fund and those expected after the
Reorganization?
Main Street California Municipal Fund and California Municipal Fund each
pay a variety of expenses directly for management of their assets,
administration, distribution of their shares and other services. Those expenses
are subtracted from each Fund's assets to calculate the Fund's net asset value
per share. Shareholders pay these expenses indirectly. Shareholders pay other
expenses directly, such as sales charges and account transaction charges. The
following tables are provided to help you understand and compare the fees and
expenses of investing in shares of Main Street California Municipal Fund with
the fees and expenses of investing in shares of California Municipal Fund. The
pro forma expenses of the surviving California Municipal Fund show what the fees
and expenses are expected to be after giving effect to the Reorganization. All
amounts shown are a percentage of net assets of each class of shares of the
Funds.
<PAGE>
PRO FORMA FEE TABLE FOR MAIN STREET CALIFORNIA MUNICIPAL FUND
AND CALIFORNIA MUNICIPAL FUND+
--------------------------------------------------------------------------------
Main Street California Pro Forma Surviving
California Municipal Fund California Municipal Fund
Municipal Fund Class A Shares Class A shares
Class A shares
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Shareholder
Transaction
Expenses (charges
paid directly
from a
shareholder's
investment)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Maximum Sales
Charge (Load) ----------------- 4.75% 4.75%
on purchases 4.75%
(as a % of
offering price)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Maximum
Deferred Sales None1 None1 None1
Charge (Load)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Annual Fund
Operating
Expenses (as a
percentage of
average daily net
assets)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Management Fees2 0.55% 0.56% 0.54%
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Distribution
and/or Service None 0.24% 0.24%
(12b-1) Fees
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Other Expenses 0.11% 0.11% 0.10%
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Total Fund 0.66% 0.91% 0.88%
Operating
Expenses
--------------------------------------------------------------------------------
-------------------------------------------------------------------------------
Main Street California Pro Forma Surviving
California Municipal Fund California Municipal Fund
Municipal Fund Class B Shares Class B shares
Class B shares
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Shareholder
Transaction
Expenses (charges
paid directly
from a
shareholder's
investment)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Maximum Sales
Charge (Load) None None None
on purchases
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Maximum
Deferred Sales 5%3 5%3 5%3
Charge (Load)
(as a % of the
lower of the
original
offering price
or redemption
proceeds)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Annual Fund
Operating
Expenses (as a
percentage of
average daily net
assets)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Management Fees2 0.55% 0.56% 0.54%
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Distribution
and/or Service 1.00% 1.00% 1.00%
(12b-1) Fees
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Other Expenses 0.11% 0.11% 0.10%
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Total Fund 1.66% 1.67% 1.64%
Operating
Expenses
--------------------------------------------------------------------------------
Note: Expenses may vary in future years. "Other expenses include transfer agent
fees, custodial expenses, and accounting and legal expenses the fund pays.
+Information provided is for Main Street California Fund and California
Municipal Fund for the 12-month period ended March 31, 2000.
1A 1% contingent deferred sales charge may apply to redemptions of investments
of $1 million or more of Class A shares. See "How to Buy Shares" in each Fund's
Prospectus.
2The Management Fees above show the maximum rate under the investment advisory
agreement and do not reflect a voluntary undertaking by the Manager that was in
effect during the last fiscal year, which limited the management fees to a
maximum annual rate of 0.40%. As a result of that fee waiver, the actual
management fee rate for both classes during the fiscal year ended 8/31/99 was
0.40% and actual total operating expenses were 0.51% and 1.52% of average annual
net assets, respectively, for Class A and Class B. The Manager withdrew the
voluntary waiver on April 1, 2000.
3Applies to redemptions in first year after purchase. The contingent deferred
sales charge declines to 1% in the sixth year and is eliminated after that.
The 12b-1 fees for Class A shares of California Municipal Fund are service
plan fees which are a maximum of 0.25% of average annual net assets of Class A
shares. The 12b-1 fees for Class B shares of both Main Street California
Municipal Fund and for Class B and C shares of California Municipal Fund are
Distribution and Service Plan fees which include a service fee of 0.25% and an
asset-based sales charge of 0.75%. The Manager, effective January 2000, agreed
to limit its investment management fee on California Municipal Fund to 0.55% of
average net assets.
Examples
These examples below are intended to help you compare the cost of
investing in each Fund and the proposed surviving California Municipal Fund.
These examples assume an annual return for each class of 5%, the operating
expenses described above and reinvestment of your dividends and distributions.
Your actual costs may be higher or lower because expenses will vary over
time. For each $10,000 investment, you would pay the following projected
expenses if you sold your shares after the number of years shown.
12 Months Ended 3/31/00
Main Street California Municipal Fund
--------------------------------------------------------------------------------
If shares are redeemed: 1 year 3 years 5 years 10 years1
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Class A $539 $676 $ 825 $1,258
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Class B $669 $823 $1,102 $1,452
--------------------------------------------------------------------------------
Main Street California Municipal Fund
--------------------------------------------------------------------------------
If shares are not 1 year 3 years 5 years 10 years1
redeemed:
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Class A $539 $676 $825 $1,258
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Class B $169 $523 $902 $1,452
--------------------------------------------------------------------------------
California Municipal Fund
--------------------------------------------------------------------------------
If shares are redeemed: 1 year 3 years 5 years 10 years1
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Class A $563 $751 $ 955 $1,541
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Class B $670 $826 $1,107 $1,588
--------------------------------------------------------------------------------
California Municipal Fund
--------------------------------------------------------------------------------
If shares are not 1 year 3 years 5 years 10 years1
redeemed:
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Class A $563 $751 $955 $1,541
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Class B $170 $526 $907 $1,588
--------------------------------------------------------------------------------
Pro Forma Surviving California Municipal Fund
--------------------------------------------------------------------------------
If shares are redeemed: 1 year 3 years 5 years 10 years1
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Class A $561 $742 $ 939` $1,508
-------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Class B $667 $817 $1,092 $1,554
--------------------------------------------------------------------------------
Pro Forma Surviving California Municipal Fund
--------------------------------------------------------------------------------
If shares are not 1 year 3 years 5 years 10 years1
redeemed:
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Class A $561 $742 $939 $1,508
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Class B $167 $517 $892 $1,544
--------------------------------------------------------------------------------
In the first example, expenses include the initial sales charge for Class A and
the applicable Class B or Class C contingent deferred sales charge. In the
second example, the Class A expenses include the sales charge, but Class B and
Class C expenses do not include the contingent deferred sales charges. 1 Class B
expenses for years 7 through 10 are based on Class A expenses, since Class B
shares automatically convert to Class A after 6 years.
Where can I find more financial information about the Funds?
Performance information for both California Municipal Fund and Main Street
California Municipal Fund is set forth in each Fund's Prospectus under the
section "The Fund's Past Performance." California Municipal Fund's Prospectus
accompanies this Prospectus/Proxy Statement and is incorporated herein by
reference.
The financial statements of California Municipal Fund and additional
information with respect to the Fund's performance during the past fiscal year
(and the most recent six month semi-annual period), including a discussion of
factors that materially affected its performance and relevant market conditions,
is set forth in California Municipal Fund's Annual and Semi-Annual Reports dated
as of July 31, 1999 and January 31, 2000, respectively, that is included in the
Statement of Information and incorporated herein by reference. These documents
are available upon request. See section entitled "Information About California
Municipal Fund." The financial statement of Main Street California Municipal
Fund and additional information with respect to the Fund's performance during
the past fiscal year (and the most recent six month semi-annual period),
including a discussion of factors that materially affected its performance and
relevant market conditions, is set forth in Main Street California Municipal
Fund's Annual and Semi-Annual Reports dated as of August 31, 1999 and February
29, 2000, respectively, that are included in the Statement of Information and
incorporated herein by reference. These documents are available upon request.
See section entitled "Information About Main Street California Municipal Fund."
Pro forma financial statements for the period August 1, 1999 through March 31,
2000 reflecting California Municipal Fund after the Reorganization are included
in the Statement of Additional Information and incorporated by reference.
How have the Funds performed?
Past performance information for each Fund is set forth in their
respective Prospectus as follows: (i) a bar chart detailing annual total returns
of Class A shares of each Fund as of December 31st for each of the full calendar
years since such Fund's inception; and (ii) a table detailing how the average
annual total returns of each Fund's Class A and Class B shares compare to those
of the Lehman Brothers Municipal Bond Index, a broad-based market index. Past
performance does not necessarily indicate how a fund will perform in the future.
Average annual total returns for the Funds for the period ended June 30,
2000 are as follows:
----------------------------------------------------------------------
Fund 1-year 5-year 10-year/Life
----------------------------------------------------------------------
----------------------------------------------------------------------
Main Street California (4.42)% 4.49% 6.17%
Municipal Fund Class A
(inception 5/18/90)
----------------------------------------------------------------------
----------------------------------------------------------------------
Main Street California (5.33)% 4.13% 3.74%
Municipal Fund Class B
(inception 10/29/93)
----------------------------------------------------------------------
----------------------------------------------------------------------
Lehman Brothers Municipal Bond 3.25% 5.88% 7.06%
Index (from 12/31/88)
----------------------------------------------------------------------
----------------------------------------------------------------------
California Municipal Fund (5.30)% 4.00% 5.79%
Class A (inception 11/3/88)
----------------------------------------------------------------------
----------------------------------------------------------------------
California Municipal Fund (6.14)% 3.89% 4.08%
Class B (inception 5/1/93)
----------------------------------------------------------------------
Total returns include changes in share price and reinvestment of dividends and
capital gains distributions in a hypothetical investment for the periods shown.
An explanation of the different performance calculations is set forth in each
Fund's Prospectus and Statement of Additional Information. Each Fund's average
annual total return includes the applicable sales charge for Class A and Class B
shares: for Class A, the current maximum initial sales charge is 4.75% and for
Class B, the contingent deferred sales charges is 5% (1-year) and 1% (5 years
and life of class). Because Class B shares of California Municipal Fund convert
to Class A shares 72 months after purchase, Class B "life-of-class" performance
does not include any contingent deferred sales charge on redemption and uses
Class A performance for the period after conversion.
The graphs that follow show the performance of a hypothetical $10,000
investment in each class of shares of California Municipal Fund held until
December 31, 1999. In the case of Class A shares, performance is measured over a
10-year period. In the case of Class B shares, performance is measured from the
inception of the class on May 1, 1993. In the case of Class C shares,
performance is measured from inception of the class on November 1, 1995. The
Fund's performance reflects the deduction of the maximum initial sales charge on
Class A shares, the applicable contingent deferred sales charge on Class B and
Class C shares, and reinvestment of all dividends and capital gain
distributions. California Municipal Fund's performance is compared to the
performance of the Lehman Brothers Municipal Bond Index, an unmanaged index of a
broad range of investment-grade municipal bonds that is widely regarded as a
measure of the performance of the general municipal bond market exempt from
federal tax but generally not state or local income taxes. Index performance
reflects the reinvestment of dividends but does not consider the effect of
capital gains or transaction costs, and none of the data in the graphs that
follow shows the effect of taxes. 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 investments in the Index.
Class A Shares
Comparison of Change in Value of $10,000 Hypothetical Investments in:
Oppenheimer California Municipal Fund (Class A) and Lehman Brothers Municipal
Bond Index
[Begin: Tablular Representation of Line Chart]
Oppenheimer California Lehman Brothers Municipal
Municipal Fund Class A Bond Index
11.03.88 9525 10000
12.31.88 9661 10010
12.31.89 10783 11090
12.31.90 11470 11898
12.31.91 12724 13343
12.31.92 13777 14519
12.31.93 15604 16302
12.31.94 14279 15460
12.31.95 17100 18158
7.31.961 17158 18241
7.31.97 19063 20111
7.31.98 20142 21316
7.31.99 20463 21929
[End: Tablular Representation of Line Chart]
Average Annual Total Return of Class AShares of the Fund at 7/31/992
1 Year -3.24% 5 Year 5.42% 10 Year 6.40%
Class B Shares
Comparison of Change in Value of $10,000 Hypothetical Investments in:
Oppenheimer California Municipal Fund (Class B) and Lehman Brothers Municipal
Bond Index
[Begin: Tablular Representation of Line Chart]
Oppenheimer California Lehman Brothers Municipal
Municipal Fund Class B Bond Index
5.3.93 10000 10000
12.31.93 10656 10718
12.31.94 9656 10164
12.31.95 11486 11938
7.31.961 11474 11993
7.31.97 12651 13222
7.31.98 13267 14015
7.31.99 13375 14418
[End: Tablular Representation of Line Chart]
Average Annual Total Return of Class B Shares of the Fund at 7/31/993
1 Year -4.02% 5 Year 5.32% Life 4.77%
Class C Shares
Comparison of Change in Value of $10,000 Hypothetical Investments in:
Oppenheimer California Municipal Fund (Class C) and Lehman Brothers Municipal
Bond Index
[Begin: Tablular Representation of Line Chart]
Oppenheimer California Lehman Brothers Municipal
Municipal Fund Class C Bond Index
11.1.95 10000 10000
12.31.95 10290 10264
7.31.961 10271 10310
7.31.97 11324 11367
7.31.98 11876 12049
7.31.99 11963 12395
[End: Tablular Representation of Line Chart]
Average Annual Total Return of Class CShares of the Fund at 7/31/994
1 Year -0.24% Life 4.90%
Total returns and the ending account values in the graphs show change in share
value and include reinvestment of all dividends and capital gains distributions.
The performance information for the Lehman Brothers Municipal Bond Index in the
graphs begins on 10/31/88 for Class A, 4/30/93 for Class B and 10/31/95 for
Class C. Past performance is not predictive of future performance. Graphs are
not drawn to the same scale.
---------------------------------
1 The Fund changed its fiscal year-end from December 31 to July 31.
2 The average annual total returns are shown net of the applicable 4.75%
maximum initial sales charge.
3 Class B shares of the Fund were first publicly offered on 5/3/93. The average
annual total returns are shown net of the applicable 5% (1-year) and 1% (since
inception) contingent deferred sales charges. The ending account value in the
graph is net of the applicable 1% contingent deferred sales charge.
4 Class C shares of the Fund were first publicly offered on 11/1/95. The 1-year
period is shown net of the applicable 1% contingent deferred sales charge.
What are other key features of the Funds?
The description of certain key features of the Funds below is supplemented
by each Fund's Prospectus and Statement of Additional Information, which are
incorporated herein by reference.
Investment Management and Fees The Manager manages the assets of both
Funds and makes their respective investment decisions. Both Funds obtain
investment management services from the Manager according to the terms of
management agreements that are substantially the same except for fee rates.
Main Street California Municipal Fund pays a management fee at the
following annual rate: 0% when net assets are less than $25 million; 0.15% when
net assets are $25 million or more but less than $50 million; 0.25% when net
assets are $50 million or more but less than $75 million; 0.40% when net assets
are $75 million or more but less than $100 million; and 0.55% when net assets
are $100 million or more. Additionally, the Manager through April 1, 2000,
voluntarily limited its fees to 0.40% of average annual net assets if the fund's
assets were $100 million or more. That voluntary waiver was discontinued on
April 1, 2000. With the voluntary limitation that was in place during the fund's
last fiscal year ended August 31, 1999, the fund's management fee was 0.40% of
average annual nets assets. Without that voluntary waiver, the management fee
currently is 0.55%. The investment advisory agreement for the fund does not have
any provisions that would decrease the management fee rate as the assets of the
fund grow.
Under its management agreement, California Municipal Fund pays the Manager
a management fee equal to an annual rate of: 0.60% of the first $200 million,
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 average annual
net assets in excess of $1 billion. California Municipal Fund's management fee
for the year ended July 31, 1999, was 0.55% of the average annual net assets for
each class of shares.
Effective upon the Closing of the Reorganization, the management fee rate
for California Municipal Fund is expected to be 0.54% based on assets of the
Fund as of March 31, 2000. Under the investment advisory agreement for
California Municipal Fund, the management fee for the combined fund would be at
a reduced rate if the assets of the combined fund significantly increased.
For a detailed description of each Fund's investment management agreement,
see section entitled "Comparison of Investment Objectives and Policies - How do
the Account Features and Shareholder Services for the Funds Compare?"
Transfer Agency and Custody Services - Both Funds receive shareholder
accounting and other clerical services from OppenheimerFunds Services in its
capacity as transfer agent and dividend paying agent. It acts on an "at-cost"
basis. The terms of the transfer agency agreement for both Funds are
substantially the same.
Citibank, N.A. located at 399 Park Avenue, New York, New York acts as
custodian of the securities and other assets of California Municipal Fund. The
Bank of New York located at One Wall Street, New York, New York acts as
custodian of the securities and other assets of Main Street California Municipal
Fund.
Distribution Services - OppenheimerFunds Distributor, Inc. (the
"Distributor") acts as the principal underwriter in a continuous public offering
of shares of both Funds, but is not obligated to sell a specific number of
shares. California Municipal Fund has also adopted a Service Plan and Agreement
under Rule 12b-1 for its Class A shares that compensates dealers for providing
certain shareholder services at an annual rate up to 0.25% of average net assets
of Class A shares of the Fund. Main Street California Municipal Fund currently
does not have a Class A Service Plan and Agreement. Main Street California
Municipal Fund has a Distribution and Service Plan under Rule 12b-1 for its
Class B shares that compensates the Distributor for services in connection with
the distribution and/or servicing of Class B shares. Under this Plan, Main
Street California Municipal Fund pays the Distributor an asset-based sales
charge at an annual rate up to 0.75% of net assets on its Class B shares.
California Municipal Fund has also adopted a Distribution and Service Plan under
Rule 12b-1 for its Class B shares to compensate dealers for services in
connection with distribution. Under this Plan, the California Municipal Fund
pays the Distributor an asset-based charge at an annual rate of 0.75% of net
assets on its Class B shares, whether distribution expenses are more or less
than the amounts paid by the Fund under the Plan during the period. Both Funds
also pay an annual service fee of 0.25% of net assets on its Class B shares to
the Distributor. The Distributor then uses these fees to compensate dealers for
providing personal services and maintaining shareholder accounts. Over time,
California Municipal Fund under its Plan may pay greater distribution expenses
than Main Street California Municipal Fund.
For a detailed description of each Fund's distribution-related services,
see section entitled "Comparison of Investment Objectives and Policies - How do
the Account Features and Shareholder Services for the Funds Compare?"
Purchases, Redemptions, Exchanges and other Shareholder Services - Both
Funds have the same requirements and restrictions in connection with purchases,
redemptions and exchanges. In addition, each Fund also offers the same level of
shareholder services. More detailed information regarding purchases,
redemptions, exchanges and shareholder services can be found below in the
section "Comparison of Investment Objectives and Policies - How do the Account
Features and Shareholder Services for the Funds Compare?"
Dividends and Distributions - Both Funds declare dividends separately for
each class of shares from net tax-exempt income and/or net investment income
each regular business day and pay those dividends to shareholders monthly on a
date selected by the Boards of each Fund. Daily dividends will not be declared
or paid on newly-purchased shares until Federal Funds are available to the Funds
from the purchase payment for those shares.
For a detailed description of each Fund's policy on dividends and
distribution, see section entitled "Comparison of Investment Objectives and
Policies - How do the Account Features and Shareholder Services for the Funds
Compare?"
What are the risks of an investment in the California Municipal Fund?
As with most investments, investments in California Municipal Fund and
Main Street California Municipal Fund involve risks. There can be no guarantee
against loss resulting from an investment in either Fund, nor can there be any
assurance that either Fund will achieve its investment objective. The risks
associated with an investment in each Fund are similar and include risks
associated with tax-exempt and other fixed income investments generally, such as
interest rate and credit risks. There are, however, some distinctions in the
investment programs of California Municipal Fund and Main Street California
Municipal Fund, such as the variety of permitted investments and risks
associated with such investments as measured by securities ratings.
For more information about the risks of the Funds, see "What are the risk
factors associated with investments in the Funds?" under the heading "Comparison
of Investment Objectives and Policies."
REASONS FOR THE REORGANIZATION
The Company was originally established to market its series funds through
various financial institutions in the State of California. As a result of this
unique structure, Main Street California Municipal Fund did not provide a
service fee on its Class A shares. As a result of changes in the marketing and
selling of fund shares, the absence of a service plan for Class A shares of Main
Street California Municipal Fund may adversely impacts sales and services
received by shareholders. The ability to effectively market and sell fund shares
through Oppenheimer funds distribution channels generally requires a Service
Plan on Class A shares. The Manager believes that the absence of a service plan
for Class A shares of Main Street California Municipal Fund inhibits fund sales
because of the lack of dealer compensation in connection with providing certain
shareholder services.
Under a Class A service plan in the OppenheimerFunds complex, the
Distributor uses the fees it receives from a fund to pay brokers, dealers and
other financial institutions for personal services and account maintenance
services provided by such dealers to their customers. The services include,
among others, answering customer inquiries about a fund, assisting in
establishing and maintaining accounts in a fund, making a fund's investment
plans available and providing other services at the request of a fund or the
Distributor. The Distributor accordingly makes payments to these dealers
quarterly at an annual rate not to exceed 0.25% of the average annual net assets
consisting of Class A shares held in the accounts of the dealer or their
customers.
The Manager recommended a combination of Main Street California Municipal
Fund with California Municipal Fund based on the fact that both Funds are
essentially the same investment with the same portfolio management group,
objective and investment policies. The Manager also asserted the importance of
its service plans on Class A shares for the efficient distribution and delivery
of shareholder services. It is the belief of the Manager that in order to
effectively provide certain administrative and shareholder services, a service
plan on Class A shares is essential. Without a service plan, the Manager
believes sales of fund shares will suffer because dealers will be less willing
to sell those shares without appropriate compensation. This is largely due to
the fact that mutual fund distribution has changed making Rule 12b-1 service
plans important for offering fund shares in a variety of new distribution
channels. Therefore, the Manager indicated that were the reorganization not to
be proposed, a service plan on Class A shares of Main Street California
Municipal Fund would be proposed for Board and shareholder approval.
The Board of Directors of the Company, on behalf of Main Street California
Municipal Fund, recommend shareholders approve the Reorganization in order to
combine Main Street California Municipal Fund with the larger California
Municipal Fund. Although the Board considered alternatives, including a
rejection of the proposal, it concluded that this reorganization is in the best
interests of shareholders and the Fund. Because of the relatively low demand for
Main Street California Municipal Fund, the Manager recommended to the Board of
Directors of Main Street California Municipal Fund that its assets be sold to
the larger California Municipal Fund. The Board reasoned that shareholders
should notice very little, if any, investment and/or operational difference
between the Funds because their investment objectives are virtually identical
with substantially similar policies, managed by the same portfolio manager.
The Reorganization was presented to the Board at a meeting held on
February 29, 2000. At the meeting, the Board questioned management about the
potential benefits and costs to shareholders of Main Street California Municipal
Fund. While deciding whether to recommend approval of the Reorganization to
shareholders, the Board considered, among other things: the expense ratios of
Main Street California Municipal Fund and California Municipal Fund; the
comparative investment performance of Main Street California Municipal Fund and
California Municipal Fund; the investment objectives and policies, restrictions
and investment practices of Main Street California Municipal Fund and California
Municipal Fund; the additional class of shares available in California Municipal
Fund; the tax consequences of the Reorganization; and the significant experience
of the portfolio manager and Manager. At a subsequent Board Meeting, the Board
also considered more current expense ratio information. The Board noted that
shareholders should notice very little, if any, investment and/or operational
differences between the Funds because their investment objectives are virtually
identical with substantially similar investment policies, they are managed by
the same portfolio manager, and their arrangements for the purchase, sale and/or
exchange of shares are also substantially the same. The Board also noted that
each Fund will pay for its own Reorganization expenses incurred, including the
tax opinion, and that the Reorganization is expected to be tax-free to
shareholders and the Funds.
The Board concluded that the Reorganization is in the best interests of
the shareholders of Main Street California Municipal Fund and that no dilution
of value would result to shareholders from the Reorganization. The Directors
approving the Reorganization and the Reorganization Agreement included a
majority of the Directors who are not interested persons of Main Street
California Municipal Fund or California Municipal Fund.
The Board's conclusion was based on a number of factors, including that
the Reorganization would permit shareholders to pursue their investment goals in
a larger fund managed by the same portfolio management team. A larger fund
should have an enhanced ability to effect portfolio transactions on more
favorable terms and should have greater investment flexibility. A fund with
larger net assets may also be able to reduce or eliminate certain duplicative
costs and expenses. However, certain variable expenses that are based on the
value of assets or the number of shareholder accounts, such as transfer agency
fees, would be largely unaffected by the Reorganization.
The Board considered the fact that the investment advisory agreement for
California Municipal Fund provided for reductions in the management fees as the
assets of the Fund grow. The investment advisory agreement for Main Street
California Fund does not currently provide for a reduction in management fees as
assets grow.
The Board further noted that the expenses of Main Street California
Municipal Fund are lower and its investment performance better than California
Municipal Fund due in large part to two factors: (1) the Manager had voluntarily
limited the investment advisory fee to 0.40% of average annual net assets
instead of the full contractual rate of 0.55% of average annual net assets; and
(2) the Class A shares of Main Street California Municipal Fund do not pay a
service fee. The Manager also advised the Board that it does not expect Main
Street California Municipal Fund to grow, but expects it to have net redemptions
in part because the Fund does not have a service plan for its Class A shares.
The Manager has found it is necessary to have a service plan in order to sell
shares in the current competitive environment. Without such a plan the Manager
believes that net redemptions of shares will continue and eventually the expense
ratio of Main Street California Municipal Fund will increase. The Board noted
that, in their experience, service plans are common and important factors in
helping attract and maintain assets and financial intermediaries to sell and
service shares of a mutual fund.
The Board considered that it could submit a service plan to Class A
shareholders for approval. The Board, however, recognized that Main Street
California Municipal Fund is a very small fund. The Manager advised that even
with a service plan it would not expect the Fund to grow to a size approximating
the size of the combined fund for a number of years.
The Board noted that the Manager removed the voluntary investment
management fee waiver of 0.15% of average annual net assets. The Board
recognized that implementation of a service fee would add approximately 0.25% of
average annual net assets to the Class A expense ratio. Therefore, the
respective expense ratios for Class A and Class B shares of Main Street
California Municipal Fund and California Municipal Fund would be essentially the
same. Since the investment practices of each Fund are essentially the same, the
yield of Main Street California Municipal Fund would be expected to track the
yield of California Municipal Fund. The Board therefore concluded that the
Reorganization would be in the shareholders' best interests because the combined
fund should be large enough to have a better chance to enjoy any benefits that
may come from economies of scale from a larger fund.
The Board of California Municipal Fund also determined that the
Reorganization was in the best interests of California Municipal Fund and its
shareholders and that no dilution would result to those shareholders. California
Municipal Fund shareholders do not vote on the Reorganization. The Board's
determination was based on the following factors, among others: its anticipation
that the addition of the assets of Main Street California Municipal Fund would
create a larger fund providing potentially greater efficiencies for the benefit
of shareholders and that total operating expenses as a percentage of average
annual net assets for all classes of shares of California Municipal Fund would
be slightly reduced.
For the reasons discussed above, the Board of Directors of the Company, on
behalf of Main Street California Municipal Fund, recommends that you vote FOR
the Reorganization Agreement and the Reorganization. If the shareholders of Main
Street California Municipal Fund do not approve the Reorganization Agreement,
the Board may consider other possible courses of action for Main Street
California Municipal Fund, including dissolution and liquidation.
INFORMATION ABOUT THE REORGANIZATION
This is only a summary of the Reorganization Agreement. You should
read the actual form of Reorganization Agreement. It is attached as Exhibit A.
How Will the Reorganization be Carried Out?
If the shareholders of Main Street California Municipal Fund approve the
Reorganization Agreement, the Reorganization will take place after various
conditions are satisfied by Main Street California Municipal Fund and California
Municipal Fund, including delivery of certain documents. The closing date is
presently scheduled for October 19, 2000 and the valuation date is presently
scheduled for October 18, 2000. If shareholders of Main Street California
Municipal Fund do not approve the Reorganization Agreement, the Reorganization
will not take place.
If shareholders of Main Street California Municipal Fund approve the
Reorganization Agreement, Main Street California Municipal Fund will deliver to
California Municipal Fund substantially all of its assets on the closing date.
In exchange, Main Street California Municipal Fund, will receive Class A and
Class B California Municipal Fund shares that have a value equal to the dollar
value of the assets delivered by Main Street California Municipal Fund to
California Municipal Fund. Main Street California Municipal Fund will then be
liquidated and its outstanding shares will be cancelled. The stock transfer
books of Main Street California Municipal Fund will be permanently closed at the
close of business on the valuation date. Only redemption requests received in
proper form on or before the close of business on the valuation date will be
fulfilled by Main Street California Municipal Fund. Redemption requests received
after that time will be considered requests to redeem shares of California
Municipal Fund.
Shareholders of Main Street California Municipal Fund who vote their Class
A or Class B shares in favor of the Reorganization will be electing in effect to
redeem their shares of Main Street California Municipal Fund at net asset value
on the Valuation Date, after subtracting a Cash Reserve, and reinvest the
proceeds in Class A or Class B shares of California Municipal Fund at net asset
value. The Cash Reserve is that amount retained by Main Street California
Municipal Fund which is deemed sufficient in the discretion of the Board for the
payment of the Fund's outstanding debts and expenses of liquidation. California
Municipal Fund is not assuming any debts of Main Street California Municipal
Fund except debts for unsettled securities transactions and outstanding dividend
and redemption checks. Main Street California Municipal Fund will recognize
capital gain or loss on any sales made prior to the Reorganization.
Under the Reorganization Agreement, within one year after the Closing Date, Main
Street California Municipal Fund shall: (a) either pay or make provision for all
of its debts and taxes; and (b) either (i) transfer any remaining amount of the
Cash Reserve to California Municipal Fund, if such remaining amount is not
material (as defined below) or (ii) distribute such remaining amount to the
shareholders of Main Street California Municipal Fund who were such on the
Valuation Date. Such remaining amount shall be deemed to be material if the
amount to be distributed, after deducting the estimated expenses of the
distribution, equals or exceeds one cent per share of the number of Main Street
California Municipal Fund shares outstanding on the Valuation Date. If the Cash
Reserve is insufficient to satisfy any of Main Street California Municipal
Fund's liabilities, the Manager will assume responsibility for any such
unsatisfied liability. Within one year after the Closing Date, Main Street
California Municipal Fund will complete its liquidation.
Under the Reorganization Agreement, either Main Street California
Municipal Fund or California Municipal Fund may abandon and terminate the
Reorganization Agreement without liability if the other party breaches any
material provision of the Reorganization Agreement or, if prior to the closing,
any legal, administrative or other proceeding shall be instituted or threatened
(i) seeking to restrain or otherwise prohibit the transactions contemplated by
the Reorganization Agreement and/or (ii) asserting a material liability of
either party.
To the extent permitted by law, the Funds may agree to amend the
Reorganization Agreement without shareholder approval. They may also agree to
terminate and abandon the Reorganization at any time before or, to the extent
permitted by law, after the approval of shareholders of Main Street California
Municipal Fund.
Who Will Pay the Expenses of the Reorganization?
The Funds will bear the cost of their respective tax opinions. Any
documents such as existing prospectuses or annual reports that are included in
the proxy mailing or at a shareholder's request will be a cost of the Fund
issuing the document. Any other out-of-pocket expenses associated with the
Reorganization will be paid by the Funds in the amounts incurred by each.
What are the Tax Consequences of the Reorganization?
The Reorganization is intended to qualify as a tax-free reorganization for
federal income tax purposes under Section 368(a)(1) of the Internal Revenue Code
of 1986, as amended. Based on certain assumptions and representations received
from the Main Street California Municipal Fund and California Municipal Fund, it
is expected to be the opinion of KPMG LLP, tax advisor to the Funds, that
shareholders of Main Street California Municipal Fund will not recognize any
gain or loss for federal income tax purposes as a result of the exchange of
their shares for shares of California Municipal Fund and that shareholders of
California Municipal Fund will not recognize any gain or loss upon receipt of
Main Street California Municipal Funds' assets. In addition, neither Fund is
expected to recognize a gain or loss as a result of the Reorganization.
Immediately prior to the valuation date, Main Street California Municipal
Fund will pay a dividend(s) which will have the effect of distributing to Main
Street California Municipal Fund's shareholders all of Main Street California
Municipal Fund's investment company taxable income for taxable years ending on
or prior to the Closing Date (computed without regard to any deduction for
dividends paid) and all of its net capital gain, if any, realized in taxable
years ending on or prior to the Closing Date (after reduction for any available
capital loss carry-forward). Main Street California Municipal Fund is expected
to have a capital loss carry-forward of approximately $1.052 million as of
8/31/00, which may be subject to limitation under federal tax law. Such
dividends will be included in the taxable income of Main Street California
Municipal Fund's shareholders as ordinary income and capital gain, respectively.
You will continue to be responsible for tracking the purchase cost and
holding period of your shares and should consult your tax advisor regarding the
effect, if any, of the Reorganization in light of your individual circumstances.
You should also consult your tax advisor as to state and local and other tax
consequences, if any, of the Reorganization because this discussion only relates
to federal income tax consequences.
What should I know about California Municipal Fund - Class A and Class B shares?
The rights of shareholders of both Funds are substantially the same. Class
A and Class B shares of California Municipal Fund will be distributed to
shareholders of Class A and Class B Main Street California Municipal Fund
shareholders, respectively, in connection with the Reorganization. Each share
will be fully paid and nonassessable when issued with no personal liability
attaching to the ownership thereof, will have no preemptive or conversion rights
and will be transferable on the books of California Municipal Fund. Neither Fund
permits cumulative voting. The shares of California Municipal Fund will be
recorded electronically in each shareholder's account. California Municipal Fund
will then send a confirmation to each shareholder. As described in its
prospectus, California Municipal Fund does not issue share certificates for its
Class B and Class C shares. Former Class A shareholders of Main Street
California Municipal Fund who wish to have certificates representing their
shares of California Municipal Fund must make a written request to the Transfer
Agent. Shareholders of Main Street California Municipal Fund holding
certificates representing their shares will not be required to surrender their
certificates in connection with the reorganization. However, former Class A
shareholders of Main Street California Municipal Fund whose shares are
represented by outstanding share certificates will not be allowed to redeem
shares of California Municipal Fund until the certificates have been returned.
Like Main Street California Municipal Fund, California Municipal Fund does
not routinely hold annual shareholder meetings.
What are the capitalizations of the Funds and what might the capitalization be
after the Reorganization?
The following table sets forth the capitalization (unaudited) of Main Street
California Municipal Fund and California Municipal Fund and indicates the pro
forma combined capitalization as of March 31, 2000 as if the Reorganization had
occurred on that date.
Net Asset
Shares Value
Net Assets Outstanding Per Share
Main Street California Municipal Fund
Class A $97,049,913 8,167,937 $11.88
Class B $26,290,660 2,214,930 $11.87
California Municipal Fund
Class A $270,100,268 27,079,405 $9.97
Class B $107,306,479 10,754,056 $9.98
Class C $ 13,653,692 1,370,697 $9.96
California Municipal Fund
(Pro Forma Surviving Fund)
Class A $367,150,181 36,813,599 $9.97
Class B $133,597,139 13,388,391 $9.98
Class C $ 13,653,692 1,370,697 $9.96
Reflects the issuance of 9,734,194 Class A shares and 2,634,335 Class B shares
of California Municipal Fund in a tax-free exchange for the net assets of Main
Street California Municipal Fund, aggregating $123,340,573.
COMPARISON OF INVESTMENT OBJECTIVES AND POLICIES
This section describes key investment policies of Main Street California
Municipal Fund and California Municipal Fund, and certain noteworthy differences
between the investment objectives and policies of the two Funds. For a complete
description of California Municipal Fund's investment policies and risks please
review its prospectus dated November 22, 1999, which is attached to this
Prospectus/Proxy Statement as Exhibit A.
Are there any significant differences between the investment objectives and
strategies of the Funds?
Information about Main Street California Municipal Fund and California
Municipal Fund is presented below. In considering whether to approve the
Reorganization, shareholders of Main Street California Municipal Fund should
consider the differences in investment objectives, policies and risks of the
funds. Additional information about California Municipal Fund is set forth in
its Prospectus, accompanying this Prospectus/Proxy Statement and incorporated
herein by reference, and additional information about both funds is set forth in
documents that may be obtained upon request of the Transfer Agent or upon review
at the offices of the SEC. See "Information about Main Street California
Municipal Fund" and "Information about California Municipal Fund".
Main Street California Municipal Fund's investment objective is to seek as
high a level of current income exempt from federal and California personal
income taxes as is available from investing in municipal securities while
attempting to preserve capital. California Municipal 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 investment policies of the funds differ slightly.
Both funds invest mainly in California municipal securities that pay interest
exempt from federal and California personal income taxes. As a fundamental
policy, Main Street California Municipal Fund invests at least 80% of its total
assets in California municipal securities under normal market conditions. As a
fundamental policy under normal market conditions, California Municipal Fund
invests at least 80% of its assets in municipal securities. Under normal market
conditions, the California Municipal Fund as a matter of non-fundamental policy
attempts to invest 100% of its assets in municipal securities and invest at
least 65% of its total assets in California municipal securities. Both funds do
not limit their investments to securities of a particular maturity range, and
may hold both short- and long-term securities. They currently focus on
longer-term securities to seek higher yields.
The Funds generally do not dispose of their municipal securities prior to
their maturity, but may do so for liquidity, or because of other factors
affecting the issuer that cause the Manager to sell the particular security. In
such a case, the Funds could experience a capital gain or loss on the sale.
How Do the Investment Policies of the Funds compare?
Municipal Securities. The municipal securities that both funds invest in
primarily include municipal bonds (which are long-term obligations), municipal
notes (short-term obligations), and interests in municipal leases. Both funds
invest mainly in California municipal securities, which are municipal securities
that are not subject (in the opinion of bond counsel to the issuer at the time
they are issued) to California personal income tax. The debt obligations are
issued by the State of California and its political subdivisions (such as
cities, towns, counties, agencies and authorities). The term "California
municipal securities" may also include debt securities of the governments of
certain possessions, territories and commonwealths of the United States if the
interest is not subject to California personal income tax.
The funds can also buy other municipal securities, issued by the
governments of the District of Columbia and of other states as well as their
political subdivisions, authorities and agencies, and securities issued by any
commonwealths, territories or possessions of the United States, or their
respective agencies, instrumentalities or authorities, if the interest paid on
the security is not subject to federal personal income tax (in the opinion of
bond counsel to the issuer at the time the security is issued).
The funds can buy municipal securities that are "general obligations,"
secured by the issuer's pledge of its full faith, credit and taxing power for
the payment of principal and interest. The funds can also buy "revenue
obligations," payable only from the revenues derived from a particular facility
or class of facilities, or a specific excise tax or other revenue source. Some
revenue obligations are private activity bonds that pay interest that may be a
tax preference item for investors subject to alternative minimum tax.
Ratings of Municipal Securities the Funds Buy. Most of the municipal
securities both funds buy are "investment-grade" at the time of purchase.
Neither fund invests more than 25% of its total assets in municipal securities
that at the time of purchase are not investment-grade. "Investment-grade"
securities are those rated within the four highest rating categories of Moody's,
Standard & Poor's, Fitch or Duff & Phelps or other nationally recognized rating
organizations, or (if unrated) judged by the Manager to be comparable to rated
investment-grade securities.
The Manager may rely to some extent on credit ratings by
nationally-recognized rating organizations in evaluating the credit risk of
securities selected for either fund's portfolio. It also uses its own research
and analysis. Many factors affect an issuer's ability to make timely payments,
and the credit risks of a particular security may change over time.
If the securities are not rated, the Manager will use its judgment to assign a
rating to a security comparable to that of a rating agency. Main Street
California Municipal Fund limits its investments in unrated securities to not
more than 20% of its total assets. If the rating of a security is reduced after
either fund buys it, that fund is not required automatically to dispose of that
security. However, the Manager will evaluate those securities to determine
whether to keep them in the fund's portfolio.
Special Credit Risks of Lower-Grade Securities. Although investment grade
securities are subject to risks of non-payment of interest and principal,
generally, high-yielding, lower-grade securities, whether rated or unrated, have
greater risks than investment grade securities. Lower-grade municipal securities
(these are sometimes called "junk bonds") may be subject to greater market
fluctuations and greater risks of loss of income and principal than higher-grade
municipal securities. Securities that are (or that have fallen) below investment
grade entail a greater risk that the issuers may not meet their debt
obligations. Please refer to each Fund's Prospectus and Statement of Additional
Information for a more detailed explanation.
Municipal Lease Obligations. Municipal leases are used by state and local
governments to obtain funds to acquire land, equipment or facilities. Both funds
can invest in certificates of participation that represent a proportionate
interest in payments made under municipal lease obligations. Most municipal
leases, while secured by the leased property, are not general obligations of the
issuing municipality. They often contain "non-appropriation" clauses under which
the municipal government has no obligation to make lease or installment payments
in future years unless money is appropriated on a yearly basis. If the
government stops making payments or transfers its payment obligations to a
private entity, the obligation could lose value or become taxable.
Other Investment Strategies. To seek their objectives, the funds can also
use the investment techniques and strategies described below. The funds might
not always use all of them. These techniques have certain risks although some
are designed to help reduce overall investment or market risks.
Floating Rate/Variable Rate Obligations. Some municipal securities have variable
or floating interest rates. Variable rates are adjustable at stated periodic
intervals. Floating rates are automatically adjusted according to a specified
market rate for such investments, such as the percentage of the prime rate of a
bank, or the 91-day U.S. Treasury Bill rate.
Certain variable rate bonds known as "inverse floaters" pay interest rates that
move in the opposite direction of yields on short-term bonds in response to
market changes. As interest rates rise, inverse floaters produce less current
income, and their market value can become volatile. Inverse floaters are a type
of "derivative security." Some have a "cap," so that if interest rates rise
above the "cap," the security pays additional interest income. If rates do not
rise above the "cap," the fund will have paid an additional amount for a feature
that proves worthless. Neither fund can invest more than 20% of its total assets
in inverse floaters.
Other Derivatives. Both funds can also invest in other derivative investments
that pay interest that depends on the change in value of an underlying asset,
interest rate or index. Examples are hedging instruments, interest rate swaps,
municipal bond indices or swap indices.
Derivatives have risks. If the issuer of the derivative investment does not pay
the amount due, the fund can lose money on the investment. The underlying
security or investment on which a derivative is based, and the derivative
itself, may not perform the way the Manager expected it to. As a result of these
risks the fund could realize less principal or income from the investment than
expected or its hedge might be unsuccessful. As a result, the fund's share
prices could fall. Certain derivative investments held by the fund might be
illiquid.
Hedging. Both funds can buy and sell futures contracts, put and call options,
and enter into interest rate swap agreements. These are all referred to as
"hedging instruments." Neither fund uses hedging for speculative purposes and
both funds have limits on their use of hedging instruments. The Funds do not use
hedging instruments to a substantial degree and are not required to use them in
seeking their objective.
Hedging involves risk. If the Manager uses a hedging instrument at the wrong
time or judges market conditions incorrectly, the strategy could reduce the
fund's return. The funds could also experience losses if the prices of its
futures and options positions were not correlated with their other investments
or if they could not close out a position because of an illiquid market for the
future or option.
Interest rate swaps are subject to credit risks (if the other party fails to
meet its obligations) and also to interest rate risks. The funds could be
obligated to pay more under their swap agreements than they receive under them,
as a result of interest rate changes. Neither Fund may enter into swaps with
respect to more than 25% of its total assets.
When-Issued and Delayed-Delivery Transactions. Both funds may purchase municipal
securities on a "when-issued" basis and may purchase or sell such securities on
a "delayed-delivery" basis. Between the purchase and settlement, no payment is
made for the security and no interest accrues to the buyer from the investment.
There is a risk of loss to the funds if the value of the security declines prior
to the settlement date.
Puts and Stand-By Commitments. Both funds can acquire "stand-by commitments" or
"puts" with respect to municipal securities. The funds obtain the right to sell
specified securities at a set price on demand to the issuing broker-dealer or
bank. However, this feature may result in a lower interest rate on the security.
Both funds acquire stand-by commitments or puts solely to enhance portfolio
liquidity
Illiquid and Restricted Securities. Investments may be illiquid because they do
not have an active trading market, making it difficult to value them or dispose
of them promptly at an acceptable price. A restricted security is one that has a
contractual restriction on its resale or which cannot be sold publicly until it
is registered under the Securities Act of 1933. Certain restricted securities
that are eligible for resale to qualified institutional buyers may not be
subject to that limit. Neither fund will invest more than 15% of its net assets
in illiquid and restricted securities. The Manager monitors holdings of illiquid
securities on an ongoing basis to determine whether to sell any holdings to
maintain adequate liquidity. California Municipal Fund cannot buy securities
that have a restriction on resale.
Temporary Defensive Investments. Both funds can invest up to 100% of their total
assets in temporary defensive investments during periods of unusual market
conditions. Generally, they would be short-term municipal securities but could
be U.S. government securities or highly-rated corporate debt securities. The
income from some temporary defensive investments may not be tax-exempt, and
therefore when making those investments the funds might not achieve their
objectives. The funds can also hold cash and cash equivalents pending the
investment of proceeds from the sale of fund shares or portfolio securities or
to meet anticipated redemptions of fund shares.
Loans of Portfolio Securities. Both funds can lend their portfolio securities to
brokers, dealers and other financial institutions. The fund might do so to raise
cash for liquidity purposes. These loans are limited to not more than 10% of the
value of the Main Street California Municipal Fund's net assets and not more
than 25% of the value of California Municipal Fund's total assets. There are
risks in connection with securities lending. The fund might experience a delay
in receiving additional collateral to secure a loan, or a delay in recovery of
the loaned securities. Neither fund presently intends to engage in loans of
securities that will exceed 5% of the value of that fund's total assets. Income
from securities loans does not constitute exempt-interest income for the purpose
of paying tax-exempt dividends.
The fund must receive collateral for a loan. Under current applicable regulatory
requirements (which are subject to change), on each business day the loan
collateral must be at least equal to the value of the loaned securities. It must
consist of cash, bank letters of credit, securities of the U.S. government or
its agencies or instrumentalities, or other cash equivalents in which the fund
is permitted to invest. To be acceptable as collateral, letters of credit must
obligate a bank to pay amounts demanded by the fund if the demand meets the
terms of the letter. The terms of the letter of credit and the issuing bank both
must be satisfactory to the fund.
When it lends securities, the fund receives amounts equal to the dividends or
interest on the loaned securities. It also receives one or more of (a)
negotiated loan fees, (b) interest on securities used as collateral, and (c)
interest on short-term debt securities purchased with the loan collateral.
Either type of interest may be shared with the borrower. The fund can pay
reasonable finder's, administrative or other fees in connection with these
loans. The terms of the fund's loans must meet applicable tests under the
Internal Revenue Code and must permit the fund to reacquire loaned securities on
five days' notice or in time to vote on any important matter.
Zero-Coupon Securities. Both funds can buy zero-coupon and delayed interest
municipal securities. Zero-coupon securities do not make periodic interest
payments and are sold at a deep discount from their face value. The buyer
recognizes a rate of return determined by the gradual appreciation of the
security, which is redeemed at face value on a specified maturity date. This
discount depends on the time remaining until maturity, as well as prevailing
interest rates, the liquidity of the security and the credit quality of the
issuer. In the absence of threats to the issuer's credit quality, the discount
typically decreases as the maturity date approaches. Some zero-coupon securities
are convertible, in that they are zero-coupon securities until a predetermined
date, at which time they convert to a security with a specified coupon rate.
Because zero-coupon securities pay no interest and compound semi-annually at the
rate fixed at the time of their issuance, their value is generally more volatile
than the value of other debt securities. Their value may fall more dramatically
than the value of interest-bearing securities when interest rates rise. When
prevailing interest rates fall, zero-coupon securities tend to rise more rapidly
in value because they have a fixed rate of return.
Repurchase Agreements. Both funds can acquire securities subject to repurchase
agreements. They may do so for liquidity purposes to meet anticipated
redemptions of fund shares, or pending the investment of the proceeds from sales
of fund shares, or pending the settlement of portfolio securities transactions.
In a repurchase transaction, the fund acquires a security from, and
simultaneously resells it to an approved vendor for delivery on an agreed upon
future date. The resale price exceeds the purchase price by an amount that
reflects an agreed-upon interest rate effective for the period during which the
repurchase agreement is in effect.
Repurchase agreements having a maturity beyond seven days are subject to the
funds' limits on holding illiquid investments. There is no limit on the amount
of the funds' net assets that may be subject to repurchase agreements of seven
days or less. Because income earned on repurchase transactions is not
tax-exempt, under normal market conditions the funds will limit their repurchase
transactions to 20% of their total assets. That limit may be exceeded if the
funds use repurchase agreements as temporary defensive investments.
Borrowing. Main Street California Municipal Fund can borrow up to 10% of the
value of its total assets. It can borrow only as a temporary measure for
extraordinary or emergency purposes. It cannot make any investment when
borrowings exceed 5% of its total assets. Main Street California Municipal Fund
can borrow only if it maintains a 300% ratio of assets to borrowings at all
times while a borrowing is outstanding. Interest on borrowed money is an expense
the fund would not otherwise incur, so that it might have reduced net income
during periods of substantial borrowings.
What are the fundamental investment restrictions of the Funds?
Both Main Street California Municipal Fund and California Municipal Fund
have certain additional investment restrictions that, together with their
investment objectives, are fundamental policies, changeable only by shareholder
approval. Generally, these investment restrictions are similar between the funds
and are discussed below.
o Neither fund can lend money except in connection with the acquisition of debt
securities and for California Municipal Fund, repurchase agreements, as
permitted by its investment policies and restrictions. Both funds can also
make loans of portfolio securities, subject to the restrictions listed in
each funds' Statement of Additional Information and summarized above.
o Neither fund can concentrate investments. That means they cannot invest 25%
or more of their total assets in any industry. However, there is no
limitation on investments in municipal securities, obligations issued by the
State of California or its subdivisions, agencies, authorities or
instrumentalities, or securities issued or guaranteed by the U.S. government
or its agencies or instrumentalities.
o Main Street California Municipal Fund cannot invest in any other securities
other than municipal securities, temporary defensive investments and hedging
instruments.
o California Municpal Fund cannot invest in securities or other investments
other than municipal securities, the temporary investments described in its
Prospectus, repurchase agreements, covered calls, private activity municipal
securities and hedging instruments described in its Prospectus or this
Statement of Additional Information.
o California Municipal Fund cannot buy or sell futures contracts other than
interest rate futures and municipal bond index futures.
o Main Street California Municipal Fund cannot invest in interests in oil or
gas exploration or development programs or in commodities. However, it can
buy and sell any of the hedging instruments permitted by any of its other
policies. It does not matter if the hedging instrument is considered to be a
commodity or commodity contract.
o Neither fund can invest in real estate or in interests in real estate.
However, Main Street California Municipal Fund can purchase securities of
issuers holding real estate or interests in real estate (including securities
of real estate investment trusts). Additionally, California Municipal Fund
can invest in municipal securities or other permitted securities that are
secured by real estate or interests in real estate.
o Neither fund can purchase securities on margin. However, they can make margin
deposits when using hedging instruments permitted by any of their other
policies. Additionally, California Municipal Fund may obtain such short-term
credits that may be necessary for the clearance of purchases and sales of
securities.
o California Municipal Fund cannot sell securities short.
o Main Street California Municipal Fund cannot invest in companies for the
purpose of acquiring control or management of those companies.
o Neither fund can underwrite securities of other companies. A permitted
exception for Main Street California Fund is in case it is deemed to be an
underwriter under the Securities Act of 1933 when reselling any securities
held in its own portfolio.
o California Municipal Fund cannot invest in securities that are subject to
restrictions on resale.
o Neither fund can invest in or hold securities of any issuer if officers and
directors or trustees of the funds or the Manager individually beneficially
own more than 1/2 of 1% of the securities of that issuer and together own
more than 5% of the securities of that issuer.
o Main Street California Municipal Fund cannot invest in other open-end
investment companies or invest more than 5% of its net assets through open
market purchases in closed-end investment companies, including small business
investment companies. Additionally, it cannot make any such investment at
commission rates in excess of normal brokerage commissions.
o California Municipal Fund cannot invest in securities of any other investment
company, except in connection with a merger with another investment company.
o Neither fund can pledge, mortgage or otherwise encumber, transfer or assign
any of its assets to secure a debt. Collateral arrangements for premium and
margin payments in connection with hedging instruments are not deemed to be a
pledge of assets.
o Neither fund can issue "senior securities" (this is not a fundamental policy
for California Municipal Fund but it will not be changed without the approval
of shareholders) but this does not prohibit certain investment activities for
which assets of the funds are designated as segregated, or margin, collateral
or escrow arrangements are established, to cover the related obligations.
Examples of those activities include borrowing money, reverse repurchase
agreements, delayed-delivery and when-issued arrangements for portfolio
securities transactions, and contracts to buy or sell derivatives, hedging
instruments, options or futures.
o California Municipal Fund cannot borrow money in excess of 10% of the value
of its total assets. It cannot buy any additional investments when borrowings
exceed 5% of its assets. It may borrow only from banks as a temporary measure
for extraordinary or emergency purposes, and not for the purpose of
leveraging its investments.
What are the risk factors associated with investment in the Funds?
Like all investments, an investment in both of the Funds involves risk.
There is no assurance that the Funds will meet their investment objectives. The
achievement of the Funds' goals depends upon market conditions, generally, and
on the portfolio manager's analytical and portfolio management skills. These
risks collectively form the risk profiles of the funds, and can affect the value
of the funds' investments, investment performance and prices per share. These
risks mean that you can lose money by investing in either fund. When you redeem
your shares, they may be worth more or less than what you paid for them. The
risks of the Funds are basically the same as those of other investments in
municipal securities and other investments in fixed income securities of similar
quality and characteristics.
Credit Risk. Municipal securities are subject to credit risk. Credit risk
is the risk that the issuer of a municipal security might not make interest and
principal payments on the security as they become due. If the issuer fails to
pay interest, the fund's income may be reduced, and if the issuer fails to repay
principal, the value of that security and of the fund's shares may be reduced.
Because both funds can invest as much as 25% of their total assets in municipal
securities below investment-grade to seek higher income, the credit risks of
both funds are greater than those of funds that buy only investment-grade bonds.
A downgrade in an issuer's credit rating or other adverse news about an issuer
can reduce the market value of that issuer's securities.
Interest Rate Risks. Municipal securities are subject to changes in value
when prevailing interest rates change. When interest rates fall, the values of
already-issued municipal securities generally rise. When interest rates rise,
the values of already-issued municipal securities generally decline, and the
bonds may sell at a discount from their face amount. The magnitude of these
price changes is generally greater for bonds with longer maturities. Both funds
currently focus on longer-term securities to seek higher income. Therefore, the
share prices of both funds may fluctuate more when interest rates change.
Risks Of Non-Diversification. Both funds are "non-diversified." That means
that compared to funds that are diversified, they can invest a greater portion
of their assets in the securities of one issuer, such as bonds issued by the
State of California. Having a higher percentage of their assets invested in the
securities of fewer issuers, particularly obligations of government issuers of
one state, could result in greater fluctuations of both funds' share prices due
to economic, regulatory or political problems in California.
Risks In Using Derivative Investments. Both funds can use derivatives to
seek increased returns or to try to hedge investment risks. In general terms, a
derivative investment is an investment contract whose value depends on (or is
derived from) the value of an underlying asset, interest rate or index. Options,
futures, "inverse floaters" and variable rate obligations are examples of
derivatives both funds may use. If the issuer of the derivative investment does
not pay the amount due, the funds can lose money on their investments. Also, the
underlying security or investment on which the derivative is based, and the
derivative itself, may not perform the way the Manager expected it to perform.
If that happens, the funds will get less income than expected or their share
price could decline. To try to preserve capital, the both funds have limits on
the amount of particular types of derivatives they can hold.
Special Credit Risks of Lower-Grade Securities. Both funds can invest up
to 25 % of their total assets in municipal securities that are below investment
grade. Lower-grade municipal securities may be subject to greater market
fluctuations and greater risks of loss of income and principal than higher-grade
municipal securities. Securities that are (or that have fallen) below investment
grade entail a greater risk that the issuers may not meet their debt
obligations.
How do the Account Features and Shareholder Services for the Funds Compare?
Investment Management- Pursuant to each investment advisory agreement, the
Manager acts as the investment advisor for the funds and supervises the
investment program of the funds. The investment advisory agreements state that
the Manager will provide administrative services for the funds, including
compilation and maintenance of records, preparation and filing of reports
required by the SEC, reports to shareholders, and composition of proxy
statements and registration statements required by Federal and state securities
laws. Further, the Manager has agreed to furnish the funds with office space,
facilities and equipment and arrange for its employees to serve as officers the
funds. The administrative services to be provided by the Manager under the
investment advisory agreement will be at its own expense.
Expenses not expressly assumed by the Manager under each fund's advisory
agreement or by the Distributor under the General Distributor's Agreement are
paid by the funds. The investment advisory agreements list examples of expenses
paid by the funds, the major categories of which relate to interest, taxes,
brokerage commissions, fees to certain Directors, Trustees, legal and audit
expenses, custodian and transfer agent expenses, share issuance costs, certain
printing and registration costs and non-recurring expenses, including litigation
costs.
Both investment advisory agreements state that in the absence of willful
misfeasance, bad faith, gross negligence in the performance of its duties or
reckless disregard of its obligations and duties under the investment advisory
agreement, the Manager is not liable for any loss sustained by reason of good
faith errors or omissions in connection with any matters to which the
agreement(s) relate. The agreements permit the Manager to act as investment
advisor for any other person, firm or corporation. Pursuant to each agreement,
the Manager is permitted to use the names "Oppenheimer" and/or "Main Street" in
connection with other investment companies for which it may act as investment
advisor or general distributor. If the Manager shall no longer act as investment
advisor to the funds, the Manager may withdraw the right of the funds to use the
names "Oppenheimer" and/or "Main Street" as part of their names.
The Manager is controlled by Oppenheimer Acquisition Corp., a holding
company owned in part by senior management of the Manager and ultimately
controlled by Massachusetts Mutual Life Insurance Company, a mutual life
insurance company that also advises pension plans and investment companies. The
Manager has been an investment advisor since January 1960. The Manager
(including subsidiaries and an affiliate) managed more than $120 billion in
assets as of March 31, 2000, including other Oppenheimer funds with more than 5
million shareholder accounts. The Manager is located at Two World Trade Center,
34th Floor, New York, New York 10048-0203. OppenheimerFunds Services, a division
of the Manager, acts as transfer and shareholder servicing agent on an at-cost
basis for both Main Street California Municipal Fund and California Municipal
Fund and for certain other open-end funds managed by the Manager and its
affiliates.
Distribution - Pursuant to a General Distributor's Agreement, the
Distributor acts as principal underwriter in a continuous public offering of
shares of both Main Street California Municipal Fund and California Municipal
Fund, but is not obligated to sell a specific number of shares. Expenses
normally attributable to sales, including advertising and the cost of printing
and mailing prospectuses other than those furnished to existing shareholders,
are borne by the Distributor, except for those which Distributor is paid under
each Fund's Rule 12b-1 Distribution and Service Plan described below.
California Municipal Fund has adopted a Service Plan and Agreement under
Rule 12b-1 of the Investment Company Act for its Class A shares. The Service
Plan provides for the reimbursement to the Distributor for a portion of its
costs incurred in connection with the personal service and maintenance of
accounts that hold Class A shares. Under the plan, payment 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 California Municipal Fund. The Distributor currently 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.
Main Street California Municipal Fund does not have a Service Plan for its
Class A shares. If the Reorganization is approved, this would be an additional
expense borne by the Class A shareholders. It is believed that the existence of
a Service Plan that compensates brokers for providing personal services and
maintenance of accounts makes the fund a more attractive investment and thus
helps to generate future sales to help the fund's assets grow. As explained
above, as the fund's assets grow, the management fee of the combined fund would
decrease.
Both Funds have adopted Distribution and Service Plans under Rule 12b-1 of
the 1940 Act for their Class B shares and California Municipal Fund has a
similar plan for its Class C shares. Main Street California Municipal Fund's
Plan reimburses the Distributor for its services and costs in distributing Class
B shares. California Municipal Fund's Plan compensates the Distributor for its
services and costs in distributing Class B and Class C shares and servicing
accounts. Under Main Street California Fund's Plan, it pays the Distributor an
asset-based sales charge at an annual rate of up to 0.75% per year. In the case
of California Municipal Fund, it pays the Distributor an asset-based sales
charge at an annual rate of 0.75% per year. The Distributor also receives a
service fee of 0.25% per year under each plan. All fee amounts are computed on
the average annual net assets of the class determined as of the close of each
regular business day of each Fund. The Class B asset-based sales charge is
retained by the Distributor. After the first year, the Class C asset-based sales
charge is paid to the broker-dealer as an ongoing concession for shares that
have been outstanding for a year or more.
The Distributor uses all of the service fees to compensate dealers for
providing personal services and maintenance of accounts of their customers that
hold shares of the funds. The Class B asset-based sales charge is retained by
the Distributor. After the first year, the Class C asset-based sales charge is
paid to the broker dealer as an ongoing concession for shares that have been
outstanding for a year or more. The terms of the Class B plans are substantially
the same.
Purchases and Redemptions - Both Funds are part of the OppenheimerFunds
complex of funds. The procedures for purchases, exchanges and redemptions of
shares of the Funds are the same. Shares of either Fund may be exchanged for
shares of the same class of other Oppenheimer funds offering such shares.
Both Funds have a maximum initial sales charge of 4.75% on Class A shares
for purchases of less than $50,000. The sales charge of 4.75% is reduced for
purchases of Class A shares of $50,000 or more. Investors who purchase $1
million or more of Class A shares pay no initial sales charge but may have to
pay a sales charge of up to 1% if the shares are sold within 12 calendar months
from the end of the calendar month during which they were purchased. Class B
shares of the funds are sold without a front-end sales charge but may be subject
to a contingent deferred sales charge ("CDSC") upon redemption depending on the
length of time the shares are held. The CDSC begins at 5% for shares sold in the
first year and declines to 1% in the sixth year and is eliminated after that.
Class A and Class B shares of California Municipal Fund received in the
Reorganization will be issued at net asset value, without a sales charge and no
CDSC will be imposed on any Main Street California Municipal Fund shares
exchanged for California Municipal Fund shares as a result of the
Reorganization. However, any CDSC that applies to Main Street California
Municipal Fund shares will continue to apply to California Municipal Fund shares
received in the Reorganization. Services available to shareholders of both funds
include purchase and redemption of shares through OppenheimerFunds AccountLink
and PhoneLink (an automated telephone system), telephone redemptions, and
exchanges by telephone to other Oppenheimer funds that offer Class A and Class B
shares, and reinvestment privileges. Please see "Shareholder Services," below
and each fund's Prospectus for further information.
Shareholder Services-- Both Funds offer the same initial and subsequent
minimum investment amounts for the purchase of shares. These amounts are $1,000
and $25, respectively. Both Funds also offer the following privileges: (i) Right
of Accumulation, (ii) Letter of Intent, (iii) reinvestment of dividends and
distributions at net asset value, (iv) net asset value purchases by certain
individuals and entities, (v) Asset Builder (automatic investment) Plans, (vi)
Automatic Withdrawal and Exchange Plans for shareholders who own shares of the
fund valued at $5,000 or more, (vii) AccountLink and PhoneLink arrangements,
(viii) exchanges of shares for shares of the same class of certain other funds
at net asset value, and (ix) telephone redemption and exchange privileges.
Shareholders may purchase shares through OppenheimerFunds AccountLink,
which links a shareholder account to an account at a bank or financial
institution and enables shareholders to send money electronically between those
accounts to perform a number of types of account transactions. This includes the
purchase of shares through the automated telephone system (PhoneLink) and
through the Internet. Exchanges can also be made by telephone, or automatically
through PhoneLink or through the OppenheimerFunds Internet website. After
AccountLink privileges have been established with a bank account, shares may be
purchased by telephone in an amount up to $100,000. Shares of either fund may be
exchanged for shares of certain Oppenheimer funds at net asset value per share;
however, shares of a particular class may be exchanged only for shares of the
same class of other Oppenheimer funds. Shareholders of the funds may redeem
their shares by written request, by telephone request in an amount up to
$100,000 in any seven-day period. Shareholders may arrange to have share
redemption proceeds wired to a pre-designated account at a U.S. bank or other
financial institution that is an ACH member, through AccountLink. There is no
dollar limit on Internet or telephone redemption proceeds sent to a bank account
when AccountLink has been established. Shareholders may also redeem shares
automatically by telephone by using PhoneLink or the OppenheimerFunds Internet
website. Shareholders of Main Street California Municipal Fund may also have the
Transfer Agent send redemption proceeds of $2,500 or more by Federal Funds wire
to a designated commercial bank which is a member of the Federal Reserve wire
system. Shareholders of California Municipal Fund do not have this option but
can still have the proceeds sent to their bank account through the ACH system.
Shareholders of both funds have up to six months to reinvest redemption proceeds
of their Class A shares which they purchase subject to a sales charge or their
Class B shares on which they paid a contingent deferred sales charge, in Class A
shares of the funds or other Oppenheimer funds without paying a sales charge.
California Municipal Fund may redeem accounts valued at less than $500 if the
account has fallen below such stated amount for reasons other than market value
fluctuations and Main Street California Municipal Fund may redeem accounts less
then $200 under the same conditions. Both funds offer Automatic Withdrawal and
Automatic Exchange Plans under certain conditions.
Dividends and Distributions - Both Funds attempt to pay dividends on their
Class A shares at a constant per share level. There is no assurance that they
will be able to do so. The Boards of the Funds may change the targeted dividend
level at any time, without prior notice to shareholders. Additionally, the
amount of dividends and the distributions paid on Class A, Class B or Class C
shares may vary over time, depending on market conditions, the composition of
the Funds' portfolios, and expenses borne by the particular class of shares.
Dividends paid on Class A shares will generally be higher than those paid on
Class B or Class C shares, which normally have higher expenses than Class A.
There can be no guarantee that either Fund will pay any dividends or
distributions.
Although neither Fund seeks capital gains, either Fund may realize capital
gains on the sale of portfolio securities. If it does, it may make distributions
out of any net short-term or long-term capital gains in December of each year.
The Funds may make supplemental distributions of dividends and capital gains
following the end of their fiscal years.
VOTING INFORMATION
How many votes are necessary to approve the Reorganization Agreement?
The affirmative vote of the holders of a majority of the total number of
shares of Main Street California Municipal Fund outstanding and entitled to vote
is necessary to approve the Reorganization Agreement and the transactions
contemplated thereby. Each shareholder will be entitled to one vote for each
full share, and a fractional vote for each fractional share of Main Street
California Municipal Fund held on the Record Date. If sufficient votes to
approve the proposal are not received by the date of the Meeting, the Meeting
may be adjourned to permit further solicitation of proxies. The holders of a
majority of shares entitled to vote at the Meeting and present in person or by
proxy (whether or not sufficient to constitute a quorum) may adjourn the Meeting
to permit further solicitation of proxies.
How do I ensure my vote is accurately recorded?
You can vote in either of two ways:
o By mail, with the enclosed proxy card.
o In person at the Meeting.
A proxy card is, in essence, a ballot. If you simply sign and date the proxy but
give no voting instructions, your shares will be voted in favor of the
Reorganization Agreement.
Can I revoke my proxy?
Yes. You may revoke your proxy at any time before it is voted by (i)
writing to the Secretary of Main Street California Municipal Fund at 6803 South
Tucson Way, Englewood, Colorado 80112 (if received in time to be acted upon);
(ii) attending the Meeting and voting in person; or (iii) signing and returning
a later-dated proxy (if returned and received in time to be voted).
What other matters will be voted upon at the Meeting?
The Board of Directors of the Company on behalf of Main Street California
Municipal Fund does not intend to bring any matters before the Meeting other
than those described in this proxy. It is not aware of any other matters to be
brought before the Meeting by others. If any other matters legally come before
the Meeting, the proxy ballot confers discretionary authority with respect to
such matters, and it is the intention of the person named to vote proxies to
vote in accordance with their judgment in such matters.
Who is entitled to vote?
Shareholders of record of Main Street California Municipal Fund at the
close of business on August 16, 2000 (the "record date") will be entitled to
vote at the Meeting. On the record date, there were __________ outstanding
shares of Main Street California Municipal Fund, consisting of _______________
Class A shares and ______________ Class B shares. On the record date, there were
___________ outstanding shares of California Municipal Fund, consisting of
_____________ Class A shares, _____________ Class B shares and ___________ Class
C shares. Under relevant state law and the Company's charter documents,
abstentions and broker non-votes will be included for purposes of determining
whether a quorum is present at the Meeting, but will be treated as votes not
cast and, therefore, will not be counted for purposes of determining whether the
matters to be voted upon at the Meeting have been approved. For purposes of the
Meeting, a majority of shares outstanding and entitled to vote, present in
person or represented by proxy, constitutes a quorum. California Municipal Fund
shareholders do not vote on the Reorganization.
What other solicitations will be made?
Main Street California Municipal Fund will request broker-dealer firms,
custodians, nominees and fiduciaries to forward proxy material to the beneficial
owners of the shares of record. Main Street California Municipal Fund may
reimburse broker-dealer firms, custodians, nominees and fiduciaries for their
reasonable expenses incurred in connection with such proxy solicitation. In
addition to solicitations by mail, officers of Main Street California Municipal
Fund or officers and employees of OppenheimerFunds Services, without extra pay,
may conduct additional solicitations personally or by telephone or telegraph.
Any expenses so incurred will be borne by OppenheimerFunds Services. Proxies may
also be solicited by a proxy solicitation firm hired at Main Street California
Municipal Fund's expense.
Shares owned of record by broker-dealers for the benefit of their
customers ("street account shares") will be voted by the broker-dealer based on
instructions received from its customers. If no instructions are received, and
the broker-dealer does not have discretionary power to vote such street account
shares under applicable stock exchange rules, the shares represented thereby
will be considered to be present at the Meeting for purposes of determining the
quorum, but will have the same effect as a vote "against" the Proposal.
Are there appraisal rights?
No. Under the 1940 Act, shareholders do not have rights of appraisal as a
result of the Reorganization. Although appraisal rights are unavailable, you
have the right to redeem your shares at net asset value until the closing date.
After the closing date, you may redeem your new California Municipal Fund shares
or exchange them into shares of certain other funds in the OppenheimerFunds
complex, subject to the terms of the prospectus of the fund being acquired.
INFORMATION ABOUT CALIFORNIA MUNICIPAL FUND
Information about California Municipal Fund is included in the California
Municipal Fund's Prospectus, which is attached to and considered a part of this
Proxy Statement and Prospectus. Additional information about California
Municipal Fund is included in California Municipal Fund's Statement of
Additional Information dated November 22, 1999, Annual Report dated July 31,
1999 and Semi-Annual Report dated January 31, 2000, which have been filed with
the SEC and are incorporated herein by reference. You may request a free copy of
these materials and other information by calling 1.800.525.7048 or by writing to
California Municipal Fund at OppenheimerFunds Services, P.O. Box 5270, Denver,
CO 80217. California Municipal Fund also files proxy materials, reports and
other information with the SEC in accordance with the informational requirements
of the Securities and Exchange Act of 1934 and the 1940 Act. These materials can
be inspected and copied at: the SEC's Public Reference Room in Washington, D.C.
(Phone: 1.202.942.8090) or the EDGAR database on the SEC's Internet website at
http:\\www.sec.gov. Copies may be obtained upon payment of a duplicating fee by
electronic request at the SEC's e-mail address: [email protected] or by writing
to the SEC's Public Reference Section, Washington, D.C. 20549-0102.
INFORMATION ABOUT MAIN STREET CALIFORNIA MUNICIPAL FUND
Information about Main Street California Municipal Fund is included in the
current Main Street California Municipal Fund's Prospectus. This document has
been filed with the SEC and is incorporated by reference herein. Additional
information about Main Street California Municipal Fund is also included in the
Fund's Statement of Additional Information, Annual Report dated August 31, 1999
and Semi-Annual Report dated February 29, 2000, which have been filed with the
SEC and are incorporated by reference herein. You may request free copies of
these or other documents relating to Main Street California Municipal by calling
1.800.525.7048 or by writing to OppenheimerFunds Services, P.O. Box 5270,
Denver, CO 80217. Reports and other information filed by Main Street California
Municipal Fund can be inspected and copied at: the SEC's Public Reference Room
in Washington, D.C. (Phone: 1.202.942.8090) or the EDGAR database on the SEC's
Internet web-site at http:\\www.sec.gov. Copies may be obtained upon payment of
a duplicating fee by electronic request at the SEC's e-mail address:
[email protected] or by writing to the SEC's Public Reference Section,
Washington, D.C. 20549-0102.
PRINCIPAL SHAREHOLDERS
As of the record date, the officers and Directors of the Company, as a
group, owned less than 1% of the outstanding voting shares of Main Street
California Municipal Fund and California Municipal Fund. To the knowledge of
Main Street California Municipal Fund, no person owned (beneficially or of
record) 5% or more of the outstanding shares of Main Street California Municipal
Fund. To the knowledge of California Municipal Fund, no person owned
(beneficially or of record) 5% or more of the outstanding shares of California
Municipal Fund except for Merril Lynch Pierce Fenner & Smith for the sole
benefit of its customers, 4800 Deer Lake Drive, Jacksonville, FL 32446, who held
_____________ or ___% of the outstanding Class B shares and _____________ or
___% of the outstanding Class C shares.
By Order of the Board of Directors
Andrew J. Donohue, Secretary
September 6, 2000
<PAGE>
EXHIBITS TO THE COMBINED PROXY
STATEMENT AND PROSPECTUS
Exhibit
A Agreement and Plan of Reorganization between Oppenheimer Main Street Funds,
Inc. on behalf of Oppenheimer Main Street California Municipal Fund and
Oppenheimer California Municipal Fund
<PAGE>
EXHIBIT A
AGREEMENT AND PLAN OF REORGANIZATION
AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") dated as of
____________, 2000 by and between Oppenheimer Main Street Funds, Inc. (the
"Company") on behalf of its series, Oppenheimer Main Street California
Municipal Fund ("Main Street California Municipal Fund"), a Maryland
Corporation and Oppenheimer California Municipal Fund ("California Municipal
Fund"), a Massachusetts business trust.
W I T N E S S E T H:
WHEREAS, the parties are each open-end investment companies of the
management type; and
WHEREAS, the parties hereto desire to provide for the reorganization
pursuant to Section 368(a)(1) of the Internal Revenue Code of 1986, as
amended (the "Code"), of Main Street California Municipal Fund through the
acquisition by California Municipal Fund of substantially all of the assets
of Main Street California Municipal Fund in exchange for the voting shares
of beneficial interest ("shares") of Class A and Class B shares of
California Municipal Fund and the assumption by California Municipal Fund of
certain liabilities of Main Street California Municipal Fund, which Class A
and Class B shares of California Municipal Fund are to be distributed by
Main Street California Municipal Fund pro rata to its shareholders in
complete liquidation of Main Street California Municipal Fund and complete
cancellation of its shares;
NOW, THEREFORE, in consideration of the mutual promises herein
contained, the parties hereto agree as follows:
1. The parties hereto hereby adopt this Agreement and Plan of
Reorganization (the "Agreement") pursuant to Section 368(a)(1) of the Code
as follows: The reorganization will be comprised of the acquisition by
California Municipal Fund of substantially all of the assets of Main Street
California Municipal Fund in exchange for Class A and Class B shares of
California Municipal Fund and the assumption by California Municipal Fund of
certain liabilities of Main Street California Municipal Fund, followed by
the distribution of such Class A and Class B shares of California Municipal
Fund to the Class A and Class B shareholders of Main Street California
Municipal Fund in exchange for their Class A and Class B shares of Main
Street California Municipal Fund, all upon and subject to the terms of the
Agreement hereinafter set forth.
The share transfer books of Main Street California Municipal
Fund will be permanently closed at the close of business on the Valuation
Date (as hereinafter defined) and only redemption requests received in
proper form on or prior to the close of business on the Valuation Date shall
be fulfilled by Main Street California Municipal Fund; redemption requests
received by Main Street California Municipal Fund after that date shall be
treated as requests for the redemption of the shares of California Municipal
Fund to be distributed to the shareholder in question as provided in Section
5 hereof.
2. On the Closing Date (as hereinafter defined), all of the assets of Main
Street California Municipal Fund on that date, excluding a cash reserve (the
"Cash Reserve") to be retained by Main Street California Municipal Fund
sufficient in its discretion for the payment of the expenses of Main Street
California Municipal Fund's dissolution and its liabilities, but not in
excess of the amount contemplated by Section 10E, shall be delivered as
provided in Section 8 to California Municipal Fund, in exchange for and
against delivery to the Company on behalf of Main Street California
Municipal Fund on the Closing Date of a number of Class A and Class B shares
of California Municipal Fund, having an aggregate net asset value equal to
the value of the assets of Main Street California Municipal Fund so
transferred and delivered.
3. The net asset value of Class A and Class B shares of California
Municipal Fund and the value of the assets of Main Street California
Municipal Fund to be transferred shall in each case be determined as of the
close of business of The New York Stock Exchange on the Valuation Date. The
computation of the net asset value of the Class A and Class B shares of
California Municipal Fund and the Class A and Class B shares of Main Street
California Municipal Fund shall be done in the manner used by California
Municipal Fund and Main Street California Municipal Fund, respectively, in
the computation of such net asset value per share as set forth in their
respective prospectuses. The methods used by California Municipal Fund in
such computation shall be applied to the valuation of the assets of Main
Street California Municipal Fund to be transferred to California Municipal
Fund.
Main Street California Municipal Fund shall declare and pay,
immediately prior to the Valuation Date, a dividend or dividends which,
together with all previous such dividends, shall have the effect of
distributing to Main Street California Municipal Fund's shareholders all of
Main Street California Municipal Fund's investment company taxable income
for taxable years ending on or prior to the Closing Date (computed without
regard to any dividends paid) and all of its net capital gain, if any,
realized in taxable years ending on or prior to the Closing Date (after
reduction for any capital loss carry-forward).
4. The closing (the "Closing") shall be at the offices of
OppenheimerFunds, Inc. (the "Agent"), Two World Trade Center, 34th Floor,
New York, New York 10048, at 4:00 P.M. New York time on _______________ or
at such other time or place as the parties may designate or as provided
below (the "Closing Date"). The business day preceding the Closing Date is
herein referred to as the "Valuation Date."
In the event that on the Valuation Date either party has, pursuant
to the Investment Company Act of 1940, as amended (the "Act"), or any rule,
regulation or order thereunder, suspended the redemption of its shares or
postponed payment therefore, the Closing Date shall be postponed until the
first business day after the date when both parties have ceased such
suspension or postponement; provided, however, that if such suspension shall
continue for a period of 60 days beyond the Valuation Date, then the other
party to the Agreement shall be permitted to terminate the Agreement without
liability to either party for such termination.
5. In conjunction with the Closing, Main Street California Municipal Fund
shall distribute on a pro rata basis to the shareholders of Main Street
California Municipal Fund as of the Valuation Date Class A and Class B
shares of California Municipal Fund received by Main Street California
Municipal Fund on the Closing Date in exchange for the assets of Main Street
California Municipal Fund in complete liquidation of Main Street California
Municipal Fund; for the purpose of the distribution by Main Street
California Municipal Fund of Class A and Class B shares of California
Municipal Fund to Main Street California Municipal Fund's shareholders,
California Municipal Fund will promptly cause its transfer agent to: (a)
credit an appropriate number of Class A and Class B shares of California
Municipal Fund on the books of California Municipal Fund to each Class A and
Class B shareholder of Main Street California Municipal Fund in accordance
with a list (the "Shareholder List") of Main Street California Municipal
Fund shareholders received from Main Street California Municipal Fund; and
(b) confirm an appropriate number of Class A and Class B shares of
California Municipal Fund to each Class A and Class B shareholder of Main
Street California Municipal Fund; certificates for Class A and Class B
shares of California Municipal Fund will be issued upon written request of a
former shareholder of Main Street California Municipal Fund but only for
whole shares, with fractional shares credited to the name of the shareholder
on the books of California Municipal Fund.
The Shareholder List shall indicate, as of the close of business on
the Valuation Date, the name and address of each shareholder of Main Street
California Municipal Fund, indicating his or her share balance. Main Street
California Municipal Fund agrees to supply the Shareholder List to
California Municipal Fund not later than the Closing Date. Shareholders of
Main Street California Municipal Fund holding certificates representing
their shares shall not be required to surrender their certificates to anyone
in connection with the reorganization. After the Closing Date, however, it
will be necessary for such shareholders to surrender their certificates in
order to redeem, transfer or pledge the shares of California Municipal Fund
which they received.
6. Within one year after the Closing Date, the Company on behalf of Main
Street California Municipal Fund shall (a) either pay or make provision for
payment of all of its liabilities and taxes, and (b) either (i) transfer any
remaining amount of the Cash Reserve to California Municipal Fund, if such
remaining amount (as reduced by the estimated cost of distributing it to
shareholders) is not material (as defined below) or (ii) distribute such
remaining amount to the shareholders of Main Street California Municipal
Fund on the Valuation Date. Such remaining amount shall be deemed to be
material if the amount to be distributed, after deduction of the estimated
expenses of the distribution, equals or exceeds one cent per share of Main
Street California Municipal Fund outstanding on the Valuation Date.
7. Prior to the Closing Date, there shall be coordination between the
parties as to their respective portfolios so that, after the Closing,
California Municipal Fund will be in compliance with all of its investment
policies and restrictions. At the Closing, the Company on behalf of Main
Street California Municipal Fund shall deliver to California Municipal Fund
two copies of a list setting forth the securities then owned by Main Street
California Municipal Fund. Promptly after the Closing, the Company on behalf
of Main Street California Municipal Fund shall provide California Municipal
Fund a list setting forth the respective federal income tax bases thereof.
8. Portfolio securities or written evidence acceptable to California
Municipal Fund of record ownership thereof by The Depository Trust Company
or through the Federal Reserve Book Entry System or any other depository
approved by Main Street California Municipal Fund pursuant to Rule 17f-4 and
Rule 17f-5 under the Act shall be endorsed and delivered, or transferred by
appropriate transfer or assignment documents, by the Company on behalf of
Main Street California Municipal Fund on the Closing Date to California
Municipal Fund, or at its direction, to its custodian bank, in proper form
for transfer in such condition as to constitute good delivery thereof in
accordance with the custom of brokers and shall be accompanied by all
necessary state transfer stamps, if any. The cash delivered shall be in the
form of certified or bank cashiers' checks or by bank wire or intra-bank
transfer payable to the order of California Municipal Fund for the account
of California Municipal Fund. Class A and Class B shares of California
Municipal Fund representing the number of Class A and Class B shares of
California Municipal Fund being delivered against the assets of Main Street
California Municipal Fund, registered in the name of Main Street California
Municipal Fund, shall be transferred to Main Street California Municipal
Fund on the Closing Date. Such shares shall thereupon be assigned by Main
Street California Municipal Fund to its shareholders so that the shares of
California Municipal Fund may be distributed as provided in Section 5.
If, at the Closing Date, Main Street California Municipal Fund is unable
to make delivery under this Section 8 to California Municipal Fund of any of
its portfolio securities or cash for the reason that any of such securities
purchased by Main Street California Municipal Fund, or the cash proceeds of
a sale of portfolio securities, prior to the Closing Date have not yet been
delivered to it or Main Street California Municipal Fund's custodian, then
the delivery requirements of this Section 8 with respect to said undelivered
securities or cash will be waived and Main Street California Municipal Fund
will deliver to California Municipal Fund by or on the Closing Date with
respect to said undelivered securities or cash executed copies of an
agreement or agreements of assignment in a form reasonably satisfactory to
California Municipal Fund, together with such other documents, including a
due bill or due bills and brokers' confirmation slips as may reasonably be
required by California Municipal Fund.
9. California Municipal Fund shall not assume the liabilities (except for
portfolio securities purchased which have not settled and for shareholder
redemption and dividend checks outstanding) of Main Street California
Municipal Fund, but Main Street California Municipal Fund will,
nevertheless, use its best efforts to discharge all known liabilities, so
far as may be possible, prior to the Closing Date. The cost of printing and
mailing the proxies and proxy statements will be borne by Main Street
California Municipal Fund. Main Street California Municipal Fund and
California Municipal Fund will bear the cost of their respective tax
opinion. Any documents such as existing prospectuses or annual reports that
are included in that mailing will be a cost of the fund issuing the
document. Any other out-of-pocket expenses of California Municipal Fund and
Main Street California Municipal Fund associated with this reorganization,
including legal, accounting and transfer agent expenses, will be borne by
Main Street California Municipal Fund and California Municipal Fund,
respectively, in the amounts so incurred by each.
10. The obligations of California Municipal Fund hereunder shall be
subject to the following conditions:
A. The Board of Directors of the Company on behalf of Main Street
California Municipal Fund, shall have authorized the execution of the
Agreement, and the shareholders of Main Street California Municipal Fund
shall have approved the Agreement and the transactions contemplated hereby,
and the Company on behalf of Main Street California Municipal Fund shall
have furnished to California Municipal Fund copies of resolutions to that
effect certified by the Secretary or the Assistant Secretary of the Company
on behalf of Main Street California Municipal Fund; such shareholder
approval shall have been by the affirmative vote required by the Maryland
General Corporation Law and its charter documents at a meeting for which
proxies have been solicited by the Proxy Statement and Prospectus (as
hereinafter defined).
B. California Municipal Fund shall have received an opinion dated as of
the Closing Date from counsel to Main Street California Municipal Fund, to
the effect that (i) the Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Maryland with
full corporate powers to carry on its business as then being conducted and
to enter into and perform the Agreement; and (ii) that all action necessary
to make the Agreement, according to its terms, valid, binding and
enforceable on the Company on behalf of Main Street California Municipal
Fund and to authorize effectively the transactions contemplated by the
Agreement have been taken by the Company on behalf of Main Street California
Municipal Fund. Maryland counsel may be relied upon for this opinion.
C. The representations and warranties of the Company on behalf of Main
Street California Municipal Fund contained herein shall be true and correct
at and as of the Closing Date, and California Municipal Fund shall have been
furnished with a certificate of the President, or a Vice President, or the
Secretary or the Assistant Secretary or the Treasurer of Main Street
California Municipal Fund, dated the Closing Date, to that effect.
D. On the Closing Date, Main Street California Municipal Fund shall have
furnished to California Municipal Fund a certificate of the Treasurer or
Assistant Treasurer of the Company on behalf of Main Street California
Municipal Fund as to the amount of the capital loss carry-over and net
unrealized appreciation or depreciation, if any, with respect to Main
Street California Municipal Fund as of the Closing Date.
E. The Cash Reserve shall not exceed 10% of the value of the net assets,
nor 30% in value of the gross assets, of Main Street California Municipal
Fund at the close of business on the Valuation Date.
F. A Registration Statement on Form N-14 filed by California Municipal
Fund under the Securities Act of 1933, as amended (the "1933 Act"),
containing a preliminary form of the Proxy Statement and Prospectus, shall
have become effective under the 1933 Act.
G. On the Closing Date, California Municipal Fund shall have received a
letter of Andrew J. Donohue or other senior executive officer of
OppenheimerFunds, Inc. acceptable to California Municipal Fund, stating that
nothing has come to his or her attention which in his or her judgment would
indicate that as of the Closing Date there were any material, actual or
contingent liabilities of Main Street California Municipal Fund arising out
of litigation brought against Main Street California Municipal Fund or
claims asserted against it, or pending or to the best of his or her
knowledge threatened claims or litigation not reflected in or apparent from
the most recent audited financial statements and footnotes thereto of Main
Street California Municipal Fund delivered to California Municipal Fund.
Such letter may also include such additional statements relating to the
scope of the review conducted by such person and his or her responsibilities
and liabilities as are not unreasonable under the circumstances.
H. California Municipal Fund shall have received an opinion, dated the
Closing Date, of KPMG LLP, to the same effect as the opinion contemplated
by Section 11.E. of the Agreement.
I. California Municipal Fund shall have received at the Closing all of the
assets of Main Street California Municipal Fund to be conveyed hereunder,
which assets shall be free and clear of all liens, encumbrances, security
interests, restrictions and limitations whatsoever.
11. The obligations of Main Street California Municipal Fund hereunder
shall be subject to the following conditions:
A. The Board of Trustees of California Municipal Fund shall have
authorized the execution of the Agreement, and the transactions contemplated
thereby, and California Municipal Fund shall have furnished to Main Street
California Municipal Fund copies of resolutions to that effect certified by
the Secretary or the Assistant Secretary of California Municipal Fund.
B. Main Street California Municipal Fund's shareholders shall have
approved the Agreement and the transactions contemplated hereby, by an
affirmative vote required by the Maryland General Corporation Law and its
charter documents and Main Street California Municipal Fund shall have
furnished California Municipal Fund copies of resolutions to that effect
certified by the Secretary or an Assistant Secretary of Main Street
California Municipal Fund.
C. Main Street California Municipal Fund shall have received an opinion
dated as of the Closing Date from counsel to California Municipal Fund, to
the effect that (i) California Municipal Fund is a business trust duly
organized, validly existing and in good standing under the laws of the
Commonwealth of Massachusetts with full powers to carry on its business as
then being conducted and to enter into and perform the Agreement; (ii) all
action necessary to make the Agreement, according to its terms, valid,
binding and enforceable upon California Municipal Fund and to authorize
effectively the transactions contemplated by the Agreement have been taken
by California Municipal Fund, and (iii) the shares of California Municipal
Fund to be issued hereunder are duly authorized and when issued will be
validly issued, fully-paid and non-assessable. Massachusetts counsel may be
relied upon for this opinion.
D. The representations and warranties of California Municipal Fund
contained herein shall be true and correct at and as of the Closing Date,
and Main Street California Municipal Fund shall have been furnished with a
certificate of the President, a Vice President or the Secretary or the
Assistant Secretary or the Treasurer of the Trust to that effect dated the
Closing Date.
E. Main Street California Municipal Fund shall have received an opinion of
KPMG LLP to the effect that the federal tax consequences of the transaction,
if carried out in the manner outlined in the Agreement and in accordance
with (i) Main Street California Municipal Fund's representation that there
is no plan or intention by any Main Street California Municipal Fund
shareholder who owns 5% or more of Main Street California Municipal Fund's
outstanding shares, and, to Main Street California Municipal Fund's best
knowledge, there is no plan or intention on the part of the remaining Main
Street California Municipal Fund shareholders, to redeem, sell, exchange or
otherwise dispose of a number of California Municipal Fund shares received
in the transaction that would reduce Main Street California Municipal Fund
shareholders' ownership of California Municipal Fund shares to a number of
shares having a value, as of the Closing Date, of less than 50% of the value
of all of the formerly outstanding Main Street California Municipal Fund
shares as of the same date, and (ii) the representation by each of Main
Street California Municipal Fund and California Municipal Fund that, as of
the Closing Date, Main Street California Municipal Fund and California
Municipal Fund will qualify as regulated investment companies or will meet
the diversification test of Section 368(a)(2)(F)(ii) of the Code, will be as
follows:
1. The transactions contemplated by the Agreement will qualify as a
tax-free "reorganization" within the meaning of Section 368(a)(1) of the
Code, and under the regulations promulgated thereunder.
2. Main Street California Municipal Fund and California Municipal Fund
will each qualify as a "party to a reorganization" within the meaning of
Section 368(b)(2) of the Code.
3. No gain or loss will be recognized by the shareholders of Main Street
California Municipal Fund upon the distribution of Class A and Class B
shares of beneficial interest in California Municipal Fund to the
shareholders of Main Street California Municipal Fund pursuant to Section
354 of the Code.
4. Under Section 361(a) of the Code no gain or loss will be recognized by
Main Street California Municipal Fund by reason of the transfer of
substantially all its assets in exchange for Class A and Class B shares of
California Municipal Fund.
5. Under Section 1032 of the Code no gain or loss will be recognized by
California Municipal Fund by reason of the transfer of substantially all of
Main Street California Municipal Fund's assets in exchange for Class A and
Class B shares of California Municipal Fund and California Municipal Fund's
assumption of certain liabilities of Main Street California Municipal Fund.
6. The shareholders of Main Street California Municipal Fund will have the
same tax basis and holding period for the Class A and Class B shares of
beneficial interest in California Municipal Fund that they receive as they
had for Main Street California Municipal Fund shares that they previously
held, pursuant to Section 358(a) and 1223(1), respectively, of the Code.
7. The securities transferred by the Company on behalf of Main Street
California Municipal Fund to California Municipal Fund will have the same
tax basis and holding period in the hands of California Municipal Fund as
they had for Main Street California Municipal Fund, pursuant to Section
362(b) and 1223(1), respectively, of the Code.
F. The Cash Reserve shall not exceed 10% of the value of the net assets,
nor 30% in value of the gross assets, of Main Street California Municipal
Fund at the close of business on the Valuation Date.
G. A Registration Statement on Form N-14 filed by California Municipal
Fund under the 1933 Act, containing a preliminary form of the Proxy
Statement and Prospectus, shall have become effective under the 1933 Act.
H. On the Closing Date, Main Street California Municipal Fund shall have
received a letter of Andrew J. Donohue or other senior executive officer of
OppenheimerFunds, Inc. acceptable to Main Street California Municipal Fund,
stating that nothing has come to his or her attention which in his or her
judgment would indicate that as of the Closing Date there were any material,
actual or contingent liabilities of California Municipal Fund arising out of
litigation brought against California Municipal Fund or claims asserted
against it, or pending or, to the best of his or her knowledge, threatened
claims or litigation not reflected in or apparent by the most recent audited
financial statements and footnotes thereto of California Municipal Fund
delivered to Main Street California Municipal Fund. Such letter may also
include such additional statements relating to the scope of the review
conducted by such person and his or her responsibilities and liabilities as
are not unreasonable under the circumstances.
I. The Company on behalf of Main Street California Municipal Fund shall
acknowledge receipt of the Class A and Class B shares of California
Municipal Fund.
12. The Company on behalf of Main Street California Municipal Fund
hereby represents and warrants that:
A. The financial statements of Main Street California Municipal Fund as of
August 31, 1999 (audited) heretofore furnished to California Municipal Fund,
present fairly the financial position, results of operations, and changes in
net assets of Main Street California Municipal Fund as of that date, in
conformity with generally accepted accounting principles applied on a basis
consistent with the preceding year; and that from August 31, 1999 through
the date hereof there have not been, and through the Closing Date there will
not be, any material adverse change in the business or financial condition
of Main Street California Municipal Fund, it being agreed that a decrease in
the size of Main Street California Municipal Fund due to a diminution in the
value of its portfolio and/or redemption of its shares shall not be
considered a material adverse change;
B. Contingent upon approval of the Agreement and the transactions
contemplated thereby by Main Street California Municipal Fund's
shareholders, the Company on behalf of Main Street California Municipal
Fund has authority to transfer all of the assets of Main Street California
Municipal Fund to be conveyed hereunder free and clear of all liens,
encumbrances, security interests, restrictions and limitations whatsoever;
C. The Prospectus, as amended and supplemented, contained in the Company's
Registration Statement under the 1933 Act, as amended, is true, correct and
complete, conforms to the requirements of the 1933 Act and does not contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein
not misleading. The Registration Statement, as amended, was, as of the date
of the filing of the last Post-Effective Amendment, true, correct and
complete, conformed to the requirements of the 1933 Act and did not contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein
not misleading;
D. There is no material contingent liability of Main Street California
Municipal Fund and no material claim and no material legal, administrative
or other proceedings pending or, to the knowledge of Main Street California
Municipal Fund, threatened against Main Street California Municipal Fund,
not reflected in such Prospectus;
E. Except for the Agreement, there are no material contracts
outstanding to which Main Street California Municipal Fund is a party other
than those ordinary in the conduct of its business;
F. The Company is a Maryland corporation duly organized, validly existing
and in good standing under the laws of the State of Maryland; and has all
necessary and material Federal and state authorizations to own all of its
assets and to carry on its business as now being conducted; and Main Street
California Municipal Fund is a series of the Company that is duly registered
under the Act and such registration has not been rescinded or revoked and is
in full force and effect;
G. All Federal and other tax returns and reports of Main Street California
Municipal Fund required by law to be filed have been filed, and all federal
and other taxes shown due on said returns and reports have been paid or
provision shall have been made for the payment thereof and to the best of
the knowledge of the Company on behalf of Main Street California Municipal
Fund no such return is currently under audit and no assessment has been
asserted with respect to such returns and to the extent such tax returns
with respect to the taxable year of Main Street California Municipal Fund
ended August 31, 1999 have not been filed, such returns will be filed when
required and the amount of tax shown as due thereon shall be paid when due;
and
H. The Company on behalf of Main Street California Municipal Fund has
elected that Main Street California Municipal Fund be treated as a regulated
investment company and, for each fiscal year of its operations, Main Street
California Municipal Fund has met the requirements of Subchapter M of the
Code for qualification and treatment as a regulated investment company and
Main Street California Municipal Fund intends to meet such requirements with
respect to its current taxable year.
13. California Municipal Fund hereby represents and warrants that:
A. The financial statements of California Municipal Fund as at July 31,
1999 (audited) heretofore furnished to Main Street California Municipal
Fund, present fairly the financial position, results of operations, and
changes in net assets of California Municipal Fund, as of that date, in
conformity with generally accepted accounting principles applied on a basis
consistent with the preceding year; and that from July 31, 1999 through the
date hereof there have not been, and through the Closing Date there will
not be, any material adverse changes in the business or financial condition
of California Municipal Fund, it being understood that a decrease in the
size of California Municipal Fund due to a diminution in the value of its
portfolio and/or redemption of its shares shall not be considered a
material or adverse change;
B. The Prospectus, as amended and supplemented, contained in California
Municipal Fund's Registration Statement under the 1933 Act, is true,
correct and complete, conforms to the requirements of the 1933 Act and does
not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading. The Registration Statement, as amended,
was, as of the date of the filing of the last Post-Effective Amendment,
true, correct and complete, conformed to the requirements of the 1933 Act
and did not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make
the statements therein not misleading;
C. Except for this Agreement, there is no material contingent liability of
California Municipal Fund and no material claim and no material legal,
administrative or other proceedings pending or, to the knowledge of
California Municipal Fund, threatened against California Municipal Fund, not
reflected in such Prospectus;
D. There are no material contracts outstanding to which California
Municipal Fund is a party other than those ordinary in the conduct of its
business;
E. California Municipal Fund is a business trust duly organized, validly
existing and in good standing under the laws of the Commonwealth of
Massachusetts; California Municipal Fund has all necessary and material
Federal and state authorizations to own all its properties and assets and to
carry on its business as now being conducted; the Class A and Class B shares
of California Municipal Fund which it issues to the Company on behalf of
Main Street California Municipal Fund pursuant to the Agreement will be duly
authorized, validly issued, fully-paid and non-assessable, will conform to
the description thereof contained in California Municipal Fund's
Registration Statement and will be duly registered under the 1933 Act and in
the states where registration is required; and California Municipal Fund is
duly registered under the Act and such registration has not been revoked or
rescinded and is in full force and effect;
E. All federal and other tax returns and reports of California Municipal
Fund required by law to be filed have been filed, and all federal and other
taxes shown due on said returns and reports have been paid or provision
shall have been made for the payment thereof and to the best of the
knowledge of California Municipal Fund no such return is currently under
audit and no assessment has been asserted with respect to such returns and
to the extent such tax returns with respect to the taxable year of
California Municipal Fund ended July 31, 1999 have not been filed, such
returns will be filed when required and the amount of tax shown as due
thereon shall be paid when due;
G. California Municipal Fund has elected to be treated as a regulated
investment company and, for each fiscal year of its operations, California
Municipal Fund has met the requirements of Subchapter M of the Code for
qualification and treatment as a regulated investment company and California
Municipal Fund intends to meet such requirements with respect to its current
taxable year;
H. California Municipal Fund has no plan or intention (i) to dispose of
any of the assets transferred by Main Street California Municipal Fund,
other than in the ordinary course of business, or (ii) to redeem or
reacquire any of the Class A and Class B shares issued by it in the
reorganization other than pursuant to valid requests of shareholders; and
I. After consummation of the transactions contemplated by the
Agreement, California Municipal Fund intends to operate its business in a
substantially unchanged manner.
14. Each party hereby represents to the other that no broker or finder has
been employed by it with respect to the Agreement or the transactions
contemplated hereby. Each party also represents and warrants to the other
that the information concerning it in the Proxy Statement and Prospectus
will not as of its date contain any untrue statement of a material fact or
omit to state a fact necessary to make the statements concerning it therein
not misleading and that the financial statements concerning it will present
the information shown fairly in accordance with generally accepted
accounting principles applied on a basis consistent with the preceding year.
Each party also represents and warrants to the other that the Agreement is
valid, binding and enforceable in accordance with its terms and that the
execution, delivery and performance of the Agreement will not result in any
violation of, or be in conflict with, any provision of any charter, by-laws,
contract, agreement, judgment, decree or order to which it is subject or to
which it is a party. California Municipal Fund hereby represents to and
covenants with Main Street California Municipal Fund that, if the
reorganization becomes effective, California Municipal Fund will treat each
shareholder of Main Street California Municipal Fund who received any of
California Municipal Fund's shares as a result of the reorganization as
having made the minimum initial purchase of shares of California Municipal
Fund received by such shareholder for the purpose of making additional
investments in shares of California Municipal Fund, regardless of the value
of the shares of California Municipal Fund received.
15. California Municipal Fund agrees that it will prepare and file a
Registration Statement on Form N-14 under the 1933 Act which shall contain a
preliminary form of proxy statement and prospectus contemplated by Rule 145
under the 1933 Act. The final form of such proxy statement and prospectus is
referred to in the Agreement as the "Proxy Statement and Prospectus." Each
party agrees that it will use its best efforts to have such Registration
Statement declared effective and to supply such information concerning
itself for inclusion in the Proxy Statement and Prospectus as may be
necessary or desirable in this connection. The Company on behalf of Main
Street California Municipal Fund covenants and agrees to liquidate and
dissolve as soon as practicable to the extent required under the laws of the
State of Maryland, and, upon Closing, to cause the cancellation of its
outstanding shares.
16. The obligations of the parties shall be subject to the right of either
party to abandon and terminate the Agreement for any reason and there shall
be no liability for damages or other recourse available to a party not so
terminating this Agreement, provided, however, that in the event that a
party shall terminate this Agreement without reasonable cause, the party so
terminating shall, upon demand, reimburse the party not so terminating for
all expenses, including reasonable out-of-pocket expenses and fees incurred
in connection with this Agreement.
17. The Agreement may be executed in several counterparts, each of which
shall be deemed an original, but all taken together shall constitute one
Agreement. The rights and obligations of each party pursuant to the
Agreement shall not be assignable.
18. All prior or contemporaneous agreements and representations are merged
into the Agreement, which constitutes the entire contract between the
parties hereto. No amendment or modification hereof shall be of any force
and effect unless in writing and signed by the parties and no party shall be
deemed to have waived any provision herein for its benefit unless it
executes a written acknowledgment of such waiver.
19. California Municipal Fund understands that the obligations of the
Company on behalf of Main Street California Municipal Fund under the
Agreement are not binding upon any Director or shareholder of Main Street
California Municipal Fund personally, but bind only Main Street California
Municipal Fund and Main Street California Municipal Fund's property.
20. The Company on behalf of Main Street California Municipal Fund
understands that the obligations of California Municipal Fund under the
Agreement are not binding upon any trustee or shareholder of California
Municipal Fund personally, but bind only California Municipal Fund and
California Municipal Fund's property. The Company on behalf of Main Street
California Municipal Fund represents that it has notice of the provisions of
the Declaration of Trust of California Municipal Fund disclaiming
shareholder and trustee liability for acts or obligations of California
Municipal Fund.
IN WITNESS WHEREOF, each of the parties has caused the Agreement to be
executed and attested by its officers thereunto duly authorized on the date
first set forth above.
OPPENHEIMER MAIN STREET FUNDS, INC., on behalf of
MAIN STREET CALIFORNIA MUNICIPAL FUND
By:_________________________________________
Andrew Donohue
Secretary
OPPENHEIMER CALIFORNIA MUNICIPAL FUND
By: ________________________________________
Andrew J. Donohue
Secretary
<PAGE>
Oppenheimer Main Street California Municipal Fund
Proxy For Special Shareholders Meeting To Be Held October 12, 2000
The undersigned shareholder of Oppenheimer Main Street California Municipal Fund
("Main Street California Municipal Fund"), does hereby appoint Andrew J.
Donohue, Robert Bishop, Scott Farrar and Brian W. Wixted, and each of them, as
attorneys-in-fact and proxies of the undersigned, with full power of
substitution, to attend the Special Meeting of Shareholders of Main Street
California Municipal Fund to be held on October 12, 2000 at 6803 South Tucson
Way, Englewood, Colorado at 10:00 A.M., Mountain time, and at all adjournments
thereof, and to vote the shares held in the name of the undersigned on the
record date for said meeting on the Proposal specified on the reverse side. Said
attorneys-in-fact shall vote in accordance with their best judgment as to any
other matter.
This proxy is solicited on behalf of the Board of Directors. The shares
represented hereby will be voted as indicated on the reverse side or for the
Proposal if no choice is indicated.
Please mark your proxy, date and sign it on the reverse side and return it
promptly in the accompanying envelope, which requires no postage if mailed in
the United States.
The Proposal:
To approve an Agreement and Plan of Reorganization between Main Street
California Municipal Fund, a series of Oppenheimer Main Street Funds, Inc.,
and Oppenheimer California Municipal Fund ("California Municipal Fund"), and
the transactions contemplated thereby, including (a) the transfer of
substantially all the assets of Main Street California Municipal Fund to
California Municipal Fund in exchange for Class A and Class B shares of
equal value of Calfiornia Municipal Fund, (b) the distribution of such
shares of California Municipal Fund to the corresponding Class A and Class B
shareholders of Main Street California Municipal Fund in complete
liquidation of Main Street California Municipal Fund and (c) the
cancellation of the outstanding shares of Main Street California Municipal
Fund.
FOR______ AGAINST______ ABSTAIN_______
Dated: _________________________________, 2000
(Month) (Day)
---------------------------------
Signature(s)
---------------------------------
Signature(s)
Please read both sides of this ballot.
<PAGE>
NOTE: PLEASE SIGN EXACTLY AS YOUR NAME(S) APPEAR HEREON. When signing as
custodian, attorney, executor, administrator, trustee, etc., please give your
full title as such. All joint owners should sign this proxy. If the account is
registered in the name of a corporation, partnership or other entity, a duly
authorized individual must sign on its behalf and give his or her title.
<PAGE>
Part B
STATEMENT OF ADDITIONAL INFORMATION
TO PROSPECTUS/PROXY STATEMENT
Acquisition of the Assets of the
OPPENHEIMER MAIN STREET CALIFORNIA MUNICIPAL FUND
By and in exchange for Shares of the
OPPENHEIMER CALIFORNIA MUNICIPAL FUND
This Statement of Additional Information to this Prospectus/Proxy
Statement (the "SAI") relates specifically to the proposed delivery of
substantially all of the assets of Oppenheimer Main Street California Municipal
Fund ("Main Street California Municipal Fund") for shares of Oppenheimer
California Municipal Fund ("California Municipal Fund").
This SAI consists of this Cover Page and the following documents: (i)
Annual and Semi-Annual Reports dated August 31, 1999 and February 29, 2000,
respectively, of Main Street California Municipal Fund; (ii) the Annual and
Semi-Annual Report dated July 31, 1999 and January 31, 2000, respectively, of
California Municipal Fund; (iii) the Statement of Additional Information of Main
Street California Municipal Fund; (iv) the Statement of Additional Information
of California Municipal Fund; and (v) the pro forma financial statements for the
period August 1, 1999 through March 31, 2000.
This SAI is not a Prospectus; you should read this SAI in conjunction with
the Prospectus/Proxy Statement dated August 31, 2000, relating to the
above-referenced transaction. You can request a copy of the Prospectus/Proxy
Statement by calling 1.800.525.7048 or by writing OppenheimerFunds Services at
P.O. Box 5270, Denver, Colorado 80217. The date of this SAI is August 31, 2000.
Burns/n-14/MSCAMuni_2000
<PAGE>
--------------------------------------------------------------------------------
Oppenheimer California Municipal Fund
--------------------------------------------------------------------------------
Prospectus dated November 22, 1999
Oppenheimer California Municipal Fund
is a mutual fund. It seeks current
income exempt from federal and
California income taxes by investing
in municipal securities, while
attempting to preserve capital.
This Prospectus contains
important information about the Fund's
objective, its investment policies,
strategies and risks. It also contains
important information about how to buy
and sell shares of the Fund and other
account features. Please read this
Prospectus carefully before you invest
and keep
As with all mutual funds, the it for future reference about your
Securities and Exchange Commission account.
has not approved or disapproved the
Fund's securities nor has it
determined that this Prospectus is
accurate or complete. It is a
criminal offense to represent
otherwise.
67890
<PAGE>
197
Contents
ABOUT THE FUND
-------------------------------------------------------------------------------
The Fund's Investment Objective and Strategies
Main Risks of Investing in the Fund
The Fund's Past Performance
Fees and Expenses of the Fund
About the Fund's Investments
How the Fund is Managed
ABOUT YOUR ACCOUNT
--------------------------------------------------------------------------------
How to Buy Shares
Class A Shares
Class B Shares
Class C Shares
Special Investor Services
AccountLink
PhoneLink
OppenheimerFunds Web Site
How to Sell Shares
By Mail
By Telephone
By Checkwriting
How to Exchange Shares
Shareholder Account Rules and Policies
Dividends and Taxes
Financial Highlights
<PAGE>
ABOUT THE FUND
The Fund's Investment Objective and Strategies
WHAT IS THE FUND'S INVESTMENT OBJECTIVE? The Fund 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.
WHAT DOES THE FUND INVEST IN? The Fund invests mainly in California municipal
securities that pay interest exempt from federal and California individual
income taxes. These primarily include municipal bonds (which are long-term
obligations), municipal notes (short-term obligations), and interests in
municipal leases. Most of the securities the Fund buys must be "investment
grade" (the four highest rating categories of national rating organizations,
such as Moody's).
The Fund does not limit its investments to securities of a particular
maturity range, and may hold both short- and long-term securities. However, it
currently focuses on longer-term securities to seek higher yields. These
investments are more fully explained in "About the Fund's Investments," below.
How Does The Portfolio Manager Decide What Securities To Buy Or Sell? In
selecting securities for the Fund, the portfolio manager looks primarily
throughout California for municipal securities using a variety of factors which
may change over time and may vary in particular cases. The portfolio manager
currently looks for:
o Securities that provide high current income
o A wide range of securities of different issuers within the state,
including different agencies and municipalities, to spread risk
o Securities having favorable credit characteristics
o Special situations that provide opportunities for value
WHO IS THE FUND DESIGNED FOR? The Fund is designed for individual investors who
are seeking income exempt from federal and California income taxes. The Fund
does not seek capital gains or growth. Because it invests in tax-exempt
securities, the Fund is not appropriate for retirement plan accounts or for
investors seeking capital growth. The Fund is not a complete investment program.
Main Risks of Investing in the Fund
All investments have risks to some degree. The Fund's investments are
subject to changes in their value from a number of factors, described below.
There is also the risk that poor security selection by the Fund's investment
Manager, OppenheimerFunds, Inc., will cause the Fund to under perform other
funds having a similar objective.
These risks collectively form the risk profile of the Fund and can affect
the value of the Fund's investments, its investment performance, and the prices
of its shares. These risks mean that you can lose money by investing in the
Fund. When you redeem your shares, they may be worth more or less than what you
paid for them. There is no assurance that the Fund will achieve its objective.
HOW RISKY IS THE FUND OVERALL? The value of the Fund's investments will change
over time due to a number of factors. They include changes in general bond
market movements, the change in value of particular bonds because of an event
affecting the issuer, or changes in interest rates that can affect bond prices
overall. The Fund focuses its investments in California municipal securities and
is non-diversified. It will therefore be vulnerable to the effects of economic
changes that affect California governmental issuers. These changes can affect
the value of the Fund's investments and its prices per share. In the
OppenheimerFunds spectrum, the Fund is more conservative than some types of
taxable bond funds, such as high yield bond funds, but has greater risk than
money market funds.
CREDIT RISK. Municipal securities are subject to credit risk. Credit risk
is the risk that the issuer of a municipal security might not make interest and
principal payments on the security as they become due. If the issuer fails to
pay interest, the Fund's income may be reduced and if the issuer fails to repay
principal, the value of that security and of the Fund's shares may be reduced.
Because the Fund can invest as much as 25% of its assets in municipal securities
below investment grade to seek higher income, the Fund's credit risks are
greater than those of funds that buy only investment-grade bonds. A downgrade in
an issuer's credit rating or other adverse news about an issue can reduce a
security's market value.
INTEREST RATE RISKS. Municipal securities are debt securities that are subject
to changes in value when prevailing interest rates change. When interest rates
fall, the values of already issued municipal securities generally rise. When
interest rates rise, the values of already issued municipal securities generally
fall, and the bonds may sell at a discount from their face amount. The magnitude
of these price changes is generally greater for bonds with longer maturities.
The Fund currently focuses on longer term securities to seek higher income.
Therefore, its share prices may fluctuate more when interest rates change.
RISKS OF NON-DIVERSIFICATION. The Fund is "non-diversified." That means that
compared to funds that are diversified, it can invest a greater portion of its
assets in the securities of one issuer, such as bonds issued by the State of
California. Having a higher percentage of its assets invested in the securities
of fewer issuers, particularly obligations of government issuers of one state,
could result in greater fluctuations of the Fund's share prices due to economic,
regulatory or political problems in California.
RISKS IN USING DERIVATIVE INVESTMENTS. The Fund can use derivatives to seek
increased returns or to try to hedge investment risks. In general terms, a
derivative investment is an investment contract whose value depends on (or is
derived from) the value of an underlying asset, interest rate or index. Options,
futures, "inverse floaters" and variable rate obligations are examples of
derivatives.
If the issuer of the derivative investment does not pay the amount due,
the Fund can lose money on its investment. Also, the underlying security or
investment on which the derivative is based, and the derivative itself, may not
perform the way the Manager expected it to perform. If that happens, the Fund
will get less income than expected or its share price could decline. To try to
preserve capital, the Fund has limits on the amount of particular types of
derivatives it can hold.
An investment in the Fund is not a deposit of any bank, and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
The Fund's Past Performance
The bar chart and table below show one measure of the risks of investing in the
Fund, by showing changes in the Fund's performance (for its Class A shares) from
year to year for the past ten calendar years and by showing the average annual
total returns of the Fund's shares and comparing the returns of its Class A
shares to the returns of a market index. The Fund's past investment performance
does not necessarily indicate how the Fund will perform in the future.
[See Bar Chart in Appendix to the Prospectus]
For the period from 1/1/99 through 9/30/99, the cumulative return (not
annualized) for Class A shares was -3.65%. Sales charges are not included in the
calculations of return in this bar chart, and if those charges were included,
the returns would be less than those shown.
During the 10-year period shown in the bar chart, the highest return (not
annualized) for a calendar quarter was 8.65% (1Q'95) and the lowest return (not
annualized) for a calendar quarter was -6.00% (1Q'94).
-------------------------------------------------------------------------------
Average Annual Total
Returns for the periods --------------- Past 5 Years Past 10 Years
ending December 31, (or life of class, (or life of class,
1998 Past 1 Year if less) if less)
=============================================================
====================
Class A Shares
(inception 11/3/88)
0.88% 4.90% 7.45%*
Lehman Brothers
Municipal Bond Index 6.48% 6.22% 8.08%
(from 12/31/88)
Class B Shares
(inception 5/1/93) 0.21% 4.78%* 5.55%
Class C Shares
(inception 11/1/95) 4.22% 6.57%* N/A
--------------------------------------------------------------------------------
The Fund's average annual total returns include the applicable sales charge: for
Class A, the current maximum initial sales charge of 4.75%; for Class B, the
applicable contingent deferred sales charges of 5% (1-year) and1% (5 years and
life of class); for Class C, the 1% contingent deferred sales charge for the
1-year period.
The returns measure the performance of a hypothetical account and assume that
all dividends and capital gains distributions have been reinvested in additional
shares. The Fund's performance is compared to the Lehman Brothers Municipal Bond
Index, an unmanaged index of a broad range of investment-grade municipal bonds.
The index performance does not consider the effects of capital gains or
transaction costs, and the Fund's investment may vary from the securities in the
index.
Fees and Expenses of the Fund
The Fund pays a variety of expenses directly for management of its assets,
administration, distribution of its shares and other services. Those expenses
are subtracted from the Fund's assets to calculate the Fund's net asset values
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 meant to help you understand the
fees and expenses you may pay if you buy and hold shares of the Fund. The
numbers below are based on the Fund's expenses during the fiscal year ended July
31, 1999.
Shareholder Fees (charges paid directly from your investment):
Class A Shares Class B Shares Class C Shares
-----------------------------------------------
Maximum Sales Charge (Load) on
purchases (as a % of offering 4.75% None None
price)
--------------------------------------------------------------------------------
Maximum Deferred Sales Charge
(Load) (as % of the lower of the
original offering price or None1 5%2 1%3
redemption proceeds)
1. A 1% contingent deferred sales charge may apply to redemptions of investments
of $1 million or more of Class A shares. See "How to Buy Shares" for details.
2. Applies to redemptions in first year after purchase. The contingent deferred
sales charge declines to 1% in the sixth year and is eliminated after that.
3. Applies to shares redeemed within 12 months of purchase.
Annual Fund Operating Expenses (deducted from Fund assets):
(% of average daily net assets)
--------------------------------------------------------------------------
Class A Class B Class C
Shares Shares Shares
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Management Fees 0.55% 0.55% 0.55%
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Distribution and/or Service (12b-1) Fees 0.24% 1.00%
1.00%
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Other Expenses 0.12% 0.12% 0.12%
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Total Annual Operating Expenses 0.91% 1.67% 1.67%
--------------------------------------------------------------------------
Expenses may vary in future years. "Other expenses" include transfer agent fees,
custodial fees, and accounting and legal expenses the Fund pays.
EXAMPLES. The following examples are intended to help you compare the cost of
investing in the Fund with the cost of investing in other mutual funds. The
examples assume that you invest $10,000 in a class of shares of the Fund for the
time periods indicated, and reinvest your dividends and distributions.
The first example assumes that you redeem all of your shares at the end of those
periods. The second example assumes you keep your shares. Both examples also
assume that your investment has a 5% return each year and that the class's
operating expenses remain the same. Your actual costs may be higher or lower
because expenses will vary over time. Based on these assumptions your expenses
would be as follows:
--------------------------------------------------------------------------------
If shares are redeemed: 1 year 3 years 5 years 10 years1
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Class A Shares $563 $751 $955 $1,541
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Class B Shares $670 $826 $1,107 $1,588
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Class C Shares $270 $526 $907 $1,976
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
If shares are not 1 year 3 years 5 years 10 years1
redeemed:
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Class A Shares $563 $751 $955 $1,541
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Class B Shares $170 $526 $907 $1,588
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Class C Shares $170 $526 $907 $1,976
--------------------------------------------------------------------------------
In the first example, expenses include the initial sales charge for Class A and
the applicable Class B or Class C contingent deferred sales charges. In the
second example, the Class A expenses include the sales charge, but Class B and
Class C expenses do not include contingent deferred sales charges.
1. Class B expense for years 7 through 10 are based on Class A expenses, since
Class B shares automatically convert to Class A after 6 years.
About the Fund's Investments
THE FUND'S PRINCIPAL INVESTMENT POLICIES. The allocation of the Fund's portfolio
among different types of investments will vary over time based on the Manager's
evaluation of economic and market trend. Under normal market conditions, the
Fund:
o attempts to invest 100% of its assets in municipal securities,
o as a fundamental policy, invests at least 80% of its assets in municipal
securities, and
o invests at least 65% of its total assets in California municipal securities.
The Manager tries to reduce risks by selecting a wide variety of municipal
investments and by carefully researching securities before they are purchased.
However, changes in the overall market prices of municipal securities and the
income they pay can occur at any time. The yield and share prices of the Fund
will change daily based on changes in interest rates and market conditions and
in response to other economic events. The Statement of Additional Information
contains more detailed information about the Fund's investment policies and
risks.
MUNICIPAL SECURITIES The Fund buys municipal bonds and notes, certificates of
participation in municipal leases and other debt obligations.
The Fund mainly invest in California municipal securities, which are
municipal securities that are not subject (in the opinion of bond counsel to the
issuer at the time they are issued) to California individual income tax. These
debt obligations are issued by the State of California and its political
subdivisions (such as cities, towns, counties, agencies and authorities). The
term "California municipal securities" may also include debt securities of the
governments of certain possessions, territories and commonwealths of the United
States if the interest is not subject to California individual income tax.
The Fund can also buy other municipal securities, issued by the
governments of the District of Columbia and of other states as well as their
political subdivisions, authorities and agencies, and securities issued by any
commonwealths, territories or possessions of the United States, or their
respective agencies, instrumentalities or authorities, if the interest paid on
the security is not subject to federal individual income tax (in the opinion of
bond counsel to the issuer at the time the security is issued).
Municipal securities are issued to raise money for a variety of public or
private purposes, including financing state or local governments, financing
specific projects or public facilities. The Fund can buy both long-term and
short-term municipal securities. Long-term securities have a maturity of more
than one year. The Fund generally focuses on longer-term securities, to seek
higher income.
The Fund can buy municipal securities that are "general obligations,"
secured by the issuer's pledge of its full faith, credit and taxing power for
the payment of principal and interest. The Fund can also can buy "revenue
obligations," payable only from the revenues derived from a particular facility
or class of facilities, or a specific excise tax or other revenue source. Some
revenue obligations are private activity bonds that pay interest that may be a
tax preference item for investors subject to alternative minimum tax.
Ratings Of Municipal Securities The Fund Buys. Most of the municipal securities
the Fund buys are "investment grade" at the time of purchase. The Fund does not
invest more than 25% of its total assets in municipal securities that are not
"investment grade" at the time of purchase. "Investment grade" securities are
those rated within the four highest rating categories of Moody's, Standard &
Poor's, Fitch or Duff & Phelps or another nationally recognized rating
organization, or (if unrated) judged by the Manager to be comparable to rated
investment grade securities. Rating categories are described in the Statement of
Additional Information. A reduction in the rating of a security after the Fund
buys it will not automatically require the Fund to dispose of that security.
However, the Manager will evaluate those securities to determine whether to keep
them in the Fund's portfolio.
The Manager may rely to some extent on credit ratings by nationally
recognized rating agencies in evaluating the credit risk of securities selected
for the Fund's portfolio. It may also use its own research and analysis. Many
factors affect an issuer's ability to make timely payments, and the credit risks
of a particular security may change over time.
Special Credit Risks of Lower-Grade Securities. Lower-grade municipal securities
may be subject to greater market fluctuations and greater risks of loss of
income and principal than higher-grade municipal securities. Securities that are
(or that have fallen) below investment grade entail a greater risk that the
issuers may not meet their debt obligations.
Municipal Lease Obligations. Municipal leases are used by state and local
government authorities to obtain funds to acquire land, equipment or facilities.
The Fund can invest in certificates of participation that represent a
proportionate interest in payments made under municipal lease obligations. If
the government stops making payments or transfers its payment obligations to a
private entity, the obligation could lose value or become taxable.
CAN THE FUND'S INVESTMENT OBJECTIVE AND POLICIES CHANGE? The Fund's Board of
Trustees can change non-fundamental policies without shareholder approval,
although significant changes will be described in amendments to this Prospectus.
Fundamental policies cannot be changed without the approval of a majority of the
Fund's outstanding voting shares. The Fund's investment objective is a
fundamental policy. An investment policy and technique is not fundamental unless
this Prospectus or the Statement of Additional Information says it is.
OTHER INVESTMENT STRATEGIES. To seek its objective, the Fund can also use the
investment techniques and strategies described below. The Fund might not always
use all of them. These techniques involve risks although some are designed to
help reduce overall investment or market risks.
Floating Rate/Variable Rate Obligations. Some municipal securities have variable
or floating interest rates. Variable rates are adjustable at stated periodic
intervals. Floating rates are automatically adjusted according to a specified
market rate for such investments, such as the percentage of the prime rate of a
bank, or the 91-day U.S. Treasury Bill rate.
Certain variable rate bonds known as "inverse floaters" pay interest rates
that move in the opposite direction of yields on short-term bonds in response to
market changes. As interest rates rise, inverse floaters produce less current
income, and their market value can become volatile. Inverse floaters are a type
of "derivative security." Some have a "cap," so that if interest rates rise
above the "cap," the security pays additional interest income. If rates do not
rise above the "cap," the Fund will have paid an additional amount for a feature
that proves worthless. The Fund cannot invest more than 20% of its total assets
in inverse floaters.
Other Derivatives. The Fund can also invest in other derivative securities that
pay interest that depend on the change in value of an underlying asset, interest
rate or index. Examples are interest rate swaps, municipal bond indices or swap
indices.
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. Between the purchase and settlement, no payment is
made for the security and no interest accrues to the buyer from the investment.
There is a risk of loss to the Fund if the value of the security declines prior
to the settlement date.
Puts and Stand-By Commitments. The Fund can acquire "stand-by commitments" or
"puts" with respect to municipal securities. The Fund obtains the right to sell
specified securities at a set price on demand to the issuing broker-dealer or
bank. However, this feature may result in a lower interest rate on the security.
The Fund acquires stand-by commitments or puts solely to enhance portfolio
liquidity.
Illiquid and Restricted Securities. Investments may be illiquid because they do
not have an active trading market, making it difficult to value them or dispose
of them promptly at an acceptable price. The Fund will not invest more than 15%
of its net assets in illiquid securities. The Manager monitors holdings of
illiquid securities on an ongoing basis to determine whether to sell any
holdings to maintain adequate liquidity. The Fund cannot buy securities that
have a restriction on resale.
Hedging. The Fund can buy and sell futures contracts, put and call options, or
enter into interest rate swap agreements. These are all referred to as "hedging
instruments." The Fund does not use hedging instruments for speculative
purposes, and has limits on the use of them. The Fund does not use hedging
instruments to a substantial degree and is not required to use them in seeking
its goal.
Hedging involves risk. If the Manager uses a hedging instrument at the
wrong time or judges market conditions incorrectly, the strategy could reduce
the Fund's return. The Fund could also experience losses if the prices of its
futures and options positions were not correlated with its other investments or
if it could not close out a position because of an illiquid market for the
future or option.
Temporary Defensive Investments. The Fund can invest up to 100% of its total
assets in temporary defensive investments during periods of unusual market
conditions. Generally, they would be short-term municipal securities but could
be U.S. Government securities or highly-rated corporate debt securities. The
income from some temporary defensive investments may not be tax-exempt, and
therefore when making those investments the Fund might not achieve its
objective. The Fund can also hold cash and cash equivalents pending the
investment of proceeds from the sale of Fund shares or portfolio securities or
to meet anticipated redemptions of Fund shares.
How the Fund is Managed
THE MANAGER. The Fund's investment Manager, OppenheimerFunds, Inc., selects 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 the fees paid by the Fund to the Manager and describes the
expenses that the Fund is responsible to pay to conduct its business.
The Manager has operated as an investment advisor since 1960. The Manager
(including subsidiaries) currently manages more than $110 billion of assets as
of September 30, 1999, including other Oppenheimer funds with more than 5
million shareholder accounts. The Manager is located at Two World Trade Center,
34th Floor, New York, New York 10048-0203.
Portfolio Manager. The portfolio manager of the Fund is Christian D. Smith, a
Senior Vice President of the Manager. He is the person principally responsible
for the day-to-day management of the Fund's portfolio and became the Fund's
portfolio manager on November 1, 1999. Mr. Smith is a Vice President of the Fund
and also serves as an officer and portfolio manager for other Oppenheimer funds.
Prior to joining OppenheimerFunds in September 1999, he was Co-Head of the
Municipal Portfolio Management Team of Prudential Global Asset Management, prior
to which he was a portfolio manager for that firm (January 1990-January 1999).
Advisory Fees. Under the investment advisory agreement, the Fund pays the
Manager an advisory fee at an annual rate which declines as the Fund's assets
grow: 0.60% of the first $200 million of average annual 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 average annual net assets
over $1 billion. The Fund's management fee for its last fiscal year ended July
31, 1999, was 0.55% of average annual net assets for each class of shares.
YEAR 2000 ISSUES. Because many computer software systems in use today cannot
distinguish the year 2000 from the year 1900, the markets for securities in
which the Fund invests could be detrimentally affected by computer failures
beginning January 1, 2000. Failure of computer systems used for securities
trading could result in settlement and liquidity problems for the Fund and other
investors. That failure could have a negative impact on handling securities
trades, pricing and accounting services. Data processing errors by government
issuers of securities could result in economic uncertainties, and issuers may
incur substantial costs in attempting to prevent or fix such errors, all of
which could have a negative effect on the Fund's investments and returns.
The Manager, the Distributor and the Transfer Agent have been working on
necessary changes to their computer systems to deal with the year 2000 and
expect that their systems will be adapted in time for that event, although there
cannot be assurance of success. Additionally, the services they provide depend
on the interaction of their computer systems with those of brokers, information
services, the Fund's custodian bank and other parties. Therefore, any failure of
the computer systems of those parties to deal with the year 2000 may also have a
negative effect on the services they provide to the Fund. The extent of that
risk cannot be ascertained at this time.
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ABOUT YOUR ACCOUNT
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How to Buy Shares
HOW DO YOU BUY SHARES? You can buy shares several ways, as described below. The
Fund's Distributor, OppenheimerFunds Distributor, Inc., may appoint certain
servicing agents to accept purchase (and redemption) orders. The Distributor, in
its sole discretion, may reject any purchase order for the Fund's shares.
Buying Shares Through Your Dealer. You can buy shares through any dealer,
broker, or financial institution that has a sales agreement with the
Distributor. 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 with a financial
advisor before your make a purchase to be sure that the Fund is appropriate for
you.
o Paying by Federal Funds Wire. Shares purchased through the Distributor may be
paid for by Federal Funds wire. The minimum investment is $2,500. Before
sending a wire, call the Distributor's Wire Department at 1-800-525-7048 to
notify the Distributor of the wire, and to receive further instructions.
o Buying Shares Through OppenheimerFunds AccountLink. With AccountLink, you pay
for shares by electronic funds transfers from your bank account. Shares are
purchased for your account by a transfer of money from your bank account
through the Automated Clearing House (ACH) transfer to buy the shares. You
can provide those instructions automatically, under an Asset Builder Plan,
described below, or by telephone instructions using OppenheimerFunds
PhoneLink, also described below. Please refer to "AccountLink," below for
more details.
o Buying Shares Through Asset Builder Plans. You may purchase shares of the
Fund (and up to four other Oppenheimer funds) automatically each month from
your account at a bank or other financial institution under an Asset Builder
Plan with AccountLink. Details are in the Asset Builder Application and the
Statement of Additional Information.
HOW MUCH MUST YOU INVEST? You can open a Fund account with a minimum initial
investment of $1,000. You can make additional investments at any time with as
little as $25. There are reduced minimum investments under special investment
plans.
o With Asset Builder Plans, Automatic Exchange Plans and military allotment
plans, you can make initial and subsequent investments for as little as $25.
You can make additional purchases of at least $25 by telephone through
AccountLink.
o The minimum investment requirement does not apply to reinvesting dividends
from the Fund or other Oppenheimer funds (a list of them appears in the
Statement of Additional Information, or you can ask your dealer or call the
Transfer Agent), or reinvesting distributions from unit investment trusts
that have made arrangements with the Distributor.
AT WHAT PRICE ARE SHARES SOLD? Shares are sold at their offering price, which is
the net asset value per share plus any initial sales charge that applies. The
offering price that applies to a purchase order is based on the next calculation
of the net asset value per share that is made after the Distributor receives the
purchase order at its offices in Denver, Colorado, or after any agent appointed
by the Distributor receives the order and sends it to the Distributor.
o Net Asset Value. The Fund calculates the net asset value of each class of
shares as of the close of The New York Stock Exchange, on each day the
Exchange is open for trading (referred to in this Prospectus as a "regular
business day"). The Exchange normally closes at 4:00 P.M., New York time, but
may close earlier on some days. All references to time in this Prospectus
mean "New York time".
The net asset value per share is determined by dividing the value of the
Fund's net assets attributable to a class by the number of shares of that class
that are outstanding. To determine net asset value, the Fund's Board of Trustees
has established procedures to value the Fund's securities, in general based on
market value. The Board has adopted special procedures for valuing illiquid
securities and obligations for which market values cannot be readily obtained.
The Offering Price. To receive the offering price for a particular day, in most
cases the Distributor or its designated agent must receive your order by the
time of day The New York Stock Exchange closes that day. If your order is
received on a day when the Exchange is closed or after it has closed, the order
will receive the next offering price that is determined after your order is
received.
Buying through a dealer. If you buy shares through a dealer, your dealer must
receive the order by the close of The New York Stock Exchange and transmit it to
the Distributor so that it is received before the Distributor's close of
business on a regular business day (normally 5:00 P.M.) to receive that day's
offering price. Otherwise, the order will receive the next offering price that
is determined.
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WHAT CLASSES OF SHARES DOES THE FUND OFFER? The Fund offers investors three
different classes of shares. The different classes of shares represent
investments in the same portfolio of securities, but the classes are subject to
different expenses and will likely have different share prices. When you buy
shares, be sure to specify Class A, Class B or Class C shares. If you do not
choose a class, your investment will be made in Class A shares.
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Class A Shares. If you buy Class A shares, you pay an initial sales charge (on
investments up to $1 million). The amount of that sales charge will vary
depending on the amount you invest. The sales charge rates are listed in "How
Can You Buy Class A Shares?" below.
Class B Shares. If you buy Class B shares, you pay no sales charge at the time
of purchase, but you will pay an annual asset-based sales charge. 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 "How Can You Buy Class B Shares?" below.
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Class C Shares. If you buy Class C shares, you pay no sales charge at the time
of purchase, but you will pay an annual asset-based sales charge. If you sell
your shares within 12 months of buying them, you will normally pay a contingent
deferred sales charge of 1%, as described in "How Can You Buy 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 best
suited to your needs depends on a number of factors that you should discuss with
your financial advisor. Some factors to consider are how much you plan to invest
and how long you plan to hold your investment. If your goals and objectives
change over time and you plan to purchase additional shares, you should
re-evaluate those factors to see if you should consider another class of shares.
The Fund's operating costs that apply to a class of shares and the effect of the
different types of sales charges on your investment will vary your investment
results over time.
The discussion below is not intended to be investment advice or a
recommendation, because each investor's financial considerations are different.
You should review these factors with your financial advisor. The discussion
below assumes that you will purchase only one class of shares and not a
combination of shares of different classes.
How Long Do You Expect to Hold Your Investment? While future financial needs
cannot be predicted with certainty, knowing how long you expect to hold your
investment will assist you in selecting the appropriate class of shares. Because
of the effect of class-based expenses, your choice will also depend on how much
you plan to invest. For example, the reduced sales charges available for larger
purchases of Class A shares may, over time, offset the effect of paying an
initial sales charge on your investment, compared to the effect over time of
higher class-based expenses on shares of Class B or Class C.
o Investing for the Shorter Term. While the Fund is meant to be a long-term
investment, if you
have a relatively short-term investment horizon (that is, you plan to hold your
shares for not more than six years), you should probably consider purchasing
Class A or Class C shares rather than Class B shares. That is because of the
effect of the Class B contingent deferred sales charge if you redeem within six
years, as well as the effect of the Class B asset-based sales charge on the
investment return for that class in the short term. Class C shares might be the
appropriate choice (especially for investments of less than $100,000), because
there is no initial sales charge on Class C shares, and the contingent deferred
sales charge does not apply to amounts you sell after holding them one year.
However, if you plan to invest more than $100,000 for the shorter term,
then as your investment horizon increases toward six years, Class C shares might
not be as advantageous as Class A shares. That is because the annual asset-based
sales charge on Class C shares will have a greater impact on your account over
the longer term than the reduced front-end sales charge available for larger
purchases of Class A shares.
And for investors who invest $1 million or more, in most cases Class A
shares will be the most advantageous choice, no matter how long you intend to
hold your shares. For that reason, the Distributor normally will not accept
purchase orders of $500,000 or more of Class B shares or $1 million or more of
Class C shares from a single investor.
o Investing for the Longer Term. If you are investing less than $100,000 for
the longer term,
for example for retirement, and do not expect to need access to your money for
seven years or more, Class B shares may be appropriate.
Of course, these examples are based on approximations of the effect of
current sales charges and expenses projected over time, and do not detail all of
the considerations in selecting a class of shares. You should analyze your
options carefully with your financial advisor before making that choice.
Are There Differences In Account Features That Matter To You? Some account
features (such as checkwriting) may not be available to Class B or Class C
shareholders. Other features (such as Automatic Withdrawal Plans) may not be
advisable (because of the effect of the contingent deferred sales charge) for
Class B or Class C shareholders. Therefore, you should carefully review how you
plan to use your investment account before deciding which class of shares to
buy. Additionally, the dividends payable to Class B and Class C shareholders
will be reduced by the additional expenses borne by those classes that are not
borne by Class A shares, such as the Class B and Class C asset-based sales
charge described below and in the Statement of Additional Information. Share
certificates and checkwriting privileges are not available for Class B and Class
C shares, and if you are considering using your shares as collateral for a loan,
that may be a factor to consider.
How Does It Affect Payments to My Broker? A salesperson, such as a broker, may
receive different compensation for selling one class of shares than for selling
another class. It is important to remember that Class B and Class C contingent
deferred sales charges and asset-based sales charges have the same purpose as
the front-end sales charge on sales of Class A shares: to compensate the
Distributor for commissions and expenses it pays to dealers and financial
institutions for selling shares. The Distributor may pay additional compensation
from its own resources to securities dealers or financial institutions based
upon the value of shares of the Fund owned by the dealer or financial
institution for its own account or for its customers.
SPECIAL SALES CHARGE ARRANGEMENTS AND WAIVERS. Appendix C to the Statement of
Additional Information details the conditions for the waiver of sales charges
that apply in certain cases, and the special sales charge rates that apply to
purchases of shares of the Fund by certain groups, or under specified retirement
plan arrangements or in other special types of transactions. To receive a waiver
or special sales charge rate, you must advise the Distributor when purchasing
shares or the Transfer Agent when redeeming shares that the special conditions
apply.
HOW CAN YOU BUY CLASS A SHARES? Class A shares are sold at their offering price,
which is normally net asset value plus an initial sales charge. However, in some
cases, described below, purchases are not subject to an initial sales charge,
and the offering price will be the net asset value. In other cases, reduced
sales charges may be available, as described below or in the Statement of
Additional Information. Out of the amount you invest, the Fund receives the net
asset value to invest for your account.
The sales charge varies depending on the amount of your purchase. A
portion of the sales charge may be retained by the Distributor or allocated to
your dealer as commission. The Distributor reserves the right to reallow the
entire commission to dealers. The current sales charge rates and commissions
paid to dealers and brokers are as follows:
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Front-End Sales Front-End Sales
Commission As a
Charge As a Charge As
a Percentage of
Percentage of Percentage of Net Offering
Amount of Purchase Offering Price Amount Invested Price
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Less than $50,000 4.75% 4.98% 4.00%
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$50,000 or more but 4.50% 4.71% 4.00%
less than $100,000
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$100,000 or more but 3.50% 3.63% 3.00%
less than $250,000
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$250,000 or more but 2.50% 2.56% 2.25%
less than $500,000
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$500,000 or more but 2.00% 2.04% 1.80%
less than $1 million
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Class A Contingent Deferred Sales Charge. There is no initial sales charge on
purchases of Class A shares of any one or more of the Oppenheimer funds
aggregating $1 million or more. The Distributor pays dealers of record
commissions in an amount equal to 0.50% of purchases of $1 million or more other
than by retirement accounts. That commission will be paid only on purchases that
were not previously subject to a front-end sales charge and dealer commission.
If you redeem any of those shares within 18 months of the end of the
calendar month of their purchase, a contingent deferred sales charge (called the
"Class A contingent deferred sales charge") may be deducted from the redemption
proceeds. That sales charge will be equal to 1.0% of the lesser of (1) the
aggregate net asset value of the redeemed shares at the time of redemption
(excluding shares purchased by reinvestment of dividends or capital gain
distributions) or (2) the original net asset value of the redeemed shares.
However, the Class A contingent deferred sales charge will not exceed the
aggregate amount of the commissions the Distributor paid to your dealer on all
purchases of Class A shares of all Oppenheimer funds you made that were subject
to the Class A contingent deferred sales charge.
In determining whether a contingent deferred sales charge is payable when
shares are redeemed, the Fund will first redeem shares that are not subject to
the sales charge, including shares purchased by reinvestment of dividends and
capital gains. Then the Fund will redeem other shares in the order in which you
purchased them.
The Class A contingent deferred sales charge is not charged on exchanges
of shares under the Fund's Exchange Privilege (described below). However, if the
shares acquired by exchange are redeemed within 18 calendar months of the end of
the calendar month in which the exchanged shares were originally purchased, then
the sales charge will apply.
HOW CAN YOU REDUCE SALES CHARGES IN BUYING CLASS A SHARES? You may be eligible
to buy Class A shares at reduced sales charge rates under the Fund's "Right of
Accumulation" or a Letter of Intent, as described in "Reduced Sales Charges" in
the Statement of Additional Information. The Class A initial and contingent
deferred sales charges are not imposed in the circumstances described in
"Reduced Sales Charges" in the Statement of Additional Information.
HOW CAN YOU BUY CLASS B SHARES? Class B shares are sold at net asset value per
share without an initial sales charge. However, if Class B shares are redeemed
within 6 years of their purchase, a contingent deferred sales charge will be
deducted from the redemption proceeds. The Class B contingent deferred sales
charge is paid to compensate the Distributor for its expenses of providing
distribution-related services to the Fund in connection with the sale of Class B
shares.
The contingent deferred sales charge will be based on the lesser of the
net asset value of the redeemed shares at the time of redemption or the original
net asset value. The contingent deferred sales charge is not imposed on: o the
amount of your account value represented by an increase in net asset
value over the initial purchase price or
o shares purchased by the reinvestment of dividends or capital gains
distributions.
o shares redeemed in the special circumstances described in Appendix C to the
Statement of Additional Information.
To determine whether the contingent deferred sales charge applies to a
redemption, the Fund redeems shares in the following order:
1. shares acquired by reinvestment of dividends and capital gains distributions,
2. shares held for over 6 years, and
3. shares held the longest during the 6-year period.
The amount of the contingent deferred sales charge will depend on the
number of years since you invested and the dollar amount being redeemed,
according to the following schedule:
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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)
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0-1 5.0%
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1-2 4.0%
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2-3 3.0%
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3-4 3.0%
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4-5 2.0%
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5-6 1.0%
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6 and following None
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In the table, a "year" is a 12-month period. In applying the sales charge, all
purchases are considered to have been made on the first regular business day of
the month in which the purchase was made.
Automatic Conversion of Class B Shares. Class B shares automatically convert to
Class A shares 72 months after you purchase them. This conversion feature
relieves Class B shareholders of the asset-based sales charge that applies to
Class B shares under the Class B Distribution and Service Plan, described below.
The conversion is based on the relative net asset value of the two classes, and
no sales load or other charge is imposed. When any Class B shares you hold
convert, any other Class B shares that were acquired by reinvesting any
dividends and distributions on the converted shares will also convert to Class A
shares. The conversion feature is subject to the continued availability of a tax
ruling described in the Statement of Additional Information.
HOW CAN YOU BUY CLASS C SHARES? Class C shares are sold at net asset value per
share without an initial sales charge. However, if Class C shares are redeemed
within 12 months of their purchase, a contingent deferred sales charge of 1.0%
will be deducted from the redemption proceeds. The Class C contingent deferred
sales charge is paid to compensate the Distributor for its expenses of providing
distribution-related services to the Fund in connection with the sale of Class C
shares.
The contingent deferred sales charge will be based on the lesser of the
net asset value of the redeemed shares at the time of redemption or the original
net asset value. The contingent deferred sales charge is not imposed on: o the
amount of your account value represented by the increase in net asset
value over the initial purchase price
o shares purchased by the reinvestment of dividends or capital gains
distributions, or
o shares redeemed in the special circumstances described in the Appendix to the
Statement of Additional Information.
To determine whether the contingent deferred sales charge applies to a
redemption, the Fund redeems shares in the following order:
1.shares acquired by reinvestment of dividends and capital gains distributions,
2.shares held for over 12 months, and
3.shares held the longest during the 12-month period.
DISTRIBUTION AND SERVICE (12B-1) PLANS
Service Plan for Class A Shares. The Fund has adopted a Service Plan for Class A
shares. It reimburses the Distributor for a portion of its costs incurred for
services provided to accounts that hold Class A shares. Reimbursement is made
quarterly at an annual rate of up to 0.25% of the average annual net assets of
Class A shares of the Fund. The Distributor currently uses all of those fees to
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.
Distribution and Service Plans for Class B and Class C Shares. The Fund has
adopted Distribution and Service Plans for Class B and Class C shares to
compensate the Distributor for its services and costs in distributing Class B
and Class C shares and servicing accounts. Under the plans, the Fund pays the
Distributor an annual asset-based sales charge of 0.75% per year on Class B
shares and on Class C shares. The Distributor also receives a service fee of
0.25% per year under each plan.
The asset-based sales charge and service fees increase Class B and Class C
expenses by up to 1.00% of the net assets per year of the respective class.
Because these fees are paid out of the Fund's assets on an ongoing basis, over
time these fees will increase the cost of your investment and may cost you more
than other types of sales charges.
The Distributor uses the service fees to compensate dealers for providing
personal services for accounts that hold Class B or Class C shares. The
Distributor pays the 0.25% service fees to dealers in advance for the first year
after the shares were sold by the dealer. After the shares have been held for a
year, the Distributor pays the service fees to dealers on a quarterly basis.
The Distributor currently pays a 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.
Special Investor Services
ACCOUNT LINK. You can use our AccountLink feature to link your Fund account with
an account at a U.S. bank or other financial institution. It must be an
Automated Clearing House (ACH) member. AccountLink lets you:
o transmit funds electronically to purchase shares by telephone (through a
service representative or by PhoneLink) or automatically under Asset
Builder Plans, or
o have the Transfer Agent send redemption proceeds or to transmit dividends
and distributions directly to your bank account. Please call the Transfer
Agent for more information.
You can purchase shares by telephone only after your account has been
established. To purchase shares in amounts up to $250,000 through a telephone
representative, call the Distributor at 1-800-852-8457. The purchase payment
will be debited from your bank account.
AccountLink privileges should be requested on your Application or your
dealer's settlement instructions if you buy your shares through a dealer. After
your account is established, you can request AccountLink privileges by sending
signature-guaranteed instructions to the Transfer Agent. AccountLink privileges
will apply to each shareholder listed in the registration on your account as
well as to your dealer representative of record unless and until the Transfer
Agent receives written instructions terminating or changing those privileges.
After you establish AccountLink for your account, any change of bank account
information must be made by signature-guaranteed instructions to the Transfer
Agent signed by all shareholders who own the account.
PHONELINK. PhoneLink is the OppenheimerFunds automated telephone system that
enables shareholders to perform a number of account transactions automatically
using a touch-tone phone. PhoneLink may be used on already-established Fund
accounts after you obtain a Personal Identification Number (PIN), by calling the
special PhoneLink number, 1-800-533-3310.
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 OppenheimerFunds account you have already established by calling the
special PhoneLink number.
Selling Shares. You can redeem shares by telephone automatically by calling the
PhoneLink number and the Fund will send the proceeds directly to your
AccountLink bank account. Please refer to "How to Sell Shares," below for
details.
CAN YOU SUBMIT TRANSACTION REQUESTS BY FAX? You may send requests for certain
types of account transactions to the Transfer Agent by fax (telecopier). Please
call 1-800-525-7048 for information about which transactions may be handled this
way. Transaction requests submitted by fax are subject to the same rules and
restrictions as written and telephone requests described in this Prospectus.
OPPENHEIMERFUNDS INTERNET WEB SITE. You can obtain information about the Fund,
as well as your account balance, on the OppenheimerFunds Internet web site, at
http://www.oppenheimerfunds.com. Additionally, shareholders listed in the
account registration (and the dealer of record) may request certain account
transactions through a special section of that web site. To perform account
transactions, you must first obtain a personal identification number (PIN) by
calling the Transfer Agent at 1-800-533-3310. If you do not want to have
Internet account transaction capability for your account, please call the
Transfer Agent at 1-800-525-7048.
AUTOMATIC WITHDRAWAL AND EXCHANGE PLANS. The Fund has several plans that enable
you to sell shares automatically or exchange them to another Oppenheimer fund
account on a regular basis. Please call the Transfer Agent or consult the
Statement of Additional Information for details.
REINVESTMENT PRIVILEGE. If you redeem some or all of your Class A or Class B
shares of the Fund, you have up to 6 months to reinvest all or part of the
redemption proceeds in Class A shares of the Fund or other Oppenheimer funds
without paying a sales charge. This privilege applies only to Class A shares
that you purchased subject to an initial sales charge and to Class A or Class B
shares on which you paid a contingent deferred sales charge when you redeemed
them. This privilege does not apply to Class C shares. You must be sure to ask
the Distributor for this privilege when you send your payment.
How to Sell Shares
You can sell (redeem) some or all of your shares on any regular business
day. Your shares will be sold at the next net asset value calculated after your
order is received in proper form (which means that it must comply with the
procedures described below) and is accepted by the Transfer Agent. The Fund lets
you sell your shares by writing a letter, by using the Fund's checkwriting
privilege or by telephone. You can also set up Automatic Withdrawal Plans to
redeem shares on a regular basis. If you have questions about any of these
procedures, and especially if you are redeeming shares in a special situation,
such as due to the death of the owner, please call the Transfer Agent first, at
1-800-525-7048, for assistance.
Certain Requests Require a Signature Guarantee. To protect you and the Fund from
fraud, the following redemption requests must be in writing and must include a
signature guarantee (although there may be other situations that also require a
signature guarantee):
|_| You wish to redeem more than $100,000 and receive a check
|_| The redemption check is not payable to all shareholders listed on the
account statement
|_| The redemption check is not sent to the address of record on your
account statement
|_| Shares are being transferred to a Fund account with a different owner
or name
|_| Shares are being redeemed by someone (such as an Executor) other than
the owners
Where Can You Have Your Signature Guaranteed? The Transfer Agent will accept a
guarantee of your signature by a number of financial institutions, including: a
U.S. bank, trust company, credit union or savings association, or by a foreign
bank that has a U.S. correspondent bank, or by a U.S. registered dealer or
broker in securities, municipal securities or government securities, or by a
U.S. national securities exchange, a registered securities association or a
clearing agency. If you are signing on behalf of a corporation, partnership or
other business or as a fiduciary, you must also include your title in the
signature.
HOW DO YOU SELL SHARES BY MAIL? Write a "letter of instructions" that includes:
o Your name o The Fund's name o Your Fund account number (from your account
statement) o The dollar amount or number of shares to be redeemed o Any special
payment instructions o Any share certificates for the shares you are selling o
The signatures of all registered owners exactly as the account is registered,
and
o Any special documents requested by the Transfer Agent to assure proper
authorization of the person asking to sell the shares.
--------------------------------------------------------------------------------
Use the following address for requests by mail:
--------------------------------------------------------------------------------
OppenheimerFunds Services
--------------------------------------------------------------------------------
P.O. Box 5270
-------------------------------------------------------------------------------
Denver, Colorado 80217-5270
--------------------------------------------------------------------------------
Send courier or express mail requests to:
--------------------------------------------------------------------------------
OppenheimerFunds Services
10200 E. Girard Avenue, Building D
Denver, Colorado 80231
HOW DO YOU SELL SHARES BY TELEPHONE? You and your dealer representative of
record may also sell your shares by telephone. To receive the redemption price
calculated on a particular regular business day, your call must be received by
the Transfer Agent by the close of The New York Stock Exchange that day, which
is normally 4:00 P.M., but may be earlier on some days. You may not redeem
shares held under a share certificate by telephone.
o To redeem shares through a service representative, call 1-800-852-8457
o To redeem shares automatically on PhoneLink, call 1-800-533-3310
Whichever method you use, you may have a check sent to the address on the
account statement, or, if you have linked your Fund account to your bank account
on AccountLink, you may have the proceeds sent to that bank account.
ARE THERE LIMITS ON AMOUNTS REDEEMED BY TELEPHONE?
Telephone Redemptions Paid by Check. Up to $100,000 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 write checks against your Fund account, request that privilege
on your account Application, or contact the Transfer Agent for signature cards.
They must be signed (with a signature guarantee) by all owners of the account
and returned to the Transfer Agent so that checks can be sent to you to use.
Shareholders with joint accounts can elect in writing to have checks paid over
the signature of one owner. If you previously signed a signature card to
establish checkwriting in another Oppenheimer fund, simply call 1-800-525-7048
to request checkwriting for an account in this Fund with the same registration
as the other account.
o Checks can be written to the order of whomever you wish, but may not be
cashed at the bank the checks are payable through or the Fund's bank or the
Custodian bank.
o Checkwriting privileges are not available for accounts holding shares that
are subject to a contingent deferred sales charge.
o Checks must be written for at least $100.
o Checks cannot be paid if they are written for more than your account value.
Remember, your shares fluctuate in value and you should not write a check
close to the total account value.
o You may not write a check that would require the Fund to redeem shares that
were purchased by check or Asset Builder Plan payments within the prior 10
days.
o Don't use your checks if you changed your Fund account number, until you
receive new checks.
Can You Sell 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. If your shares are held in the
name of your dealer, you must redeem them through your dealer.
How to Exchange Shares
Shares of the Fund may be exchanged for shares of certain Oppenheimer funds at
net asset value per share at the time of exchange, without sales charge. To
exchange shares, you must meet several conditions:
o Shares of the fund selected for exchange must be available for sale in your
state of residence.
o The prospectuses of this Fund and the fund whose shares you want to buy must
offer the exchange privilege.
o You must hold the shares you buy when you establish your account for at least
7 days before you can exchange them. After the account is open 7 days, you
can exchange shares every regular business day.
o You must meet the minimum purchase requirements for the fund whose shares you
purchase by exchange.
o Before exchanging into a fund, you must obtain and read its prospectus.
Shares of a particular class of the Fund may be exchanged only for shares
of the same class in the other Oppenheimer funds. For example, you can exchange
Class A shares of this Fund only for Class A shares of another fund. In some
cases, sales charges may be imposed on exchange transactions. For tax purposes,
exchanges of shares involve a sale of the shares of the fund you own and a
purchase of the shares of the other fund, which may result in a capital gain or
loss. Please refer to "How to Exchange Shares" in the Statement of Additional
Information for more details.
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.
HOW DO I SUBMIT EXCHANGE REQUESTS? Exchanges may be requested in writing or by
telephone:
o Written Exchange Requests. Submit an OppenheimerFunds Exchange Request
form, signed by all owners of the account. Send it to the Transfer Agent at
the address on the Back Cover.
o Telephone Exchange Requests. Telephone exchange requests may be made either
by calling a service representative at 1-800-852-8457, or by using PhoneLink
for automated exchanges by calling 1-800-533-3310. Telephone exchanges may be
made only between accounts that are registered with the same name(s) and
address. Shares held under certificates may not be exchanged by telephone.
ARE THERE LIMITATIONS ON EXCHANGES? There are certain exchange policies you
should be aware of:
o Shares are normally redeemed from one fund and purchased from the other fund
in the exchange transaction on the same regular business day on which the
Transfer Agent receives an exchange request that conforms to the policies
described above. It must be received by the close of The New York Stock
Exchange that day, which is normally 4:00 P.M. but may be earlier on some
days. However, either fund may delay the purchase of shares of the fund you
are exchanging into up to seven days if it determines it would be
disadvantaged by a same-day exchange. For example, the receipt of multiple
exchange requests from a "market timer" might require the Fund to sell
securities at a disadvantageous time and/or price.
o Because excessive trading can hurt fund performance and harm shareholders,
the Fund reserves the right to refuse any exchange request that it believes
will disadvantage it, or to refuse multiple exchange requests submitted by a
shareholder or dealer.
o The Fund may amend, suspend or terminate the exchange privilege at any time.
Although the Fund will attempt to provide you notice whenever it is
reasonably able to do so, it may impose these changes at any time.
o 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
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 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. The Transfer Agent and the Fund will not be liable for
losses or expenses arising out of telephone instructions reasonably believed to
be genuine.
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. The redemption price, which
is the net asset value per share, will normally differ for each class of shares.
The redemption value of your shares may be more or less than their original
cost.
Payment for redeemed shares ordinarily is made in cash. It is forwarded by
check, through AccountLink (as elected by the shareholder) within seven days
after the Transfer Agent receives redemption instructions in proper form.
However, under unusual circumstances determined by the Securities and Exchange
Commission, payment may be delayed or suspended. For accounts registered in the
name of a broker-dealer, payment will normally be forwarded within three
business days after redemption.
The Transfer Agent may delay forwarding a check or processing a payment via
AccountLink for recently purchased shares, but only until the purchase payment
has cleared. That delay may be as much as 10 days from the date the shares were
purchased. That delay may be avoided if you purchase shares by federal funds
wire or certified check, or arrange with your bank to provide telephone or
written assurance to the Transfer Agent that your purchase payment has cleared.
Involuntary redemptions of small accounts may be made by the Fund if the account
value has fallen below $200 for reasons other than the fact that the market
value of shares has dropped. In some cases involuntary redemptions may be made
to repay the Distributor for losses from the cancellation of share purchase
orders.
Shares may be "redeemed in kind" under unusual circumstances (such as a lack of
liquidity in the Fund's portfolio to meet redemptions). This means that the
redemption proceeds will be paid with securities from the Fund's portfolio.
"Backup Withholding" of federal income tax may be applied against taxable
dividends, distributions and redemption proceeds (including exchanges) if you
fail to furnish the Fund your correct, certified Social Security or Employer
Identification Number when you sign your application, or if you under-report
your income to the Internal Revenue Service.
To avoid sending duplicate copies of materials to households, the Fund will mail
only one copy of each annual and semi-annual report to shareholders having the
same last name and address on the Fund's records. However, each shareholder may
call the Transfer Agent at 1-800-525-7048 to ask that copies of those materials
be sent personally to that shareholder.
Dividends and Taxes
DIVIDENDS. The Fund intends to declare 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 to pay those dividends to shareholders monthly on a
date selected by the Board of Trustees. Daily dividends will not be declared or
paid on newly purchased shares until Federal Funds are available to the Fund
from the purchase payment for such shares.
The Fund attempts to pay dividends on Class A shares at a constant level.
There is no assurance that it will be able to do so. The Board of Trustees may
change the targeted dividend level at any time, without prior notice to
shareholders. Additionally, the amount of those dividends and the distributions
paid on class B and C shares may vary over time, depending on market conditions,
the composition of the Fund's portfolio, and expenses borne by the particular
class of shares. Dividends and distributions paid on Class A shares will
generally be higher than for Class B and Class C shares, which normally have
higher expenses than Class A. The Fund cannot guarantee that it will pay any
dividends or distributions.
CAPITAL GAINS. Although the Fund does not seek capital gains, it may realize
capital gains on the sale of portfolio securities. If it does, it may make
distributions out of any net short-term or long-term capital gains in December
of each year. The Fund may make supplemental distributions of dividends and
capital gains following the end of its fiscal year. Long-term capital gains will
be separately identified in the tax information the Fund sends you after the end
of the calendar year.
WHAT CHOICES DO I HAVE FOR RECEIVING DISTRIBUTIONS? When you open your account,
specify on your application how you want to receive your dividends and
distributions. You have four options:
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 Dividends or Capital Gains. You can elect to reinvest some
distributions (dividends, short-term capital gains or long-term capital gains
distributions) in the Fund while receiving the other types of distributions by
check or having them sent to your bank account through 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 through AccountLink.
Reinvest Your Distributions in Another OppenheimerFunds Account. You can
reinvest all distributions in the same class of shares of another
OppenheimerFunds account you have established.
TAXES. Dividends paid from net investment income earned by the Fund on municipal
securities will be excludable from gross income for federal individual income
tax purposes. A portion of a dividend that is derived from interest paid on
certain "private activity bonds" may be an item of tax preference if you are
subject to the alternative minimum tax. If the Fund earns interest on taxable
investments, any dividends derived from those earnings will be taxable as
ordinary income to shareholders.
Dividends paid by the Fund from interest on California municipal
securities will be exempt from California individual income taxes, if at the
close of each quarter at least 50% of the value of the Fund's assets are
invested in debt obligations that pay interest exempt from California individual
income taxes. Dividends paid from income from municipal securities of issuers
outside California will normally be subject to California individual income
taxes.
Dividends and capital gains distributions may be subject to state or local
taxes. Long-term capital gains are taxable as long-term capital gains when
distributed to shareholders, and may be taxable at different rates depending on
how long the Fund holds the asset. It does not matter how long you have held
your shares. Dividends paid from short-term capital gains are taxable as
ordinary income. Whether you reinvest your distributions in additional shares or
take them in cash, the tax treatment is the same. Every year the Fund will send
you and the IRS a statement showing the amount of any taxable distribution you
received in the previous year as well as the amount of your tax-exempt income.
Remember, There May be Taxes on Transactions. Even though the Fund seeks to
distribute tax-exempt income to shareholders, you may have a capital gain or
loss when you sell or exchange your shares. A capital gain or loss is the
difference between the price you paid for the shares and the price you received
when you sold them. Any capital gain is subject to capital gains tax.
Returns of Capital Can Occur. In certain cases, distributions made by the Fund
may be considered a non-taxable return of capital to shareholders. If that
occurs, it will be identified in notices to shareholders.
This information is only a summary of certain federal income tax
information about your investment. You should consult with your tax adviser
about the effect of an investment in the Fund on your particular tax situation.
<PAGE>
Financial Highlights
The Financial Highlights Table is presented to help you understand the Fund's
financial performance for the past 5 fiscal years. Certain information reflects
financial results for a single Fund share. The total returns in the table
represent the rate that an investor would have earned (or lost) on an investment
in the Fund, assuming reinvestment of all dividends and distributions. This
information has been audited by KPMG LLP, the Fund's independent auditors, whose
report, along with the Fund's financial statements, is included in the Statement
of Additional Information, which is available on request.
<PAGE>
--------------------------------------------------------------------------------
Financial Highlights
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended | Year Ended|
July 31, | December 31,|
Class A 1999 1998
1997 1996(1)| 1995 1994|
==========================================================================================================================
Per Share Operating Data
<S> <C> <C>
<C> <C> <C> <C>
Net asset value, beginning of period $10.92 $10.94
$10.39 $10.69 $ 9.45 $10.97
--------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .53 .54
.58 .33 .58 .60
Net realized and unrealized gain (loss) (.35) .06
.54 (.30) 1.25 (1.51)
------ ------
------ ------ ------ ------
Total income (loss) from
investment operations .18 .60
1.12 .03 1.83 (.91)
--------------------------------------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income (.53) (.54)
(.57) (.33) (.58) (.61)
Dividends in excess of net
investment income -- --
-- -- (.01) --
Distributions from net realized gain -- (.08)
-- -- -- --
------ ------
------ ------ ------ ------
Total dividends and distributions
to shareholders (.53) (.62)
(.57) (.33) (.59) (.61)
--------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $10.57 $10.92
$10.94 $10.39 $10.69 $ 9.45
====== ======
====== ====== ====== ======
==========================================================================================================================
Total Return, at Net Asset Value(2) 1.59% 5.66%
11.11% 0.34% 19.76% (8.49)%
==========================================================================================================================
Ratios/Supplemental Data
Net assets, end of period
(in thousands) $316,363 $300,717
$298,162 $286,033 $285,307 $219,682
--------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $314,094 $297,372
$289,439 $279,796 $250,188 $248,850
--------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:(3)
Net investment income 4.79% 4.91%
5.49% 5.53% 5.64% 5.99%
Expenses 0.91% 0.92%(4)
0.94%(4) 0.97%(4) 0.95%(4) 0.96%
--------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(5) 35% 31%
31% 14% 23% 22%
</TABLE>
1. For the seven months ended July 31, 1996. The Fund changed its fiscal year
end from December 31 to July 31. 2. Assumes a $1,000 hypothetical initial
investment on the business day before the first day of the fiscal period (or
inception of offering), with all dividends and distributions reinvested in
additional shares on the reinvestment date, and redemption at the net asset
value calculated on the last business day of the fiscal period. Sales charges
are not reflected in the total returns. Total returns are not annualized for
periods of less than one full year. 3. Annualized for periods of less than one
full year.
4. Expense ratio reflects the effect of expenses paid indirectly by the Fund. 5.
The lesser of purchases or sales of portfolio securities for a period, divided
by the monthly average of the market value of portfolio securities owned during
the period. Securities with a maturity or expiration date at the time of
acquisition of one year or less are excluded from the calculation. Purchases and
sales of investment securities (excluding short-term securities) for the period
ended July 31, 1999, were $206,390,312 and $160,398,205, respectively.
31 Oppenheimer California Municipal Fund
<PAGE>
--------------------------------------------------------------------------------
Financial Highlights (Continued)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended| Year Ended|
July 31,| December 31,|
Class B 1999
1998 1997 1996(1)| 1995 1994|
==========================================================================================================================
Per Share Operating Data
<S> <C> <C>
<C> <C> <C> <C>
Net asset value, beginning of period $10.92
$10.94 $10.39 $10.69 $ 9.44 $10.98
--------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .45
.46 .49 .28 .51 .54
Net realized and unrealized gain (loss) (.35)
.06 .55 (.30) 1.25 (1.55)
------
------ ------ ------ ------ ------
Total income (loss) from
investment operations .10
.52 1.04 (.02) 1.76 (1.01)
--------------------------------------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income (.45)
(.46) (.49) (.28) (.50) (.53)
Dividends in excess of net
investment income --
-- -- -- (.01) --
Distributions from net realized gain --
(.08) -- -- -- --
------
------ ------ ------ ------ ------
Total dividends and distributions
to shareholders (.45)
(.54) (.49) (.28) (.51) (.53)
--------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $10.57
$10.92 $10.94 $10.39 $10.69 $ 9.44
======
====== ====== ====== ====== ======
==========================================================================================================================
Total Return, at Net Asset Value(2) 0.82%
4.86% 10.27% (0.12)% 18.97% (9.39)%
==========================================================================================================================
Ratios/Supplemental Data
Net assets, end of period
(in thousands) $132,763 $115,444
$82,474 $52,038 $41,224 $20,224
--------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $129,538 $ 99,266
$65,192 $46,422 $29,918 $16,552
--------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:(3)
Net investment income 4.03%
4.21% 4.70% 4.74% 4.82% 5.17%
Expenses 1.67%
1.67%(4) 1.70%(4) 1.74%(4) 1.72%(4) 1.73%
--------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(5) 35%
31% 31% 14% 23% 22%
</TABLE>
1. For the seven months ended July 31, 1996. The Fund changed its fiscal year
end from December 31 to July 31. 2. Assumes a $1,000 hypothetical initial
investment on the business day before the first day of the fiscal period (or
inception of offering), with all dividends and distributions reinvested in
additional shares on the reinvestment date, and redemption at the net asset
value calculated on the last business day of the fiscal period. Sales charges
are not reflected in the total returns. Total returns are not annualized for
periods of less than one full year. 3. Annualized for periods of less than one
full year.
4. Expense ratio reflects the effect of expenses paid indirectly by the Fund. 5.
The lesser of purchases or sales of portfolio securities for a period, divided
by the monthly average of the market value of portfolio securities owned during
the period. Securities with a maturity or expiration date at the time of
acquisition of one year or less are excluded from the calculation. Purchases and
sales of investment securities (excluding short-term securities) for the period
ended July 31, 1999, were $206,390,312 and $160,398,205, respectively.
32 Oppenheimer California Municipal Fund
<PAGE>
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year| Period|
Ended| Ended|
July 31,| Dec. 31,|
Class C 1999
1998 1997 1996(1)| 1995(6)|
--------------------------------------------------------------------------------------------------------------------
Per Share Operating Data
<S> <C> <C>
<C> <C> <C>
Net asset value, beginning of period $10.91
$10.93 $10.38 $10.68 $10.46
--------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .45
.46 .49 .27 .08
Net realized and unrealized gain (loss) (.36)
.06 .55 (.30) .22
------
------ ------ ------ ------
Total income (loss) from
investment operations .09
.52 1.04 (.03) .30
--------------------------------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income (.45)
(.46) (.49) (.27) (.07)
Dividends in excess of net
investment income --
-- -- -- (.01)
Distributions from net realized gain --
(.08) -- -- --
------
------ ------ ------ ------
Total dividends and distributions
to shareholders (.45)
(.54) (.49) (.27) (.08)
--------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $10.55
$10.91 $10.93 $10.38 $10.68
======
====== ====== ====== ======
====================================================================================================================
Total Return, at Net Asset Value(2) 0.73%
4.87% 10.26% (0.19)% 2.90%
====================================================================================================================
Ratios/Supplemental Data
Net assets, end of period (in thousands) $16,864
$11,340 $5,969 $2,171 $125
--------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $14,672 $
8,614 $3,869 $1,156 $ 91
--------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:(3)
Net investment income 4.03%
4.24% 4.66% 4.54% 4.56%
Expenses 1.67%
1.66%(4) 1.70%(4) 1.80%(4) 1.68%(4)
--------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(5) 35%
31% 31% 14% 23%
</TABLE>
1. For the seven months ended July 31, 1996. The Fund changed its fiscal year
end from December 31 to July 31. 2. Assumes a $1,000 hypothetical initial
investment on the business day before the first day of the fiscal period (or
inception of offering), with all dividends and distributions reinvested in
additional shares on the reinvestment date, and redemption at the net asset
value calculated on the last business day of the fiscal period. Sales charges
are not reflected in the total returns. Total returns are not annualized for
periods of less than one full year. 3. Annualized for periods of less than one
full year.
4. Expense ratio reflects the effect of expenses paid indirectly by the Fund. 5.
The lesser of purchases or sales of portfolio securities for a period, divided
by the monthly average of the market value of portfolio securities owned during
the period. Securities with a maturity or expiration date at the time of
acquisition of one year or less are excluded from the calculation. Purchases and
sales of investment securities (excluding short-term securities) for the period
ended July 31, 1999, were $206,390,312 and $160,398,205, respectively. 6. For
the period from November 1, 1995 (inception of offering) to December 31, 1995.
33 Oppenheimer California Municipal Fund
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<PAGE>
For More Information About Oppenheimer California Municipal Fund:
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The following additional information about the Fund is available without charge
upon request:
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STATEMENT OF ADDITIONAL INFORMATION
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This document includes additional information about the Fund's investment
policies, risks, and operations. It is incorporated by reference into this
Prospectus (which means it is legally part of this Prospectus).
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ANNUAL AND SEMI-ANNUAL REPROTS
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Additional information about the Fund's investments and performance is available
in the Fund's Annual and Semi-Annual Reports to shareholders. The Annual Report
includes a discussion of market conditions and investment strategies that
significantly affected the Fund's performance during its last fiscal year.
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How to Get More Information
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You can request the Statement of Additional Information, the Annual and
Semi-Annual Reports, and other information about the Fund or your account:
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By Telephone:
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Call OppenheimerFunds Services toll-free:
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1-800-525-7048
By Mail:
Write to:
OppenheimerFunds Services
P.O. Box 5270
Denver, Colorado 80217-5270
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On the Internet:
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You can read or down-load documents on the OppenheimerFunds web site:
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http://www.oppenheimerfunds.com
You can also obtain copies of the Statement of Additional Information and other
Fund documents and reports by visiting the SEC's Public Reference Room in
Washington, D.C. (Phone 1-800-SEC-0330) or the SEC's Internet web site at
http://www.sec.gov. Copies may be obtained upon payment of a duplicating fee by
writing to the SEC's Public Reference Section, Washington, D.C. 20549-6009.
No one has been authorized to provide any information about the Fund or to make
any representations about the Fund other than what is contained in this
Prospectus. This Prospectus is not an offer to sell shares of the Fund, nor a
solicitation of an offer to buy shares of the Fund, to any person in any state
or other jurisdiction where it is unlawful to make such an offer.
The Fund's shares are distributed by:
SEC File No. 811-5586
PR0790.1199 Printed on recycled paper.
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<PAGE>
Oppenheimer California Municipal Fund
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Two World Trade Center, New York, New York 10048-0203
1-800-525-7048
Statement of Additional Information dated November 22, 1999
This Statement of Additional Information is not a Prospectus. This
document contains additional information about the Fund and supplements
information in the Prospectus dated November 22, 1999. It should be read
together with the Prospectus, which may be obtained by writing to the Fund's
Transfer Agent, OppenheimerFunds Services, at P.O. Box 5270, Denver, Colorado
80217 or by calling the Transfer Agent at the toll-free number shown above or by
downloading it from the OppenheimerFunds Internet web site at
www.oppenheimerfunds.com.
Contents Page
About the Fund
Additional Information About the Fund's Investment Policies and Risks........2
The Fund's Investment Policies..........................................2
Municipal Securities....................................................2
Other Investment Techniques and Strategies.............................10
Investment Restrictions................................................21
How the Fund is Managed.....................................................24
Organization and History...............................................24
Trustees and Officers of the Fund......................................25
The Manager ...........................................................31
Brokerage Policies of the Fund..............................................32
Distribution and Service Plans..............................................34
Performance of the Fund.....................................................37
About Your Account
How To Buy Shares...........................................................42
How To Sell Shares..........................................................49
How to Exchange Shares......................................................54
Dividends and Taxes.........................................................56
Additional Information About the Fund.......................................59
Financial Information About the Fund
Independent Auditors' Report................................................60
Financial Statements .......................................................61
Appendix A: Municipal Bond Ratings.........................................A-1
Appendix B: Industry Classifications.......................................B-1
Appendix C: Special Sales Charge Arrangements and Waivers C-1
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<PAGE>
ABOUT THE FUND
--------------------------------------------------------------------------------
Additional Information About the Fund's Investment Policies and Risks
The investment objective and the principal investment policies of the Fund
are described in the Prospectus. This Statement of Additional Information
contains supplemental information about those policies and the types of
securities that the Fund's investment Manager, OppenheimerFunds, Inc., will
select for the Fund. Additional explanations are also provided about the
strategies the Fund may use to try to achieve its objective.
The Fund's Investment Policies. The Fund does not make investments with the
objective of seeking capital growth, since that would generally be inconsistent
with its goal of seeking tax-exempt income. However, the value of the securities
held by the Fund may be affected by changes in general interest rates. Because
the current value of debt securities varies inversely with changes in prevailing
interest rates, if interest rates increased after a security was purchased, that
security would normally decline in value. Conversely, should interest rates
decrease after a security was purchased, normally its value would rise.
However, those fluctuations in value will not generally result in realized
gains or losses to the Fund unless the Fund sells the security prior to
maturity. A debt security held to maturity is redeemable by its issuer at full
principal value plus accrued interest. The Fund does not usually intend to
dispose of securities prior to their maturity, but may do so for liquidity, or
because of other factors affecting the issuer that cause the Manager to sell the
particular security. In that case, the Fund could experience a capital gain or
loss on the sale.
There are variations in the credit quality of municipal securities, both
within a particular rating classification and between classifications. These
variations depend on numerous factors. The yields of municipal securities depend
on a number of factors, including general conditions in the municipal securities
market, the size of a particular offering, the maturity of the obligation and
rating (if any) of the issue. These factors are discussed in greater detail
below.
Municipal Securities. The types of municipal securities in which the Fund may
invest are described in the Prospectus under "About the Fund's Investments."
Municipal securities are generally classified as general obligation bonds,
revenue bonds and notes. A discussion of the general characteristics of these
principal types of municipal securities follows below.
Municipal Bonds. We have classified longer term municipal securities as
"municipal bonds." The principal classifications of long-term municipal bonds
are "general obligation" and "revenue" (including "industrial development")
bonds. They may have fixed, variable or floating rates of interest, as described
below.
Some bonds may be "callable," allowing the issuer to redeem them before
their maturity date. To protect bondholders, callable bonds may be issued with
provisions that prevent them from being called for a period of time. Typically,
that is 5 to 10 years from the issuance date. When interest rates decline, if
the call protection on a bond has expired, it is more likely that the issuer may
call the bond. If that occurs, the Fund might have to reinvest the proceeds of
the called bond in bonds that pay a lower rate of return.
General Obligation Bonds. The basic security behind general
obligation bonds is the issuer's pledge of its full faith and credit and taxing,
if any, power for the repayment of principal and the payment of interest.
Issuers of general obligation bonds include states, counties, cities, towns, and
regional districts. The proceeds of these obligations are used to fund a wide
range of public projects, including construction or improvement of schools,
highways and roads, and water and sewer systems. The rate of taxes that can be
levied for the payment of debt service on these bonds may be limited or
unlimited. Additionally, there may be limits as to the rate or amount of special
assessments that can be levied to meet these obligations.
Revenue Bonds. The principal security for a revenue bond is
generally the net revenues derived from a particular facility, group of
facilities, or, in some cases, the proceeds of a special excise tax or other
specific revenue source. Revenue bonds are issued to finance a wide variety of
capital projects. Examples include electric, gas, water and sewer systems;
highways, bridges, and tunnels; port and airport facilities; colleges and
universities; and hospitals.
Although the principal security for these types of bonds may vary from
bond to bond, many provide additional security in the form of a debt service
reserve fund that may be used to make principal and interest payments on the
issuer's obligations. Housing finance authorities have a wide range of security,
including partially or fully insured mortgages, rent subsidized and/or
collateralized mortgages, and/or the net revenues from housing or other public
projects. Some authorities provide further security in the form of a state's
ability (without obligation) to make up deficiencies in the debt service reserve
fund.
Industrial Development Bonds. Industrial development bonds are
considered municipal bonds if the interest paid is exempt from federal income
tax. They are issued by or on behalf of public authorities to raise money to
finance various privately operated facilities for business and manufacturing,
housing, sports, and pollution control. These bonds may also be used to finance
public facilities such as airports, mass transit systems, ports, and parking.
The payment of the principal and interest on such bonds is dependent solely on
the ability of the facility's user to meet its financial obligations and the
pledge, if any, of real and personal property financed by the bond as security
for those payments.
Mello-Roos Bonds. These are bonds issued under the California
Mello-Roos Community Facilities Act. They are used to finance infrastructure
projects, such as roads or sewage treatment plants. In most cases they are
secured by real estate taxes levied on property located in the same community as
the project. This type of financing was created in response to statutory limits
on real property taxes that were enacted in California. The bonds do not
constitute an obligation of a municipal government. Timely payment of principal
and interest depends on the ability of the developer of the project or other
property owners to pay their real estate taxes. Therefore these bonds are
subject to risks of nonpayment as a result of a general economic decline or
decline in the real estate market, as well as the credit risk that of the
developer.
Private Activity Municipal Securities. The Tax Reform Act of 1986
(the "Tax Reform Act") reorganized, as well as amended, the rules governing tax
exemption for interest on certain types of municipal securities. The Tax Reform
Act generally did not change the tax treatment of bonds issued in order to
finance governmental operations. Thus, interest on general obligation bonds
issued by or on behalf of state or local governments, the proceeds of which are
used to finance the operations of such governments, continues to be tax-exempt.
However, the Tax Reform Act limited the use of tax-exempt bonds for
non-governmental (private) purposes. More stringent restrictions were placed on
the use of proceeds of such bonds. Interest on certain private activity bonds is
taxable under the revised rules. There is an exception for "qualified"
tax-exempt private activity bonds, for example, exempt facility bonds including
certain industrial development bonds, qualified mortgage bonds, qualified
Section 501(c)(3) bonds, and qualified student loan bonds.
In addition, limitations as to the amount of private activity bonds which
each state may issue were revised downward by the Tax Reform Act, which will
reduce the supply of such bonds. The value of the Fund's portfolio could be
affected if there is a reduction in the availability of such bonds.
Interest on certain private activity bonds issued after August 7, 1986,
which continues to be tax-exempt, will be treated as a tax preference item
subject to the alternative minimum tax (discussed below) to which certain
taxpayers are subject. The Fund may hold municipal securities the interest on
which (and thus a proportionate share of the exempt-interest dividends paid by
the Fund) will be subject to the federal alternative minimum tax on individuals
and corporations.
The federal alternative minimum tax is designed to ensure that all persons
who receive income pay some tax, even if their regular tax is zero. This is
accomplished in part by including in taxable income certain tax preference items
that are used to calculate alternative minimum taxable income. The Tax Reform
Act made tax-exempt interest from certain private activity bonds a tax
preference item for purposes of the alternative minimum tax on individuals and
corporations. Any exempt-interest dividend paid by a regulated investment
company will be treated as interest on a specific private activity bond to the
extent of the proportionate relationship the interest the investment company
receives on such bonds bears to all its exempt interest dividends.
In addition, corporate taxpayers subject to the alternative minimum tax
may, under some circumstances, have to include exempt-interest dividends in
calculating their alternative minimum taxable income. That could occur in
situations where the "adjusted current earnings" of the corporation exceeds its
alternative minimum taxable income.
To determine whether a municipal security is treated as a taxable private
activity bond, it is subject to a test for: (a) a trade or business use and
security interest, or (b) a private loan restriction. Under the trade or
business use and security interest test, an obligation is a private activity
bond if: (i) more than 10% of the bond proceeds are used for private business
purposes and (ii) 10% or more of the payment of principal or interest on the
issue is directly or indirectly derived from such private use or is secured by
the privately used property or the payments related to the use of the property.
For certain types of uses, a 5% threshold is substituted for this 10% threshold.
The term "private business use" means any direct or indirect use in a
trade or business carried on by an individual or entity other than a state or
municipal governmental unit. Under the private loan restriction, the amount of
bond proceeds that may be used to make private loans is limited to the lesser of
5% or $5.0 million of the proceeds. Thus, certain issues of municipal securities
could lose their tax-exempt status retroactively if the issuer fails to meet
certain requirements as to the expenditure of the proceeds of that issue or the
use of the bond-financed facility. The Fund makes no independent investigation
of the users of such bonds or their use of proceeds of the bonds. If the Fund
should hold a bond that loses its tax-exempt status retroactively, there might
be an adjustment to the tax-exempt income previously distributed to
shareholders.
Additionally, a private activity bond that would otherwise be a qualified
tax-exempt private activity bond will not, under Internal Revenue Code Section
147(a), be a qualified bond for any period during which it is held by a person
who is a "substantial user" of the facilities or by a "related person" of such a
substantial user. This "substantial user" provision applies primarily to exempt
facility bonds, including industrial development bonds. The Fund may invest in
industrial development bonds and other private activity bonds. Therefore, the
Fund may not be an appropriate investment for entities which are "substantial
users" (or persons related to "substantial users") of such exempt facilities.
Those entities and persons should consult their tax advisers before purchasing
shares of the Fund.
A "substantial user" of such facilities is defined generally as a
"non-exempt person who regularly uses part of a facility" financed from the
proceeds of exempt facility bonds. Generally, an individual will not be a
"related person" under the Internal Revenue Code unless such individual or the
individual's immediate family (spouse, brothers, sisters and immediate
descendants) own directly or indirectly in the aggregate more than 50% in value
of the equity of a corporation or partnership which is a "substantial user" of a
facility financed from the proceeds of exempt facility bonds.
Municipal Notes. Municipal securities having a maturity (when the
security is issued) of less than one year are generally known as municipal
notes. Municipal notes generally are used to provide for short-term working
capital needs. Some of the types of municipal notes the Fund can invest in are
described below.
Tax Anticipation Notes. These are issued to finance working capital
needs of municipalities. Generally, they are issued in anticipation of
various seasonal tax revenue, such as income, sales, use or other
business taxes, and are payable from these specific future taxes.
Revenue Anticipation Notes. These are notes issued in expectation of
receipt of other types of revenue, such as federal revenues available
under federal revenue-sharing programs.
Bond Anticipation Notes. Bond anticipation notes are issued to provide
interim financing until long-term financing can be arranged. The
long-term bonds that are issued typically also provide the money for
the repayment of the notes.
Construction Loan Notes. These are sold to provide project construction
financing until permanent financing can be secured. After successful
completion and acceptance of the project, it may receive permanent
financing through public agencies, such as the Federal Housing
Administration.
Tax-Exempt Commercial Paper. This type of short-term obligation
(usually having a maturity of 270 days or less is issued by a municipality to
meet current working capital needs.
Municipal Lease Obligations. The Fund's investments in municipal lease
obligations may be through certificates of participation that are offered to
investors by public entities. Municipal leases may take the form of a lease or
an installment purchase contract issued by a state or local government
authority to obtain funds to acquire a wide variety of equipment and
facilities.
Some municipal lease securities may be deemed to be "illiquid" securities.
Their purchase by the Fund would be limited as described below in "Illiquid
Securities." From time to time the Fund may invest more than 5% of its net
assets in municipal lease obligations that the Manager has determined to be
liquid under guidelines set by the Board of Trustees.
Those guidelines require the Manager to evaluate: the frequency of trades
and price quotations for such securities; the number of dealers or other
potential buyers willing to purchase or sell such securities; the availability
of market-makers; and the nature of the trades for such securities.
While the Fund holds such securities, the Manager will also evaluate the
likelihood of a continuing market for these securities and their credit quality.
Municipal leases have special risk considerations. Although lease
obligations do not constitute general obligations of the municipality for which
the municipality's taxing power is pledged, a lease obligation is ordinarily
backed by the municipality's covenant to budget for, appropriate and make the
payments due under the lease obligation. However, certain lease obligations
contain "non-appropriation" clauses which provide that the municipality has no
obligation to make lease or installment purchase payments in future years unless
money is appropriated for that purpose on a yearly basis. While the obligation
might be secured by the lease, it might be difficult to dispose of that property
in case of a default.
Projects financed with certificates of participation generally are not
subject to state constitutional debt limitations or other statutory requirements
that may apply to other municipal securities. Payments by the public entity on
the obligation underlying the certificates are derived from available revenue
sources. That revenue might be diverted to the funding of other municipal
service projects. Payments of interest and/or principal with respect to the
certificates are not guaranteed and do not constitute an obligation of a state
or any of its political subdivisions.
In addition to the risk of "non-appropriation," municipal lease securities
do not have as highly liquid a market as conventional municipal bonds. Municipal
leases, like other municipal debt obligations, are subject to the risk of
non-payment of interest or repayment of principal by the issuer. The ability of
issuers of municipal leases to make timely lease payments may be adversely
affected in general economic downturns and as relative governmental cost burdens
are reallocated among federal, state and local governmental units. A default in
payment of income would result in a reduction of income to the Fund. It could
also result in a reduction in the value of the municipal lease and that, as well
as a default in repayment of principal, could result in a decrease in the net
asset value of the Fund.
Ratings of Municipal Securities. Ratings by ratings organizations such as
Moody's Investors Service, Standard & Poor's Corporation and Fitch IBCA, Inc.
represent the respective rating agency's opinions of the credit quality of the
municipal securities they undertake to rate. However, their ratings are general
opinions and are not guarantees of quality. Municipal securities that have the
same maturity, coupon and rating may have different yields, while other
municipal securities that have the same maturity and coupon but different
ratings may have the same yield.
Lower grade securities may have a higher yield than securities rated in
the higher rating categories. In addition to having a greater risk of default
than higher-grade, securities, there may be less of a market for these
securities. As a result they may be harder to sell at an acceptable price. The
additional risks mean that the Fund may not receive the anticipated level of
income from these securities, and the Fund's net asset value may be affected by
declines in the value of lower-grade securities. However, because the added risk
of lower quality securities might not be consistent with the Fund's policy of
preservation of capital, the Fund limits its investments in lower quality
securities.
Subsequent to its purchase by the Fund, a municipal security may cease to
be rated or its rating may be reduced below the minimum required for purchase by
the Fund. Neither event requires the Fund to sell the security, but the Manager
will consider such events in determining whether the Fund should continue to
hold the security. To the extent that ratings given by Moody's, Standard &
Poor's, or Fitch change as a result of changes in those rating organizations or
their rating systems, the Fund will attempt to use comparable ratings as
standards for investments in accordance with the Fund's investment policies.
The Fund may buy municipal securities that are "pre-refunded." The
issuer's obligation to repay the principal value of the security is generally
collateralized with U.S. Government securities placed in an escrow account. This
causes the pre-refunded security to have essentially the same risks of default
as a AAA-rated security.
A list of the rating categories of Moody's, S&P and Fitch for municipal
securities is contained in Appendix A to this Statement of Additional
Information. Because the Fund may purchase securities that are unrated by
nationally recognized rating organizations, the Manager will make its own
assessment of the credit quality of unrated issues the Fund buys. The Manager
will use criteria similar to those used by the rating agencies, and assigning a
rating category to a security that is comparable to what the Manager believes a
rating agency would assign to that security. However, the Manager's rating does
not constitute a guarantee of the quality of a particular issue.
Special Risks of Investing Primarily in California Municipal Securities. Because
the Fund focuses its investments primarily on California municipal securities,
the value of its portfolio investments will be highly sensitive to events
affecting the fiscal stability of the State of California and its
municipalities, authorities and other instrumentalities that issue securities.
There have been a number of political developments, voter initiatives, state
constitutional amendments and legislation in California in recent years that may
affect the ability of the State government and municipal governments to pay
interest and repay principal on the securities they have issued. In addition, in
recent years, the State of California has derived a significant portion of its
revenues from personal income and sales taxes. Because the amount collected from
these taxes is particularly sensitive to economic conditions, the State's
revenues have been volatile.
It is not possible to predict the future impact of the legislation and
economic considerations described below on the long-term ability of the State of
California or California municipal issuers to pay interest or repay principal on
their obligations. In part that is because of possible inconsistencies in the
terms of the various laws and Propositions and the applicability of other
statutes to these issues. The budgets of California counties and local
governments may be significantly affected by state budget decisions beyond their
control. The information below about these conditions is only a brief summary,
based upon information the Fund has drawn from sources that it believes are
reliable.
Changes to the State Constitution. Changes to the state constitution in
recent years have raised general concerns about the ability of the State and
municipal governments in California to obtain sufficient revenues to pay their
bond obligations. In 1978, California voters approved Proposition 13, an
amendment to the state constitution. The Proposition added a new section to the
constitution that limits ad valorem taxes on real property and restricts the
ability of local taxing entities to increase real property taxes. However,
legislation enacted after Proposition 13 provided help to California municipal
issuers to raise revenue to pay their bond obligations. During the severe
recession California experienced from 1991 to 1993, the State legislature
eliminated significant components of its aid to local governments. The State has
since increased aid to local governments and reduced certain mandates for local
services. Whether legislation will be enacted in the future to either increase
or reduce the redistribution of State revenues to local governments, or to make
them less dependent on State budget decisions, cannot be predicted. Even if
legislation increasing such distribution is passed, it cannot be predicted
whether it will provide sufficient revenue for local municipal issuers to pay
their bond obligations.
Another amendment to the state constitution may also have an adverse
impact on state and municipal bond obligations. That amendment restricts the
state government from spending amounts in excess of appropriation limits imposed
on each state and local government entity. If revenues exceed the appropriation
limit, those revenues must be returned, in the form of a revision in the tax
rates or fee schedules.
Voter Initiatives. California voters have approved a number of initiatives
that affect the ability of the state and municipalities to finance their bond
obligations. In 1988, California voters approved Proposition 98, which requires
a minimum level of funding for public schools and community colleges. In 1986,
voters approved Proposition 62, which had a number of effects. One requires that
any special tax imposed by a local government must be approved by a two-thirds
vote of the electorate. In 1995, the California Supreme Court upheld the
constitutionality of that Proposition. That created uncertainty as to the
legality of certain local taxes enacted by non-charter cities without voter
approval. It is not possible to predict the eventual impact of that decision.
In 1996, California voters approved Proposition 218. That initiative
applied the provisions of Proposition 62 to all government entities, including
cities having charters. It requires that all taxes for general purposes be
approved by a simple majority of the popular vote, and that taxes for special
purposes must be approved by a two-thirds majority vote. Proposition 218 also
limits the authority of local governments to impose property-related
assessments, fees and charges. It requires that such assessments be limited to
the special benefit conferred and prohibits their use for general governmental
services. The Proposition enables voters to use their initiative powers to
reduce or repeal previously-authorized taxes, assessments, fees and charges.
Effect of other State Laws on Bond Obligations. Some of the tax-exempt
securities that the Fund can invest in may be obligations payable solely from
the revenues of a specific institution or secured by specific properties. These
are subject to provisions of California law that could adversely affect the
holders of such obligations. For example, the revenues of California health care
institutions may be adversely affected by State laws, and California law limits
the remedies of a creditor secured by a mortgage or deed of trust on real
property. Debt obligations payable solely from revenues of health care
institutions may also be insured by the State but no guarantee exists that
adequate reserve funds will be appropriated by the State legislature for such
purpose.
The Effect of General Economic Conditions in the State. The California
economy has been recovering from a general economic recession of a few years
ago. In 1997, the rate of growth in new jobs has been generally high compared to
the rest of the country. The unemployment rate, while relatively higher than the
national average, fell to an average of 5.9% in 1998, compared to over 10%
during the recessionary period. Many of the new jobs were created in industries
such as computer services, software design, motion pictures and high technology
manufacturing. Business services, export trade and other manufacturing also
experienced growth. Recent economic reports indicate that, while the rate of
economic growth in California is expected to moderate over the next year, the
increases in employment and income may exceed those of the nation as a whole.
The unsettled financial situation occurring in certain Asian economies, and its
spillover effects elsewhere, may continue to adversely affect the State's
export-related industries and, therefore, the State's rate of economic growth.
On June 29, 1999, the Governor of California signed the 1999-2000 Budget
Act. The Budget Act estimated General Fund revenues and transfers of $63.0
billion and contained expenditures totaling $63.7 billion. The Budget Act also
contained expenditures of $16.1 billion from bond funds. The Administration
estimated a budget reserve balance at June 30, 2000, of approximately $881
million. Not included in this amount was an additional $300 million which (after
the Governor's vetoes) was "set aside" to provide funds for employee salary
increases (to be negotiated in bargaining with employee unions), and for
litigation reserves. The Budget Act anticipates normal cash flow borrowing
during the fiscal year. Continued State economic expansion and large revenue
increases enabled the Governor and State legislature to provide increases in
spending programs in the 1999-2000 budget. These included large increases in
education and health and human services funding.
In recent past years the state has experienced reductions in the overall
credit ratings assigned to its General Obligation bonds by several major rating
agencies. In July 1994, the ratings of those bonds were downgraded from Aa to A1
by Moody's, from A+ to A by Standard & Poor's and from AA to A by Fitch. At the
time, the rating agencies all cited uncertainty about the State's ability to
balance its budget by 1996. In 1996, noting improvements in the economy in
California and the state budget, both Fitch and Standard & Poor's raised their
ratings of the State's General Obligation bonds from A to A+, in 1997 Fitch
raised its rating to AA-. In 1998 Moody's raised it's rating to Aa3, and in 1999
Standard & Poor's raised its rating to AA-.
Special Financial Problems of Local Governments. Some local governments in
California have experienced notable financial difficulties. On December 6, 1994,
Orange County, California, became the largest municipality in the United States
ever to have filed for protection under federal bankruptcy laws. The filing
stemmed from losses of about $1.7 billion in the County's investment pool due to
investments in high-risk derivative securities. In September 1995 the state
legislature approved legislation that permitted Orange County to use for
bankruptcy recovery $820 million in sales taxes over 20 years that were
previously earmarked for highways, transit and development. In June 1996 the
County completed an $880 million bond offering secured by real property owned by
the County. On June 12, 1996, the County emerged from bankruptcy. On January 7,
1997, Orange County returned to the bond market with a $136 million bond issue.
In December 1997, Moody's raised its ratings on $325 million of Orange County
pension obligation bonds to Baa3 from Ba. In February 1998, Fitch assigned
outstanding Orange County pension obligation bonds a BBB rating. In September
1999, Moody's assigned the County an issuer (implied general obligation) rating
of Aa3 and, among other things, upgraded the ratings on the County's pension
obligation bonds to A1.
Los Angeles County, the nation's most populous county, has also
experienced financial difficulties. Between 1992 and 1995 the County's long-term
bonds were downgraded three times. This occurred as a result of a number of
factors, including severe operating deficits for the county's health care
system. In addition, the County was affected by a long-term loss of revenue
caused by state property tax shift initiatives in 1993 through 1995. The
County's improving financial condition has been reflected in improved general
obligation bond ratings. In June 1999, the Los Angeles County Board of
Supervisors approved a budget of approximately $15 billion for 1999-2000, up
from the $13.6 billion approved for the previous fiscal year. The County's
financial condition will continue to be affected by the large number of County
residents who are dependent on government services and by a structural deficit
in its health department.
Year 2000 Concerns. In October 1997, the Governor of California issued an
executive order stating that solutions to the Year 2000 problem would be a state
government priority. Although the State reports that it is making substantial
progress overall toward the goal of Year 2000 compliance, the task is very
complex and will likely encounter unexpected difficulties. The State has not
predicted whether all mission critical system will be ready and tested by late
1999 or what impact failure of any particular IT system(s) or of outside
interfaces with State IT systems might have. The State has indicated that all
mission critical systems will have a contingency business plan in place to
mitigate potential system failures.
The State Treasurer's Office has reported that its systems for bond payments are
fully Y2K compliant. The State Controller's Office has reported that it has
completed the necessary Y2K remediation projects for the State fiscal and
accounting system. Both offices report they are actively working with outside
entities with which they interface to ensure they are also compliant. There can
be no assurance that the steps taken by state or local governments or agencies
to address the Year 2000 problem will be sufficient to avoid any adverse impact
on their budgets or operations. Therefore, the possible impact of Year 2000
problems on the debt securities issued by those governments and agencies, and
which may be owned by the Fund, cannot be predicted with any certainty.
Other Investment Techniques and Strategies. In seeking its objective, the Fund
may from time to time employ the types of investment strategies and investments
described below.
Floating Rate and Variable Rate Obligations. Variable rate demand
obligations have a demand feature that allows the Fund to tender the obligation
to the issuer or a third party prior to its maturity. The tender may be at par
value plus accrued interest, according to the terms of the obligations.
The interest rate on a floating rate demand note is based on a stated
prevailing market rate, such as a bank's prime rate, the 91-day U.S. Treasury
Bill rate, or some other standard, and is adjusted automatically each time such
rate is adjusted. The interest rate on a variable rate demand note is also based
on a stated prevailing market rate but is adjusted automatically at specified
intervals of not less than one year. Generally, the changes in the interest rate
on such securities reduce the fluctuation in their market value. As interest
rates decrease or increase, the potential for capital appreciation or
depreciation is less than that for fixed-rate obligations of the same maturity.
The Manager may determine that an unrated floating rate or variable rate demand
obligation meets the Fund's quality standards by reason of being backed by a
letter of credit or guarantee issued by a bank that meets those quality
standards.
Floating rate and variable rate demand notes that have a stated maturity
in excess of one year may have features that permit the holder to recover the
principal amount of the underlying security at specified intervals not exceeding
one year and upon no more than 30 days' notice. The issuer of that type of note
normally has a corresponding right in its discretion, after a given period, to
prepay the outstanding principal amount of the note plus accrued interest.
Generally the issuer must provide a specified number of days' notice to the
holder.
Inverse Floaters and Other Derivative Investments. Inverse floaters may
offer relatively high current income, reflecting the spread between short-term
and long-term tax exempt interest rates. As long as the municipal yield curve
remains relatively steep and short term rates remain relatively low, owners of
inverse floaters will have the opportunity to earn interest at above-market
rates because they receive interest at the higher long-term rates but have paid
for bonds with lower short-term rates. If the yield curve flattens and shifts
upward, an inverse floater will lose value more quickly than a conventional
long-term bond. The Fund will invest in inverse floaters to seek higher
tax-exempt yields than are available from fixed-rate bonds that have comparable
maturities and credit ratings. In some cases, the holder of an inverse floater
may have an option to convert the floater to a fixed-rate bond, pursuant to a
"rate-lock" option.
Some inverse floaters have a feature known as an interest rate "cap"
as part of the terms of the investment. Investing in inverse floaters that
have interest rate caps might be part of a portfolio strategy to try to
maintain a high current yield for the Fund when the Fund has invested in
inverse floaters that expose the Fund to the risk of short-term interest
rate fluctuations. "Embedded" caps can be used to hedge a portion of the
Fund's exposure to rising interest rates. When interest rates exceed a
pre-determined rate, the cap generates additional cash flows that offset the
decline in interest rates on the inverse floater, and the hedge is
successful. However, the Fund bears the risk that if interest rates do not
rise above the pre-determined rate, the cap (which is purchased for
additional cost) will not provide additional cash flows and will expire
worthless.
Inverse floaters are a form of derivative investment. Certain derivatives,
such as options, futures, indexed securities and entering into swap agreements,
can be used to increase or decrease the Fund's exposure to changing security
prices, interest rates or other factors that affect the value of securities.
However, these techniques could result in losses to the Fund, if the Manager
judges market conditions incorrectly or employs a strategy that does not
correlate well with the Fund's other investments. These techniques can cause
losses if the counterparty does not perform its promises. An additional risk of
investing in municipal securities that are derivative investments is that their
market value could be expected to vary to a much greater extent than the market
value of municipal securities that are not derivative investments but have
similar credit quality, redemption provisions and maturities.
When-Issued and Delayed Delivery-Transactions. The Fund can purchase
securities on a "when-issued" basis, and may purchase or sell such securities on
a "delayed-delivery" basis. "When-issued" or "delayed-delivery" refers to
securities whose terms and indenture are available and for which a market
exists, but which are not available for immediate delivery.
When such transactions are negotiated the price (which is generally
expressed in yield terms) is fixed at the time the commitment is made. Delivery
and payment for the securities take place at a later date. Normally the
settlement date is within six months of the purchase of municipal bonds and
notes. However, the Fund may, from time to time, purchase municipal securities
having a settlement date more than six months and possibly as long as two years
or more after the trade date. The securities are subject to change in value from
market fluctuation during the settlement period. The value at delivery may be
less than the purchase price. For example, changes in interest rates in a
direction other than that expected by the Manager before settlement will affect
the value of such securities and may cause loss to the Fund.
The Fund will engage in when-issued transactions in order to secure what
is considered to be an advantageous price and yield at the time of entering into
the obligation. When the Fund engages in when-issued or delayed-delivery
transactions, it relies on the buyer or seller, as the case may be, to complete
the transaction. Their failure to do so may cause the Fund to lose the
opportunity to obtain the security at a price and yield it considers
advantageous.
When the Fund engages in when-issued and delayed-delivery transactions, it
does so for the purpose of acquiring or selling securities consistent with its
investment objective and policies for its portfolio or for delivery pursuant to
options contracts it has entered into, and not for the purposes of investment
leverage. Although the Fund will enter into when-issued or delayed-delivery
purchase transactions to acquire securities, the Fund may dispose of a
commitment prior to settlement. If the Fund chooses to dispose of the right to
acquire a when-issued security prior to its acquisition or to dispose of its
right to deliver or receive against a forward commitment, it may incur a gain or
loss.
At the time the Fund makes a commitment to purchase or sell a security on
a when-issued or forward commitment basis, it records the transaction on its
books and reflects the value of the security purchased. In a sale transaction,
it records the proceeds to be received, in determining its net asset value. The
Fund will identify to its custodian bank cash, U.S. Government securities or
other high grade debt obligations at least equal to the value of purchase
commitments until the Fund pays for the investment.
When-issued transactions and forward commitments can be used by the Fund
as a defensive technique to hedge against anticipated changes in interest rates
and prices. For instance, in periods of rising interest rates and falling
prices, the Fund might sell securities in its portfolio on a forward commitment
basis to attempt to limit its exposure to anticipated falling prices. In periods
of falling interest rates and rising prices, the Fund might sell portfolio
securities and purchase the same or similar securities on a when-issued or
forward commitment basis, to obtain the benefit of currently higher cash yields.
Zero-Coupon Securities. The Fund may buy zero-coupon and delayed interest
municipal securities. Zero-coupon securities do not make periodic interest
payments and are sold at a deep discount from their face value. The buyer
recognizes a rate of return determined by the gradual appreciation of the
security, which is redeemed at face value on a specified maturity date. This
discount depends on the time remaining until maturity, as well as prevailing
interest rates, the liquidity of the security and the credit quality of the
issuer. In the absence of threats to the issuer's credit quality, the discount
typically decreases as the maturity date approaches. Some zero-coupon securities
are convertible, in that they are zero-coupon securities until a predetermined
date, at which time they convert to a security with a specified coupon rate.
Because zero-coupon securities pay no interest and compound semi-annually
at the rate fixed at the time of their issuance, their value is generally more
volatile than the value of other debt securities. Their value may fall more
dramatically than the value of interest-bearing securities when interest rates
rise. When prevailing interest rates fall, zero-coupon securities tend to rise
more rapidly in value because they have a fixed rate of return.
The Fund's investment in zero-coupon securities may cause the Fund to
recognize income and make distributions to shareholders before it receives any
cash payments on the zero-coupon investment. To generate cash to satisfy those
distribution requirements, the Fund may have to sell portfolio securities that
it otherwise might have continued to hold or to use cash flows from other
sources such as the sale of Fund shares.
Puts and Standby Commitments. When the Fund buys a municipal security
subject to a standby commitment to repurchase the security, the Fund is entitled
to same-day settlement from the purchaser. The Fund receives an exercise price
equal to the amortized cost of the underlying security plus any accrued interest
at the time of exercise. A put purchased in conjunction with a municipal
security enables the Fund to sell the underlying security within a specified
period of time at a fixed exercise price.
The Fund might purchase a standby commitment or put separately in cash or
it might acquire the security subject to the standby commitment or put (at a
price that reflects that additional feature). The Fund will enter into these
transactions only with banks and securities dealers that, in the Manager's
opinion, present minimal credit risks. The Fund's ability to exercise a put or
standby commitment will depend on the ability of the bank or dealer to pay for
the securities if the put or standby commitment is exercised. If the bank or
dealer should default on its obligation, the Fund might not be able to recover
all or a portion of any loss sustained from having to sell the security
elsewhere.
Puts and standby commitments are not transferable by the Fund. They
terminate if the Fund sells the underlying security to a third party. The Fund
intends to enter into these arrangements to facilitate portfolio liquidity,
although such arrangements might enable the Fund to sell a security at a
pre-arranged price that may be higher than the prevailing market price at the
time the put or standby commitment is exercised. However, the Fund might refrain
from exercising a put or standby commitment if the exercise price is
significantly higher than the prevailing market price, to avoid imposing a loss
on the seller that could jeopardize the Fund's business relationships with the
seller.
A put or standby commitment increases the cost of the security and reduces
the yield otherwise available from the security. Any consideration paid by the
Fund for the put or standby commitment will be reflected on the Fund's books as
unrealized depreciation while the put or standby commitment is held, and a
realized gain or loss when the put or commitment is exercised or expires.
Interest income received by the Fund from municipal securities subject to puts
or stand-by commitments may not qualify as tax exempt in its hands if the terms
of the put or stand-by commitment cause the Fund not to be treated as the tax
owner of the underlying municipal securities.
Repurchase Agreements. The Fund may acquire securities subject to
repurchase agreements. It may do so for liquidity purposes to meet anticipated
redemptions of Fund shares, or pending the investment of the proceeds from sales
of Fund shares, or pending the settlement of portfolio securities. In a
repurchase transaction, the Fund acquires a security from, and simultaneously
resells it to an approved vendor for delivery on an agreed upon future date. The
resale price exceeds the purchase price by an amount that reflects an
agreed-upon interest rate effective for the period during which the repurchase
agreement is in effect. Approved vendors include U.S. commercial banks, U.S.
branches of foreign banks or broker-dealers that have been designated a primary
dealer in government securities, which meet the credit requirements set by the
Fund's Board of Trustees from time to time.
The majority of these transactions run from day to day. Delivery pursuant
to resale typically will occur within one to five days of the purchase.
Repurchase agreements having a maturity beyond seven days are subject to the
Fund's limits on holding illiquid investments. There is no limit on the amount
of the Fund's net assets that may be subject to repurchase agreements of seven
days or less.
Repurchase agreements, considered "loans" under the Investment Company
Act, are collateralized by the underlying security. The Fund's repurchase
agreements require that at all times while the repurchase agreement is in
effect, the collateral's value must equal or exceed the repurchase price to
fully collateralize the repayment obligation. Additionally, the Manager will
impose creditworthiness requirements to confirm that the vendor is financially
sound and will continuously monitor the collateral's value. However, if the
vendor fails to pay the resale price on the delivery date, the Fund may incur
costs in disposing of the collateral and may experience losses if there is any
delay in its ability to do so. The Manager will monitor the vendor's
creditworthiness to confirm that the vendor is financially sound and will
continuously monitor the collateral's value.
Illiquid Securities. The Fund has percentage limitations that apply to
purchases of illiquid securities, as stated in the Prospectus. As a matter of
fundamental policy, the Fund cannot purchase any securities that are subject to
restrictions on resale.
Loans of Portfolio Securities. To attempt to raise income or raise cash
for liquidity purposes, the Fund may lend its portfolio securities to brokers,
dealers and other financial institutions. These loans are limited to not more
than 25% of the value of the Fund's total assets. There are risks in connection
with securities lending. The Fund might experience a delay in receiving
additional collateral to secure a loan, or a delay in recovery of the loaned
securities. The Fund presently does not intend to engage in loans of securities
that will exceed 5% of the value of the Fund's total assets in the coming year.
Income from securities loans does not constitute exempt-interest income for the
purpose of paying tax-exempt dividends.
The Fund must receive collateral for a loan. Under current applicable
regulatory requirements (which are subject to change), on each business day the
loan collateral must be at least equal to the value of the loaned securities. It
must consist of cash, bank letters of credit, securities of the U.S. Government
or its agencies or instrumentalities, or other cash equivalents in which the
Fund is permitted to invest. To be acceptable as collateral, letters of credit
must obligate a bank to pay amounts demanded by the Fund if the demand meets the
terms of the letter. The terms of the letter of credit and the issuing bank both
must be satisfactory to the Fund.
When it lends securities, the Fund receives amounts equal to the dividends
or interest on the loaned securities, It also receives one or more of (a)
negotiated loan fees, (b) interest on securities used as collateral, and (c)
interest on short-term debt securities purchased with the loan collateral.
Either type of interest may be shared with the borrower. The Fund may pay
reasonable finder's, administrative or other fees in connection with these
loans. The terms of the Fund's loans must meet applicable tests under the
Internal Revenue Code and must permit the Fund to reacquire loaned securities on
five days' notice or in time to vote on any important matter.
Hedging. The Fund may use hedging to attempt to protect against declines in
the market value of its portfolio, to permit the Fund to retain unrealized gains
in the value of portfolio securities that have appreciated, or to facilitate
selling securities for investment reasons. To do so, the Fund may: sell interest
rate futures or municipal bond index futures, buy puts on such futures or
securities, or write covered calls on securities, interest rate futures or
municipal bond index futures. Covered calls may also be written on debt
securities to attempt to increase the Fund's income, but that income would not
be tax-exempt. Therefore it is unlikely that the Fund would write covered calls
for that purpose.
The Fund may also use hedging to establish a position in the debt
securities market as a temporary substitute for purchasing individual debt
securities. In that case the Fund will normally seek to purchase the securities,
and then terminate that hedging position. For this type of hedging, the Fund
may:
buy interest rate futures or municipal bond index futures, or buy
calls on such futures or on securities.
The Fund is not obligated to use hedging instruments, even though it is
permitted to use them in the Manager's discretion, as described below. The
Fund's strategy of hedging with futures and options on futures will be
incidental to the Fund's investment activities in the underlying cash market.
The particular hedging instruments the Fund can use are described below. The
Fund may employ new hedging instruments and strategies when they are developed,
if those investment methods are consistent with the Fund's investment objective
and are permissible under applicable regulations governing the Fund.
Futures. The Fund may buy and sell futures contracts relating to debt
securities (these are called "interest rate futures") and municipal bond indices
(these are referred to as "municipal bond index futures").
An interest rate future obligates the seller to deliver (and the purchaser
to take) cash or a specific type of debt security to settle the futures
transaction. Either party could also enter into an offsetting contract to close
out the futures position.
A "municipal bond index" assigns relative values to the municipal bonds in
the index, and is used as the basis for trading long-term municipal bond futures
contracts. Municipal bond index futures are similar to interest rate futures
except that settlement is made only in cash. The obligation under the contract
may also be satisfied by entering into an offsetting contract. The strategies
which the Fund employs in using municipal bond index futures are similar to
those with regard to interest rate futures.
Upon entering into a futures transaction, the Fund will be required to
deposit an initial margin payment in cash or U.S. Government securities with the
futures commission merchant (the "futures broker"). Initial margin payments will
be deposited with the Fund's custodian bank in an account registered in the
futures broker's name. However, the futures broker can gain access to that
account only under certain specified conditions. As the future is marked to
market (that is, its value on the Fund's books is changed) to reflect changes in
its market value, subsequent margin payments, called variation margin, will be
paid to or by the futures broker daily.
At any time prior to the expiration of the future, the Fund may elect to
close out its position by taking an opposite position at which time a final
determination of variation margin is made and additional cash is required to be
paid by or released to the Fund. Any gain or loss is then realized by the Fund
on the future for tax purposes. Although Interest Rate Futures by their terms
call for settlement by the delivery of debt securities, in most cases the
obligation is fulfilled without such delivery by entering into an offsetting
transaction. All futures transactions are effected through a clearing house
associated with the exchange on which the contracts are traded.
The Fund may concurrently buy and sell futures contracts in a strategy
anticipating that the future the Fund purchased will perform better than the
future the Fund sold. For example, the Fund might buy municipal bond futures and
concurrently sell U.S. Treasury Bond futures (a type of interest rate future).
The Fund would benefit if municipal bonds outperform U.S. Treasury Bonds on a
duration-adjusted basis.
Duration is a volatility measure that refers to the expected percentage
change in the value of a bond resulting from a change in general interest rates
(measured by each 1% change in the rates on U.S. Treasury securities). For
example, if a bond has an effective duration of three years, a 1% increase in
general interest rates would be expected to cause the value of the bond to
decline about 3%. There are risks that this type of futures strategy will not be
successful. U.S. Treasury bonds might perform better on a duration-adjusted
basis than municipal bonds, and the assumptions about duration that were used
might be incorrect (in this case, the duration of municipal bonds relative to
U.S. Treasury Bonds might have been greater than anticipated).
Put and Call Options. The Fund may buy and sell certain kinds of put
options (puts) and call options (calls). These strategies are described below.
Writing Covered Call Options. The Fund may write (that is, sell) call
options. The Fund's call writing is subject to a number of restrictions:
(1) After the Fund writes a call, not more than 25% of the Fund's
total assets may be subject to calls.
(2) Calls the Fund sells must be listed on a securities or commodities
exchange or quoted on NASDAQ, the automated quotation system of The
Nasdaq Stock Market, Inc. or traded in the over-the-counter market.
(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 that it owns, but these
calls must be covered by securities or other liquid assets that the
Fund owns and segregates to enable it to satisfy its obligations if the
call is exercised.
When the Fund writes a call on a security, it receives cash (a
premium).The Fund agrees to sell the underlying investment to a purchaser of a
corresponding call on the same security during the call period at a fixed
exercise price regardless of market price changes during the call period. The
call period is usually not more than nine months. The exercise price may differ
from the market price of the underlying security. The Fund has retained the risk
of loss that the price of the underlying security may decline during the call
period. That risk may be offset to some extent by the premium the Fund receives.
If the value of the investment does not rise above the call price, it is likely
that the call will lapse without being exercised. In that case the Fund would
keep the cash premium and the investment.
The Fund's custodian bank, or a securities depository acting for the
custodian bank, will act as the Fund's escrow agent through the facilities of
the Options Clearing Corporation ("OCC"), as to the investments on which the
Fund has written calls traded on exchanges, or as to other acceptable escrow
securities. In that way, no margin will be required for such transactions. OCC
will release the securities on the expiration of the calls or upon the Fund's
entering into a closing purchase transaction.
When the Fund writes an over-the-counter ("OTC") option, it will enter
into an arrangement with a primary U.S. Government securities dealer which will
establish a formula price at which the Fund will have the absolute right to
repurchase that OTC option. The formula price would generally be based on a
multiple of the premium received for the option, plus the amount by which the
option is exercisable below the market price of the underlying security (that
is, the option is "in-the-money"). When the Fund writes an OTC option, it will
treat as illiquid (for purposes of its restriction on illiquid securities) the
mark-to-market value of any OTC option held by it, unless the option is subject
to a buy-back agreement by the executing broker. The Securities and Exchange
Commission is evaluating whether OTC options should be considered liquid
securities. The procedure described above could be affected by the outcome of
that evaluation.
To terminate its obligation on a call it has written, the Fund may
purchase a corresponding call in a "closing purchase transaction." The Fund will
then realize a profit or loss, depending upon whether the net of the amount of
the option transaction costs and the premium received on the call the Fund wrote
was more or less than the price of the call the Fund purchased to close out the
transaction. A profit may also be realized if the call lapses unexercised,
because the Fund retains the underlying investment and the premium received. Any
such profits are considered short-term capital gains for federal tax purposes,
as are premiums on lapsed calls. When distributed by the Fund they are taxable
as ordinary income.
The Fund may also write calls on futures contracts without owning the
futures contract or securities deliverable under the contract. To do so, at the
time the call is written, the Fund must cover the call by segregating in escrow
an equivalent dollar value of liquid assets. The Fund will segregate additional
liquid assets if the value of the escrowed assets drops below 100% of the
current value of the future. Because of this escrow requirement, in no
circumstances would the Fund's receipt of an exercise notice as to that future
put the Fund in a "short" futures position.
Purchasing Calls and Puts. The Fund may buy calls only on securities,
broadly-based municipal bond indices, municipal bond index futures and interest
rate futures. It may also buy calls to close out a call it has written, as
discussed above. Calls the Fund buys must be listed on a securities or
commodities exchange, or quoted on NASDAQ, or traded in the over-the-counter
market. A call or put option may not be purchased if the purchase would cause
the value of all the Fund's put and call options to exceed 5% of its total
assets.
When the Fund purchases a call (other than in a closing purchase
transaction), it pays a premium. For calls on securities that the Fund buys, it
has the right to buy the underlying investment from a seller of a corresponding
call on the same investment during the call period at a fixed exercise price.
The Fund benefits only if (1) the call is sold at a profit or (2) the call is
exercised when the market price of the underlying investment is above the sum of
the exercise price plus the transaction costs and premium paid for the call. If
the call is not either exercised or sold (whether or not at a profit), it will
become worthless at its expiration date. In that case the Fund will lose its
premium payment and the right to purchase the underlying investment.
Calls on municipal bond indices, interest rate futures and municipal bond
index futures are settled in cash rather than by delivering the underlying
investment. Gain or loss depends on changes in the securities included in the
index in question (and thus on price movements in the debt securities market
generally) rather than on changes in price of the individual futures contract.
The Fund may buy only those puts that relate to securities that the Fund
owns, broadly-based municipal bond indices, municipal bond index futures or
interest rate futures (whether or not the Fund owns the futures). The Fund may
not sell puts other than puts it has previously purchased.
When the Fund purchases a put, it pays a premium. The Fund then has the
right to sell the underlying investment to a seller of a corresponding put on
the same investment during the put period at a fixed exercise price. Puts on
municipal bond indices are settled in cash. Buying a put on a debt security,
interest rate future or municipal bond index future the Fund owns enables it to
protect itself during the put period against a decline in the value of the
underlying investment below the exercise price. If the market price of the
underlying investment is equal to or above the exercise price and as a result
the put is not exercised or resold, the put will become worthless at its
expiration date. In that case the Fund will lose its premium payment and the
right to sell the underlying investment. A put may be sold prior to expiration
(whether or not at a profit).
Risks of Hedging with Options and Futures. The use of hedging instruments
requires special skills and knowledge of investment techniques that are
different than what is required for normal portfolio management. If the Manager
uses a hedging instrument at the wrong time or judges market conditions
incorrectly, hedging strategies may reduce the Fund's returns.
The Fund's option activities may affect its portfolio turnover rate
and brokerage commissions. The exercise of calls written by the Fund may
cause the Fund to sell related portfolio securities, thus increasing its
turnover rate. The exercise by the Fund of puts on securities will cause the
sale of underlying investments, increasing portfolio turnover. Although the
decision whether to exercise a put it holds is within the Fund's control,
holding a put might cause the Fund to sell the related investments for
reasons that would not exist in the absence of the put.
The Fund may 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 the commissions for direct purchases or sales of the underlying
investments. Premiums paid for options are small in relation to the market value
of the underlying investments. Consequently, put and call options offer large
amounts of leverage. The leverage offered by trading in options could result in
the Fund's net asset value being more sensitive to changes in the value of the
underlying investment.
If a covered call written by the Fund is exercised on an investment that
has increased in value, the Fund will be required to sell the investment at the
call price. It will not be able to realize any profit if the investment has
increased in value above the call price.
There is a risk in using short hedging by selling interest rate futures
and municipal bond index futures or purchasing puts on municipal bond indices or
futures to attempt to protect against declines in the value of the Fund's
securities. The risk is that the prices of such futures or the applicable index
will correlate imperfectly with the behavior of the cash (that is, market)
prices of the Fund's securities. It is possible for example, that while the Fund
has used hedging instruments in a short hedge, the market may advance and the
value of debt securities held in the Fund's portfolio may decline. If that
occurred, the Fund would lose money on the hedging instruments and also
experience a decline in value of its debt securities. However, while this could
occur over a brief period or to a very small degree, over time the value of a
diversified portfolio of debt securities will tend to move in the same direction
as the indices upon which the hedging instruments are based.
The risk of imperfect correlation increases as the composition of the
Fund's portfolio diverges from the securities included in the applicable index.
To compensate for the imperfect correlation of movements in the price of debt
securities being hedged and movements in the price of the hedging instruments,
the Fund may use hedging instruments in a greater dollar amount than the dollar
amount of debt securities being hedged. It might do so if the historical
volatility of the prices of the debt securities being hedged is greater than the
historical volatility of the applicable index.
The ordinary spreads between prices in the cash and futures markets are
subject to distortions due to differences in the natures of those markets. All
participants in the futures markets are subject to margin deposit and
maintenance requirements. Rather than meeting additional margin deposit
requirements, investors may close out futures contracts through offsetting
transactions which could distort the normal relationship between the cash and
futures markets. From the point of view of speculators, the deposit requirements
in the futures markets are less onerous than margin requirements in the
securities markets. Therefore, increased participation by speculators in the
futures markets may cause temporary price distortions.
The Fund may use hedging instruments to establish a position in the
municipal securities markets as a temporary substitute for the purchase of
individual securities (long hedging). It is possible that the market may
decline. If the Fund then concludes not to invest in such securities because of
concerns that there may be further market decline or for other reasons, the Fund
will realize a loss on the hedging instruments that is not offset by a reduction
in the purchase price of the securities.
An option position may be closed out only on a market that provides
secondary trading for options of the same series. There is no assurance that a
liquid secondary market will exist for a particular option. If the Fund could
not effect a closing purchase transaction due to a lack of a market, it would
have to hold the callable investment until the call lapsed or was exercised.
Interest Rate Swap Transactions. In an interest rate swap, the Fund and
another party exchange their right to receive or their obligation to pay
interest on a security. For example, they may swap a right to receive floating
rate payments for fixed rate payments. The Fund enters into swaps only on
securities it owns. The Fund may not enter into swaps with respect to more than
25% of its total assets. Also, the Fund will segregate liquid assets (such as
cash or U.S. Government securities) to cover any amounts it could owe under
swaps that exceed the amounts it is entitled to receive, and it will adjust that
amount daily, as needed. Income from interest rate swaps may be taxable.
Swap agreements entail both interest rate risk and credit risk. There is a
risk that, based on movements of interest rates in the future, the payments made
by the Fund under a swap agreement will have been greater than those received by
it. Credit risk arises from the possibility that the counterparty will default.
If the counterparty to an interest rate swap defaults, the Fund's loss will
consist of the net amount of contractual interest payments that the Fund has not
yet received. The Manager will monitor the creditworthiness of counterparties to
the Fund's interest rate swap transactions on an ongoing basis.
The Fund 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 under one or more swap transactions, the net amount payable on that date
shall be paid. In addition, the master netting agreement may provide that if one
party defaults generally or on one swap, the counterparty may terminate the
swaps with that party. Under master netting agreements, if there is a default
resulting in a loss to one party, that party's damages are calculated by
reference to the average cost of a replacement swap with respect to each swap.
The gains and losses on all swaps are then netted, and the result is the
counterparty's gain or loss on termination. The termination of all swaps and the
netting of gains and losses on termination is generally referred to as
"aggregation."
Regulatory Aspects of Hedging Instruments. When using futures and options
on futures, the Fund is required to operate within certain guidelines and
restrictions established by the Commodity Futures Trading Commission (the
"CFTC"). In particular, the Fund is exempted from registration with the CFTC as
a "commodity pool operator" if the Fund complies with the requirements of Rule
4.5 adopted by the CFTC. That Rule does not limit the percentage of the Fund's
assets that may be used for futures margin and related options premiums for a
bona fide hedging position. However, under the Rule the Fund must limit its
aggregate initial futures margin and related options premiums to no more than 5%
of the Fund's net assets for hedging strategies that are not considered bona
fide hedging strategies under the Rule. Under the Rule, the Fund also must use
short futures and options on futures positions solely for bona fide hedging
purposes within the meaning and intent of the applicable provisions of the
Commodity Exchange Act.
Transactions in options by the Fund are subject to limitations established
by the option exchanges. The exchanges limit the maximum number of options that
may be written or held by a single investor or group of investors acting in
concert. Those limits apply regardless of whether the options were written or
purchased on the same or different exchanges, or are held in one or more
accounts or through one or more different exchanges or through one or more
brokers. Thus, the number of options that the Fund may write or hold may be
affected by options written or held by other entities, including other
investment companies having the same adviser as the Fund (or an adviser that is
an affiliate of the Fund's adviser). The exchanges also impose position limits
on futures transactions. An exchange may order the liquidation of positions
found to be in violation of those limits and may impose certain other sanctions.
Under the Investment Company Act, when the Fund purchases an interest rate
future or municipal bond index future, it must maintain cash or readily
marketable short-term debt instruments in an amount equal to the market value of
the investments underlying the future, less the margin deposit applicable to it.
The account must be a segregated account or accounts held by its custodian bank.
Temporary Defensive Investments. The securities the Fund may invest in for
temporary defensive purposes include the following: short-term municipal
securities; obligations issued or guaranteed by the U.S. Government or its
agencies or instrumentalities; corporate debt securities rated within the three
highest grades by a nationally recognized rating agency; commercial paper rated
"A-1" by S&P, or a comparable rating by another nationally recognized rating
agency; and certificates of deposit of domestic banks with assets of $1 billion
or more.
Portfolio Turnover. A change in the securities held by the Fund from
buying and selling investments is known as "portfolio turnover." Short-term
trading increases the rate of portfolio turnover and could increase the Fund's
transaction costs. However, the Fund ordinarily incurs little or no brokerage
expense because most of the Fund's portfolio transactions are principal trades
that do not require payment of brokerage commissions.
The Fund ordinarily does not trade securities to achieve short-term
capital gains, because they would not be tax-exempt income. To a limited degree,
the Fund may engage in short-term trading to attempt to take advantage of
short-term market variations. It may also do so to dispose of a portfolio
security prior to its maturity. That might be done if, on the basis of a revised
credit evaluation of the issuer or other considerations, the Fund believes such
disposition advisable or it needs to generate cash to satisfy requests to redeem
Fund shares. In those cases, the Fund may realize a capital gain or loss on its
investments. The Fund's annual portfolio turnover rate normally is not expected
to exceed 100%.
Taxable Investments. While the Fund can invest up to 20% of its total
assets in investments that generate income subject to income taxes, it does not
anticipate investing substantial amounts of its assets in taxable investments
under normal market conditions or as part of its normal trading strategies and
policies. To the extent it invests in taxable securities, the Fund would not be
able to meet its objective of providing tax exempt income to its shareholders.
Taxable investments include, for example, hedging instruments, repurchase
agreements, and the types of securities it would buy for temporary defensive
purposes.
Investment Restrictions
What Are "Fundamental Policies?" Fundamental policies are those policies
that the Fund has adopted to govern its investments that can be changed only by
the vote of a "majority" of the Fund's outstanding voting securities. Under the
Investment Company Act, such a "majority" vote is defined as the vote of the
holders of the lesser of:
67% or more of the shares present or represented by proxy at a shareholder
meeting, if the holders of more than 50% of the outstanding shares are
present or represented by proxy, or
more than 50% of the outstanding shares.
The Fund's investment objective is a fundamental policy. Other policies
described in the Prospectus or this Statement of Additional Information are
"fundamental" only if they are identified as such. The Fund's Board of Trustees
can change non-fundamental policies without shareholder approval. However,
significant changes to investment policies will be described in supplements or
updates to the Prospectus or this Statement of Additional Information, as
appropriate. The Fund's most significant investment policies are described in
the Prospectus.
Does the Fund Have Additional Fundamental Policies? The following
investment restrictions are fundamental policies of the Fund: The Fund
cannot invest in securities or other investments other than municipal
securities, the temporary investments described in its Prospectus,
repurchase agreements, covered calls, private activity municipal
securities and hedging instruments described in "About the Fund" in
the Prospectus or this Statement of Additional Information.
The Fund cannot make loans. However, repurchase agreements and the
purchase of debt securities in accordance with the Fund's other
investment policies and restrictions are permitted. The Fund may also
lend its portfolio securities as described in "Loans of Portfolio
Securities."
The Fund cannot borrow money in excess of 10% of the value of its
total assets. It cannot buy any additional investments when borrowings
exceed 5% of its assets. The Fund may borrow only from banks as a
temporary measure for extraordinary or emergency purposes, and not for
the purpose of leveraging its investments.
The Fund cannot pledge, mortgage or otherwise encumber, transfer or
assign its assets to secure a debt. However, the use of escrow or
other collateral arrangements in connection with hedging instruments
is permitted.
The Fund cannot concentrate its investments to the extent of 25% of
its total assets in any industry. However, there is no limitation as
to the Fund's investments in municipal securities in general or in
California municipal securities, or in obligations issued by the U.S.
Government and its agencies or instrumentalities.
The Fund cannot invest in real estate. This restriction shall not
prevent the Fund from investing in municipal securities or other
permitted securities that are secured by real estate or interests in
real estate.
The Fund cannot purchase securities other than hedging instruments on
margin. However, the Fund may obtain such short-term credits that may
be necessary for the clearance of purchases and sales of securities.
The Fund cannot sell securities short.
The Fund cannot underwrite securities or invest in securities that are
subject to restrictions on resale.
The Fund cannot invest in or hold securities of any issuer if officers
and Trustees of the Fund or the Manager individually beneficially own
more than 1/2 of 1% of the securities of that issuer and together own
more than 5% of the securities of that issuer.
The Fund cannot invest in securities of any other investment company,
except in connection with a merger with another investment company.
The Fund cannot buy or sell futures contracts other than interest rate
futures and municipal bond index futures.
The Fund currently has an operating policy (which is not a fundamental
policy but will not be changed without the approval of a shareholder vote) that
prohibits the Fund from issuing senior securities. However, the policy does not
prohibit certain activities that are permitted by the Fund's other policies,
including borrowing money for emergency purposes as permitted by its other
investment policies and applicable regulations, entering into delayed-delivery
and when-issued arrangements for portfolio securities transactions, and entering
into contracts to buy or sell derivatives, hedging instruments, options, futures
and the related margin, collateral or escrow arrangements permitted under its
other investment policies.
Unless the Prospectus or Statement of Additional Information states that a
percentage restriction applies on an ongoing basis, it applies only at the time
the Fund makes an investment. In that case the Fund need not sell securities to
meet the percentage limits if the value of the investment increases in
proportion to the size of the Fund.
Non-Diversification of the Fund's Investments. The Fund is "non-diversified" as
defined in the Investment Company Act. Funds that are diversified have
restrictions against investing too much of their assets in the securities of any
one "issuer." That means that the Fund can invest more of its assets in the
securities of a single issuer than a fund that is diversified.
Being non-diversified poses additional investment risks, because if the
Fund invests more of its assets in fewer issuers, the value of its shares is
subject to greater fluctuations from adverse conditions affecting any one of
those issuers. However, the Fund does limit its investments in the securities of
any one issuer to qualify for tax purposes as a "regulated investment company"
under the Internal Revenue Code. By qualifying, it does not have to pay federal
income taxes if more than 90% of its earnings are distributed to shareholders.
To qualify, the Fund must meet a number of conditions. First, not more than 25%
of the market value of the Fund's total assets may be invested in the securities
of a single issuer. Second, with respect to 50% of the market value of its total
assets, (1) no more than 5% of the market value of its total assets may be
invested in the securities of a single issuer, and (2) the Fund must not own
more than 10% of the outstanding voting securities of a single issuer.
The identification of the issuer of a municipal security depends on the
terms and conditions of the security. When the assets and revenues of an agency,
authority, instrumentality or other political subdivision are separate from
those of the government creating it and the security is backed only by the
assets and revenues of the subdivision, agency, authority or instrumentality,
the latter would be deemed to be the sole issuer. Similarly, if an industrial
development bond is backed only by the assets and revenues of the
non-governmental user, then that user would be deemed to be the sole issuer.
However, if in either case the creating government or some other entity
guarantees a security, the guarantee would be considered a separate security and
would be treated as an issue of such government or other entity.
Applying the Restriction Against Concentration. To implement its policy not to
concentrate its investments, the Fund has adopted the industry classifications
set forth in Appendix B to this Statement of Additional Information. Those
industry classifications are not a fundamental policy.
In implementing the Fund's policy not to concentrate its investments, the
Manager will consider a non-governmental user of facilities financed by
industrial development bonds as being in a particular industry. That is done
even though the bonds are municipal securities, as to which the Fund has no
concentration limitation. Although this application of the concentration
restriction is not a fundamental policy of the Fund, it will not be changed
without shareholder approval.
How the Fund Is Managed
Organization and History. The Fund is an open-end, diversified management
investment company with an unlimited number of authorized shares of beneficial
interest. The Fund was 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. 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.
Classes of Shares. The Board of Trustees has the power, without
shareholder approval, to divide unissued shares of the Fund into two or more
classes. The Board has done so, and the Fund currently has three classes of
shares, Class A, Class B and Class C. All classes invest in the same investment
portfolio. Shares are freely transferable. Each share has one vote at
shareholder meetings, with fractional shares voting proportionally on matters
submitted to the vote of shareholders. Each class of shares:
ohas its own dividends and distributions,
opays certain expenses which may be different for the different classes,
omay have a different net asset value,
omay have separate voting rights on matters in which the interests of one
class are different from the interests of another class, and
ovotes as a class on matters that affect that class alone.
Meetings of Shareholders. 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. It will also do so when a
shareholder meeting is called by the Trustees or upon proper request of the
shareholders.
Shareholders have the right, upon the declaration in writing or vote of
two-thirds of the outstanding shares of 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.
If the Trustees receive a request from at least 10 shareholders stating that
they wish to communicate with other shareholders to request a meeting to remove
a Trustee, the Trustees will then either make the Fund's shareholder list
available to the applicants or mail their communication to all other
shareholders at the applicants' expense. The shareholders making the request
must have been shareholders for at least six months and must hold shares of the
Fund valued at $25,000 or more or constituting at least 1% of the Fund's
outstanding shares, whichever is less. The Trustees may also take other action
as permitted by the Investment Company Act.
Shareholder and Trustee Liability. The Fund's Declaration of Trust
contains an express disclaimer of shareholder or Trustee liability for the
Fund's obligations. It also provides for indemnification and reimbursement
of expenses out of the Fund's property for any shareholder held personally
liable for its obligations. The Declaration of Trust also states that upon
request, the Fund shall assume the defense of any claim made against a
shareholder for any act or obligation of the Fund and shall satisfy any
judgment on that claim. Massachusetts law permits a shareholder of a
business trust (such as the Fund) to be held personally liable as a
"partner" under certain circumstances. However, the risk that a Fund
shareholder will incur financial loss from being held liable as a "partner"
of the Fund is limited to the relatively remote circumstances in which the
Fund would be unable to meet its obligations.
The Fund's contractual arrangements state that any person doing business
with the Fund (and each shareholder of the Fund) agrees under its Declaration of
Trust to look solely to the assets of the Fund for satisfaction of any claim or
demand that may arise out of any dealings with the Fund. The contracts further
state that the Trustees shall have no personal liability to any such person, to
the extent permitted by law.
Trustees and Officers of the Fund. The Fund's Trustees and officers and their
principal occupations and business affiliations and occupations during the past
five years are listed below. Trustees denoted with an asterisk (*) below are
deemed to be "interested persons" of the Fund under the Investment Company Act.
All of the Trustees are Trustees or Directors of the following New York-based
Oppenheimer funds1:
Oppenheimer California Municipal Fund Oppenheimer Large Cap Growth Fund
Oppenheimer Capital Appreciation Fund Oppenheimer Money Market Fund, Inc.
Oppenheimer Capital Preservation Fund Oppenheimer Multiple Strategies Fund
Oppenheimer Developing Markets Fund Oppenheimer Multi-Sector Income Trust
Oppenheimer Discovery Fund Oppenheimer Multi-State Municipal Trust
Oppenheimer Enterprise Fund Oppenheimer Municipal Bond Fund
Oppenheimer Europe Fund Oppenheimer New York Municipal Fund
Oppenheimer Global Fund Oppenheimer Series Fund, Inc.
Oppenheimer Global Growth & Income Fund Oppenheimer U.S. Government Trust
Oppenheimer Gold & Special Minerals Fund Oppenheimer Trinity Core Fund
Oppenheimer Growth Fund Oppenheimer Trinity Growth Fund
Oppenheimer International Growth Fund Oppenheimer Trinity Value Fund
Oppenheimer International Small Company Fund Oppenheimer World Bond Fund
Ms. Macaskill and Messrs. Spiro, Donohue, Wixted, Zack, Bishop and Farrar
respectively hold the same offices with the other New York-based Oppenheimer
funds as with the Fund. As of October 15, 1999, 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
of the Fund held of record by an employee benefit plan for employees of the
Manager, other than the shares beneficially owned under the plan by the officers
of the Fund listed above. Ms. Macaskill and Mr. Donohue are trustees of that
plan.
1 Ms. Macaskill is not a Director of Oppenheimer Money Market Fund, Inc.
Leon Levy, Chairman of the Board of Trustees, Age: 74
280 Park Avenue, New York, NY 10017
General Partner of Odyssey Partners, L.P. (investment partnership) (since 1982)
and Chairman of Avatar Holdings, Inc. (real estate development).
Robert G. Galli, Trustee, Age: 66
19750 Beach Road, Jupiter, FL 33469
A Trustee or Director of other Oppenheimer funds. Formerly he held the following
positions: Vice Chairman of the Manager, OppenheimerFunds, Inc. (October 1995 -
December 1997); Executive Vice President of the Manager (December 1977 - October
1995); Executive Vice President and a director (April 1986 - October 1995) of
HarbourView Asset Management Corporation, an investment advisor subsidiary of
the Manager.
Phillip A. Griffiths, Trustee, Age: 61
97 Olden Lane, Princeton, N. J. 08540
The Director of the Institute for Advanced Study, Princeton, N.J. (since 1991)
and a member of the National Academy of Sciences (since 1979); formerly a
director of Bankers Trust Corporation (1994 through June, 1999), Provost and
Professor of Mathematics at Duke University (1983 - 1991), a director of
Research Triangle Institute, Raleigh, N.C. (1983 - 1991), and a Professor of
Mathematics at Harvard University (1972 - 1983).
Benjamin Lipstein, Trustee, Age: 76
591 Breezy Hill Road, Hillsdale, N.Y. 12529
Professor Emeritus of Marketing, Stern Graduate School of Business
Administration, New York University.
Bridget A. Macaskill, President and Trustee, Age: 51
Two World Trade Center, New York, New York 10048-0203
President (since June 1991), Chief Executive Officer (since September 1995) and
a Director (since December 1994) of the Manager; President and director (since
June 1991) of HarbourView Asset Management Corporation, an investment adviser
subsidiary of the Manager Chairman and a director of Shareholder Services, Inc.
(since August 1994) and Shareholder Financial Services, Inc. (since September
1995), transfer agent subsidiaries of the Manager; President (since September
1995) and a director (since October 1990) of Oppenheimer Acquisition Corp., the
Manager's parent holding company; President (since September 1995) and a
director (since November 1989) of Oppenheimer Partnership Holdings, Inc., a
holding company subsidiary of the Manager; a director of Oppenheimer Real Asset
Management, Inc. (since July 1996); President and a director (since October
1997) of OppenheimerFunds International Ltd., an offshore fund management
subsidiary of the Manager and of Oppenheimer Millennium Funds plc; President and
a director of other Oppenheimer funds; a director of Prudential Corporation plc
(a U.K. financial service company).
Elizabeth B. Moynihan, Trustee, Age: 70
801 Pennsylvania Avenue, N.W., Washington, D.C. 20004
Author and architectural historian; a trustee of the Freer Gallery of Art
(Smithsonian Institute), Executive Committee of Board of Trustees of the
National Building Museum; a member of the Trustees Council, Preservation League
of New York State.
Kenneth A. Randall, Trustee, Age: 72
6 Whittaker's Mill, Williamsburg, Virginia 23185
A director of Dominion Resources, Inc. (electric utility holding company),
Dominion Energy, Inc. (electric power and oil & gas producer), and Prime Retail,
Inc. (real estate investment trust); formerly President and Chief Executive
Officer of The Conference Board, Inc. (international economic and business
research) and a director of Lumbermens Mutual Casualty Company, American
Motorists Insurance Company and American Manufacturers Mutual Insurance Company.
Edward V. Regan, Trustee, Age: 69
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, Bard College; a director of RBAsset
(real estate manager); a director of OffitBank; Trustee, Financial Accounting
Foundation (FASB and GASB); formerly New York State Comptroller and trustee, New
York State and Local Retirement Fund.
Russell S. Reynolds, Jr., Trustee, Age: 67
8 Sound Shore Drive, Greenwich, Connecticut 06830
Chairman of The Directorship Group, Inc. (corporate governance consulting and
executive recruiting); a director of Professional Staff Limited (a U.K.
temporary staffing company); a life trustee of International House (non-profit
educational organization), and a trustee of the Greenwich Historical Society.
Donald W. Spiro, Vice Chairman and Trustee, Age: 73
399 Ski Trail, Smoke Rise, New Jersey 07405
A Trustee of other Oppenheimer Funds. Formerly he held the following positions:
Chairman Emeritus (August 1991 - August 1999), Chairman (November 1987 - January
1991) and a director (January 1969 - August 1999) of the Manager; President and
Director of the Distributor (July 1978 - January 1992).
Pauline Trigere, Trustee, Age: 87
498 Seventh Avenue, New York, New York 10018
Chairman and Chief Executive Officer of P.T. Concept (design and sale of women's
fashions).
Christian D. Smith, Vice President and Portfolio Manager, Age: 37 Two World
Trade Center, New York, New York 10048-0203 Senior Vice President of the Manager
(since October 11, 1999); an officer of other Oppenheimer funds. From January
1999 to September 1999 he was Co-Head of the Municipal Portfolio Management Team
of Prudential Global Asset Management (an investment advisor), prior to which he
was a portfolio manager for that firm (January 1990 to January 1999).
Clayton K. Yeutter, Trustee, Age: 68
10475 E. Laurel Lane, Scottsdale, Arizona 85259
Of Counsel, Hogan & Hartson (a law firm); a director of Zurich Financial
Services (financial services), Zurich Allied AG and Allied Zurich p.l.c.
(insurance investment management); 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, U.S. Trade Representative.
Andrew J. Donohue, Secretary, Age: 49
Two World Trade Center, New York, New York 10048-0203
Executive Vice President (since January 1993), General Counsel (since October
1991) and a Director (since September 1995) of the Manager; Executive Vice
President and General Counsel (since September 1993) and a director (since
January 1992) of the Distributor; Executive Vice President, General Counsel and
a director of HarbourView Asset Management Corporation, Shareholder Services,
Inc., Shareholder Financial Services, Inc. and (since September 1995)
Oppenheimer Partnership Holdings, Inc.; President and a director of Centennial
Asset Management Corporation (since September 1995); President, General Counsel
and a director of Oppenheimer Real Asset Management, Inc. (since July 1996);
General Counsel (since May 1996) and Secretary (since April 1997) of Oppenheimer
Acquisition Corp.; Vice President and a director of OppenheimerFunds
International Ltd. and Oppenheimer Millennium Funds plc (since October 1997); an
officer of other Oppenheimer funds.
George C. Bowen, Director/Trustee, Age: 63
6803 South Tucson Way, Englewood, Colorado 80112
Formerly (until April 1999) Mr. Bowen held the following positions: Senior Vice
President (since September 1987) and Treasurer (since March 1985) of the
Manager; Vice President (since June 1983) and Treasurer (since March 1985) of
the Distributor; Vice President (since October 1989) and Treasurer (since April
1986) of HarbourView Asset Management Corporation; Senior Vice President (since
February 1992), Treasurer (since July 1991) Assistant Secretary and a director
(since December 1991) of Centennial Asset Management Corporation; President,
Treasurer and a director of Centennial Capital Corporation (since June 1989);
Vice President and Treasurer (since August 1978) and Secretary (since April
1981) of Shareholder Services, Inc.; Vice President, Treasurer and Secretary of
Shareholder Financial Services Inc. (since November 1989); Assistant Treasurer
of Oppenheimer Acquisition Corp. (since March 1998); Treasurer of Oppenheimer
Partnership Holdings, Inc. (since November 1989); Vice President and Treasurer
of Oppenheimer Real Asset Management, Inc. (since July 1996); Treasurer of
OppenheimerFunds International Ltd. and Oppenheimer Millennium Fund plc (since
October 1997).
O. Leonard Darling, Executive Vice President and Chief Investment Officer, Age:
57 Two World Trade Center, New York, New York 10048-0203 Chief Investment
Officer of the Manager (since 6/99); Chief Executive Officer and Senior Manager
of HarbourView Asset Management Corporation; Trustee (1993 - present) of
Awhtolia College - Greece; formerly Chief Executive Officer (1993-June 1999).
Robert J. Bishop, Assistant Treasurer, Age: 41
6803 South Tucson Way, Englewood, Colorado 80112
Vice President of the Manager/Mutual Fund Accounting (since May 1996); an
officer of other Oppenheimer funds; formerly an Assistant Vice President of the
Manager/Mutual Fund Accounting (April 1994 - May 1996), and a Fund Controller
for the Manager.
Scott T. Farrar, Assistant Treasurer, Age: 34
6803 South Tucson Way, Englewood, Colorado 80112
Vice President of the Manager/Mutual Fund Accounting (since May 1996); Assistant
Treasurer of Oppenheimer Millennium Funds plc (since October 1997); an officer
of other Oppenheimer Funds; formerly an Assistant Vice President of the
Manager/Mutual Fund Accounting (April 1994 - May 1996), and a Fund Controller
for the Manager.
Brian W. Wixted, Treasurer, Age: 40
6803 South Tucson Way, Englewood, Colorado 80112
Senior Vice President and Treasurer (since April 1999) of the Manager; Treasurer
of HarbourView Asset Management Corporation, Shareholder Services, Inc.,
Shareholder Financial Services, Inc. and Oppenheimer Partnership Holdings, Inc.
(since April 1999); Assistant Treasurer of Oppenheimer Acquisition Corp. (since
April 1999); Assistant Secretary of Centennial Asset Management Corporation
(since April 1999); formerly Principal and Chief Operating Officer, Bankers
Trust Company - Mutual Fund Services Division (March 1995 - March 1999); Vice
President and Chief Financial Officer of CS First Boston Investment Management
Corp. (September 1991 - March 1995); and Vice President and Accounting Manager,
Merrill Lynch Asset Management (November 1987 - September 1991).
Robert G. Zack, Assistant Secretary, Age: 51
Two World Trade Center, New York, New York 10048-0203
Senior Vice President (since May 1985) and Associate General Counsel (since May
1981) of the Manager, Assistant Secretary of Shareholder Services, Inc. (since
May 1985), and Shareholder Financial Services, Inc. (since November 1989);
Assistant Secretary of OppenheimerFunds International Ltd. and Oppenheimer
Millennium Funds plc (since October 1997); an officer of other Oppenheimer
funds.
Remuneration of Trustees. The officers of the Fund and certain Trustees of
the Fund (Ms. Macaskill and Mr. Spiro) who are affiliated with the Manager
receive no salary or fee from the Fund. The remaining Trustees of the Fund
received the compensation shown below. The compensation from the Fund was paid
during its fiscal year ended July 31, 1999. The compensation from all of the New
York-based Oppenheimer funds (including the Fund) was received as a director,
trustee or member of a committee of the boards of those funds during the
calendar year 1998.
--------------------------------------------------------------------------------
Total
Retirement Compensation
Benefits from all
Aggregate Compensation Accrued as Part New York based
Trustee's Name From Fund of Fund Oppenheimer
and Position Expenses Funds (22 Funds)1
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Leon Levy $4,005 $543 $162,600
Chairman
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Study Committee Robert G. G$1,325 $0 $113,383
Member2
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Phillip Griff$216 $0 $0
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Study Committee
Chairman,3 Benjamin Li$3,650 $657 $140,550
Audit Committee
Member
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Study Committee Elizabeth B$2,108ihan $0 $99,000
Member
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Audit Committee Kenneth A. $2,274l $341 $90,800
Member
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Proxy Committee
Chairman, Audit Edward V. R$1,912 $0 $89,800
Committee Member
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Russell S. Reynolds,
Jr.
Proxy Committee $1,531 $100 $67,200
Member
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Pauline Tri$1,496 $219 $60,000
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Proxy Committee Clayton K.$1,4314r $0 $67,200
Member
--------------------------------------------------------------------------------
----------------------------
1 Aggregate compensation includes fees, deferred compensation, if any, and
retirement plan benefits accrued for a Director.
2 For the 1998 calendar year.
3 Aggregate compensation from the Fund reflect fees from 1/1/98 to 10/31/98.
Total compensation for the 1998 calendar year includes compensation received for
serving as Trustee or Director of 11 other Oppenheimer funds. 4 Includes $345
deferred under Deferred Compensation Plan described below.
Retirement Plan for Trustees. The Fund has adopted a retirement plan that
provides for payments to retired Trustees. Payments are up to 80% of the average
compensation paid during a Trustee's five years of service in which the highest
compensation was received. A Trustee must serve as trustee for any of the New
York-based Oppenheimer funds for at least 15 years to be eligible for the
maximum payment. Each Trustee's retirement benefits will depend on the amount of
the Trustee's future compensation and length of service. Therefore the amount of
those benefits cannot be determined at this time, nor can we estimate the number
of years of credited service that will be used to determine those benefits.
Deferred Compensation Plan for Trustees. The Board of Trustees has adopted
a Deferred Compensation Plan for disinterested trustees that enables them to
elect to defer receipt of all or a portion of the annual fees they are entitled
to receive from the Fund. Under the plan, the compensation deferred by a Trustee
is periodically adjusted as though an equivalent amount had been invested in
shares of one or more Oppenheimer funds selected by the Trustee. The amount paid
to the Trustee under the plan will be determined based upon the performance of
the selected funds.
Deferral of Trustees' fees under the plan will not materially affect the
Fund's assets, liabilities or net income per share. The plan will not obligate
the Fund to retain the services of any Trustee or to pay any particular level of
compensation to any Trustee. Pursuant to an Order issued by the Securities and
Exchange Commission, the Fund may invest in the funds selected by the Trustee
under the plan without shareholder approval for the limited purpose of
determining the value of the Trustee's deferred fee account.
Major Shareholders. As of October 15, 1999, the only persons who owned of
record or who were known by the Fund to own beneficially 5% or more of the
Fund's outstanding Class A, Class B or Class C shares were:
Merrill Lynch Pierce Fenner & Smith Inc., 4800 Deer Lake Drive East,
Jacksonville, Florida 32246, which owned 744,986.922 Class B shares,
representing 6.09% of the Class B shares then outstanding, for the sole benefit
of its customers
Merrill Lynch Pierce Fenner & Smith Inc., 4800 Deer Lake Drive East,
Jacksonville, Florida 32246, which owned 291,078.242 Class C shares,
representing 19.26% of the Class C shares then outstanding, for the sole
benefit of its customers.
The Manager. The Manager is wholly-owned by Oppenheimer Acquisition Corp., a
holding company controlled by Massachusetts Mutual Life Insurance Company. The
Manager and the Fund have a Code of Ethics. It is designed to detect and prevent
improper personal trading by certain employees, including portfolio managers,
that would compete with or take advantage of the Fund's portfolio transactions.
Compliance with the Code of Ethics is carefully monitored and strictly enforced
by the Manager.
The portfolio managers of the Fund are principally responsible for the
day-to-day management of the Fund's investment portfolio. Other members of the
Manager's fixed-income portfolio department, particularly security analysts,
traders and other portfolio managers have broad experience with fixed-income
securities. They provide the Fund's portfolio managers with research and support
in managing the Fund's investments.
The Investment Advisory Agreement. The Manager provides investment
advisory and management services to the Fund under an investment advisory
agreement between the Manager and the Fund. The Manager selects securities for
the Fund's portfolio and handles its day-to day business. That agreement
requires the Manager, at its expense, to provide the Fund with adequate office
space, facilities and equipment. It also requires the Manager to provide and
supervise the activities of all administrative and clerical personnel required
to provide effective corporate administration for the Fund. Those
responsibilities include the compilation and maintenance of records with respect
to the Fund's operations, the preparation and filing of specified reports, and
the composition of proxy materials and registration statements for continuous
public sale of shares of the Fund.
Expenses not expressly assumed by the Manager under the advisory agreement
are paid by the Fund. The investment advisory agreement lists examples of
expenses paid by the Fund. The major categories relate to interest, taxes, fees
to disinterested Trustees, legal and audit expenses, custodian and transfer
agent expenses, share issuance costs, certain printing and registration costs,
brokerage commissions, and non-recurring expenses, including litigation cost.
The management fees paid by the Fund to the Manager are calculated at the rates
described in the Prospectus, which are applied to the assets of the Fund as a
whole. The fees are allocated to each class of shares based upon the relative
proportion of the Fund's net assets represented by that class. The management
fees paid by the Fund to the Manager during its last three fiscal years are
listed below.
------------------------------------------------------
Fiscal Year Management Fee Paid to
Ended 7/31 OppenheimerFunds, Inc.
------------------------------------------------------
------------------------------------------------------
1997 $2,039,568
------------------------------------------------------
------------------------------------------------------
1998 $2,275,703
------------------------------------------------------
------------------------------------------------------
1999 $2,540,982
------------------------------------------------------
The investment advisory agreement states that in the absence of willful
misfeasance, bad faith, gross negligence in the performance of its duties, or
reckless disregard for its obligations and duties under the investment advisory
agreement, the Manager is not liable for any loss sustained by reason of any
investment of the Fund assets made with due care and in good faith. The
agreement permits the Manager to act as investment adviser for any other person,
firm or corporation and to use the name "Oppenheimer" in connection with other
investment companies for which it may act as investment adviser or general
distributor. If the Manager shall no longer act as investment adviser to the
Fund, the Manager may withdraw the Fund's right to use the name "Oppenheimer" as
part of its name.
Brokerage Policies of the Fund
Brokerage Provisions of the Investment Advisory Agreement. One of the duties of
the Manager under the investment advisory agreement is to buy and sell portfolio
securities for the Fund. The investment advisory agreement allows the Manager to
use broker-dealers to effect the Fund's portfolio transactions. Under the
agreement, the Manager may employ those broker-dealers (including "affiliated"
brokers, as that term is defined in the Investment Company Act) that, in the
Manager's best judgment based on all relevant factors, will implement the Fund's
policy to obtain, at reasonable expense, the "best execution" of portfolio
transactions. "Best execution" refers to prompt and reliable execution at the
most favorable price obtainable. The Manager need not seek competitive
commission bidding. However, the Manager is expected to minimize the commissions
paid to the extent consistent with the interest and policies of the Fund as
established by its Board of Trustees.
Under the investment advisory agreement, the Manager may select brokers
that provide brokerage and/or research services for the Fund and/or the other
accounts over which the Manager or its affiliates have investment discretion.
The commissions paid to such brokers may be higher than another qualified broker
would charge, if the Manager makes a good faith determination that the
commission is fair and reasonable in relation to the services provided. Subject
to those other considerations, as a factor in selecting brokers for the Fund's
portfolio transactions, the Manager may also consider sales of shares of the
Fund and other investment companies managed by the Manager or its affiliates.
Brokerage Practices Followed by the Manager. The Manager allocates brokerage for
the Fund subject to the provisions of the investment advisory agreement and the
procedures and rules described above. Generally the Manager's portfolio traders
allocate brokerage upon recommendations from the Manager's portfolio managers.
In certain instances, portfolio managers may directly place trades and allocate
brokerage. In either case, the Manager's executive officers supervise the
allocation of brokerage.
Most securities purchases made by the Fund are in principal transactions
at net prices. The Fund usually deals directly with the selling or purchasing
principal or market maker without incurring charges for the services of a broker
on its behalf unless the Manager determines that a better price or execution may
be obtained by using the services of a broker. Therefore, the Fund does not
incur substantial brokerage costs. Portfolio securities purchased from
underwriters include a commission or concession paid by the issuer to the
underwriter in the price of the security. Portfolio securities purchased from
dealers include a spread between the bid and asked price.
The Fund seeks to obtain prompt execution of orders at the most favorable
net prices. In an option transaction, the Fund ordinarily uses the same broker
for the purchase or sale of the option and any transaction in the investment to
which the option relates. When possible, the Manager tries to combine concurrent
orders to purchase or sell the same security by more than one of the accounts
managed by the Manager or its affiliates. The transactions under those combined
orders are averaged as to price and allocated in accordance with the purchase or
sale orders actually placed for each account.
The investment advisory agreement permits the Manager to allocate
brokerage for research services. The research services provided by a particular
broker may be useful only to one or more of the advisory accounts of the Manager
and its affiliates. Investment research received by the Manager for the
commissions paid by those other accounts may be useful both to the Fund and one
or more of the Manager's other accounts. Investment research services may be
supplied to the Manager by a third party at the instance of a broker through
which trades are placed. Investment research services include information and
analyses on particular companies and industries as well as market or economic
trends and portfolio strategy, market quotations for portfolio evaluations,
information systems, computer hardware and similar products and services. If a
research service also assists the Manager in a non-research capacity (such as
bookkeeping or other administrative functions), then only the percentage or
component that provides assistance to the Manager in the investment
decision-making process may be paid in commission dollars.
The Board of Trustees 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 if the
broker represents to the Manager that: (i) the trade is not from or for the
broker's own inventory, (ii) the trade was executed by the broker on an agency
basis at the stated commission, and (iii) the trade is not a riskless principal
transaction.
The research services provided by brokers broaden the scope and supplement
the research activities of the Manager. That research provides additional views
and comparisons for consideration and helps the Manager to obtain market
information for the valuation of securities that are either held in the Fund's
portfolio or are being considered for purchase. The Manager provides information
to the Board of the Fund about the commissions paid to brokers furnishing
research services, together with the Manager's representation that the amount of
such commissions was reasonably related to the value or benefit of such
services.
Other funds advised by the Manager have investment objectives and policies
similar to those of the Fund. Those other funds may purchase or sell the same
securities as the Fund at the same time as the Fund, which could affect the
supply and price of the securities. If two or more of funds advised by the
Manager purchase the same security on the same day from the same dealer, the
Manager may average the price of the transactions and allocate the average among
the funds.
Distribution and Service Plans
The Distributor. Under its General Distributor's Agreement with the Fund, the
Distributor acts as the Fund's principal underwriter in the continuous public
offering of the Fund's Class A, Class B and Class C shares. The Distributor is
not obligated to sell a specific number of shares. Expenses normally
attributable to sales are borne by the Distributor. They exclude payments under
the Distribution and Service Plans but include advertising and the cost of
printing and mailing prospectuses (other than those furnished to existing
shareholders).
The compensation paid to (or retained by) the Distributor from the sale of
shares or on the redemption of shares is discussed in the table below:
------------------------------------------------------------------------------
Aggregate Class A Commissions Commissions Commissions
Fiscal Front-End Front-End on Class A on Class B on Class C
Year Sales Sales Shares Shares Shares
Ended Charges on Charges Advanced by Advanced by Advanced by
7/31: Class A Retained by Distributor1 Distributor1 Distributor1
Shares Distributor
------------------------------------------------------------------------------
------------------------------------------------------------------------------
1997 $951,080 $160,054 N/A $1,195,489 $45,765
------------------------------------------------------------------------------
------------------------------------------------------------------------------
1998 $922,528 $141,083 $70,244 $1,607,116 $66,159
------------------------------------------------------------------------------
------------------------------------------------------------------------------
1999 $924,929 $154,753 $188,991 $1,254,294 $84,556
------------------------------------------------------------------------------
1. The Distributor advances commission payments to dealers for certain sales of
Class A shares and for sales of Class B and Class C shares from its own
resources at the time of sale. Because Class B shares convert to Class A
shares 72 months after purchase, the "life-of-class" return for Class B uses
Class A performance for the period after conversion.
2. Fiscal period of seven months.
--------------------------------------------------------------------------------
Class A Contingent Class B Contingent Class C Contingent
Fiscal Year Deferred Sales Deferred Sales Deferred Sales
Ended 7/31: Charges Retained Charges Retained Charges Retained by
by Distributor by Distributor
Distributor
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
1999 $0 $291,981 $8,385
--------------------------------------------------------------------------------
For additional information about distribution of the Fund's shares,
including fees and expenses, please refer to "Distribution and Service Plans."
Distribution and Service Plans. The Fund has adopted a Service Plan for its
Class A shares and Distribution and Service Plans for its Class B and Class C
shares under Rule 12b-1 of the Investment Company Act. Under those plans, the
Fund makes payments to the Distributor in connection with the distribution
and/or servicing of the shares of the particular class.
Each plan has been approved by a vote of the Board of Trustees of the
Fund, including a majority of the Independent Trustees, cast in person at a
meeting called for the purpose of voting on that plan. The Manager cast the vote
to approve the Class C plan as the sole initial holder of Class C shares.
Under the plans the Manager and the Distributor may make payments to
affiliates and, in their sole discretion, from time to time may use their own
resources to make payments to brokers, dealers or other financial institutions
for distribution and administrative services they perform at no cost to the
Fund. The Manager may use profits from the advisory fee it receives from the
Fund. The Distributor and the Manager may, in their sole discretion, increase or
decrease the amount of payments they make to plan recipients from their own
resources.
Unless a plan is terminated as described below, the plan continues in
effect from year to year, but only if the Fund's Board of Trustees and its
Independent Trustees specifically vote annually to approve its continuance.
Approval must be by a vote cast in person at a meeting called for the purpose of
voting on continuing the plan. A plan may be terminated at any time by the vote
of a majority of the Independent Trustees or by the vote of the holders of a
"majority" (as defined in the Investment Company Act) of the outstanding shares
of that class.
The Board and the Independent Trustees must approve all material
amendments to a plan. An amendment to increase materially the amount of
payments to be made under the plan must be approved by shareholders of the
class affected by the amendment. Because Class B shares automatically
convert into Class A shares after six years, the Fund must obtain the
approval of both Class A and Class B shareholders for an amendment to the
Class A plan that would materially increase the amount to be paid under that
plan. That approval must be by a "majority" (as defined in the Investment
Company Act) of the shares of each class, voting separately by Class.
While the plans are in effect, the Treasurer of the Fund shall provide
separate written reports on the plans to the Fund's Board of Trustees at least
quarterly for its review. The reports shall detail the amount of all payments
made under a plan and the purpose for which the payments were made. Those
reports are subject to the review and approval of the Independent Trustees in
the exercise of their fiduciary duty.
Each plan states that while it is in effect, the selection or replacement
and nomination of those Trustees of the Fund who are not "interested persons" of
the Fund is committed to the discretion of the Independent Trustees. This
provision does not prevent the involvement of others in the selection and
nomination process as long as the final decision as to selection or nomination
is approved by a majority of the Independent Trustees.
Under the plans, no payment will be made to any recipient in any quarter
in which the aggregate net asset value of all Fund shares held by the recipient
for itself and its customers does not exceed a minimum amount, if any, that may
be set from time to time by a majority of the Fund's Independent Trustees.
Initially, the Board of Trustees has set the fees at the maximum rate allowed
under the plans and has set no minimum asset amount needed to qualify for
payments.
Class A Service Plan. Under the Class A service plan, the Distributor
currently uses the fees it receives from the Fund to pay brokers, dealers and
other financial institutions (they are referred to as "recipients") for personal
services and account maintenance services they provide for their customers who
hold Class A shares. The services include, among others, answering customer
inquiries about the Fund, assisting in establishing and maintaining accounts in
the Fund, making the Fund's investment plans available and providing other
services at the request of the Fund or the Distributor. The Distributor makes
payments to plan recipients quarterly at an annual rate not to exceed 0.25% of
the average annual net assets of Class A shares held in accounts of the service
providers or their customers.
For the fiscal year ended July 31, 1999, payments under the Plan for Class
A shares totaled $757,647, all of which was paid by the Distributor to
recipients. That included $25,906 paid to an affiliate of the Distributor. Any
unreimbursed expenses the Distributor incurs with respect to Class A shares for
any fiscal year may not be recovered in subsequent years. The Distributor may
not use payments received under the Class A plan to pay any of its interest
expenses, carrying charges, other financial costs, or allocation of overhead.
Class B and Class C Service and Distribution Plan Fees. Under each
plan, service fees and distribution fees are computed on the average of the
net asset value of shares in the respective class, determined as of the
close of each regular business day during the period. The Class B and Class
C plans provide for the Distributor to be compensated at a flat rate,
whether the Distributor's distribution expenses are more or less than the
amounts paid by the Fund under the plans during that period. The Class B and
Class C plans permit the Distributor to retain both the asset-based sales
charges and the service fee on shares or to pay recipients the service fee
on a quarterly basis, without payment in advance.
The Distributor presently intends to pay recipients the service fee on
Class B and Class C shares in advance for the first year the shares are
outstanding. After the first year shares are outstanding, the Distributor makes
payments quarterly on those shares. The advance payment is based on the net
asset value of shares sold. Shares purchased by exchange do not qualify for an
advance service fee payment. If Class B or Class C shares are redeemed during
the first year after their purchase, the recipient of the service fees on those
shares will be obligated to repay the Distributor a pro rata portion of the
advance payment made on those shares.
The Distributor retains the asset-based sales charge on Class B shares.
The Distributor retains the asset-based sales charge on Class C shares during
the first year the shares are outstanding. It pays the asset-based sales charge
as an ongoing commission to the dealer on Class C shares outstanding for a year
or more. If a dealer has a special agreement with the Distributor, the
Distributor will pay the Class B and/or Class C service fees and the asset-based
sales charge to the dealer quarterly in lieu of paying the sales commission and
service fee in advance at the time of purchase.
The asset-based sales charge on Class B and Class C shares allows
investors to buy shares without a front-end sales charge while allowing the
Distributor to compensate dealers that sell those shares. The Distributor's
actual expenses in selling Class B and Class C shares may be more than the
payments it receives from contingent deferred sales charges collected on
redeemed shares and from the Fund under the plans. The Fund pays the asset-based
sales charge to the Distributor for its services rendered in distributing Class
B and Class C shares. The payments are made to the Distributor in recognition
that the Distributor:
pays sales commissions to authorized brokers and dealers at the time of
sale and pays service fees as described in the Prospectus, may finance
payment of sales commissions and/or the advance of the service fee
payment to recipients under the plans, or may provide such financing
from its own resources or from the resources of an affiliate, employs
personnel to support distribution of shares, and bears the costs of
sales literature, advertising and prospectuses (other than those
furnished to current shareholders) and state "blue sky" registration
fees and certain other distribution expenses.
The Distributor's actual expenses in selling Class B and Class C shares
may be more that the payments it receives from the contingent deferred sales
charges collected on redeemed shares and from the Fund under the plans. If
either the Class B or Class C plan is terminated by the Fund, the Board of
Trustees may allow the Fund to continue payments of the asset-based sales charge
to the Distributor for distributing shares before the plan was terminated. The
Class B and Class C plans allow for the carry-forward of distribution expenses,
to be recovered from asset based sales charges in subsequent fiscal periods.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
Distribution Fees Paid to the Distributor in the Fiscal Year Ended 7/31/99
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Distributor's
Distributor's Unreimbursed
Class Total Aggregate Expenses as % of
Payments Amount Retained Unreimbursed Expenses Net Assets of
Under Plan by Distributor Under Plan Class
----------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------
Class B Plan $1,294,892 $1,062,283 $4,059,718 3.06%
----------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------
Class C Plan $146,564 $93,541 $207,394 1.23%
----------------------------------------------------------------------------------------
</TABLE>
All payments under the Class B and Class C plans are subject to the
limitations imposed by the Conduct Rules of the National Association of
Securities Dealers, Inc. on payments of asset-based sales charges and
service fees to NASD members.
Performance of the Fund
Explanation of Performance Terminology. The Fund uses a variety of terms to
illustrate its performance. These terms include "standardized yield,"
"tax-equivalent yield," "dividend yield," "average annual total return,"
"cumulative total return," "average annual total return at net asset value" and
"total return at net asset value." An explanation of how yields and total
returns are calculated is set forth below. The charts below show the Fund's
performance during its most recent fiscal year end. You can obtain current
performance information by calling the Fund's Transfer Agent at 1-800-525-7048
or by visiting the OppenheimerFunds Internet web site at
http://www.oppenheimerfunds.com.
The Fund's illustrations of its performance data in advertisements must
comply with rules of the Securities and Exchange Commission. Those rules
describe the types of performance data that may be used and how it is to be
calculated. In general, any advertisement by the Fund of its performance data
must include the average annual total returns for the advertised class of shares
of the Fund. Those returns must be shown for the 1, 5 and 10-year periods (or
the life of the class, if less) ending as of the most recently ended calendar
quarter prior to the publication of the advertisement (or its submission for
publication). Certain types of yields may also be shown, provided that they are
accompanied by standardized average annual total returns.
Use of standardized performance calculations enables an investor to
compare the Fund's performance to the performance of other funds for the same
periods. However, a number of factors should be considered before using the
Fund's performance information as a basis for comparison with other investments:
Yields and total returns measure the performance of a hypothetical
account in the Fund over various periods and do not show the
performance of each shareholder's account. Your account's performance
will vary from the model performance data if your dividends are
received in cash, or you buy or sell shares during the period, or you
bought your shares at a different time and price than the shares used
in the model.
The Fund's performance returns do not reflect the effect of taxes or
distributions. An investment in the Fund is not insured by the FDIC or
any other government agency.
The principal value of the Fund's shares, and its yields and total
returns are not guaranteed and normally will fluctuate on a daily
basis. When an investor's shares are redeemed, they may be worth more
or less than their original cost.
Yields and total returns for any given past period represent historical
performance information and are not, and should not be considered, a
prediction of future yields or returns.
The performance of each class of shares is shown separately, because the
performance of each class of shares will usually be different. That is because
of the different kinds of expenses each class bears. The yields and total
returns of each class of shares of the Fund are affected by market conditions,
the quality of the Fund's investments, the maturity of those investments, the
types of investments the Fund holds, and its operating expenses that are
allocated to the particular class.
Yields. The Fund uses a variety of different yields to illustrate its
current returns. Each class of shares calculates its yield separately because of
the different expenses that affect each class.
Standardized Yield. The "standardized yield" (sometimes referred to just
as "yield") is shown for a class of shares for a stated 30-day period. It is not
based on actual distributions paid by the Fund to shareholders in the 30-day
period, but is a hypothetical yield based upon the net investment income from
the Fund's portfolio investments for that period. It may therefore differ from
the "dividend yield" for the same class of shares, described below.
Standardized yield is calculated using the following formula set forth in
rules adopted by the Securities and Exchange Commission, designed to assure
uniformity in the way that all funds calculate their yields:
(a-b) 6
Standardized Yield = 2 ((--- + 1) - 1)
( cd)
The symbols above represent the following factors:
a = dividends and interest earned during the 30-day period.
b = expenses accrued for the period (net of any expense assumptions).
c = the average daily number of shares of that class outstanding
during the 30-day period that were entitled to receive dividends.
d = the maximum offering price per share of that class on the last day
of the period, adjusted for undistributed net investment income.
The standardized yield for a particular 30-day period may differ from the
yield for other periods. The SEC formula assumes that the standardized yield for
a 30-day period occurs at a constant rate for a six-month period and is
annualized at the end of the six-month period. Additionally, because each class
of shares is subject to different expenses, it is likely that the standardized
yields of the Fund's classes of shares will differ for any 30-day period.
Dividend Yield. The Fund may quote a "dividend yield" for each class of
its shares. Dividend yield is based on the dividends paid on a class of shares
during the actual dividend period. To calculate dividend yield, the dividends of
a class declared during a stated period are added together, and the sum is
multiplied by 12 (to annualize the yield) and divided by the maximum offering
price on the last day of the dividend period. The formula is shown below:
Dividend Yield = dividends paid x 12/maximum offering price (payment date)
The maximum offering price for Class A shares includes the current maximum
initial sales charge. The maximum offering price for Class B and Class C shares
is the net asset value per share, without considering the effect of contingent
deferred sales charges. The Class A dividend yield may also be quoted without
deducting the maximum initial sales charge.
Tax-Equivalent Yield. The "tax-equivalent yield" of a class of shares is
the equivalent yield that would have to be earned on a taxable investment to
achieve the after-tax results represented by the Fund's tax-equivalent yield. It
adjusts the Fund's standardized yield, as calculated above, by a stated federal
tax rate. Using different tax rates to show different tax equivalent yields
shows investors in different tax brackets the tax equivalent yield of the Fund
based on their own tax bracket.
The tax-equivalent yield is based on a 30-day period, and is computed by
dividing the tax-exempt portion of the Fund's current yield (as calculated
above) by one minus a stated income tax rate. The result is added to the portion
(if any) of the Fund's current yield that is not tax-exempt.
The tax-equivalent yield may be used to compare the tax effects of income
derived from the Fund with income from taxable investments at the tax rates
stated. Your tax bracket is determined by your federal and state taxable income
(the net amount subject to federal and state income tax after deductions and
exemptions). The tax-equivalent yield table assumes that the investor is taxed
at the highest bracket, regardless of whether a switch to non-taxable
investments would cause a lower bracket to apply.
-------------------------------------------------------------------------------
The Fund's Yields for the 30-Day Periods Ended 7/31/99
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Tax-Equivalent Yield
(45.22% Combined
Federal/California
Standardized Yield Dividend Yield Tax Bracket)
Class of
Shares
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Without Without Without
Sales After Sales After Sales After
Charge Sales Charge Sales Charge Sales
Charge Charge Charge
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Class A 4.67% 4.44% 5.01% 4.77% 8.52% 8.10%
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Class B 3.90% N/A 4.23% N/A 7.12% N/A
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Class C 3.90% N/A 4.24% N/A 7.12% N/A
--------------------------------------------------------------------------------
Total Return Information. There are different types of "total returns" to
measure the Fund's performance. Total return is the change in value of a
hypothetical investment in the Fund over a given period, assuming that all
dividends and capital gains distributions are reinvested in additional shares
and that the investment is redeemed at the end of the period. Because of
differences in expenses for each class of shares, the total returns for each
class are separately measured. The cumulative total return measures the change
in value over the entire period (for example, ten years). An average annual
total return shows the average rate of return for each year in a period that
would produce the cumulative total return over the entire period. However,
average annual total returns do not show actual year-by-year performance. The
Fund uses standardized calculations for its total returns as prescribed by the
SEC. The methodology is discussed below.
In calculating total returns for Class A shares, the current maximum sales
charge of 4.75% (as a percentage of the offering price) is deducted from the
initial investment ("P") (unless the return is shown without sales charge, as
described below). For Class B shares, payment of the applicable contingent
deferred sales charge is applied, depending on the period for which the return
is shown: 5.0% in the first year, 4.0% in the second year, 3.0% in the third and
fourth years, 2.0% in the fifth year, 1.0% in the sixth year and none
thereafter. For Class C shares, the 1% contingent deferred sales charge is
deducted for returns for the 1-year period.
Average Annual Total Return. The "average annual total return" of each
class is an average annual compounded rate of return for each year in a
specified number of years. It is the rate of return based on the change in value
of a hypothetical initial investment of $1,000 ("P" in the formula below) held
for a number of years ("n") to achieve an Ending Redeemable Value ("ERV" in the
formula) of that investment, according to the following formula:
1/n
(ERV)
(---) -1 = Average Annual Total Return
( P )
Cumulative Total Return. The "cumulative total return" calculation
measures the change in value of a hypothetical investment of $1,000 over an
entire period of years. Its calculation uses some of the same factors as average
annual total return, but it does not average the rate of return on an annual
basis. Cumulative total return is determined as follows:
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
ERV - P
------- = Total Return
P
Total Returns at Net Asset Value. From time to time the Fund may also
quote a cumulative or an average annual total return "at net asset value"
(without deducting sales charges) for Class A, Class B or Class C shares. Each
is based on the difference in net asset value per share at the beginning and the
end of the period for a hypothetical investment in that class of shares (without
considering front-end or contingent deferred sales charges) and takes into
consideration the
reinvestment of dividends and capital gains distributions.
--------------------------------------------------------------------------------
The Fund's Total Returns for the Periods Ended 7/31/99
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Cumulative Total Average Annual Total Returns
Returns (10
years or life of
class)
Class of
Shares
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
5-Year 10-Year
1-Year (or life of (or life of
class) class)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
After Without After Without After Without After Without
Sales Sales Sales Sales Sales Sales Sales Sales
Charge Charge Charge Charge Charge Charge Charge Charge
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Class A 85.96% 95.23% -3.24% 1.59% 5.42% 6.45% 6.40% 6.92%
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Class B 33.75% 33.75% -4.02% 0.82% 5.32% 5.64% 4.77%* 4.77%*
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Class C 19.63% 19.63% -0.24% 0.73% 4.90%** 4.90%** N/A N/A
--------------------------------------------------------------------------------
Inception of Class A: 1/3/88
*Inception of Class B: 5/3/93
**Inception of Class C: 11/1/95
Other Performance Comparisons. The Fund compares its performance annually to
that of an appropriate broadly based market index in its Annual Report to
shareholders. You can obtain that information by contacting the Transfer Agent
at the addresses or telephone numbers shown on the cover of this Statement of
Additional Information. The Fund may also compare its performance to that of
other investments, including other mutual funds, or use rankings of its
performance by independent ranking entities. Examples of these performance
comparisons are set forth below.
Lipper Rankings. From time to time the Fund may publish the ranking of the
performance of its Class A, Class B or Class C shares by Lipper Inc. ("Lipper").
Lipper is a widely recognized independent mutual fund monitoring service. Lipper
monitors the performance of regulated investment companies, including the Fund,
and ranks their performance for various periods based on categories relating to
investment objectives. The performance of the Fund is ranked by Lipper against
all other bond funds, other than money market funds, and all general municipal
bond funds. The Lipper performance rankings are based on total returns that
include the reinvestment of capital gain distributions and income dividends but
do not take sales charges or taxes into consideration. Lipper also publishes
"peer-group" indices of the performance of all mutual funds in a category that
it monitors and averages of the performance of the funds in particular
categories.
Morningstar Ratings and Rankings. From time to time the Fund may publish
the ranking and/or star rating of the performance of its classes of shares by
Morningstar, Inc., an independent mutual fund monitoring service. Morningstar
rates and ranks mutual funds in broad investment categories: domestic stock
funds, international stock funds, taxable bond funds and municipal bond funds.
The Fund is included in the municipal bond category.
Morningstar proprietary star ratings reflect historical risk-adjusted
total investment return. Investment return measures a fund's (or class's) one-,
three-, five- and ten-year average annual total returns (depending on the
inception of the fund or class) in excess of 90-day U.S. Treasury bill returns
after considering the fund's sales charges and expenses. Risk measured a fund's
(or class's) performance below 90-day U.S. Treasury bill returns. Risk and
investment return are combined to produce star ratings reflecting performance
relative to the other funds in a fund's category. Five stars is the "highest"
ranking (top 10% of funds in a category), four stars is "above average" (next
22.5%), three stars is "average" (next 35%), two stars is "below average" (next
22.5%) and one star is "lowest" (bottom 10%). The current star rating is the
fund's (or class's) overall rating, which is the fund's 3-year rating, or its
combined 3- and 5-year ranking (weighted 60%/40% respectively), or its combined
3-, 5-, and 10-year ranking (weighted 40%, 30% and 30%, respectively), depending
on the inception date of the fund (or class). Rankings are subject to change
monthly.
The Fund may also compare its total return ranking to that of other funds
in its Morningstar category, in addition to its star ratings. Those total return
ranking are percentages from one percent to one hundred percent and are not risk
adjusted. For example, if a fund is in the 94th percentile, that means that 94%
of the funds in the same category performed better than it did.
Performance Rankings and Comparisons by Other Entities and Publications.
From time to time the Fund may include in its advertisements and sales
literature performance information about the Fund cited in newspapers and other
periodicals such as The New York Times, the Wall Street Journal, Barron's, or
similar publications. That information may include performance quotations from
other sources, including Lipper and Morningstar. The performance of the Fund's
Class A, Class B or Class C shares may be compared in publications to the
performance of various market indices or other investments, and averages,
performance rankings or other benchmarks prepared by recognized mutual fund
statistical services.
Investors may also wish to compare the Fund's Class A, Class B or Class C
returns to the return on fixed-income investments available from banks and
thrift institutions. Those include certificates of deposit, ordinary
interest-paying checking and savings accounts, and other forms of fixed or
variable time deposits, and various other instruments such as Treasury bills.
However, the Fund's returns and share price are not guaranteed or insured by the
FDIC or any other agency and will fluctuate daily, while bank depository
obligations may be insured by the FDIC and may provide fixed rates of return.
Repayment of principal and payment of interest on Treasury securities is backed
by the full faith and credit of the U.S. Government.
From time to time, the Fund may publish rankings or ratings of the Manager
or Transfer Agent, and of the investor services provided by them to shareholders
of the Oppenheimer funds, other than performance rankings of the Oppenheimer
funds themselves. Those ratings or rankings of shareholder and investor services
by third parties may include comparisons of their services to those provided by
other mutual fund families selected by the rating or ranking services. They may
be based upon the opinions of the rating or ranking service itself, using its
research or judgment, or based upon surveys of investors, brokers, shareholders
or others.
--------------------------------------------------------------------------------
ABOUT YOUR ACCOUNT
--------------------------------------------------------------------------------
How to Buy Shares
Additional information is presented below about the methods that can be used to
buy shares of the Fund. Appendix C contains more information about the special
sales charge arrangements offered by the Fund, and the circumstances in which
sales charges may be reduced or waived for certain classes of investors.
AccountLink. When shares are purchased through AccountLink, each purchase must
be at least $25. Shares will be purchased on the regular business day the
Distributor is instructed to initiate the Automated Clearing House ("ACH")
transfer to buy the shares. Dividends will begin to accrue on shares purchased
with the proceeds of ACH transfers on the business day the Fund receives Federal
Funds for the purchase through the ACH system before the close of The New York
Stock Exchange. The Exchange normally closes at 4:00 P.M., but may close earlier
on certain days. If Federal Funds are received on a business day after the close
of the Exchange, the shares will be purchased and dividends will begin to accrue
on the next regular business day. The proceeds of ACH transfers are normally
received by the Fund 3 days after the transfers are initiated. The Distributor
and the Fund are not responsible for any delays in purchasing shares resulting
from delays in ACH transmissions.
Reduced Sales Charges. As discussed in the Prospectus, a reduced sales charge
rate may be obtained for Class A shares under Right of Accumulation and Letters
of Intent because of the economies of sales efforts and reduction in expenses
realized by the Distributor, dealers and brokers making such sales. No sales
charge is imposed in certain other circumstances described in Appendix C to this
Statement of Additional Information because the Distributor or dealer or broker
incurs little or no selling expenses.
Right of Accumulation. To qualify for the lower sales charge rates that
apply to larger purchases of Class A shares, you and your spouse can add
together:
Class A and Class B shares you purchase for your individual accounts,
or for your joint accounts, or for trust or custodial accounts on
behalf of your children who are minors, and current purchases of Class
A and Class B shares of the Fund and other Oppenheimer funds to reduce
the sales charge rate that applies to current purchases of Class A
shares, and Class A and Class B shares of Oppenheimer funds you
previously purchased subject to an initial or contingent deferred sales
charge to reduce the sales charge rate for current purchases of Class A
shares, provided that you still hold your investment in one of the
Oppenheimer funds.
A fiduciary can count all shares purchased for a trust, estate or
other fiduciary account (including one or more employee benefit plans of the
same employer) that has multiple accounts. The Distributor will add the value,
at current offering price, of the shares you previously purchased and currently
own to the value of current purchases to determine the sales charge rate that
applies. The reduced sales charge will apply only to current purchases. You must
request it when you buy shares.
The Oppenheimer Funds. The Oppenheimer funds are those mutual funds for
which the Distributor acts as the distributor or the sub-distributor and
currently include the following:
Oppenheimer California Municipal Fund Oppenheimer Large Cap Growth Fund
Oppenheimer Capital Appreciation Fund Oppenheimer Money Market Fund, Inc.
Oppenheimer Capital Preservation Fund Oppenheimer Multiple Strategies Fund
Oppenheimer Developing Markets Fund Oppenheimer Multi-Sector Income Trust
Oppenheimer Discovery Fund Oppenheimer Multi-State Municipal Trust
Oppenheimer Enterprise Fund Oppenheimer Municipal Bond Fund
Oppenheimer Europe Fund Oppenheimer New York Municipal Fund
Oppenheimer Global Fund Oppenheimer Series Fund, Inc.
Oppenheimer Global Growth & Income Fund Oppenheimer U.S. Government Trust
Oppenheimer Gold & Special Minerals Fund Oppenheimer Trinity Core Fund
Oppenheimer Growth Fund Oppenheimer Trinity Growth Fund
Oppenheimer International Growth Fund Oppenheimer Trinity Value Fund
Oppenheimer International Small Company Fund Oppenheimer World Bond Fund
There is an initial sales charge on the purchase of Class A shares of each
of the Oppenheimer funds except the money market funds. Under certain
circumstances described in this Statement of Additional Information, redemption
proceeds of certain money market fund shares may be subject to a contingent
deferred sales charge.
Letters of Intent. Under a Letter of Intent, if you purchase Class A shares or
Class A and Class B shares of the Fund and other Oppenheimer funds during a
13-month period, you can reduce the sales charge rate that applies to your
purchases of Class A shares. The total amount of your intended purchases of both
Class A and Class B shares will determine the reduced sales charge rate for the
Class A shares purchased during that period. You can include purchases made up
to 90 days before the date of the Letter.
A Letter of Intent is an investor's statement in writing to the
Distributor of the intention to purchase Class A shares or Class A and Class B
shares of the Fund (and other Oppenheimer funds) during a 13-month period (the
"Letter of Intent period"). At the investor's request, this may include
purchases made up to 90 days prior to the date of the Letter. The Letter states
the investor's intention to make the aggregate amount of purchases of shares
which, when added to the investor's holdings of shares of those funds, will
equal or exceed the amount specified in the Letter. Purchases made by
reinvestment of dividends or distributions of capital gains and purchases made
at net asset value without sales charge do not count toward satisfying the
amount of the Letter.
A Letter enables an investor to count the Class A and Class B shares
purchased under the Letter to obtain the reduced sales charge rate on purchases
of Class A shares of the Fund (and other Oppenheimer funds) that applies under
the Right of Accumulation to current purchases of Class A shares. Each purchase
of Class A shares under the Letter will be made at the public offering price
(including the sales charge) that applies to a single lump-sum purchase of
shares in the amount intended to be purchased under the Letter.
In submitting a Letter, the investor makes no commitment to purchase
shares. However, if the investor's purchases of shares within the Letter of
Intent period, when added to the value (at offering price) of the investor's
holdings of shares on the last day of that period, do not equal or exceed the
intended purchase amount, the investor agrees to pay the additional amount of
sales charge applicable to such purchases. That amount is described in "Terms of
Escrow," below (those terms may be amended by the Distributor from time to
time). The investor agrees that shares equal in value to 5% of the intended
purchase amount will be held in escrow by the Transfer Agent subject to the
Terms of Escrow. Also, the investor agrees to be bound by the terms of the
Prospectus, this Statement of Additional Information and the Application used
for a Letter of Intent. If those terms are amended, as they may be from time to
time by the Fund, the investor agrees to be bounded by the amended terms and
that those amendments will apply automatically to existing Letters of Intent.
If the total eligible purchases made during the Letter of Intent period do
not equal or exceed the intended purchase amount, the commissions previously
paid to the dealer of record for the account and the amount of sales charge
retained by the Distributor will be adjusted to the rates applicable to actual
total purchases. If total eligible purchases during the Letter of Intent period
exceed the intended purchase amount and exceed the amount needed to qualify for
the next sales charge rate reduction set forth in the Prospectus, the sales
charges paid will be adjusted to the lower rate. That adjustment will be made
only if and when the dealer returns to the Distributor the excess of the amount
of commissions allowed or paid to the dealer over the amount of commissions that
apply to the actual amount of purchases. The excess commissions returned to the
Distributor will be used to purchase additional shares for the investor's
account at the net asset value per share in effect on the date of such purchase,
promptly after the Distributor's receipt thereof.
In determining the total amount of purchases made under a Letter, shares
redeemed by the investor prior to the termination of the Letter of Intent period
will be deducted. It is the responsibility of the dealer of record and/or the
investor to advise the Distributor about the Letter in placing any purchase
orders for the investor during the Letter of Intent period. All of such
purchases must be made through the Distributor.
Terms of Escrow That Apply to Letters of Intent.
1. Out of the initial purchase (or subsequent purchases if necessary) made
pursuant to a Letter, shares of the Fund equal in value up to 5% of the intended
purchase amount specified in the Letter shall be held in escrow by the Transfer
Agent. For example, if the intended purchase amount is $50,000, the escrow shall
be shares valued in the amount of $2,500 (computed at the public offering price
adjusted for a $50,000 purchase). Any dividends and capital gains distributions
on the escrowed shares will be credited to the investor's account.
2. If the total minimum investment specified under the Letter is completed
within the thirteen-month Letter of Intent period, the escrowed shares will be
promptly released to the investor.
3. If, at the end of the thirteen-month Letter of Intent period the total
purchases pursuant to the Letter are less than the intended purchase amount
specified in the Letter, the investor must remit to the Distributor an amount
equal to the difference between the dollar amount of sales charges actually paid
and the amount of sales charges which would have been paid if the total amount
purchased had been made at a single time. That sales charge adjustment will
apply to any shares redeemed prior to the completion of the Letter. If the
difference in sales charges is not paid within twenty days after a request from
the Distributor or the dealer, the Distributor will, within sixty days of the
expiration of the Letter, redeem the number of escrowed shares necessary to
realize such difference in sales charges. Full and fractional shares remaining
after such redemption will be released from escrow. If a request is received to
redeem escrowed shares prior to the payment of such additional sales charge, the
sales charge will be withheld from the redemption proceeds.
4. By signing the Letter, the investor irrevocably constitutes and
appoints the Transfer Agent as attorney-in-fact to surrender for redemption any
or all escrowed shares.
5. The shares eligible for purchase under the Letter (or the holding of
which may be counted toward completion of a Letter) include:
(a) Class A shares sold with a front-end sales charge or subject to a
Class A contingent deferred sales charge,
(b) Class B shares of other Oppenheimer funds acquired subject to a
contingent deferred sales charge, and
(c) Class A or Class B shares acquired by exchange of either (1) Class
A shares of one of the other Oppenheimer funds that were acquired
subject to a Class A initial or contingent deferred sales charge or
(2) Class B shares of one of the other Oppenheimer funds that were
acquired subject to a contingent deferred sales charge.
6. Shares held in escrow hereunder will automatically be exchanged for
shares of another fund to which an exchange is requested, as described in the
section of the Prospectus entitled "How to Exchange Shares" and the escrow will
be transferred to that other fund.
Asset Builder Plans. To establish an Asset Builder Plan to buy shares directly
from a bank account, you must enclose a check (the minimum is $25) for the
initial purchase with your application. Shares purchased by Asset Builder Plan
payments from bank accounts are subject to the redemption restrictions for
recent purchases described in the Prospectus. Asset Builder Plans are available
if your bank is an ACH member. Asset Builder Plans may not be used to buy shares
for OppenheimerFunds employer-sponsored qualified retirement accounts. Asset
Builder Plans also enable shareholders of Oppenheimer Cash Reserves to use their
fund account to make monthly automatic purchases of shares of up to four other
Oppenheimer funds.
If you make payments from your bank account to purchase shares of the
Fund, your bank account will be debited automatically. Normally the debit will
be made two days prior to the investment dates you selected on your Application.
Neither the Distributor, the Transfer Agent nor the Fund shall be responsible
for any delays in purchasing shares resulting from delays in ACH transmission.
Before you establish Asset Builder payments, you should obtain a
prospectus of the selected fund(s) from your financial advisor (or the
Distributor) and request an application from the Distributor. Complete the
application and return it. You may change the amount of your Asset Builder
payment or you can terminate these automatic investments at any time by writing
to the Transfer Agent. The Transfer Agent requires a reasonable period
(approximately 10 days) after receipt of your instructions to implement them.
The Fund reserves the right to amend, suspend, or discontinue offering Asset
Builder plans at any time without prior notice.
Cancellation of Purchase Orders. Cancellation of purchase orders for the Fund's
shares (for example, when a purchase check is returned to the Fund unpaid)
causes a loss to be incurred when the net asset value of the Fund's shares on
the cancellation date is less than on the purchase date. That loss is equal to
the amount of the decline in the net asset value per share multiplied by the
number of shares in the purchase order. The investor is responsible for that
loss. If the investor fails to compensate the Fund for the loss, the Distributor
will do so. The Fund may reimburse the Distributor for that amount by redeeming
shares from any account registered in that investor's name, or the Fund or the
Distributor may seek other redress.
Classes of Shares. Each class of shares of the Fund represents an interest in
the same portfolio of investments of the Fund. However, each class has different
shareholder privileges and features. The net income attributable to Class B or
Class C shares and the dividends payable on Class B or Class C shares will be
reduced by incremental expenses borne solely by that class. Those expenses
include the asset-based sales charges to which Class B and Class C are subject.
The availability of three classes of shares permits an investor to choose
the method of purchasing shares that is more appropriate for the investor. That
may depend on the amount of the purchase, the length of time the investor
expects to hold shares, and other relevant circumstances. Class A shares in
general are sold subject to an initial sales charge. While Class B and Class C
shares have no initial sales charge, the purpose of the deferred sales charge
and asset-based sales charge on Class B and Class C shares is the same as that
of the initial sales charge on Class A shares to compensate the Distributor and
brokers, dealers and financial institutions that sell shares of the Fund. A
salesperson who is entitled to receive compensation for selling Fund shares may
receive different levels of compensation for selling to one class of shares
rather than another.
The Distributor will not accept any order in the amount of $500,000 or
more for Class B shares or $1 million or more for Class C shares on behalf of a
single investor (not including dealer "street name" or omnibus accounts). That
is because generally it will be more advantageous for that investor to purchase
Class A shares of the Fund.
Class B Conversion. The conversion of Class B shares to Class A shares
after six years is subject to the continuing availability of a private letter
ruling from the Internal Revenue Service, or an opinion of counsel or tax
adviser, to the effect that the conversion of Class B shares does not constitute
a taxable event for the holder under federal income tax law. If such a revenue
ruling or opinion is no longer available, the automatic conversion feature may
be suspended, in which event no further conversions of Class B shares would
occur while such suspension remained in effect. Although Class B shares could
then be exchanged for Class A shares on the basis of relative net asset value of
the two classes, without the imposition of a sales charge or fee, such exchange
could constitute a taxable event for the holder, and absent such exchange, Class
B shares might continue to be subject to the asset-based sales charge for longer
than six years.
Allocation of Expenses. The Fund pays expenses related to its daily
operations, such as custodian fees, trustees' fees, transfer agency fees, legal
fees and auditing costs. Those expenses are paid out of the Fund's assets and
are not paid directly by shareholders. However, those expenses reduce the net
asset value of shares, and therefore are indirectly borne by shareholders
through their investment.
The methodology for calculating the net asset value, dividends and
distributions of the Fund's share classes recognizes two types of expenses.
General expenses that do not pertain specifically to any one class are allocated
pro rata to the shares of all classes. The allocation is based on the percentage
of the Fund's total assets that is represented by the assets of each class, and
then equally to each outstanding share within a given class. Such general
expenses include management fees, legal, bookkeeping and audit fees, printing
and mailing costs of shareholder reports, Prospectuses, Statements of Additional
Information and other materials for current shareholders, fees to unaffiliated
Trustees, custodian expenses, share issuance costs, organization and start-up
costs, interest, taxes and brokerage commissions, and non-recurring expenses,
such as litigation costs.
Other expenses that are directly attributable to a particular class are
allocated equally to each outstanding share within that class. Examples of such
expenses include distribution and service plan (12b-1) fees, transfer and
shareholder servicing agent fees and expenses, share registration fees and
shareholder meeting expenses (to the extent that such expenses pertain only to a
specific class).
Determination of Net Asset Values Per Share. The net asset values per share of
each class of shares of the Fund are determined as of the close of business of
The New York Stock Exchange on each day that the Exchange is open. It is done by
dividing the value of the Fund's net assets attributable to that class by the
number of shares of that class that are outstanding. The Exchange normally
closes at 4:00 P.M., New York time, but may close earlier on some other days
(for example, in case of weather emergencies or on days falling before a U.S.
holiday). The Exchange's most recent annual announcement (which is subject to
change) states that it will close on New Year's Day, Martin Luther King, Jr.
Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day. It may also close on other days.
Dealers other than Exchange members may conduct trading in municipal
securities on days on which the Exchange is closed (including weekends and U.S.
holidays) or after 4:00 P.M. on a regular business day. Because the Fund's net
asset values will not be calculated on those days, the Fund's net asset values
per share may be significantly affected on such days when shareholders may not
purchase or redeem shares.
Securities Valuation. The Fund's Board of Trustees has established
procedures for the valuation of the Fund's securities. In general those
procedures are as follows:
Long-term debt securities having a remaining maturity in excess of 60
days are valued based on the mean between the "bid" and "asked" prices
determined by a portfolio pricing service approved by the Fund's Board
of Trustees or obtained by the Manager from two active market makers in
the security on the basis of reasonable inquiry.
The following securities are valued at the mean between the "bid" and
"asked" prices determined by a pricing service approved by the Fund's
Board of Trustees or obtained by the Manager from two active market
makers in the security on the basis of reasonable inquiry:
(1) debt instruments that have a maturity of more than 397 days when issued,
(2) debt instruments that had a maturity of 397 days or less when issued and
have a remaining maturity of more than 60 days, and
(3) non-money market debt instruments that had a maturity of 397 days or less
when issued and which have a remaining maturity of 60 days or less.
The following securities are valued at cost, adjusted for amortization of
premiums and accretion of discounts:
(1) money market debt securities held by a non-money market fund that
had a maturity of less than 397 days when issued that have a
remaining maturity of 60 days or less, and
(2) debt instruments held by a money market fund that have a remaining
maturity of 397 days or less.
Securities not having readily-available market quotations are valued at
fair value determined under the Board's procedures.
If the Manager is unable to locate two market makers willing to give
quotes, a security may be priced at the mean between the "bid" and "asked"
prices provided by a single active market maker (which in certain cases may be
the "bid" price if no "asked" price is available).
In the case of municipal securities, when last sale information is not
generally available, the Manager may use pricing services approved by the Board
of Trustees. The pricing service may use "matrix" comparisons to the prices for
comparable instruments on the basis of quality, yield, maturity. Other special
factors may be involved (such as the tax-exempt status of the interest paid by
municipal securities). The Manager will monitor the accuracy of the pricing
services. That monitoring may include comparing prices used for portfolio
valuation to actual sales prices of selected securities.
Puts, calls, interest rate futures and municipal bond index futures are
valued at the last sale price on the principal exchange on which they are traded
or on NASDAQ, as applicable, as determined by a pricing service approved by the
Board of Trustees or by the Manager. If there were no sales that day, they shall
be valued at the last sale price on the preceding trading day if it is within
the spread of the closing "bid" and "asked" prices on the principal exchange or
on NASDAQ on the valuation date. If not, the value shall be the closing bid
price on the principal exchange or on NASDAQ on the valuation date. If the put,
call or future is not traded on an exchange or on NASDAQ, it shall be valued by
the mean between "bid" and "asked" prices obtained by the Manager from two
active market makers. In certain cases that may be at the "bid" price if no
"asked" price is available.
When the Fund writes an option, an amount equal to the premium received is
included in the Fund's Statement of Assets and Liabilities as an asset. An
equivalent credit is included in the liability section. The credit is adjusted
("marked-to-market") to reflect the current market value of the option. In
determining the Fund's gain on investments, if a call or put written by the Fund
is exercised, the proceeds are increased by the premium received. If a call or
put written by the Fund expires, the Fund has a gain in the amount of the
premium. If the Fund enters into a closing purchase transaction, it will have a
gain or loss, depending on whether the premium received was more or less than
the cost of the closing transaction. If the Fund exercises a put it holds, the
amount the Fund receives on its sale of the underlying investment is reduced by
the amount of premium paid by the Fund.
How to Sell Shares
The information below supplements the terms and conditions for redeeming
shares set forth in the Prospectus.
Checkwriting. When a check is presented to the Fund's bank for clearance, the
bank will ask the Fund to redeem a sufficient number of full and fractional
shares in the shareholder's account to cover the amount of the check. This
enables the shareholder to continue to receive dividends on those shares until
the check is presented to the Fund. Checks may not be presented for payment at
the offices of the bank listed on the check or at the Fund's custodian bank.
That limitation does not affect the use of checks for the payment of bills or to
obtain cash at other banks. The Fund reserves the right to amend, suspend or
discontinue offering Checkwriting privileges at any time without prior notice.
In choosing to take advantage of the Checkwriting privilege by signing the
Account Application or by completing a Checkwriting card, each individual who
signs:
(1) for individual accounts, represents that they are the registered
owner(s) of the shares of the Fund in that account;
(2) for accounts for corporations, partnerships, trusts and other entities,
represents that they are an officer, general partner, trustee or other
fiduciary or agent, as applicable, duly authorized to act on behalf of
such registered owner(s);
(3) authorizes the Fund, its Transfer Agent and any bank through which the
Fund's drafts (checks) are payable to pay all checks drawn on the Fund
account of such person(s) and to redeem a sufficient amount of shares
from that account to cover payment of each check;
(4) specifically acknowledges that if they choose to permit checks to be
honored if there is a single signature on checks drawn against joint
accounts, or accounts for corporations, partnerships, trusts or other
entities, the signature of any one signatory on a check will be
sufficient to authorize payment of that check and redemption from the
account, even if that account is registered in the names of more than
one person or more than one authorized signature appears on the
Checkwriting card or the Application, as applicable;
(5) understands that the Checkwriting privilege may be terminated or
amended at any time by the Fund and/or the Fund's bank; and
(6) acknowledges and agrees that neither the Fund nor its bank shall incur
any liability for that amendment or termination of checkwriting
privileges or for redeeming shares to pay checks reasonably believed by
them to be genuine, or for returning or not paying checks that have not
been accepted for any reason.
Reinvestment Privilege. Within six months of a redemption, a shareholder may
reinvest all or part of the redemption proceeds of :
Class A shares that you purchased subject to an initial sales charge
or Class A shares on which a contingent deferred sales charge was
paid, or Class B shares that were subject to the Class B contingent
deferred sales charge when redeemed.
The reinvestment may be made without sales charge only in Class A shares
of the Fund or any of the other Oppenheimer funds into which shares of the Fund
are exchangeable as described in "How to Exchange Shares" below. Reinvestment
will be at the net asset value next computed after the Transfer Agent receives
the reinvestment order. The shareholder must ask the Transfer Agent for that
privilege at the time of reinvestment. This privilege does not apply to Class C
shares. The Fund may amend, suspend or cease offering this reinvestment
privilege at any time as to shares redeemed after the date of such amendment,
suspension or cessation.
Any capital gain that was realized when the shares were redeemed is
taxable, and reinvestment will not alter any capital gains tax payable on that
gain. If there has been a capital loss on the redemption, some or all of the
loss may not be tax deductible, depending on the timing and amount of the
reinvestment. Under the Internal Revenue Code, if the redemption proceeds of
Fund shares on which a sales charge was paid are reinvested in shares of the
Fund or another of the Oppenheimer funds within 90 days of payment of the sales
charge, the shareholder's basis in the shares of the Fund that were redeemed may
not include the amount of the sales charge paid. That would reduce the loss or
increase the gain recognized from the redemption. However, in that case the
sales charge would be added to the basis of the shares acquired by the
reinvestment of the redemption proceeds.
Payments "In Kind". The Prospectus states that payment for shares tendered for
redemption is ordinarily made in cash. However, the Board of Trustees of the
Fund may determine that it would be detrimental to the best interests of the
remaining shareholders of the Fund to make payment of a redemption order wholly
or partly in cash. In that case, the Fund may pay the redemption proceeds in
whole or in part by a distribution "in kind" of liquid securities from the
portfolio of the Fund, in lieu of cash.
The Fund has elected to be governed by Rule 18f-1 under the Investment
Company Act. Under that rule, the Fund is obligated to redeem shares solely in
cash up to the lesser of $250,000 or 1% of the net assets of the Fund during any
90-day period for any one shareholder. If shares are redeemed in kind, the
redeeming shareholder might incur brokerage or other costs in selling the
securities for cash. The Fund will value securities used to pay redemptions in
kind using the same method the Fund uses to value its portfolio securities
described above under "Determination of Net Asset Values Per Share." That
valuation will be made as of the time the redemption price is determined.
Involuntary Redemptions. The Fund's Board of Trustees has the right to cause the
involuntary redemption of the shares held in any account if the aggregate net
asset value of those shares is less than $200 or such lesser amount as the Board
may fix. The Board of Trustees will not cause the involuntary redemption of
shares in an account if the aggregate net asset value of such shares has fallen
below the stated minimum solely as a result of market fluctuations. If the Board
exercises this right, it may also fix the requirements for any notice to be
given to the shareholders in question (not less than 30 days). The Board may
alternatively set requirements for the shareholder to increase the investment,
or set other terms and conditions so that the shares would not be involuntarily
redeemed.
Transfers of Shares. A transfer of shares to a different registration is not an
event that triggers the payment of sales charges. Therefore, shares are not
subject to the payment of a contingent deferred sales charge of any class at the
time of transfer to the name of another person or entity. It does not matter
whether the transfer occurs by absolute assignment, gift or bequest, as long as
it does not involve, directly or indirectly, a public sale of the shares. When
shares subject to a contingent deferred sales charge are transferred, the
transferred shares will remain subject to the contingent deferred sales charge.
It will be calculated as if the transferee shareholder had acquired the
transferred shares in the same manner and at the same time as the transferring
shareholder.
If less than all shares held in an account are transferred, and some but
not all shares in the account would be subject to a contingent deferred sales
charge if redeemed at the time of transfer, the priorities described in the
Prospectus under "How to Buy Shares" for the imposition of the Class B or Class
C contingent deferred sales charge will be followed in determining the order in
which shares are transferred.
Special Arrangements for Repurchase of Shares from Dealers and Brokers. The
Distributor is the Fund's agent to repurchase its shares from authorized dealers
or brokers on behalf of their customers. Shareholders should contact their
broker or dealer to arrange this type of redemption. The repurchase price per
share will be the net asset value next computed after the Distributor receives
an order placed by the dealer or broker. However, if the Distributor receives a
repurchase order from a dealer or broker after the close of The New York Stock
Exchange on a regular business day, it will be processed at that day's net asset
value if the order was received by the dealer or broker from its customers prior
to the time the Exchange closes. Normally, the Exchange closes at 4:00 P.M., but
may do so earlier on some days. Additionally, the order must have been
transmitted to and received by the Distributor prior to its close of business
that day (normally 5:00 P.M.).
Ordinarily, for accounts redeemed by a broker-dealer under this procedure,
payment will be made within three business days after the shares have been
redeemed upon the Distributor's receipt of the required redemption documents in
proper form. The signature(s) of the registered owners on the redemption
documents must be guaranteed as described in the Prospectus.
Automatic Withdrawal and Exchange Plans. Investors owning shares of the Fund
valued at $5,000 or more can authorize the Transfer Agent to redeem shares
(having a value of at least $50) automatically on a monthly, quarterly,
semi-annual or annual basis under an Automatic Withdrawal Plan. Shares will be
redeemed three business days prior to the date requested by the shareholder for
receipt of the payment. Automatic withdrawals of up to $1,500 per month may be
requested by telephone if payments are to be made by check payable to all
shareholders of record. Payments must also be sent to the address of record for
the account and the address must not have been changed within the prior 30 days.
Required minimum distributions from OppenheimerFunds-sponsored retirement plans
may not be arranged on this basis.
Payments are normally made by check, but shareholders having AccountLink
privileges (see "How To Buy Shares") may arrange to have Automatic Withdrawal
Plan payments transferred to the bank account designated on the Account
Application or by signature-guaranteed instructions sent to the Transfer Agent.
Shares are normally redeemed pursuant to an Automatic Withdrawal Plan three
business days before the payment transmittal date you select in the Account
Application. If a contingent deferred sales charge applies to the redemption,
the amount of the check or payment will be reduced accordingly.
The Fund cannot guarantee receipt of a payment on the date requested. The
Fund reserves the right to amend, suspend or discontinue offering these plans at
any time without prior notice. Because of the sales charge assessed on Class A
share purchases, shareholders should not make regular additional Class A share
purchases while participating in an Automatic Withdrawal Plan. Class B and Class
C shareholders should not establish withdrawal plans, because of the imposition
of the contingent deferred sales charge on such withdrawals (except where the
contingent deferred sales charge is waived as described in "Waivers of Class B
and Class C Sales Charges" below).
By requesting an Automatic Withdrawal or Exchange Plan, the shareholder
agrees to the terms and conditions that apply to such plans, as stated below.
These provisions may be amended from time to time by the Fund and/or the
Distributor. When adopted, any amendments will automatically apply to existing
Plans.
Automatic Exchange Plans. Shareholders can authorize the Transfer Agent to
exchange a pre-determined amount of shares of the Fund for shares (of the same
class) of other Oppenheimer funds automatically on a monthly, quarterly,
semi-annual or annual basis under an Automatic Exchange Plan. The minimum amount
that may be exchanged to each other fund account is $25. Instructions should be
provided on the OppenheimerFunds Application or signature-guaranteed
instructions. Exchanges made under these plans are subject to the restrictions
that apply to exchanges as set forth in "How to Exchange Shares" in the
Prospectus and below in this Statement of Additional Information.
Automatic Withdrawal Plans. Fund shares will be redeemed as necessary to
meet withdrawal payments. Shares acquired without a sales charge will be
redeemed first. Shares acquired with reinvested dividends and capital gains
distributions will be redeemed next, followed by shares acquired with a sales
charge, to the extent necessary to make withdrawal payments. Depending upon
the amount withdrawn, the investor's principal may be depleted. Payments made
under these plans should not be considered as a yield or income on your
investment.
The Transfer Agent will administer the investor's Automatic Withdrawal
Plan as agent for the shareholder(s) (the "Planholder") who executed the Plan
authorization and application submitted to the Transfer Agent. Neither the Fund
nor the Transfer Agent shall incur any liability to the Planholder for any
action taken or not taken by the Transfer Agent in good faith to administer the
Plan. Share certificates will not be issued for shares of the Fund purchased for
and held under the Plan, but the Transfer Agent will credit all such shares to
the account of the Planholder on the records of the Fund. Any share certificates
held by a Planholder may be surrendered unendorsed to the Transfer Agent with
the Plan application so that the shares represented by the certificate may be
held under the Plan.
For accounts subject to Automatic Withdrawal Plans, distributions of
capital gains must be reinvested in shares of the Fund, which will be done at
net asset value without a sales charge. Dividends on shares held in the account
may be paid in cash or reinvested.
Shares will be redeemed to make withdrawal payments at the net asset value
per share determined on the redemption date. Checks or AccountLink payments
representing the proceeds of Plan withdrawals will normally be transmitted three
business days prior to the date selected for receipt of the payment, according
to the choice specified in writing by the Planholder. Receipt of payment on the
date selected cannot be guaranteed.
The amount and the interval of disbursement payments and the address to
which checks are to be mailed or AccountLink payments are to be sent may be
changed at any time by the Planholder by writing to the Transfer Agent. The
Planholder should allow at least two weeks' time after mailing such notification
for the requested change to be put in effect. The Planholder may, at any time,
instruct the Transfer Agent by written notice to redeem all, or any part of, the
shares held under the Plan. That notice must be in proper form in accordance
with the requirements of the then-current Prospectus of the Fund. In that case,
the Transfer Agent will redeem the number of shares requested at the net asset
value per share in effect and will mail a check for the proceeds to the
Planholder.
The Planholder may terminate a Plan at any time by writing to the Transfer
Agent. The Fund may also give directions to the Transfer Agent to terminate a
Plan. The Transfer Agent will also terminate a Plan upon its receipt of evidence
satisfactory to it that the Planholder has died or is legally incapacitated.
Upon termination of a Plan by the Transfer Agent or the Fund, shares that have
not been redeemed will be held in uncertificated form in the name of the
Planholder. The account will continue as a dividend-reinvestment, uncertificated
account unless and until proper instructions are received from the Planholder,
his or her executor or guardian, or another authorized person.
To use shares held under the Plan as collateral for a debt, the Planholder
may request issuance of a portion of the shares in certificated form. Upon
written request from the Planholder, the Transfer Agent will determine the
number of shares for which a certificate may be issued without causing the
withdrawal checks to stop. However, should such uncertificated shares become
exhausted, Plan withdrawals will terminate.
If the Transfer Agent ceases to act as transfer agent for the Fund, the
Planholder will be deemed to have appointed any successor transfer agent to act
as agent in administering the Plan.
How to Exchange Shares
As stated in the Prospectus, shares of a particular class of Oppenheimer
funds having more than one class of shares may be exchanged only for shares of
the same class of other Oppenheimer funds. Shares of Oppenheimer funds that have
a single class without a class designation are deemed "Class A" shares for this
purpose. You can obtain a current list showing which funds offer which classes
by calling the Distributor at 1-800-525-7048.
All of the Oppenheimer funds currently offer Class A, B and C shares
except Oppenheimer Money Market Fund, Inc., Centennial Money Market Trust,
Centennial Tax Exempt Trust, Centennial Government Trust, Centennial New
York Tax Exempt Trust, Centennial California Tax Exempt Trust, and
Centennial America Fund, L.P., which only offer Class A shares.
Oppenheimer Main Street California Municipal Fund currently offers only
Class A and Class B shares.
Class B and Class C shares of Oppenheimer Cash Reserves are generally
available only by exchange from the same class of shares of other
Oppenheimer funds or through OppenheimerFunds-sponsored 401(k) plans. Only
certain Oppenheimer funds currently offer Class Y shares. Class Y shares
of Oppenheimer Real Asset Fund may not be exchanged for shares of any
other fund.
Class M shares of Oppenheimer Convertible Securities Fund may be exchanged
only for Class A shares of other Oppenheimer funds. They may not be
acquired by exchange of shares of any class of any other Oppenheimer funds
except Class A shares of Oppenheimer Money Market Fund or Oppenheimer Cash
Reserves acquired by exchange of Class M shares.
Class A shares of Senior Floating Rate Fund are not available by exchange
of Class A shares of other Oppenheimer funds. Class A shares of Senior
Floating Rate Fund that are exchanged for shares of the other Oppenheimer
funds may not be exchanged back for Class A shares of Senior Floating Rate
Fund. Class X shares of Limited Term New York Municipal Fund can be
exchanged only for Class B shares of other Oppenheimer funds and no
exchanges may be made to Class X shares.
Shares of Oppenheimer Capital Preservation Fund may not be exchanged for
shares of Oppenheimer Money Market Fund, Inc., Oppenheimer Cash Reserves
or Oppenheimer Limited-Term Government Fund. Only participants in certain
retirement plans may purchase shares of Oppenheimer Capital Preservation
Fund, and only those participants may exchange shares of other Oppenheimer
funds for shares of Oppenheimer Capital Preservation Fund.
Class A shares of Oppenheimer funds may be exchanged at net asset value
for shares of any money market fund offered by the Distributor. Shares of any
money market fund purchased without a sales charge may be exchanged for shares
of Oppenheimer funds offered with a sales charge upon payment of the sales
charge. They may also be used to purchase shares of Oppenheimer funds subject to
an early withdrawal charge or contingent deferred sales charge.
Shares of Oppenheimer Money Market Fund, Inc. purchased with the
redemption proceeds of shares of other mutual funds (other than funds managed by
the Manager or its subsidiaries) redeemed within the 30 days prior to that
purchase may subsequently be exchanged for shares of other Oppenheimer funds
without being subject to an initial sales charge or contingent deferred sales
charge. To qualify for that privilege, the investor or the investor's dealer
must notify the Distributor of eligibility for this privilege at the time the
shares of Oppenheimer Money Market Fund, Inc. are purchased. If requested, they
must supply proof of entitlement to this privilege.
Shares of the Fund acquired by reinvestment of dividends or distributions
from any of the other Oppenheimer funds or from any unit investment trust for
which reinvestment arrangements have been made with the Distributor may be
exchanged at net asset value for shares of any of the Oppenheimer funds.
How Exchanges Affect Contingent Deferred Sales Charges. No contingent
deferred sales charge is imposed on exchanges of shares of any class purchased
subject to a contingent deferred sales charge. However, when Class A shares
acquired by exchange of Class A shares of other Oppenheimer funds purchased
subject to a Class A contingent deferred sales charge are redeemed within 18
months of the end of the calendar month of the initial purchase of the exchanged
Class A shares, the Class A contingent deferred sales charge is imposed on the
redeemed shares. The Class B contingent deferred sales charge is imposed on
Class B shares acquired by exchange if they are redeemed within 6 years of the
initial purchase of the exchanged Class B shares. The Class C contingent
deferred sales charge is imposed on Class C shares acquired by exchange if they
are redeemed within 12 months of the initial purchase of the exchanged Class C
shares.
When Class B or Class C shares are redeemed to effect an exchange, the
priorities described in "How To Buy Shares" in the Prospectus for the imposition
of the Class B or the Class C contingent deferred sales charge will be followed
in determining the order in which the shares are exchanged. Before exchanging
shares, shareholders should take into account how the exchange may affect any
contingent deferred sales charge that might be imposed in the subsequent
redemption of remaining shares. Shareholders owning shares of more than one
Class must specify whether they intend to exchange Class A, Class B or Class C
shares.
Limits on Multiple Exchange Orders. The Fund reserves the right to reject
telephone or written exchange requests submitted in bulk by anyone on behalf of
more than one account. The Fund may accept requests for exchanges of up to 50
accounts per day from representatives of authorized dealers that qualify for
this privilege.
Telephone Exchange Requests. When exchanging shares by telephone, a
shareholder must have an existing account in the fund to which the exchange is
to be made. Otherwise, the investors must obtain a Prospectus of that fund
before the exchange request may be submitted. For full or partial exchanges of
an account made by telephone, any special account features such as Asset Builder
Plans and Automatic Withdrawal Plans will be switched to the new account unless
the Transfer Agent is instructed otherwise. If all telephone lines are busy
(which might occur, for example, during periods of substantial market
fluctuations), shareholders might not be able to request exchanges by telephone
and would have to submit written exchange requests.
Processing Exchange Requests. Shares to be exchanged are redeemed on the
regular business day the Transfer Agent receives an exchange request in proper
form (the "Redemption Date"). Normally, shares of the fund to be acquired are
purchased on the Redemption Date, but such purchases may be delayed by either
fund up to five business days if it determines that it would be disadvantaged by
an immediate transfer of the redemption proceeds. The Fund reserves the right,
in its discretion, to refuse any exchange request that may disadvantage it. For
example, if the receipt of multiple exchange requests from a dealer might
require the disposition of portfolio securities at a time or at a price that
might be disadvantageous to the Fund, the Fund may refuse the request.
In connection with any exchange request, the number of shares exchanged
may be less than the number requested if the exchange or the number requested
would include shares subject to a restriction cited in the Prospectus or this
Statement of Additional Information, or would include shares covered by a share
certificate that is not tendered with the request. In those cases, only the
shares available for exchange without restriction will be exchanged.
The different Oppenheimer funds available for exchange have different
investment objectives, policies and risks. A shareholder should assure that the
fund selected is appropriate for his or her investment and should be aware of
the tax consequences of an exchange. For federal income tax purposes, an
exchange transaction is treated as a redemption of shares of one fund and a
purchase of shares of another. "Reinvestment Privilege," above, discusses some
of the tax consequences of reinvestment of redemption proceeds in such cases.
The Fund, the Distributor, and the Transfer Agent are unable to provide
investment, tax or legal advice to a shareholder in connection with an exchange
request or any other investment transaction.
Dividends and Taxes
Dividends and Distributions. Dividends will be payable on shares held of record
at the time of the previous determination of net asset value, or as otherwise
described in "How to Buy Shares." Daily dividends will not be declared or paid
on newly purchased shares until such time as Federal Funds (funds credited to a
member bank's account at the Federal Reserve Bank) are available from the
purchase payment for such shares. Normally, purchase checks received from
investors are converted to Federal Funds on the next business day. Shares
purchased through dealers or brokers normally are paid for by the third business
day following the placement of the purchase order.
Shares redeemed through the regular redemption procedure will be paid
dividends through and including the day on which the redemption request is
received by the Transfer Agent in proper form. Dividends will be declared on
shares repurchased by a dealer or broker for three business days following the
trade date (that is, up to and including the day prior to settlement of the
repurchase). If all shares in an account are redeemed, all dividends accrued on
shares of the same class in the account will be paid together with the
redemption proceeds.
The Fund's practice of attempting to pay dividends on Class A shares at a
constant level requires the Manager to monitor the Fund's portfolio and, if
necessary, to select higher-yielding securities when it is deemed appropriate to
seek income at the level needed to meet the target. Those securities must be
within the Fund's investment parameters, however. The Fund expects to pay
dividends at a targeted level from its net investment income and other
distributable income without any impact on the net asset values per share.
Dividends, distributions and the proceeds of the redemption of Fund shares
represented by checks returned to the Transfer Agent by the Postal Service as
undeliverable will be invested in shares of Oppenheimer Money Market Fund, Inc.
Reinvestment will be made as promptly as possible after the return of such
checks to the Transfer Agent, to enable the investor to earn a return on
otherwise idle funds. Unclaimed accounts may be subject to state escheatment
laws, and the Fund and the Transfer Agent will not be liable to shareholders or
their representatives for compliance with those laws in good faith.
The amount of a distribution paid on a class of shares may vary from time
to time depending on market conditions, the composition of the Fund's portfolio,
and expenses borne by the Fund or borne separately by a class. Dividends are
calculated in the same manner, at the same time and on the same day for shares
of each class. However, dividends on Class B and Class C shares are expected to
be lower than dividends on Class A shares. That is due to the effect of the
asset-based sales charge on Class B and Class C shares. Those dividends will
also differ in amount as a consequence of any difference in net asset value
among 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 that
are derived from net investment income earned by the Fund on municipal
securities will be excludable from gross income of shareholders for federal
income tax purposes.
Net investment income includes the allocation of amounts of income from
the municipal securities in the Fund's portfolio that are free from federal
income taxes. This allocation will be made by the use of one designated
percentage applied uniformly to all income dividends paid during the Fund's tax
year. That designation will normally be made following the end of each fiscal
year as to income dividends paid in the prior year. The percentage of income
designated as tax-exempt may substantially differ from the percentage of the
fund's income that was tax-exempt for a given period.
A portion of the exempt-interest dividends paid by the Fund may be an item
of tax preference for shareholders subject to the alternative minimum tax. The
amount of any dividends attributable to tax preference items for purposes of the
alternative minimum tax will be identified when tax information is distributed
by the Fund.
A shareholder receiving a dividend from income earned by the Fund from one
or more of the following sources treats the dividend as a receipt of either
ordinary income or long-term capital gain in the computation of gross income,
regardless of whether the dividend is reinvested:
(1) certain taxable temporary investments (such as certificates of deposit,
repurchase agreements, commercial paper and obligations of the U.S.
Government, its agencies and instrumentalities);
(2) income from securities loans;
(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.
The Fund's dividends will not be eligible for the dividends-received
deduction for corporations. Shareholders receiving Social Security benefits
should be aware that exempt-interest dividends are a factor in determining
whether such benefits are subject to federal income tax. Losses realized by
shareholders on the redemption of Fund shares within six months of purchase
(which period may be shortened by regulation) will be disallowed for federal
income tax purposes to the extent of exempt-interest dividends received on such
shares.
If the Fund qualifies as a "regulated investment company" under the
Internal Revenue Code, it will not be liable for federal income taxes on amounts
paid by it as dividends and distributions. That qualification enables the Fund
to "pass through" its income and realized capital gains to shareholders without
having to pay tax on them. The Fund qualified as a regulated investment company
in its last fiscal year and intends to qualify in future years, but reserves the
right not to qualify. The Internal Revenue Code contains a number of complex
tests to determine whether the Fund qualifies. The Fund might not meet those
tests in a particular year. If it does not qualify, the Fund will be treated for
tax purposes as an ordinary corporation and will receive no tax deduction for
payments of dividends and distributions made to shareholders.
In any year in which the Fund qualifies as a regulated investment company
under the Internal Revenue Code, the Fund will also be exempt from California
corporate income and franchise taxes. It will also be qualified under California
law to pay exempt interest dividends that will be exempt from California
personal income tax. That exemption applies to the extent that the Fund's
distributions are attributable to interest on California municipal securities
and qualifying obligations of the United States government, if at least 50% of
the Fund's assets are invested in such obligations at the close of each quarter
in its tax year. Distributions from the Fund attributable to income from sources
other than California municipal securities and U.S. government obligations will
generally be subject to California income tax as ordinary income.
Distributions by the Fund from investment income and long- and short-term
capital gains will generally not be excludable from taxable income in
determining California corporate franchise tax or income tax for corporate
shareholders of the Fund. Additionally, certain distributions paid to corporate
shareholders of the Fund may be includable in income subject to the California
alternative minimum tax.
Under the Internal Revenue Code, by December 31 each year the Fund must
distribute 98% of its taxable investment income earned from January 1 through
December 31 of that year and 98% of its capital gains realized in the period
from November 1 of the prior year through October 31 of the current year. If it
does not, the Fund must pay an excise tax on the amounts not distributed. It is
presently anticipated that the Fund will meet those requirements. However, the
Fund's Board of Trustees and the Manager might determine in a particular year
that it would be in the best interest of shareholders not to make distributions
at the required levels and to pay the excise tax on the undistributed amounts.
That would reduce the amount of income or capital gains available for
distribution to shareholders.
Dividend Reinvestment in Another Fund. Shareholders of the Fund may elect to
reinvest all dividends and/or capital gains distributions in shares of the same
class of any of the other Oppenheimer funds listed above. Reinvestment will be
made at net asset value without sales charge. To elect this option, the
shareholder must notify the Transfer Agent in writing and must have an existing
account in the fund selected for reinvestment. Otherwise the shareholder must
first obtain a prospectus for that fund and an application from the Transfer
Agent to establish an account. The investment will be made at the net asset
value per share in effect at the close of business on the payable date of the
dividend or distribution. Dividends and/or distributions from certain of the
other Oppenheimer funds may be invested in shares of this Fund on the same
basis.
Additional Information About the Fund
The Transfer Agent. The Fund's Transfer Agent, OppenheimerFunds Services, is a
division of the Manager. It is responsible for maintaining the Fund's
shareholder registry and shareholder accounting records, and for paying
dividends and distributions to shareholders of the Fund. It also handles
shareholder servicing and administrative functions. It is paid on an "at-cost"
basis.
The Custodian. Citibank, N.A. is the custodian bank of the Fund's assets. The
custodian bank's responsibilities include safeguarding and controlling the
Fund's portfolio securities, and handling the delivery of such securities to and
from the Fund. It will be the practice of the Fund to deal with the custodian
bank in a manner uninfluenced by any banking relationship the custodian may have
with the Manager and its affiliates. The Fund's cash balances with the custodian
in excess of $100,000 are not protected by Federal Deposit Insurance. Those
uninsured balances may at times be substantial.
Independent Auditors. KPMG LLP are the independent auditors of the Fund. They
audit the Fund's financial statements and perform other related audit services.
They also act as auditors for certain other funds advised by the Manager and its
affiliates.
<PAGE>
<PAGE>
--------------------------------------------------------------------------------
Independent Auditors' Report
--------------------------------------------------------------------------------
================================================================================
The Board of Trustees and Shareholders of
Oppenheimer California Municipal Fund:
We have audited the accompanying statement of assets and liabilities, including
the statement of investments, of Oppenheimer California Municipal Fund as of
July 31, 1999, 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
three-year period then ended, the seven-month period ended July 31, 1996, and
each of the years in the two-year period ended December 31, 1995. 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 July 31, 1999, 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 Municipal Fund as of July 31, 1999, 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 three-year period then ended, the
seven-month period ended July 31, 1996, and each of the years in the two-year
period ended December 31, 1995, in conformity with generally accepted accounting
principles.
/s/ KPMG LLP
KPMG LLP
Denver, Colorado
August 20, 1999
<PAGE>
--------------------------------------------------------------------------------
Statement of Investments July 31, 1999
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Ratings:
Moody's/
S&P/Fitch Face
Market Value
(Unaudited) Amount
See Note 1
==============================================================================================
Municipal Bonds and Notes--99.6%
----------------------------------------------------------------------------------------------
California--94.8%
<S> <C> <C>
<C>
Anaheim, CA PFAU Lease RB, Public
Improvements Project, Sub. Lien, Series C,
FSA Insured, Zero Coupon, 5.27%, 9/1/20(1) Aaa/AAA/AAA $17,630,000
$ 5,450,843
----------------------------------------------------------------------------------------------
Anaheim, CA PFAU TXAL RB, MBIA Insured,
Inverse Floater, 12.30%, 12/28/18(2) Aaa/AAA
3,000,000 3,615,000
----------------------------------------------------------------------------------------------
Berkeley, CA HF RRB, Alta Bates Medical Center,
Prerefunded, Series A, 6.50%, 12/1/11 A2/NR
4,500,000 4,849,785
----------------------------------------------------------------------------------------------
CA Assn. of Bay Area Governments FAU for
Non-profit Corps. Refunding COP, American
Baptist Homes, Series A, 6.20%, 10/1/27 NR/BBB
6,000,000 6,223,860
----------------------------------------------------------------------------------------------
CA Assn. of Bay Area Governments FAU for
Non-profit Corps. Refunding COP, Episcopal
Homes Foundation, 5.125%, 7/1/18 NR/A-
5,900,000 5,539,274
----------------------------------------------------------------------------------------------
CA Assn. of Bay Area Governments FAU for
Non-profit Corps. Refunding COP, Rhonda Haas
Goldman Plaza, 5.125%, 5/15/23 NR/A+
2,300,000 2,147,119
----------------------------------------------------------------------------------------------
CA CDAU Lease RB, United Airlines,
Series A, 5.70%, 10/1/33 Baa3/BB+
9,185,000 9,143,025
----------------------------------------------------------------------------------------------
CA Community College FAU Lease RB,
West Valley Mission Community College,
MBIA Insured, 5.625%, 5/1/22 Aaa/AAA
3,585,000 3,630,279
----------------------------------------------------------------------------------------------
CA Educational FA RRB, Los Angeles
College Chiropractic, 5.60%, 11/1/17 Baa2/NR
1,000,000 994,820
----------------------------------------------------------------------------------------------
CA Foothill/Eastern Corridor Agency Toll Road
RB, Sr. Lien, Prerefunded, Series A, 6.50%, 1/1/32 Baa3/BBB-/BBB
4,600,000 5,144,410
----------------------------------------------------------------------------------------------
CA Foothill/Eastern Corridor Agency Toll Road
RRB, Zero Coupon, 5.98%, 1/15/21(1)(3) Baa3/BBB-/BBB
7,500,000 2,080,875
----------------------------------------------------------------------------------------------
CA Foothill/Eastern Corridor Agency Toll Road
RRB, Zero Coupon, 6%, 1/15/22(1)(3) Baa3/BBB-/BBB
7,500,000 1,957,650
----------------------------------------------------------------------------------------------
CA GOB, 5%, 10/1/27 Aa3/A+/AA-
2,000,000 1,861,520
----------------------------------------------------------------------------------------------
CA GOB, MBIA Insured, 5%, 8/1/24 Aaa/AAA/AAA
6,000,000 5,622,060
----------------------------------------------------------------------------------------------
CA HFA RB, Series A, 7.35%, 8/1/11 Aa2/AA-
75,000 78,302
----------------------------------------------------------------------------------------------
CA HFA RB, Series C, 7.60%, 8/1/30 Aa2/AA-
940,000 957,913
----------------------------------------------------------------------------------------------
CA HFA RB, Series E-1, 6.45%, 2/1/12 Aa2/AA-
750,000 790,492
----------------------------------------------------------------------------------------------
CA HFA RB, Series M, MBIA Insured,
5.60%, 8/1/29 Aaa/AAA
2,500,000 2,496,375
----------------------------------------------------------------------------------------------
CA HFA SFM RB, Series 83, Inverse
Floater, 9.045%, 8/1/25(2) NR/AAA
4,000,000 4,401,600
----------------------------------------------------------------------------------------------
CA HFA SFM RB, Series C, 6.75%, 2/1/25 Aa2/AA- 9,730,000
10,232,944
</TABLE>
14 Oppenheimer California Municipal Fund
<PAGE>
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Ratings:
Moody's/
S&P/Fitch Face
Market Value
(Unaudited) Amount
See Note 1
----------------------------------------------------------------------------------------------
California (continued)
<S> <C> <C>
<C>
CA HFFAU RB, Los Angeles Children's Hospital,
Prerefunded, Series A, 7.125%, 6/1/21 Aaa/NR $1,000,000
$1,076,060
----------------------------------------------------------------------------------------------
CA HFFAU RRB, Kaiser Permanente,
Series B, 5%, 10/1/18 A3/A
3,500,000 3,241,245
----------------------------------------------------------------------------------------------
CA Infrastructure & ED Bank RB, American
Center for Wine, Food & Arts, 5.75%, 12/1/24 NR/A /A
5,000,000 4,969,850
----------------------------------------------------------------------------------------------
CA Intermodal Container Transfer Facility Joint
PAU RRB, Southern Pacific Transportation Co.,
Series A, 7.70%, 11/1/14 A3/A-
1,000,000 1,027,910
----------------------------------------------------------------------------------------------
CA PCFAU SWD RRB, North Cnty. Recycling
Center, Escrowed to Maturity, Series A,
6.75%, 7/1/11 Aaa/NR
500,000 544,340
----------------------------------------------------------------------------------------------
CA PWBL RB, State Prison Department of
Corrections, Series E, FSA Insured, 5.50%, 6/1/15 Aaa/AAA/AAA
3,000,000 3,127,410
----------------------------------------------------------------------------------------------
CA Rural Home Mtg. FAU SFM RB, Mtg.-Backed
Securities Program, Series B-5, 6.35%, 12/1/29 NR/AAA
3,080,000 3,290,826
----------------------------------------------------------------------------------------------
CA Saddleback Community College District
Refunding COP, BIG Insured, 7%, 8/1/19 Aaa/AAA
1,000,000 1,020,100
----------------------------------------------------------------------------------------------
CA SCDAU COP, Children's Hospital-Los Angeles,
5.25%, 8/15/29 A1/A+
5,000,000 4,701,950
----------------------------------------------------------------------------------------------
CA SCDAU COP, The Internext Group,
5.375%, 4/1/17 NR/BBB
5,500,000 5,231,600
----------------------------------------------------------------------------------------------
CA SCDAU COP, The Internext Group,
5.375%, 4/1/30 NR/BBB
8,500,000 7,847,455
----------------------------------------------------------------------------------------------
CA SCDAU Revenue Refunding COP,
Inverse Floater, 7.575%, 11/1/15(2) A1/NR
6,600,000 6,327,750
----------------------------------------------------------------------------------------------
Campbell, CA Refunding COP, Civic Center
Project, Prerefunded Balance, 6.75%, 10/1/17 A /A
1,130,000 1,218,061
----------------------------------------------------------------------------------------------
Capistrano, CA USD CFD SPTX Bonds,
Ladera No. 98-2, 5.70%, 9/1/20 NR/NR
5,000,000 4,844,800
----------------------------------------------------------------------------------------------
Capistrano, CA USD CFD SPTX Bonds,
Prerefunded, No. 92-1, 7.10%, 9/1/21 NR/NR
3,250,000 3,838,575
----------------------------------------------------------------------------------------------
Capistrano, CA USD CFD SPTX Refunding
Bonds, Las Flores No. 92-1, MBIA Insured,
5%, 9/1/23 Aaa/AAA/AAA
1,000,000 938,090
----------------------------------------------------------------------------------------------
Central CA Joint Powers Health FAU COP,
Community Hospitals of Central California
Project, 5%, 2/1/23 Baa1/NR
5,090,000 4,601,258
----------------------------------------------------------------------------------------------
Clovis, CA USD CAP GOB, Series D, FGIC Insured,
Zero Coupon, 5.60%, 8/1/10(1) Aaa/AAA
2,000,000 1,154,120
----------------------------------------------------------------------------------------------
Colton, CA PFAU TXAL RRB, Redevelopment
Projects, Series B, 5.875%, 8/1/27 NR/NR
3,700,000 3,575,421
</TABLE>
15 Oppenheimer California Municipal Fund
<PAGE>
--------------------------------------------------------------------------------
Statement of Investments (Continued)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Ratings:
Moody's/
S&P/Fitch Face
Market Value
(Unaudited) Amount
See Note 1
----------------------------------------------------------------------------------------------
California (continued)
<S> <C> <C>
<C>
Commerce, CA Community Development
Commission TXAL Refunding Bonds,
Redevelopment Project No. 1, Sub. Lien,
Series B, 5.75%, 8/1/10 NR/NR $ 815,000
$ 820,542
----------------------------------------------------------------------------------------------
Commerce, CA Community Development
Commission TXAL Refunding Bonds,
Redevelopment Project No. 1, Sub. Lien,
Series B, 6%, 8/1/21 NR/NR
2,800,000 2,789,836
----------------------------------------------------------------------------------------------
Commerce, CA Joint Powers FAU Lease RB,
Community Center, Series A, 6.25%, 10/1/22 Baa2/NR
1,410,000 1,462,198
----------------------------------------------------------------------------------------------
Compton, CA Refunding COP, Civic Center &
Capital Improvements, Series A, 5.50%, 9/1/15 NR/BBB
3,000,000 2,938,740
----------------------------------------------------------------------------------------------
Davis, CA Public Facilities FAU Local Agency
RRB, Mace Ranch Area, Series A, 6.60%, 9/1/25 NR/NR
5,000,000 5,182,100
----------------------------------------------------------------------------------------------
Delta Cnty., CA Home Mtg. FAU SFM RB,
Series A, 5.35%, 6/1/24 Aaa/AAA/AAA
4,605,000 4,475,231
----------------------------------------------------------------------------------------------
Duarte, CA COP, City of Hope National
Medical Center, 6.25%, 4/1/23 Baa1/AAA
4,500,000 4,902,930
----------------------------------------------------------------------------------------------
Escondido, CA Union High SDI CAP GOB, MBIA
Insured, Zero Coupon, 6.20%, 11/1/18(1) Aaa/AAA
6,000,000 2,089,320
----------------------------------------------------------------------------------------------
Escondido, CA Union High SDI CAP GOB, MBIA
Insured, Zero Coupon, 6.20%, 11/1/19(1) Aaa/AAA
2,000,000 654,140
----------------------------------------------------------------------------------------------
Fontana, CA RA TXAL Refunding Bonds,
Jurupa Hills Redevelopment Project,
Series A, 5.50%, 10/1/19 NR/BBB+
1,345,000 1,310,528
----------------------------------------------------------------------------------------------
Fontana, CA RA TXAL Refunding Bonds,
Jurupa Hills Redevelopment Project,
Series A, 5.50%, 10/1/27 NR/BBB+
6,040,000 5,842,311
----------------------------------------------------------------------------------------------
Huntington Park, CA PFAU Lease RRB,
Wastewater System Project, Series A,
6.20%, 10/1/25 NR/NR
3,000,000 3,014,490
----------------------------------------------------------------------------------------------
Industry, CA Improvement Bond Act of 1915 SPAST GOB, Prerefunded, District No.
91-1,
7.65%, 9/2/21 NR/NR
1,750,000 1,952,352
----------------------------------------------------------------------------------------------
Irvine, CA Improvement Bond Act of 1915
SPAST GOB, District 94-13-Group One,
5.50%, 9/22/22 NR/NR
2,500,000 2,365,600
----------------------------------------------------------------------------------------------
Laguna Salada, CA USD CAP GOB, Series B,
FGIC Insured, Zero Coupon, 5.30%, 8/1/22(1) Aaa/AAA/AAA
3,035,000 845,490
----------------------------------------------------------------------------------------------
Lake Elsinore, CA PFAU TXAL Bonds,
Series A, 5.50%, 9/1/30 NR/BBB
5,000,000 4,699,450
</TABLE>
16 Oppenheimer California Municipal Fund
<PAGE>
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Ratings:
Moody's/
S&P/Fitch Face
Market Value
(Unaudited) Amount
See Note 1
----------------------------------------------------------------------------------------------
California (continued)
<S> <C> <C>
<C>
Lake Elsinore, CA School FAU SPTX RRB,
Horsethief Canyon, 5.625%, 9/1/16 NR/NR $4,760,000
$4,580,405
----------------------------------------------------------------------------------------------
Long Beach, CA Water RRB, Series A,
MBIA Insured, 5%, 5/1/24 Aaa/AAA
7,090,000 6,644,961
----------------------------------------------------------------------------------------------
Los Angeles Cnty., CA CAP COP, Disney Parking
Project, Zero Coupon, 5.58%, 3/1/12(1) Baa1/BBB/A-
1,700,000 842,622
----------------------------------------------------------------------------------------------
Los Angeles Cnty., CA CAP COP, Disney Parking
Project, Zero Coupon, 6.92%, 9/1/10(1) Baa1/BBB/A-
5,960,000 3,278,358
----------------------------------------------------------------------------------------------
Los Angeles Cnty., CA CAP COP, Disney Parking
Project, Zero Coupon, 6.95%, 9/1/11(1) Baa1/BBB/A-
2,900,000 1,492,021
----------------------------------------------------------------------------------------------
Los Angeles Cnty., CA CAP COP, Disney Parking
Project, Zero Coupon, 7.03%, 9/1/13(1) Baa1/BBB/A-
4,500,000 2,034,675
----------------------------------------------------------------------------------------------
Los Angeles Cnty., CA CAP COP, Disney Parking
Project, Zero Coupon, 5.16%, 9/1/14(1) Baa1/BBB/A-
7,260,000 3,080,128
----------------------------------------------------------------------------------------------
Los Angeles Cnty., CA MTAU Sales Tax RRB, First
Tier-Property A, Series A, FSA Insured, 5%, 7/1/15 Aaa/AAA/AAA
5,000,000 4,879,200
----------------------------------------------------------------------------------------------
Los Angeles Cnty., CA MTAU Sales Tax RRB,
Series A, FSA Insured, 5%, 7/1/14 Aaa/AAA/AAA
5,000,000 4,919,800
----------------------------------------------------------------------------------------------
Los Angeles Cnty., CA Public Works FAU Lease
RB, Multiple Capital Facilities Project V,
Series A, AMBAC Insured, 5.125%, 6/1/17 Aaa/AAA
1,965,000 1,922,163
----------------------------------------------------------------------------------------------
Los Angeles Cnty., CA Public Works FAU RRB,
Regional Park & Open Space District,
Series A, 5%, 10/1/16(4) Aa3/AA
7,600,000 7,356,952
----------------------------------------------------------------------------------------------
Los Angeles, CA Harbor Department RB,
Series B, 5.375%, 11/1/23 Aa3/AA/AA
5,000,000 4,841,600
----------------------------------------------------------------------------------------------
Los Angeles, CA USD GOB, Series B,
FGIC Insured, 5%, 7/1/23 Aaa/AAA/AAA
5,000,000 4,691,500
----------------------------------------------------------------------------------------------
Oakland, CA RA TXAL Refunding Bonds,
MBIA Insured, 5.95%, 9/1/19(5) Aaa/AAA
8,600,000 9,040,578
----------------------------------------------------------------------------------------------
Orange Cnty., CA CFD No. 86-2 SPTX
Refunding Bonds, Rancho Santa Margarita,
Series A, 5.55%, 8/15/17 NR/NR
1,000,000 974,410
----------------------------------------------------------------------------------------------
Orange Cnty., CA CFD No. 88-1 SPTX Bonds,
Aliso Viejo, Prerefunded, Series A, 7.10%, 8/15/05 NR/AAA
1,440,000 1,594,915
----------------------------------------------------------------------------------------------
Orange Cnty., CA CFD No. 88-1 SPTX Bonds,
Aliso Viejo, Prerefunded, Series A, 7.35%, 8/15/18 NR/AAA
7,000,000 7,802,760
----------------------------------------------------------------------------------------------
Orange Cnty., CA Improvement Bond Act of
1915 RRB, Irvine Coast Assessment District,
No. 88-1-A, 5.50%, 9/2/16 NR/NR
3,000,000 2,973,630
</TABLE>
17 Oppenheimer California Municipal Fund
<PAGE>
--------------------------------------------------------------------------------
Statement of Investments (Continued)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Ratings:
Moody's/
S&P/Fitch Face
Market Value
(Unaudited) Amount
See Note 1
----------------------------------------------------------------------------------------------
California (continued)
<S> <C> <C>
<C>
Orange Cnty., CA Improvement Bond Act of
1915 SPAST GOB, Assessment No. 88-1,
6.25%, 9/2/18 NR/NR $ 2,300,000
$ 2,326,404
----------------------------------------------------------------------------------------------
Palm Springs, CA COP, Escrowed to Maturity,
Sub. Lien, Series B, Zero Coupon,
5.54%, 4/15/21(1) NR/AAA
15,000,000 4,520,700
----------------------------------------------------------------------------------------------
Pittsburg, CA RA TXAL Refunding Bonds,
Los Medanos Community Development
Project, Sub. Lien, 6.20%, 8/1/19 NR/BBB
2,500,000 2,630,325
----------------------------------------------------------------------------------------------
Placentia, CA PFAU SPTX RB, Jr. Lien,
Series B, 6.60%, 9/1/15 NR/NR
1,600,000 1,641,776
----------------------------------------------------------------------------------------------
Pomona, CA SFM RRB, Escrowed to Maturity,
Series A, 7.60%, 5/1/23 Aaa/AAA
4,500,000 5,644,350
----------------------------------------------------------------------------------------------
Pomona, CA SFM RRB, Escrowed to Maturity,
Series B, 7.50%, 8/1/23 Aaa/AAA
500,000 625,050
----------------------------------------------------------------------------------------------
Pomona, CA USD GORB, Series A, MBIA
Insured, 6.15%, 8/1/15 Aaa/AAA
2,000,000 2,190,760
----------------------------------------------------------------------------------------------
Port Oakland, CA Port RB, Series G, MBIA
Insured, 5.375%, 11/1/25 Aaa/AAA/AAA 10,650,000
10,371,502
----------------------------------------------------------------------------------------------
Redding, CA Electric System Revenue COP,
FGIC Insured, Inverse Floater, 7.97%, 6/1/19(2) Aaa/AAA/AAA
4,000,000 4,135,000
----------------------------------------------------------------------------------------------
Redding, CA Electric System Revenue COP,
MBIA Insured, Inverse Floater, 9.339%, 7/8/22(2) Aaa/AAA
2,500,000 3,040,625
----------------------------------------------------------------------------------------------
Richmond, CA Improvement Bond Act of 1915
GORB, Reassessment District No. 855,
6.60%, 9/2/19 NR/NR
1,500,000 1,545,450
----------------------------------------------------------------------------------------------
Riverside Cnty., CA CFD No. 88-12 SPTX Bonds,
Prerefunded, 7.55%, 9/1/17 NR/NR
3,000,000 3,186,150
----------------------------------------------------------------------------------------------
Riverside Cnty., CA PFAU Refunding COP,
5.75%, 5/15/19 NR/BBB-
2,100,000 2,079,735
----------------------------------------------------------------------------------------------
Riverside Cnty., CA PFAU TXAL RRB,
Redevelopment Projects, Series A,
5.625%, 10/1/33 Baa2/BBB-
6,600,000 6,491,166
----------------------------------------------------------------------------------------------
Riverside Cnty., CA Refunding COP, Air Force
Village West, Inc., Series A, 8.125%, 6/15/12 NR/NR
3,000,000 3,367,320
----------------------------------------------------------------------------------------------
Riverside Cnty., CA Refunding COP, Air Force
Village West, Inc., Series A, 8.125%, 6/15/20 NR/NR
3,000,000 3,367,320
----------------------------------------------------------------------------------------------
Riverside Cnty., CA SFM RB, Escrowed to
Maturity, Series A, 7.80%, 5/1/21 Aaa/AAA
4,285,000 5,546,675
----------------------------------------------------------------------------------------------
Sacramento Cnty., CA SFM RB, Escrowed to
Maturity, 8%, 7/1/16(4) Aaa/AAA 10,000,000
12,944,900
</TABLE>
18 Oppenheimer California Municipal Fund
<PAGE>
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Ratings:
Moody's/
S&P/Fitch Face
Market Value
(Unaudited) Amount
See Note 1
----------------------------------------------------------------------------------------------
California (continued)
<S> <C> <C>
<C>
Sacramento Cnty., CA SPTX Refunding Bonds,
CFD No. 1, 5.70%, 12/1/20 NR/NR $ 2,000,000
$1,938,420
----------------------------------------------------------------------------------------------
Sacramento, CA Cogeneration Authority RB,
Procter & Gamble Project, 6.50%, 7/1/14 NR/BBB-/NR
5,000,000 5,631,600
----------------------------------------------------------------------------------------------
Sacramento, CA MUD Electric RRB, FGIC
Insured, Inverse Floater, 9.325%, 8/15/18(2) Aaa/AAA/AAA
5,500,000 6,235,625
----------------------------------------------------------------------------------------------
Sacramento, CA PAU RB, Cogeneration
Project, 6%, 7/1/22 NR/BBB-
7,300,000 7,453,592
----------------------------------------------------------------------------------------------
San Bernardino Cnty., CA COP, Medical
Center Financing Project, MBIA Insured,
5.50%, 8/1/17 Aaa/AAA
5,250,000 5,404,717
----------------------------------------------------------------------------------------------
San Diego Cnty., CA COP, MBIA Insured,
Inverse Floater, 8.896%, 11/18/19(2) A1/A
2,000,000 2,202,500
----------------------------------------------------------------------------------------------
San Diego Cnty., CA Water Authority Revenue
COP, Prerefunded, Series 91-B, MBIA Insured,
Inverse Floater, 9.12%, 4/8/21(2) Aaa/AAA
3,000,000 3,630,000
----------------------------------------------------------------------------------------------
San Diego, CA Convention Center Expansion
FAU Lease RB, Series A, 5.25%, 4/1/16 Aaa/AAA/AAA
3,000,000 2,984,940
----------------------------------------------------------------------------------------------
San Francisco, CA City & Cnty. International
Airport Commission RB, Issue 22, AMBAC
Insured, 5%, 5/1/19 Aaa/AAA/AAA
235,000 220,797
----------------------------------------------------------------------------------------------
San Francisco, CA City & Cnty. International
Airport Commission RB, Series 84, AMBAC
Insured, Inverse Floater, 6.145%, 5/1/19(2) NR/AAA
4,750,000 4,175,820
----------------------------------------------------------------------------------------------
San Francisco, CA City & Cnty. Redevelopment
FAU TXAL Refunding Bonds, CAP
Redevelopment Projects, Series C,
Zero Coupon, 5.10%, 8/1/11(1) A2/A
2,350,000 1,218,875
----------------------------------------------------------------------------------------------
San Francisco, CA City & Cnty. Redevelopment
FAU TXAL Refunding Bonds, CAP
Redevelopment Projects, Series C, Zero
Coupon, 5.15%, 8/1/12(1) A2/A
2,350,000 1,142,382
----------------------------------------------------------------------------------------------
San Francisco, CA City & Cnty. Redevelopment
FAU TXAL Refunding Bonds, CAP
Redevelopment Projects, Series C, Zero
Coupon, 5.25%, 8/1/14(1) A2/A
2,350,000 1,006,129
----------------------------------------------------------------------------------------------
San Francisco, CA City & Cnty. Redevelopment
FAU TXAL Refunding Bonds, Series C, Zero
Coupon, 5%, 8/1/10(1) A2/A
2,350,000 1,302,652
----------------------------------------------------------------------------------------------
San Joaquin Hills, CA Transportation Corridor
Agency Toll Road CAP RRB, Series A,
0%/5.75%, 1/15/21(6) Baa3/BBB-/BBB
11,800,000 7,620,558
</TABLE>
19 Oppenheimer California Municipal Fund
<PAGE>
--------------------------------------------------------------------------------
Statement of Investments (Continued)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Ratings:
Moody's/
S&P/Fitch Face
Market Value
(Unaudited) Amount
See Note 1
----------------------------------------------------------------------------------------------
California (continued)
<S> <C> <C>
<C>
San Joaquin Hills, CA Transportation Corridor
Agency Toll Road CAP RRB, Series A, MBIA
Insured, Zero Coupon, 5.73%, 1/15/25(1) Aaa/AAA/AAA $18,250,000
$ 4,386,570
----------------------------------------------------------------------------------------------
San Joaquin Hills, CA Transportation Corridor
Agency Toll Road RB, Sr. Lien, 5%, 1/1/33 Baa3/BBB-/BBB
8,000,000 7,161,920
----------------------------------------------------------------------------------------------
San Joaquin Hills, CA Transportation Corridor
Agency Toll Road RB, Sr. Lien, Prerefunded,
6.75%, 1/1/32 Aaa/AAA/AAA
7,000,000 7,718,480
----------------------------------------------------------------------------------------------
Santa Ana, CA FAU RRB, Inner-City Commuter,
Series C, 5.60%, 9/1/19 NR/BBB
3,060,000 2,959,601
----------------------------------------------------------------------------------------------
Santa Ana, CA FAU RRB, Mainplace Project,
Series D, 5.50%, 9/1/15 NR/NR
1,000,000 953,760
----------------------------------------------------------------------------------------------
Santa Ana, CA FAU RRB, Mainplace Project,
Series D, 5.60%, 9/1/19 NR/NR
1,000,000 950,250
----------------------------------------------------------------------------------------------
Santa Margarita/Dana Point, CA Authority RB,
Improvement Districts 3-3A-4-4A, Series B,
MBIA Insured, 7.25%, 8/1/14 Aaa/AAA
680,000 833,864
----------------------------------------------------------------------------------------------
Southern CA Home FAU SFM RB,
Series A, 7.35%, 9/1/24 NR/AAA
1,340,000 1,393,761
----------------------------------------------------------------------------------------------
Southern CA Metropolitan Water District
Waterworks RB, Inverse Floater,
7.419%, 10/30/20(2) Aa2/AA
3,300,000 3,291,750
----------------------------------------------------------------------------------------------
Southern CA Metropolitan Water District
Waterworks RRB, Series A, 4.75%, 7/1/22 Aa2/AA
10,000,000 9,011,100
----------------------------------------------------------------------------------------------
Southern CA PPAU Transmission Project RB,
Inverse Floater, 7.615%, 7/1/12(2) Aa3/A+
1,900,000 2,101,875
----------------------------------------------------------------------------------------------
Stockton, CA CFD No. 90-2 SPTX RRB,
Brookside Estates, 6.20%, 8/1/15 NR/NR
1,750,000 1,780,870
----------------------------------------------------------------------------------------------
Temecula, CA CFD No. 88-12-A SPTX
Refunding Bonds, 5.625%, 9/1/17 NR/NR
2,175,000 2,125,454
----------------------------------------------------------------------------------------------
Tustin, CA USD CFD No. 88-1 SPTX RB,
Prerefunded, Series B, 6.375%, 9/1/21 NR/NR
3,500,000 3,978,520
----------------------------------------------------------------------------------------------
University of CA Regents RB, Multiple Purpose
Projects, Prerefunded, Series A, 6.875%, 9/1/16 NR/AAA
1,950,000 2,149,388
----------------------------------------------------------------------------------------------
West Sacramento, CA Improvement Bond Act of
1915 SPAST Refunding Bonds, 5.60%, 9/2/17 NR/NR
2,000,000 1,938,020
----------------------------------------------------------------------------------------------
Yuba City, CA USD Refunding COP,
Series A, 5%, 2/1/17 Aaa/AAA
3,010,000 2,909,496
------------
441,559,397
</TABLE>
20 Oppenheimer California Municipal Fund
<PAGE>
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Ratings:
Moody's/
S&P/Fitch Face
Market Value
(Unaudited) Amount
See Note 1
----------------------------------------------------------------------------------------------
U.S. Possessions--4.8%
<S> <C> <C>
<C>
Guam PAU RB, Series A, 6.625%, 10/1/14 NR/BBB $2,000,000
$ 2,241,980
----------------------------------------------------------------------------------------------
PR CMWLTH GORB, MBIA Insured,
Inverse Floater, 7.794%, 7/1/08(2) Aaa/AAA
3,500,000 3,815,000
----------------------------------------------------------------------------------------------
PR CMWLTH HTAU RRB, Series A,
AMBAC Insured, 5.50%, 7/1/13 Aaa/AAA/AAA
3,000,000 3,144,390
----------------------------------------------------------------------------------------------
PR CMWLTH HTAU RRB, Series A,
AMBAC Insured, 5.50%, 7/1/14 Aaa/AAA/AAA
3,500,000 3,657,920
----------------------------------------------------------------------------------------------
PR EPAU RB, Prerefunded, Series P, 7%, 7/1/21 Baa1/BBB+
4,000,000 4,305,560
----------------------------------------------------------------------------------------------
PR HFA SFM RB, Affordable Housing Mtg
Portfolio I, 6.25%, 4/1/29 Aaa/AAA
2,440,000 2,531,256
----------------------------------------------------------------------------------------------
PR Housing Finance Corp. SFM RB, Portfolio 1,
Series B, 7.65%, 10/15/22 Aaa/AAA
275,000 286,209
----------------------------------------------------------------------------------------------
PR Industrial, Medical & Environmental
PC Facilities Tourist RB, Mennonite General
Hospital Project, Series A, 6.50%, 7/1/12 NR/BBB-/BBB
2,350,000 2,468,157
------------
22,450,472
----------------------------------------------------------------------------------------------
Total Investments, at Value (Cost $451,843,264) 99.6%
464,009,869
----------------------------------------------------------------------------------------------
Other Assets Net of Liabilities
0.4 1,979,775
---------
------------
Net Assets 100.0%
$465,989,644
=========
============
</TABLE>
<TABLE>
<CAPTION>
To simplify the listings of securities, abbreviations are used per the table
below:
<S> <C>
CAP -- Capital Appreciation PAU -- Power Authority
CDAU -- Communities Development Authority PC -- Pollution Control
CFD -- Community Facilities District PCFAU -- Pollution Control
Finance Authority
CMWLTH -- Commonwealth PFAU -- Public Finance Authority
COP -- Certificates of Participation PPAU -- Public Power Authority
ED -- Economic Development PWBL -- Public Works Board Lease
EPAU -- Electric Power Authority RA -- Redevelopment Agency
FA -- Facilities Authority RB -- Revenue Bonds
FAU -- Finance Authority RRB -- Revenue Refunding Bonds
GOB -- General Obligation Bonds SCDAU -- Statewide Communities
Development Authority
GORB -- General Obligation Refunding Bonds SDI -- School District
HF -- Health Facilities SFM -- Single Family Mortgage
HFA -- Housing Finance Agency SPAST -- Special Assessment
HFFAU -- Health Facilities Finance Authority SPTX -- Special Tax
HTAU -- Highway & Transportation Authority SWD -- Solid Waste Disposal
MTAU -- Metropolitan Transportation Authority TXAL -- Tax Allocation
MUD -- Municipal Utility District USD -- Unified School District
</TABLE>
21 Oppenheimer California Municipal Fund
<PAGE>
--------------------------------------------------------------------------------
Statement of Investments (Continued)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
1. For zero coupon bonds, the interest rate shown is the effective yield on the
date of purchase. 2. Represents the current interest rate for a variable rate
bond known as an "inverse floaters" which pays interest at a rate that varies
inversely with short-term interest rates. As interest rates rise, inverse
floaters produce less current income. Their price may be more volatile than the
price of a comparable fixed-rate security. Inverse floaters amount to
$46,972,545 or 10.08% of the Fund's net assets as of July 31, 1999.
3. When-issued security to be delivered and settled after July 31, 1999.
4. Securities with an aggregate market value of $1,808,680 are held in
collateralized accounts to cover initial margin requirements on open futures
sales contracts. See Note 5 of Notes to Financial Statements.
5. Represents the current interest rate for a variable rate security.
6. Denotes a step bond: a zero coupon bond that converts to a fixed or variable
interest rate at a designated future date.
As of July 31, 1999, securities subject to the alternative minimum tax amount to
$77,814,717 or 16.70% of the Fund's net assets.
Distribution of investments by industry of issue, as a percentage of total
investments at value, is as follows:
Industry Market Value Percent
-----------------------------------------------------------------------------
Special Assessment $121,100,182 26.2%*
-----------------------------------------------------------------------------
Single-Family Housing 55,695,885 12.0
-----------------------------------------------------------------------------
Municipal Leases 43,363,362 9.3
-----------------------------------------------------------------------------
Highways 42,872,773 9.2
-----------------------------------------------------------------------------
Hospital/Healthcare 36,689,836 7.9
-----------------------------------------------------------------------------
Adult Living Facilities 35,803,683 7.7
-----------------------------------------------------------------------------
Electric Utilities 35,145,857 7.6
-----------------------------------------------------------------------------
General Obligation 22,923,910 4.9
-----------------------------------------------------------------------------
Water Utilities 22,577,811 4.9
-----------------------------------------------------------------------------
Marine/Aviation Facilities 20,637,629 4.4
-----------------------------------------------------------------------------
Sales Tax 9,799,000 2.1
-----------------------------------------------------------------------------
Corporate Backed 9,143,025 2.0
-----------------------------------------------------------------------------
Higher Education 6,774,486 1.5
-----------------------------------------------------------------------------
Education 938,090 0.2
-----------------------------------------------------------------------------
Resource Recovery 544,340 0.1
------------ -----
Total $464,009,869 100.0%
============ =====
*Securities with a market value of $22,353,273 or 18.46% of total investments at
value are represented by pre-refunded securities, collateralized by U.S.
government securities.
See accompanying Notes to Financial Statements.
22 Oppenheimer California Municipal Fund
<PAGE>
--------------------------------------------------------------------------------
Statements of Assets and Liabilities July 31, 1999
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
=======================================================================================
Assets
<S>
<C>
Investments, at value (cost $451,843,264)--see accompanying statement
$464,009,869
---------------------------------------------------------------------------------------
Cash
187,500
---------------------------------------------------------------------------------------
Receivables and other assets:
Interest
6,445,459
Investments sold
1,881,411
Shares of beneficial interest sold
323,018
Daily variation on futures contracts--Note 5
70,469
Other
4,546
------------
Total assets
472,922,272
=======================================================================================
Liabilities Payables and other liabilities:
Investments purchased (including $4,107,525 purchased on a when-issued
basis)--Note 1 4,107,525 Dividends 1,238,112 Shares of beneficial interest
redeemed 1,191,917 Trustees' compensation--Note 1 162,339 Distribution and
service plan fees 96,106 Shareholder reports 55,955 Transfer and shareholder
servicing agent fees 26,547 Custodian fees 2,937 Other 51,190
------------
Total liabilities
6,932,628
=======================================================================================
Net Assets
$465,989,644
============
=======================================================================================
Composition of Net Assets
Paid-in capital
$455,561,717
---------------------------------------------------------------------------------------
Overdistributed net investment income
(1,088,872)
---------------------------------------------------------------------------------------
Accumulated net realized loss on investment transactions
(648,400)
---------------------------------------------------------------------------------------
Net unrealized appreciation on investments--Notes 3 and 5
12,165,199
------------
Net assets
$465,989,644
============
</TABLE>
23 Oppenheimer California Municipal Fund
<PAGE>
--------------------------------------------------------------------------------
Statements of Assets and Liabilities (Continued)
--------------------------------------------------------------------------------
<TABLE>
=======================================================================================
Net Asset Value Per Share
Class A Shares:
<S>
<C>
Net asset value and redemption price per share (based on net assets of
$316,362,542 and 29,941,203 shares of beneficial interest outstanding) $10.57
Maximum offering price per share (net asset value plus sales charge of 4.75% of
offering price) $11.10
---------------------------------------------------------------------------------------
Class B Shares:
Net asset value, redemption price (excludes applicable contingent deferred sales
charge) and offering price per share (based on net assets of $132,762,787 and
12,560,331 shares of beneficial interest outstanding) $10.57
---------------------------------------------------------------------------------------
Class C Shares:
Net asset value, redemption price (excludes applicable contingent deferred sales
charge) and offering price per share (based on net assets of $16,864,315 and
1,598,190 shares of beneficial interest outstanding) $10.55 </TABLE>
See accompanying Notes to Financial Statements.
24 Oppenheimer California Municipal Fund
<PAGE>
--------------------------------------------------------------------------------
Statement of Operations For the Year Ended July 31, 1999
--------------------------------------------------------------------------------
<TABLE>
=======================================================================================
Investment Income
<S>
<C>
Interest $
26,109,577
=======================================================================================
Expenses
Management fees--Note 4
2,540,982
---------------------------------------------------------------------------------------
Distribution and service plan fees--Note 4:
Class A
757,647
Class B
1,294,892
Class C
146,564
---------------------------------------------------------------------------------------
Transfer and shareholder servicing agent fees--Note 4
259,539
---------------------------------------------------------------------------------------
Shareholder reports
98,260
---------------------------------------------------------------------------------------
Trustees' compensation--Note 1
47,096
---------------------------------------------------------------------------------------
Custodian fees and expenses
45,007
---------------------------------------------------------------------------------------
Legal, auditing and other professional fees
42,049
---------------------------------------------------------------------------------------
Registration and filing fees
15,486
---------------------------------------------------------------------------------------
Insurance expenses
8,257
---------------------------------------------------------------------------------------
Other
10,495
------------
Total expenses
5,266,274
Less expenses paid indirectly--Note 1
(25,729)
------------
Net expenses
5,240,545
=======================================================================================
Net Investment Income
20,869,032
=======================================================================================
Realized and Unrealized Gain (Loss)
Net realized gain on:
Investments
199,201
Closing of futures contracts
167,513
------------
Net realized gain
366,714
---------------------------------------------------------------------------------------
Net change in unrealized appreciation or depreciation on investments
(16,235,114)
------------
Net realized and unrealized loss
(15,868,400)
=======================================================================================
Net Increase in Net Assets Resulting from Operations $
5,000,632
============
</TABLE>
See accompanying Notes to Financial Statements.
25 Oppenheimer California Municipal Fund
<PAGE>
--------------------------------------------------------------------------------
Statements of Changes in Net Assets
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended July 31,
1999 1998
=============================================================================================================
Operations
<S>
<C> <C>
Net investment income $
20,869,032 $ 19,136,459
-------------------------------------------------------------------------------------------------------------
Net realized gain
(loss) 366,714
(1,120,364)
-------------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation or depreciation
(16,235,114) 3,444,127
------------ ------------
Net increase in net assets resulting from operations
5,000,632 21,460,222
=============================================================================================================
Dividends and/or Distributions to Shareholders Dividends from net investment
income:
Class A
(15,214,034) (14,732,831)
Class B
(5,284,436) (4,147,106)
Class C
(600,129) (359,910)
-------------------------------------------------------------------------------------------------------------
Distributions from net realized gain:
Class
A
-- (2,092,323)
Class
B
-- (677,374)
Class
C
-- (51,258)
=============================================================================================================
Beneficial Interest Transactions Net increase in net assets resulting from
beneficial interest transactions--Note 2:
Class A
26,403,170 3,072,554
Class B
22,044,556 33,042,362
Class C
6,138,090 5,382,827
=============================================================================================================
Net Assets
Total increase
38,487,849 40,897,163
-------------------------------------------------------------------------------------------------------------
Beginning of period
427,501,795 386,604,632
------------ ------------
End of period (including overdistributed net investment
income of $1,088,872 and $859,305, respectively)
$465,989,644 $427,501,795
============ ============
</TABLE>
See accompanying Notes to Financial Statements.
26 Oppenheimer California Municipal Fund
<PAGE>
--------------------------------------------------------------------------------
Financial Highlights
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A
---------------------------------------------------------------------
Year
Ended Year Ended
July
31, December 31,
1999 1998
1997 1996(1) 1995 1994
==========================================================================================================================
Per Share Operating Data
<S> <C> <C>
<C> <C> <C> <C>
Net asset value, beginning of period $10.92 $10.94
$10.39 $10.69 $ 9.45 $10.97
--------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .53 .54
.58 .33 .58 .60
Net realized and unrealized gain (loss) (.35) .06
.54 (.30) 1.25 (1.51)
------ ------
------ ------ ------ ------
Total income (loss) from
investment operations .18 .60
1.12 .03 1.83 (.91)
--------------------------------------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income (.53) (.54)
(.57) (.33) (.58) (.61)
Dividends in excess of net
investment income -- --
-- -- (.01) --
Distributions from net realized gain -- (.08)
-- -- -- --
------ ------
------ ------ ------ ------
Total dividends and distributions
to shareholders (.53) (.62)
(.57) (.33) (.59) (.61)
--------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $10.57 $10.92
$10.94 $10.39 $10.69 $ 9.45
====== ======
====== ====== ====== ======
==========================================================================================================================
Total Return, at Net Asset Value(2) 1.59% 5.66%
11.11% 0.34% 19.76% (8.49)%
==========================================================================================================================
Ratios/Supplemental Data
Net assets, end of period
(in thousands) $316,363 $300,717
$298,162 $286,033 $285,307 $219,682
--------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $314,094 $297,372
$289,439 $279,796 $250,188 $248,850
--------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:(3)
Net investment income 4.79% 4.91%
5.49% 5.53% 5.64% 5.99%
Expenses 0.91% 0.92%(4)
0.94%(4) 0.97%(4) 0.95%(4) 0.96%
--------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(5) 35% 31%
31% 14% 23% 22%
</TABLE>
1. For the seven months ended July 31, 1996. The Fund changed its fiscal year
end from December 31 to July 31. 2. Assumes a $1,000 hypothetical initial
investment on the business day before the first day of the fiscal period (or
inception of offering), with all dividends and distributions reinvested in
additional shares on the reinvestment date, and redemption at the net asset
value calculated on the last business day of the fiscal period. Sales charges
are not reflected in the total returns. Total returns are not annualized for
periods of less than one full year. 3. Annualized for periods of less than one
full year.
4. Expense ratio reflects the effect of expenses paid indirectly by the Fund. 5.
The lesser of purchases or sales of portfolio securities for a period, divided
by the monthly average of the market value of portfolio securities owned during
the period. Securities with a maturity or expiration date at the time of
acquisition of one year or less are excluded from the calculation. Purchases and
sales of investment securities (excluding short-term securities) for the period
ended July 31, 1999, were $206,390,312 and $160,398,205, respectively.
27 Oppenheimer California Municipal Fund
<PAGE>
--------------------------------------------------------------------------------
Financial Highlights (Continued)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class B
-----------------------------------------------------------------
Year
Ended Year Ended
July
31, December 31,
1999 1998
1997 1996(1) 1995 1994
==========================================================================================================================
Per Share Operating Data
<S> <C> <C>
<C> <C> <C> <C>
Net asset value, beginning of period $10.92
$10.94 $10.39 $10.69 $ 9.44 $10.98
--------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .45
.46 .49 .28 .51 .54
Net realized and unrealized gain (loss) (.35)
.06 .55 (.30) 1.25 (1.55)
------
------ ------ ------ ------ ------
Total income (loss) from
investment operations .10
.52 1.04 (.02) 1.76 (1.01)
--------------------------------------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income (.45)
(.46) (.49) (.28) (.50) (.53)
Dividends in excess of net
investment income --
-- -- -- (.01) --
Distributions from net realized gain --
(.08) -- -- -- --
------
------ ------ ------ ------ ------
Total dividends and distributions
to shareholders (.45)
(.54) (.49) (.28) (.51) (.53)
--------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $10.57
$10.92 $10.94 $10.39 $10.69 $ 9.44
======
====== ====== ====== ====== ======
==========================================================================================================================
Total Return, at Net Asset Value(2) 0.82%
4.86% 10.27% (0.12)% 18.97% (9.39)%
==========================================================================================================================
Ratios/Supplemental Data
Net assets, end of period
(in thousands) $132,763 $115,444
$82,474 $52,038 $41,224 $20,224
--------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $129,538 $ 99,266
$65,192 $46,422 $29,918 $16,552
--------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:(3)
Net investment income 4.03%
4.21% 4.70% 4.74% 4.82% 5.17%
Expenses 1.67%
1.67%(4) 1.70%(4) 1.74%(4) 1.72%(4) 1.73%
--------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(5) 35%
31% 31% 14% 23% 22%
</TABLE>
1. For the seven months ended July 31, 1996. The Fund changed its fiscal year
end from December 31 to July 31. 2. Assumes a $1,000 hypothetical initial
investment on the business day before the first day of the fiscal period (or
inception of offering), with all dividends and distributions reinvested in
additional shares on the reinvestment date, and redemption at the net asset
value calculated on the last business day of the fiscal period. Sales charges
are not reflected in the total returns. Total returns are not annualized for
periods of less than one full year. 3. Annualized for periods of less than one
full year.
4. Expense ratio reflects the effect of expenses paid indirectly by the Fund. 5.
The lesser of purchases or sales of portfolio securities for a period, divided
by the monthly average of the market value of portfolio securities owned during
the period. Securities with a maturity or expiration date at the time of
acquisition of one year or less are excluded from the calculation. Purchases and
sales of investment securities (excluding short-term securities) for the period
ended July 31, 1999, were $206,390,312 and $160,398,205, respectively.
28 Oppenheimer California Municipal Fund
<PAGE>
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class C
----------------------------------------------------------
Period
Ended
Year Ended July
31, Dec. 31,
1999
1998 1997 1996(1) 1995(6)
--------------------------------------------------------------------------------------------------------------------
Per Share Operating Data
<S> <C> <C>
<C> <C> <C>
Net asset value, beginning of period $10.91
$10.93 $10.38 $10.68 $10.46
--------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .45
.46 .49 .27 .08
Net realized and unrealized gain (loss) (.36)
.06 .55 (.30) .22
------
------ ------ ------ ------
Total income (loss) from
investment operations .09
.52 1.04 (.03) .30
--------------------------------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income (.45)
(.46) (.49) (.27) (.07)
Dividends in excess of net
investment income --
-- -- -- (.01)
Distributions from net realized gain --
(.08) -- -- --
------
------ ------ ------ ------
Total dividends and distributions
to shareholders (.45)
(.54) (.49) (.27) (.08)
--------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $10.55
$10.91 $10.93 $10.38 $10.68
======
====== ====== ====== ======
====================================================================================================================
Total Return, at Net Asset Value(2) 0.73%
4.87% 10.26% (0.19)% 2.90%
====================================================================================================================
Ratios/Supplemental Data
Net assets, end of period (in thousands) $16,864
$11,340 $5,969 $2,171 $125
--------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $14,672 $
8,614 $3,869 $1,156 $ 91
--------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:(3)
Net investment income 4.03%
4.24% 4.66% 4.54% 4.56%
Expenses 1.67%
1.66%(4) 1.70%(4) 1.80%(4) 1.68%(4)
--------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(5) 35%
31% 31% 14% 23%
</TABLE>
1. For the seven months ended July 31, 1996. The Fund changed its fiscal year
end from December 31 to July 31. 2. Assumes a $1,000 hypothetical initial
investment on the business day before the first day of the fiscal period (or
inception of offering), with all dividends and distributions reinvested in
additional shares on the reinvestment date, and redemption at the net asset
value calculated on the last business day of the fiscal period. Sales charges
are not reflected in the total returns. Total returns are not annualized for
periods of less than one full year. 3. Annualized for periods of less than one
full year.
4. Expense ratio reflects the effect of expenses paid indirectly by the Fund. 5.
The lesser of purchases or sales of portfolio securities for a period, divided
by the monthly average of the market value of portfolio securities owned during
the period. Securities with a maturity or expiration date at the time of
acquisition of one year or less are excluded from the calculation. Purchases and
sales of investment securities (excluding short-term securities) for the period
ended July 31, 1999, were $206,390,312 and $160,398,205, respectively. 6. For
the period from November 1, 1995 (inception of offering) to December 31, 1995.
See accompanying Notes to Financial Statements.
<PAGE>
--------------------------------------------------------------------------------
Notes to Financial Statements
--------------------------------------------------------------------------------
================================================================================
1. Significant Accounting Policies
Oppenheimer California Municipal 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, on investments up to $1 million. Class B and
Class C shares may be subject to a contingent deferred sales charge (CDSC). All
classes of shares have identical rights to earnings, assets and voting
privileges, except that each class has its own expenses directly attributable to
that class and exclusive voting rights with respect to matters affecting that
class. Classes A, B and C have separate distribution and/or service plans. Class
B shares will automatically convert to Class A shares six years after the date
of purchase. The following is a summary of significant accounting policies
consistently followed by the Fund.
--------------------------------------------------------------------------------
Securities Valuation. Portfolio securities are valued at the close of the New
York Stock Exchange on each trading day. Listed and unlisted securities for
which such information is regularly reported are valued at the last sale price
of the day or, in the absence of sales, at values based on the closing bid or
the last sale price on the prior trading day. Long-term and short-term
"non-money market" debt securities are valued by a portfolio pricing service
approved by the Board of Trustees. Such securities which cannot be valued by an
approved portfolio pricing service are valued using dealer-supplied valuations
provided the Manager is satisfied that the firm rendering the quotes is reliable
and that the quotes reflect current market value, or are valued under
consistently applied procedures established by the Board of Trustees to
determine fair value in good faith. Short-term "money market type" debt
securities having a remaining maturity of 60 days or less are valued at cost (or
last determined market value) adjusted for amortization to maturity of any
premium or discount. Options are valued based upon the last sale price on the
principal exchange on which the option is traded or, in the absence of any
transactions that day, the value is based upon the last sale price on the prior
trading date if it is within the spread between the closing bid and asked
prices. If the last sale price is outside the spread, the closing bid is used.
30 Oppenheimer California Municipal Fund
<PAGE>
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
================================================================================
Securities Purchased on a When-Issued Basis. Delivery and payment for securities
that have been purchased by the Fund on a forward commitment or when-issued
basis can take place a month or more after the transaction date. Normally the
settlement date occurs within six months after the transaction date; however,
the fund may, from time to time, purchase securities whose settlement date
extends beyond six months and possibly as long as two years or more beyond the
trade date. During this period, such securities do not earn interest, are
subject to market fluctuation and may increase or decrease in value prior to
their delivery. The Fund maintains segregated assets with a market value equal
to or greater than the amount of its purchase commitments. The purchase of
securities on a when-issued or forward commitment basis may increase the
volatility of the Fund's net asset value to the extent the Fund makes such
purchases while remaining substantially fully invested. As of July 31, 1999, the
Fund had entered into outstanding when-issued or forward commitments of
$4,107,525.
--------------------------------------------------------------------------------
Allocation of Income, Expenses, Gains and Losses. Income, expenses (other than
those attributable to a specific class), gains and losses are allocated daily to
each class of shares based upon the relative proportion of net assets
represented by such class. Operating expenses directly attributable to a
specific class are charged against the operations of that class.
--------------------------------------------------------------------------------
Federal Taxes. The Fund intends to continue to comply with provisions of the
Internal Revenue Code applicable to regulated investment companies and to
distribute all of its taxable income, including any net realized gain on
investments not offset by loss carryovers, to shareholders. Therefore, no
federal income or excise tax provision is required. As of July 31, 1999, the
Fund had available for federal tax purposes an unused capital loss carryover of
approximately $650,000, which expires in 2006.
-------------------------------------------------------------------------------
Trustees' Compensation. 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 July 31,
1999, a provision of $2,209 was made for the Fund's projected benefit
obligations and payments of $6,365 were made to retired trustees, resulting in
an accumulated liability of $159,162 as of July 31, 1999.
The Board of Trustees has adopted a deferred compensation plan
for independent Trustees that enables Trustees to elect to defer receipt of all
or a portion of annual compensation they are entitled to receive from the Fund.
Under the plan, the compensation deferred is periodically adjusted as though an
equivalent amount had been invested for the Trustees in shares of one or more
Oppenheimer funds selected by the Trustee. The amount paid to the Trustee under
the plan will be determined based upon the performance of the selected funds.
Deferral of Trustees' fees under the plan will not affect the net assets of the
Fund, and will not materially affect the Fund's assets, liabilities or net
income per share.
31 Oppenheimer California Municipal Fund
<PAGE>
--------------------------------------------------------------------------------
Notes to Financial Statements (Continued)
--------------------------------------------------------------------------------
================================================================================
1. Significant Accounting Policies (continued)
Dividends and Distributions to Shareholders. Dividends and distributions to
shareholders, which are determined in accordance with income tax regulations,
are recorded on the ex-dividend date.
--------------------------------------------------------------------------------
Classification of Distributions to Shareholders. Net investment income (loss)
and net realized gain (loss) may differ for financial statement and tax
purposes. The character of distributions made during the year from net
investment income or net realized gains may differ from its ultimate
characterization for federal income tax purposes. Also, due to timing of
dividend distributions, the fiscal year in which amounts are distributed may
differ from the fiscal year in which the income or realized gain was recorded by
the Fund.
--------------------------------------------------------------------------------
Expense Offset Arrangements. Expenses paid indirectly represent a reduction of
custodian fees for earnings on cash balances maintained by the Fund.
--------------------------------------------------------------------------------
Other. Investment transactions are accounted for as of trade date. Original
issue discount is accreted and premium is amortized in accordance with federal
income tax requirements. For municipal bonds acquired after April 30, 1993, on
disposition or maturity, taxable ordinary income is recognized to the extent of
the lesser of gain or market discount that would have accrued over the holding
period. Realized gains and losses on investments and unrealized appreciation and
depreciation are determined on an identified cost basis, which is the same basis
used for federal income tax purposes.
There are certain risks arising from geographic concentration in
any state. Certain revenue or tax related events in a state may impair the
ability of certain issuers of municipal securities to pay principal and interest
on their obligations.
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of income and expenses during the reporting
period. Actual results could differ from those estimates.
32 Oppenheimer California Municipal Fund
<PAGE>
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
================================================================================
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 July 31, 1999 Year Ended July
31, 1998
-----------------------------
----------------------------
Shares Amount Shares
Amount
--------------------------------------------------------------------------------------------
Class A:
<S> <C> <C> <C>
<C>
Sold 6,301,987 $ 69,153,860 4,625,371 $
50,462,764
Dividends and/or
distributions reinvested 818,090 8,975,978 921,790
10,031,986
Redeemed (4,716,845) (51,726,668) (5,266,312)
(57,422,196)
---------- ------------ ----------
------------
Net increase 2,403,232 $ 26,403,170 280,849 $
3,072,554
========== ============ ==========
============
--------------------------------------------------------------------------------------------
Class B:
Sold 3,406,294 $ 37,480,696 3,871,772 $
42,232,554
Dividends and/or
distributions reinvested 301,331 3,307,444 279,759
3,046,210
Redeemed (1,715,264) (18,743,584) (1,120,147)
(12,236,402)
---------- ------------ ----------
------------
Net increase 1,992,361 $ 22,044,556 3,031,384 $
33,042,362
========== ============ ==========
============
--------------------------------------------------------------------------------------------
Class C:
Sold 856,519 $ 9,406,000 697,841 $
7,611,935
Dividends and/or
distributions reinvested 37,673 412,830
29,500 320,853
Redeemed (335,760) (3,680,740) (233,849)
(2,549,961)
---------- ------------ ----------
------------
Net increase 558,432 $ 6,138,090 493,492 $
5,382,827
========== ============ ==========
============
</TABLE>
================================================================================
3. Unrealized Gains and Losses on Securities
As of July 31, 1999, net unrealized appreciation on securities of $12,166,605
was composed of gross appreciation of $18,048,861, and gross depreciation of
$5,882,256.
33 Oppenheimer California Municipal Fund
<PAGE>
--------------------------------------------------------------------------------
Notes to Financial Statements (Continued)
--------------------------------------------------------------------------------
================================================================================
4. Management Fees and Other Transactions with Affiliates
Management Fees. Management fees paid to the Manager were in accordance with the
investment advisory agreement with the Fund which provides for a fee of 0.60% of
the first $200 million of average annual 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 average annual net assets in excess of $1
billion. The Fund's management fees for the year ended July 31, 1999, was 0.55%
of the average annual net assets for each class of shares.
--------------------------------------------------------------------------------
Transfer Agent Fees. OppenheimerFunds Services (OFS), a division of the Manager,
is the transfer and shareholder servicing agent for the Fund and for other
Oppenheimer funds. OFS's total costs of providing such services are allocated
ratably to these funds.
--------------------------------------------------------------------------------
Distribution and Service Plan Fees. Under its General Distributor's Agreement
with the Manager, the Distributor acts as the Fund's principal underwriter in
the continuous public offering of the different classes of shares of the Fund.
The compensation paid to (or retained by) the Distributor from the sale of
shares or on the redemption of shares is shown in the table below for the period
indicated.
<TABLE>
<CAPTION>
Aggregate Class A Commissions
Commissions Commissions
Front-End Front-End On Class A On Class
B On Class C
Sales Charges Sales Charges Shares
Shares Shares
On Class A Retained by Advanced by Advanced
by Advanced by
Year Ended Shares Distributor Distributor(1)
Distributor(1) Distributor(1)
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
<C> <C>
July 31, 1999 $924,929 $154,753 $188,991
$1,254,294 $84,556
1. The Distributor advances commission payments to dealers for certain sales of
Class A shares and for sales of Class B and Class C shares from its own
resources at the time of sale.
Class A Class
B Class C
Contingent Deferred Contingent
Deferred Contingent Deferred
Sales Charges Sales
Charges Sales Charges
Year Ended Retained by Distributor Retained by
Distributor Retained by Distributor
---------------------------------------------------------------------------------------------------------------
July 31, 1999 $--
$291,981 $8,385
</TABLE>
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. Under those plans the Fund pays the Distributor for all
or a portion of its costs incurred in connection with the distribution and/or
servicing of the shares of the particular class.
34 Oppenheimer California Municipal Fund
<PAGE>
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
================================================================================
Class A Service Plan Fees. Under the Class A service plan, the Distributor
currently uses the fees it receives from the Fund to pay brokers, dealers and
other financial institutions. The Class A service plan permits reimbursements to
the Distributor at a rate of up to 0.25% of average annual net assets of Class A
shares. The Distributor makes payments to plan recipients quarterly at an annual
rate not to exceed 0.25% of the average annual net assets consisting of Class A
shares of the Fund. For the fiscal year ended July 31, 1999, payments under the
Class A Plan totaled $757,647, all of which was paid by the Distributor to
recipients. That included $25,906 paid to an affiliate of the Distributor's
parent company. Any unreimbursed expenses the Distributor incurs with respect to
Class A shares in any fiscal year cannot be recovered in subsequent years.
--------------------------------------------------------------------------------
Class B and Class C Distribution and Service Plan Fees. Under each plan, service
fees and distribution fees are computed on the average of the net asset value of
shares in the respective class, determined as of the close of each regular
business day during the period. The Class B and Class C plans provide for the
Distributor to be compensated at a flat rate,whether the Distributor's
distribution expenses are more or less than the amounts paid by the Fund under
the plan during the period for which the fee is paid.
The Distributor retains the asset-based sales charge on Class B
shares. The Distributor retains the asset-based sales charge on Class C shares
during the first year the shares are outstanding. The asset-based sales charges
on Class B and Class C shares allow investors to buy shares without a front-end
sales charge while allowing the Distributor to compensate dealers that sell
those shares.
The Distributor's actual expenses in selling Class B and Class C
shares may be more than the payments it receives from the contingent deferred
sales charges collected on redeemed shares and from the Fund under the plans. If
either the Class B or the Class C plan is terminated by the Fund, the Board of
Trustees may allow the Fund to continue payments of the asset-based sales charge
to the Distributor for distributing shares before the plan was terminated. The
plans allow for the carry-forward of distribution expenses, to be recovered from
asset-based sales charges in subsequent fiscal periods.
Distribution fees paid to the Distributor for the year ended July 31, 1999, were
as follows:
<TABLE>
<CAPTION>
Distributor's Distributor's
Aggregate Unreimbursed
Unreimbursed Expenses
Total Payments Amount Retained
Expenses As % of Net
Class Under Plan By Distributor
Under Plan Assets of Class
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
<C> <C>
Class B Plan $1,294,892 $1,062,283
$4,059,718 3.06%
-------------------------------------------------------------------------------------------------------------------------
Class C Plan $ 146,564 $ 93,541 $
207,394 1.23%
</TABLE>
35 Oppenheimer California Municipal Fund
<PAGE>
--------------------------------------------------------------------------------
Notes to Financial Statements (Continued)
--------------------------------------------------------------------------------
================================================================================
5. Futures Contracts
The Fund may buy and sell futures contracts in order to gain exposure to or to
seek to protect against changes in interest rates. The Fund may also buy or
write put or call options on these futures contracts.
The Fund generally sells futures contracts to hedge against
increases in interest rates and the resulting negative effect on the value of
fixed rate portfolio securities. The Fund may also purchase futures contracts to
gain exposure to changes in interest rates as it may be more efficient or cost
effective than actually buying fixed income securities.
Upon entering into a futures contract, the Fund is required to
deposit either cash or securities (initial margin) in an amount equal to a
certain percentage of the contract value. Subsequent payments (variation margin)
are made or received by the Fund each day. The variation margin payments are
equal to the daily changes in the contract value and are recorded as unrealized
gains and losses. The Fund may recognize a realized gain or loss when the
contract is closed or expires.
Securities held in collateralized accounts to cover initial
margin requirements on open futures contracts are noted in the Statement of
Investments. The Statement of Assets and Liabilities reflects a receivable
and/or payable for the daily mark to market for variation margin.
Risks of entering into futures contracts (and related options)
include the possibility that there may be an illiquid market and that a change
in the value of the contract or option may not correlate with changes in the
value of the underlying securities.
As of July 31, 1999, the Fund had outstanding futures contracts as follows:
<TABLE>
<CAPTION>
Expiration Number of Valuation as
of Unrealized
Contract Description Date Contracts July 31,
1999 Depreciation
--------------------------------------------------------------------------------------------------
Contracts to Sell
-----------------
<S> <C> > <C>
<C> <C>
U.S. Long Bond 9/21/99 205
$23,568,594 $1,406
</TABLE>
================================================================================
6. Bank Borrowings
The Fund may borrow from a bank for temporary or emergency purposes including,
without limitation, funding of shareholder redemptions provided asset coverage
for borrowings exceeds 300%. The Fund has entered into an agreement which
enables it to participate with other Oppenheimer funds in an unsecured line of
credit with a bank, which permits borrowings up to $400 million, collectively.
Interest is charged to each fund, based on its borrowings, at a rate equal to
the Federal Funds Rate plus 0.35%. Borrowings are payable 30 days after such
loan is executed. The Fund also pays a commitment fee equal to its pro rata
share of the average unutilized amount of the credit facility at a rate of
0.0575% per annum.
The Fund had no borrowings outstanding during the year ended July
31, 1999.
36 Oppenheimer California Municipal Fund
<PAGE>
<PAGE>
A-4
Appendi
x A
--------------------------------------------------------------------------------
Descriptions of Municipal Bond Ratings Categories
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Of Principal Rating Agencies
--------------------------------------------------------------------------------
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. 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.
|_| Aaa. Municipal bonds rated "Aaa" are judged to be of the "best quality." |_|
Aa. The rating "Aa" is assigned to bonds which are judged 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. "Aaa"
and "Aa" rated bonds are generally known as "high grade bonds." |_| A. Municipal
bonds 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.
|_| Baa. 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. These bonds lack outstanding investment characteristics and have
speculative characteristics as well.
|_| Ba. Bonds rated "Ba" are judged to have speculative elements. Their future
cannot be considered 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.
|_| B. Bonds 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. |_| Caa.
Bonds rated "Caa" are in poor standing. Such issues may be in default or there
may be present elements of danger with respect to principal or interest. |_| Ca.
Bonds rated "Ca" represent obligations which are speculative in a high degree.
Such issues are often in default or have other marked shortcomings. |_| C. Bonds
rated "C" are the lowest rated class of bonds. Issues so rated can be regarded
as having extremely poor prospects of ever attaining any real investment
standing.
Municipal bonds rated by Moody's that 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 that 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. Bonds rated in the top four categories (AAA, AA,
A, BBB) are commonly referred to as "investment grade." 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. Ratings of BB, B, CCC and CC are
regarded as having significant speculative characteristics.
|_| AAA. Obligors of municipal bonds rated AAA have "extremely strong capacity"
to meet financial commitments. |_| AA. The rating AA is given to obligors with
"very strong capacity" to meet financial commitments.
|_| A. The rating A is given to obligors with a "strong capacity" to meet
financial commitments but is somewhat more susceptible to adverse effects of
changes in circumstances and economic conditions than obligors in higher
categories. |_| BBB. The BBB rating is given to an obligor that has "adequate
capacity" to meet its financial commitments. However, adverse economic
conditions or changing circumstances are more likely to lead to a weakened
capacity of the obligor to meet its financial commitments.
|_| BB. Obligors rated BB are less vulnerable in the near-term than other
lower-rated obligations to default than other speculative issues. However, they
face major ongoing uncertainties or exposure to adverse business, financial, or
economic conditions which would lead to inadequate capacity to meet financial
commitments.
|_| B. Obligors rated B have a greater vulnerability than obligors rated BB, but
currently has the capacity to meet its financial commitments. Adverse business,
financial, or economic conditions will likely impair the obligor's capacity or
willingness to meet its financial commitments.
|_| CCC. Obligors rated CCC are currently vulnerable and are dependent upon
favorable business, financial, and economic conditions to meet financial
commitments.
|_| CC. Obligors rated CC are currently highly vulnerable.
|_| C. Bonds rated C typically are debt subordinated to senior debt that 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.
|_| D. 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. Fitch.
The ratings of Fitch IBCA, Inc. for municipal bonds are AAA, AA, A, BBB, BB, B,
CCC, CC, C, DDD, DD, and D. 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.
|_| AAA. Municipal Bonds rated AAA are judged to be of the "highest credit
quality." |_| AA. The rating of AA is assigned to bonds of "very high credit
quality." |_| A. Municipal bonds rated A are considered to be of "high credit
quality." |_| BBB. The rating BBB is assigned to bonds of "satisfactory credit
quality." A and BBB rated bonds are more vulnerable to adverse changes in
economic conditions than bonds with higher ratings.
|_| BB. The rating BB is assigned to bonds considered to be "speculative." |_|
B. The rating B is assigned to bonds considered to be "highly speculative." |_|
CCC. Bonds rated CCC have certain identifiable characteristics which, if not
remedied, may lead to default.
|_| CC. Bonds rated CC are considered minimally protected. Default in payment of
interest and/or principal seems probable over time. |_| C. Bonds rated C are in
imminent default in payment of interest or principal.
|_| DDD and below. 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.
Duff & Phelps. The ratings of Duff & Phelps are as follows:
|_| AAA. These are judged to be the "highest credit quality". The risk factors
are negligible, being only slightly more than for risk-free U.S. Treasury debt.
|_| AA+, AA & AA-. High credit quality. Protection factors are strong. Risk is
modest but may vary slightly from time to time because of economic conditions.
|_| A+, A & A-. Protection factors are average but adequate. However, risk
factors are more variable and greater in periods of economic stress. |_| BBB+,
BBB & BBB-. These have below average protection factors but are still considered
sufficient for prudent investment. They have considerable variability in risk
during economic cycles.
|_| BB+, BB & BB-. These are below investment grade but are deemed to be able to
meet obligations when due. Present or prospective financial protection factors
fluctuate according to industry conditions or company fortunes. Overall quality
may move up or down frequently within the category.
|_| B+, B & B-. These are below investment grade and possess risk that
obligations will not be met when due. Financial protection factors will
fluctuate widely according to economic cycles, industry conditions and/or
company fortunes. Potential exists for frequent changes in the rating within
this category or into a higher of lower rating grade.
|_| CCC. Well below investment grade securities. Considerable uncertainty exists
as to timely payment of principal interest or preferred dividends. Protection
factors are narrow and risk can be substantial with unfavorable economic
industry conditions, and/or with unfavorable company developments.
|_| DD. These are defaulted debt obligations. The issuer failed to meet
scheduled principal and/or interest payments.
Municipal Notes
Moody's. 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-1." Such short-term notes that 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.
Standard & Poor's. S&P's ratings 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. 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
defensive investments the Fund may hold are corporate (as opposed to municipal)
debt obligations. The Moody's, S&P and Fitch corporate debt ratings 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. These issues 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>
B-1
Appendix B
Municipal Bond Industry Classifications
Adult Living Facilities
Bond Anticipation Notes
Education
Electric Utilities
Gas Utilities
General Obligation
Higher Education
Highways/Railways
Hospital/Healthcare
Manufacturing, Durable Goods
Manufacturing, Non Durable Goods
Marine/Aviation Facilities
Multi-Family Housing
Municipal Leases
Non Profit Organization
Parking Fee Revenue
Pollution Control
Resource Recovery
Revenue Anticipation Notes
Sales Tax Revenue
Sewer Utilities
Single Family Housing
Special Assessment
Special Tax
Sports Facility Revenue
Student Loans
Tax Anticipation Notes
Tax & Revenue Anticipation Notes
Telephone Utilities
Water Utilities
<PAGE>
C-15
Appendix C
OppenheimerFunds Special Sales Charge Arrangements and Waivers
In certain cases, the initial sales charge that applies to purchases of Class A
shares1 of the Oppenheimer funds or the contingent deferred sales charge that
may apply to Class A, Class B or Class C shares may be waived.2 That is because
of the economies of sales efforts realized by OppenheimerFunds Distributor,
Inc., (referred to in this document as the "Distributor"), or by dealers or
other financial institutions that offer those shares to certain classes of
investors.
Not all waivers apply to all funds. For example, waivers relating to Retirement
Plans do not apply to Oppenheimer municipal funds, because shares of those funds
are not available for purchase by or on behalf of retirement plans. Other
waivers apply only to shareholders of certain funds.
For the purposes of some of the waivers described below and in the Prospectus
and Statement of Additional Information of the applicable Oppenheimer funds, the
term "Retirement Plan" refers to the following types of plans: (1) plans
qualified under Sections 401(a) or 401(k) of the Internal Revenue
Code,
(2) non-qualified deferred compensation plans, (3) employee benefit plans3 (4)
Group Retirement Plans4 (5) 403(b)(7) custodial plan accounts (6) Individual
Retirement Accounts ("IRAs"), including traditional IRAs, Roth
IRAs, SEP-IRAs, SARSEPs or SIMPLE plans
The interpretation of these provisions as to the applicability of a special
arrangement or waiver in a particular case is in the sole discretion of the
Distributor or the transfer agent (referred to in this document as the "Transfer
Agent") of the particular Oppenheimer fund. These waivers and special
arrangements may be amended or terminated at any time by a particular fund, the
Distributor, and/or OppenheimerFunds, Inc. (referred to in this document as the
"Manager"). Waivers that apply at the time shares are redeemed must be requested
by the shareholder and/or dealer in the redemption request.
--------------
1. Certain waivers also apply to Class M shares of Oppenheimer Convertible
Securities Fund.
2. In the case of Oppenheimer Senior Floating Rate Fund, a continuously-offered
closed-end fund, references to contingent deferred sales charges mean the
Fund's Early Withdrawal Charges and references to "redemptions" mean
"repurchases" of shares.
3. An "employee benefit plan" means any plan or arrangement, whether or not it
is "qualified" under the Internal Revenue Code, under which Class A shares of
an Oppenheimer fund or funds are purchased by a fiduciary or other
administrator for the account of participants who are employees of a single
employer or of affiliated employers. These may include, for example, medical
savings accounts, payroll deduction plans or similar plans. The fund accounts
must be registered in the name of the fiduciary or administrator purchasing
the shares for the benefit of participants in the plan.
4. The term "Group Retirement Plan" means any qualified or non-qualified
retirement plan for employees of a corporation or sole proprietorship,
members and employees of a partnership or association or other organized
group of persons (the members of which may include other groups), if the
group has made special arrangements with the Distributor and all members of
the group participating in (or who are eligible to participate in) the plan
purchase Class A shares of an Oppenheimer fund or funds through a single
investment dealer, broker or other financial institution designated by the
group. Such plans include 457 plans, SEP-IRAs, SARSEPs, SIMPLE plans and
403(b) plans other than plans for public school employees. The term "Group
Retirement Plan" also includes qualified retirement plans and non-qualified
deferred compensation plans and IRAs that purchase Class A shares of an
Oppenheimer fund or funds through a single investment dealer, broker or other
financial institution that has made special arrangements with the Distributor
enabling those plans to purchase Class A shares at net asset value but
subject to the Class A contingent deferred sales charge.
I. Applicability of Class A Contingent Deferred Sales Charges in Certain Cases
Purchases of Class A Shares of Oppenheimer Funds That Are Not Subject to Initial
Sales Charge but May Be Subject to the Class A Contingent Deferred Sales Charge
(unless a waiver applies).
There is no initial sales charge on purchases of Class A shares of any of
the Oppenheimer funds in the cases listed below. However, these purchases may be
subject to the Class A contingent deferred sales charge if redeemed within 18
months of the end of the calendar month of their purchase, as described in the
Prospectus (unless a waiver described elsewhere in this Appendix applies to the
redemption). Additionally, on shares purchased under these waivers that are
subject to the Class A contingent deferred sales charge, the Distributor will
pay the applicable commission described in the Prospectus under "Class A
Contingent Deferred Sales Charge."2 This waiver provision applies to:
2 However, that commission will not be paid on purchases of shares in amounts of
$1 million or more (including any right of accumulation) by a Retirement Plan
that pays for the purchase with the redemption proceeds of Class C shares of one
or more Oppenheimer funds held by the Plan for more than one year.
|_| Purchases of Class A shares aggregating $1 million or more.
|_| Purchases by a Retirement Plan (other than an IRA or 403(b)(7) custodial
plan) that:
(1) buys shares costing $500,000 or more, or
(2) has, at the time of purchase, 100 or more eligible employees or total plan
assets of $500,000 or more, or
(3) certifies to the Distributor that it projects to have annual plan
purchases of $200,000 or more.
|_| Purchases by an OppenheimerFunds-sponsored Rollover IRA, if the
purchases are made:
(1) through a broker, dealer, bank or registered investment adviser that
has made special arrangements with the Distributor for those purchases,
or
(2) by a direct rollover of a distribution from a qualified Retirement Plan
if the administrator of that Plan has made special arrangements with
the Distributor for those purchases.
|_| Purchases of Class A shares by Retirement Plans that have any of the
following record-keeping arrangements:
(1) The record keeping is performed by Merrill Lynch Pierce Fenner & Smith, Inc.
("Merrill Lynch") on a daily valuation basis for the Retirement Plan.
On the date the plan sponsor signs the record-keeping service
agreement with Merrill Lynch, the Plan must have $3 million or more of
its assets invested in (a) mutual funds, other than those advised or
managed by Merrill Lynch Asset Management, L.P. ("MLAM"), that are
made available under a Service Agreement between Merrill Lynch and the
mutual fund's principal underwriter or distributor, and (b) funds
advised or managed by MLAM (the funds described in (a) and (b) are
referred to as "Applicable Investments").
(2) The record keeping for the Retirement Plan is performed on a daily valuation
basis by a record keeper whose services are provided under a contract
or arrangement between the Retirement Plan and Merrill Lynch. On the
date the plan sponsor signs the record keeping service agreement with
Merrill Lynch, the Plan must have $3 million or more of its assets
(excluding assets invested in money market funds) invested in
Applicable Investments. (3) The record keeping for a Retirement Plan
is handled under a service agreement with Merrill Lynch and on the
date the plan sponsor signs that agreement, the Plan has 500 or more
eligible employees (as determined by the Merrill Lynch plan conversion
manager). |_| Purchases by a Retirement Plan whose record keeper had a
cost-allocation agreement with the Transfer Agent on or before May 1,
1999.
<PAGE>
II. Waivers of Class A Sales Charges of Oppenheimer Funds
A. Waivers of Initial and Contingent Deferred Sales Charges for Certain
Purchasers.
Class A shares purchased by the following investors are not subject to any Class
A sales charges (and no commissions are paid by the Distributor on such
purchases):
|_| The Manager or its affiliates.
|_| Present or former officers, directors, trustees and employees (and
their "immediate families") of the Fund, the Manager and its
affiliates, and retirement plans established by them for their
employees. The term "immediate family" refers to one's spouse,
children, grandchildren, grandparents, parents, parents-in-law,
brothers and sisters, sons- and daughters-in-law, a sibling's spouse,
a spouse's siblings, aunts, uncles, nieces and nephews; relatives by
virtue of a remarriage (step-children, step-parents, etc.) are
included.
|_| Registered management investment companies, or separate accounts of
insurance companies having an agreement with the Manager or the
Distributor for that purpose.
|_| Dealers or brokers that have a sales agreement with the Distributor, if
they purchase shares for their own accounts or for retirement plans for
their employees.
|_| Employees and registered representatives (and their spouses) of dealers
or brokers described above or financial institutions that have entered
into sales arrangements with such dealers or brokers (and which are
identified as such to the Distributor) or with the Distributor. The
purchaser must certify to the Distributor at the time of purchase that
the purchase is for the purchaser's own account (or for the benefit of
such employee's spouse or minor children).
|_| Dealers, brokers, banks or registered investment advisors that have
entered into an agreement with the Distributor providing specifically
for the use of shares of the Fund in particular investment products
made available to their clients. Those clients may be charged a
transaction fee by their dealer, broker, bank or advisor for the
purchase or sale of Fund shares.
|_| Investment advisors and financial planners who have entered into an
agreement for this purpose with the Distributor and who charge an
advisory, consulting or other fee for their services and buy shares for
their own accounts or the accounts of their clients.
|_| "Rabbi trusts" that buy shares for their own accounts, if the purchases
are made through a broker or agent or other financial intermediary that
has made special arrangements with the Distributor for those purchases.
|_| Clients of investment advisors or financial planners (that have
entered into an agreement for this purpose with the Distributor) who
buy shares for their own accounts may also purchase shares without
sales charge but only if their accounts are linked to a master account
of their investment advisor or financial planner on the books and
records of the broker, agent or financial intermediary with which the
Distributor has made such special arrangements . Each of these
investors may be charged a fee by the broker, agent or financial
intermediary for purchasing shares.
|_| Directors, trustees, officers or full-time employees of OpCap Advisors
or its affiliates, their relatives or any trust, pension, profit
sharing or other benefit plan which beneficially owns shares for those
persons.
|_| Accounts for which Oppenheimer Capital (or its successor) is the
investment advisor (the Distributor must be advised of this
arrangement) and persons who are directors or trustees of the company
or trust which is the beneficial owner of such accounts.
|_| A unit investment trust that has entered into an appropriate agreement
with the Distributor.
|_| Dealers, brokers, banks, or registered investment advisers that have
entered into an agreement with the Distributor to sell shares to
defined contribution employee retirement plans for which the dealer,
broker or investment adviser provides administration services.
|_| Retirement Plans and deferred compensation plans and trusts used to
fund those plans (including, for example, plans qualified or created
under sections 401(a), 401(k), 403(b) or 457 of the Internal Revenue
Code), in each case if those purchases are made through a broker, agent
or other financial intermediary that has made special arrangements with
the Distributor for those purchases.
|_| A TRAC-2000 401(k) plan (sponsored by the former Quest for Value
Advisors) whose Class B or Class C shares of a Former Quest for Value
Fund were exchanged for Class A shares of that Fund due to the
termination of the Class B and Class C TRAC-2000 program on November
24, 1995.
|_| A qualified Retirement Plan that had agreed with the former Quest for
Value Advisors to purchase shares of any of the Former Quest for Value
Funds at net asset value, with such shares to be held through
DCXchange, a sub-transfer agency mutual fund clearinghouse, if that
arrangement was consummated and share purchases commenced by December
31, 1996.
B. Waivers of Initial and Contingent Deferred Sales Charges in Certain
Transactions.
Class A shares issued or purchased in the following transactions are not subject
to sales charges (and no commissions are paid by the Distributor on such
purchases): |_| Shares issued in plans of reorganization, such as mergers, asset
acquisitions
and exchange offers, to which the Fund is a party.
|_| Shares purchased by the reinvestment of dividends or other distributions
reinvested from the Fund or other Oppenheimer funds (other than
Oppenheimer Cash Reserves) or unit investment trusts for which
reinvestment arrangements have been made with the Distributor.
[_| Shares purchased through a broker-dealer that has entered into a
special agreement with the Distributor to allow the broker's customers
to purchase and pay for shares of Oppenheimer funds using the proceeds
of shares redeemed in the prior 30 days from a mutual fund (other than
a fund managed by the Manager or any of its subsidiaries) on which an
initial sales charge or contingent deferred sales charge was paid.
This waiver also applies to shares purchased by exchange of shares of
Oppenheimer Money Market Fund, Inc. that were purchased and paid for
in this manner. This waiver must be requested when the purchase order
is placed for shares of the Fund, and the Distributor may require
evidence of qualification for this waiver.
|_| Shares purchased with the proceeds of maturing principal units of any
Qualified Unit Investment Liquid Trust Series.
|_| Shares purchased by the reinvestment of loan repayments by a
participant in a Retirement Plan for which the Manager or an affiliate
acts as sponsor.
C. Waivers of the Class A Contingent Deferred Sales Charge for Certain
Redemptions.
The Class A contingent deferred sales charge is also waived if shares that would
otherwise be subject to the contingent deferred sales charge are redeemed in the
following cases:
|_| To make Automatic Withdrawal Plan payments that are limited annually to
no more than 12% of the account value measured at the time the Plan is
established, adjusted annually.
|_| Involuntary redemptions of shares by operation of law or involuntary
redemptions of small accounts (please refer to "Shareholder Account
Rules and Policies," in the applicable fund Prospectus).
|_| For distributions from Retirement Plans, deferred compensation plans or
other employee benefit plans for any of the following purposes:
(1) Following the death or disability (as defined in the Internal
Revenue Code) of the participant or beneficiary. The death or
disability must occur after the participant's account was
established.
(2) To return excess contributions.
(3) To return contributions made due to a mistake of fact.
(4) Hardship withdrawals, as defined in the plan.3
3 This provision does not apply to IRAs.
(5) Under a Qualified Domestic Relations Order, as defined in the Internal
Revenue Code, or, in the case of an IRA, a divorce or separation
agreement described in Section 71(b) of the Internal Revenue Code.
(6) To meet the minimum distribution requirements of the Internal Revenue Code.
(7) To make "substantially equal periodic payments" as described in Section
72(t) of the Internal Revenue Code.
(8) For loans to participants or beneficiaries.
(9) Separation from service.4
4 This provision does not apply to 403(b)(7) custodial plans if the participant
is less than age 55, nor to IRAs.
(10) Participant-directed redemptions to purchase shares of a mutual fund
(other than a fund managed by the Manager or a subsidiary of the Manager)
if the plan has made special arrangements with the Distributor.
(11) Plan termination or "in-service distributions," if the redemption
proceeds are rolled over directly to an OppenheimerFunds-sponsored IRA.
|_| For distributions from Retirement Plans having 500 or more eligible
employees, except distributions due to termination of all of the
Oppenheimer funds as an investment option under the Plan.
|_| For distributions from 401(k) plans sponsored by broker-dealers that
have entered into a special agreement with the Distributor allowing
this waiver.
III. Waivers of Class B and Class C Sales Charges of Oppenheimer Funds
The Class B and Class C contingent deferred sales charges will not be
applied to shares purchased in certain types of transactions or redeemed in
certain circumstances described below.
A. Waivers for Redemptions in Certain Cases.
The Class B and Class C contingent deferred sales charges will be waived for
redemptions of shares in the following cases: |_| Shares redeemed involuntarily,
as described in "Shareholder Account Rules and
Policies," in the applicable Prospectus.
|_| Redemptions from accounts other than Retirement Plans following the
death or disability of the last surviving shareholder, including a
trustee of a grantor trust or revocable living trust for which the
trustee is also the sole beneficiary. The death or disability must have
occurred after the account was established, and for disability you must
provide evidence of a determination of disability by the Social
Security Administration.
|_| Distributions from accounts for which the broker-dealer of record has
entered into a special agreement with the Distributor allowing this
waiver.
|_| Redemptions of Class B shares held by Retirement Plans whose records
are maintained on a daily valuation basis by Merrill Lynch or an
independent record keeper under a contract with Merrill Lynch.
|_| Redemptions of Class C shares of Oppenheimer U.S. Government Trust from
accounts of clients of financial institutions that have entered into a
special arrangement with the Distributor for this purpose.
|_| Redemptions requested in writing by a Retirement Plan sponsor of Class
C shares of an Oppenheimer fund in amounts of $1 million or more held
by the Retirement Plan for more than one year, if the redemption
proceeds are invested in Class A shares of one or more Oppenheimer
funds.
|_| Distributions from Retirement Plans or other employee benefit plans for
any of the following purposes:
(1) Following the death or disability (as defined in the Internal
Revenue Code) of the participant or beneficiary. The death or
disability must occur after the participant's account was
established in an Oppenheimer fund.
(2) To return excess contributions made to a participant's account.
(3) To return contributions made due to a mistake of fact.
(4) To make hardship withdrawals, as defined in the plan.5
5 This provision does not apply to IRAs.
(5) To make distributions required under a Qualified Domestic Relations
Order or, in the case of an IRA, a divorce or separation agreement
described in Section 71(b) of the Internal Revenue Code.
(6) To meet the minimum distribution requirements of the Internal Revenue Code.
(7) To make "substantially equal periodic payments" as described in Section
72(t) of the Internal Revenue Code.
(8) For loans to participants or beneficiaries.6
6 This provision does not apply to loans from 403(b)(7) custodial plans.
(9) On account of the participant's separation from service.7
7 This provision does not apply to 403(b)(7) custodial plans if the participant
is less than age 55, nor to IRAs.
(10) Participant-directed redemptions to purchase shares of a mutual
fund (other than a fund managed by the Manager or a subsidiary
of the Manager) offered as an investment option in a Retirement
Plan if the plan has made special arrangements with the
Distributor.
(11) Distributions made on account of a plan termination or
"in-service" distributions," if the redemption proceeds are
rolled over directly to an OppenheimerFunds-sponsored IRA.
(12) Distributions from Retirement Plans having 500 or more eligible
employees, but excluding distributions made because of the
Plan's elimination as investment options under the Plan of all
of the Oppenheimer funds that had been offered.
(13) For distributions from a participant's account under an
Automatic Withdrawal Plan after the participant reaches age 59
1/2, as long as the aggregate value of the distributions does
not exceed 10% of the account's value annually (measured from
the establishment of the Automatic Withdrawal Plan).
|_|Redemptions of Class B shares or Class C shares under an Automatic
Withdrawal Plan from an account other than a Retirement Plan if the
aggregate value of the redeemed shares does not exceed 10% of the
account's value annually.
B. Waivers for Shares Sold or Issued in Certain Transactions.
The contingent deferred sales charge is also waived on Class B and Class C
shares sold or issued in the following cases: |_| Shares sold to the Manager or
its affiliates.
|_| Shares sold to registered management investment companies or separate
accounts of insurance companies having an agreement with the Manager or
the Distributor for that purpose.
|_| Shares issued in plans of reorganization to which the Fund is a party. |_|
Shares sold to present or former officers, directors, trustees or employees
(and their "immediate families" as defined above in Section I.A.) of the
Fund, the Manager and its affiliates and retirement plans established by
them for their employees.
IV. Special Sales Charge Arrangements for Shareholders of Certain Oppenheimer
Funds Who Were Shareholders of Former Quest for Value Funds
The initial and contingent deferred sales charge rates and waivers for Class A,
Class B and Class C shares described in the Prospectus or Statement of
Additional Information of the Oppenheimer funds are modified as described below
for certain persons who were shareholders of the former Quest for Value Funds.
To be eligible, those persons must have been shareholders on November 24, 1995,
when OppenheimerFunds, Inc. became the investment advisor to those former Quest
for Value Funds. Those funds include:
<PAGE>
Oppenheimer Quest Value Fund, Inc. Oppenheimer Quest Small Cap
Value Fund
Oppenheimer Quest Balanced Value Fund Oppenheimer Quest Global Value
Fund
Oppenheimer Quest Opportunity Value
Fund
These arrangements also apply to shareholders of the following funds when
they merged (were reorganized) into various Oppenheimer funds on November 24,
1995:
Quest for Value U.S. Government Quest for Value New York Tax-Exempt
Income Fund Fund
Quest for Value Investment Quality Quest for Value National Tax-Exempt
Income Fund Fund
Quest for Value Global Income Fund Quest for Value California Tax-Exempt
Fund
All of the funds listed above are referred to in this Appendix as the
"Former Quest for Value Funds." The waivers of initial and contingent deferred
sales charges described in this Appendix apply to shares of an Oppenheimer fund
that are either:
|_| acquired by such shareholder pursuant to an exchange of shares of an
Oppenheimer fund that was one of the Former Quest for Value Funds or
|_| purchased by such shareholder by exchange of shares of another
Oppenheimer fund that were acquired pursuant to the merger of any of
the Former Quest for Value Funds into that other Oppenheimer fund on
November 24, 1995.
A. Reductions or Waivers of Class A Sales Charges.
|X| Reduced Class A Initial Sales Charge Rates for Certain Former Quest
for Value Funds Shareholders.
Purchases by Groups and Associations. The following table sets forth the initial
sales charge rates for Class A shares purchased by members of "Associations"
formed for any purpose other than the purchase of securities. The rates in the
table apply if that Association purchased shares of any of the Former Quest for
Value Funds or received a proposal to purchase such shares from OCC Distributors
prior to November 24, 1995.
--------------------------------------------------------------------------------
Initial Sales Initial Sales
Number of Eligible Charge as a % of Charge as a % of Commission as %
Employees or Members Offering Price Net Amount Invested of Offering Price
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
9 or Fewer 2.50% 2.56% 2.00%
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
At least 10 but not 2.00% 2.04% 1.60%
more than 49
--------------------------------------------------------------------------------
For purchases by Associations having 50 or more eligible employees or
members, there is no initial sales charge on purchases of Class A shares, but
those shares are subject to the Class A contingent deferred sales charge
described in the applicable fund's Prospectus.
Purchases made under this arrangement qualify for the lower of either the
sales charge rate in the table based on the number of members of an Association,
or the sales charge rate that applies under the Right of Accumulation described
in the applicable fund's Prospectus and Statement of Additional Information.
Individuals who qualify under this arrangement for reduced sales charge rates as
members of Associations also may purchase shares for their individual or
custodial accounts at these reduced sales charge rates, upon request to the
Distributor.
|X| Waiver of Class A Sales Charges for Certain Shareholders. Class A
shares purchased by the following investors are not subject to any Class A
initial or contingent deferred sales charges:
|_| Shareholders who were shareholders of the AMA Family of Funds on
February 28, 1991 and who acquired shares of any of the Former Quest
for Value Funds by merger of a portfolio of the AMA Family of Funds.
|_| Shareholders who acquired shares of any Former Quest for Value Fund by
merger of any of the portfolios of the Unified Funds.
|X| Waiver of Class A Contingent Deferred Sales Charge in Certain
Transactions. The Class A contingent deferred sales charge will not apply to
redemptions of Class A shares purchased by the following investors who were
shareholders of any Former Quest for Value Fund:
Investors who purchased Class A shares from a dealer that is or was not
permitted to receive a sales load or redemption fee imposed on a shareholder
with whom that dealer has a fiduciary relationship, under the Employee
Retirement Income Security Act of 1974 and regulations adopted under that law.
B. Class A, Class B and Class C Contingent Deferred Sales Charge Waivers.
|X| Waivers for Redemptions of Shares Purchased Prior to March 6, 1995. In
the following cases, the contingent deferred sales charge will be waived for
redemptions of Class A, Class B or Class C shares of an Oppenheimer fund. The
shares must have been acquired by the merger of a Former Quest for Value Fund
into the fund or by exchange from an Oppenheimer fund that was a Former Quest
for Value Fund or into which such fund merged. Those shares must have been
purchased prior to March 6, 1995 in connection with:
|_| withdrawals under an automatic withdrawal plan holding only either
Class B or Class C shares if the annual withdrawal does not exceed 10%
of the initial value of the account, and
|_| liquidation of a shareholder's account if the aggregate net asset value
of shares held in the account is less than the required minimum value
of such accounts.
|X| Waivers for Redemptions of Shares Purchased on or After March 6, 1995
but Prior to November 24, 1995. In the following cases, the contingent deferred
sales charge will be waived for redemptions of Class A, Class B or Class C
shares of an Oppenheimer fund. The shares must have been acquired by the merger
of a Former Quest for Value Fund into the fund or by exchange from an
Oppenheimer fund that was a Former Quest For Value Fund or into which such
Former Quest for Value Fund merged. Those shares must have been purchased on or
after March 6, 1995, but prior to November 24, 1995:
|_| redemptions following the death or disability of the shareholder(s) (as
evidenced by a determination of total disability by the U.S. Social
Security Administration);
|_| withdrawals under an automatic withdrawal plan (but only for Class B or
Class C shares) where the annual withdrawals do not exceed 10% of the
initial value of the account; and
|_| liquidation of a shareholder's account if the aggregate net asset value
of shares held in the account is less than the required minimum account
value.
A shareholder's account will be credited with the amount of any contingent
deferred sales charge paid on the redemption of any Class A, Class B or Class C
shares of the Oppenheimer fund described in this section if the proceeds are
invested in the same Class of shares in that fund or another Oppenheimer fund
within 90 days after redemption.
<PAGE>
V. Special Sales Charge Arrangements for Shareholders of Certain Oppenheimer
Funds Who Were Shareholders of Connecticut Mutual Investment Accounts, Inc.
The initial and contingent deferred sale charge rates and waivers for Class A
and Class B shares described in the respective Prospectus (or this Appendix) of
the following Oppenheimer funds (each is referred to as a "Fund" in this
section):
o Oppenheimer U. S. Government Trust,
o Oppenheimer Bond Fund,
o Oppenheimer Disciplined Value Fund and
o Oppenheimer Disciplined Allocation Fund
are modified as described below for those Fund shareholders who were
shareholders of the following funds (referred to as the "Former Connecticut
Mutual Funds") on March 1, 1996, when OppenheimerFunds, Inc. became the
investment adviser to the Former Connecticut Mutual Funds:
Connecticut Mutual Liquid Account Connecticut Mutual Total Return
Account
Connecticut Mutual Government Securities CMIA LifeSpan Capital Appreciation
Account Account
Connecticut Mutual Income Account CMIA LifeSpan Balanced Account
Connecticut Mutual Growth Account CMIA Diversified Income Account
A. Prior Class A CDSC and Class A Sales Charge Waivers.
|X| Class A Contingent Deferred Sales Charge. Certain shareholders of a
Fund and the other Former Connecticut Mutual Funds are entitled to continue to
make additional purchases of Class A shares at net asset value without a Class A
initial sales charge, but subject to the Class A contingent deferred sales
charge that was in effect prior to March 18, 1996 (the "prior Class A CDSC").
Under the prior Class A CDSC, if any of those shares are redeemed within one
year of purchase, they will be assessed a 1% contingent deferred sales charge on
an amount equal to the current market value or the original purchase price of
the shares sold, whichever is smaller (in such redemptions, any shares not
subject to the prior Class A CDSC will be redeemed first).
Those shareholders who are eligible for the prior Class A CDSC are: (1)
persons whose purchases of Class A shares of a Fund and other Former
Connecticut Mutual Funds were $500,000 prior to March 18, 1996, as a
result of direct purchases or purchases pursuant to the Fund's policies
on Combined Purchases or Rights of Accumulation, who still hold those
shares in that Fund or other Former Connecticut Mutual Funds, and
(2) persons whose intended purchases under a Statement of Intention entered
into prior to March 18, 1996, with the former general distributor of
the Former Connecticut Mutual Funds to purchase shares valued at
$500,000 or more over a 13-month period entitled those persons to
purchase shares at net asset value without being subject to the Class A
initial sales charge.
Any of the Class A shares of a Fund and the other Former Connecticut Mutual
Funds that were purchased at net asset value prior to March 18, 1996, remain
subject to the prior Class A CDSC, or if any additional shares are purchased by
those shareholders at net asset value pursuant to this arrangement they will be
subject to the prior Class A CDSC.
|X| Class A Sales Charge Waivers. Additional Class A shares of a Fund may
be purchased without a sales charge, by a person who was in one (or more) of the
categories below and acquired Class A shares prior to March 18, 1996, and still
holds Class A shares:
(1)
<PAGE>
anypurchaser, provided the total initial amount invested in the Fund or
any one or more of the Former Connecticut Mutual Funds totaled $500,000
or more, including investments made pursuant to the Combined Purchases,
Statement of Intention and Rights of Accumulation features available at
the time of the initial purchase and such investment is still held in
one or more of the Former Connecticut Mutual Funds or a Fund into which
such Fund merged;
(2) any participant in a qualified plan, provided that the total initial
amount invested by the plan in the Fund or any one or more of the
Former Connecticut Mutual Funds totaled $500,000 or more;
(3) Directors of the Fund or any one or more of the Former Connecticut Mutual
Funds and members of their immediate families;
(4) employee benefit plans sponsored by Connecticut Mutual Financial Services,
L.L.C. ("CMFS"), the prior distributor of the Former Connecticut Mutual
Funds, and its affiliated companies;
(5) one or more members of a group of at least 1,000 persons (and persons
who are retirees from such group) engaged in a common business,
profession, civic or charitable endeavor or other activity, and the
spouses and minor dependent children of such persons, pursuant to a
marketing program between CMFS and such group; and
(6) an institution acting as a fiduciary on behalf of an individual or
individuals, if such institution was directly compensated by the
individual(s) for recommending the purchase of the shares of the Fund
or any one or more of the Former Connecticut Mutual Funds, provided the
institution had an agreement with CMFS.
Purchases of Class A shares made pursuant to (1) and (2) above may be
subject to the Class A CDSC of the Former Connecticut Mutual Funds described
above.
Additionally, Class A shares of a Fund may be purchased without a sales
charge by any holder of a variable annuity contract issued in New York State by
Connecticut Mutual Life Insurance Company through the Panorama Separate Account
which is beyond the applicable surrender charge period and which was used to
fund a qualified plan, if that holder exchanges the variable annuity contract
proceeds to buy Class A shares of the Fund.
B. Class A and Class B Contingent Deferred Sales Charge Waivers.
In addition to the waivers set forth in the Prospectus and in this Appendix,
above, the contingent deferred sales charge will be waived for redemptions of
Class A and Class B shares of a Fund and exchanges of Class A or Class B shares
of a Fund into Class A or Class B shares of a Former Connecticut Mutual Fund
provided that the Class A or Class B shares of the Fund to be redeemed or
exchanged were (i) acquired prior to March 18, 1996 or (ii) were acquired by
exchange from an Oppenheimer fund that was a Former Connecticut Mutual Fund.
Additionally, the shares of such Former Connecticut Mutual Fund must have been
purchased prior to March 18, 1996: (1) by the estate of a deceased shareholder;
(2) upon the disability of a shareholder, as defined in Section 72(m)(7) of the
Internal Revenue Code;
(3) for retirement distributions (or loans) to participants or
beneficiaries from retirement plans qualified under Sections 401(a) or
403(b)(7)of the Code, or from IRAs, deferred compensation plans created
under Section 457 of the Code, or other employee benefit plans;
(4) as tax-free returns of excess contributions to such retirement or employee
benefit plans;
(5) in whole or in part, in connection with shares sold to any state,
county, or city, or any instrumentality, department, authority, or
agency thereof, that is prohibited by applicable investment laws from
paying a sales charge or commission in connection with the purchase of
shares of any registered investment management company;
(6) in connection with the redemption of shares of the Fund due to a
combination with another investment company by virtue of a merger,
acquisition or similar reorganization transaction;
(7) in connection with the Fund's right to involuntarily redeem or liquidate the
Fund;
(8) in connection with automatic redemptions of Class A shares and Class B
shares in certain retirement plan accounts pursuant to an Automatic
Withdrawal Plan but limited to no more than 12% of the original value
annually; or
(9) as involuntary redemptions of shares by operation of law, or under
procedures set forth in the Fund's Articles of Incorporation, or as
adopted by the Board of Directors of the Fund.
VI. Special Reduced Sales Charge for Former Shareholders of
Advance America Funds, Inc.
Shareholders of Oppenheimer Municipal Bond Fund, Oppenheimer U.S. Government
Trust, Oppenheimer Strategic Income Fund and Oppenheimer Equity Income Fund who
acquired (and still hold) shares of those funds as a result of the
reorganization of series of Advance America Funds, Inc. into those Oppenheimer
funds on October 18, 1991, and who held shares of Advance America Funds, Inc. on
March 30, 1990, may purchase Class A shares of those four Oppenheimer funds at a
maximum sales charge rate of 4.50%.
VII. Sales Charge Waivers on Purchases of Class M Shares of
Oppenheimer Convertible Securities Fund
Oppenheimer Convertible Securities Fund (referred to as the "Fund" in this
section) may sell Class M shares at net asset value without any initial sales
charge to the classes of investors listed below who, prior to March 11, 1996,
owned shares of the Fund's then-existing Class A and were permitted to purchase
those shares at net asset value without sales charge:
|_| the Manager and its affiliates,
|_| present or former officers, directors, trustees and employees (and
their "immediate families" as defined in the Fund's Statement of
Additional Information) of the Fund, the Manager and its affiliates,
and retirement plans established by them or the prior investment
advisor of the Fund for their employees,
|_| registered management investment companies or separate accounts of
insurance companies that had an agreement with the Fund's prior
investment advisor or distributor for that purpose,
|_| dealers or brokers that have a sales agreement with the Distributor, if
they purchase shares for their own accounts or for retirement plans for
their employees,
|_| employees and registered representatives (and their spouses) of dealers
or brokers described in the preceding section or financial institutions
that have entered into sales arrangements with those dealers or brokers
(and whose identity is made known to the Distributor) or with the
Distributor, but only if the purchaser certifies to the Distributor at
the time of purchase that the purchaser meets these qualifications,
|_| dealers, brokers, or registered investment advisors that had entered
into an agreement with the Distributor or the prior distributor of the
Fund specifically providing for the use of Class M shares of the Fund
in specific investment products made available to their clients, and
dealers, brokers or registered investment advisors that had entered into an
agreement with the Distributor or prior distributor of the Fund's shares to sell
shares to defined contribution employee retirement plans for which the dealer,
broker, or investment advisor provides administrative services.
<PAGE>
--------------------------------------------------------------------------------
Oppenheimer California Municipal Fund
--------------------------------------------------------------------------------
Internet Web Site:
www.oppenheimerfunds.com
Investment Adviser
OppenheimerFunds, Inc.
Two World Trade Center
New York, New York 10048-0203
Distributor
OppenheimerFunds Distributor, Inc.
Two World Trade Center
New York, New York 10048-0203
Transfer Agent
OppenheimerFunds Services
P.O. Box 5270
Denver, Colorado 80217
1-800-525-7048
Custodian Bank
Citibank, N.A.
399 Park Avenue
New York, New York 10043
Independent Auditors
KPMG LLP
707 Seventeenth Street
Denver, Colorado 80202
Legal Counsel
Mayer, Brown & Platt
1675 Broadway
New York, New York 10019
PX790.1199
<PAGE>
Oppenheimer
Main Street California Municipal Fund(R)
--------------------------------------------------------------------------------
Prospectus dated December 22, 1999
Oppenheimer Main Street California
Municipal Fund is a mutual fund. It
seeks current income exempt from
federal and California personal income
taxes by investing in municipal
securities, while attempting to
preserve capital.
This Prospectus contains
important information about the Fund's
objective, its investment policies,
strategies and risks. It also contains
important information about how to buy
As with all mutual funds, the and sell shares of the Fund and other Securities
and Exchange Commission has account features. Please read this not approved or
disapproved the Fund's Prospectus carefully before you invest securities nor has
it determined that and keep it for future reference about this Prospectus is
accurate or your account. complete. It is a criminal offense to represent
otherwise.
--------------------------------------------------------------------------------
(logo) OppenheimerFunds
The Right Way to Invest
<PAGE>
27
CONTENTS
A B O U T T H E F U N D
The Fund's Investment Objective and Strategies
Main Risks of Investing in the Fund
The Fund's Past Performance
Fees and Expenses of the Fund
About the Fund's Investments
How the Fund is Managed
A B O U T Y O U R A C C O U N T
How to Buy Shares
Class A Shares
Class B Shares
Special Investor Services
AccountLink
PhoneLink
OppenheimerFunds Internet Web Site
How to Sell Shares
By Mail
By Telephone
By Wire
By Checkwriting
How to Exchange Shares
Shareholder Account Rules and Policies
Dividends and Tax Information
Financial Highlights
<PAGE>
A B O U T T H E F U N D
The Fund's Investment Objective and Strategies
WHAT IS THE FUND'S INVESTMENT OBJECTIVE? The Fund seeks as high a level of
current income exempt from federal and California personal income taxes as is
available from investing in municipal securities while attempting to preserve
capital.
WHAT DOES THE FUND INVEST IN? The Fund invests mainly in California municipal
securities that pay interest exempt from federal and California personal income
taxes. As a fundamental policy, the Fund invests at least 80% of its total
assets in California Municipal Securities under normal market conditions. These
primarily include municipal bonds (which are long-term obligations), municipal
notes (short-term obligations), and interests in municipal leases. Most of the
securities the Fund buys must be "investment-grade" (the four highest rating
categories of national rating organizations, such as Moody's Investors Services,
Inc.).
HOW DOES THE PORTFOLIO MANAGER DECIDE WHAT SECURITIES TO BUY OR SELL? In
selecting securities for the Fund, the portfolio manager looks primarily
throughout California for municipal securities, using a variety of factors that
may change over time and may vary in particular cases. Some of these factors
are:
o Securities that provide high current income
o A wide range of securities of different issuers within the state,
including different agencies and municipalities, to spread risk
o Securities having favorable credit characteristics o Special situations
that provide opportunities for value
WHO IS THE FUND DESIGNED FOR? The Fund is designed for individual investors who
are seeking income exempt from federal and California personal income taxes. The
Fund does not seek capital gains or growth. Because it invests in tax-exempt
securities, the Fund is not appropriate for retirement plan accounts or for
investors seeking capital growth. The Fund is not a complete investment program.
Main Risks of Investing in the Fund
All investments have risks to some degree. The Fund's investments are subject to
changes in their value from a number of factors described below. There is also
the risk that poor security selection by the Fund's investment Manager,
OppenheimerFunds, Inc., will cause the Fund to under perform other funds having
a similar objective.
These risks collectively form the risk profile of the Fund, and can affect
the value of the Fund's investments, its investment performance and its prices
per share. These risks mean that you can lose money by investing in the Fund.
When you redeem your shares, they may be worth more or less than what you paid
for them. There is no assurance that the Fund will achieve its investment
objective.
CREDIT RISK. Municipal securities are subject to credit risk. Credit risk is the
risk that the issuer of a municipal security might not make interest and
principal payments on the security as they become due. If the issuer fails to
pay interest, the Fund's income may be reduced, and if the issuer fails to repay
principal, the value of that security and of the Fund's shares may be reduced.
Because the Fund can invest as much as 25% of its total assets in municipal
securities below investment-grade to seek higher income, the Fund's credit risks
are greater than those of funds that buy only investment-grade bonds. A
downgrade in an issuer's credit rating or other adverse news about an issuer can
reduce the market value of that issuer's securities.
INTEREST RATE RISKS. Municipal securities are subject to changes in value when
prevailing interest rates change. When interest rates fall, the values of
already-issued municipal securities generally rise. When interest rates rise,
the values of already-issued municipal securities generally decline, and the
bonds may sell at a discount from their face amount. The magnitude of these
price changes is generally greater for bonds with longer maturities. The Fund
currently focuses on longer term securities to seek higher income. Therefore,
its share prices may fluctuate more when interest rates change.
RISKS OF NON-DIVERSIFICATION. The Fund is "non-diversified." That means that
compared to funds that are diversified, it can invest a greater portion of its
assets in the securities of one issuer, such as bonds issued by the State of
California. Having a higher percentage of its assets invested in the securities
of fewer issuers, particularly obligations of government issuers of one state,
could result in greater fluctuations of the Fund's share prices due to economic,
regulatory or political problems in California.
HOW RISKY IS THE FUND OVERALL? The value of the Fund's investments will change
over time due to a number of factors. They include changes in general bond
market movements, the change in value of particular bonds because of an event
affecting the issuer, or changes in interest rates that can affect bond prices
overall. The Fund focuses its investments in California municipal securities and
is non-diversified. It will therefore be vulnerable to the effects of economic
changes that affect California governmental issuers. These changes can affect
the value of the Fund's investments and its prices per share. In the
OppenheimerFunds spectrum, the Fund is more conservative than some types of
taxable bond funds, such as high yield bond funds, but has greater risks than
money market funds.
--------------------------------------------------------------------------------
An investment in the Fund is not a deposit of any bank, and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
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The Fund's Past Performance
The bar chart and table below show one measure of the risks of investing in the
Fund, by showing changes in the Fund's performance (for its Class A shares) from
year to year for the full calendar years since the Fund's inception and by
showing how the average annual total returns of the Fund's shares compare to
those of a broad-based market index. The Fund's past investment performance is
not necessarily an indication of how the Fund will perform in the future.
Annual Total Returns (Class A) (as of 12/31 each year)
[See appendix to prospectus for data in bar chart showing annual total returns]
For the period from 1/1/99 through 9/30/99, the cumulative return (not
annualized) for Class A shares was -3.53%. Sales charges are not included in the
calculations of return in this bar chart, and if those charges were included,
the returns would be less than those shown.
During the period shown in the bar chart, the highest return (not annualized)
for a calendar quarter was 8.78% (1st Q `95) and the lowest return (net
annualized) for a calendar quarter was -5.56% (1st Q `94).
Average Annual Total Returns Life of
for the periods ending December 1 Year 5 Years Class)
31, 1998
-------------------------------------------------------------------------------
Class A Shares (inception 5/18/90) 1.27% 5.41% 7.59%
-------------------------------------------------------------------------------
Lehman Brothers Municipal Bond 6.48% 6.22% 8.09%
Index
(from 5/31/90)
-------------------------------------------------------------------------------
Class B Shares (inception 10/29/93) 0.27% 5.01% 5.12%
-------------------------------------------------------------------------------
The Fund's average annual total returns include the applicable sales charges:
for Class A, the current maximum initial sales charge of 4.75%; for Class B, the
applicable contingent deferred sales charges of 5% (1-year), 2% (5-year) and 1%
(life of class).
The returns measure the performance of a hypothetical account and assume that
all dividends and capital gains distributions have been reinvested in additional
shares. The Fund's performance is compared to the Lehman Brothers Municipal Bond
Index, an unmanaged index of a broad range of investment-grade municipal bonds.
The index includes municipal securities from many states while the Fund focuses
on California municipal securities, and the index performance does not consider
the effects of capital gains or transaction costs.
Fees and Expenses of the Fund
The Fund pays a variety of expenses directly for management of its assets,
administration, distribution of its shares and other services. Those expenses
are subtracted from the Fund's assets to calculate the Fund's net asset values
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 meant to help you understand the
fees and expenses you may pay if you buy and hold shares of the Fund. The
numbers below are based on the Fund's expenses during its fiscal year ended
August 31, 1999.
Shareholder Fees (charges paid directly from your investment):
Class A Shares Class B Shares
--------------------------------------------------------------------------------
Maximum Sales Charge (Load) on
purchases (as % of offering 4.75% None
price)
--------------------------------------------------------------------------------
Maximum Deferred Sales Charge
(Load) (as % of the lower of
the original offering price or None1 5%2
redemption proceeds)
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1. A 1% contingent deferred sales charge may apply to redemptions of
investments of $1 million or more of Class A shares. See "How to Buy
Shares" for details.
4. Applies to redemptions in first year after purchase. The contingent deferred
sales charge declines to 1% in the sixth year and is eliminated after that.
Annual Fund Operating Expenses (deducted from Fund assets):
(% of average daily net assets)
Class A Shares Class B Shares
--------------------------------------------------------------------------------
Management Fees 0.55% 0.55%
---------------------------------
--------------------------------------------------------------------------------
Distribution and/or Service None 1.00%
(12b-1) Fees
--------------------------------------------------------------------------------
Other Expenses 0.12% 0.12%
--------------------------------------------------------------------------------
Total Annual Operating Expenses 0.67% 1.67%
--------------------------------------------------------------------------------
Expenses may vary in future years. "Other expenses" include transfer agent fees,
custodial fees, and accounting and legal expenses the Fund pays. The Management
Fees shown above the maximum rate under the investment advisory agreement and do
not reflect a voluntary undertaking by the Manager to limit its management fees
to a maximum annual rate of 0.40% if the net assets of the Fund exceed $100
million. As a result of that waiver, the actual management fee rate for both
classes during the fiscal year was 0.40% and actual total operating expenses
were 0.51% of average annual net assets for Class A and 1.52% for Class B. The
Manager can amend or withdraw that waiver at any time.
EXAMPLES. The following examples are intended to help you compare the cost of
investing in the Fund with the cost of investing in other mutual funds. The
examples assume that you invest $10,000 in a class of shares of the Fund for the
time periods indicated, and reinvest your dividends and distributions.
The first example assumes that you redeem all of your shares at the end of
those periods. The second example assumes you keep your shares. Both examples
also assume that your investment has a 5% return each year and that the class's
operating expenses remain the same. Your actual costs may be higher or lower
because expenses will vary over time. Based on these assumptions your expenses
would be as follows:
If shares are redeemed: 1 Year 3 Years 5 Years 10 Years1
--------------------------------------------------------------------------------
Class A Shares $540 $679 $830 $1,270
--------------------------------------------------------------------------------
Class B Shares $670 $826 $1,107 $1,463
--------------------------------------------------------------------------------
If shares are not
redeemed: 1 Year 3 Years 5 Years 10 Years1
--------------------------------------------------------------------------------
Class A Shares $540 $679 $830 $1,270
--------------------------------------------------------------------------------
Class B Shares $170 $526 $907 $1,463
--------------------------------------------------------------------------------
In the first example, expenses include the initial sales charge for Class A and
the applicable Class B contingent deferred sales charges. In the second example,
the Class A expenses include the sales charge, but Class B expenses do not
include contingent deferred sales charges.
1. Class B expense for years 7 through 10 are based on Class A expenses, since
Class B shares automatically convert to Class A after 6 years.
About the Fund's Investments
THE FUND'S PRINCIPAL INVESTMENT POLICIES. The allocation of the Fund's portfolio
among different investments will vary over time based on the Manager's
evaluation of issuer, economic and market trends. The Fund's portfolio might not
always include all of the different types of investments described below. The
Statement of Additional Information contains more detailed information about the
Fund's investment policies and risks.
The Manager tries to reduce risks by selecting a wide variety of municipal
investments and by carefully researching securities before they are purchased.
However, changes in the overall market prices of municipal securities and the
income they pay can occur at any time. The share prices and yield of the Fund
will change daily based on changes in interest rates and market conditions and
in response to other economic events.
Municipal Securities. The Fund buys municipal bonds and notes, certificates of
participation in municipal leases and other debt obligations.
The Fund invests mainly in California municipal securities, which are
municipal securities that are not subject (in the opinion of bond counsel
to the issuer at the time they are issued) to California personal income
tax. The debt obligations are issued by the State of California and its
political subdivisions (such as cities, towns counties, agencies and
authorities). The term "California municipal securities" may also include
debt securities of the governments of certain possessions, territories and
commonwealths of the United States if the interest is not subject to
California personal income tax.
The Fund can also buy other municipal securities, issued by the
governments of the District of Columbia and of other states as well as
their political subdivisions, authorities and agencies, and securities
issued by any commonwealths, territories or possessions of the United
States, or their respective agencies, instrumentalities or authorities, if
the interest paid on the security is not subject to federal personal
income tax (in the opinion of bond counsel to the issuer at the time the
security is issued).
Municipal securities are issued to raise money for a variety of public or
private purposes, including financing state or local governments,
financing specific projects or public facilities. The Fund can buy both
long-term and short-term municipal securities. Long-term securities have a
maturity of more than one year when issued. The Fund generally focuses on
longer-term securities, to seek higher income.
The Fund can buy in municipal securities that are "general obligations,"
secured by the issuer's pledge of its full faith, credit and taxing power
for the payment of principal and interest. The Fund can also buy "revenue
obligations," payable only from the revenues derived from a particular
facility or class of facilities, or a specific excise tax or other revenue
source. Some revenue obligations are private activity bonds that pay
interest that may be a tax preference item for investors subject to
alternative minimum tax.
o Municipal Lease Obligations. Municipal leases are used by state and local
governments to obtain funds to acquire land, equipment or facilities. The
Fund can invest in certificates of participation that represent a
proportionate interest in payments made under municipal lease obligations.
Most municipal leases, while secured by the leased property, are not
general obligations of the issuing municipality. They often contain
"non-appropriation" clauses under which the municipal government has no
obligation to make lease or installment payments in future years unless
money is appropriated on a yearly basis. If the government stops making
payments or transfers its payment obligations to a private entity, the
obligation could lose value or become taxable.
Ratings of Municipal Securities the Fund Buys. Most of the municipal securities
the Fund buys are "investment-grade" at the time of purchase. The Fund
does not invest more than 25% of its total assets in municipal securities
that at the time of purchase are not investment-grade. "Investment-grade"
securities are those rated within the four highest rating categories of
Moody's, Standard & Poor's, Fitch or Duff & Phelps or other nationally
recognized rating organizations, or (if unrated) judged by the Manager to
be comparable to rated investment-grade securities. Rating definitions are
in Appendix A to the Statement of Additional Information.
If the securities are not rated, the Manager will use its judgment to
assign a rating to a security comparable to that of a rating agency. The
Fund limits its investments in unrated securities to not more than 20% of
its total assets. If the rating of a security is reduced after the Fund
buys it, the Fund is not required automatically to dispose of that
security. However, the Manager will evaluate those securities to determine
whether to keep them in the Fund's portfolio.
The Manager may rely to some extent on credit ratings by
nationally-recognized rating organizations in evaluating the credit risk
of securities selected for the Fund's portfolio. It also uses its own
research and analysis. Many factors affect an issuer's ability to make
timely payments, and the credit risks of a particular security may change
over time.
o Special Risks of Lower-Grade Securities. Municipal securities that are
below investment-grade (these are sometimes called "junk bonds") may be
subject to greater fluctuations and risks of loss of income and principal
than investment-grade municipal securities. Securities that are (or that
have fallen) below investment-grade have greater risk that the issuers
might not meet their debt obligations.
CAN THE FUND'S INVESTMENT OBJECTIVE AND POLICIES CHANGE? The Fund's Board of
Directors can change non-fundamental policies without shareholder approval,
although significant changes will be described in amendments to this Prospectus.
Fundamental policies are those that cannot be changed without the approval of a
majority of the Fund's outstanding voting shares. The Fund's investment
objective is a fundamental policy. Other investment restrictions that are
fundamental policies are listed in the Statement of Additional Information. An
investment policy is not fundamental unless this Prospectus or the Statement of
Additional Information says that it is.
OTHER INVESTMENT STRATEGIES. To seek its objective, the Fund can also use the
investment techniques and strategies described below. The Fund might not always
use all of them. These techniques have certain risks although some are designed
to help reduce overall investment or market risks.
Floating Rate/Variable Rate Obligations. Some municipal securities have variable
or floating interest rates. Variable rates are adjustable at stated
periodic intervals. Floating rates are automatically adjusted according to
a specified market rate, such as a percentage of the prime rate of a bank,
or the 91-day U.S. Treasury Bill rate.
Variable rate bonds known as "inverse floaters" pay interest at rates that
move in the opposite direction of yields on short-term bonds in response
to market changes. As interest rates rise, inverse floaters produce less
current income, and their market value can become volatile.
Inverse floaters are a type of "derivative security." Some have a "cap,"
so that if interest rates rise above the "cap," the security pays
additional interest income. If rates do not rise above the "cap," the Fund
will have paid an additional amount for a feature that proves worthless.
The Fund will invest not more than 20% of its total assets in inverse
floaters.
Other Derivatives. The Fund can also invest in other derivative investments that
pay interest that depends on the change in value of an underlying asset,
interest rate or index. Examples are hedging instruments, interest rate
swaps, municipal bond indices or swap indices.
Derivatives have risks. If the issuer of the derivative investment does
not pay the amount due, the Fund can lose money on the investment. The
underlying security or investment on which a derivative is based, and the
derivative itself, may not perform the way the Manager expected it to. As
a result of these risks the Fund could realize less principal or income
from the investment than expected or its hedge might be unsuccessful. As a
result, the Fund's share prices could fall. Certain derivative investments
held by the Fund might be illiquid.
o Hedging. The Fund can buy and sell futures contracts, put and call
options, and enter into interest rate swap agreements. These are all
referred to as "hedging instruments." The Fund does not currently use
hedging extensively nor for speculative purposes. It has limits on its use
of hedging instruments and is not required to use them in seeking its
objective.
Some of these strategies would hedge the Fund's portfolio against price
fluctuations. Other hedging strategies, such as buying futures and call
options, would tend to increase the Fund's exposure to the securities
market.
There are also special risks in particular hedging strategies. Options
trading involves the payment of premiums and can increase portfolio
turnover. If the Manager used a hedging instrument at the wrong time or
judged market conditions incorrectly, the strategy could reduce the Fund's
return. 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. The Fund may
not enter into swaps with respect to more than 25% of its total assets.
"When-Issued" and "Delayed-Delivery" Transactions. The Fund can purchase
municipal securities on a "when-issued" basis and may purchase or sell
such securities on a "delayed-delivery" basis. These terms refer to
securities that have been created and for which a market exists, but which
are not available for immediate delivery. 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 until the buyer receives
the security or settlement of the trade. There is a risk of loss to the
Fund if the value of the security declines prior to the settlement date.
Puts and Stand-By Commitments. The Fund can acquire "stand-by commitments" or
"puts" with respect to municipal securities. The Fund obtains the right to
sell specified securities at a set price on demand to the issuing
broker-dealer or bank. However, this feature may result in a lower
interest rate on the security. The Fund will acquire stand-by commitments
or puts solely to enhance portfolio liquidity.
Illiquid and Restricted Securities. Investments may be illiquid because they do
not have an active trading market, making it difficult to value them or
dispose of them promptly at an acceptable price. A restricted security is
one that has a contractual restriction on its resale or which cannot be
sold publicly until it is registered under the Securities Act of 1933. The
Fund will not invest more than 15% of its net assets in illiquid
securities. Certain restricted securities that are eligible for resale to
qualified institutional buyers may not be subject to that limit. The
Manager monitors holdings of illiquid securities on an ongoing basis to
determine whether to sell any holdings to maintain adequate liquidity.
Temporary Defensive Investments. The Fund can invest up to 100% of its total
assets in temporary defensive investments during periods of unusual or
adverse market conditions. Generally, they would be short-term municipal
securities but could be U.S. government securities or highly-rated
corporate debt securities. The income from some temporary defensive
investments might not be tax-exempt, and therefore when making those
investments the Fund might not achieve its investment objective. The Fund
can also hold cash and cash equivalents pending the investment of proceeds
from the sale of Fund shares or portfolio securities or to meet
anticipated redemptions of Fund shares.
How the Fund is Managed
THE MANAGER. The Manager chooses the Fund's investments and handles its
day-to-day business. The Manager carries out its duties, subject to the policies
established by the Fund's Board of Directors, under an investment advisory
agreement that states the Manager's responsibilities. The agreement sets the
fees the Fund pays to the Manager and describes the expenses that the Fund is
responsible to pay to conduct its business.
The Manager has operated as an investment adviser since January 1960. The
Manager (including subsidiaries) managed assets of more than $110 billion as of
November 30, 1999, including other Oppenheimer funds with more than 5 million
shareholder accounts. The Manager is located at Two World Trade Center, 34th
Floor, New York, New York 10048-0203.
Portfolio Manager. The Portfolio manager of the Fund is Christian D. Smith, a
Senior Vice President of the Manager. He is the person principally
responsible for the day-to-day management of the Fund's portfolio, and
became the Fund's portfolio manager on November 1, 1999. Mr. Smith also
serves as an officer and portfolio manager for other Oppenheimer funds.
Prior to joining OppenheimerFunds in 1999 he was a Co-Head of the Municipal
Portfolio Management Team of Prudential Global Asset Management.
Advisory Fees. Under the investment advisory agreement, the Fund pays the
Manager an advisory fee at an annual rate of 0.55% of average annual net
assets if the Fund's net assets are $100 million or more (it is reduced if
assets are less). The Manager has voluntarily undertaken to limit its fees
to 0.40% of average annual net assets if the Fund's assets are $100
million or more. The Manager can terminate or amend that undertaking at
any time. The Fund's management fee for its last fiscal year ended August
31, 1999, was 0.40% of average annual net assets for each class of shares,
after the limitation.
YEAR 2000 ISSUES. Because many computer software systems in use today cannot
distinguish the year 2000 from the year 1900, the markets for securities in
which the Fund invests could be detrimentally affected by computer failures
beginning January 1, 2000. Failure of computer systems used for securities
trading could result in settlement and liquidity problems for the Fund and other
investors. That failure could have a negative impact on handling securities
trades, pricing and accounting services. Data processing errors by government
issuers of securities could result in economic uncertainties, and issuers may
incur substantial costs in attempting to prevent or fix such errors, all of
which could have a negative effect on the Fund's investments and returns.
The Manager, the Distributor and the Transfer Agent have been working on
necessary changes to their computer systems to deal with the year 2000 and
expect that their systems will be adapted in time for that event, although there
cannot be assurance of success. Additionally, the services they provide depend
on the interaction of their computer systems with those of brokers, information
services, the Fund's custodian bank and other parties. Therefore, any failure of
the computer systems of those parties to deal with the year 2000 may also have a
negative effect on the services they provide to the Fund. The extent of that
risk cannot be ascertained at this time.
A B O U T Y O U R A C C O U N T
How to Buy Shares
HOW DO YOU BUY SHARES? You can buy shares several ways, as described below. The
Fund's Distributor, OppenheimerFunds Distributor, Inc., may appoint servicing
agents to accept purchase (and redemption) orders. The Distributor, in its sole
discretion, may reject any purchase order for the Fund's shares.
BuyingShares Through Your Dealer. You can buy shares through any dealer,
broker, or financial institution that has a sales agreement with the
Distributor. Your dealer will place your order with the Distributor on
your behalf.
BuyingShares Through the Distributor. Complete an OppenheimerFunds New Account
Application and return it with a check payable to "OppenheimerFunds
Distributor, Inc." Mail it to P.O. Box 5270, Denver, Colorado 80217. If
you don't list a dealer on the application, the Distributor will act as
your agent in buying the shares. However, we recommend that you discuss
your investment with a financial advisor before you make a purchase to be
sure that the Fund is appropriate for you.
o Paying by Federal Funds Wire. Shares purchased through the Distributor may
be paid for by Federal Funds wire. The minimum investment is $2,500.
Before sending a wire, call the Distributor's Wire Department at
1.800.525.7048 to notify the Distributor of the wire, and to receive
further instructions.
o Buying Shares Through OppenheimerFunds AccountLink. With AccountLink, you
pay for shares by electronic funds transfers from your bank account.
Shares are purchased for your account by a transfer of money from your
bank account through the Automated Clearing House (ACH) system. You can
provide those instructions automatically, under an Asset Builder Plan,
described below, or by telephone instructions using OppenheimerFunds
PhoneLink, also described below. Please refer to "AccountLink," below for
more details.
o Buying Shares Through Asset Builder Plans. You may purchase shares of the
Fund (and up to four other Oppenheimer funds) automatically each month
from your account at a bank or other financial institution under an Asset
Builder Plan with AccountLink. Details are in the Asset Builder
Application and the Statement of Additional Information.
HOW MUCH MUST YOU INVEST? You can buy Fund shares with a minimum initial
investment of $1,000. You can make additional investments at any time with as
little as $25. There are reduced minimum investments under special investment
plans.
o With Asset Builder Plans, Automatic Exchange Plans and military allotment
plans, you can make initial and subsequent investments for as little as
$25. You can make additional purchases of at least $25 by telephone
through AccountLink.
o The minimum investment requirement does not apply to reinvesting dividends
from the Fund or other Oppenheimer funds (a list of them appears in the
Statement of Additional Information, or you can ask your dealer or call
the Transfer Agent), or reinvesting distributions from unit investment
trusts that have made arrangements with the Distributor.
AT WHAT PRICE ARE SHARES SOLD? Shares are sold at their offering price, which is
the net asset value per share plus any initial sales charge that applies. The
offering price that applies to a purchase order is based on the next calculation
of the net asset value per share that is made after the Distributor receives the
purchase order at its offices in Colorado, or after any agent appointed by the
Distributor receives the order and sends it to the Distributor.
Net Asset Value. The net asset value of each class of shares is determined as
of the close of The New York Stock Exchange, on each day the Exchange is
open for trading (referred to in this Prospectus as a "regular business
day"). The Exchange normally closes at 4:00 P.M., New York time, but may
close earlier on some days. All references to time in this Prospectus mean
"New York time".
The net asset value per share is determined by dividing the value of the
Fund's net assets attributable to a class by the number of shares of that
class that are outstanding. To determine net asset value, the Fund's Board
of Directors has established procedures to value the Fund's securities, in
general based on market value. The Board has adopted special procedures
for valuing illiquid and restricted securities and obligations for which
market values cannot be readily obtained.
The Offering Price. To receive the offering price for a particular day, in
most cases the Distributor or its designated agent must receive your order
by the time of day The New York Stock Exchange closes that day. If your
order is received on a day when the Exchange is closed or after it has
closed, the order will receive the next offering price that is determined
after your order is received.
BuyingThrough a Dealer. If you buy shares through a dealer, your dealer must
receive the order by the close of The New York Stock Exchange and transmit
it to the Distributor so that it is received before the Distributor's
close of business on a regular business day (normally 5:00 P.M.) to
receive that day's offering price. Otherwise, the order will receive the
next offering price that is determined.
--------------------------------------------------------------------------------
WHAT CLASSES OF SHARES DOES THE FUND OFFER? The Fund offers investors two
different classes of shares. The different classes of shares represent
investments in the same portfolio of securities, but the classes are subject to
different expenses and will likely have different share prices. When you buy
shares, be sure to specify the class of shares. If you do not choose a class,
your investment will be made in Class A shares.
--------------------------------------------------------------------------------
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Class A Shares. If you buy Class A shares, you pay an initial sales charge (on
investments up to $1 million). The amount of that sales charge will vary
depending on the amount you invest. The sales charge rates are listed in
"How Can You Buy Class A Shares?" below.
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Class B Shares. If you buy Class B shares, you pay no sales charge at the time
of purchase, but you will pay an annual asset-based sales charge. If you
sell your shares within six years of buying them, you will normally pay a
contingent deferred sales charge. That contingent deferred sales charge
varies depending on how long you own your shares, as described in "How Can
You Buy Class B 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 best
suited to your needs depends on a number of factors that you should discuss with
your financial advisor. Some factors to consider are how much you plan to invest
and how long you plan to hold your investment. If your goals and objectives
change over time and you plan to purchase additional shares, you should
re-evaluate those factors to see if you should consider another class of shares.
The Fund's operating costs that apply to a class of shares and the effect of the
different types of sales charges on your investment will vary your investment
results over time.
The discussion below is not intended to be investment advice or a
recommendation, because each investor's financial considerations are different.
You should review these factors with your financial advisor. The discussion
below assumes that you will purchase only one class of shares and not a
combination of shares of different classes.
How Long Do You Expect to Hold Your Investment? While future financial needs
cannot be predicted with certainty, knowing how long you expect to hold
your investment will assist you in selecting the appropriate class of
shares. Because of the effect of class-based expenses, your choice will
also depend on how much you plan to invest. For example, the reduced sales
charges available for larger purchases of Class A shares may, over time,
offset the effect of paying an initial sales charge on your investment,
compared to the effect over time of higher class-based expenses on shares
of Class B.
o Investing for the Shorter Term. While the Fund is intended to be a
long-term investment, if you have a relatively short-term investment
horizon (that is, you plan to hold your shares for not more than six
years), you should probably consider purchasing Class A shares rather than
Class B shares. That is because of the effect of the Class B contingent
deferred sales charge if you redeem within six years, as well as the
effect of the Class B asset-based sales charge on the investment return
for that class in the short-term
And for investors who invest $500,000 or more, in most cases Class A
shares will be the more 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 from a single
investor.
o Investing for the Longer Term. If you are investing less than $100,000 for
the longer-term and do not expect to need access to your money for seven
years or more, Class B shares may be appropriate.
Of course, these examples are based on approximations of the effect of
current sales charges and expenses projected over time, and do not detail
all of the considerations in selecting a class of shares. You should
analyze your options carefully with your financial advisor before making
that choice.
Are There Differences in Account Features That Matter to You? Some account may
not be available to Class B shareholders. Other features may not be
advisable (because of the effect of the contingent deferred sales charge)
for Class B shareholders. Therefore, you should carefully review how you
plan to use your investment account before deciding which class of shares
to buy. Additionally, the dividends payable to Class B shareholders will
be reduced by the additional expenses borne by that class that are not
borne by Class A shares, such as the Class B asset-based sales charge
described below and in the Statement of Additional Information. Share
certificates are not available for Class B shares, and if you are
considering using your shares as collateral for a loan, that may be a
factor to consider. Also, checkwriting is not available on accounts
subject to a contingent deferred sales charge.
How Does It Affect Payments to My Broker? A salesperson, such as a broker, may
receive different compensation for selling one class of shares than for
selling another class. It is important to remember that Class B contingent
deferred sales charges and asset-based sales charges have the same purpose
as the front-end sales charge on sales of Class A shares: to compensate
the Distributor for commissions and expenses it pays to dealers and
financial institutions for selling shares. The Distributor may pay
additional compensation from its own resources to securities dealers or
financial institutions based upon the value of shares of the Fund owned by
the dealer or financial institution for its own account or for its
customers.
SPECIAL SALES CHARGE ARRANGEMENTS AND WAIVERS. Appendix C to the Statement of
Additional Information details the conditions for the waiver of sales charges
that apply in certain cases, and the special sales charge rates that apply to
purchases of shares of the Fund by certain groups, or in other special types of
transactions. To receive a waiver or special sales charge rate, you must advise
the Distributor when purchasing shares or the Transfer Agent when redeeming
shares that the special conditions apply.
HOW CAN YOU BUY CLASS A SHARES? Class A shares are sold at their offering price,
which is normally net asset value plus an initial sales charge. However, in some
cases, described below, purchases are not subject to an initial sales charge,
and the offering price will be the net asset value. In other cases, reduced
sales charges may be available, as described below or in the Statement of
Additional Information. Out of the amount you invest, the Fund receives the net
asset value to invest for your account.
The sales charge varies depending on the amount of your purchase. A
portion of the sales charge may be retained by the Distributor or allocated to
your dealer as commission. The Distributor reserves the right to reallow the
entire commission to dealers. The current sales charge rates and commissions
paid to dealers and brokers are as follows:
Front-End Sales
Front-End Sales Charge As a
Charge As a Percentage of Commission As
Percentage of Net Percentage of
Amount of Purchase Offering Price Amount Invested Offering Price
------------------------------------------------------------------------------
Less than $50,000 4.75% 4.98% 4.00%
------------------------------------------------------------------------------
$50,000 or more but 4.50% 4.71% 4.00%
less than $100,000
------------------------------------------------------------------------------
$100,000 or more but 3.50% 3.63% 3.00%
less than $250,000
------------------------------------------------------------------------------
$250,000 or more but 2.50% 2.56% 2.25%
less than $500,000
------------------------------------------------------------------------------
$500,000 or more but 2.00% 2.04% 1.80%
less than $1 million
------------------------------------------------------------------------------
Class A Contingent Deferred Sales Charge. There is no initial sales charge on
purchases of Class A shares of any one or more of the Oppenheimer funds
aggregating $1 million or more. The Distributor pays dealers of record
commissions in an amount equal to 1.0% of purchases of $1 million or more
other than by those retirement accounts. That commission will be paid only
on purchases that were not previously subject to a front-end sales charge
and dealer commission.
If you redeem any of those shares within 18 months of the end of the
calendar month of their purchase, a contingent deferred sales charge
(called the "Class A contingent deferred sales charge") may be deducted
from the redemption proceeds. That sales charge will be equal to 1.0% of
the lesser of (1) the aggregate net asset value of the redeemed shares at
the time of redemption (excluding shares purchased by reinvestment of
dividends or capital gain distributions) or (2) the original net asset
value of the redeemed shares. The Class A contingent deferred sales charge
will not exceed the aggregate amount of the commissions the Distributor
paid to your dealer on all purchases of Class A shares of all Oppenheimer
funds you made that were subject to the Class A contingent deferred sales
charge.
In determining whether a contingent deferred sales charge is payable when
shares are redeemed, the Fund will first redeem shares that are not
subject to the sales charge, including shares purchased by reinvestment of
dividends and capital gains. Then the Fund will redeem other shares in the
order in which you purchased them.
The Class A contingent deferred sales charge is not charged on exchanges
of shares under the Fund's exchange privilege (described below). However,
if the shares acquired by exchange are redeemed within 18 calendar months
of the end of the calendar month in which the exchanged shares were
originally purchased, then the sales charge will apply.
Can You Reduce Class A Sales Charges? You may be eligible to buy Class A
shares at reduced sales charge rates under the Fund's "Right of
Accumulation" or a Letter of Intent, as described in "Reduced Sales
Charges" in the Statement of Additional Information:
HOW CAN YOU BUY CLASS B SHARES? Class B shares are sold at net asset value per
share without an initial sales charge. However, if Class B shares are redeemed
within 6 years of their purchase, a contingent deferred sales charge will be
deducted from the redemption proceeds. The Class B contingent deferred sales
charge is paid to compensate the Distributor for its expenses of providing
distribution-related services to the Fund in connection with the sale of Class B
shares.
The contingent deferred sales charge will be based on the lesser of the
net asset value of the redeemed shares at the time of redemption or the original
net asset value. The contingent deferred sales charge is not imposed on:
o the amount of your account value represented by an increase in net asset
value over the initial purchase price,
o shares purchased by the reinvestment of dividends or capital gains
distributions, or
o shares redeemed in the special circumstances described in Appendix C to
the Statement of Additional Information.
To determine whether the contingent deferred sales charge applies to a
redemption, the Fund redeems shares in the following order:
1. shares acquired by reinvestment of dividends and capital gains
distributions,
2. shares held for over 6 years, and
3. shares held the longest during the 6-year period.
The amount of the contingent deferred sales charge will depend on the
number of years since you invested and the dollar amount being redeemed,
according to the following schedule:
Years Since Beginning of Month in Contingent Deferred Sales Charge on
Which Redemptions in That Year
Purchase Order was Accepted (As % of Amount Subject to Charge)
------------------------------------------------------------------------------
0 - 1 5.0%
------------------------------------------------------------------------------
1 - 2 4.0%
------------------------------------------------------------------------------
2 - 3 3.0%
------------------------------------------------------------------------------
3 - 4 3.0%
------------------------------------------------------------------------------
4 - 5 2.0%
------------------------------------------------------------------------------
5 - 6 1.0%
------------------------------------------------------------------------------
6 and following None
------------------------------------------------------------------------------
In the table, a "year" is a 12-month period. In applying the contingent deferred
sales charge, all purchases are considered to have been made on the first
regular business day of the month in which the purchase was made.
Automatic Conversion of Class B Shares. Class B shares automatically convert to
Class A shares 72 months after you purchase them. This conversion feature
relieves Class B shareholders of the asset-based sales charge that applies
to Class B shares under the Class B Distribution and Service Plan,
described below. The conversion is based on the relative net asset value
of the two classes, and no sales load or other charge is imposed. When any
Class B shares you hold convert, any other Class B shares that were
acquired by the reinvesting of dividends and distributions on the
converted shares will also convert to Class A shares. The conversion
feature is subject to the continued availability of a tax ruling described
in the Statement of Additional Information.
DISTRIBUTION AND SERVICE (12B-1) PLAN FOR CLASS B SHARES. The Fund has adopted a
Distribution and Service Plan for Class B shares to pay the Distributor for its
services and costs in distributing Class B shares and servicing accounts. Under
the plan, the Fund pays the Distributor an annual "asset-based sales charge" of
0.75% per year on Class B shares. The Distributor also receives a service fee of
0.25% per year under the plan.
The asset-based sales charge and service fees increase Class B expenses by
1.00% of the net assets per year. Because these fees are paid out of the Fund's
assets on an on-going basis, over time these fees will increase the cost of your
investment and may cost you more than other types of sales charges.
The Distributor uses the service fees to compensate dealers for providing
personal services for accounts that hold Class B shares. The Distributor pays
the 0.25% service fees to dealers in advance for the first year after the shares
are sold by the dealer. After the shares have been held for a year, the
Distributor pays the service fees to dealers on a quarterly basis.
The Distributor currently pays a 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.
Special Investor Services
ACCOUNTLINK. You can use our AccountLink feature to link your Fund account with
an account at a U.S. bank or other financial institution. It must be an
Automated Clearing House (ACH) member. AccountLink lets you:
o transmit funds electronically to purchase shares by telephone (through a
service representative or by PhoneLink) or automatically under Asset
Builder Plans, or
o have the Transfer Agent send redemption proceeds or transmit dividends and
distributions directly to your bank account. Please call the Transfer
Agent for more information.
You may purchase shares by telephone only after your account has been
established. To purchase shares in amounts up to $250,000 through a telephone
representative, call the Distributor at 1.800.852.8457. The purchase payment
will be debited from your bank account.
AccountLink privileges should be requested on your application or your
dealer's settlement instructions if you buy your shares through a dealer. After
your account is established, you can request AccountLink privileges by sending
signature-guaranteed instructions to the Transfer Agent. AccountLink privileges
will apply to each shareholder listed in the registration on your account as
well as to your dealer representative of record unless and until the Transfer
Agent receives written instructions terminating or changing those privileges.
After you establish AccountLink for your account, any change of bank account
information must be made by signature-guaranteed instructions to the Transfer
Agent signed by all shareholders who own the account.
PHONELINK. PhoneLink is the OppenheimerFunds automated telephone system that
enables shareholders to perform a number of account transactions automatically
using a touch-tone phone. PhoneLink may be used on already-established Fund
accounts after you obtain a Personal Identification Number (PIN), by calling the
special PhoneLink number, 1.800.533.3310.
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 OppenheimerFunds account you have already established
by calling the special PhoneLink number.
Selling Shares. You can redeem shares by telephone automatically by calling the
PhoneLink number and the Fund will send the proceeds directly to your
AccountLink bank account. Please refer to "How to Sell Shares," below for
details.
CAN YOU SUBMIT TRANSACTION REQUESTS BY FAX? You may send requests for certain
types of account transactions to the Transfer Agent by fax (telecopier). Please
call 1.800.525.7048 for information about which transactions may be handled this
way. Transaction requests submitted by fax are subject to the same rules and
restrictions as written and telephone requests described in this Prospectus.
OPPENHEIMERFUNDS INTERNET WEB SITE. You can obtain information about the Fund,
as well as your account balance, on the OppenheimerFunds Internet web site, at
http://www.oppenheimerfunds.com. Additionally, shareholders listed in the
account registration (and the dealer of record) may request certain account
transactions through a special section of that web site. To perform account
transactions, you must first obtain a personal identification number (PIN) by
calling the Transfer Agent at 1.800.533.3310. If you do not want to have
Internet account transaction capability for your account, please call the
Transfer Agent at 1.800.525.7048.
AUTOMATIC WITHDRAWAL AND EXCHANGE PLANS. The Fund has several plans that enable
you to sell shares automatically or exchange them to another OppenheimerFunds
account on a regular basis. Please call the Transfer Agent or consult the
Statement of Additional Information for details.
REINVESTMENT PRIVILEGE. If you redeem some or all of your Class A or Class B
shares of the Fund, you have up to 6 months to reinvest all or part of the
redemption proceeds in Class A shares of the Fund or other Oppenheimer funds
without paying a sales charge. This privilege applies only to Class A shares
that you purchased subject to an initial sales charge and to Class A or Class B
shares on which you paid a contingent deferred sales charge when you redeemed
them. You must be sure to ask the Distributor for this privilege when you send
your payment.
How to Sell Shares
You can sell (redeem) some or all of your shares on any regular business day.
Your shares will be sold at the next net asset value calculated after your order
is received in proper form (which means that it must comply with the procedures
described below) and is accepted by the Transfer Agent. The Fund lets you sell
your shares by writing a letter or by telephone. You can also set up Automatic
Withdrawal Plans to redeem shares on a regular basis. If you have questions
about any of these procedures, and especially if you are redeeming shares in a
special situation, such as due to the death of the owner, please call the
Transfer Agent first, at 1.800.525.7048, for assistance.
Certain Requests Require a Signature Guarantee. To protect you and the Fund from
fraud, the following redemption requests must be in writing and must
include a signature guarantee (although there may be other situations that
also require a signature guarantee):
o You wish to redeem $100,000 or more and receive a check
o The redemption check is not payable to all shareholders listed on the
account statement
o The redemption check is not sent to the address of record on your account
statement
o Shares are being transferred to a Fund account with a different owner or
name o Shares are being redeemed by someone (such as an Executor) other than
the
owners
Where Can You Have Your Signature Guaranteed? The Transfer Agent will accept a
guarantee of your signature by a number of financial institutions,
including:
o a U.S. bank, trust company, credit union or savings association,
o a foreign bank that has a U.S. correspondent bank,
o a U.S. registered dealer or broker in securities, municipal securities or
government securities, or
o 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.
HOWDO I SELL SHARES BY MAIL? Write a letter of instructions that includes: o
Your name o The Fund's name o Your Fund account number (from your account
statement) o The dollar amount or number of shares to be redeemed o Any
special payment instructions o Any share certificates for the shares you are
selling o The signatures of all registered owners exactly as the account is
registered,
and
o Any special documents requested by the Transfer Agent to assure proper
authorization of the person asking to sell the shares.
--------------------------------------------------------------------------------
---------------------------------------- ---------------------------------------
Use the following address for Send courier or express mail
---------------------------------------- requests to:
requests by mail: OppenheimerFunds Services
OppenheimerFunds Services 10200 E. Girard Avenue, Building D
P.O. Box 5270 Denver, Colorado 80231
Denver, Colorado 80217-5270
--------------------------------------------------------------------------------
HOW DO YOU SELL SHARES BY TELEPHONE? You and your dealer representative of
record may also sell your shares by telephone. To receive the redemption price
calculated on a particular business day, your call must be received by the
Transfer Agent by the close of The New York Stock Exchange that day, which is
normally 4:00 P.M., but may be earlier on some days. You may not redeem shares
held under a share certificate by telephone.
o To redeem shares through a service representative, call 1.800.852.8457 o To
redeem shares automatically on PhoneLink, call 1.800.533.3310
Whichever method you use, you may have a check sent to the address on the
account statement, or, if you have linked your Fund account to your bank account
on AccountLink, you may have the proceeds sent to that bank account.
ARE THERE LIMITS ON AMOUNTS REDEEMED BY TELEPHONE?
Telephone Redemptions Paid by Check. Up to $100,000 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 write checks against your Fund account, request that privilege
on your account application, or contact the Transfer Agent for signature cards.
They must be signed (with a signature guarantee) by all owners of the account
and returned to the Transfer Agent so that checks can be sent to you to use.
Shareholders with joint accounts can elect in writing to have checks paid over
the signature of one owner. If you previously signed a signature card to
establish checkwriting in another Oppenheimer fund, simply call 1.800.525.7048
to request checkwriting for an account in this Fund with the same registration
as the other account.
o Checks can be written to the order of whomever you wish, but may not be
cashed at the bank the checks are payable through or the Fund's custodian
bank.
o Checkwriting privileges are not available for accounts holding shares that
are subject to a contingent deferred sales charge.
o Checks must be written for at least $100.
o Checks cannot be paid if they are written for more than your account
value. Remember, your shares fluctuate in value and you should not write a
check close to the total account value.
o You may not write a check that would require the Fund to redeem shares
that were purchased by check or Asset Builder Plan payments within the
prior 10 days.
o Don't use your checks if you changed your Fund account number, until you
receive new checks.
CAN YOU SELL 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. If your shares are held in the
name of your dealer, you must redeem them through your dealer.
How to Exchange Shares
Shares of the Fund may be exchanged for shares of certain Oppenheimer funds at
net asset value per share at the time of exchange, without sales charge. Shares
of the Fund can be purchased by exchange of shares of other Oppenheimer funds on
the same basis. To exchange shares, you must meet several conditions:
o Shares of the fund selected for exchange must be available for sale in
your state of residence.
o The prospectuses of both funds must offer the exchange privilege. o You
must hold the shares you buy when you establish your account for at least
7 days before you can exchange them. After the account is open 7 days, you
can exchange shares every regular business day.
o You must meet the minimum purchase requirements for the fund whose shares
you purchase by exchange.
o Before exchanging into a fund, you must obtain and read its prospectus.
Shares of a particular class of the Fund may be exchanged only for shares
of the same class in the other Oppenheimer funds. For example, you can exchange
Class A shares of this Fund only for Class A shares of another fund. In some
cases, sales charges may be imposed on exchange transactions. For tax purposes,
exchanges of shares involve a sale of the shares of the fund you own and a
purchase of the shares of the other fund, which may result in a capital gain or
loss. Please refer to "How to Exchange Shares" in the Statement of Additional
Information for more details.
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.
HOW DO YOU SUBMIT EXCHANGE REQUESTS? 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
address on the back cover. Exchanges of shares held under certificates
cannot be processed unless the Transfer Agent receives the certificate
with the request.
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.
ARE THERE LIMITATIONS ON EXCHANGES? There are certain exchange policies you
should be aware of:
o Shares are normally redeemed from one fund and purchased from the other
fund in the exchange transaction on the same regular business day on which
the Transfer Agent receives an exchange request that conforms to the
policies described above. It must be received by the close of The New York
Stock Exchange that day, which is normally 4:00 P.M. but may be earlier on
some days. However, either fund may delay the purchase of shares of the
fund you are exchanging into up to seven days if it determines it would be
disadvantaged by a same-day exchange. For example, the receipt of multiple
exchange request from a "market timer" might require the Fund to sell
securities at a disadvantageous time and/or price.
o Because excessive trading can hurt fund performance and harm shareholders,
the Fund reserves the right to refuse any exchange request that it
believes will disadvantage it, or to refuse multiple exchange requests
submitted by a shareholder or dealer.
o The Fund may amend, suspend or terminate the exchange privilege at any
time. The Fund will provide you notice whenever it is required to do so,
by applicable law, but it may impose these changes at any time for
emergency purposes.
o If the Transfer Agent cannot exchange all the shares you request because
of a restriction cited above, only the shares eligible for exchange will
be exchanged.
Shareholder Account Rules and Policies
More information about the Fund's policies and procedures for buying, selling,
and exchanging shares is contained 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 Directors 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
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. The Transfer Agent and the Fund
will not be liable for losses or expenses arising out of telephone
instructions reasonably believed to be genuine.
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. The redemption price,
which is the net asset value per share, will normally differ for each
class of shares. The redemption value of your shares may be more or less
than their original cost.
Payment for redeemed shares ordinarily is made in cash. It is forwarded by check
or through AccountLink (as elected by the shareholder) within seven days
after the Transfer Agent receives redemption instructions in proper form.
However, under unusual circumstances determined by the Securities and
Exchange Commission, payment may be delayed or suspended. For accounts
registered in the name of a broker-dealer, payment will normally be
forwarded within three business days after redemption.
The Transfer Agent may delay forwarding a check or processing a payment via
AccountLink for recently purchased shares, but only until the purchase
payment has cleared. That delay may be as much as 10 days from the date
the shares were purchased. That delay may be avoided if you purchase
shares by Federal Funds wire or certified check, or arrange with your bank
to provide telephone or written assurance to the Transfer Agent that your
purchase payment has cleared.
Involuntary redemptions of small accounts may be made by the Fund if the account
value has fallen below $500 for reasons other than the fact that the
market value of shares has dropped. In some cases involuntary redemptions
may be made to repay the Distributor for losses from the cancellation of
share purchase orders.
Sharesmay be "redeemed in kind" under unusual circumstances (such as a lack of
liquidity in the Fund's portfolio to meet redemptions). This means that
the redemption proceeds will be paid with liquid securities from the
Fund's portfolio.
"Backup Withholding" of Federal personalincome tax may be applied against
taxable dividends, distributions and redemption proceeds (including
exchanges) if you fail to furnish the Fund your correct, certified Social
Security or Employer Identification Number when you sign your application,
or if you under-report your income to the Internal Revenue Service.
To avoid sending duplicate copies of materials to households, the Fund will
mail only one copy of each annual and semi-annual report to shareholders
having the same last name and address on the Fund's records. However, each
shareholder may call the Transfer Agent at 1.800.525.7048 to ask that
copies of those materials be sent personally to that shareholder.
Dividends and Tax Information
DIVIDENDS. The Fund intends to declare dividends separately for Class A and
Class B shares from net tax-exempt income and/or net investment income each
regular business day and to pay those dividends to shareholders monthly on a
date selected by the Board of Directors. Daily dividends will not be declared or
paid on newly-purchased shares until Federal Funds are available to the Fund
from the purchase payment for these shares.
The Fund attempts to pay dividends on Class A shares at a constant level.
There is no assurance that it will be able to do so. The Board of Directors may
change the targeted dividend level at any time, without prior notice to
shareholders. Additionally, the amount of those dividends and the distributions
paid on Class B shares may vary over time, depending on market conditions, the
composition of the Fund's portfolio, and expenses borne by the particular class
of shares. Dividends paid on Class A shares will generally be higher than for
Class B shares, which normally have higher expenses than Class A. There can be
no guarantee that the Fund will pay any dividends or distributions.
CAPITAL GAINS. Although the Fund does not seek capital gains, it may realize
capital gains on the sale of portfolio securities. If it does, it may make
distributions out of any net short-term or long-term capital gains in December
of each year. The Fund may make supplemental distributions of dividends and
capital gains following the end of its fiscal year
WHAT CHOICES DO YOU HAVE FOR RECEIVING DISTRIBUTIONS? When you open your
account, specify on your application how you want to receive your dividends and
distributions. You have four options:
Reinvest All Distributions in the Fund. You can elect to reinvest all dividends
and capital gains distributions in additional shares of the Fund.
Reinvest Dividend or Capital Gains Only. You can elect to reinvest some
distributions (dividends, short-term capital gains or long-term capital
gains distributions) in the Fund while receiving other types of
distributions by check or having them sent to your bank account through
AccountLink.
Receive All Distributions in Cash. You can elect to receive a check for all
dividends and capital gains distributions or have them sent to your bank
through AccountLink.
Reinvest Your Distributions in Another OppenheimerFunds Account. You can
reinvest all distributions in the same class of shares of another
OppenheimerFunds account you have established.
TAXES. Dividends paid from net investment income earned by the Fund on municipal
securities will be excludable from gross income for federal personal income tax
purposes. A portion of a dividend that is derived from interest paid on certain
"private activity bonds" may be an item of tax preference if you are subject to
the alternative minimum tax. If the Fund earns interest on taxable investments,
any dividends derived from those earnings will be taxable as ordinary income to
shareholders.
Dividends paid by the Fund from interest on California municipal
securities will be exempt from California personal income taxes, if at the close
of each quarter at least 50% of the value of the Fund's assets are invested in
debt obligations that pay interest exempt from California personal income taxes.
Dividends paid from income from municipal securities of issuers outside
California will normally be subject to California personal income taxes.
Dividends and capital gains distributions may be subject to state or local
taxes. Long-term capital gains are taxable as long-term capital gains when
distributed to shareholders. It does not matter how long you have held your
shares. Dividends paid from short-term capital gains are taxable as ordinary
income. Whether you reinvest your distributions in additional shares or take
them in cash, the tax treatment is the same. Every year the Fund will send you
and the IRS a statement showing the amount of any taxable distribution you
received in the previous year as well as the amount of your tax-exempt income.
Long-term capital gains will be separately identified in the tax information the
Fund sends you after the end of the calendar year.
Remember, There May be Taxes on Transactions. Even though the Fund seeks to
distribute tax-exempt income to shareholders, you may have a capital gain
or loss when you sell or exchange your shares. A capital gain or loss is
the difference between the price you paid for the shares and the price you
received when you sold them. Any capital gain is subject to capital gains
tax.
Returns of Capital Can Occur. In certain cases, distributions made by the Fund
may be considered a non-taxable return of capital to shareholders. If that
occurs, it will be identified in notices to shareholders.
This information is only a summary of certain federal personal income tax
information about your investment. You should consult with your tax adviser
about the effect of an investment in the Fund on your particular tax situation.
<PAGE>
Financial Highlights
The Financial Highlights Table is presented to help you understand the Fund's
financial performance for the past 6 fiscal periods. Certain information
reflects financial results for a single Fund share. The total returns in the
table represent the rate that an investor would have earned (or lost) on an
investment in the Fund (assuming reinvestment of all dividends and
distributions). This information has been audited by Deloitte & Touche LLP, the
Fund's independent auditors, whose report, along with the Fund's financial
statements, is included in the Statement of Additional Information, which is
available on request.
<PAGE>
139
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Year Year
Ended Ended
August 31, June 30,
Class A 1999 1998
1997 1996(1) 1996 1995
=========================================================================================================================
<S> <C> <C>
<C> <C> <C> <C>
PER SHARE OPERATING DATA
Net asset value, beginning of period $13.02 $12.64
$12.16 $12.15 $12.09 $11.82
-------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .65 .65
.73 .12 .73 .73
Net realized and unrealized gain (loss) (.82) .51
.49 .01 .07 .27
--------------------------------------------------------------------
Total income (loss) from
investment operations (.17) 1.16
1.22 .13 .80 1.00
-------------------------------------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income (.64) (.67)
(.74) (.12) (.73) (.69)
Dividends in excess of
net investment income -- --
-- -- -- (.04)
Distributions from net realized gain -- (.11)
-- -- -- --
Distributions in excess of net realized gain -- --
-- -- (.01) --
--------------------------------------------------------------------
Total dividends and distributions
to shareholders (.64) (.78)
(.74) (.12) (.74) (.73)
-------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $12.21 $13.02
$12.64 $12.16 $12.15 $12.09
====================================================================
=========================================================================================================================
TOTAL RETURN, AT NET ASSET VALUE(2) (1.42)% 9.33%
10.24% 1.12% 6.73% 8.93%
=========================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands) $109,575 $109,811
$89,991 $76,817 $76,913 $78,134
-------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $111,996 $ 99,678
$80,311 $77,584 $78,676 $76,148
-------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:(3)
Net investment income 5.03% 5.04%
5.91% 6.00% 5.99% 6.27%
Expenses, before voluntary assumption
and indirect expenses 0.67% 0.69%(4)
0.59%(4) 0.57%(4) 0.58%(4) 0.57%(4)
Expenses, after voluntary assumption
and indirect expenses 0.51% 0.53%
N/A N/A N/A N/A
-------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(5) 25% 30%
46% 1% 33% 14%
</TABLE>
1. For the two months ended August 31, 1996. The Fund changed its fiscal year
end from June 30 to August 31.
2. Assumes a $1,000 hypothetical initial investment on the business day before
the first day of the fiscal period (or inception of offering), with all
dividends and distributions reinvested in additional shares on the reinvestment
date, and redemption at the net asset value calculated on the last business day
of the fiscal period. Sales charges are not reflected in the total returns.
Total returns are not annualized for periods of less than one full year.
3. Annualized for periods of less than one full year.
4. Expense ratios reflect the effect of expenses paid indirectly by the Fund.
5. The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities owned
during the period. Securities with a maturity or expiration date at the time of
acquisition of one year or less are excluded from the calculation. Purchases and
sales of investment securities (excluding short-term securities) for the period
ended August 31, 1999 were $48,357,555 and $35,079,315, respectively.
21 OPPENHEIMER MAIN STREET CALIFORNIA MUNICIPAL FUND
<PAGE>
FINANCIAL HIGHLIGHTS Continued
<TABLE>
<CAPTION>
YEAR YEAR
ENDED ENDED
AUGUST 31, JUNE 30,
CLASS B 1999 1998
1997 1996(1) 1996 1995
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
<C> <C> <C> <C>
PER SHARE OPERATING DATA
Net asset value, beginning of period $13.01 $12.63
$12.14 $12.14 $12.08 $11.80
----------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .53
.54 .60 .10 .61 .62
Net realized and unrealized gain (loss) (.83)
.49 .50 -- .07 .27
--------------------------------------------------------------------------------
Total income (loss) from
investment operations (.30) 1.03
1.10 .10 .68 .89
----------------------------------------------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income (.51) (.54)
(.61) (.10) (.61) (.57)
Dividends in excess of
net investment income --
-- -- -- -- (.04)
Distributions from net realized gain --
(.11) -- -- -- --
Distributions in excess of net realized gain --
-- -- -- (.01) --
--------------------------------------------------------------------------------
Total dividends and distributions
to shareholders (.51) (.65)
(.61) (.10) (.62) (.61)
----------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $12.20 $13.01
$12.63 $12.14 $12.14 $12.08
================================================================================
==================================================================================================================================
TOTAL RETURN, AT NET ASSET VALUE(2) (2.41)% 8.24%
9.24% 0.85% 5.66% 7.90%
==================================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands) $29,730 $23,175
$11,919 $5,928 $5,442 $2,648
----------------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $28,070 $18,087 $
8,129 $5,767 $3,848 $1,904
----------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:(3)
Net investment income 4.02% 4.19%
4.85% 4.92% 4.94% 5.17%
Expenses, before voluntary assumption
and indirect expenses 1.67% 1.70%(4)
1.60%(4) 1.62%(4) 1.60%(4) 1.55%(4)
Expenses, after voluntary assumption
and indirect expenses 1.52%
1.53% N/A N/A N/A N/A
----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(5) 25%
30% 46% 1% 33% 14%
</TABLE>
1. For the two months ended August 31, 1996. The Fund changed its fiscal year
end from June 30 to August 31.
2. Assumes a $1,000 hypothetical initial investment on the business day before
the first day of the fiscal period (or inception of offering), with all
dividends and distributions reinvested in additional shares on the reinvestment
date, and redemption at the net asset value calculated on the last business day
of the fiscal period. Sales charges are not reflected in the total returns.
Total returns are not annualized for periods of less than one full year.
3. Annualized for period of less than one full year.
4. Expense ratios reflect the effect of expenses paid indirectly by the Fund.
5. The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities owned
during the period. Securities with a maturity or expiration date at the time of
acquisition of one year or less are excluded from the calculation. Purchases and
sales of investment securities (excluding short-term securities) for the period
ended August 31, 1999 were $48,357,555 and $35,079,315, respectively.
22 OPPENHEIMER MAIN STREET CALIFORNIA MUNICIPAL FUND
<PAGE>
INFORMATION AND SERVICES
For More Information on Oppenheimer Main Street California Municipal Fund(R):
The following additional information about the Fund is available without charge
upon request:
STATEMENT OF ADDITIONAL INFORMATION This document includes additional
information about the Fund's investment policies, risks, and operations. It is
incorporated by reference into this Prospectus (which means it is legally part
of this Prospectus).
ANNUAL AND SEMI-ANNUAL REPORTS Additional information about the Fund's
investments and performance is available in the Fund's Annual and Semi-Annual
Reports to shareholders. The Annual Report includes a discussion of market
conditions and investment strategies that significantly affected the Fund's
performance during its last fiscal year.
How to Get More Information
You can request the Statement of Additional Information, the Annual and
Semi-Annual Reports, and other information about the Fund or your account:
--------------------------------------------------------------------------------
By Telephone: Call OppenheimerFunds Services
toll-free: 1.800.525.7048
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
By Mail: Write to:
OppenheimerFunds Services
P.O. Box 5270
Denver, Colorado 80217-5270
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
On the Internet: You can send us a request by e-mail or
read or down-load documents on the
OppenheimerFunds web site:
http://www.oppenheimerfunds.com
--------------------------------------------------------------------------------
You can also obtain copies of the Statement of Additional Information and other
Fund documents and reports by visiting the SEC's Public Reference Room in
Washington, D.C. (Phone 1.202.942.8090) or the EDGAR database on the SEC's
Internet web site at http://www.sec.gov. Copies may be obtained after payment of
a duplicating fee by electronic request at the SEC's e-mail address:
[email protected] or by writing to the SEC's Public Reference Section,
Washington, D.C. 20549-0102.
No one has been authorized to provide any information about the Fund or to make
any representations about the Fund other than what is contained in this
Prospectus. This Prospectus is not an offer to sell shares of the Fund, nor a
solicitation of an offer to buy shares of the Fund, to any person in any state
or other jurisdiction where it is unlawful to make such an offer.
The Fund's shares are distributed
by:
SEC File No. 811-5360 (logo)OppenheimerFunds Distributor,
Inc.
PR0725.001.1299
<PAGE>
APPENDIX TO THE PROSPECTUS OF
OPPENHEIMER MAIN STREET CALIFORNIA MUNICIPAL FUND
Graphic material included in the Prospectus of Oppenheimer Main Street
California Municipal Fund ("the Fund") "Annual Total Returns (Class A)(% as of
12/31 each year)":
A bar chart will be included in the Prospectus of the Fund depicting the
annual total returns of a hypothetical investment in Class A shares of the Fund
for each of the eight most recent calendar years, without deducting sales
charges. Set forth below are the relevant data points that will appear in the
bar chart:
--------------------------------------------------------------------
Calendar Year Ended: Annual Total Returns
--------------------------------------------------------------------
--------------------------------------------------------------------
12/31/91 11.35%
--------------------------------------------------------------------
--------------------------------------------------------------------
12/31/92 8.35%
--------------------------------------------------------------------
--------------------------------------------------------------------
12/31/93 13.13%
--------------------------------------------------------------------
--------------------------------------------------------------------
12/31/94 -7.64%
--------------------------------------------------------------------
--------------------------------------------------------------------
12/31/95 19.72%
--------------------------------------------------------------------
--------------------------------------------------------------------
12/31/96 5.29%
--------------------------------------------------------------------
--------------------------------------------------------------------
12/31/97 10.38%
--------------------------------------------------------------------
--------------------------------------------------------------------
12/31/98 6.33%
--------------------------------------------------------------------
<PAGE>
Oppenheimer Main Street California Municipal Fund(R)
6803 South Tucson Way, Englewood, Colorado 80112
1-800-525-7048
Statement of Additional Information dated December 22, 1999
This Statement of Additional Information is not a Prospectus. This
document contains additional information about the Fund and supplements
information in the Prospectus dated December 22, 1999. It should be read
together with the Prospectus, which may be obtained by writing to the Fund's
Transfer Agent, OppenheimerFunds Services, at P.O. Box 5270, Denver, Colorado
80217, or by calling the Transfer Agent at the toll-free number shown above, or
by downloading it from the OppenheimerFunds Internet web site at
www.oppenheimerfunds.com.
Contents
Page
About the Fund
Additional Information About the Fund's Investment Policies and Risks.......2
The Fund's Investment Policies..........................................2
Other Investment Techniques and Strategies.............................12
Investment Restrictions................................................25
How the Fund is Managed ...................................................28
Organization and History...............................................28
Directors and Officers.................................................29
The Manager............................................................35
Brokerage Policies of the Fund.............................................37
Distribution and Service Plans.............................................38
Performance of the Fund....................................................41
About Your Account
How To Buy Shares..........................................................47
How To Sell Shares.........................................................55
How To Exchange Shares.....................................................60
Dividends, Capital Gains and Taxes.........................................62
Additional Information About the Fund......................................65
67
Financial Information About the Fund
Independent Auditors' Report...............................................67
Financial Statements.......................................................68
Appendix A: Municipal Bond Ratings Definitions............................A-1
Appendix B: Industry Classifications......................................B-1
Appendix C: Special Sales Charge Arrangements and Waivers.................C-1
--------------------------------------------------------------------------------
<PAGE>
A B O U T T H E F U N D
--------------------------------------------------------------------------------
Additional Information About the Fund's Investment
Policies and Risks
The investment objective, the principal investment policies and the main risks
of the Fund are described in the Prospectus. This Statement of Additional
Information contains supplemental information about those policies and risks and
the types of securities that the Fund's investment Manager, OppenheimerFunds,
Inc., can select for the Fund. Additional information is also provided about the
strategies that the Fund can use to try to achieve its objective.
The Fund's Investment Policies. The composition of the Fund's portfolio and the
techniques and strategies that the Fund's Manager can use in selecting portfolio
securities will vary over time. The Fund is not required to use all of the
investment techniques and strategies described below in seeking its goal. It can
use some of the special investment techniques and strategies at some times or
not at all.
The Fund does not make investments with the objective of seeking capital
growth, since that would generally be inconsistent with its goal of seeking
tax-exempt income. However, the value of the securities held by the Fund may be
affected by changes in general interest rates. Because the current value of debt
securities varies inversely with changes in prevailing interest rates, if
interest rates increased after a security was purchased, that security would
normally decline in value. Conversely, if interest rates decreased after a
security was purchased, normally its value would rise.
However, those fluctuations in value will not generally result in realized
gains or losses to the Fund unless the Fund sells the security prior to
maturity. A debt security held to maturity is redeemable by its issuer at full
principal value plus accrued interest. The Fund does not usually intend to
dispose of securities prior to their maturity, but may do so for liquidity, or
because of other investment reasons, such as factors affecting the issuer that
cause the Manager to sell the particular security. In that case, the Fund could
experience a capital gain or loss on the sale.
There are variations in the credit quality of municipal securities, both
within a particular rating classification and between classifications. These
variations depend on numerous factors. The yields of municipal securities depend
on a number of factors, including general conditions in the municipal securities
market, the size of a particular offering, the maturity of the obligation and
rating (if any) of the issue. These factors are discussed in greater detail
below.
|X| Portfolio Turnover. "Portfolio turnover" describes the rate at which the
Fund traded its portfolio securities during its last fiscal year. For example,
if a fund sold all of its securities during the year, its portfolio turnover
rate would have been 100%. Short-term trading increases the rate of portfolio
turnover and could increase the Fund's transaction costs. However, the Fund
ordinarily incurs little or no brokerage expense because most of the Fund's
portfolio transactions are principal trades that do not require payment of
brokerage commissions. Additionally, the realization of capital gains from
selling portfolio securities may result in distributions of taxable long-term
capital gains to shareholders, since the Fund will normally distribute all of
its capital gains realized each year, to avoid excise taxes under the Internal
Revenue Code.
The Fund ordinarily does not trade securities to achieve short-term
capital gains, because they would not be tax-exempt income. To a limited
degree, the Fund can engage in short-term trading to attempt to take
advantage of short-term market variations. It can also do so to dispose of a
portfolio security prior to its maturity. That might be done if, on the
basis of a revised credit evaluation of the issuer or other considerations,
the Fund believes such disposition advisable or it needs to generate cash to
satisfy requests to redeem Fund shares. In those cases, the Fund may realize
a capital gain or loss on its investments. The Fund's annual portfolio
turnover rate normally is not expected to exceed 100%.
Municipal Securities. The types of municipal securities in which the Fund can
invest are described in the Prospectus under "About the Fund's Investments."
Municipal securities generally include general obligation bonds, revenue bonds
and notes, and municipal lease interests. A discussion of the general
characteristics of these principal types of municipal securities follows below.
|X| Municipal Bonds. We have classified longer term municipal securities
as "municipal bonds." The principal classifications of long-term municipal bonds
are "general obligation" and "revenue" (or "industrial development") bonds. They
may have fixed, variable or floating rates of interest, as described below.
Some bonds may be "callable," allowing the issuer to redeem them before
their maturity date. To protect bondholders, callable bonds may be issued with
provisions that prevent them from being called for a period of time. Typically,
that is 5 to 10 years from the issuance date. When interest rates decline, if
the call protection on a bond has expired, it is more likely that the issuer may
call the bond. If that occurs, the Fund might have to reinvest the proceeds of
the called bond in bonds that pay a lower rate of return.
|_| General Obligation Bonds. The basic security behind general
obligation bonds is the issuer's pledge of its full faith and credit and taxing
power for the repayment of principal and the payment of interest. Issuers of
general obligation bonds include states, counties, cities, towns, and regional
districts. The proceeds of these obligations are used to fund a wide range of
public projects, including construction or improvement of schools, highways and
roads, and water and sewer systems. The rate of taxes that can be levied for the
payment of debt service on these bonds may be limited or unlimited.
Additionally, there may be limits on the rate or amount of special assessments
that can be levied to meet these obligations.
|_| Revenue Bonds. The principal security for a revenue bond is
generally the net revenues derived from a particular facility, group of
facilities, or, in some cases, the proceeds of a special excise tax or other
specific revenue source. Revenue bonds are issued to finance a wide variety of
capital projects. Examples include electric, gas, water and sewer systems;
highways, bridges, and tunnels; port and airport facilities; colleges and
universities; and hospitals.
<PAGE>
Although the principal security for these types of bonds may vary from
bond to bond, many provide additional security in the form of a debt service
reserve fund that may be used to make principal and interest payments on the
issuer's obligations. Housing finance authorities bonds have a wide range of
security, including partially or fully insured mortgages, rent subsidized and/or
collateralized mortgages, and/or the net revenues from housing or other public
projects. Some authorities provide further security in the form of a state's
ability (without obligation) to make up deficiencies in the debt service reserve
fund.
|_| Industrial Development Bonds. Industrial development bonds are
considered municipal bonds if the interest paid is exempt from federal income
tax. They are issued by or on behalf of public authorities to raise money to
finance various privately operated facilities for business and manufacturing,
housing, sports, and pollution control. These bonds may also be used to finance
public facilities such as airports, mass transit systems, ports, and parking.
The payment of the principal and interest on such bonds is dependent solely on
the ability of the facility's user to meet its financial obligations and the
pledge, if any, of real and personal property financed by the bond as security
for those payments.
|_| Mello-Roos Bonds. These are bonds issued under the California
Mello-Roos Community Facilities Act. They are used to finance infrastructure
projects, such as roads or sewage treatment plants. In most cases they are
secured by real estate taxes levied on property located in the same community as
the project. This type of financing was created in response to statutory limits
on real property taxes that were enacted in California. The bonds do not
constitute an obligation of a municipal government. Timely payment of principal
and interest depends on the ability of the developer of the project or other
property owners to pay their real estate taxes. Therefore these bonds are
subject to risks of nonpayment as a result of a general economic of real estate
market decline or decline in the real estate market, as well as the credit risk
of the developer.
|_| Private Activity Municipal Securities. The Tax Reform Act of 1986
(the "Tax Reform Act") reorganized, as well as amended, the rules governing tax
exemption for interest on certain types of municipal securities. The Tax Reform
Act generally did not change the tax treatment of bonds issued in order to
finance governmental operations. Thus, interest on general obligation bonds
issued by or on behalf of state or local governments, the proceeds of which are
used to finance the operations of such governments, continues to be tax-exempt.
However, the Tax Reform Act limited the use of tax-exempt bonds for
non-governmental (private) purposes. More stringent restrictions were placed on
the use of proceeds of such bonds. Interest on certain private activity bonds is
taxable under the revised rules. There is an exception for "qualified"
tax-exempt private activity bonds: for example, exempt facility bonds including
certain industrial development bonds, qualified mortgage bonds, qualified
Section 501(c)(3) bonds, and qualified student loan bonds.
In addition, limitations on the amount of private activity bonds that each
state may issue were revised downward by the Tax Reform Act, which has reduced
the supply of such bonds. The value of the Fund's portfolio could be affected if
there is a further reduction in the availability of such bonds.
Interest on certain private activity bonds issued after August 7, 1986,
which continues to be tax-exempt, will be treated as a tax preference item
subject to the alternative minimum tax (discussed below) to which certain
taxpayers are subject. The Fund may hold municipal securities the interest on
which (and thus a proportionate share of the exempt-interest dividends paid by
the Fund) will be subject to the federal alternative minimum tax on individuals
and corporations.
The federal alternative minimum tax is designed to ensure that all persons
who receive income pay some tax, even if their regular tax is zero. This is
accomplished in part by including in taxable income certain tax preference items
that are used to calculate alternative minimum taxable income. The Tax Reform
Act made tax-exempt interest from certain private activity bonds a tax
preference item for purposes of the alternative minimum tax on individuals and
corporations. Any exempt-interest dividend paid by a regulated investment
company will be treated as interest on a specific private activity bond based on
a ratio between the interest the Fund receives and the total amount of the
Fund's exempt interest dividends.
In addition, under some circumstances, corporate taxpayers subject to the
alternative minimum tax may have to include exempt-interest dividends in
calculating their alternative minimum taxable income. That could occur if the
"adjusted current earnings" of the corporation exceed its alternative minimum
taxable income.
To determine whether a municipal security is treated as a taxable private
activity bond, it is subject to a test for: (a) a trade or business use and
security interest, or (b) a private loan restriction. Under the trade or
business use and security interest test, an obligation is a private activity
bond if: (i) more than 10% of the bond proceeds are used for private business
purposes and (ii) 10% or more of the payment of principal or interest on the
issue is directly or indirectly derived from such private use or is secured by
the privately used property or the payments related to the use of the property.
For certain types of uses, a 5% threshold is substituted for the 10% threshold.
The term "private business use" means any direct or indirect use in a
trade or business carried on by an individual or entity other than a state or
municipal governmental unit. Under the private loan restriction, the amount of
bond proceeds that may be used to make private loans is limited to the lesser of
5% or $5.0 million of the proceeds. Thus, certain issues of municipal securities
could lose their tax-exempt status retroactively if the issuer fails to meet
certain requirements as to the expenditure of the proceeds of that issue or the
use of the bond-financed facility. The Fund makes no independent investigation
of the users of such bonds or their use of proceeds of the bonds. If the Fund
should hold a bond that loses its tax-exempt status retroactively, there might
be an adjustment to the tax-exempt income previously distributed to
shareholders.
Additionally, a private activity bond that would otherwise be a qualified
tax-exempt private activity bond will not, under Internal Revenue Code Section
147(a), be a qualified bond for any period during which it is held by a person
who is a "substantial user" of the facilities or by a "related person" of such a
substantial user. This "substantial user" provision applies primarily to exempt
facility bonds, including industrial development bonds. The Fund can invest in
industrial development bonds and other private activity bonds. Therefore, the
Fund may not be an appropriate investment for entities which are "substantial
users" (or persons related to "substantial users") of such exempt facilities.
Those entities and persons should consult their tax advisers before purchasing
shares of the Fund.
A "substantial user" of such facilities is defined generally as a
"non-exempt person who regularly uses part of a facility" financed from the
proceeds of exempt facility bonds. Generally, an individual will not be a
"related person" under the Internal Revenue Code unless such individual or the
individual's immediate family (spouse, brothers, sisters and immediate
descendants) own directly or indirectly in the aggregate more than 50% in value
of the equity of a corporation or partnership which is a "substantial user" of a
facility financed from the proceeds of exempt facility bonds.
|X| Municipal Notes. Municipal securities having a maturity (when the security
is issued) of less than one year are generally known as municipal notes.
Municipal notes generally are used to provide for short-term working capital
needs. Some of the types of municipal notes the Fund can invest in are described
below.
|_| Tax Anticipation Notes. These are issued to finance working capital
needs of municipalities. Generally, they are issued in anticipation of various
seasonal tax revenue, such as income, sales, use or other business taxes, and
are payable from these specific future taxes.
|_| Revenue Anticipation Notes. These are notes issued in expectation
of receipt of other types of revenue, such as federal revenues available under
federal revenue-sharing programs.
|_| Bond Anticipation Notes. Bond anticipation notes are issued to
provide interim financing until long-term financing can be arranged. The
long-term bonds that are issued typically also provide the money for the
repayment of the notes.
|_| Construction Loan Notes. These are sold to provide project
construction financing until permanent financing can be secured. After
successful completion and acceptance of the project, it may receive permanent
financing through public agencies, such as the Federal Housing Administration.
|X| Tax-Exempt Commercial Paper. This type of short-term obligation
(usually having a maturity of 270 days or less) is issued by a municipality to
meet current working capital needs.
|X| Municipal Lease Obligations. The Fund's investments in municipal lease
obligations may be through certificates of participation that are offered to
investors by public entities. Municipal leases may take the form of a lease or
an installment purchase contract issued by a state or local government authority
to obtain funds to acquire a wide variety of equipment and facilities.
Some municipal lease securities may be deemed to be "illiquid" securities.
Their purchase by the Fund would be limited as described below in "Illiquid
Securities." From time to time the Fund may invest more than 5% of its net
assets in municipal lease obligations that the Manager has determined to be
liquid under guidelines set by the Board of Directors. Those guidelines require
the Manager to evaluate:
o the frequency of trades and price quotations for such securities; o the
number of dealers or other potential buyers willing to purchase or
sell such securities; o the availability of market-makers; and o the
nature of the trades for such securities.
While the Fund holds such securities, the Manager will also evaluate the
likelihood of a continuing market for these securities and their credit quality.
Municipal leases have special risk considerations. Although lease
obligations do not constitute general obligations of the municipality for which
the municipality's taxing power is pledged, a lease obligation is ordinarily
backed by the municipality's covenant to budget for, appropriate and make the
payments due under the lease obligation. However, certain lease obligations
contain "non-appropriation" clauses which provide that the municipality has no
obligation to make lease or installment purchase payments in future years unless
money is appropriated for that purpose on a yearly basis. While the obligation
might be secured by the lease, it might be difficult to dispose of that property
in case of a default.
Projects financed with certificates of participation generally are not
subject to state constitutional debt limitations or other statutory requirements
that may apply to other municipal securities. Payments by the public entity on
the obligation underlying the certificates are derived from available revenue
sources. That revenue might be diverted to the funding of other municipal
service projects. Payments of interest and/or principal with respect to the
certificates are not guaranteed and do not constitute an obligation of a state
or any of its political subdivisions.
In addition to the risk of "non-appropriation," municipal lease securities
do not have as highly liquid a market as conventional municipal bonds. Municipal
leases, like other municipal debt obligations, are subject to the risk of
non-payment of interest or repayment of principal by the issuer. The ability of
issuers of municipal leases to make timely lease payments may be adversely
affected in general economic downturns and as relative governmental cost burdens
are reallocated among federal, state and local governmental units. A default in
payment of income would result in a reduction of income to the Fund. It could
also result in a reduction in the value of the municipal lease and that, as well
as a default in repayment of principal, could result in a decrease in the net
asset value of the Fund.
|X| Ratings of Municipal Securities. Ratings by ratings organizations such
as Moody's Investors Service, Standard & Poor's Rating Service and Fitch IBCA,
Inc. represent the respective rating agency's opinions of the credit quality of
the municipal securities they undertake to rate. However, their ratings are
general opinions and are not guarantees of quality. Municipal securities that
have the same maturity, coupon and rating may have different yields, while other
municipal securities that have the same maturity and coupon but different
ratings may have the same yield.
Subsequent to its purchase by the Fund, a municipal security may cease to
be rated or its rating may be reduced below the minimum required for purchase by
the Fund. Neither event requires the Fund to sell the security, but the Manager
will consider such events in determining whether the Fund should continue to
hold the security. To the extent that ratings given by Moody's, Standard &
Poor's, or Fitch change as a result of changes in those rating organizations or
their rating systems, the Fund will attempt to use comparable ratings as
standards for investments in accordance with the Fund's investment policies.
The Fund can buy municipal securities that are "pre-refunded." The
issuer's obligation to repay the principal value of the security is generally
collateralized with U.S. government securities placed in an escrow account. This
causes the pre-refunded security to have essentially the same risks of default
as a AAA-rated security.
A list of the rating definitions of Moody's, S&P and Fitch for municipal
securities is contained in Appendix A to this Statement of Additional
Information. Because the Fund can purchase securities that are unrated by
nationally recognized rating organizations, the Manager will make its own
assessment of the credit quality of unrated issues the Fund buys. The Manager
will use criteria similar to those used by the rating agencies, and will assign
a rating category to a security that is comparable to what the Manager believes
a rating agency would assign to that security. However, the Manager's rating
does not constitute a guarantee of the quality of a particular issue.
|_| Special Risks of Lower-Grade Securities. The Fund can invest up to
25% of its total assets in "lower grade" debt securities. The Fund can do so to
seek current income. Because lower-rated securities tend to offer higher yields
than investment grade securities, the Fund can invest in lower grade securities
if the Manager is trying to achieve greater income.
"Lower-grade" municipal securities include municipal bonds and notes rated
below "investment grade." That includes municipal bonds that have a rating lower
than "Baa" by Moody's or lower than "BBB" by Standard & Poor's or Duff & Phelps,
or similar ratings by other rating organizations and municipal notes rated SP-2
by Standard & Poor's, MIG by Moody's or F-2 by Fitch. While securities rated
"Baa" by Moody's or "BBB" by Standard & Poor's are investment grade and are not
regarded as junk bonds, those securities may be subject to special risks, and
have some speculative characteristics. If municipal securities are unrated and
are determined by the Manager to be of comparable quality to debt securities
rated below investment grade, those municipal securities are included in the
limitation on the percentage of the Fund's assets that can be invested in
lower-grade securities.
Lower grade securities may have a higher yield than securities rated in
the higher rating categories. In addition to having a greater risk of default
than higher-grade securities there may be less of a market for these securities.
As a result they may be harder to sell at an acceptable price. The additional
risks mean that the Fund may not receive the anticipated level of income from
these securities, and the Fund's net asset value may be affected by declines in
the value of
<PAGE>
lower-grade securities. However, because the added risk of lower quality
securities might not be consistent with the Fund's policy of preservation of
capital, the Fund limits its investments in lower quality securities.
Some of the special credit risks of lower-grade securities are discussed
in the Prospectus. There is a greater risk that the issuer may default on its
obligation to pay interest or to repay principal than in the case of investment
grade securities. The issuer's low creditworthiness may increase the potential
for its insolvency. An overall decline in values in the high yield bond market
is also more likely during a period of a general economic downturn. An economic
downturn or an increase in interest rates could severely disrupt the market for
high yield bonds, adversely affecting the values of outstanding bonds as well as
the ability of issuers to pay interest or repay principal. However, the Fund's
limitations on these investments may reduce, to the Fund's exposure to those
risks.
Special Risks of Investing Primarily in California Municipal Securities. Because
the Trust focuses its investments primarily on California municipal securities,
the value of its portfolio investments will be highly sensitive to events
affecting the fiscal stability of the State of California and its
municipalities, authorities and other instrumentalities that issue securities.
There have been a number of political developments, voter initiatives, state
constitutional amendments and legislation in California in recent years that may
affect the ability of the State government and municipal governments to pay
interest and repay principal on the securities they have issued. In addition, in
recent years, the State of California has derived a significant portion of its
revenues from personal income and sales taxes. Because the amount collected from
these taxes is particularly sensitive to economic conditions, the State's
revenues have been volatile.
It is not possible to predict the future impact of the legislation and
economic considerations described below on the long-term ability of the State of
California or California municipal issuers to pay interest or repay principal on
their obligations. In part that is because of possible inconsistencies in the
terms of the various laws and Propositions and the applicability of other
statutes to these issues. The budgets of California counties and local
governments may be significantly affected by state budget decisions beyond their
control. The information below about these conditions is only a brief summary,
based upon information the Trust has drawn from sources that it believes are
reliable.
|_| Changes to the State Constitution. Changes to the state
constitution in recent years have raised general concerns about the ability of
the State and municipal governments in California to obtain sufficient revenues
to pay their bond obligations. In 1978, California voters approved Proposition
13, an amendment to the state constitution. The Proposition added a new section
to the constitution that limits ad valorem taxes on real property and restricts
the ability of local taxing entities to increase real property taxes. However,
legislation enacted after Proposition 13 provided help to California municipal
issuers to raise revenue to pay their bond obligations. During the severe
recession California experienced from 1991 to 1993, the State legislature
eliminated significant components of its aid to local governments. The State has
since increased aid to local governments and reduced certain mandates for local
services. Whether legislation will be enacted in the future to either increase
or reduce the redistribution of State revenues to local governments, or to make
them less dependent on State budget decisions, cannot be predicted. Even if
legislation increasing such redistribution is passed, it cannot be predicted
whether in every instance it will provide sufficient revenue for local municipal
issuers to pay their bond obligations.
Another amendment to the state constitution may also have an adverse
impact on state and municipal bond obligations. That amendment restricts the
state government from spending amounts in excess of appropriation limits imposed
on each state and local government entity. If revenues exceed the appropriation
limit, those revenues must be returned, in the form of a revision in the tax
rates or fee schedules.
|_| Voter Initiatives. California voters have approved a number of
initiatives that affect the ability of the state and municipalities to finance
their bond obligations. In 1988, California voters approved Proposition 98,
which requires a minimum level of funding for public schools and community
colleges. In 1986, voters approved Proposition 62, which had a number of
effects. One requires that any special tax imposed by a local government must be
approved by a two-thirds vote of the electorate. In 1995, the California Supreme
Court upheld the constitutionality of that Proposition. That created uncertainty
as to the legality of certain local taxes enacted by non-charter cities without
voter approval. It is not possible to predict the eventual impact of that
decision.
In 1996, California voters approved Proposition 218. That initiative
applied the provisions of Proposition 62 to all government entities, including
cities having charters. It requires that all taxes for general purposes be
approved by a simple majority of the popular vote, and that taxes for special
purposes must be approved by a two-thirds majority vote. Proposition 218 also
limits the authority of local governments to impose property-related
assessments, fees and charges. It requires that such assessments be limited to
the special benefit conferred and prohibits their use for general governmental
services. The Proposition enables voters to use their initiative powers to
reduce or repeal previously-authorized taxes, assessments, fees and charges.
|_| Effect of other State Laws on Bond Obligations. Some of the
tax-exempt securities that the Trust can invest in may be obligations payable
solely from the revenues of a specific institution or secured by specific
properties. These are subject to provisions of California law that could
adversely affect the holders of such obligations. For example, the revenues of
California health care institutions may be adversely affected by State laws, and
California law limits the remedies of a creditor secured by a mortgage or deed
of trust on real property. Debt obligations payable solely from revenues of
health care institutions may also be insured by the State but no guarantee
exists that adequate reserve funds will be appropriated by the State legislature
for such purpose.
|_| The Effect of General Economic Conditions in the State. The
California economy has been recovering from a general economic recession of a
few years ago. In 1997, the rate of growth in new jobs has been generally high
compared to the rest of the country. The unemployment rate, while relatively
higher than the national average, fell to an average of 5.9% in 1998, compared
to over 10% during the recessionary period. Many of the new jobs were created in
industries such as computer services, software design, motion pictures and high
technology manufacturing. Business services, export trade and other
manufacturing also experienced growth. Recent economic reports indicate that,
while the rate of economic growth in California is expected to moderate over the
next year, the increases in employment and income may exceed those of the nation
as a whole. The unsettled financial situation occurring in certain Asian
economies, and its spillover effects elsewhere, may continue to adversely affect
the State's export-related industries and, therefore, the State's rate of
economic growth.
On June 29, 1999, the Governor of California signed the 1999-2000 Budget
Act. The Budget Act estimated General Trust revenues and transfers of $63.0
billion, and contained expenditures totaling $63.7 billion. The Budget Act also
contained expenditures of $16.1 billion from special funds and $1.5 billion from
bond funds. The Administration estimated a budget reserve balance at June 30,
2000, of approximately $881 million. Not included in this amount was an
additional $300 million which (after the Governor's vetoes) was "set aside" to
provide funds for employee salary increases (to be negotiated in bargaining with
employee unions), and for litigation reserves. The Budget Act anticipates normal
cash flow borrowing during the fiscal year. Continued State economic expansion
and large revenue increases enabled the Governor and State legislature to
provide increases in spending programs in the 1999-2000 budget. These included
large increases in education and health and human services funding.
In recent past years the state has experienced reductions in the overall
credit ratings assigned to its General Obligation bonds by several major rating
agencies. In July 1994, the ratings of those bonds were downgraded from Aa to A1
by Moody's, from A+ to A by Standard & Poor's and from AA to A by Fitch. At the
time, the rating agencies all cited uncertainty about the State's ability to
balance its budget by 1996. In 1996, noting improvements in the economy in
California and the state budget, both Fitch and Standard & Poor's raised their
ratings of the State's General Obligation bonds from A to A+, in 1997 Fitch
raised its rating to AA-, in 1998 Moody's raised its rating to Aa3, and in 1999
Standard & Poor's raised its rating to AA-.
|_| Special Financial Problems of Local Governments. Some local
governments in California have experienced notable financial difficulties. On
December 6, 1994, Orange County, California, became the largest municipality in
the United States ever to have filed for protection under federal bankruptcy
laws. The filing stemmed from losses of about $1.7 billion in the County's
investment pool due to investments in high-risk derivative securities. In
September 1995 the state legislature approved legislation that permitted Orange
County to use for bankruptcy recovery $820 million in sales taxes over 20 years
that were previously earmarked for highways, transit and development. In June
1996 the County completed an $880 million bond offering secured by real property
owned by the County. On June 12, 1996, the County emerged from bankruptcy. On
January 7, 1997, Orange County returned to the bond market with a $136 million
bond issue. In December 1997, Moody's raised its ratings on $325 million of
Orange County pension obligation bonds to Baa3 from Ba. In February 1998, Fitch
assigned outstanding Orange County pension obligation bonds a BBB rating. In
September 1999, Moody's assigned the County an issuer (implied general
obligation) rating of Aa3 and, among other things, upgraded the ratings on the
County's pension obligation bonds to A1.
Los Angeles County, the nation's most populous county, has also
experienced financial difficulties. Between 1992 and 1995, the County's
long-term bonds were downgraded three times. This occurred as a result of a
number of factors, including severe operating deficits for the county's health
care system. In addition, the County was affected by a long-term loss of revenue
caused by state property tax shift initiatives in 1993 through 1995. The
County's improving financial condition has been reflected in improved general
obligation bond ratings. In June 1999, the Los Angeles County Board of
Supervisors approved a budget of approximately $15 billion for 1999-2000, up
from the $13.6 billion approved for the previous fiscal year. The County's
financial condition will continue to be affected by the large number of County
residents who are dependent on government services and by a structural deficit
in its health department.
Year 2000 Concerns. In October 1997, the Governor of California issued an
executive order stating that solutions to the Year 2000 problem would be a state
government priority. Although the State reports that it is making substantial
progress overall toward the goal of Year 2000 compliance, the task is very
complex and will likely encounter unexpected difficulties. The State has not
predicted whether all mission critical system will be ready and tested by late
1999 or what impact failure of any particular IT system(s) or of outside
interfaces with State IT systems might have. The State has indicated that all
mission critical systems will have a contingency business plan in place to
mitigate potential system failures.
The State Treasurer's Office has reported that its systems for bond
payments are fully Y2K compliant. The State Controller's Office has reported
that it has completed the necessary Y2K remediation projects for the State
fiscal and accounting system. Both offices report they are actively working with
outside entities with which they interface to ensure they are also compliant.
There can be no assurance that the steps taken by state or local
governments or agencies to address the Year 2000 problem will be sufficient to
avoid any adverse impact on their budgets or operations. Therefore, the possible
impact of Year 2000 problems on the debt securities issued by those governments
and agencies, and which may be owned by the Trust, cannot be predicted with any
certainty.
Other Investment Techniques and Strategies. In seeking its objective, the Fund
can from time to time use the types of investment strategies and investments
described below. It is not required to use all of there strategies at all times
and at times may not use them.
|X| Floating Rate and Variable Rate Obligations. Variable rate demand
obligations have a demand feature that allows the Fund to tender the obligation
to the issuer or a third party prior to its maturity. The tender may be at par
value plus accrued interest, according to the terms of the obligations.
The interest rate on a floating rate demand note is based on a stated
prevailing market rate, such as a bank's prime rate, the 91-day U.S. Treasury
Bill rate, or some other standard, and is adjusted automatically each time such
rate is adjusted. The interest rate on a variable rate demand note is also based
on a stated prevailing market rate but is adjusted automatically at specified
intervals of not less than one year. Generally, the changes in the interest rate
on such securities reduce the fluctuation in their market value. As interest
rates decrease or increase, the potential for capital appreciation or
depreciation is less than that for fixed-rate obligations of the same maturity.
The Manager can determine that an unrated floating rate or variable rate demand
obligation meets the Fund's quality standards by reason of being backed by a
letter of credit or guarantee issued by a bank that meets those quality
standards.
Floating rate and variable rate demand notes that have a stated maturity
in excess of one year may have features that permit the holder to recover the
principal amount of the underlying security at specified intervals not exceeding
one year and upon no more than 30 days' notice. The issuer of that type of note
normally has a corresponding right in its discretion, after a given period, to
prepay the outstanding principal amount of the note plus accrued interest.
Generally the issuer must provide a specified number of days' notice to the
holder.
|X| Inverse Floaters and Other Derivative Investments. The Fund can invest
in inverse floaters to seek higher tax-exempt yields than are available from
fixed-rate bonds that have comparable maturities and credit ratings. Inverse
floaters may offer relatively high current income, reflecting the spread between
short-term and long-term tax exempt interest rates. As long as the municipal
yield curve remains relatively steep and short term rates remain relatively low,
owners of inverse floaters will have the opportunity to earn interest at
above-market rates because they receive interest at the higher long-term rates
but have paid for bonds with lower short-term rates. If the yield curve flattens
and shifts upward, an inverse floater will lose value more quickly than a
conventional long-term bond. In some cases, the holder of an inverse floater may
have an option to convert the floater to a fixed-rate bond, pursuant to a
"rate-lock" option.
Some inverse floaters have a feature known as an interest rate "cap" as
part of the terms of the investment. Investing in inverse floaters that have
interest rate caps might be part of a portfolio strategy to try to maintain a
high current yield for the Fund when the Fund has invested in inverse floaters
that expose the Fund to the risk of short-term interest rate fluctuations.
"Embedded" caps can be used to hedge a portion of the Fund's exposure to rising
interest rates. When interest rates exceed a pre-determined rate, the cap
generates additional cash flows that offset the decline in interest rates on the
inverse floater, and the hedge is successful. However, the Fund bears the risk
that if interest rates do not rise above the pre-determined rate, the cap (which
is purchased for additional cost) will not provide additional cash flows and
will expire worthless.
Inverse floaters are a form of derivative investment. Certain derivatives,
such as options, futures, indexed securities and entering into swap agreements,
can be used to increase the Fund's exposure to changing security prices,
interest rates or other factors that affect the value of securities. However,
these investments could result in losses to the Fund, if the Manager judges
market conditions incorrectly or employs a strategy that does not correlate well
with the Fund's other investments. These investments can cause losses if the
counterparty does not perform its promises. An additional risk of investing in
municipal securities that are derivative investments is that their market value
could be expected to vary to a much greater extent than the market value of
municipal securities that are not derivative investments but have similar credit
quality, redemption provisions and maturities.
|X| "When-Issued" and "Delayed-Delivery" Transactions. The Fund can
purchase securities on a "when-issued" basis, and can purchase or sell such
securities on a "delayed-delivery" or "forward commitment" basis. "When-issued"
or "delayed-delivery" refers to securities whose terms and indenture are
available and for which a market exists, but which are not available for
immediate delivery. The Fund does not use this technique for speculative
purposes.
When such transactions are negotiated the price (which is generally
expressed in yield terms) is fixed at the time the commitment is made. Delivery
and payment for the securities take place at a later date. Normally the
settlement date is within six months of the purchase of municipal bonds and
notes. However, from time to time, the Fund can purchase municipal securities
having a settlement date more than six months and possibly as long as two years
or more after the trade date. The securities are subject to change in value from
market fluctuation during the settlement period. The value at delivery may be
less than the purchase price. For example, changes in interest rates in a
direction other than that expected by the Manager before settlement will affect
the value of such securities and might cause a loss to the Fund. No income
begins to accrue to the Fund on a "when-issued" security until the Fund receives
the security at settlement of the trade.
The Fund can engage in when-issued transactions in order to secure what is
considered to be an advantageous price and yield at the time of entering into
the obligation. When the Fund engages in "when-issued" or "delayed-delivery"
transactions, it relies on the buyer or seller, as the case may be, to complete
the transaction. Its failure to do so may cause the Fund to lose the opportunity
to obtain the security at a price and yield it considers advantageous.
When the Fund engages in "when-issued" and "delayed-delivery"
transactions, it does so for the purpose of acquiring or selling securities
consistent with its investment objective and policies for its portfolio or for
delivery pursuant to options contracts it has entered into, and not for the
purposes of investment leverage. Although the Fund normally would enter into
"when-issued" or delayed-delivery purchase transactions to acquire securities,
the Fund can dispose of a commitment prior to settlement. If the Fund chooses to
dispose of the right to acquire a "when-issued" security prior to its
acquisition or to dispose of its right to deliver or receive against a forward
commitment, it might incur a gain or loss.
At the time the Fund makes a commitment to purchase or sell a security on
a "when-issued" or forward commitment basis, it records the transaction on its
books and reflects the value of the security purchased. In a sale transaction,
it records the proceeds to be received, in determining its net asset value. The
Fund will identify to its custodian bank, cash, U.S. government securities or
other high- grade debt obligations at least equal to the value of purchase
commitments until the Fund pays for the investment.
"When-issued" transactions and forward commitments can be used by the Fund
as a defensive technique to hedge against anticipated changes in interest rates
and prices. For instance, in periods of rising interest rates and falling
prices, the Fund might sell securities in its portfolio on a forward commitment
basis to attempt to limit its exposure to anticipated falling prices. In periods
of falling interest rates and rising prices, the Fund might sell portfolio
securities and purchase the same or similar securities on a when-issued or
forward commitment basis, to obtain the benefit of currently higher cash yields.
|X| Zero-Coupon Securities. The Fund can buy zero-coupon and delayed
interest municipal securities. Zero-coupon securities do not make periodic
interest payments and are sold at a deep discount from their face value. The
buyer recognizes a rate of return determined by the gradual appreciation of the
security, which is redeemed at face value on a specified maturity date. This
discount depends on the time remaining until maturity, as well as prevailing
interest rates, the liquidity of the security and the credit quality of the
issuer. In the absence of threats to the issuer's credit quality, the discount
typically decreases as the maturity date approaches. Some zero-coupon securities
are convertible, in that they are zero-coupon securities until a predetermined
date, at which time they convert to a security with a specified coupon rate.
Because zero-coupon securities pay no interest and compound semi-annually
at the rate fixed at the time of their issuance, their value is generally more
volatile than the value of other debt securities. Their value may fall more
dramatically than the value of interest-bearing securities when interest rates
rise. When prevailing interest rates fall, zero-coupon securities tend to rise
more rapidly in value because they have a fixed rate of return.
The Fund's investment in zero-coupon securities may cause the Fund to
recognize income and make distributions to shareholders before it receives any
cash payments on the zero-coupon investment. To generate cash to satisfy those
distribution requirements, the Fund may have to sell portfolio securities that
it otherwise might have continued to hold or to use cash flows from other
sources such as the sale of Fund shares.
|X| Puts and Standby Commitments. If the Fund buys a municipal security
subject to a standby commitment to repurchase the security, the Fund is entitled
to same-day settlement from the purchaser. The Fund receives an exercise price
equal to the amortized cost of the underlying security plus any accrued interest
at the time of exercise. A put purchased in conjunction with a municipal
security enables the Fund to sell the underlying security within a specified
period of time at a fixed exercise price.
The Fund might purchase a standby commitment or put separately in cash or
it might acquire the security subject to the standby commitment or put (at a
price that reflects that additional feature). The Fund will enter into these
transactions only with banks and securities dealers that, in the Manager's
opinion, present minimal credit risks. The Fund's ability to exercise a put or
standby commitment will depend on the ability of the bank or dealer to pay for
the securities if the put or standby commitment is exercised. If the bank or
dealer should default on its obligation, the Fund might not be able to recover
all or a portion of any loss sustained from having to sell the security
elsewhere.
Puts and standby commitments are not transferable by the Fund. They
terminate if the Fund sells the underlying security to a third party. The Fund
would enter into these arrangements to facilitate portfolio liquidity, although
such arrangements might enable the Fund to sell a security at a pre-arranged
price that may be higher than the prevailing market price at the time the put or
standby commitment is exercised. However, the Fund might refrain from exercising
a put or standby commitment if the exercise price is significantly higher than
the prevailing market price, to avoid imposing a loss on the seller that could
jeopardize the Fund's business relationships with the seller.
A put or standby commitment increases the cost of the security and reduces
the yield otherwise available from the security. Any consideration paid by the
Fund for the put or standby commitment will be reflected on the Fund's books as
unrealized depreciation while the put or standby commitment is held, and a
realized gain or loss when the put or commitment is exercised or expires.
Interest income received by the Fund from municipal securities subject to puts
or stand-by commitments might not qualify as tax exempt in its hands if the
terms of the put or stand-by commitment cause the Fund not to be treated as the
tax owner of the underlying municipal securities.
|X| Repurchase Agreements. The Fund can acquire securities subject to
repurchase agreements. It may do so for liquidity purposes to meet anticipated
redemptions of Fund shares, or pending the investment of the proceeds from sales
of Fund shares, or pending the settlement of portfolio securities transactions.
In a repurchase transaction, the Fund acquires a security from, and
simultaneously resells it to an approved vendor for delivery on an agreed upon
future date. The resale price exceeds the purchase price by an amount that
reflects an agreed-upon interest rate effective for the period during which the
repurchase agreement is in effect. Approved vendors include U.S. commercial
banks, U.S. branches of foreign banks or broker-dealers that have been
designated a primary dealer in government securities, which meet the credit
requirements set by the Fund's Board of Directors from time to time.
The majority of these transactions run from day to day. Delivery pursuant
to resale typically will occur within one to five days of the purchase.
Repurchase agreements having a maturity beyond seven days are subject to the
Fund's limits on holding illiquid investments. Because income earned on
repurchase transactions is not tax-exempt, under normal market conditions the
Fund will limit its repurchase transactions to 20% of its total assets. That
limit may be exceeded if the Fund uses repurchase agreements as temporary
defensive investments.
Repurchase agreements, considered "loans" under the Investment Company
Act, are collateralized by the underlying security. The Fund's repurchase
agreements require that at all times while the repurchase agreement is in
effect, the collateral's value must equal or exceed the repurchase price to
fully collateralize the repayment obligation. However, if the vendor fails to
pay the resale price on the delivery date, the Fund could incur costs in
disposing of the collateral and may experience losses if there is any delay in
its ability to do so. The Manager will monitor the vendor's creditworthiness to
confirm that the vendor is financially sound and will continuously monitor the
collateral's value.
|X| Illiquid and Restricted Securities. To enable the Fund to sell its
holdings of a restricted security not registered under the Securities Act of
1933, the Fund might have to cause those securities to be registered. The
expenses of registering restricted securities may be negotiated by the Fund with
the issuer at the time the Fund buys the securities. When the Fund must arrange
registration because the Fund wishes to sell the security, a considerable period
may elapse between the time the decision is made to sell the security and the
time the security is
<PAGE>
registered so that the Fund could sell it. The Fund would bear the risks of any
downward price fluctuation during that period.
The Fund has percentage limitations that apply to purchases of restricted
and illiquid securities, as stated in the Prospectus. Those percentage
restrictions do not limit purchases of restricted securities that are eligible
for resale to qualified institutional purchasers pursuant to Rule 144A under the
Securities Act of 1933, provided that those securities have been determined to
be liquid by the Board of Directors of the Fund or by the Manager. Those
guidelines take into account the trading activity for such securities and the
availability of reliable pricing information, among other factors. If there is a
lack of trading interest in a particular Rule 144A security, the Fund's holding
of that security may be deemed to be illiquid.
The Fund can also acquire restricted securities through private
placements. Those securities have contractual restrictions on their public
resale. Those restrictions might limit the Fund's ability to dispose of the
securities and might lower the amount the Fund could realize upon the sale.
|X| Loans of Portfolio Securities. The Fund can lend its portfolio
securities to brokers, dealers and other financial institutions. The Fund might
do so to raise cash for liquidity purposes. These loans are limited to not more
than 10% of the value of the Fund's net assets. There are risks in connection
with securities lending. The Fund might experience a delay in receiving
additional collateral to secure a loan, or a delay in recovery of the loaned
securities. The Fund presently does not intend to engage in loans of securities
that will exceed 5% of the value of the Fund's total assets. Income from
securities loans does not constitute exempt-interest income for the purpose of
paying tax-exempt dividends.
The Fund must receive collateral for a loan. Under current applicable
regulatory requirements (which are subject to change), on each business day the
loan collateral must be at least equal to the value of the loaned securities. It
must consist of cash, bank letters of credit, securities of the U.S. government
or its agencies or instrumentalities, or other cash equivalents in which the
Fund is permitted to invest. To be acceptable as collateral, letters of credit
must obligate a bank to pay amounts demanded by the Fund if the demand meets the
terms of the letter. The terms of the letter of credit and the issuing bank both
must be satisfactory to the Fund.
When it lends securities, the Fund receives amounts equal to the dividends
or interest on the loaned securities, It also receives one or more of (a)
negotiated loan fees, (b) interest on securities used as collateral, and (c)
interest on short-term debt securities purchased with the loan collateral.
Either type of interest may be shared with the borrower. The Fund can pay
reasonable finder's, administrative or other fees in connection with these
loans. The terms of the Fund's loans must meet applicable tests under the
Internal Revenue Code and must permit the Fund to reacquire loaned securities on
five days' notice or in time to vote on any important matter.
|X| Borrowing. The Fund can borrow up to 10% of the value of its total
assets. It can borrow only as a temporary measure for extraordinary or emergency
purposes. The Fund cannot make any investment when borrowings exceed 5% of its
total assets. The Fund can borrow only if it maintains a 300% ratio of assets to
borrowings at all times while a borrowing is outstanding. Interest on borrowed
money is an expense the Fund would not otherwise incur, so that it might have
reduced net income during periods of substantial borrowings.
|X| Hedging. The Fund can use hedging to attempt to protect against
declines in the market value of the its portfolio, to permit the Fund to retain
unrealized gains in the value of portfolio securities that have appreciated, or
to facilitate selling securities for investment reasons. To do so the Fund
could:
o sell interest rate futures or municipal bond index futures, o buy puts
on such futures or securities, or o write covered calls on securities,
interest rate futures or municipal bond
index futures. Covered calls can also be written on debt securities to
attempt to increase the Fund's income, but that income would not be
tax-exempt. Therefore it is unlikely that the Fund would write covered
calls for that purpose.
The Fund can also use hedging to establish a position in the debt
securities market as a temporary substitute for purchasing individual debt
securities. In that case the Fund would normally seek to purchase the
securities, and then terminate that hedging position. For this type of hedging,
the Fund could:
o buy interest rate futures or municipal bond index futures, or o buy
calls on such futures or on securities.
The Fund is not obligated to use hedging instruments even though it is
permitted to use them in the manager's discretion, as described below. The
Fund's strategy of hedging with futures and options on futures will be
incidental to the Fund's investment activities in the underlying cash market.
The particular hedging instruments the Fund can use are described below. The
Fund can employ new hedging instruments and strategies when they are developed,
if those investment methods are consistent with the Fund's investment objective
and are permissible under applicable regulations governing the Fund.
|_| Futures. The Fund can buy and sell futures contracts relating to
debt securities (these are called "interest rate futures") and municipal bond
indices (these are referred to as "municipal bond index futures").
An interest rate future obligates the seller to deliver (and the purchaser
to take) cash or a specific type of debt security to settle the futures
transaction. Either party could also enter into an offsetting contract to close
out the futures position.
A "municipal bond index" assigns relative values to the municipal bonds in
the index, and is used as the basis for trading long-term municipal bond futures
contracts. Municipal bond index futures are similar to interest rate futures
except that settlement is made only in cash. The obligation under the contract
may also be satisfied by entering into an offsetting contract. The strategies
which the Fund employs in using municipal bond index futures are similar to
those with regard to interest rate futures.
<PAGE>
Upon entering into a futures transaction, the Fund will be required to
deposit an initial margin payment in cash or U.S. government securities with the
futures commission merchant (the "futures broker"). Initial margin payments will
be deposited with the Fund's custodian bank in an account registered in the
futures broker's name. However, the futures broker can gain access to that
account only under certain specified conditions. As the future is marked to
market (that is, its value on the Fund's books is changed) to reflect changes in
its market value, subsequent margin payments, called variation margin, will be
paid to or by the futures broker daily.
At any time prior to the expiration of the future, the Fund can elect to
close out its position by taking an opposite position at which time a final
determination of variation margin is made and additional cash is required to be
paid by or released to the Fund. Any gain or loss is then realized by the Fund
on the future for tax purposes. Although interest rate futures by their terms
call for settlement by the delivery of debt securities, in most cases the
obligation is fulfilled without such delivery by entering into an offsetting
transaction. All futures transactions are effected through a clearing house
associated with the exchange on which the contracts are traded.
The Fund can concurrently buy and sell futures contracts in a strategy
anticipating that the future the Fund purchased will perform better than the
future the Fund sold. For example, the Fund might buy municipal bond futures and
concurrently sell U.S. Treasury Bond futures (a type of interest rate future).
The Fund would benefit if municipal bonds outperform U.S. Treasury Bonds on a
duration-adjusted basis.
Duration is a volatility measure that refers to the expected percentage
change in the value of a bond resulting from a change in general interest rates
(measured by each 1% change in the rates on U.S. Treasury securities). For
example, if a bond has an effective duration of three years, a 1% increase in
general interest rates would be expected to cause the value of the bond to
decline about 3%. There are risks that this type of futures strategy will not be
successful. U.S. Treasury bonds might perform better on a duration-adjusted
basis than municipal bonds, and the assumptions about duration that were used
might be incorrect (in this case, the duration of municipal bonds relative to
U.S. Treasury Bonds might have been greater than anticipated).
|_| Put and Call Options. The Fund can buy and sell certain kinds of put
options (puts) and call options (calls). These strategies are described below.
|_| Writing Covered Call Options. The Fund can write (that is, sell) call
options. The Fund's call writing is subject to a number of restrictions:
(5) After the Fund writes a call, not more than 25% of the Fund's total assets
may be subject to calls.
(6) 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.
(7) The Fund can write calls on futures contracts that it owns, but
these calls must be covered by securities or other liquid assets
that the Fund owns and identifies on the Fund's books to enable
it to satisfy its obligations if the call is exercised.
When the Fund writes a call on a security, it receives cash (a premium).
The Fund agrees to sell the underlying investment to a purchaser of a
corresponding call on the same security during the call period at a fixed
exercise price regardless of market price changes during the call period. The
call period is usually not more than nine months. The exercise price may differ
from the market price of the underlying security. The Fund has retained the risk
of loss that the price of the underlying security may decline during the call
period. That risk may be offset to some extent by the premium the Fund receives.
If the value of the investment does not rise above the call price, it is likely
that the call will lapse without being exercised. In that case the Fund would
keep the cash premium and the investment.
The Fund's custodian bank, or a securities depository acting for the
custodian bank, will act as the Fund's escrow agent through the facilities of
the Options Clearing Corporation ("OCC"), as to the investments on which the
Fund has written calls traded on exchanges, or as to other acceptable escrow
securities. In that way, no margin will be required for such transactions. OCC
will release the securities on the expiration of the calls or upon the Fund's
entering into a closing purchase transaction.
When the Fund writes an over-the-counter ("OTC") option, it will enter
into an arrangement with a primary U.S. government securities dealer which will
establish a formula price at which the Fund will have the absolute right to
repurchase that OTC option. The formula price would generally be based on a
multiple of the premium received for the option, plus the amount by which the
option is exercisable below the market price of the underlying security (that
is, the option is "in-the-money"). When the Fund writes an OTC option, it will
treat as illiquid (for purposes of its restriction on illiquid securities) the
mark-to-market value of any OTC option held by it, unless the option is subject
to a buy-back agreement by the executing broker. The Securities and Exchange
Commission is evaluating whether OTC options should be considered liquid
securities. The procedure described above could be affected by the outcome of
that evaluation.
To terminate its obligation on a call it has written, the Fund can
purchase a corresponding call in a "closing purchase transaction." The Fund will
then realize a profit or loss, depending upon whether the net of the amount of
the option transaction costs and the premium received on the call the Fund wrote
was more or less than the price of the call the Fund purchased to close out the
transaction. A profit may also be realized if the call lapses unexercised,
because the Fund retains the underlying investment and the premium received. Any
such profits are considered short-term capital gains for federal tax purposes,
as are premiums on lapsed calls. When distributed by the Fund they are taxable
as ordinary income.
The Fund can also write calls on futures contracts without owning the
futures contract or securities deliverable under the contract. To do so, at the
time the call is written, the Fund must cover the call by identifying in escrow
an equivalent dollar value of liquid assets on the Fund's books. The Fund will
identify additional liquid assets on its books assets if the value of the
escrowed assets drops below 100% of the current value of the future. Because of
this escrow requirement, in no circumstances would the Fund's receipt of an
exercise notice as to that future put the Fund in a "short" futures position.
|_| Writing Put Options. The Fund can sell put options. A put option on
securities gives the purchaser the right to sell, and the writer the obligation
to buy, the underlying investment at the exercise price during the option
period. The Fund will not write puts if, as a result, more than 25% of the
Fund's total assets would be required to be segregated to cover such put
options.
If the Fund writes a put, the put must be covered by liquid assets
identified on the Fund's books. The premium the Fund receives from writing a put
represents a profit, as long as the price of the underlying investment remains
equal to or above the exercise price of the put. However, the Fund also assumes
the obligation during the option period to buy the underlying investment from
the buyer of the put at the exercise price, even if the value of the investment
falls below the exercise price. If a put the Fund has written expires
unexercised, the Fund realizes a gain in the amount of the premium less the
transaction costs incurred. If the put is exercised, the Fund must fulfill its
obligation to purchase the underlying investment at the exercise price. That
price will usually exceed the market value of the investment at that time. In
that case, the Fund may incur a loss if it sells the underlying investment. That
loss will be equal to the sum of the sale price of the underlying investment and
the premium received minus the sum of the exercise price and any transaction
costs the Fund incurred.
When writing a put option on a security, to secure its obligation to pay
for the underlying security the Fund will deposit in escrow liquid assets with a
value equal to or greater than the exercise price of the underlying securities.
The Fund therefore forgoes the opportunity of investing the segregated assets or
writing calls against those assets.
As long as the Fund's obligation as the put writer continues, it may be
assigned an exercise notice by the broker-dealer through which the put was sold.
That notice will require the Fund to take delivery of the underlying security
and pay the exercise price. The Fund has no control over when it may be required
to purchase the underlying security, since it may be assigned an exercise notice
at any time prior to the termination of its obligation as the writer of the put.
That obligation terminates upon expiration of the put. It may also terminate if,
before it receives an exercise notice, the Fund effects a closing purchase
transaction by purchasing a put of the same series as it sold. Once the Fund has
been assigned an exercise notice, it cannot effect a closing purchase
transaction.
The Fund can decide to effect a closing purchase transaction to realize a
profit on an outstanding put option it has written or to prevent the underlying
security from being put. Effecting a closing purchase transaction will also
permit the Fund to write another put option on the security, or to sell the
security and use the proceeds from the sale for other investments. The Fund will
realize a profit or loss from a closing purchase transaction depending on
whether the cost of the transaction is less or more than the premium received
from writing the put option. Any profits from writing puts are considered
short-term capital gains for federal tax purposes, and when distributed by the
Fund, are taxable as ordinary income.
|_| Purchasing Calls and Puts. The Fund can buy calls only on
securities, broadly-based municipal bond indices, municipal bond index futures
and interest rate futures. It can also buy calls to close out a call it has
written, as discussed above. Calls the Fund buys must be listed on a securities
or commodities exchange, or quoted on NASDAQ, or traded in the over-the-counter
market. The Fund can buy a call or put only if, after the purchase, the value of
all call and put options held by the Fund will not exceed 5% of the Fund's total
assets.
When the Fund purchases a call (other than in a closing purchase
transaction), it pays a premium. For calls on securities that the Fund buys,
it has the right to buy the underlying investment from a seller of a
corresponding call on the same investment during the call period at a fixed
exercise price. The Fund benefits only if (1) the call is sold at a profit
or (2) the call is exercised when the market price of the underlying
investment is above the sum of the exercise price plus the transaction costs
and premium paid for the call. If the call is not either exercised or sold
(whether or not at a profit), it will become worthless at its expiration
date. In that case the Fund will lose its premium payment and the right to
purchase the underlying investment.
Calls on municipal bond indices, interest rate futures and municipal bond
index futures are settled in cash rather than by delivering the underlying
investment. Gain or loss depends on changes in the securities included in the
index in question (and thus on price movements in the debt securities market
generally) rather than on changes in price of the individual futures contract.
The Fund can buy puts that relate to securities, broadly-based municipal
bond indices, municipal bond index futures or interest rate futures (whether or
not the Fund owns the underlying investment in its portfolio).
When the Fund purchases a put, it pays a premium. The Fund then has the
right to sell the underlying investment to a seller of a corresponding put on
the same investment during the put period at a fixed exercise price. Puts on
municipal bond indices are settled in cash. Buying a put on a debt security,
interest rate future or municipal bond index future the Fund owns enables it to
protect itself during the put period against a decline in the value of the
underlying investment below the exercise price. If the market price of the
underlying investment is equal to or above the exercise price and as a result
the put is not exercised or resold, the put will become worthless at its
expiration date. In that case the Fund will lose its premium payment and the
right to sell the underlying investment. A put may be sold prior to expiration
(whether or not at a profit).
|_| Risks of Hedging with Options and Futures. The use of hedging
instruments requires special skills and knowledge of investment techniques that
are different than what is required for normal portfolio management. If the
Manager uses a hedging instrument at the wrong time or judges market conditions
incorrectly, hedging strategies may reduce the Fund's returns.
The Fund's option activities may affect its portfolio turnover rate and
brokerage commissions. The exercise of calls written by the Fund may cause the
Fund to sell related portfolio securities, thus increasing its turnover rate.
The exercise by the Fund of puts on securities will cause the sale of underlying
investments, increasing portfolio turnover. Although the decision whether to
exercise a put it holds is within the Fund's control, holding a put might cause
the Fund to sell the related investments for reasons that would not exist in the
absence of the put.
The Fund could pay a brokerage commission each time it buys a call or put,
sells a call, or buys or sells an underlying investment in connection with the
exercise of a call or put. Such commissions could be higher on a relative basis
than the commissions for direct purchases or sales of the underlying
investments. Premiums paid for options are small in relation to the market value
of the underlying investments. Consequently, put and call options offer large
amounts of leverage. The leverage offered by trading in options could result in
the Fund's net asset value being more sensitive to changes in the value of the
underlying investment.
If a covered call written by the Fund is exercised on an investment that
has increased in value, the Fund will be required to sell the investment at the
call price. It will not be able to realize any profit if the investment has
increased in value above the call price.
There is a risk in using short hedging by selling interest rate futures
and municipal bond index futures or purchasing puts on municipal bond indices or
futures to attempt to protect against declines in the value of the Fund's
securities. The risk is that the prices of such futures or the applicable index
will correlate imperfectly with the behavior of the cash (that is, market)
prices of the Fund's securities. It is possible for example, that while the Fund
has used hedging instruments in a short hedge, the market might advance and the
value of debt securities held in the Fund's portfolio might decline. If that
occurred, the Fund would lose money on the hedging instruments and also
experience a decline in value of its debt securities. However, while this could
occur over a brief period or to a very small degree, over time the value of a
diversified portfolio of debt securities will tend to move in the same direction
as the indices upon which the hedging instruments are based.
The risk of imperfect correlation increases as the composition of the
Fund's portfolio diverges from the securities included in the applicable index.
To compensate for the imperfect correlation of movements in the price of debt
securities being hedged and movements in the price of the hedging instruments,
the Fund might use hedging instruments in a greater dollar amount than the
dollar amount of debt securities being hedged. It might do so if the historical
volatility of the prices of the debt securities being hedged is greater than the
historical volatility of the applicable index.
The ordinary spreads between prices in the cash and futures markets are
subject to distortions due to differences in the natures of those markets. All
participants in the futures markets are subject to margin deposit and
maintenance requirements. Rather than meeting additional margin deposit
requirements, investors may close out futures contracts through offsetting
transactions which could distort the normal relationship between the cash and
futures markets. From the point of view of speculators, the deposit requirements
in the futures markets are less onerous than margin requirements in the
securities markets. Therefore, increased participation by speculators in the
futures markets may cause temporary price distortions.
The Fund can use hedging instruments to establish a position in the
municipal securities markets as a temporary substitute for the purchase of
individual securities (long hedging). It is possible that the market might
decline. If the Fund then concluded not to invest in such securities
<PAGE>
because of concerns that there might be further market decline or for other
reasons, the Fund would realize a loss on the hedging instruments that would not
be offset by a reduction in the purchase price of the securities.
An option position may be closed out only on a market that provides
secondary trading for options of the same series. There is no assurance that a
liquid secondary market will exist for a particular option. The Fund could
experience losses if it could not close out a position because of an illiquid
market for the future or option.
|_| Interest Rate Swap Transactions. In an interest rate swap, the Fund
and another party exchange their right to receive or their obligation to pay
interest on a security. For example, they could swap a right to receive floating
rate payments for fixed rate payments. The Fund can enter into swaps only on
securities it owns. The Fund may not enter into swaps with respect to more than
25% of its total assets. Also, the Fund will identify liquid assets on its books
(such as cash or U.S. government securities) to cover any amounts it could owe
under swaps that exceed the amounts it is entitled to receive, and it will
adjust that amount daily, as needed. Income from interest rate swaps may be
taxable.
Swap agreements entail both interest rate risk and credit risk. There is a
risk that, based on movements of interest rates in the future, the payments made
by the Fund under a swap agreement will have been greater than those received by
it. Credit risk arises from the possibility that the counterparty will default.
If the counterparty to an interest rate swap defaults, the Fund's loss will
consist of the net amount of contractual interest payments that the Fund has not
yet received. The Manager will monitor the creditworthiness of counterparties to
the Fund's interest rate swap transactions on an ongoing basis.
The Fund can enter into swap transactions with appropriate counterparties
pursuant to master netting agreements. A master netting agreement provides that
all swaps done between the Fund and that counterparty under the master agreement
shall be regarded as parts of an integral agreement. If on any date amounts are
payable under one or more swap transactions, the net amount payable on that date
shall be paid. In addition, the master netting agreement may provide that if one
party defaults generally or on one swap, the counterparty can terminate the
swaps with that party. Under master netting agreements, if there is a default
resulting in a loss to one party, that party's damages are calculated by
reference to the average cost of a replacement swap with respect to each swap.
The gains and losses on all swaps are then netted, and the result is the
counterparty's gain or loss on termination. The termination of all swaps and the
netting of gains and losses on termination is generally referred to as
"aggregation."
|_| Regulatory Aspects of Hedging Instruments. When using futures and
options on futures, the Fund is required to operate within certain guidelines
and restrictions established by the Commodity Futures Trading Commission (the
"CFTC"). In particular, the Fund is exempted from registration with the CFTC as
a "commodity pool operator" if the Fund complies with the requirements of Rule
4.5 adopted by the CFTC. That Rule does not limit the percentage of the Fund's
assets that may be used for futures margin and related options premiums for a
bona fide hedging position. However, under the Rule the Fund must limit its
aggregate initial futures margin and related options premiums to no more than 5%
of the Fund's net assets for hedging strategies that are not considered bona
fide hedging strategies under the Rule. Under the Rule, the Fund also must use
short futures and options on futures positions solely for bona fide hedging
purposes within the meaning and intent of the applicable provisions of the
Commodity Exchange Act.
Transactions in options by the Fund are subject to limitations established
by the option exchanges. The exchanges limit the maximum number of options that
may be written or held by a single investor or group of investors acting in
concert. Those limits apply regardless of whether the options were written or
purchased on the same or different exchanges, or are held in one or more
accounts or through one or more different exchanges or through one or more
brokers. Thus, the number of options that the Fund can write or hold may be
affected by options written or held by other entities, including other
investment companies having the same advisor as the Fund (or an advisor that is
an affiliate of the Fund's advisor). The exchanges also impose position limits
on futures transactions. An exchange may order the liquidation of positions
found to be in violation of those limits and may impose certain other sanctions.
Under the Investment Company Act, when the Fund purchases an interest rate
future or municipal bond index future, it must maintain cash or readily
marketable short-term debt instruments in an amount equal to the market value of
the investments underlying the future, less the margin deposit applicable to it.
|X| Temporary Defensive Investments. The securities the Fund can invest in
for temporary defensive purposes include the following:
o short-term municipal securities;
o obligations issued or guaranteed by the U.S. government or its
agencies or instrumentalities;
o short-term debt securities;
o repurchase agreements;
o commercial paper rated A-1 by Standard & Poor's, or a comparable rating
by another nationally recognized rating agency;
o certificates of deposit of domestic banks with assets of $1 billion or
more; and
o cash equivalents
|X| Taxable Investments. While the Fund can invest up to 20% of its total
assets in investments that generate income subject to income taxes, it does not
anticipate investing substantial amounts of its assets in taxable investments
under normal market conditions or as part of its normal trading strategies and
policies. To the extent it invests in taxable securities, the Fund would not be
able to meet its objective of providing tax exempt income to its shareholders.
Taxable investments include, for example, hedging instruments, repurchase
agreements, and the types of securities the Fund could buy for temporary
defensive purposes.
Investment Restrictions
|X| What Are "Fundamental Policies?" Fundamental policies are those
policies that the Fund has adopted to govern its investments that can be changed
only by the vote of a "majority" of the Fund's outstanding voting securities.
Under the Investment Company Act, a "majority" vote is defined as the vote of
the holders of the lesser of:
o 67% or more of the shares present or represented by proxy at a
shareholder meeting, if the holders of more than 50% of the outstanding
shares are present or represented by proxy, or
o more than 50% of the outstanding shares.
The Fund's investment objective is a fundamental policy. Other policies
described in the Prospectus or this Statement of Additional Information are
"fundamental" only if they are identified as such. The Fund's Board of Directors
can change non-fundamental policies without shareholder approval. However,
significant changes to investment policies will be described in supplements or
updates to the Prospectus or this Statement of Additional Information, as
appropriate. The Fund's most significant investment policies are described in
the Prospectus.
|X| Does the Fund Have Additional Fundamental Policies? The following
investment restrictions are fundamental policies of the Fund.
o The Fund cannot lend money except in connection with the acquisition of
debt securities which the Fund's investment policies and restrictions permit it
to purchase. The Fund can also make loans of portfolio securities, subject to
the restrictions stated under "Loans of Portfolio Securities."
o The Fund cannot concentrate investments. That means it cannot invest 25%
or more of its total assets in any industry. However, there is no limitation on
investments in municipal securities, obligations issued by the State of
California or its subdivisions, agencies, authorities or instrumentalities, or
securities issued or guaranteed by the U.S. government or its agencies or
instrumentalities. The Fund cannot invest in any other securities other than
municipal securities, temporary defensive investments and hedging instruments.
o The Fund cannot invest in interests in oil or gas exploration or
development programs or in commodities. However, the Fund can buy and sell any
of the hedging instruments permitted by any of its other policies. It does not
matter if the hedging instrument is considered to be a commodity or commodity
contract.
o The Fund cannot invest in real estate or in interests in real estate.
However, the Fund can purchase securities of issuers holding real estate or
interests in real estate (including securities of real estate investment
trusts).
o The Fund cannot purchase securities on margin. However, the Fund can
make margin deposits when using hedging instruments permitted by any of its
other policies.
o The Fund cannot invest in companies for the purpose of acquiring control
or management of those companies.
o The Fund cannot underwrite securities of other companies. A permitted
exception is in case it is deemed to be an underwriter under the Securities Act
of 1933 when reselling any securities held in its own portfolio.
o The Fund cannot invest in or hold securities of any issuer if officers
and directors of the Fund or the Manager individually beneficially own more than
1/2 of 1% of the securities of that issuer and together own more than 5% of the
securities of that issuer.
o The Fund cannot invest in other open-end investment companies or invest
more than 5% of its net assets through open market purchases in closed-end
investment companies, including small business investment companies. The Fund
cannot make any such investment at commission rates in excess of normal
brokerage commissions.
o The Fund cannot pledge, mortgage or otherwise encumber, transfer or
assign any of its assets to secure a debt. Collateral arrangements for premium
and margin payments in connection with hedging instruments are not deemed to be
a pledge of assets.
o The Fund cannot issue "senior securities," but this does not prohibit
certain investment activities for which assets of the Fund are designated as
segregated, or margin, collateral or escrow arrangements are established, to
cover the related obligations. Examples of those activities include borrowing
money, reverse repurchase agreements, delayed-delivery and when-issued
arrangements for portfolio securities transactions, and contracts to buy or sell
derivatives, hedging instruments, options or futures.
Unless the Prospectus or this Statement of Additional Information states
that a percentage restriction applies on an ongoing basis, it applies only at
the time the Fund makes an investment. The Fund need not sell securities to meet
the percentage limits if the value of the investment increases in proportion to
the size of the Fund.
Non-Diversification of the Fund's Investments. The Fund is "non-diversified" as
defined in the Investment Company Act. Funds that are diversified have
restrictions against investing too much of their assets in the securities of any
one "issuer." That means that the Fund can invest more of its assets in the
securities of a single issuer than a fund that is diversified.
Being non-diversified poses additional investment risks, because if the
Fund invests more of its assets in fewer issuers, the value of its shares is
subject to greater fluctuations from adverse conditions affecting any one of
those issuers. However, the Fund does limit its investments in the securities of
any one issuer to qualify for tax purposes as a "regulated investment company"
under the Internal Revenue Code. By qualifying, it does not have to pay federal
income taxes if more than 90% of its earnings are distributed to shareholders.
To qualify, the Fund must meet a number of conditions. First, not more than 25%
of the market value of the Fund's total assets can be invested in the securities
of a single issuer. Second, with respect to 50% of the market value of its total
assets, (1) not more than 5% of the market value of its total assets may be
invested in the securities of a single issuer, and (2) the Fund must not own
more than 10% of the outstanding voting securities of a single issuer.
The identification of the issuer of a municipal security depends on the
terms and conditions of the security. When the assets and revenues of an agency,
authority, instrumentality or other political subdivision are separate from
those of the government creating it and the security is backed only by the
assets and revenues of the subdivision, agency, authority or instrumentality,
the latter would be deemed to be the sole issuer. Similarly, if an industrial
development bond is backed only by the assets and revenues of the
non-governmental user, then that user would be deemed to be the sole issuer.
However, if in either case the creating government or some other entity
guarantees a security, the guarantee would be considered a separate security and
would be treated as an issue of such government or other entity.
Applying the Restriction Against Concentration. To implement its policy not to
concentrate its investments, the Fund has adopted the industry classifications
set forth in Appendix B to this Statement of Additional Information. Those
industry classifications are not a fundamental policy.
In implementing the Fund's policy not to concentrate its investments, the
Manager will consider a non-governmental user of facilities financed by
industrial development bonds as being in a particular industry. That is done
even though the bonds are municipal securities, as to which the Fund has no
concentration limitation. Although this application of the concentration
restriction is not a fundamental policy of the Fund, it will not be changed
without shareholder approval.
How the Fund is Managed
Organization and History. The Fund is one of two investment portfolios, or
"series" of Oppenheimer Main Street Funds, Inc. That corporation is an open-end,
management investment company organized as a Maryland corporation in 1987. The
Fund is a non-diversified mutual fund and commenced operations on May 18, 1990.
The Fund's parent corporation is governed by a Board of Directors, which
is responsible for protecting the interests of shareholders under Maryland law.
The Directors meet periodically throughout the year to oversee the Fund's
activities, review its performance, and review the actions of the Manager.
|_| Classes of Shares. The Board of Directors has the power, without
shareholder approval, to divide unissued shares of the Fund into two or more
classes. The Board has done so, and the Fund currently has two classes of
shares: Class A and Class B. Both classes invest in the same investment
portfolio. Each class of shares:
o has its own dividends and distributions,
o pays certain expenses which may be different for the different classes,
o may have a different net asset value,
o may have separate voting rights on matters in which interests of one class
are different from interests of another class, and o votes as a
class on matters that affect that class alone.
Shares are freely transferable, and each share of each class has one vote
at shareholder meetings, with fractional shares voting proportionally on matters
submitted to the vote of shareholders. Each share of the Fund represents an
interest in the Fund proportionately equal to the interest of each other share
of the same class.
The Directors are authorized to create new series and classes of shares.
The Directors may reclassify unissued shares of the Fund's parent corporation or
its series or classes into additional series or classes of shares. The Directors
also may divide or combine the shares of a class into a greater or lesser number
of shares without changing the proportionate beneficial interest of a
shareholder in the Fund. Shares do not have cumulative voting rights or
preemptive or subscription rights. Shares may be voted in person or by proxy at
shareholder meetings.
|_| Meetings of Shareholders. Although the Fund is not required by
Maryland law to hold annual meetings, it may hold shareholder meetings from time
to time on important matters. The shareholders of the Fund's parent corporation
have the right to call a meeting to remove a Director or to take certain other
action described in the Articles of Incorporation or under Maryland law.
The Fund will hold meetings when required to do so by the Investment
Company Act or other applicable law. The Fund will hold a meeting when the
Directors call a meeting or upon proper request of shareholders. If the Fund's
parent corporation receives a written request of the record holders of at least
25% of the outstanding shares eligible to be voted at a meeting to call a
meeting for a specified purpose (which might include the removal of a Director),
the Directors will call a meeting of shareholders for that specified purpose.
The Fund's parent corporation has undertaken that it will then either give the
applicants access to the Fund's shareholder list or mail the applicants'
communication to all other shareholders at the applicants' expense.
Shareholders of the Fund and of its parent corporation's other series vote
together in the aggregate on certain matters at shareholders' meetings. Those
matters include the election of Directors and ratification of appointment of the
independent auditors. Shareholders of a particular series or class vote
separately on proposals that affect that series or class. Shareholders of a
series or class that is not affected by a proposal are not entitled to vote on
the proposal. For example, only shareholders of a particular series vote on any
material amendment to the investment advisory agreement for that series. Only
shareholders of a particular class of a series vote on certain amendments to the
Distribution and/or Service Plans if the amendments affect only that class.
Directors and Officers of the Fund. The Directors of the Fund's parent
corporation and the Fund's officers and their principal occupations and business
affiliations during the past five years are listed below. Directors denoted with
an asterisk (*) below are deemed to be "interested persons" of the Fund under
the Investment Company Act. All of the Directors are also trustees, directors or
managing general partners of the following Denver-based Oppenheimer funds8:
Oppenheimer Cash Reserves Oppenheimer Senior Floating Rate Fund
Oppenheimer Champion Income Fund Oppenheimer Strategic Income Fund
Oppenheimer Capital Income Fund Oppenheimer Total Return Fund, Inc.
Oppenheimer High Yield Fund Oppenheimer Variable Account Funds
Oppenheimer International Bond Fund Panorama Series Fund, Inc.
Oppenheimer Integrity Funds Centennial America Fund, L. P.
Oppenheimer Limited-Term Government
Fund Centennial California Tax Exempt Trust
Oppenheimer Main Street Funds, Inc. Centennial Government Trust
Oppenheimer Main Street Small Cap
Fund. Centennial Money Market Trust
Oppenheimer Municipal Fund Centennial New York Tax Exempt Trust
Oppenheimer Real Asset Fund Centennial Tax Exempt Trust
Ms. Macaskill and Messrs. Swain, Bishop, Wixted, Donohue, Farrar and Zack,
who are officers of the Fund, respectively hold the same offices with the other
Denver-based Oppenheimer funds. As of December 10, 1999, the Directors and
officers of the Fund as a group owned less than 1% of the outstanding shares of
the Fund. The foregoing statement does not reflect shares held of record by an
employee benefit plan for employees of the Manager other than shares
beneficially owned under that plan by the officers of the Fund listed below. Ms.
Macaskill and Mr. Donohue, are trustees of that plan.
8. Ms. Macaskill and Mr. Bowen are not Trustees or Directors of Oppenheimer
Integrity Funds, Oppenheimer Strategic Income Fund, Panorama Series Fund, Inc.
or Oppenheimer Variable Account Funds. Mr. Fossel and Mr. Bowen are not Trustees
of Centennial New York Tax Exempt Trust or Managing General Partners of
Centennial America Fund, L.P.
Robert G. Avis*, Director, Age: 68
One North Jefferson Ave., St. Louis, Missouri 63103
Chairman, President and Chief Executive Officer of A.G. Edwards Capital, Inc.
(general partnership of private equity funds), Director of A.G. Edwards & Sons,
Inc. (a broker-dealer) and Director of A.G. Edwards Trust Companies (trust
companies), formerly, Vice Chairman of A.G. Edwards & Sons, Inc. and A.G.
Edwards, Inc. (its parent holding company) and Chairman of A.G.E. Asset
Management (an investment advisor).
William A. Baker, Director, Age: 84
197 Desert Lakes Drive, Palm Springs, California 92264
Management Consultant.
George C. Bowen, Director, Age: 63
9224 Bauer Court, Lone Tree, Colorado 80124
Formerly (until April 1999) Mr. Bowen held the following positions: Senior Vice
President (since September 1987) and Treasurer (since March 1985) of the
Manager; Vice President (since June 1983) and Treasurer (since March 1985) of
the Distributor; Vice President (since October 1989) and Treasurer (since April
1986) of HarbourView Asset Management Corporation; Senior Vice President (since
February 1992), Treasurer (since July 1991) Assistant Secretary and a director
(since December 1991) of Centennial Asset Management Corporation; President,
Treasurer and a director of Centennial Capital Corporation (since June 1989);
Vice President and Treasurer (since August 1978) and Secretary (since April
1981) of Shareholder Services, Inc.; Vice President, Treasurer and Secretary of
Shareholder Financial Services, Inc. (since November 1989); Assistant Treasurer
of Oppenheimer Acquisition Corp. (since March 1998); Treasurer of Oppenheimer
Partnership Holdings, Inc. (since November 1989); Vice President and Treasurer
of Oppenheimer Real Asset Management, Inc. (since July 1996); Chief Executive
Officer, Treasurer; Treasurer of OppenheimerFunds International Ltd. and
Oppenheimer Millennium Funds plc (since October 1997).
Jon S. Fossel, Director, Age: 57
P.O. Box 44, Mead Street, Waccabuc, New York 10597
Formerly Chairman and a director of the Manager, President and a director of
Oppenheimer Acquisition Corp., the Manager's parent holding company, and
Shareholder Services, Inc. and Shareholder Financial Services, Inc., transfer
agent subsidiaries of the Manager.
Sam Freedman, Director, Age: 59
4975 Lakeshore Drive, Littleton, Colorado 80123
Formerly Chairman and Chief Executive Officer of OppenheimerFunds Services,
Chairman, Chief Executive Officer and a director of Shareholder Services, Inc.,
Chairman, Chief Executive Officer and director of Shareholder Financial
Services, Inc., Vice President and director of Oppenheimer Acquisition Corp. and
a director of OppenheimerFunds, Inc.
Raymond J. Kalinowski, Director, Age: 70
44 Portland Drive, St. Louis, Missouri 63131
Director of Wave Technologies International, Inc. (a computer products training
company), self-employed consultant (securities matters).
C. Howard Kast, Director, Age: 78
2552 East Alameda, Denver, Colorado 80209
Formerly Managing Partner of Deloitte, Haskins & Sells (an accounting firm).
Robert M. Kirchner, Director, Age: 78
7500 E. Arapahoe Road, Englewood, Colorado 80112
President of The Kirchner Company (management consultants).
Bridget A. Macaskill*, President and Director, Age: 51
Two World Trade Center, New York, New York 10048-0203
President (since June 1991), Chief Executive Officer (since September 1995) and
a Director (since December 1994) of the Manager; President and director (since
June 1991) of HarbourView Asset Management Corporation, an investment advisor
subsidiary of the Manager; Chairman and a director of Shareholder Services, Inc.
(since August 1994) and Shareholder Financial Services, Inc. (since September
1995), transfer agent subsidiaries of the Manager; President (since September
1995) and a director (since October 1990) of Oppenheimer Acquisition Corp., the
Manager's parent holding company; President (since September 1995) and a
director (since November 1989) of Oppenheimer Partnership Holdings, Inc., a
holding company subsidiary of the Manager; a director of Oppenheimer Real Asset
Management, Inc. (since July 1996); President and a director (since October
1997) of OppenheimerFunds International Ltd., an offshore fund management
subsidiary of the Manager and of Oppenheimer Millennium Funds plc; President and
a director of other Oppenheimer funds; a director of Prudential Corporation plc
(a U.K. financial service company).
Ned M. Steel, Director, Age: 84
3416 South Race Street, Englewood, Colorado 80110
Chartered Property and Casualty Underwriter; a director of Visiting Nurse
Corporation of Colorado. James C. Swain*, Chairman, Chief Executive Officer and
Director, Age: 66 6803 South Tucson Way, Englewood, Colorado 80112 Vice Chairman
of the Manager (since September 1988); formerly President and a director of
Centennial Asset Management Corporation, an investment advisor subsidiary of the
Manager and Chairman of the Board of Shareholder Services, Inc.
Christian D. Smith, Senior Vice President and Portfolio Manager, Age: 37 Two
World Trade Center, New York, New York 10048-0203 Senior Vice President of the
Manager (since October 11, 1999); an officer of other Oppenheimer funds. From
January 1999 to September 1999 he was Co-Head of the Municipal Portfolio
Management Team of Prudential Global Asset Management (an investment advisor),
prior to which he was a portfolio manager for that firm (January 1990 to January
1999).
Andrew J. Donohue, Vice President and Secretary, Age: 49
Two World Trade Center, New York, New York 10048-0203
Executive Vice President (since January 1993), General Counsel (since October
1991) and a Director (since September 1995) of the Manager; Executive Vice
President and General Counsel (since September 1993) and a director (since
January 1992) of the Distributor; Executive Vice President, General Counsel and
a director of HarbourView Asset Management Corporation, Shareholder Services,
Inc., Shareholder Financial Services, Inc. and (since September 1995)
Oppenheimer Partnership Holdings, Inc.; President and a director of Centennial
Asset Management Corporation (since September 1995); President, General Counsel
and a director of Oppenheimer Real Asset Management, Inc. (since July 1996);
General Counsel (since May 1996) and Secretary (since April 1997) of Oppenheimer
Acquisition Corp.; Vice President and a director of OppenheimerFunds
International Ltd. and Oppenheimer Millennium Funds plc (since October 1997); an
officer of other Oppenheimer funds.
Robert J. Bishop, Assistant Treasurer, Age: 40
6803 South Tucson Way, Englewood, Colorado 80112
Vice President of the Manager/Mutual Fund Accounting (since May 1996); an
officer of other Oppenheimer funds; formerly an Assistant Vice President of the
Manager/Mutual Fund Accounting (April 1994 - May 1996), and a Fund Controller
for the Manager.
Scott T. Farrar, Assistant Treasurer, Age: 34
6803 South Tucson Way, Englewood, Colorado 80112
Vice President of the Manager/Mutual Fund Accounting (since May 1996); Assistant
Treasurer of Oppenheimer Millennium Funds plc (since October 1997); an officer
of other Oppenheimer funds; formerly an Assistant Vice President of the
Manager/Mutual Fund Accounting (April 1994 - May 1996), and a Fund Controller
for the Manager.
Brian W. Wixted, Treasurer, Age: 40
6803 South Tucson Way, Englewood, Colorado 80112
Senior Vice President and Treasurer (since April 1999) of the Manager; Treasurer
of HarbourView Asset Management Corporation, Shareholder Services, Inc.,
Shareholder Financial Services, Inc. and Oppenheimer Partnership Holdings, Inc.
(since April 1999); Assistant Treasurer of Oppenheimer Acquisition Corp. (since
April 1999); Assistant Secretary of Centennial Asset Management Corporation
(since April 1999); formerly Principal and Chief Operating Officer, Bankers
Trust Company - Mutual Fund Services Division (March 1995 - March 1999); Vice
President and Chief Financial Officer of CS First Boston Investment Management
Corp. (September 1991 - March 1995); and Vice President and Accounting Manager,
Merrill Lynch Asset Management (November 1987 - September 1991).
Robert G. Zack, Assistant Secretary, Age: 51
Two World Trade Center, New York, New York 10048-0203
Senior Vice President (since May 1985) and Associate General Counsel (since May
1981) of the Manager, Assistant Secretary of Shareholder Services, Inc. (since
May 1985), and Shareholder Financial Services, Inc. (since November 1989);
Assistant Secretary of OppenheimerFunds International Ltd. and Oppenheimer
Millennium Funds plc (since October 1997); an officer of other Oppenheimer
funds.
|X| Remuneration of Directors. The officers of the Fund and three
Directors of the Fund (Ms. Macaskill and Messrs. Bowen and Swain) are affiliated
with the Manager and receive no salary or fee from the Fund. The remaining
Directors of the Fund received the compensation shown below. The compensation
from the Fund was paid during its fiscal year ended August 31, 1999. The
compensation from all of the Denver-based Oppenheimer funds includes the
compensation from the Fund and represents compensation received as a director,
trustee, managing general partner or member of a committee of the Board during
the calendar year 1998.
<PAGE>
---------------------------------------------------------------------------
Aggregate Total Compensation
Compensation from all Denver-Based
Director's Name and Position from Fund Oppenheimer Funds1
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Robert G. Avis $248 $67,998
---------------------------------------------------------------------------
---------------------------------------------------------------------------
William A. Baker $254 $69,998
---------------------------------------------------------------------------
---------------------------------------------------------------------------
George C. Bowen2 $43 NONE
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Jon. S. Fossel
Review Committee Member $252 $67,496
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Sam Freedman
Review Committee Member $270 $73,998
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Raymond J. Kalinowski
Audit Committee Member $267 $73,998
---------------------------------------------------------------------------
---------------------------------------------------------------------------
C. Howard Kast
Audit and Review
Committee Chairman $286 $76,998
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Robert M. Kirchner
Audit Committee Member $251 $67,998
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Ned M. Steel $248 $67,998
---------------------------------------------------------------------------
1. For the 1998 calendar year.
2. Mr. Bowen did not receive compensation during the 1998 calendar year as he
was affiliated with the Manager during that period.
|X| Deferred Compensation Plan. The Board of Directors has adopted a
Deferred Compensation Plan for disinterested directors that enables them to
elect to defer receipt of all or a portion of the annual fees they are entitled
to receive from the Fund. Under the plan, the compensation deferred by a
Director is periodically adjusted as though an equivalent amount had
<PAGE>
been invested in shares of one or more Oppenheimer funds selected by the
Director. The amount paid to the Director under the plan will be determined
based upon the performance of the selected funds.
Deferral of Director's fees under the plan will not materially affect the
Fund's assets, liabilities and net income per share. The plan will not obligate
the Fund to retain the services of any Director or to pay any particular level
of compensation to any Director. Pursuant to an Order issued by the Securities
and Exchange Commission, the Fund may invest in the funds selected by the
Director under the plan without shareholder approval for the limited purpose of
determining the value of the Director's deferred fee account.
o Major Shareholders. As of December 10, 1999 there are no persons who
owned of record or where known by the Fund to own beneficially 5% or more of any
class of the Fund's outstanding shares.
The Manager. The Manager is wholly-owned by Oppenheimer Acquisition Corp., a
holding company controlled by Massachusetts Mutual Life Insurance Company.
|X| Code of Ethics. The Fund, the Manager and the Distributor have a Code
of Ethics.
It is designed to detect and prevent improper personal trading by certain
employees, including portfolio managers, that would compete with or take
advantage of the Fund's portfolio transactions. Covered persons include persons
with knowledge of the investments and investment intentions of the Fund and
other funds advised by the Manager. The Code of Ethics does permit personnel
subject to the Code to invest in securities, including securities that may be
purchased or held by the Fund, subject to a number of restrictions and controls.
Compliance with the Code of Ethics is carefully monitored and enforced by the
Manager.
|X| The Investment Advisory Agreement. The Manager provides investment
advisory and management services to the Fund under an investment advisory
agreement between the Manager and the Fund. The Manager selects securities for
the Fund's portfolio and handles its day-to-day business. The portfolio manager
of the Fund is employed by the Manager and is the person who is principally
responsible for the day-to-day management of the Fund's portfolio. Other members
of the Manager's Fixed Income Portfolio Department provide the portfolio manager
with counsel and support in managing the Fund's portfolio.
The agreement requires the Manager, at its expense, to provide the Fund
with adequate office space, facilities and equipment. It also requires the
Manager to provide and supervise the activities of all administrative and
clerical personnel required to provide effective administration for the Fund.
Those responsibilities include the compilation and maintenance of records with
respect to its operations, the preparation and filing of specified reports, and
composition of proxy materials and registration statements for continuous public
sale of shares of the Fund.
The Fund pays expenses not expressly assumed by the Manager under the
advisory agreement. The advisory agreement lists examples of expenses paid by
the Fund. The major categories relate to interest, taxes, brokerage commissions,
fees to certain Directors, legal and
<PAGE>
audit expenses, custodian bank and transfer agent expenses, share issuance
costs, certain printing and registration costs and non-recurring expenses,
including litigation costs.
Under the investment advisory agreement, the Manager is paid a fee based
on the average annual net assets of the Fund. The rates at which the Manager is
paid depend on the amount of the Fund's average annual net assets:
o When net assets are less than $25 million, no fee is paid to the
Manager. o When net assets are $25 million or more but less than $50
million, the
rate of the fee is 0.15% of average annual net assets.
o When net assets are $50 million or more but less than $75 million, the
rate of the fee is 0.25% of average annual net assets.
o When net assets are $75 million or more but less that $100 million, the
rate of the is 0.40% of average annual net assets.
o When net assets are $100 million or more, the rate is 0.55% of average
annual net assets.
Apart from the investment advisory agreement, the Manager has voluntarily
agreed to waive a portion of its fee, so that when the Fund's net assets are
$100 million or more, the Manager's fee is paid at a rate of 0.40% of average
annual net assets. The Manager can terminate or amend that waiver at any time,
on notice to the Board of Directors. The management fees paid by the Fund to the
Manager are applied to the aggregate assets of the Fund. The fees are allocated
to each class of shares based upon the relative proportion of the Fund's net
assets represented by that class. The management fees paid by the Fund to the
Manager in the last three fiscal years are shown in the chart below.
--------------------------------------------------------------------------------
Management fees Paid to
Fiscal Year ended Management Fee (Without OppenheimerFunds, Inc.
8/31: Voluntary Waiver) (After Waiver)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
1997 $353,136 $353,136
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
1998 $646,955 $470,845
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
1999 $770,241 $560,175
--------------------------------------------------------------------------------
The investment advisory agreement states that in the absence of willful
misfeasance, bad faith, gross negligence in the performance of its duties or
reckless disregard of its obligations and duties under the investment advisory
agreement, the Manager is not liable for any loss the Fund sustains for any
investment, adoption of any investment policy, or the purchase, sale or
retention of any security.
The agreement permits the Manager to act as investment advisor for any
other person, firm or corporation and to use the names "Oppenheimer" and "Main
Street" in connection with other investment companies for which it may act as
investment advisor or general distributor. If the Manager shall no longer act as
investment advisor to the Fund, the Manager may withdraw the right of the Fund's
parent corporation to use the names "Oppenheimer" and "Main Street" as part of
its name and the name of the Fund.
Brokerage Policies of the Fund
Brokerage Provisions of the Investment Advisory Agreement. One of the duties of
the Manager under the investment advisory agreement is to buy and sell portfolio
securities for the Fund. The investment advisory agreement allows the Manager to
use broker-dealers to effect the Fund's portfolio transactions. Under the
agreement, the Manager may employ those broker-dealers, including "affiliated"
brokers, as that term is defined in the Investment Company Act. The Manager may
employ broker-dealers that the Manager thinks, in its best judgment based on all
relevant factors, will implement the Fund's policy to obtain, at reasonable
expense, the "best execution" of portfolio transactions. "Best execution" refers
to prompt and reliable execution at the most favorable price obtainable. The
Manager need not seek competitive commission bidding. However, the Manager is
expected to minimize the commissions paid to the extent consistent with the
interest and policies of the Fund as established by its Board of Directors.
Under the investment advisory agreement, the Manager may select brokers
(other than affiliates) that provide brokerage and/or research services for the
Fund and/or the other accounts over which the Manager or its affiliates have
investment discretion. The commissions paid to such brokers may be higher than
another qualified broker would charge, if the Manager makes a good faith
determination that the commission is fair and reasonable in relation to the
services provided. Subject to those other considerations, as a factor in
selecting brokers for the Fund's portfolio transactions, the Manager may also
consider sales of shares of the Fund and other investment companies managed by
the Manager or its affiliates.
Brokerage Practices Followed by the Manager. The Manager allocates brokerage for
the Fund subject to the provisions of the investment advisory agreement and the
procedures and rules described above. Generally the Manager's portfolio traders
allocate brokerage upon recommendations from the Manager's portfolio managers.
In certain instances, portfolio managers may directly place trades and allocate
brokerage. In either case, the Manager's executive officers supervise the
allocation of brokerage.
Most securities purchases made by the Fund are principal transactions at
net prices. The Fund usually deals directly with the selling or purchasing
principal or market maker without incurring charges for the services of a broker
on its behalf unless the Manager determines that a better price or execution may
be obtained by using the services of a broker. Therefore, the Fund does not
incur substantial brokerage costs. Portfolio securities purchased from
underwriters include a commission or concession paid by the issuer to the
underwriter in the price of the security. Portfolio securities purchased from
dealers include a spread between the bid and asked price. The Fund seeks to
obtain prompt execution of orders at the most favorable net prices. In an option
transaction, the Fund ordinarily uses the same broker for the purchase or sale
of the option and any transaction in the investment to which the option relates.
Other funds advised by the Manager have investment objectives and policies
similar to those of the Fund. Those other funds may purchase or sell the same
securities as the Fund at the same time as the Fund, which could affect the
supply and price of the securities. If two or more of funds advised by the
Manager purchase the same security on the same day from the same dealer, the
transactions under those combined orders are averaged as to price and allocated
in accordance with the purchase or sale orders actually placed for each account.
The investment advisory agreement permits the Manager to allocate
brokerage for research services. The research services provided by a particular
broker may be useful only to one or more of the advisory accounts of the Manager
and its affiliates. Investment research received by the Manager for the
commissions paid by those other accounts may be useful both to the Fund and one
or more of the Manager's other accounts. Investment research services may be
supplied to the Manager by a third party at the instance of a broker through
which trades are placed. Investment research services include information and
analyses on particular companies and industries as well as market or economic
trends and portfolio strategy, market quotations for portfolio evaluations,
information systems, computer hardware and similar products and services. If a
research service also assists the Manager in a non-research capacity (such as
bookkeeping or other administrative functions), then only the percentage or
component that provides assistance to the Manager in the investment
decision-making process may be paid in commission dollars.
The Board of Directors has permitted the Manager to use concessions on
fixed-price offerings to obtain research, in the same manner as is permitted for
agency transactions. The Board has also permitted the Manager to use stated
commissions on secondary fixed-income agency trades to obtain research if the
broker represents to the Manager that: (i) the trade is not from or for the
broker's own inventory, (ii) the trade was executed by the broker on an agency
basis at the stated commission, and (iii) the trade is not a riskless principal
transaction.
The research services provided by brokers broaden the scope and supplement
the research activities of the Manager. That research provides additional views
and comparisons for consideration and helps the Manager to obtain market
information for the valuation of securities that are either held in the Fund's
portfolio or are being considered for purchase. The Manager provides information
to the Board of the Fund about the commissions paid to brokers furnishing
research services, together with the Manager's representation that the amount of
such commissions was reasonably related to the value or benefit of such
services.
Distribution and Service Plans
The Distributor. Under its General Distributor's Agreement with the Fund's
parent corporation, the Distributor acts as the Fund's principal underwriter in
the continuous public offering of the Fund's shares. The Distributor is not
obligated to sell a specific number of shares. Expenses normally attributable to
sales are borne by the Distributor.
The compensation paid to (or retained by) the Distributor from the sale of
shares or on the redemption of shares during the Fund's three most recent fiscal
years is shown in the table below.
<PAGE>
------------------------------------------------------------------------------
Aggregate Class A
Front-End Front-End Commissions on Commissions on
Sales Charges Sales Charges Class A Shares Class B Shares
Fiscal Year on Class A Retained by Advanced by Advanced by
Ended 8/31: Shares Distributor Distributor1 Distributor1
------------------------------------------------------------------------------
------------------------------------------------------------------------------
1997 $293,130 $46,207 N/A $213,863
------------------------------------------------------------------------------
------------------------------------------------------------------------------
1998 $406,963 $41,120 $71,099 $465,076
------------------------------------------------------------------------------
------------------------------------------------------------------------------
1999 $370,004 $65,422 $27,796 $426,112
------------------------------------------------------------------------------
1. The Distributor advances commission payments to dealers for certain sales of
Class A shares and for sales of Class B shares from its own resources at the
time of sale.
------------------------------------------------------------------------------
Class A Contingent Class B Contingent
Deferred Sales Charges Deferred Sales Charges
Fiscal Year Ended 8/31 Retained by Distributor Retained by Distributor
------------------------------------------------------------------------------
------------------------------------------------------------------------------
1999 $4,038 $95,508
------------------------------------------------------------------------------
For additional information about distribution of the Fund's shares,
including fees and expenses, please refer to "Distribution and Service Plans,"
below.
Distribution and Service Plan. The Fund has adopted a Distribution and Service
Plan for Class B shares Rule 12b-1 of the Investment Company Act. Under the plan
the Fund reimburses the Distributor for all or a portion of its costs incurred
in connection with the distribution and/or servicing of Class B shares.
The plan has been approved by a vote of the Board of Directors, including
a majority of the Independent Directors9, cast in person at a meeting called for
the purpose of voting on that plan. The shareholder vote for the Distribution
and Service Plans for Class B shares was cast by the Manager as the sole initial
holder of Class B shares of the Fund.
9. In accordance with Rule 12b-1 of the Investment Company Act, the term
"Independent Directors" in this Statement of Additional Information refers to
those Directors who are not "interested persons" of the Fund (or its parent
corporation) and who do not have any direct or indirect financial interest in
the operation of the distribution plan or any agreement under the plan.
Under the plans, the Manager and the Distributor may make payments to
affiliates and, in their sole discretion, from time to time, may use their own
resources (at no direct cost to the Fund) to make payments to brokers, dealers
or other financial institutions for distribution and administrative services
they perform. The Manager may use its profits from the advisory fee it receives
from the Fund. In their sole discretion, the Distributor and the Manager may
increase or decrease the amount of payments they make from their own resources
to plan recipients.
Unless the plan is terminated as described below, the plan continues in
effect from year to year but only if the Fund's Board of Directors and its
Independent Directors specifically vote annually to approve its continuance.
Approval must be by a vote cast in person at a meeting called for the purpose of
voting on continuing the plan. The plan may be terminated at any time by the
vote of a majority of the Independent Directors or by the vote of the holders of
a "majority" (as defined in the Investment Company Act) of the outstanding Class
B shares.
The Board of Directors and the Independent Directors must approve all
material amendments to the plan. An amendment to increase materially the amount
of payments to be made under the plan must be approved by shareholders of Class
B.
While the plan is in effect, the Treasurer of the Fund shall provide
written reports on the plan to the Board of Directors at least quarterly for its
review. The Reports shall detail the amount of all payments made under the plan
and the purpose for which the payments were made. Those reports are subject to
the review and approval of the Independent Directors.
The plan states that while it is in effect, the selection and nomination
of those Directors of the Fund's parent corporation who are not "interested
persons" of the corporation (or the Fund) is committed to the discretion of the
Independent Directors. This does not prevent the involvement of others in the
selection and nomination process as long as the final decision as to selection
or nomination is approved by a majority of the Independent Directors.
Under the plan, no payment will be made to any recipient in any quarter in
which the aggregate net asset value of all Fund shares held by the recipient for
itself and its customers does not exceed a minimum amount, if any, that may be
set from time to time by a majority of the Independent Directors. The Board of
Directors has set no minimum amount of assets to qualify for payments under the
plan.
|_| Class B Service and Distribution Plan Fees. Under the plan, service
fees and distribution fees are computed on the average of the net asset value of
Class B shares, determined as of the close of each regular business day during
the period. The plan allows the Distributor to be reimbursed for its services
and costs in distributing Class B shares and servicing accounts.
Under the service plan, the services provided by recipients to their
customers include, among others, answering customer inquiries about the
Fund, assisting in establishing and maintaining accounts in the Fund, making
the Fund's investment plans available and providing other services at the
request of the Fund or the Distributor. The service plan permits
reimbursements to the Distributor at a rate of up to 0.25% of average annual
net asset of Class B. The Board has set the rate at that level.
The plan permits the Distributor to retain both the asset-based sales
charges and the service fees or to pay recipients the service fee on a quarterly
basis, without payment in advance. However, the Distributor currently intends to
pay the service fee to recipients in advance for the first year after the shares
are purchased. After the first year shares are outstanding, the Distributor
makes service fee payments quarterly on those shares. The advance payment is
based on the net asset value of shares sold. Shares purchased by exchange do not
qualify for the service fee payment. If Class B shares are redeemed during the
first year after their purchase, the recipient of the service fees on those
shares will be obligated to repay the Distributor a pro rata portion of the
advance payment of the service fee made on those shares.
The Distributor retains the asset-based sales charge on Class B shares. If
a dealer has a special agreement with the Distributor, the Distributor will pay
the Class B service fee and the asset-based sales charge to the dealer quarterly
in lieu of paying the sales commissions and service fee in advance at the time
of purchase.
The asset-based sales charges on Class B shares allow investors to buy
shares without a front-end sales charge while allowing the Distributor to
reimburse dealers that sell those shares. The Fund pays the asset-based sales
charges to the Distributor for its services rendered in distributing Class B
shares. The payments are made to the Distributor in recognition that the
Distributor:
o pays sales commissions to authorized brokers and dealers at the time of
sale and pays service fees as described above,
o may finance payment of sales commissions and/or the advance of the
service fee payment to recipients under the plans, or may provide such
financing from its own resources or from the resources of an affiliate,
o employs personnel to support distribution of Class B shares, and o bears
the costs of sales literature, advertising and prospectuses (other
than those furnished to current shareholders) and state "blue sky"
registration fees and certain other distribution expenses.
The Distributor's actual expenses in selling Class B shares may be more
than the payments it receives from the contingent deferred sales charges
collected on redeemed shares and from the Fund under the plans. If the Class B
plan is terminated by the Fund, the Board of Directors may allow the Fund to
continue payments of the asset-based sales charge to the Distributor for
distributing shares before the plan was terminated. All payments under the Class
B plan is subject to the limitation imposed by the Conduct Rules of the National
Association of Securities Dealers, Inc. on payments of asset-based sales charges
and service fees.
--------------------------------------------------------------------------------
Distribution Fees Paid to the Distributor for the Year Ended 8/31/99
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Distributor's
Distributor's Unreimbursed
Total Amount Aggregate Expenses as %
Payments Retained by Unreimbursed of Net Assets
Class: Under Plan Distributor Expenses Under Plan of Class
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Class B Plan $280,483 $238,366 $1,067,326 3.59%
--------------------------------------------------------------------------------
1. Includes $1 paid to an affiliate of the Distributor's parent company.
All payments under the Class B plan are subject to the limitations imposed
by the Conduct Rules of the National Association of Securities Dealers, Inc. on
payments of asset-based sales charges and service fees.
Performance of the Fund
Explanation of Performance Terminology. The Fund uses a variety of terms to
illustrate its performance. These terms include "standardized yield,"
"tax-equivalent yield," "dividend yield," "average annual total return,"
"cumulative total return," "average annual total return at net asset value" and
"total return at net asset value." An explanation of how yields and total
returns are calculated is set forth below. The charts below show the Fund's
performance as of the Fund's most recent fiscal year end. You can obtain current
performance information by calling the Fund's Transfer Agent at 1-800-525-7048
or by visiting the OppenheimerFunds Internet web site at
www.oppenheimerfunds.com.
The Fund's illustrations of its performance data in advertisements must
comply with rules of the Securities and Exchange Commission. Those rules
describe the types of performance data that may be used and how it is to be
calculated. In general, any advertisement by the Fund of its performance data
must include the average annual total returns for the advertised class of shares
of the Fund. Those returns must be shown for the 1-5 and 10-year periods (or the
life of the class, if less) ending as of the most recently ended calendar
quarter prior to the publication of the advertisement (or its submission for
publication). Certain types of yields may also be shown, provided that they are
accompanied by standardized average annual total returns.
Use of standardized performance calculations enables an investor to
compare the Fund's performance to the performance of other funds for the same
periods. However, a number of factors should be considered before using the
Fund's performance information as a basis for comparison with other investments:
o Yields and total returns measure the performance of a hypothetical
account in the Fund over various periods and do not show the performance of each
shareholder's account. Your account's performance will vary from the model
performance data if your dividends are received in cash, or you buy or sell
shares during the period, or you bought your shares at a different time and
price than the shares used in the model.
o An investment in the Fund is not insured by the FDIC or any other
government agency.
o The principal value of the Fund's shares, and its yields and total
returns are not guaranteed and normally will fluctuate on a daily basis.
o When an investor's shares are redeemed, they may be worth more or less
than their original cost.
o Yields and total returns for any given past period represent historical
performance information and are not, and should not be considered, a prediction
of future yields or returns.
The performance of each class of shares is shown separately, because the
performance of each class of shares will usually be different. That is because
of the different kinds of expenses each class bears. The yields and total
returns of each class of shares of the Fund are affected by market conditions,
the quality of the Fund's investments, the maturity of those investments, the
types of investments the Fund holds, and its operating expenses that are
allocated to the particular class.
|X| Yields. The Fund uses a variety of different yields to illustrate its
current returns. Each class of shares calculates its yield separately because of
the different expenses that affect each class.
|_| Standardized Yield. The "standardized yield" (sometimes referred to
just as "yield") is shown for a class of shares for a stated 30-day period. It
is not based on actual distributions paid by the Fund to shareholders in the
30-day period, but is a hypothetical yield based upon the net investment income
from the Fund's portfolio investments for that period. It may therefore differ
from the "dividend yield" for the same class of shares, described below.
<PAGE>
Standardized yield is calculated using the following formula set forth in
rules adopted by the Securities and Exchange Commission, designed to assure
uniformity in the way that all funds calculate their yields:
(a-b) 6
Standardized Yield = 2 ((--- + 1) - 1)
( cd)
The symbols above represent the following factors:
a = dividends and interest earned during the 30-day period.
b = expenses accrued for the period (net of any expense assumptions).
c = the average daily number of shares of that class outstanding
during the 30-day period that were entitled to receive dividends.
d = the maximum offering price per share of that class on the last day
of the period, adjusted for undistributed net investment income.
The standardized yield for a particular 30-day period may differ from the
yield for other periods. The SEC formula assumes that the standardized yield for
a 30-day period occurs at a constant rate for a six-month period and is
annualized at the end of the six-month period. Additionally, because each class
of shares is subject to different expenses, it is likely that the standardized
yields of the Fund's classes of shares will differ for any 30-day period.
|_| Dividend Yield. The Fund may quote a "dividend yield" for each
class of its shares. Dividend yield is based on the dividends paid on a class of
shares during the actual dividend period. To calculate dividend yield, the
dividends of a class declared during a stated period are added together, and the
sum is multiplied by 12 (to annualize the yield) and divided by the maximum
offering price on the last day of the dividend period. The formula is shown
below:
Dividend Yield = dividends paid x 12/maximum offering price (payment date)
The maximum offering price for Class A shares includes the current maximum
initial sales charge. The maximum offering price for Class B shares is the net
asset value per share, without considering the effect of contingent deferred
sales charges. The Class A dividend yield may also be quoted without deducting
the maximum initial sales charge.
|_| Tax-Equivalent Yield. The "tax-equivalent yield" of a class of
shares is the equivalent yield that would have to be earned on a taxable
investment to achieve the after-tax results represented by the Fund's
tax-equivalent yield. It adjusts the Fund's standardized yield, as calculated
above, by a stated federal tax rate. Using different tax rates to show different
tax equivalent yields shows investors in different tax brackets the tax
equivalent yield of the Fund based on their own tax bracket.
The tax-equivalent yield is based on a 30-day period, and is computed by
dividing the tax-exempt portion of the Fund's current yield (as calculated
above) by one minus a stated income tax rate. The result is added to the portion
(if any) of the Fund's current yield that is not tax-exempt.
<PAGE>
The tax-equivalent yield may be used to compare the tax effects of income
derived from the Fund with income from taxable investments at the tax rates
stated. Your tax bracket is determined by your federal and state taxable income
(the net amount subject to federal and state income tax after deductions and
exemptions). The tax-equivalent yield table assumes that the investor is taxed
at the highest bracket, regardless of whether a switch to non-taxable
investments would cause a lower bracket to apply.
--------------------------------------------------------------------------------
The Fund's Yields for the 30-Day Periods Ended 8/31/99
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Tax-Equivalent Yield
Class of (45.22% Combined
Shares Federal/California
Standardized Yield Dividend Yield Tax Bracket)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Without After Without After Without After
Sales Sales Sales Sales Sales Sales
Charge Charge Charge Charge Charge Charge
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Class A 5.26% 5.01% 5.26% 5.01% 9.60% 9.15%
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Class B 4.25% N/A 4.25% N/A 7.76% N/A
--------------------------------------------------------------------------------
|X| Total Return Information. There are different types of "total returns"
to measure the Fund's performance. Total return is the change in value of a
hypothetical investment in the Fund over a given period, assuming that all
dividends and capital gains distributions are reinvested in additional shares
and that the investment is redeemed at the end of the period. Because of
differences in expenses for each class of shares, the total returns for each
class are separately measured. The cumulative total return measures the change
in value over the entire period (for example, ten years). An average annual
total return shows the average rate of return for each year in a period that
would produce the cumulative total return over the entire period. However,
average annual total returns do not show actual year-by-year performance. The
Fund uses standardized calculations for its total returns as prescribed by the
SEC. The methodology is discussed below.
In calculating total returns for Class A shares, the current maximum
sales charge of 4.75% (as a percentage of the offering price) is deducted from
the initial investment ("P") (unless the return is shown without sales charge,
as described below). For Class B shares, payment of the applicable contingent
deferred sales charge is applied, depending on the period for which the return
is shown: 5.0% in the first year, 4.0% in the second year, 3.0% in the third and
fourth years, 2.0% in the fifth year, 1.0% in the sixth year and none
thereafter.
|_| Average Annual Total Return. The "average annual total return" of
each class is an average annual compounded rate of return for each year in a
specified number of years. It is the rate of return based on the change in value
of a hypothetical initial investment of $1,000 ("P" in the formula below) held
for a number of years ("n") to achieve an Ending Redeemable Value ("ERV" in the
formula) of that investment, according to the following formula:
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
1/n
(ERV)
(---) -1 = Average Annual Total Return
( P )
|_| Cumulative Total Return. The "cumulative total return" calculation
measures the change in value of a hypothetical investment of $1,000 over an
entire period of years. Its calculation uses some of the same factors as average
annual total return, but it does not average the rate of return on an annual
basis. Cumulative total return is determined as follows:
ERV - P
------- = Total Return
P
|_| Total Returns at Net Asset Value. From time to time the Fund may
also quote a cumulative or an average annual total return "at net asset value"
(without deducting sales charges) for Class A or Class B shares. Each is based
on the difference in net asset value per share at the beginning and the end of
the period for a hypothetical investment in that class of shares (without
considering front-end or contingent deferred sales charges) and takes into
consideration the reinvestment of dividends and capital gains distributions.
--------------------------------------------------------------------------------
The Fund's Total Returns for the Periods Ended 8/31/98
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Cumulative Total
Class of Returns (10
Shares years or Life of
Class) Average Annual Total Returns
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
5-Year 10-Year
(or (or
1-Year life-of-class) life-of-class)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
After Without After Without After Without After Without
Sales Sales Sales Sales Sales Sales Sales Sales
Charge Charge Charge Charge Charge Charge Charge Charge
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Class A 81.84% 90.90% -6.11% -1.42% 5.44% 6.47% 6.65%1 7.21%1
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Class B 24.52% 25.46% -7.10% -2.41% 5.09% 5.42% 3.83%2 3.96%2
--------------------------------------------------------------------------------
1. Inception of Class A: 5/18/90
2. Inception of Class B: 10/29/93. Because Class B shares convert to Class A
shares 72 months after purchase, the "Life-of-Class" return for Class B shares
uses Class A performance for the period after conversion.
Other Performance Comparisons. The Fund compares its performance annually to
that of an appropriate broadly-based market index in its Annual Report to
shareholders. You can obtain that information by contacting the Transfer Agent
at the addresses or telephone numbers shown on the cover of this Statement of
Additional Information. The Fund may also compare its performance to that of
other investments, including other mutual funds, or use rankings of its
performance by independent ranking entities. Examples of these performance
comparisons are set forth below.
|_| Lipper Rankings. From time to time the Fund may publish the ranking
of the performance of its classes of shares by Lipper Analytical Services, Inc.
("Lipper"). Lipper is a widely-recognized independent mutual fund monitoring
service. Lipper monitors the performance of regulated investment companies,
including the Fund, and ranks their performance for various periods based on
categories relating to investment objectives. The performance of the Fund is
ranked by Lipper against all other California municipal debt funds. The Lipper
performance rankings are based on total returns that include the reinvestment of
capital gain distributions and income dividends but do not take sales charges or
taxes into consideration. Lipper also publishes "peer-group" indices of the
performance of all mutual funds in a category that it monitors and averages of
the performance of the funds in particular categories.
|_| Morningstar Rankings. From time to time the Fund may publish the
ranking and/or star rating of the performance of its classes of shares by
Morningstar, Inc., an independent mutual fund monitoring service. Morningstar
rates and ranks mutual funds in broad investment categories: domestic stock
funds, international stock funds, taxable bond funds and municipal bond funds.
The Fund is included in the municipal bond category.
Morningstar proprietary star ratings reflect historical risk-adjusted
total investment return. Investment return measures a fund's (or class's)
one-, three-, five- and ten-year average annual total returns (depending on
the inception of the fund or class) in excess of 90-day U.S. Treasury bill
returns after considering the fund's sales charges and expenses. Risk
measures a fund's (or class's) performance below 90-day U.S. Treasury bill
returns. Risk and investment return are combined to produce star ratings
reflecting performance relative to the other fund in the fund's category.
Five stars is the "highest" rating (top 10% of funds in a category), four
stars is "above average" (next 22.5%), three stars is "average" (next 35%),
two stars is "below average" (next 22.5%) and one star is "lowest" (bottom
10%). The current star ranking is the fund's (or class's) overall rating,
which is the fund's 3-year rating or its combined 3- and 5-year rating
(weighted 60%/40% respectively), or its combined 3-, 5-, and 10-year ranking
(weighted 40%/30%/30%, respectively), depending on the inception date of the
fund (or class). Ratings are subject to change monthly.
The Fund may also compare its total return ranking to that of other funds in its
Morningstar category, in addition to its star ratings. Those total return
rankings are percentages from one percent to one hundred percent and are not
risk adjusted. For example if a fund is in the 94th percentile, that means that
94% of the funds in the same category performed better than it did.
|_| Performance Rankings and Comparisons by Other Entities and
Publications. From time to time the Fund may include in its advertisements and
sales literature performance information about the Fund cited in newspapers and
other periodicals such as The New York Times, The Wall Street Journal, Barron's,
or similar publications. That information may include performance quotations
from other sources, including Lipper and Morningstar. The performance of the
Fund's classes of shares may be compared in publications to the performance of
various market indices or other investments, and averages, performance rankings
or other benchmarks prepared by recognized mutual fund statistical services.
Investors may also wish to compare the Fund's returns to the return on
fixed-income investments available from banks and thrift institutions. Those
include certificates of deposit, ordinary interest-paying checking and savings
accounts, and other forms of fixed or variable time deposits, and various other
instruments such as Treasury bills. However, the Fund's returns and share price
are not guaranteed or insured by the FDIC or any other agency and will fluctuate
daily, while bank depository obligations may be insured by the FDIC and may
provide fixed rates of return. Repayment of principal and payment of interest on
Treasury securities is backed by the full faith and credit of the U.S.
government.
From time to time, the Fund may publish rankings or ratings of the Manager
or Transfer Agent, and of the investor services provided by them to shareholders
of the Oppenheimer funds, other than performance rankings of the Oppenheimer
funds themselves. Those ratings or rankings of shareholder and investor services
by third parties may include comparisons of their services to those provided by
other mutual fund families selected by the rating or ranking services. They may
be based upon the opinions of the rating or ranking service itself, using its
research or judgment, or based upon surveys of investors, brokers, shareholders
or others.
--------------------------------------------------------------------------------
A B O U T Y O U R A C C O U N T
--------------------------------------------------------------------------------
How to Buy Shares
Additional information is presented below about the methods that can be used to
buy shares of the Fund. Appendix C contains more information about the special
sales charge arrangements offered by the Fund, and the circumstances in which
sales charges may be reduced or waived for certain classes of investors.
AccountLink. When shares are purchased through AccountLink, each purchase must
be at least $25. Shares will be purchased on the regular business day the
Distributor is instructed to initiate the Automated Clearing House ("ACH")
transfer to buy the shares. Dividends will begin to accrue on shares purchased
with the proceeds of ACH transfers on the business day the Fund receives Federal
Funds for the purchase through the ACH system before the close of The New York
Stock Exchange. The Exchange normally closes at 4:00 P.M., but may close earlier
on certain days. If Federal Funds are received on a business day after the close
of the Exchange, the shares will be purchased and dividends will begin to accrue
on the next regular business day. The proceeds of ACH transfers are normally
received by the Fund 3 days after the transfers are initiated. The Distributor
and the Fund are not responsible for any delays in purchasing shares resulting
from delays in ACH transmissions.
Reduced Sales Charges. As discussed in the Prospectus, a reduced sales charge
rate may be obtained for Class A shares under Right of Accumulation and Letters
of Intent because of the economies of sales efforts and reduction in expenses
realized by the Distributor, dealers and brokers making such sales. No sales
charge is imposed in certain other circumstances described in Appendix C to this
Statement of Additional Information because the Distributor or dealer or broker
incurs little or no selling expenses.
|X| Right of Accumulation. To qualify for the lower sales charge rates
that apply to larger purchases of Class A shares, you and your spouse can add
together:
o Class A and Class B shares you purchase for your individual accounts,
or for your joint accounts, or for trust or custodial accounts on
behalf of your children who are minors, and
o current purchases of Class A and Class B shares of the Fund and other
Oppenheimer funds to reduce the sales charge rate that applies to
current purchases of Class A shares, and
o Class A and Class B shares of Oppenheimer funds you previously
purchased subject to an initial or contingent deferred sales charge to
reduce the sales charge rate for current purchases of Class A shares,
provided that you still hold your investment in one of the Oppenheimer
funds.
A fiduciary can count all shares purchased for a trust, estate or other
fiduciary account (including one or more employee benefit plans of the same
employer) that has multiple accounts. The Distributor will add the value, at
current offering price, of the shares you previously purchased and currently own
to the value of current purchases to determine the sales charge rate that
applies. The reduced sales charge will apply only to current purchases. You must
request it when you buy shares.
|X| The Oppenheimer Funds. The Oppenheimer funds are those mutual funds
for which the Distributor acts as the distributor or the sub-distributor and
currently include the following:
Oppenheimer Main Street California
Oppenheimer Bond Fund Municipal Fund
Oppenheimer Main Street Growth & Income
Oppenheimer Capital Appreciation Fund Fund
Oppenheimer Capital Preservation Fund Oppenheimer Main Street Small Cap Fund
Oppenheimer California Municipal Fund Oppenheimer MidCap Fund
Oppenheimer Champion Income Fund Oppenheimer Multiple Strategies Fund
Oppenheimer Convertible Securities Fund Oppenheimer Municipal Bond Fund
Oppenheimer Developing Markets Fund Oppenheimer New York Municipal Fund
Oppenheimer Disciplined Allocation Fund Oppenheimer New Jersey Municipal Fund
Oppenheimer Disciplined Value Fund Oppenheimer Pennsylvania Municipal Fund
Oppenheimer Discovery Fund Oppenheimer Quest Balanced Value Fund
Oppenheimer Quest Capital Value Fund,
Oppenheimer Enterprise Fund Inc.
Oppenheimer Quest Global Value Fund,
Oppenheimer Capital Income Fund Inc.
Oppenheimer Europe Fund Oppenheimer Quest Opportunity Value Fund Oppenheimer
Florida Municipal Fund Oppenheimer Quest Small Cap Value Fund Oppenheimer Global
Fund Oppenheimer Quest Value Fund, Inc. Oppenheimer Global Growth & Income Fund
Oppenheimer Real Asset Fund Oppenheimer Gold & Special Minerals Fund Oppenheimer
Senior Floating Rate Fund Oppenheimer Growth Fund Oppenheimer Strategic Income
Fund Oppenheimer High Yield Fund Oppenheimer Total Return Fund, Inc. Oppenheimer
Insured Municipal Fund Oppenheimer Trinity Core Fund Oppenheimer Intermediate
Municipal Fund Oppenheimer Trinity Growth Fund Oppenheimer International Bond
Fund Oppenheimer Trinity Value Fund Oppenheimer International Growth Fund
Oppenheimer U.S. Government Trust Oppenheimer International Small Company Fund
Oppenheimer World Bond Fund Oppenheimer Large Cap Growth Fund Limited-Term New
York Municipal Fund Oppenheimer Limited-Term Government Fund Rochester Fund
Municipals
and the following money market funds:
Centennial America Fund, L. P. Centennial New York Tax Exempt Trust
Centennial California Tax Exempt
Trust Centennial Tax Exempt Trust
Centennial Government Trust Oppenheimer Cash Reserves
Centennial Money Market Trust Oppenheimer Money Market Fund, Inc.
There is an initial sales charge on the purchase of Class A shares of each
of the Oppenheimer funds except the money market funds. Under certain
circumstances described in this Statement of Additional Information, redemption
proceeds of certain money market fund shares may be subject to a contingent
deferred sales charge.
Letters of Intent. Under a Letter of Intent, if you purchase Class A shares or
Class A and Class B shares of the Fund and other Oppenheimer funds during a
13-month period, you can reduce the sales charge rate that applies to your
purchases of Class A shares. The total amount of your intended purchases of both
Class A and Class B shares will determine the reduced sales charge rate for the
Class A shares purchased during that period. You can include purchases made up
to 90 days before the date of the Letter.
A Letter of Intent is an investor's statement in writing to the
Distributor of the intention to purchase Class A shares or Class A and Class B
shares of the Fund (and other Oppenheimer funds) during a 13-month period (the
"Letter of Intent period"). At the investor's request, this may include
purchases made up to 90 days prior to the date of the Letter. The Letter states
the investor's intention to make the aggregate amount of purchases of shares
which, when added to the investor's holdings of shares of those funds, will
equal or exceed the amount specified in the Letter. Purchases made by
reinvestment of dividends or distributions of capital gains and purchases made
at net asset value without sales charge do not count toward satisfying the
amount of the Letter.
A Letter enables an investor to count the Class A and Class B shares
purchased under the Letter to obtain the reduced sales charge rate on purchases
of Class A shares of the Fund (and other Oppenheimer funds) that applies under
the Right of Accumulation to current purchases of Class A shares. Each purchase
of Class A shares under the Letter will be made at the offering price (including
the sales charge) that applies to a single lump-sum purchase of shares in the
amount intended to be purchased under the Letter.
In submitting a Letter, the investor makes no commitment to purchase
shares. However, if the investor's purchases of shares within the Letter of
Intent period, when added to the value (at offering price) of the investor's
holdings of shares on the last day of that period, do not equal or exceed the
intended purchase amount, the investor agrees to pay the additional amount of
sales charge applicable to such purchases. That amount is described in "Terms of
Escrow," below (those terms may be amended by the Distributor from time to
time). The investor agrees that shares equal in value to 5% of the intended
purchase amount will be held in escrow by the Transfer Agent subject to the
Terms of Escrow. Also, the investor agrees to be bound by the terms of the
Prospectus, this Statement of Additional Information and the Application used
for a Letter of Intent. If those terms are amended, as they may be from time to
time by the Fund, the investor agrees to be bound by the amended terms and that
those amendments will apply automatically to existing Letters of Intent.
If the total eligible purchases made during the Letter of Intent period do
not equal or exceed the intended purchase amount, the commissions previously
paid to the dealer of record for the account and the amount of sales charge
retained by the Distributor will be adjusted to the rates applicable to actual
total purchases. If total eligible purchases during the Letter of Intent period
exceed the intended purchase amount and exceed the amount needed to qualify for
the next sales charge rate reduction set forth in the Prospectus, the sales
charges paid will be adjusted to the lower rate. That adjustment will be made
only if and when the dealer returns to the Distributor the excess of the amount
of commissions allowed or paid to the dealer over the amount of commissions that
apply to the actual amount of purchases. The excess commissions returned to the
Distributor will be used to purchase additional shares for the investor's
account at the net asset value per share in effect on the date of such purchase,
promptly after the Distributor's receipt thereof.
The Transfer Agent will not hold shares in escrow for purchases of shares
of the Fund and other Oppenheimer funds by OppenheimerFunds prototype 401(k)
plans under a Letter of Intent. If the intended purchase amount under a Letter
of Intent entered into by an OppenheimerFunds prototype 401(k) plan is not
purchased by the plan by the end of the Letter of Intent period, there will be
no adjustment of commissions paid to the broker-dealer or financial institution
of record for accounts held in the name of that plan.
In determining the total amount of purchases made under a Letter, shares
redeemed by the investor prior to the termination of the Letter of Intent period
will be deducted. It is the responsibility of the dealer of record and/or the
investor to advise the Distributor about the Letter in placing any purchase
orders for the investor during the Letter of Intent period. All of such
purchases must be made through the Distributor.
|_| Terms of Escrow That Apply to Letters of Intent.
1. Out of the initial purchase (or subsequent purchases if necessary)
made pursuant to a Letter, shares of the Fund equal in value up to 5% of the
intended purchase amount specified in the Letter shall be held in escrow by
the Transfer Agent. For example, if the intended purchase amount is $50,000,
the escrow shall be shares valued in the amount of $2,500 (computed at the
offering price adjusted for a $50,000 purchase). Any dividends and capital
gains distributions on the escrowed shares will be credited to the
investor's account.
2. If the total minimum investment specified under the Letter is completed
within the thirteen-month Letter of Intent period, the escrowed shares will be
promptly released to the investor.
3. If, at the end of the thirteen-month Letter of Intent period the total
purchases pursuant to the Letter are less than the intended purchase amount
specified in the Letter, the investor must remit to the Distributor an amount
equal to the difference between the dollar amount of sales charges actually paid
and the amount of sales charges which would have been paid if the total amount
purchased had been made at a single time. That sales charge adjustment will
apply to any shares redeemed prior to the completion of the Letter. If the
difference in sales charges is not paid within twenty days after a request from
the Distributor or the dealer, the Distributor will, within sixty days of the
expiration of the Letter, redeem the number of escrowed shares necessary to
realize such difference in sales charges. Full and fractional shares remaining
after such redemption will be released from escrow. If a request is received to
redeem escrowed shares prior to the payment of such additional sales charge, the
sales charge will be withheld from the redemption proceeds.
4. By signing the Letter, the investor irrevocably constitutes and
appoints the Transfer Agent as attorney-in-fact to surrender for redemption any
or all escrowed shares.
6. The shares eligible for purchase under the Letter (or the holding of which
may be counted toward completion of a Letter) include:
(d) Class A shares sold with a front-end sales charge or subject to a Class A
contingent deferred sales charge,
(e) Class B shares of other Oppenheimer funds acquired subject to a contingent
deferred sales charge, and
(f) Class A or Class B shares acquired by exchange of either (1) Class
A shares of one of the other Oppenheimer funds that were acquired
subject to a Class A initial or contingent deferred sales charge or
(2) Class B shares of one of the other Oppenheimer funds that were
acquired subject to a contingent deferred sales charge.
6. Shares held in escrow hereunder will automatically be exchanged for
shares of another fund to which an exchange is requested, as described in the
section of the Prospectus entitled "How to Exchange Shares" and the escrow will
be transferred to that other fund.
Asset Builder Plans. To establish an Asset Builder Plan to buy shares directly
from a bank account, you must enclose a check (the minimum is $25) for the
initial purchase with your application. Shares purchased by Asset Builder Plan
payments from bank accounts are subject to the redemption restrictions for
recent purchases described in the Prospectus. Asset Builder Plans are only
available if your bank is an ACH member. Asset Builder Plans may not be used to
buy shares for OppenheimerFunds employer - sponsored qualified retirement
accounts. Asset Builder Plans also enable shareholders of Oppenheimer Cash
Reserves to use their fund account to make monthly automatic purchases of shares
of up to four other Oppenheimer funds.
If you make payments from your bank account to purchase shares of the
Fund, your bank account will be debited automatically. Normally the debt will be
made two business days prior to the investment dates you selected in your
Application. Neither the Distributor, the Transfer Agent nor the Fund shall be
responsible for any delays in purchasing shares that result from delays in ACH
transmissions.
Before you establish Asset Builder payments, you should obtain a
prospectus of the selected fund(s) your financial advisor (or the Distributor)
and request an application from the Distributor. Complete the application and
return it. You may change the amount of the Asset Builder payment or you can
terminate these at any time by writing to the Transfer Agent. The Transfer Agent
requires a reasonable period (approximately 10 days) after receipt of your
instructions to implement them. The Fund reserves the right to amend, suspend,
or discontinue offering Asset Builder plans at any time without prior notice.
<PAGE>
Cancellation of Purchase Orders. Cancellation of purchase orders for the Fund's
shares (for example, when a purchase check is returned to the Fund unpaid)
causes a loss to be incurred when the net asset value of the Fund's shares on
the cancellation date is less than on the purchase date. That loss is equal to
the amount of the decline in the net asset value per share multiplied by the
number of shares in the purchase order. The investor is responsible for that
loss. If the investor fails to compensate the Fund for the loss, the Distributor
will do so. The Fund may reimburse the Distributor for that amount by redeeming
shares from any account registered in that investor's name, or the Fund or the
Distributor may seek other redress.
Classes of Shares. Each class of shares of the Fund represents an interest in
the same portfolio of investments of the Fund. However, each class has different
shareholder privileges and features. The net income attributable to Class B
shares and the dividends payable on Class B shares will be reduced by
incremental expenses borne solely by that class. Those expenses include the
asset-based sales charges to which Class B is subject.
The availability of different classes of shares permits an investor to
choose the method of purchasing shares that is more appropriate for the
investor. That may depend on the amount of the purchase, the length of time the
investor expects to hold shares, and other relevant circumstances. Class A
shares normally are sold subject to an initial sales charge. While Class B
shares have no initial sales charge, the purpose of the deferred sales charge
and asset-based sales charge on Class B shares is the same as that of the
initial sales charge on Class A shares - to compensate the Distributor and
brokers, dealers and financial institutions that sell shares of the Fund. A
salesperson who is entitled to receive compensation from his or her firm for
selling Fund shares may receive different levels of compensation for selling one
class of shares rather than another.
The Distributor will not accept any order in the amount of $500,000 or
more for Class B shares on behalf of a single investor (not including dealer
"street name" or omnibus accounts). That is because generally it will be more
advantageous for that investor to purchase Class A shares of the Fund.
|_| Class B Conversion. The conversion of Class B shares to Class A
shares after six years is subject to the continuing availability of a private
letter ruling from the Internal Revenue Service, or an opinion of counsel or tax
adviser, to the effect that the conversion of Class B shares does not constitute
a taxable event for the shareholder under federal income tax law. If such a
revenue ruling or opinion is no longer available, the automatic conversion
feature may be suspended, in which event no further conversions of Class B
shares would occur while such suspension remained in effect. Although Class B
shares could then be exchanged for Class A shares on the basis of relative net
asset value of the two classes, without the imposition of a sales charge or fee,
such exchange could constitute a taxable event for the shareholder, and absent
such exchange, Class B shares might continue to be subject to the asset-based
sales charge for longer than six years.
|_| Allocation of Expenses. The Fund pays expenses related to its daily
operations, such as custodian bank fees, Directors' fees, transfer agency fees,
legal fees and auditing costs. Those expenses are paid out of the Fund's assets
and are not paid directly by shareholders.
<PAGE>
However, those expenses reduce the net asset value of shares, and therefore are
indirectly borne by shareholders through their investment.
The methodology for calculating the net asset value, dividends and
distributions of the Fund's share classes recognizes two types of expenses.
General expenses that do not pertain specifically to any one class are allocated
pro rata to the shares of all classes. The allocation is based on the percentage
of the Fund's total assets that is represented by the assets of each class, and
then equally to each outstanding share within a given class. Such general
expenses include management fees, legal, bookkeeping and audit fees, printing
and mailing costs of shareholder reports, Prospectuses, Statements of Additional
Information and other materials for current shareholders, fees to unaffiliated
Directors, custodian bank expenses, share issuance costs, organization and
start-up costs, interest, taxes and brokerage commissions, and non-recurring
expenses, such as litigation costs.
Other expenses that are directly attributable to a particular class are
allocated equally to each outstanding share within that class. Examples of such
expenses include distribution and service plan (12b-1) fees, transfer and
shareholder servicing agent fees and expenses, and shareholder meeting expenses
(to the extent that such expenses pertain only to a specific class).
Determination of Net Asset Values Per Share. The net asset values per share of
each class of shares of the Fund are determined as of the close of business of
The New York Stock Exchange on each day that the Exchange is open. The
calculation is done by dividing the value of the Fund's net assets attributable
to a class by the number of shares of that class that are outstanding. The
Exchange normally closes at 4:00 P.M., New York time, but may close earlier on
some other days (for example, in case of weather emergencies or on days falling
before a holiday). The Exchange's most recent annual announcement (which is
subject to change) states that it will close on New Year's Day, Presidents' Day,
Martin Luther King, Jr. Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day and Christmas Day. It may also close on other days.
Dealers other than Exchange members may conduct trading in certain
securities on days on which the Exchange is closed (including weekends and U.S.
holidays) or after 4:00 P.M. on a regular business day. The Fund's net asset
values will not be calculated on those days, and the value of some of the Fund's
portfolio securities may change significantly on those days, when shareholders
may not purchase or redeem shares.
|X| Securities Valuation. The Fund's Board of Directors has established
procedures for the valuation of the Fund's securities. In general those
procedures are as follows:
o Long-term debt securities having a remaining maturity in excess of 60
days are valued based on the mean between the "bid" and "asked" prices
determined by a portfolio pricing service approved by the Fund's Board of
Directors or obtained by the Manager from two active market makers in the
security on the basis of reasonable inquiry.
o The following securities are valued at the mean between the "bid" and
"asked" prices determined by a pricing service approved by the Fund's Board of
Directors or obtained by the Manager from two active market makers in the
security on the basis of reasonable inquiry:
(4) debt instruments that have a maturity of more than 397 days when issued, (5)
debt instruments that had a maturity of 397 days or less when issued and have
a remaining maturity of more than 60 days, and
(6) non-money market debt instruments that had a maturity of 397 days or
less when issued and which have a remaining maturity of 60 days or
less.
o The following securities are valued at cost, adjusted for amortization
of premiums and accretion of discounts: (3) money market debt securities held by
a non-money market fund that had a
maturity of less than 397 days when issued that have a remaining
maturity of 60 days or less, and
(4) debt instruments held by a money market fund that have a remaining
maturity of 397 days or less.
o Securities (including restricted securities) not having
readily-available market quotations are valued at fair value determined under
the Board's procedures.
If the Manager is unable to locate two market makers willing to give
quotes, a security may be priced at the mean between the "bid" and "asked"
prices provided by a single active market maker (which in certain cases may be
the "bid" price if no "asked" price is available).
In the case of municipal securities, when last sale information is not
generally available, the Manager may use pricing services approved by the Board
of Directors. The pricing service may use "matrix" comparisons to the prices for
comparable instruments on the basis of quality, yield, maturity. Other special
factors may be involved (such as the tax-exempt status of the interest paid by
municipal securities). The Manager will monitor the accuracy of the pricing
services. That monitoring may include comparing prices used for portfolio
valuation to actual sales prices of selected securities.
Puts, calls, interest rate futures and municipal bond index futures are
valued at the last sale price on the principal exchange on which they are traded
or on NASDAQ, as applicable, as determined by a pricing service approved by the
Board of Directors or by the Manager. If there were no sales that day, they
shall be valued at the last sale price on the preceding trading day if it is
within the spread of the closing "bid" and "asked" prices on the principal
exchange or on NASDAQ on the valuation date. If not, the value shall be the
closing bid price on the principal exchange or on NASDAQ on the valuation date.
If the put, call or future is not traded on an exchange or on NASDAQ, it shall
be valued by the mean between "bid" and "asked" prices obtained by the Manager
from two active market makers. In certain cases that may be at the "bid" price
if no "asked" price is available.
When the Fund writes an option, an amount equal to the premium received is
included in the Fund's Statement of Assets and Liabilities as an asset. An
equivalent credit is included in the liability section. The credit is adjusted
("marked-to-market") to reflect the current market value of the option. In
determining the Fund's gain on investments, if a call or put written by the Fund
is exercised, the proceeds are increased by the premium received. If a call or
put written by the Fund expires, the Fund has a gain in the amount of the
premium. If the Fund enters into a closing purchase transaction, it will have a
gain or loss, depending on whether the premium received was more or less than
the cost of the closing transaction. If the Fund exercises a put it holds, the
amount the Fund receives on its sale of the underlying investment is reduced by
the amount of premium paid by the Fund.
How to Sell Shares
Information on how to sell shares of the Fund is stated in the Prospectus. The
information below provides additional information about the procedures and
conditions for redeeming shares.
Checkwriting. When a check is presented to the Fund's bank for clearance, the
bank will ask the Fund to redeem a sufficient number of full and fractional
shares in the shareholder's account to cover the amount of the check. This
enables the shareholder to continue to receive dividends on those shares until
the check is presented to the Fund. Checks may not be presented for payment at
the offices of the bank listed on the check or at the Fund's custodian bank.
That limitation does not affect the use of checks for the payment of bills or to
obtain cash at other banks. The Fund reserves the right to amend, suspend or
discontinue offering Checkwriting privileges at any time without prior notice.
In choosing to take advantage of the Checkwriting privilege by signing the
Account Application or by completing a Checkwriting card, each individual who
signs:
(7) for individual accounts, represents that they are the registered
owner(s) of the shares of the Fund in that account;
(8) for accounts for corporations, partnerships, trusts and other entities,
represents that they are an officer, general partner, trustee or other
fiduciary or agent, as applicable, duly authorized to act on behalf of
such registered owner(s);
(9) authorizes the Fund, its Transfer Agent and any bank through which the
Fund's drafts (checks) are payable to pay all checks drawn on the Fund
account of such person(s) and to redeem a sufficient amount of shares
from that account to cover payment of each check;
(10) specifically acknowledges that if they choose to permit checks to be
honored if there is a single signature on checks drawn against joint
accounts, or accounts for corporations, partnerships, trusts or other
entities, the signature of any one signatory on a check will be
sufficient to authorize payment of that check and redemption from the
account, even if that account is registered in the names of more than
one person or more than one authorized signature appears on the
Checkwriting card or the Application, as applicable;
(11) understands that the Checkwriting privilege may be terminated or
amended at any time by the Fund and/or the Fund's bank; and
(12) acknowledges and agrees that neither the Fund nor its bank shall incur
any liability for that amendment or termination of checkwriting
privileges or for redeeming shares to pay checks reasonably believed by
them to be genuine, or for returning or not paying checks that have not
been accepted for any reason.
Reinvestment Privilege. Within six months of a redemption, a shareholder may
reinvest all or part of the redemption proceeds of:
o Class A shares purchased subject to an initial sales charge or Class A
shares on which a contingent deferred sales charge was paid, or
o Class B shares that were subject to the Class B contingent deferred
sales charge when redeemed.
The reinvestment may be made without sales charge only in Class A shares
of the Fund or any of the other Oppenheimer funds into which shares of the Fund
are exchangeable as described in "How to Exchange Shares" below. Reinvestment
will be at the net asset value next computed after the Transfer Agent receives
the reinvestment order. The shareholder must ask the Transfer Agent for that
privilege at the time of reinvestment. The Fund may amend, suspend or cease
offering this reinvestment privilege at any time as to shares redeemed after the
date of such amendment, suspension or cessation.
Any capital gain that was realized when the shares were redeemed is
taxable, and reinvestment will not alter any capital gains tax payable on that
gain. If there has been a capital loss on the redemption, some or all of the
loss may not be tax deductible, depending on the timing and amount of the
reinvestment. Under the Internal Revenue Code, if the redemption proceeds of
Fund shares on which a sales charge was paid are reinvested in shares of the
Fund or another of the Oppenheimer funds within 90 days of payment of the sales
charge, the shareholder's basis in the shares of the Fund that were redeemed may
not include the amount of the sales charge paid. That would reduce the loss or
increase the gain recognized from the redemption. However, in that case the
sales charge would be added to the basis of the shares acquired by the
reinvestment of the redemption proceeds.
Payments "In Kind". The Prospectus states that payment for shares tendered for
redemption is ordinarily made in cash. However, the Board of Directors of the
Fund may determine that it would be detrimental to the best interests of the
remaining shareholders of the Fund to make payment of a redemption order wholly
or partly in cash. In that case, the Fund may pay the redemption proceeds in
whole or in part by a distribution "in kind" of liquid securities from the
portfolio of the Fund, in lieu of cash.
The Fund has elected to be governed by Rule 18f-1 under the Investment
Company Act. Under that rule, the Fund is obligated to redeem shares solely in
cash up to the lesser of $250,000 or 1% of the net assets of the Fund during any
90-day period for any one shareholder. If shares are redeemed in kind, the
redeeming shareholder might incur brokerage or other costs in selling the
securities for cash. The Fund will value securities used to pay redemptions in
kind using the same method the Fund uses to value its portfolio securities
described above under "Determination of Net Asset Values Per Share." That
valuation will be made as of the time the redemption price is determined.
Involuntary Redemptions. The Fund's Board of Directors has the right to cause
the involuntary redemption of the shares held in any account if the aggregate
net asset value of those shares is less than $500 or such lesser amount as the
Board may fix. The Board will not cause the involuntary redemption of shares in
an account if the aggregate net asset value of such shares has fallen below the
stated minimum solely as a result of market fluctuations. If the Board exercises
this right, it may also fix the requirements for any notice to be given to the
shareholders in question (not less than 30 days). The Board may alternatively
set requirements for the shareholder to increase the investment, or set other
terms and conditions so that the shares would not be involuntarily redeemed.
<PAGE>
Transfers of Shares. A transfer of shares to a different registration is not an
event that triggers the payment of sales charges. Therefore, shares are not
subject to the payment of a contingent deferred sales charge of any class at the
time of transfer to the name of another person or entity. It does not matter
whether the transfer occurs by absolute assignment, gift or bequest, as long as
it does not involve, directly or indirectly, a public sale of the shares. When
shares subject to a contingent deferred sales charge are transferred, the
transferred shares will remain subject to the contingent deferred sales charge.
It will be calculated as if the transferee shareholder had acquired the
transferred shares in the same manner and at the same time as the transferring
shareholder.
If less than all shares held in an account are transferred, and some but
not all shares in the account would be subject to a contingent deferred sales
charge if redeemed at the time of transfer, the priorities described in the
Prospectus under "How to Buy Shares" for the imposition of the Class B
contingent deferred sales charge will be followed in determining the order in
which shares are transferred.
Sending Redemption Proceeds by Wire. The wire of redemption proceeds may be
delayed if the Fund's custodian bank is not open for business on a day when the
Fund would normally authorize the wire to be made, which is usually the Fund's
next regular business day following the redemption. In those circumstances, the
wire will not be transmitted until the next bank business day on which the Fund
is open for business. No dividends will be paid on the proceeds of redeemed
shares awaiting transfer by wire.
Special Arrangements for Repurchase of Shares from Dealers and Brokers. The
Distributor is the Fund's agent to repurchase its shares from authorized dealers
or brokers on behalf of their customers. Shareholders should contact their
broker or dealer to arrange this type of redemption. The repurchase price per
share will be the net asset value next computed after the Distributor receives
an order placed by the dealer or broker. However, if the Distributor receives a
repurchase order from a dealer or broker after the close of The New York Stock
Exchange on a regular business day, it will be processed at that day's net asset
value if the order was received by the dealer or broker from its customers prior
to the time the Exchange closes. Normally, the Exchange closes at 4:00 P.M., but
may do so earlier on some days. Additionally, the order must have been
transmitted to and received by the Distributor prior to its close of business
that day (normally 5:00 P.M.).
Ordinarily, for accounts redeemed by a broker-dealer under this procedure,
payment will be made within three business days after the shares have been
redeemed upon the Distributor's receipt of the required redemption documents in
proper form. The signature(s) of the registered owners on the redemption
documents must be guaranteed as described in the Prospectus.
Automatic Withdrawal and Exchange Plans. Investors owning shares of the Fund
valued at $5,000 or more can authorize the Transfer Agent to redeem shares
(having a value of at least $50) automatically on a monthly, quarterly,
semi-annual or annual basis under an Automatic Withdrawal Plan. Shares will be
redeemed three business days prior to the date requested by the shareholder for
receipt of the payment. Automatic withdrawals of up to $1,500 per month may be
requested by telephone if payments are to be made by check payable to all
shareholders of record. Payments must also be sent to the address of record for
the account and the address must not have been changed within the prior 30 days.
Payments are normally made by check, but shareholders having AccountLink
privileges (see "How To Buy Shares") may arrange to have Automatic Withdrawal
Plan payments transferred to the bank account designated on the Account
Application or by signature-guaranteed instructions sent to the Transfer Agent.
Shares are normally redeemed pursuant to an Automatic Withdrawal Plan three
business days before the payment transmittal date you select in the Account
Application. If a contingent deferred sales charge applies to the redemption,
the amount of the check or payment will be reduced accordingly.
The Fund cannot guarantee receipt of a payment on the date requested. The
Fund reserves the right to amend, suspend or discontinue offering these plans at
any time without prior notice. Because of the sales charge assessed on Class A
share purchases, shareholders should not make regular additional Class A share
purchases while participating in an Automatic Withdrawal Plan. Class B
shareholders should not establish withdrawal plans, because of the imposition of
the contingent deferred sales charge on such withdrawals (except where the
contingent deferred sales charge is waived as described in Appendix C).
By requesting an Automatic Withdrawal or Exchange Plan, the shareholder
agrees to the terms and conditions that apply to such plans, as stated below.
These provisions may be amended from time to time by the Fund and/or the
Distributor. When adopted, any amendments will automatically apply to existing
Plans.
|X| Automatic Exchange Plans. Shareholders can authorize the Transfer
Agent to exchange a pre-determined amount of shares of the Fund for shares (of
the same class) of other Oppenheimer funds automatically on a monthly,
quarterly, semi-annual or annual basis under an Automatic Exchange Plan. The
minimum amount that may be exchanged to each other fund account is $25.
Instructions should be provided on the OppenheimerFunds Application or
signature-guaranteed instructions. Exchanges made under these plans are subject
to the restrictions that apply to exchanges as set forth in "How to Exchange
Shares" in the Prospectus and below in this Statement of Additional Information.
|X| Automatic Withdrawal Plans. Fund shares will be redeemed as necessary
to meet withdrawal payments. Shares acquired without a sales charge will be
redeemed first. Shares acquired with reinvested dividends and capital gains
distributions will be redeemed next, followed by shares acquired with a sales
charge, to the extent necessary to make withdrawal payments. Depending upon the
amount withdrawn, the investor's principal may be depleted. Payments made under
these plans should not be considered as a yield or income on your investment.
The Transfer Agent will administer the investor's Automatic Withdrawal
Plan as agent for the shareholder(s) (the "Planholder") who executed the Plan
authorization and application submitted to the Transfer Agent. Neither the Fund
nor the Transfer Agent shall incur any liability to the Planholder for any
action taken or not taken by the Transfer Agent in good faith to administer the
Plan. Share certificates will not be issued for shares of the Fund purchased for
and held under the Plan, but the Transfer Agent will credit all such shares to
the account of the Planholder on the records of the Fund. Any share certificates
held by a Planholder may be surrendered unendorsed to the Transfer Agent with
the Plan application so that the shares represented by the certificate may be
held under the Plan.
For accounts subject to Automatic Withdrawal Plans, distributions of
capital gains must be reinvested in shares of the Fund, which will be done at
net asset value without a sales charge. Dividends on shares held in the account
may be paid in cash or reinvested.
Shares will be redeemed to make withdrawal payments at the net asset value
per share determined on the redemption date. Checks or AccountLink payments
representing the proceeds of Plan withdrawals will normally be transmitted three
business days prior to the date selected for receipt of the payment, according
to the choice specified in writing by the Planholder. Receipt of payment on the
date selected cannot be guaranteed.
The amount and the interval of disbursement payments and the address to
which checks are to be mailed or AccountLink payments are to be sent may be
changed at any time by the Planholder by writing to the Transfer Agent. The
Planholder should allow at least two weeks' time after mailing such notification
for the requested change to be put in effect. The Planholder may, at any time,
instruct the Transfer Agent by written notice to redeem all, or any part of, the
shares held under the Plan. That notice must be in proper form in accordance
with the requirements of the then-current Prospectus of the Fund. In that case,
the Transfer Agent will redeem the number of shares requested at the net asset
value per share in effect and will mail a check for the proceeds to the
Planholder.
The Planholder may terminate a Plan at any time by writing to the Transfer
Agent. The Fund may also give directions to the Transfer Agent to terminate a
Plan. The Transfer Agent will also terminate a Plan upon its receipt of evidence
satisfactory to it that the Planholder has died or is legally incapacitated.
Upon termination of a Plan by the Transfer Agent or the Fund, shares that have
not been redeemed will be held in uncertificated form in the name of the
Planholder. The account will continue as a dividend-reinvestment, uncertificated
account unless and until proper instructions are received from the Planholder,
his or her executor or guardian, or another authorized person.
To use shares held under the Plan as collateral for a debt, the Planholder
may request issuance of a portion of the shares in certificated form. Upon
written request from the Planholder, the Transfer Agent will determine the
number of shares for which a certificate may be issued without causing the
withdrawal checks to stop. However, should such uncertificated shares become
exhausted, Plan withdrawals will terminate.
If the Transfer Agent ceases to act as transfer agent for the Fund, the
Planholder will be deemed to have appointed any successor transfer agent to act
as agent in administering the Plan.
<PAGE>
How to Exchange Shares
As stated in the Prospectus, shares of a particular class of Oppenheimer funds
having more than one class of shares may be exchanged only for shares of the
same class of other Oppenheimer funds. Shares of Oppenheimer funds that have a
single class without a class designation are deemed "Class A" shares for this
purpose. You can obtain a current list showing which funds offer which classes
by calling the Distributor at 1-800-525-7048.
o All of the Oppenheimer funds currently offer Class A, B and C shares
except Oppenheimer Money Market Fund, Inc., Centennial Money Market
Trust, Centennial Tax Exempt Trust, Centennial Government Trust,
Centennial New York Tax Exempt Trust, Centennial California Tax Exempt
Trust, and Centennial America Fund, L.P., which only offer Class A
shares.
o Oppenheimer Main Street California Municipal Fund currently offers only
Class A and Class B shares.
o Class B and Class C shares of Oppenheimer Cash Reserves are generally
available only by exchange from the same class of shares of other
Oppenheimer funds or through OppenheimerFunds-sponsored 401(k) plans.
o Only certain Oppenheimer funds currently offer Class Y shares. Class Y
shares of Oppenheimer Real Asset Fund may not be exchanged for shares
of any other fund.
o Class M shares of Oppenheimer Convertible Securities Fund may be
exchanged only for Class A shares of other Oppenheimer funds. They may
not be acquired by exchange of shares of any class of any other
Oppenheimer funds except Class A shares of Oppenheimer Money Market
Fund or Oppenheimer Cash Reserves acquired by exchange of Class M
shares.
o Class A shares of Senior Floating Rate Fund are not available by
exchange of Class A shares of other Oppenheimer funds. Class A shares
of Senior Floating Rate Fund that are exchanged for shares of the other
Oppenheimer funds may not be exchanged back for Class A shares of
Senior Floating Rate Fund.
o Class X shares of Limited Term New York Municipal Fund can be exchanged
only for Class B shares of other Oppenheimer funds and no exchanges may
be made to Class X shares.
o Shares of Oppenheimer Capital Preservation Fund may not be exchanged
for shares of Oppenheimer Money Market Fund, Inc., Oppenheimer Cash
Reserves or Oppenheimer Limited-Term Government Fund. Only participants
in certain retirement plans may purchase shares of Oppenheimer Capital
Preservation Fund, and only those participants may exchange shares of
other Oppenheimer funds for shares of Oppenheimer Capital Preservation
Fund.
Class A shares of Oppenheimer funds may be exchanged at net asset value
for shares of any money market fund offered by the Distributor. Shares of any
money market fund purchased without a sales charge may be exchanged for shares
of Oppenheimer funds offered with a sales charge upon payment of the sales
charge. They may also be used to purchase shares of Oppenheimer funds subject to
an early withdrawal charge or contingent deferred sales charge.
Shares of Oppenheimer Money Market Fund, Inc. purchased with the
redemption proceeds of shares of other mutual funds (other than funds managed by
the Manager or its subsidiaries) redeemed within the 30 days prior to that
purchase may subsequently be exchanged for shares of other Oppenheimer funds
without being subject to an initial sales charge or contingent deferred sales
charge. To qualify for that privilege, the investor or the investor's dealer
must notify the Distributor of eligibility for this privilege at the time the
shares of Oppenheimer Money Market Fund, Inc. are purchased. If requested, they
must supply proof of entitlement to this privilege.
Shares of the Fund acquired by reinvestment of dividends or distributions
from any of the other Oppenheimer funds or from any unit investment trust for
which reinvestment arrangements have been made with the Distributor may be
exchanged at net asset value for shares of any of the Oppenheimer funds.
The Fund may amend, suspend or terminate the exchange privilege at any
time. Although the Fund may impose these changes at any time, it will provide
you with notice of those changes whenever it is required to do so by applicable
law. It may be required to provide 60 days notice prior to materially amending
or terminating the exchange privilege. That 60 day notice is not required in
extraordinary circumstances.
|_| How Exchanges Affect Contingent Deferred Sales Charges. No
contingent deferred sales charge is imposed on exchanges of shares of any class
purchased subject to a contingent deferred sales charge. However, when Class A
shares acquired by exchange of Class A shares of other Oppenheimer funds
purchased subject to a Class A contingent deferred sales charge are redeemed
within 18 months of the end of the calendar month of the initial purchase of the
exchanged Class A shares, the Class A contingent deferred sales charge is
imposed on the redeemed shares. The Class B contingent deferred sales charge is
imposed on Class B shares acquired by exchange if they are redeemed within 6
years of the initial purchase of the exchanged Class B shares.
When Class B shares are redeemed to effect an exchange, the priorities
described in "How To Buy Shares" in the Prospectus for the imposition of the
Class B contingent deferred sales charge will be followed in determining the
order in which the shares are exchanged. Before exchanging shares, shareholders
should take into account how the exchange may affect any contingent deferred
sales charge that might be imposed in the subsequent redemption of remaining
shares. Shareholders owning shares of more than one Class must specify whether
they intend to exchange Class A or Class B shares.
|_| Limits on Multiple Exchange Orders. The Fund reserves the right to
reject telephone or written exchange requests submitted in bulk by anyone on
behalf of more than one account. The Fund may accept requests for exchanges of
up to 50 accounts per day from representatives of authorized dealers that
qualify for this privilege.
|_| Telephone Exchange Requests. When exchanging shares by telephone, a
shareholder must have an existing account in the fund to which the exchange is
to be made. Otherwise, the investor must obtain a Prospectus of that fund before
the exchange request may be submitted. If all telephone lines are busy (which
might occur, for example, during periods of substantial market fluctuations),
shareholders might not be able to request exchanges by telephone and would have
to submit written exchange requests.
|_| Processing Exchange Requests. Shares to be exchanged are redeemed
on the regular business day the Transfer Agent receives an exchange request in
proper form (the "Redemption Date"). Normally, shares of the fund to be acquired
are purchased on the Redemption Date, but such purchases may be delayed by
either fund up to five business days if it determines that it would be
disadvantaged by an immediate transfer of the redemption proceeds. The Fund
reserves the right, in its discretion, to refuse any exchange request that may
disadvantage it. For example, if the receipt of multiple exchange requests from
a dealer might require the disposition of portfolio securities at a time or at a
price that might be disadvantageous to the Fund, the Fund may refuse the
request. When you exchange some or all of your shares from one fund to another,
any special account feature such as an Asset Builder Plan or Automatic
Withdrawal Plan, will be switched to the new fund account unless you tell the
Transfer Agent not to do so. However, special redemption and exchange features
such as Automatic Exchange Plans and Automatic Withdrawal Plans cannot be
switched to an account in Oppenheimer Senior Floating Rate Fund.
In connection with any exchange request, the number of shares exchanged
may be less than the number requested if the exchange or the number requested
would include shares subject to a restriction cited in the Prospectus or this
Statement of Additional Information, or would include shares covered by a share
certificate that is not tendered with the request. In those cases, only the
shares available for exchange without restriction will be exchanged.
The different Oppenheimer funds available for exchange have different
investment objectives, policies and risks. A shareholder should assure that the
fund selected is appropriate for his or her investment and should be aware of
the tax consequences of an exchange. For federal income tax purposes, an
exchange transaction is treated as a redemption of shares of one fund and a
purchase of shares of another. "Reinvestment Privilege," above, discusses some
of the tax consequences of reinvestment of redemption proceeds in such cases.
The Fund, the Distributor, and the Transfer Agent are unable to provide
investment, tax or legal advice to a shareholder in connection with an exchange
request or any other investment transaction.
Dividends, Capital Gains and Taxes
Dividends and Distributions. Dividends will be payable on shares held of record
at the time of the previous determination of net asset value, or as otherwise
described in "How to Buy Shares." Daily dividends will not be declared or paid
on newly purchased shares until such time as Federal Funds (funds credited to a
member bank's account at the Federal Reserve Bank) are available from the
purchase payment for such shares. Normally, purchase checks received from
investors are converted to Federal Funds on the next business day. Shares
purchased through dealers or brokers normally are paid for by the third business
day following the placement of the purchase order.
<PAGE>
Shares redeemed through the regular redemption procedure will be paid
dividends through and including the day on which the redemption request is
received by the Transfer Agent in proper form. Dividends will be declared on
shares repurchased by a dealer or broker for three business days following the
trade date (that is, up to and including the day prior to settlement of the
repurchase). If all shares in an account are redeemed, all dividends accrued on
shares of the same class in the account will be paid together with the
redemption proceeds.
The Fund's practice of attempting to pay dividends on Class A shares at a
constant level requires the Manager to monitor the Fund's portfolio and, if
necessary, to select higher-yielding securities when it is deemed appropriate to
seek income at the level needed to meet the target. Those securities must be
within the Fund's investment parameters, however. The Fund expects to pay
dividends at a targeted level from its net investment income and other
distributable income without any impact on the net asset values per share.
Dividends, distributions and the proceeds of the redemption of Fund shares
represented by checks returned to the Transfer Agent by the Postal Service as
undeliverable will be invested in shares of Oppenheimer Money Market Fund, Inc.
Reinvestment will be made as promptly as possible after the return of such
checks to the Transfer Agent, to enable the investor to earn a return on
otherwise idle funds. Unclaimed accounts may be subject to state escheatment
laws, and the Fund and the Transfer Agent will not be liable to shareholders or
their representatives for compliance with those laws in good faith.
The amount of a distribution paid on a class of shares may vary from time
to time depending on market conditions, the composition of the Fund's portfolio,
and expenses borne by the Fund or borne separately by a class. Dividends are
calculated in the same manner, at the same time and on the same day for shares
of each class. However, dividends on Class B shares are expected to be lower
than dividends on Class A shares. That is due to the effect of the asset-based
sales charge on Class B shares. Those dividends will also differ in amount as a
consequence of any difference in net asset value among Class A and Class B
shares.
Tax Status of the Fund's Dividends and Distributions. The Fund intends to
qualify under the Internal Revenue Code during each fiscal year to pay
"exempt-interest dividends" to its shareholders. Exempt-interest dividends that
are derived from net investment income earned by the Fund on municipal
securities will be excludable from gross income of shareholders for federal
income tax purposes.
Net investment income includes the allocation of amounts of income from
the municipal securities in the Fund's portfolio that are free from federal
income taxes. This allocation will be made by the use of one designated
percentage applied uniformly to all income dividends paid during the Fund's tax
year. That designation will normally be made following the end of each fiscal
year as to income dividends paid in the prior year. The percentage of income
designated as tax-exempt may substantially differ from the percentage of the
Fund's income that was tax-exempt for a given period.
A portion of the exempt-interest dividends paid by the Fund may be an item
of tax preference for shareholders subject to the alternative minimum tax. The
amount of any dividends attributable to tax preference items for purposes of the
alternative minimum tax will be identified when tax information is distributed
by the Fund.
A shareholder receiving a dividend from income earned by the Fund from one
or more of the following sources treats the dividend as a receipt of either
ordinary income or long-term capital gain in the computation of gross income,
regardless of whether the dividend is reinvested: certain taxable temporary
investments (such as certificates of deposit, repurchase agreements, commercial
paper and obligations of the U.S. government, its agencies and
instrumentalities); (5) income from securities loans; (6) income or gains from
options or futures; or (7) an excess of net short-term capital gain over net
long-term capital loss from
the Fund.
The Fund's dividends will not be eligible for the dividends-received
deduction for corporations. Shareholders receiving Social Security benefits
should be aware that exempt-interest dividends are a factor in determining
whether such benefits are subject to federal income tax. Losses realized by
shareholders on the redemption of Fund shares within six months of purchase
(which period may be shortened by regulation) will be disallowed for federal
income tax purposes to the extent of exempt-interest dividends received on such
shares.
If the Fund qualifies as a "regulated investment company" under the
Internal Revenue Code, it will not be liable for federal income taxes on amounts
paid by it as dividends and distributions. That qualification enables the Fund
to "pass through" its income and realized capital gains to shareholders without
having to pay tax on them. The Fund qualified as a regulated investment company
in its last fiscal year and intends to qualify in future years, but reserves the
right not to qualify. The Internal Revenue Code contains a number of complex
tests to determine whether the Fund qualifies. The Fund might not meet those
tests in a particular year. If it does not qualify, the Fund will be treated for
tax purposes as an ordinary corporation and will receive no tax deduction for
payments of dividends and distributions made to shareholders.
In any year in which the Fund qualifies as a regulated investment company
under the Internal Revenue Code, the Fund will also be exempt from California
corporate income and franchise taxes. It will also be qualified under California
law to pay exempt interest dividends that will be exempt from California
personal income tax. That exemption applies to the extent that the Fund's
distributions are attributable to interest on California municipal securities
and qualifying obligations of the United States government, if at least 50% of
the Fund's assets are invested in such obligations at the close of each quarter
in its tax year. Distributions from the Fund attributable to income from sources
other than California municipal securities and U.S. government obligations will
generally be subject to California income tax as ordinary income.
Distributions by the Fund from investment income and long- and short-term
capital gains will generally not be excludable from taxable income in
determining California corporate franchise tax or income tax for corporate
shareholders of the Fund. Additionally, certain distributions paid to corporate
shareholders of the Fund may be includable in income subject to the California
alternative minimum tax.
Under the Internal Revenue Code, by December 31 each year the Fund must
distribute 98% of its taxable investment income earned from January 1 through
December 31 of that year and 98% of its capital gains realized in the period
from November 1 of the prior year through October 31 of the current year. If it
does not, the Fund must pay an excise tax on the amounts not distributed. It is
presently anticipated that the Fund will meet those requirements. However, the
Fund's Board of Directors and the Manager might determine in a particular year
that it would be in the best interest of shareholders not to make distributions
at the required levels and to pay the excise tax on the undistributed amounts.
That would reduce the amount of income or capital gains available for
distribution to shareholders.
Dividend Reinvestment in Another Fund. Shareholders of the Fund may elect to
reinvest all dividends and/or capital gains distributions in shares of the same
class of any of the other Oppenheimer funds listed above. Reinvestment will be
made without sales charge at the net asset value per share in effect at the
close of business on the payable date of the dividend or distribution. To elect
this option, the shareholder must notify the Transfer Agent in writing and must
have an existing account in the fund selected for reinvestment. Otherwise the
shareholder first must obtain a prospectus for that fund and an application from
the Distributor to establish an account. Dividends and/or distributions from
shares of certain other Oppenheimer funds (other than Oppenheimer Cash Reserves)
may be invested in shares of this Fund on the same basis.
Additional Information About the Fund
The Distributor. The Fund's shares are sold through dealers, brokers and other
financial institutions that have a sales agreement with OppenheimerFunds
Distributor, Inc., a subsidiary of the Manager that acts as the Fund's
Distributor. The Distributor also distributes shares of the other Oppenheimer
funds and is sub-distributor for funds managed by a subsidiary of the Manager.
The Transfer Agent. OppenheimerFunds Services, the Fund's Transfer Agent, is a
division of the Manager. It is responsible for maintaining the Fund's
shareholder registry and shareholder accounting records, and for paying
dividends and distributions to shareholders. It also handles shareholder
servicing and administrative functions. It acts on an "at-cost" basis. It also
acts as shareholder servicing agent for the other Oppenheimer funds.
Shareholders should direct inquiries about their accounts to the Transfer Agent
at the address and toll-free numbers shown on the back cover.
The Custodian Bank. The Bank of New York is the custodian bank of the Fund's
assets. The custodian bank's responsibilities include safeguarding and
controlling the Fund's portfolio securities and handling the delivery of such
securities to and from the Fund. It will be the practice of the Fund to deal
with the custodian bank in a manner uninfluenced by any banking relationship the
custodian bank may have with the Manager and its affiliates. The Fund's cash
balances with the custodian bank in excess of $100,000 are not protected by
federal deposit insurance. Those uninsured balances at times may be substantial.
<PAGE>
Independent Auditors. Deloitte & Touche, LLP are the independent auditors of the
Fund. They audit the Fund's financial statements and perform other related audit
services. They also act as auditors for the Manager and certain other funds
advised by the Manager and its affiliates.
<PAGE>
INDEPENDENT AUDITORS' REPORT
===============================================================================
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF OPPENHEIMER MAIN STREET CALIFORNIA
MUNICIPAL FUND:
We have audited the accompanying statement of assets and liabilities, including
the statement of investments, of Oppenheimer Main Street California Municipal
Fund as of August 31, 1999, the related statement of operations for the year
then ended, the statements of changes in net assets for the years ended August
31, 1999 and 1998 and the financial highlights for the period July 1, 1994, to
August 31, 1999. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
August 31, 1999, by correspondence with the custodian and brokers; where replies
were not received from brokers, we performed other auditing procedures. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements and financial highlights
present fairly, in all material respects, the financial position of Oppenheimer
Main Street California Municipal Fund as of August 31, 1999, the results of its
operations, the changes in its net assets, and the financial highlights for the
respective stated periods, in conformity with generally accepted accounting
principles.
DELOITTE & TOUCHE LLP
Denver, Colorado
September 22, 1999
<PAGE>
STATEMENT OF INVESTMENTS August 31, 1999
<TABLE>
<CAPTION>
RATINGS:
MOODY'S/ MARKET
S&P/FITCH FACE VALUE
(UNAUDITED)
AMOUNT SEE NOTE 1
------------------------------------------------------------------------------------------------------------------
MUNICIPAL BONDS AND NOTES--98.8%
------------------------------------------------------------------------------------------------------------------
<S> <C>
<C> <C>
CALIFORNIA--90.6%
Anaheim, CA PFAU TXAL RB, MBIA Insured,
Inverse Floater, 9.37%, 12/28/18(1) Aaa/AAA
$1,000,000 $1,167,500
------------------------------------------------------------------------------------------------------------------
Berkeley, CA HF RRB, Alta Bates Medical Center,
Prerefunded, Series A, 6.50%, 12/1/11 A2/NR
1,500,000 1,609,740
------------------------------------------------------------------------------------------------------------------
CA Assn. of Bay Area Governments FAU for
Non-profit Corps. Refunding COP, American
Baptist Homes, Series A, 6.20%, 10/1/27 NR/BBB
1,790,000 1,782,804
------------------------------------------------------------------------------------------------------------------
CA Assn. of Bay Area Governments FAU for
Non-profit Corps. Refunding COP, Episcopal
Homes Foundation, 5.125%, 7/1/18 NR/A-
1,500,000 1,383,975
------------------------------------------------------------------------------------------------------------------
CA Assn. of Bay Area Governments FAU for
Non-profit Corps. Refunding COP, Rhonda
Haas Goldman Plaza, 5.125%, 5/15/23
NR/AA- 700,000 638,218
------------------------------------------------------------------------------------------------------------------
CA CDAU Lease RB, United Airlines,
Series A, 5.70%, 10/1/33 Baa3/BB+
3,200,000 2,976,064
------------------------------------------------------------------------------------------------------------------
CA CDAU MH RB, Village Riviera Hills,
Series E, 5.45%, 2/1/25 NR/AAA
1,000,000 1,003,830
------------------------------------------------------------------------------------------------------------------
CA Foothill/Eastern Corridor Agency
Toll Road RB, Sr. Lien, Prerefunded,
Series A, 6.50%, 1/1/32 Baa3/BBB-/BBB
1,400,000 1,557,892
------------------------------------------------------------------------------------------------------------------
CA Foothill/Eastern Corridor Agency
Toll Road RRB, Zero Coupon, 5.98%, 1/15/21(2) Baa3/BBB-/BBB
5,000,000 1,343,350
------------------------------------------------------------------------------------------------------------------
CA Foothill/Eastern Corridor Agency
Toll Road RRB, Zero Coupon, 6%, 1/15/22(2) Baa3/BBB-/BBB
5,500,000 1,387,705
------------------------------------------------------------------------------------------------------------------
CA GOB, 5%, 10/1/27 Aa3/AA-/AA-
3,000,000 2,721,030
------------------------------------------------------------------------------------------------------------------
CA HFA SFM Purchase RB, Series A-2, 6.45%, 8/1/25 Aaa/AAA
2,340,000 2,416,752
------------------------------------------------------------------------------------------------------------------
CA HFA SFM RB, Series A, Cl. I, 5.40%, 8/1/26 Aaa/AAA
1,810,000 1,674,829
------------------------------------------------------------------------------------------------------------------
CA HFA SFM RB, Series C, 6.75%, 2/1/25 Aa2/AA-
4,790,000 4,963,254
------------------------------------------------------------------------------------------------------------------
CA Infrastructure & ED Bank RB,
American Center for Wine Food Arts, 5.55%, 12/1/12 NR/A/A
1,710,000 1,697,962
------------------------------------------------------------------------------------------------------------------
CA PCFAU RB, Pacific Gas & Electric Co. Project,
Series B, 6.35%, 6/1/09 A1/AA-
2,000,000 2,139,500
------------------------------------------------------------------------------------------------------------------
CA PWBL RB, State Prison Department of
Corrections, Series E, FSA Insured, 5.50%, 6/1/15 Aaa/AAA/AAA
2,000,000 2,038,960
------------------------------------------------------------------------------------------------------------------
CA Rural Home Mtg. FAU SFM RB,
Mtg.-Backed Securities Program,
Series A, 5.75%, 12/1/29 NR/AAA
1,905,000 1,999,793
------------------------------------------------------------------------------------------------------------------
CA Rural Home Mtg. FAU SFM RB,
Mtg.-Backed Securities Program,
Series B, 7.75%, 9/1/26
NR/AAA 920,000 1,001,770
</TABLE>
12 Oppenheimer Main Street California Municipal Fund
<PAGE>
<TABLE>
<CAPTION>
RATINGS:
MOODY'S/ MARKET
S&P/FITCH FACE VALUE
(UNAUDITED)
AMOUNT SEE NOTE 1
------------------------------------------------------------------------------------------------------------------
<S> <C>
<C> <C>
CALIFORNIA Continued
CA Rural Home Mtg. FAU SFM RB,
Mtg.-Backed Securities Program,
Series B-5, 6.35%, 12/1/29 NR/AAA
$1,470,000 $1,548,007
------------------------------------------------------------------------------------------------------------------
CA Rural Home Mtg. FAU SFM RB,
Mtg.-Backed Securities Program,
Series D, Cl. 5, 6.70%, 5/1/29 NR/AAA
1,890,000 2,057,983
------------------------------------------------------------------------------------------------------------------
CA SCDAU COP, The Internext Group, 5.375%, 4/1/17 NR/BBB
3,000,000 2,794,770
------------------------------------------------------------------------------------------------------------------
CA SCDAU COP, The Internext Group, 5.375%, 4/1/30 NR/BBB
1,500,000 1,348,110
------------------------------------------------------------------------------------------------------------------
CA SCDAU Revenue Refunding COP,
Inverse Floater, 7.63%, 11/1/15(1) A1/NR
1,200,000 1,101,000
------------------------------------------------------------------------------------------------------------------
Central CA Joint Powers Health FAU COP,
Community Hospitals of Central California
Project, 5%, 2/1/23
Baa1/NR 285,000 247,451
------------------------------------------------------------------------------------------------------------------
Contra Costa Cnty., CA SPTX RRB,
CFD 91-1, 5.58%, 8/1/16 NR/NR
3,075,000 2,916,853
------------------------------------------------------------------------------------------------------------------
Corona, CA SFM RB, Sub. Lien,
Series B, 6.30%, 11/1/28
A2/NR 800,000 823,472
------------------------------------------------------------------------------------------------------------------
Escondido, CA Union High SDI CAP GOB,
MBIA Insured, Zero Coupon, 6.20%, 11/1/19(2) Aaa/AAA
2,000,000 636,960
------------------------------------------------------------------------------------------------------------------
Fontana, CA RA TXAL GORB,
Jurupa Hills Redevelopment Project,
Prerefunded, Series A, 7.10%, 10/1/23 NR/BBB+
1,960,000 2,164,389
------------------------------------------------------------------------------------------------------------------
Fontana, CA RA TXAL Refunding Bonds,
Jurupa Hills Redevelopment Project,
Series A, 5.50%, 10/1/19 NR/BBB+
1,185,000 1,130,253
------------------------------------------------------------------------------------------------------------------
Fresno, CA HAU MH RB, Central Valley
Coalition Projects, Series A, 5.60%, 8/1/30 NR/AAA
3,075,000 3,107,472
------------------------------------------------------------------------------------------------------------------
Fresno, CA USD GORB, Series A,
MBIA Insured, 6.55%, 8/1/20 Aaa/AAA/AAA
1,225,000 1,366,353
------------------------------------------------------------------------------------------------------------------
Fresno, CA USD GOUN, Series A,
MBIA Insured, 6.40%, 8/1/16 Aaa/AAA/AAA
1,000,000 1,108,490
------------------------------------------------------------------------------------------------------------------
Irvine, CA Improvement Bond Act 1915
SPAST Bonds, Assessment District No. 94-13,
Group 2, 5.875%, 9/2/17 NR/NR
1,250,000 1,212,225
------------------------------------------------------------------------------------------------------------------
Irvine, CA Improvement Bonds Act 1915 RB,
Assessment District 95-12, 6%, 9/2/21 NR/NR
1,750,000 1,709,295
------------------------------------------------------------------------------------------------------------------
Lake Elsinore, CA PFAU TXAL Bonds,
Series A, 5.50%, 9/1/30 NR/BBB
2,500,000 2,290,650
------------------------------------------------------------------------------------------------------------------
Lake Elsinore, CA School FAU RRB,
Horsethief Canyon, 5.35%, 9/1/10 NR/NR
1,015,000 972,664
------------------------------------------------------------------------------------------------------------------
Las Virgenes, CA USD CAP Bonds, Series A,
MBIA Insured, Zero Coupon, 4.95%, 11/1/12(2) Aaa/AAA/AAA
2,095,000 1,044,714
</TABLE>
13 Oppenheimer Main Street California Municipal Fund
<PAGE>
STATEMENT OF INVESTMENTS (Continued)
<TABLE>
<CAPTION>
RATINGS:
MOODY'S/ MARKET
S&P/FITCH FACE VALUE
(UNAUDITED)
AMOUNT SEE NOTE 1
------------------------------------------------------------------------------------------------------------------
<S> <C>
<C> <C>
CALIFORNIA Continued
Long Beach, CA Harbor RRB, Series A,
FGIC Insured, 6%, 5/15/10 Aaa/AAA
$ 500,000 $ 533,960
------------------------------------------------------------------------------------------------------------------
Los Angeles Cnty., CA CAP COP, Disney
Parking Project, Zero Coupon, 6.95%, 9/1/11(2) Baa1/BBB/A-
2,340,000 1,198,384
------------------------------------------------------------------------------------------------------------------
Los Angeles Cnty., CA CAP COP, Disney
Parking Project, Zero Coupon, 5.67%, 9/1/16(2) Baa1/BBB /A-
1,745,000 631,934
------------------------------------------------------------------------------------------------------------------
Los Angeles Cnty., CA MTAU Sales Tax RRB,
Series A, FSA Insured, 5%, 7/1/12 Aaa/AAA/AAA
2,000,000 1,974,700
------------------------------------------------------------------------------------------------------------------
Los Angeles Cnty., CA MTAU Sales Tax RRB,
Series A, FSA Insured, 5%, 7/1/19 Aaa/AAA/AAA
2,000,000 1,862,880
------------------------------------------------------------------------------------------------------------------
Los Angeles Cnty., CA MTAU Sales Tax RRB,
Series A, MBIA Insured, 5.25%, 7/1/15 Aaa/AAA/AAA
2,000,000 1,970,000
------------------------------------------------------------------------------------------------------------------
Los Angeles Cnty., CA Public Works FAU RRB,
Regional Park & Open Space District,
Series A, 5%, 10/1/16 Aa3/AA
1,900,000 1,804,620
------------------------------------------------------------------------------------------------------------------
Los Angeles, CA USD GOB, Series A,
FGIC Insured, 6%, 7/1/15 Aaa/AAA/AAA
1,000,000 1,069,300
------------------------------------------------------------------------------------------------------------------
Los Angeles, CA USD GOB, Series B,
FGIC Insured, 5%, 7/1/23 Aaa/AAA/AAA
2,000,000 1,824,640
------------------------------------------------------------------------------------------------------------------
Palmdale, CA Civic Authority RRB,
Merged Redevelopment Project,
Prerefunded, Series A, 6.60%, 9/1/34
Aaa/AAA 595,000 666,317
------------------------------------------------------------------------------------------------------------------
Palmdale, CA Civic Authority RRB,
Merged Redevelopment Project,
Unrefunded Balance, Series A, 6.60%, 9/1/34
Aaa/AAA 405,000 429,029
------------------------------------------------------------------------------------------------------------------
Pittsburg, CA RA TXAL Refunding Bonds,
Los Medanos Community Development Project,
Sub. Lien, 6.20%, 8/1/19 NR/BBB
1,000,000 1,027,890
------------------------------------------------------------------------------------------------------------------
Pomona, CA SFM RRB, Escrowed to Maturity,
Series A, 7.60%, 5/1/23 Aaa/AAA
2,500,000 3,079,700
------------------------------------------------------------------------------------------------------------------
Pomona, CA USD GORB, Series A,
MBIA Insured, 6.15%, 8/1/15
Aaa/AAA 500,000 539,920
------------------------------------------------------------------------------------------------------------------
Redding, CA Electric System Revenue COP,
FGIC Insured, Inverse Floater, 7.97%, 6/1/19(1) Aaa/AAA/AAA
1,150,000 1,160,062
------------------------------------------------------------------------------------------------------------------
Redding, CA Electric System Revenue COP,
MBIA Insured, Inverse Floater, 9.01%, 7/8/22(1)
Aaa/AAA 500,000 590,625
------------------------------------------------------------------------------------------------------------------
Riverside Cnty., CA CFD No. 88-12 SPTX Bonds,
Prerefunded, 7.55%, 9/1/17 NR/NR
1,500,000 1,586,280
------------------------------------------------------------------------------------------------------------------
Riverside Cnty., CA PFAU TXAL RRB,
Redevelopment Projects, Series A, 5.625%, 10/1/33 Baa2/BBB-
1,650,000 1,580,106
------------------------------------------------------------------------------------------------------------------
Riverside Cnty., CA SFM RB, Escrowed to Maturity,
Series A, 7.80%, 5/1/21 Aaa/AAA
1,000,000 1,269,860
</TABLE>
14 Oppenheimer Main Street California Municipal Fund
<PAGE>
<TABLE>
<CAPTION>
RATINGS:
MOODY'S/ MARKET
S&P/FITCH FACE VALUE
(UNAUDITED)
AMOUNT SEE NOTE 1
------------------------------------------------------------------------------------------------------------------
<S> <C>
<C> <C>
CALIFORNIA Continued
Riverside, CA PFAU Lease RB, AMBAC Insured,
5.25%, 10/1/17 Aaa/AAA/AAA
$2,100,000 $2,046,093
------------------------------------------------------------------------------------------------------------------
Sacramento Cnty., CA SFM RB,
Escrowed to Maturity, 8%, 7/1/16(3) Aaa/AAA
2,810,000 3,576,315
------------------------------------------------------------------------------------------------------------------
Sacramento, CA MUD Electric RRB,
FGIC Insured, Inverse Floater, 9.375%, 8/15/18(1) Aaa/AAA/AAA
1,500,000 1,674,375
------------------------------------------------------------------------------------------------------------------
Sacramento, CA Cogeneration Authority RRB,
MBIA Insured, 5.25%, 7/1/12
Aaa/AAA/AAA 250,000 251,935
------------------------------------------------------------------------------------------------------------------
Salinas Valley, CA Solid Waste Authority RB,
5.80%, 8/1/27 Baa3/BBB
1,665,000 1,584,414
------------------------------------------------------------------------------------------------------------------
San Diego Cnty., CA Water Authority
Revenue COP, Prerefunded, Series 91-B,
MBIA Insured, Inverse Floater, 8.87%, 4/8/21(1) Aaa/AAA
1,000,000 1,197,500
------------------------------------------------------------------------------------------------------------------
San Francisco, CA Bay Area Rapid Transit District
Sales Tax RRB, AMBAC Insured, 6.75%, 7/1/11 Aaa/AAA/AAA
1,000,000 1,153,350
------------------------------------------------------------------------------------------------------------------
San Francisco, CA City & Cnty. International
Airport Commission RB, Second Series Issue 13-B,
MBIA Insured, 8%, 5/1/07 Aaa/AAA
1,140,000 1,353,864
------------------------------------------------------------------------------------------------------------------
San Francisco, CA City & Cnty. International
Airport Commission RB, Second Series Issue 14-A,
MBIA Insured, 8%, 5/1/07 Aaa/AAA
1,290,000 1,532,004
------------------------------------------------------------------------------------------------------------------
San Francisco, CA City & Cnty. RA Lease RB, CAP,
George R. Moscone Project, Zero Coupon,
5.36%, 7/1/10(2) A1/A-/A+
4,500,000 2,533,185
------------------------------------------------------------------------------------------------------------------
San Francisco, CA City & Cnty. Redevelopment
FAU TXAL CAP Refunding Bonds, Redevelopment
Projects, Series C, Zero Coupon, 5.20%, 8/1/13(2) A2/A
2,350,000 1,055,479
------------------------------------------------------------------------------------------------------------------
San Joaquin Hills, CA Transportation Corridor Agency
Toll Road CAP RRB, Series A, 0%/5.75%, 1/15/21(4) Baa3/BBB-/BBB
3,200,000 1,971,968
------------------------------------------------------------------------------------------------------------------
San Joaquin Hills, CA Transportation Corridor Agency
Toll Road RB, Sr. Lien, Prerefunded, 6.75%, 1/1/32 Aaa/AAA/AAA
3,500,000 3,844,225
------------------------------------------------------------------------------------------------------------------
San Ysidro, CA SDI GOB,
AMBAC Insured, 6.125%, 8/1/21
Aaa/AAA 700,000 747,635
------------------------------------------------------------------------------------------------------------------
South Orange Cnty., CA PFAU SPTX RB,
Foothill Area, Series C, FGIC Insured, 8%, 8/15/08 Aaa/AAA/AAA
1,500,000 1,845,420
------------------------------------------------------------------------------------------------------------------
Southern CA Home FAU SFM RB,
Series A, 7.35%, 9/1/24
NR/AAA 185,000 190,936
------------------------------------------------------------------------------------------------------------------
Southern CA Metropolitan Water District
Waterworks RB, Series A, 5%, 7/1/26 Aa2/AA
1,000,000 911,320
------------------------------------------------------------------------------------------------------------------
Southern CA Metropolitan Water District
Waterworks RRB, Inverse Floater, 7.42%, 10/30/20(1) Aa2/AA
1,200,000 1,152,000
</TABLE>
15 Oppenheimer Main Street California Municipal Fund
<PAGE>
STATEMENT OF INVESTMENTS (Continued)
<TABLE>
<CAPTION>
RATINGS:
MOODY'S/ MARKET
S&P/FITCH FACE VALUE
(UNAUDITED)
AMOUNT SEE NOTE 1
------------------------------------------------------------------------------------------------------------------
<S> <C>
<C> <C>
California Continued
Southern CA PPAU Transmission Project RB,
Inverse Floater, 7.615%, 7/1/12(1) Aa3/A+
$2,100,000 $ 2,299,500
------------------------------------------------------------------------------------------------------------------
Stanislaus, CA Waste-To-Energy Financing Agency Solid Waste Facilities RRB,
Ogden Martin System, Inc.
Project, 7.50%, 1/1/05 NR/A-
1,285,000 1,321,430
------------------------------------------------------------------------------------------------------------------
Suisun City, CA PFAU TXAL RB, Suisun City
Redevelopment Project, Series A, 5.20%, 10/1/28 NR/A-
2,500,000 2,278,875
------------------------------------------------------------------------------------------------------------------
Temecula, CA CFD No. 88-12-A SPTX Refunding Bonds,
5.625%, 9/1/17
NR/NR 535,000 506,629
------------------------------------------------------------------------------------------------------------------
West Covina, CA COP, Queen of the Valley Hospital,
Prerefunded, 6.50%, 8/15/19 A2/NR
1,120,000 1,248,363
-------------
126,163,061
------------------------------------------------------------------------------------------------------------------
U.S. POSSESSIONS--8.2%
PR CMWLTH GOB, 5.375%, 7/1/25 Baa1/A
1,650,000 1,574,595
------------------------------------------------------------------------------------------------------------------
PR CMWLTH GORB, MBIA Insured,
Inverse Floater, 8.08%, 7/1/08(1) Aaa/AAA
1,500,000 1,620,000
------------------------------------------------------------------------------------------------------------------
PR CMWLTH HTAU RB,
Inverse Floater, 6.75%, 7/1/28(1,5) NR/NR
5,000,000 4,165,800
------------------------------------------------------------------------------------------------------------------
PR CMWLTH HTAU RRB, Series A,
AMBAC Insured, 5.50%, 7/1/13 Aaa/AAA/AAA
1,500,000 1,543,140
------------------------------------------------------------------------------------------------------------------
PR CMWLTH HTAU RRB, Series A,
AMBAC Insured, 5.50%, 7/1/14 Aaa/AAA/AAA
1,500,000 1,537,410
------------------------------------------------------------------------------------------------------------------
PR Housing Finance Corp. SFM RB,
Portfolio 1, Series B, 7.65%, 10/15/22
Aaa/AAA 125,000 129,595
------------------------------------------------------------------------------------------------------------------
PR Industrial, Medical & Environmental PC
Facilities Tourist RB, Mennonite General
Hospital Project, Series A, 6.50%, 7/1/12
NR/BBB-/BBB 590,000 603,446
------------------------------------------------------------------------------------------------------------------
PR Public Buildings Authority RB,
Government Facilities, Series B,
AMBAC Insured, 5%, 7/1/27
Aaa/AAA 300,000 275,337
-------------
11,449,323
------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS, AT VALUE (COST
$138,482,564) 98.8% 137,612,384
------------------------------------------------------------------------------------------------------------------
OTHER ASSETS NET OF
LIABILITIES 1.2
1,693,187
-----------------------------
NET
ASSETS
100.0% $139,305,571
=============================
</TABLE>
16 Oppenheimer Main Street California Municipal Fund
<PAGE>
FOOTNOTES TO STATEMENT OF INVESTMENTS
To simplify the listings of securities, abbreviations are used per the table
below:
<TABLE>
<S> <C> <C> <C>
CAP Capital Appreciation MUD Municipal Utility
District
CDAU Communities Development Authority PCFAU Pollution Control
Finance Authority
CFD Community Facilities District PFAU Public Finance
Authority
CMWLTH Commonwealth PPAU Public Power
Authority
COP Certificates of Participation PWBL Public Works Board
Lease
ED Economic Development RA Redevelopment
Agency
FAU Finance Authority RB Revenue Bonds
GOB General Obligation Bonds RRB Revenue Refunding
Bonds
GORB General Obligation Refunding Bonds SCDAU Statewide
Communities Development Authority
GOUN General Obligation Unlimited Nts. SDI School District
HAU Housing Authority SFM Single Family Mtg.
HF Health Facilities SPAST Special Assessment
HFA Housing Finance Agency SPTX Special Tax
HTAU Highway & Transportation Authority TXAL Tax Allocation
MH Multifamily Housing USD Unified School
District
MTAU Metropolitan Transportation Authority
</TABLE>
1. Represents the current interest rate for a variable rate bond known as an
"inverse floater" which pays interest at a rate that varies inversely with
short-term interest rates. As interest rates rise, inverse floaters produce less
current income. Their price may be more volatile than the price of a comparable
fixed-rate security. Inverse floaters amount to $16,128,362 or 11.58% of the
Fund's net assets as of August 31, 1999.
2. For zero coupon bonds, the interest rate shown is the effective yield on the
date of purchase.
3. Securities with an aggregate market value of $559,992 are held in
collateralized accounts to cover initial margin requirements on open futures
sales contracts. See Note 5 of Notes to Financial Statements.
4. Denotes a step bond: a zero coupon bond that converts to a fixed or variable
interest rate at a designated future date.
5. Represents securities sold under Rule 144A, which are exempt from
registration under the Securities Act of 1933, as amended. These securities have
been determined to be liquid under guidelines established by the Board of
Directors. These securities amount to $4,165,800 or 2.99% of the Fund's net
assets as of August 31, 1999.
AS OF AUGUST 31, 1999, SECURITIES SUBJECT TO THE ALTERNATIVE MINIMUM TAX AMOUNT
TO $34,930,607 OR 25.07% OF THE FUND'S NET ASSETS.
DISTRIBUTION OF INVESTMENTS BY INDUSTRY OF ISSUE, AS A PERCENTAGE OF TOTAL
INVESTMENTS AT VALUE, IS AS FOLLOWS:
<TABLE>
<CAPTION>
INDUSTRY MARKET VALUE
PERCENT
---------------------------------------------------------------------------------------
<S> <C>
<C>
Special Assessment $ 26,947,089
19.6%
Single Family Housing 24,732,266
17.9
Highways 17,351,490
12.6
General Obligation 14,253,636
10.4
Municipal Leases 8,723,894
6.3
Sales Tax 8,056,275
5.9
Adult Living Facilities 7,947,877
5.8
Electric Utilities 5,976,498
4.3
Pollution Control 5,115,564
3.7
Hospital/Healthcare 4,810,001
3.5
Multifamily Housing 4,111,302
3.0
Marine/Aviation Facilities 3,419,828
2.5
Water Utilities 3,260,820
2.4
Resource Recovery 2,905,844
2.1
-----------------------------------
Total $137,612,384
100.0%
===================================
</TABLE>
See accompanying Notes to Financial Statements.
17 Oppenheimer Main Street California Municipal Fund
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES August 31, 1999
<TABLE>
<CAPTION>
==================================================================================================================
ASSETS
<S>
<C>
Investments, at value (cost $138,482,564)--see accompanying
statement $ 137,612,384
------------------------------------------------------------------------------------------------------------------
Cash
357,087
------------------------------------------------------------------------------------------------------------------
Receivables and other assets:
Investments
sold
2,007,893
Interest
1,763,865
Shares of capital stock
sold
214,653
Other
1,446
--------------------
Total
assets
141,957,328
==================================================================================================================
LIABILITIES
Payables and other liabilities:
Investments
purchased
1,981,263
Dividends
372,159
Shares of capital stock
redeemed
213,863
Shareholder
reports
37,183
Distribution and service plan
fees 12,740
Transfer and shareholder servicing agent
fees 9,707
Daily variation on futures contracts--Note
5 6,438
Other
18,404
-------------------
Total
liabilities
2,651,757
==================================================================================================================
NET
ASSETS
$139,305,571
===================
==================================================================================================================
COMPOSITION OF NET ASSETS
Par value of shares of capital
stock $ 114,096
------------------------------------------------------------------------------------------------------------------
Additional paid-in
capital
140,300,950
------------------------------------------------------------------------------------------------------------------
Overdistributed net investment
income (284,048)
------------------------------------------------------------------------------------------------------------------
Accumulated net realized loss on investment
transactions (28,997)
------------------------------------------------------------------------------------------------------------------
Net unrealized depreciation on investments--Notes 3 and
5 (796,430)
-------------------
Net
assets
$139,305,571
===================
==================================================================================================================
NET ASSET VALUE PER SHARE
Class A Shares:
Net asset value and redemption price per share (based on net assets of
$109,575,128 and 8,971,989 shares of capital stock
outstanding) $12.21
Maximum offering price per share (net asset value plus sales charge
of 4.75% of offering
price)
$12.82
------------------------------------------------------------------------------------------------------------------
Class B Shares:
Net asset value, redemption price (excludes applicable contingent deferred
sales charge) and offering price per share (based on net assets of $29,730,443
and 2,437,647 shares of capital stock
outstanding) $12.20
</TABLE>
See accompanying Notes to Financial Statements.
18 Oppenheimer Main Street California Municipal Fund
<PAGE>
STATEMENT OF OPERATIONS For the Year Ended August 31, 1999
<TABLE>
<CAPTION>
<S> <C>
===============================================================================================
INVESTMENT INCOME
Interest
$ 7,761,775
===============================================================================================
EXPENSES
Management fees--Note
4 770,241
-----------------------------------------------------------------------------------------------
Distribution and service plan fees--Note 4:
Class
B
280,483
-----------------------------------------------------------------------------------------------
Transfer and shareholder servicing agent fees--Note
4 80,248
-----------------------------------------------------------------------------------------------
Shareholder
reports 44,221
-----------------------------------------------------------------------------------------------
Registration and filing fees:
Class
A
11,266
Class
B
4,659
-----------------------------------------------------------------------------------------------
Legal, auditing and other professional
fees 11,998
-----------------------------------------------------------------------------------------------
Custodian fees and
expenses 8,823
-----------------------------------------------------------------------------------------------
Insurance
expenses 2,818
-----------------------------------------------------------------------------------------------
Directors'
compensation 2,304
-----------------------------------------------------------------------------------------------
Other
2,779
---------------
Total
expenses
1,219,840
Less expenses paid indirectly--Note
1 (8,088)
Less reimbursement of expenses by OppenheimerFunds, Inc.--Note
4 (210,066)
---------------
Net
expenses
1,001,686
===============================================================================================
NET INVESTMENT
INCOME 6,760,089
===============================================================================================
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) on:
Investments
(235,961)
Closing of futures
contracts 208,713
---------------
Net realized
loss (27,248)
-----------------------------------------------------------------------------------------------
Net change in unrealized appreciation or depreciation on investments
(9,255,882)
---------------
Net realized and unrealized loss
(9,283,130)
===============================================================================================
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS
$(2,523,041)
===============
</TABLE>
See accompanying Notes to Financial Statements.
19 OPPENHEIMER MAIN STREET CALIFORNIA MUNICIPAL FUND
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
1999 1998
=======================================================================================================
<S>
<C> <C>
OPERATIONS
Net investment income $
6,760,089 $ 5,785,304
-------------------------------------------------------------------------------------------------------
Net realized loss
(27,248) (147,181)
-------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation or depreciation
(9,255,882) 4,576,330
--------------------------------
Net increase (decrease) in net assets resulting from operations
(2,523,041) 10,214,453
=======================================================================================================
DIVIDENDS AND/OR DISTRIBUTIONS TO SHAREHOLDERS
Dividends from net investment income:
Class A
(5,577,537) (5,113,266)
Class B
(1,114,948) (736,400)
-------------------------------------------------------------------------------------------------------
Distributions from net realized gain:
Class A
-- (802,490)
Class B
-- (131,382)
=======================================================================================================
CAPITAL STOCK TRANSACTIONS
Net increase in net assets resulting from capital stock transactions--Note 2:
Class A
7,019,301 16,887,977
Class B
8,515,921 10,757,185
=======================================================================================================
NET ASSETS
Total increase
6,319,696 31,076,077
-------------------------------------------------------------------------------------------------------
Beginning of period
132,985,875 101,909,798
--------------------------------
End of period (including overdistributed net investment
income of $284,048 and $351,652, respectively)
$139,305,571 $132,985,875
================================
</TABLE>
See accompanying Notes to Financial Statements.
20 OPPENHEIMER MAIN STREET CALIFORNIA MUNICIPAL FUND
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Year Year
Ended Ended
August 31, June 30,
Class A 1999 1998
1997 1996(1) 1996 1995
=========================================================================================================================
<S> <C> <C>
<C> <C> <C> <C>
PER SHARE OPERATING DATA
Net asset value, beginning of period $13.02 $12.64
$12.16 $12.15 $12.09 $11.82
-------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .65 .65
.73 .12 .73 .73
Net realized and unrealized gain (loss) (.82) .51
.49 .01 .07 .27
--------------------------------------------------------------------
Total income (loss) from
investment operations (.17) 1.16
1.22 .13 .80 1.00
-------------------------------------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income (.64) (.67)
(.74) (.12) (.73) (.69)
Dividends in excess of
net investment income -- --
-- -- -- (.04)
Distributions from net realized gain -- (.11)
-- -- -- --
Distributions in excess of net realized gain -- --
-- -- (.01) --
--------------------------------------------------------------------
Total dividends and distributions
to shareholders (.64) (.78)
(.74) (.12) (.74) (.73)
-------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $12.21 $13.02
$12.64 $12.16 $12.15 $12.09
====================================================================
=========================================================================================================================
TOTAL RETURN, AT NET ASSET VALUE(2) (1.42)% 9.33%
10.24% 1.12% 6.73% 8.93%
=========================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands) $109,575 $109,811
$89,991 $76,817 $76,913 $78,134
-------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $111,996 $ 99,678
$80,311 $77,584 $78,676 $76,148
-------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:(3)
Net investment income 5.03% 5.04%
5.91% 6.00% 5.99% 6.27%
Expenses, before voluntary assumption
and indirect expenses 0.67% 0.69%(4)
0.59%(4) 0.57%(4) 0.58%(4) 0.57%(4)
Expenses, after voluntary assumption
and indirect expenses 0.51% 0.53%
N/A N/A N/A N/A
-------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(5) 25% 30%
46% 1% 33% 14%
</TABLE>
1. For the two months ended August 31, 1996. The Fund changed its fiscal year
end from June 30 to August 31.
2. Assumes a $1,000 hypothetical initial investment on the business day before
the first day of the fiscal period (or inception of offering), with all
dividends and distributions reinvested in additional shares on the reinvestment
date, and redemption at the net asset value calculated on the last business day
of the fiscal period. Sales charges are not reflected in the total returns.
Total returns are not annualized for periods of less than one full year.
3. Annualized for periods of less than one full year.
4. Expense ratios reflect the effect of expenses paid indirectly by the Fund.
5. The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities owned
during the period. Securities with a maturity or expiration date at the time of
acquisition of one year or less are excluded from the calculation. Purchases and
sales of investment securities (excluding short-term securities) for the period
ended August 31, 1999 were $48,357,555 and $35,079,315, respectively.
See accompanying Notes to Financial Statements.
21 OPPENHEIMER MAIN STREET CALIFORNIA MUNICIPAL FUND
<PAGE>
FINANCIAL HIGHLIGHTS Continued
<TABLE>
<CAPTION>
YEAR YEAR
ENDED ENDED
AUGUST 31, JUNE 30,
CLASS B 1999 1998
1997 1996(1) 1996 1995
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
<C> <C> <C> <C>
PER SHARE OPERATING DATA
Net asset value, beginning of period $13.01 $12.63
$12.14 $12.14 $12.08 $11.80
----------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .53
.54 .60 .10 .61 .62
Net realized and unrealized gain (loss) (.83)
.49 .50 -- .07 .27
--------------------------------------------------------------------------------
Total income (loss) from
investment operations (.30) 1.03
1.10 .10 .68 .89
----------------------------------------------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income (.51) (.54)
(.61) (.10) (.61) (.57)
Dividends in excess of
net investment income --
-- -- -- -- (.04)
Distributions from net realized gain --
(.11) -- -- -- --
Distributions in excess of net realized gain --
-- -- -- (.01) --
--------------------------------------------------------------------------------
Total dividends and distributions
to shareholders (.51) (.65)
(.61) (.10) (.62) (.61)
----------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $12.20 $13.01
$12.63 $12.14 $12.14 $12.08
================================================================================
==================================================================================================================================
TOTAL RETURN, AT NET ASSET VALUE(2) (2.41)% 8.24%
9.24% 0.85% 5.66% 7.90%
==================================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands) $29,730 $23,175
$11,919 $5,928 $5,442 $2,648
----------------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $28,070 $18,087 $
8,129 $5,767 $3,848 $1,904
----------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:(3)
Net investment income 4.02% 4.19%
4.85% 4.92% 4.94% 5.17%
Expenses, before voluntary assumption
and indirect expenses 1.67% 1.70%(4)
1.60%(4) 1.62%(4) 1.60%(4) 1.55%(4)
Expenses, after voluntary assumption
and indirect expenses 1.52%
1.53% N/A N/A N/A N/A
----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(5) 25%
30% 46% 1% 33% 14%
</TABLE>
1. For the two months ended August 31, 1996. The Fund changed its fiscal year
end from June 30 to August 31.
2. Assumes a $1,000 hypothetical initial investment on the business day before
the first day of the fiscal period (or inception of offering), with all
dividends and distributions reinvested in additional shares on the reinvestment
date, and redemption at the net asset value calculated on the last business day
of the fiscal period. Sales charges are not reflected in the total returns.
Total returns are not annualized for periods of less than one full year.
3. Annualized for period of less than one full year.
4. Expense ratios reflect the effect of expenses paid indirectly by the Fund.
5. The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities owned
during the period. Securities with a maturity or expiration date at the time of
acquisition of one year or less are excluded from the calculation. Purchases and
sales of investment securities (excluding short-term securities) for the period
ended August 31, 1999 were $48,357,555 and $35,079,315, respectively.
See accompanying Notes to Financial Statements.
22 OPPENHEIMER MAIN STREET CALIFORNIA MUNICIPAL FUND
<PAGE>
NOTES TO FINANCIAL STATEMENTS
===============================================================================
1. SIGNIFICANT ACCOUNTING POLICIES
Oppenheimer Main Street California Municipal Fund (the Fund) is a separate
series of Oppenheimer Main Street Funds, Inc., an open-end management investment
company registered under the Investment Company Act of 1940, as amended. The
Fund's investment objective is to seek as high a level of current income exempt
from federal and California personal income taxes as is available from investing
in municipal securities while attempting to preserve capital. The Fund's
investment advisor is OppenheimerFunds, Inc. (the Manager). The Fund offers
Class A and Class B shares. Class A shares are sold with a front-end sales
charge on investments up to $1 million. Class B shares may be subject to a
contingent deferred sales charge (CDSC). All classes of shares have identical
rights to earnings, assets and voting privileges, except that each class has its
own expenses directly attributable to that class and exclusive voting rights
with respect to matters affecting that class. Classes A and B have separate
distribution and/or service plans. Class B shares will automatically convert to
Class A shares six years after the date of purchase. The following is a summary
of significant accounting policies consistently followed by the Fund.
-------------------------------------------------------------------------------
SECURITIES VALUATION. Portfolio securities are valued at the close of the New
York Stock Exchange on each trading day. Listed and unlisted securities for
which such information is regularly reported are valued at the last sale price
of the day or, in the absence of sales, at values based on the closing bid or
the last sale price on the prior trading day. Long-term and short-term
"non-money market" debt securities are valued by a portfolio pricing service
approved by the Board of Directors. Such securities which cannot be valued by an
approved portfolio pricing service are valued using dealer-supplied valuations
provided the Manager is satisfied that the firm rendering the quotes is reliable
and that the quotes reflect current market value, or are valued under
consistently applied procedures established by the Board of Directors to
determine fair value in good faith. Short-term "money market type" debt
securities having a remaining maturity of 60 days or less are valued at cost (or
last determined market value) adjusted for amortization to maturity of any
premium or discount. Options are valued based upon the last sale price on the
principal exchange on which the option is traded or, in the absence of any
transactions that day, the value is based upon the last sale price on the prior
trading date if it is within the spread between the closing bid and asked
prices. If the last sale price is outside the spread, the closing bid is used.
23 OPPENHEIMER MAIN STREET CALIFORNIA MUNICIPAL FUND
<PAGE>
Notes to Financial Statements continued
===============================================================================
1. SIGNIFICANT ACCOUNTING POLICIES Continued
ALLOCATION OF INCOME, EXPENSES, GAINS AND LOSSES. Income, expenses (other than
those attributable to a specific class), gains and losses are allocated daily to
each class of shares based upon the relative proportion of net assets
represented by such class. Operating expenses directly attributable to a
specific class are charged against the operations of that class.
-------------------------------------------------------------------------------
FEDERAL TAXES. The Fund intends to continue to comply with provisions of the
Internal Revenue Code applicable to regulated investment companies and to
distribute all of its taxable income, including any net realized gain on
investments not offset by loss carryovers, to shareholders. Therefore, no
federal income or excise tax provision is required.
-------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS. Dividends and distributions to
shareholders, which are determined in accordance with income tax regulations,
are recorded on the ex-dividend date.
-------------------------------------------------------------------------------
CLASSIFICATION OF DISTRIBUTIONS TO SHAREHOLDERS. Net investment income (loss)
and net realized gain (loss) may differ for financial statement and tax
purposes. The character of distributions made during the year from net
investment income or net realized gains may differ from its ultimate
characterization for federal income tax purposes. Also, due to timing of
dividend distributions, the fiscal year in which amounts are distributed may
differ from the fiscal year in which the income or realized gain was recorded by
the Fund.
-------------------------------------------------------------------------------
EXPENSE OFFSET ARRANGEMENTS. Expenses paid indirectly represent a reduction of
custodian fees for earnings on cash balances maintained by the Fund.
-------------------------------------------------------------------------------
OTHER. Investment transactions are accounted for as of trade date. Original
issue discount is accreted and premium is amortized in accordance with federal
income tax requirements. For municipal bonds acquired after April 30, 1993, on
disposition or maturity, taxable ordinary income is recognized to the extent of
the lesser of gain or market discount that would have accrued over the holding
period. Realized gains and losses on investments and unrealized appreciation and
depreciation are determined on an identified cost basis, which is the same basis
used for federal income tax purposes.
There are certain risks arising from geographic concentration in any
state. Certain revenue- or tax-related events in a state may impair the ability
of certain issuers of municipal securities to pay principal and interest on
their obligations.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of income and expenses during the reporting
period. Actual results could differ from those estimates.
24 OPPENHEIMER MAIN STREET CALIFORNIA MUNICIPAL FUND
<PAGE>
===============================================================================
2. CAPITAL STOCK
The Fund has authorized 16,250,000 shares of $.01 par value capital stock of
each class. Transactions in shares of capital stock were as follows:
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31, 1999 YEAR ENDED AUGUST 31,
1998
SHARES AMOUNT SHARES
AMOUNT
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A
Sold 1,681,985 $ 21,674,388 2,165,645 $
27,847,918
Dividends and/or
distributions reinvested 281,702 3,627,456 290,138
3,721,102
Redeemed (1,423,149) (18,282,543) (1,141,736)
(14,681,043)
----------------------------------------------------------
Net increase 540,538 $ 7,019,301 1,314,047 $
16,887,977
==========================================================
--------------------------------------------------------------------------------------
CLASS B
Sold 964,557 $ 12,473,622 931,591 $
11,964,499
Dividends and/or
distributions reinvested 59,086 758,691 44,882
575,114
Redeemed (367,694) (4,716,392) (138,617)
(1,782,428)
----------------------------------------------------------
Net increase 655,949 $ 8,515,921 837,856 $
10,757,185
==========================================================
</TABLE>
===============================================================================
3. UNREALIZED GAINS AND LOSSES ON SECURITIES
As of August 31, 1999, net unrealized depreciation on securities of $870,180 was
composed of gross appreciation of $3,223,012, and gross depreciation of
$4,093,192.
===============================================================================
4. MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES
MANAGEMENT FEES. Management fees paid to the Manager were in accordance with the
investment advisory agreement with the Fund which provides for a fee of 0.55% of
average annual net assets if the Fund's net assets are $100 million or more (it
is reduced if assets are less). The Manager has voluntarily undertaken to limit
its fees to 0.40% of average annual net assets if the Fund's assets are $100
million or more. The Manager can terminate that waiver at any time. The Fund's
management fee for the year ended August 31, 1999 was 0.40% of average annual
net assets for each class of shares, after giving affect to the waiver.
-------------------------------------------------------------------------------
TRANSFER AGENT FEES. OppenheimerFunds Services (OFS), a division of the Manager,
is the transfer and shareholder servicing agent for the Fund and for other
Oppenheimer funds. OFS's total costs of providing such services are allocated
ratably to these funds.
-------------------------------------------------------------------------------
DISTRIBUTION AND SERVICE PLAN FEES. Under its General Distributor's Agreement
with the Manager, the Distributor acts as the Fund's principal underwriter in
the continuous public offering of the different classes of shares of the Fund.
25 OPPENHEIMER MAIN STREET CALIFORNIA MUNICIPAL FUND
<PAGE>
NOTES TO FINANCIAL STATEMENTS Continued
===============================================================================
4. MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES CONTINUED
The compensation paid to (or retained by) the Distributor from the sale of
shares or on the redemption of shares is shown in the table below for the period
indicated.
<TABLE>
<CAPTION>
AGGREGATE CLASS A
COMMISSIONS COMMISSIONS
FRONT-END FRONT-END ON CLASS
A ON CLASS B
SALES CHARGES SALES CHARGES
SHARES SHARES
ON CLASS A RETAINED BY ADVANCED
BY ADVANCED BY
YEAR ENDED SHARES DISTRIBUTOR
DISTRIBUTOR(1) DISTRIBUTOR(1)
-------------------------------------------------------------------------------------------------------
<S> <C> <C>
<C> <C>
August 31, 1999 $370,004 $65,422
$27,796 $426,112
</TABLE>
1. The Distributor advances commission payments to dealers for certain sales of
Class A shares and for sales of Class B shares from its own resources at the
time of sale.
<TABLE>
<CAPTION>
CLASS
A CLASS B
CONTINGENT DEFERRED
CONTINGENT DEFERRED
SALES
CHARGES SALES CHARGES
YEAR ENDED RETAINED BY DISTRIBUTOR
RETAINED BY DISTRIBUTOR
-------------------------------------------------------------------------------------------------------
<S>
<C> <C>
August 31, 1999
$4,038 $95,508
</TABLE>
The Fund has adopted a Distribution and Service Plan for Class B shares
under Rule 12b-1 of the Investment Company Act. Under those plans the Fund pays
the Distributor for all or a portion of its costs incurred in connection with
the distribution and/or servicing of the shares of the particular class.
-------------------------------------------------------------------------------
CLASS B DISTRIBUTION AND SERVICE PLAN FEES. Under each plan, service fees and
distribution fees are computed on the average of the net asset value of shares
in the respective class, determined as of the close of each regular business day
during the period. The Class B plan allows the Distributor to be reimbursed for
its services and costs in distributing Class B and servicing accounts.
The Distributor retains the asset-based sales charge on Class B shares.
The asset-based sales charges on Class B shares allow investors to buy shares
without a front-end sales charge while allowing the Distributor to compensate
dealers that sell those shares.
The Distributor's actual expenses in selling Class B shares may be more
than the payments it receives from the contingent deferred sales charges
collected on redeemed shares and from the Fund under the plan. If the Class B
plan is terminated by the Fund, the Board of Directors may allow the Fund to
continue payments of the asset-based sales charge to the Distributor for
distributing shares before the plan was terminated. The plan allows for the
carry-forward of distribution expenses, to be recovered from asset-based sales
charges in subsequent fiscal periods.
Distribution fees paid to the Distributor for the year ended August 31, 1999
were as follows:
<TABLE>
<CAPTION>
DISTRIBUTOR'S DISTRIBUTOR'S
AGGREGATE UNREIMBURSED
UNREIMBURSED EXPENSES AS %
TOTAL PAYMENTS AMOUNT RETAINED
EXPENSES OF NET ASSETS
UNDER PLAN BY DISTRIBUTOR UNDER
PLAN OF CLASS
------------------------------------------------------------------------------------------------------
<S> <C> <C>
<C> <C>
Class B Plan $280,483 $238,366
$1,067,326 3.59%
</TABLE>
26 OPPENHEIMER MAIN STREET CALIFORNIA MUNICIPAL FUND
<PAGE>
===============================================================================
5. FUTURES CONTRACTS
The Fund may buy and sell futures contracts in order to gain exposure to or to
seek to protect against changes in interest rates. The Fund may also buy or
write put or call options on these futures contracts.
The Fund generally sells futures contracts to hedge against increases in
interest rates and the resulting negative effect on the value of fixed rate
portfolio securities. The Fund may also purchase futures contracts to gain
exposure to changes in interest rates as it may be more efficient or cost
effective than actually buying fixed income securities.
Upon entering into a futures contract, the Fund is required to deposit
either cash or securities (initial margin) in an amount equal to a certain
percentage of the contract value. Subsequent payments (variation margin) are
made or received by the Fund each day. The variation margin payments are equal
to the daily changes in the contract value and are recorded as unrealized gains
and losses. The Fund may recognize a realized gain or loss when the contract is
closed or expires.
Securities held in collateralized accounts to cover initial margin
requirements on open futures contracts are noted in the Statement of
Investments. The Statement of Assets and Liabilities reflects a receivable
and/or payable for the daily mark to market for variation margin.
Risks of entering into futures contracts (and related options) include the
possibility that there may be an illiquid market and that a change in the value
of the contract or option may not correlate with changes in the value of the
underlying securities.
As of August 31, 1999, the Fund had outstanding futures contracts as follows:
<TABLE>
<CAPTION>
NUMBER OF VALUATION AS
OF UNREALIZED
CONTRACT DESCRIPTION EXPIRATION DATE CONTRACTS AUGUST 31,
1999 APPRECIATION
-----------------------------------------------------------------------------------------------------------
CONTRACTS TO SELL
-----------------
<S> <C> <C>
<C> <C>
U.S. Treasury Bonds 9/21/99 40
$4,573,750 $73,750
</TABLE>
===============================================================================
6. BANK BORROWINGS
The Fund may borrow from a bank for temporary or emergency purposes including,
without limitation, funding of shareholder redemptions provided asset coverage
for borrowings exceeds 300%. The Fund has entered into an agreement which
enables it to participate with other Oppenheimer funds in an unsecured line of
credit with a bank, which permits borrowings up to $400 million, collectively.
Interest is charged to each fund, based on its borrowings, at a rate equal to
the Federal Funds Rate plus 0.35%. Borrowings are payable 30 days after such
loan is executed. The Fund also pays a commitment fee equal to its pro rata
share of the average unutilized amount of the credit facility at a rate of
0.0575% per annum.
The Fund had no borrowings outstanding during the year ended August 31,
1999.
27 OPPENHEIMER MAIN STREET CALIFORNIA MUNICIPAL FUND
<PAGE>
<PAGE>
A-1
<PAGE>
A-6
Appendix A
--------------------------------------------------------------------------------
MUNICIPAL BOND RATINGS DEFINITIONS
--------------------------------------------------------------------------------
Below are summaries of the rating definitions used by the nationally-recognized
rating agencies listed below for municipal securities. Those ratings represent
the opinion of the agency as to the credit quality of issues that they rate. The
summaries below are based upon publicly-available information provided by the
rating organizations.
Moody's Investors Service, Inc.
--------------------------------------------------------------------------------
Long-Term Bond Ratings
Aaa: Bonds rated Aaa are judged to be the best quality. They carry the smallest
degree of investment risk. Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, the changes that can be expected are
most unlikely to impair the fundamentally strong position of such issues.
Aa: Bonds rated Aa are judged to be of high quality by all standards. Together
with the Aaa group, they comprise what are generally known as high-grade bonds.
They are rated lower than the best bonds because margins of protection may not
be as large as with Aaa securities or fluctuation of protective elements may be
of greater amplitude or there may be other elements present which make the
long-term risks appear somewhat larger than those of Aaa securities.
A: Bonds rated A possess many favorable investment attributes and are to be
considered as upper-medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
Baa: Bonds rated Baa are considered medium grade obligations; that is, they are
neither highly protected nor poorly secured. Interest payments and principal
security appear adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and have speculative
characteristics as well.
Ba: Bonds rated Ba are judged to have speculative elements. Their future cannot
be considered well-assured. Often the protection of interest and principal
payments may be very moderate and not well safeguarded during both good and bad
times over the future. Uncertainty of position characterizes bonds in this
class.
B: Bonds rated B generally lack characteristics of desirable investment.
Assurance of interest and principal payments or of maintenance of other terms of
the contract over any long period of time may be small.
Caa: Bonds rated Caa are of poor standing and may be in default or there may be
present elements of danger with respect to principal or interest.
Ca: Bonds rated Ca represent obligations which are speculative in a high degree
and are often in default or have other marked shortcomings.
C: Bonds rated C are the lowest class of rated bonds and can be regarded as
having extremely poor prospects of ever attaining any real investment standing.
Con. (...): Bonds for which the security depends on the completion of some act
or the fulfillment of some condition are rated conditionally. These bonds are
secured by (a) earnings of projects under construction, (b) earnings of projects
unseasoned in operating experience, (c) rentals that begin when facilities are
completed, or (d) payments to which some other limitation attaches.
Parenthetical rating denotes probable credit stature upon completion of
construction or elimination of basis of condition.
Moody's applies numerical modifiers 1, 2, and 3 in each generic rating
classification from Aa through Caa. The modifier "1" indicates that the
obligation ranks in the higher end of its category; the modifier "2" indicates a
mid-range ranking and the modifier "3" indicates a ranking in the lower end of
the category. Advanced refunded issues that are secured by certain assets are
identified with a # symbol.
Short-Term Ratings - U.S.
Tax-Exempt Municipals
There are four ratings below for short-term obligations that are investment
grade. Short-term speculative obligations are designated SG. For variable rate
demand obligations, a two-component rating is assigned. The first (MIG) element
represents an evaluation by Moody's of the degree of risk associated with
scheduled principal and interest payments, and the other (VMIG) represents an
evaluation of the degree of risk associated with the demand feature.
MIG 1/VMIG 1: Denotes best quality. There is strong protection by established
cash flows, superior liquidity support or demonstrated broad-based access to the
market for refinancing..
MIG 2/VMIG 2: Denotes high quality. Margins of protection are ample although not
as large as in the preceding group.
MIG 3/VMIG 3: Denotes favorable quality. All security elements are accounted for
but there is lacking the undeniable strength of the preceding grades. Liquidity
and cash flow protection may be narrow and market access for refinancing is
likely to be less well established.
MIG 4/VMIG 4: Denotes adequate quality. Protection commonly regarded as required
of an investment security is present and although not distinctly or
predominantly speculative, there is specific risk.
SG: Denotes speculative quality. Debt instruments in this category lack margins
of protection.
Standard & Poor's Rating Services
--------------------------------------------------------------------------------
Long-Term Credit Ratings
AAA: Bonds rated "AAA" have the highest rating assigned by Standard & Poor's.
The obligor's capacity to meet its financial commitment on the obligation is
extremely strong.
AA: Bonds rated "AA" differ from the highest rated obligations only in small
degree. The obligor's capacity to meet its financial commitment on the
obligation is very strong.
A: Bonds rated "A" are somewhat more susceptible to adverse effects of changes
in circumstances and economic conditions than obligations in higher-rated
categories. However, the obligor's capacity to meet its financial commitment on
the obligation is still strong.
BBB: Bonds rated BBB exhibit adequate protection parameters. However, adverse
economic conditions or changing circumstances are more likely to lead to a
weakened capacity of the obligor to meet its financial commitment on the
obligation.
Bonds rated BB, B, CCC, CC and C are regarded as having significant speculative
characteristics. BB indicates the least degree of speculation and C the highest.
While such obligations will likely have some quality and protective
characteristics, these may be outweighed by large uncertainties or major
exposures to adverse conditions.
BB: Bonds rated BB are less vulnerable to nonpayment than other speculative
issues. However, these face major uncertainties or exposure to adverse business,
financial, or economic conditions which could lead to the obligor's inadequate
capacity to meet its financial commitment on the obligation.
B: A bond rated B is more vulnerable to nonpayment than an obligation rated BB,
but the obligor currently has the capacity to meet its financial commitment on
the obligation.
CCC: A bond rated CCC is currently vulnerable to nonpayment, and is dependent
upon favorable business, financial, and economic conditions for the obligor to
meet its financial commitment on the obligation. In the event of adverse
business, financial or economic conditions, the obligor is not likely to have
the capacity to meet its financial commitment on the obligation.
CC: An obligation rated CC is currently highly vulnerable to nonpayment.
C: The C rating may used where a bankruptcy petition has been filed or similar
action has been taken, but payments on this obligation are being continued.
D: Bonds rated D are in default. Payments on the obligation are not being made
on the date due.
The ratings from AA to CCC may be modified by the addition of a plus (+) or
minus (-) sign to show relative standing within the major rating categories. The
"r" symbol is attached to the ratings of instruments with significant noncredit
risks.
Short-Term Issue Credit Ratings
A-1: Rated in the highest category. The obligor's capacity to meet its financial
commitment on the obligation is strong. Within this category, a plus (+) sign
designation indicates the issuer's capacity to meet its financial obligation is
very strong.
A-2: Obligation is somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than obligations in higher rating
categories. However, the obligor's capacity to meet its financial commitment on
the obligation is satisfactory.
A-3: Exhibits adequate protection parameters. However, adverse economic
conditions or changing circumstances are more likely to lead to a weakened
capacity of the obligor to meet its financial commitment on the obligation.
B: Regarded as having significant speculative characteristics. The obligor
currently has the capacity to meet its financial commitment on the obligation.
However, it faces major ongoing uncertainties which could lead to the obligor's
inadequate capacity to meet its financial commitment on the obligation.
C: Currently vulnerable to nonpayment and is dependent upon favorable business,
financial, and economic conditions for the obligor to meet its financial
commitment on the obligation.
D: In payment default. Payments on the obligation have not been made on the due
date. The rating may also be used if a bankruptcy petition has been filed or
similar actions jeopardize payments on the obligation.
Fitch IBCA, Inc.
--------------------------------------------------------------------------------
International Long-Term Credit Ratings
Investment Grade:
AAA: Highest Credit Quality. "AAA" ratings denote the lowest expectation of
credit risk. They are assigned only in the case of exceptionally strong capacity
for timely payment of financial commitments. This capacity is highly unlikely to
be adversely affected by foreseeable events.
AA: Very High Credit Quality. "AA" ratings denote a very low expectation of
credit risk. They indicate a very strong capacity for timely payment of
financial commitments. This capacity is not significantly vulnerable to
foreseeable events.
A: High Credit Quality. "A" ratings denote a low expectation of credit risk. The
capacity for timely payment of financial commitments is considered strong. This
capacity may, nevertheless, be more vulnerable to changes in circumstances or in
economic conditions than is the case for higher ratings.
BBB: Good Credit Quality. "BBB" ratings indicate that there is currently a low
expectation of credit risk. The capacity for timely payment of financial
commitments is considered adequate, but adverse changes in circumstances and in
economic conditions are more likely to impair this capacity. This is the lowest
investment-grade category.
Speculative Grade:
BB: Speculative. "BB" ratings indicate that there is a possibility of credit
risk developing, particularly as the result of adverse economic change over
time. However, business or financial alternatives may be available to allow
financial commitments to be met.
B: Highly Speculative. "B" ratings indicate that significant credit risk is
present, but a limited margin of safety remains. Financial commitments are
currently being met. However, capacity for continued payment is contingent upon
a sustained, favorable business and economic environment.
CCC, CC C: High Default Risk. Default is a real possibility. Capacity for
meeting financial commitments is solely reliant upon sustained, favorable
business or economic developments. A "CC" rating indicates that default of some
kind appears probable. "C" ratings signal imminent default.
DDD, DD, and D: Default. Securities are not meeting current obligations and are
extremely speculative. "DDD" designates the highest potential for recovery of
amounts outstanding on any securities involved.
Plus (+) and minus (-) signs may be appended to a rating symbol to denote
relative status within the rating category. Plus and minus signs are not added
to the "AAA" category or to categories below "CCC."
International Short-Term Credit Ratings
F1: Highest credit quality. Strongest capacity for timely payment. May have an
added "+" to denote exceptionally strong credit feature.
F2: Good credit quality. A satisfactory capacity for timely payment, but the
margin of safety is not as great as in higher ratings.
F3: Fair credit quality. Capacity for timely payment is adequate. However,
near-term adverse changes could result in a reduction to non-investment grade.
B: Speculative. Minimal capacity for timely payment, plus vulnerability to
near-term adverse changes in financial and economic conditions.
C: High default risk. Default is a real possibility, Capacity for meeting
financial commitments is solely reliant upon a sustained, favorable business and
economic environment.
D: Default. Denotes actual or imminent payment default.
--------------------------------------------------------------------------------
Duff & Phelps Credit Rating Co. Ratings
Long-Term Debt and Preferred Stock
AAA: Highest credit quality. The risk factors are negligible, being only
slightly more than for risk-free U.S. Treasury debt.
AA+, AA, AA-: High credit quality. Protection factors are strong. Risk is modest
but may vary slightly from time to time because of economic conditions.
A+, A & A-: Protection factors are average but adequate. However, risk factors
are more variable in periods of greater economic stress.
BBB+, BBB & BBB-: Below average protection factors but still considered
sufficient for prudent investment. Considerable variability in risk during
economic cycles.
BB+, BB & BB-: Below investment grade but deemed likely to meet obligations when
due. Present or prospective financial protection factors fluctuate according to
industry conditions. Overall quality may move up or down frequently within the
category.
B+, B & B-: Below investment grade and possessing risk that obligations will not
be met when due. Financial protection factors will fluctuate widely according to
economic cycles, industry conditions and/or company fortunes. Potential exists
for frequent changes in the rating within this category or into a higher of
lower rating grade.
CCC: Well below investment-grade securities. Considerable uncertainty exists as
to timely payment of principal, interest or preferred dividends. Protection
factors are narrow and risk can be substantial with unfavorable
economic/industry conditions, and/or with unfavorable company developments.
DD: Defaulted debt obligations. Issuer failed to meet scheduled principal and/or
interest payments.
DP: Preferred stock with dividend arrearages.
Short-Term Debt:
High Grade:
D-1+: Highest certainty of timely payment. Safety is just below risk-free U.S.
Treasury short-term debt.
D-1: Very high certainty of timely payment. Risk factors are minor.
D-1-: High certainty of timely payment. Risk factors are very small.
Good Grade:
D-2: Good certainty of timely payment. Risk factors are small.
Satisfactory Grade:
D-3: Satisfactory liquidity and other protection factors qualify issues as to
investment grade. Risk factors are larger and subject to more variation.
Nevertheless, timely payment is expected.
Non-Investment Grade:
D-4: Speculative investment characteristics. Liquidity is not sufficient to
insure against disruption in debt service.
Default:
D-5: Issuer failed to meet scheduled principal and/or interest payments.
<PAGE>
B-1
Appendix B
--------------------------------------------------------------------------------
Municipal Bond Industry Classifications
--------------------------------------------------------------------------------
Adult Living Facilities
Bond Anticipation Notes
Education
Electric Utilities
Gas Utilities
General Obligation
Higher Education
Highways/Railways
Hospital/Healthcare
Manufacturing, Durable Goods
Manufacturing, Non Durable Goods
Marine/Aviation Facilities
Multi-Family Housing
Municipal Leases
Non Profit Organization
Parking Fee Revenue
Pollution Control
Resource Recovery
Revenue Anticipation Notes
Sales Tax Revenue
Sewer Utilities
Single Family Housing
Special Assessment
Special Tax
Sports Facility Revenue
Student Loans
Tax Anticipation Notes
Tax & Revenue Anticipation Notes
Telephone Utilities
Water Utilities
<PAGE>
C-13
Appendix C
OppenheimerFunds Special Sales Charge Arrangements and Waivers
In certain cases, the initial sales charge that applies to purchases of Class A
shares1 of the Oppenheimer funds or the contingent deferred sales charge that
may apply to Class A, Class B or Class C shares may be waived.2 That is because
of the economies of sales efforts realized by OppenheimerFunds Distributor,
Inc., (referred to in this document as the "Distributor"), or by dealers or
other financial institutions that offer those shares to certain classes of
investors.
Not all waivers apply to all funds. For example, waivers relating to Retirement
Plans do not apply to Oppenheimer municipal funds, because shares of those funds
are not available for purchase by or on behalf of retirement plans. Other
waivers apply only to shareholders of certain funds.
For the purposes of some of the waivers described below and in the Prospectus
and Statement of Additional Information of the applicable Oppenheimer funds, the
term "Retirement Plan" refers to the following types of plans: (7) plans
qualified under Sections 401(a) or 401(k) of the Internal Revenue
Code,
(8) non-qualified deferred compensation plans, (9) employee benefit plans3 (10)
Group Retirement Plans4 (11) 403(b)(7) custodial plan accounts (12) Individual
Retirement Accounts ("IRAs"), including traditional IRAs, Roth
IRAs, SEP-IRAs, SARSEPs or SIMPLE plans
The interpretation of these provisions as to the applicability of a special
arrangement or waiver in a particular case is in the sole discretion of the
Distributor or the transfer agent (referred to in this document as the "Transfer
Agent") of the particular Oppenheimer fund. These waivers and special
arrangements may be amended or terminated at any time by a particular fund, the
Distributor, and/or OppenheimerFunds, Inc. (referred to in this document as the
"Manager"). Waivers that apply at the time shares are redeemed must be requested
by the shareholder and/or dealer in the redemption request.
--------------
5. Certain waivers also apply to Class M shares of Oppenheimer Convertible
Securities Fund.
6. In the case of Oppenheimer Senior Floating Rate Fund, a continuously-offered
closed-end fund, references to contingent deferred sales charges mean the
Fund's Early Withdrawal Charges and references to "redemptions" mean
"repurchases" of shares.
7. An "employee benefit plan" means any plan or arrangement, whether or not it
is "qualified" under the Internal Revenue Code, under which Class A shares of
an Oppenheimer fund or funds are purchased by a fiduciary or other
administrator for the account of participants who are employees of a single
employer or of affiliated employers. These may include, for example, medical
savings accounts, payroll deduction plans or similar plans. The fund accounts
must be registered in the name of the fiduciary or administrator purchasing
the shares for the benefit of participants in the plan.
8. The term "Group Retirement Plan" means any qualified or non-qualified
retirement plan for employees of a corporation or sole proprietorship,
members and employees of a partnership or association or other organized
group of persons (the members of which may include other groups), if the
group has made special arrangements with the Distributor and all members of
the group participating in (or who are eligible to participate in) the plan
purchase Class A shares of an Oppenheimer fund or funds through a single
investment dealer, broker or other financial institution designated by the
group. Such plans include 457 plans, SEP-IRAs, SARSEPs, SIMPLE plans and
403(b) plans other than plans for public school employees. The term "Group
Retirement Plan" also includes qualified retirement plans and non-qualified
deferred compensation plans and IRAs that purchase Class A shares of an
Oppenheimer fund or funds through a single investment dealer, broker or other
financial institution that has made special arrangements with the Distributor
enabling those plans to purchase Class A shares at net asset value but
subject to the Class A contingent deferred sales charge.
I. Applicability of Class A Contingent Deferred Sales Charges in Certain Cases
Purchases of Class A Shares of Oppenheimer Funds That Are Not Subject to Initial
Sales Charge but May Be Subject to the Class A Contingent Deferred Sales Charge
(unless a waiver applies).
There is no initial sales charge on purchases of Class A shares of any of
the Oppenheimer funds in the cases listed below. However, these purchases may be
subject to the Class A contingent deferred sales charge if redeemed within 18
months of the end of the calendar month of their purchase, as described in the
Prospectus (unless a waiver described elsewhere in this Appendix applies to the
redemption). Additionally, on shares purchased under these waivers that are
subject to the Class A contingent deferred sales charge, the Distributor will
pay the applicable commission described in the Prospectus under "Class A
Contingent Deferred Sales Charge."10 This waiver provision applies to:
10 However, that commission will not be paid on purchases of shares in amounts
of $1 million or more (including any right of accumulation) by a Retirement Plan
that pays for the purchase with the redemption proceeds of Class C shares of one
or more Oppenheimer funds held by the Plan for more than one year.
|_| Purchases of Class A shares aggregating $1 million or more.
|_| Purchases by a Retirement Plan (other than an IRA or 403(b)(7) custodial
plan) that:
(4) buys shares costing $500,000 or more, or
(5) has, at the time of purchase, 100 or more eligible employees or total plan
assets of $500,000 or more, or
(6) certifies to the Distributor that it projects to have annual plan
purchases of $200,000 or more.
|_| Purchases by an OppenheimerFunds-sponsored Rollover IRA, if the
purchases are made:
(3) through a broker, dealer, bank or registered investment adviser that
has made special arrangements with the Distributor for those purchases,
or
(4) by a direct rollover of a distribution from a qualified Retirement Plan
if the administrator of that Plan has made special arrangements with
the Distributor for those purchases.
|_| Purchases of Class A shares by Retirement Plans that have any of the
following record-keeping arrangements:
(4) The record keeping is performed by Merrill Lynch Pierce Fenner & Smith, Inc.
("Merrill Lynch") on a daily valuation basis for the Retirement Plan.
On the date the plan sponsor signs the record-keeping service
agreement with Merrill Lynch, the Plan must have $3 million or more of
its assets invested in (a) mutual funds, other than those advised or
managed by Merrill Lynch Asset Management, L.P. ("MLAM"), that are
made available under a Service Agreement between Merrill Lynch and the
mutual fund's principal underwriter or distributor, and (b) funds
advised or managed by MLAM (the funds described in (a) and (b) are
referred to as "Applicable Investments").
(5) The record keeping for the Retirement Plan is performed on a daily valuation
basis by a record keeper whose services are provided under a contract
or arrangement between the Retirement Plan and Merrill Lynch. On the
date the plan sponsor signs the record keeping service agreement with
Merrill Lynch, the Plan must have $3 million or more of its assets
(excluding assets invested in money market funds) invested in
Applicable Investments. (6) The record keeping for a Retirement Plan
is handled under a service agreement with Merrill Lynch and on the
date the plan sponsor signs that agreement, the Plan has 500 or more
eligible employees (as determined by the Merrill Lynch plan conversion
manager). |_| Purchases by a Retirement Plan whose record keeper had a
cost-allocation agreement with the Transfer Agent on or before May 1,
1999.
<PAGE>
II. Waivers of Class A Sales Charges of Oppenheimer Funds
A. Waivers of Initial and Contingent Deferred Sales Charges for Certain
Purchasers.
Class A shares purchased by the following investors are not subject to any Class
A sales charges (and no commissions are paid by the Distributor on such
purchases):
|_| The Manager or its affiliates.
|_| Present or former officers, directors, trustees and employees (and
their "immediate families") of the Fund, the Manager and its
affiliates, and retirement plans established by them for their
employees. The term "immediate family" refers to one's spouse,
children, grandchildren, grandparents, parents, parents-in-law,
brothers and sisters, sons- and daughters-in-law, a sibling's spouse,
a spouse's siblings, aunts, uncles, nieces and nephews; relatives by
virtue of a remarriage (step-children, step-parents, etc.) are
included.
|_| Registered management investment companies, or separate accounts of
insurance companies having an agreement with the Manager or the
Distributor for that purpose.
|_| Dealers or brokers that have a sales agreement with the Distributor, if
they purchase shares for their own accounts or for retirement plans for
their employees.
|_| Employees and registered representatives (and their spouses) of dealers
or brokers described above or financial institutions that have entered
into sales arrangements with such dealers or brokers (and which are
identified as such to the Distributor) or with the Distributor. The
purchaser must certify to the Distributor at the time of purchase that
the purchase is for the purchaser's own account (or for the benefit of
such employee's spouse or minor children).
|_| Dealers, brokers, banks or registered investment advisors that have
entered into an agreement with the Distributor providing specifically
for the use of shares of the Fund in particular investment products
made available to their clients. Those clients may be charged a
transaction fee by their dealer, broker, bank or advisor for the
purchase or sale of Fund shares.
|_| Investment advisors and financial planners who have entered into an
agreement for this purpose with the Distributor and who charge an
advisory, consulting or other fee for their services and buy shares for
their own accounts or the accounts of their clients.
|_| "Rabbi trusts" that buy shares for their own accounts, if the purchases
are made through a broker or agent or other financial intermediary that
has made special arrangements with the Distributor for those purchases.
|_| Clients of investment advisors or financial planners (that have
entered into an agreement for this purpose with the Distributor) who
buy shares for their own accounts may also purchase shares without
sales charge but only if their accounts are linked to a master account
of their investment advisor or financial planner on the books and
records of the broker, agent or financial intermediary with which the
Distributor has made such special arrangements . Each of these
investors may be charged a fee by the broker, agent or financial
intermediary for purchasing shares.
|_| Directors, trustees, officers or full-time employees of OpCap Advisors
or its affiliates, their relatives or any trust, pension, profit
sharing or other benefit plan which beneficially owns shares for those
persons.
|_| Accounts for which Oppenheimer Capital (or its successor) is the
investment advisor (the Distributor must be advised of this
arrangement) and persons who are directors or trustees of the company
or trust which is the beneficial owner of such accounts.
|_| A unit investment trust that has entered into an appropriate agreement
with the Distributor.
|_| Dealers, brokers, banks, or registered investment advisers that have
entered into an agreement with the Distributor to sell shares to
defined contribution employee retirement plans for which the dealer,
broker or investment adviser provides administration services.
|-|
<PAGE>
Retirement Plans and deferred compensation plans and trusts used to fund
those plans (including, for example, plans qualified or created under
sections 401(a), 401(k), 403(b) or 457 of the Internal Revenue Code),
in each case if those purchases are made through a broker, agent or
other financial intermediary that has made special arrangements with
the Distributor for those purchases.
|_| A TRAC-2000 401(k) plan (sponsored by the former Quest for Value
Advisors) whose Class B or Class C shares of a Former Quest for Value
Fund were exchanged for Class A shares of that Fund due to the
termination of the Class B and Class C TRAC-2000 program on November
24, 1995.
|_| A qualified Retirement Plan that had agreed with the former Quest for
Value Advisors to purchase shares of any of the Former Quest for Value
Funds at net asset value, with such shares to be held through
DCXchange, a sub-transfer agency mutual fund clearinghouse, if that
arrangement was consummated and share purchases commenced by December
31, 1996.
B. Waivers of Initial and Contingent Deferred Sales Charges in Certain
Transactions.
Class A shares issued or purchased in the following transactions are not subject
to sales charges (and no commissions are paid by the Distributor on such
purchases): |_| Shares issued in plans of reorganization, such as mergers, asset
acquisitions
and exchange offers, to which the Fund is a party.
|_| Shares purchased by the reinvestment of dividends or other distributions
reinvested from the Fund or other Oppenheimer funds (other than
Oppenheimer Cash Reserves) or unit investment trusts for which
reinvestment arrangements have been made with the Distributor.
|_| Shares purchased through a broker-dealer that has entered into a
special agreement with the Distributor to allow the broker's customers
to purchase and pay for shares of Oppenheimer funds using the proceeds
of shares redeemed in the prior 30 days from a mutual fund (other than
a fund managed by the Manager or any of its subsidiaries) on which an
initial sales charge or contingent deferred sales charge was paid.
This waiver also applies to shares purchased by exchange of shares of
Oppenheimer Money Market Fund, Inc. that were purchased and paid for
in this manner. This waiver must be requested when the purchase order
is placed for shares of the Fund, and the Distributor may require
evidence of qualification for this waiver.
|_| Shares purchased with the proceeds of maturing principal units of any
Qualified Unit Investment Liquid Trust Series.
|_| Shares purchased by the reinvestment of loan repayments by a
participant in a Retirement Plan for which the Manager or an affiliate
acts as sponsor.
C. Waivers of the Class A Contingent Deferred Sales Charge for Certain
Redemptions.
The Class A contingent deferred sales charge is also waived if shares that would
otherwise be subject to the contingent deferred sales charge are redeemed in the
following cases:
|_| To make Automatic Withdrawal Plan payments that are limited annually to
no more than 12% of the account value adjusted annually.
|_| Involuntary redemptions of shares by operation of law or involuntary
redemptions of small accounts (please refer to "Shareholder Account
Rules and Policies," in the applicable fund Prospectus).
|_| For distributions from Retirement Plans, deferred compensation plans or
other employee benefit plans for any of the following purposes:
(10) Following the death or disability (as defined in the Internal
Revenue Code) of the participant or beneficiary. The death or
disability must occur after the participant's account was
established.
(11) To return excess contributions.
(12) To return contributions made due to a mistake of fact.
(13) Hardship withdrawals, as defined in the plan.11
11 This provision does not apply to IRAs.
(14) Under a Qualified Domestic Relations Order, as defined in the Internal
Revenue Code, or, in the case of an IRA, a divorce or separation
agreement described in Section 71(b) of the Internal Revenue Code.
(15) To meet the minimum distribution requirements of the Internal Revenue
Code.
(16) To make "substantially equal periodic payments" as described in
Section 72(t) of the Internal Revenue Code.
(17) For loans to participants or beneficiaries.
(18) Separation from service.12
12 This provision does not apply to 403(b)(7) custodial plans if the participant
is less than age 55, nor to IRAs.
(10) Participant-directed redemptions to purchase shares of a mutual
fund (other than a fund managed by the Manager or a subsidiary of the
Manager) if the plan has made special arrangements with the
Distributor.
(11) Plan termination or "in-service distributions," if
the redemption proceeds are rolled over directly to an
OppenheimerFunds-sponsored IRA.
|_| For distributions from Retirement Plans having 500 or more eligible
employees, except distributions due to termination of all of the
Oppenheimer funds as an investment option under the Plan.
|_| For distributions from 401(k) plans sponsored by broker-dealers that
have entered into a special agreement with the Distributor allowing
this waiver.
III. Waivers of Class B and Class C Sales Charges of Oppenheimer Funds
The Class B and Class C contingent deferred sales charges will not be
applied to shares purchased in certain types of transactions or redeemed in
certain circumstances described below.
A. Waivers for Redemptions in Certain Cases.
The Class B and Class C contingent deferred sales charges will be waived for
redemptions of shares in the following cases: |_| Shares redeemed involuntarily,
as described in "Shareholder Account Rules and
Policies," in the applicable Prospectus.
|_| Redemptions from accounts other than Retirement Plans following the
death or disability of the last surviving shareholder, including a
trustee of a grantor trust or revocable living trust for which the
trustee is also the sole beneficiary. The death or disability must have
occurred after the account was established, and for disability you must
provide evidence of a determination of disability by the Social
Security Administration.
|_| Distributions from accounts for which the broker-dealer of record has
entered into a special agreement with the Distributor allowing this
waiver.
|_| Redemptions of Class B shares held by Retirement Plans whose records
are maintained on a daily valuation basis by Merrill Lynch or an
independent record keeper under a contract with Merrill Lynch.
|_| Redemptions of Class C shares of Oppenheimer U.S. Government Trust from
accounts of clients of financial institutions that have entered into a
special arrangement with the Distributor for this purpose.
|_| Redemptions requested in writing by a Retirement Plan sponsor of Class
C shares of an Oppenheimer fund in amounts of $1 million or more held
by the Retirement Plan for more than one year, if the redemption
proceeds are invested in Class A shares of one or more Oppenheimer
funds.
|_| Distributions from Retirement Plans or other employee benefit plans for
any of the following purposes:
(14) Following the death or disability (as defined in the Internal
Revenue Code) of the participant or beneficiary. The death or
disability must occur after the participant's account was
established in an Oppenheimer fund.
(15) To return excess contributions made to a participant's account.
(16) To return contributions made due to a mistake of fact.
(17) To make hardship withdrawals, as defined in the plan.13
13 This provision does not apply to IRAs.
(18) To make distributions required under a Qualified Domestic Relations
Order or, in the case of an IRA, a divorce or separation agreement
described in Section 71(b) of the Internal Revenue Code.
(19) To meet the minimum distribution requirements of the Internal Revenue
Code.
(20) To make "substantially equal periodic payments" as described in
Section 72(t) of the Internal Revenue Code.
(21) For loans to participants or beneficiaries.14
14 This provision does not apply to loans from 403(b)(7) custodial plans.
(22) On account of the participant's separation from service.15
15 This provision does not apply to 403(b)(7) custodial plans if the participant
is less than age 55, nor to IRAs.
(23) Participant-directed redemptions to purchase shares of a mutual
fund (other than a fund managed by the Manager or a subsidiary
of the Manager) offered as an investment option in a Retirement
Plan if the plan has made special arrangements with the
Distributor.
(24) Distributions made on account of a plan termination or
"in-service" distributions," if the redemption proceeds are
rolled over directly to an OppenheimerFunds-sponsored IRA.
(25) Distributions from Retirement Plans having 500 or more eligible
employees, but excluding distributions made because of the
Plan's elimination as investment options under the Plan of all
of the Oppenheimer funds that had been offered.
(26) For distributions from a participant's account under an
Automatic Withdrawal Plan after the participant reaches age 59
1/2, as long as the aggregate value of the distributions does
not exceed 10% of the account's value, adjusted annually.
(27) Redemptions of Class B shares under an Automatic Withdrawal Plan
for an account other than a Retirement Plan, if the aggregate
value of the redeemed shares does not exceed 10% of the
account's value, adjusted annually.
|_|Redemptions of Class B shares or Class C shares under an Automatic
Withdrawal Plan from an account other than a Retirement Plan if the
aggregate value of the redeemed shares does not exceed 10% of the
account's value annually.
B. Waivers for Shares Sold or Issued in Certain Transactions.
The contingent deferred sales charge is also waived on Class B and Class C
shares sold or issued in the following cases: |_| Shares sold to the Manager or
its affiliates.
|_| Shares sold to registered management investment companies or separate
accounts of insurance companies having an agreement with the Manager or
the Distributor for that purpose.
|_| Shares issued in plans of reorganization to which the Fund is a party. |_|
Shares sold to present or former officers, directors, trustees or employees
(and their "immediate families" as defined above in Section I.A.) of the
Fund, the Manager and its affiliates and retirement plans established by
them for their employees.
IV. Special Sales Charge Arrangements for Shareholders of Certain Oppenheimer
Funds Who Were Shareholders of Former Quest for Value Funds
The initial and contingent deferred sales charge rates and waivers for Class A,
Class B and Class C shares described in the Prospectus or Statement of
Additional Information of the Oppenheimer funds are modified as described below
for certain persons who were shareholders of the former Quest for Value Funds.
To be eligible, those persons must have been shareholders on November 24, 1995,
when OppenheimerFunds, Inc. became the investment advisor to those former Quest
for Value Funds. Those funds include:
<PAGE>
Oppenheimer Quest Value Fund, Inc. Oppenheimer Quest Small Cap
Value Fund
Oppenheimer Quest Balanced Value Fund Oppenheimer Quest Global Value
Fund
Oppenheimer Quest Opportunity Value
Fund
These arrangements also apply to shareholders of the following funds when
they merged (were reorganized) into various Oppenheimer funds on November 24,
1995:
Quest for Value U.S. Government Quest for Value New York Tax-Exempt
Income Fund Fund
Quest for Value Investment Quality Quest for Value National Tax-Exempt
Income Fund Fund
Quest for Value Global Income Fund Quest for Value California Tax-Exempt
Fund
All of the funds listed above are referred to in this Appendix as the
"Former Quest for Value Funds." The waivers of initial and contingent deferred
sales charges described in this Appendix apply to shares of an Oppenheimer fund
that are either:
|_| acquired by such shareholder pursuant to an exchange of shares of an
Oppenheimer fund that was one of the Former Quest for Value Funds or
|_| purchased by such shareholder by exchange of shares of another
Oppenheimer fund that were acquired pursuant to the merger of any of
the Former Quest for Value Funds into that other Oppenheimer fund on
November 24, 1995.
A. Reductions or Waivers of Class A Sales Charges.
|X| Reduced Class A Initial Sales Charge Rates for Certain Former Quest
for Value Funds Shareholders.
Purchases by Groups and Associations. The following table sets forth the initial
sales charge rates for Class A shares purchased by members of "Associations"
formed for any purpose other than the purchase of securities. The rates in the
table apply if that Association purchased shares of any of the Former Quest for
Value Funds or received a proposal to purchase such shares from OCC Distributors
prior to November 24, 1995.
--------------------------------------------------------------------------------
Initial Sales Initial Sales
Number of Eligible Charge as a % of Charge as a % of Commission as %
Employees or Members Offering Price Net Amount Invested of Offering Price
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
9 or Fewer 2.50% 2.56% 2.00%
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
At least 10 but not 2.00% 2.04% 1.60%
more than 49
--------------------------------------------------------------------------------
<PAGE>
For purchases by Associations having 50 or more eligible employees or
members, there is no initial sales charge on purchases of Class A shares, but
those shares are subject to the Class A contingent deferred sales charge
described in the applicable fund's Prospectus.
Purchases made under this arrangement qualify for the lower of either the
sales charge rate in the table based on the number of members of an Association,
or the sales charge rate that applies under the Right of Accumulation described
in the applicable fund's Prospectus and Statement of Additional Information.
Individuals who qualify under this arrangement for reduced sales charge rates as
members of Associations also may purchase shares for their individual or
custodial accounts at these reduced sales charge rates, upon request to the
Distributor.
|X| Waiver of Class A Sales Charges for Certain Shareholders. Class A
shares purchased by the following investors are not subject to any Class A
initial or contingent deferred sales charges:
|_| Shareholders who were shareholders of the AMA Family of Funds on
February 28, 1991 and who acquired shares of any of the Former Quest
for Value Funds by merger of a portfolio of the AMA Family of Funds.
|_| Shareholders who acquired shares of any Former Quest for Value Fund by
merger of any of the portfolios of the Unified Funds.
|X| Waiver of Class A Contingent Deferred Sales Charge in Certain
Transactions. The Class A contingent deferred sales charge will not apply to
redemptions of Class A shares purchased by the following investors who were
shareholders of any Former Quest for Value Fund:
Investors who purchased Class A shares from a dealer that is or was not
permitted to receive a sales load or redemption fee imposed on a shareholder
with whom that dealer has a fiduciary relationship, under the Employee
Retirement Income Security Act of 1974 and regulations adopted under that law.
B. Class A, Class B and Class C Contingent Deferred Sales Charge Waivers.
|X| Waivers for Redemptions of Shares Purchased Prior to March 6, 1995. In
the following cases, the contingent deferred sales charge will be waived for
redemptions of Class A, Class B or Class C shares of an Oppenheimer fund. The
shares must have been acquired by the merger of a Former Quest for Value Fund
into the fund or by exchange from an Oppenheimer fund that was a Former Quest
for Value Fund or into which such fund merged. Those shares must have been
purchased prior to March 6, 1995 in connection with:
|_| withdrawals under an automatic withdrawal plan holding only either
Class B or Class C shares if the annual withdrawal does not exceed 10%
of the initial value of the account value, adjusted annually, and
|_| liquidation of a shareholder's account if the aggregate net asset value
of shares held in the account is less than the required minimum value
of such accounts.
|X| Waivers for Redemptions of Shares Purchased on or After March 6, 1995
but Prior to November 24, 1995. In the following cases, the contingent deferred
sales charge will be waived for redemptions of Class A, Class B or Class C
shares of an Oppenheimer fund. The shares must have been acquired by the merger
of a Former Quest for Value Fund into the fund or by exchange from an
Oppenheimer fund that was a Former Quest For Value Fund or into which such
Former Quest for Value Fund merged. Those shares must have been purchased on or
after March 6, 1995, but prior to November 24, 1995:
|_| redemptions following the death or disability of the shareholder(s) (as
evidenced by a determination of total disability by the U.S. Social
Security Administration);
|_| withdrawals under an automatic withdrawal plan (but only for Class B or
Class C shares) where the annual withdrawals do not exceed 10% of the
initial value of the account value; adjusted annually, and
|-|
<PAGE>
liquidation of a shareholder's account if the aggregate net asset value of
shares held in the account is less than the required minimum account
value.
A shareholder's account will be credited with the amount of any contingent
deferred sales charge paid on the redemption of any Class A, Class B or Class C
shares of the Oppenheimer fund described in this section if the proceeds are
invested in the same Class of shares in that fund or another Oppenheimer fund
within 90 days after redemption.
V. Special Sales Charge Arrangements for Shareholders of Certain Oppenheimer
Funds Who Were Shareholders of Connecticut Mutual Investment Accounts, Inc.
The initial and contingent deferred sale charge rates and waivers for Class A
and Class B shares described in the respective Prospectus (or this Appendix) of
the following Oppenheimer funds (each is referred to as a "Fund" in this
section):
o Oppenheimer U. S. Government Trust,
o Oppenheimer Bond Fund,
o Oppenheimer Disciplined Value Fund and
o Oppenheimer Disciplined Allocation Fund
are modified as described below for those Fund shareholders who were
shareholders of the following funds (referred to as the "Former Connecticut
Mutual Funds") on March 1, 1996, when OppenheimerFunds, Inc. became the
investment adviser to the Former Connecticut Mutual Funds:
Connecticut Mutual Liquid Account Connecticut Mutual Total Return
Account
Connecticut Mutual Government Securities CMIA LifeSpan Capital Appreciation
Account Account
Connecticut Mutual Income Account CMIA LifeSpan Balanced Account
Connecticut Mutual Growth Account CMIA Diversified Income Account
A. Prior Class A CDSC and Class A Sales Charge Waivers.
|_| Class A Contingent Deferred Sales Charge. Certain shareholders of a
Fund and the other Former Connecticut Mutual Funds are entitled to continue to
make additional purchases of Class A shares at net asset value without a Class A
initial sales charge, but subject to the Class A contingent deferred sales
charge that was in effect prior to March 18, 1996 (the "prior Class A CDSC").
Under the prior Class A CDSC, if any of those shares are redeemed within one
year of purchase, they will be assessed a 1% contingent deferred sales charge on
an amount equal to the current market value or the original purchase price of
the shares sold, whichever is smaller (in such redemptions, any shares not
subject to the prior Class A CDSC will be redeemed first).
Those shareholders who are eligible for the prior Class A CDSC are: (3)
persons whose purchases of Class A shares of a Fund and other Former
Connecticut Mutual Funds were $500,000 prior to March 18, 1996, as a
result of direct purchases or purchases pursuant to the Fund's policies
on Combined Purchases or Rights of Accumulation, who still hold those
shares in that Fund or other Former Connecticut Mutual Funds, and
(4) persons whose intended purchases under a Statement of Intention entered
into prior to March 18, 1996, with the former general distributor of
the Former Connecticut Mutual Funds to purchase shares valued at
$500,000 or more over a 13-month period entitled those persons to
purchase shares at net asset value without being subject to the Class A
initial sales charge.
<PAGE>
Any of the Class A shares of a Fund and the other Former Connecticut
Mutual Funds that were purchased at net asset value prior to March 18, 1996,
remain subject to the prior Class A CDSC, or if any additional shares are
purchased by those shareholders at net asset value pursuant to this arrangement
they will be subject to the prior Class A CDSC.
|_| Class A Sales Charge Waivers. Additional Class A shares of a Fund may
be purchased without a sales charge, by a person who was in one (or more) of the
categories below and acquired Class A shares prior to March 18, 1996, and still
holds Class A shares:
(7) any purchaser, provided the total initial amount invested in the Fund
or any one or more of the Former Connecticut Mutual Funds totaled
$500,000 or more, including investments made pursuant to the Combined
Purchases, Statement of Intention and Rights of Accumulation features
available at the time of the initial purchase and such investment is
still held in one or more of the Former Connecticut Mutual Funds or a
Fund into which such Fund merged;
(8) any participant in a qualified plan, provided that the total initial
amount invested by the plan in the Fund or any one or more of the
Former Connecticut Mutual Funds totaled $500,000 or more;
(9) Directors of the Fund or any one or more of the Former Connecticut Mutual
Funds and members of their immediate families;
(10) employee benefit plans sponsored by Connecticut Mutual Financial Services,
L.L.C. ("CMFS"), the prior distributor of the Former Connecticut Mutual
Funds, and its affiliated companies;
(11) one or more members of a group of at least 1,000 persons (and persons
who are retirees from such group) engaged in a common business,
profession, civic or charitable endeavor or other activity, and the
spouses and minor dependent children of such persons, pursuant to a
marketing program between CMFS and such group; and
(12) an institution acting as a fiduciary on behalf of an individual or
individuals, if such institution was directly compensated by the
individual(s) for recommending the purchase of the shares of the Fund
or any one or more of the Former Connecticut Mutual Funds, provided the
institution had an agreement with CMFS.
Purchases of Class A shares made pursuant to (1) and (2) above may be
subject to the Class A CDSC of the Former Connecticut Mutual Funds described
above.
Additionally, Class A shares of a Fund may be purchased without a sales
charge by any holder of a variable annuity contract issued in New York State by
Connecticut Mutual Life Insurance Company through the Panorama Separate Account
which is beyond the applicable surrender charge period and which was used to
fund a qualified plan, if that holder exchanges the variable annuity contract
proceeds to buy Class A shares of the Fund.
B. Class A and Class B Contingent Deferred Sales Charge Waivers.
In addition to the waivers set forth in the Prospectus and in this Appendix,
above, the contingent deferred sales charge will be waived for redemptions of
Class A and Class B shares of a Fund and exchanges of Class A or Class B shares
of a Fund into Class A or Class B shares of a Former Connecticut Mutual Fund
provided that the Class A or Class B shares of the Fund to be redeemed or
exchanged were (i) acquired prior to March 18, 1996 or (ii) were acquired by
exchange from an Oppenheimer fund that was a Former Connecticut Mutual Fund.
Additionally, the shares of such Former Connecticut Mutual Fund must have been
purchased prior to March 18, 1996: (10) by the estate of a deceased shareholder;
(11) upon the disability of a shareholder, as defined in Section 72(m)(7) of the
Internal Revenue Code;
(12) for retirement distributions (or loans) to participants or
beneficiaries from retirement plans qualified under Sections 401(a) or
403(b)(7)of the Code, or from IRAs, deferred compensation plans created
under Section 457 of the Code, or other employee benefit plans;
(13) as tax-free returns of excess contributions to such retirement or employee
benefit plans;
(14) in whole or in part, in connection with shares sold to any state,
county, or city, or any instrumentality, department, authority, or
agency thereof, that is prohibited by applicable investment laws from
paying a sales charge or commission in connection with the purchase of
shares of any registered investment management company;
(15) in connection with the redemption of shares of the Fund due to a
combination with another investment company by virtue of a merger,
acquisition or similar reorganization transaction;
(16) in connection with the Fund's right to involuntarily redeem or
liquidate the Fund;
(17) in connection with automatic redemptions of Class A shares and Class B
shares in certain retirement plan accounts pursuant to an Automatic
Withdrawal Plan but limited to no more than 12% of the original value
annually; or
(18) as involuntary redemptions of shares by operation of law, or under
procedures set forth in the Fund's Articles of Incorporation, or as
adopted by the Board of Directors of the Fund.
VI. Special Reduced Sales Charge for Former Shareholders of
Advance America Funds, Inc.
Shareholders of Oppenheimer Municipal Bond Fund, Oppenheimer U.S.
Government Trust, Oppenheimer Strategic Income Fund and Oppenheimer Equity
Income Fund who acquired (and still hold) shares of those funds as a result
of the reorganization of series of Advance America Funds, Inc. into those
Oppenheimer funds on October 18, 1991, and who held shares of Advance
America Funds, Inc. on March 30, 1990, may purchase Class A shares of those
four Oppenheimer funds at a maximum sales charge rate of 4.50%.
VII. Sales Charge Waivers on Purchases of Class M Shares of
Oppenheimer Convertible Securities Fund
Oppenheimer Convertible Securities Fund (referred to as the "Fund" in this
section) may sell Class M shares at net asset value without any initial sales
charge to the classes of investors listed below who, prior to March 11, 1996,
owned shares of the Fund's then-existing Class A and were permitted to purchase
those shares at net asset value without sales charge:
|_| the Manager and its affiliates,
|_| present or former officers, directors, trustees and employees (and
their "immediate families" as defined in the Fund's Statement of
Additional Information) of the Fund, the Manager and its affiliates,
and retirement plans established by them or the prior investment
advisor of the Fund for their employees,
|_| registered management investment companies or separate accounts of
insurance companies that had an agreement with the Fund's prior
investment advisor or distributor for that purpose,
|_| dealers or brokers that have a sales agreement with the Distributor, if
they purchase shares for their own accounts or for retirement plans for
their employees,
|_| employees and registered representatives (and their spouses) of dealers
or brokers described in the preceding section or financial institutions
that have entered into sales arrangements with those dealers or brokers
(and whose identity is made known to the Distributor) or with the
Distributor, but only if the purchaser certifies to the Distributor at
the time of purchase that the purchaser meets these qualifications,
|_| dealers, brokers, or registered investment advisors that had entered
into an agreement with the Distributor or the prior distributor of the
Fund specifically providing for the use of Class M shares of the Fund
in specific investment products made available to their clients, and
|_| dealers, brokers or registered investment advisors that had entered
into an agreement with the Distributor or prior distributor of the
Fund's shares to sell shares to defined contribution employee
retirement plans for which the dealer, broker, or investment advisor
provides administrative services.
|-|
<PAGE>
56
--------------------------------------------------------------------------------
Oppenheimer Main Street California Municipal Fund
--------------------------------------------------------------------------------
Internet Web Site:
www.oppenheimerfunds.com
Investment Adviser
OppenheimerFunds, Inc.
Two World Trade Center
New York, New York 10048-0203
Distributor
OppenheimerFunds Distributor, Inc.
Two World Trade Center
New York, New York 10048-0203
Transfer Agent
OppenheimerFunds Services
P.O. Box 5270
Denver, Colorado 80217
1-800-525-7048
Custodian Bank
The Bank of New York
One Wall Street
New York, New York 10015
Independent Auditors
Deloitte & Touche LLP
555 Seventeenth Street, Suite 3600
Denver, Colorado 80202-3942
Legal Counsel
Myer, Swanson, Adams & Wolf, P.C.
1600 Broadway
Denver, Colorado 80202
890
PX725.001.1299
<PAGE>
At a meeting held on February 29, 2000, the Board of Directors of Oppenheimer
Main Street Funds, Inc. on behalf of Oppenheimer Main Street California
Municipal Fund approved a reorganization transaction that will, if approved by
shareholders, result in the transfer of the net assets of Oppenheimer Main
Street California Municipal Fund to Oppenheimer California Municipal Fund, in
exchange for an equal value of shares of Oppenheimer California Municipal Fund.
The shares of Oppenheimer California Municipal Fund will then be distributed to
Oppenheimer Main Street California Municipal Fund shareholders and Oppenheimer
Main Street California Municipal Fund will be liquidated. The pro forma
financial statements reflect the (i) Combined Statement of Investments as of
March 31, 2000; (ii) Combined Statements of Assets and Liabilities as of March
31, 2000; and (iii) Combined Statements of Operations for the twelve-month
period ended March 31, 2000.
<TABLE>
<CAPTION>
Pro Forma Combining Statements of Assets and Liabilities March 31, 2000
(Unaudited) Oppenheimer California Municipal Fund and Oppenheimer Main Street
California Municipal Fund
Pro Forma
Oppenheimer
Oppenheimer Combined
California Main
Street Oppenheimer
Municipal California
Municipal ProForma California
Fund Fund
(1) Adjustments Municipal Fund
-------------------------------------------------------------------------------
ASSETS:
<S> <C>
<C> <C> <C>
Investments, at value (cost * ) $393,407,508
$125,071,737 $ 518,479,245
Cash 190,881
379,220 570,101
Unrealized appreciation on forward foreign
Receivables:
Interest, dividends and principal paydowns 5,078,373
1,687,310 6,765,683
Investments sold
2,256,986 - 2,256,986
Shares of beneficial interest or capital stock
sold 208,013
216,019 424,032
Other
22,049 6,276 28,325
-------------------------------------------------------------------------------
Total assets $401,163,810
$127,360,562 $ 528,524,372
-------------------------------------------------------------------------------
LIABILITIES:
Payables and other liabilities:
Investments purchased 7,819,534
3,540,748 $ 11,360,282
Dividends 1,206,359
386,949 1,593,308
Shares of beneficial interest or capital stock
redeemed
474,232 - 474,232
Distributions and service plan fees 237,029
16,755 253,784
Trustees' and Directors' fees
158,303 624 158,927
Daily variation on futures contracts 119,281
27,500 146,781
Shareholder reports 48,717
31,818 80,535
Transfer and shareholder servicing agent fees 26,527
11,355 37,882
Custodian fees
160 123 283
Other
13,228 4,117 17,345
-------------------------------------------------------------------------------
Total liabilities 10,103,370
4,019,989 14,123,359
-------------------------------------------------------------------------------
NET ASSETS $391,060,440
$123,340,573 $ 514,401,013
===============================================================================
COMPOSITION OF NET ASSETS:
Paid-in capital
407,326,828 - 128,470,56(1) 535,797,392
Par value of shares of capital stock
103,829 (103,829)(1) -
Additional paid-in capital
128,366,735 (128,366,7(1) -
Undistributed net investment income (1,076,235)
(206,259) (1,282,494)
Accumulated net realized loss from investments and
foreign currency transactions (20,750,041)
(4,902,157) (25,652,198)
Net unrealized appreciation (depreciation)on
investments and translation of assets and
liabilities denominated in foreign currencies 5,559,888
(21,575) 5,538,313
-------------------------------------------------------------------------------
NET ASSETS $ 391,060,440 $
123,340,573 $ - $ 514,401,013
===============================================================================
</TABLE>
(1) Represents the conversion from par value shares to no par value shares.
<PAGE>
<TABLE>
<CAPTION>
Pro Forma Combining Statements of Assets and Liabilities March 31, 2000 (Unaudited)
Oppenheimer California Municipal Fund and Oppenheimer Main Street California
Municipal Fund
Pro Forma
Oppenheimer
Oppenheimer Combined
California Main
Street Oppenheimer
Municipal California
Municipal ProForma California
Fund Fund
(1) Adjustments Municipal Fund
-----------------------------------------------------------------------------
<S> <C>
<C> <C>
Net Asset Value Per Share
Class A Shares:
Net asset value and redemption price per share (based on net assets of
$270,100,269, $97,049,913 and $367,150,182 and 27,079,405, 8,167,937 and
36,813,599 shares of beneficial interest or capital shares outstanding for
Oppenheimer California Municipal Fund, Oppenheimer Main Street California
Municipal Fund and Combined Oppenheimer California
Municipal Fund, respectively) $9.97
$11.88 $9.97
Maximum offering price per share (net asset value
plus sales charge of 4.75% of offering price) $10.47
$12.47 $10.47
Class B Shares:
Net asset value and redemption price per share (based on net assets of
$107,306,479, $26,290,660 and $133,597,139 and 10,754,056, 2,214,930 and
13,388,391 shares of beneficial interest or capital shares outstanding for
Oppenheimer California Municipal Fund, Oppenheimer Main Street California
Municipal Fund and Combined Oppenheimer California
Municipal Fund, respectively) $9.98
$11.87 $9.98
Class C Shares:
Net asset value and redemption price per share (based on net assets of
$13,653,692 and 1,370,697 shares of beneficial interest outstanding)
$9.96 $9.96 n/a
*Cost $387,044,745
$124,908,124 $511,952,869
</TABLE>
(1) Oppenheimer Main Street California Municipal Fund Class A shares will be
exchanged for Oppenheimer California Municipal Fund Class A shares.
Oppenheimer Main Street California Municipal Fund Class B shares will be
exchanged for Oppenheimer California Municipal Fund Class B shares.
<PAGE>
<TABLE>
<CAPTION>
Pro Forma Combining Statements of Operations For The Twelve Months Ended March 31,
2000 (Unaudited)
Oppenheimer California Municipal Fund and Oppenheimer Main Street California
Municipal Fund
Pro Forma
Oppenheimer
Oppenheimer Combined
California Main
Street Oppenheimer
Municipal California
Municipal ProForma California
Fund Fund
(1) Adjustments Municipal Fund
-------------------------------------------------------------------------------
INVESTMENT INCOME:
<S> <C>
<C> <C> <C>
Interest $ 26,735,852 $
8,063,227 $ 34,799,079
Dividends
- - -
-------------------------------------------------------------------------------
Total income 26,735,852
8,063,227 - 34,799,079
-------------------------------------------------------------------------------
EXPENSES:
Management fees 2,445,236
544,600 (105,903)(1) 2,883,933
Distribution and service plan fees:
Class A
724,763 - 266,705 (2) 724,763
Class B 1,247,008
291,271 1,538,279
Class C
156,464 - 156,464
Transfer and shareholder servicing agent fees 237,479
75,040 312,519
Shareholder reports 112,641
43,003 (32,301)(3) 123,343
Custodian fees and expenses
48,064 548 48,612
Registration and filing fees
3,669 9,056 32,562 (4) 45,287
Legal and auditing fees 35,286
11,844 (11,844)(5) 35,286
Trustees' or Directors' fees and expenses
27,431 2,814 30,245
Other
13,209 4,186 17,395
-------------------------------------------------------------------------------
Total expenses 5,051,250
982,362 149,219 6,182,831
-------------------------------------------------------------------------------
NET INVESTMENT INCOME 21,684,602
7,080,865 (149,219) 28,616,248
-------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) from:
Investments (21,536,493)
(5,105,354) (26,641,847)
Closing of futures contracts (691,062)
(37,554) (728,616)
Closing and expiration of options written
- - -
Foreign currency transactions
- - -
-------------------------------------------------------------------------------
Net realized loss (22,227,555)
(5,142,908) - (27,370,463)
-------------------------------------------------------------------------------
Net change in unrealized appreciation or depreciation on:
Investments (24,929,616)
(7,803,951) (32,733,567)
Translation of assets and liabilities denominated
in foreign currencies
- - -
-------------------------------------------------------------------------------
Net change (24,929,616)
(7,803,951) (32,733,567)
-------------------------------------------------------------------------------
Net realized and unrealized loss (47,157,171)
(12,946,859) - (60,104,030)
-------------------------------------------------------------------------------
NET DECREASE IN NET ASSETS
RESULTING FROM OPERATIONS $ (25,472,569) $
(5,865,994) $ (149,219) $ (31,487,782)
===============================================================================
</TABLE>
(1) Calculated in accordance with the investment advisory agreement of
Oppenheimer California Municipal Fund (0.60% on the first $200 million of
average annual 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 the average annual net assets over $1 billion). This assumes that
the management fee structure had been in place for the entire period. (2)
Calculated in accordance with the service plan and agreement under 12b-1 of the
Investment Company Act adopted by Oppenheimer California Municipal Fund for its
Class A shares. Under the plan, payment is made quarterly at an annual rate that
may not exceed 0.25% of average annual net assets of Class A shares. This
assumes that the service plan fee had been in place for the entire period. (3)
Reflects elimination of duplicate printing fee.
(4) Reflects elimination of fees accrued fiscal year to date, pursuant to Rule
24f-2 under the Investment Company Act of 1940. (5) Reflects elimination of
duplicate legal and auditing fees.
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
PRO FORMA COMBINING STATEMENT OF INVESTMENTS March
31, 2000 (Unaudited)
Oppenheimer California Municipal Fund and Oppenheimer Main Street California
Municipal Fund
PRINCIPAL
AMOUNT MARKET VALUE
-------------------------------------------
----------------------------------------
Oppenheimer Oppenheimer Oppenheimer
RATINGS: Oppenheimer Main
Street California Main Street
MOODY'S/ California California Pro
Forma Municipal California Pro Forma
S&P/FITCH Municipal Fund Municipal Fund
Combined Fund Municipal Fund Combined
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
<C> <C> <C> <C>
MUNICIPAL BONDS AND
NOTES - 99.9%
------------------------------------------------------------------------------------------------------------------------------------
CALIFORNIA - 93.9%
------------------------------------------------------------------------------------------------------------------------------------
Alhambra, CA COP, Police
Facilities Assessment
District No. 91-1, AMBAC
Insured, 6.75%, 9/1/23 Aaa /AAA /AAA $ 5,000,000 $ -- $
5,000,000 $ 5,220,450 $ -- $ 5,220,450
------------------------------------------------------------------------------------------------------------------------------------
Anaheim, CA PFAU TXAL RB,
MBIA Insured, Inverse
Floater, 8.97%, 12/28/18(1) Aaa /AAA 3,000,000 1,000,000
4,000,000 3,412,500 1,137,500 4,550,000
------------------------------------------------------------------------------------------------------------------------------------
Berkeley, CA HF RRB, Alta
Bates Medical Center,
Prerefunded, Series A,
6.50%, 12/1/11 A2 /NR 4,270,000 1,425,000
5,695,000 4,493,364 1,499,542 5,992,906
------------------------------------------------------------------------------------------------------------------------------------
CA Assn. of Bay Area
Governments FAU for
Non-profit Corps.
Refunding COP, American
Baptist Homes, Series A,
6.20%, 10/1/27 NR /BBB 6,000,000 1,790,000
7,790,000 5,380,860 1,605,290 6,986,150
------------------------------------------------------------------------------------------------------------------------------------
CA Assn. of Bay Area
Governments FAU for
Non-profit Corps.
Refunding COP, Rhonda
Haas Goldman Plaza,
5.125%, 5/15/23 NR /AA- 2,300,000 700,000
3,000,000 2,077,820 632,380 2,710,200
------------------------------------------------------------------------------------------------------------------------------------
CA CDAU Lease RB, United
Airlines, Series A, 5.70%,
10/1/33 Baa3/BB+ 9,185,000 3,200,000
12,385,000 8,097,037 2,820,960 10,917,997
------------------------------------------------------------------------------------------------------------------------------------
CA CDAU MH RB, Village
Riviera Hills, Series E,
5.45%, 2/1/25 NR /AAA -- 1,000,000
1,000,000 -- 979,890 979,890
------------------------------------------------------------------------------------------------------------------------------------
CA Educational FA RRB,
Los Angeles College
Chiropractic, 5.60%,
11/1/17 Baa2/NR 1,000,000 --
1,000,000 931,280 -- 931,280
------------------------------------------------------------------------------------------------------------------------------------
CA Foothill/Eastern
Corridor Agency Toll Road
CAP RB, Sr. Lien, Series
A, Zero Coupon, 6.12%,
1/1/23(2) Baa3/BBB-/AAA 10,000,000 --
10,000,000 2,672,600 -- 2,672,600
------------------------------------------------------------------------------------------------------------------------------------
CA Foothill/Eastern
Corridor Agency Toll Road
RB, Sr. Lien, Prerefunded,
Series A, 6.50%, 1/1/32 Aaa /AAA /BBB 4,600,000 1,400,000
6,000,000 5,086,358 1,548,022 6,634,380
------------------------------------------------------------------------------------------------------------------------------------
CA Foothill/Eastern
Corridor Agency Toll Road
RRB, Zero Coupon, 5.98%,
1/15/21(2) Baa3/BBB-/BBB 7,500,000 5,000,000
12,500,000 2,030,475 1,353,650 3,384,125
------------------------------------------------------------------------------------------------------------------------------------
CA Foothill/Eastern
Corridor Agency Toll Road
RRB, Zero Coupon, 6%,
1/15/22(2) Baa3/BBB-/BBB 7,500,000 5,500,000
13,000,000 1,894,800 1,389,520 3,284,320
------------------------------------------------------------------------------------------------------------------------------------
CA GOUN, 5.75%, 3/1/30 Aa3 /AA- /AA 12,150,000 2,000,000
14,150,000 12,183,534 2,005,520 14,189,054
------------------------------------------------------------------------------------------------------------------------------------
CA HFA RB, Series A,
7.35%, 8/1/11 Aa2 /AA- 75,000 --
75,000 77,852 -- 77,852
------------------------------------------------------------------------------------------------------------------------------------
CA HFA RB, Series C,
7.60%, 8/1/30 Aa2 /AA- 650,000 --
650,000 655,811 -- 655,811
------------------------------------------------------------------------------------------------------------------------------------
CA HFA RB, Series E-1,
6.45%, 2/1/12 Aa2 /AA- 750,000 --
750,000 764,407 -- 764,407
------------------------------------------------------------------------------------------------------------------------------------
CA HFA SFM Purchase RB,
Series A-2, 6.45%, 8/1/25 Aaa /AAA -- 2,095,000
2,095,000 -- 2,125,713 2,125,713
------------------------------------------------------------------------------------------------------------------------------------
CA HFA SFM RB, Series 83,
Inverse Floater, 9.085%,
8/1/25(1) Aa2 /A-1 3,245,000 --
3,245,000 3,340,143 -- 3,340,143
------------------------------------------------------------------------------------------------------------------------------------
CA HFA SFM RB, Series C,
6.75%, 2/1/25 Aa2 /AA- 9,555,000 4,770,000
14,325,000 9,735,685 4,860,201 14,595,886
------------------------------------------------------------------------------------------------------------------------------------
CA HFFAU RB, Los Angeles
Children's Hospital,
Prerefunded, Series A,
7.125%, 6/1/21 Aaa /NR 1,000,000 --
1,000,000 1,053,650 -- 1,053,650
------------------------------------------------------------------------------------------------------------------------------------
<PAGE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
PRO FORMA COMBINING STATEMENT OF INVESTMENTS March
31, 2000 (Unaudited)
Oppenheimer California Municipal Fund and Oppenheimer Main Street California
Municipal Fund
PRINCIPAL
AMOUNT MARKET VALUE
-------------------------------------------
----------------------------------------
Oppenheimer Oppenheimer Oppenheimer
RATINGS: Oppenheimer Main
Street California Main Street
MOODY'S/ California California Pro
Forma Municipal California Pro Forma
S&P/FITCH Municipal Fund Municipal Fund
Combined Fund Municipal Fund Combined
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
<C> <C> <C> <C>
CA Infrastructure & ED
Bank RB, American Center
for Wine, Food & Arts,
5.75%, 12/1/24 NR /A /A 5,000,000 --
5,000,000 4,732,150 -- 4,732,150
------------------------------------------------------------------------------------------------------------------------------------
CA Infrastructure & ED
Bank RB, American Center
for Wine, Food & Arts,
5.55%, 12/1/12 NR /A /A -- 1,710,000
1,710,000 -- 1,714,959 1,714,959
------------------------------------------------------------------------------------------------------------------------------------
CA PCFAU SWD RRB, North
Cnty. Recycling Center,
Escrowed to Maturity,
Series A, 6.75%, 7/1/11 Aaa /NR 500,000 --
500,000 530,800 -- 530,800
------------------------------------------------------------------------------------------------------------------------------------
CA PCFAU RB, Pacific Gas &
Electric Co. Project,
Series B, 6.35%, 6/1/09 A1 /AA- -- 2,000,000
2,000,000 -- 2,108,720 2,108,720
------------------------------------------------------------------------------------------------------------------------------------
CA PWBL RB, State Prison
Department of Corrections,
Series E, FSA Insured,
5.50%, 6/1/15 Aaa /AAA /AAA 3,000,000 2,000,000
5,000,000 3,082,260 2,054,840 5,137,100
------------------------------------------------------------------------------------------------------------------------------------
CA PWBL RRB, Various
University of CA Projects,
Series A, 5.50%, 6/1/14 Aa3 /A+ /A+ 1,500,000 --
1,500,000 1,552,980 -- 1,552,980
------------------------------------------------------------------------------------------------------------------------------------
CA Rural Home Mtg. FAU SFM
RB, Mtg.-Backed Securities
Program, Series B, 7.75%,
9/1/26 NR /AAA -- 845,000
845,000 -- 898,362 898,362
------------------------------------------------------------------------------------------------------------------------------------
CA Rural Home Mtg. FAU SFM
RB, Mtg.-Backed Securities
Program, Series D, Cl. 5,
6.70%, 5/1/29 NR /AAA -- 1,890,000
1,890,000 -- 2,044,696 2,044,696
------------------------------------------------------------------------------------------------------------------------------------
CA SCDAU COP, 7.25%,
11/1/29 NR /NR 5,000,000 2,000,000
7,000,000 4,931,850 1,972,740 6,904,590
------------------------------------------------------------------------------------------------------------------------------------
CA SCDAU COP, Winward
Schools, 7.25%, 11/1/29 NR /NR 1,500,000 500,000
2,000,000 1,504,140 501,380 2,005,520
------------------------------------------------------------------------------------------------------------------------------------
CA SCDAU Revenue Refunding
COP, Inverse Floater,
7.068%, 11/1/15(1) A1 /NR 6,600,000 1,200,000
7,800,000 6,509,250 1,183,500 7,692,750
------------------------------------------------------------------------------------------------------------------------------------
Campbell, CA RA TXAL RB,
Central Campbell
Redevelopment Project,
Series B, 6.60%, 10/1/32 Baa3/BBB- 1,255,000 1,100,000
2,355,000 1,267,487 1,110,945 2,378,432
------------------------------------------------------------------------------------------------------------------------------------
Campbell, CA Refunding
COP, Civic Center Project,
Unrefunded Balance, 6.75%,
10/1/17 A2 /NR 1,130,000 --
1,130,000 1,193,303 -- 1,193,303
------------------------------------------------------------------------------------------------------------------------------------
Capistrano, CA USD CFD SPTX Bonds, Ladera No.
98-2, 5.70%, 9/1/20 NR /NR 4,000,000 --
4,000,000 3,577,360 -- 3,577,360
------------------------------------------------------------------------------------------------------------------------------------
Capistrano, CA USD CFD
SPTX Bonds, Prerefunded,
No. 92-1, 7.10%, 9/1/21 NR /NR 3,250,000 --
3,250,000 3,723,330 -- 3,723,330
------------------------------------------------------------------------------------------------------------------------------------
Cerritos, CA PFAU RB, Los
Coyotes Redevelopment
Project, 6.50%, 11/1/23 Aaa /AAA /AAA 3,000,000 --
3,000,000 3,336,150 -- 3,336,150
------------------------------------------------------------------------------------------------------------------------------------
Chino Basin, CA Regional
FAU RB, Inland Empire
Utility Agency Sewer
Project, MBIA Insured,
5.75%, 11/1/19 Aaa /AAA 1,000,000 --
1,000,000 1,016,990 -- 1,016,990
------------------------------------------------------------------------------------------------------------------------------------
Chino Basin, CA Regional
FAU RB, Inland Empire
Utility Agency Sewer
Project, MBIA Insured,
5.75%, 11/1/22 Aaa /AAA 500,000 --
500,000 503,715 -- 503,715
------------------------------------------------------------------------------------------------------------------------------------
Clovis, CA USD CAP GOB,
Series D, FGIC Insured,
Zero Coupon, 5.60%, 8/1/10(2) Aaa /AAA 2,000,000 --
2,000,000 1,190,380 -- 1,190,380
------------------------------------------------------------------------------------------------------------------------------------
Colton, CA PFAU TXAL RRB,
Redevelopment Projects,
Series B, 5.875%, 8/1/27 NR /NR 3,700,000 --
3,700,000 3,390,384 -- 3,390,384
------------------------------------------------------------------------------------------------------------------------------------
Commerce, CA Community
Development Commission
TXAL Refunding Bonds,
Redevelopment Project
No. 1, Sub. Lien, Series
B, 5.75%, 8/1/10 NR /NR 815,000 --
815,000 818,138 -- 818,138
------------------------------------------------------------------------------------------------------------------------------------
Commerce, CA Community
Development Commission
TXAL Refunding Bonds,
Redevelopment Project
No. 1, Sub. Lien, Series
B, 6%, 8/1/21 NR /NR 2,800,000 --
2,800,000 2,628,612 -- 2,628,612
------------------------------------------------------------------------------------------------------------------------------------
Commerce, CA Joint Powers
FAU Lease RB, Community
Center, Series A, 6.25%,
10/1/22 Baa2/NR 1,410,000 --
1,410,000 1,397,395 -- 1,397,395
------------------------------------------------------------------------------------------------------------------------------------
<PAGE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
PRO FORMA COMBINING STATEMENT OF INVESTMENTS March
31, 2000 (Unaudited)
Oppenheimer California Municipal Fund and Oppenheimer Main Street California
Municipal Fund
PRINCIPAL
AMOUNT MARKET VALUE
-------------------------------------------
----------------------------------------
Oppenheimer Oppenheimer Oppenheimer
RATINGS: Oppenheimer Main
Street California Main Street
MOODY'S/ California California Pro
Forma Municipal California Pro Forma
S&P/FITCH Municipal Fund Municipal Fund
Combined Fund Municipal Fund Combined
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
<C> <C> <C> <C>
Compton, CA Refunding COP,
Civic Center & Capital
Improvements, Series A,
5.50%, 9/1/15 NR /BBB 3,000,000 --
3,000,000 2,786,220 -- 2,786,220
------------------------------------------------------------------------------------------------------------------------------------
Contra Costa Cnty., CA
SPTX RRB, CFD No. 91-1,
5.58%, 8/1/16 NR /NR -- 3,075,000
3,075,000 -- 2,823,865 2,823,865
------------------------------------------------------------------------------------------------------------------------------------
Corona, CA SFM RB, Sub.
Lien, Series B, 6.30%,
11/1/28 A2 /NR -- 800,000
800,000 -- 804,680 804,680
------------------------------------------------------------------------------------------------------------------------------------
Davis, CA Public
Facilities FAU Local
Agency RRB, Mace Ranch
Area, Series A, 6.60%,
9/1/25 NR /NR 3,445,000 --
3,445,000 3,475,729 -- 3,475,729
------------------------------------------------------------------------------------------------------------------------------------
Duarte, CA COP, City of
Hope National Medical
Center, 6.25%, 4/1/23 Baa1/AAA 4,500,000 --
4,500,000 4,808,610 -- 4,808,610
------------------------------------------------------------------------------------------------------------------------------------
East Palo Alto, CA RA TXAL
RB, 6.625%, 10/1/29 NR /NR 2,430,000 850,000
3,280,000 2,455,904 859,061 3,314,965
------------------------------------------------------------------------------------------------------------------------------------
Escondido, CA Union High SDI CAP GOB, MBIA Insured, Zero Coupon, 6.20%,
11/1/18(2) Aaa /AAA 6,000,000 --
6,000,000 2,113,260 -- 2,113,260
------------------------------------------------------------------------------------------------------------------------------------
Escondido, CA Union High SDI CAP GOB, MBIA Insured, Zero Coupon, 6.20%,
11/1/19(2) Aaa /AAA 2,000,000 2,000,000
4,000,000 660,900 660,900 1,321,800
------------------------------------------------------------------------------------------------------------------------------------
Folsom, CA SPTX Bonds, CFD
No. 10, 6.875%, 9/1/19 NR /NR 6,500,000 2,000,000
8,500,000 6,604,845 2,032,260 8,637,105
------------------------------------------------------------------------------------------------------------------------------------
Fontana, CA RA TXAL GORB,
Jurupa Hills Redevelopment
Project, Prerefunded,
Series A, 7.10%, 10/1/23 NR /BBB+ -- 1,960,000
1,960,000 -- 2,119,152 2,119,152
------------------------------------------------------------------------------------------------------------------------------------
Fresno, CA USD GORB,
Series A, MBIA Insured,
6.55%, 8/1/20 Aaa /AAA /AAA -- 1,225,000
1,225,000 -- 1,369,599 1,369,599
------------------------------------------------------------------------------------------------------------------------------------
Fresno, CA USD GOUN,
Series A, MBIA Insured,
6.40%, 8/1/16 Aaa /AAA /AAA -- 1,000,000
1,000,000 -- 1,117,420 1,117,420
------------------------------------------------------------------------------------------------------------------------------------
Glendale, CA EU RB, MBIA
Insured, 5.90%, 2/1/25 Aaa /AAA /AAA 2,455,000 5,000,000
7,455,000 2,500,221 5,092,100 7,592,321
------------------------------------------------------------------------------------------------------------------------------------
Golden West Schools FAU
CAP RRB, Series A, MBIA
Insured, Zero Coupon,
6.14%, 2/1/20(2) Aaa /AAA /AAA -- 2,480,000
2,480,000 -- 788,020 788,020
------------------------------------------------------------------------------------------------------------------------------------
Golden West Schools FAU
CAP RRB, Series A, MBIA
Insured, Zero Coupon,
6.14%, 8/1/20(2) Aaa /AAA /AAA -- 2,000,000
2,000,000 -- 617,400 617,400
------------------------------------------------------------------------------------------------------------------------------------
Huntington Park, CA PFAU
Lease RRB, Wastewater
System Project, Series A,
6.20%, 10/1/25 NR /NR 3,000,000 --
3,000,000 2,905,680 -- 2,905,680
------------------------------------------------------------------------------------------------------------------------------------
Industry, CA Improvement
Bond Act of 1915 SPAST
GOB, Prerefunded, District
No. 91-1, 7.65%, 9/2/21 NR /NR 1,750,000 --
1,750,000 1,902,442 -- 1,902,442
------------------------------------------------------------------------------------------------------------------------------------
Irvine, CA Improvement
Bond Act 1915 SPAST Bonds,
Assessment District No.
94-13, Group 2, 5.875%,
9/2/17 NR /NR -- 1,250,000
1,250,000 -- 1,193,587 1,193,587
------------------------------------------------------------------------------------------------------------------------------------
Laguna Salada, CA USD CAP GOB, Series B, FGIC Insured, Zero Coupon,
5.30%, 8/1/22(2) Aaa /AAA /AAA 3,035,000 --
3,035,000 825,611 -- 825,611
------------------------------------------------------------------------------------------------------------------------------------
Lake Elsinore, CA School
FAU SPTX RRB, Horsethief
Canyon, 5.625%, 9/1/16 NR /NR 4,760,000 --
4,760,000 4,305,325 -- 4,305,325
------------------------------------------------------------------------------------------------------------------------------------
Lake Elsinore, CA School
FAU RRB, Horsethief
Canyon, 5.35%, 9/1/10 NR /NR -- 2,000,000
2,000,000 -- 1,879,180 1,879,180
------------------------------------------------------------------------------------------------------------------------------------
Las Virgenes, CA USD CAP
Bonds, Series A, MBIA
Insured, Zero Coupon,
4.95%, 11/1/12(2) Aaa /AAA /AAA -- 2,095,000
2,095,000 -- 1,085,378 1,085,378
------------------------------------------------------------------------------------------------------------------------------------
Lincoln, CA Improvement
Bond Act 1915 PFAU RB,
6.20%, 9/2/25 NR /NR 3,970,000 1,490,000
5,460,000 3,787,975 1,421,683 5,209,658
------------------------------------------------------------------------------------------------------------------------------------
Long Beach, CA Harbor RRB,
Series A, FGIC Insured,
6%, 5/15/10 Aaa /AAA -- 500,000
500,000 -- 534,185 534,185
------------------------------------------------------------------------------------------------------------------------------------
Los Angeles Cnty., CA CAP
COP, Disney Parking
Project, Zero Coupon,
6.92%, 9/1/10(2) A3 /BBB+/A- 5,960,000 --
5,960,000 3,364,599 -- 3,364,599
------------------------------------------------------------------------------------------------------------------------------------
Los Angeles Cnty., CA CAP
COP, Disney Parking
Project, Zero Coupon,
6.95%, 9/1/11(2) A3 /BBB+/A- 2,900,000 --
2,900,000 1,541,089 -- 1,541,089
------------------------------------------------------------------------------------------------------------------------------------
<PAGE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
PRO FORMA COMBINING STATEMENT OF INVESTMENTS March
31, 2000 (Unaudited)
Oppenheimer California Municipal Fund and Oppenheimer Main Street California
Municipal Fund
PRINCIPAL
AMOUNT MARKET VALUE
-------------------------------------------
----------------------------------------
Oppenheimer Oppenheimer Oppenheimer
RATINGS: Oppenheimer Main
Street California Main Street
MOODY'S/ California California Pro
Forma Municipal California Pro Forma
S&P/FITCH Municipal Fund Municipal Fund
Combined Fund Municipal Fund Combined
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
<C> <C> <C> <C>
Los Angeles Cnty., CA CAP
COP, Disney Parking
Project, Zero Coupon,
7.03%, 9/1/13(2) A3 /BBB+/A- 4,500,000 --
4,500,000 2,088,270 -- 2,088,270
------------------------------------------------------------------------------------------------------------------------------------
Los Angeles Cnty., CA CAP
COP, Disney Parking
Project, Zero Coupon,
6.13%, 9/1/14(2) A3 /BBB+/A- 6,860,000 --
6,860,000 3,131,110 -- 3,131,110
------------------------------------------------------------------------------------------------------------------------------------
Los Angeles Cnty., CA COP,
Disney Parking Project,
Zero Coupon, 5.94%, 3/1/12(2) Aaa /AAA /AAA 1,100,000 --
1,100,000 588,731 -- 588,731
------------------------------------------------------------------------------------------------------------------------------------
Los Angeles Cnty., CA CAP
COP, Disney Parking
Project, Zero Coupon,
6.95%, 9/1/11(2) A3 /BBB+/A- -- 2,340,000
2,340,000 -- 1,243,499 1,243,499
------------------------------------------------------------------------------------------------------------------------------------
Los Angeles Cnty., CA MTAU
Sales Tax RRB, Series A,
FSA Insured, 5%, 7/1/14 Aaa /AAA /AAA -- 1,500,000
1,500,000 -- 1,464,780 1,464,780
------------------------------------------------------------------------------------------------------------------------------------
Los Angeles Cnty., CA MTAU
Sales Tax RRB, Series A,
MBIA Insured, 5.25%,
7/1/15 Aaa /AAA /AAA -- 2,000,000
2,000,000 -- 1,982,240 1,982,240
------------------------------------------------------------------------------------------------------------------------------------
Los Angeles Cnty., CA
Participation Certificates
RB, Zero Coupon, 6.30%,
9/1/16(2) Aaa /AAA /AAA -- 1,495,000
1,495,000 -- 597,537 597,537
------------------------------------------------------------------------------------------------------------------------------------
Los Angeles, CA Harbor
Department RB, Series B,
5.375%, 11/1/23 Aa3 /AA /AA 5,000,000 --
5,000,000 4,701,000 -- 4,701,000
------------------------------------------------------------------------------------------------------------------------------------
Los Angeles, CA USD GOB,
Series A, FGIC Insured,
6%, 7/1/15 Aaa /AAA /AAA -- 1,000,000
1,000,000 -- 1,080,680 1,080,680
------------------------------------------------------------------------------------------------------------------------------------
Los Angeles, CA Water &
Power Department RRB,
5.50%, 10/15/12 Aa3 /AAA /AAA -- 1,000,000
1,000,000 -- 1,034,860 1,034,860
------------------------------------------------------------------------------------------------------------------------------------
Modesto, CA Irrigation
District FAU RRB, Series
A, MBIA Insured, 6%,
10/1/15 Aaa /AAA 5,000,000 --
5,000,000 5,262,950 -- 5,262,950
------------------------------------------------------------------------------------------------------------------------------------
Mountain View Los Altos,
CA Union High SDI RB,
Series B, 6.50%, 5/1/17 Aa2 /AA 2,000,000 --
2,000,000 2,172,660 -- 2,172,660
------------------------------------------------------------------------------------------------------------------------------------
Norco, CA SPTX Bonds, CDD
No. 97-1, 7.10%, 10/1/00 NR /NR 1,000,000 320,000
1,320,000 1,014,810 324,739 1,339,549
------------------------------------------------------------------------------------------------------------------------------------
Oakland, CA RA TXAL
Refunding Bonds, MBIA
Insured, 5.95%, 9/1/19(3) Aaa /AAA 8,600,000 --
8,600,000 8,632,594 -- 8,632,594
------------------------------------------------------------------------------------------------------------------------------------
Orange Cnty., CA CFD No.
88-1 SPTX Bonds, Aliso
Viejo, Prerefunded, Series
A, 7.10%, 8/15/05 NR /AAA 1,440,000 --
1,440,000 1,555,027 -- 1,555,027
------------------------------------------------------------------------------------------------------------------------------------
Orange Cnty., CA CFD No.
88-1 SPTX Bonds, Aliso
Viejo, Prerefunded, Series
A, 7.35%, 8/15/18 NR /AAA 7,000,000 --
7,000,000 7,598,220 -- 7,598,220
------------------------------------------------------------------------------------------------------------------------------------
Orange Cnty., CA CFD No.
99-1 SPTX RB, Series A,
6.70%, 8/15/29 NR /NR 1,600,000 650,000
2,250,000 1,625,664 660,426 2,286,090
------------------------------------------------------------------------------------------------------------------------------------
Orange Cnty., CA
Improvement Bond Act of
1915 SPAST GOB, Assessment
No. 88-1, 6.25%, 9/2/18 NR /NR 2,130,000 --
2,130,000 2,114,920 -- 2,114,920
------------------------------------------------------------------------------------------------------------------------------------
Oxnard, CA USD GOUN,
Series E, FGIC Insured,
5.90%, 8/1/26 NR /AAA 2,540,000 --
2,540,000 2,583,205 -- 2,583,205
------------------------------------------------------------------------------------------------------------------------------------
Oxnard, CA USD GOUN,
Series E, FGIC Insured,
5.90%, 8/1/30 NR /AAA 2,180,000 --
2,180,000 2,213,659 -- 2,213,659
------------------------------------------------------------------------------------------------------------------------------------
Palmdale, CA Civic
Authority RRB, Merged
Redevelopment Project,
Prerefunded, Series A,
6.60%, 9/1/34 Aaa /AAA -- 595,000
595,000 -- 654,167 654,167
------------------------------------------------------------------------------------------------------------------------------------
Palmdale, CA Civic
Authority RRB, Merged
Redevelopment Project,
Unrefunded Balance, Series
A, 6.60%, 9/1/34 NR /A -- 405,000
405,000 -- 418,673 418,673
------------------------------------------------------------------------------------------------------------------------------------
Pittsburg, CA RA TXAL
Bonds, Los Medanos
Community Development
Project, AMBAC Insured,
5.80%, 8/1/17 Aaa /AAA 1,525,000 --
1,525,000 1,570,216 -- 1,570,216
------------------------------------------------------------------------------------------------------------------------------------
Pittsburg, CA RA TXAL
Bonds, Los Medanos
Community Development
Project, AMBAC Insured,
5.85%, 8/1/18 Aaa /AAA 1,615,000 --
1,615,000 1,661,787 -- 1,661,787
------------------------------------------------------------------------------------------------------------------------------------
Pittsburg, CA RA TXAL
Bonds, Los Medanos
Community Development
Project, AMBAC Insured,
Zero Coupon, 6.10%, 8/1/20(2) Aaa /AAA 5,150,000 --
5,150,000 1,580,380 -- 1,580,380
------------------------------------------------------------------------------------------------------------------------------------
<PAGE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
PRO FORMA COMBINING STATEMENT OF INVESTMENTS March
31, 2000 (Unaudited)
Oppenheimer California Municipal Fund and Oppenheimer Main Street California
Municipal Fund
PRINCIPAL
AMOUNT MARKET VALUE
-------------------------------------------
----------------------------------------
Oppenheimer Oppenheimer Oppenheimer
RATINGS: Oppenheimer Main
Street California Main Street
MOODY'S/ California California Pro
Forma Municipal California Pro Forma
S&P/FITCH Municipal Fund Municipal Fund
Combined Fund Municipal Fund Combined
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
<C> <C> <C> <C>
Pittsburg, CA RA TXAL Refunding Bonds, Los Medanos Community Development
Project, Sub.
Lien, 6.20%, 8/1/19 NR /BBB 2,500,000 1,000,000
3,500,000 2,460,775 984,310 3,445,085
------------------------------------------------------------------------------------------------------------------------------------
Pittsburgh, CA RA TXAL RB,
Los Medanos Community
Development Project, AMBAC
Insured, 5.75%, 8/1/16 Aaa /AAA -- 720,000
720,000 -- 742,637 742,637
------------------------------------------------------------------------------------------------------------------------------------
Placentia, CA PFAU SPTX
RB, Jr. Lien, Series B,
6.60%, 9/1/15 NR /NR 1,600,000 --
1,600,000 1,622,320 -- 1,622,320
------------------------------------------------------------------------------------------------------------------------------------
Pomona, CA SFM RRB,
Escrowed to Maturity,
Series A, 7.60%, 5/1/23 Aaa /AAA 4,500,000 2,500,000
7,000,000 5,467,905 3,037,725 8,505,630
------------------------------------------------------------------------------------------------------------------------------------
Pomona, CA SFM RRB,
Escrowed to Maturity,
Series B, 7.50%, 8/1/23 Aaa /AAA 500,000 --
500,000 601,845 -- 601,845
------------------------------------------------------------------------------------------------------------------------------------
Pomona, CA USD GORB,
Series A, MBIA Insured,
6.15%, 8/1/15 Aaa /AAA 2,000,000 500,000
2,500,000 2,178,920 544,730 2,723,650
------------------------------------------------------------------------------------------------------------------------------------
Pomona, CA USD Refunding
GOUN, Series A, MBIA
Insured, 6.45%, 8/1/22 Aaa /AAA -- 1,000,000
1,000,000 -- 1,113,900 1,113,900
------------------------------------------------------------------------------------------------------------------------------------
Port Oakland, CA POAU RB,
Series G, MBIA Insured,
5.375%, 11/1/25 Aaa /AAA /AAA 10,650,000 --
10,650,000 9,989,167 -- 9,989,167
------------------------------------------------------------------------------------------------------------------------------------
Port Oakland, CA RB,
Series K, FGIC Insured,
5.75%, 11/1/15 Aaa /AAA /AAA 2,615,000 2,385,000
5,000,000 2,682,232 2,446,318 5,128,550
------------------------------------------------------------------------------------------------------------------------------------
Port Oakland, CA RB,
Series K, FGIC Insured,
5.75%, 11/1/17 Aaa /AAA /AAA 5,000,000 --
5,000,000 5,125,850 -- 5,125,850
------------------------------------------------------------------------------------------------------------------------------------
Redding, CA Electric
System Revenue COP, FGIC
Insured, Inverse Floater,
7.028%, 6/1/19(1) Aaa /AAA /AAA 4,000,000 1,150,000
5,150,000 3,935,000 1,131,312 5,066,312
------------------------------------------------------------------------------------------------------------------------------------
Redding, CA Electric
System Revenue COP, MBIA
Insured, Inverse Floater,
8.548%, 7/8/22(1) Aaa /AAA 2,500,000 500,000
3,000,000 2,846,875 569,375 3,416,250
------------------------------------------------------------------------------------------------------------------------------------
Richmond, CA Improvement
Bond Act of 1915 GORB,
Reassessment District No.
855, 6.60%, 9/2/19 NR /NR 1,500,000 --
1,500,000 1,545,735 -- 1,545,735
------------------------------------------------------------------------------------------------------------------------------------
Richmond, CA Wastewater
RB, FGIC Insured, 5.80%,
8/1/16 Aaa /AAA 765,000
765,000 -- 793,580 793,580
------------------------------------------------------------------------------------------------------------------------------------
Richmond, CA Wastewater
RB, FGIC Insured, 5.80%,
8/1/18 Aaa /AAA 3,315,000 --
3,315,000 3,399,168 -- 3,399,168
------------------------------------------------------------------------------------------------------------------------------------
Riverside Cnty., CA CFD
No. 88-12 SPTX Bonds,
Prerefunded, 7.55%, 9/1/17 NR /NR 3,000,000 1,500,000
4,500,000 3,104,160 1,552,080 4,656,240
------------------------------------------------------------------------------------------------------------------------------------
Riverside Cnty., CA PFAU
Refunding COP, 5.75%,
5/15/19 NR /BBB- 2,100,000 --
2,100,000 1,913,856 -- 1,913,856
------------------------------------------------------------------------------------------------------------------------------------
Riverside Cnty., CA PFAU
TXAL RRB, Redevelopment
Projects, Series A,
5.625%, 10/1/33 Baa2/BBB- 6,600,000 1,650,000
8,250,000 5,757,972 1,439,493 7,197,465
------------------------------------------------------------------------------------------------------------------------------------
Riverside Cnty., CA
Refunding COP, Air Force
Village West, Inc.,
Prerefunded, Series A,
8.125%, 6/15/12 NR /NR 3,000,000 --
3,000,000 3,275,070 -- 3,275,070
------------------------------------------------------------------------------------------------------------------------------------
Riverside Cnty., CA
Refunding COP, Air Force
Village West, Inc., Series
A, 8.125%, 6/15/20 NR /NR 3,000,000 --
3,000,000 3,282,390 -- 3,282,390
------------------------------------------------------------------------------------------------------------------------------------
Riverside Cnty., CA SFM
RB, Escrowed to Maturity,
Series A, 7.80%, 5/1/21 Aaa /AAA 4,285,000 1,000,000
5,285,000 5,321,456 1,241,880 6,563,336
------------------------------------------------------------------------------------------------------------------------------------
Riverside, CA Water RRB,
5.375%, 10/1/12 NR /AA /AA -- 1,000,000
1,000,000 -- 1,027,470 1,027,470
------------------------------------------------------------------------------------------------------------------------------------
Roseville, CA SPTX RB,
Woodcreek West Community
Facility No. 1 Project,
5.875%, 9/1/08 NR /NR 1,235,000 --
1,235,000 1,237,359 -- 1,237,359
------------------------------------------------------------------------------------------------------------------------------------
Roseville, CA SPTX RB,
Woodcreek West Community
Facility No. 1 Project,
6.50%, 9/1/15 NR /NR -- 1,500,000
1,500,000 -- 1,519,800 1,519,800
------------------------------------------------------------------------------------------------------------------------------------
Roseville, CA SPTX RB,
Woodcreek West Community
Facility No. 1 Project,
6.70%, 9/1/25 NR /NR 1,750,000 --
1,750,000 1,766,957 -- 1,766,957
------------------------------------------------------------------------------------------------------------------------------------
Sacramento Cnty., CA SFM
RB, Escrowed to Maturity,
8%, 7/1/16 Aaa /AAA 10,000,000 2,810,000
12,810,000 12,568,500 3,531,749 16,100,249
------------------------------------------------------------------------------------------------------------------------------------
Sacramento, CA
Cogeneration Authority RB,
Procter & Gamble Project,
6.50%, 7/1/14 NR /BBB-/NR 5,000,000 --
5,000,000 5,505,850 -- 5,505,850
------------------------------------------------------------------------------------------------------------------------------------
<PAGE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
PRO FORMA COMBINING STATEMENT OF INVESTMENTS March
31, 2000 (Unaudited)
Oppenheimer California Municipal Fund and Oppenheimer Main Street California
Municipal Fund
PRINCIPAL
AMOUNT MARKET VALUE
-------------------------------------------
----------------------------------------
Oppenheimer Oppenheimer Oppenheimer
RATINGS: Oppenheimer Main
Street California Main Street
MOODY'S/ California California Pro
Forma Municipal California Pro Forma
S&P/FITCH Municipal Fund Municipal Fund
Combined Fund Municipal Fund Combined
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
<C> <C> <C> <C>
Sacramento, CA MUD
Electric RRB, FGIC
Insured, Inverse Floater,
8.894%, 8/15/18(1) Aaa /AAA /AAA 5,500,000 1,500,000
7,000,000 5,898,750 1,608,750 7,507,500
------------------------------------------------------------------------------------------------------------------------------------
Sacramento, CA PAU RB,
Cogeneration Project, 6%,
7/1/22 NR /BBB- 6,800,000 --
6,800,000 6,513,788 -- 6,513,788
------------------------------------------------------------------------------------------------------------------------------------
Sacramento, CA USD GOUN,
Series A, 5.875%, 7/1/21 Aa3 /NR /AA 1,070,000 430,000
1,500,000 1,093,765 439,550 1,533,315
------------------------------------------------------------------------------------------------------------------------------------
Sacramento, CA USD GOUN,
Series A, 5.875%, 7/1/23 Aa3 /NR /AA 715,000 285,000
1,000,000 728,485 290,375 1,018,860
------------------------------------------------------------------------------------------------------------------------------------
Salinas Valley, CA Solid
Waste Authority RB, 5.80%,
8/1/27 Baa3/BBB -- 1,665,000
1,665,000 -- 1,507,508 1,507,508
------------------------------------------------------------------------------------------------------------------------------------
San Bernardino Cnty., CA
COP, Medical Center
Financing Project, MBIA
Insured, 5.50%, 8/1/17 Aaa /AAA 5,250,000 --
5,250,000 5,340,825 -- 5,340,825
------------------------------------------------------------------------------------------------------------------------------------
San Diego Cnty., CA COP,
MBIA Insured, Inverse
Floater, 8.42%, 11/18/19(1) A1 /NR 2,000,000 --
2,000,000 2,112,500 -- 2,112,500
------------------------------------------------------------------------------------------------------------------------------------
San Diego Cnty., CA Water
Authority Revenue COP,
Prerefunded, Series 91-B,
MBIA Insured, Inverse
Floater, 8.42%, 4/8/21(1) Aaa /AAA 3,000,000 1,000,000
4,000,000 3,551,250 1,183,750 4,735,000
------------------------------------------------------------------------------------------------------------------------------------
San Francisco, CA Bay Area
Rapid Transit District
Sales Tax RB, 5.25%,
7/1/14 Aa3 /AA- /AA 1,500,000 --
1,500,000 1,500,465 -- 1,500,465
------------------------------------------------------------------------------------------------------------------------------------
San Francisco, CA Bay Area
Rapid Transit District
Sales Tax RRB, AMBAC
Insured, 6.75%, 7/1/11 Aaa /AAA /AAA -- 1,000,000
1,000,000 -- 1,158,910 1,158,910
------------------------------------------------------------------------------------------------------------------------------------
San Francisco, CA City &
Cnty. International
Airport Commission RB,
Second Series Issue 13-B,
MBIA Insured, 8%, 5/1/07 Aaa /AAA -- 1,140,000
1,140,000 -- 1,332,717 1,332,717
------------------------------------------------------------------------------------------------------------------------------------
San Francisco, CA City &
Cnty. International
Airport Commission RB,
Second Series Issue 14-A,
MBIA Insured, 8%, 5/1/07 Aaa /AAA -- 1,290,000
1,290,000 -- 1,508,075 1,508,075
------------------------------------------------------------------------------------------------------------------------------------
San Francisco, CA City &
Cnty. RA Lease RB, CAP,
George R. Moscone Project,
Zero Coupon, 5.36%, 7/1/10(2) A1 /A- /A+ -- 4,500,000
4,500,000 -- 2,607,570 2,607,570
------------------------------------------------------------------------------------------------------------------------------------
San Francisco, CA City &
Cnty. Redevelopment FAU
TXAL Refunding Bonds, CAP
Redevelopment Projects,
Series C, Zero Coupon,
5.79% 8/1/11(2) A2 /A /AAA 1,225,000 --
1,225,000 684,260 -- 684,260
------------------------------------------------------------------------------------------------------------------------------------
San Francisco, CA City &
Cnty. Redevelopment FAU
TXAL Refunding Bonds, CAP
Redevelopment Projects,
Series C, Zero Coupon,
5.89% 8/1/12(2) A2 /A /AAA 1,750,000 --
1,750,000 917,472 -- 917,472
------------------------------------------------------------------------------------------------------------------------------------
San Francisco, CA City &
Cnty. Redevelopment FAU
TXAL Refunding Bonds, CAP
Redevelopment Projects,
Series C, Zero Coupon,
5.81% 8/1/14(2) A2 /A /AAA 1,525,000 --
1,525,000 700,204 -- 700,204
------------------------------------------------------------------------------------------------------------------------------------
San Francisco, CA City &
Cnty. Redevelopment FAU
TXAL Refunding Bonds,
Series C, Zero Coupon,
5.69%, 8/1/10(2) A2 /A /AAA 750,000 --
750,000 443,250 -- 443,250
------------------------------------------------------------------------------------------------------------------------------------
San Francisco, CA City &
Cnty. Redevelopment FAU
TXAL CAP Refunding Bonds,
Redevelopment Projects,
Series C, Zero Coupon,
5.99% 8/1/13(2) A2 /A /AAA -- 750,000
750,000 -- 368,805 368,805
------------------------------------------------------------------------------------------------------------------------------------
San Joaquin Hills, CA
Transportation Corridor
Agency Toll Road CAP RRB,
Series A, MBIA Insured,
Zero Coupon, 5.73%,
1/15/25(2) Aaa /AAA /AAA 18,250,000 --
18,250,000 4,261,193 -- 4,261,193
------------------------------------------------------------------------------------------------------------------------------------
San Joaquin Hills, CA
Transportation Corridor
Agency Toll Road CAP RRB,
Series A, MBIA Insured,
Zero Coupon, 5.90%,
1/15/26(2) Aaa /AAA /AAA 15,000,000 --
15,000,000 3,294,450 -- 3,294,450
------------------------------------------------------------------------------------------------------------------------------------
San Joaquin Hills, CA
Transportation Corridor
Agency Toll Road RB, Sr.
Lien, 5%, 1/1/33 Baa3/BBB-/BBB 8,000,000 --
8,000,000 6,733,600 -- 6,733,600
------------------------------------------------------------------------------------------------------------------------------------
<PAGE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
PRO FORMA COMBINING STATEMENT OF INVESTMENTS March
31, 2000 (Unaudited)
Oppenheimer California Municipal Fund and Oppenheimer Main Street California
Municipal Fund
PRINCIPAL
AMOUNT MARKET VALUE
-------------------------------------------
----------------------------------------
Oppenheimer Oppenheimer Oppenheimer
RATINGS: Oppenheimer Main
Street California Main Street
MOODY'S/ California California Pro
Forma Municipal California Pro Forma
S&P/FITCH Municipal Fund Municipal Fund
Combined Fund Municipal Fund Combined
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
<C> <C> <C> <C>
San Joaquin Hills, CA
Transportation Corridor
Agency Toll Road RB, Sr.
Lien, Prerefunded, 6.75%,
1/1/32 Aaa /AAA /AAA 7,000,000 3,500,000
10,500,000 7,546,210 3,773,105 11,319,315
------------------------------------------------------------------------------------------------------------------------------------
San Joaquin Hills, CA
Transportation Corridor
Agency Toll Road RB, Sr.
Lien, Zero Coupon, 6.20%,
1/1/23(2) Aaa /AAA /AAA 5,250,000 --
5,250,000 1,403,115 -- 1,403,115
------------------------------------------------------------------------------------------------------------------------------------
Santa Ana, CA FAU RRB,
Inner-City Commuter,
Series C, 5.60%, 9/1/19 NR /BBB 3,060,000 --
3,060,000 2,774,441 -- 2,774,441
------------------------------------------------------------------------------------------------------------------------------------
Santa Ana, CA FAU RRB,
Mainplace Project, Series
D, 5.50%, 9/1/15 NR /NR 1,000,000 --
1,000,000 917,600 -- 917,600
------------------------------------------------------------------------------------------------------------------------------------
Santa Ana, CA FAU RRB,
Mainplace Project, Series
D, 5.60%, 9/1/19 NR /NR 1,000,000 --
1,000,000 917,020 -- 917,020
------------------------------------------------------------------------------------------------------------------------------------
Santa Cruz, CA City High
SDI GOUN, Series B, FGIC
Insured, 6%, 8/1/29 Aaa /AAA 1,000,000 --
1,000,000 1,032,720 -- 1,032,720
------------------------------------------------------------------------------------------------------------------------------------
South Orange Cnty., CA
PFAU SPTX RB, Foothill
Area, Series C, FGIC
Insured, 8%, 8/15/08 Aaa /AAA /AAA -- 1,500,000
1,500,000 -- 1,820,100 1,820,100
------------------------------------------------------------------------------------------------------------------------------------
Southern CA Home FAU SFM
RB, Series A, 7.35%,
9/1/24 NR /AAA 965,000 145,000
1,110,000 991,287 148,950 1,140,237
------------------------------------------------------------------------------------------------------------------------------------
Southern CA Metropolitan
Water District RRB,
Inverse Floater, 6.557%,
10/30/20(1) Aa2 /AA 3,300,000 1,200,000
4,500,000 3,147,375 1,144,500 4,291,875
------------------------------------------------------------------------------------------------------------------------------------
Southern CA PPAU
Transmission Project RB,
Inverse Floater, 7.255%,
7/1/12(1) Aa3 /A+ 1,900,000 2,100,000
4,000,000 2,011,625 2,223,375 4,235,000
------------------------------------------------------------------------------------------------------------------------------------
Stockton, CA CFD No. 90-2
SPTX RRB, Brookside
Estates, 6.20%, 8/1/15 NR /NR 1,750,000 --
1,750,000 1,755,845 -- 1,755,845
------------------------------------------------------------------------------------------------------------------------------------
Tustin, CA USD CFD No.
88-1 SPTX RB, Prerefunded,
Series B, 6.375%, 9/1/21 NR /NR 3,500,000 --
3,500,000 3,888,745 -- 3,888,745
------------------------------------------------------------------------------------------------------------------------------------
University of CA Regents
RB, Multiple Purpose
Projects, Prerefunded,
Series A, 6.875%, 9/1/16 Aa3 /AAA 1,950,000 --
1,950,000 2,097,869 -- 2,097,869
------------------------------------------------------------------------------------------------------------------------------------
West Covina, CA COP, Queen
of the Valley Hospital,
Prerefunded, 6.50%,
8/15/19 A2 /NR -- 1,120,000
1,120,000 -- 1,227,542 1,227,542
------------------------------------------------------------------------------------------------------------------------------------
West Sacremento, CA
Improvement Bond Act of
1915 SPAST Refunding
Bonds, 5.60%, 9/2/17 NR /NR 2,000,000 --
2,000,000 1,823,740 -- 1,823,740
----------- -------------- -----------
369,800,124 113,428,342 483,228,466
</TABLE>
<TABLE>
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
<C> <C> <C> <C>
U.S. POSSESSIONS - 6.0%
-----------------------------------------------------------------------------------------------------------------------------------
Guam PAU RB, Series A,
6.625%, 10/1/14 NR /AAA 2,000,000 --
2,000,000 2,189,120 -- 2,189,120
-----------------------------------------------------------------------------------------------------------------------------------
PR CMWLTH GORB, MBIA
Insured, Inverse Floater,
7.882%, 7/1/08(1) Aaa /AAA 3,500,000 1,500,000
5,000,000 3,688,125 1,580,625 5,268,750
-----------------------------------------------------------------------------------------------------------------------------------
PR CMWLTH HTAU RB, Inverse
Floater, 5.857%, 7/1/28(1)(4) NR /NR -- 5,000,000
5,000,000 -- 3,968,000 3,968,000
-----------------------------------------------------------------------------------------------------------------------------------
PR EPAU RB, Prerefunded,
Series P, 7%, 7/1/21 Aaa /AAA 4,000,000 --
4,000,000 4,212,360 -- 4,212,360
-----------------------------------------------------------------------------------------------------------------------------------
PR HFA SFM RB, Affordable
Housing Mtg. Portfolio I,
6.25%, 4/1/29 Aaa /AAA 2,375,000 --
2,375,000 2,386,875 -- 2,386,875
-----------------------------------------------------------------------------------------------------------------------------------
PR Housing Finance Corp.
SFM RB, Portfolio 1,
Series B, 7.65%, 10/15/22 Aaa /AAA 145,000 65,000
210,000 148,822 66,713 215,535
-----------------------------------------------------------------------------------------------------------------------------------
PR Industrial, Medical &
Environmental PC
Facilities Tourist RB,
Mennonite General Hospital
Project, Series A, 6.50%,
7/1/12 NR /BBB-/BBB 2,350,000 590,000
2,940,000 2,264,343 568,495 2,832,838
-----------------------------------------------------------------------------------------------------------------------------------
PR Public Buildings
Authority RB, Government
Facilities, Series B,
AMBAC Insured, 5%, 7/1/27 Aaa /AAA -- 300,000
300,000 -- 270,066 270,066
-----------------------------------------------------------------------------------------------------------------------------------
Virgin Islands PFAU RB,
Series A, 6.375%, 10/1/19 NR /BBB- 3,000,000 1,515,000
4,515,000 3,021,870 1,526,044 4,547,914
-----------------------------------------------------------------------------------------------------------------------------------
<PAGE>
Virgin Islands PFAU RB,
Sub. Lien, Series E, 6%,
10/1/22 NR /NR 3,350,000 1,800,000
5,150,000 3,095,869 1,663,452 4,759,321
------------ ------------ ------------
21,007,384 9,643,395 30,650,779
------------ ------------ ------------
Total Municipal Bonds and
Notes (Cost $384,444,745,
$122,908,124, Combined
$507,352,869)
390,807,508 123,071,737 513,879,245
-----------------------------------------------------------------------------------------------------------------------------------
SHORT-TERM TAX-EXEMPT
OBLIGATIONS - 0.9%
-----------------------------------------------------------------------------------------------------------------------------------
Orange Cnty., CA
Sanitation District COP, Series C, FGIC Insured, 3.45%, 4/1/00 (Cost $2,600,000,
$2,000,000,
Combined $4,600,030)(3) 2,600,000 2,000,000
4,600,000 2,600,000 2,000,000 4,600,000
-----------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS, AT
VALUE (COST $387,044,745,
$124,908,124, COMBINED
$511,952,869) 99.6% 89.8%
100.8% 393,407,508 125,071,737 518,479,245
-----------------------------------------------------------------------------------------------------------------------------------
OTHER ASSETS NET OF LIABILITIES 0.4 10.2
(0.8) (2,347,068) (1,731,164) (3,960,746)
---------- ------------
----------- ------------ ------------ ------------
NET ASSETS 100.0% 100.0%
100.0% $391,060,440 $123,340,573 $514,518,499
========== ============
=========== ============ ============ ============
</TABLE>
To simplify the listings of securities, abbreviations are used per the table
below:
<TABLE>
<S> <C>
CAP - Capital Appreciation MUD - Municipal Utility District
CDAU - Communities Development Authority PAU - Power Authority
CDD - Community Development District PC - Pollution Control
CFD - Community Facilities District PCFAU - Pollution Control Finance
Authority
CMWLTH - Commonwealth PFAU - Public Finance Authority
COP - Certificates of Participation POAU - Port Authority
ED - Economic Development PPAU - Public Power Authority
EU - Electric Utilities PWBL - Public Works Board Lease
FA - Facilities Authority RA - Redevelopment Agency
FAU - Finance Authority RB - Revenue Bonds
GOB - General Obligation Bonds RRB - Revenue Refunding Bonds
GORB - General Obligation Refunding Bonds SCDAU - Statewide Communities
Development Authority
GOUN - General Obligation Unlimited Nts. SDI - School District
HF - Health Facilities SFM - Single Family Mtg.
HFA - Housing Finance Agency SPAST - Special Assessment
HFFAU - Health Facilities Finance Authority SPTX - Special Tax
HTAU - Highway & Transportation Authority SWD - Solid Waste Disposal
MH - Multifamily Housing TXAL - Tax Allocation
MTAU - Metropolitan Transportation Authority USD - Unified School District
</TABLE>
1. Represents the current interest rate for a variable rate bond known as an
"inverse floater" which pays interest at a rate that varies inversely with
short-term interest rates. As interest rates rise, inverse floaters produce less
current income. Their price may be more volatile than the price of a comparable
fixed-rate security. Inverse floaters amount to $40,453,393 or 7.86%,
$15,730,687 or 3.06% (Combined $56,184,080 or 10.92%) of the Fund's net assets
as of March 31, 2000.
<PAGE>
2. For zero coupon bonds, the interest rate shown is the effective yield on the
date of purchase.
3. Represents the current interest rate for a variable or increasing rate
security.
4. Represents securities sold under Rule 144A, which are exempt from
registration under the Securities Act of 1933, as amended. These securities have
been determined to be liquid under guidelines established by the Board of
Trustees/ Directors. These securities amount to $0 or 0.00%, $3,968,000 or 0.77%
(Combined $3,968,000 or 0.77%) of the Fund's net assets as of March 31, 2000.
<PAGE>
[PHOTO]
Semiannual Report February 29, 2000
Oppenheimer
MAIN STREET(R)
CALIFORNIA MUNICIPAL FUND
[OPPENHEIMERFUNDS LOGO]
The Right Way to Invest
<PAGE>
CONTENTS
1 President's Letter
3 An Interview
with Your Fund's
Manager
8 Financial
Statements
25 Officers and Directors
REPORT HIGHLIGHTS
--------------------------------------------------------------------------------
RISING INTEREST RATES HURT THE PERFORMANCE OF MUNICIPAL BONDS throughout the
reporting period.
AS OF FEBRUARY 29, 2000, LONG-TERM CALIFORNIA MUNICIPAL BONDS PROVIDED OVER 90%
OF THE YIELD AVAILABLE FROM COMPARABLE U.S. TREASURIES--making them attractive
values on an after-tax basis.
------------------------
CUMULATIVE TOTAL RETURNS
For the 6-Month Period
Ended 2/29/00*
<TABLE>
<CAPTION>
------------------------
Class A
Without With
Sales Chg. Sales Chg.
------------------------
<S> <C>
-1.99% -6.65%
</TABLE>
<TABLE>
<CAPTION>
Class B
Without With
Sales Chg. Sales Chg.
------------------------
<S> <C>
-2.56% -7.33%
------------------------
</TABLE>
NOT FDIC INSURED.
NO BANK GUARANTEE.
MAY LOSE VALUE.
* See page 7 for further details.
<PAGE>
[PHOTO]
JAMES C. SWAIN
Chairman
Oppenheimer
Main Street(R) California
Municipal Fund
BRIDGET A. MACASKILL
President
Oppenheimer
Main Street(R) California
Municipal Fund
PRESIDENT'S LETTER
--------------------------------------------------------------------------------
DEAR SHAREHOLDER,
For many years, we have encouraged investors to consider whether they could
tolerate more risk in their long-term investments by participating in the stock
market, which has historically provided higher long-term returns than any other
asset class. Today, however, we have a very different concern: some investors
may be assuming too much risk by concentrating their investments in just a
handful of stocks or sectors or by "chasing performance."
Alan Greenspan, the Chairman of the Federal Reserve Board, has stated his
view that the recent spectacular returns of some sectors of the market are
partly responsible for pushing our economy to growth rates that could lead to
higher inflation. The dramatic rise in the prices of a narrow segment of the
market has created enormous wealth for some investors. In turn, those investors
are spending at a rate that the Fed believes may threaten the healthy growth of
our economy.
That's why the Fed has been raising interest rates steadily and
decisively over the past year. By making borrowing more expensive, the Fed is
attempting to slow economic growth. It is a precarious balancing act: too much
tightening creates the risk of recession, while too little opens the door to
inflation.
The implications are clear: investors must be prepared for near-term
market volatility. In the bond market, higher interest rates usually lead to
lower bond prices. In the stock market, slower economic growth could reduce
corporate earnings and put downward pressure on stock prices. Highly valued
stocks may be particularly vulnerable to a correction. The Securities and
Exchange Commission Chairman, Arthur Levitt, has cautioned investors against the
expectation that the types of returns seen in the recent bull market will last
forever. We agree.
1 OPPENHEIMER MAIN STREET CALIFORNIA MUNICIPAL FUND
<PAGE>
PRESIDENT'S LETTER
--------------------------------------------------------------------------------
Because of the prospect of continued market volatility, we encourage you
to consider diversifying your investments. Indeed, diversification may help you
mitigate the effects of sharp declines in any one area. It may also help you
better position your portfolio to seek greater returns over the long run.
While "new economy" stocks have risen recently, many "old economy" stocks
are selling at unusually low prices. In the bond market, higher interest rates
over the short term may reduce inflation concerns, which should be beneficial
over the long term. By buying out-of-favor investments, you may be able to
profit when and if they return to favor in the future. Of course, there is no
assurance that value investing will return to favor in the market, but it may be
a diversification strategy to consider for part of your portfolio.
What specific investments should you consider today so that you are
prepared for tomorrow? The answer depends on your individual investing goals,
risk tolerance and financial circumstances. We urge you to talk with your
financial advisor about ways to diversify your portfolio. This may include
considering global diversification as part of your strategy. While investing
abroad has special risks, such as the effects of foreign currency fluctuation,
it also offers opportunities to participate in global economic growth and to
hedge against the volatility in U.S. markets.
We thank you for your continued confidence in OppenheimerFunds, The Right
Way to Invest.
Sincerely,
/s/ JAMES C. SWAIN /s/ BRIDGET A. MACASKILL
James C. Swain Bridget A. Macaskill
March 21, 2000
2 OPPENHEIMER MAIN STREET CALIFORNIA MUNICIPAL FUND
<PAGE>
[PHOTO]
PORTFOLIO MANAGEMENT
TEAM (L TO R)
Christian Smith
(Portfolio Manager)
Robert Patterson
AN INTERVIEW WITH YOUR FUND'S MANAGER
--------------------------------------------------------------------------------
Q. HOW WOULD YOU CHARACTERIZE THE FUND'S PERFORMANCE OVER THE SIX-MONTH PERIOD
THAT ENDED FEBRUARY 29, 2000?
A. It has been a difficult period for the municipal securities market, including
Oppenheimer Main Street(R) California Municipal Fund. The rising interest rate
environment, a sharp decline in the demand for municipal bonds and a lack of
supply of new issues were some of the challenges the Fund encountered.
WHAT STEPS ARE YOU TAKING TO HELP IMPROVE THE FUND'S PERFORMANCE?
In November 1999, we began to restructure the Fund under the guidance of
Christian Smith, a money management professional with over 10 years experience
in the municipal market. This change will help us gain a fresh perspective on
the California municipal market, and proactively access the opportunities
available for the Fund.
HOW DID THE ROBUST U.S. ECONOMY AFFECT THE OVERALL MUNICIPAL MARKET?
Ongoing economic strength led to higher interest rates, which, in turn, led to
lower bond prices. With bonds becoming less attractive to investors, many turned
to the stock market for better returns.
3 OPPENHEIMER MAIN STREET CALIFORNIA MUNICIPAL FUND
<PAGE>
"Our focus has been to lower the portfolio's sensitivity to changes in interest
rates."
AN INTERVIEW WITH YOUR FUND'S MANAGER
--------------------------------------------------------------------------------
The lengthy economic expansion has also resulted in a decrease in supply of
municipal bonds. First, government surpluses on the federal and state level
resulted in less need to issue debt to finance new projects. Second, the rise in
interest rates caused a natural decline in the refinancing of existing debt.
When interest rates are on the upswing, there is little reason for an
organization to retire existing, lower yielding debt, and introduce new
securities with higher yields. Often- times in the financial markets, a decrease
in supply of a particular security leads to higher prices. However, the decline
in the demand for municipals more than offset the falling supply.
HOW WAS THE FUND MANAGED GIVEN THIS DIFFICULT ENVIRONMENT?
Our focus has been to lower the portfolio's sensitivity to interest rates. For
example, we have been working to reduce the Fund's duration versus its benchmark
by focusing on shorter-term securities. When it appears that interest rates have
peaked, we may look to extend the Fund's duration to take advantage of rising
bond prices.
COULD YOU DESCRIBE SOME OF YOUR INVESTMENT STRATEGIES THAT HELPED PERFORMANCE
DURING THE REPORTING PERIOD?
We enhanced returns through select investments in non-rated California real
estate securities. These bonds are typically issued by smaller organizations,
and are used to help finance the infrastructure needed in new housing
developments. As non-rated securities, they generally offer attractive yields.
Once the developments are occupied by tax-paying families and organizations,
this revenue aids the financial stability of the issuer, and the securities may
then become rated--sometimes leading to capital appreciation for the Fund.
4 OPPENHEIMER MAIN STREET CALIFORNIA MUNICIPAL FUND
<PAGE>
<TABLE>
<CAPTION>
----------------------------------
AVERAGE ANNUAL
TOTAL RETURNS
For the Periods Ended 3/31/00(1)
Class A Since
1-Year 5-Year Inception
----------------------------------
<S> <C> <C>
-7.98% 4.75% 6.31%
<CAPTION>
Class B Since
1-Year 5-Year Inception
----------------------------------
<S> <C> <C>
-9.01% 4.36% 3.67%
----------------------------------
<CAPTION>
STANDARDIZED YIELDS(2)
For the 30 Days Ended 2/29/00
----------------------------------
<S> <C>
Class A 5.19%
----------------------------------
Class B 4.49
----------------------------------
</TABLE>
In addition, we benefited from our investment in a non-profit organization that
helps train handicapped individuals to join the mainstream workforce. This
organization has been in existence for over 30 years, it has a strong management
team in place, and is widely known by companies that are looking for its
services.
HOW DID CALIFORNIA MUNICIPAL BONDS PERFORM COMPARED TO U.S. TREASURIES?
As interest rates rose, both types of securities performed poorly. However, in
recent months investors have bid up the prices of U.S. Treasury securities in
anticipation of the Treasury Department's plan to buy back billions of dollars
of debt. By the end of the reporting period, 30-year, AAA-rated municipal bonds
from California issuers were providing over 95% of the yield of 30-year U.S.
Treasury securities. This compares to a historical average of about 88%. When
the effects of income taxes are taken into account, municipal bonds are
providing much higher levels of "take home" income than U.S. Treasury
securities. As a result, municipal bonds currently represent very attractive
values, in our opinion, especially for California residents in the higher income
tax brackets.
1. See page 7 for further details.
2. Standardized yield is based on net investment income for the 30-day period
ended February 29, 2000. Falling share prices will tend to artificially raise
yields.
5 OPPENHEIMER MAIN STREET CALIFORNIA MUNICIPAL FUND
<PAGE>
<TABLE>
<CAPTION>
----------------------------------
CREDIT ALLOCATION(3)
[PIE CHART]
<S> <C>
AAA 51.0
AA 11.9
A 9.5
BBB 19.5
BB 8.1
----------------------------------
</TABLE>
WHAT IS YOUR OUTLOOK FOR THE ECONOMY OVER THE NEXT FEW MONTHS?
As we see it, the Federal Reserve will remain diligent in its attempt to slow
the pace of economic growth to help ward off an increase in inflation. As such,
we expect interest rates to continue rising into the summer. However, as the
year progresses, we anticipate seeing growth rates fall, as rising interest
rates should lead to a decline in consumer spending, and less dramatic stock
market gains. Ideally, this would eventually result in interest rates moving
downward.
In the meantime, we will continue to actively monitor the markets--making
careful adjustments to the Fund's portfolio as necessary. We will also work
diligently to enhance returns while being mindful of risk. These are two reasons
why Oppenheimer Main Street California Municipal Fund is an important part of
The Right Way to Invest.
<TABLE>
<CAPTION>
TOP FIVE INDUSTRIES(4)
(Percentage of market value)
--------------------------------------------------------
<S> <C>
Special Assessment 18.8%
--------------------------------------------------------
Single Family Housing 15.1
--------------------------------------------------------
Highways 11.0
--------------------------------------------------------
General Obligation 8.7
--------------------------------------------------------
Electric Utilities 8.5
</TABLE>
3. Portfolio data are subject to change. Percentages are as of February 29,
2000, and are dollar-weighted based on invested assets. The Fund may invest up
to 25% of its assets in below-investment-grade securities which carry greater
risk of default. Securities rated by any rating organization are included in the
equivalent Standard & Poor's rating category. Average credit quality and
allocation include rated securities and those not rated by a national rating
organization (currently 16.0% of total investments) but to which the Manager in
its judgment has assigned ratings as securities comparable to those rated by a
rating agency in the same category.
4. Portfolio is subject to change. Percentages are as of February 29, 2000, and
are based on total market value of investments.
6 OPPENHEIMER MAIN STREET CALIFORNIA MUNICIPAL FUND
<PAGE>
NOTES
--------------------------------------------------------------------------------
IN REVIEWING PERFORMANCE AND RANKINGS, PLEASE REMEMBER THAT PAST PERFORMANCE
DOES NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE OF AN
INVESTMENT IN THE FUND WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN
REDEEMED, MAY BE WORTH MORE OR LESS THAN THE ORIGINAL COST. THE FUND'S
PERFORMANCE MAY FROM TIME TO TIME BE SUBJECT TO SUBSTANTIAL SHORT-TERM CHANGES,
PARTICULARLY DURING PERIODS OF MARKET OR INTEREST RATE VOLATILITY. FOR UPDATES
ON THE FUND'S PERFORMANCE, PLEASE CONTACT YOUR FINANCIAL ADVISOR, CALL US AT
1.800.525.7048 OR VISIT OUR WEBSITE AT WWW.OPPENHEIMERFUNDS.COM.
Total returns include changes in share price and reinvestment of dividends and
capital gains distributions in a hypothetical investment for the periods shown.
Cumulative total returns are not annualized. The Fund's total returns shown do
not show the effects of income taxes on an individual's investment. Taxes may
reduce your actual investment returns on income or gains paid by the Fund or any
gains you may realize if you sell your shares.
CLASS A shares were first publicly offered on 5/18/90. Class A returns include
the current maximum initial sales charge of 4.75%. The Fund's maximum sales
charge for Class A shares was lower prior to 11/2/91, so actual performance may
have been higher.
CLASS B shares of the Fund were first publicly offered on 10/29/93. Class B
returns include the applicable contingent deferred sales charge of 5% (1-year)
and 1% (5-year). Because Class B shares convert to Class A shares 72 months
after purchase, the "life of class" return for Class B uses Class A performance
for the period after conversion. Class B shares are subject to an annual 0.75%
asset-based sales charge.
An explanation of the different performance calculations is in the Fund's
prospectus.
7 OPPENHEIMER MAIN STREET CALIFORNIA MUNICIPAL FUND
<PAGE>
STATEMENT OF INVESTMENTS February 29, 2000 / Unaudited
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATINGS: MARKET
MOODY'S/ PRINCIPAL VALUE
S&P/FITCH AMOUNT SEE NOTE 1
===========================================================================================================
MUNICIPAL BONDS AND NOTES--98.8%
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CALIFORNIA--92.5%
Anaheim, CA PFAU TXAL RB, MBIA Insured,
Inverse Floater, 8.87%, 12/28/18(1) Aaa/AAA $1,000,000 $1,103,750
-----------------------------------------------------------------------------------------------------------
Berkeley, CA HF RRB, Alta Bates Medical Center,
Prerefunded, Series A, 6.50%, 12/1/11 A2/NR 1,425,000 1,500,739
-----------------------------------------------------------------------------------------------------------
CA Assn. of Bay Area Governments FAU for
Non-profit Corps. Refunding COP, American
Baptist Homes, Series A, 6.20%, 10/1/27 NR/BBB 1,790,000 1,582,378
-----------------------------------------------------------------------------------------------------------
CA Assn. of Bay Area Governments FAU for
Non-profit Corps. Refunding COP,
Rhonda Haas Goldman Plaza, 5.125%, 5/15/23 NR/AA- 700,000 602,217
-----------------------------------------------------------------------------------------------------------
CA CDAU Lease RB, United Airlines,
Series A, 5.70%, 10/1/33 Baa3/BB+ 3,200,000 2,696,640
-----------------------------------------------------------------------------------------------------------
CA CDAU MH RB, Village Riviera Hills,
Series E, 5.45%, 2/1/25 NR/AAA 1,000,000 973,160
-----------------------------------------------------------------------------------------------------------
CA Foothill/Eastern Corridor Agency
Toll Road RB, Sr. Lien, Prerefunded,
Series A, 6.50%, 1/1/32 Baa3/BBB-/BBB 1,400,000 1,535,114
-----------------------------------------------------------------------------------------------------------
CA Foothill/Eastern Corridor Agency
Toll Road RRB, Zero Coupon, 5.98%, 1/15/21(2) Aaa/AAA/AAA 5,000,000 1,295,400
-----------------------------------------------------------------------------------------------------------
CA Foothill/Eastern Corridor Agency
Toll Road RRB, Zero Coupon, 6%, 1/15/22(2) Baa3/BBB-/BBB 5,500,000 1,330,010
-----------------------------------------------------------------------------------------------------------
CA GOUN, 5.75%, 3/1/30 Aa3/AA-/AA 2,000,000 1,945,700
-----------------------------------------------------------------------------------------------------------
CA HFA SFM Purchase RB, Series A-2, 6.45%, 8/1/25 Aaa/AAA 2,095,000 2,116,285
-----------------------------------------------------------------------------------------------------------
CA HFA SFM RB, Series C, 6.75%, 2/1/25 Aa2/AA- 4,770,000 4,841,455
-----------------------------------------------------------------------------------------------------------
CA Infrastructure & ED Bank RB,
American Center for Wine, Food & Arts, 5.55%, 12/1/12 NR/A/A 1,710,000 1,678,450
-----------------------------------------------------------------------------------------------------------
CA PCFAU RB, Pacific Gas & Electric Co. Project,
Series B, 6.35%, 6/1/09 A1/AA- 2,000,000 2,110,480
-----------------------------------------------------------------------------------------------------------
CA PWBL RB, State Prison Department of
Corrections, Series E, FSA Insured, 5.50%, 6/1/15 Aaa/AAA/AAA 2,000,000 2,004,940
-----------------------------------------------------------------------------------------------------------
CA Rural Home Mtg. FAU SFM RB,
Mtg.-Backed Securities Program,
Series B, 7.75%, 9/1/26 NR/AAA 845,000 899,224
-----------------------------------------------------------------------------------------------------------
CA Rural Home Mtg. FAU SFM RB,
Mtg.-Backed Securities Program,
Series B, 7.75%, 9/1/26 NR/AAA 5,000 5,000
-----------------------------------------------------------------------------------------------------------
CA Rural Home Mtg. FAU SFM RB,
Mtg.-Backed Securities Program,
Series D, Cl. 5, 6.70%, 5/1/29 NR/AAA 1,890,000 1,979,359
-----------------------------------------------------------------------------------------------------------
CA SCDAU COP, 7.25%, 11/1/29 NR/NR 2,000,000 1,949,100
-----------------------------------------------------------------------------------------------------------
CA SCDAU COP, Winward Schools, 7.25%, 11/1/29 NR/NR 500,000 497,410
-----------------------------------------------------------------------------------------------------------
</TABLE>
8 OPPENHEIMER MAIN STREET CALIFORNIA MUNICIPAL FUND
<PAGE>
<TABLE>
<CAPTION>
RATINGS: MARKET
MOODY'S/ PRINCIPAL VALUE
S&P/FITCH AMOUNT SEE NOTE 1
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CALIFORNIA Continued
CA SCDAU Revenue Refunding COP,
Inverse Floater, 7.11%, 11/1/15(1) A1/NR $1,200,000 $1,122,000
-----------------------------------------------------------------------------------------------------------
Campbell, CA RA TXAL RB, Central Campbell
Redevelopment Project, Series B, 6.60%, 10/1/32 Baa3/BBB- 1,100,000 1,076,009
-----------------------------------------------------------------------------------------------------------
Contra Costa Cnty., CA SPTX RRB,
CFD 91-1, 5.58%, 8/1/16 NR/NR 3,075,000 2,703,786
-----------------------------------------------------------------------------------------------------------
Corona, CA SFM RB, Sub. Lien, Series B, 6.30%, 11/1/28 A2/NR 800,000 802,560
-----------------------------------------------------------------------------------------------------------
East Palo Alto, CA RA TXAL RB, 6.625%, 10/1/29 NR/NR 850,000 833,943
-----------------------------------------------------------------------------------------------------------
Escondido, CA Union High SDI CAP GOB,
MBIA Insured, Zero Coupon, 6.20%, 11/1/19(2) Aaa/AAA 2,000,000 625,700
-----------------------------------------------------------------------------------------------------------
Folsom, CA SPTX Bonds, CFD No. 10, 6.875%, 9/1/19 NR/NR 2,000,000 1,979,900
-----------------------------------------------------------------------------------------------------------
Fontana, CA RA TXAL GORB,
Jurupa Hills Redevelopment Project,
Prerefunded, Series A, 7.10%, 10/1/23 NR/BBB+ 1,960,000 2,118,348
-----------------------------------------------------------------------------------------------------------
Fresno, CA USD GORB, Series A,
MBIA Insured, 6.55%, 8/1/20 Aaa/AAA/AAA 1,225,000 1,334,968
-----------------------------------------------------------------------------------------------------------
Fresno, CA USD GOUN, Series A,
MBIA Insured, 6.40%, 8/1/16 Aaa/AAA/AAA 1,000,000 1,092,040
-----------------------------------------------------------------------------------------------------------
Glendale, CA EU RB, MBIA Insured, 5.90%, 2/1/25 NR/AAA/AAA 5,000,000 5,004,900
-----------------------------------------------------------------------------------------------------------
Golden West Schools FAU CAP RRB, Series A,
MBIA Insured, Zero Coupon, 6.14%, 2/1/20(2) Aaa/AAA/AAA 2,480,000 749,853
-----------------------------------------------------------------------------------------------------------
Golden West Schools FAU CAP RRB, Series A,
MBIA Insured, Zero Coupon, 6.14%, 8/1/20(2) Aaa/AAA/AAA 2,000,000 586,840
-----------------------------------------------------------------------------------------------------------
Irvine, CA Improvement Bond Act 1915
SPAST Bonds, Assessment District No. 94-13,
Group 2, 5.875%, 9/2/17 NR/NR 1,250,000 1,147,637
-----------------------------------------------------------------------------------------------------------
Lake Elsinore, CA School FAU RRB,
Horsethief Canyon, 5.35%, 9/1/10 NR/NR 2,000,000 1,822,160
-----------------------------------------------------------------------------------------------------------
Las Virgenes, CA USD CAP Bonds, Series A,
MBIA Insured, Zero Coupon, 4.95%, 11/1/12(2) Aaa/AAA/AAA 2,095,000 1,046,243
-----------------------------------------------------------------------------------------------------------
Lincoln, CA Improvement Bond Act 1915
PFAU RB, 6.20%, 9/2/25 NR/NR 1,490,000 1,369,444
-----------------------------------------------------------------------------------------------------------
Lincoln, CA Improvement Bond Act 1915
PFAU RB, 6.20%, 9/2/25 NR/NR 10,000 10,300
-----------------------------------------------------------------------------------------------------------
Long Beach, CA Harbor RRB, Series A,
FGIC Insured, 6%, 5/15/10 Aaa/AAA 500,000 522,265
-----------------------------------------------------------------------------------------------------------
Los Angeles Cnty., CA CAP COP, Disney
Parking Project, Zero Coupon, 6.95%, 9/1/11(2) A3/BBB+/A- 2,340,000 1,201,941
-----------------------------------------------------------------------------------------------------------
Los Angeles Cnty., CA MTAU Sales Tax RRB,
Series A, FSA Insured, 5%, 7/1/14 Aaa/AAA/AAA 1,500,000 1,429,740
</TABLE>
9 OPPENHEIMER MAIN STREET CALIFORNIA MUNICIPAL FUND
<PAGE>
STATEMENT OF INVESTMENTS Unaudited / Continued
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATINGS: MARKET
MOODY'S/ PRINCIPAL VALUE
S&P/FITCH AMOUNT SEE NOTE 1
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CALIFORNIA Continued
Los Angeles Cnty., CA MTAU Sales Tax RRB,
Series A, MBIA Insured, 5.25%, 7/1/15 Aaa/AAA/AAA $2,000,000 $1,935,420
-----------------------------------------------------------------------------------------------------------
Los Angeles Cnty., CA Participation
Certificates RB, Zero Coupon, 6.30%, 9/1/16(2) Aaa/AAA/AAA 1,495,000 571,195
-----------------------------------------------------------------------------------------------------------
Los Angeles, CA Department of
Water & Power RRB, 5.50%, 10/15/12 Aa3/AAA/AAA 1,000,000 1,015,990
-----------------------------------------------------------------------------------------------------------
Los Angeles, CA USD GOB, Series A,
FGIC Insured, 6%, 7/1/15 Aaa/AAA/AAA 1,000,000 1,053,930
-----------------------------------------------------------------------------------------------------------
Orange Cnty., CA CFD No. 99-1 SPTX RB,
Series A, 6.70%, 8/15/29 NR/NR 650,000 643,624
-----------------------------------------------------------------------------------------------------------
Palmdale, CA Civic Authority RRB,
Merged Redevelopment Project,
Prerefunded, Series A, 6.60%, 9/1/34 Aaa/AAA 595,000 651,555
-----------------------------------------------------------------------------------------------------------
Palmdale, CA Civic Authority RRB,
Merged Redevelopment Project,
Unrefunded Balance, Series A, 6.60%, 9/1/34 NR/A 405,000 413,347
-----------------------------------------------------------------------------------------------------------
Pittsburg, CA RA TXAL Refunding Bonds,
Los Medanos Community Development Project,
Sub. Lien, 6.20%, 8/1/19 NR/BBB 1,000,000 949,690
-----------------------------------------------------------------------------------------------------------
Pittsburg, CA RA TXAL RB, Los Medanos
Community Development Project,
AMBAC Insured, 5.75%, 8/1/16 Aaa/AAA 720,000 720,857
-----------------------------------------------------------------------------------------------------------
Pomona, CA SFM RRB, Escrowed to Maturity,
Series A, 7.60%, 5/1/23 Aaa/AAA 2,500,000 2,976,400
-----------------------------------------------------------------------------------------------------------
Pomona, CA USD GORB, Series A,
MBIA Insured, 6.15%, 8/1/15 Aaa/AAA 500,000 532,505
-----------------------------------------------------------------------------------------------------------
Redding, CA Electric System Revenue COP,
FGIC Insured, Inverse Floater, 7.78%, 6/1/19(1) Aaa/AAA/AAA 1,150,000 1,083,875
-----------------------------------------------------------------------------------------------------------
Redding, CA Electric System Revenue COP,
MBIA Insured, Inverse Floater, 8.69%, 7/8/22(1) Aaa/AAA 500,000 555,625
-----------------------------------------------------------------------------------------------------------
Richmond, CA Wastewater RB,
FGIC Insured, 5.80%, 8/1/16 Aaa/AAA 765,000 777,416
-----------------------------------------------------------------------------------------------------------
Riverside Cnty., CA CFD No. 88-12 SPTX Bonds,
Prerefunded, 7.55%, 9/1/17 NR/NR 1,500,000 1,556,850
-----------------------------------------------------------------------------------------------------------
Riverside Cnty., CA PFAU TXAL RRB,
Redevelopment Projects, Series A, 5.625%, 10/1/33 Baa2/BBB- 1,650,000 1,372,157
-----------------------------------------------------------------------------------------------------------
Riverside Cnty., CA SFM RB, Escrowed
to Maturity, Series A, 7.80%, 5/1/21 Aaa/AAA 1,000,000 1,217,220
-----------------------------------------------------------------------------------------------------------
Riverside, CA PFAU Lease RB,
AMBAC Insured, 5.25%, 10/1/17 Aaa/AAA/AAA 2,100,000 1,985,760
-----------------------------------------------------------------------------------------------------------
Riverside, CA Water RRB, 5.375%, 10/1/12 NR/AA/AA 1,000,000 1,006,370
</TABLE>
10 OPPENHEIMER MAIN STREET CALIFORNIA MUNICIPAL FUND
<PAGE>
<TABLE>
<CAPTION>
RATINGS: MARKET
MOODY'S/ PRINCIPAL VALUE
S&P/FITCH AMOUNT SEE NOTE 1
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CALIFORNIA Continued
Roseville, CA SPTX RB, Woodcreek West
Community Facility No. 1 Project, 6.50%, 9/1/15 NR/NR $1,500,000 $1,474,875
-----------------------------------------------------------------------------------------------------------
Sacramento Cnty., CA SFM RB,
Escrowed to Maturity, 8%, 7/1/16(3) Aaa/AAA 2,810,000 3,468,636
-----------------------------------------------------------------------------------------------------------
Sacramento, CA MUD Electric RRB,
FGIC Insured, Inverse Floater, 8.89%, 8/15/18(1) Aaa/AAA/AAA 1,500,000 1,578,750
-----------------------------------------------------------------------------------------------------------
Sacramento, CA USD GOUN,
Series A, 5.875%, 7/1/21 Aa3/NR/AA 430,000 432,081
-----------------------------------------------------------------------------------------------------------
Sacramento, CA USD GOUN,
Series A, 5.875%, 7/1/23 Aa3/NR/AA 285,000 285,675
-----------------------------------------------------------------------------------------------------------
Salinas Valley, CA Solid Waste Authority RB,
5.80%, 8/1/27 Baa3/BBB 1,665,000 1,443,871
-----------------------------------------------------------------------------------------------------------
San Diego Cnty., CA Water Authority
Revenue COP, Prerefunded, Series 91-B,
MBIA Insured, Inverse Floater, 8.66%, 4/8/21(1) Aaa/AAA 1,000,000 1,166,250
-----------------------------------------------------------------------------------------------------------
San Francisco, CA Bay Area Rapid Transit District
Sales Tax RRB, AMBAC Insured, 6.75%, 7/1/11 Aaa/AAA/AAA 1,000,000 1,138,350
-----------------------------------------------------------------------------------------------------------
San Francisco, CA City & Cnty. International
Airport Commission RB, Second Series Issue 13-B,
MBIA Insured, 8%, 5/1/07 Aaa/AAA 1,140,000 1,325,683
-----------------------------------------------------------------------------------------------------------
San Francisco, CA City & Cnty. International
Airport Commission RB, Second Series Issue 14-A,
MBIA Insured, 8%, 5/1/07 Aaa/AAA 1,290,000 1,500,115
-----------------------------------------------------------------------------------------------------------
San Francisco, CA City & Cnty. RA Lease CAP RB,
George R. Moscone Project, Zero Coupon,
5.36%, 7/1/10(2) A1/A-/A+ 4,500,000 2,538,450
-----------------------------------------------------------------------------------------------------------
San Francisco, CA City & Cnty. Redevelopment
FAU TXAL CAP Refunding Bonds, Redevelopment
Projects, Series C, Zero Coupon, 5.99%, 8/1/13(2) A2/A/AAA 750,000 353,888
-----------------------------------------------------------------------------------------------------------
San Joaquin Hills, CA Transportation Corridor Agency
Toll Road CAP RRB, Series A, 0%/5.75%, 1/15/21(4) Baa3/BBB-/BBB 3,200,000 1,895,968
-----------------------------------------------------------------------------------------------------------
San Joaquin Hills, CA Transportation Corridor Agency
Toll Road RB, Sr. Lien, Prerefunded, 6.75%, 1/1/32 Aaa/AAA/AAA 3,500,000 3,768,625
-----------------------------------------------------------------------------------------------------------
South Orange Cnty., CA PFAU SPTX RB,
Foothill Area, Series C, FGIC Insured, 8%, 8/15/08 Aaa/AAA/AAA 1,500,000 1,803,315
-----------------------------------------------------------------------------------------------------------
Southern CA Home FAU SFM RB,
Series A, 7.35%, 9/1/24 NR/AAA 145,000 148,751
-----------------------------------------------------------------------------------------------------------
Southern CA Home FAU SFM RB,
Series A, 7.35%, 9/1/24 NR/AAA 15,000 15,000
-----------------------------------------------------------------------------------------------------------
Southern CA Metropolitan Water District
RRB, Inverse Floater, 6.55%, 10/30/20(1) Aa2/AA 1,200,000 1,081,500
</TABLE>
11 OPPENHEIMER MAIN STREET CALIFORNIA MUNICIPAL FUND
<PAGE>
STATEMENT OF INVESTMENTS Unaudited / Continued
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATINGS: MARKET
MOODY'S/ PRINCIPAL VALUE
S&P/FITCH AMOUNT SEE NOTE 1
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CALIFORNIA Continued
Southern CA PPAU Transmission Project RB,
Inverse Floater, 7.25%, 7/1/12(1) Aa3/A+ $2,100,000 $ 2,202,375
-----------------------------------------------------------------------------------------------------------
Stanislaus, CA Waste-To-Energy Financing Agency
Solid Waste Facilities RRB,
Ogden Martin System, Inc.
Project, 7.50%, 1/1/05 NR/A- 1,105,000 1,129,277
-----------------------------------------------------------------------------------------------------------
West Covina, CA COP, Queen of the Valley Hospital,
Prerefunded, 6.50%, 8/15/19 A2/NR 1,120,000 1,223,208
---------------
112,221,817
-----------------------------------------------------------------------------------------------------------
U.S. POSSESSIONS--6.3%
PR CMWLTH GORB, MBIA Insured,
Inverse Floater, 7.78%, 7/1/08(1) Aaa/AAA 1,500,000 1,571,250
-----------------------------------------------------------------------------------------------------------
PR CMWLTH HTAU RB,
Inverse Floater, 7.10%, 7/1/28(1),(5) NR/NR 5,000,000 3,620,400
-----------------------------------------------------------------------------------------------------------
PR Housing Finance Corp. SFM RB,
Portfolio 1, Series B, 7.65%, 10/15/22 Aaa/AAA 65,000 66,754
-----------------------------------------------------------------------------------------------------------
PR Industrial, Medical & Environmental PC
Facilities Tourist RB, Mennonite General
Hospital Project, Series A, 6.50%, 7/1/12 NR/BBB-/BBB 590,000 563,008
-----------------------------------------------------------------------------------------------------------
PR Public Buildings Authority RB,
Government Facilities, Series B,
AMBAC Insured, 5%, 7/1/27 Aaa/AAA 300,000 259,548
-----------------------------------------------------------------------------------------------------------
Virgin Islands PFAU RB, Series A, 6.375%, 10/1/19 NR/BBB- 1,515,000 1,489,958
---------------
7,570,918
---------------
Total Municipal Bonds and Notes (Cost $122,757,839) 119,792,735
===========================================================================================================
SHORT-TERM TAX-EXEMPT OBLIGATIONS--2.1%
CA PCFAU SWD RR RB, Shell Martinez
Refining, Series A, 3.15%, 3/1/00(6) 1,200,000 1,200,000
-----------------------------------------------------------------------------------------------------------
PR CMWLTH RB, Series 1025, 3.11%, 7/1/00(6) 1,400,000 1,400,000
---------------
Total Short-Term Tax-Exempt Obligations (Cost $2,600,000) 2,600,000
-----------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS, AT VALUE (COST $125,357,839) 100.9% 122,392,735
-----------------------------------------------------------------------------------------------------------
LIABILITIES IN EXCESS OF OTHER ASSETS (0.9) (1,111,294)
------------------------------------------------
NET ASSETS 100.0% $121,281,441
================================================
</TABLE>
12 OPPENHEIMER MAIN STREET CALIFORNIA MUNICIPAL FUND
<PAGE>
FOOTNOTES TO STATEMENT OF INVESTMENTS
To simplify the listings of securities, abbreviations are used per the table
below:
CAP Capital Appreciation
CDAU Communities Development Authority
CFD Community Facilities District
CMWLTH Commonwealth
COP Certificates of Participation
ED Economic Development
EU Electric Utilities
FAU Finance Authority
GOB General Obligation Bonds
GORB General Obligation Refunding Bonds
GOUN General Obligation Unlimited Nts.
HF Health Facilities
HFA Housing Finance Agency
HTAU Highway & Transportation Authority
MH Multifamily Housing
MTAU Metropolitan Transportation Authority
MUD Municipal Utility District
PC Pollution Control
PCFAU Pollution Control Finance Authority
PFAU Public Finance Authority
PPAU Public Power Authority
PWBL Public Works Board Lease
RA Redevelopment Agency
RB Revenue Bonds
RR Resource Recovery
RRB Revenue Refunding Bonds
SCDAU Statewide Communities Development Authority
SDI School District
SFM Single Family Mtg.
SPAST Special Assessment
SPTX Special Tax
SWD Solid Waste Disposal
TXAL Tax Allocation
USD Unified School District
1. Represents the current interest rate for a variable rate bond known as an
"inverse floater" which pays interest at a rate that varies inversely with
short-term interest rates. As interest rates rise, inverse floaters produce less
current income. Their price may be more volatile than the price of a comparable
fixed-rate security. Inverse floaters amount to $15,085,775 or 12.44% of the
Fund's net assets as of February 29, 2000.
2. For zero coupon bonds, the interest rate shown is the effective yield on the
date of purchase.
3. Securities with an aggregate market value of $539,000 are held in
collateralized accounts to cover initial margin requirements on open futures
sales contracts. See Note 5 of Notes to Financial Statements.
4. Denotes a step bond: a zero coupon bond that converts to a fixed or variable
interest rate at a designated future date.
5. Represents securities sold under Rule 144A, which are exempt from
registration under the Securities Act of 1933, as amended. These securities have
been determined to be liquid under guidelines established by the Board of
Directors. These securities amount to $3,620,400 or 2.98% of the Fund's net
assets as of February 29, 2000.
6. Represents the current interest rate for a variable or increasing rate
security.
13 OPPENHEIMER MAIN STREET CALIFORNIA MUNICIPAL FUND
<PAGE>
STATEMENT OF INVESTMENTS Unaudited / Continued
--------------------------------------------------------------------------------
FOOTNOTES TO STATEMENT OF INVESTMENTS Continued
AS OF FEBRUARY 29, 2000, SECURITIES SUBJECT TO THE ALTERNATIVE MINIMUM TAX
AMOUNT TO $26,463,144 OR 21.81% 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>
Special Assessment $23,040,534 18.8%
Single Family Housing 18,536,644 15.1
Highways 13,445,517 11.0
General Obligation 10,602,336 8.7
Electric Utilities 10,425,525 8.5
Municipal Leases 8,561,834 7.0
Sales Tax 7,058,369 5.8
Marine/Aviation Facilities 6,044,703 4.9
Hospital/Healthcare 4,408,954 3.6
Water Utilities 4,270,110 3.5
Not-for-Profit Organization 3,627,551 3.0
Pollution Control 3,310,480 2.7
Resource Recovery 2,573,148 2.1
Education 2,551,859 2.1
Adult Living Facilities 2,184,595 1.8
Multifamily Housing 973,160 0.8
Sewer Utilities 777,416 0.6
-----------------------------
Total $122,392,735 100.0%
=============================
</TABLE>
See accompanying Notes to Financial Statements.
14 OPPENHEIMER MAIN STREET CALIFORNIA MUNICIPAL FUND
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES Unaudited
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
February 29, 2000
============================================================================================
ASSETS
<S> <C>
Investments, at value (cost $125,357,839)--see accompanying statement $ 122,392,735
--------------------------------------------------------------------------------------------
Cash 203,722
--------------------------------------------------------------------------------------------
Receivables and other assets:
Interest 1,512,032
Shares of capital stock sold 341,264
Other 5,723
------------------
Total assets 124,455,476
============================================================================================
LIABILITIES
Payables and other liabilities:
Investments purchased 2,657,160
Dividends 330,520
Shares of capital stock redeemed 112,671
Daily variation on futures contracts 11,500
Distribution and service plan fees 11,140
Transfer and shareholder servicing agent fees 9,845
Directors' compensation 446
Other 40,753
------------------
Total liabilities 3,174,035
============================================================================================
NET ASSETS $121,281,441
==================
============================================================================================
COMPOSITION OF NET ASSETS
Par value of shares of capital stock $ 104,257
--------------------------------------------------------------------------------------------
Additional paid-in capital 128,864,734
--------------------------------------------------------------------------------------------
Overdistributed net investment income (181,242)
--------------------------------------------------------------------------------------------
Accumulated net realized loss on investment transactions (4,473,791)
--------------------------------------------------------------------------------------------
Net unrealized depreciation on investments (3,032,517)
------------------
Net assets $121,281,441
==================
============================================================================================
NET ASSET VALUE PER SHARE
Class A Shares:
Net asset value and redemption price per share (based on net assets of
$94,683,004 and 8,136,732 shares of capital stock outstanding) $11.64
Maximum offering price per share (net asset value plus sales charge of
4.75% of offering price) $12.22
--------------------------------------------------------------------------------------------
Class B Shares:
Net asset value, redemption price (excludes applicable contingent deferred
sales charge) and offering price per share (based on net assets of $26,598,437
and 2,288,907 shares of capital stock outstanding) $11.62
</TABLE>
See accompanying Notes to Financial Statements.
15 OPPENHEIMER MAIN STREET CALIFORNIA MUNICIPAL FUND
<PAGE>
STATEMENT OF OPERATIONS Unaudited
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Six Months Ended February 29, 2000
====================================================================================
INVESTMENT INCOME
<S> <C>
Interest $ 4,015,472
====================================================================================
EXPENSES
Management fees 362,042
------------------------------------------------------------------------------------
Distribution and service plan fees:
Class B 142,268
------------------------------------------------------------------------------------
Transfer and shareholder servicing agent fees 35,821
------------------------------------------------------------------------------------
Shareholder reports 22,178
------------------------------------------------------------------------------------
Custodian fees and expenses 6,007
------------------------------------------------------------------------------------
Directors' compensation 1,515
------------------------------------------------------------------------------------
Other 11,207
-------------
Total expenses 581,038
Less reimbursement of expenses (98,739)
Less expenses paid indirectly (5,768)
-------------
Net expenses 476,531
====================================================================================
NET INVESTMENT INCOME 3,538,941
====================================================================================
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) on:
Investments (4,366,202)
Closing of futures contracts 528
-------------
Net realized loss (4,365,674)
------------------------------------------------------------------------------------
Net change in unrealized appreciation or depreciation on investments (2,236,087)
-------------
Net realized and unrealized loss (6,601,761)
====================================================================================
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $(3,062,820)
=============
</TABLE>
See accompanying Notes to Financial Statements.
16 OPPENHEIMER MAIN STREET CALIFORNIA MUNICIPAL FUND
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED
FEBRUARY 29, 2000 YEAR ENDED
(UNAUDITED) AUGUST 31, 1999
===========================================================================================================================
OPERATIONS
<S> <C> <C>
Net investment income $ 3,538,941 $ 6,760,089
---------------------------------------------------------------------------------------------------------------------------
Net realized loss (4,365,674) (27,248)
---------------------------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation or depreciation (2,236,087) (9,255,882)
-------------------------------------------------------
Net decrease in net assets resulting from operations (3,062,820) (2,523,041)
===========================================================================================================================
DIVIDENDS AND/OR DISTRIBUTIONS TO SHAREHOLDERS
Dividends from net investment income:
Class A (2,805,389) (5,577,537)
Class B (630,746) (1,114,948)
---------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gain:
Class A (61,948) --
Class B (17,172) --
===========================================================================================================================
CAPITAL STOCK TRANSACTIONS
Net increase (decrease) in net assets resulting from capital stock
transactions:
Class A (9,742,300) 7,019,301
Class B (1,703,755) 8,515,921
===========================================================================================================================
NET ASSETS
Total increase (decrease) (18,024,130) 6,319,696
---------------------------------------------------------------------------------------------------------------------------
Beginning of period 139,305,571 132,985,875
-------------------------------------------------------
End of period (including overdistributed net investment
income of $181,242 and $284,048, respectively) $121,281,441 $139,305,571
=======================================================
</TABLE>
See accompanying Notes to Financial Statements.
17 OPPENHEIMER MAIN STREET CALIFORNIA MUNICIPAL FUND
<PAGE>
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS YEAR YEAR
ENDED ENDED ENDED
FEB. 29, 2000 AUG. 31, JUNE 30,
CLASS A (UNAUDITED) 1999 1998 1997 1996(1) 1996 1995
===========================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING DATA
Net asset value, beginning of period$ $ 12.21 $ 13.02 $ 12.64 $ 12.16 $ 12.15 $ 12.09 $11.82
---------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .33 .65 .65 .73 .12 .73 .73
Net realized and unrealized gain (loss) (.57) (.82) .51 .49 .01 .07 .27
-----------------------------------------------------------------------
Total income (loss) from
investment operations (.24) (.17) 1.16 1.22 .13 .80 1.00
---------------------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income (.32) (.64) (.67) (.74) (.12) (.73) (.69)
Dividends in excess of net
investment income -- -- -- -- -- -- (.04)
Distributions from net realized gain (.01) -- (.11) -- -- -- --
Distributions in excess of net realized gain -- -- -- -- -- (.01) --
-----------------------------------------------------------------------
Total dividends and/or distributions
to shareholders (.33) (.64) (.78) (.74) (.12) (.74) (.73)
---------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 11.64 $ 12.21 $ 13.02 $ 12.64 $ 12.16 $ 12.15 $ 12.09
=======================================================================
===========================================================================================================================
TOTAL RETURN, AT NET ASSET VALUE(2) (1.99)% (1.42)% 9.33% 10.24% 1.12% 6.73% 8.93%
===========================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands) $ 94,683 $109,575 $109,811 $89,991 $76,817 $76,913 $78,134
---------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $103,345 $111,996 $ 99,678 $80,311 $77,584 $78,676 $76,148
---------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:(3)
Net investment income 5.61% 5.03% 5.04% 5.91% 6.00% 5.99% 6.27%
Expenses 0.68% 0.67% 0.69%(4) 0.59%(4) 0.57%(4) 0.58%(4) 0.57%(4)
Expenses, net of indirect expenses,
voluntary assumption of expenses
and/or waiver of expenses 0.52% 0.51% 0.53% N/A N/A N/A N/A
---------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(5) 25% 25% 30% 46% 1% 33% 14%
</TABLE>
1. For the two months ended August 31, 1996. The Fund changed its fiscal year
end from June 30 to August 31.
2. Assumes a $1,000 hypothetical initial investment on the business day before
the first day of the fiscal period (or inception of offering), with all
dividends and distributions reinvested in additional shares on the
reinvestment date, and redemption at the net asset value calculated on the
last business day of the fiscal period. Sales charges are not reflected in the
total returns. Total returns are not annualized for periods of less than one
full year.
3. Annualized for periods of less than one full year.
4. Expense ratio has not been grossed up to reflect the effect of expenses paid
indirectly.
5. The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities
owned during the period. Securities with a maturity or expiration date at the
time of acquisition of one year or less are excluded from the calculation.
Purchases and sales of investment securities (excluding short-term securities)
for the period ended February 29, 2000, were $32,355,072 and $43,971,448,
respectively.
See accompanying Notes to Financial Statements.
18 OPPENHEIMER MAIN STREET CALIFORNIA MUNICIPAL FUND
<PAGE>
<TABLE>
<CAPTION>
SIX MONTHS YEAR YEAR
ENDED ENDED ENDED
FEB. 29, 2000 AUG. 31, JUNE 30,
CLASS B (UNAUDITED) 1999 1998 1997 1996(1) 1996 1995
===========================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING DATA
Net asset value, beginning of period$ $ 12.20 $ 13.01 $ 12.63 $ 12.14 $ 12.14 $ 12.08 $11.80
---------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .27 .53 .54 .60 .10 .61 .62
Net realized and unrealized gain (loss) (.58) (.83) .49 .50 -- .07 .27
------------------------------------------------------------------------------
Total income (loss) from
investment operations (.31) (.30) 1.03 1.10 .10 .68 .89
---------------------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income (.26) (.51) (.54) (.61) (.10) (.61) (.57)
Dividends in excess of net
investment income -- -- -- -- -- -- (.04)
Distributions from net realized gain (.01) -- (.11) -- -- -- --
Distributions in excess of net realized gain -- -- -- -- -- (.01) --
------------------------------------------------------------------------------
Total dividends and/or distributions
to shareholders (.27) (.51) (.65) (.61) (.10) (.62) (.61)
---------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $11.62 $ 12.20 $ 13.01 $ 12.63 $ 12.14 $ 12.14 $ 12.08
=============================================================================
===========================================================================================================================
TOTAL RETURN, AT NET ASSET VALUE(2) (2.56)% (2.41)% 8.24% 9.24% 0.85% 5.66% 7.90%
===========================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands) $26,598 $29,730 $23,175 $11,919 $5,928 $5,442 $2,648
---------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $28,682 $28,070 $18,087 $ 8,129 $5,767 $3,848 $1,904
---------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:(3)
Net investment income 4.60% 4.02% 4.19% 4.85% 4.92% 4.94% 5.17%
Expenses 1.68% 1.67% 1.70%(4) 1.60%(4) 1.62%(4) 1.60%(4) 1.55%(4)
Expenses, net of indirect expenses,
voluntary assumption of expenses
and/or waiver of expenses 1.52% 1.52% 1.53% N/A N/A N/A N/A
---------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(5) 25% 25% 30% 46% 1% 33% 14%
</TABLE>
1. For the two months ended August 31, 1996. The Fund changed its fiscal year
end from June 30 to August 31.
2. Assumes a $1,000 hypothetical initial investment on the business day before
the first day of the fiscal period (or inception of offering), with all
dividends and distributions reinvested in additional shares on the
reinvestment date, and redemption at the net asset value calculated on the
last business day of the fiscal period. Sales charges are not reflected in the
total returns. Total returns are not annualized for periods of less than one
full year.
3. Annualized for periods of less than one full year.
4. Expense ratio has not been grossed up to reflect the effect of expenses paid
indirectly.
5. The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities
owned during the period. Securities with a maturity or expiration date at the
time of acquisition of one year or less are excluded from the calculation.
Purchases and sales of investment securities (excluding short-term securities)
for the period ended February 29, 2000, were $32,355,072 and $43,971,448,
respectively.
See accompanying Notes to Financial Statements.
19 OPPENHEIMER MAIN STREET CALIFORNIA MUNICIPAL FUND
<PAGE>
NOTES TO FINANCIAL STATEMENTS Unaudited
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Oppenheimer Main Street California Municipal Fund (the Fund) is a separate
series of Oppenheimer Main Street Funds, Inc., an open-end management
investment company registered under the Investment Company Act of 1940, as
amended. The Fund's investment objective is to seek as high a level of current
income exempt from federal and California personal income taxes as is available
from investing in municipal securities while attempting to preserve capital.
The Fund offers Class A and Class B shares. Class A shares are sold at
their offering price, which is normally net asset value plus an initial sales
charge. Class B shares are sold without an initial sales charge but may be
subject to a contingent deferred sales charge (CDSC). Both classes of shares
have identical rights to earnings, assets and voting privileges, except that
each class has its own expenses directly attributable to that class and
exclusive voting rights with respect to matters affecting that class. Classes A
and B shares have separate distribution and/or service plans. Class B shares
will automatically convert to Class A shares six years after the date of
purchase. The following is a summary of significant accounting policies
consistently followed by the Fund.
--------------------------------------------------------------------------------
SECURITIES VALUATION. Securities for which quotations are readily available are
valued at the last sale price, or if in the absence of a sale, at the last sale
price on the prior trading day if it is within the spread of the closing bid
and asked prices, and if not, at the closing bid price. Securities (including
restricted securities) for which quotations are not readily available are
valued primarily using dealer-supplied valuations, a portfolio pricing service
authorized by the Board of Directors, or at their fair value. Fair value is
determined in good faith under consistently applied procedures under the
supervision of the Board of Directors. Foreign currency contracts are valued
based on the closing prices of the forward currency contract rates in the
London foreign exchange markets on a daily basis as provided by a reliable
bank, dealer or pricing service. Short-term "money market type" debt securities
with remaining maturities of sixty days or less are valued at cost (or last
determined market value) and adjusted for amortization or accretion to maturity
of any premium or discount.
--------------------------------------------------------------------------------
ALLOCATION OF INCOME, EXPENSES, GAINS AND LOSSES. Income, expenses (other than
those attributable to a specific class), gains and losses are allocated daily
to each class of shares based upon the relative proportion of net assets
represented by such class. Operating expenses directly attributable to a
specific class are charged against the operations of that class.
--------------------------------------------------------------------------------
FEDERAL TAXES. The Fund intends to continue to comply with provisions of the
Internal Revenue Code applicable to regulated investment companies and to
distribute all of its taxable income, including any net realized gain on
investments not offset by loss carryovers, to shareholders. Therefore, no
federal income or excise tax provision is required.
20 OPPENHEIMER MAIN STREET CALIFORNIA MUNICIPAL FUND
<PAGE>
--------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS. Dividends and distributions to
shareholders, which are determined in accordance with income tax regulations,
are recorded on the ex-dividend date.
--------------------------------------------------------------------------------
CLASSIFICATION OF DISTRIBUTIONS TO SHAREHOLDERS. Net investment income (loss)
and net realized gain (loss) may differ for financial statement and tax
purposes. The character of distributions made during the year from net
investment income or net realized gains may differ from its ultimate
characterization for federal income tax purposes. Also, due to timing of
dividend distributions, the fiscal year in which amounts are distributed may
differ from the fiscal year in which the income or realized gain was recorded
by the Fund.
-------------------------------------------------------------------------------
EXPENSE OFFSET ARRANGEMENTS. Expenses paid indirectly represent a reduction of
custodian fees for earnings on cash balances maintained by the Fund.
--------------------------------------------------------------------------------
OTHER. Investment transactions are accounted for as of trade date. Original
issue discount is accreted and premium is amortized in accordance with federal
income tax requirements. For municipal bonds acquired after April 30, 1993, on
disposition or maturity, taxable ordinary income is recognized to the extent of
the lesser of gain or market discount that would have accrued over the holding
period. Realized gains and losses on investments and unrealized appreciation
and depreciation are determined on an identified cost basis, which is the same
basis used for federal income tax purposes.
There are certain risks arising from geographic concentration in any
state. Certain revenue or tax related event in a state may impair the ability
of certain issuers of municipal securities to pay principal and interest on
their obligations.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and lia-bilities at the date of the financial
statements and the reported amounts of income and expenses during the reporting
period. Actual results could differ from those estimates.
21 OPPENHEIMER MAIN STREET CALIFORNIA MUNICIPAL FUND
<PAGE>
NOTES TO FINANCIAL STATEMENTS Unaudited/Continued
-------------------------------------------------------------------------------
===============================================================================
2. CAPITAL STOCK
The Fund has authorized 16,250,000 shares of $.01 par value capital stock of
each class. Transactions in shares of capital stock were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED FEB. 29, 2000 YEAR ENDED AUGUST 31, 1999
SHARES AMOUNT SHARES AMOUNT
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A
Sold 613,011 $ 7,294,081 1,681,985 $ 21,674,388
Dividends and/or
distributions reinvested 156,641 1,860,329 281,702 3,627,456
Redeemed (1,604,909) (18,896,710) (1,423,149) (18,282,543)
-------------------------------------------------------
Net increase (decrease) (835,257) $ (9,742,300) 540,538 $ 7,019,301
=======================================================
------------------------------------------------------------------------------------
CLASS B
Sold 301,538 $ 3,575,996 964,557 $ 12,473,622
Dividends and/or
distributions reinvested 40,181 476,304 59,086 758,691
Redeemed (490,459) (5,756,055) (367,694) (4,716,392)
------------------------------------------------------
Net increase (decrease) (148,740) $(1,703,755) 655,949 $ 8,515,921
======================================================
</TABLE>
--------------------------------------------------------------------------------
3. UNREALIZED GAINS AND LOSSES ON SECURITIES
As of February 29, 2000, net unrealized depreciation on securities of
$2,965,104 was composed of gross appreciation of $2,208,024, and gross
depreciation of $5,173,128.
--------------------------------------------------------------------------------
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES
MANAGEMENT FEES. Management fees paid to the Manager were in accordance with
the investment advisory agreement with the Fund which provides for a fee of
0.55% of average annual net assets if the Fund's net assets are $100 million or
more (it is reduced if assets are less). The Manager has voluntarily undertaken
to limit its fees to 0.40% of average annual net assets if the Fund's assets
are $100 million or more. The Manager can terminate or amend that undertaking
at any time. The Fund's management fee for the six months ended February 29,
2000 was 0.40% of average annual net assets for each class of shares, after
giving affect to the waiver, annualized for periods of less than one full year.
--------------------------------------------------------------------------------
TRANSFER AGENT FEES. OppenheimerFunds Services (OFS), a division of the
Manager, is the transfer and shareholder servicing agent for the Fund and for
other Oppenheimer funds. OFS's total costs of providing such services are
allocated ratably to these funds.
--------------------------------------------------------------------------------
DISTRIBUTION AND SERVICE PLAN FEES. Under its General Distributor's Agreement
with the Manager, the Distributor acts as the Fund's principal underwriter in
the continuous public offering of the different classes of shares of the Fund.
22 OPPENHEIMER MAIN STREET CALIFORNIA MUNICIPAL FUND
<PAGE>
The compensation paid to (or retained by) the Distributor from the sale of
shares or on the redemption of shares is shown in the table below for the
period indicated.
<TABLE>
<CAPTION>
AGGREGATE CLASS A COMMISSIONS COMMISSIONS
FRONT-END FRONT-END ON CLASS A ON CLASS B
SALES CHARGES SALES CHARGES SHARES SHARES
ON CLASS A RETAINED BY ADVANCED BY ADVANCED BY
SIX MONTHS ENDED SHARES DISTRIBUTOR DISTRIBUTOR(1) DISTRIBUTOR(1)
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
February 29, 2000 $112,866 $12,970 $10,000 $125,396
</TABLE>
1. The Distributor advances commission payments to dealers for certain sales of
Class A shares and for sales of Class B shares from its own resources at the
time of sale.
<TABLE>
<CAPTION>
CLASS A CLASS B
CONTINGENT DEFERRED CONTINGENT DEFERRED
SALES CHARGES SALES CHARGES
SIX MONTHS ENDED RETAINED BY DISTRIBUTOR RETAINED BY DISTRIBUTOR
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
February 29, 2000 $1,790 $71,303
</TABLE>
The Fund has adopted a Service Plan for Class A shares and a Distribution
and Service Plan for Class B shares under Rule 12b-1 of the Investment Company
Act. Under those plans the Fund pays the Distributor for all or a portion of
its costs incurred in connection with the distribution and/or servicing of the
shares of the particular class.
--------------------------------------------------------------------------------
CLASS B DISTRIBUTION AND SERVICE PLAN FEE. Under the plan, service fees and
distribution fees are computed on the average of the net asset value of shares
in the respective class, determined as of the close of each regular business
day during the period. The Class B plan provides for the Distributor to be
compensated at a flat rate, whether the Distributor's distribution expenses are
more or less than the amounts paid by the Fund under the plan during the period
for which the fee is paid.
The Distributor retains the asset-based sales charge on Class B shares.
The asset-based sales charges on Class B shares allows investors to buy shares
without a front-end sales charge while allowing the Distributor to compensate
dealers that sell those shares.
The Distributor's actual expenses in selling Class B shares may be more
than the payments it receives from the contingent deferred sales charges
collected on redeemed shares and asset-based sales charges from the Fund under
the plans. If the plan is terminated by the Fund, the Board of Trustees may
allow the Fund to continue payments of the asset-based sales charge to the
Distributor for distributing shares before the plan was terminated. The plan
allows for the carry-forward of distribution expenses, to be recovered from
asset-based sales charges in subsequent fiscal periods.
Distribution fees paid to the Distributor for the six months ended February 29,
2000, were as follows:
<TABLE>
<CAPTION>
DISTRIBUTOR'S DISTRIBUTOR'S
AGGREGATE UNREIMBURSED
UNREIMBURSED EXPENSES AS %
TOTAL PAYMENTS AMOUNT RETAINED EXPENSES OF NET ASSETS
UNDER PLAN BY DISTRIBUTOR UNDER PLAN OF CLASS
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class B Plan $142,268 $118,005 $1,081,288 4.07%
</TABLE>
23 OPPENHEIMER MAIN STREET CALIFORNIA MUNICIPAL FUND
<PAGE>
NOTES TO FINANCIAL STATEMENTS Unaudited/Continued
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
5. FUTURES CONTRACTS
The Fund may buy and sell futures contracts in order to gain exposure to or to
seek to protect against changes in interest rates. The Fund may also buy or
write put or call options on these futures contracts.
The Fund generally sells futures contracts to hedge against increases in
interest rates and the resulting negative effect on the value of fixed rate
portfolio securities. The Fund may also purchase futures contracts to gain
exposure to changes in interest rates as it may be more efficient or cost
effective than actually buying fixed income securities.
Upon entering into a futures contract, the Fund is required to deposit
either cash or securities (initial margin) in an amount equal to a certain
percentage of the contract value. Subsequent payments (variation margin) are
made or received by the Fund each day. The variation margin payments are equal
to the daily changes in the contract value and are recorded as unrealized gains
and losses. The Fund may recognize a realized gain or loss when the contract is
closed or expires.
Securities held in collateralized accounts to cover initial margin
requirements on open futures contracts are noted in the Statement of
Investments. The Statement of Assets and Liabilities reflects a receivable
and/or payable for the daily mark to market for variation margin.
Risks of entering into futures contracts (and related options) include
the possibility that there may be an illiquid market and that a change in the
value of the contract or option may not correlate with changes in the value of
the underlying securities.
<TABLE>
<CAPTION>
EXPIRATION NUMBER OF VALUATION AS OF UNREALIZED
CONTRACT DESCRIPTION DATE CONTRACTS FEBRUARY 29, 2000 DEPRECIATION
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CONTRACTS TO PURCHASE
Muni Bond 3/22/00 92 $8,514,462 $67,413
</TABLE>
--------------------------------------------------------------------------------
6. BANK BORROWINGS
The Fund may borrow from a bank for temporary or emergency purposes including,
without limitation, funding of shareholder redemptions provided asset coverage
for borrowings exceeds 300%. The Fund has entered into an agreement which
enables it to participate with other Oppenheimer funds in an unsecured line of
credit with a bank, which permits borrowings up to $400 million, collectively.
Interest is charged to each fund, based on its borrowings, at a rate equal to
the Federal Funds Rate plus 0.45%. Borrowings are payable 30 days after such
loan is executed. The Fund also pays a commitment fee equal to its pro rata
share of the average unutilized amount of the credit facility at a rate of
0.08% per annum.
The Fund had no borrowings outstanding during the six months ended
February 29, 2000.
--------------------------------------------------------------------------------
7. SUBSEQUENT EVENT
As of April 1, 2000, the Manager withdrew its voluntary undertaking to limit
its management fees to a maximum annual rate of 0.40%.
24 OPPENHEIMER MAIN STREET CALIFORNIA MUNICIPAL FUND
<PAGE>
OPPENHEIMER MAIN STREET(R) CALIFORNIA MUNICIPAL FUND
--------------------------------------------------------------------------------
A Series of Oppenhemer Main Street Funds, Inc.
================================================================================
OFFICERS AND DIRECTORS James C. Swain, Director and Chairman of the Board
Bridget A. Macaskill, Director and President
Robert G. Avis, Director
William A. Baker, Director
George C. Bowen, Director
Jon S. Fossel, Director
Sam Freedman, Director
Raymond J. Kalinowski, Director
C. Howard Kast, Director
Robert M. Kirchner, Director
Ned M. Steel, Director
Christian D. Smith, Vice President
Andrew J. Donohue, Vice President and Secretary
Brian W. Wixted, Treasurer
Robert J. Bishop, Assistant Treasurer
Scott T. Farrar, Assistant Treasurer
Robert G. Zack, Assistant Secretary
================================================================================
INVESTMENT ADVISOR OppenheimerFunds, Inc.
================================================================================
DISTRIBUTOR OppenheimerFunds Distributor, Inc.
================================================================================
TRANSFER AND OppenheimerFunds Services
SHAREHOLDER SERVICING
AGENT
================================================================================
CUSTODIAN OF The Bank of New York
PORTFOLIO SECURITIES
================================================================================
INDEPENDENT AUDITORS Deloitte & Touche LLP
================================================================================
LEGAL COUNSEL Myer, Swanson, Adams & Wolf, P.C.
The financial statements included herein
have been taken from the records of the Fund without
examination of those records by the independent
auditors.
This is a copy of a report to shareholders
of Oppenheimer Main Street California Municipal Fund.
This report must be preceded or accompanied by a
Prospectus of Oppenheimer Main Street California
Municipal Fund. For material information concerning
the Funds, see the Prospectus.
SHARES OF OPPENHEIMER FUNDS ARE NOT DEPOSITS OR
OBLIGATIONS OF ANY BANK, ARE NOT GUARANTEED BY ANY
BANK, ARE NOT INSURED BY THE FDIC OR ANY OTHER AGENCY,
AND INVOLVE INVESTMENT RISKS, INCLUDING THE POSSIBLE
LOSS OF THE PRINCIPAL AMOUNT INVESTED.
25 OPPENHEIMER MAIN STREET CALIFORNIA MUNICIPAL FUND
<PAGE>
INFORMATION AND SERVICES
--------------------------------------------------------------------------------
As an Oppenheimer fund shareholder, you can benefit from special services
designed to make investing simple. Whether it's automatic investment plans,
timely market updates, or immediate account access, you can count on us whenever
you need assistance. So call us today, or visit our website--we're here to help.
--------------------------------------------------------------------------------
INTERNET
24-hr access to account information and transactions
WWW.OPPENHEIMERFUNDS.COM
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GENERAL INFORMATION
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24 hours a day, timely and insightful messages on the economy and issues that
may affect your investments
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TRANSFER AND SHAREHOLDER SERVICING AGENT
OppenheimerFunds Services
P.O. Box 5270, Denver, CO 80217-5270
--------------------------------------------------------------------------------
[OPPENHEIMER LOGO]
Distributor, Inc.
RS0725.001.0200 April 28, 2000
<PAGE>
ANNUAL REPORT AUGUST 31, 1999
OPPENHEIMER
MAIN STREET(R)
CALIFORNIA MUNICIPAL FUND
[PHOTO]
[OPPENHEIMERFUNDS LOGO]
THE RIGHT WAY TO INVEST
<PAGE>
CONTENTS
3 President's Letter
5 An Interview
with Your Fund's
Manager
9 Fund Performance
12 FINANCIAL STATEMENTS
28 INDEPENDENT
AUDITORS' REPORT
29 Federal Income
Tax Information
30 Officers and
Directors
31 OppenheimerFunds
Family
32 Information and
Services
REPORT HIGHLIGHTS
--------------------------------------------------------------------------------
IN STARK CONTRAST TO U.S. TREASURY SECURITIES, municipal bond prices were
generally stable throughout the reporting period.
OUR RESEARCH-INTENSIVE SECURITY SELECTION STRATEGY helped us find areas of
opportunity and helped avoid potential problems.
AVERAGE ANNUAL
TOTAL RETURNS
For the 1-Year Period Ended 8/31/99*
<TABLE>
<CAPTION>
CLASS A
Without With
Sales Chg. Sales Chg.
--------------------------
<S> <C>
-1.42% -6.11%
</TABLE>
<TABLE>
<CAPTION>
CLASS B
Without With
Sales Chg. Sales Chg.
--------------------------
<S> <C>
-2.41% -7.10%
</TABLE>
NOT FDIC INSURED.
NO BANK GUARANTEE.
MAY LOSE VALUE.
* See page 11 for further details.
2 Oppenheimer Main Street California Municipal Fund
<PAGE>
PRESIDENT'S LETTER
[PHOTO]
JAMES C. SWAIN
Chairman
Oppenheimer
Main Street California
Municipal Fund
[PHOTO]
BRIDGET A. MACASKILL
President
Oppenheimer
Main Street California
Municipal Fund
DEAR SHAREHOLDER,
In many ways, the 1999 investment environment has, so far, unfolded as many
expected it would, producing both attractive opportunities and formidable
challenges for investors.
On the economic front, early worries about the effects of global weakness
in the wake of last year's credit and currency crises have abated. Instead, as
many economies around the world begin to strengthen, concerns now center around
whether the U.S. economy may be growing too quickly. Throughout the year,
consumers in the United States have continued to spend and borrow heavily, more
than offsetting any temporary slowdown in the industrial and export sectors.
The economy's strength has not gone unnoticed by the nation's monetary
policymakers. In an effort to ward off emerging inflationary pressures, the
Federal Reserve Board increased short-term interest rates this past summer.
Market reaction to robust economic growth has been mixed. The U.S. bond
market has generally declined, as fixed income investors became increasingly
concerned about the effects of rising interest rates.
In the stock market, the performance of large-capitalization growth stocks,
which has driven the market's advance over the past few years, has begun to
moderate, and many previously out-of-favor value-oriented, mid-cap and small-cap
stocks have rallied. At the same time, a healthy percentage of actively managed
diversified portfolios have once again begun to outperform unmanaged stock
indices such as Standard & Poor's 500.
3 Oppenheimer Main Street California Municipal Fund
<PAGE>
PRESIDENT'S LETTER
At OppenheimerFunds, we applaud the Fed's pre-emptive strike against inflation.
In our view, history has repeatedly demonstrated that most financial assets do
best in a low-inflation environment. What's more, we believe that the move to
higher interest rates should be temporary.
One recent development is quite troublesome to us however: the increasing
popularity of "day trading" among individuals seeking to make fast money in a
volatile stock market. In our opinion, day trading is not investing, it is
gambling. Experience proves that without extensive research and analysis,
attempting to time short-term price swings is a fool's errand. Instead, we
continue to encourage investors to maintain a long-term perspective that is
measured in years, not days.
Finally, while we remain alert to the potential impact of the Y2K issue, we
are encouraged by the progress made in addressing the matter. At
OppenheimerFunds, our shareholder accounting systems are already Y2K compliant,
and we have successfully participated in all required industrywide tests. We
intend to continue retesting our systems in order to help further protect
against any potential problems. After all, whether in our computer accounting
systems or the financial markets, managing risk is an important part of what
makes OppenheimerFunds The Right Way to Invest.
Sincerely,
/s/ JAMES C. SWAIN /s/ BRIDGET A. MACASKILL
James C. Swain Bridget A. Macaskill
September 22, 1999
4 Oppenheimer Main Street California Municipal Fund
<PAGE>
AN INTERVIEW WITH YOUR FUND'S MANAGER
[PHOTO]
PORTFOLIO MANAGEMENT
TEAM (L TO R)
Bob Patterson
Caryn Halbrecht
(Portfolio Manager)
HOW DID OPPENHEIMER MAIN STREET CALIFORNIA MUNICIPAL FUND PERFORM DURING THE
ONE-YEAR PERIOD THAT ENDED AUGUST 31, 1999?
A. In a rapidly changing investment environment, the Fund continued to provide
investors with current income that was exempt from federal and California income
taxes. Market conditions in late 1998 and early 1999 were, in many respects,
direct opposites of each other. The final months of 1998 were generally
characterized by recessionary economic conditions throughout much of the world,
declining interest rates in the United States and less restrictive monetary
policies worldwide. In contrast, 1999 has seen signs of global economic
recovery, rising domestic interest rates and, ultimately, a tighter monetary
policy in the United States.
HOW DID THESE ECONOMIC CONDITIONS AFFECT CALIFORNIA'S MUNICIPAL BOND MARKET?
In stark contrast to U.S. Treasury securities, municipal bond prices were
remarkably stable throughout the one-year reporting period. In the first half of
the period, global economic uncertainty triggered a "flight to quality" among
U.S. and foreign investors. This created unprecedented demand for U.S. Treasury
securities, driving their prices up and their yields down (prices and yields
move in opposite directions). However, because municipal bonds do not provide
tax advantages to foreign investors, municipals did not benefit to the same
extent. As a result, U.S. Treasury securities significantly outperformed
triple-A rated municipal bonds with comparable maturities.
5 Oppenheimer Main Street California Municipal Fund
<PAGE>
AN INTERVIEW WITH YOUR FUND'S MANAGER
"MUNICIPAL BONDS ENDURED SIGNIFICANTLY LESS VOLATILITY THAN OTHER HIGH-QUALITY,
FIXED INCOME SECURITIES OVER THE PAST YEAR."
In the second half of the reporting period, while municipal bonds remained
stable, prices of U.S. Treasury securities declined sharply. As the economy grew
stronger, investors appeared to regain some of their confidence and sold many
Treasury bonds in order to return to riskier financial assets such as stocks and
corporate bonds. Consequently, municipal bonds provided higher total returns
than U.S. Treasuries during the past twelve months.
In our opinion, municipal bonds' relative stability is the result of
supply-and-demand factors. Strong economic conditions in California reduced many
municipalities' need to borrow, leading to a modestly diminished supply of tax
exempt bonds. Yet, demand remained high from investors seeking to minimize their
income tax liabilities. This supply-and-demand relationship helped support the
stability of California's municipal bond prices and yields.
DID YOU FIND COMPELLING VALUES IN THIS MARKET ENVIRONMENT?
Yes. Long-term, tax exempt municipal bond yields have been high relative to
yields of long-term, taxable U.S. Treasury securities during the past twelve
months. In fact, by mid-1999, California municipal bond yields were more than
90% of comparable Treasury yields. As a result, we believe that California
municipal bonds have provided excellent after-tax values compared to historical
norms during this period.
6 Oppenheimer Main Street California Municipal Fund
<PAGE>
AVERAGE ANNUAL
TOTAL RETURNS
For the Periods Ended 9/30/99(1)
<TABLE>
<CAPTION>
------------------------------
Class A Since
1-Year 5-Year Inception
------------------------------
<S> <C> <C>
-8.02% 5.73% 6.56%
Class B Since
1-Year 5-Year Inception
------------------------------
-9.00% 5.37% 3.69%
------------------------------
</TABLE>
<TABLE>
<CAPTION>
STANDARDIZED YIELDS(2)
For the 30 Days Ended 8/31/99
------------------------------
<S> <C>
Class A 5.01%
------------------------------
Class B 4.25
------------------------------
</TABLE>
HOW DID YOU MANAGE THE FUND IN THIS ENVIRONMENT?
We attempted to manage the risks of changing interest rates and emphasized those
sectors of the municipal bond market that we expected to benefit most from
prevailing economic and market conditions. This strategy led us to areas of
opportunity that we believed would benefit from California's growing population,
including residential land development and adult living facilities. Residential
land development bonds finance much of the basic infrastructure for new housing
construction. Adult living facilities are residential housing projects designed
to meet the unique demands of a growing population of aging Americans who want
amenities tailored to their lifestyles.
Our strategy also led us to generally avoid certain issuers, such as
hospitals, which have been subject to financial pressures because of an
unfavorable regulatory and legislative environment, including cutbacks in
Medicaid and Medicare. We also tended to avoid bonds issued by utilities that
are in the midst of industrywide deregulation.
Throughout the reporting period, we mostly targeted a neutral average
duration--which is a measure of sensitivity to changes in interest rates. When
interest rates declined in 1998, our neutral position constrained performance
slightly compared to portfolios with longer durations. However, when interest
rates rose in 1999, our neutral position helped shelter the portfolio from some
of the impact affecting investors who had previously adopted a longer, more
aggres-sive duration strategy.
1. See page 11 for further details.
2. Standardized yield is based on net investment income for the 30-day period
ended August 31, 1999. Falling share prices will tend to artificially raise
yields.
7 OPPENHEIMER MAIN STREET CALIFORNIA MUNICIPAL FUND
<PAGE>
CREDIT ALLOCATION(3)
[PIE CHART]
<TABLE>
<S> <C>
- AAA 50.5%
- AA 12.1
- A 13.4
- BBB 21.9
- BB 2.1
</TABLE>
WHAT IS YOUR OUTLOOK FOR THE MUNICIPAL BOND MARKET AND THE FUND?
We remain cautiously optimistic. First, we believe that municipal bonds are
attractively valued relative to comparable taxable securities, and should
benefit as that relationship returns to more normal levels. Second, California
has benefited greatly from the recent strength of the U.S. economy, which has
enabled many of its municipalities to put their fiscal houses in good order.
This should help reduce some of the risk of credit downgrades.
On the other hand, we remain concerned about rising interest rates.
Accordingly, we intend to continue to monitor the economic environment
carefully. If the economy continues to grow at an unsustainable rate, we may
position the portfolio to reduce the adverse effects of potentially higher
interest rates. We believe that these credit-conscious, risk manage-ment
strategies make Oppenheimer Main Street California Municipal Fund an important
part of The Right Way to Invest.
<TABLE>
<CAPTION>
TOP FIVE INDUSTRIES(4)
(Percentage of market value)
----------------------------------------------------------------------------
<S> <C>
Special Assessment 19.6%
----------------------------------------------------------------------------
Single Family Housing 17.9
----------------------------------------------------------------------------
Highways 12.6
----------------------------------------------------------------------------
General Obligation 10.4
----------------------------------------------------------------------------
Municipal Leases 6.3
----------------------------------------------------------------------------
</TABLE>
3. Portfolio data are as of August 31, 1999, are dollar-weighted based on
invested assets and are subject to change. The Fund may invest up to 25% of its
assets in below-investment-grade securities which carry greater risk of default.
Securities rated by any rating organization are included in the equivalent
Standard & Poor's rating category. Average credit quality and allocation include
rated securities and those not rated by a national rating organization
(currently 9.50% of total investments) but to which the Manager in its judgment
has assigned ratings as securities comparable to those rated by a rating agency
in the same category.
4. Industry weightings are as of August 31, 1999, and are subject to change.
8 Oppenheimer Main Street California Municipal Fund
<PAGE>
FUND PERFORMANCE
HOW HAS THE FUND PERFORMED? Below is a discussion, by the Manager, of the Fund's
performance during its fiscal year ended August 31, 1999, 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 that
ended August 31, 1999, Oppenheimer Main Street California Municipal Fund's
performance was negatively impacted by the performance of the overall bond
market, which weakened considerably in 1999. The weakness in the bond market
stemmed from signs of continuing strong economic growth, which could cause
inflation to reemerge. However, the Fund benefited from a reduced supply of new
tax exempt bond issues relative to robust demand from investors seeking to
manage their income tax liabilities. This reduction in issuance was primarily a
result of strong economic conditions throughout the United States, which helped
curtail California's need to borrow. In this environment, the Fund continued to
adhere to its longstanding strategy of holding a diversified portfolio of
municipal bonds selected after extensive research into their issuers' credit
quality. The Fund's portfolio holdings, allocations and strategies are subject
to change.
COMPARING THE FUND'S PERFORMANCE TO THE MARKET. The graphs that follow show the
performance of a hypothetical $10,000 investment in each class of shares of the
Fund held from the inception of the class until August 31, 1999. In the case of
Class A shares, performance is measured from the inception of the class on May
18, 1990. In the case of Class B shares, performance is measured from the
inception of the class on October 29, 1993. The Fund's performance reflects the
deduction of the maximum initial sales charge on Class A shares and the
applicable contingent deferred sales charge for Class B shares. The graphs
assume that all dividends and capital gains distributions were reinvested in
additional shares.
Because the Fund invests in a variety of municipal securities, the Fund's
performance is compared to that of the Lehman Brothers Municipal Bond Index, an
unmanaged index of a broad range of investment grade municipal bonds that is
widely regarded as a measure of the performance of the general municipal bond
market. Index performance reflects the reinvestment of income but does not
consider the effect of capital gains or transaction costs, and none of the data
in the graphs that follow shows the effect of taxes. Also, the Fund's
performance 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.
9 Oppenheimer Main Street California Municipal Fund
<PAGE>
FUND PERFORMANCE
CLASS A SHARES
COMPARISON OF CHANGE IN VALUE OF $10,000 HYPOTHETICAL INVESTMENTS IN:
Oppenheimer Main Street California Municipal Fund (Class A) and Lehman Brothers
Municipal Bond Index
[The following table was originally a line graph in the printed materials.]
<TABLE>
<CAPTION>
Oppenheimer Lehman Brothers
Main Street Municipal Bond
California Index
Municipal
Fund (Class A)
<S> <C> <C>
5/18/90 $ 9,525 $ 10,000
6/30/90 9,711 10,088
6/30/91 10,482 10,997
6/30/92 11,657 12,292
6/30/93 13,098 13,762
6/30/94 13,020 13,785
6/30/95 14,182 15,001
6/30/96 15,135 15,997
8/31/96 15,304 16,138
8/31/97 16,872 17,630
8/31/98 18,446 19,155
8/31/99 18,184 19,251
</TABLE>
AVERAGE ANNUAL TOTAL RETURN OF CLASS A SHARES OF THE FUND AT 8/31/99(2)
1-Year -6.11% 5-Year 5.44% Life 6.65%
CLASS B SHARES
COMPARISON OF CHANGE IN VALUE OF $10,000 HYPOTHETICAL INVESTMENTS IN:
Oppenheimer Main Street California Municipal Fund (Class B) and Lehman Brothers
Municipal Bond Index
[The following table was originally a line graph in the printed materials.]
<TABLE>
<CAPTION>
Oppenheimer Lehman Brothers
Main Street Municipal Bond
California Index
Municipal
Fund (Class B)
<S> <C> <C>
10/29/93 $10,000 $ 10,000
6/30/94 9,458 9,671
6/30/95 10,205 10,524
6/30/96 10,782 11,223
8/31/96 10,874 11,322
8/31/97 11,878 12,368
8/31/98 12,855 13,438
8/31/99 12,452 13,505
</TABLE>
AVERAGE ANNUAL TOTAL RETURN OF CLASS B SHARES OF THE FUND AT 8/31/99(2)
1 Year -7.10% 5 Year 5.09% Life 3.83%
The performance information for the Lehman Brothers Municipal Bond Index in the
graphs begins on 5/31/90 for Class A and 10/31/93 for Class B.
1. The Fund changed its fiscal year end from 6/30 to 8/31.
2. See page 11 for further details.
Past performance is not predictive of future performance. Graphs are not drawn
to the same scale.
10 Oppenheimer Main Street California Municipal Fund
<PAGE>
NOTES
IN REVIEWING PERFORMANCE AND RANKINGS, PLEASE REMEMBER THAT PAST PERFORMANCE
DOES NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE OF AN
INVESTMENT IN THE FUND WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN
REDEEMED, MAY BE WORTH MORE OR LESS THAN THE ORIGINAL COST. THE FUND'S
PERFORMANCE MAY FROM TIME TO TIME BE SUBJECT TO SUBSTANTIAL SHORT-TERM CHANGES,
PARTICULARLY DURING PERIODS OF MARKET OR INTEREST RATE VOLATILITY. FOR UPDATES
ON THE FUND'S PERFORMANCE, PLEASE CONTACT YOUR FINANCIAL ADVISOR, CALL US AT
1.800.525.7048 OR VISIT OUR WEBSITE, WWW.OPPENHEIMERFUNDS.COM.
Total returns and the ending account values in the graphs include changes in
share price and reinvestment of dividends and capital gains distributions in a
hypothetical investment for the periods shown.
CLASS A shares were first publicly offered on 5/18/90. Class A returns include
the current maximum initial sales charge of 4.75%. The Fund's maximum sales
charge for Class A shares was lower prior to 11/2/91, so actual performance may
have been higher.
CLASS B shares of the Fund were first publicly offered on 10/29/93. Class B
returns include the applicable contingent deferred sales charge of 5% (1-year)
and 1% (since inception). Class B shares are subject to an annual 0.75%
asset-based sales charge. The ending account value shown in the graph is net of
the applicable 1% contingent deferred sales charge.
An explanation of the different performance calculations is in the Fund's
prospectus.
11 Oppenheimer Main Street California Municipal Fund
<PAGE>
STATEMENT OF INVESTMENTS August 31, 1999
<TABLE>
<CAPTION>
RATINGS:
MOODY'S/ MARKET
S&P/FITCH FACE VALUE
(UNAUDITED) AMOUNT SEE NOTE 1
------------------------------------------------------------------------------------------------------------------
MUNICIPAL BONDS AND NOTES--98.8%
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CALIFORNIA--90.6%
Anaheim, CA PFAU TXAL RB, MBIA Insured,
Inverse Floater, 9.37%, 12/28/18(1) Aaa/AAA $1,000,000 $1,167,500
------------------------------------------------------------------------------------------------------------------
Berkeley, CA HF RRB, Alta Bates Medical Center,
Prerefunded, Series A, 6.50%, 12/1/11 A2/NR 1,500,000 1,609,740
------------------------------------------------------------------------------------------------------------------
CA Assn. of Bay Area Governments FAU for
Non-profit Corps. Refunding COP, American
Baptist Homes, Series A, 6.20%, 10/1/27 NR/BBB 1,790,000 1,782,804
------------------------------------------------------------------------------------------------------------------
CA Assn. of Bay Area Governments FAU for
Non-profit Corps. Refunding COP, Episcopal
Homes Foundation, 5.125%, 7/1/18 NR/A- 1,500,000 1,383,975
------------------------------------------------------------------------------------------------------------------
CA Assn. of Bay Area Governments FAU for
Non-profit Corps. Refunding COP, Rhonda
Haas Goldman Plaza, 5.125%, 5/15/23 NR/AA- 700,000 638,218
------------------------------------------------------------------------------------------------------------------
CA CDAU Lease RB, United Airlines,
Series A, 5.70%, 10/1/33 Baa3/BB+ 3,200,000 2,976,064
------------------------------------------------------------------------------------------------------------------
CA CDAU MH RB, Village Riviera Hills,
Series E, 5.45%, 2/1/25 NR/AAA 1,000,000 1,003,830
------------------------------------------------------------------------------------------------------------------
CA Foothill/Eastern Corridor Agency
Toll Road RB, Sr. Lien, Prerefunded,
Series A, 6.50%, 1/1/32 Baa3/BBB-/BBB 1,400,000 1,557,892
------------------------------------------------------------------------------------------------------------------
CA Foothill/Eastern Corridor Agency
Toll Road RRB, Zero Coupon, 5.98%, 1/15/21(2) Baa3/BBB-/BBB 5,000,000 1,343,350
------------------------------------------------------------------------------------------------------------------
CA Foothill/Eastern Corridor Agency
Toll Road RRB, Zero Coupon, 6%, 1/15/22(2) Baa3/BBB-/BBB 5,500,000 1,387,705
------------------------------------------------------------------------------------------------------------------
CA GOB, 5%, 10/1/27 Aa3/AA-/AA- 3,000,000 2,721,030
------------------------------------------------------------------------------------------------------------------
CA HFA SFM Purchase RB, Series A-2, 6.45%, 8/1/25 Aaa/AAA 2,340,000 2,416,752
------------------------------------------------------------------------------------------------------------------
CA HFA SFM RB, Series A, Cl. I, 5.40%, 8/1/26 Aaa/AAA 1,810,000 1,674,829
------------------------------------------------------------------------------------------------------------------
CA HFA SFM RB, Series C, 6.75%, 2/1/25 Aa2/AA- 4,790,000 4,963,254
------------------------------------------------------------------------------------------------------------------
CA Infrastructure & ED Bank RB,
American Center for Wine Food Arts, 5.55%, 12/1/12 NR/A/A 1,710,000 1,697,962
------------------------------------------------------------------------------------------------------------------
CA PCFAU RB, Pacific Gas & Electric Co. Project,
Series B, 6.35%, 6/1/09 A1/AA- 2,000,000 2,139,500
------------------------------------------------------------------------------------------------------------------
CA PWBL RB, State Prison Department of
Corrections, Series E, FSA Insured, 5.50%, 6/1/15 Aaa/AAA/AAA 2,000,000 2,038,960
------------------------------------------------------------------------------------------------------------------
CA Rural Home Mtg. FAU SFM RB,
Mtg.-Backed Securities Program,
Series A, 5.75%, 12/1/29 NR/AAA 1,905,000 1,999,793
------------------------------------------------------------------------------------------------------------------
CA Rural Home Mtg. FAU SFM RB,
Mtg.-Backed Securities Program,
Series B, 7.75%, 9/1/26 NR/AAA 920,000 1,001,770
</TABLE>
12 Oppenheimer Main Street California Municipal Fund
<PAGE>
<TABLE>
<CAPTION>
RATINGS:
MOODY'S/ MARKET
S&P/FITCH FACE VALUE
(UNAUDITED) AMOUNT SEE NOTE 1
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CALIFORNIA Continued
CA Rural Home Mtg. FAU SFM RB,
Mtg.-Backed Securities Program,
Series B-5, 6.35%, 12/1/29 NR/AAA $1,470,000 $1,548,007
------------------------------------------------------------------------------------------------------------------
CA Rural Home Mtg. FAU SFM RB,
Mtg.-Backed Securities Program,
Series D, Cl. 5, 6.70%, 5/1/29 NR/AAA 1,890,000 2,057,983
------------------------------------------------------------------------------------------------------------------
CA SCDAU COP, The Internext Group, 5.375%, 4/1/17 NR/BBB 3,000,000 2,794,770
------------------------------------------------------------------------------------------------------------------
CA SCDAU COP, The Internext Group, 5.375%, 4/1/30 NR/BBB 1,500,000 1,348,110
------------------------------------------------------------------------------------------------------------------
CA SCDAU Revenue Refunding COP,
Inverse Floater, 7.63%, 11/1/15(1) A1/NR 1,200,000 1,101,000
------------------------------------------------------------------------------------------------------------------
Central CA Joint Powers Health FAU COP,
Community Hospitals of Central California
Project, 5%, 2/1/23 Baa1/NR 285,000 247,451
------------------------------------------------------------------------------------------------------------------
Contra Costa Cnty., CA SPTX RRB,
CFD 91-1, 5.58%, 8/1/16 NR/NR 3,075,000 2,916,853
------------------------------------------------------------------------------------------------------------------
Corona, CA SFM RB, Sub. Lien,
Series B, 6.30%, 11/1/28 A2/NR 800,000 823,472
------------------------------------------------------------------------------------------------------------------
Escondido, CA Union High SDI CAP GOB,
MBIA Insured, Zero Coupon, 6.20%, 11/1/19(2) Aaa/AAA 2,000,000 636,960
------------------------------------------------------------------------------------------------------------------
Fontana, CA RA TXAL GORB,
Jurupa Hills Redevelopment Project,
Prerefunded, Series A, 7.10%, 10/1/23 NR/BBB+ 1,960,000 2,164,389
------------------------------------------------------------------------------------------------------------------
Fontana, CA RA TXAL Refunding Bonds,
Jurupa Hills Redevelopment Project,
Series A, 5.50%, 10/1/19 NR/BBB+ 1,185,000 1,130,253
------------------------------------------------------------------------------------------------------------------
Fresno, CA HAU MH RB, Central Valley
Coalition Projects, Series A, 5.60%, 8/1/30 NR/AAA 3,075,000 3,107,472
------------------------------------------------------------------------------------------------------------------
Fresno, CA USD GORB, Series A,
MBIA Insured, 6.55%, 8/1/20 Aaa/AAA/AAA 1,225,000 1,366,353
------------------------------------------------------------------------------------------------------------------
Fresno, CA USD GOUN, Series A,
MBIA Insured, 6.40%, 8/1/16 Aaa/AAA/AAA 1,000,000 1,108,490
------------------------------------------------------------------------------------------------------------------
Irvine, CA Improvement Bond Act 1915
SPAST Bonds, Assessment District No. 94-13,
Group 2, 5.875%, 9/2/17 NR/NR 1,250,000 1,212,225
------------------------------------------------------------------------------------------------------------------
Irvine, CA Improvement Bonds Act 1915 RB,
Assessment District 95-12, 6%, 9/2/21 NR/NR 1,750,000 1,709,295
------------------------------------------------------------------------------------------------------------------
Lake Elsinore, CA PFAU TXAL Bonds,
Series A, 5.50%, 9/1/30 NR/BBB 2,500,000 2,290,650
------------------------------------------------------------------------------------------------------------------
Lake Elsinore, CA School FAU RRB,
Horsethief Canyon, 5.35%, 9/1/10 NR/NR 1,015,000 972,664
------------------------------------------------------------------------------------------------------------------
Las Virgenes, CA USD CAP Bonds, Series A,
MBIA Insured, Zero Coupon, 4.95%, 11/1/12(2) Aaa/AAA/AAA 2,095,000 1,044,714
</TABLE>
13 Oppenheimer Main Street California Municipal Fund
<PAGE>
STATEMENT OF INVESTMENTS (Continued)
<TABLE>
<CAPTION>
RATINGS:
MOODY'S/ MARKET
S&P/FITCH FACE VALUE
(UNAUDITED) AMOUNT SEE NOTE 1
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CALIFORNIA Continued
Long Beach, CA Harbor RRB, Series A,
FGIC Insured, 6%, 5/15/10 Aaa/AAA $ 500,000 $ 533,960
------------------------------------------------------------------------------------------------------------------
Los Angeles Cnty., CA CAP COP, Disney
Parking Project, Zero Coupon, 6.95%, 9/1/11(2) Baa1/BBB/A- 2,340,000 1,198,384
------------------------------------------------------------------------------------------------------------------
Los Angeles Cnty., CA CAP COP, Disney
Parking Project, Zero Coupon, 5.67%, 9/1/16(2) Baa1/BBB /A- 1,745,000 631,934
------------------------------------------------------------------------------------------------------------------
Los Angeles Cnty., CA MTAU Sales Tax RRB,
Series A, FSA Insured, 5%, 7/1/12 Aaa/AAA/AAA 2,000,000 1,974,700
------------------------------------------------------------------------------------------------------------------
Los Angeles Cnty., CA MTAU Sales Tax RRB,
Series A, FSA Insured, 5%, 7/1/19 Aaa/AAA/AAA 2,000,000 1,862,880
------------------------------------------------------------------------------------------------------------------
Los Angeles Cnty., CA MTAU Sales Tax RRB,
Series A, MBIA Insured, 5.25%, 7/1/15 Aaa/AAA/AAA 2,000,000 1,970,000
------------------------------------------------------------------------------------------------------------------
Los Angeles Cnty., CA Public Works FAU RRB,
Regional Park & Open Space District,
Series A, 5%, 10/1/16 Aa3/AA 1,900,000 1,804,620
------------------------------------------------------------------------------------------------------------------
Los Angeles, CA USD GOB, Series A,
FGIC Insured, 6%, 7/1/15 Aaa/AAA/AAA 1,000,000 1,069,300
------------------------------------------------------------------------------------------------------------------
Los Angeles, CA USD GOB, Series B,
FGIC Insured, 5%, 7/1/23 Aaa/AAA/AAA 2,000,000 1,824,640
------------------------------------------------------------------------------------------------------------------
Palmdale, CA Civic Authority RRB,
Merged Redevelopment Project,
Prerefunded, Series A, 6.60%, 9/1/34 Aaa/AAA 595,000 666,317
------------------------------------------------------------------------------------------------------------------
Palmdale, CA Civic Authority RRB,
Merged Redevelopment Project,
Unrefunded Balance, Series A, 6.60%, 9/1/34 Aaa/AAA 405,000 429,029
------------------------------------------------------------------------------------------------------------------
Pittsburg, CA RA TXAL Refunding Bonds,
Los Medanos Community Development Project,
Sub. Lien, 6.20%, 8/1/19 NR/BBB 1,000,000 1,027,890
------------------------------------------------------------------------------------------------------------------
Pomona, CA SFM RRB, Escrowed to Maturity,
Series A, 7.60%, 5/1/23 Aaa/AAA 2,500,000 3,079,700
------------------------------------------------------------------------------------------------------------------
Pomona, CA USD GORB, Series A,
MBIA Insured, 6.15%, 8/1/15 Aaa/AAA 500,000 539,920
------------------------------------------------------------------------------------------------------------------
Redding, CA Electric System Revenue COP,
FGIC Insured, Inverse Floater, 7.97%, 6/1/19(1) Aaa/AAA/AAA 1,150,000 1,160,062
------------------------------------------------------------------------------------------------------------------
Redding, CA Electric System Revenue COP,
MBIA Insured, Inverse Floater, 9.01%, 7/8/22(1) Aaa/AAA 500,000 590,625
------------------------------------------------------------------------------------------------------------------
Riverside Cnty., CA CFD No. 88-12 SPTX Bonds,
Prerefunded, 7.55%, 9/1/17 NR/NR 1,500,000 1,586,280
------------------------------------------------------------------------------------------------------------------
Riverside Cnty., CA PFAU TXAL RRB,
Redevelopment Projects, Series A, 5.625%, 10/1/33 Baa2/BBB- 1,650,000 1,580,106
------------------------------------------------------------------------------------------------------------------
Riverside Cnty., CA SFM RB, Escrowed to Maturity,
Series A, 7.80%, 5/1/21 Aaa/AAA 1,000,000 1,269,860
</TABLE>
14 Oppenheimer Main Street California Municipal Fund
<PAGE>
<TABLE>
<CAPTION>
RATINGS:
MOODY'S/ MARKET
S&P/FITCH FACE VALUE
(UNAUDITED) AMOUNT SEE NOTE 1
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CALIFORNIA Continued
Riverside, CA PFAU Lease RB, AMBAC Insured,
5.25%, 10/1/17 Aaa/AAA/AAA $2,100,000 $2,046,093
------------------------------------------------------------------------------------------------------------------
Sacramento Cnty., CA SFM RB,
Escrowed to Maturity, 8%, 7/1/16(3) Aaa/AAA 2,810,000 3,576,315
------------------------------------------------------------------------------------------------------------------
Sacramento, CA MUD Electric RRB,
FGIC Insured, Inverse Floater, 9.375%, 8/15/18(1) Aaa/AAA/AAA 1,500,000 1,674,375
------------------------------------------------------------------------------------------------------------------
Sacramento, CA Cogeneration Authority RRB,
MBIA Insured, 5.25%, 7/1/12 Aaa/AAA/AAA 250,000 251,935
------------------------------------------------------------------------------------------------------------------
Salinas Valley, CA Solid Waste Authority RB,
5.80%, 8/1/27 Baa3/BBB 1,665,000 1,584,414
------------------------------------------------------------------------------------------------------------------
San Diego Cnty., CA Water Authority
Revenue COP, Prerefunded, Series 91-B,
MBIA Insured, Inverse Floater, 8.87%, 4/8/21(1) Aaa/AAA 1,000,000 1,197,500
------------------------------------------------------------------------------------------------------------------
San Francisco, CA Bay Area Rapid Transit District
Sales Tax RRB, AMBAC Insured, 6.75%, 7/1/11 Aaa/AAA/AAA 1,000,000 1,153,350
------------------------------------------------------------------------------------------------------------------
San Francisco, CA City & Cnty. International
Airport Commission RB, Second Series Issue 13-B,
MBIA Insured, 8%, 5/1/07 Aaa/AAA 1,140,000 1,353,864
------------------------------------------------------------------------------------------------------------------
San Francisco, CA City & Cnty. International
Airport Commission RB, Second Series Issue 14-A,
MBIA Insured, 8%, 5/1/07 Aaa/AAA 1,290,000 1,532,004
------------------------------------------------------------------------------------------------------------------
San Francisco, CA City & Cnty. RA Lease RB, CAP,
George R. Moscone Project, Zero Coupon,
5.36%, 7/1/10(2) A1/A-/A+ 4,500,000 2,533,185
------------------------------------------------------------------------------------------------------------------
San Francisco, CA City & Cnty. Redevelopment
FAU TXAL CAP Refunding Bonds, Redevelopment
Projects, Series C, Zero Coupon, 5.20%, 8/1/13(2) A2/A 2,350,000 1,055,479
------------------------------------------------------------------------------------------------------------------
San Joaquin Hills, CA Transportation Corridor Agency
Toll Road CAP RRB, Series A, 0%/5.75%, 1/15/21(4) Baa3/BBB-/BBB 3,200,000 1,971,968
------------------------------------------------------------------------------------------------------------------
San Joaquin Hills, CA Transportation Corridor Agency
Toll Road RB, Sr. Lien, Prerefunded, 6.75%, 1/1/32 Aaa/AAA/AAA 3,500,000 3,844,225
------------------------------------------------------------------------------------------------------------------
San Ysidro, CA SDI GOB,
AMBAC Insured, 6.125%, 8/1/21 Aaa/AAA 700,000 747,635
------------------------------------------------------------------------------------------------------------------
South Orange Cnty., CA PFAU SPTX RB,
Foothill Area, Series C, FGIC Insured, 8%, 8/15/08 Aaa/AAA/AAA 1,500,000 1,845,420
------------------------------------------------------------------------------------------------------------------
Southern CA Home FAU SFM RB,
Series A, 7.35%, 9/1/24 NR/AAA 185,000 190,936
------------------------------------------------------------------------------------------------------------------
Southern CA Metropolitan Water District
Waterworks RB, Series A, 5%, 7/1/26 Aa2/AA 1,000,000 911,320
------------------------------------------------------------------------------------------------------------------
Southern CA Metropolitan Water District
Waterworks RRB, Inverse Floater, 7.42%, 10/30/20(1) Aa2/AA 1,200,000 1,152,000
</TABLE>
15 Oppenheimer Main Street California Municipal Fund
<PAGE>
STATEMENT OF INVESTMENTS (Continued)
<TABLE>
<CAPTION>
RATINGS:
MOODY'S/ MARKET
S&P/FITCH FACE VALUE
(UNAUDITED) AMOUNT SEE NOTE 1
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
California Continued
Southern CA PPAU Transmission Project RB,
Inverse Floater, 7.615%, 7/1/12(1) Aa3/A+ $2,100,000 $ 2,299,500
------------------------------------------------------------------------------------------------------------------
Stanislaus, CA Waste-To-Energy Financing Agency
Solid Waste Facilities RRB,
Ogden Martin System, Inc.
Project, 7.50%, 1/1/05 NR/A- 1,285,000 1,321,430
------------------------------------------------------------------------------------------------------------------
Suisun City, CA PFAU TXAL RB, Suisun City
Redevelopment Project, Series A, 5.20%, 10/1/28 NR/A- 2,500,000 2,278,875
------------------------------------------------------------------------------------------------------------------
Temecula, CA CFD No. 88-12-A SPTX Refunding Bonds,
5.625%, 9/1/17 NR/NR 535,000 506,629
------------------------------------------------------------------------------------------------------------------
West Covina, CA COP, Queen of the Valley Hospital,
Prerefunded, 6.50%, 8/15/19 A2/NR 1,120,000 1,248,363
-------------
126,163,061
------------------------------------------------------------------------------------------------------------------
U.S. POSSESSIONS--8.2%
PR CMWLTH GOB, 5.375%, 7/1/25 Baa1/A 1,650,000 1,574,595
------------------------------------------------------------------------------------------------------------------
PR CMWLTH GORB, MBIA Insured,
Inverse Floater, 8.08%, 7/1/08(1) Aaa/AAA 1,500,000 1,620,000
------------------------------------------------------------------------------------------------------------------
PR CMWLTH HTAU RB,
Inverse Floater, 6.75%, 7/1/28(1,5) NR/NR 5,000,000 4,165,800
------------------------------------------------------------------------------------------------------------------
PR CMWLTH HTAU RRB, Series A,
AMBAC Insured, 5.50%, 7/1/13 Aaa/AAA/AAA 1,500,000 1,543,140
------------------------------------------------------------------------------------------------------------------
PR CMWLTH HTAU RRB, Series A,
AMBAC Insured, 5.50%, 7/1/14 Aaa/AAA/AAA 1,500,000 1,537,410
------------------------------------------------------------------------------------------------------------------
PR Housing Finance Corp. SFM RB,
Portfolio 1, Series B, 7.65%, 10/15/22 Aaa/AAA 125,000 129,595
------------------------------------------------------------------------------------------------------------------
PR Industrial, Medical & Environmental PC
Facilities Tourist RB, Mennonite General
Hospital Project, Series A, 6.50%, 7/1/12 NR/BBB-/BBB 590,000 603,446
------------------------------------------------------------------------------------------------------------------
PR Public Buildings Authority RB,
Government Facilities, Series B,
AMBAC Insured, 5%, 7/1/27 Aaa/AAA 300,000 275,337
-------------
11,449,323
------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS, AT VALUE (COST $138,482,564) 98.8% 137,612,384
------------------------------------------------------------------------------------------------------------------
OTHER ASSETS NET OF LIABILITIES 1.2 1,693,187
-----------------------------
NET ASSETS 100.0% $139,305,571
=============================
</TABLE>
16 Oppenheimer Main Street California Municipal Fund
<PAGE>
FOOTNOTES TO STATEMENT OF INVESTMENTS
To simplify the listings of securities, abbreviations are used per the table
below:
<TABLE>
<S> <C> <C> <C>
CAP Capital Appreciation MUD Municipal Utility District
CDAU Communities Development Authority PCFAU Pollution Control Finance Authority
CFD Community Facilities District PFAU Public Finance Authority
CMWLTH Commonwealth PPAU Public Power Authority
COP Certificates of Participation PWBL Public Works Board Lease
ED Economic Development RA Redevelopment Agency
FAU Finance Authority RB Revenue Bonds
GOB General Obligation Bonds RRB Revenue Refunding Bonds
GORB General Obligation Refunding Bonds SCDAU Statewide Communities Development Authority
GOUN General Obligation Unlimited Nts. SDI School District
HAU Housing Authority SFM Single Family Mtg.
HF Health Facilities SPAST Special Assessment
HFA Housing Finance Agency SPTX Special Tax
HTAU Highway & Transportation Authority TXAL Tax Allocation
MH Multifamily Housing USD Unified School District
MTAU Metropolitan Transportation Authority
</TABLE>
1. Represents the current interest rate for a variable rate bond known as an
"inverse floater" which pays interest at a rate that varies inversely with
short-term interest rates. As interest rates rise, inverse floaters produce less
current income. Their price may be more volatile than the price of a comparable
fixed-rate security. Inverse floaters amount to $16,128,362 or 11.58% of the
Fund's net assets as of August 31, 1999.
2. For zero coupon bonds, the interest rate shown is the effective yield on the
date of purchase.
3. Securities with an aggregate market value of $559,992 are held in
collateralized accounts to cover initial margin requirements on open futures
sales contracts. See Note 5 of Notes to Financial Statements.
4. Denotes a step bond: a zero coupon bond that converts to a fixed or variable
interest rate at a designated future date.
5. Represents securities sold under Rule 144A, which are exempt from
registration under the Securities Act of 1933, as amended. These securities have
been determined to be liquid under guidelines established by the Board of
Directors. These securities amount to $4,165,800 or 2.99% of the Fund's net
assets as of August 31, 1999.
AS OF AUGUST 31, 1999, SECURITIES SUBJECT TO THE ALTERNATIVE MINIMUM TAX AMOUNT
TO $34,930,607 OR 25.07% OF THE FUND'S NET ASSETS.
DISTRIBUTION OF INVESTMENTS BY INDUSTRY OF ISSUE, AS A PERCENTAGE OF TOTAL
INVESTMENTS AT VALUE, IS AS FOLLOWS:
<TABLE>
<CAPTION>
INDUSTRY MARKET VALUE PERCENT
---------------------------------------------------------------------------------------
<S> <C> <C>
Special Assessment $ 26,947,089 19.6%
Single Family Housing 24,732,266 17.9
Highways 17,351,490 12.6
General Obligation 14,253,636 10.4
Municipal Leases 8,723,894 6.3
Sales Tax 8,056,275 5.9
Adult Living Facilities 7,947,877 5.8
Electric Utilities 5,976,498 4.3
Pollution Control 5,115,564 3.7
Hospital/Healthcare 4,810,001 3.5
Multifamily Housing 4,111,302 3.0
Marine/Aviation Facilities 3,419,828 2.5
Water Utilities 3,260,820 2.4
Resource Recovery 2,905,844 2.1
-----------------------------------
Total $137,612,384 100.0%
===================================
</TABLE>
See accompanying Notes to Financial Statements.
17 Oppenheimer Main Street California Municipal Fund
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES August 31, 1999
<TABLE>
<CAPTION>
==================================================================================================================
ASSETS
<S> <C>
Investments, at value (cost $138,482,564)--see accompanying statement $ 137,612,384
------------------------------------------------------------------------------------------------------------------
Cash 357,087
------------------------------------------------------------------------------------------------------------------
Receivables and other assets:
Investments sold 2,007,893
Interest 1,763,865
Shares of capital stock sold 214,653
Other 1,446
--------------------
Total assets 141,957,328
==================================================================================================================
LIABILITIES
Payables and other liabilities:
Investments purchased 1,981,263
Dividends 372,159
Shares of capital stock redeemed 213,863
Shareholder reports 37,183
Distribution and service plan fees 12,740
Transfer and shareholder servicing agent fees 9,707
Daily variation on futures contracts--Note 5 6,438
Other 18,404
-------------------
Total liabilities 2,651,757
==================================================================================================================
NET ASSETS $139,305,571
===================
==================================================================================================================
COMPOSITION OF NET ASSETS
Par value of shares of capital stock $ 114,096
------------------------------------------------------------------------------------------------------------------
Additional paid-in capital 140,300,950
------------------------------------------------------------------------------------------------------------------
Overdistributed net investment income (284,048)
------------------------------------------------------------------------------------------------------------------
Accumulated net realized loss on investment transactions (28,997)
------------------------------------------------------------------------------------------------------------------
Net unrealized depreciation on investments--Notes 3 and 5 (796,430)
-------------------
Net assets $139,305,571
===================
==================================================================================================================
NET ASSET VALUE PER SHARE
Class A Shares:
Net asset value and redemption price per share (based on net assets of
$109,575,128 and 8,971,989 shares of capital stock outstanding) $12.21
Maximum offering price per share (net asset value plus sales charge
of 4.75% of offering price) $12.82
------------------------------------------------------------------------------------------------------------------
Class B Shares:
Net asset value, redemption price (excludes applicable contingent deferred
sales charge) and offering price per share (based on net assets of $29,730,443
and 2,437,647 shares of capital stock outstanding) $12.20
</TABLE>
See accompanying Notes to Financial Statements.
18 Oppenheimer Main Street California Municipal Fund
<PAGE>
STATEMENT OF OPERATIONS For the Year Ended August 31, 1999
<TABLE>
<CAPTION>
<S> <C>
===============================================================================================
INVESTMENT INCOME
Interest $ 7,761,775
===============================================================================================
EXPENSES
Management fees--Note 4 770,241
-----------------------------------------------------------------------------------------------
Distribution and service plan fees--Note 4:
Class B 280,483
-----------------------------------------------------------------------------------------------
Transfer and shareholder servicing agent fees--Note 4 80,248
-----------------------------------------------------------------------------------------------
Shareholder reports 44,221
-----------------------------------------------------------------------------------------------
Registration and filing fees:
Class A 11,266
Class B 4,659
-----------------------------------------------------------------------------------------------
Legal, auditing and other professional fees 11,998
-----------------------------------------------------------------------------------------------
Custodian fees and expenses 8,823
-----------------------------------------------------------------------------------------------
Insurance expenses 2,818
-----------------------------------------------------------------------------------------------
Directors' compensation 2,304
-----------------------------------------------------------------------------------------------
Other 2,779
---------------
Total expenses 1,219,840
Less expenses paid indirectly--Note 1 (8,088)
Less reimbursement of expenses by OppenheimerFunds, Inc.--Note 4 (210,066)
---------------
Net expenses 1,001,686
===============================================================================================
NET INVESTMENT INCOME 6,760,089
===============================================================================================
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) on:
Investments (235,961)
Closing of futures contracts 208,713
---------------
Net realized loss (27,248)
-----------------------------------------------------------------------------------------------
Net change in unrealized appreciation or depreciation on investments (9,255,882)
---------------
Net realized and unrealized loss (9,283,130)
===============================================================================================
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $(2,523,041)
===============
</TABLE>
See accompanying Notes to Financial Statements.
19 OPPENHEIMER MAIN STREET CALIFORNIA MUNICIPAL FUND
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31, 1999 1998
=======================================================================================================
<S> <C> <C>
OPERATIONS
Net investment income $ 6,760,089 $ 5,785,304
-------------------------------------------------------------------------------------------------------
Net realized loss (27,248) (147,181)
-------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation or depreciation (9,255,882) 4,576,330
--------------------------------
Net increase (decrease) in net assets resulting from operations (2,523,041) 10,214,453
=======================================================================================================
DIVIDENDS AND/OR DISTRIBUTIONS TO SHAREHOLDERS
Dividends from net investment income:
Class A (5,577,537) (5,113,266)
Class B (1,114,948) (736,400)
-------------------------------------------------------------------------------------------------------
Distributions from net realized gain:
Class A -- (802,490)
Class B -- (131,382)
=======================================================================================================
CAPITAL STOCK TRANSACTIONS
Net increase in net assets resulting from
capital stock transactions--Note 2:
Class A 7,019,301 16,887,977
Class B 8,515,921 10,757,185
=======================================================================================================
NET ASSETS
Total increase 6,319,696 31,076,077
-------------------------------------------------------------------------------------------------------
Beginning of period 132,985,875 101,909,798
--------------------------------
End of period (including overdistributed net investment
income of $284,048 and $351,652, respectively) $139,305,571 $132,985,875
================================
</TABLE>
See accompanying Notes to Financial Statements.
20 OPPENHEIMER MAIN STREET CALIFORNIA MUNICIPAL FUND
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Year Year
Ended Ended
August 31, June 30,
Class A 1999 1998 1997 1996(1) 1996 1995
=========================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING DATA
Net asset value, beginning of period $13.02 $12.64 $12.16 $12.15 $12.09 $11.82
-------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .65 .65 .73 .12 .73 .73
Net realized and unrealized gain (loss) (.82) .51 .49 .01 .07 .27
--------------------------------------------------------------------
Total income (loss) from
investment operations (.17) 1.16 1.22 .13 .80 1.00
-------------------------------------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income (.64) (.67) (.74) (.12) (.73) (.69)
Dividends in excess of
net investment income -- -- -- -- -- (.04)
Distributions from net realized gain -- (.11) -- -- -- --
Distributions in excess of net realized gain -- -- -- -- (.01) --
--------------------------------------------------------------------
Total dividends and distributions
to shareholders (.64) (.78) (.74) (.12) (.74) (.73)
-------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $12.21 $13.02 $12.64 $12.16 $12.15 $12.09
====================================================================
=========================================================================================================================
TOTAL RETURN, AT NET ASSET VALUE(2) (1.42)% 9.33% 10.24% 1.12% 6.73% 8.93%
=========================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands) $109,575 $109,811 $89,991 $76,817 $76,913 $78,134
-------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $111,996 $ 99,678 $80,311 $77,584 $78,676 $76,148
-------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:(3)
Net investment income 5.03% 5.04% 5.91% 6.00% 5.99% 6.27%
Expenses, before voluntary assumption
and indirect expenses 0.67% 0.69%(4) 0.59%(4) 0.57%(4) 0.58%(4) 0.57%(4)
Expenses, after voluntary assumption
and indirect expenses 0.51% 0.53% N/A N/A N/A N/A
-------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(5) 25% 30% 46% 1% 33% 14%
</TABLE>
1. For the two months ended August 31, 1996. The Fund changed its fiscal year
end from June 30 to August 31.
2. Assumes a $1,000 hypothetical initial investment on the business day before
the first day of the fiscal period (or inception of offering), with all
dividends and distributions reinvested in additional shares on the reinvestment
date, and redemption at the net asset value calculated on the last business day
of the fiscal period. Sales charges are not reflected in the total returns.
Total returns are not annualized for periods of less than one full year.
3. Annualized for periods of less than one full year.
4. Expense ratios reflect the effect of expenses paid indirectly by the Fund.
5. The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities
owned during the period. Securities with a maturity or expiration date at the
time of acquisition of one year or less are excluded from the calculation.
Purchases and sales of investment securities (excluding short-term securities)
for the period ended August 31, 1999 were $48,357,555 and $35,079,315,
respectively.
See accompanying Notes to Financial Statements.
21 OPPENHEIMER MAIN STREET CALIFORNIA MUNICIPAL FUND
<PAGE>
FINANCIAL HIGHLIGHTS Continued
<TABLE>
<CAPTION>
YEAR YEAR
ENDED ENDED
AUGUST 31, JUNE 30,
CLASS B 1999 1998 1997 1996(1) 1996 1995
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING DATA
Net asset value, beginning of period $13.01 $12.63 $12.14 $12.14 $12.08 $11.80
----------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .53 .54 .60 .10 .61 .62
Net realized and unrealized gain (loss) (.83) .49 .50 -- .07 .27
--------------------------------------------------------------------------------
Total income (loss) from
investment operations (.30) 1.03 1.10 .10 .68 .89
----------------------------------------------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income (.51) (.54) (.61) (.10) (.61) (.57)
Dividends in excess of
net investment income -- -- -- -- -- (.04)
Distributions from net realized gain -- (.11) -- -- -- --
Distributions in excess of net realized gain -- -- -- -- (.01) --
--------------------------------------------------------------------------------
Total dividends and distributions
to shareholders (.51) (.65) (.61) (.10) (.62) (.61)
----------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $12.20 $13.01 $12.63 $12.14 $12.14 $12.08
================================================================================
==================================================================================================================================
TOTAL RETURN, AT NET ASSET VALUE(2) (2.41)% 8.24% 9.24% 0.85% 5.66% 7.90%
==================================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands) $29,730 $23,175 $11,919 $5,928 $5,442 $2,648
----------------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $28,070 $18,087 $ 8,129 $5,767 $3,848 $1,904
----------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:(3)
Net investment income 4.02% 4.19% 4.85% 4.92% 4.94% 5.17%
Expenses, before voluntary assumption
and indirect expenses 1.67% 1.70%(4) 1.60%(4) 1.62%(4) 1.60%(4) 1.55%(4)
Expenses, after voluntary assumption
and indirect expenses 1.52% 1.53% N/A N/A N/A N/A
----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(5) 25% 30% 46% 1% 33% 14%
</TABLE>
1. For the two months ended August 31, 1996. The Fund changed its fiscal year
end from June 30 to August 31.
2. Assumes a $1,000 hypothetical initial investment on the business day before
the first day of the fiscal period (or inception of offering), with all
dividends and distributions reinvested in additional shares on the reinvestment
date, and redemption at the net asset value calculated on the last business day
of the fiscal period. Sales charges are not reflected in the total returns.
Total returns are not annualized for periods of less than one full year.
3. Annualized for period of less than one full year.
4. Expense ratios reflect the effect of expenses paid indirectly by the Fund.
5. The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities
owned during the period. Securities with a maturity or expiration date at the
time of acquisition of one year or less are excluded from the calculation.
Purchases and sales of investment securities (excluding short-term securities)
for the period ended August 31, 1999 were $48,357,555 and $35,079,315,
respectively.
See accompanying Notes to Financial Statements.
22 OPPENHEIMER MAIN STREET CALIFORNIA MUNICIPAL FUND
<PAGE>
NOTES TO FINANCIAL STATEMENTS
===============================================================================
1. SIGNIFICANT ACCOUNTING POLICIES
Oppenheimer Main Street California Municipal Fund (the Fund) is a separate
series of Oppenheimer Main Street Funds, Inc., an open-end management
investment company registered under the Investment Company Act of 1940, as
amended. The Fund's investment objective is to seek as high a level of current
income exempt from federal and California personal income taxes as is available
from investing in municipal securities while attempting to preserve capital.
The Fund's investment advisor is OppenheimerFunds, Inc. (the Manager). The Fund
offers Class A and Class B shares. Class A shares are sold with a front-end
sales charge on investments up to $1 million. Class B shares may be subject to
a contingent deferred sales charge (CDSC). All classes of shares have identical
rights to earnings, assets and voting privileges, except that each class has
its own expenses directly attributable to that class and exclusive voting
rights with respect to matters affecting that class. Classes A and B have
separate distribution and/or service plans. Class B shares will automatically
convert to Class A shares six years after the date of purchase. The following
is a summary of significant accounting policies consistently followed by the
Fund.
-------------------------------------------------------------------------------
SECURITIES VALUATION. Portfolio securities are valued at the close of the New
York Stock Exchange on each trading day. Listed and unlisted securities for
which such information is regularly reported are valued at the last sale price
of the day or, in the absence of sales, at values based on the closing bid or
the last sale price on the prior trading day. Long-term and short-term
"non-money market" debt securities are valued by a portfolio pricing service
approved by the Board of Directors. Such securities which cannot be valued by
an approved portfolio pricing service are valued using dealer-supplied
valuations provided the Manager is satisfied that the firm rendering the quotes
is reliable and that the quotes reflect current market value, or are valued
under consistently applied procedures established by the Board of Directors to
determine fair value in good faith. Short-term "money market type" debt
securities having a remaining maturity of 60 days or less are valued at cost
(or last determined market value) adjusted for amortization to maturity of any
premium or discount. Options are valued based upon the last sale price on the
principal exchange on which the option is traded or, in the absence of any
transactions that day, the value is based upon the last sale price on the prior
trading date if it is within the spread between the closing bid and asked
prices. If the last sale price is outside the spread, the closing bid is used.
23 OPPENHEIMER MAIN STREET CALIFORNIA MUNICIPAL FUND
<PAGE>
Notes to Financial Statements continued
===============================================================================
1. SIGNIFICANT ACCOUNTING POLICIES Continued
ALLOCATION OF INCOME, EXPENSES, GAINS AND LOSSES. Income, expenses (other than
those attributable to a specific class), gains and losses are allocated daily
to each class of shares based upon the relative proportion of net assets
represented by such class. Operating expenses directly attributable to a
specific class are charged against the operations of that class.
-------------------------------------------------------------------------------
FEDERAL TAXES. The Fund intends to continue to comply with provisions of the
Internal Revenue Code applicable to regulated investment companies and to
distribute all of its taxable income, including any net realized gain on
investments not offset by loss carryovers, to shareholders. Therefore, no
federal income or excise tax provision is required.
-------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS. Dividends and distributions to
shareholders, which are determined in accordance with income tax regulations,
are recorded on the ex-dividend date.
-------------------------------------------------------------------------------
CLASSIFICATION OF DISTRIBUTIONS TO SHAREHOLDERS. Net investment income (loss)
and net realized gain (loss) may differ for financial statement and tax
purposes. The character of distributions made during the year from net
investment income or net realized gains may differ from its ultimate
characterization for federal income tax purposes. Also, due to timing of
dividend distributions, the fiscal year in which amounts are distributed may
differ from the fiscal year in which the income or realized gain was recorded
by the Fund.
-------------------------------------------------------------------------------
EXPENSE OFFSET ARRANGEMENTS. Expenses paid indirectly represent a reduction of
custodian fees for earnings on cash balances maintained by the Fund.
-------------------------------------------------------------------------------
OTHER. Investment transactions are accounted for as of trade date. Original
issue discount is accreted and premium is amortized in accordance with federal
income tax requirements. For municipal bonds acquired after April 30, 1993, on
disposition or maturity, taxable ordinary income is recognized to the extent of
the lesser of gain or market discount that would have accrued over the holding
period. Realized gains and losses on investments and unrealized appreciation
and depreciation are determined on an identified cost basis, which is the same
basis used for federal income tax purposes.
There are certain risks arising from geographic concentration in any
state. Certain revenue- or tax-related events in a state may impair the ability
of certain issuers of municipal securities to pay principal and interest on
their obligations.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of income and expenses during the reporting
period. Actual results could differ from those estimates.
24 OPPENHEIMER MAIN STREET CALIFORNIA MUNICIPAL FUND
<PAGE>
===============================================================================
2. CAPITAL STOCK
The Fund has authorized 16,250,000 shares of $.01 par value capital stock of
each class. Transactions in shares of capital stock were as follows:
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31, 1999 YEAR ENDED AUGUST 31, 1998
SHARES AMOUNT SHARES AMOUNT
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A
Sold 1,681,985 $ 21,674,388 2,165,645 $ 27,847,918
Dividends and/or
distributions reinvested 281,702 3,627,456 290,138 3,721,102
Redeemed (1,423,149) (18,282,543) (1,141,736) (14,681,043)
----------------------------------------------------------
Net increase 540,538 $ 7,019,301 1,314,047 $ 16,887,977
==========================================================
--------------------------------------------------------------------------------------
CLASS B
Sold 964,557 $ 12,473,622 931,591 $ 11,964,499
Dividends and/or
distributions reinvested 59,086 758,691 44,882 575,114
Redeemed (367,694) (4,716,392) (138,617) (1,782,428)
----------------------------------------------------------
Net increase 655,949 $ 8,515,921 837,856 $ 10,757,185
==========================================================
</TABLE>
===============================================================================
3. UNREALIZED GAINS AND LOSSES ON SECURITIES
As of August 31, 1999, net unrealized depreciation on securities of $870,180
was composed of gross appreciation of $3,223,012, and gross depreciation of
$4,093,192.
===============================================================================
4. MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES
MANAGEMENT FEES. Management fees paid to the Manager were in accordance with
the investment advisory agreement with the Fund which provides for a fee of
0.55% of average annual net assets if the Fund's net assets are $100 million or
more (it is reduced if assets are less). The Manager has voluntarily undertaken
to limit its fees to 0.40% of average annual net assets if the Fund's assets
are $100 million or more. The Manager can terminate that waiver at any time.
The Fund's management fee for the year ended August 31, 1999 was 0.40% of
average annual net assets for each class of shares, after giving affect to the
waiver.
-------------------------------------------------------------------------------
TRANSFER AGENT FEES. OppenheimerFunds Services (OFS), a division of the
Manager, is the transfer and shareholder servicing agent for the Fund and for
other Oppenheimer funds. OFS's total costs of providing such services are
allocated ratably to these funds.
-------------------------------------------------------------------------------
DISTRIBUTION AND SERVICE PLAN FEES. Under its General Distributor's Agreement
with the Manager, the Distributor acts as the Fund's principal underwriter in
the continuous public offering of the different classes of shares of the Fund.
25 OPPENHEIMER MAIN STREET CALIFORNIA MUNICIPAL FUND
<PAGE>
NOTES TO FINANCIAL STATEMENTS Continued
===============================================================================
4. MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES CONTINUED
The compensation paid to (or retained by) the Distributor from the sale of
shares or on the redemption of shares is shown in the table below for the
period indicated.
<TABLE>
<CAPTION>
AGGREGATE CLASS A COMMISSIONS COMMISSIONS
FRONT-END FRONT-END ON CLASS A ON CLASS B
SALES CHARGES SALES CHARGES SHARES SHARES
ON CLASS A RETAINED BY ADVANCED BY ADVANCED BY
YEAR ENDED SHARES DISTRIBUTOR DISTRIBUTOR(1) DISTRIBUTOR(1)
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
August 31, 1999 $370,004 $65,422 $27,796 $426,112
</TABLE>
1. The Distributor advances commission payments to dealers for certain sales of
Class A shares and for sales of Class B shares from its own resources at the
time of sale.
<TABLE>
<CAPTION>
CLASS A CLASS B
CONTINGENT DEFERRED CONTINGENT DEFERRED
SALES CHARGES SALES CHARGES
YEAR ENDED RETAINED BY DISTRIBUTOR RETAINED BY DISTRIBUTOR
-------------------------------------------------------------------------------------------------------
<S> <C> <C>
August 31, 1999 $4,038 $95,508
</TABLE>
The Fund has adopted a Distribution and Service Plan for Class B shares
under Rule 12b-1 of the Investment Company Act. Under those plans the Fund pays
the Distributor for all or a portion of its costs incurred in connection with
the distribution and/or servicing of the shares of the particular class.
-------------------------------------------------------------------------------
CLASS B DISTRIBUTION AND SERVICE PLAN FEES. Under each plan, service fees and
distribution fees are computed on the average of the net asset value of shares
in the respective class, determined as of the close of each regular business
day during the period. The Class B plan allows the Distributor to be reimbursed
for its services and costs in distributing Class B and servicing accounts.
The Distributor retains the asset-based sales charge on Class B shares.
The asset-based sales charges on Class B shares allow investors to buy shares
without a front-end sales charge while allowing the Distributor to compensate
dealers that sell those shares.
The Distributor's actual expenses in selling Class B shares may be more
than the payments it receives from the contingent deferred sales charges
collected on redeemed shares and from the Fund under the plan. If the Class B
plan is terminated by the Fund, the Board of Directors may allow the Fund to
continue payments of the asset-based sales charge to the Distributor for
distributing shares before the plan was terminated. The plan allows for the
carry-forward of distribution expenses, to be recovered from asset-based sales
charges in subsequent fiscal periods.
Distribution fees paid to the Distributor for the year ended August 31, 1999
were as follows:
<TABLE>
<CAPTION>
DISTRIBUTOR'S DISTRIBUTOR'S
AGGREGATE UNREIMBURSED
UNREIMBURSED EXPENSES AS %
TOTAL PAYMENTS AMOUNT RETAINED EXPENSES OF NET ASSETS
UNDER PLAN BY DISTRIBUTOR UNDER PLAN OF CLASS
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class B Plan $280,483 $238,366 $1,067,326 3.59%
</TABLE>
26 OPPENHEIMER MAIN STREET CALIFORNIA MUNICIPAL FUND
<PAGE>
===============================================================================
5. FUTURES CONTRACTS
The Fund may buy and sell futures contracts in order to gain exposure to or to
seek to protect against changes in interest rates. The Fund may also buy or
write put or call options on these futures contracts.
The Fund generally sells futures contracts to hedge against increases in
interest rates and the resulting negative effect on the value of fixed rate
portfolio securities. The Fund may also purchase futures contracts to gain
exposure to changes in interest rates as it may be more efficient or cost
effective than actually buying fixed income securities.
Upon entering into a futures contract, the Fund is required to deposit
either cash or securities (initial margin) in an amount equal to a certain
percentage of the contract value. Subsequent payments (variation margin) are
made or received by the Fund each day. The variation margin payments are equal
to the daily changes in the contract value and are recorded as unrealized gains
and losses. The Fund may recognize a realized gain or loss when the contract is
closed or expires.
Securities held in collateralized accounts to cover initial margin
requirements on open futures contracts are noted in the Statement of
Investments. The Statement of Assets and Liabilities reflects a receivable
and/or payable for the daily mark to market for variation margin.
Risks of entering into futures contracts (and related options) include
the possibility that there may be an illiquid market and that a change in the
value of the contract or option may not correlate with changes in the value of
the underlying securities.
As of August 31, 1999, the Fund had outstanding futures contracts as follows:
<TABLE>
<CAPTION>
NUMBER OF VALUATION AS OF UNREALIZED
CONTRACT DESCRIPTION EXPIRATION DATE CONTRACTS AUGUST 31, 1999 APPRECIATION
-----------------------------------------------------------------------------------------------------------
CONTRACTS TO SELL
-----------------
<S> <C> <C> <C> <C>
U.S. Treasury Bonds 9/21/99 40 $4,573,750 $73,750
</TABLE>
===============================================================================
6. BANK BORROWINGS
The Fund may borrow from a bank for temporary or emergency purposes including,
without limitation, funding of shareholder redemptions provided asset coverage
for borrowings exceeds 300%. The Fund has entered into an agreement which
enables it to participate with other Oppenheimer funds in an unsecured line of
credit with a bank, which permits borrowings up to $400 million, collectively.
Interest is charged to each fund, based on its borrowings, at a rate equal to
the Federal Funds Rate plus 0.35%. Borrowings are payable 30 days after such
loan is executed. The Fund also pays a commitment fee equal to its pro rata
share of the average unutilized amount of the credit facility at a rate of
0.0575% per annum.
The Fund had no borrowings outstanding during the year ended August 31,
1999.
27 OPPENHEIMER MAIN STREET CALIFORNIA MUNICIPAL FUND
<PAGE>
INDEPENDENT AUDITORS' REPORT
===============================================================================
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF
OPPENHEIMER MAIN STREET CALIFORNIA MUNICIPAL FUND:
We have audited the accompanying statement of assets and liabilities, including
the statement of investments, of Oppenheimer Main Street California Municipal
Fund as of August 31, 1999, the related statement of operations for the year
then ended, the statements of changes in net assets for the years ended August
31, 1999 and 1998 and the financial highlights for the period July 1, 1994, to
August 31, 1999. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
August 31, 1999, by correspondence with the custodian and brokers; where
replies were not received from brokers, we performed other auditing procedures.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such financial statements and financial highlights
present fairly, in all material respects, the financial position of Oppenheimer
Main Street California Municipal Fund as of August 31, 1999, the results of its
operations, the changes in its net assets, and the financial highlights for the
respective stated periods, in conformity with generally accepted accounting
principles.
DELOITTE & TOUCHE LLP
Denver, Colorado
September 22, 1999
28 OPPENHEIMER MAIN STREET CALIFORNIA MUNICIPAL FUND
<PAGE>
FEDERAL INCOME TAX INFORMATION Unaudited
===============================================================================
In early 2000 shareholders will receive information regarding all dividends and
distributions paid to them by the Fund during calendar year 1999. Regulations
of the U.S. Treasury Department require the Fund to report this information to
the Internal Revenue Service.
None of the dividends paid by the Fund during the year ended August 31,
1999 are eligible for the corporate dividend-received deduction. The dividends
were derived from interest on municipal bonds and are not subject to federal
income taxes. To the extent a shareholder is subject to any state or local tax
laws, some or all of the dividends may be taxable.
The foregoing information is presented to assist shareholders in
reporting distributions received from the Fund to the Internal Revenue Service.
Because of the complexity of the federal regulations which may affect your
individual tax return and the many variations in state and local tax
regulations, we recommend that you consult your tax advisor for specific
guidance.
29 OPPENHEIMER MAIN STREET CALIFORNIA MUNICIPAL FUND
<PAGE>
OPPENHEIMER MAIN STREET(R) CALIFORNIA MUNICIPAL FUND
A Series of Oppenheimer Main Street Funds, Inc.
<TABLE>
==============================================================================================
<S> <C>
OFFICERS AND DIRECTORS James C. Swain, Director and Chairman of the Board
Bridget A. Macaskill, Director and President
Robert G. Avis, Director
William A. Baker, Director
George C. Bowen, Director
Jon S. Fossel, Director
Sam Freedman, Director
Raymond J. Kalinowski, Director
C. Howard Kast, Director
Robert M. Kirchner, Director
Ned M. Steel, Director
Caryn Halbrecht, Vice President
Andrew J. Donohue, Vice President and Secretary
Brian W. Wixted, Treasurer
Robert G. Zack, Assistant Secretary
Robert J. Bishop, Assistant Treasurer
Scott T. Farrar, Assistant Treasurer
==============================================================================================
INVESTMENT ADVISOR OppenheimerFunds, Inc.
==============================================================================================
DISTRIBUTOR OppenheimerFunds Distributor, Inc.
==============================================================================================
TRANSFER AND SHAREHOLDER OppenheimerFunds Services
SERVICING AGENT
==============================================================================================
CUSTODIAN OF The Bank of New York
PORTFOLIO SECURITIES
==============================================================================================
INDEPENDENT AUDITORS Deloitte & Touche LLP
==============================================================================================
LEGAL COUNSEL Myer, Swanson, Adams & Wolf, P.C.
This is a copy of a report to shareholders of Oppenheimer
Main Street California Municipal Fund. This report must
be preceded or accompanied by a Prospectus of
Oppenheimer Main Street California Municipal Fund. For
material information concerning the Funds, see the
Prospectus.
SHARES OF OPPENHEIMER FUNDS ARE NOT DEPOSITS OR
OBLIGATIONS OF ANY BANK, ARE NOT GUARANTEED BY ANY
BANK, ARE NOT INSURED BY THE FDIC OR ANY OTHER AGENCY,
AND INVOLVE INVESTMENT RISKS, INCLUDING THE POSSIBLE
LOSS OF THE PRINCIPAL AMOUNT INVESTED.
</TABLE>
30 OPPENHEIMER MAIN STREET CALIFORNIA MUNICIPAL FUND
<PAGE>
OPPENHEIMERFUNDS FAMILY
<TABLE>
================================================================================================================
<S> <C> <C>
GLOBAL EQUITY
Developing Markets Fund Global Fund
International Small Company Fund Quest Global Value Fund
Europe Fund Global Growth & Income Fund
International Growth Fund
================================================================================================================
EQUITY
Stock Stock & Bond
Enterprise Fund(1) Main Street(R) Growth & Income Fund
Discovery Fund Quest Opportunity Value Fund
Main Street(R) Small Cap Fund Total Return Fund
Quest Small Cap Value Fund Quest Balanced Value Fund
MidCap Fund Capital Income Fund(2)
Capital Appreciation Fund Multiple Strategies Fund
Growth Fund Disciplined Allocation Fund
Disciplined Value Fund Convertible Securities Fund
Quest Value Fund
Specialty
Real Asset Fund
Gold & Special Minerals Fund
================================================================================================================
FIXED INCOME
Taxable Municipal
International Bond Fund California Municipal Fund(3)
World Bond Fund Florida Municipal Fund(3)
High Yield Fund New Jersey Municipal Fund(3)
Champion Income Fund New York Municipal Fund(3)
Strategic Income Fund Pennsylvania Municipal Fund(3)
Bond Fund Municipal Bond Fund
U.S. Government Trust Insured Municipal Fund
Limited-Term Government Fund Intermediate Municipal Fund
Rochester Division
Rochester Fund Municipals
Limited Term New York Municipal Fund
================================================================================================================
MONEY MARKET(4)
Money Market Fund Cash Reserves
</TABLE>
1. Effective July 1, 1999, this fund is closed to new investors. See prospectus
for details.
2. On 4/1/99, the Fund's name was changed from "Oppenheimer Equity Income
Fund."
3. Available to investors only in certain states.
4. An investment in money market funds is neither insured nor guaranteed by the
Federal Deposit Insurance Corporation or any other government agency. Although
these funds may seek to preserve the value of your investment at $1.00 per
share, it is possible to lose money by investing in these funds. Oppenheimer
funds are distributed by OppenheimerFunds Distributor, Inc., Two World Trade
Center, New York, NY 10048-0203.
(C) Copyright 1999 OppenheimerFunds, Inc. All rights reserved.
31 OPPENHEIMER MAIN STREET CALIFORNIA MUNICIPAL FUND
<PAGE>
INFORMATION AND SERVICES
As an Oppenheimer fund shareholder, you can benefit from special services
designed to make investing simple. Whether it's automatic investment plans,
timely market updates, or immediate account access, you can count on us
whenever you need assistance. So call us today, or visit our website--we're
here to help.
-------------------------------------------------------------------------
Internet
24-hr access to account information and transactions
www.oppenheimerfunds.com
-------------------------------------------------------------------------
General Information
Mon-Fri 8:30am-9pm ET, Sat 10am-4pm ET
1.800.525.7048
-------------------------------------------------------------------------
Telephone Transactions
Mon-Fri 8:30am-9pm ET, Sat 10am-4pm ET
1.800.852.8457
-------------------------------------------------------------------------
PhoneLink
24-hr automated information and automated transactions
1.800.533.3310
-------------------------------------------------------------------------
Telecommunications Device for the Deaf (TDD)
Mon-Fri 8:30am-7pm ET
1.800.843.4461
-------------------------------------------------------------------------
OppenheimerFunds Information Hotline
24 hours a day, timely and insightful messages on the
economy and issues that may affect your investments
1.800.835.3104
-------------------------------------------------------------------------
Transfer and Shareholder Servicing Agent
OppenheimerFunds Services
P.O. Box 5270, Denver, CO 80217-5270
-------------------------------------------------------------------------
[OPPENHEIMERFUNDS LOGO]
RA0725.001.0899 October 29, 1999 Distributor, Inc.
<PAGE>
SEMIANNUAL REPORT JANUARY 31, 2000
OPPENHEIMER
CALIFORNIA MUNICIPAL FUND
[PHOTO]
[OPPENHEIMERFUNDS LOGO]
THE RIGHT WAY TO INVEST
<PAGE>
CONTENTS
1 President's Letter
3 An Interview
with Your Fund's Manager
8 Financial
Statements
29 Officers and Trustees
REPORT HIGHLIGHTS
--------------------------------------------------------------------------------
RISING INTEREST RATES HURT THE PERFORMANCE OF MUNICIPAL BONDS throughout the
reporting period.
AS OF JANUARY 31, 2000, LONG-TERM CALIFORNIA MUNICIPAL BONDS PROVIDED OVER 90%
OF THE YIELD AVAILABLE FROM COMPARABLE U.S. TREASURIES--making them attractive
values on an after-tax basis.
CUMULATIVE TOTAL RETURNS
For the 6-Month Period
Ended 1/31/00*
CLASS A
Without With
Sales Chg. Sales Chg.
----------------------
-6.07% -10.54%
CLASS B
Without With
Sales Chg. Sales Chg.
----------------------
-6.34% -10.91%
CLASS C
Without With
Sales Chg. Sales Chg.
----------------------
-6.35% -7.26%
NOT FDIC INSURED.
NO BANK GUARANTEE.
MAY LOSE VALUE.
* See page 7 for further details.
<PAGE>
PRESIDENT'S LETTER
[PHOTO]
BRIDGET A. MACASKILL
President
Oppenheimer
California
Municipal Fund
DEAR SHAREHOLDER,
--------------------------------------------------------------------------------
Whenever a new year begins--let alone a new decade or century--it makes sense to
pause a moment to assess where we've been and where we're going.
In retrospect, U.S. stocks and bonds in 1999 were subject to sudden and
substantial swings in investor sentiment because of economic uncertainty. When
the year began, investors were concerned that growth in the United States might
slow in response to economic weakness overseas. At mid-year, investors were
concerned that the economy was too strong, potentially rekindling inflationary
pressures. Yet, by year end, it became clearer that while the U.S. economy grew
robustly in 1999, inflation remained at low levels. Indeed, investors appeared
more comfortable with the economy after the Federal Reserve Board demonstrated
its inflation-fighting resolve by raising interest rates three times between
June and November.
As is normal in a rising-interest-rate environment, bond prices generally
declined in 1999, led lower by U.S. Treasury bonds. In the stock market, while
most major indices advanced, strong performance was mostly limited to a handful
of large-capitalization growth companies, principally in the technology arena.
Smaller and value-oriented stocks provided particularly lackluster returns, and
overall, foreign stocks outperformed U.S. stocks in 1999.
Looking forward, we expect the U.S. economy to remain on a
moderate-growth, low-inflation course. As recent revisions of 1999's economic
statistics demonstrated, the economy has defied many analysts' forecasts by
growing at a strong rate, which should be positive for the bond market.
Similarly, positive economic forces could help the stock market's performance
broaden to include value-oriented and smaller stocks.
We see particularly compelling opportunities outside of the U.S. market.
Manyforeign stocks also ended 1999 more attractively valued than large-cap U.S.
stocks, and economic trends in overseas markets could lead to higher stock
prices. In Europe, corporate restructuring has just begun, giving
1 Oppenheimer California Municipal Fund
<PAGE>
PRESIDENT'S LETTER
companies there the same potential for cost-cutting and productivity
improvements that U.S. companies enjoyed 10 years ago. In Japan and Asia,
economic recovery is expected to gain strength, which could allow stocks to
rally from relatively low levels.
Another 1999 trend that should remain in force in 2000 is the growth of
businesses related to the Internet. The rise of e-Commerce has been good for
consumers and the economy because of greater price competition, which has helped
keep inflation under control. The Internet has also been good for investors, as
even companies with no earnings have seen their stock prices soar. Clearly,
while the Internet is here to stay, not all "dot-com" companies will survive,
and many of these high-flying Internet stocks will eventually--and perhaps very
suddenly--return to more reasonable levels. The long-term winners are most
likely to be companies that support the Internet's growth with content or
infrastructure.
What else is in store for investors in 2000? While we do not have an
infallible crystal ball, we believe that in almost any investment environment,
consistent success stems from an unwavering focus on fundamental investment
principles such as maintaining a long-term perspective, using diversification to
manage risks and availing oneself of the services of a knowledgeable financial
advisor. Indeed, these principles serve as the foundation for every investment
we offer, helping to make OppenheimerFunds The Right Way to Invest in 2000 and
beyond.
Sincerely,
/s/ Bridget A. Macaskill
February 22, 2000
These general market views represent opinions of OppenheimerFunds, Inc. and are
not intended to predict or depict performance of any particular fund. Specific
discussion, as it applies to your Fund, is contained in the pages that follow.
2 Oppenheimer California Municipal Fund
<PAGE>
[PHOTO]
PORTFOLIO MANAGEMENT
TEAM (L TO R)
Christian Smith (Portfolio Manager)
Robert Patterson
AN INTERVIEW WITH YOUR FUND'S MANAGER
--------------------------------------------------------------------------------
Q. HOW DID THE FUND PERFORM DURING THE SIX-MONTH PERIOD THAT ENDED JANUARY 31,
2000?
A. It has been a difficult period for the municipal securities market, including
Oppenheimer California Municipal Fund. The rising interest rate environment, a
sharp decline in the demand for municipal bonds and a lack of supply of new
issues were some of the challenges the Fund encountered.
WHAT STEPS ARE YOU TAKING TO HELP IMPROVE THE FUND'S PERFORMANCE?
In November 1999, we began to restructure the Fund under the guidance of
Christian Smith, a money management professional with over 10 years experience
in the municipal market. This change should help us gain a fresh perspective on
the California municipal market, and proactively access the opportunities
available for the Fund.
HOW DID THE ROBUST U.S. ECONOMY AFFECT THE OVERALL MUNICIPAL MARKET?
Ongoing economic strength led to higher interest rates, which, in turn, led to
lower bond prices. With bonds becoming less attractive to investors, many turned
to the stock market for better returns.
The lengthy economic expansion has also resulted in a decrease in supply
of municipal bonds. First, government surpluses on the federal and state level
resulted in less need to issue debt to finance new projects. Second, the rise in
interest rates caused a natural decline in the refinancing of existing debt.
When interest rates are on the upswing, there is little reason for an
organization to retire existing, lower yielding debt, and introduce new
securities with higher yields. Often times in the financial markets, a decrease
in supply of a particular security leads to higher prices. However, the decline
in the demand for municipals more than offset the falling supply.
3 Oppenheimer California Municipal Fund
<PAGE>
"Our focus has been to lower the portfolio's sensitivity to changes in interest
rates."
AN INTERVIEW WITH YOUR FUND'S MANAGER
--------------------------------------------------------------------------------
HOW WAS THE FUND MANAGED GIVEN THIS DIFFICULT ENVIRONMENT?
Our focus has been to lower the portfolio's sensitivity to interest rates. For
example, we have been working to reduce the Fund's duration versus its benchmark
by focusing on shorter-term securities. When it appears that interest rates have
peaked, we may look to extend the Fund's duration to take advantage of rising
bond prices.
COULD YOU DESCRIBE SOME OF YOUR INVESTMENT STRATEGIES THAT HELPED PERFORMANCE
DURING THE REPORTING PERIOD?
We enhanced returns through select investments in non-rated California real
estate securities. These bonds are typically issued by smaller organizations,
and are used to help finance the infrastructure needed in new housing
developments. As non-rated securities, they generally offer attractive yields.
Once the developments are occupied by tax-paying families and organizations,
this revenue aids the financial stability of the issuer, and the securities may
then become rated--sometimes leading to capital appreciation for the Fund.
In addition, we benefited from our investment in a non-profit organization
that helps train handicapped individuals to join the mainstream workforce. This
organization has been in existence for over 30 years, it has a strong management
team in place, and is widely known by companies that are looking for its
services.
4 Oppenheimer California Municipal Fund
<PAGE>
AVERAGE ANNUAL
TOTAL RETURNS
For the Periods Ended 12/31/99(1)
Class A
1-Year 5-Year 10-Year
--------------------------
-10.98% 5.34% 5.56%
Class B Since
1-Year 5-Year Inception
--------------------------
-11.78% 5.26% 3.70%
Class C Since
1-Year 5-Year Inception
--------------------------
-8.14% N/A 3.07%
STANDARDIZED YIELD(2)
For the 30-days Ended 1/31/00
---------------------------------
Class A 5.18%
---------------------------------
Class B 4.67
---------------------------------
Class C 4.68
HOW DID CALIFORNIA MUNICIPAL BONDS PERFORM COMPARED TO U.S. TREASURIES?
As interest rates rose, both types of securities performed poorly. However, in
recent months municipals outperformed U.S. Treasuries with comparable
maturities, due to municipal's attractive after-tax values. As of January 31,
2000, yields available from California municipal bonds were over 90% of the
yields available from comparable taxable government bonds. When considering the
tax-advantaged yields provided by California municipals, these securities
present better values compared to Treasuries.
WHAT IS YOUR OUTLOOK FOR THE ECONOMY OVER THE NEXT FEW MONTHS?
As we see it, the Federal Reserve will remain diligent in its attempt to slow
the pace of economic growth to help ward off an increase in inflation. As such,
we expect interest rates to continue rising into the summer. However, as the
year progresses, we anticipate seeing growth rates fall, as rising interest
rates should lead to a decline in consumer spending, and less dramatic stock
market gains. Ideally, this would result in interest rates moving downward.
1. See page 7 for further details.
2. Standardized yield is based on net investment income for the 30-day period
ended January 31, 2000. Falling share prices will tend to artificially raise
yields.
5 Oppenheimer California Municipal Fund
<PAGE>
CREDIT ALLOCATION(3)
[PIE CHART]
AAA 45.9%
AA 8.9
A 9.5
BBB 23.5
BB 11.4
B 0.8
In the meantime, we will continue to actively monitor the markets--making
careful adjustments to the Fund's portfolio as is necessary. Diligently working
to enhance returns while being mindful of risk--just two reasons why Oppenheimer
California Municipal Fund is an important part of The Right Way to Invest.
TOP FIVE INDUSTRIES (Percentage of invested assets)(4)
--------------------------------------------------------
Special Assessment 28.7%
--------------------------------------------------------
Municipal Leases 11.2
--------------------------------------------------------
Single Family Housing 10.7
--------------------------------------------------------
Highways 9.3
--------------------------------------------------------
Electric Utilities 8.2
--------------------------------------------------------
3. Portfolio data are as of January 31, 2000, are subject to change, and are
dollar-weighted based on total market value of investments. The Fund may invest
up to 25% of its assets in below-investment-grade securities which carry greater
risk of default. Average credit quality and ratings allocations include
securities rated by national ratings organizations as well as unrated securities
(currently 19.6% of total investments) which have ratings assigned by the
Manager in categories equivalent to those of ratings organizations.
4. Industry weightings are as of January 31, 2000, and are subject to change.
6 Oppenheimer California Municipal Fund
<PAGE>
NOTES
IN REVIEWING PERFORMANCE AND RANKINGS, PLEASE REMEMBER THAT PAST PERFORMANCE
DOES NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE OF AN
INVESTMENT IN THE FUND WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN
REDEEMED, MAY BE WORTH MORE OR LESS THAN THE ORIGINAL COST. THE FUND'S
PERFORMANCE MAY FROM TIME TO TIME BE SUBJECT TO SUBSTANTIAL SHORT-TERM CHANGES,
PARTICULARLY DURING PERIODS OF MARKET OR INTEREST RATE VOLATILITY. FOR UPDATES
ON THE FUND'S PERFORMANCE, PLEASE CONTACT YOUR FINANCIAL ADVISOR, CALL US AT
1.800.525.7048 OR VISIT OUR WEBSITE, WWW.OPPENHEIMERFUNDS.COM.
Total returns include changes in share price and reinvestment of dividends and
capital gains distributions in a hypothetical investment for the periods shown.
Cumulative total returns are not annualized.
CLASS A shares were first publicly offered on 11/3/88. Class A returns include
the current maximum initial sales charge of 4.75%.
CLASS B shares of the Fund were first publicly offered on 5/3/93. Class B
returns include the applicable contingent deferred sales charge of 5% (1-year)
and 1% (5-year). Because Class B shares convert to Class A shares 72 months
after purchase, the "life-of-class" return for Class B uses Class A performance
for the period after conversion. Class B shares are subject to an annual 0.75%
asset-based sales charge.
CLASS C shares of the Fund were first publicly offered on 11/1/95. Class C
returns include the contingent deferred sales charge of 1% for the 1-year
period. Class C shares are subject to an annual 0.75% asset-based sales charge.
An explanation of the different performance calculations is in the Fund's
prospectus.
7 Oppenheimer California Municipal Fund
<PAGE>
<TABLE>
<CAPTION>
STATEMENT OF INVESTMENTS January 31, 2000 / Unaudited
RATINGS:
MOODY'S/ FACE MARKET VALUE
S&P/FITCH AMOUNT SEE NOTE 1
-----------------------------------------------------------------------------------------------------------------
MUNICIPAL BONDS AND NOTES--98.3%
-----------------------------------------------------------------------------------------------------------------
CALIFORNIA--93.8%
<S> <C> <C> <C>
Alhambra, CA COP, Police Facilities Assessment
District No. 91-1, AMBAC Insured, 6.75%, 9/1/23 Aaa/AAA/AAA $5,000,000 $5,209,950
-----------------------------------------------------------------------------------------------------------------
Anaheim, CA PFAU Lease RB, Public Improvements
Project, Sub. Lien, Series C, FSA Insured, Zero
Coupon, 5.27%, 9/1/20(1) Aaa/AAA/AAA 6,630,000 1,847,582
-----------------------------------------------------------------------------------------------------------------
Anaheim, CA PFAU TXAL RB, MBIA Insured,
Inverse Floater, 8.97%, 12/28/18(2) Aaa/AAA 3,000,000 3,270,000
-----------------------------------------------------------------------------------------------------------------
Berkeley, CA HF RRB, Alta Bates Medical Center,
Prerefunded, Series A, 6.50%, 12/1/11 A2/NR 4,270,000 4,493,449
-----------------------------------------------------------------------------------------------------------------
CA Assn. of Bay Area Governments FAU for
Non-profit Corps. Refunding COP, American
Baptist Homes, Series A, 6.20%, 10/1/27 NR/BBB 6,000,000 5,277,180
-----------------------------------------------------------------------------------------------------------------
CA Assn. of Bay Area Governments FAU for
Non-profit Corps. Refunding COP, Episcopal
Homes Foundation, 5.125%, 7/1/18 NR/A- 5,900,000 4,756,521
-----------------------------------------------------------------------------------------------------------------
CA Assn. of Bay Area Governments FAU for
Non-profit Corps. Refunding COP, Rhonda Haas
Goldman Plaza, 5.125%, 5/15/23 NR/AA- 2,300,000 1,936,232
-----------------------------------------------------------------------------------------------------------------
CA CDAU Lease RB, United Airlines, Series A,
5.70%, 10/1/33 Baa3/BB+ 9,185,000 7,656,616
-----------------------------------------------------------------------------------------------------------------
CA Community College FAU Lease RB,
West Valley Mission Community College,
MBIA Insured, 5.625%, 5/1/22 Aaa/AAA 1,085,000 1,028,265
-----------------------------------------------------------------------------------------------------------------
CA Educational FA RRB, Los Angeles College
Chiropractic, 5.60%, 11/1/17 Baa2/NR 1,000,000 882,050
-----------------------------------------------------------------------------------------------------------------
CA Foothill/Eastern Corridor Agency Toll Road RB,
Sr. Lien, Prerefunded, Series A, 6.50%, 1/1/32 Baa3/BBB-/BBB 4,600,000 5,042,658
-----------------------------------------------------------------------------------------------------------------
CA Foothill/Eastern Corridor Agency Toll Road
RRB, Zero Coupon, 5.98%, 1/15/21(1) Baa3/BBB-/BBB 7,500,000 1,879,200
-----------------------------------------------------------------------------------------------------------------
CA Foothill/Eastern Corridor Agency Toll Road
RRB, Zero Coupon, 6%, 1/15/22(1) Baa3/BBB-/BBB 7,500,000 1,751,625
-----------------------------------------------------------------------------------------------------------------
CA HFA Home Mtg. RB, Series C, 6.75%, 2/1/25 Aa2/AA- 80,000 80,000
-----------------------------------------------------------------------------------------------------------------
CA HFA RB, Series A, 7.35%, 8/1/11 Aa2/AA- 75,000 77,206
-----------------------------------------------------------------------------------------------------------------
CA HFA RB, Series C, 7.60%, 8/1/30 Aa2/AA- 540,000 543,521
-----------------------------------------------------------------------------------------------------------------
CA HFA RB, Series C, 7.60%, 8/1/30 Aa2/AA- 220,000 220,000
-----------------------------------------------------------------------------------------------------------------
CA HFA RB, Series E-1, 6.45%, 2/1/12 Aa2/AA- 750,000 758,820
-----------------------------------------------------------------------------------------------------------------
CA HFA SFM RB, Series 83, Inverse Floater,
9.71%, 8/1/25(2) NR/AAA 3,245,000 3,292,637
-----------------------------------------------------------------------------------------------------------------
CA HFA SFM RB, Series 83, Inverse Floater,
9.77%, 8/1/25(2) NR/AAA 385,000 385,000
-----------------------------------------------------------------------------------------------------------------
CA HFA SFM RB, Series C, 6.75%, 2/1/25 Aa2/AA- 9,515,000 9,629,465
</TABLE>
8 OPPENHEIMER CALIFORNIA MUNICIPAL FUND
<PAGE>
<TABLE>
<CAPTION>
RATINGS:
MOODY'S/ FACE MARKET VALUE
S&P/FITCH AMOUNT SEE NOTE 1
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CALIFORNIA Continued
CA HFFAU RB, Los Angeles Children's Hospital,
Prerefunded, Series A, 7.125%, 6/1/21 Aaa/NR $1,000,000 $1,056,060
-----------------------------------------------------------------------------------------------------------------
CA Infrastructure & ED Bank RB, American Center for
Wine, Food & Arts, 5.75%, 12/1/24 NR/A/A 5,000,000 4,635,900
-----------------------------------------------------------------------------------------------------------------
CA PCFAU SWD RRB, North Cnty. Recycling Center,
Escrowed to Maturity, Series A, 6.75%, 7/1/11 Aaa/NR 500,000 531,285
-----------------------------------------------------------------------------------------------------------------
CA PWBL RB, State Prison Department of Corrections,
Series E, FSA Insured, 5.50%, 6/1/15 Aaa/AAA/AAA 3,000,000 2,964,600
-----------------------------------------------------------------------------------------------------------------
CA PWBL RRB, Various University of CA Projects,
Series A, 5.50%, 6/1/14 Aa3/A+/A+ 1,500,000 1,499,145
-----------------------------------------------------------------------------------------------------------------
CA SCDAU COP, 7.25%, 11/1/29 NR/NR 5,000,000 4,843,650
-----------------------------------------------------------------------------------------------------------------
CA SCDAU COP, Childrens Hospital--Los Angeles,
5.25%, 8/15/29 A1/A+ 5,000,000 4,146,900
-----------------------------------------------------------------------------------------------------------------
CA SCDAU COP, The Internext Group, 5.375%, 4/1/30 NR/BBB 6,500,000 4,866,615
-----------------------------------------------------------------------------------------------------------------
CA SCDAU COP, Winward Schools, 7.25%, 11/1/29 NR/NR 1,500,000 1,483,530
-----------------------------------------------------------------------------------------------------------------
CA SCDAU Revenue Refunding COP, Inverse Floater,
6.915%, 11/1/15(2) A1/NR 6,600,000 6,014,250
-----------------------------------------------------------------------------------------------------------------
Campbell, CA RA TXAL RB, Central Campbell
Redevelopment Project, Series B, 6.60%, 10/1/32 Baa3/BBB- 1,255,000 1,204,662
-----------------------------------------------------------------------------------------------------------------
Campbell, CA Refunding COP, Civic Center Project,
Unrefunded Balance, 6.75%, 10/1/17 A2/NR 1,130,000 1,195,698
-----------------------------------------------------------------------------------------------------------------
Capistrano, CA USD CFD SPTX Bonds, Ladera
No. 98-2, 5.70%, 9/1/20 NR/NR 5,000,000 4,242,050
-----------------------------------------------------------------------------------------------------------------
Capistrano, CA USD CFD SPTX Bonds, Prerefunded,
No. 92-1, 7.10%, 9/1/21 NR/NR 3,250,000 3,686,637
-----------------------------------------------------------------------------------------------------------------
Cerritos, CA PFAU RB, Los Coyotes Redevelopment
Project, 6.50%, 11/1/23 Aaa/AAA/AAA 3,000,000 3,202,080
-----------------------------------------------------------------------------------------------------------------
Chino Basin, CA Regional FAU RB, Inland Empire
Utility Agency Sewer Project, MBIA Insured,
5.75%, 11/1/19 Aaa/AAA 1,000,000 978,540
-----------------------------------------------------------------------------------------------------------------
Chino Basin, CA Regional FAU RB, Inland Empire
Utility Agency Sewer Project, MBIA Insured,
5.75%, 11/1/22 Aaa/AAA 500,000 483,640
-----------------------------------------------------------------------------------------------------------------
Clovis, CA USD CAP GOB, Series D, FGIC Insured,
Zero Coupon, 5.60%, 8/1/10(1) Aaa/AAA 2,000,000 1,143,600
-----------------------------------------------------------------------------------------------------------------
Colton, CA PFAU TXAL RRB, Redevelopment
Projects, Series B, 5.875%, 8/1/27 NR/NR 3,700,000 3,200,204
-----------------------------------------------------------------------------------------------------------------
Commerce, CA Community Development
Commission TXAL Refunding Bonds, Redevelopment
Project No. 1, Sub. Lien, Series B, 5.75%, 8/1/10 NR/NR 815,000 791,275
-----------------------------------------------------------------------------------------------------------------
Commerce, CA Community Development
Commission TXAL Refunding Bonds, Redevelopment
Project No. 1, Sub. Lien, Series B, 6%, 8/1/21 NR/NR 2,800,000 2,495,388
</TABLE>
9 OPPENHEIMER CALIFORNIA MUNICIPAL FUND
<PAGE>
<TABLE>
<CAPTION>
STATEMENT OF INVESTMENTS Unaudited/Continued
RATINGS:
MOODY'S/ FACE MARKET VALUE
S&P/FITCH AMOUNT SEE NOTE 1
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CALIFORNIA Continued
Commerce, CA Joint Powers FAU Lease RB,
Community Center, Series A, 6.25%, 10/1/22 Baa2/NR $1,410,000 $1,323,158
----------------------------------------------------------------------------------------------------------------
Compton, CA Refunding COP, Civic Center &
Capital Improvements, Series A, 5.50%, 9/1/15 NR/BBB 3,000,000 2,640,390
-----------------------------------------------------------------------------------------------------------------
Davis, CA Public Facilities FAU Local Agency RRB,
Mace Ranch Area, Series A, 6.60%, 9/1/25 NR/NR 5,000,000 4,830,450
-----------------------------------------------------------------------------------------------------------------
Duarte, CA COP, City of Hope National Medical
Center, 6.25%, 4/1/23 Baa1/AAA 4,500,000 4,797,495
-----------------------------------------------------------------------------------------------------------------
East Palo Alto, CA RA TXAL RB, 6.625%, 10/1/29 NR/NR 2,430,000 2,332,508
-----------------------------------------------------------------------------------------------------------------
Escondido, CA Union High SDI CAP GOB, MBIA
Insured, Zero Coupon, 6.20%, 11/1/18(1) Aaa/AAA 6,000,000 1,921,860
-----------------------------------------------------------------------------------------------------------------
Escondido, CA Union High SDI CAP GOB, MBIA
Insured, Zero Coupon, 6.20%, 11/1/19(1) Aaa/AAA 2,000,000 599,420
-----------------------------------------------------------------------------------------------------------------
Folsom, CA SPTX Bonds, CFD No. 10, 6.875%, 9/1/19 NR/NR 6,500,000 6,289,400
-----------------------------------------------------------------------------------------------------------------
Huntington Park, CA PFAU Lease RRB, Wastewater
System Project, Series A, 6.20%, 10/1/25 NR/NR 3,000,000 2,749,680
-----------------------------------------------------------------------------------------------------------------
Industry, CA Improvement Bond Act of 1915 SPAST
GOB, Prerefunded, District No. 91-1, 7.65%, 9/2/21 NR/NR 1,750,000 1,906,520
-----------------------------------------------------------------------------------------------------------------
Laguna Salada, CA USD CAP GOB, Series B, FGIC
Insured, Zero Coupon, 5.30%, 8/1/22(1) Aaa/AAA/AAA 3,035,000 744,364
-----------------------------------------------------------------------------------------------------------------
Lake Elsinore, CA PFAU TXAL Bonds, Series A,
5.50%, 9/1/30 NR/BBB 5,000,000 4,077,550
-----------------------------------------------------------------------------------------------------------------
Lake Elsinore, CA School FAU SPTX RRB,
Horsethief Canyon, 5.625%, 9/1/16 NR/NR 4,760,000 4,072,656
-----------------------------------------------------------------------------------------------------------------
Lincoln, CA Improvement Bond Act 1915
PFAU RB, 6.20%, 9/2/25 NR/NR 4,000,000 3,632,160
-----------------------------------------------------------------------------------------------------------------
Los Angeles Cnty., CA CAP COP, Disney Parking
Project, Zero Coupon, 5.94%, 3/1/12(1) Aaa/AAA/AAA 1,100,000 557,447
-----------------------------------------------------------------------------------------------------------------
Los Angeles Cnty., CA CAP COP, Disney Parking
Project, Zero Coupon, 6.92%, 9/1/10(1) A3/BBB+/A- 5,960,000 3,222,632
-----------------------------------------------------------------------------------------------------------------
Los Angeles Cnty., CA CAP COP, Disney Parking
Project, Zero Coupon, 6.95%, 9/1/11(1) A3/BBB+/A- 2,900,000 1,461,368
-----------------------------------------------------------------------------------------------------------------
Los Angeles Cnty., CA CAP COP, Disney Parking
Project, Zero Coupon, 7.03%, 9/1/13(1) A3/BBB+/A- 4,500,000 1,962,135
-----------------------------------------------------------------------------------------------------------------
Los Angeles Cnty., CA CAP COP, Disney Parking
Project, Zero Coupon, 6.13%, 9/1/14(1) A3/BBB+/A- 7,260,000 2,936,162
-----------------------------------------------------------------------------------------------------------------
Los Angeles Cnty., CA Public Works FAU Lease RB,
Multiple Capital Facilities Project V, Series A,
AMBAC Insured, 5.125%, 6/1/17 Aaa/AAA 1,965,000 1,770,347
-----------------------------------------------------------------------------------------------------------------
Los Angeles, CA Department Water & Power
Waterworks RRB, 6.40%, 5/15/28 Aa3/AA 7,200,000 7,317,936
-----------------------------------------------------------------------------------------------------------------
Los Angeles, CA Harbor Department RB,
Series B, 5.375%, 11/1/23 Aa3/AA/AA 5,000,000 4,425,200
</TABLE>
10 OPPENHEIMER CALIFORNIA MUNICIPAL FUND
<PAGE>
<TABLE>
<CAPTION>
RATINGS:
MOODY'S/ FACE MARKET VALUE
S&P/FITCH AMOUNT SEE NOTE 1
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CALIFORNIA Continued
Modesto, CA Irrigation District FAU RRB,
Series A, MBIA Insured, 6%, 10/1/15 Aaa/AAA $ 5,000,000 $5,116,200
-----------------------------------------------------------------------------------------------------------------
Mountain View Los Altos, CA Union High SDI RB,
Series B, 6.50%, 5/1/17 Aa2/AA 2,000,000 2,088,720
-----------------------------------------------------------------------------------------------------------------
Oakland, CA Building Authority Lease RB,
Series A, 5%, 4/1/16 Aaa/AAA/AAA 3,000,000 2,702,070
-----------------------------------------------------------------------------------------------------------------
Oakland, CA RA TXAL Refunding Bonds,
MBIA Insured, 5.95%, 9/1/19(3) Aaa/AAA 8,600,000 8,424,302
-----------------------------------------------------------------------------------------------------------------
Orange Cnty., CA CFD No. 88-1 SPTX Bonds,
Aliso Viejo, Prerefunded, Series A, 7.10%, 8/15/05 NR/AAA 1,440,000 1,556,338
-----------------------------------------------------------------------------------------------------------------
Orange Cnty., CA CFD No. 88-1 SPTX Bonds,
Aliso Viejo, Prerefunded, Series A, 7.35%, 8/15/18 NR/AAA 7,000,000 7,605,360
-----------------------------------------------------------------------------------------------------------------
Orange Cnty., CA CFD No. 99-1 SPTX RB,
Series A, 6.70%, 8/15/29 NR/NR 1,600,000 1,551,008
-----------------------------------------------------------------------------------------------------------------
Orange Cnty., CA Improvement Bond Act of 1915 RRB,
Irvine Coast Assessment No. 88-1-A, 5.50%, 9/2/16 NR/NR 2,450,000 2,102,198
-----------------------------------------------------------------------------------------------------------------
Orange Cnty., CA Improvement Bond Act of 1915
SPAST GOB, Assessment No. 88-1, 6.25%, 9/2/18 NR/NR 2,130,000 2,005,139
-----------------------------------------------------------------------------------------------------------------
Pittsburg, CA RA TXAL Bonds, Los Medanos
Community Development Project,
AMBAC Insured, 5.80%, 8/1/17 Aaa/AAA 1,525,000 1,496,269
-----------------------------------------------------------------------------------------------------------------
Pittsburg, CA RA TXAL Bonds, Los Medanos
Community Development Project,
AMBAC Insured, 5.85%, 8/1/18 Aaa/AAA 1,615,000 1,581,973
-----------------------------------------------------------------------------------------------------------------
Pittsburg, CA RA TXAL Bonds, Los Medanos
Community Development Project, AMBAC Insured,
Zero Coupon, 6.10%, 8/1/20(1) Aaa/AAA 5,150,000 1,439,682
-----------------------------------------------------------------------------------------------------------------
Pittsburg, CA RA TXAL Refunding Bonds,
Los Medanos Community Development Project,
Sub. Lien, 6.20%, 8/1/19 NR/BBB 2,500,000 2,341,075
-----------------------------------------------------------------------------------------------------------------
Placentia, CA PFAU SPTX RB, Jr. Lien,
Series B, 6.60%, 9/1/15 NR/NR 1,600,000 1,595,104
-----------------------------------------------------------------------------------------------------------------
Pomona, CA SFM RRB, Escrowed to Maturity,
Series A, 7.60%, 5/1/23 Aaa/AAA 4,500,000 5,280,300
-----------------------------------------------------------------------------------------------------------------
Pomona, CA SFM RRB, Escrowed to Maturity,
Series B, 7.50%, 8/1/23 Aaa/AAA 500,000 581,040
-----------------------------------------------------------------------------------------------------------------
Pomona, CA USD GORB, Series A,
MBIA Insured, 6.15%, 8/1/15 Aaa/AAA 2,000,000 2,097,480
-----------------------------------------------------------------------------------------------------------------
Port Oakland, CA POAU RB, Series G,
MBIA Insured, 5.375%, 11/1/25 Aaa/AAA/AAA 10,650,000 9,383,395
-----------------------------------------------------------------------------------------------------------------
Redding, CA Electric System Revenue COP,
FGIC Insured, Inverse Floater, 7.79%, 6/1/19(2) Aaa/AAA/AAA 4,000,000 3,685,000
-----------------------------------------------------------------------------------------------------------------
Redding, CA Electric System Revenue COP,
MBIA Insured, Inverse Floater, 8.80%, 7/8/22(2) Aaa/AAA 2,500,000 2,712,500
</TABLE>
11 OPPENHEIMER CALIFORNIA MUNICIPAL FUND
<PAGE>
<TABLE>
<CAPTION>
STATEMENT OF INVESTMENTS Unaudited/Continued
RATINGS:
MOODY'S/ FACE MARKET VALUE
S&P/FITCH AMOUNT SEE NOTE 1
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CALIFORNIA Continued
Richmond, CA Improvement Bond Act of 1915
GORB, Reassessment District No. 855, 6.60%, 9/2/19 NR/NR $ 1,500,000 $ 1,483,815
-----------------------------------------------------------------------------------------------------------------
Richmond, CA Wastewater RB, FGIC Insured,
5.80%, 8/1/18 Aaa/AAA 3,315,000 3,279,828
-----------------------------------------------------------------------------------------------------------------
Riverside Cnty., CA CFD No. 88-12 SPTX Bonds,
Prerefunded, 7.55%, 9/1/17 NR/NR 3,000,000 3,122,880
-----------------------------------------------------------------------------------------------------------------
Riverside Cnty., CA PFAU Refunding COP,
5.75%, 5/15/19 NR/BBB- 2,100,000 1,759,989
-----------------------------------------------------------------------------------------------------------------
Riverside Cnty., CA PFAU TXAL RRB,
Redevelopment Projects, Series A, 5.625%, 10/1/33 Baa2/BBB- 6,600,000 5,416,290
-----------------------------------------------------------------------------------------------------------------
Riverside Cnty., CA Refunding COP, Air Force
Village West, Inc., Prerefunded, Series A,
8.125%, 6/15/12 NR/NR 3,000,000 3,282,150
-----------------------------------------------------------------------------------------------------------------
Riverside Cnty., CA Refunding COP, Air Force
Village West, Inc., Series A, 8.125%, 6/15/20 NR/NR 3,000,000 3,289,980
-----------------------------------------------------------------------------------------------------------------
Riverside Cnty., CA SFM RB, Escrowed to Maturity,
Series A, 7.80%, 5/1/21 Aaa/AAA 4,285,000 5,142,600
-----------------------------------------------------------------------------------------------------------------
Roseville, CA SPTX RB, Woodcreek West
Community Facility No. 1 Project, 5.875%, 9/1/08 NR/NR 1,235,000 1,206,348
-----------------------------------------------------------------------------------------------------------------
Roseville, CA SPTX RB, Woodcreek West
Community Facility No. 1 Project, 6.70%, 9/1/25 NR/NR 1,750,000 1,682,730
-----------------------------------------------------------------------------------------------------------------
Sacramento Cnty., CA SFM RB, Escrowed to
Maturity, 8%, 7/1/16(4) Aaa/AAA 10,000,000 12,170,400
-----------------------------------------------------------------------------------------------------------------
Sacramento, CA Cogeneration Authority RB,
Procter & Gamble Project, 6.50%, 7/1/14 NR/BBB-/NR 5,000,000 5,474,550
-----------------------------------------------------------------------------------------------------------------
Sacramento, CA MUD Electric RRB, FGIC Insured,
Inverse Floater, 8.89%, 8/15/18(2) Aaa/AAA/AAA 5,500,000 5,747,500
-----------------------------------------------------------------------------------------------------------------
Sacramento, CA PAU RB, Cogeneration Project,
6%, 7/1/22 NR/BBB-/BBB- 6,800,000 6,181,812
-----------------------------------------------------------------------------------------------------------------
San Bernardino Cnty., CA COP, Medical Center
Financing Project, MBIA Insured, 5.50%, 8/1/17 Aaa/AAA 5,250,000 5,081,107
-----------------------------------------------------------------------------------------------------------------
San Diego Cnty., CA COP, MBIA Insured, Inverse
Floater, 8.995%, 11/18/19(2) A1/NR 2,000,000 2,110,000
-----------------------------------------------------------------------------------------------------------------
San Diego Cnty., CA Water Authority Revenue
COP, Prerefunded, Series 91-B, MBIA Insured,
Inverse Floater, 8.62%, 4/8/21(2) Aaa/AAA 3,000,000 3,506,250
-----------------------------------------------------------------------------------------------------------------
San Francisco, CA Bay Area Rapid Transit District
Sales Tax RB, 5.25%, 7/1/14 Aa3/AA-/AA 1,500,000 1,446,300
-----------------------------------------------------------------------------------------------------------------
San Francisco, CA City & Cnty. Redevelopment
FAU TXAL Refunding Bonds, CAP Redevelopment
Projects, Series C, Zero Coupon, 5.79%, 8/1/11(1) A2/A/AAA 1,650,000 873,774
-----------------------------------------------------------------------------------------------------------------
San Francisco, CA City & Cnty. Redevelopment
FAU TXAL Refunding Bonds, CAP Redevelopment
Projects, Series C, Zero Coupon, 5.89%, 8/1/12(1) A2/A/AAA 1,750,000 866,302
</TABLE>
12 OPPENHEIMER CALIFORNIA MUNICIPAL FUND
<PAGE>
<TABLE>
<CAPTION>
RATINGS:
MOODY'S/ FACE MARKET VALUE
S&P/FITCH AMOUNT SEE NOTE 1
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CALIFORNIA Continued
San Francisco, CA City & Cnty. Redevelopment
FAU TXAL Refunding Bonds, CAP Redevelopment
Projects, Series C, Zero Coupon, 5.81%, 8/1/14(1) A2/A/AAA $ 1,925,000 $ 827,866
-----------------------------------------------------------------------------------------------------------------
San Francisco, CA City & Cnty. Redevelopment FAU
TXAL Refunding Bonds, Series C, Zero Coupon,
5.69%, 8/1/10(1) A2/A/AAA 1,650,000 933,867
-----------------------------------------------------------------------------------------------------------------
San Joaquin Hills, CA Transportation Corridor Agency
Toll Road CAP RRB, Series A, 0%/5.75%, 1/15/21(5) Baa3/BBB-/BBB 11,800,000 6,877,394
-----------------------------------------------------------------------------------------------------------------
San Joaquin Hills, CA Transportation Corridor Agency
Toll Road CAP RRB, Series A, MBIA Insured,
Zero Coupon, 5.73%, 1/15/25(1) Aaa/AAA/AAA 18,250,000 3,802,570
-----------------------------------------------------------------------------------------------------------------
San Joaquin Hills, CA Transportation Corridor
Agency Toll Road CAP RRB, Series A, MBIA Insured,
Zero Coupon, 5.90%, 1/15/26(1) Aaa/AAA/AAA 15,000,000 2,927,550
-----------------------------------------------------------------------------------------------------------------
San Joaquin Hills, CA Transportation Corridor
Agency Toll Road RB, Sr. Lien, 5%, 1/1/33 Baa3/BBB-/BBB 8,000,000 6,355,680
-----------------------------------------------------------------------------------------------------------------
San Joaquin Hills, CA Transportation Corridor
Agency Toll Road RB, Sr. Lien, Prerefunded,
6.75%, 1/1/32 Aaa/AAA/AAA 7,000,000 7,541,660
-----------------------------------------------------------------------------------------------------------------
Santa Ana, CA FAU RRB, Inner-City Commuter,
Series C, 5.60%, 9/1/19 NR/BBB 3,060,000 2,621,655
-----------------------------------------------------------------------------------------------------------------
Santa Ana, CA FAU RRB, Mainplace Project,
Series D, 5.50%, 9/1/15 NR/NR 1,000,000 869,690
-----------------------------------------------------------------------------------------------------------------
Santa Ana, CA FAU RRB, Mainplace Project,
Series D, 5.60%, 9/1/19 NR/NR 1,000,000 860,570
-----------------------------------------------------------------------------------------------------------------
Southern CA Home FAU SFM RB, Series A,
7.35%, 9/1/24 NR/AAA 1,115,000 1,142,563
-----------------------------------------------------------------------------------------------------------------
Southern CA Metropolitan Water District
Waterworks RRB, Inverse Floater, 6.56%, 10/30/20(2) Aa2/AA 3,300,000 2,875,125
-----------------------------------------------------------------------------------------------------------------
Southern CA PPAU Transmission Project RB,
Inverse Floater, 7.25%, 7/1/12(2) Aa3/A+ 1,900,000 1,978,375
-----------------------------------------------------------------------------------------------------------------
Stockton, CA CFD No. 90-2 SPTX RRB,
Brookside Estates, 6.20%, 8/1/15 NR/NR 1,750,000 1,674,698
-----------------------------------------------------------------------------------------------------------------
Tustin, CA USD CFD No. 88-1 SPTX RB,
Prerefunded, Series B, 6.375%, 9/1/21 NR/NR 3,500,000 3,853,850
-----------------------------------------------------------------------------------------------------------------
University of CA Regents RB, Multiple Purpose
Projects, Prerefunded, Series A, 6.875%, 9/1/16 Aa3/AAA 1,950,000 2,098,805
-----------------------------------------------------------------------------------------------------------------
West Sacremento, CA Improvement Bond Act
of 1915 SPAST Refunding Bonds, 5.60%, 9/2/17 NR/NR 2,000,000 1,710,320
-----------------------------------------------------------------------------------------------------------------
Yuba City, CA USD Refunding COP,
Series A, 5%, 2/1/17 Aaa/AAA 3,010,000 2,675,800
-----------
370,352,320
</TABLE>
13 Oppenheimer California Municipal Fund
<PAGE>
<TABLE>
<CAPTION>
STATEMENT OF INVESTMENTS Unaudited/Continued
RATINGS:
MOODY'S/ FACE MARKET VALUE
S&P/FITCH AMOUNT SEE NOTE 1
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. POSSESSIONS--4.5%
Guam PAU RB, Series A, 6.625%, 10/1/14 NR/AAA $2,000,000 $ 2,179,800
-----------------------------------------------------------------------------------------------------------------
PR CMWLTH GORB, MBIA Insured,
Inverse Floater, 7.78%, 7/1/08(2) Aaa/AAA 3,500,000 3,648,750
-----------------------------------------------------------------------------------------------------------------
PR EPAU RB, Prerefunded, Series P, 7%, 7/1/21 Aaa/AAA 4,000,000 4,222,320
-----------------------------------------------------------------------------------------------------------------
PR HFA SFM RB, Affordable Housing Mtg.
Portfolio I, 6.25%, 4/1/29 Aaa/AAA 2,375,000 2,358,660
-----------------------------------------------------------------------------------------------------------------
PR Housing Finance Corp. SFM RB, Portfolio 1,
Series B, 7.65%, 10/15/22 Aaa/AAA 145,000 148,985
-----------------------------------------------------------------------------------------------------------------
PR Industrial, Medical & Environmental PC
Facilities Tourist RB, Mennonite General Hospital
Project, Series A, 6.50%, 7/1/12 NR/BBB-/BBB 2,350,000 2,234,733
-----------------------------------------------------------------------------------------------------------------
Virgin Islands PFAU RB, Series A, 6.375%, 10/1/19 NR/BBB- 3,000,000 2,902,830
--------------
17,696,078
--------------
Total Municipal Bonds and Notes (Cost $401,927,975) 388,048,398
=================================================================================================================
SHORT-TERM TAX-EXEMPT OBLIGATIONS--0.8%
Los Angeles Cnty., CA Pension Obligation RB,
Series B, AMBAC Insured, 2.30%, 6/30/00(3) 1,200,000 1,200,000
-----------------------------------------------------------------------------------------------------------------
Orange Cnty., CA Special FAU Teeter Plan RB,
Series B, AMBAC Insured, 2.45%, 2/1/00(3) 2,000,000 2,000,000
--------------
Total Short-Term Tax-Exempt Obligations (Cost $3,200,000) 3,200,000
-----------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS, AT VALUE (COST $405,127,975) 99.1% 391,248,398
-----------------------------------------------------------------------------------------------------------------
OTHER ASSETS NET OF LIABILITIES 0.9 3,611,728
------------------------------
NET ASSETS 100.0% $394,860,126
==============================
</TABLE>
14 Oppenheimer California Municipal Fund
<PAGE>
FOOTNOTES TO STATEMENT OF INVESTMENTS
To simplify the listings of securities, abbreviations are used per the table
below:
<TABLE>
<S> <C> <C> <C>
CAP Capital Appreciation PCFAU Pollution Control Finance Authority
CDAU Communities Development Authority PFAU Public Finance Authority
CFD Community Facilities District POAU Port Authority
CMWLTH Commonwealth PPAU Public Power Authority
COP Certificates of Participation PWBL Public Works Board Lease
ED Economic Development RA Redevelopment Agency
EPAU Electric Power Authority RB Revenue Bonds
FA Facilities Authority RRB Revenue Refunding Bonds
FAU Finance Authority SCDAU Statewide Communities Development Authority
GOB General Obligation Bonds SDI School District
GORB General Obligation Refunding Bonds SFM Single Family Mtg.
HF Health Facilities SPAST Special Assessment
HFA Housing Finance Agency SPTX Special Tax
HFFAU Health Facilities Finance Authority SWD Solid Waste Disposal
MUD Municipal Utility District TXAL Tax Allocation
PAU Power Authority USD Unified School District
PC Pollution Control
</TABLE>
1. For zero coupon bonds, the interest rate shown is the effective yield on the
date of purchase.
2. Represents the current interest rate for a variable rate bond known as an
"inverse floater" which pays interest at a rate that varies inversely with
short-term interest rates. As interest rates rise, inverse floaters produce less
current income. Their price may be more volatile than the price of a comparable
fixed-rate security. Inverse floaters amount to $39,225,387 or 9.93% of the
Fund's net assets as of January 31, 2000.
3. Represents the current interest rate for a variable or increasing rate
security.
4. Securities with an aggregate market value of $1,592,500 are held in
collateralized accounts to cover initial margin requirements on open futures
sales contracts. See Note 5 of Notes to Financial Statements.
5. Denotes a step bond: a zero coupon bond that converts to a fixed or variable
interest rate at a designated future date.
15 Oppenheimer California Municipal Fund
<PAGE>
STATEMENT OF INVESTMENTS Unaudited/Continued
FOOTNOTES TO STATEMENT OF INVESTMENTS Continued
AS OF JANUARY 31, 2000, SECURITIES SUBJECT TO THE ALTERNATIVE MINIMUM TAX AMOUNT
TO $57,188,877 OR 14.48% 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>
Special Assessment $112,136,643 28.7%
Municipal Leases 43,909,271 11.2
Single Family Housing 41,811,196 10.7
Highways 36,178,337 9.3
Electric Utilities 32,181,857 8.2
Adult Living Facilities 25,168,667 6.4
Hospital/Healthcare 22,742,887 5.8
Marine/Aviation Facilities 21,465,212 5.5
Water Utilities 18,815,511 4.9
General Obligation 12,244,194 3.1
Not-for-Profit Organization 9,479,550 2.4
Sewer Utilities 4,742,008 1.2
Sales Tax 4,349,130 1.1
Higher Education 4,009,120 1.0
Education 1,483,530 0.4
Resource Recovery 531,285 0.1
---------------------------
Total $391,248,398 100.0%
===========================
</TABLE>
See accompanying Notes to Financial Statements.
16 Oppenheimer California Municipal Fund
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES Unaudited
<TABLE>
<CAPTION>
January 31, 2000
==================================================================================
ASSETS
<S> <C>
Investments, at value (cost $405,127,975)--see accompanying statement $391,248,398
----------------------------------------------------------------------------------
Cash 1,768,437
----------------------------------------------------------------------------------
Receivables and other assets:
Interest 6,046,989
Shares of beneficial interest sold 358,454
Daily variation on futures contracts 274,063
Other 10,249
--------------
Total assets 399,706,590
==================================================================================
LIABILITIES Payables and other liabilities:
Investments purchased 2,003,396
Shares of beneficial interest redeemed 1,335,552
Dividends 1,172,965
Trustees' compensation 163,288
Distribution and service plan fees 86,325
Transfer and shareholder servicing agent fees 19,477
Other 65,461
--------------
Total liabilities 4,846,464
==================================================================================
NET ASSETS $394,860,126
==============
==================================================================================
COMPOSITION OF NET ASSETS
Paid-in capital $423,162,561
----------------------------------------------------------------------------------
Overdistributed net investment income (950,895)
----------------------------------------------------------------------------------
Accumulated net realized loss on investment transactions (13,657,121)
----------------------------------------------------------------------------------
Net unrealized depreciation on investments (13,694,419)
--------------
Net assets $394,860,126
==============
</TABLE>
================================================================================
NET ASSET VALUE PER SHARE
Class A Shares:
Net asset value and redemption price per share (based on net assets of
$271,115,987 and 28,029,768 shares of beneficial interest outstanding) $9.67
Maximum offering price per share (net asset value plus sales charge of 4.75% of
offering price) $10.15
--------------------------------------------------------------------------------
Class B Shares:
Net asset value, redemption price (excludes applicable contingent deferred sales
charge) and offering price per share (based on net assets of $109,713,187 and
11,338,844 shares of beneficial interest outstanding) $9.68
--------------------------------------------------------------------------------
Class C Shares:
Net asset value, redemption price (excludes applicable contingent deferred sales
charge) and offering price per share (based on net assets of $14,030,952 and
1,452,580 shares of beneficial interest outstanding) $9.66
See accompanying Notes to Financial Statements.
17 Oppenheimer California Municipal Fund
<PAGE>
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS Unaudited
For the Six Months Ended January 31, 2000
-----------------------------------------------------------------------------------
INVESTMENT INCOME
<S> <C>
Interest $13,592,960
===================================================================================
EXPENSES
Management fees 1,223,433
-----------------------------------------------------------------------------------
Distribution and service plan fees:
Class A 364,279
Class B 616,706
Class C 79,122
-----------------------------------------------------------------------------------
Transfer and shareholder servicing agent fees 115,799
-----------------------------------------------------------------------------------
Custodian fees and expenses 27,005
-----------------------------------------------------------------------------------
Trustees' compensation 15,213
-----------------------------------------------------------------------------------
Other 62,772
-------------
Total expenses 2,504,329
Less expenses paid indirectly (7,503)
Less reimbursement of expenses (3,807)
-------------
Net expenses 2,493,019
===================================================================================
NET INVESTMENT INCOME 11,099,941
===================================================================================
REALIZED AND UNREALIZED GAIN (LOSS) Net realized gain (loss) on:
Investments (13,551,568)
Closing of futures contracts 542,847
-------------
Net realized loss (13,008,721)
-----------------------------------------------------------------------------------
Net change in unrealized appreciation or depreciation on investments (25,859,618)
-------------
Net realized and unrealized loss (38,868,339)
===================================================================================
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $(27,768,398)
=============
</TABLE>
See accompanying Notes to Financial Statements.
18 Oppenheimer California Municipal Fund
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
SIX MONTHS ENDED
JANUARY 31, 2000 YEAR ENDED
(UNAUDITED) JULY 31, 1999
------------------------------------------------------------------------------------------------------
OPERATIONS
<S> <C> <C>
Net investment income $ 11,099,941 $ 20,869,032
------------------------------------------------------------------------------------------------------
Net realized gain (loss) (13,008,721) 366,714
------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation or depreciation (25,859,618) (16,235,114)
---------------------------------
Net increase (decrease) in net assets resulting from operations (27,768,398) 5,000,632
======================================================================================================
DIVIDENDS AND/OR DISTRIBUTIONS TO SHAREHOLDERS
Dividends from net investment income:
Class A (7,884,363) (15,214,034)
Class B (2,726,647) (5,284,436)
Class C (350,954) (600,129)
======================================================================================================
BENEFICIAL STOCK TRANSACTIONS
Net increase (decrease) in net assets resulting from beneficial interest
transactions:
Class A (18,774,924) 26,403,170
Class B (12,177,286) 22,044,556
Class C (1,446,946) 6,138,090
======================================================================================================
NET ASSETS
Total increase (decrease) (71,129,518) 38,487,849
------------------------------------------------------------------------------------------------------
Beginning of period 465,989,644 427,501,795
---------------------------------
End of period (including overdistributed net investment income of
$950,895 and $1,088,872, respectively) $394,860,126 $465,989,644
=================================
</TABLE>
See accompanying Notes to Financial Statements.
19 Oppenheimer California Municipal Fund
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
SIX MONTHS YEAR YEAR
ENDED ENDED ENDED
JAN. 31, 2000 JULY 31, DEC. 31,
CLASS A (UNAUDITED) 1999 1998 1997 1996(1) 1995
=================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING DATA
Net asset value, beginning of period $10.57 $ 10.92 $ 10.94 $ 10.39 $ 10.69 $ 9.45
-----------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .27 .53 .54 .58 .33 .58
Net realized and unrealized gain (loss) (.90) (.35) .06 .54 (.30) 1.25
-----------------------------------------------------------------
Total income (loss) from investment
operations (.63) .18 .60 1.12 .03 1.83
-----------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income (.27) (.53) (.54) (.57) (.33) (.58)
Dividends in excess of net investment
income -- -- -- -- -- (.01)
Distributions from net realized gain -- -- (.08) -- -- --
-----------------------------------------------------------------
Total dividends and/or distributions
to shareholders (.27) (.53) (.62) (.57) (.33) (.59)
-----------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 9.67 $10.57 $10.92 $10.94 $10.39 $10.69
=================================================================
=================================================================================================================
TOTAL RETURN, AT NET ASSET VALUE(2) (6.07)% 1.59% 5.66% 11.11% 0.34% 19.76%
=================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands) $271,116 $316,363 $300,717 $298,162 $286,033 $285,307
-----------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $297,257 $314,094 $297,372 $289,439 $279,796 $250,188
-----------------------------------------------------------------------------------------------------------------
Ratios to average net assets:(3)
Net investment income 5.32% 4.79% 4.91% 5.49% 5.53% 5.64%
Expenses .90% 0.91% 0.92%(4) 0.94%(4) 0.97%(4) 0.95%(4)
-----------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(5) 25% 35% 31% 31% 14% 23%
</TABLE>
1. For the seven months ended July 31, 1996. The Fund changed its fiscal year
end from December 31 to July 31.
2. Assumes a $1,000 hypothetical initial investment on the business day before
the first day of the fiscal period (or inception of offering), with all
dividends and distributions reinvested in additional shares on the reinvestment
date, and redemption at the net asset value calculated on the last business day
of the fiscal period. Sales charges are not reflected in the total returns.
Total returns are not annualized for periods of less than one full year.
3. Annualized for periods of less than one full year.
4. Expense ratio has not been grossed up to reflect the effect of expenses paid
indirectly.
5. The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities owned
during the period. Securities with a maturity or expiration date at the time of
acquisition of one year or less are excluded from the calculation. Purchases and
sales of investment securities (excluding short-term securities) for the period
ended January 31, 2000, were $107,856,860 and $145,553,349, respectively.
See accompanying Notes to Financial Statements.
20 Oppenheimer California Municipal Fund
<PAGE>
<TABLE>
<CAPTION>
SIX MONTHS YEAR YEAR
ENDED ENDED ENDED
JAN. 31, 2000 JULY 31, DEC. 31,
CLASS B (UNAUDITED) 1999 1998 1997 1996(1) 1995
===========================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING DATA
Net asset value, beginning of period $10.57 $10.92 $10.94 $10.39 $10.69 $ 9.44
---------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .23 .45 .46 .49 .28 .51
Net realized and unrealized gain (loss) (.89) (.35) .06 .55 (.30) 1.25
-------------------------------------------------------------------
Total income (loss) from investment
operations (.66) .10 .52 1.04 (.02) 1.76
---------------------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income (.23) (.45) (.46) (.49) (.28) (.50)
Dividends in excess of net investment income -- -- -- -- -- (.01)
Distributions from net realized gain -- -- (.08) -- -- --
-------------------------------------------------------------------
Total dividends and/or distributions
to shareholders (.23) (.45) (.54) (.49) (.28) (.51)
---------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 9.68 $10.57 $10.92 $10.94 $10.39 $10.69
===================================================================
===========================================================================================================================
TOTAL RETURN, AT NET ASSET VALUE(2) (6.34)% 0.82% 4.86% 10.27% (0.12)% 18.97%
===========================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands) $109,713 $132,763 $115,444 $82,474 $52,038 $41,224
---------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $122,265 $129,538 $ 99,266 $65,192 $46,422 $29,918
---------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:(3)
Net investment income 4.55% 4.03% 4.21% 4.70% 4.74% 4.82%
Expenses 1.66% 1.67% 1.67%(4) 1.70%(4) 1.74%(4) 1.72%(4)
---------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(5) 25% 35% 31% 31% 14% 23%
</TABLE>
1. For the seven months ended July 31, 1996. The Fund changed its fiscal year
end from December 31 to July 31.
2. Assumes a $1,000 hypothetical initial investment on the business day before
the first day of the fiscal period (or inception of offering), with all
dividends and distributions reinvested in additional shares on the reinvestment
date, and redemption at the net asset value calculated on the last business day
of the fiscal period. Sales charges are not reflected in the total returns.
Total returns are not annualized for periods of less than one full year.
3. Annualized for periods of less than one full year.
4. Expense ratio has not been grossed up to reflect the effect of expenses paid
indirectly.
5. The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities owned
during the period. Securities with a maturity or expiration date at the time of
acquisition of one year or less are excluded from the calculation. Purchases and
sales of investment securities (excluding short-term securities) for the period
ended January 31, 2000, were $107,856,860 and $145,553,349, respectively.
See accompanying Notes to Financial Statements.
21 Oppenheimer California Municipal Fund
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS Continued
SIX MONTHS YEAR PERIOD
ENDED ENDED ENDED
JAN. 31, 2000 JULY 31, DEC. 31,
CLASS C (UNAUDITED) 1999 1998 1997 1996(1) 1995(6)
=======================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING DATA
Net asset value, beginning of period $10.55 $ 10.91 $ 10.93 $ 10.38 $ 10.68 $ 10.46
-----------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .23 .45 .46 .49 .27 .08
Net realized and unrealized gain (loss) (.89) (.36) .06 .55 (.30) .22
----------------------------------------------------------------
Total income (loss) from investment
operations (.66) .09 .52 1.04 (.03) .30
-----------------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income (.23) (.45) (.46) (.49) (.27) (.07)
Dividends in excess of net investment income -- -- -- -- -- (.01)
Distributions from net realized gain -- -- (.08) -- -- --
----------------------------------------------------------------
Total dividends and/or distributions
to shareholders (.23) (.45) (.54) (.49) (.27) (.08)
-----------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 9.66 $10.55 $10.91 $10.93 $10.38 $10.68
================================================================
=======================================================================================================================
TOTAL RETURN, AT NET ASSET VALUE(2) (6.35)% 0.73% 4.87% 10.26% (0.19)% 2.90%
=======================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands) $14,031 $16,864 $11,340 $5,969 $2,171 $125
-----------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $15,688 $14,672 $ 8,614 $3,869 $1,156 $ 91
-----------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:(3)
Net investment income 4.56% 4.03% 4.24% 4.66% 4.54% 4.56%
Expenses 1.66% 1.67% 1.66%(4) 1.70%(4) 1.80%(4) 1.68%(4)
-----------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(5) 25% 35% 31% 31% 14% 23%
</TABLE>
1. For the seven months ended July 31, 1996. The Fund changed its fiscal year
end from December 31 to July 31.
2. Assumes a $1,000 hypothetical initial investment on the business day before
the first day of the fiscal period (or inception of offering), with all
dividends and distributions reinvested in additional shares on the reinvestment
date, and redemption at the net asset value calculated on the last business day
of the fiscal period. Sales charges are not reflected in the total returns.
Total returns are not annualized for periods of less than one full year.
3. Annualized for periods of less than one full year.
4. Expense ratio has not been grossed up to reflect the effect of expenses paid
indirectly.
5. The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities owned
during the period. Securities with a maturity or expiration date at the time of
acquisition of one year or less are excluded from the calculation. Purchases and
sales of investment securities (excluding short-term securities) for the period
ended January 31, 2000, were $107,856,860 and $145,553,349, respectively.
6. For the period from November 1, 1995 (inception of offering) to December 31,
1995.
See accompanying Notes to Financial Statements.
22 Oppenheimer California Municipal Fund
<PAGE>
NOTES TO FINANCIAL STATEMENTS Unaudited
================================================================================
1. SIGNIFICANT ACCOUNTING POLICIES
Oppenheimer California Municipal 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 at their offering price, which is normally net asset value plus an initial
sales charge. Class B and Class C shares are sold without an initial sales
charge but may be subject to a contingent deferred sales charge (CDSC). All
classes of shares have identical rights to earnings, assets and voting
privileges, except that each class has its own expenses directly attributable to
that class and exclusive voting rights with respect to matters affecting that
class. Classes A, B and C shares have separate distribution and/or service
plans. Class B shares will automatically convert to Class A shares six years
after the date of purchase. The following is a summary of significant accounting
policies consistently followed by the Fund.
--------------------------------------------------------------------------------
SECURITIES VALUATION. Securities for which quotations are readily available are
valued at the last sale price, or if in the absence of a sale, at the last sale
price on the prior trading day if it is within the spread of the closing bid and
asked prices, and if not, at the closing bid price. Securities (including
restricted securities) for which quotations are not readily available are valued
primarily using dealer-supplied valuations, a portfolio pricing service
authorized by the Board of Trustees, or at their fair value. Fair value is
determined in good faith under consistently applied procedures under the
supervision of the Board of Trustees. Short-term "money market type" debt
securities with remaining maturities of sixty days or less are valued at cost
(or last determined market value) and adjusted for amortization or accretion to
maturity of any premium or discount.
--------------------------------------------------------------------------------
ALLOCATION OF INCOME, EXPENSES, GAINS AND LOSSES. Income, expenses (other than
those attributable to a specific class), gains and losses are allocated daily to
each class of shares based upon the relative proportion of net assets
represented by such class. Operating expenses directly attributable to a
specific class are charged against the operations of that class.
--------------------------------------------------------------------------------
FEDERAL TAXES. The Fund intends to continue to comply with provisions of the
Internal Revenue Code applicable to regulated investment companies and to
distribute all of its taxable income, including any net realized gain on
investments not offset by loss carryovers, to shareholders. Therefore, no
federal income or excise tax provision is required. As of July 31, 1999, the
Fund had available for federal tax purposes an unused capital loss carryover of
approximately $650,000, which expires in 2006.
23 Oppenheimer California Municipal Fund
<PAGE>
NOTES TO FINANCIAL STATEMENTS Unaudited/Continued
================================================================================
1. SIGNIFICANT ACCOUNTING POLICIES Continued
TRUSTEES' COMPENSATION. The Fund has adopted an unfunded retirement plan for the
Fund's independent Board of Trustees. Benefits are based on years of service and
fees paid to each trustee during the years of service. During the six months
ended January 31, 2000, a provision of $4,012 was made for the Fund's projected
benefit obligations, resulting in an accumulated liability of $163,174 as of
January 31, 2000.
The Board of Trustees has adopted a deferred compensation plan for
independent trustees that enables trustees to elect to defer receipt of all or a
portion of annual compensation they are entitled to receive from the Fund. Under
the plan, the compensation deferred is periodically adjusted as though an
equivalent amount had been invested for the Board of Trustees in shares of one
or more Oppenheimer funds selected by the trustee. The amount paid to the Board
of Trustees under the plan will be determined based upon the performance of the
selected funds. Deferral of trustees' fees under the plan will not affect the
net assets of the Fund, and will not materially affect the Fund's assets,
liabilities or net investment income per share.
--------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS. Dividends and distributions to
shareholders, which are determined in accordance with income tax regulations,
are recorded on the ex-dividend date.
--------------------------------------------------------------------------------
CLASSIFICATION OF DISTRIBUTIONS TO SHAREHOLDERS. Net investment income (loss)
and net realized gain (loss) may differ for financial statement and tax
purposes. The character of distributions made during the year from net
investment income or net realized gains may differ from its ultimate
characterization for federal income tax purposes. Also, due to timing of
dividend distributions, the fiscal year in which amounts are distributed may
differ from the fiscal year in which the income or realized gain was recorded by
the Fund.
--------------------------------------------------------------------------------
EXPENSE OFFSET ARRANGEMENTS. Expenses paid indirectly represent a reduction of
custodian fees for earnings on cash balances maintained by the Fund.
--------------------------------------------------------------------------------
OTHER. Investment transactions are accounted for as of trade date. Original
issue discount is accreted and premium is amortized in accordance with federal
income tax requirements. For municipal bonds acquired after April 30, 1993, on
disposition or maturity, taxable ordinary income is recognized to the extent of
the lesser of gain or market discount that would have accrued over the holding
period. Realized gains and losses on investments and unrealized appreciation and
depreciation are determined on an identified cost basis, which is the same basis
used for federal income tax purposes.
There are certain risks arising from geographic concentration in any
state. Certain revenue or tax related events in a state may impair the ability
of certain issuers of municipal securities to pay principal and interest on
their obligations.
24 Oppenheimer California Municipal Fund
<PAGE>
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of income and expenses during the reporting period. Actual
results could differ from those estimates.
================================================================================
2. SHARES OF BENEFICIAL INTEREST
The Fund has authorized an unlimited number of no par value shares of beneficial
interest of each class. Transactions in shares of beneficial interest were as
follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED JAN. 31, 2000 YEAR ENDED JULY 31, 1999
----------------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A
Sold 2,265,606 $ 23,026,874 6,301,987 $ 69,153,860
Dividends and/or
distributions reinvested 460,699 4,664,291 818,090 8,975,978
Redeemed (4,637,740) (46,466,089) (4,716,845) (51,726,668)
---------------------------------------------------------------
Net increase (decrease) (1,911,435) $(18,774,924) 2,403,232 $26,403,170
===============================================================
---------------------------------------------------------------------------------------------------
CLASS B
Sold 726,465 $ 7,357,035 3,406,294 $ 37,480,696
Dividends and/or
distributions reinvested 167,716 1,698,985 301,331 3,307,444
Redeemed (2,115,668) (21,233,306) (1,715,264) (18,743,584)
---------------------------------------------------------------
Net increase (decrease) (1,221,487) $(12,177,286) 1,992,361 $22,044,556
===============================================================
---------------------------------------------------------------------------------------------------
CLASS C
Sold 218,864 $ 2,206,041 856,519 $ 9,406,000
Dividends and/or
distributions reinvested 22,306 225,194 37,673 412,830
Redeemed (386,780) (3,878,181) (335,760) (3,680,740)
---------------------------------------------------------------
Net increase (decrease) (145,610) $ (1,446,946) 558,432 $ 6,138,090
===============================================================
</TABLE>
================================================================================
3. UNREALIZED GAINS AND LOSSES ON SECURITIES
As of January 31, 2000, net unrealized depreciation on securities of $13,879,576
was composed of gross appreciation of $8,304,108, and gross depreciation of
$22,183,684.
25 Oppenheimer California Municipal Fund
<PAGE>
NOTES TO FINANCIAL STATEMENTS Unaudited/Continued
================================================================================
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES
MANAGEMENT FEES. Management fees paid to the Manager were in accordance with the
investment advisory agreement with the Fund which provides for a fee of 0.60% of
the first $200 million of average annual 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 average annual net assets over $1 billion.
Effective January 1, 2000, the Manager has voluntarily undertaken to waive a
portion of its management fee, whereby the Fund pays a fee not to exceed 0.55%
of average annual net assets. The Fund's management fees for the six months
ended January 31, 2000, was 0.55% of the average annual net assets of each class
of shares, annualized for periods of less than one full year.
--------------------------------------------------------------------------------
TRANSFER AGENT FEES. OppenheimerFunds Services (OFS), a division of the Manager,
is the transfer and shareholder servicing agent for the Fund and for other
Oppenheimer funds. OFS's total costs of providing such services are allocated
ratably to these funds.
--------------------------------------------------------------------------------
DISTRIBUTION AND SERVICE PLAN FEES. Under its General Distributor's Agreement
with the Manager, the Distributor acts as the Fund's principal underwriter in
the continuous public offering of the different classes of shares of the Fund.
The compensation paid to (or retained by) the Distributor from the sale of
shares or on the redemption of shares is shown in the table below for the period
indicated.
<TABLE>
<CAPTION>
AGGREGATE CLASS A COMMISSIONS COMMISSIONS COMMISSIONS
FRONT-END FRONT-END ON CLASS A ON CLASS B ON CLASS C
SALES CHARGES SALES CHARGES SHARES SHARES SHARES
ON CLASS A RETAINED BY ADVANCED BY ADVANCED BY ADVANCED BY
SIX MONTHS ENDED SHARES DISTRIBUTOR DISTRIBUTOR(1) DISTRIBUTOR(1) DISTRIBUTOR(1)
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
January 31, 2000 $227,179 $52,614 $10,710 $210,820 $20,724
</TABLE>
1. The Distributor advances commission payments to dealers for certain sales of
Class A shares and for sales of Class B and Class C shares from its own
resources at the time of sale.
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
CONTINGENT DEFERRED CONTINGENT DEFERRED CONTINGENT DEFERRED
SALES CHARGES SALES CHARGES SALES CHARGES
SIX MONTHS ENDED RETAINED BY DISTRIBUTOR RETAINED BY DISTRIBUTOR RETAINED BY DISTRIBUTOR
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
January 31, 2000 $-- $250,571 $6,172
</TABLE>
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. Under those plans the Fund pays the Distributor for all or a
portion of its costs incurred in connection with the distribution and/or
servicing of the shares of the particular class.
26 Oppenheimer California Municipal Fund
<PAGE>
--------------------------------------------------------------------------------
CLASS A SERVICE PLAN FEES. Under the Class A service plan, the Distributor
currently uses the fees it receives from the Fund to pay brokers, dealers and
other financial institutions. The Class A service plan permits reimbursements to
the Distributor at a rate of up to 0.25% of average annual net assets of Class A
shares purchased. The Distributor makes payments to plan recipients quarterly at
an annual rate not to exceed 0.25% of the average annual net assets consisting
of Class A shares of the Fund. For the six months ended January 31, 2000,
payments under the Class A Plan totaled $364,279, all of which was paid by the
Distributor to recipients. That included $13,351 paid to an affiliate of the
Manager. Any unreimbursed expenses the Distributor incurs with respect to Class
A shares in any fiscal year cannot be recovered in subsequent years.
--------------------------------------------------------------------------------
CLASS B AND CLASS C DISTRIBUTION AND SERVICE PLAN FEES. Under each plan, service
fees and distribution fees are computed on the average of the net asset value of
shares in the respective class, determined as of the close of each regular
business day during the period. The Class B and Class C plans provide for the
Distributor to be compensated at a flat rate, whether the Distributor's
distribution expenses are more or less than the amounts paid by the Fund under
the plan during the period for which the fee is paid.
The Distributor retains the asset-based sales charge on Class B shares.
The Distributor retains the asset-based sales charge on Class C shares during
the first year the shares are outstanding. The asset-based sales charges on
Class B and Class C shares allow investors to buy shares without a front-end
sales charge while allowing the Distributor to compensate dealers that sell
those shares.
The Distributor's actual expenses in selling Class B and Class C shares
may be more than the payments it receives from the contingent deferred sales
charges collected on redeemed shares and asset-based sales charges from the Fund
under the plans. If any plan is terminated by the Fund, the Board of Trustees
may allow the Fund to continue payments of the asset-based sales charge to the
Distributor for distributing shares before the plan was terminated. The plans
allow for the carry-forward of distribution expenses, to be recovered from
asset-based sales charges in subsequent fiscal periods.
Distribution fees paid to the Distributor for the six months ended January 31,
2000, were as follows:
<TABLE>
<CAPTION>
DISTRIBUTOR'S DISTRIBUTOR'S
AGGREGATE UNREIMBURSED
UNREIMBURSED EXPENSES AS %
TOTAL PAYMENTS AMOUNT RETAINED EXPENSES OF NET ASSETS
UNDER PLAN BY DISTRIBUTOR UNDER PLAN OF CLASS
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class B Plan $616,706 $500,195 $3,637,428 3.32%
Class C Plan 79,122 33,072 211,983 1.51
</TABLE>
27 Oppenheimer California Municipal Fund
<PAGE>
NOTES TO FINANCIAL STATEMENTS Unaudited/ Continued
================================================================================
5. FUTURES CONTRACTS
The Fund may buy and sell futures contracts in order to gain exposure to or to
seek to protect against changes in interest rates. The Fund may also buy or
write put or call options on these futures contracts.
The Fund generally sells futures contracts to hedge against increases in
interest rates and the resulting negative effect on the value of fixed rate
portfolio securities. The Fund may also purchase futures contracts to gain
exposure to changes in interest rates as it may be more efficient or cost
effective than actually buying fixed income securities.
Upon entering into a futures contract, the Fund is required to deposit
either cash or securities (initial margin) in an amount equal to a certain
percentage of the contract value. Subsequent payments (variation margin) are
made or received by the Fund each day. The variation margin payments are equal
to the daily changes in the contract value and are recorded as unrealized gains
and losses. The Fund may recognize a realized gain or loss when the contract is
closed or expires.
Securities held in collateralized accounts to cover initial margin
requirements on open futures contracts are noted in the Statement of
Investments. The Statement of Assets and Liabilities reflects a receivable
and/or payable for the daily mark to market for variation margin.
Risks of entering into futures contracts (and related options) include the
possibility that there may be an illiquid market and that a change in the value
of the contract or option may not correlate with changes in the value of the
underlying securities.
As of January 31, 2000, the Fund had outstanding futures contracts as follows:
<TABLE>
<CAPTION>
UNREALIZED
EXPIRATION NUMBER OF VALUATION AS OF APPRECIATION
CONTRACT DESCRIPTION DATE CONTRACTS JANUARY 31, 2000 (DEPRECIATION)
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CONTRACTS TO SELL
Municipal Bond 3/22/00 280 $25,392,500 $ 485,157
U.S. Long Bond 3/22/00 150 13,832,813 (300,000)
-------------
$185,157
=============
</TABLE>
================================================================================
6. BANK BORROWINGS
The Fund may borrow from a bank for temporary or emergency purposes including,
without limitation, funding of shareholder redemptions provided asset coverage
for borrowings exceeds 300%. The Fund has entered into an agreement which
enables it to participate with other Oppenheimer funds in an unsecured line of
credit with a bank, which permits borrowings up to $400 million, collectively.
Interest is charged to each fund, based on its borrowings, at a rate equal to
the Federal Funds Rate plus 0.45%. Borrowings are payable 30 days after such
loan is executed. The Fund also pays a commitment fee equal to its pro rata
share of the average unutilized amount of the credit facility at a rate of 0.08%
per annum.
The Fund had no borrowings outstanding during the six months ended January
31, 2000.
28 Oppenheimer California Municipal Fund
<PAGE>
<TABLE>
<CAPTION>
OPPENHEIMER CALIFORNIA MUNICIPAL FUND
--------------------------------------------------------------------------------------------------------------------------
<S> <C>
OFFICERS AND TRUSTEES Leon Levy, Chairman of the Board of Trustees
Donald W. Spiro, Vice Chairman of the Board of Trustees
Bridget A. Macaskill, Trustee and President
Robert G. Galli, Trustee
Phillip A. Griffiths, Trustee
Benjamin Lipstein, Trustee
Elizabeth B. Moynihan, Trustee
Kenneth A. Randall, Trustee
Edward V. Regan, Trustee
Russell S. Reynolds, Jr., Trustee
Clayton K. Yeutter, Trustee
Christian D. Smith, Vice President
Andrew J. Donohue, Secretary
Brian W. Wixted, Treasurer
Robert G. Zack, Assistant Secretary
Robert J. Bishop, Assistant Treasurer
Scott T. Farrar, Assistant Treasurer
--------------------------------------------------------------------------------------------------------------------------
INVESTMENT ADVISOR OppenheimerFunds, Inc.
--------------------------------------------------------------------------------------------------------------------------
DISTRIBUTOR OppenheimerFunds Distributor, Inc.
--------------------------------------------------------------------------------------------------------------------------
TRANSFER AND SHAREHOLDER OppenheimerFunds Services
SERVICING AGENT
--------------------------------------------------------------------------------------------------------------------------
CUSTODIAN OF Citibank, N.A.
PORTFOLIO SECURITIES
--------------------------------------------------------------------------------------------------------------------------
INDEPENDENT AUDITORS KPMG LLP
--------------------------------------------------------------------------------------------------------------------------
LEGAL COUNSEL Mayer, Brown & Platt
</TABLE>
The financial statements included herein have been
taken from the records of the Fund without
examination of the independent auditors.
This is a copy of a report to shareholders of
Oppenheimer California Municipal Fund. This report
must be preceded or accompanied by a Prospectus of
Oppenheimer California Municipal Fund. For material
information concerning the Fund, see the
Prospectus.
SHARES OF OPPENHEIMER FUNDS ARE NOT DEPOSITS OR
OBLIGATIONS OF ANY BANK, ARE NOT GUARANTEED BY ANY
BANK, ARE NOT INSURED BY THE FDIC OR ANY OTHER
AGENCY, AND INVOLVE INVESTMENT RISKS, INCLUDING THE
POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED.
29 Oppenheimer California Municipal Fund
<PAGE>
INFORMATION AND SERVICES
--------------------------------------------------------------------------------
As an Oppenheimer fund shareholder, you can benefit from special services
designed to make investing simple. Whether it's automatic investment plans,
timely market updates, or immediate account access, you can count on us whenever
you need assistance. So call us today, or visit our website--we're here to help.
INTERNET
24-hr access to account information and transactions
WWW.OPPENHEIMERFUNDS.COM
GENERAL INFORMATION
Mon-Fri 8:30am-9pm ET, Sat 10am-4pm ET
1.800.525.7048
TELEPHONE TRANSACTIONS
Mon-Fri 8:30am-9pm ET, Sat 10am-4pm ET
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PHONELINK
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OPPENHEIMERFUNDS INFORMATION HOTLINE 24 hours a day, timely and insightful
messages on the economy and issues that may affect your investments
1.800.835.3104
TRANSFER AND SHAREHOLDER SERVICING AGENT
OppenheimerFunds Services
P.O. Box 5270, Denver, CO 80217-5270
[OPPENHEIMERFUNDS LOGO]
RS0790.001.0100 March 31, 2000
<PAGE>
-----------------------------------------------
Annual Report July 31, 1999
-----------------------------------------------
O P P E N H E I M E R
California
Municipal Fund
[Photo of Checkbook Register]
[OppenheimerFunds Logo]
OppenheimerFunds(R)
THE RIGHT WAY TO INVEST
<PAGE>
Report highlights
--------------------------------------------------------------------------------
[Begin: Sidebar Text]
Contents
3 President's Letter
5 An Interview
with Your Fund's
Manager
10 Fund Performance
----------------------------
14 Financial
Statements
37 Independent
Auditors' Report
----------------------------
38 Federal
Income Tax
Information
39 Officers and
Trustees
40 Information and
Services
[End: Sidebar Text]
o In stark contrast to U.S. Treasury securities, municipal bond prices were
remarkably stable throughout the reporting period.
o Our research-intensive security selection strategy helped us find areas of
opportunity and helped avoid potential problems.
o As of July 31, long-term California municipal bonds provided more than 90% of
the yield of long-term U.S. Treasury securities, making them attractive
values by historical measures.
Avg Annual Total Returns
For the 1-Year Period
Ended 7/31/99
Class A
Without With
Sales Chg.(1) Sales Chg.(2)
-----------------------------
1.59% -3.24%
-----------------------------
Class B
Without With
Sales Chg.(1) Sales Chg.(2)
-----------------------------
0.82% -4.02%
-----------------------------
Class C
Without With
Sales Chg.(1) Sales Chg.(2)
-----------------------------
0.73% -0.24%
-----------------------------
Total returns include changes in share price and reinvestment of dividends
and capital gains distributions in a hypothetical investment for the periods
shown. In reviewing performance and rankings, please remember that past
performance does not guarantee future results. Investment return and principal
value of an investment in the Fund will fluctuate so that an investor's shares,
when redeemed, may be worth more or less than the original cost. The Fund's
performance may from time to time be subject to substantial short-term changes,
particularly during periods of market or interest rate volatility. For updates
on the Fund's performance, please contact your financial advisor, call us at
1-800-525-7048 or visit our website, www.oppenheimerfunds.com.
1. Includes changes in net asset value per share without deducting any sales
charges.
2. Class A returns include the current maximum initial sales charge of 4.75%.
Class B returns include the applicable contingent deferred sales charge of 5%.
Class C returns include the contingent deferred sales charge of 1%. Class B and
C shares are subject to an annual 0.75% asset-based sales charge. An explanation
of the different performance calculations is in the Fund's prospectus.
2 Oppenheimer California Municipal Fund
<PAGE>
Dear shareholder,
--------------------------------------------------------------------------------
[Photo of Bridget A. Macaskill]
Bridget A. Macaskill
President
Oppenheimer
California Municipal Fund
In many ways, the 1999 investment environment has, so far, unfolded as many
expected it would, producing both attractive opportunities and formidable
challenges for investors.
On the economic front, early worries about the effects of global weakness
in the wake of last year's credit and currency crises have abated. Instead, as
many economies around the world begin to strengthen, concerns now center around
whether the U.S. economy may be growing too quickly. Throughout the year,
consumers in the United States have continued to spend and borrow heavily, more
than offsetting any temporary slowdown in the industrial and export sectors.
The economy's strength has not gone unnoticed by the nation's monetary
policymakers. In an effort to ward off emerging inflationary pressures, the
Federal Reserve Board increased short-term interest rates this past summer.
Market reaction to robust economic growth has been mixed. The U.S. bond
market has generally declined, as fixed income investors became increasingly
concerned about the effects of rising interest rates.
In the stock market, the performance of large-capitalization growth
stocks, which has driven the market's advance over the past few years, has begun
to moderate, and many previously out-of-favor value-oriented, mid-cap and
small-cap stocks have rallied. At the same time, a healthy percentage of
actively managed, diversified portfolios have once again begun to outperform
unmanaged stock indices such as Standard & Poor's 500.
(over, please)
3 Oppenheimer California Municipal Fund
<PAGE>
At OppenheimerFunds, we applaud the Fed's pre-emptive strike against inflation.
In our view, history has repeatedly demonstrated that most financial assets do
best in a low-inflation environment. What's more, we believe that the move to
higher interest rates should be temporary.
One recent development is quite troublesome to us however: the increasing
popularity of "day trading" among individuals seeking to make fast money in a
volatile stock market. In our opinion, day trading is not investing, it is
gambling. Experience proves that without extensive research and analysis,
attempting to time short-term price swings is a fool's errand. Instead, we
continue to encourage investors to maintain a long-term perspective that is
measured in years, not days.
Finally, while we remain alert to the potential impact of the Y2K issue,
we are encouraged by the progress made in addressing the matter. At
OppenheimerFunds, our shareholder accounting systems are already Y2K compliant,
and we have successfully participated in all required industry-wide tests. We
intend to continue re-testing our systems in order to help further protect
against any potential problems. After all, whether in our computer accounting
systems or the financial markets, managing risk is an important part of what
makes OppenheimerFunds The Right Way to Invest.
Sincerely,
/s/ Bridget A. Macaskill
Bridget A. Macaskill
August 20, 1999
4 Oppenheimer California Municipal Fund
<PAGE>
An interview with your Fund's manager
--------------------------------------------------------------------------------
[Photo of Portfolio Management Team]
Portfolio Management
Team (l to r)
Bob Patterson
Caryn Halbrecht
(Portfolio Manager)
Jerry Webman
How did Oppenheimer California Municipal Fund perform during the one-year period
that ended July 31, 1999?
We are pleased with the Fund's performance over the fiscal year. We attribute
the Fund's performance to our conservative investment strategy in a rapidly
changing investment environment. In fact, market conditions during the final six
months of 1998 and the first half of 1999 were, in many respects, direct
opposites of each other. The final six months of 1998 were generally
characterized by recessionary economic conditions throughout much of the world,
declining interest rates in the United States and less restrictive monetary
policies worldwide. In contrast, the first half of 1999 saw signs of global
economic recovery, rising domestic interest rates and, ultimately, a tighter
monetary policy in the United States.
How did these economic conditions affect California's municipal bond market?
In stark contrast to U.S. Treasury securities, municipal bond prices were
remarkably stable throughout the one-year reporting period. In the first half of
the period, global economic uncertainty triggered a "flight to quality" among
U.S. and foreign investors. This created unprecedented demand for U.S. Treasury
securities, driving their prices up and their yields down (prices and yields
move in opposite directions). However, because municipal bonds do not provide
tax advantages to foreign investors, municipals did not benefit to the same
extent. As a result, U.S. Treasury securities significantly outperformed
triple-A rated municipal bonds with comparable maturities.
5 Oppenheimer California Municpal Fund
<PAGE>
An interview with your Fund's manager
--------------------------------------------------------------------------------
[Begin: Sidebar Text]
"Municpal bonds
endured
significantly
less volatility
than other
high-quality,
fixed income
securities
over the
past year."
[End: Sidebar Text]
In the second half of the reporting period, while municipal bonds remained
stable, prices of U.S. Treasury securities declined sharply, giving back all of
their previous gains. As the economy grew stronger, investors regained their
confidence and sold their Treasury bonds in order to return to riskier financial
assets such as stocks and corporate bonds. Consequently, municipal bonds
provided higher total returns than U.S. Treasuries.
In our opinion, municipal bonds' relative stability is the result of
supply-and-demand factors. Strong economic conditions in California reduced many
municipalities' need to borrow, leading to a modestly diminished supply of
tax-exempt bonds. Yet, demand remained high from investors seeking to minimize
their income tax liabilities. This supply-and-demand relationship helped support
the stability of California's municipal bond prices and yields.
Did you find compelling values in this market environment?
Yes. Long-term, tax-exempt municipal bond yields have been high relative to
yields of long-term, taxable U.S. Treasury securities. In fact, by mid-1999,
California municipal bond yields were more than 90% of comparable Treasury
yields. As a result, we believe that California municipal bonds have provided
excellent after-tax values compared to historical norms.
6 Oppenheimer California Municpal Fund
<PAGE>
[Begin: Sidebar Text]
Avg Annual Total Returns
For the Periods Ended 6/30/991
Class A
1 year 5 year 10 year
-------------------------
-2.96% 5.85% 6.54%
-------------------------
Class B
Since
1 year 5 year Inception
-------------------------
-3.65% 5.75% 4.85%
-------------------------
Class C
Since
1 year 5 year Inception
-------------------------
0.15% N/A 5.04%
-------------------------
[End: Sidebar Text]
How did you manage the Fund in this environment?
We attempted to manage the risks of changing interest rates and emphasized those
sectors of the municipal bond market that we expected to benefit most from
prevailing economic and market conditions. This strategy led us to areas of
opportunity that we believe will benefit from California's growing population,
including residential land development and adult living facilities. Residential
land development bonds finance the basic infrastructure for new housing
construction. Adult living facilities are residential housing projects designed
to meet the unique demands of a growing population of aging Americans who want
amenities tailored to their lifestyles.
Our strategy also led us to avoid certain issuers, such as hospitals,
which have been subject to financial pressures because of an unfavorable
regulatory and legislative environment, including cutbacks in Medicaid and
Medicare. We also tended to avoid bonds issued by utilities that are in the
midst of industry-wide deregulation.
1. Total returns include changes in share price and reinvestment of dividends
and capital gains distributions in a hypothetical investment for the periods
shown. Class A returns include the current maximum initial sales charge of
4.75%. Class A shares were first publicly offered on 11/3/88. Class B returns
include the applicable contingent deferred sales charge of 5% (1-year) and 1%
(since inception on 5/3/93). Class C returns for the one-year result include the
contingent deferred sales charge of 1%. Class C shares have an inception date of
11/1/95. Class B and C shares are subject to an annual 0.75% asset-based sales
charge. An explanation of the different performance calculations is in the
Fund's prospectus.
7 Oppenheimer California Municipal Fund
<PAGE>
An interview with your Fund's manager
--------------------------------------------------------------------------------
[Begin: Sidebar Text]
Standardized Yields(2)
For the 30 Days Ended 7/31/99
------------------------------
Class A 4.44%
------------------------------
Class B 3.90
------------------------------
Class C 3.90
------------------------------
[End: Sidebar Text]
Throughout the reporting period, we mostly targeted a neutral average
duration--which is a measure of sensitivity to changes in interest rates. When
interest rates declined in 1998, our neutral position constrained performance
slightly compared to portfolios with longer durations. However, when interest
rates rose in 1999, our neutral position helped shelter the portfolio from some
of the impact affecting investors who had previously adopted a longer, more
aggressive duration strategy.
What is your outlook for the municipal bond market and the Fund?
We remain cautiously optimistic. First, we believe that municipal bonds are
attractively valued relative to comparable taxable securities, and should
benefit as that relationship returns to more normal levels. Second, California
has benefited greatly from the recent strength of the U.S. economy, which has
enabled many of its municipalities to put their fiscal houses in good order.
This should help reduce the risk of credit downgrades.
2. Standardized yield is based on net investment income for the 30-day period
ended July 31, 1999. Falling share prices will tend to artificially raise
yields.
8 Oppenheimer California Municipal Fund
<PAGE>
[Begin: Sidebar Text]
[Begin: Tabular Representation of Pie Chart]
Credit Allocation(3)
AAA 44.9%
AA 8.7
A 11.1
BBB 28.2
BB 6.3
B 0.8
[End: Tabular Representation of Pie Chart]
[End: Sidebar Text]
On the other hand, we remain concerned about rising interest rates. Accordingly,
we intend to continue to monitor the economic environment carefully. If the
economy continues to grow at an unsustainable rate, we may position the
portfolio to reduce the adverse effects of potentially higher interest rates. We
believe that these credit-conscious, risk management strategies make Oppenheimer
California Municipal Fund an important part of The Right Way to Invest.
Top 5 Industries
(Percentage of invested assets)(4)
---------------------------------------------------------
Special Assessment 26.2%
---------------------------------------------------------
Single-Family Housing 12.0
---------------------------------------------------------
Municipal Leases 9.3
---------------------------------------------------------
Highways 9.2
---------------------------------------------------------
Hospital/Healthcare 7.9
---------------------------------------------------------
3. Portfolio data are as of July 31, 1999, are dollar-weighted based on invested
assets and are subject to change. The Fund may invest up to 25% of its assets in
below-investment-grade securities which carry greater risk of default. Average
credit quality and ratings allocations include securities rated by national
ratings organizations as well as unrated securities (currently 14.2% of total
investments) which have ratings assigned by the Manager in categories equivalent
to those of ratings organizations.
4. Industry weightings are as of July 31, 1999, and are subject to change.
9 Oppenheimer California Municipal Fund
<PAGE>
Fund performance
--------------------------------------------------------------------------------
How Has the Fund Performed? Below is a discussion, by the Manager, of the Fund's
performance during its fiscal year ended July 31, 1999, followed by a graphical
comparison of the Fund's performance to an appropriate broad-based market index.
[square bullet] Management's Discussion of Performance.
During the Fund's fiscal year that ended July 31, 1999, Oppenheimer California
Municipal Fund performed relatively well, despite the fact that the overall bond
market weakened considerably in 1999. The weakness in the bond market stemmed
from signs of continuing strong economic growth, which could cause inflation to
reemerge. However, the Fund benefited from a reduced supply of new tax-exempt
bond issues relative to robust demand from investors seeking to manage their
income tax liabilities. This reduction in issuance was primarily a result of
strong economic conditions throughout the United States, which helped curtail
California's need to borrow. In this environment, the Fund continued to adhere
to its long-standing strategy of holding a diversified portfolio of municipal
bonds selected after extensive research into their issuers' credit quality. The
Fund's portfolio holdings, allocations and strategies are subject to change.
10 Oppenheimer California Municipal Fund
<PAGE>
[square bullet] Comparing the Fund's Performance to the Market. The graphs
that follow show the performance of a hypothetical $10,000 investment in each
class of shares of the Fund held from the inception of the class until July 31,
1999. In the case of Class A shares, performance is measured over a ten-year
period. In the case of Class B shares, performance is measured from the
inception of the class on May 3, 1993, and in the case of Class C shares, from
the inception of the class on November 1, 1995. The Fund's performance reflects
the deduction of the maximum initial sales charge on Class A shares and the
applicable contingent deferred sales charge for Class B and Class C shares. The
graphs assume that all dividends and capital gains distributions were reinvested
in additional shares.
Because the Fund invests in a variety of Municipal Securities, the Fund's
performance is compared to that of the Lehman Brothers Municipal Bond Index, an
unmanaged index of a broad range of investment grade municipal bonds that is
widely regarded as a measure of the performance of the general municipal bond
market. Index performance reflects the reinvestment of income but does not
consider the effect of capital gains or transaction costs, and none of the data
below shows the effect of taxes. Also, the Fund's performance 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.
11 Oppenheimer California Municipal Fund
<PAGE>
Fund performance
--------------------------------------------------------------------------------
Class A Shares
Comparison of Change in Value of $10,000 Hypothetical Investments in:
Oppenheimer California Municipal Fund (Class A) and Lehman Brothers Municipal
Bond Index
[Begin: Tablular Representation of Line Chart]
Oppenheimer California Lehman Brothers Municipal
Municipal Fund Class A Bond Index
11.3.88 9525 10000
12.31.88 9661 10010
12.31.89 10783 11090
12.31.90 11470 11898
12.31.91 12724 13343
12.31.92 13777 14519
12.31.93 15604 16302
12.31.94 14279 15460
12.31.95 17100 18158
7.31.96(1) 17158 18241
7.31.97 19063 20111
7.31.98 20142 21316
7.31.99 20463 21929
[End: Tablular Representation of Line Chart]
Average Annual Total Return of Class AShares of the Fund at 7/31/99(2)
1 Year -3.24% 5 Year 5.42% 10 Year 6.40%
Class B Shares
Comparison of Change in Value of $10,000 Hypothetical Investments in:
Oppenheimer California Municipal Fund (Class B) and Lehman Brothers Municipal
Bond Index
[Begin: Tablular Representation of Line Chart]
Oppenheimer California Lehman Brothers Municipal
Municipal Fund Class B Bond Index
5.3.93 10000 10000
12.31.93 10656 10718
12.31.94 9656 10164
12.31.95 11486 11938
7.31.96(1) 11474 11993
7.31.97 12651 13222
7.31.98 13267 14015
7.31.99 13375 14418
[End: Tablular Representation of Line Chart]
Average Annual Total Return of Class BShares of the Fund at 7/31/99(3)
1 Year -4.02% 5 Year 5.32% Life 4.77%
12 Oppenheimer California Municipal Fund
<PAGE>
Class C Shares
Comparison of Change in Value of $10,000 Hypothetical Investments in:
Oppenheimer California Municipal Fund (Class C) and Lehman Brothers Municipal
Bond Index
[Begin: Tablular Representation of Line Chart]
Oppenheimer California Lehman Brothers Municipal
Municipal Fund Class C Bond Index
11.1.95 10000 10000
12.31.95 10290 10264
7.31.96(1) 10271 10310
7.31.97 11324 11367
7.31.98 11876 12049
7.31.99 11963 12395
[End: Tablular Representation of Line Chart]
Average Annual Total Return of Class CShares of the Fund at 7/31/99(4)
1 Year -0.24% Life 4.90%
Total returns and the ending account values in the graphs show change in share
value and include reinvestment of all dividends and capital gains distributions.
The performance information for the Lehman Brothers Municipal Bond Index in the
graphs begins on 10/31/88 for Class A, 4/30/93 for Class B and 10/31/95 for
Class C.
1. The Fund changed its fiscal year-end from December 31 to July 31.
2. The average annual total returns are shown net of the applicable 4.75%
maximum initial sales charge.
3. Class B shares of the Fund were first publicly offered on 5/3/93. The average
annual total returns are shown net of the applicable 5% (1-year) and 1% (since
inception) contingent deferred sales charges. The ending account value in the
graph is net of the applicable 1% contingent deferred sales charge.
4. Class C shares of the Fund were first publicly offered on 11/1/95. The 1-year
period is shown net of the applicable 1% contingent deferred sales charge.
Past performance is not predictive of future performance. Graphs are not drawn
to the same scale.
13 Oppenheimer California Municipal Fund
<PAGE>
--------------------------------------------------------------------------------
Statement of Investments July 31, 1999
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Ratings:
Moody's/
S&P/Fitch Face Market Value
(Unaudited) Amount See Note 1
==============================================================================================
Municipal Bonds and Notes--99.6%
----------------------------------------------------------------------------------------------
California--94.8%
<S> <C> <C> <C>
Anaheim, CA PFAU Lease RB, Public
Improvements Project, Sub. Lien, Series C,
FSA Insured, Zero Coupon, 5.27%, 9/1/20(1) Aaa/AAA/AAA $17,630,000 $ 5,450,843
----------------------------------------------------------------------------------------------
Anaheim, CA PFAU TXAL RB, MBIA Insured,
Inverse Floater, 12.30%, 12/28/18(2) Aaa/AAA 3,000,000 3,615,000
----------------------------------------------------------------------------------------------
Berkeley, CA HF RRB, Alta Bates Medical Center,
Prerefunded, Series A, 6.50%, 12/1/11 A2/NR 4,500,000 4,849,785
----------------------------------------------------------------------------------------------
CA Assn. of Bay Area Governments FAU for
Non-profit Corps. Refunding COP, American
Baptist Homes, Series A, 6.20%, 10/1/27 NR/BBB 6,000,000 6,223,860
----------------------------------------------------------------------------------------------
CA Assn. of Bay Area Governments FAU for
Non-profit Corps. Refunding COP, Episcopal
Homes Foundation, 5.125%, 7/1/18 NR/A- 5,900,000 5,539,274
----------------------------------------------------------------------------------------------
CA Assn. of Bay Area Governments FAU for
Non-profit Corps. Refunding COP, Rhonda Haas
Goldman Plaza, 5.125%, 5/15/23 NR/A+ 2,300,000 2,147,119
----------------------------------------------------------------------------------------------
CA CDAU Lease RB, United Airlines,
Series A, 5.70%, 10/1/33 Baa3/BB+ 9,185,000 9,143,025
----------------------------------------------------------------------------------------------
CA Community College FAU Lease RB,
West Valley Mission Community College,
MBIA Insured, 5.625%, 5/1/22 Aaa/AAA 3,585,000 3,630,279
----------------------------------------------------------------------------------------------
CA Educational FA RRB, Los Angeles
College Chiropractic, 5.60%, 11/1/17 Baa2/NR 1,000,000 994,820
----------------------------------------------------------------------------------------------
CA Foothill/Eastern Corridor Agency Toll Road
RB, Sr. Lien, Prerefunded, Series A, 6.50%, 1/1/32 Baa3/BBB-/BBB 4,600,000 5,144,410
----------------------------------------------------------------------------------------------
CA Foothill/Eastern Corridor Agency Toll Road
RRB, Zero Coupon, 5.98%, 1/15/21(1)(3) Baa3/BBB-/BBB 7,500,000 2,080,875
----------------------------------------------------------------------------------------------
CA Foothill/Eastern Corridor Agency Toll Road
RRB, Zero Coupon, 6%, 1/15/22(1)(3) Baa3/BBB-/BBB 7,500,000 1,957,650
----------------------------------------------------------------------------------------------
CA GOB, 5%, 10/1/27 Aa3/A+/AA- 2,000,000 1,861,520
----------------------------------------------------------------------------------------------
CA GOB, MBIA Insured, 5%, 8/1/24 Aaa/AAA/AAA 6,000,000 5,622,060
----------------------------------------------------------------------------------------------
CA HFA RB, Series A, 7.35%, 8/1/11 Aa2/AA- 75,000 78,302
----------------------------------------------------------------------------------------------
CA HFA RB, Series C, 7.60%, 8/1/30 Aa2/AA- 940,000 957,913
----------------------------------------------------------------------------------------------
CA HFA RB, Series E-1, 6.45%, 2/1/12 Aa2/AA- 750,000 790,492
----------------------------------------------------------------------------------------------
CA HFA RB, Series M, MBIA Insured,
5.60%, 8/1/29 Aaa/AAA 2,500,000 2,496,375
----------------------------------------------------------------------------------------------
CA HFA SFM RB, Series 83, Inverse
Floater, 9.045%, 8/1/25(2) NR/AAA 4,000,000 4,401,600
----------------------------------------------------------------------------------------------
CA HFA SFM RB, Series C, 6.75%, 2/1/25 Aa2/AA- 9,730,000 10,232,944
</TABLE>
14 Oppenheimer California Municipal Fund
<PAGE>
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Ratings:
Moody's/
S&P/Fitch Face Market Value
(Unaudited) Amount See Note 1
----------------------------------------------------------------------------------------------
California (continued)
<S> <C> <C> <C>
CA HFFAU RB, Los Angeles Children's Hospital,
Prerefunded, Series A, 7.125%, 6/1/21 Aaa/NR $1,000,000 $1,076,060
----------------------------------------------------------------------------------------------
CA HFFAU RRB, Kaiser Permanente,
Series B, 5%, 10/1/18 A3/A 3,500,000 3,241,245
----------------------------------------------------------------------------------------------
CA Infrastructure & ED Bank RB, American
Center for Wine, Food & Arts, 5.75%, 12/1/24 NR/A /A 5,000,000 4,969,850
----------------------------------------------------------------------------------------------
CA Intermodal Container Transfer Facility Joint
PAU RRB, Southern Pacific Transportation Co.,
Series A, 7.70%, 11/1/14 A3/A- 1,000,000 1,027,910
----------------------------------------------------------------------------------------------
CA PCFAU SWD RRB, North Cnty. Recycling
Center, Escrowed to Maturity, Series A,
6.75%, 7/1/11 Aaa/NR 500,000 544,340
----------------------------------------------------------------------------------------------
CA PWBL RB, State Prison Department of
Corrections, Series E, FSA Insured, 5.50%, 6/1/15 Aaa/AAA/AAA 3,000,000 3,127,410
----------------------------------------------------------------------------------------------
CA Rural Home Mtg. FAU SFM RB, Mtg.-Backed
Securities Program, Series B-5, 6.35%, 12/1/29 NR/AAA 3,080,000 3,290,826
----------------------------------------------------------------------------------------------
CA Saddleback Community College District
Refunding COP, BIG Insured, 7%, 8/1/19 Aaa/AAA 1,000,000 1,020,100
----------------------------------------------------------------------------------------------
CA SCDAU COP, Children's Hospital-Los Angeles,
5.25%, 8/15/29 A1/A+ 5,000,000 4,701,950
----------------------------------------------------------------------------------------------
CA SCDAU COP, The Internext Group,
5.375%, 4/1/17 NR/BBB 5,500,000 5,231,600
----------------------------------------------------------------------------------------------
CA SCDAU COP, The Internext Group,
5.375%, 4/1/30 NR/BBB 8,500,000 7,847,455
----------------------------------------------------------------------------------------------
CA SCDAU Revenue Refunding COP,
Inverse Floater, 7.575%, 11/1/15(2) A1/NR 6,600,000 6,327,750
----------------------------------------------------------------------------------------------
Campbell, CA Refunding COP, Civic Center
Project, Prerefunded Balance, 6.75%, 10/1/17 A /A 1,130,000 1,218,061
----------------------------------------------------------------------------------------------
Capistrano, CA USD CFD SPTX Bonds,
Ladera No. 98-2, 5.70%, 9/1/20 NR/NR 5,000,000 4,844,800
----------------------------------------------------------------------------------------------
Capistrano, CA USD CFD SPTX Bonds,
Prerefunded, No. 92-1, 7.10%, 9/1/21 NR/NR 3,250,000 3,838,575
----------------------------------------------------------------------------------------------
Capistrano, CA USD CFD SPTX Refunding
Bonds, Las Flores No. 92-1, MBIA Insured,
5%, 9/1/23 Aaa/AAA/AAA 1,000,000 938,090
----------------------------------------------------------------------------------------------
Central CA Joint Powers Health FAU COP,
Community Hospitals of Central California
Project, 5%, 2/1/23 Baa1/NR 5,090,000 4,601,258
----------------------------------------------------------------------------------------------
Clovis, CA USD CAP GOB, Series D, FGIC Insured,
Zero Coupon, 5.60%, 8/1/10(1) Aaa/AAA 2,000,000 1,154,120
----------------------------------------------------------------------------------------------
Colton, CA PFAU TXAL RRB, Redevelopment
Projects, Series B, 5.875%, 8/1/27 NR/NR 3,700,000 3,575,421
</TABLE>
15 Oppenheimer California Municipal Fund
<PAGE>
--------------------------------------------------------------------------------
Statement of Investments (Continued)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Ratings:
Moody's/
S&P/Fitch Face Market Value
(Unaudited) Amount See Note 1
----------------------------------------------------------------------------------------------
California (continued)
<S> <C> <C> <C>
Commerce, CA Community Development
Commission TXAL Refunding Bonds,
Redevelopment Project No. 1, Sub. Lien,
Series B, 5.75%, 8/1/10 NR/NR $ 815,000 $ 820,542
----------------------------------------------------------------------------------------------
Commerce, CA Community Development
Commission TXAL Refunding Bonds,
Redevelopment Project No. 1, Sub. Lien,
Series B, 6%, 8/1/21 NR/NR 2,800,000 2,789,836
----------------------------------------------------------------------------------------------
Commerce, CA Joint Powers FAU Lease RB,
Community Center, Series A, 6.25%, 10/1/22 Baa2/NR 1,410,000 1,462,198
----------------------------------------------------------------------------------------------
Compton, CA Refunding COP, Civic Center &
Capital Improvements, Series A, 5.50%, 9/1/15 NR/BBB 3,000,000 2,938,740
----------------------------------------------------------------------------------------------
Davis, CA Public Facilities FAU Local Agency
RRB, Mace Ranch Area, Series A, 6.60%, 9/1/25 NR/NR 5,000,000 5,182,100
----------------------------------------------------------------------------------------------
Delta Cnty., CA Home Mtg. FAU SFM RB,
Series A, 5.35%, 6/1/24 Aaa/AAA/AAA 4,605,000 4,475,231
----------------------------------------------------------------------------------------------
Duarte, CA COP, City of Hope National
Medical Center, 6.25%, 4/1/23 Baa1/AAA 4,500,000 4,902,930
----------------------------------------------------------------------------------------------
Escondido, CA Union High SDI CAP GOB, MBIA
Insured, Zero Coupon, 6.20%, 11/1/18(1) Aaa/AAA 6,000,000 2,089,320
----------------------------------------------------------------------------------------------
Escondido, CA Union High SDI CAP GOB, MBIA
Insured, Zero Coupon, 6.20%, 11/1/19(1) Aaa/AAA 2,000,000 654,140
----------------------------------------------------------------------------------------------
Fontana, CA RA TXAL Refunding Bonds,
Jurupa Hills Redevelopment Project,
Series A, 5.50%, 10/1/19 NR/BBB+ 1,345,000 1,310,528
----------------------------------------------------------------------------------------------
Fontana, CA RA TXAL Refunding Bonds,
Jurupa Hills Redevelopment Project,
Series A, 5.50%, 10/1/27 NR/BBB+ 6,040,000 5,842,311
----------------------------------------------------------------------------------------------
Huntington Park, CA PFAU Lease RRB,
Wastewater System Project, Series A,
6.20%, 10/1/25 NR/NR 3,000,000 3,014,490
----------------------------------------------------------------------------------------------
Industry, CA Improvement Bond Act of 1915
SPAST GOB, Prerefunded, District No. 91-1,
7.65%, 9/2/21 NR/NR 1,750,000 1,952,352
----------------------------------------------------------------------------------------------
Irvine, CA Improvement Bond Act of 1915
SPAST GOB, District 94-13-Group One,
5.50%, 9/22/22 NR/NR 2,500,000 2,365,600
----------------------------------------------------------------------------------------------
Laguna Salada, CA USD CAP GOB, Series B,
FGIC Insured, Zero Coupon, 5.30%, 8/1/22(1) Aaa/AAA/AAA 3,035,000 845,490
----------------------------------------------------------------------------------------------
Lake Elsinore, CA PFAU TXAL Bonds,
Series A, 5.50%, 9/1/30 NR/BBB 5,000,000 4,699,450
</TABLE>
16 Oppenheimer California Municipal Fund
<PAGE>
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Ratings:
Moody's/
S&P/Fitch Face Market Value
(Unaudited) Amount See Note 1
----------------------------------------------------------------------------------------------
California (continued)
<S> <C> <C> <C>
Lake Elsinore, CA School FAU SPTX RRB,
Horsethief Canyon, 5.625%, 9/1/16 NR/NR $4,760,000 $4,580,405
----------------------------------------------------------------------------------------------
Long Beach, CA Water RRB, Series A,
MBIA Insured, 5%, 5/1/24 Aaa/AAA 7,090,000 6,644,961
----------------------------------------------------------------------------------------------
Los Angeles Cnty., CA CAP COP, Disney Parking
Project, Zero Coupon, 5.58%, 3/1/12(1) Baa1/BBB/A- 1,700,000 842,622
----------------------------------------------------------------------------------------------
Los Angeles Cnty., CA CAP COP, Disney Parking
Project, Zero Coupon, 6.92%, 9/1/10(1) Baa1/BBB/A- 5,960,000 3,278,358
----------------------------------------------------------------------------------------------
Los Angeles Cnty., CA CAP COP, Disney Parking
Project, Zero Coupon, 6.95%, 9/1/11(1) Baa1/BBB/A- 2,900,000 1,492,021
----------------------------------------------------------------------------------------------
Los Angeles Cnty., CA CAP COP, Disney Parking
Project, Zero Coupon, 7.03%, 9/1/13(1) Baa1/BBB/A- 4,500,000 2,034,675
----------------------------------------------------------------------------------------------
Los Angeles Cnty., CA CAP COP, Disney Parking
Project, Zero Coupon, 5.16%, 9/1/14(1) Baa1/BBB/A- 7,260,000 3,080,128
----------------------------------------------------------------------------------------------
Los Angeles Cnty., CA MTAU Sales Tax RRB, First
Tier-Property A, Series A, FSA Insured, 5%, 7/1/15 Aaa/AAA/AAA 5,000,000 4,879,200
----------------------------------------------------------------------------------------------
Los Angeles Cnty., CA MTAU Sales Tax RRB,
Series A, FSA Insured, 5%, 7/1/14 Aaa/AAA/AAA 5,000,000 4,919,800
----------------------------------------------------------------------------------------------
Los Angeles Cnty., CA Public Works FAU Lease
RB, Multiple Capital Facilities Project V,
Series A, AMBAC Insured, 5.125%, 6/1/17 Aaa/AAA 1,965,000 1,922,163
----------------------------------------------------------------------------------------------
Los Angeles Cnty., CA Public Works FAU RRB,
Regional Park & Open Space District,
Series A, 5%, 10/1/16(4) Aa3/AA 7,600,000 7,356,952
----------------------------------------------------------------------------------------------
Los Angeles, CA Harbor Department RB,
Series B, 5.375%, 11/1/23 Aa3/AA/AA 5,000,000 4,841,600
----------------------------------------------------------------------------------------------
Los Angeles, CA USD GOB, Series B,
FGIC Insured, 5%, 7/1/23 Aaa/AAA/AAA 5,000,000 4,691,500
----------------------------------------------------------------------------------------------
Oakland, CA RA TXAL Refunding Bonds,
MBIA Insured, 5.95%, 9/1/19(5) Aaa/AAA 8,600,000 9,040,578
----------------------------------------------------------------------------------------------
Orange Cnty., CA CFD No. 86-2 SPTX
Refunding Bonds, Rancho Santa Margarita,
Series A, 5.55%, 8/15/17 NR/NR 1,000,000 974,410
----------------------------------------------------------------------------------------------
Orange Cnty., CA CFD No. 88-1 SPTX Bonds,
Aliso Viejo, Prerefunded, Series A, 7.10%, 8/15/05 NR/AAA 1,440,000 1,594,915
----------------------------------------------------------------------------------------------
Orange Cnty., CA CFD No. 88-1 SPTX Bonds,
Aliso Viejo, Prerefunded, Series A, 7.35%, 8/15/18 NR/AAA 7,000,000 7,802,760
----------------------------------------------------------------------------------------------
Orange Cnty., CA Improvement Bond Act of
1915 RRB, Irvine Coast Assessment District,
No. 88-1-A, 5.50%, 9/2/16 NR/NR 3,000,000 2,973,630
</TABLE>
17 Oppenheimer California Municipal Fund
<PAGE>
--------------------------------------------------------------------------------
Statement of Investments (Continued)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Ratings:
Moody's/
S&P/Fitch Face Market Value
(Unaudited) Amount See Note 1
----------------------------------------------------------------------------------------------
California (continued)
<S> <C> <C> <C>
Orange Cnty., CA Improvement Bond Act of
1915 SPAST GOB, Assessment No. 88-1,
6.25%, 9/2/18 NR/NR $ 2,300,000 $ 2,326,404
----------------------------------------------------------------------------------------------
Palm Springs, CA COP, Escrowed to Maturity,
Sub. Lien, Series B, Zero Coupon,
5.54%, 4/15/21(1) NR/AAA 15,000,000 4,520,700
----------------------------------------------------------------------------------------------
Pittsburg, CA RA TXAL Refunding Bonds,
Los Medanos Community Development
Project, Sub. Lien, 6.20%, 8/1/19 NR/BBB 2,500,000 2,630,325
----------------------------------------------------------------------------------------------
Placentia, CA PFAU SPTX RB, Jr. Lien,
Series B, 6.60%, 9/1/15 NR/NR 1,600,000 1,641,776
----------------------------------------------------------------------------------------------
Pomona, CA SFM RRB, Escrowed to Maturity,
Series A, 7.60%, 5/1/23 Aaa/AAA 4,500,000 5,644,350
----------------------------------------------------------------------------------------------
Pomona, CA SFM RRB, Escrowed to Maturity,
Series B, 7.50%, 8/1/23 Aaa/AAA 500,000 625,050
----------------------------------------------------------------------------------------------
Pomona, CA USD GORB, Series A, MBIA
Insured, 6.15%, 8/1/15 Aaa/AAA 2,000,000 2,190,760
----------------------------------------------------------------------------------------------
Port Oakland, CA Port RB, Series G, MBIA
Insured, 5.375%, 11/1/25 Aaa/AAA/AAA 10,650,000 10,371,502
----------------------------------------------------------------------------------------------
Redding, CA Electric System Revenue COP,
FGIC Insured, Inverse Floater, 7.97%, 6/1/19(2) Aaa/AAA/AAA 4,000,000 4,135,000
----------------------------------------------------------------------------------------------
Redding, CA Electric System Revenue COP,
MBIA Insured, Inverse Floater, 9.339%, 7/8/22(2) Aaa/AAA 2,500,000 3,040,625
----------------------------------------------------------------------------------------------
Richmond, CA Improvement Bond Act of 1915
GORB, Reassessment District No. 855,
6.60%, 9/2/19 NR/NR 1,500,000 1,545,450
----------------------------------------------------------------------------------------------
Riverside Cnty., CA CFD No. 88-12 SPTX Bonds,
Prerefunded, 7.55%, 9/1/17 NR/NR 3,000,000 3,186,150
----------------------------------------------------------------------------------------------
Riverside Cnty., CA PFAU Refunding COP,
5.75%, 5/15/19 NR/BBB- 2,100,000 2,079,735
----------------------------------------------------------------------------------------------
Riverside Cnty., CA PFAU TXAL RRB,
Redevelopment Projects, Series A,
5.625%, 10/1/33 Baa2/BBB- 6,600,000 6,491,166
----------------------------------------------------------------------------------------------
Riverside Cnty., CA Refunding COP, Air Force
Village West, Inc., Series A, 8.125%, 6/15/12 NR/NR 3,000,000 3,367,320
----------------------------------------------------------------------------------------------
Riverside Cnty., CA Refunding COP, Air Force
Village West, Inc., Series A, 8.125%, 6/15/20 NR/NR 3,000,000 3,367,320
----------------------------------------------------------------------------------------------
Riverside Cnty., CA SFM RB, Escrowed to
Maturity, Series A, 7.80%, 5/1/21 Aaa/AAA 4,285,000 5,546,675
----------------------------------------------------------------------------------------------
Sacramento Cnty., CA SFM RB, Escrowed to
Maturity, 8%, 7/1/16(4) Aaa/AAA 10,000,000 12,944,900
</TABLE>
18 Oppenheimer California Municipal Fund
<PAGE>
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Ratings:
Moody's/
S&P/Fitch Face Market Value
(Unaudited) Amount See Note 1
----------------------------------------------------------------------------------------------
California (continued)
<S> <C> <C> <C>
Sacramento Cnty., CA SPTX Refunding Bonds,
CFD No. 1, 5.70%, 12/1/20 NR/NR $ 2,000,000 $1,938,420
----------------------------------------------------------------------------------------------
Sacramento, CA Cogeneration Authority RB,
Procter & Gamble Project, 6.50%, 7/1/14 NR/BBB-/NR 5,000,000 5,631,600
----------------------------------------------------------------------------------------------
Sacramento, CA MUD Electric RRB, FGIC
Insured, Inverse Floater, 9.325%, 8/15/18(2) Aaa/AAA/AAA 5,500,000 6,235,625
----------------------------------------------------------------------------------------------
Sacramento, CA PAU RB, Cogeneration
Project, 6%, 7/1/22 NR/BBB- 7,300,000 7,453,592
----------------------------------------------------------------------------------------------
San Bernardino Cnty., CA COP, Medical
Center Financing Project, MBIA Insured,
5.50%, 8/1/17 Aaa/AAA 5,250,000 5,404,717
----------------------------------------------------------------------------------------------
San Diego Cnty., CA COP, MBIA Insured,
Inverse Floater, 8.896%, 11/18/19(2) A1/A 2,000,000 2,202,500
----------------------------------------------------------------------------------------------
San Diego Cnty., CA Water Authority Revenue
COP, Prerefunded, Series 91-B, MBIA Insured,
Inverse Floater, 9.12%, 4/8/21(2) Aaa/AAA 3,000,000 3,630,000
----------------------------------------------------------------------------------------------
San Diego, CA Convention Center Expansion
FAU Lease RB, Series A, 5.25%, 4/1/16 Aaa/AAA/AAA 3,000,000 2,984,940
----------------------------------------------------------------------------------------------
San Francisco, CA City & Cnty. International
Airport Commission RB, Issue 22, AMBAC
Insured, 5%, 5/1/19 Aaa/AAA/AAA 235,000 220,797
----------------------------------------------------------------------------------------------
San Francisco, CA City & Cnty. International
Airport Commission RB, Series 84, AMBAC
Insured, Inverse Floater, 6.145%, 5/1/19(2) NR/AAA 4,750,000 4,175,820
----------------------------------------------------------------------------------------------
San Francisco, CA City & Cnty. Redevelopment
FAU TXAL Refunding Bonds, CAP
Redevelopment Projects, Series C,
Zero Coupon, 5.10%, 8/1/11(1) A2/A 2,350,000 1,218,875
----------------------------------------------------------------------------------------------
San Francisco, CA City & Cnty. Redevelopment
FAU TXAL Refunding Bonds, CAP
Redevelopment Projects, Series C, Zero
Coupon, 5.15%, 8/1/12(1) A2/A 2,350,000 1,142,382
----------------------------------------------------------------------------------------------
San Francisco, CA City & Cnty. Redevelopment
FAU TXAL Refunding Bonds, CAP
Redevelopment Projects, Series C, Zero
Coupon, 5.25%, 8/1/14(1) A2/A 2,350,000 1,006,129
----------------------------------------------------------------------------------------------
San Francisco, CA City & Cnty. Redevelopment
FAU TXAL Refunding Bonds, Series C, Zero
Coupon, 5%, 8/1/10(1) A2/A 2,350,000 1,302,652
----------------------------------------------------------------------------------------------
San Joaquin Hills, CA Transportation Corridor
Agency Toll Road CAP RRB, Series A,
0%/5.75%, 1/15/21(6) Baa3/BBB-/BBB 11,800,000 7,620,558
</TABLE>
19 Oppenheimer California Municipal Fund
<PAGE>
--------------------------------------------------------------------------------
Statement of Investments (Continued)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Ratings:
Moody's/
S&P/Fitch Face Market Value
(Unaudited) Amount See Note 1
----------------------------------------------------------------------------------------------
California (continued)
<S> <C> <C> <C>
San Joaquin Hills, CA Transportation Corridor
Agency Toll Road CAP RRB, Series A, MBIA
Insured, Zero Coupon, 5.73%, 1/15/25(1) Aaa/AAA/AAA $18,250,000 $ 4,386,570
----------------------------------------------------------------------------------------------
San Joaquin Hills, CA Transportation Corridor
Agency Toll Road RB, Sr. Lien, 5%, 1/1/33 Baa3/BBB-/BBB 8,000,000 7,161,920
----------------------------------------------------------------------------------------------
San Joaquin Hills, CA Transportation Corridor
Agency Toll Road RB, Sr. Lien, Prerefunded,
6.75%, 1/1/32 Aaa/AAA/AAA 7,000,000 7,718,480
----------------------------------------------------------------------------------------------
Santa Ana, CA FAU RRB, Inner-City Commuter,
Series C, 5.60%, 9/1/19 NR/BBB 3,060,000 2,959,601
----------------------------------------------------------------------------------------------
Santa Ana, CA FAU RRB, Mainplace Project,
Series D, 5.50%, 9/1/15 NR/NR 1,000,000 953,760
----------------------------------------------------------------------------------------------
Santa Ana, CA FAU RRB, Mainplace Project,
Series D, 5.60%, 9/1/19 NR/NR 1,000,000 950,250
----------------------------------------------------------------------------------------------
Santa Margarita/Dana Point, CA Authority RB,
Improvement Districts 3-3A-4-4A, Series B,
MBIA Insured, 7.25%, 8/1/14 Aaa/AAA 680,000 833,864
----------------------------------------------------------------------------------------------
Southern CA Home FAU SFM RB,
Series A, 7.35%, 9/1/24 NR/AAA 1,340,000 1,393,761
----------------------------------------------------------------------------------------------
Southern CA Metropolitan Water District
Waterworks RB, Inverse Floater,
7.419%, 10/30/20(2) Aa2/AA 3,300,000 3,291,750
----------------------------------------------------------------------------------------------
Southern CA Metropolitan Water District
Waterworks RRB, Series A, 4.75%, 7/1/22 Aa2/AA 10,000,000 9,011,100
----------------------------------------------------------------------------------------------
Southern CA PPAU Transmission Project RB,
Inverse Floater, 7.615%, 7/1/12(2) Aa3/A+ 1,900,000 2,101,875
----------------------------------------------------------------------------------------------
Stockton, CA CFD No. 90-2 SPTX RRB,
Brookside Estates, 6.20%, 8/1/15 NR/NR 1,750,000 1,780,870
----------------------------------------------------------------------------------------------
Temecula, CA CFD No. 88-12-A SPTX
Refunding Bonds, 5.625%, 9/1/17 NR/NR 2,175,000 2,125,454
----------------------------------------------------------------------------------------------
Tustin, CA USD CFD No. 88-1 SPTX RB,
Prerefunded, Series B, 6.375%, 9/1/21 NR/NR 3,500,000 3,978,520
----------------------------------------------------------------------------------------------
University of CA Regents RB, Multiple Purpose
Projects, Prerefunded, Series A, 6.875%, 9/1/16 NR/AAA 1,950,000 2,149,388
----------------------------------------------------------------------------------------------
West Sacramento, CA Improvement Bond Act of
1915 SPAST Refunding Bonds, 5.60%, 9/2/17 NR/NR 2,000,000 1,938,020
----------------------------------------------------------------------------------------------
Yuba City, CA USD Refunding COP,
Series A, 5%, 2/1/17 Aaa/AAA 3,010,000 2,909,496
------------
441,559,397
</TABLE>
20 Oppenheimer California Municipal Fund
<PAGE>
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Ratings:
Moody's/
S&P/Fitch Face Market Value
(Unaudited) Amount See Note 1
----------------------------------------------------------------------------------------------
U.S. Possessions--4.8%
<S> <C> <C> <C>
Guam PAU RB, Series A, 6.625%, 10/1/14 NR/BBB $2,000,000 $ 2,241,980
----------------------------------------------------------------------------------------------
PR CMWLTH GORB, MBIA Insured,
Inverse Floater, 7.794%, 7/1/08(2) Aaa/AAA 3,500,000 3,815,000
----------------------------------------------------------------------------------------------
PR CMWLTH HTAU RRB, Series A,
AMBAC Insured, 5.50%, 7/1/13 Aaa/AAA/AAA 3,000,000 3,144,390
----------------------------------------------------------------------------------------------
PR CMWLTH HTAU RRB, Series A,
AMBAC Insured, 5.50%, 7/1/14 Aaa/AAA/AAA 3,500,000 3,657,920
----------------------------------------------------------------------------------------------
PR EPAU RB, Prerefunded, Series P, 7%, 7/1/21 Baa1/BBB+ 4,000,000 4,305,560
----------------------------------------------------------------------------------------------
PR HFA SFM RB, Affordable Housing Mtg
Portfolio I, 6.25%, 4/1/29 Aaa/AAA 2,440,000 2,531,256
----------------------------------------------------------------------------------------------
PR Housing Finance Corp. SFM RB, Portfolio 1,
Series B, 7.65%, 10/15/22 Aaa/AAA 275,000 286,209
----------------------------------------------------------------------------------------------
PR Industrial, Medical & Environmental
PC Facilities Tourist RB, Mennonite General
Hospital Project, Series A, 6.50%, 7/1/12 NR/BBB-/BBB 2,350,000 2,468,157
------------
22,450,472
----------------------------------------------------------------------------------------------
Total Investments, at Value (Cost $451,843,264) 99.6% 464,009,869
----------------------------------------------------------------------------------------------
Other Assets Net of Liabilities 0.4 1,979,775
--------- ------------
Net Assets 100.0% $465,989,644
========= ============
</TABLE>
<TABLE>
<CAPTION>
To simplify the listings of securities, abbreviations are used per the table
below:
<S> <C>
CAP -- Capital Appreciation PAU -- Power Authority
CDAU -- Communities Development Authority PC -- Pollution Control
CFD -- Community Facilities District PCFAU -- Pollution Control Finance Authority
CMWLTH -- Commonwealth PFAU -- Public Finance Authority
COP -- Certificates of Participation PPAU -- Public Power Authority
ED -- Economic Development PWBL -- Public Works Board Lease
EPAU -- Electric Power Authority RA -- Redevelopment Agency
FA -- Facilities Authority RB -- Revenue Bonds
FAU -- Finance Authority RRB -- Revenue Refunding Bonds
GOB -- General Obligation Bonds SCDAU -- Statewide Communities Development Authority
GORB -- General Obligation Refunding Bonds SDI -- School District
HF -- Health Facilities SFM -- Single Family Mortgage
HFA -- Housing Finance Agency SPAST -- Special Assessment
HFFAU -- Health Facilities Finance Authority SPTX -- Special Tax
HTAU -- Highway & Transportation Authority SWD -- Solid Waste Disposal
MTAU -- Metropolitan Transportation Authority TXAL -- Tax Allocation
MUD -- Municipal Utility District USD -- Unified School District
</TABLE>
21 Oppenheimer California Municipal Fund
<PAGE>
--------------------------------------------------------------------------------
Statement of Investments (Continued)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
1. For zero coupon bonds, the interest rate shown is the effective yield on the
date of purchase.
2. Represents the current interest rate for a variable rate bond known as an
"inverse floaters" which pays interest at a rate that varies inversely with
short-term interest rates. As interest rates rise, inverse floaters produce less
current income. Their price may be more volatile than the price of a comparable
fixed-rate security. Inverse floaters amount to $46,972,545 or 10.08% of the
Fund's net assets as of July 31, 1999.
3. When-issued security to be delivered and settled after July 31, 1999.
4. Securities with an aggregate market value of $1,808,680 are held in
collateralized accounts to cover initial margin requirements on open futures
sales contracts. See Note 5 of Notes to Financial Statements.
5. Represents the current interest rate for a variable rate security.
6. Denotes a step bond: a zero coupon bond that converts to a fixed or variable
interest rate at a designated future date.
As of July 31, 1999, securities subject to the alternative minimum tax amount to
$77,814,717 or 16.70% of the Fund's net assets.
Distribution of investments by industry of issue, as a percentage of total
investments at value, is as follows:
Industry Market Value Percent
-----------------------------------------------------------------------------
Special Assessment $121,100,182 26.2%*
-----------------------------------------------------------------------------
Single-Family Housing 55,695,885 12.0
-----------------------------------------------------------------------------
Municipal Leases 43,363,362 9.3
-----------------------------------------------------------------------------
Highways 42,872,773 9.2
-----------------------------------------------------------------------------
Hospital/Healthcare 36,689,836 7.9
-----------------------------------------------------------------------------
Adult Living Facilities 35,803,683 7.7
-----------------------------------------------------------------------------
Electric Utilities 35,145,857 7.6
-----------------------------------------------------------------------------
General Obligation 22,923,910 4.9
-----------------------------------------------------------------------------
Water Utilities 22,577,811 4.9
-----------------------------------------------------------------------------
Marine/Aviation Facilities 20,637,629 4.4
-----------------------------------------------------------------------------
Sales Tax 9,799,000 2.1
-----------------------------------------------------------------------------
Corporate Backed 9,143,025 2.0
-----------------------------------------------------------------------------
Higher Education 6,774,486 1.5
-----------------------------------------------------------------------------
Education 938,090 0.2
-----------------------------------------------------------------------------
Resource Recovery 544,340 0.1
------------ -----
Total $464,009,869 100.0%
============ =====
*Securities with a market value of $22,353,273 or 18.46% of total investments at
value are represented by pre-refunded securities, collateralized by U.S.
government securities.
See accompanying Notes to Financial Statements.
22 Oppenheimer California Municipal Fund
<PAGE>
--------------------------------------------------------------------------------
Statements of Assets and Liabilities July 31, 1999
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
=======================================================================================
Assets
<S> <C>
Investments, at value (cost $451,843,264)--see accompanying statement $464,009,869
---------------------------------------------------------------------------------------
Cash 187,500
---------------------------------------------------------------------------------------
Receivables and other assets:
Interest 6,445,459
Investments sold 1,881,411
Shares of beneficial interest sold 323,018
Daily variation on futures contracts--Note 5 70,469
Other 4,546
------------
Total assets 472,922,272
=======================================================================================
Liabilities
Payables and other liabilities:
Investments purchased (including $4,107,525 purchased on a
when-issued basis)--Note 1 4,107,525
Dividends 1,238,112
Shares of beneficial interest redeemed 1,191,917
Trustees' compensation--Note 1 162,339
Distribution and service plan fees 96,106
Shareholder reports 55,955
Transfer and shareholder servicing agent fees 26,547
Custodian fees 2,937
Other 51,190
------------
Total liabilities 6,932,628
=======================================================================================
Net Assets $465,989,644
============
=======================================================================================
Composition of Net Assets
Paid-in capital $455,561,717
---------------------------------------------------------------------------------------
Overdistributed net investment income (1,088,872)
---------------------------------------------------------------------------------------
Accumulated net realized loss on investment transactions (648,400)
---------------------------------------------------------------------------------------
Net unrealized appreciation on investments--Notes 3 and 5 12,165,199
------------
Net assets $465,989,644
============
</TABLE>
23 Oppenheimer California Municipal Fund
<PAGE>
--------------------------------------------------------------------------------
Statements of Assets and Liabilities (Continued)
--------------------------------------------------------------------------------
<TABLE>
=======================================================================================
Net Asset Value Per Share
Class A Shares:
<S> <C>
Net asset value and redemption price per share (based on net assets of
$316,362,542 and 29,941,203 shares of beneficial interest outstanding) $10.57
Maximum offering price per share (net asset value plus sales charge
of 4.75% of offering price) $11.10
---------------------------------------------------------------------------------------
Class B Shares:
Net asset value, redemption price (excludes applicable contingent deferred sales
charge) and offering price per share (based on net assets of $132,762,787
and 12,560,331 shares of beneficial interest outstanding) $10.57
---------------------------------------------------------------------------------------
Class C Shares:
Net asset value, redemption price (excludes applicable contingent deferred sales
charge) and offering price per share (based on net assets of $16,864,315
and 1,598,190 shares of beneficial interest outstanding) $10.55
</TABLE>
See accompanying Notes to Financial Statements.
24 Oppenheimer California Municipal Fund
<PAGE>
--------------------------------------------------------------------------------
Statement of Operations For the Year Ended July 31, 1999
--------------------------------------------------------------------------------
<TABLE>
=======================================================================================
Investment Income
<S> <C>
Interest $ 26,109,577
=======================================================================================
Expenses
Management fees--Note 4 2,540,982
---------------------------------------------------------------------------------------
Distribution and service plan fees--Note 4:
Class A 757,647
Class B 1,294,892
Class C 146,564
---------------------------------------------------------------------------------------
Transfer and shareholder servicing agent fees--Note 4 259,539
---------------------------------------------------------------------------------------
Shareholder reports 98,260
---------------------------------------------------------------------------------------
Trustees' compensation--Note 1 47,096
---------------------------------------------------------------------------------------
Custodian fees and expenses 45,007
---------------------------------------------------------------------------------------
Legal, auditing and other professional fees 42,049
---------------------------------------------------------------------------------------
Registration and filing fees 15,486
---------------------------------------------------------------------------------------
Insurance expenses 8,257
---------------------------------------------------------------------------------------
Other 10,495
------------
Total expenses 5,266,274
Less expenses paid indirectly--Note 1 (25,729)
------------
Net expenses 5,240,545
=======================================================================================
Net Investment Income 20,869,032
=======================================================================================
Realized and Unrealized Gain (Loss)
Net realized gain on:
Investments 199,201
Closing of futures contracts 167,513
------------
Net realized gain 366,714
---------------------------------------------------------------------------------------
Net change in unrealized appreciation or depreciation on investments (16,235,114)
------------
Net realized and unrealized loss (15,868,400)
=======================================================================================
Net Increase in Net Assets Resulting from Operations $ 5,000,632
============
</TABLE>
See accompanying Notes to Financial Statements.
25 Oppenheimer California Municipal Fund
<PAGE>
--------------------------------------------------------------------------------
Statements of Changes in Net Assets
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended July 31,
1999 1998
=============================================================================================================
Operations
<S> <C> <C>
Net investment income $ 20,869,032 $ 19,136,459
-------------------------------------------------------------------------------------------------------------
Net realized gain (loss) 366,714 (1,120,364)
-------------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation or depreciation (16,235,114) 3,444,127
------------ ------------
Net increase in net assets resulting from operations 5,000,632 21,460,222
=============================================================================================================
Dividends and/or Distributions to Shareholders
Dividends from net investment income:
Class A (15,214,034) (14,732,831)
Class B (5,284,436) (4,147,106)
Class C (600,129) (359,910)
-------------------------------------------------------------------------------------------------------------
Distributions from net realized gain:
Class A -- (2,092,323)
Class B -- (677,374)
Class C -- (51,258)
=============================================================================================================
Beneficial Interest Transactions
Net increase in net assets resulting from
beneficial interest transactions--Note 2:
Class A 26,403,170 3,072,554
Class B 22,044,556 33,042,362
Class C 6,138,090 5,382,827
=============================================================================================================
Net Assets
Total increase 38,487,849 40,897,163
-------------------------------------------------------------------------------------------------------------
Beginning of period 427,501,795 386,604,632
------------ ------------
End of period (including overdistributed net investment
income of $1,088,872 and $859,305, respectively) $465,989,644 $427,501,795
============ ============
</TABLE>
See accompanying Notes to Financial Statements.
26 Oppenheimer California Municipal Fund
<PAGE>
--------------------------------------------------------------------------------
Financial Highlights
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A
---------------------------------------------------------------------
Year Ended Year Ended
July 31, December 31,
1999 1998 1997 1996(1) 1995 1994
==========================================================================================================================
Per Share Operating Data
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $10.92 $10.94 $10.39 $10.69 $ 9.45 $10.97
--------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .53 .54 .58 .33 .58 .60
Net realized and unrealized gain (loss) (.35) .06 .54 (.30) 1.25 (1.51)
------ ------ ------ ------ ------ ------
Total income (loss) from
investment operations .18 .60 1.12 .03 1.83 (.91)
--------------------------------------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income (.53) (.54) (.57) (.33) (.58) (.61)
Dividends in excess of net
investment income -- -- -- -- (.01) --
Distributions from net realized gain -- (.08) -- -- -- --
------ ------ ------ ------ ------ ------
Total dividends and distributions
to shareholders (.53) (.62) (.57) (.33) (.59) (.61)
--------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $10.57 $10.92 $10.94 $10.39 $10.69 $ 9.45
====== ====== ====== ====== ====== ======
==========================================================================================================================
Total Return, at Net Asset Value(2) 1.59% 5.66% 11.11% 0.34% 19.76% (8.49)%
==========================================================================================================================
Ratios/Supplemental Data
Net assets, end of period
(in thousands) $316,363 $300,717 $298,162 $286,033 $285,307 $219,682
--------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $314,094 $297,372 $289,439 $279,796 $250,188 $248,850
--------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:(3)
Net investment income 4.79% 4.91% 5.49% 5.53% 5.64% 5.99%
Expenses 0.91% 0.92%(4) 0.94%(4) 0.97%(4) 0.95%(4) 0.96%
--------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(5) 35% 31% 31% 14% 23% 22%
</TABLE>
1. For the seven months ended July 31, 1996. The Fund changed its fiscal year
end from December 31 to July 31.
2. Assumes a $1,000 hypothetical initial investment on the business day before
the first day of the fiscal period (or inception of offering), with all
dividends and distributions reinvested in additional shares on the reinvestment
date, and redemption at the net asset value calculated on the last business day
of the fiscal period. Sales charges are not reflected in the total returns.
Total returns are not annualized for periods of less than one full year.
3. Annualized for periods of less than one full year.
4. Expense ratio reflects the effect of expenses paid indirectly by the Fund.
5. The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities owned
during the period. Securities with a maturity or expiration date at the time of
acquisition of one year or less are excluded from the calculation. Purchases and
sales of investment securities (excluding short-term securities) for the period
ended July 31, 1999, were $206,390,312 and $160,398,205, respectively.
27 Oppenheimer California Municipal Fund
<PAGE>
--------------------------------------------------------------------------------
Financial Highlights (Continued)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class B
-----------------------------------------------------------------
Year Ended Year Ended
July 31, December 31,
1999 1998 1997 1996(1) 1995 1994
==========================================================================================================================
Per Share Operating Data
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $10.92 $10.94 $10.39 $10.69 $ 9.44 $10.98
--------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .45 .46 .49 .28 .51 .54
Net realized and unrealized gain (loss) (.35) .06 .55 (.30) 1.25 (1.55)
------ ------ ------ ------ ------ ------
Total income (loss) from
investment operations .10 .52 1.04 (.02) 1.76 (1.01)
--------------------------------------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income (.45) (.46) (.49) (.28) (.50) (.53)
Dividends in excess of net
investment income -- -- -- -- (.01) --
Distributions from net realized gain -- (.08) -- -- -- --
------ ------ ------ ------ ------ ------
Total dividends and distributions
to shareholders (.45) (.54) (.49) (.28) (.51) (.53)
--------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $10.57 $10.92 $10.94 $10.39 $10.69 $ 9.44
====== ====== ====== ====== ====== ======
==========================================================================================================================
Total Return, at Net Asset Value(2) 0.82% 4.86% 10.27% (0.12)% 18.97% (9.39)%
==========================================================================================================================
Ratios/Supplemental Data
Net assets, end of period
(in thousands) $132,763 $115,444 $82,474 $52,038 $41,224 $20,224
--------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $129,538 $ 99,266 $65,192 $46,422 $29,918 $16,552
--------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:(3)
Net investment income 4.03% 4.21% 4.70% 4.74% 4.82% 5.17%
Expenses 1.67% 1.67%(4) 1.70%(4) 1.74%(4) 1.72%(4) 1.73%
--------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(5) 35% 31% 31% 14% 23% 22%
</TABLE>
1. For the seven months ended July 31, 1996. The Fund changed its fiscal year
end from December 31 to July 31.
2. Assumes a $1,000 hypothetical initial investment on the business day before
the first day of the fiscal period (or inception of offering), with all
dividends and distributions reinvested in additional shares on the reinvestment
date, and redemption at the net asset value calculated on the last business day
of the fiscal period. Sales charges are not reflected in the total returns.
Total returns are not annualized for periods of less than one full year.
3. Annualized for periods of less than one full year.
4. Expense ratio reflects the effect of expenses paid indirectly by the Fund.
5. The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities owned
during the period. Securities with a maturity or expiration date at the time of
acquisition of one year or less are excluded from the calculation. Purchases and
sales of investment securities (excluding short-term securities) for the period
ended July 31, 1999, were $206,390,312 and $160,398,205, respectively.
28 Oppenheimer California Municipal Fund
<PAGE>
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class C
----------------------------------------------------------
Period
Ended
Year Ended July 31, Dec. 31,
1999 1998 1997 1996(1) 1995(6)
--------------------------------------------------------------------------------------------------------------------
Per Share Operating Data
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $10.91 $10.93 $10.38 $10.68 $10.46
--------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .45 .46 .49 .27 .08
Net realized and unrealized gain (loss) (.36) .06 .55 (.30) .22
------ ------ ------ ------ ------
Total income (loss) from
investment operations .09 .52 1.04 (.03) .30
--------------------------------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income (.45) (.46) (.49) (.27) (.07)
Dividends in excess of net
investment income -- -- -- -- (.01)
Distributions from net realized gain -- (.08) -- -- --
------ ------ ------ ------ ------
Total dividends and distributions
to shareholders (.45) (.54) (.49) (.27) (.08)
--------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $10.55 $10.91 $10.93 $10.38 $10.68
====== ====== ====== ====== ======
====================================================================================================================
Total Return, at Net Asset Value(2) 0.73% 4.87% 10.26% (0.19)% 2.90%
====================================================================================================================
Ratios/Supplemental Data
Net assets, end of period (in thousands) $16,864 $11,340 $5,969 $2,171 $125
--------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $14,672 $ 8,614 $3,869 $1,156 $ 91
--------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:(3)
Net investment income 4.03% 4.24% 4.66% 4.54% 4.56%
Expenses 1.67% 1.66%(4) 1.70%(4) 1.80%(4) 1.68%(4)
--------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(5) 35% 31% 31% 14% 23%
</TABLE>
1. For the seven months ended July 31, 1996. The Fund changed its fiscal year
end from December 31 to July 31.
2. Assumes a $1,000 hypothetical initial investment on the business day before
the first day of the fiscal period (or inception of offering), with all
dividends and distributions reinvested in additional shares on the reinvestment
date, and redemption at the net asset value calculated on the last business day
of the fiscal period. Sales charges are not reflected in the total returns.
Total returns are not annualized for periods of less than one full year.
3. Annualized for periods of less than one full year.
4. Expense ratio reflects the effect of expenses paid indirectly by the Fund.
5. The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities owned
during the period. Securities with a maturity or expiration date at the time of
acquisition of one year or less are excluded from the calculation. Purchases and
sales of investment securities (excluding short-term securities) for the period
ended July 31, 1999, were $206,390,312 and $160,398,205, respectively.
6. For the period from November 1, 1995 (inception of offering) to December 31,
1995.
See accompanying Notes to Financial Statements.
29 Oppenheimer California Municipal Fund
<PAGE>
--------------------------------------------------------------------------------
Notes to Financial Statements
--------------------------------------------------------------------------------
================================================================================
1. Significant Accounting Policies
Oppenheimer California Municipal 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, on investments up to $1 million. Class B and
Class C shares may be subject to a contingent deferred sales charge (CDSC). All
classes of shares have identical rights to earnings, assets and voting
privileges, except that each class has its own expenses directly attributable to
that class and exclusive voting rights with respect to matters affecting that
class. Classes A, B and C have separate distribution and/or service plans. Class
B shares will automatically convert to Class A shares six years after the date
of purchase. The following is a summary of significant accounting policies
consistently followed by the Fund.
--------------------------------------------------------------------------------
Securities Valuation. Portfolio securities are valued at the close of the New
York Stock Exchange on each trading day. Listed and unlisted securities for
which such information is regularly reported are valued at the last sale price
of the day or, in the absence of sales, at values based on the closing bid or
the last sale price on the prior trading day. Long-term and short-term
"non-money market" debt securities are valued by a portfolio pricing service
approved by the Board of Trustees. Such securities which cannot be valued by an
approved portfolio pricing service are valued using dealer-supplied valuations
provided the Manager is satisfied that the firm rendering the quotes is reliable
and that the quotes reflect current market value, or are valued under
consistently applied procedures established by the Board of Trustees to
determine fair value in good faith. Short-term "money market type" debt
securities having a remaining maturity of 60 days or less are valued at cost (or
last determined market value) adjusted for amortization to maturity of any
premium or discount. Options are valued based upon the last sale price on the
principal exchange on which the option is traded or, in the absence of any
transactions that day, the value is based upon the last sale price on the prior
trading date if it is within the spread between the closing bid and asked
prices. If the last sale price is outside the spread, the closing bid is used.
30 Oppenheimer California Municipal Fund
<PAGE>
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
================================================================================
Securities Purchased on a When-Issued Basis. Delivery and payment for securities
that have been purchased by the Fund on a forward commitment or when-issued
basis can take place a month or more after the transaction date. Normally the
settlement date occurs within six months after the transaction date; however,
the fund may, from time to time, purchase securities whose settlement date
extends beyond six months and possibly as long as two years or more beyond the
trade date. During this period, such securities do not earn interest, are
subject to market fluctuation and may increase or decrease in value prior to
their delivery. The Fund maintains segregated assets with a market value equal
to or greater than the amount of its purchase commitments. The purchase of
securities on a when-issued or forward commitment basis may increase the
volatility of the Fund's net asset value to the extent the Fund makes such
purchases while remaining substantially fully invested. As of July 31, 1999, the
Fund had entered into outstanding when-issued or forward commitments of
$4,107,525.
--------------------------------------------------------------------------------
Allocation of Income, Expenses, Gains and Losses. Income, expenses (other than
those attributable to a specific class), gains and losses are allocated daily to
each class of shares based upon the relative proportion of net assets
represented by such class. Operating expenses directly attributable to a
specific class are charged against the operations of that class.
--------------------------------------------------------------------------------
Federal Taxes. The Fund intends to continue to comply with provisions of the
Internal Revenue Code applicable to regulated investment companies and to
distribute all of its taxable income, including any net realized gain on
investments not offset by loss carryovers, to shareholders. Therefore, no
federal income or excise tax provision is required. As of July 31, 1999, the
Fund had available for federal tax purposes an unused capital loss carryover of
approximately $650,000, which expires in 2006.
-------------------------------------------------------------------------------
Trustees' Compensation. 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 July 31,
1999, a provision of $2,209 was made for the Fund's projected benefit
obligations and payments of $6,365 were made to retired trustees, resulting in
an accumulated liability of $159,162 as of July 31, 1999.
The Board of Trustees has adopted a deferred compensation plan
for independent Trustees that enables Trustees to elect to defer receipt of all
or a portion of annual compensation they are entitled to receive from the Fund.
Under the plan, the compensation deferred is periodically adjusted as though an
equivalent amount had been invested for the Trustees in shares of one or more
Oppenheimer funds selected by the Trustee. The amount paid to the Trustee under
the plan will be determined based upon the performance of the selected funds.
Deferral of Trustees' fees under the plan will not affect the net assets of the
Fund, and will not materially affect the Fund's assets, liabilities or net
income per share.
31 Oppenheimer California Municipal Fund
<PAGE>
--------------------------------------------------------------------------------
Notes to Financial Statements (Continued)
--------------------------------------------------------------------------------
================================================================================
1. Significant Accounting Policies (continued)
Dividends and Distributions to Shareholders. Dividends and distributions to
shareholders, which are determined in accordance with income tax regulations,
are recorded on the ex-dividend date.
--------------------------------------------------------------------------------
Classification of Distributions to Shareholders. Net investment income (loss)
and net realized gain (loss) may differ for financial statement and tax
purposes. The character of distributions made during the year from net
investment income or net realized gains may differ from its ultimate
characterization for federal income tax purposes. Also, due to timing of
dividend distributions, the fiscal year in which amounts are distributed may
differ from the fiscal year in which the income or realized gain was recorded by
the Fund.
--------------------------------------------------------------------------------
Expense Offset Arrangements. Expenses paid indirectly represent a reduction of
custodian fees for earnings on cash balances maintained by the Fund.
--------------------------------------------------------------------------------
Other. Investment transactions are accounted for as of trade date. Original
issue discount is accreted and premium is amortized in accordance with federal
income tax requirements. For municipal bonds acquired after April 30, 1993, on
disposition or maturity, taxable ordinary income is recognized to the extent of
the lesser of gain or market discount that would have accrued over the holding
period. Realized gains and losses on investments and unrealized appreciation and
depreciation are determined on an identified cost basis, which is the same basis
used for federal income tax purposes.
There are certain risks arising from geographic concentration in
any state. Certain revenue or tax related events in a state may impair the
ability of certain issuers of municipal securities to pay principal and interest
on their obligations.
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of income and expenses during the reporting
period. Actual results could differ from those estimates.
32 Oppenheimer California Municipal Fund
<PAGE>
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
================================================================================
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 July 31, 1999 Year Ended July 31, 1998
----------------------------- ----------------------------
Shares Amount Shares Amount
--------------------------------------------------------------------------------------------
Class A:
<S> <C> <C> <C> <C>
Sold 6,301,987 $ 69,153,860 4,625,371 $ 50,462,764
Dividends and/or
distributions reinvested 818,090 8,975,978 921,790 10,031,986
Redeemed (4,716,845) (51,726,668) (5,266,312) (57,422,196)
---------- ------------ ---------- ------------
Net increase 2,403,232 $ 26,403,170 280,849 $ 3,072,554
========== ============ ========== ============
--------------------------------------------------------------------------------------------
Class B:
Sold 3,406,294 $ 37,480,696 3,871,772 $ 42,232,554
Dividends and/or
distributions reinvested 301,331 3,307,444 279,759 3,046,210
Redeemed (1,715,264) (18,743,584) (1,120,147) (12,236,402)
---------- ------------ ---------- ------------
Net increase 1,992,361 $ 22,044,556 3,031,384 $ 33,042,362
========== ============ ========== ============
--------------------------------------------------------------------------------------------
Class C:
Sold 856,519 $ 9,406,000 697,841 $ 7,611,935
Dividends and/or
distributions reinvested 37,673 412,830 29,500 320,853
Redeemed (335,760) (3,680,740) (233,849) (2,549,961)
---------- ------------ ---------- ------------
Net increase 558,432 $ 6,138,090 493,492 $ 5,382,827
========== ============ ========== ============
</TABLE>
================================================================================
3. Unrealized Gains and Losses on Securities
As of July 31, 1999, net unrealized appreciation on securities of $12,166,605
was composed of gross appreciation of $18,048,861, and gross depreciation of
$5,882,256.
33 Oppenheimer California Municipal Fund
<PAGE>
--------------------------------------------------------------------------------
Notes to Financial Statements (Continued)
--------------------------------------------------------------------------------
================================================================================
4. Management Fees and Other Transactions with Affiliates
Management Fees. Management fees paid to the Manager were in accordance with the
investment advisory agreement with the Fund which provides for a fee of 0.60% of
the first $200 million of average annual 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 average annual net assets in excess of $1
billion. The Fund's management fees for the year ended July 31, 1999, was 0.55%
of the average annual net assets for each class of shares.
--------------------------------------------------------------------------------
Transfer Agent Fees. OppenheimerFunds Services (OFS), a division of the Manager,
is the transfer and shareholder servicing agent for the Fund and for other
Oppenheimer funds. OFS's total costs of providing such services are allocated
ratably to these funds.
--------------------------------------------------------------------------------
Distribution and Service Plan Fees. Under its General Distributor's Agreement
with the Manager, the Distributor acts as the Fund's principal underwriter in
the continuous public offering of the different classes of shares of the Fund.
The compensation paid to (or retained by) the Distributor from the sale of
shares or on the redemption of shares is shown in the table below for the period
indicated.
<TABLE>
<CAPTION>
Aggregate Class A Commissions Commissions Commissions
Front-End Front-End On Class A On Class B On Class C
Sales Charges Sales Charges Shares Shares Shares
On Class A Retained by Advanced by Advanced by Advanced by
Year Ended Shares Distributor Distributor(1) Distributor(1) Distributor(1)
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
July 31, 1999 $924,929 $154,753 $188,991 $1,254,294 $84,556
1. The Distributor advances commission payments to dealers for certain sales of
Class A shares and for sales of Class B and Class C shares from its own
resources at the time of sale.
Class A Class B Class C
Contingent Deferred Contingent Deferred Contingent Deferred
Sales Charges Sales Charges Sales Charges
Year Ended Retained by Distributor Retained by Distributor Retained by Distributor
---------------------------------------------------------------------------------------------------------------
July 31, 1999 $-- $291,981 $8,385
</TABLE>
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. Under those plans the Fund pays the Distributor for all
or a portion of its costs incurred in connection with the distribution and/or
servicing of the shares of the particular class.
34 Oppenheimer California Municipal Fund
<PAGE>
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
================================================================================
Class A Service Plan Fees. Under the Class A service plan, the Distributor
currently uses the fees it receives from the Fund to pay brokers, dealers and
other financial institutions. The Class A service plan permits reimbursements to
the Distributor at a rate of up to 0.25% of average annual net assets of Class A
shares. The Distributor makes payments to plan recipients quarterly at an annual
rate not to exceed 0.25% of the average annual net assets consisting of Class A
shares of the Fund. For the fiscal year ended July 31, 1999, payments under the
Class A Plan totaled $757,647, all of which was paid by the Distributor to
recipients. That included $25,906 paid to an affiliate of the Distributor's
parent company. Any unreimbursed expenses the Distributor incurs with respect to
Class A shares in any fiscal year cannot be recovered in subsequent years.
--------------------------------------------------------------------------------
Class B and Class C Distribution and Service Plan Fees. Under each plan, service
fees and distribution fees are computed on the average of the net asset value of
shares in the respective class, determined as of the close of each regular
business day during the period. The Class B and Class C plans provide for the
Distributor to be compensated at a flat rate,whether the Distributor's
distribution expenses are more or less than the amounts paid by the Fund under
the plan during the period for which the fee is paid.
The Distributor retains the asset-based sales charge on Class B
shares. The Distributor retains the asset-based sales charge on Class C shares
during the first year the shares are outstanding. The asset-based sales charges
on Class B and Class C shares allow investors to buy shares without a front-end
sales charge while allowing the Distributor to compensate dealers that sell
those shares.
The Distributor's actual expenses in selling Class B and Class C
shares may be more than the payments it receives from the contingent deferred
sales charges collected on redeemed shares and from the Fund under the plans. If
either the Class B or the Class C plan is terminated by the Fund, the Board of
Trustees may allow the Fund to continue payments of the asset-based sales charge
to the Distributor for distributing shares before the plan was terminated. The
plans allow for the carry-forward of distribution expenses, to be recovered from
asset-based sales charges in subsequent fiscal periods.
Distribution fees paid to the Distributor for the year ended July 31, 1999, were
as follows:
<TABLE>
<CAPTION>
Distributor's Distributor's
Aggregate Unreimbursed
Unreimbursed Expenses
Total Payments Amount Retained Expenses As % of Net
Class Under Plan By Distributor Under Plan Assets of Class
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class B Plan $1,294,892 $1,062,283 $4,059,718 3.06%
-------------------------------------------------------------------------------------------------------------------------
Class C Plan $ 146,564 $ 93,541 $ 207,394 1.23%
</TABLE>
35 Oppenheimer California Municipal Fund
<PAGE>
--------------------------------------------------------------------------------
Notes to Financial Statements (Continued)
--------------------------------------------------------------------------------
================================================================================
5. Futures Contracts
The Fund may buy and sell futures contracts in order to gain exposure to or to
seek to protect against changes in interest rates. The Fund may also buy or
write put or call options on these futures contracts.
The Fund generally sells futures contracts to hedge against
increases in interest rates and the resulting negative effect on the value of
fixed rate portfolio securities. The Fund may also purchase futures contracts to
gain exposure to changes in interest rates as it may be more efficient or cost
effective than actually buying fixed income securities.
Upon entering into a futures contract, the Fund is required to
deposit either cash or securities (initial margin) in an amount equal to a
certain percentage of the contract value. Subsequent payments (variation margin)
are made or received by the Fund each day. The variation margin payments are
equal to the daily changes in the contract value and are recorded as unrealized
gains and losses. The Fund may recognize a realized gain or loss when the
contract is closed or expires.
Securities held in collateralized accounts to cover initial
margin requirements on open futures contracts are noted in the Statement of
Investments. The Statement of Assets and Liabilities reflects a receivable
and/or payable for the daily mark to market for variation margin.
Risks of entering into futures contracts (and related options)
include the possibility that there may be an illiquid market and that a change
in the value of the contract or option may not correlate with changes in the
value of the underlying securities.
As of July 31, 1999, the Fund had outstanding futures contracts as follows:
<TABLE>
<CAPTION>
Expiration Number of Valuation as of Unrealized
Contract Description Date Contracts July 31, 1999 Depreciation
--------------------------------------------------------------------------------------------------
Contracts to Sell
-----------------
<S> <C> > <C> <C> <C>
U.S. Long Bond 9/21/99 205 $23,568,594 $1,406
</TABLE>
================================================================================
6. Bank Borrowings
The Fund may borrow from a bank for temporary or emergency purposes including,
without limitation, funding of shareholder redemptions provided asset coverage
for borrowings exceeds 300%. The Fund has entered into an agreement which
enables it to participate with other Oppenheimer funds in an unsecured line of
credit with a bank, which permits borrowings up to $400 million, collectively.
Interest is charged to each fund, based on its borrowings, at a rate equal to
the Federal Funds Rate plus 0.35%. Borrowings are payable 30 days after such
loan is executed. The Fund also pays a commitment fee equal to its pro rata
share of the average unutilized amount of the credit facility at a rate of
0.0575% per annum.
The Fund had no borrowings outstanding during the year ended July
31, 1999.
36 Oppenheimer California Municipal Fund
<PAGE>
--------------------------------------------------------------------------------
Independent Auditors' Report
--------------------------------------------------------------------------------
================================================================================
The Board of Trustees and Shareholders of
Oppenheimer California Municipal Fund:
We have audited the accompanying statement of assets and liabilities, including
the statement of investments, of Oppenheimer California Municipal Fund as of
July 31, 1999, 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
three-year period then ended, the seven-month period ended July 31, 1996, and
each of the years in the two-year period ended December 31, 1995. 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 July 31, 1999, 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 Municipal Fund as of July 31, 1999, 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 three-year period then ended, the
seven-month period ended July 31, 1996, and each of the years in the two-year
period ended December 31, 1995, in conformity with generally accepted accounting
principles.
KPMG LLP
Denver, Colorado
August 20, 1999
37 Oppenheimer California Municipal Fund
<PAGE>
--------------------------------------------------------------------------------
Federal Income Tax Information (Unaudited)
--------------------------------------------------------------------------------
================================================================================
In early 2000, shareholders will receive information regarding all dividends and
distributions paid to them by the Fund during calendar year 1999. Regulations of
the U.S. Treasury Department require the Fund to report this information to the
Internal Revenue Service.
None of the dividends paid by the Fund during the fiscal year
ended July 31, 1999, are eligible for the corporate dividend-received deduction.
The dividends were derived from interest on municipal bonds and are not subject
to federal income tax. To the extent a shareholder is subject to any state or
local tax laws, some or all of the dividends received may be taxable.
The foregoing information is presented to assist shareholders in
reporting distributions received from the Fund to the Internal Revenue Service.
Because of the complexity of the federal regulations which may affect your
individual tax return and the many variations in state and local tax
regulations, we recommend that you consult your tax advisor for specific
guidance.
38 Oppenheimer California Municipal Fund
<PAGE>
--------------------------------------------------------------------------------
Oppenheimer California Municipal Fund
--------------------------------------------------------------------------------
================================================================================
Officers and Trustees Leon Levy, Chairman of the Board of Trustees
Donald W. Spiro, Vice Chairman of the Board
of Trustees
Bridget A. Macaskill, Trustee and President
Robert G. Galli, Trustee
Phillip A. Griffiths, Trustee
Benjamin Lipstein, Trustee
Elizabeth B. Moynihan, Trustee
Kenneth A. Randall, Trustee
Edward V. Regan, Trustee
Russell S. Reynolds, Jr., Trustee
Pauline Trigere, Trustee
Clayton K. Yeutter, Trustee
Caryn Halbrecht, Vice President
Andrew J. Donohue, Secretary
Brian W. Wixted, Treasurer
Robert G. Zack, Assistant Secretary
Robert J. Bishop, Assistant Treasurer
Scott T. Farrar, Assistant Treasurer
================================================================================
Investment Advisor OppenheimerFunds, Inc.
================================================================================
Distributor OppenheimerFunds Distributor, Inc.
================================================================================
Transfer and Shareholder OppenheimerFunds Services
Servicing Agent
================================================================================
Custodian of Citibank, N.A.
Portfolio Securities
================================================================================
Independent Auditors KPMG LLP
================================================================================
Legal Counsel Mayer, Brown & Platt
This is a copy of a report to shareholders of
Oppenheimer California Municipal Fund. This report
must be preceded or accompanied by a Prospectus of
Oppenheimer California Municipal Fund. For material
information concerning the Fund, see the
Prospectus.
Shares of Oppenheimer funds are not deposits or
obligations of any bank, are not guaranteed by any
bank, are not insured by the FDIC or any other
agency, and involve investment risks, including the
possible loss of the principal amount invested.
39 Oppenheimer California Municipal Fund
<PAGE>
-------------------------------------------------
Information and Services
-------------------------------------------------
As an Oppenheimer fund shareholder, you can benefit from special services
designed to make investing simple. Whether it's automatic investment plans,
timely market updates, or immediate account access, you can count on us whenever
you need assistance. So call us today, or visit our website--we're here to help.
Internet
24-hr access to account information and transactions
------------------------------------------------------
www.oppenheimerfunds.com
------------------------------------------------------
General Information
Mon-Fri 8:30am-9pm ET, Sat 10am-4pm ET
------------------------------------------------------
1-800-525-7048
------------------------------------------------------
Telephone Transactions
Mon-Fri 8:30am-9pm ET, Sat 10am-4pm ET
------------------------------------------------------
1-800-852-8457
------------------------------------------------------
PhoneLink
24-hr automated information
and automated transactions
------------------------------------------------------
1-800-533-3310
------------------------------------------------------
Telecommunications Device for the Deaf (TDD)
Mon-Fri 8:30am-6pm ET
------------------------------------------------------
1-800-843-4461
------------------------------------------------------
OppenheimerFunds Information Hotline
24 hours a day, timely and insightful messages on the
economy and issues that may affect your investments
------------------------------------------------------
1-800-835-3104
------------------------------------------------------
Transfer and Shareholder Servicing Agent
OppenheimerFunds Services,
P.O. Box 5270, Denver, CO 80217-5270
[OppenheimerFunds Logo]
OppenheimerFunds(R)
Distributor, Inc.
RA0790.001.0799 September 29, 1999
OPPENHEIMER CALIFORNIA MUNICIPAL FUND
FORM N-14
PART C
OTHER INFORMATION
Item 15. Indemnification
Reference is made to the provisions of Article Seven of Registrant's
Amended and Restated Declaration of Trust filed as Exhibit 23(a) to this
Registration Statement, and incorporated herein by reference.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to trustees, officers and controlling persons of
Registrant pursuant to the foregoing provisions or otherwise, Registrant has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act of
1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by Registrant
of expenses incurred or paid by a trustee, officer or controlling person of
Registrant in the successful defense of any action, suit or proceeding) is
asserted by such trustee, officer or controlling person, Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of such
issue.
Item 16. Exhibits
(1) Amended and Restated Declaration of Trust dated September 16, 1996:
Previously filed with Registrant's Post-Effective Amendment No. 14,
(10/30/96) and incorporated herein by reference.
(2) (a) Amended By-Laws: Previously filed with Registrant's Post-Effective
Amendment No. 1 (10/7/88) refiled with Registrant's Post-Effective
Amendment No. 10 (4/25/95) pursuant to Item 102 of Regulation S-T, and
incorporated herein by reference.
(b) Amended and Restated By-Laws dated as of June 4, 1998: Previously filed
with Registrant's Post-Effective Amendment No. 18, (11/22/99) and
incorporated herein by reference.
(3) N/A.
(4) Agreement and Plan of Reorganization: See Exhibit A to Part A of the
Registration Statement.
(5) (a) Specimen Class A Share Certificate: Previously filed with
Registrant's Post- Effective Amendment No. 14 (10/30/96), and incorporated
herein by reference.
(b) Specimen Class B Share Certificate: Previously filed with Registrant's
Post- Effective Amendment No. 14 (10/30/96), and incorporated herein by
reference.
(c) Specimen Class C Share Certificate: Previously filed with Registrant's
Post-Effective Amendment No. 14 (10/30/96), and incorporated herein by
reference.
(6) Investment Advisory Agreement dated October 22, 1990: Previously filed
with Post-Effective Amendment No. 3 (2/2/91), refiled with Registrant's
Post-Effective Amendment No. 10 (4/25/95) pursuant to Item 102 of
Regulation S-T and incorporated herein by reference.
(7) (a) General Distributor's Agreement dated December 10, 1992: Previously
filed with Registrant's Post-Effective Amendment No. 6 (4/28/93), refiled
with Registrant's Post-Effective Amendment No. 10 (4/25/95) pursuant to
Item 102 of Regulation S-T and incorporated herein by reference.
(b) Form of Dealer Agreement of OppenheimerFunds Distributor, Inc.:
Previously filed with Pre-Effective Amendment No. 2 to the Registration
Statement of Oppenheimer Trinity Value Fund (Reg. No. 333-79707), 8/25/99,
and incorporated herein by reference.
(c) Form of Agency Agreement of OppenheimerFunds Distributor, Inc.:
Previously filed with Pre-Effective Amendment No. 2 to the Registration
Statement of Oppenheimer Trinity Value Fund (Reg. No. 333-79707), 8/25/99,
and incorporated herein by reference.
(d) Form of Broker Agreement of OppenheimerFunds Distributor, Inc.:
Previously filed with Pre-Effective Amendment No. 2 to the Registration
Statement of Oppenheimer Trinity Value Fund (Reg. No. 333-79707), 8/25/99,
and incorporated herein by reference.
(8) (a) Form of Deferred Compensation Agreement for Disinterested Trustees:
Filed with Post-Effective Amendment No. 26 to the Registration Statement of
Oppenheimer Gold & Special Minerals Fund (Reg. No. 2-82590), 10/28/98, and
incorporated by reference.
(b) Retirement Plan for Non-Interested Trustees or Directors dated 6/7/90 -
Filed with Post-Effective Amendment No. 97 to the Registration Statement of
Oppenheimer Fund (File No. 2-14586) 8/30/90, refiled with Post-Effective
Amendment No. 45 of Oppenheimer Growth Fund (Reg. No. 2-45272), 8/22/94,
pursuant to Item 102 of Regulation S-T, and incorporated herein by
reference.
(9) Custody Agreement dated November 1, 1988: Previously filed with
Registrant's Post-Effective Amendment No. 2 (10/31/88), refiled with
Registrant's Post-Effective Amendment No. 10 (4/25/95) pursuant to Item 102
of Regulation S-T and incorporated herein by reference.
(10) (a) Service Plan and Agreement for Class A shares dated June 10, 1993:
Previously filed with Registrant's Post-Effective Amendment No. 8
(4/29/94), and incorporated herein by reference.
(b) Distribution and Service Plan and Agreement for Class B shares dated
February 12, 1998: Previously filed with Registrant's Post-Effective
Amendment No. 17, (11/24/98).
(c) Distribution and Service Plan and Agreement for Class C shares dated
February 12, 1998: Previously filed with Registrant's Post-Effective
Amendment No. 17 (11/28/98), and incorporated herein by reference.
(11) Opinion and Consent of Counsel: Filed herewith.
(12) Tax Opinions Relating to the Reorganization: To be filed by
post-effective amendment.
(13) N/A.
(14) (a) Consent of Deloitte & Touche LLP: Filed herewith.
(b) Consent of KPMG LLP: Filed herewith.
(15) N/A.
(16) Powers of Attorney for all Trustees/Directors: Previously filed with
Pre-Effective Amendment No. 3 to the Registration Statement of Oppenheimer
Emerging Technologies Fund (Reg. No. 333-32108) on 4/25/00, and
incorporated herein by reference.
(17) N/A.
Item 17. Undertakings
(1) N/A.
(2) N/A.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and/or the Investment
Company Act of 1940, the Registrant has duly caused this Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of New York and State of New York on the 16th day of August, 2000.
Oppenheimer California Municipal Fund
/s/ Leon Levy* Chairman of the
-------------------------------- Board
of Trustees
Leon Levy
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities on
the dates indicated:
Signatures Title Date
/s/ Leon Levy* Chairman of the August 16, 2000
------------------------------------- Board of Trustees
Leon Levy
/s/ Donald W. Spiro* Vice Chairman and August 16,
2000
------------------------------------- Trustee
Donald W. Spiro
/s/ Robert G. Galli* Trustee August 16,
2000
-------------------------------------
Robert G. Galli
/s/ Phillip A. Griffiths* Trustee August 16,
2000
------------------------------------
Phillip A. Griffiths
/s/ Benjamin Lipstein* Trustee August 16, 2000
-------------------------------------
Benjamin Lipstein
/s/ Bridget A. Macaskill* President, August 16,
2000
------------------------------------- Principal Executive
Bridget A. Macaskill Officer, Trustee
/s/ Elizabeth B. Moynihan* Trustee August 16,
2000
-------------------------------------
Elizabeth B. Moynihan
/s/ Kenneth A. Randall* Trustee August 16, 2000
-------------------------------------
Kenneth A. Randall
<PAGE>
/s/ Edward V. Regan* Trustee August 16,
2000
-------------------------------------
Edward V. Regan
/s/ Russell S. Reynolds, Jr.* Trustee August 16,
2000
-------------------------------------
Russell S. Reynolds, Jr.
/s/ Brian W. Wixted* Treasurer August 16, 2000
-------------------------------------
Brian W. Wixted
/s/ Clayton K. Yeutter* Trustee August 16, 2000
-------------------------------------
Clayton K. Yeutter
*By: /s/ Robert G. Zack
---------------------------------------------
August 16, 2000
Robert G. Zack, Attorney-in-Fact
<PAGE>
OPPENHEIMER CALIFORNIA MUNICIPAL FUND
EXHIBIT INDEX
Exhibit No. Description
16(11) Legal Opinion Relating to Reorganization
16(14)(a) Deloitte & Touche LLP -- Independent Auditors Consent
16(14)(b) KPMG LLP -- Independent Auditors Consent
