OPPENHEIMER NEW JERSEY TAX-EXEMPT FUND
Supplement dated March 1, 1994
to the Prospectus dated March 1, 1994
The Prospectus is hereby amended as follows:
The following is added after the first paragraph under the Class A
Sales Charge Table in "How to Buy Shares - Class A Shares":
In addition to paying dealers the regular commission for sales of
Class A shares stated in the sales charge table in "Class A Shares,"
and the commission for sales of Class B shares described in the first
paragraph of "Class B Distribution and Service Plan," below, the
Distributor will pay the following additional commission for shares
of the Fund sold in "qualifying transactions" from March 1, 1994,
through May 31, 1994: (i) 1.00% of the offering price of Class A
and/or Class B shares sold by a representative of a broker or dealer
at a branch not in a "financial institution," such as a bank, savings
and loan association or credit union; and (ii) .50% of the offering
price of Class B shares, and the Distributor's entire retained
commission on Class A shares, sold by a sales representative of a
financial institution or by a representative of a broker or dealer
firm at a branch in a financial institution. "Qualifying
transactions" are sales by a registered representative of a broker
or dealer at a branch not in a financial institution of $200,000 or
more (calculated at offering price), and sales in any amount by a
sales representative of a financial institution or registered
representative of a broker or dealer at a branch in a financial
institution, of Class A and/or Class B shares of any one or more of
the following OppenheimerFunds: Oppenheimer Tax-Free Bond Fund,
Oppenheimer Insured Tax-Exempt Bond Fund, Oppenheimer New York Tax-
Exempt Fund, Oppenheimer California Tax-Exempt Fund, Oppenheimer
Pennsylvania Tax-Exempt Fund, Oppenheimer Florida Tax-Exempt Fund,
and Oppenheimer New Jersey Tax-Exempt Fund. "Qualifying transactions"
do not include sales of Class A shares (1) at net asset value without
sales charge, (2) subject to a contingent deferred sales charge, or
(3) intended under a Letter of Intent.
March 1, 1994 PS395
<PAGE>
OPPENHEIMER NEW JERSEY TAX-EXEMPT FUND
Two World Trade Center, New York, NY 10048-0203
Telephone: 1-800-525-7048
Oppenheimer New Jersey Tax-Exempt Fund (the "Fund") is a mutual fund
with the investment objective of seeking as high a level of current income
exempt from Federal and New Jersey income taxes for individual investors
as is consistent with preservation of capital. The Fund seeks to achieve
this objective by investing in municipal obligations, the income from
which is tax-exempt as described above. The Fund may also use certain
Hedging Instruments (as hereinafter defined) in an effort to protect
against market risks, but not for speculation. See "Special Investment
Methods."
The Fund offers two classes of shares which may be purchased at a price
equal to their respective net asset value per share, plus a sales charge.
The investor may elect to purchase shares with a sales charge imposed (i)
at the time of purchase (the "Class A shares"), or (ii) on a contingent
deferred basis (the "Class B shares"). Class B shares are also subject
to an additional asset-based sales charge. The contingent deferred sales
charge will be imposed on most redemptions of Class B shares within six
years of purchase. These alternatives permit an investor to choose the
method of purchasing shares that is more beneficial to that investor
depending on the amount of the purchase, the length of time the investor
expects to hold the shares and other circumstances. See "How to Buy
Shares - Alternative Sales Arrangements" below for further details.
This Prospectus sets forth concisely basic information about the Fund
that a prospective investor should know before investing. A Statement of
Additional Information about the Fund (the "Additional Statement"), dated
March 1, 1994, has been filed with the Securities and Exchange Commission
("SEC") and is available without charge upon written request to
Oppenheimer Shareholder Services (the "Transfer Agent"), P.O. Box 5270,
Denver, Colorado 80217 or by calling the Transfer Agent at the toll-free
number shown above. The Additional Statement (which is incorporated by
reference in its entirety in this Prospectus) contains more detailed
information about the Fund and its management, including more complete
information as to certain risk factors.
Investors are advised to read and retain this Prospectus for future
reference. Shares of the Fund are not deposits or obligations of any
bank, are not guaranteed by any bank, and are not insured by the FDIC or
any other agency, and involve investment risks, including the possible
loss of principal.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
This Prospectus is effective March 1, 1994.
Table of Contents
Page
Fund Expenses
The Fund and Its Investment Policies
Special Investment Methods
Investment Restrictions
Management of the Fund
How to Buy Shares
Alternative Sales Arrangements
Class A Shares
Class A Sales Charge Table
Class A Contingent Deferred Sales Charge
Reduced Sales Charges for Class A Purchases
Class A Service Plan
Class B Shares
Class B Contingent Deferred Sales Charge
Class B Conversion Feature
Class B Distribution and Service Plan
Purchase Programs for Class A and Class B Shares
AccountLink
PhoneLink
Asset Builder Plans
How to Redeem Shares
Regular Redemption Procedures
Telephone Redemptions
Check Writing
Automatic Withdrawal and Exchange Plans
Repurchase
Reinvestment Privilege
General Information on Redemptions
Exchanges of Shares
Dividends, Distributions and Taxes
Fund Performance Information
Additional Information
<PAGE>
Fund Expenses
The following table sets forth the fees that an investor in the Fund
might pay and the expenses expected to be paid by the Fund in its current
fiscal year ending December 31, 1994.
Shareholder Transaction Expenses
Class A Class B
Shares Shares
Maximum Sales Charge on Purchases
(as a percentage of offering price) 4.75% None
Sales Charge on Reinvested Dividends None None
Maximum Contingent Deferred Sales
Charge on Redemptions None(1) 5.0%(2)
Redemption Fee None None
Exchange Fee $5.00 $5.00
Estimated Annual Fund Operating Expenses
(as a percentage of average net assets)
Class A Class B
Shares Shares
Management Fees (after expense assumption) 0% 0%
12b-1 (Distribution and/or
Service Plan) Fees 0.15% 0.90%
Other Expenses (after expense assumption) 0.40% 0.40%
----- -----
Total Fund Operating Expenses (after
expense assumption) 0.55% 1.30%
_______________
(1)Certain Class A share purchases of $1 million or more are not
subject to front-end sales charges, but a contingent deferred sales charge
(maximum of 1.0%) is imposed on the proceeds of such shares redeemed
within 18 months of the end of the calendar month of their purchase,
subject to certain conditions. See "How to Buy Shares - Class A
Contingent Deferred Sales Charge" below.
(2)A contingent deferred sales charge is imposed on the proceeds of
Class B shares redeemed within six years of their purchase, subject to
certain exceptions. That charge is imposed as a percentage of net asset
value at the time of purchase or redemption, whichever is less, and
declines from 5.0% in the first year that shares are held, to 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 eliminated thereafter. There is no charge on
Class B shares held for more than six years. See "How to Buy Shares -
Class B Contingent Deferred Sales Charge" below. Class B shares convert
to Class A shares under the terms and conditions described under "How to
Buy Shares - Class B Conversion Feature." Long-term shareholders of Class
B shares could pay the economic equivalent, through the asset-based sales
charge and contingent deferred sales charge imposed on Class B shares, of
more than the maximum front-end sales charges permitted under applicable
regulatory requirements. The Class B Conversion Feature is intended to
minimize the likelihood that this will occur.
The purpose of the foregoing table is to assist an investor in
understanding the various costs and expenses that an investor in the Fund
will bear directly (shareholder transaction expenses) or indirectly
(annual fund operating expenses). The sales charge rate shown for Class
A shares is the current maximum rate applicable to purchases of Class A
shares of the Fund. Investors in Class A shares may be entitled to
reduced sales charges based on the amount purchased or the value of shares
already owned and may be subject to a contingent deferred sales charge in
limited circumstances (see "How to Buy Shares - Class A Contingent
Deferred Sales Charge"). Because the Fund is new and has not completed
a twelve-month fiscal year, the "Annual Fund Operating Expenses" in the
table above are annualized and are based on estimates of amounts payable
in the Fund's first fiscal year ending December 31, 1994. The actual
amount of such fees and expenses in the initial and future years will
depend on a number of factors, including the actual average net assets of
the Fund during such years. "Other Expenses" includes such expenses as
custodial and transfer agent fees, audit, legal and other business
operating expenses, but excludes extraordinary expenses. For further
details, see "Dual Class Methodology" in the Additional Statement. The
"Estimated Annual Fund Operating Expenses" shown are net of a voluntary
expense assumption by the Fund's investment adviser, Oppenheimer
Management Corporation (the "Manager"). Without such assumption, the
management fees for Class A shares and Class B shares would each have been
0.60% of average net assets, other expenses for Class A shares and Class
B shares would each have been 0.80% of average net assets, and "Total Fund
Operating Expenses" for Class A shares and Class B shares would have been
1.55% and 2.30%, respectively. The expense assumption is described in the
Additional Statement and may be withdrawn by the Manager at any time.
The following examples apply the above-stated expenses and the
current maximum sales charge to a hypothetical $1,000 investment in shares
of the Fund over the time periods shown below, assuming a 5% annual rate
of return on the investment. The amounts shown below are the cumulative
costs of such hypothetical $1,000 investment for the periods shown and,
except as indicated in lines 3 and 4, assume that the shares are redeemed
at the end of each stated period.
1 year 3 years
1. Class A shares $53 $64
2. Class B shares $63 $71
3. Class A shares, assuming
no redemption $53 $64
4. Class B shares, assuming
no redemption $13 $41
This example should not be considered a representation of past or
future expenses or performance. Expenses are subject to change and actual
performance and expenses may be less or greater than those illustrated
above.
<PAGE>
The Fund and Its Investment Policies
The Fund was organized on December 9, 1993 and is one of three
investment portfolios or "series" of Oppenheimer Multi-State Tax-Exempt
Trust (the "Trust"), an open-end, non-diversified management investment
company organized in 1989 as a Massachusetts business trust. The Fund's
investment objective is to seek as high a level of current income exempt
from Federal and New Jersey income taxes for individual investors as is
consistent with preservation of capital. Toward its investment objective,
the Fund may use certain Hedging Instruments (discussed below in "Special
Investment Methods - Covered Calls and Hedging") in an effort to protect
against market risks. Since market risks are inherent in all securities
to varying degrees, assurance cannot be given that the Fund will achieve
its investment objective. The investment policies and practices described
below are not "fundamental" policies unless a particular policy is
identified as "fundamental". Fundamental policies are those that cannot
be changed without the approval of a "majority," as defined in the
Investment Company Act of 1940, as amended (the "Investment Company Act"),
of the Fund's outstanding voting securities. The Board of Trustees of the
Trust (the "Board") may change non-fundamental investment policies without
shareholder approval.
Municipal Securities
Under normal market conditions, the Fund attempts to invest 100% of
its total assets, and as a matter of fundamental policy to invest at least
80% of its total assets, in municipal bonds, municipal notes (including
tax anticipation notes, bond anticipation notes, revenue anticipation
notes, construction loan notes and other short-term loans), tax-exempt
commercial paper, certificates of participation, participation interests
and other debt obligations issued by or on behalf of the State of New
Jersey or its political subdivisions, other states and the District of
Columbia, their political subdivisions, or any commonwealth, territory or
possession of the United States, or their respective agencies,
instrumentalities or authorities, the interest from which is not subject
to Federal individual income tax, in the opinion of bond counsel to the
respective issuer (collectively, "Municipal Securities"). Under normal
market conditions, the Fund will invest at least 80% of its total assets
in obligations of the State of New Jersey and its political subdivisions,
agencies, authorities or instrumentalities and obligations of other
qualifying issuers, such as issuers located in Puerto Rico, the U.S.
Virgin Islands and Guam, the interest from which is not subject to Federal
and New Jersey individual income tax in the opinion of bond counsel to the
respective issuer ("New Jersey Municipal Securities"). No independent
investigation has been made by the Manager as to the uses of proceeds of
bond offerings or the application of such proceeds. The Fund may invest
the remainder of its assets in investments the income from which may be
taxable, including: (i) Municipal Securities issued to benefit a private
user ("Private Activity Municipal Securities"), the interest from which
may be subject to Federal alternative minimum tax (see "Dividends,
Distributions and Taxes"); (ii) certain temporary investments (described
below in "Special Investment Methods - Temporary Investments"); (iii)
Hedging Instruments; and (iv) repurchase agreements (described below in
"Special Investment Methods - Repurchase Agreements").
"Municipal bonds" are Municipal Securities that have a maturity when
issued of one year or more and "municipal notes" are Municipal Securities
that have a maturity when issued of less than one year. The two principal
classifications of Municipal Securities are "general obligations" (secured
by the issuer's pledge of its full faith, credit and taxing power for the
payment of principal and interest) and "revenue obligations" (payable only
from the revenues derived from a particular facility or class of
facilities, or specific excise tax or other revenue source). See
"Investment Objective and Policies" in the Additional Statement for
further information concerning the Fund's investment policies and
Municipal Securities. The Fund may invest in Municipal Securities of both
classifications.
The Fund may hold temporary investments pending the investment of
proceeds from the sale of Fund shares or portfolio securities, pending
settlement of purchases of Municipal Securities, or to meet anticipated
redemptions. Normally, the Fund will not invest more than 20% of its
total assets in Private Activity Municipal Securities and other taxable
investments described above. However, in times of unstable economic or
market conditions, when the Manager determines it appropriate to do so,
the Fund may assume a temporary defensive position and invest an unlimited
amount of its assets in temporary defensive investments. See "Special
Investment Methods - Temporary Investments" below. In the event that
taxable obligations exceed 20% of the Fund's total investments (subject
to certain exclusions under the New Jersey Gross Income Tax Act), none of
the Fund's distributions for the entire year will qualify for tax-exempt
status under New Jersey law.
Provided the Fund qualifies as a "qualified investment fund" under
New Jersey law and to the extent distributions by the Fund are derived
from interest or gains attributable to New Jersey Municipal Securities,
distributions paid by the Fund will be exempt from Federal and New Jersey
individual income taxes. In addition, if the Fund so qualifies, any gain
or income derived from the redemption of Fund shares attributable to New
Jersey Municipal Securities will be exempt from New Jersey individual
income taxes. The Fund intends to qualify as a qualified investment fund
unless, as discussed above, the Fund assumes a defensive position.
Dividends derived from interest on Municipal Securities other than New
Jersey Municipal Securities will be exempt from Federal income tax for
individuals, but will be subject to New Jersey individual income taxes.
Any net interest income on taxable investments will be taxable as ordinary
income when distributed to shareholders. See "Dividends, Distributions
and Taxes" below.
Municipal Securities purchased by the Fund must be rated at the time
of purchase within the four highest rating categories of Moody's Investors
Service, Inc. ("Moody's"), Standard & Poor's Corporation ("S&P") or Fitch
Investors Service, Inc. ("Fitch") or, if unrated, judged by the Manager
to be of comparable quality to Municipal Securities rated within such
grades. See Appendix A of the Additional Statement for a description of
these rating categories. Investments in unrated Municipal Securities will
not, at the time of purchase, exceed 25% of the Fund's total assets. A
reduction in the rating of a security after its purchase by the Fund will
not require the Fund to dispose of such security. Securities that have
fallen below investment grade have a greater risk that the ability of the
issuers of those securities to meet their debt obligations will be
impaired. Not more than 25% of the Fund's total assets will be invested
in Municipal Securities that are (i) municipal bonds rated either "Baa"
by Moody's or "BBB" by either S&P or Fitch, (ii) municipal notes rated
"SP-2" by S&P, "MIG2" by Moody's or "F-2" by Fitch, or (iii) if unrated,
Municipal Securities judged by the Manager to be of comparable quality to
Municipal Securities rated within the grades described in (i) and (ii)
above, because such Municipal Securities, although investment grade, may
be subject to greater market fluctuations and risk of loss of income and
principal than higher-rated Municipal Securities, and may be considered
to have some speculative characteristics. It is anticipated that the
Municipal Securities purchased for the Fund's portfolio will normally be
those having longer maturities (7 to 30 years), but the Fund may invest
in Municipal Securities having a broad range of maturities.
Some of the Municipal Securities the Fund may purchase may 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 instruments. See
"Investment Objective and Policies - Municipal Securities - Floating
Rate/Variable Rate Obligations" in the Additional Statement for more
details.
The values of Municipal Securities will vary as a result of changing
evaluations by rating services and investors of the ability of the issuers
of such securities to meet the interest and principal payments. See
"Special Considerations - New Jersey Municipal Securities" below. Such
values also will change in response to changes in interest rates. Should
interest rates rise, the values of outstanding Municipal Securities will
decline and (if purchased at principal amount) would sell at a discount.
If interest rates fall, the values of outstanding Municipal Securities
will increase and (if purchased at principal amount) would sell at a
premium. Changes in the values of Municipal Securities owned by the Fund
caused by these or other factors will not affect interest income derived
from these securities but will affect the Fund's net asset value per
share. Yields on Municipal Securities depend on a variety of factors,
including the general condition of the financial markets and of the
Municipal Securities market in particular, the size of a particular
offering, the maturity of the security and the credit rating of the issue.
Generally, Municipal Securities of longer maturities produce higher
current yields but are subject to greater price fluctuations due to
changes in interest rates, tax laws, and other general market factors than
are Municipal Securities with shorter maturities. Similarly, lower-rated
Municipal Securities generally produce a greater yield than higher-rated
Municipal Securities, due to the perception of a greater risk as to the
ability of the issuer to meet principal and interest obligations. See
"Investment Objective and Policies" in the Additional Statement for
further information concerning the Fund's investment policies and
Municipal Securities.
- Municipal Lease Obligations. The Fund may invest in certificates
of participation that represent a proportionate interest in or right to
the lease purchase payment made under municipal lease obligations. While
some municipal lease securities may be deemed to be "illiquid" securities
(the purchase of which 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. Those guidelines require
the Manager to evaluate: (1) the frequency of trades and price quotations
for such securities, (2) the number of dealers or other potential buyers
willing to purchase or sell such securities; (3) the availability of
market-makers; and (4) the nature of the trades for such securities. The
Manager will also evaluate the likelihood of a continuing market for such
securities throughout the time they are held by the Fund and the credit
quality of the instrument. See "Investment Objective and Policies -
Municipal Securities - Municipal Lease Obligations" in the Additional
Statement for further information.
- Floating Rate/Variable Rate Obligations. Some of the Municipal
Securities the Fund may purchase may 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. Such obligations may be
secured by bank letters of credit or other credit support arrangements.
See "Investment Objective and Policies - Floating Rate/Variable Rate
Obligations" in the Additional Statement for further information.
- Inverse Floaters. The Fund may invest in variable rate bonds where
the interest rate paid varies inversely with movements in short-term tax-
exempt yields. Such bonds are known as "inverse floaters." As short-term
rates rise, inverse floaters produce less current income. See "Investment
Objective and Policies - Inverse Floaters" in the Additional Statement for
further information.
- When-Issued Securities. The Fund may invest in Municipal
Securities on a "when-issued" or "delayed delivery" basis. The price,
which is generally expressed in yield terms, is fixed at the time the
commitment is made, but delivery and payment for when-issued securities
take place at a later date (normally within 45 days of purchase). No
income accrues to the Fund until it takes delivery of the when-issued
securities. The Fund is subject to the risk of adverse market fluctuation
between purchase and settlement. The Manager does not believe that the
Fund's net asset value or income will be materially adversely affected by
its purchase of Municipal Securities on a "when-issued" or "delayed
delivery" basis. See "When-Issued and Delayed Delivery Transactions" in
the Additional Statement for more details.
-Non-diversification. The Fund is classified as a "non-diversified"
investment company under the Investment Company Act, so that the
proportion of the Fund's assets that may be invested in the securities of
a single issuer is not limited by the Investment Company Act. An
investment in the Fund therefore will entail greater risk than an
investment in a diversified investment company because a higher percentage
of investments among fewer issuers may result in greater fluctuation in
the total market value of the Fund's portfolio, and economic, political
or regulatory developments may have a greater impact on the value of the
Fund's portfolio than would be the case if the portfolio were diversified
among more issuers. However, the Fund intends to conduct its operations
so as to qualify as a "regulated investment company" for purposes of the
Internal Revenue Code of 1986, as amended (the "Internal Revenue Code"),
which will relieve the Fund from liability for Federal income tax to the
extent of its taxable earnings distributed to shareholders. Among the
requirements for such qualification are that: (i) not more than 25% of
the market value of the Fund's total assets will be invested in the
securities of a single issuer, and (ii) with respect to 50% of the market
value of its total assets, not more than 5% of the market value of its
total assets may be invested in the securities of a single issuer and the
Fund must not own more than 10% of the outstanding voting securities of
a single issuer.
Portfolio Turnover
The Fund's portfolio turnover rate is not expected to exceed 100%,
although the Fund's management is unable to predict what the Fund's rate
of portfolio turnover will be in any particular period. The Fund
generally will not engage in the trading of securities to realize short-
term gains, but the Fund may purchase and sell Municipal Securities as the
Manager deems advisable to take advantage of differentials in yield.
While short-term trading increases portfolio turnover, the Fund incurs
little or no brokerage costs.
Special Considerations - New Jersey Municipal Securities
The Fund will concentrate its investments in New Jersey Municipal
Securities. The market value and marketability of New Jersey Municipal
Securities and the interest income and repayment of principal to the Fund
from them could be adversely affected by a default or financial crisis
relating to any of such issuers. Investors should consider these matters
as well as the economic trends in New Jersey summarized in the Additional
Statement under "Special Investment Considerations - New Jersey Municipal
Securities." In addition, the Fund's portfolio securities are affected
by general changes in interest rates, which result in changes in the value
of portfolio securities held by the Fund, which can be expected to vary
inversely with changes in prevailing interest rates.
Special Investment Methods
Covered Calls and Hedging
The Fund may write (i.e., "sell") covered call options to enhance
income for liquidity purposes. For hedging purposes, the Fund may
purchase certain put and call options, Interest Rate Futures and Municipal
Bond Index Futures (described below), and options on Interest Rate Futures
and Municipal Bond Index Futures, and engage in interest rate swap
transactions (all of the foregoing are referred to as "Hedging
Instruments"). In general, the Fund may use Hedging Instruments (i) to
attempt to protect against declines in the market value of the Fund's
portfolio, and thus protect the Fund's net asset value against downward
trends in the debt securities market, or (ii) to establish a position in
the debt securities market as a temporary substitute for the purchase of
particular debt securities. The Fund will not use Hedging Instruments for
speculation, and all transactions involving Hedging Instruments will be
in accordance with the requirement that the Fund invest in securities to
earn income but not trade for profits. The covered calls and Hedging
Instruments the Fund may use are described below and in greater detail
under "Special Investment Methods - Covered Calls and Hedging" in the
Additional Statement. All puts and calls on securities, Interest Rate
Futures or Municipal Bond Index Futures or options on such futures
purchased or sold by the Fund will be listed on a national securities or
commodities exchange or quoted on the automated quotation system of the
National Association of Securities Dealers, Inc. ("NASDAQ"). The
aggregate premiums paid on all such options which the Fund holds at any
time will be limited to 20% of the Fund's total assets and the aggregate
margin deposits on all such futures or options thereon at any time will
be limited to 5% of the Fund's total assets.
- Writing Covered Call Options. The Fund may write call options
("calls") if after any sale not more than 25% of the Fund's total assets
are subject to calls and the calls are "covered," i.e., the Fund owns the
securities or futures subject to the call (or other securities acceptable
for applicable escrow requirements) while the call is outstanding.
- Purchasing Puts, Stand-by Commitments and Calls. The Fund may
purchase put options ("puts") which relate to a debt security, Interest
Rate Future or Municipal Bond Index Future. The Fund may not sell
("write") puts. Under a stand-by commitment, a dealer agrees to purchase,
at the Fund's option, specified Municipal Securities at a stated price on
same day settlement. The aggregate price of a security subject to a
stand-by commitment may be higher than the price which would otherwise be
paid for the security without such stand-by commitment, thus increasing
the cost of the security and reducing its yield. The Fund may purchase
calls (i) as to debt securities, Interest Rate Futures or Municipal Bond
Index Futures, or (ii) to effect a "closing purchase transaction" to
terminate its obligation as to a call it has previously written. A call
or put may be purchased only if, after such purchase, the value of all
options (puts and calls) held by the Fund would not exceed 5% of the
Fund's total assets.
- Interest Rate Futures and Municipal Bond Index Futures. The Fund
may buy and sell futures contracts only if they relate to debt securities
("Interest Rate Futures") or municipal bond indices ("Municipal Bond Index
Futures") (collectively, "Futures").
- Interest Rate Swap Transactions. The Fund may enter into interest
rate swaps, pursuant to which the Fund and another party exchange their
respective commitments to pay or receive interest on a security (e.g., an
exchange of floating rate payments for fixed rate payments). The Fund
will not use interest rate swaps for leverage. Swap transactions will be
entered into only as to security positions held by the Fund. See "Special
Investment Methods -Covered Calls and Hedging" in the Additional Statement
for further details.
- Risks of Options and Futures Trading. "Special Investment Methods
- - Covered Calls and Hedging" in the Additional Statement contains more
information about options, Interest Rate Futures and Municipal Bond Index
Futures, and interest rate swap transactions, the payment of premiums for
options trades, the tax effects, risks and possible benefits to the Fund
from options trading, and information as to the Fund's other limitations
(which are not fundamental policies) on investment in Futures and options
thereon. There are certain risks in writing calls. If a call written by
the Fund is exercised, the Fund forgoes any possible profit from an
increase in the market price above the call price of the underlying
investment plus the premium received. In addition, the Fund could
experience capital losses which might cause previously distributed short-
term capital gains to be re-characterized as a non-taxable return of
capital to shareholders. The principal risks of Futures trading are: (i)
possible imperfect correlation between the prices of the Futures and the
market value of the Fund's portfolio securities; (ii) possible lack of a
liquid secondary market for closing out a Futures position; (iii) the need
for additional skills and techniques beyond normal portfolio management;
and (iv) losses resulting from market movements not anticipated by the
Manager.
Repurchase Agreements
The Fund may acquire securities that are subject to repurchase
agreements, to generate income for liquidity purposes. If the vendor
fails to pay the agreed-upon resale price upon the delivery date, the
Fund's risks in such event may include any costs of disposing of the
collateral, and any loss from any delay in foreclosing on the collateral.
There is no limit on the amount of assets that may be subject to
repurchase agreements having a maturity of seven days or less. See
"Illiquid Securities" below and "Special Investment Methods - Repurchase
Agreements" in the Additional Statement for further details.
Loans of Portfolio Securities
To attempt to increase its income and for liquidity purposes, the
Fund may lend its portfolio securities (other than in repurchase
transactions) to qualified borrowers if the loan is collateralized in
accordance with applicable regulatory requirements and if, after any loan,
the value of the securities loaned does not exceed 25% of the value of the
Fund's total assets. The income from such loans, when distributed by the
Fund, will be taxable. The Fund presently does not intend that the value
of securities loaned will exceed 5% of the value of the Fund's total
assets during its current fiscal year. See "Special Investment Methods -
Loans of Portfolio Securities" in the Additional Statement for further
information.
Temporary Investments
Temporary investments include (i) obligations issued or guaranteed
by the U.S. Government or its agencies or instrumentalities, (ii) "prime"
commercial paper rated "A-1" by S&P or Fitch or "Prime-1" by Moody's,
(iii) short-term taxable debt obligations rated "A-3" or better by S&P,
"P-3" or better by Moody's, or "F-3" or better by Fitch or (iv) cash
equivalents, including bankers' acceptances, time deposits and
certificates of deposit of domestic banks with assets of $1 billion or
more.
Illiquid Securities
The Fund may not invest any portion of its assets in securities the
public sale of which would require registration under the Securities Act
of 1933, as amended (the "Securities Act"). In addition, the Fund will
not purchase or otherwise acquire any security if, as a result, more than
15% of its net assets would be invested in securities that are illiquid
by virtue of the absence of a readily available market. Such securities
include (i) repurchase agreements maturing in more than seven days, (ii)
over-the-counter options, (iii) assets used as cover for written over-the-
counter options, (iv) floating rate or variable rate obligations which do
not provide for recovery of principal and interest within seven days and
(v) certain municipal lease obligations. The Fund currently intends to
invest no more than 10% of its net assets in illiquid securities. If due
to changes in relative market value of the Fund's portfolio securities,
more than 15% of the value of the Fund's net assets consisted of illiquid
securities, the Manager would consider appropriate steps to protect the
Fund's maximum flexibility. There may be undesirable delays in selling
illiquid securities at prices representing their fair value.
Investment Restrictions
The Fund has certain investment restrictions which, together with its
investment objective, are fundamental policies. Pursuant to one such
restriction, the Fund cannot concentrate investments to the extent of more
than 25% of its total assets in any industry; however, there is no
limitation as to investment in Municipal Securities, New Jersey Municipal
Securities or U.S. Government obligations. As a matter of non-fundamental
policy, changeable without a shareholder vote, the Fund will not: (i)
invest in securities or any other investment other than the Municipal
Securities, temporary investments, taxable investments and Hedging
Instruments described above in "The Fund and Its Investment Policies"
above; (ii) make loans, except through the purchase of portfolio
securities subject to repurchase agreements or through loans of portfolio
securities as described under "Special Investment Methods - Loans of
Portfolio Securities"; (iii) borrow money in excess of 10% of the value
of its total assets, or make any additional investments whenever
borrowings exceed 5% of the Fund's total assets; it may borrow only from
banks as a temporary measure for extraordinary or emergency purposes (not
for the purpose of leveraging its investments); (iv) 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; or (v) buy
or sell futures contracts other than Interest Rate Futures or Municipal
Bond Index Futures. The percentage restrictions described above and in
the Additional Statement apply only at the time of investment and require
no action by the Fund as a result of subsequent changes in value of the
investment or the size of the Fund. A supplementary list of investment
restrictions is contained in "Investment Restrictions" in the Additional
Statement.
Management of the Fund
The Board has overall responsibility for the management of the Fund
under the laws of Massachusetts governing the responsibilities of trustees
of business trusts. Subject to the authority of the Board, the Manager
is responsible for the day-to-day management of the Fund's business,
supervises the investment operations of the Fund and the composition of
its portfolio and furnishes the Fund advice and recommendations with
respect to investments, investment policies and the purchase and sale of
securities pursuant to an investment advisory agreement (the "Agreement")
with the Trust on behalf of the Fund.
The Agreement contains provisions relating to portfolio transactions,
including the selection of brokers and dealers when used for such
transactions. Subject to the Agreement, the Manager may consider sales
of shares of the Fund and other investment companies managed by the
Manager or its affiliates as a factor in the selection of brokers and
dealers for the Fund's portfolio transactions. Under the Agreement, the
Fund pays to the Manager a monthly management fee computed on the net
asset value of the Fund as of the close of each business day at the
following annual rates: 0.60% of the first $200 million of net assets;
0.55% of the next $100 million; 0.50% of the next $200 million; 0.45% of
the next $250 million; 0.40% of the next $250 million; and 0.35% of net
assets in excess of $1 billion. "Investment Management Services" in the
Additional Statement contains more information about the Agreement, as
well as a description of expense assumption arrangements, exculpation
provisions and portfolio transactions of the Fund.
Robert E. Patterson, a Senior Vice President of the Manager, serves
as the Portfolio Manager and a Vice President of the Trust and is
primarily responsible for the day-to-day management of the Fund's
portfolio. During the past five years, Mr. Patterson has also served as
an officer and portfolio manager for other OppenheimerFunds. For more
information about the Trust's other officers and Trustees, see "Trustees
and Officers" in the Additional Statement.
The Manager has operated as an investment adviser since April 30,
1959. The Manager and its affiliates currently advise U.S. investment
companies with assets aggregating over $26 billion as of December 31,
1993, and having more than 1.8 million shareholder accounts. The Manager
is owned 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 which also advises pension plans and investment companies.
How to Buy Shares
Alternative Sales Arrangements
Two classes of shares of the Fund are offered under the Fund's
"Alternative Sales Arrangements." The investor may elect to purchase
shares with a sales charge imposed (1) at the time of purchase or on a
contingent deferred basis on redemption of shares purchased in amounts
over $1 million (the "Class A shares"), or (2) on a contingent deferred
basis (the "Class B shares"). The contingent deferred sales charge will
be imposed on most redemptions of Class B shares within six years of
purchase. The Alternative Sales Arrangements permit an investor to choose
the method of purchasing shares that is more beneficial to that investor
depending on the amount of the purchase, the length of time the investor
expects to hold the shares and other relevant circumstances. The Fund's
distributor, Oppenheimer Funds Distributor, Inc. (the "Distributor"), will
not knowingly accept any order of $1 million or more for Class B shares
of one or more of the "Eligible Funds" listed in "Right of Accumulation"
below on behalf of a single investor (not including dealer "street name"
or omnibus accounts) because it generally will be more advantageous for
such investor to purchase Class A shares of such Eligible Funds instead.
Investors should understand that the purpose and function of the deferred
sales charge and asset-based sales charge with respect to Class B shares
are the same as those of the initial sales charges with respect to the
Class A shares. Any financial intermediary or other person entitled to
receive compensation for selling Fund shares may receive different
compensation with respect to one class of shares than the other.
The two classes of shares each represent an interest in the same
portfolio of investments of the Fund. However, as described in this
Prospectus, 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, including the asset-based sales charge to which Class B shares
are subject. For further information, see "Purchase, Redemption and
Pricing of Shares" in the Additional Statement.
The Fund's shares of either class may be purchased through any dealer
or broker which has a sales agreement with the Distributor, a subsidiary
of the Manager. There are two ways to make an initial investment: either
(1) complete an OppenheimerFunds New Account Application and mail it with
payment to the Distributor at P.O. Box 5270, Denver, Colorado 80217 (if
no dealer or broker is named in the Application, the Distributor will be
listed as the dealer of record), or (2) order the shares through your
dealer or broker. Be certain to specify whether you intend to purchase
Class A shares or Class B shares. If no instructions are provided, initial
investments will be made in Class A shares and subsequent investments will
be made in the same class as the most recent previous investment.
The minimum initial investment is $1,000, except as otherwise
described in this Prospectus. Subsequent purchases must be at least $25
and may be made (1) through authorized dealers or brokers, (2) by
forwarding payment to the Distributor with the names of all account
owners, the account number and the name of the Fund, (3) automatically
through Asset Builder Plans, or (4) by telephone using AccountLink,
described below. Under an Asset Builder Plan, Automatic Exchange Plan,
403(b)(7) custodial plan or military allotment plan, initial and
subsequent investments must be at least $25. The minimum initial and
subsequent purchase requirements are waived on purchases made by
reinvesting dividends from any of the "Eligible Funds" listed in "Right
of Accumulation" below, or by reinvesting distributions from unit
investment trusts for which reinvestment arrangements have been made with
the Distributor. No share certificates will be issued for Class B shares,
and no share certificates will be issued for Class A shares unless
specifically requested in writing by an investor or the dealer or broker.
The net asset value per share of each class is determined as of 4:00
P.M. (all references to time in this Prospectus mean New York time) each
day the New York Stock Exchange is open (a "regular business day") by
dividing the value of the Fund's net assets attributable to that class by
the number of shares of that class outstanding. The Board has established
procedures for valuing the Fund's securities. In general, those valuations
are based on market value, with special provisions for (i) securities not
having readily-available market quotations, (ii) short-term debt
securities and (iii) covered calls and Hedging Instruments. Further
details are in "Purchase, Redemption and Pricing of Shares" in the
Additional Statement. The net asset values per share of Class A and Class
B shares are expected to be substantially the same; however, from time to
time the net asset values of each class may differ due to differences in
expenses borne by each class, as discussed under "Dual Class Methodology"
in the Additional Statement.
All purchase orders received by the Distributor at its office in
Denver, Colorado prior to 4:00 P.M. on a regular business day are
processed at that day's offering price. However, an order received by the
Distributor from a dealer or broker after the offering price is
determined that day will receive such offering price if the order was
received by the dealer or broker from its customer prior to 4:00 P.M., and
was transmitted to and received by the Distributor prior to its close of
business that day (normally 5:00 P.M.). Purchase orders received on other
than a regular business day will be executed on the next succeeding
regular business day. The Distributor, in its sole discretion, may accept
or reject any order for purchase of the Fund's shares. The sale of shares
will be suspended during any period when the determination of net asset
value is suspended and may be suspended by the Board whenever the Board
judges it in the best interest of the Fund to do so.
Class A Shares
Class A shares are sold at their offering price, which (as that term
is used in this Prospectus and the Additional Statement) is net asset
value plus a front-end sales charge, except that as to certain purchases
described below that are not subject to a front-end sales charge, the
offering price is net asset value. The offering price is determined as of
4:00 P.M. each regular business day. Class A shares may not be converted
into Class B shares.
The following table shows the regular front-end sales charge rates
for Class A shares for a "single purchaser" (defined below in "Right of
Accumulation"), together with the dealer discounts paid to authorized
dealers and the agency commissions paid to authorized brokers
(collectively, "commissions"):
Amount of Purchase Front-end Front-end Commission
Sales Charge Sales Charge as
as as Percentage
Percentage of Approximate of Offering
of Offering Percentage Price
Price of Amount
Invested
Less than $50,000 4.75% 4.98% 4.00%
$50,000 or more but
less than $100,000 4.50% 4.71% 4.00%
$100,000 or more but
less than $250,000 3.50% 3.63% 3.00%
$250,000 or more but
less than $500,000 2.50% 2.56% 2.25%
$500,000 or more but
less than $1 million 2.00% 2.04% 1.80%
$1 million or more None* None* None*
- -----------------------------------
*See "Class A Contingent Deferred Sales Charge," below.
Under certain circumstances, commissions up to the amount of the entire
sales charge may be reallowed to dealers or brokers, who then may be
deemed to be "underwriters" as defined in the Securities Act. Commission
rates may vary among the funds for which the Manager and its affiliates
act as investment advisers.
The Distributor may advance up to 13 months' commissions to dealers
that have entered into special arrangements with the Distributor as to
purchases made by their clients under Oppenheimer Asset Builder Plans. If
a registered representative of a securities dealer sells more than $2.5
million of Class A shares of "Eligible Funds" other than "Money Market
Funds" (as that term is defined below) in a calendar year, the dealer firm
is eligible to send such representative, with a guest, to a three-day
sales conference (generally held in a resort), if one is sponsored and
held by the Distributor; or in lieu of sending such representative, that
firm may, at its option, receive the equivalent cash value of such award
as additional commission. The Distributor may, from time to time, enter
into arrangements with specific dealers whereby the Distributor may make
additional payments to that dealer based, in part, on that dealer meeting
certain sales criteria. Such additional payments may be based on sales for
a specific period of time, shares of certain or all of the "Eligible
Funds" (defined below) held by the dealer and/or its customers or some
combination thereof.
- Class A Contingent Deferred Sales Charge. On certain purchases of
Class A shares of any one or more "Eligible Funds" by a "single purchaser"
aggregating $1 million or more, the Distributor will pay authorized
dealers a commission equal to the sum of 1.0% of the first $2.5 million,
0.50% of the next $2.5 million, and 0.25% of share purchases in excess of
$5 million. However, that commission will be paid only on the amount of
those share purchases in excess of $1 million that were not previously
subject to a front-end sales charge and dealer commission (the shares with
respect to which this commission is paid are called "Class A CDSC
Shares"). A contingent deferred sales charge ("Class A CDSC") will be
deducted from the redemption proceeds of Class A CDSC Shares redeemed
within 18 months of the end of the calendar month of their purchase. The
Class A CDSC will be an amount equal to 1.0% of the lesser of either (1)
the aggregate net asset value of the Class A CDSC Shares (not including
shares purchased by reinvestment of dividends or capital gains) or (2) the
original cost of such shares. However, the total Class A CDSC paid on the
redemptions of those shares will not exceed the aggregate commissions paid
to dealers on all Class A CDSC Shares of all "Eligible Funds" purchased
by that "single purchaser."
The Class A CDSC does not apply to purchases at net asset value
described in "Other Circumstances" below and will be waived in the case
of redemptions of shares made for: (i) Automatic Withdrawal Plan payments
limited to no more than 12% of the original account value annually; and
(ii) involuntary redemptions of shares by operation of law or under
procedures set forth in the Declaration of Trust of the Trust or as
adopted by the Board (collectively, "Involuntary Redemptions"). See
"Transfers of Shares" in "Purchase, Redemption and Pricing of Shares" in
the Additional Statement.
Some or all of the proceeds of redeemed shares on which a Class A CDSC
was paid at the time of redemption and which are subsequently reinvested
under the "Reinvestment Privilege" (described below) may be reinvested
within six months of redemption without a sales charge at net asset value
on the reinvestment date if the investor notifies the Distributor that the
privilege applies. Additionally, no Class A CDSC is charged on exchanges,
pursuant to the Fund's Exchange Privilege (described below), of shares
purchased subject to a Class A CDSC, except that if Class A shares
acquired by exchange are redeemed within 18 months of the end of the
calendar month of the initial purchase of the exchanged shares, the Class
A CDSC will apply. In determining whether a Class A CDSC is payable, and
the amount of any such charge, shares not subject to a Class A CDSC are
redeemed first, including shares purchased by reinvestment of dividends
and capital gains distributions, and then other shares are redeemed in the
order of purchase.
- Reduced Sales Charges for Class A Purchases. The Class A sales
charge rates in the table above may be reduced as follows:
Right of Accumulation. In calculating the sales charge rate applicable
to current purchases of Class A shares, a "single purchaser" is entitled
to cumulate current purchases with the greater of (1) amounts previously
paid for, or (2) the current value (at offering price) of Class A shares
of certain other "Eligible Funds" and the Fund if sold subject to an
initial sales charge and if the investment is still held in one of the
Eligible Funds. The Eligible Funds are those for which the Distributor or
an affiliate acts as the distributor and include the following: (i) the
Fund, Oppenheimer Time Fund, Oppenheimer Target Fund, Oppenheimer Tax-Free
Bond Fund, Oppenheimer High Yield Fund, Oppenheimer Champion High Yield
Fund, Oppenheimer Total Return Fund, Inc., Oppenheimer Asset Allocation
Fund, Oppenheimer Mortgage Income Fund, Oppenheimer Discovery Fund,
Oppenheimer U.S. Government Trust, Oppenheimer Global Fund, Oppenheimer
Global Bio-Tech Fund, Oppenheimer Global Environment Fund, Oppenheimer
Global Growth & Income Fund, Oppenheimer California Tax-Exempt Fund,
Oppenheimer Pennsylvania Tax-Exempt Fund, Oppenheimer Florida Tax-Exempt
Fund, Oppenheimer New York Tax-Exempt Fund, Oppenheimer Fund, Oppenheimer
Special Fund, Oppenheimer Equity Income Fund, Oppenheimer Gold & Special
Minerals Fund, Oppenheimer Investment Grade Bond Fund, Oppenheimer Value
Stock Fund, Oppenheimer Intermediate Tax-Exempt Bond Fund, Oppenheimer
Insured Tax-Exempt Bond Fund, Oppenheimer Government Securities Fund,
Oppenheimer Main Street Income & Growth Fund, Oppenheimer Main Street
California Tax-Exempt Fund, Oppenheimer Strategic Income Fund, Oppenheimer
Strategic Short-Term Income Fund, Oppenheimer Strategic Income & Growth
Fund, and Oppenheimer Strategic Investment Grade Bond Fund, and (ii) the
following "Money Market Funds": Centennial Money Market Trust, Centennial
Tax Exempt Trust, Centennial Government Trust, Centennial New York Tax
Exempt Trust, Centennial California Tax Exempt Trust, Centennial America
Fund, L.P., Oppenheimer Money Market Fund, Inc., Daily Cash Accumulation
Fund, Inc., Oppenheimer Cash Reserves and Oppenheimer Tax-Exempt Cash
Reserves. There is an initial sales charge on the purchase of Class A
shares of each Eligible Fund except Money Market Funds (under certain
circumstances described herein, redemption proceeds of Money Market Fund
shares may be subject to a CDSC). The reduced sales charge applies only
to current purchases.
The term "single purchaser" refers to: (i) an individual; (ii) an
individual and spouse purchasing shares of the Fund for their own account
or for trust or custodial accounts for their minor children; or (iii) a
fiduciary purchasing for any one trust, estate or fiduciary account,
including employee benefit plans created under Sections 401 or 457 of the
Internal Revenue Code, including related plans of the same employer. To
be entitled to a reduced sales charge under the Right of Accumulation, at
the time of purchase the purchaser must ask the Distributor for such
entitlement and provide the account number(s) for shares of Eligible Funds
owned by the "single purchaser," and the age of any minor children for
whom shares are held.
Letters of Intent. By initially investing at least $1,000 and
submitting a Letter of Intent (the "Letter") to the Distributor, a "single
purchaser" may purchase Class A shares of the Fund and other Eligible
Funds (other than the Money Market Funds) during a 13-month period at the
reduced sales charge rates, or at net asset value but subject to the Class
A CDSC, if applicable, applying to the aggregate amount of the intended
purchases stated in the Letter. The Letter may apply to purchases made
up to 90 days before the date of the Letter. The Fund and the Distributor
reserve the right to amend or terminate such program at any time without
prior notice. For further details, including escrow requirements, see
"Letters of Intent" in the Additional Statement.
Other Circumstances. No sales charge is imposed on Class A shares of
the Fund: (i) sold to the Manager or its affiliates, or to present or
former officers, trustees or directors and employees (and their "immediate
families," as defined in "Reduced Sales Charges" in the Additional
Statement) of the Trust, the Fund, the Manager and its affiliates, and to
retirement plans established by them for employees; (ii) issued in plans
of reorganization, such as mergers, asset acquisitions and exchange
offers, to which the Fund is a party; (iii) sold to registered investment
companies or to separate accounts of insurance companies having an
agreement with the Manager or the Distributor; (iv) sold to dealers or
brokers that have a sales agreement with the Distributor, for their own
account or for retirement plans for their employees, or sold to employees
(and their spouses) of such dealers or brokers or of financial
institutions which have entered into a sales arrangement with such dealer
or broker or the Distributor (and are identified to the Distributor by
such dealer or broker); the purchaser must certify to the Distributor at
the time of purchase that such purchase is for its own account (or for the
benefit of such employee's spouse or minor children); (v) sold to dealers,
brokers or registered investment advisers that have entered into an
agreement with the Distributor providing specifically for the use of
shares of the Fund in particular investment products made available to the
clients of the dealer, broker or investment adviser; or (vi) purchased by
the reinvestment of (a) loan repayments by a participant in a retirement
plan for which the Manager or its affiliates act as Sponsor, or (b)
dividends or other distributions received from the Fund or other "Eligible
Funds" (other than the Cash Reserves Funds) or unit investment trusts for
which reinvestment arrangements have been made with the Distributor.
"Purchase, Redemption and Pricing of Shares - Reduced Sales Charges" in
the Additional Statement discusses this policy.
- Class A Service Plan. The Fund has adopted a service plan (the
"Class A Plan") under Rule 12b-1 of the Investment Company Act pursuant
to which the Fund will reimburse the Distributor quarterly for a portion
of its costs incurred in connection with the personal service and
maintenance of accounts that hold Class A shares. The Distributor will
use such fees received from the Fund in their entirety (i) to compensate
brokers, dealers, banks and other institutions (collectively,
"Recipients") each quarter for providing personal service and maintenance
of accounts that hold Class A shares, and (ii) to reimburse itself (to the
extent authorized by the Board) for its other expenditures under the Class
A Plan and its direct costs for personal service and maintenance of
accounts. The Board has not presently authorized any reimbursement to the
Distributor under (ii) above.
The services to be provided under the Class A Plan include, but shall
not be limited to, the following: answering routine inquiries from the
Recipient's customers concerning the Fund, providing such customers with
information on their investment in Class A shares, assisting in the
establishment and maintenance of accounts or sub-accounts in the Fund,
making the Fund's investment plans and dividend payment options available,
and providing such other information and customer liaison services and the
maintenance of accounts as the Distributor or the Fund may reasonably
request. The Distributor will be reimbursed only for quarterly payments
made to each Recipient at a rate not to exceed .0625% (0.25% annually) of
the average during each calendar quarter of the aggregate net asset value
of Class A shares of the Fund, computed as of the close of each business
day, held in accounts of the Recipient or its customers. Any unreimbursed
expenses incurred during any quarter by the Distributor may not be
recovered in later periods. The Fund will not be charged for any interest
expenses, carrying charges or other financial costs, or allocation of
overhead by the Distributor.
The Board has determined that the service fee payable under the Class
A Plan will initially be 0.15% per annum, computed in the manner described
above, which fee may be increased by the Board from time to time to an
annual rate not to exceed 0.25% of the average annual net asset value of
Class A shares of the Fund. The Class A Plan has the effect of increasing
annual expenses of Class A shares of the Fund by up to 0.25% (currently,
0.15%) of the class's average annual net assets from what its expenses
would otherwise be. In addition, the Manager and the Distributor may,
under the Class A Plan, from time to time from their own resources (which,
as to the Manager, may include profits derived from the advisory fee it
receives from the Fund) make payments to Recipients for distribution and
administrative services they perform. For further details, see
"Distribution and Service Plans" in the Additional Statement.
Class B Shares
Class B shares are sold at net asset value per share without the
imposition of a sales charge at the time of purchase.
- Class B Contingent Deferred Sales Charge. A contingent deferred
sales charge (the "Class B CDSC") will be deducted from the redemption
proceeds of Class B shares redeemed within six years of the end of the
calendar month of their purchase (not including shares purchased by
reinvestment of dividends or capital gains). The charge will be assessed
on an amount equal to the lesser of the then current net asset value or
the original purchase price of the Class B shares being redeemed.
Accordingly, no Class B CDSC will be imposed on amounts representing
increases in net asset value above the initial purchase price. In
determining whether a Class B CDSC applies to a redemption, Class B shares
are redeemed in the following order: (1) those acquired pursuant to
reinvestment of dividends or distributions, (2) those held for over six
years, and (3) those held longest during the six year period.
Proceeds from the Class B CDSC are paid to the Distributor to reimburse
it for its expenses related to providing distribution-related services to
the Fund in connection with the sale of Class B shares. The combination
of the Class B CDSC and the distribution fee retained by the Distributor
(as described under "Class B Distribution and Service Plan") facilitate
the sale of Class B shares without a sales charge being deducted at the
time of purchase. Any Class B CDSC required to be imposed on Class B share
redemptions will be assessed according to the following schedule:
Year(s) Since Contingent Deferred
End of Month Sales Charge in That
In Which Purchase Year (as % of
Order Was Accepted Applicable Proceeds)
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 or more None
In the table above, a "year" is a period of twelve months. In
determining the amount of the Class B CDSC that applies and when Class B
shares convert as described in the following paragraph, all purchases
shall be considered as having been made on the first regular business day
of the month in which the purchase was made. The Class B CDSC will be
waived upon the request of the shareholder for redemptions of shares
following the (i) death or (ii) complete disability (as evidenced by a
certificate from the U.S. Social Security Administration) of all persons
individually owning such shares of record and not as fiduciaries or
agents, that occurs since the account was established. In addition, no
CDSC is imposed on shares of the Fund: (1) sold to the Manager or its
affiliates; (2) sold to registered investment companies or separate
accounts of insurance companies having an agreement with the Manager or
the Distributor; (3) issued in plans of reorganization, such as mergers,
asset acquisitions and exchange offers to which the Fund is a party; or
(4) redeemed in Involuntary Redemptions. See "Transfer of Shares" in
"Purchase, Redemption and Pricing of Shares" in the Additional Statement
for further details.
- Class B Conversion Feature. At the end of the month, seventy-two
months after the end of the month in which an investor's purchase order
for Class B shares is accepted, such "Matured Class B shares"
automatically will convert to Class A shares, on the basis of the relative
net asset value of the two classes, without the imposition of any sales
load or other charge. Each time any Matured Class B shares convert to
Class A shares, any Class B shares acquired by the reinvestment of
dividends or distributions on such Matured Class B shares that are still
held will also convert to Class A shares, on the same basis. The
conversion feature is intended to relieve holders of Matured Class B
shares of the asset-based sales charge under the Class B Plan (as defined
below) after such shares have been outstanding long enough that the
Distributor may have been compensated for distribution expenses related
to such shares.
The conversion of Matured Class B shares to Class A shares is subject
to the continuing availability of a private letter ruling from the
Internal Revenue Service, or an opinion of counsel or a tax adviser, to
the effect that the conversion of Matured Class B shares does not
constitute a taxable event for the holder under the Internal Revenue Code.
If such a private letter ruling or opinion is no longer available, the
automatic conversion feature may be suspended, in which event no further
conversions of Matured Class B shares would occur while such suspension
remained in effect. Although Matured 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.
- Class B Distribution and Service Plan. The Fund has adopted a plan
of distribution (the "Class B Plan") under Rule 12b-1 of the Investment
Company Act, pursuant to which it will compensate the Distributor for its
services and costs incurred in connection with the distribution and
service of the Fund's Class B shares. Pursuant to the Class B Plan, the
Fund will pay the Distributor an asset-based sales charge of 0.75% per
annum on Class B shares outstanding for six years or less, plus a service
fee of up to 0.25% per annum (see below), in each case on the average
during the month (as to the asset-based sales charge) and the calendar
quarter (as to the service fee) of the aggregate net asset value of Class
B shares of the Fund computed as of the close of each business day.
Asset-based sales charges and service fees will be paid by the Fund to the
Distributor monthly and quarterly, respectively.
The Distributor will use the service fee payment to compensate
Recipients for providing personal service and the maintenance of
shareholder accounts that hold Class B shares, examples of which are
described above under "Class A Service Plan." Service fee payments by the
Distributor to Recipients will be made (i) in advance for the first year
Class B shares are outstanding, following the purchase of shares, in an
amount up to 0.25% (see below) of the average during the calendar quarter
of the aggregate net asset value of Class B shares, computed as of the
close of each business day, purchased by the Recipient or its customers
and (ii) thereafter, on a quarterly basis, at an annual rate of up to
0.25% (see below) of the average during the calendar quarter of the
aggregate net asset value of the Class B shares, computed as of the close
of each business day, held in accounts of the Recipient or its customers.
The Board of Trustees has determined that the service fee payable under
the Class B Plan shall initially be 0.15% per annum, computed in the
manner described above, which fee may be increased by the Board from time
to time to an annual rate not to exceed 0.25% of the average annual net
assets of Class B shares of the Fund. Other terms and options under the
Class B Plan for payment of the service fee by the Distributor to
Recipients, and other terms and conditions of the Class B Plan are
described under "Distribution and Service Plans" in the Additional
Statement.
The Distributor currently expects to pay sales commissions from its own
resources to authorized dealers or brokers at the time of sale equal to
3.85% of the purchase price of Fund shares sold by such dealer or broker,
and to advance the first year service fee, which is currently 0.15%. The
asset-based sales charge payments by the Fund to the Distributor under the
Class B Plan are intended to allow it to recoup such sales commissions
plus financing costs. The Distributor anticipates that it will take a
number of years to recoup the sales commissions paid to authorized brokers
or dealers from the Fund's payments to the Distributor under the Class B
Plan.
Asset-based sales charge payments are designed to permit an investor
to purchase shares of the Fund without the assessment of a front-end sales
load and at the same time permit the Distributor to compensate brokers and
dealers in connection with the sale of shares of the Fund. Actual
distribution expenses for any given year may exceed the aggregate of
payments received pursuant to the Class B Plan and contingent deferred
sales charges, and such expenses will be carried forward and paid in
future years. The Fund will be charged only for interest expenses,
carrying charges or other financial costs that are directly related to the
carry-forward of actual distribution expenses. For example, if the
Distributor incurred distribution expenses of $4,000,000 in a given fiscal
year, of which $2,000,000 was recovered in the form of contingent deferred
sales charges paid by investors and $1,600,000 was reimbursed in the form
of payments made by the Fund to the Distributor under the Class B Plan,
the balance of $400,000 (plus interest) would be subject to recovery in
future fiscal years from such sources.
The Class B Plan contains a provision which contractually obligates the
Fund to continue payments to the Distributor for certain expenses it
incurred for Class B shares sold prior to termination of the Class B Plan.
If the Class B Plan is terminated, the Distributor is entitled to continue
to receive the asset-based sales charge of 0.75% per annum on Class B
shares sold prior to termination until the Distributor has recovered its
Class B distribution expenses (incurred prior to termination) from such
payments and from the Class B CDSC.
The Fund believes that under applicable accounting standards, its
obligation under the Class B Plan to pay any asset-based sales charges in
future periods is not required to be recognized as a liability. In the
future, if applicable accounting standards should be deemed to require
that obligation to be recognized as a liability, a decrease in the net
asset value per share of Class B shares could result. Were that to occur,
such decrease would affect all Class B shares regardless of how long the
shares were held. Furthermore, Class B shareholders would continue to
remain subject to the Class B CDSC. The accounting treatment of the
Fund's obligations under the Class B Plan for future payments is discussed
in "Distribution and Service Plans" in the Additional Statement. The
accounting standards now used are currently under review by the American
Institute of Certified Public Accountants and it is possible that those
standards will change and that the Class B Plan would be changed as a
result.
The Class B Plan has the effect of increasing annual expenses of Class
B shares of the Fund by up to 1.00% (currently 0.90% as described above)
of the class's average annual net assets from what its expenses would
otherwise be. In addition, the Manager and the Distributor may, under the
Class B Plan, from time to time from their own resources (which, as to the
Manager, may include profits derived from the advisory fee it receives
from the Fund) make payments to Recipients for distribution and
administrative services they perform. For further details, see
"Distribution and Service Plans" in the Additional Statement.
Purchase Programs for Class A and Class B Shares
- AccountLink. OppenheimerFunds AccountLink is a means to link a
shareholder's Fund account with an account at a U.S. bank or other
financial institution that is an Automated Clearing House ("ACH") member.
AccountLink can be used to transmit funds by electronic funds transfers
for account transactions, including subsequent share purchases. The
minimum investment by AccountLink is $25. Purchases of up to $250,000 may
be made by telephone using AccountLink (the maximum is $100,000 if the
transaction is done by PhoneLink, described below). To speak to service
operators to initiate such purchases, call the Distributor at 1-800-852-
8457. All such calls will be recorded. To initiate such purchases
automatically using PhoneLink, call 1-800-533-3310. Shares will be
purchased on the regular business day the Distributor is instructed to
initiate the ACH transfer to buy the shares. Dividends will begin to
accrue on such shares on the day the Fund receives Federal Funds for such
purchase through the ACH system before 4:00 P.M., which is normally three
days after the ACH transfer is initiated. If such Federal Funds are
received after that time, dividends will begin to accrue on the next
regular business day after such Federal Funds are received.
AccountLink may also be used as a means of transmitting redemption
proceeds to a designated bank account (see "How to Redeem Shares") or to
transmit distributions paid by the Fund directly to a bank account (see
"Dividends, Distributions and Taxes - Dividends and Distributions").
AccountLink privileges must be requested on the application used to buy
shares or the dealer settlement instructions establishing the account, or
on subsequent signature-guaranteed instructions to Oppenheimer Shareholder
Services, the Fund's Transfer Agent, from all shareholders of record for
an account, and such privileges thereupon apply to each shareholder of
record and the dealer representative of record unless and until the
Transfer Agent receives written instructions from a shareholder of record
cancelling such privileges. Changes of bank account information must be
made by signature-guaranteed instructions to the Transfer Agent by all
shareholders of record for an account. The Transfer Agent, the Fund and
the Distributor have adopted reasonable procedures to confirm that
telephone instructions under AccountLink (described above) and
"PhoneLink," "Telephone Redemptions" and the "Exchange Privilege"
(described below) are genuine, by requiring callers to provide tax
identification number(s) and other account data and by recording calls and
confirming such transactions in writing. If the Transfer Agent and the
Distributor do not use such procedures, they may be liable for losses due
to unauthorized transactions, but otherwise they will not be responsible
for losses or expenses arising out of telephone instructions reasonably
believed to be genuine. The Fund reserves the right to amend, suspend or
discontinue AccountLink privileges at any time without prior notice.
- PhoneLink. PhoneLink is the OppenheimerFunds automated telephone
system which enables shareholders of the Fund to initiate account
transactions automatically by telephone, including exchanges between
existing accounts (see "Exchange Privilege," below), redemptions (see "How
to Redeem Shares - Telephone Redemptions," below) and purchases (see
"AccountLink," above). PhoneLink transactions may be done automatically
using a touchtone telephone provided that the shareholder uses a Personal
Identification Number ("PIN") which may be obtained through PhoneLink by
calling 1-800-533-3310. If an account has multiple owners, the Transfer
Agent or the Distributor may rely on any instructions initiated through
PhoneLink using a PIN. The Fund reserves the right to amend, suspend or
discontinue PhoneLink privileges at any time without prior notice.
- Asset Builder Plans. Investors may purchase shares of the Fund (and
up to four other Eligible Funds) automatically under Asset Builder Plans.
With AccountLink, Asset Builder Plans may be used to make regular monthly
investments ($25 minimum) from the investor's account at a bank or other
financial institution. See "AccountLink" above for details. To establish
an Asset Builder Plan from a bank account, a check (minimum $25) for the
initial purchase must accompany the application. Shares purchased by Asset
Builder Plan payments from bank accounts are subject to the redemption
restrictions for recent purchases described in "How to Redeem Shares."
Asset Builder Plans also enable shareholders of Oppenheimer Tax-Exempt
Cash Reserves or Oppenheimer Cash Reserves to use those accounts for
monthly automatic purchases of shares of the Fund and up to four other
Eligible Funds.
There is a sales charge on the purchase of certain Eligible Funds, and
an application should be obtained from the Transfer Agent and completed
and a prospectus of the selected fund(s) (available from the Distributor)
should be obtained before initiating payments. The amount of the Asset
Builder investment may be changed or the automatic investments terminated
at any time by writing to the Transfer Agent. A reasonable period
(approximately 15 days) is required after receipt of such instructions to
implement them. The Fund reserves the right to amend, suspend, or
discontinue offering such plans at any time without prior notice.
How to Redeem Shares
Regular Redemption Procedures
To redeem some or all shares in an account (whether or not represented
by certificates) under the Fund's regular redemption procedures, a
shareholder must send the following items to the Transfer Agent,
Oppenheimer Shareholder Services, P.O. Box 5270, Denver, Colorado 80217
(send courier or express mail deliveries to 10200 E. Girard Avenue,
Building D, Denver, Colorado 80231): (1) a written request for redemption
signed by all registered owners exactly as the shares are registered,
including fiduciary titles, if any, and specifying the account number and
the dollar amount or number of shares to be redeemed; (2) a guarantee of
the signatures of all registered owners on the redemption request or on
the endorsement on the share certificate or accompanying stock power, by
a U.S. bank, trust company, credit union or savings association, or a
foreign bank having 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, registered
securities association or clearing agency; (3) any share certificates
issued for any of the shares to be redeemed; and (4) any additional
documents which may be required by the Transfer Agent for redemption by
corporations, partnerships or other organizations, executors,
administrators, trustees, custodians, guardians, or if the redemption is
requested by anyone other than the shareholder(s) of record, or to
demonstrate eligibility for waivers of the Class B CDSC on the grounds of
age or disability. Transfers of shares are subject to similar
requirements.
A signature guarantee is not required for redemptions of $50,000 or
less, requested by and payable to all shareholders of record, to be sent
to the address of record for that account. To avoid delay in redemption
or transfer, shareholders having questions about these requirements should
contact the Transfer Agent in writing or by calling 1-800-525-7048 before
submitting a request. From time to time the Transfer Agent in its
discretion may waive any or certain of the foregoing requirements in
particular cases. Redemption or transfer requests will not be honored
until the Transfer Agent receives all required documents in proper form.
Shareholders owning shares of both classes must specify whether they
intend to redeem Class A or Class B shares.
Telephone Redemptions
To redeem shares by telephone through a service representative, call
the Transfer Agent at 1-800-852-8457. To use PhoneLink to redeem shares
automatically, without a service representative, call 1-800-533-3310.
Under either method of telephone redemptions, proceeds may be paid by
check or through AccountLink as described below. The Transfer Agent may
record any calls. Telephone redemptions may not be available if all lines
are busy, and shareholders would have to use the Fund's regular redemption
procedures described above. Requests received by the Transfer Agent prior
to 4:00 P.M. on a regular business day will be processed at the net asset
value per share determined that day. Telephone redemption privileges are
not available for newly-purchased (within the prior 15 days) shares, or
for shares represented by certificates.
Telephone redemption privileges apply automatically to each shareholder
and the dealer representative of record unless the Transfer Agent receives
cancellation instructions from a shareholder of record. If an account has
multiple owners, the Transfer Agent may rely on the instructions of any
one owner. Telephone redemption privileges may be amended, suspended or
discontinued by the Fund at any time without prior notice.
- Telephone Redemptions Paid by Check. For redemption proceeds paid
by check, amounts up to $50,000 may be redeemed by telephone, once in each
seven-day period. The check must be payable to the shareholder(s) of
record and sent to the address of record for the account. Telephone
redemptions paid by check are not available within 30 days of a change of
the address of record.
- Redemptions Paid Through AccountLink. If AccountLink privileges have
been established for an account, any amount may be redeemed by telephone,
wire or written instructions to the Transfer Agent, and the ACH transfer
of the redemption proceeds to the designated bank account normally will
be initiated by the Transfer Agent on the next bank business day after the
redemption. There are no dollar or frequency limitations on telephone
redemptions sent to a designated bank account through AccountLink. No
dividends are paid on the proceeds of redeemed shares awaiting transmittal
by ACH transfer. See "AccountLink" under "Purchase Programs for Class A
and Class B Shares" for instructions on establishing this privilege.
Check Writing
Upon request, the Transfer Agent will provide shareholders whose shares
are not represented by certificates with forms of drafts ("checks")
payable through a bank selected by the Fund (the "Bank"). Check writing
privileges are not available for accounts holding Class B shares or Class
A shares subject to a CDSC. Checks may be written by the shareholder in
any amount not less than $100, payable to the order of anyone, and will
be subject to the Bank's rules and regulations governing checks. A check
should not be written in an amount close to the total value of the account
because the Fund's net asset value fluctuates from day to day. If a check
is presented for an amount greater than the account value, it will not be
paid. The Fund will charge a handling fee of $10 for any check that is
not paid at the request of the shareholder or because of an insufficient
share balance or because the check was written for less than the stated
minimum. The Transfer Agent will arrange for checks to be honored by the
Bank after obtaining a specimen signature card from the shareholder(s).
Shareholders of joint accounts may elect to have checks honored with a
single signature. Checks issued for one account in the Fund must not be
used if the shareholder's account has been transferred to a new account
or if the account number or registration has changed. Shares purchased
by check or Asset Builder payments within the prior 15 days may not be
redeemed by Check Writing. A check that would require the redemption of
some or all of the shares so purchased is subject to non-payment.
The Bank will present checks to 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 procedure enables the shareholder to continue
receiving dividends on those shares equalling the amount being redeemed
by check until such time as the check is presented to the Fund. Checks may
not be presented for payment at the office of the Bank or the Fund's
Custodian. This limitation does not affect the use of checks for the
payment of bills or cashing at other banks. The Fund reserves the right
to amend, suspend or discontinue this privilege at any time without prior
notice.
Automatic Withdrawal and Exchange Plans
Investors owning shares of the Fund valued at $5,000 or more can
authorize the Transfer Agent to redeem shares (minimum $50) automatically
on a monthly, quarterly, semi-annual or annual basis under an Automatic
Withdrawal Plan. Shares will be redeemed three business days prior to the
date requested by the shareholder for receipt of the payment. Automatic
withdrawals of up to $1,500 per month may be requested by telephone if
payments are by check payable to all shareholders of record and sent to
the address of record for the account (and if the address has not been
changed within the prior 30 days). Payments are normally made by check,
but shareholders having AccountLink privileges (see "How to Buy Shares")
may arrange to have Automatic Withdrawal Plan payments transferred to the
bank account designated on the OppenheimerFunds New Account Application
or signature-guaranteed instructions. The Fund cannot guarantee receipt
of the payment on the date requested and reserves the right to amend,
suspend or discontinue offering such plans at any time without prior
notice. Because of the sales charge assessed on share purchases,
shareholders should not make regular additional purchases while
participating in an Automatic Withdrawal Plan. Class B shareholders
normally should not establish withdrawal plans because of the imposition
of the Class B CDSC on such withdrawals (except where the Class B CDSC is
waived as described in "Class B Contingent Deferred Sales Charge"). For
further details, refer to "Automatic Withdrawal Plan Provisions" in the
Additional Statement.
Shareholders can also authorize the Transfer Agent to exchange a
pre-determined amount of shares of the Fund for shares of up to five other
"Eligible Funds" (minimum purchase is $25 per fund account) automatically
on a monthly, quarterly, semi-annual or annual basis under an Automatic
Exchange Plan. Exchanges made pursuant to such Plans are otherwise subject
to the conditions and terms applicable to exchanges described in "Exchange
Privilege" below.
Repurchase
The Distributor is the Fund's agent to repurchase its shares from
authorized dealers or brokers. The repurchase price will be the net asset
value next computed after the receipt of an order placed by such dealer
or broker, except that orders received by the Distributor from dealers or
brokers after 4:00 P.M. on a regular business day will be processed at
that day's net asset value if such orders are received by the dealer or
broker from its customers prior to 4:00 P.M. and are transmitted to and
are received by the Distributor prior to its close of business that day
(normally 5:00 P.M.). Payment ordinarily will be made within seven days
after the Distributor's receipt of the required documents, with
signature(s) guaranteed as described above.
Reinvestment Privilege
Within six months of a redemption of Class A shares or Class B shares
on which a Class B CDSC was paid, the investor may reinvest all or part
of the redemption proceeds in Class A shares of the Fund or any of the
Eligible Funds into which shares of the Fund are exchangeable as described
below. The reinvestment price will be the net asset value next computed
after the Transfer Agent receives the reinvestment order, and will not be
subject to a sales charge, but only if the reinvestment order requests
this privilege. A realized gain on the redemption is taxable, and the
reinvestment will not alter any capital gains tax payable on that gain.
If there has been a loss on the redemption, some or all of the loss may
not be tax deductible, depending on the timing and amount reinvested in
the Fund. 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 Eligible Fund within 90 days of payment of the sales
charge, the shareholder's basis in the Fund shares redeemed may not
include the amount of the sales charge paid, thereby reducing the loss or
increasing the gain recognized from the redemption. 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.
General Information on Redemptions
The redemption price will be the net asset value per share of the class
next determined after the Transfer Agent receives redemption instructions
in proper form. The market value of the securities in the Fund's portfolio
is subject to daily fluctuations and the net asset value of each class of
the Fund's shares will fluctuate accordingly. Therefore, the redemption
value may be more or less than the investor's cost. Under certain unusual
circumstances, shares may be redeemed in kind (i.e., by payment in
portfolio securities). Under certain circumstances, the Fund may
involuntarily redeem small accounts (if the value of the account has
fallen below $200 for reasons other than market value fluctuations) and
may redeem shares in amounts sufficient to compensate the Distributor for
any loss due to cancellation of a share purchase order; for details, see
"Purchase, Redemption and Pricing of Shares" in the Additional Statement.
Under the Internal Revenue Code, the Fund may be required to impose
"backup" withholding of Federal income tax at the rate of 31% from taxable
dividends, distributions and redemption proceeds (including exchanges),
if the shareholder has not furnished the Fund a certified tax
identification number or has not complied with provisions of the Internal
Revenue Code relating to reporting dividends.
Payment for redeemed shares is made ordinarily in cash and forwarded
within seven days of the Transfer Agent's receipt of redemption
instructions in proper form, except under unusual circumstances as
determined by the SEC. The Transfer Agent may delay forwarding a
redemption check for recently purchased shares only until the purchase
payment has cleared, which may take up to 15 days or more from the
purchase date. Such delay may be avoided if the shareholder arranges
telephone or written assurance satisfactory to the Transfer Agent from the
bank on which the purchase payment was drawn. The Fund makes no charge
for redemption. Dealers or brokers may charge a fee for handling
redemption transactions, but such charge can be avoided by requesting the
redemption directly by the Fund through the Transfer Agent. Under certain
circumstances, the Class A and Class B CDSCs described under "How to Buy
Shares" may apply to the proceeds of redemptions.
Exchanges of Shares
Exchange Privilege
Shares of the Fund and of the other Eligible Funds listed under "Right
of Accumulation" may be exchanged at net asset value per share at the time
of exchange, without sales charge, if all of the following conditions are
met: (1) shares of the fund selected for exchange are available for sale
in the shareholder's state of residence; (2) the respective prospectuses
of the funds the shares of which are to be exchanged and acquired offer
the Exchange Privilege to the investor; (3) newly-purchased (by initial
or subsequent investment) shares are held in an account for at least seven
days and all other shares at least one day prior to the exchange; and (4)
the aggregate net asset value of shares surrendered for exchange is at
least equal to the minimum investment requirements of the fund the shares
of which are to be acquired.
In addition to the conditions stated above, shares of a particular
class of an Eligible Fund may be exchanged only for shares of the same
class of another Eligible Fund. If a fund has only one class of shares
that is not otherwise denominated, its shares shall be considered "Class
A" shares for this purpose. Certain of the Eligible Funds offer Class A,
Class B and/or Class C shares, and a list can be obtained by calling the
Distributor at 1-800-525-7048, or by referring to "Purchase, Redemption
and Pricing of Shares" in the Additional Statement. Funds offering Class
C shares are referred to, as a group, as the "OppenheimerFunds Advisors
Portfolio." In addition, Class A shares of Eligible Funds may be
exchanged for shares of any Money Market Fund; shares of any Money Market
Fund purchased without a sales charge may be exchanged for shares of
Eligible Funds offered with a sales charge upon payment of the sales
charge or, if applicable, may be used to purchase shares of Eligible Funds
subject to a CDSC; and shares of the Fund acquired by reinvestment of
dividends or distributions from any other Eligible Fund 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
Eligible Fund. No CDSC is imposed on exchanges of shares of either class
purchased subject to a CDSC. However, when Class A shares acquired by
exchange of Class A shares purchased subject to a Class A CDSC 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 CDSC is imposed on
the redeemed shares (see "Class A Contingent Deferred Sales Charge,"
above), and the Class B CDSC is imposed on Class B shares redeemed within
six years of the end of the calendar month of the initial purchase of the
exchanged Class B shares (see "Class B Contingent Deferred Sales Charge,"
above).
- How to Exchange Shares. An exchange may be made by either (1)
submitting an OppenheimerFunds Exchange Authorization Form to the Transfer
Agent, signed by all registered owners, or (2) telephone exchange
instructions to the Transfer Agent by a shareholder or the dealer
representative of record for an account. The Fund may modify, suspend or
discontinue either of these exchange privileges at any time on 60 days'
notice if such notice is required by regulations adopted under the
Investment Company Act. The Fund reserves the right to reject telephone
or written requests submitted in bulk on behalf of 10 or more accounts.
Telephone and written exchange requests must be received by the Transfer
Agent by 4:00 P.M. on a regular business day to be effected that day. The
number of shares exchanged may be less than the number requested if the
number requested would include shares subject to a restriction cited above
or shares covered by a certificate that is not tendered with such request.
Only the shares available for exchange without restriction will be
exchanged.
When Class B shares are redeemed to effect an exchange, the priorities
described in "How to Buy Shares" for the imposition of the Class B CDSC
for redeeming such shares will be followed in determining the order in
which shares are exchanged. Shareholders should take into account the
effect of any exchange on the applicability and rate of any CDSC that may
be imposed in the subsequent redemption of remaining shares. Shareholders
owning shares of both classes must specify whether they intend to exchange
Class A or Class B shares.
- Telephone Exchanges. Telephone exchange requests may be placed
through a service representative by calling the Transfer Agent at
1-800-852-8457 or automatically by PhoneLink, by calling 1-800-533-3310.
If all telephone exchange lines are busy (which might occur, for example,
during periods of substantial market fluctuations), shareholders might not
be able to request telephone exchanges and would have to submit written
exchange requests. Telephone exchange calls may be recorded by the
Transfer Agent. Telephone exchanges are subject to the rules described
above. By exchanging shares by telephone, the shareholder is
acknowledging receipt of a prospectus of the fund to which the exchange
is made and that for full or partial exchanges, any special account
features such as Asset Builder Plans and Automatic Withdrawal or Exchange
Plans will be switched to the new account unless the Transfer Agent is
otherwise instructed. Telephone exchange privileges automatically apply
to each shareholder of record and the dealer representative of record
unless and until the Transfer Agent receives written instructions from a
shareholder of record cancelling such privileges. If an account has
multiple owners, the Transfer Agent may rely on the instructions of any
one owner. The Transfer Agent reserves the right to require shareholders
to confirm in writing their election of telephone exchange privileges for
an account. Shares acquired by telephone exchange must be registered
exactly as the account from which the exchange was made. Certificated
shares are not eligible for telephone exchange.
- General Information on Exchanges. 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 in its discretion reserves the right to
refuse any exchange request that will disadvantage it, for example, if the
receipt of multiple exchange requests from a dealer might require the
disposition of securities at a time or at a price disadvantageous to the
Fund.
The Eligible Funds have different investment objectives and policies.
For complete information, including sales charges and expenses, a
prospectus of the fund into which the exchange is being made should be
read prior to an exchange. A $5 service charge will be deducted from the
account to which the exchange is made to help defray administrative costs.
That charge is waived for telephone exchanges made by PhoneLink between
existing accounts. Dealers or brokers who process exchange orders on
behalf of customers may charge for their services. Those charges may be
avoided by requesting the Fund directly to exchange shares. For Federal
tax purposes an exchange is treated as a redemption and purchase of shares
(see "How to Redeem Shares - Reinvestment Privilege" for a discussion
of certain tax effects of exchanges). No sales commissions are paid by the
Distributor on exchanges of shares (unless a front-end sales charge is
assessed on the exchange).
Dividends, Distributions and Taxes
This discussion relates solely to Federal tax laws and New Jersey
income tax laws and is not exhaustive; a qualified tax adviser should be
consulted. A portion of the Fund's dividends and distributions may be
subject to Federal and state taxation. Information about the possible
applicability of Alternative Minimum Tax to the Fund's dividends is
contained in "Investment Objective and Policies - Private Activity
Municipal Securities" in the Additional Statement. See "Performance and
Tax Information" in the Additional Statement for further discussion of tax
matters affecting the Fund and its distributions.
Dividends and Distributions
The Fund intends to declare dividends separately for both Class A and
Class B shares from net investment income, if any, on each regular
business day and to pay such dividends monthly. Dividends, if any, for
both classes of shares will normally be paid on or about the tenth
business day of each month (or such other day as the Board may determine).
The amount of a class's distributions may vary from time to time depending
upon market conditions, the composition of the Fund's portfolio, and
expenses borne by the Fund, or borne separately by that class, as
described under "Dual Class Methodology" in the Additional Statement.
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 on Class A shares on a pro rata basis as a
result of the asset-based sales charge on Class B shares, and such
dividends will also differ in amount as a consequence of any difference
between the net asset values of Class A and Class B shares.
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." An investor purchasing Fund shares immediately prior
to the declaration of a dividend or capital gain distribution, which has
the effect of reducing the fund's net asset value per share by the amount
of the dividend or distribution, should consider the tax consequences of
receiving such distribution. Daily dividends on newly purchased shares
will not be declared or paid until such time as Federal Funds (funds
credited to a member bank's account at the Federal Reserve Bank) are
available from the purchase payment for such shares. Normally, purchase
checks received from investors are converted to Federal Funds on the next
business day. Dividends will be declared on shares repurchased by a dealer
or broker for four business days following the trade date (i.e., to and
including the day prior to settlement of the repurchase). If all shares
in an account are redeemed, all dividends accrued on shares of the same
class in the account will be paid together with the redemption proceeds.
The Manager has currently undertaken to assume the Fund's expenses to the
extent required to enable the Fund to pay dividends on each Class A share
at a targeted level. Any assumption of the Fund's expenses will lower the
Fund's overall expense ratio and increase its total return during any
period in which expenses are limited. There can be no assurance as to the
payment of any dividends or the realization of any capital gains, and the
practice of maintaining a targeted dividend level and the amount thereof
may be change by the Board at any time without prior notice to
shareholders.
Distributions from net realized short-term or long-term capital gains,
if any, will be paid at least once each year. If net capital losses are
realized in any year, they are charged against principal and not against
net investment income, which is distributed regardless of capital gains
or losses. Long-term gains, if any, will be identified separately when
tax information is distributed. Receipt of tax-exempt income must be
reported on the taxpayer's Federal income tax return.
All dividends and capital gains distributions are automatically
reinvested in shares of the same class at net asset value, as of a date
selected by the Board, unless the shareholder notifies the Transfer Agent
in writing to pay dividends and capital gains distributions in cash, or
to reinvest them in another Eligible Fund, as described in "Additional
Information" in the Additional Statement. That request must be received
prior to the record date for a dividend to be effective as to that
dividend. Dividends and distributions may be automatically transferred
to a designated account at a financial institution. See "AccountLink" in
"How to Buy Shares" and the OppenheimerFunds New Account Application for
more details. For existing accounts, such privileges may be established
only by signature-guaranteed instructions from all shareholders to the
Transfer Agent. 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 are reinvested in shares of
Oppenheimer Money Market Fund, Inc., 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.
Tax Status of the Fund's Dividends and Distributions
The Fund intends to qualify under the Internal Revenue Code during each
fiscal year to pay "exempt-interest dividends" to its shareholders.
Exempt-interest dividends which are derived from net investment income
earned by the Fund on Municipal Securities will be excludable from gross
income of shareholders for Federal income tax purposes. See "Tax Status
of the Fund" below and in the Additional Statement.
Such exempt-interest dividends, to the extent attributable to interest
from New Jersey Municipal Securities, also will not be included as gross
income under the New Jersey Gross Income Tax Act provided that the Fund
qualifies as a "qualified investment fund" under New Jersey law. In
addition, if the Fund so qualifies, distributions attributable to gains
from New Jersey Municipal Securities and gains or income derived from the
redemption of Fund shares attributable to New Jersey Municipal Securities
will also be exempt from New Jersey personal income taxes. To qualify as
a qualified investment fund, the Fund must (i) have not less than 80% of
the aggregate principal amount of all of its investments (excluding
financial options, futures, forward contracts and similar financial
instruments relating to interest-bearing obligations, obligations issued
at a discount or bond indexes related thereto, cash and cash items
(including receivables)) invested in New Jersey Municipal Securities at
the close of each quarter of the tax year and (ii) not have any
investments other than interest-bearing obligations, obligations issued
at a discount, cash and cash items (including receivables) and financial
options, futures, forward contracts, or other similar financial
instruments related to interest-bearing obligations, obligations issued
at a discount or bond indexes related thereto. The Fund intends to
qualify as a qualified investment fund. In the event the Fund does not
so qualify, none of the Fund's distributions for the entire tax year will
qualify for tax-exempt status under New Jersey law. For New Jersey gross
income tax purposes, distributions by the Fund derived from income or net
gains on investments other than New Jersey Municipal Securities will be
taxable as ordinary income, whether paid in cash or reinvested.
Shareholders subject to income taxation by states other than New Jersey
will realize a lower after-tax rate of return than New Jersey shareholders
since the dividends distributed by the Fund generally will not be exempt,
to any significant degree, from income taxation by such other states.
Exempt-interest dividends paid to a corporate shareholder will be subject
to New Jersey corporation business (franchise) tax and the New Jersey
corporation income tax.
Net investment income includes the allocation of amounts of income from
the Municipal Securities in the Fund's portfolio which are free from
Federal income taxes. This allocation will be made by the use of one
designated percentage applied uniformly to all income dividends made
during the Fund's tax year. Such designation will normally be made
following the end of each fiscal year as to income dividends paid in the
prior year. The percentage of income designated as tax-exempt may
substantially differ from the percentage of the Fund's income that was
tax-exempt for a given period. A portion of the exempt-interest dividends
paid by the Fund may be an item of tax preference for shareholders subject
to the alternative minimum tax. Corporate shareholders and "substantial
users" of facilities financed by Private Activity Municipal Securities
should see "Private Activity Municipal Securities" in the Additional
Statement before purchasing shares.
For Federal income tax purposes, a shareholder receiving a dividend
from income earned by the Fund from one or more of (i) certain taxable
temporary investments, (ii) income from securities loans, (iii) income or
gains from Hedging Instruments, and (iv) an excess of net short-term
capital gain over net long-term capital loss from the Fund, treats the
dividend as a receipt of either ordinary income or long-term capital gain
in the computation of gross income, regardless of whether the dividend is
reinvested. The Fund's dividends will not be eligible for the dividends-
received deduction for corporations. Shareholders receiving Social
Security benefits should be aware that exempt-interest dividends are a
factor in determining whether such benefits are subject to Federal income
tax. Losses realized by shareholders on the redemption of Fund shares
within six months of purchase (which period may be shortened by
regulation) will be disallowed for Federal income tax purposes to the
extent of exempt-interest dividends received on such shares.
For Federal income tax purposes, all Fund distributions other than
exempt-interest dividends will be taxable to shareholders as ordinary
income, whether received in cash or reinvested, except that long-term
capital gains distributions, if any, are taxable as long-term capital
gains whether received in cash or reinvested and regardless of how long
Fund shares have been held. For information on "backup withholding" on
taxable dividends, see "How to Redeem Shares." Under the Internal Revenue
Code, interest on loans used to purchase shares of the Fund may not be
deducted for Federal income tax purposes. Under rules used by the
Internal Revenue Service to determine when borrowed funds are deemed used
for the purpose of purchasing or carrying particular assets, the purchase
of Fund shares may be considered to have been made with borrowed funds
even though the borrowed funds are not directly traceable to the purchase
of shares.
Tax Status of the Fund
If the Fund qualifies as a "regulated investment company" under the
Internal Revenue Code, it will not be liable for Federal income taxes on
amounts paid by it as dividends and distributions. The Fund intends to
qualify in current and future fiscal years, but reserves the right not to
do so. The Internal Revenue Code contains a number of complex tests
relating to qualification which the Fund might not meet in any particular
year. For example, if the Fund derives 30% or more of its gross income
from the sale of securities held less than three months, it may fail to
qualify (see "Performance and Tax Information" in the Additional Statement
for more information). If it did not qualify, the Fund would be treated
for tax purposes as an ordinary corporation, would receive no tax
deduction for distributions paid to shareholders and would be unable to
pay "exempt-interest dividends" as discussed above.
Fund Performance Information
Yield and Total Return Information
From time to time the "standardized yield," "tax-equivalent yield,"
"dividend yield," "average annual total return," "total return" and "total
return at net asset value" of an investment in each class of shares of the
Fund may be advertised. Under rules adopted by the SEC, "yield" is
computed in a standardized manner for mutual funds, by dividing the net
investment income per share earned during a 30-day base period by the
maximum offering price per share on the last day of the period. This
yield calculation is compounded on a semi-annual basis, and multiplied by
2 to provide an annualized yield. "Tax-equivalent yield" is determined
by dividing that portion of the "yield" of each class (calculated as
described above) that is tax-exempt by a factor that includes the
applicable income tax rate (after adjusting for any portion of the Fund's
yield that is not tax-exempt). The "tax- equivalent yield" is then
compounded and annualized in the same manner as yield. The "dividend
yield" of shares of a class represents dividends derived from net
investment income during a stated period divided by the maximum offering
price on the last day of the period, to show the rate of return based on
actual distributions paid to shareholders of that class.
Total return is the change in value of a hypothetical investment in a
class of shares of the Fund over a given period, assuming that all
dividends and capital gains distributions are reinvested. The cumulative
total return measures the change in value over the entire period (for
example, ten years). An average annual total return shows the average rate
of return for each year in a period that would produce the cumulative
total return over the entire period. However, average annual total
returns do not show the actual year-by-year performance of a class of
shares. When total returns are quoted for Class A shares, they reflect
the payment of the maximum initial sales charge. Total returns may be
quoted at "net asset value," without considering the sales charge, and
those returns would be reduced if sales charges were deducted. When total
returns are shown for Class B shares, they reflect the effect of the
contingent deferred sales charge that applies to the period for which the
total return is shown, or else they may be shown based on the change in
net asset value without considering the sales charge. All total returns
are based on historical earnings and are not intended to predict future
performance. The Additional Statement contains more information about the
calculation of the performance data used by the Fund.
Yields and returns are based on historical per share earnings and are
not intended to indicate future performance. Yields and returns are
calculated separately and will differ for shares of each class, and the
higher anticipated expenses of Class B shares should result in shares of
that class having lower yields than Class A shares for the same period of
time. "Performance and Tax Information" in the Additional Statement
contains more detailed information on calculating the Fund's yields and
returns, and other performance information.
Additional Information
Description of the Fund and Its Shares
The Fund was organized on December 9, 1993 as a series of the Trust,
a Massachusetts business trust. The Trust is an open-end, diversified
management investment company with an unlimited number of authorized
shares of beneficial interest. Each of the three series of the Trust
issues its own shares, has its own investment portfolio , and its own
assets and liabilities. Shares of a series of the Trust may be divided
by the Board, without shareholder approval, into two or more classes, each
having its own dividends, distributions and expenses. Each class may have
a different net asset value per share. The Fund currently has two classes
of shares, Class A and Class B.
Each share has one vote at shareholder meetings, with fractional shares
voting proportionally. Shares of a class vote together as a single class
on matters that affect only that class. Shares are freely transferrable.
Although the Fund is not required by law to hold annual meetings, it may
hold meetings from time to time on important matters, and shareholders
have the right to call a meeting to elect or remove Trustees or to take
other action described in the Declaration of Trust. Shares do not have
cumulative voting rights or preemptive or subscription rights. Although
the Declaration of Trust states that when issued, shares are fully-paid
and nonassessable, shareholders may be held personally liable as
"partners" for the Trust's obligations; however, the risk of a shareholder
incurring any financial loss is limited to the relatively remote
circumstances in which the Trust is unable to meet its obligations. See
"Additional Information" in the Additional Statement for details.
The Custodian and the Transfer Agent
The Custodian of the assets of the Fund is Citibank, N.A. The Manager
and its affiliates presently have banking relationships with the
Custodian. See "Additional Information" in the Additional Statement for
further details. The Fund's cash balances in excess of $100,000 held by
the Custodian are not protected by Federal deposit insurance. Such
uninsured balances at times may be substantial.
The Transfer Agent, a division of the Manager, acts as transfer agent
and shareholder servicing agent on an at-cost basis for the Fund and
certain other open-end funds advised by the Manager, and as transfer agent
for unit investment trusts for the accumulation of shares of one of such
funds. Shareholder inquiries should be directed to the Transfer Agent at
the address or toll-free phone number listed on the back cover of this
Prospectus.
<PAGE>
Investment Adviser
Oppenheimer Management Corporation
Two World Trade Center
New York, New York 10048-0203
Distributor
Oppenheimer Funds Distributor, Inc.
Two World Trade Center
New York, New York 10048-0203
Transfer and Shareholder Servicing Agent
Oppenheimer Shareholder Services
P.O. Box 5270
Denver, Colorado 80217
1-800-525-7048
Custodian of Portfolio Securities
Citibank, N.A.
399 Park Avenue
New York, New York 10043
Independent Auditors
KPMG Peat Marwick
707 Seventeenth Street
Denver, Colorado 80202
Legal Counsel
Gordon Altman Butowsky
Weitzen Shalov & Wein
114 West 47th Street
New York, New York 10036
No dealer, salesperson or any other person has been authorized to give any
information or to make any representations other than those contained in
this Prospectus or the Additional Statement, and if given or made, such
information and representations must not be relied upon as having been
authorized by the Fund, Oppenheimer Management Corporation, Oppenheimer
Funds Distributor, Inc., or any affiliate thereof. This Prospectus does
not constitute an offer to sell or a solicitation of an offer to buy any
of the securities offered hereby in any state to any person to whom it is
unlawful to make such an offer in such state.
PR395(3/94) Printed on recycled paper
<PAGE>
Prospectus
OPPENHEIMER
New Jersey
Tax-Exempt
Fund
Effective March 1, 1994
(OppenheimerFunds Logo)
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
OPPENHEIMER NEW JERSEY TAX-EXEMPT FUND
Two World Trade Center, New York, New York 10048-0203
1-800-525-7048
This Statement of Additional Information (the "Additional Statement")
is not a Prospectus. This Additional Statement should be read together
with the Prospectus dated March 1, 1994 (the "Prospectus") of Oppenheimer
New Jersey Tax-Exempt Fund (the "Fund"), which may be obtained upon
written request to Oppenheimer Shareholder Services (the "Transfer
Agent"), P.O. Box 5270, Denver, Colorado 80217-5270 or by calling the
Transfer Agent at the toll free number shown above.
TABLE OF CONTENTS
Page
Investment Objective and Policies. . . . . . . . . . . . . . . . . 2
Special Investment Methods . . . . . . . . . . . . . . . . . . . . 8
Investment Restrictions. . . . . . . . . . . . . . . . . . . . . . 14
Trustees and Officers. . . . . . . . . . . . . . . . . . . . . . . 15
Investment Management Services . . . . . . . . . . . . . . . . . . 18
Purchase, Redemption and Pricing of Shares . . . . . . . . . . . . 20
Distribution and Service Plans . . . . . . . . . . . . . . . . . . 23
Performance and Tax Information. . . . . . . . . . . . . . . . . . 25
Additional Information . . . . . . . . . . . . . . . . . . . . . . 28
Automatic Withdrawal Plan Provisions . . . . . . . . . . . . . . . 29
Letters of Intent. . . . . . . . . . . . . . . . . . . . . . . . . 30
Appendix A: Description of Ratings . . . . . . . . . . . . . . . . A-1
Appendix B: Tax-Equivalent Yield Table . . . . . . . . . . . . . . B-1
This Additional Statement is effective March 1, 1994.
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
The investment objective and policies of the Fund are described in
the Prospectus. Supplemental information about those policies is set forth
below. Certain capitalized terms used in this Additional Statement and
not otherwise defined herein are defined in the Prospectus.
The Fund will not make investments with the objective of seeking
capital growth. However, the value of the securities held by the Fund may
be affected by changes in general interest rates. Because the current
value of debt securities varies inversely with changes in prevailing
interest rates, if interest rates increase after a security is purchased,
that security would normally decline in value. Conversely, should
interest rates decrease after a security is purchased, its value would
normally rise. Thus, the Fund may realize a capital gain or loss upon
disposition of a portfolio security.
There are, of course, variations in Municipal Securities, both within
a particular classification and between classifications, depending on
numerous factors. The yields of Municipal Securities depend on, among
other things, general market conditions, general conditions of the
Municipal Securities market, the size of a particular offering, the
maturity of the obligation and the rating of the issue. The market value
of Municipal Securities will vary as a result of changing evaluations of
the ability of their issuers to meet interest and principal payments, as
well as changes in the interest rates payable on new issues of Municipal
Securities.
Municipal Securities. The types of Municipal Securities in which the Fund
may invest are described in the Prospectus under "The Fund and Its
Investment Policies." A discussion of the general characteristics of
types of Municipal Securities follows.
Municipal Bonds. The principal classifications of long-term
municipal bonds are "general obligation" and "revenue" or "industrial
development" bonds.
General Obligation Bonds. Issuers of general obligation
bonds include states, counties, cities, towns, and regional districts.
The proceeds of these obligations are used to fund a wide range of public
projects, including construction or improvement of schools, highways and
roads, and water and sewer systems. The basic security behind general
obligation bonds is the issuer's pledge of its full faith and credit and
taxing power for the payment of principal and interest. The taxes that
can be levied for the payment of debt service may be limited or unlimited
as to the rate or amount of special assessments.
Revenue Bonds. The principal security for a revenue bond is
generally the net revenues derived from a particular facility, group of
facilities, or, in some cases, the proceeds of a special excise or other
specific revenue source. Revenue bonds are issued to finance a wide
variety of capital projects including: electric, gas, water and sewer
systems; highways, bridges, and tunnels; port and airport facilities;
colleges and universities; and hospitals. Although the principal
security behind these bonds may vary, many provide additional security in
the form of a debt service reserve fund whose money may be used to make
principal and interest payments on the issuer's obligations. Housing
finance authorities have a wide range of security, including partially or
fully insured mortgages, rent subsidized and/or collateralized mortgages,
and/or the net revenues from housing or other public projects. Some
authorities provide further security in the form of a state's ability
(without obligation) to make up deficiencies in the debt service reserve
fund.
Industrial Development Bonds. Industrial development bonds,
which are considered municipal bonds if the interest paid is exempt from
federal income tax, are issued by or on behalf of public authorities to
raise money to finance various privately operated facilities for business
and manufacturing, housing, sports, and pollution control. These bonds
are also used to finance public facilities such as airports, mass transit
systems, ports, and parking. The payment of the principal and interest
on such bonds is dependent solely on the ability of the facility's user
to meet its financial obligations and the pledge, if any, of real and
personal property so financed as security for such payment.
Municipal Notes. Municipal Securities having a maturity when issued
of less than one year are generally known as municipal notes. Municipal
notes generally are used to provide for short-term working capital needs
and include:
Tax Anticipation Notes. Tax anticipation notes are issued to
finance working capital needs of municipalities. Generally, they are
issued in anticipation of various seasonal tax revenue, such as income,
sales, use of business taxes, and are payable from these specific future
taxes.
Revenue Anticipation Notes. Revenue anticipation notes are
issued in expectation of receipt of other types of revenue, such as
federal revenues available under the Federal revenue sharing programs.
Bond Anticipation Notes. Bond anticipation notes are issued to
provide interim financing until long-term financing can be arranged. In
most cases, the long-term bonds then provide the money for the repayment
of the notes.
Construction Loan Notes. Construction loan notes are sold to
provide construction financing. After successful completion and
acceptance, many projects receive permanent financing through the Federal
Housing Administration.
Tax-Exempt Commercial Paper. Tax-exempt commercial paper is a
short-term obligation with a stated maturity of 365 days or less. It is
issued by state and local governments or their agencies to finance
seasonal working capital needs or as short-term financing in anticipation
of longer-term financing.
Floating Rate/Variable Rate Obligations. Floating rate and variable
rate demand notes are tax-exempt obligations which may have a stated
maturity in excess of one year, but may include features that permit the
holder to recover the principal amount of the underlying security at
specified intervals not exceeding one year and upon no more than 30 days'
notice. The issuer of such notes normally has a corresponding right,
after a given period, to prepay in its discretion the outstanding
principal amount of the note plus accrued interest upon a specified number
of days notice to the holder. The interest rate on a floating rate demand
note is based on a stated prevailing market rate, such as a bank's prime
rate, the 90-day U.S. Treasury Bill rate, or some other standard, and is
adjusted automatically each time such rate is adjusted. The interest rate
on a variable rate demand note is also based on a stated prevailing market
rate but is adjusted automatically at specified intervals of no less than
one year. Generally, the changes in the interest rate on such securities
reduce the fluctuation in their market value. As interest rates decrease
or increase, the potential for capital appreciation or depreciation is
less than that for fixed-rate obligations of the same maturity. The
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 or variable rate obligations which
do not provide for recovery of principal and interest within seven days
will be subject to the limitations applicable to illiquid securities
described in "Special Investment Methods - Illiquid Securities" in the
Prospectus. There is otherwise no limit on the amount of the Fund's
assets that may be invested in floating rate and variable rate
obligations.
Municipal Lease Obligations. Municipal leases may take the form of
a lease or an installment purchase contract issued by a state or local
government authority to obtain funds to acquire a wide variety of
equipment and facilities. Although lease obligations do not constitute
general obligations of the municipality for which the municipality's
taxing power is pledged, a lease obligation is ordinarily backed by the
municipality's covenant to budget for, appropriate and make the payments
due under the lease obligation. However, certain lease obligations
contain "non-appropriation" clauses which provide that the municipality
has no obligation to make lease or installment purchase payments in future
years unless money is appropriated for such purpose on a yearly basis.
In addition to the risk of "non-appropriation," municipal lease securities
do not yet have a highly developed market to provide the degree of
liquidity of conventional municipal bonds. Municipal leases, like other
municipal debt obligations, are subject to the risk of non-payment. The
ability of issuers of municipal leases to make timely lease payments may
be adversely affected in general economic downturns and as relative
governmental cost burdens are reallocated among federal, state and local
governmental units. Such non-payment would result in a reduction of
income to the Fund, and could result in a reduction in the value of the
municipal lease experiencing non-payment and a potential decrease in the
net asset value of the Fund.
Puts and Standby Commitments. When the Fund buys Municipal
Securities, it may obtain a standby commitment to repurchase the
securities that entitles it to achieve same-day settlement from the
repurchaser and to receive an exercise price equal to the amortized cost
of the underlying security plus accrued interest, if any, at the time of
exercise. A put purchased in conjunction with a Municipal Security
enables the Fund to sell the underlying security within a specified period
of time at a fixed exercise price. The Fund may pay for a standby
commitment or put either separately in cash or by paying a higher price
for the securities acquired subject to the standby commitment or put. The
Fund will enter into these transactions only with banks and dealers which,
in the Manager's opinion, present minimal credit risks. The Fund's
ability to exercise a put or standby commitment will depend on the ability
of the bank or dealer to pay for the securities if the put or standby
commitment is exercised. If the bank or dealer should default on its
obligation, the Fund might not be able to recover all or a portion of any
loss sustained from having to sell the security elsewhere. Puts and
standby commitments are not transferable by the Fund, and therefore
terminate if the Fund sells the underlying security to a third party. The
Fund intends to enter into these arrangements to facilitate portfolio
liquidity, although such arrangements may enable the Fund to sell a
security at a pre-arranged price which may be higher than the prevailing
market price at the time the put or standby commitment is exercised.
However, the Fund might refrain from exercising a put or standby
commitment if the exercise price is significantly higher than the
prevailing market price, to avoid imposing a loss on the seller which
could jeopardize the Fund's business relationships with the seller. Any
consideration paid by the Fund for the put or standby commitment (which
increases the cost of the security and reduces the yield otherwise
available from the security) will be reflected on the Fund's books as
unrealized depreciation while the put or standby commitment is held, and
a realized gain or loss when the put or commitment is exercised or
expires. Interest income received by the Fund from Municipal Securities
subject to puts or standby commitments may not qualify as tax exempt in
its hands if the terms of the put or standby commitment cause the Fund not
to be treated as the tax owner of the underlying Municipal Securities.
Private Activity Municipal Securities. The Tax Reform Act of 1986
(the "Tax Reform Act") reorganized, as well as amended, the rules
governing tax exemption for interest on Municipal Securities. The Tax
Reform Act generally does not change the tax treatment of bonds issued in
order to finance governmental operations. Thus, interest on obligations
issued by or on behalf of state or local government, the proceeds of which
are used to finance the operations of such governments (e.g., general
obligation bonds) continues to be tax-exempt. However, the Tax Reform Act
further limited the use of tax-exempt bonds for non-governmental (private)
purposes. More stringent restrictions were placed on the use of proceeds
of such bonds. Interest on certain private activity bonds (other than
those specified as "qualified" tax-exempt private activity bonds, e.g.,
exempt facility bonds including certain industrial development bonds,
qualified mortgage bonds, qualified Section 501(c)(3) bonds, qualified
student loan bonds, etc.) is taxable under the revised rules. In
addition, the limitations as to the amount of private activity bonds which
each state may issue were revised downward, which will reduce the supply
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. Further, a private activity bond
which would otherwise be a qualified tax-exempt private activity bond will
not, under Internal Revenue Code Section 147(a), be a qualified bond for
any period during which it is held by a person who is a "substantial user"
of the facilities or by a "related person" of such a substantial user.
This "substantial user" provision is applicable primarily to exempt
facility bonds, including industrial development bonds. The Fund may not
be an appropriate investment for entities which are "substantial users"
(or persons related thereto) of such exempt facilities, and such persons
should consult their own tax advisers before purchasing shares. A
"substantial user" of such facilities is defined generally as a "non-
exempt person who regularly uses part of a facility" financed from the
proceeds of exempt facility bonds. Generally, an individual will not be
a "related person" under the Internal Revenue Code unless such investor
or the investor's immediate family (spouse, brothers, sisters and
immediate descendants) own directly or indirectly in the aggregate more
than 50% in value of the equity of a corporation or partnership which is
a "substantial user" of a facility financed from the proceeds of exempt
facility bonds. In addition, the Tax Reform Act revised downward the
limitations as to the amount of private activity bonds which each state
may issue, which will reduce the supply of such bonds. The value of the
Fund's portfolio could be affected if there is a reduction in the
availability of such bonds. That value may also be affected by a 1988
U.S. Supreme Court decision upholding the constitutionality of the
imposition of a Federal tax on the interest earned on Municipal Securities
issued in bearer form.
A Municipal Security is treated as a taxable private activity bond
under a test for: (a) a trade or business use and security interest, or
(b) a private loan restriction. Under the trade or business use and
security interest test, an obligation is a private activity bond if: (i)
more than 10% of bond proceeds are used for private business purposes and
(ii) 10% or more of the payment of principal or interest on the issue is
directly or indirectly derived from such private use or is secured by the
privately used property or the payments related to the use of the
property. For certain types of uses, a 5% threshold is substituted for
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 governmental unit.) Under the private loan restriction, the
amount of bond proceeds which may be used to make private loans is limited
to the lesser of 5% or $5.0 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 use of the bond-financed facility. The Fund
makes no independent investigation of the users of such bonds or their use
of proceeds. If the Fund should hold a bond that loses its tax-exempt
status retroactively, there might be an adjustment to the tax-exempt
income previously paid to shareholders.
The Federal alternative minimum tax is designed to ensure that all
taxpayers pay some tax, even if their regular tax is zero. This is
accomplished in part by including in taxable income certain tax preference
items in arriving at alternative minimum taxable income. The Tax Reform
Act made tax-exempt interest from certain private activity bonds a tax
preference item for purposes of the alternative minimum tax on individuals
and corporations. Any exempt-interest dividend paid by a regulated
investment company will be treated as interest on a specific private
activity bond to the extent of its proportionate share of the interest on
such bonds received by the regulated investment company. The U.S.
Treasury is authorized to issue regulations implementing this provision.
In addition, corporate taxpayers subject to the alternative minimum tax
may, under some circumstances, have to include exempt-interest dividends
in calculating their alternative minimum taxable income in situations
where the "adjusted current earnings" of the corporation exceeds its
alternative minimum taxable income. The Fund may hold Municipal
Securities the interest on which (and thus a proportionate share of the
exempt-interest dividends paid by the Fund) will be subject to the Federal
alternative minimum tax on individuals and corporations. The Fund
anticipates that under normal circumstances it will not purchase any such
securities in an amount greater than 20% of its total assets.
Changes in Ratings. Subsequent to its purchase by the Fund, a
Municipal Security may cease to be rated or its rating may be reduced
below the minimum required for purchase by the Fund. Neither event
requires the Fund to sell the security, but the Manager will consider such
events in determining whether the Fund should continue to hold the
security. To the extent that ratings given by Moody's, S&P or Fitch
change as a result of changes in such organizations or their rating
systems, the Fund will attempt to use comparable ratings as standards for
investments in accordance with the Fund's investment policies.
Special Investment Considerations - New Jersey Municipal Securities. As
explained in the Prospectus, the Fund is highly sensitive to the fiscal
stability of New Jersey and its subdivisions, agencies, instrumentalities
or authorities and the other issuers which issue the New Jersey Municipal
Securities in which the Fund concentrates its investments. Investors
should also consider the factors discussed below under "Special Investment
Methods - Covered Calls and Hedging."
The following information on risk factors in concentrating in New
Jersey Municipal Securities is only a summary, based on publicly available
information and official statements relating to information compiled
annually by the State of New Jersey (the "State") and other private
sources, and no representation is made as to the accuracy of such
information. The information is provided as general information intended
to give a recent historical description and is not intended to indicate
future or continuing trends in the financial or other positions of the
State or of local governmental units located in the State. The Fund has
not independently verified this information.
After enjoying an extraordinary boom during the mid-1980s, the State,
as well as the rest of the northeast United States, slipped into a
slowdown well before the onset of the national recession which officially
began in July 1990 (according to the National Bureau of Economic
Research). From fiscal 1984 to 1988 revenues of the State grew almost
40%, increasing accumulated surpluses in government funds from $1.02
billion to $1.93 billion during that period. This growth has slowed,
however, since 1988. The State had an operating deficit for the 1989 and
1990 fiscal years and operations reduced the General Fund balance to
$391.5 million for the fiscal year 1989, to $1 million for the fiscal year
1990, to $1.4 million for the fiscal year 1991 and to $760.8 million for
the fiscal year 1992. For the fiscal year 1993, the balance in the
General Fund is estimated to have been $937 million, and for the fiscal
year 1994, the balance in the General Fund is projected to be $291.4
million. The General Fund is the fund into which all State revenues not
otherwise restricted by statute are deposited and from which
appropriations are made. The largest part of the total financial
operations of the State is accounted for in the General Fund. Revenues
received from taxes and unrestricted by statute, most federal revenue and
certain miscellaneous revenue items are recorded in the General Fund. The
appropriation acts provide the basic framework for the operation of the
General Fund.
The State finances capital projects primarily through the sale of the
general obligation bonds of the State. These bonds are backed by the full
faith and credit of the State. State tax revenues and certain other fees
are pledged to meet the principal and interest payments required to pay
the debt fully. No general obligation debt can be issued by the State
without prior voter approval, except that no voter approval is required
for any law authorizing the creation of a debt for the purpose of
refinancing all or a portion of outstanding debt of the State, so long as
such law requires that the refinancing provide a debt service savings.
All appropriations for capital projects and all proposals for State bond
authorizations are subject to the review and recommendation of the New
Jersey Commission on Capital Budgeting and Planning.
The State may also enter into lease finance arrangements, through
which rental payments made by the State are sufficient to cover debt
service on the obligations issued to finance the project. Such rental
payments are subject to annual appropriation by the State Legislature.
Also, various State entities have issued obligations to which the State
has a "moral obligation" to appropriate funds to cover a deficiency in a
debt service reserve fund maintained to meet payments of principal of and
interest on the obligations. The State Legislature, however, is not
legally bound to make such an appropriation.
The State has extensive control over school districts, cities,
counties and local financing authorities. Such local finance system is
regulated by various statutes designed to assure that these entities
remain on a sound financial basis. State laws impose specific limitations
on local appropriations, with exemptions subject to state approval. The
State shares the proceeds of a number of taxes, with funds going primarily
for local education programs, homestead rebates, medicaid and welfare
programs. Certain bonds are issued by localities but supported by direct
state payments. In addition, the State participates in local wastewater
treatment programs.
Although counties, municipalities and school districts finance
capital projects through the sale of general obligation bonds, backed by
their respective taxing power, other entities, including local financing
authorities, typically finance their capital needs through the sale of
bonds backed by a particular pledge of revenues, which may or may not
include revenues derived from taxing powers.
While New Jersey's economy continued to expand during the late 1980s,
the level of growth slowed considerably after its performance during the
1983-1987 period. By the beginning of the national recession,
construction activity had already been declining in New Jersey for nearly
two years. As the rapid acceleration of real estate prices forced many
would-be homeowners out of the market and high non-residential vacancy
rates reduced new commitments for offices and commercial facilities,
construction employment began to decline; also growth had tapered off
markedly in the service sectors and the long-term trend of factory
employment had accelerated, partly because of a leveling off of industrial
demand nationally. The onset of recession caused an acceleration of New
Jersey's job losses in construction and manufacturing, as well as an
employment downturn in previously growing sectors such as wholesale trade,
retail trade, finance, utilities and trucking and warehousing.
Reflecting the economic downturn, the rate of unemployment in the
State rose from 3.6% during the first quarter of 1989 to an estimated 6.6%
in 1991. In 1992 the State's unemployment rate moved ahead of the
nation's for the first time in a decade to an annual average of 8.4%
versus 7.4% in the United States.
Reflecting first the State's tight labor market and later the
slowdown in demand in certain sectors of the economy, non-farm wage and
salary employment has declined from a 3,689,800 in 1989 to 3,440,800 in
1992. Non-farm employment continued to decline in 1993 but the rate of
decline tapered off. Gains were seen in services, government,
finance/insurance/real estate and transportation/communications/public
utilities. Declines continued in manufacturing , wholesale and retail
trade and construction.
The State should benefit by the national recovery as rising consumer
and business spending generate increased factory orders, building activity
and a flow of commerce without regard to the state lines. Although New
Jersey-specific evidence of a recovery is still sparse, homebuilding,
public works, construction activity and retail sales appear to be
improving.
The fiscal year 1994 State budget projects spending of funds received
from the Federal government. This projection does not take into
consideration any reductions to these anticipated funds that may occur as
a result of efforts to reduce the federal deficit or required reductions
to meet spending limits. Any such reductions will require the State to
adjust its programs and budget to accommodate the reductions. As with
prior reductions of federal financial support, the State would evaluate
each program affected by such cuts and act based on that evaluation and
the amount of funds available. Any reductions in federal funds received
by the State or its political subdivisions could slow economic
development. Also, changes to the Internal Revenue Code, by restricting
certain types of tax-exempt financing, may limit the ability of New Jersey
and its political subdivisions to incur indebtedness to carry out their
programs. Such developments also could have an adverse effect on economic
conditions in New Jersey.
On March 12, 1990, the Fair Automobile Insurance Reform Act of 1990
(the "Reform Act") was enacted into law. The Reform Act substantially
altered New Jersey's statutory scheme governing private passenger
automobile insurance. The New Jersey Automobile Full Insurance
Underwriting Association (the "JUA"), an unincorporated non-profit
association created in 1983 to provide automobile insurance to those
unable to secure such coverage in the voluntary market, was precluded from
issuing or renewing automobile insurance policies since October 1, 1990.
The Reform Act includes provisions governing the transition of drivers
insured by the JUA to the voluntary market and, to the extent such
coverage is not available, to an assigned risk plan. The Reform Act also
provides for the imposition of taxes and assessments to meet the financial
obligations of the JUA, which are not debts, liabilities or obligations
of the State. The proposed fiscal year 1994 State budget does not reflect
the anticipated revenues from the premiums tax surcharge because the
revenues are to be applied by the statute to the JUA obligation. The
Reform Act also provides for the making of assessments by the New Jersey
Property Liability Insurance Guaranty Association upon property and
casualty liability insurers in order to raise $160 million per year for
the period 1990 to 1997. Litigation challenging various portions of the
Reform Act still remains pending. "As applied" challenges to the Reform
Act surtax and assessment provisions have been brought. Litigation was
filed in the Mercer County Superior Court--Chancery Division, by Allstate
and State Farm alleging that their constitutional rights have been
violated and that they are entitled to refunds of their Reform Act
surtaxes and assessments. The State Farm matter is pending on appeal.
Legislation enacted June 30, 1992 calls for revaluation of several
public employee pension funds, authorizes an adjustment to the assumed
rate of return on investments and refunds $773 million in public employer
contributions to the State from various pension funds, reflected as a
revenue source for fiscal year 1992. In addition, it is estimated that
this plan will effect a further savings of $226 million in fiscal year
1993 and each fiscal year thereafter. Several labor unions filed suit
seeking a judgment directing the State Treasurer to refund all monies
transferred from the pension funds and paid into the General Fund. On
February 5, 1993, the Superior Court granted the State's motion for
summary judgment as to all claims. An appeal has been filed with the
Appellate Division of the Superior Court. An adverse determination would
have a significant impact on the fiscal year 1994 fund balance.
On November 2, 1993, Christine Todd Whitman was elected to replace
James Florio as Governor of the State. Governor Whitman took office on
January 18, 1994. As a matter of public record, Governor Whitman during
her campaign publicized her intention to reduce taxes in the State.
Governor Whitman has proposed a 5 percent retroactive income tax and
legislation was introduced in the State Senate on January 31, 1994 which
supports the proposed tax cut and identifies proposed budget diversions
to pay for it. It is reported that the administration has set a further
goal of raising the tax cut to 15 percent by January 1, 1995. At this
time, the effect of the above proposals cannot be evaluated.
In July, 1991, S&P downgraded New Jersey general obligation bonds
from AAA to AA+. Fitch rates New Jersey general obligation bonds AAA.
On June 4, 1992, S&P placed New Jersey general obligation bonds on
CreditWatch with negative implications. On July 6, 1992, S&P removed New
Jersey's general obligation bonds from CreditWatch and reaffirmed its AA+
rating of such bonds but with negative long-term implications. On August
24, 1992, Moody's lowered its rating on New Jersey's general obligation
bonds from Aa1 to Aaa.
SPECIAL INVESTMENT METHODS
When-Issued and Delayed Delivery Transactions. As stated in the
Prospectus, the Fund may purchase Municipal Securities on a "when-issued"
basis, and may purchase or sell such securities on a "delayed delivery"
basis. Payment for and delivery of the securities generally settles
within 45 days of the date the offer is accepted. The purchase price and
yield are fixed at the time the buyer enters into the commitment.
However, the Fund intends to be as fully invested as possible and will not
invest in when-issued securities if its income or net asset value will be
materially adversely affected. At the time the Fund makes the commitment
to purchase a Municipal Security on a when-issued basis, it will record
the transaction on its books and reflect the value of the security in
determining its net asset value. It will also segregate cash or other
high quality liquid Municipal Securities equal in value to the commitment
for the when-issued securities. While when-issued securities may be sold
prior to the settlement date, the Fund intends to acquire the securities
upon settlement unless a prior sale appears desirable for investment
reasons. There is a risk that the yield available in the market when
delivery occurs may be higher than the yield on the security acquired.
Inverse Floaters. The Fund will invest in inverse floaters in the
expectation that they will provide higher expected tax-exempt yields than
are available for fixed-rate bonds having comparable credit ratings and
maturity. In certain instances, the holder of an inverse floater may have
an option to convert it into a fixed-rate bond pursuant to a "rate lock
option." Inverse floaters may produce 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
continue to earn above-market interest rates because they are receiving
the higher long-term rates and 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 conventional long-term municipal bonds.
Loans of Portfolio Securities. The Fund may lend its portfolio securities
subject to the restrictions stated in the Prospectus. Under applicable
regulatory requirements (which are subject to change), the loan collateral
must, on each business day, be at least equal to the market value of the
loaned securities and must consist of cash, bank letters of credit or
securities of the U.S. Government (or its agencies or instrumentalities)
or other cash equivalents in which the Fund is permitted to invest. To
be acceptable as collateral, letters of credit must obligate a bank to pay
amounts demanded by the Fund if the demand meets the terms of the letter.
Such terms and the issuing bank must be satisfactory to the Fund. The
Fund receives an amount equal to the dividends or interest on loaned
securities and also receives one or more of (a) negotiated loan fees, (b)
interest on securities used as collateral, or (c) interest on short-term
debt securities purchased with such loan collateral; either type of
interest may be shared with the borrower. The Fund may also pay
reasonable finder's, custodian and administrative fees. The terms of the
Fund's loans must meet certain tests under the Internal Revenue Code and
permit the Fund to reacquire loaned securities on five days' notice or in
time to vote on any important matter. Income from securities loans is not
included in the exempt-interest dividends paid by the Fund.
Covered Calls and Hedging. As described in the Prospectus, the Fund may
write covered calls or employ one or more types of Hedging Instruments.
Hedging Instruments will only be used in accordance with the requirement
that the Fund invest in securities to earn income and not to trade for
profit and that it not vary its portfolio investments except in certain
specified circumstances. When hedging to attempt to protect against
declines in the market value of the Fund's portfolio, to permit the Fund
to retain unrealized gains in the value of portfolio securities which have
appreciated, or to facilitate selling securities for investment reasons,
the Fund may (i) sell Interest Rate Futures or Municipal Bond Index
Futures, (ii) buy puts on such Futures or securities, (iii) write covered
calls on securities, Interest Rate Futures or Municipal Bond Index Futures
(as described in the Prospectus) or (iv) engage in interest rate swap
transactions. When hedging to permit the Fund to establish a position in
the debt securities market as a temporary substitute for purchasing
individual debt securities (which the Fund will normally purchase, and
then terminate that hedging position), the Fund may (a) buy Interest Rate
Futures or Municipal Bond Index Futures, or (b) buy calls on such Futures
or securities (as described in the Prospectus). The Fund's strategy of
hedging with Futures and options on Futures will be incidental to the
Fund's activities in the underlying cash market. Additional Information
about the Hedging Instruments the Fund may use is provided below.
Writing Covered Call Options. When the Fund writes a call on a
security, it receives a premium and agrees to sell the underlying
investment to a purchaser of a corresponding call during the call period
(usually not more than nine months) at a fixed exercise price (which may
differ from the market price of the underlying investment) regardless of
market price changes during the call period. To terminate its obligation
on a call it has written, the Fund may purchase a corresponding call in
a "closing purchase transaction." A profit or loss will be realized,
depending upon whether the net of the amount of option transaction costs
and the premium previously received on the call written is more or less
than the price of the call subsequently purchased. A profit may also be
realized if the call lapses unexercised, because the Fund retains the
related investment and the premium received. Any such profits are
considered short-term gains for Federal tax purposes, as are premiums on
lapsed calls, and when distributed by the Fund are taxable as ordinary
income. If the Fund could not effect a closing purchase transaction due
to the lack of a market, it would have to hold the underlying investment
until the call lapsed or was exercised.
Interest Rate Futures. The Fund may buy and sell futures contracts
relating to debt securities ("Interest Rate Futures") and municipal bond
indices ("Municipal Bond Index Futures," discussed below). An Interest
Rate Future obligates the seller to deliver and the purchaser to take the
related debt securities at a specified price on a specified date. No
amount is paid or received upon the purchase or sale of an Interest Rate
Future. Upon entering into a Futures transaction, the Fund will be
required to deposit an initial margin payment, equal to a specified
percentage of the contract amount, with the futures commission merchant
(the "futures broker"). The initial margin will be deposited with the
Fund's Custodian in an account registered in the futures broker's name;
however, the futures broker can gain access to that account only under
specified conditions. As the Future is marked to market to reflect
changes in its market value, subsequent margin payments, called variation
margin, will be made to and from the futures broker on a daily basis. At
any time prior to the expiration of the Future, the Fund may elect to
close out its position by taking an opposite position, at which time a
final determination of variation margin is made and additional cash is
required to be paid by or released to the Fund. Any gain or loss is then
realized. Although Interest Rate Futures by their terms call for
settlement by the delivery of debt securities, in most cases the
obligation is fulfilled by entering into an offsetting transaction. All
futures transactions are effected through a clearinghouse associated with
the exchange on which the contracts are traded.
Municipal Bond Index Futures. A "municipal bond index" assigns
relative values to the municipal bonds 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 in cash. The obligation under such contracts may also
be satisfied by entering into an offsetting contract to close out the
Futures position. Net gain or loss on options on Municipal Bond Index
Futures depends on the price movements of the securities included in the
index. The strategies which the Fund employs regarding Municipal Bond
Index Futures are similar to those described above with regard to Interest
Rate Futures.
Interest Rate Swap Transactions. Swap agreements entail both
interest rate risk and credit risk. With respect to interest rate risk,
the Fund could be obligated to pay more under its swap agreements than it
receives, as a result of interest rate changes. Credit risk arises from
the possibility that the counterparty will default. If the counterparty
to an interest rate swap defaults, the Fund's loss will consist of the net
amount of contractual interest payments that the Fund has not yet
received. The Manager will monitor the creditworthiness of counterparties
to the Fund's interest rate swap transactions on an ongoing basis. The
Fund will enter into swap transactions with appropriate counterparties
pursuant to master netting agreements. A master netting agreement
provides that all swaps done between the Fund and that counterparty under
the master agreement shall be regarded as parts of an integral agreement.
If on any date amounts are payable in the same currency in respect of one
or more swap transactions, the net amount payable on that date in that
currency shall be paid. In addition, the master netting agreement may
provide that if one party defaults generally or on one swap, the
counterparty may terminate the swaps with that party. Under such
agreements, if there is a default resulting in a loss to one party, the
measure of that party's damages is calculated by reference to the average
cost of a replacement swap with respect to each swap (i.e., the mark-to-
market value at the time of the termination of each swap). The gains and
losses on all swaps are then netted, and the result is the counterparty's
gain or loss on termination. The termination of all swaps and the netting
of gains and losses on termination is generally referred to as
"aggregation."
Purchasing Puts and Calls. When the Fund purchases a call, it pays
a premium and has the right to buy the related investment from a seller
of a corresponding call on the same investment during the call period at
a fixed exercise price. The Fund benefits only if the call is sold at
a profit or if, during the call period, the market price of the underlying
investment is above the call price plus the transaction costs and premium
paid and the call is exercised. If the call is not exercised or sold
(whether or not at a profit), it will become worthless at its expiration
date and the Fund will lose its premium payment and the right to purchase
the underlying investment.
When the Fund buys a put, it pays a premium and has the right to sell
the related investment to a seller of a corresponding put on the same
investment during the put period at a fixed exercise price. Buying a put
on a debt security, Interest Rate Future or Municipal Bond Index Future
the Fund owns enables the Fund to protect itself during the put period
against a decline in the value of the underlying investment below the
exercise price by selling such underlying investment at the exercise price
to a seller of a corresponding put. If the market price of the underlying
investment is equal to or above the exercise price and as a result the put
is not exercised or resold, the put will become worthless at its
expiration date and the Fund will lose its premium payment and the right
to sell the underlying investment; the put may, however, be sold prior to
expiration (whether or not at a profit).
Puts and calls on municipal bond indices, Interest Rate Futures or
Municipal Bond Index Futures are similar to puts and calls on debt
securities or futures contracts except that all settlements are in cash
and gain or loss depends on changes in the index in question (and thus on
price movements in the debt securities market generally) rather than on
price movements in individual securities or futures contracts. When the
Fund buys a call on a municipal bond index, Interest Rate Future or
Municipal Bond Index Future, it pays a premium. During the call period,
upon exercise of a call by the Fund, a seller of a corresponding call on
the same index will pay the Fund an amount of cash to settle the call if
the closing level of the index or Future upon which the call is based is
greater than the exercise price of the call; that cash payment is equal
to the difference between the closing price of the index and the exercise
price of the call times a specified multiple (the "multiplier") which
determines the total dollar value for each point of difference. When the
Fund buys a put on an Interest Rate Future or Municipal Bond Index Future,
it pays a premium and has the right during the put period to require a
seller of a corresponding put, upon the Fund's exercise of its put, to
deliver to the Fund an amount of cash to settle the put if the closing
level of the index or Future upon which the put is based is less than the
exercise price of the put; that cash payment is determined by the
multiplier, in the same manner as described above as to calls.
An option position may be closed out only on a market which provides
secondary trading for options of the same series and there is no assurance
that a liquid secondary market will exist for any particular option. The
Fund's option activities may affect its turnover rate and brokerage
commissions. The exercise of calls written by the Fund may cause it to
sell underlying investments, thus increasing its turnover rate in a manner
beyond its control. The exercise by the Fund of puts may also cause the
sale of related investments, also causing turnover, since the related
investment might be sold for reasons which would not exist in the absence
of the put. Although such exercise is within the Fund's control, holding
a put might cause the Fund to sell the related investments for reasons
which would not exist in the absence of the put. The Fund will pay a
brokerage commission each time it buys or sells a call, put or an
underlying investment in connection with the exercise of a put or call.
Such commissions may be higher than those which would apply to direct
purchases or sales of the underlying investment.
Premiums paid for options are small in relation to the market value
of the related investments and consequently, put and call options offer
large amounts of leverage. The leverage offered by trading in options
could result in the underlying investments in the Fund's net asset value
being more sensitive to changes in the value of the underlying
investments.
Additional Information about Hedging Instruments and Their Use. The
Fund's Custodian, or a securities depository acting for the Custodian,
will act as the Fund's escrow agent through the facilities of the Options
Clearing Corporation ("OCC"), as to the investments on which the Fund has
written calls traded on exchanges, or as to other acceptable escrow
securities, so that no margin will be required for such transactions. OCC
will release the securities on the expiration of the calls or upon the
Fund's entering into a closing purchase transaction. An option position
may be closed out only on a market which provides secondary trading for
options of the same series and there is no assurance that a liquid
secondary market will exist for any particular option. The Fund's option
activities may affect its portfolio turnover rate and brokerage
commissions. The exercise of calls written by the Fund may cause the
Fund to sell related portfolio securities, thus increasing its portfolio
turnover rate. The exercise by the Fund of puts on securities will cause
the sale of related investments, increasing portfolio turnover. Although
such exercise is within the Fund's control, holding a put might cause the
Fund to sell the related investments for reasons which would not exist in
the absence of the put. The Fund will pay a brokerage commission each
time it buys a call or put, sells a call, or buys or sells an underlying
investment in connection with the exercise of a call or put. Such
commissions may be higher on a relative basis than those which would apply
to direct purchases or sales of such underlying investments. Premiums
paid for options as to underlying investments are small in relation to the
market value of such investments and consequently, put and call options
offer large amounts of leverage. The leverage offered by trading in
options could result in the Fund's net asset value being more sensitive
to changes in the value of the underlying investment.
Regulatory Aspects of Hedging Instruments. The use of Futures and
options thereon to attempt to protect against the market risk of a decline
in the value of portfolio securities is referred to as having a "short
futures position," and the use of such instruments to attempt to protect
against the market risk that portfolio securities are not fully included
in an increase in value of the market as a whole is referred to as having
a "long futures position." The Fund must operate within certain
restrictions as to its long and short positions in Futures and options
thereon under a rule (the "CFTC Rule") adopted by the Commodity Futures
Trading Commission ("CFTC") under the Commodity Exchange Act (the "CEA"),
which excludes the Fund from registration with the CFTC as a "commodity
pool operator" (as defined under the CEA), if it complies with the CFTC
Rule. Under these restrictions, the Fund will not, as to any positions,
whether long, short or a combination thereof, enter into Futures and
options thereon for which the aggregate initial margins and premiums
exceed 5% of the fair market value of its net assets, with certain
exclusions as defined in the CFTC Rule. Under the restrictions, the Fund
also must, as to its short positions, use Futures and options thereon
solely for bona fide hedging purposes within the meaning and intent of the
applicable provisions of the CEA.
Transactions in options by the Fund are subject to limitations
established by each of the exchanges governing the maximum number of
options which may be written or held by a single investor or group of
investors acting in concert, regardless of whether the options were
written or purchased on the same or different exchanges or are held in one
or more accounts or through one or more different exchanges or through one
or more brokers. Thus, the number of options which the Fund may write or
hold may be affected by options written or held by other entities,
including other investment companies having the same adviser as the Fund
or an affiliated investment adviser. Position limits also apply to
Futures. An exchange may order the liquidation of positions found to be
in violation of these limits and may impose certain other sanctions. Due
to requirements under the Investment Company Act, when the Fund purchases
an Interest Rate Future or Municipal Bond Index Future, the Fund will
maintain, in a segregated account or accounts with its Custodian, cash or
readily-marketable, short-term (maturing in one year or less) debt
instruments in an amount equal to the market value of the securities
underlying such Future, less the margin deposit applicable to it.
Tax Aspects of Hedging Instruments and Covered Calls. The Fund
intends to qualify as a "regulated investment company" under the Internal
Revenue Code. One of the tests for such qualification is that less than
30% of its gross income (irrespective of losses) must be derived from
gains realized on the sale of securities held for less than three months.
Due to this limitation, the Fund will limit the extent to which it engages
in the following activities, but will not be precluded from them: (i)
selling investments, including Interest Rate Futures and Municipal Bond
Index Futures, held for less than three months; (ii) writing calls on
investments held less than three months; (iii) purchasing calls or puts
which expire in less than three months; (iv) effecting closing
transactions with respect to calls or puts purchased less than three
months previously; and (v) exercising puts or calls held by the Fund for
less than three months.
Possible Risk Factors in Hedging. In addition to the risks with
respect to Futures and options discussed in the Prospectus and above,
there is a risk in using short hedging by selling Interest Rate Futures
and Municipal Bond Index Futures that the prices of such Futures or the
applicable index will correlate imperfectly with the behavior of the cash
(i.e., market value) prices of the Fund's securities. The ordinary
spreads between prices in the cash and futures markets are subject to
distortions due to differences in the natures of those markets. First,
all participants in the futures market are subject to margin deposit and
maintenance requirements. Rather than meeting additional margin deposit
requirements, investors may close futures contracts through offsetting
transactions which could distort the normal relationship between the cash
and futures markets. Second, the liquidity of the futures market depends
on participants entering into offsetting transactions rather than making
or taking delivery. To the extent participants decide to make or take
delivery, liquidity in the futures market could be reduced, thus producing
distortion. Third, from the point of view of speculators, the deposit
requirements in the futures market are less onerous than margin
requirements in the securities market. Therefore, increased participation
by speculators in the futures market may cause temporary price
distortions.
The risk of imperfect correlation increases as the composition of the
Fund's portfolio diverges from the securities included in the applicable
index. To compensate for the imperfect correlation of movements in the
price of the debt securities being hedged and movements in the price of
the Hedging Instruments, the Fund may use Hedging Instruments in a greater
dollar amount than the dollar amount of debt securities being hedged if
the historical volatility of the prices of such debt securities being
hedged is more than the historical volatility of the applicable index.
It is also possible that where the Fund has used Hedging Instruments in
a short hedge, the market may advance and the value of the debt securities
held in the Fund's portfolio may decline. If this occurred, the Fund
would lose money on the Hedging Instruments and also experience a decline
in value of its debt securities. However, while this could occur for a
very brief period or to a very small degree, over time the value of a
diversified portfolio of debt securities will tend to move in the same
direction as the indices upon which the Hedging Instruments are based.
If the Fund uses Hedging Instruments to establish a position in the debt
securities markets as a temporary substitute for the purchase of
individual debt securities (long hedging) by buying Interest Rate Futures,
Municipal Bond Index Futures and/or calls on such Futures or debt
securities, it is possible that the market may decline; if the Fund then
concludes not to invest in such securities at that time because of
concerns as to possible further market decline or for other reasons, the
Fund will realize a loss on the Hedging Instruments that is not offset by
a reduction in the price of the debt securities purchased.
Repurchase Agreements. In a repurchase transaction, the Fund acquires a
security from, and simultaneously resells it to, an approved vendor (a
U.S. commercial bank or the U.S. branch of a foreign bank with assets of
at least $1 billion or a broker-dealer with net capital of at least $50
million which has been designated a primary dealer in government
securities) for delivery on an agreed-on future date. The resale price
exceeds the purchase price in that it reflects an agreed-upon interest
rate effective for the period during which the repurchase agreement is in
effect. The majority of these transactions run from day to day, and
delivery pursuant to resale typically will occur within one to five days
of the purchase. Repurchase agreements are considered loans under the
Investment Company Act, collateralized by the underlying security. The
Fund's repurchase agreements require that at all times while the
repurchase agreement is in effect, the value of the collateral must equal
or exceed the repurchase price to fully collateralize the repayment
obligation. Additionally, the Manager will continuously monitor the
collateral's value and will impose creditworthiness requirements to
confirm that the vendor is financially sound.
INVESTMENT RESTRICTIONS
The Fund's significant investment restrictions are set forth in the
Prospectus. The following investment restrictions are also fundamental
policies of the Fund and, together with the fundamental policies and
investment objective described in the Prospectus, cannot be changed
without the vote of a "majority" of the Fund's outstanding voting
securities. Under the Investment Company Act, such a "majority" vote is
defined as the vote, at an annual or special meeting of the shareholders
of the Fund, of the holders of the lesser of (i) 67% or more of the shares
present or represented by proxy at such meeting, if the holders of more
than 50% of the outstanding shares are present or represented by proxy,
or (ii) more than 50% of the outstanding shares. Under these additional
restrictions, the Fund cannot: (1) invest in real estate, but this shall
not prevent the Fund from investing in Municipal Securities or other
permitted securities secured by real estate or interests therein; (2)
purchase securities other than Hedging Instruments on margin; however, the
Fund may obtain such short-term credits as may be necessary for the
clearance of purchases and sales of securities; (3) make short sales of
securities; (4) underwrite securities or invest in securities subject to
restrictions on resale; (5) invest in or hold securities of any "issuer"
(see below) if officers and Trustees or Directors of the Trust and the
Manager individually owning more than .5% of the securities of such issuer
together own more than 5% of the securities of such issuer; or (6) invest
in securities of any other investment company, except in connection with
a merger, consolidation, acquisition or reorganization.
Under restriction (5) above, the identification of the issuer of a
Municipal Security depends on the terms and conditions of the security.
When the assets and revenues of an agency, authority, instrumentality or
other political subdivision are separate from those of the government
creating the subdivision and the security is backed only by the assets and
revenues of the subdivision, such subdivision would be deemed to be the
sole issuer. Similarly, in the case of an industrial development bond,
if that bond is backed only by the assets and revenues of the
nongovernmental user, then such nongovernmental user would be deemed the
sole issuer. However, if in either case the creating government or some
other entity guarantees a security, such a guarantee would be considered
a separate security and is to be treated as an issue of such government
or other agency. In applying these restrictions to the Fund's investments,
the Manager will consider a nongovernmental user of facilities financed
by industrial development bonds as being in a particular industry, despite
the fact that such bonds are Municipal Securities as to which there is no
industry concentration limitation. Although this application of the
restriction is not technically a fundamental policy under the Investment
Company Act, it will not be changed without shareholder approval. The
Manager has no present intention of investing more than 25% of the total
assets of the Fund in securities paying interest from revenues of similar
type projects, or in industrial development bonds. Neither of these are
fundamental policies, and therefore may be changed without shareholder
approval. Should any such change be made, the Prospectus and/or this
Additional Statement will be supplemented accordingly.
TRUSTEES AND OFFICERS
The Trustees and officers of the Trust and their principal
occupations and business affiliations during the past five years are set
forth below. The address of each, except as noted, is Two World Trade
Center, New York, New York 10048-0203. Except for Mr. Patterson, each
serves in similar capacities with Oppenheimer Fund, Oppenheimer Time Fund,
Oppenheimer Special Fund, Oppenheimer Tax-Free Bond Fund, Oppenheimer New
York Tax-Exempt Fund, Oppenheimer Florida Tax-Exempt Fund, Oppenheimer
California Tax-Exempt Fund, Oppenheimer Global Fund, Oppenheimer Money
Market Fund, Inc., Oppenheimer U.S. Government Trust, Oppenheimer Gold &
Special Minerals Fund, Oppenheimer Target Fund, Oppenheimer Asset
Allocation Fund, Oppenheimer Mortgage Income Fund, Oppenheimer Global Bio-
Tech Fund, Oppenheimer Global Environment Fund, Oppenheimer Global Growth
& Income Fund, Oppenheimer Discovery Fund, Oppenheimer Multi-Sector Income
Trust and Oppenheimer Multi-Government Trust (collectively, the "New York-
based OppenheimerFunds"). As of February 15, 1994, the Trustees and
officers of the Trust as a group beneficially owned less than 1% of the
Trust's outstanding shares.
LEON LEVY, Chairman of the Board of Trustees
General Partner of Odyssey Partners, L.P. (investment partnership);
Chairman of Avatar Holdings, Inc. (real estate development).
LEO CHERNE, Trustee
386 Park Avenue South, New York, New York 10016
Chairman Emeritus of the International Rescue Committee
(philanthropic organization); formerly Executive Director of The
Research Institute of America.
EDMUND T. DELANEY, Trustee
5 Gorham Road, Chester, Connecticut 06412
Attorney-at-Law; formerly a member of the Connecticut State
Historical Commission and Counsel to Copp, Berall & Hempstead (a law
firm).
ROBERT G. GALLI, Trustee *
Vice Chairman of the Manager and Vice President of Oppenheimer
Acquisition Corp. ("OAC"), the Manager's parent holding company;
formerly he held the following positions: a director of the Manager
and the Distributor, Vice President and a director of HarbourView
Asset Management Corporation ("HarbourView") and Centennial Asset
Management Corporation ("Centennial"), investment adviser
subsidiaries of the Manager, a director of Shareholder Financial
Services, Inc. ("SFSI") and Shareholder Services, Inc. ("SSI"),
transfer agent subsidiaries of the Manager, an officer of other
OppenheimerFunds and Executive Vice President and General Counsel of
the Manager and the Distributor.
BENJAMIN LIPSTEIN, Trustee
591 Breezy Hill Road, Hillsdale, New York 12529
Professor Emeritus of Marketing, Stern Graduate School of Business
Administration, New York University.
ELIZABETH B. MOYNIHAN, Trustee
801 Pennsylvania Avenue, N.W., Washington, D.C. 20004
Author and architectural historian; a trustee of the American Schools
of Oriental Research and of the Freer Gallery of Art, Smithsonian
Institution; a member of the Indo-U.S. Sub-Commission on Education
and Culture; a trustee of the Institute of Fine Arts, New York
University, and a trustee of the Preservation League of New York
State.
KENNETH A. RANDALL, Trustee
6 Whittaker's Mill, Williamsburg, Virginia 23185
A director of Northeast Bancorp, Inc. (bank holding company),
Dominion Resources, Inc. (electric utility holding company) and
Kemper Corporation (insurance and financial services company);
formerly Chairman of the Board of ICL Inc. (information systems).
EDWARD V. REGAN, Trustee
40 Park Avenue, New York, New York 10016
President, Jerome Levy Institute, Bard College; Member of the U.S.
Competitiveness Policy Council; formerly New York State Comptroller.
RUSSELL S. REYNOLDS, JR., Trustee
200 Park Avenue, New York, New York 10166
Founder, Chairman of Russell Reynolds Associates, Inc. (executive
recruiting); Chairman of Directors Publication, Inc. (consulting and
publishing), a trustee of Mystic Seaport Museum, International House,
Greenwich Historical Society and Greenwich Hospital.
SIDNEY M. ROBBINS, Trustee
50 Overlook Road, Ossining, New York 10562
Chase Manhattan Professor Emeritus of Financial Institutions,
Graduate School of Business, Columbia University; Visiting Professor
of Finance, University of Hawaii; a director of The Korea Fund, Inc.
and The Malaysia Fund, Inc. (closed-end investment companies); a
member of the Board of Advisors, Olympus Private Placement Fund,
L.P.; Professor Emeritus of Finance, Adelphi University.
DONALD W. SPIRO, President and Trustee *
Chairman Emeritus of the Manager; formerly Chairman and President of
the Manager and President and a Director of the Distributor.
PAULINE TRIGERE, Trustee
550 Seventh Avenue, New York, New York 10018
Chairman and Chief Executive Officer of Trigere, Inc. (design and
sale of women's fashions).
CLAYTON K. YEUTTER, Trustee
1325 Merrie Ridge Road, McLean, Virginia 22101
Of Counsel to Hogan & Hartson (a law firm); a director of B.A.T.
Industries, Ltd. (tobacco and financial services), Caterpillar, Inc.
(machinery), ConAgra, Inc. (food and agricultural products), FMC
Corp. (chemicals and machinery), Lindsay Manufacturing Co. and Texas
Instruments, Inc. (electronics); formerly (in descending
chronological order) Deputy Chairman, Bush/Quayle Presidential
Campaign, Counsellor to the President (Bush) for Domestic Policy,
Chairman of the Republican National Committee, Secretary of the U.S.
Department of Agriculture, and U.S. Trade Representative, Executive
Office of the President.
ROBERT E. PATTERSON, Vice President and Portfolio Manager
Senior Vice President of the Manager; an officer of other
OppenheimerFunds.
ANDREW J. DONOHUE, Secretary
Executive Vice President and General Counsel of the Manager and the
Distributor; an officer of other OppenheimerFunds; formerly Senior
Vice President and Associate General Counsel of the Manager and the
Distributor; Partner in Kraft & McManimon (a law firm); an officer
of First Investors Corporation (a broker-dealer) and First Investors
Management Company, Inc. (broker-dealer and investment adviser);
director and an officer of First Investors Family of Funds and First
Investors Life Insurance Company.
GEORGE C. BOWEN, Treasurer
3410 South Galena Street, Denver, Colorado 80231
Senior Vice President and Treasurer of the Manager; Vice President
and Treasurer of the Distributor and HarbourView; Senior Vice
President, Treasurer, Assistant Secretary and a director of
Centennial; Vice President, Treasurer and Secretary of SSI and SFSI;
an officer of other OppenheimerFunds; formerly Senior Vice
President/Comptroller and Secretary of Oppenheimer Asset Management
Corporation, a former investment advisory subsidiary of the Manager.
ROBERT G. ZACK, Assistant Secretary
Senior Vice President and Associate General Counsel of the Manager;
Assistant Secretary of SSI and SFSI; an officer of other
OppenheimerFunds.
LYNN M. COLUCCY, Assistant Treasurer
3410 South Galena Street, Denver, Colorado 80231
Vice President and Assistant Treasurer of the Manager; an officer of
other OppenheimerFunds; formerly Vice President/Director of Internal
Audit of the Manager.
- -----------------------------------
* A Trustee who is an "interested person" as defined in the Investment
Company Act.
Remuneration of Trustees. The officers of the Trust (including Mr. Spiro,
an officer and Trustee) are affiliated with the Manager and receive no
salary or fee from the Fund. The Fund has adopted a retirement plan under
which each Trustee who is not an "interested person" of the Fund and who
retires after a minimum required period of service would be entitled to
retirement payments upon reaching age 70 based on length of service and
computed as a percentage of the average of the five highest years of
compensation, subject to a maximum amount per year. No Trustee has
retired since adoption of the program and no payments have been made
thereunder by the Fund.
Major Shareholders. As of March 1, 1994, the Manager was the sole initial
holder of the Fund's Class A and Class B shares.
INVESTMENT MANAGEMENT SERVICES
The Manager is owned by OAC, a holding company controlled by
Massachusetts Mutual Life Insurance Company. OAC is also owned in part
by certain of the Manager's directors and officers, some of whom may also
serve as officers of the Trust and one of whom (Mr. Spiro) serves as a
Trustee of the Trust.
The investment advisory agreement between the Manager and the Trust
on behalf of the Fund (the "Agreement") requires the Manager, at its
expense, to provide the Fund with adequate office space, facilities and
equipment, and to provide and supervise the activities of all
administrative and clerical personnel required to provide effective
administration for the Fund, including the compilation and maintenance of
records with respect to its operations, the preparation and filing of
specified reports, and the composition of proxy materials and registration
statements for continuous public sale of shares of the Fund. Expenses not
expressly assumed by the Manager under the Agreement or by the Distributor
are paid by the Fund. The Agreement lists examples of expenses paid by
the Fund, the major categories of which relate to interest, taxes,
brokerage commissions, fees to independent Trustees, legal and audit
expenses, custodian and transfer agent expenses, share issuance costs,
certain printing and registration costs and non-recurring expenses,
including litigation.
The Agreement contains no provision whereby the Fund's expenses are
limited by an assumption of those expenses by the Manager. However,
independently of the Agreement, the Manager has voluntarily agreed to
assume the expenses of the Fund to the extent required to enable the Fund
to pay dividends per Class A share at the rate of $.612 per fiscal year.
The payment of the management fee will be reduced monthly to the extent
necessary so that there will not be any accrued but unpaid liability under
this expense assumption undertaking. The Manager reserves the right to
modify or terminate this voluntary expense assumption undertaking at any
time. Any assumption of the Fund's expenses under this undertaking would
lower the Fund's overall expense ratio and increase its total return
during any period in which expenses are limited.
The Agreement provides that in the absence of willful misfeasance,
bad faith, gross negligence or reckless disregard for its obligations
thereunder, the Manager is not liable for any loss sustained by reason of
any investment of Fund assets made with due care and in good faith. The
Agreement permits the Manager to act as investment adviser for any other
person, firm or corporation and to use the name "Oppenheimer" in
connection with one or more additional companies for which it may act as
investment adviser or general distributor. If the Manager shall no longer
act as investment adviser to the Fund, the right of the Fund to use the
name "Oppenheimer" as part of its title may be withdrawn.
Portfolio Transactions. Portfolio decisions are made by portfolio
managers under the supervision of the Manager's executive officers. As
most purchases of Municipal Securities made by the Fund are principal
transactions at net prices, the Fund incurs little or no brokerage costs.
The Fund deals directly with the selling or purchasing principal or market
maker without incurring charges for the services of a broker on its behalf
unless it is determined that better price or execution may be obtained by
utilizing the services of a broker. Purchases of portfolio securities from
underwriters include a commission or concession paid by the issuer to the
underwriter, and purchases from dealers include a spread between the bid
and asked price. The Fund seeks to obtain prompt execution of orders at
the most favorable net price.
The Agreement contains provisions relating to the selection of
brokers, dealers and futures commission merchants (collectively,
"brokers") for the Fund's Futures, and put and call transactions. The
Manager is authorized by the Agreement to employ brokers as may, in its
best judgment based on all relevant factors, implement the policy of the
Fund to obtain, at reasonable expense, the "best execution" (prompt and
reliable execution at the most favorable price obtainable) of such
transactions. The Manager need not seek competitive commission bidding
but is expected to minimize the commissions paid to the extent consistent
with the interest and policies of the Fund.
The Agreement allows affiliates of the Manager to act as the Fund's
brokers and receive brokerage commissions. Commissions paid to affiliates
are calculated in accordance with "Procedures" adopted pursuant to
Securities and Exchange Commission ("SEC") Rule 17e-1 under the Act, which
requires that commissions paid to an affiliate or an affiliate of an
affiliate of the Manager must be "reasonable and fair compared to the
commission, fee or other remuneration received or to be received by other
brokers in connection with comparable transactions involving similar
securities during a comparable period of time." When the Fund engages in
an option transaction, ordinarily the same broker will be used for the
purchase or sale of the option and any transactions in the securities to
which the option relates. Where possible, concurrent orders to purchase
or sell the same security by more than one of the accounts managed by the
Manager or its affiliates are combined. The transactions effected
pursuant to such combined orders are averaged as to price and allocated
in accordance with the purchase or sale orders actually placed for each
account.
Under the Agreement, the Manager is authorized to select brokers
other than affiliated brokers which provide brokerage and/or research
services for the Fund and/or the other accounts over which the Manager or
its affiliates have investment discretion. The commissions paid to such
brokers may be higher than another qualified broker would have charged if
a good faith determination is made by the Manager that the commission is
reasonable and fair in relation to the services provided. Subject to the
foregoing considerations, the Manager may also consider the willingness
of particular broker-dealers to sell shares as a factor in their
selection.
The research services provided by a particular broker may be useful
only to one or more of the advisory accounts of the Manager and its
affiliates, and investment research for the commissions of these other
accounts may be useful both to the Fund and one or more of such other
accounts. Such research, which may be supplied by a third party at the
instance of a broker, includes information and analyses on particular
companies, issuers and industries as well as market or economic trends and
portfolio strategy, receipt of market quotations for portfolio
evaluations, information systems, computer hardware and similar products
and services. It serves to broaden the scope and supplement the research
activities of the Manager, to make available additional views for
consideration and comparisons, and to enable the Manager to obtain market
information for the valuation of securities held in the Fund's portfolio
or being considered for purchase. 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 for in commission dollars. The Board and the
independent Trustees of the Trust annually review information furnished
by the Manager relative to the commissions paid to brokers furnishing such
services in an effort to ascertain that the amount of such commissions was
reasonably related to the value or benefit of such services. 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.
Other funds advised by the Manager have investment objectives and
policies similar to those of the Fund. Such other funds may purchase or
sell the same securities at the same time as the Fund, which could affect
the supply or price of such securities. If two or more of such funds
purchase the same security on the same day from the same dealer, the
Manager may average the price of the transactions and allocate the average
among such funds.
PURCHASE, REDEMPTION AND PRICING OF SHARES
Determination of Net Asset Value Per Share. The net asset values per
share of Class A and Class B shares of the Fund are determined as of 4:00
P.M., New York time, each day the New York Stock Exchange (the "NYSE") is
open (a "regular business day") by dividing the value of the Fund's net
assets attributable to that class by the number of shares of that class
outstanding. The NYSE's most recent annual holiday schedule (which is
subject to change) states that it will close New Year's Day, Presidents'
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving
Day and Christmas Day. The NYSE may also close on other days. Dealers
other than NYSE members may conduct trading in Municipal Securities on
certain days on which the NYSE is closed (e.g., Good Friday), so that
securities of the same type held by the Fund may be traded, and the net
asset values per share of Class A and Class B shares of the Fund may be
significantly affected, on such days when shareholders cannot purchase or
redeem shares.
The Board of Trustees has established procedures for the valuation
of the Fund's securities: (i) long-term debt securities, and short-term
debt securities having a remaining maturity in excess of 60 days, are
valued at the mean between the asked and bid prices determined by a
portfolio pricing service approved by the Board or obtained from active
market makers in the security; (ii) short-term debt securities having a
remaining maturity of 60 days or less are valued at cost, adjusted for
amortization of premiums and accretion of discounts; and (iii) securities
(including restricted securities) not having readily-available market
quotations are valued at fair value under the Board's procedures. In the
case of Municipal Securities, U.S. Government securities and corporate
bonds, where last sale information is not generally available, such
pricing procedures may include "matrix" comparisons to the prices for
comparable instruments on the basis of quality, yield, maturity and other
special factors involved. With the approval of the Board of Trustees, the
Manager may employ a pricing service, bank or broker-dealer experienced
in such matters to price any of the types of securities described above.
The Trustees will monitor the accuracy of pricing services by comparing
prices used for portfolio evaluation to actual sales prices of selected
securities. The Fund values puts, calls, Interest Rate Futures and
Municipal Bond Index Futures at the last sale prices on the principal
exchange or on the NASDAQ on which they are traded, or if there are no
sales that day, at values based on the last sale price of the preceding
trading day or closing bid and asked prices.
When the Fund writes a call, an amount equal to the premium received
will be included in the Fund's Statement of Assets and Liabilities as an
asset, and an equivalent deferred credit is included in the liability
section. The deferred credit is "marked-to-market" to reflect the current
market value of the call. If a call written by the Fund expires or if the
Fund enters into a closing purchase transaction, the Fund has a gain or
loss from the sale of the underlying securities and the proceeds are
increased by the premium originally received. If a call written by the
Fund is exercised, the proceeds are increased by the premium originally
received. If a put held by the Fund is exercised by it, the amount the
Fund receives on its sale of the related investment is reduced by the
amount of the premium paid by the Fund.
Dual Class Methodology. The methodology for calculating the net asset
value, dividends and distributions of the Fund's Class A and Class B
shares recognizes two types of expenses. General expenses that do not
pertain specifically to either class are allocated pro rata to the shares
of each class, based on the percentage of the net assets of such class to
the Fund's total net assets, and then equally to each outstanding share
within a given class. Such general expenses include (i) management fees,
(ii) legal, bookkeeping and audit fees, (iii) printing and mailing costs
of shareholder reports, Prospectuses, Additional Statements and other
materials for current shareholders, (iv) fees to unaffiliated Trustees,
(v) custodian expenses, (vi) share issuance costs, (vii) organization and
start-up costs, (viii) interest, taxes and brokerage commissions, and (ix)
non-recurring expenses, such as litigation costs. Other expenses that are
directly attributable to a class are allocated equally to each outstanding
share within that class. Such expenses include (a) Distribution and/or
Service Plan fees, (b) incremental transfer and shareholder servicing
agent fees and expenses, (c) registration fees and (d) shareholder meeting
expenses, to the extent that such expenses pertain to a specific class
rather than to the Fund as a whole.
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 circumstances
described in the Prospectus because the Distributor incurs little or no
selling expenses. The term "immediate family" refers to one's spouse,
children, grandchildren, grandparents, parents, parents-in-law, siblings,
a spouse's siblings and a sibling's spouse.
Redemptions. The Prospectus states that payment for shares tendered for
redemption is ordinarily made in cash. However, if the Board of Trustees
determines that it would be detrimental to the best interests of the
remaining shareholders of the Fund to make payment wholly or partly in
cash, the redemption price may be paid in whole or in part by a
distribution in kind of securities from the portfolio of the Fund in lieu
of cash in conformity with applicable SEC rules. The Fund has elected to
be governed by Rule 18f-1 under the Investment Company Act pursuant to
which it is obligated to redeem shares of the Fund 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 converting
the assets to cash. The method of valuing securities used to make
redemptions in kind will be the same as the method of valuing portfolio
securities described under "Determination of Net Asset Value Per Share,"
and such valuation will be made as of the same time the redemption price
is determined.
The Board of Trustees of the Trust has the right to cause the
involuntary redemption of the shares held in any account if the aggregate
net asset value of such shares is less than $200 or such lesser amount as
the Board may decide. 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. Should the Board elect to exercise this
right, it may also fix, in accordance with the Investment Company Act, the
requirements for any notice to be given to the shareholders in question
(not less than 30 days), or may set requirements for permission to allow
the shareholder to increase the investment so that the shares will not be
involuntarily redeemed.
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 difference in net asset value times 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
loss by redeeming shares from any account registered in that investor's
name or by seeking other redress.
Transfer of Shares. Shareholders owning shares of both classes must
specify whether they intend to transfer Class A or Class B shares. Shares
are not subject to the payment of a CDSC of either class at the time of
transfer (by absolute assignment, gift or bequest, not involving, directly
or indirectly, a public sale). The transferred shares will remain subject
to the CDSC, 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 not all shares in the account would be subject to a CDSC
if redeemed at the time of transfer, then shares will be transferred in
the order described in the Prospectus under "How to Buy Shares--Class B
Contingent Deferred Sales Charge" for the imposition of the Class B CDSC
on redemptions.
Exchanges of Class B Shares. As stated in the Prospectus, shares of a
particular class of Eligible Funds having more than one class of shares
may be exchanged only for shares of the same class or another Eligible
Fund. All of the Eligible Funds offer Class A shares, but only the
following other Eligible Funds offer Class B shares:
Oppenheimer Strategic Income Fund
Oppenheimer Strategic Income & Growth Fund
Oppenheimer Strategic Investment Grade Bond Fund
Oppenheimer Strategic Short-Term Income Fund
Oppenheimer Tax-Free Bond Fund
Oppenheimer Total Return Fund, Inc.
Oppenheimer Investment Grade Bond Fund
Oppenheimer Value Stock Fund
Oppenheimer New York Tax-Exempt Fund
Oppenheimer Florida Tax-Exempt Fund
Oppenheimer California Tax-Exempt Fund
Oppenheimer Pennsylvania Tax-Exempt Fund
Oppenheimer Government Securities Fund
Oppenheimer High Yield Fund
Oppenheimer Insured Tax-Exempt Bond Fund
Oppenheimer Mortgage Income Fund
Oppenheimer Cash Reserves
Oppenheimer Special Fund
Oppenheimer Equity Income Fund
Oppenheimer Global Fund
Oppenheimer Main Street California Tax-Exempt Fund
Oppenheimer Discovery Fund (available 4/1/94)
DISTRIBUTION AND SERVICE PLANS
The Fund has adopted a separate Plan for the Fund's Class A shares
(the "Class A Plan") and Class B shares (the "Class B Plan")
(collectively, the "Plans") under Rule 12b-1 of the Investment Company Act
pursuant to which the Fund will reimburse the Distributor for all or a
portion of its costs incurred in connection with the distribution and/or
servicing of the shares of that class, as described in the Prospectus.
Each Plan has been approved by a vote of (i) the Board of Trustees of the
Trust, including a majority of the "Independent Trustees" (those Trustees
of the Trust who are not "interested persons," as defined in the
Investment Company Act, and who have no direct or indirect financial
interest in the operation of the Plans or in any agreements relating to
the Plans), cast in person at a meeting called for the purpose of voting
on that Plan and (ii) the holders of a "majority" (as defined in the
Investment Company Act) of the shares of each class, such vote having been
cast by the Manager as the sole initial holder of Class A and Class B
shares of the Fund.
Each Plan shall, unless terminated as described below, continue in
effect from year to year but only as long as such continuance is
specifically approved at least annually by the Board of Trustees and its
Independent Trustees by a vote cast in person at a meeting called for the
purpose of voting on such continuance. Either 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 the respective class. Neither Plan may
be amended to increase materially the amount of payments to be made,
unless such amendment is approved by shareholders of the class affected
by the amendment. All material amendments must be approved by the
Independent Trustees.
While the Plans are in effect, the Treasurer of the Trust shall
provide separate written reports to the Board of Trustees at least
quarterly on the amount of all payments made pursuant to the Plan, the
purpose for which each payment was made and the identity of each Recipient
of a payment. The report for the Class B Plan shall also include the
distribution costs for that quarter, and such costs for previous fiscal
periods that are carried forward, as explained in the Prospectus and
below. Those reports, including the allocations on which they are based,
will be subject to the review and approval of the Independent Trustees in
the exercise of their fiduciary duty. Each Plan further provides that
while it is in effect, the selection and nomination of those Trustees of
the Trust who are not "interested persons" of the Trust is committed to
the discretion of the Independent Trustees. This does not prevent the
involvement of others in such selection and nomination if the final
decision on any such selection or nomination is approved by a majority of
the Independent Trustees.
Under the Plans, no payment will be made to any Recipient in any
quarter if the aggregate net asset value of all Fund shares held by the
Recipient for itself and its customers did not exceed a minimum amount,
if any, that may be determined from time to time by a majority of the
Independent Trustees. Initially, the Board of Trustees has not set a
minimum amount. The Board has determined that the service fee payable
under the Plans will initially be 0.15% per annum, computed on the average
annual net assets of Class A shares and Class B shares of the Fund, as
applicable, which service fee may be increased by the Board from time to
time to an annual rate not to exceed 0.25% of such average annual net
assets. The Plans permit the Distributor and the Manager to make
additional distribution payments to Recipients from their own resources
(including profits from previous management fees) at no cost to the Fund.
The Distributor and the Manager may, in their sole discretion, increase
or decrease the amount of distribution assistance payments they make to
Recipients from their own assets.
Any unreimbursed expenses incurred with respect to Class A shares for
any fiscal quarter by the Distributor may not be recovered under the Class
A Plan in subsequent fiscal quarters. Payments received by the
Distributor under the Class A Plan will not be used to pay any interest
expense, carrying charges, or other financial costs, or allocation of
overhead by the Distributor.
The Class B Plan allows the service fee payment to be paid by the
Distributor to Recipients in advance for the first year Class B shares are
outstanding, and thereafter on a quarterly basis, as described in the
Prospectus. The advance payment is based on the net assets of the Class
B shares sold. An exchange of shares does not entitle the Recipient to
an advance service fee payment. In the event Class B shares are redeemed
during the first year such shares are outstanding, the Recipient will be
obligated to repay a pro rata portion of such advance payment to the
Distributor. Although the Class B Plan permits the Distributor to retain
both the asset-based sales charges and the service fee on Class B shares,
or to pay Recipients the service fee on a quarterly basis, without payment
in advance, the Distributor intends to pay the service fee to Recipients
in the manner described above. A minimum holding period may be
established from time to time under the Class B Plan by the Board.
Initially, the Board has set no minimum holding period. All payments
under the Class B Plan are subject to the limitations on such plans
imposed by the National Association of Securities Dealers, Inc. Rules of
Fair Practice. The Class B Plan allows for the carry-forward of
distribution expenses, to be recovered from asset-based sales charges in
subsequent fiscal periods, as described in the Prospectus.
The Fund believes that current accounting standards do not require
the Fund to record as a current liability its obligation under the Class
B Plan to carry over and continue payments of the asset-based sales charge
to the Distributor in the future to reimburse it for expenses incurred
as to Class B shares sold prior to the termination of the plan. Those
accounting standards are currently being reviewed by the AICPA, as
discussed in the prospectus. If those accounting standards should be
changed to require the Fund to recognize that obligation for future
payments as a current liability, the Fund's Board would consider other
alternatives to that provision of the Class B Plan, because otherwise the
treatment of such expenses as a current liability could result in a
decrease in the net asset value per Class B share. Such decrease would
affect all then-outstanding Class B shares regardless of how long they had
been held. Furthermore, Class B shareholders whose shares had not matured
would continue to remain subject to the Class B CDSC.
The asset-based sales charge paid to the Distributor by the Fund
under the Class B Plan is intended to allow the Distributor to recoup the
cost of sales commissions paid to authorized brokers and dealers at the
time of sale, plus financing costs, as described in the Prospectus. Such
payments may also be used to pay for the following expenses in connection
with the distribution of Class B shares: (i) financing the advance of the
service fee payment to Recipients under the Class B Plan, (ii)
compensation and expenses of personnel employed by the Distributor to
support distribution of Class B shares, and (iii) costs of sales
literature, advertising and prospectuses (other than those furnished to
current shareholders) and state "blue sky" registration fees.
The Glass-Steagall Act and other applicable laws and regulations,
among other things, generally prohibit Federally-chartered or supervised
banks from engaging in the business of underwriting, selling or
distributing securities as principals. It is the understanding of the
Manager and the Distributor that the Glass-Steagall Act and other
applicable laws and regulations do not prohibit banks and other financial
institutions from providing the services required of a Recipient.
Accordingly, the Distributor may pay banks only for sales made on an
agency basis or for the performance of administrative and shareholder
servicing functions. However, judicial or administrative decisions or
interpretations of such laws, as well as changes in either Federal or
state statutes or regulations relating to the permissible activities of
banks or their subsidiaries or affiliates, could prevent certain banks
from continuing to perform all or a part of these services. If a bank
were so prohibited, shareholders of the Fund who were clients of such bank
would be permitted to remain as shareholders, and if that bank could no
longer provide those service functions, alternate means for continuing the
servicing of such shareholders would be sought. In such event,
shareholders serviced by such bank might no longer be able to avail
themselves of any automatic investment or other services then being
provided by such bank. The Board of Trustees will consider appropriate
modifications to the Fund's operations, including discontinuance of
payments under the Plans to such institutions, in the event of any future
change in such laws or regulations that may adversely affect the ability
of such institutions to provide those services. It is not expected that
shareholders would suffer any adverse financial consequences as a result
of any of those occurrences. In addition, certain banks and financial
institutions may be required to register as dealers under state law.
PERFORMANCE AND TAX INFORMATION
Yield and Total Return Information. As described in the Prospectus, from
time to time the "yield," "tax-equivalent yield," "dividend yield,"
"average annual total return," "total return" and "total return at net
asset value" of an investment in each class of Fund shares may be
advertised. An explanation of how yields and total returns are calculated
and the components of those calculations are set forth below.
The Fund's yield for a given 30-day period for a class of shares is
calculated using the following formula under SEC rules:
a-b 6
Yield = 2 ((---- + 1) -1)
cd
The symbols above represent the following factors:
a = dividends and interest earned during the 30-day period.
b = expenses accrued for the period (net of any expense
reimbursements).
c = the average daily number of shares of that class outstanding
during the 30-day period that were entitled to receive dividends.
d = the maximum offering price per share of the class on the last day
of the period, adjusted for undistributed net investment income.
The yield of a class of shares for a 30-day period may differ from
its yield for any other period. The SEC formula assumes that the yield
for a 30-day period occurs at a constant rate for a six-month period and
is annualized at the end of the six-month period. This "standardized"
yield is not based on distributions paid by the Fund to shareholders in
the 30-day period, but is a hypothetical yield based upon the Fund's
portfolio investments, and may differ from the "dividend yield," described
below.
"Tax-equivalent yield" of a class of shares adjusts the yield, as
calculated above, by a stated Federal tax rate. The tax-equivalent yield
is based on a 30-day period, and is computed by dividing the tax-exempt
portion of the yield (as calculated above) by one minus a stated income
tax rate and adding the result to the portion (if any) of the yield that
is not tax exempt. The tax equivalent yield may be used to compare the
tax effects of income derived from shares of a class with income from
taxable investments at the tax rates stated. Appendix B includes a tax-
equivalent yield table, based on various effective tax brackets for
individual taxpayers. Such tax brackets are determined by a taxpayer's
Federal and state taxable income (the net amount subject to Federal 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, and that state income tax payments are fully deductible for
income tax purposes. For taxpayers with income above certain levels,
otherwise allowable itemized deductions are limited.
From time to time the Fund may quote a "dividend yield" or a
"distribution return" for each class. Dividend yield is based on the
dividends paid on shares of a class derived from net investment income
during a stated period and distribution return includes dividends derived
from net investment income and from realized capital gains declared during
a stated period. Under those calculations, the dividends and/or
distributions for that class declared during a stated period of one year
or less (for example, 30 days) are added together, and the sum is divided
by the maximum offering price per share of that class on the last day of
the period. The result may be annualized if the period of measurement is
less than one year. The dividend yield is calculated as follows:
Dividend Yield =
Dividend
- ----------
MOP
Divided by number of days (accrual period) x 365
In the formula above, "Dividend" is the sum of the class's dividends
declared during the stated dividend period, and "MOP" is the maximum
offering price on the last day of the period.
The "average annual total return" of a class is an average annual
compounded rate of return. It is the rate of return based on factors
which include a hypothetical initial investment of $1,000 ("P" in the
formula below) held for a number of years ("n") with an Ending Redeemable
Value ("ERV") of that investment, according to the following formula:
( ERV ) 1/n
(-----) -1 = Average Annual Total Return
( P )
The "total return" calculation uses the same factors, but does not
average the rate of return on an annual basis. Total return measures the
cumulative (rather than the average) change in value of a hypothetical
investment over a stated period. Total return is determined as follows:
ERV - P
- ------- = Total Return
P
The formulas for average annual total return and for total return for
Class A shares assume the payment of the current maximum sales charge of
4.75% (as a percentage of the offering price) on the initial investment
("P"). The formulas for Class B shares assume the payment of the
contingent deferred sales charge of 5.0% for the first year, 4.0% for the
second year, 3.0% for the third and fourth years, 2.0% for the fifth year,
and 1.0% in the sixth year, applied as described in "How to Buy Shares"
in the Prospectus. The formulas also assume that all dividends and
capital gains distributions during the period are reinvested at net asset
value per share, and that the investment is redeemed at the end of the
period.
From time to time a "total return at net asset value" may be quoted
for a class of shares. It is based on the difference in net asset value
per share at the beginning and the end of the period for that class
(without considering the sales charge) and takes into consideration the
reinvestment of dividends and capital gains (as with total return,
described above).
From time to time the Fund may publish the ranking of the performance
of its Class A or Class B shares by Lipper Analytical Services, Inc.
("Lipper"), a widely-recognized independent service, which 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's classes of shares
is ranked against (i) all other fixed income funds other than money market
funds and (ii) New Jersey municipal bond funds. The Lipper performance
analysis includes the reinvestment of capital gains distributions and
income dividends but does not take sales charges or taxes into
consideration.
From time to time the Fund may publish the ranking of the performance
of its Class A or Class B shares by Morningstar, Inc. ("Morningstar"), an
independent mutual fund monitoring service, which ranks mutual funds,
including the Fund, based upon the fund's three, five and ten-year average
annual total returns (when available) and a risk factor that reflects fund
performance relative to three-month U.S. Treasury bill monthly returns.
Such returns are adjusted for fees and sales loads. There are five
ranking categories with a corresponding number of stars: highest (5),
above average (4), neutral (3), below average (2) and lowest (1).
Morningstar ranks the Fund in relation to other fixed-income funds.
From time to time the Fund may include in its advertisements and
sales literature performance information about the Fund cited in other
newspapers and periodicals, such as The New York Times, which may include
performance quotations from other sources, including Lipper and
Morningstar.
Yield and total return information may be useful to investors in
reviewing the Fund's performance. However, a number of factors should be
considered before using such information as a basis for comparison with
other investments. An investment in the Fund is not insured; its yield
and total return are not guaranteed and normally will fluctuate on a daily
basis. Yield and total return for any given past period are not an
indication or representation by the Fund of future yields or rates of
return on its classes of shares. The yield and total return of a class
of shares are affected by portfolio quality, portfolio maturity, type of
investments held and operating expenses. When comparing yield, total
return and investment risk on an investment in the Fund with those of
other investment instruments, investors should understand that certain
other investment alternatives such as money market instruments,
certificates of deposit ("CDs"), U.S. Government securities or bank
accounts provide yields that are fixed or that may vary above a stated
minimum, and may be insured or guaranteed.
Tax Status of the Fund. The Fund intends to qualify as a "regulated
investment company" under Subchapter M of the Internal Revenue Code. By
so qualifying, the Fund will not be subject to Federal income taxes on
amounts paid by it as dividends and distributions, as described in the
Prospectus. In order to qualify as a "regulated investment company," at
the end of each quarter of its taxable year, at least 50% of the aggregate
value of the Fund's total assets must consist of cash, cash items,
government securities and other securities, the latter limited with
respect to each issuer at the time of purchase to not more than 5% of the
Fund's total assets. The Fund will endeavor to insure that its assets are
so invested so that this requirement is satisfied, but there can be no
assurance that it will be successful in doing so.
Tax Status of the Fund's Dividends and Distributions. 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 from the prior
November 1 through October 31 of that year or else the Fund must pay an
excise tax on the amounts not distributed. While it is presently
anticipated that the Fund's distributions will meet those requirements,
the Manager may determine that in a particular year it would be in the
best interests of the Fund not to distribute income or capital gains at
the mandated levels and to pay the excise tax, which would reduce the
amount 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 funds listed in the Prospectus as
"Eligible Funds," at net asset value without sales charge. Class B
shareholders should be aware that as of the date of this Additional
Statement, not all Eligible Funds offer Class B shares. The names of such
Funds that offer Class B shares are listed under "Exchanges of Class B
Shares" above. To elect this option, the shareholder must notify the
Transfer Agent in writing and either must have an existing account in the
fund selected for reinvestment or must obtain a prospectus for that fund
and an application from the Distributor to establish an account. The
investment will be made at the net asset value per share in effect at the
close of business on the payable date of the dividend or distribution.
Dividends and/or distributions from other Eligible Funds may be used to
purchase shares of the Fund on the same basis.
ADDITIONAL INFORMATION
Description of the Fund. The Trust's Declaration of Trust contains an
express disclaimer of shareholder or Trustee liability for the obligations
of the Trust, including the Fund, and provides for indemnification and
reimbursement of expenses out of its property for any shareholder held
personally liable for its obligations. The Declaration of Trust also
provides that the Fund shall, upon request, assume a defense of any claim
made against any shareholder for any act or obligation of the Fund and
satisfy any judgment thereon. Thus, while Massachusetts law permits a
shareholder of a trust (such as the Trust) to be held personally liable
as a partner for the Fund's obligations under certain circumstances, the
risk of a Fund shareholder incurring any financial loss on account of
shareholder liability is limited to the relatively remote circumstances
in which the Fund itself would be unable to meet the obligations described
above. Every person doing business with the Fund, and every shareholder
of the Fund, agrees under the Trust's Declaration of Trust to look solely
to the assets of the Fund for satisfaction of any claim or demand which
may arise out of any dealings with the Fund, and the Trustees shall have
no personal liability to any such person to the extent permitted by law.
It is not contemplated that regular annual meetings of shareholders
will be held. The Fund will hold meetings when required to do so by the
Investment Company Act or other applicable law, or when a shareholder
meeting is called by the Trustees or upon proper request of the
shareholders. Shareholders have the right, upon the declaration in
writing or vote of two-thirds of the outstanding shares of the Fund, to
remove a Trustee. The Trustees will call a meeting of shareholders to
vote on the removal of a Trustee upon the written request of the record
holders of 10% of its outstanding shares. In addition, if the Trustees
receive a request from at least 10 shareholders (who have been
shareholders at least six months) holding shares of the Fund valued at
$25,000 or more or holding 1% or more of the Fund's outstanding shares,
whichever is less, that they wish to communicate with other shareholders
to request a meeting to remove a Trustee, the Trustees will then give the
applicants access to the Fund's shareholder list, mail their communication
to all other shareholders at the applicants' expense, or take such
alternative action as set forth in Section 16(c) of the Investment Company
Act.
The Custodian and the Transfer Agent. The Custodian's responsibilities
include safeguarding and controlling the Fund's portfolio securities and
cash, collecting income on the portfolio securities and handling the
delivery of portfolio securities to and from the Fund. The Manager has
represented to the Fund that the banking relationships, described in the
Prospectus, between the Manager and the Custodian have been and will
continue to be unrelated to and unaffected by the relationship between the
Fund and the Custodian. It will be the practice of the Fund to deal with
the Custodian in a manner uninfluenced by any banking relationship the
Custodian may have with the Manager or its affiliates.
The Transfer Agent is responsible for maintaining the Fund's
shareholder registry and shareholder accounting records, and for
shareholder servicing and administrative functions.
General Distributor's Agreement. Under the General Distributor's
Agreement between the Fund and the Distributor, the Distributor acts as
the Fund's principal underwriter in the continuous public offering of the
Fund's Class A and Class B shares, but is not obligated to sell a specific
number of shares. Expenses normally attributable to sales (other than
those paid under the Plans), including advertising and the cost of
printing and mailing prospectuses (other than those furnished to existing
shareholders), are borne by the Distributor.
Independent Auditors. The independent auditors of the Fund audit the
Fund's financial statements and perform other related audit services.
They act as auditors for certain other investment companies advised by the
Manager.
AUTOMATIC WITHDRAWAL PLAN PROVISIONS
By requesting an Automatic Withdrawal Plan (the "Withdrawal Plan"),
the shareholder agrees to the terms and conditions applicable to such
Withdrawal Plans, as stated below and elsewhere in the Application for
such Withdrawal Plans, and the Prospectus and this Statement of Additional
Information as they may be amended from time to time by the Fund and/or
the Distributor. When adopted, such amendments will automatically apply
to existing Withdrawal Plans.
Fund shares will be redeemed as necessary to meet withdrawal
payments. Shares acquired without a sales charge will be redeemed first
and thereafter shares acquired with reinvested dividends and distributions
followed by shares acquired with a sales charge will be redeemed to the
extent necessary to make withdrawal payments. Depending upon the amount
withdrawn, the investor's principal may be depleted. Payments made to
shareholders under such Withdrawal Plans should not be considered as a
yield or income on investment. Purchases of additional shares
concurrently with withdrawals are undesirable because of sales charges on
purchases when made. Accordingly, a shareholder may not maintain a
Withdrawal Plan while simultaneously making regular purchases.
1. Oppenheimer Shareholder Services, the Transfer Agent, will
administer the Withdrawal Plan as agent for the person (the "Planholder")
who executed the Withdrawal Plan authorization and application submitted
to the Transfer Agent.
2. 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 now held by the Planholder may be surrendered
unendorsed to the Transfer Agent with the Withdrawal Plan application so
that the shares represented by the certificate may be held under the
Withdrawal Plan. Those shares will be carried on the Planholder's
Withdrawal Plan Statement.
3. 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 may be paid in cash or reinvested.
4. Redemptions of shares in connection with disbursement payments
will be made at the net asset value per share determined on the redemption
date.
5. Checks or ACH payments will be transmitted three business days
prior to the date selected for receipt of the monthly or quarterly payment
(the date of receipt is approximate), according to the choice specified
in writing by the Planholder.
6. The amount and the interval of disbursement payments and the
address to which checks are to be mailed may be changed at any time by the
Planholder on written notification to the Transfer Agent. The Planholder
should allow at least two weeks' time in mailing such notification before
the requested change can be put into effect.
7. The Planholder may, at any time, instruct the Transfer Agent by
written notice (in proper form in accordance with the requirements of the
then-current Prospectus of the Fund) to redeem all, or any part of, the
shares held under the Withdrawal Plan. In such case, the Transfer Agent
will redeem the number of shares requested at the net asset value per
share in effect in accordance with the Fund's usual redemption procedures
and will mail a check for the proceeds of such redemption to the
Planholder.
8. The Withdrawal Plan may, at any time, be terminated by the
Planholder on written notice to the Transfer Agent, or by the Transfer
Agent upon receiving directions to that effect from the Fund. The
Transfer Agent will also terminate the Withdrawal Plan upon receipt of
evidence satisfactory to it of the death or legal incapacity of the
Planholder. Upon termination of the Withdrawal Plan by the Transfer Agent
or the Fund, shares remaining unredeemed will be held in an uncertificated
account in the name of the Planholder, and the account will continue as
a dividend-reinvestment, uncertificated account unless and until proper
instructions are received from the Planholder, his or her executor or
guardian, or as otherwise appropriate.
9. For purposes of using shares held under the Withdrawal Plan as
collateral, the Planholder may request issuance of a portion of his or her
shares in certificated form. Upon written request from the Planholder,
the Transfer Agent will determine the number of shares as to which a
certificate may be issued, so as not to cause the withdrawal checks to
stop because of exhaustion of uncertificated shares needed to continue
payments. Should such uncertificated shares become exhausted, Withdrawal
Plan withdrawals will terminate.
10. The Transfer Agent shall incur no liability to the
Planholder for any action taken or omitted by the Transfer Agent in good
faith.
11. In the event that the Transfer Agent shall cease to act as
transfer agent for the Fund, the Planholder will be deemed to have
appointed any successor transfer agent to act as his or her agent in
administering the Withdrawal Plan.
LETTERS OF INTENT
In submitting a Letter of Intent ("Letter") to purchase Class A
shares of the Fund and other OppenheimerFunds at a reduced sales charge,
the investor agrees to the terms of the Prospectus, the Application used
to buy such shares, and the language in this Additional Statement as to
Letters of Intent, as they may be amended from time to time by the Fund.
Such amendments will apply automatically to existing Letters.
A Letter is the investor's statement of intention to purchase Class
A shares of the Fund (and other eligible OppenheimerFunds sold with a
sales charge) during the 13-month period from the investor's first
purchase pursuant to the Letter (the "Letter of Intent period"), which
may, at the investor's request, include purchases made up to 90 days prior
to the date of the Letter. The investor states the intention to make the
aggregate amount of purchases (excluding any reinvestments of dividends
or distributions or purchases made at net asset value without sales
charge), which together with the investor's holdings of such funds
(calculated at their respective public offering prices calculated on the
date of the Letter) will equal or exceed the amount specified in the
Letter to obtain the reduced sales charge rate (as set forth in "How to
Buy Shares" in the Prospectus) applicable to purchases of shares in that
amount (the "intended amount"). Each purchase under the Letter will be
made at the public offering price applicable to a single lump-sum purchase
of shares in the intended amount, as described in the applicable
prospectus.
In submitting a Letter, the investor makes no commitment to purchase
shares, but if the investor's purchases of shares within the Letter of
Intent period, when added to the value (at offering price) of the
investor's holdings of such fund shares on the last day of that period,
do not equal or exceed the intended amount, the investor agrees to pay the
additional amount of sales charge applicable to such purchases, as set
forth in "Terms of Escrow," below, as those terms may be amended from time
to time. The investor agrees that shares equal in value to 5% of the
intended amount will be held in escrow by the Fund's transfer agent
subject to the Terms of Escrow.
If the total eligible purchases made during the Letter of Intent
period do not equal or exceed the intended 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 amount and exceed the
amount needed to qualify for the next sales charge rate reduction set
forth in the applicable prospectus, the sales charges paid will be
adjusted to the lower rate, but only if and when the dealer returns to the
Distributor the excess of the amount of commissions allowed or paid to the
dealer over the amount of commissions that apply to the actual amount of
purchases. The excess commissions returned to the Distributor will be
used to purchase additional shares for the investor's account at the net
asset value per share in effect on the date of such purchase, promptly
after the Distributor's receipt thereof.
In determining the total amount of purchases made under a Letter,
shares redeemed by the investor prior to the termination of the Letter of
Intent period will be deducted. It is the responsibility of the dealer
of record and/or the investor to refer to 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
1. Out of the initial purchase (or subsequent purchases if
necessary) made pursuant to a Letter, shares of the Fund equal in value
to 5% of the intended amount specified in the Letter shall be held in
escrow by the Fund's transfer agent. For example, if the intended amount
specified under the Letter 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 13-month Letter of Intent period, the escrowed shares
will be promptly released to the investor.
3. If, at the end of the 13-month Letter of Intent period the total
purchases pursuant to the Letter are less than the intended amount
specified in the Letter, the investor must remit to the Distributor an
amount equal to the difference between the dollar amount of sales charges
actually paid and the amount of sales charges which would have been paid
if the total amount purchased had been made at a single time. Such sales
charge adjustment will apply to any shares redeemed prior to the
completion of the Letter. If such difference in sales charges is not paid
within twenty days after a request from the Distributor or the dealer, the
Distributor will, within sixty days of the expiration of the Letter,
redeem the number of escrowed shares necessary to realize such difference
in sales charges. Full and fractional shares remaining after such
redemption will be released from escrow. If a request is received to
redeem escrowed shares prior to the payment of such additional sales
charge, the sales charge will be withheld from the redemption proceeds.
4. By signing the Letter, the investor irrevocably constitutes and
appoints the transfer agent of the Fund as attorney-in-fact to surrender
for redemption any or all escrowed shares.
5. The funds whose shares are eligible for purchase under the Letter
(or the holding of which may be counted toward completion of the Letter)
do not include any fund whose shares are sold without a front-end sales
charge or without being subject to a Class A contingent deferred sales
charge unless (for the purpose of determining completion of the obligation
to purchase shares under the Letter) the shares were acquired in exchange
for shares of a fund (described as an "Eligible Fund" in the Prospectus)
whose shares were acquired by payment of a sales charge.
6. Shares held in escrow hereunder will automatically be exchanged
for shares of another fund to which an exchange is requested, as described
in the section of the Prospectus entitled "Exchange Privilege," and the
escrow will be transferred to that other fund.
<PAGE>
APPENDIX A
RATINGS OF INVESTMENTS
Municipal Bonds
Moody's. The four highest ratings of Moody's for Municipal Bonds are
Aaa, Aa, A and Baa. Municipal Bonds rated Aaa are judged to be of the
"best quality." The rating of Aa is assigned to bonds which are of "high
quality by all standards," but as to which margins of protection or other
elements make long-term risks appear somewhat larger than Aaa rated
Municipal Bonds. The Aaa and Aa rated bonds comprise what are generally
known as "high grade bonds." Municipal Bonds which are rated A by Moody's
possess many favorable investment attributes and are considered "upper
medium grade obligations." Factors giving security to principal and
interest of A rated bonds are considered adequate, but elements may be
present which suggest a susceptibility to impairment at some time in the
future. Municipal Bonds rated Baa are considered "medium grade"
obligations. They are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present
but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Those bonds
in the Aa, A and Baa groups which Moody's believes possess the strongest
attributes are designated Aa1, A1 and Baa1, respectively.
In addition to the alphabetic rating system described above,
Municipal Bonds rated by Moody's which have a demand feature that provides
the holder with the ability to periodically tender ("put") the portion of
the debt covered by the demand feature, may also have a short-term rating
assigned to such demand feature. The short-term rating uses the symbol
"VMIG" to distinguish characteristics which include payment upon periodic
demand rather than fund or scheduled maturity dates and potential reliance
upon external liquidity, as well as other factors. The highest investment
quality is designated by the VMIG1 rating and the lowest by VMIG4.
S&P and Fitch. The four highest ratings of S&P for Municipal Bonds
are AAA (Prime), AA (High Grade), A (Good Grade), and BBB (Medium Grade).
Municipal Bonds rated AAA are "obligations of the highest quality." The
rating of AA is accorded issues with investment characteristics "only
slightly less marked than those of the prime quality issues." The
category of A describes "the third strongest capacity for payment of debt
service." Principal and interest payments on bonds in this category are
regarded as safe. It differs from the two higher ratings because, with
respect to general obligations bonds, there is some weakness, either in
the local economic base, in debt burden, in the balance between revenues
and expenditures, or in quality of management. Under certain adverse
circumstances, any one such weakness might impair the ability of the
issuer to meet debt obligations at some future date. With respect to
revenue bonds, debt service coverage is good, but not exceptional.
Stability of the pledged revenues could show some variations because of
increased competition or economic influences on revenues. Basic security
provisions, while satisfactory, are less stringent. Management
performance appears adequate.
The BBB rating is the lowest "investment grade" security rating. The
difference between A and BBB ratings is that the latter shows more than
one fundamental weakness, or one very substantial fundamental weakness,
whereas the former shows only one deficiency among the factors considered.
With respect to revenue bonds, debt coverage is only fair. Stability of
the pledged revenues could show variations, with the revenue flow possibly
being subject to erosion over time. Basic security provisions are no more
than adequate. Management performance could be stronger. The ratings AA,
A, and BBB may be modified by the addition of a plus or minus sign to show
relative standing within the major rating categories.
The ratings of Fitch for Municipal Bonds are similar to those used
by S&P.
Corporate Debt
The "other debt securities" included in the definition of temporary
investments are corporate (as opposed to municipal) debt obligations rated
Aaa, Aa or A by Moody's or AAA, AA or A by S&P. The Moody's corporate
debt ratings of Aaa, Aa and A do not differ materially from those set
forth above for Municipal Bonds. Corporate debt obligations rated AAA by
S&P are "highest grade obligations." Obligations bearing the rating of
AA also qualify as "high grade obligations" and "in the majority of
instances differ from AAA issues only in small degrees." Corporate debt
obligations rated A by S&P are regarded as "upper medium grade" and have
considerable investment strength, but are not entirely free from adverse
effects of changes in economic and trade conditions.
Commercial Paper
The commercial paper ratings of A-1 by S&P, P-1 by Moody's and F-1+
by Fitch are the highest commercial paper ratings of the respective
agencies. The issuer's earnings, quality of long-term debt, management
and industry position are among the factors considered in assigning such
ratings.
Tax-Exempt Municipal Notes
Moody's ratings for state and municipal notes and other short-term
loans are designated Moody's Investment Grade ("MIG"). Notes bearing the
designation MIG-1 are of the best quality, enjoying strong protection from
established cash flows of funds for their servicing or from established
and broad-based access to the market for financing. Notes bearing the
designation "MIG-2" are of high quality with ample margins of protection,
although not as large as notes rated "MIG." Such short-term notes which
have demand features may also carry a rating using the symbol VMIG as
described above, with the designation MIG-1/VMIG 1 denoting best quality,
with superior liquidity support in addition to those characteristics
attributable to the designation MIG-1.
S&P's rating for Municipal Notes due in three years or less are SP-1
and SP-2. 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.
Fitch assigns the following short-term ratings to debt obligations
that are payable on demand or have original maturities of generally up to
three years, including municipal notes: F-1+, F-1 and F-2. F-1+ denotes
exceptionally strong credit quality; the strongest degree of assurance for
timely payment. F-1 indicates very strong credit quality; assurance of
timely payment is only slightly less in degree than issues rated F-1+.
F-2 indicates good credit quality; satisfactory degree of assurance for
timely payment, but the margin of safety is not as great as for issues
assigned "F-1+" or "F-1" ratings.
General
Subsequent to its purchase by the Fund, an issue of Municipal Bonds
or a temporary investment may cease to be rated or its rating may be
reduced below the minimum required for purchase by the Fund. Neither
event requires the elimination of such obligation from the Fund's
portfolio, but the Manager will consider such an event in its
determination of whether the Fund should continue to hold such obligation
in its portfolio. To the extent that the ratings accorded by S&P, Moody's
or Fitch may change as a result of changes in such organizations, or
changes in their rating systems, the Fund will attempt to use comparable
ratings as standards for its investments in accordance with the investment
policies contained herein.
<PAGE>
APPENDIX B
TAX EQUIVALENT YIELD TABLES
The equivalent yield tables below compare tax-free income with taxable
income under Federal individual income tax rates effective January 1,
1994 and New Jersey state income tax rates effective January 1, 1993.
Combined taxable income refers to the net amount subject to Federal and
New Jersey income taxes after deductions and exemptions. The tables
assume that an investor's highest tax bracket applies to the change in
taxable income resulting from a switch between taxable and non-taxable
investments, that the investor is not subject to the Alternative Minimum
Tax and that state income tax payments are fully deductible for Federal
income tax purposes. They do not reflect the phaseout of itemized
deductions and personal exemptions at higher income levels, resulting in
higher effective tax rates and tax equivalent yields.
<TABLE>
Combined Taxable Income
- ---------------------- An Oppenheimer New Jersey
Effective Tax Bracket Tax-Exempt Fund Yield
Single Return --------------------- of:
- ------------- Combined 3.0% 3.5% 4.0% 4.5%
Effective Is Approximately
Not Tax Equivalent to a Taxable
Over Over Fed./N.J. Bracket Yield of:
- ---- ---- --------- --------- --------------------------------------------
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
$ 20,000 $ 22,750 15%/2.5% 17.13% 3.62% 4.22% 4.83% 5.43%
$ 22,750 $ 35,000 28%/2.5% 29.80% 4.27% 4.99% 5.70% 6.41%
$ 35,000 $ 40,000 28%/5.0% 31.60% 4.39% 5.12% 5.85% 6.58%
$ 40,000 $ 55,100 28%/6.5% 32.68% 4.46% 5.20% 5.94% 6.68%
$ 55,100 $ 75,000 31%/6.5% 35.49% 4.65% 5.43% 6.20% 6.98%
$ 75,000 $115,000 31%/7.0% 35.83% 4.68% 5.45% 6.23% 7.01%
$115,000 $250,000 36%/7.0% 40.48% 5.04% 5.88% 6.72% 7.56%
$250,000 39.6%/7.0% 43.83% 5.34% 6.23% 7.12% 8.01%
</TABLE>
<TABLE>
Combined Taxable Income
- ---------------------- An Oppenheimer New Jersey
Effective Tax Bracket Tax-Exempt Fund Yield
Single Return --------------------- of:
- ------------- Combined 5.0% 5.5% 6.0% 6.5%
Effective Is Approximately
Not Tax Equivalent to a Taxable
Over Over Fed./N.J. Bracket Yield of:
- ---- ---- --------- --------- ---------------------------------------------
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
$ 20,000 $ 22,750 15%/2.5% 17.13% 6.03% 6.64% 7.24% 7.84%
$ 22,750 $ 35,000 28%/2.5% 29.80% 7.12% 7.83% 8.55% 9.26%
$ 35,000 $ 40,000 28%/5.0% 31.60% 7.31% 8.04% 8.77% 9.50%
$ 40,000 $ 55,100 28%/6.5% 32.68% 7.43% 8.17% 8.91% 9.66%
$ 55,100 $ 75,000 31%/6.5% 35.49% 7.75% 8.53% 9.30% 10.08%
$ 75,000 $115,000 31%/7.0% 35.83% 7.79% 8.57% 9.35% 10.13%
$115,000 $250,000 36%/7.0% 40.48% 8.40% 9.24% 10.08% 10.92%
$250,000 39.6%/7.0% 43.83% 8.90% 9.79% 10.68% 11.57%
</TABLE>
<TABLE>
Combined Taxable Income
- ---------------------- An Oppenheimer New Jersey
Effective Tax Bracket Tax-Exempt Fund Yield
Joint Return --------------------- of:
- ------------- Combined 3.0% 3.5% 4.0% 4.5%
Effective Is Approximately
Not Tax Equivalent to a Taxable
Over Over Fed./N.J. Bracket Yield of:
- ---- ---- --------- --------- ------------------------------------------------
<CAPTION
<S> <C> <C> <C> <C> <C> <C> <C>
$ 20,000 $ 38,000 15%/2.5% 17.13% 3.62% 4.22% 4.83% 5.43%
$ 38,000 $ 50,000 28%/2.5% 29.80% 4.27% 4.99% 5.70% 6.41%
$ 50,000 $ 70,000 28%/3.5% 30.52% 4.32% 5.04% 5.76% 6.48%
$ 70,000 $ 80,000 28%/5.0% 31.60% 4.39% 5.12% 5.85% 6.58%
$ 80,000 $ 91,850 28%/6.5% 32.68% 4.46% 5.20% 5.94% 6.68%
$ 91,850 $140,000 31%/6.5% 35.49% 4.65% 5.43% 6.20% 6.98%
$140,000 $150,000 36%/6.5% 40.16% 5.01% 5.85% 6.68% 7.52%
$150,000 $250,000 36%/7.0% 40.48% 5.04% 5.88% 6.72% 7.56%
$250,000 39.6%/7.0% 43.83% 5.34% 6.23% 7.12% 8.01%
</TABLE>
<TABLE>
Combined Taxable Income
- ---------------------- An Oppenheimer New Jersey
Effective Tax Bracket Tax-Exempt Fund Yield
Joint Return --------------------- of:
- ------------- Combined 5.0% 5.5% 6.0% 6.5%
Effective Is Approximately
Not Tax Equivalent to a Taxable
Over Over Fed./N.J. Bracket Yield of:
- ---- ---- --------- --------- ---------------------------------------------
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
$ 20,000 $ 38,000 15%/2.5% 17.13% 6.03% 6.64% 7.24% 7.84%
$ 38,000 $ 50,000 28%/2.5% 29.80% 7.12% 7.83% 8.55% 9.26%
$ 50,000 $ 70,000 28%/3.5% 30.52% 7.20% 7.92% 8.64% 9.36%
$ 70,000 $ 80,000 28%/5.0% 31.60% 7.31% 8.04% 8.77% 9.50%
$ 80,000 $ 91,850 28%/6.5% 32.68% 7.43% 8.17% 8.91% 9.66%
$ 91,850 $140,000 31%/6.5% 35.49% 7.75% 8.53% 9.30% 10.08%
$140,000 $150,000 36%/6.5% 40.16% 8.36% 9.19% 10.03% 10.86%
$150,000 $250,000 36%/7.0% 40.48% 8.40% 9.24% 10.08% 10.92%
$250,000 39.6%/7.0% 43.83% 8.90% 9.79% 10.68% 11.57%
</TABLE>
<PAGE>
Investment Adviser
Oppenheimer Management Corporation
Two World Trade Center
New York, New York 10048-0203
Distributor
Oppenheimer Funds Distributor, Inc.
Two World Trade Center
New York, New York 10048-0203
Transfer and Shareholder Servicing Agent
Oppenheimer Shareholder Services
P.O. Box 5270
Denver, Colorado 80217-5270
1-800-525-7048
Custodian of Portfolio Securities
Citibank, N.A.
399 Park Avenue
New York, New York 10043
Independent Auditors
KPMG Peat Marwick
707 Seventeenth Street
Denver, Colorado 80202
Legal Counsel
Gordon Altman Butowsky Weitzen
Shalov & Wein
114 West 47th Street
New York, New York 10036
