Registration No. 33-30198
811-5867
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 / X /
PRE-EFFECTIVE AMENDMENT NO. / /
POST-EFFECTIVE AMENDMENT NO. 16 / X /
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY / X /
ACT OF 1940
AMENDMENT NO. 17 / X /
OPPENHEIMER MULTI-STATE TAX-EXEMPT TRUST
(Exact Name of Registrant as Specified in Charter)
Two World Trade Center - Suite 3400
New York, New York 10048-0203
(Address of Principal Executive Offices)
(212) 323-0200
(Registrant's Telephone Number)
Andrew J. Donohue, Esq.
OppenheimerFunds, Inc.
Two World Trade Center - Suite 3400
New York, New York 10048-0203
(Name and Address of Agent for Service)
It is proposed that this filing will become effective (check
appropriate box):
/ / Immediately upon filing pursuant to paragraph (b)
/ X / On April 15, 1996, pursuant to paragraph (b)
/ / 60 days after filing pursuant to paragraph (a)(1)
/ / On __________, pursuant to paragraph (a)(1)
/ / 75 days after filing, pursuant to paragraph (a)(2)
/ / On _____________, pursuant to paragraph (a)(2) of Rule 485
The Registrant has elected to register an indefinite number of its
shares under the Securities Act of 1933 pursuant to Rule 24f-2 under
the Investment Company Act of 1940. A Rule 24f-2 Notice for the
Registrant's fiscal year ended December 31, 1995 was filed on February
28, 1996.
<PAGE>
OPPENHEIMER MULTI-STATE TAX-EXEMPT TRUST
FORM N-1A
Cross Reference Sheet
Oppenheimer Pennsylvania Tax-Exempt Fund, a series of the Registrant
Part A of
Form N-1A
Item No. Prospectus Heading
- --------- ------------------
1 Cover Page
2 Expenses; A Brief Overview of the Fund
3 Financial Highlights; Performance of the Fund
4 Front Cover Page; Investment Objective and Policies
5 Expenses; How the Fund is Managed; Back Cover
5A Performance of the Fund
6 How the Fund is Managed - Organization and History;
Dividends, Capital Gains and Taxes; The Transfer Agent
7 How to Buy Shares; Special Investor Services; How to Sell
Shares; How to Exchange Shares; Service Plan For Class A
Shares; Distribution and Service Plan for Class B Shares;
Distribution and Service Plan for Class C Shares;
Shareholder Account Rules and Policies
8 Special Investor Services; How to Sell Shares; How to
Exchange Shares
9 *
Part B of
Form N-1A
Item No. Heading in Statement of Additional Information
- --------- ----------------------------------------------
10 Cover Page
11 Cover Page
12 *
13 Investment Objective and Policies; Other Investment
Techniques and Strategies; Other Investment Restrictions
14 How the Fund is Managed - Trustees and Officers of the
Trust
15 How the Fund is Managed - Major Shareholders
16 How the Fund is Managed; Distribution and Service Plans;
Additional Information about the Fund
17 How the Fund is Managed
18 Additional Information about the Fund
19 About Your Account - How to Buy Shares, How to Sell
Shares, How to Exchange Shares
20 Dividends, Capital Gains and Taxes
21 How the Fund is Managed; Additional Information About the
Fund - The Distributor; Distribution and Service Plans
22 Performance of the Fund
23 Financial Statements
________________________
* Not applicable or negative answer.
<PAGE>
OPPENHEIMER MULTI-STATE TAX-EXEMPT TRUST
FORM N-1A
Cross Reference Sheet (continued)
Oppenheimer Florida Tax-Exempt Fund, a series of the Registrant
Part A of
Form N-1A
Item No. Prospectus Heading
- --------- ------------------
1 Cover Page
2 Expenses; A Brief Overview of the Fund
3 Financial Highlights; Performance of the Fund
4 Front Cover Page; Investment Objective and Policies
5 Expenses; How the Fund is Managed; Back Cover
5A Performance of the Fund
6 How the Fund is Managed - Organization and History;
Dividends, Capital Gains and Taxes; The Transfer Agent
7 How to Buy Shares; Special Investor Services; How to Sell
Shares; How to Exchange Shares; Service Plan For Class A
Shares; Distribution and Service Plan for Class B Shares;
Distribution and Service Plan for Class C Shares;
Shareholder Account Rules and Policies
8 Special Investor Services; How to Sell Shares; How to
Exchange Shares
9 *
Part B of
Form N-1A
Item No. Heading in Statement of Additional Information
- --------- ----------------------------------------------
10 Cover Page
11 Cover Page
12 *
13 Investment Objective and Policies; Other Investment
Techniques and Strategies; Other Investment Restrictions
14 How the Fund is Managed - Trustees and Officers of the
Trust
15 How the Fund is Managed - Major Shareholders
16 How the Fund is Managed; Distribution and Service Plans;
Additional Information about the Fund
17 How the Fund is Managed
18 Additional Information about the Fund
19 About Your Account - How to Buy Shares, How to Sell
Shares, How to Exchange Shares
20 Dividends, Capital Gains and Taxes
21 How the Fund is Managed; Additional Information About the
Fund - The Distributor; Distribution and Service Plans
22 Performance of the Fund
23 Financial Statements
________________________
* Not applicable or negative answer.
<PAGE>
OPPENHEIMER MULTI-STATE TAX-EXEMPT TRUST
FORM N-1A
Cross Reference Sheet (continued)
Oppenheimer New Jersey Tax-Exempt Fund, a series of the Registrant
Part A of
Form N-1A
Item No. Prospectus Heading
- --------- ------------------
1 Cover Page
2 Expenses; A Brief Overview of the Fund
3 Financial Highlights; Performance of the Fund
4 Front Cover Page; Investment Objective and Policies
5 Expenses; How the Fund is Managed; Back Cover
5A Performance of the Fund
6 How the Fund is Managed - Organization and History;
Dividends, Capital Gains and Taxes; The Transfer Agent
7 How to Buy Shares; Special Investor Services; How to Sell
Shares; How to Exchange Shares; Service Plan For Class A
Shares; Distribution and Service Plan for Class B Shares;
Distribution and Service Plan for Class C Shares;
Shareholder Account Rules and Policies
8 Special Investor Services; How to Sell Shares; How to
Exchange Shares
9 *
Part B of
Form N-1A
Item No. Heading in Statement of Additional Information
- --------- ----------------------------------------------
10 Cover Page
11 Cover Page
12 *
13 Investment Objective and Policies; Other Investment
Techniques and Strategies; Other Investment Restrictions
14 How the Fund is Managed - Trustees and Officers of the
Trust
15 How the Fund is Managed - Major Shareholders
16 How the Fund is Managed; Distribution and Service Plans;
Additional Information about the Fund
17 How the Fund is Managed
18 Additional Information about the Fund
19 About Your Account - How to Buy Shares, How to Sell
Shares, How to Exchange Shares
20 Dividends, Capital Gains and Taxes
21 How the Fund is Managed; Additional Information About the
Fund - The Distributor; Distribution and Service Plans
22 Performance of the Fund
23 Financial Statements
________________________
* Not applicable or negative answer.
<PAGE>
Oppenheimer
Pennsylvania Tax-Exempt Fund
Prospectus dated April 15, 1996
Oppenheimer Pennsylvania Tax-Exempt Fund is a mutual fund that seeks
as high a level of current interest income exempt from Federal and
Pennsylvania personal income taxes for individual investors as is
available from municipal securities and consistent with preservation of
capital. The Fund will invest primarily in securities issued by the
Commonwealth of Pennsylvania and local governments and governmental
agencies, the income from which is tax-exempt as discussed above.
However, in times of unstable economic or market conditions, the Fund's
investment manager may deem it advisable to temporarily invest a
portion of the Fund's assets in certain taxable instruments. The Fund
may use certain hedging instruments to try to reduce the risks of
market fluctuations that affect the value of the securities the Fund
holds. The Fund is not intended to be a complete investment program
and there is no assurance that it will achieve its objective. Please
refer to "Investment Objective and Policies" for more information about
the types of securities the Fund invests in and the risks of investing
in the Fund.
This Prospectus explains concisely what you should know
before investing in the Fund. Please read this Prospectus carefully and
keep it for future reference. You can find more detailed information
about the Fund in the April 15, 1996 Statement of Additional
Information. For a free copy, call OppenheimerFunds Services, the
Fund's Transfer Agent, at 1-800-525-7048, or write to the Transfer
Agent at the address on the back cover. The Statement of Additional
Information has been filed with the Securities and Exchange Commission
and is incorporated into this Prospectus by reference (which means that
it is legally part of this Prospectus).
(OppenheimerFunds logo)
Shares of the Fund are not deposits or obligations of any bank, are not
guaranteed by any bank, are not insured by the F.D.I.C. or any other
agency, and involve investment risks including the possible loss of the
principal amount invested.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
Contents
ABOUT THE FUND
Expenses
A Brief Overview of the Fund
Financial Highlights
Investment Objective and Policies
How the Fund is Managed
Performance of the Fund
ABOUT YOUR ACCOUNT
How to Buy Shares
Class A Shares
Class B Shares
Class C Shares
Special Investor Services
AccountLink
Automatic Withdrawal and Exchange
Plans
Reinvestment Privilege
How to Sell Shares
By Mail
By Telephone
By Checkwriting
How to Exchange Shares
Shareholder Account Rules and Policies
Dividends, Capital Gains and Taxes
Appendix A: Special Sales Charge Arrangements for Shareholders
of the Fund who were Shareholders
of the Former Quest for Value Funds
<PAGE>
ABOUT THE FUND
Expenses
The Fund pays a variety of expenses directly for management of its
assets, administration, distribution of its shares and other services,
and those expenses are subtracted from the Fund's assets to calculate
the Fund's net asset value per share. All shareholders therefore pay
those expenses indirectly. Shareholders pay other expenses directly,
such as sales charges. The following tables are provided to help you
understand your direct expenses of investing in the Fund and your share
of the Fund's business operating expenses that you will expect to bear
indirectly. The numbers below are based on the Fund's expenses during
its last fiscal year ended December 31, 1995.
- Shareholder Transaction Expenses are charges you pay when you buy
or sell shares of the Fund. Please refer to "About Your Account," from
pages ___ through ___ for an explanation of how and when these charges
apply.
Class A Class B Class C
Shares Shares Shares
Maximum Sales Charge
on Purchases (as a %
of offering price) 4.75% None None
Sales Charge on Reinvested
Dividends None None None
Deferred Sales Charge
(as a % of the lower of
the original purchase
price or redemption
proceeds) None (1) 5% in the first 1% if shares
year, declining are redeemed
to 1% in the within 12
sixth year and months of
eliminated purchase(2)
thereafter(2)
Exchange Fee None None None
(1) If you invest $1 million or more in Class A shares, you may have to
pay a sales charge of up to 1% if you sell your shares within 18
calendar months from the end of the calendar month during which you
purchased those shares. See "How to Buy Shares - Buying Class A
Shares" below.
(2) See "How to Buy Shares - Buying Class B Shares," and "How to Buy
Shares - Buying Class C Shares" below for more information on the
contingent deferred sales charges.
- Annual Fund Operating Expenses are paid out of the Fund's assets
and represent the Fund's expenses in operating its business. For
example, the Fund pays management fees to its investment adviser,
OppenheimerFunds, Inc. (referred to in this Prospectus as the
"Manager"). The rates of the Manager's fees are set forth in "How the
Fund is Managed," below. The Fund has other regular expenses for
services, such as transfer agent fees, custodial fees paid to the bank
that holds its portfolio securities, audit fees and legal expenses.
Those expenses are detailed in the Fund's Financial Statements in the
Statement of Additional Information.
Annual Fund Operating Expenses as a Percentage of Average Net Assets
Class A Class B Class C
Shares Shares Shares
Management Fees 0.60% 0.60% 0.60%
12b-1 Distribution
Plan Fees 0.15% 0.90% 0.90%
Other Expenses 0.26% 0.28% 0.28%
Total Fund
Operating Expenses 1.01% 1.78% 1.78%
The numbers in the table above are based upon the Fund's expenses
in its fiscal year ended December 31, 1995. These amounts are shown as
a percentage of the average net assets of each class of the Fund's
shares for that year. The 12b-1 Distribution Plan Fees for Class A
shares are service fees. For Class B and Class C shares, the 12b-1
Distribution Plan Fees are service fees and asset-based sales charges.
The service fee for Class A shares is 0.15% and for Class B and Class C
shares is 0.25% (currently set at 0.15%) of average annual net assets
of the class, and the asset-based sales charge for Class B and Class C
shares is 0.75%. These plans are described in greater detail in "How
to Buy Shares," below.
The actual expenses for each class of shares in future years may
be more or less than the numbers in the table, depending on a number of
factors, including changes in the actual value of the Fund's assets
represented by each class of shares. Class C shares were not publicly
offered before August 29, 1995. Therefore, the Annual Fund Operating
Expenses for Class C shares are based on amounts that would have been
payable in that period assuming that Class C shares were outstanding
during the entire fiscal year.
- Examples. To try to show the effect of these expenses on an
investment over time, we have created the hypothetical examples shown
below. Assume that you make a $1,000 investment in each class of
shares of the Fund, and that the Fund's annual return is 5%, and that
its operating expenses for each class are the ones shown in the Annual
Fund Operating Expenses table above. If you were to redeem your shares
at the end of each period shown below, your investment would incur the
following expenses by the end of 1, 3, 5 and 10 years:
1 year 3 years 5 years 10 years*
------ ------- ------- --------
Class A Shares $57 $78 $101 $165
Class B Shares $68 $86 $116 $171
Class C Shares $28 $56 $96 $209
If you did not redeem your investment, it would incur the
following expenses:
1 year 3 years 5 years 10 years*
------ ------- ------- --------
Class A Shares $57 $78 $101 $165
Class B Shares $18 $56 $96 $171
Class C Shares $18 $56 $96 $209
* The Class B expenses in years 7 through 10 are based on the Class A
expenses shown above, because the Fund automatically converts your
Class B shares into Class A shares after 6 years. Because of the
asset-based sales charge and the contingent deferred sales charge,
long-term Class B and Class C shareholders could pay the economic
equivalent of more than the maximum front-end sales charge allowed
under applicable regulations. For Class B shareholders, the automatic
conversion of Class B shares to Class A shares is designed to minimize
the likelihood that this will occur. Please refer to "How to Buy
Shares" for more information.
These examples show the effect of expenses on an investment, but
are not meant to state or predict actual or expected costs or
investment returns of the Fund, all of which may be more or less than
those shown.
<PAGE>
A Brief Overview of the Fund
Some of the important facts about the Fund are summarized below, with
references to the section of this Prospectus where more complete
information can be found. You should carefully read the entire
Prospectus before making a decision about investing in the Fund. Keep
the Prospectus for reference after you invest, particularly for
information about your account, such as how to sell or exchange shares.
- What Is The Fund's Investment Objective? The Fund's investment
objective is to seek as high a level of current interest income exempt
from Federal and Pennsylvania personal income taxes for individual
investors as is consistent with preservation of capital.
- What Does the Fund Invest In? The Fund seeks its objective
by following the fundamental policy of investing, under normal market
conditions, at least 80% (and attempting to invest, as a non-
fundamental policy, 100%) of its total assets in Municipal Securities
(as described in "Investment Objective and Policies") and making no
investment that will reduce to less than 80% the portion of its total
assets that are invested in Pennsylvania Municipal Securities (also
described in "Investment Objective and Policies").
The Fund may invest up to 20% of its assets in investments the
income from which may be taxable. In certain circumstances the Fund
may assume a temporary "defensive" position by investing some or all of
its assets in short-term money market investments. The Fund may also
use hedging instruments and some derivative investments in an effort to
protect against market risks. These investments are more fully
explained in "Investment Objective and Policies," starting on page __.
- Who Manages the Fund? The Fund's investment adviser (the
"Manager") is OppenheimerFunds, Inc. The Manager (including a
subsidiary) advises investment company portfolios having over $50
billion in assets. The Manager is paid an advisory fee by the Fund,
based on its net assets. The Fund's portfolio manager, who is
primarily responsible for the selection of the Fund's securities, is
Robert E. Patterson. The Board of Trustees, elected by shareholders,
oversees the investment adviser and the portfolio manager. Please
refer to "How the Fund is Managed," starting on page __ for more
information about the Manager and its fees.
- How Risky is the Fund? All investments carry risks to some
degree. The Fund's bond investments are subject to changes in their
value from a number of factors such as changes in general bond market
movements, the change in value of particular bonds because of an event
affecting the issuer, or changes in interest rates that can affect bond
prices. These changes affect the value of the Fund's investments and
its price per share. The fact that the Fund concentrates its
investments in Pennsylvania Municipal Securities, or is able to invest
its assets in a single issuer or limited number of issuers, entails
greater risk than an investment in a diversified investment company.
The Fund's investment in certain derivative investments may add a
degree of risk not present in a fund that does not invest in such
securities.
While the Manager tries to reduce risks by carefully researching
securities before they are purchased for the portfolio, and in some
cases by using hedging techniques, there is no guarantee of success in
achieving the Fund's objective and your shares may be worth more or
less than their original cost when you redeem them. Please refer to
"Investment Objective and Policies" starting on page __ for a more
complete discussion of the Fund's investment risks.
- How Can I Buy Shares? You can buy shares through your dealer or
financial institution, or you can purchase shares directly through the
Fund's Distributor by completing an Application or by using an
Automatic Investment Plan under AccountLink. Please refer to "How To
Buy Shares" starting on page __ for more details.
- Will I Pay a Sales Charge to Buy Shares? The Fund has three
classes of shares. All classes have the same investment portfolio but
different expenses. Class A shares are offered with a front-end sales
charge, starting at 4.75%, and reduced for larger purchases. Class B
and Class C shares are offered without a front-end sales charge, but
may be subject to a contingent deferred sales charge if redeemed within
6 years or 12 months, respectively, of purchase. There is also an
annual asset-based sales charge on Class B and Class C shares. Please
review "How To Buy Shares" starting on page __ for more details,
including a discussion about which class may be appropriate for you.
- How Can I Sell My Shares? Shares can be redeemed by mail, by
telephone call to the Transfer Agent on any business day, through your
dealer or, by writing a check against your Fund account (available for
Class A shares only). Please refer to "How To Sell Shares" on page __.
The Fund also offers exchange privileges to other Oppenheimer funds,
described in "How to Exchange Shares" on page __.
- How Has the Fund Performed? The Fund measures its performance
by quoting its yield, tax equivalent yield, average annual total return
and cumulative total return, which measure historical performance.
Those yields and returns can be compared to the yields and returns
(over similar periods) of other funds. Of course, other funds may have
different objectives, investments, and levels of risk. The Fund's
performance can also be compared to a broad market index, which we have
done on pages ___ and ___. Please remember that past performance does
not guarantee future results.
<PAGE>
Financial Highlights
The table on the following pages presents selected financial
information about the Fund, including per share data and expense ratios
and other data based on the Fund's average net assets. This
information has been audited by KPMG Peat Marwick LLP, the Fund's
independent auditors, whose report on the Fund's financial statements
for the fiscal year ended December 31, 1995 is included in the
Statement of Additional Information. Class C shares were publicly
offered only during a portion of the fiscal year ended December 31,
1995, commencing on August 29, 1995.
FINANCIAL HIGHLIGHTS
<PAGE> 14
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CLASS A
-----------------------------------------
YEAR ENDED DECEMBER 31,
1995 1994 1993
=====================================================
========================================
<S> <C> <C> <C>
PER SHARE OPERATING DATA:
Net asset value, beginning of period $11.19 $12.85 $12.05
- ---------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .68 .67 .69
Net realized and unrealized gain (loss) 1.18 (1.64) .85
------ ------- -------
Total income (loss) from investment operations 1.86 (.97) 1.54
- ---------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income (.67) (.69) (.70)
Dividends in excess of net investment income (.02) -- --
Distributions from net realized gain -- -- (.04)
------ ------- -------
Total dividends and distributions to shareholders (.69) (.69) (.74)
- ---------------------------------------------------------------------------------------------
Net asset value, end of period $12.36 $11.19 $12.85
====== ======= =======
=====================================================
========================================
TOTAL RETURN, AT NET ASSET VALUE(4) 16.94% (7.68)% 13.12%
=====================================================
========================================
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) $66,483 $60,857 $64,640
- ---------------------------------------------------------------------------------------------
Average net assets (in thousands) $64,901 $62,786 $50,974
- ---------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income 5.68% 5.65% 5.52%
Expenses, before voluntary assumption by the
Manager or Distributor 1.01% .98% 1.06%
Expenses, net of voluntary assumption by the
Manager or Distributor N/A N/A .99%
- ---------------------------------------------------------------------------------------------
Portfolio turnover rate(6) 31.1% 37.0% 14.6%
</TABLE>
1. For the period from August 29, 1995 (inception of offering) to December 31,
1995.
2. For the period from May 1, 1993 (inception of offering) to December 31,
1993.
3. For the period from September 18, 1989 (commencement of operations) to
December 31, 1989.
4. Assumes a hypothetical initial investment on the business day before the
first day of the fiscal period, with all dividends and distributions reinvested
in additional shares on the reinvestment date, and redemption at the net asset
value calculated on the last business day of the fiscal period. Sales charges
are not reflected in the total returns. Total returns are not annualized for
periods of less than one full year.
14 Oppenheimer Pennsylvania Tax-Exempt Fund
<PAGE> 15
<TABLE>
<CAPTION>
CLASS A
-------------------------------------------
1992 1991 1990 1989(3)
=====================================================
=============================================
<S> <C> <C> <C> <C>
PER SHARE OPERATING DATA:
Net asset value, beginning of period $11.93 $11.43 $11.58 $11.43
- --------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .76 .74 .81 .18
Net realized and unrealized gain (loss) .17 .53 (.15) .15
------- ------- ------ -------
Total income (loss) from investment operations .93 1.27 .66 .33
- --------------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income (.73) (.73) (.81) (.18)
Dividends in excess of net investment income -- -- -- --
Distributions from net realized gain (.08) (.04) -- --
------- ------- ------ -------
Total dividends and distributions to shareholders (.81) (.77) (.81) (.18)
- --------------------------------------------------------------------------------------------------
Net asset value, end of period $12.05 $11.93 $11.43 $11.58
======= ======= ====== =======
=====================================================
=============================================
TOTAL RETURN, AT NET ASSET VALUE(4) 8.04% 11.49% 6.00% 3.25%
=====================================================
=============================================
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) $33,290 $13,791 $8,406 $2,353
- --------------------------------------------------------------------------------------------------
Average net assets (in thousands) $21,936 $10,717 $5,170 $1,231
- --------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income 6.36% 6.30% 7.06% 6.12%(5)
Expenses, before voluntary assumption by the
Manager or Distributor 1.39% 1.29% 1.77% 2.49%(5)
Expenses, net of voluntary assumption by the
Manager or Distributor 1.06% N/A .59% .91%(5)
- --------------------------------------------------------------------------------------------------
Portfolio turnover rate(6) 29.9% 15.5% 5.3% 0.0%
<CAPTION>
CLASS B CLASS C
--------------------------------------------
PERIOD ENDED
YEAR ENDED DECEMBER 31, DECEMBER 31,
1995 1994 1993(2) 1995(1)
=====================================================
=============================================
<S> <C> <C> <C> <C>
PER SHARE OPERATING DATA:
Net asset value, beginning of period $11.19 $12.84 $12.44 $11.91
- --------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .59 .59 .36 .21
Net realized and unrealized gain (loss) 1.17 (1.65) .45 .45
------- ------ -------- -------
Total income (loss) from investment operations 1.76 (1.06) .81 .66
- --------------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income (.57) (.59) (.37) (.21)
Dividends in excess of net investment income (.02) -- -- --
Distributions from net realized gain -- -- (.04) --
------- ------ -------- -------
Total dividends and distributions to shareholders (.59) (.59) (.41) (.21)
- --------------------------------------------------------------------------------------------------
Net asset value, end of period $12.36 $11.19 $12.84 $12.36
======= ====== ======== =======
=====================================================
=============================================
TOTAL RETURN, AT NET ASSET VALUE(4) 16.06% (8.32)% 6.67% 5.55%
=====================================================
=============================================
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) $14,466 $9,484 $5,576 $264
- --------------------------------------------------------------------------------------------------
Average net assets (in thousands) $12,183 $7,329 $2,770 $ 51
- --------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income 4.89% 4.88% 4.26%(5) 4.40%(5)
Expenses, before voluntary assumption by the
Manager or Distributor 1.88% 1.85% 1.88%(5) 2.06%(5)
Expenses, net of voluntary assumption by the
Manager or Distributor 1.78% 1.75% 1.78%(5) 1.96%(5)
- --------------------------------------------------------------------------------------------------
Portfolio turnover rate(6) 31.1% 37.0% 14.6% 31.1%
</TABLE>
5. Annualized.
6. The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities
owned during the period. Securities with a maturity or expiration date at the
time of acquisition of one year or less are excluded from the calculation.
Purchases and sales of investment securities (excluding short-term securities)
for the period ended December 31, 1995 were $27,338,414 and $23,642,998,
respectively.
<PAGE>
Investment Objective and Policies
Objective. The Fund seeks as high a level of current interest income
exempt from Federal and Pennsylvania personal income taxes for
individual investors as is available from Municipal Securities and
consistent with preservation of capital. Since market risks are
inherent in all securities to varying degrees, assurance cannot be
given that the Fund will achieve its investment objective.
Investment Policies and Strategies. The Fund seeks its objective by
following the fundamental policy of investing, under normal market
conditions, at least 80% (and attempting to invest, as a non-
fundamental policy, 100%) of its total assets in Municipal Securities
and making no investment that will reduce to less than 80% the portion
of its total assets that are invested in Pennsylvania Municipal
Securities (which are described below).
Dividends paid by the Fund derived from interest attributable to
Pennsylvania Municipal Securities, and obligations of certain U.S.
territories and possessions, will be exempt from Federal individual
income taxes, Pennsylvania personal income taxes and, in the case of
residents of Philadelphia, the investment income tax of the School
District of Philadelphia. Dividends derived from interest on Municipal
Securities of other governmental issuers will be exempt from Federal
individual income tax, but will be subject to Pennsylvania personal
income taxes. Any net interest income on taxable investments and
repurchase agreements will be taxable as ordinary income when
distributed to shareholders.
- Municipal Securities. Municipal Securities consist of
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 and
other debt obligations issued by or on behalf of the Commonwealth of
Pennsylvania or its political subdivisions, other states and the
District of Columbia, their political subdivisions, or any commonwealth
or territory of the United States, or their respective agencies,
instrumentalities or authorities, the interest from which is not
subject to Federal income tax in the opinion of bond counsel to the
respective issuer at the time of issue. Pennsylvania Municipal
Securities are Municipal Securities the interest from which is not
subject to Pennsylvania personal income tax in the opinion of bond
counsel for the respective issuer at the time of issue. No independent
investigation has been made by the Manager as to the users of proceeds
of bond offerings or the application of such proceeds.
"Municipal bonds" are Municipal Securities that have a maturity
when issued of one year or more and "municipal notes" are Municipal
Securities that have a maturity when issued of less than one year. The
two principal classifications of Municipal Securities are "general
obligations" (secured by the issuer's pledge of its full faith, credit
and taxing power for the payment of principal and interest) and
"revenue obligations" (payable only from the revenues derived from a
particular facility or class of facilities, or specific excise tax or
other revenue source). The Fund may invest in Municipal Securities of
both classifications. See "Investment Objective and Policies" in the
Statement of Additional Information for further information about the
Fund's investment policies and Municipal Securities.
- Special Considerations - Pennsylvania Municipal Securities. The
Fund concentrates its investments in Municipal Securities issued by
Pennsylvania and its agencies, authorities, instrumentalities and
subdivisions. The market value and marketability of Pennsylvania
Municipal Securities and the interest income and repayment of principal
to the Fund from them could be adversely affected by a default or a
financial crisis relating to any of such issuers. For example, the
Commonwealth of Pennsylvania and certain of its municipalities (most
notably the City of Philadelphia) have from time to time experienced
significant budget deficits and other financial difficulties.
Investors should consider these matters as well as economic trends in
Pennsylvania, which are discussed in the Statement of Additional
Information.
- Can the Fund's Investment Objective and Policies Change? The
Fund has an investment objective, which is described above, as well as
investment policies it follows to try to achieve its objective.
Additionally, the Fund uses certain investment techniques and
strategies in carrying out those investment policies. The Fund's
investment policies and techniques are not "fundamental" unless this
Prospectus or the Statement of Additional Information says that a
particular policy is "fundamental." The Fund's investment objective is
a fundamental policy.
Fundamental policies are those that cannot be changed without the
approval of a "majority" of the Fund's outstanding voting shares. The
term "majority" is defined in the Investment Company Act to be a
particular percentage of outstanding voting shares (and this term is
explained in the Statement of Additional Information). The Board of
Trustees of the Trust (as defined below) (the "Board of Trustees") may
change non-fundamental policies without shareholder approval, although
significant changes will be described in amendments to this Prospectus.
- Investments in Taxable Securities and Temporary Defensive
Investment Strategy. Under normal market conditions, the Fund may
invest up to 20% of its assets in taxable investments, including (i)
certain "Temporary Investments" (described in the next paragraph); (ii)
hedging instruments (described in "Hedging," below); (iii) repurchase
agreements; and (iv) Municipal Securities issued to benefit a private
user ("Private Activity Municipal Securities"), the interest from which
may be subject to Federal alternative minimum tax (see "Taxes," below,
and "Private Activity Municipal Securities" in the Statement of
Additional Information).
In times of unstable economic or market conditions, the Manager
may determine that it is appropriate for the Fund to assume a temporary
"defensive" position by investing some or all of its assets (there is
no limit on the amount) in short-term money market instruments. These
include the taxable obligations described above, U.S. government
securities, bank obligations, commercial paper, corporate obligations
and other instruments approved by the Board of Trustees. This strategy
would be implemented to attempt to reduce fluctuations in the value of
the Fund's assets. 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. To the extent the Fund assumes a
temporary defensive position, a portion of the Fund's distributions may
be subject to Federal and state income taxes and the Fund may not
achieve its objective.
- Interest Rate Risk. The values of Municipal Securities will
change in response to changes in prevailing interest rates. Should
interest rates rise, the values of outstanding Municipal Securities
will probably decline and (if purchased at principal amount) would sell
at a discount. If interest rates fall, the values of outstanding
Municipal Securities will probably increase and (if purchased at
principal amount) would sell at a premium. Changes in the values of
Municipal Securities owned by the Fund from these or other factors will
not affect interest income derived from these securities but will
affect the Fund's net asset value per share.
- Municipal Lease Obligations. Municipal leases may take the form
of a lease or an installment purchase contract issued by state and
local government authorities to obtain funds to acquire a wide variety
of equipment and facilities. The Fund may invest in certificates of
participation that represent a proportionate interest in or right to
the lease-purchase payments under municipal lease obligations. Certain
of these securities may be deemed to be "illiquid" securities and their
purchase would be limited as described below in "Illiquid and
Restricted Securities". Investment in certificates of participation
that the Manager has determined to be liquid (under guidelines set by
the Board of Trustees) will not be subject to such limitations.
- 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.
- Inverse Floaters and Other Derivative Investments. The Fund may
invest in certain municipal "derivative investments". The Fund may use
some derivative investments for hedging purposes, and may invest in
others because they offer the potential for increased income and
principal value. In general, a "derivative investment" is a specially-
designed investment. Its performance is linked to the performance of
another investment or security, such as an option, future or index. In
the broadest sense, derivative investments include exchange-traded
options and futures contracts (please refer to "Hedging," below).
The Fund may invest in "inverse floater" variable rate bonds, a
type of derivative investment whose yields move in the opposite
direction from changes in short-term interest rates. As interest rates
rise, inverse floaters produce less current income. Their price may be
more volatile than the price of a comparable fixed-rate security. Some
inverse floaters have a "cap" whereby if interest rates rise above the
"cap," the security pays additional interest income. If rates do not
rise above the "cap," the Fund will have paid an additional amount for
a feature that proves worthless. The Fund may also invest in municipal
securities that pay interest that depends on an external pricing
mechanism, also a type of derivative investment. Examples of external
pricing mechanisms are interest rate swaps or caps and municipal bond
or swap indices. The Fund anticipates that under normal circumstances
it will invest no more than 10% of its net assets in inverse floaters.
The risks of investing in derivative investments include not only
the ability of the issuer of the derivative investment to pay the
amount due on the maturity of the investment, but also the risk that
the underlying security or investment might not perform the way the
Manager expected it to perform. That can mean that the Fund will
realize less income than expected. Another risk of investing in
derivative investments is that their market value could be expected to
vary to a much greater extent than the market value of municipal
securities that are not derivative investments but have similar credit
quality, redemption provisions and maturities.
- Ratings of Municipal Securities; Special Risks of Lower Rated
Municipal Securities. No more than 25% of the Fund's total assets will
be invested in Municipal Securities that at the time of purchase are
not "investment grade," that is, rated below the four highest rating
categories of Moody's Investors Service, Inc. ("Moody's"), Standard &
Poor's Corporation ("S&P"), and Fitch Investors Service, Inc.
("Fitch"). If the securities are not rated, the Manager will determine
the equivalent rating category for purposes of this limitation. (See
Appendix A to the Statement of Additional Information for a description
of those ratings). A reduction in the rating of a security after its
purchase by the Fund will not require the Fund to dispose of such
security.
Lower-grade Municipal Securities (sometimes called "municipal junk
bonds") may be subject to greater market fluctuations and are subject
to greater risks of loss of income and principal than higher-rated
Municipal Securities, and may be considered to have some speculative
characteristics. Securities that are or that have fallen below
investment grade entail a greater risk that the ability of the issuers
of such securities to meet their debt obligations will be impaired.
There may be less of a market for lower-grade Municipal Securities and
therefore they may be harder to sell at an acceptable price. These
risks mean that the Fund may not achieve the expected income from
lower-grade Municipal Securities, and that the Fund's income and net
asset value per share may be affected by declines in value of these
securities. However, the Fund's limitations on investments in non-
investment grade Municipal Securities may reduce some of these risks.
- Portfolio Turnover. A change in the securities held by the Fund
is known as "portfolio turnover." The Fund generally will not engage
in the trading of securities for the purpose of realizing short-term
gains, but the Fund may sell securities as the Manager deems advisable
to take advantage of differentials in yield. The "Financial
Highlights" table above, shows the Fund's portfolio turnover rate
during past first fiscal years. Portfolio turnover affects brokerage
costs, dealer markup and other transaction costs, and results in the
Fund's realization of capital gains or losses for tax purposes.
- Non-diversification. The Trust is a "non-diversified"
investment company under the Investment Company Act. As a result, the
Fund may invest its assets in a single issuer or limited number of
issuers without limitation by that Act. However, the Fund intends to
qualify as a "regulated investment company" under the Internal Revenue
Code of 1986, as amended (the "Internal Revenue Code"), pursuant to
which (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.
An investment in the Fund 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.
Other Investment Techniques and Strategies. The Fund may also use the
investment techniques and strategies described below. These techniques
involve certain risks. The Statement of Additional Information
contains more information about these practices, including limitations
on their use that may help to reduce some of the risks.
- When-Issued and Delayed Delivery Transactions. The Fund may
purchase Municipal Securities on a "when-issued" basis and may purchase
or sell such securities on a "delayed delivery" basis. These terms
refer to securities that have been created and for which a market
exists, but which are not available for immediate delivery. There may
be a risk of loss to the Fund if the value of the security declines
prior to the settlement date.
- Repurchase Agreements. The Fund may enter into repurchase
agreements. In a repurchase transaction, the Fund buys a security and
simultaneously sells it to the vendor for delivery at a future date.
They are used primarily for cash liquidity purposes.
Repurchase agreements must be fully collateralized. However, if
the vendor fails to pay the resale price on the delivery date, the Fund
may incur costs in disposing of the collateral and may experience
losses if there is any delay in its ability to do so. The Fund will
not enter into a repurchase agreement that causes more than 10% of its
net assets to be subject to repurchase agreements having a maturity
beyond seven days. There is no limit on the amount of the Fund's net
assets that may be subject to repurchase agreements of seven days or
less.
- Illiquid and Restricted Securities. Under the policies and
procedures established by the Board of Trustees, the Manager determines
the liquidity of certain of the Fund's investments. Investments may be
illiquid because of the absence of an active trading market, making it
difficult to value them or dispose of them promptly at an acceptable
price. The Fund will not invest more than 10% of its net assets in
illiquid investments. The Fund may not invest any portion of its
assets in restricted securities. A restricted security is one that has
a contractual restriction on its resale or that cannot be sold publicly
until registered under the Securities Act of 1933, as amended.
- Loans of Portfolio Securities. To attempt to increase its
income, the Fund may lend its portfolio securities to brokers, dealers
and other financial institutions. The Fund must receive collateral for
a loan. These loans are limited to not more than 25% of the Fund's net
assets and are subject to other conditions described in the Statement
of Additional Information. The Fund presently does not intend to lend
its portfolio securities, but if it does, the value of securities
loaned is not expected to exceed 5% of the value of its total assets in
the coming year.
- Hedging. As described below, the Fund may purchase and sell
certain kinds of futures contracts, put and call options, and options
on futures and broadly-based municipal bond indices, or enter into
interest rate swap agreements. These are all referred to as "hedging
instruments." The Fund does not use hedging instruments for
speculative purposes, and has limits on the use of them, described
below. The hedging instruments the Fund may use are described below
and in greater detail in "Other Investment Techniques and Strategies"
in the Statement of Additional Information.
The Fund may buy and sell options and futures for a number of
purposes. It may do so to try to manage its exposure to the
possibility that the prices of its portfolio securities may decline, or
to establish a position in the securities market as a temporary
substitute for purchasing individual securities. It may do so to try
to manage its exposure to changing interest rates. Some of these
strategies, such as selling futures, buying puts and writing covered
calls, hedge the Fund's portfolio against price fluctuations.
Other hedging strategies, such as buying futures and call options,
tend to increase the Fund's exposure to the securities market. Writing
covered call options may also provide income to the Fund for liquidity
purposes, defensive reasons, or to raise cash to distribute to
shareholders.
- Futures. The Fund may buy and sell futures contracts that
relate to (1) broadly-based municipal bond indices (these are referred
to as Municipal Bond Index Futures) and (2) interest rates (these are
referred to as Interest Rate Futures). These types of Futures are
described in "Hedging" in the Statement of Additional Information.
- Put and Call Options. The Fund may buy and sell certain kinds
of put options (puts) and call options (calls).
The Fund may buy calls only on securities, broadly-based municipal
bond indices, Municipal Bond Index Futures or Interest Rate Futures, or
to terminate its obligation on a call the Fund previously wrote. The
Fund may write (that is, sell) covered call options. When the Fund
writes a call, it receives cash (called a premium). The call gives the
buyer the ability to buy the investment on which the call was written
from the Fund at the call price during the period in which the call may
be exercised. If the value of the investment does not rise above the
call price, it is likely that the call will lapse without being
exercised, while the Fund keeps the cash premium (and the investment).
The Fund may purchase puts. Buying a put on an investment gives
the Fund the right to sell the investment at a set price to a seller of
a put on that investment. The Fund can buy only those puts that relate
to (1) securities that the Fund owns, (2) broadly-based municipal bond
indices, (3) Municipal Bond Index Futures or (4) Interest Rate Futures.
The Fund can buy a put on a Municipal Bond Index Future or Interest
Rate Future whether or not the Fund owns the particular Future in its
portfolio. The Fund may not sell a put other than a put that it
previously purchased.
The Fund may buy and sell puts and calls only if certain
conditions are met: (1) after the Fund writes a call, not more than 25%
of the Fund's total assets may be subject to calls; (2) calls the Fund
buys or sells must be listed on a securities or commodities exchange,
or quoted on the Automated Quotation System of the National Association
of Securities Dealers, Inc. (NASDAQ), or traded in the over-the-counter
market; (3) each call the Fund writes must be "covered" while it is
outstanding (that means the Fund must own the investment on which the
call was written); (4) the Fund may write calls on Futures contracts it
owns, but these calls must be covered by securities or other liquid
assets the Fund owns and segregates to enable it to satisfy its
obligations if the call is exercised; (5) a call or put option may not
be purchased if the value of all of the Fund's put and call options
would exceed 5% of the Fund's total assets; and (6) 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.
- Interest Rate Swaps. In an interest rate swap, the Fund and
another party exchange their right to receive or their obligation to
pay interest on a security. For example, they may swap a right to
receive floating rate payments for fixed rate payments. The Fund
enters into swaps only on securities it owns. The Fund may not enter
into swaps with respect to more than 25% of its total assets. Also,
the Fund will segregate liquid assets (such as cash or U.S. Government
securities) to cover any amounts it could owe under swaps that exceed
the amounts it is entitled to receive, and it will adjust that amount
daily, as needed. Income from interest rate swaps may be taxable.
- Hedging instruments can be volatile investments and may involve
special risks. The use of hedging instruments requires special skills
and knowledge of investment techniques that are different from what is
required for normal portfolio management. If the Manager uses a
hedging instrument at the wrong time or judges market conditions
incorrectly, hedging strategies may reduce the Fund's return. The Fund
could also experience losses if the prices of its futures and options
positions were not correlated with its other investments or if it could
not close out a position because of an illiquid market for the future
or option. Such losses might cause previously distributed short-term
capital gains to be re-characterized as a non-taxable return of capital
to shareholders.
Options trading involves the payment of premiums and has special
tax effects on the Fund. There are also special risks in particular
hedging strategies. If a covered call written by the Fund is exercised
on an investment that has increased in value, the Fund will be required
to sell the investment at the call price and will not be able to
realize any profit if the investment has increased in value above the
call price. Interest rate swaps are subject to credit risks (if the
other party fails to meet its obligations) and also to interest rate
risks. The Fund could be obligated to pay more under its swap
agreements than it receives under them, as a result of interest rate
changes. These risks are described in greater detail in the Statement
of Additional Information.
Other Investment Restrictions. The Fund has other investment
restrictions which are fundamental policies. Under these fundamental
policies, the Fund cannot do any of the following:
- - Invest in securities or any investment other than the Municipal
Securities, temporary investments, taxable investments and hedging
instruments described in "Investment Objective and Policies," above.
- - Make loans, except through the purchase of portfolio securities
subject to repurchase agreements or through loans of portfolio
securities as described under "Loans of Portfolio Securities".
- - Borrow money in excess of 10% of the value of its total assets, or
make any investment 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).
- Pledge, mortgage or otherwise encumber, transfer or assign any of
its assets to secure a debt; collateral arrangements for premium and
margin payments in connection with hedging instruments are not deemed
to be a pledge of assets.
- Concentrate investments to the extent of more than 25% of its
total assets in any industry; however, there is no limitation as to
investment in Municipal Securities, U.S. Government obligations or in
obligations issued by Pennsylvania or its subdivisions, agencies,
authorities or instrumentalities.
- Buy or sell futures contracts other than interest rate futures or
municipal bond index futures.
All of the percentage restrictions described above and elsewhere
in this Prospectus apply only at the time the Fund purchases a
security, and the Fund need not dispose of a security merely because
the Fund's assets have changed or the security has increased in value
relative to the size of the Fund. There are other fundamental policies
discussed in the Statement of Additional Information.
How the Fund is Managed
Organization and History. The Fund was organized in 1989 as a
Massachusetts business trust (the "Trust") with one series. In June
1993, the Trust was reorganized to become a multi-series business trust
called Oppenheimer Multi-State Tax-Exempt Trust, and the Fund became a
separate series of it. The Trust is an open-end, non-diversified
management investment company, with an unlimited number of authorized
shares of beneficial interest. Each of the three series of the Trust is
a fund that issues its own shares, has its own investment portfolio,
and its own assets and liabilities.
The Fund is governed by a Board of Trustees, which is responsible
for protecting the interests of shareholders under Massachusetts law.
The Trustees meet periodically throughout the year to oversee the
Fund's activities, review its performance, and review the actions of
the Manager. "Trustees and Officers of the Trust" in the Statement of
Additional Information names the Trustees and officers of the Trust and
provides more information about them. Although the Trust will not
normally hold annual meetings of Fund shareholders, it may hold
shareholder meetings from time to time on important matters, and
shareholders have the right to call a meeting to remove a Trustee or to
take other action described in the Trust's Declaration of Trust.
The Board of Trustees has the power, without shareholder approval,
to divide unissued shares of the Fund into two or more classes. The
Board has done so, and the Fund currently has three classes of shares,
Class A, Class B and Class C. All three classes invest in the same
investment portfolio. Each class has its own dividends and
distributions and pays certain expenses which may be different for the
different classes. Each class may have a different net asset value.
Each share has one vote at shareholder meetings, with fractional shares
voting proportionally. Only shares of a particular class vote as a
class on matters that affect that class alone. Shares are freely
transferrable.
The Manager and Its Affiliates. The Fund is managed by the Manager,
OppenheimerFunds, Inc. (formerly known as Oppenheimer Management
Corporation) which is responsible for selecting the Fund's investments
and handles its day-to-day business. The Manager carries out its
duties, subject to the policies established by the Board of Trustees,
under an Investment Advisory Agreement which states the Manager's
responsibilities. The Agreement sets forth the fees paid by the Fund
to the Manager, and describes the expenses that the Fund is responsible
to pay to conduct its business.
The Manager has operated as an investment adviser since 1959. The
Manager (including a subsidiary) manages investment companies,
including other Oppenheimer funds, with assets in excess of $50 billion
as of March 1, 1996, held in more than 2.8 million shareholder
accounts. The Manager is owned by Oppenheimer Acquisition Corp., a
holding company that is owned in part by senior officers of the Manager
and controlled by Massachusetts Mutual Life Insurance Company.
- Portfolio Manager. The Portfolio Manager of the Fund (who is
also a Vice President of the Fund) is Robert E. Patterson, who is also
a Senior Vice President of the Manager. He has been the person
principally responsible for the day-to-day management of the Fund's
portfolio since September 1989. Mr. Patterson also serves as an
officer and portfolio manager for other Oppenheimer funds.
- Fees and Expenses. Under the Investment Advisory Agreement, the
Fund pays the Manager the following annual fees, which decline on
additional assets as the Fund grows: 0.60% of the first $200 million of
aggregate net assets; 0.55% of the next $100 million; 0.50% of the next
$200 million; 0.45% of the next $250 million; 0.40% of the next $250
million; and 0.35% of net assets over $1 billion. The Fund's
management fee for its fiscal year ended December 31, 1995 was 0.60% of
average annual net assets for Class A, Class B and Class C shares,
which may be higher than the rate paid by some other mutual funds.
The Fund pays expenses related to its daily operations, such as
custodian fees, Trustees' fees, transfer agency fees, legal fees and
auditing costs. Those expenses are paid out of the Fund's assets and
are not paid directly by shareholders. However, those expenses reduce
the net asset value of shares, and therefore are indirectly borne by
shareholders through their investment. More information about the
Investment Advisory Agreement and the other expenses paid by the Fund
is contained in the Statement of Additional Information.
There is also information about the Fund's brokerage policies and
practices in "Brokerage Policies of the Fund" in the Statement of
Additional Information. That section discusses how brokers and dealers
are selected for the Fund's portfolio transactions. Because the Fund
purchases most of its portfolio securities directly from the sellers
and not through brokers, it incurs relatively little expense for
brokerage. From time to time, however, it may use brokers when buying
portfolio securities. When deciding which brokers to use, the Manager
is permitted by the Investment Advisory Agreement to consider whether
brokers have sold shares of the Fund or any other funds for which the
Manager serves as investment adviser.
- The Distributor. The Fund's shares are sold through dealers and
brokers that have a sales agreement with OppenheimerFunds Distributor,
Inc., a subsidiary of the Manager that acts as the Fund's Distributor.
The Distributor also distributes the shares of the other Oppenheimer
funds and is sub-distributor for funds managed by a subsidiary of the
Manager.
- The Transfer Agent. The Fund's transfer agent is
OppenheimerFunds Services, a division of the Manager, which acts as the
shareholder servicing agent for the Fund on an "at-cost" basis. It
also acts as the shareholder servicing agent for other Oppenheimer
funds. Shareholders should direct inquiries about their accounts to
the Transfer Agent at the address and toll-free number shown below in
this Prospectus and on the back cover.
Performance of the Fund
Explanation of Performance Terminology. The Fund uses the terms "total
return," "average annual total return," "standardized yield," "dividend
yield," "yield" and "tax-equivalent yield" to illustrate its
performance. The performance of each class of shares is shown
separately, because the performance of each class of shares will
usually be different as a result of the different kinds of expenses
each class bears. These returns and yields measure the performance of
a hypothetical account in the Fund over various periods, and do not
show the performance of each shareholder's account (which will vary if
dividends are received in cash, or shares are sold or purchased). The
Fund's performance information may help you see how well your Fund has
done over time and to compare it to other funds or to a market index,
as we have done below.
It is important to understand that the Fund's yields and total
returns represent past performance and should not be considered to be
predictions of future returns or performance. This performance data is
described below, but more detailed information about how total returns
and yields are calculated is contained in the Statement of Additional
Information, which also contains information about other ways to
measure and compare the Fund's performance. The Fund's investment
performance will vary over time, depending on market conditions, the
composition of the portfolio, expenses and which class of shares you
purchase.
- Total Returns. There are different types of "total returns"
used to measure the Fund's performance. Total return is the change in
value of a hypothetical investment in the Fund over a given period,
assuming that all dividends and capital gains distributions are
reinvested in additional shares. The cumulative total return measures
the change in value over the entire period (for example, ten years).
An average annual total return shows the average rate of return for
each year in a period that would produce the cumulative total return
over the entire period. However, average annual total returns do not
show the Fund's actual year-by-year performance.
When total returns are quoted for Class A shares, normally the
current maximum initial sales charge has been deducted. When total
returns are shown for Class B or Class C shares, normally the
contingent deferred sales charge that applies to the period for which
total return is shown has been deducted. However, total returns may
also be quoted "at net asset value," without including the effect of
either the front-end or the appropriate contingent deferred sales
charge, as applicable, and those returns would be less if sales charges
were deducted.
- Yield. Each class of shares calculates its yield by dividing
the annualized net investment income per share on the portfolio during
a 30-day period by the maximum offering price on the last day of the
period. The yield of each class will differ because of the different
expenses of each class of shares. The yield data represents a
hypothetical investment return on the portfolio, and does not measure
an investment return based on dividends actually paid to shareholders.
To show that return, a dividend yield may be calculated. Dividend
yield is calculated by dividing the dividends of a class derived from
net investment income during a stated period by the maximum offering
price on the last day of the period. Yields and dividend yields for
Class A shares reflect the deduction of the maximum initial sales
charge, but may also be shown based on the Fund's net asset value per
share. Yields for Class B and Class C shares do not reflect the
deduction of the contingent deferred sales charge. The tax-equivalent
yield is the equivalent yield that would be earned in the absence of
taxes. It is calculated by dividing that portion of the yield that is
tax-exempt by a factor equal to one minus the applicable tax rate.
How Has the Fund Performed? Below is a discussion by the Manager of
the Fund's performance during its last fiscal year ended December 31,
1995, followed by a graphical comparison of the Fund's performance to
an appropriate broad-based market index.
- Management's Discussion of Performance. During the fiscal year
ended December 31, 1995, the Fund's performance benefited from the
decline in long-term interest rates and the increased demand for
municipal securities resulting from fewer new issuances, both of which
contributed to the appreciation in value during such period of
outstanding municipal bonds. However, the municipal bond market
reacted to the Congressional discussions held during the year with
respect to tax reform, and the potential for a "flat tax", which
limited the rally in bond prices. In response, the Manager focused on
purchasing municipal securities with shorter maturities and prerefunded
components. The Manager also took advantage of buying opportunities
during this period by purchasing municipal securities that would be
affected to a greater extent by tax reform, such as bonds with
maturities of 15-20 years, and purchasing municipal securities that
fell out of favor in recent months, such as lower-rated, high-coupon
issues, including hospital bonds.
- Comparing the Fund's Performance to the Market. The graphs
below show the performance of a hypothetical $10,000 investment in each
class of shares of the Fund held until December 31, 1995. In the case
of Class A shares, performance is measured from the Fund's inception on
September 18, 1989, in the case of Class B shares, from the inception
of the Class on May 1, 1993 and in the case of Class C shares, from the
inception of the Class on August 29, 1995.
The Fund's performance is compared to that of the Lehman Brothers
Municipal Bond Index, an unmanaged index of a broad range of investment
grade municipal bonds that is widely regarded as a measure of the
performance of the general municipal bond market. Index performance
reflects the reinvestment of income but does not consider the effect of
capital gains or transaction costs, and none of the data below shows
the effect of taxes. Also, the Fund's performance data reflects the
effect of Fund business and operating expenses. While index
comparisons may be useful to provide a benchmark for the Fund's
performance, it must be noted that the Fund's investments are not
limited to the securities in any one index. Moreover, the index
performance data does not reflect any assessment of the risk of the
investments included in the index.
Comparison of Change in Value
of $10,000 Hypothetical Investments in
Oppenheimer Pennsylvania Tax-Exempt Fund
and The Lehman Brothers Municipal Bond Index
(Graph)
Past Performance is not predictive of future performance.
Average Annual Total Returns of the Fund at 12/31/95
1 Year 5 year Life
------ ------ -----
Class A: 11.39% 6.98% 7.04%(1)
Class B: 11.06% N/A 3.82%(2)
Class C: N/A N/A 4.55%(3)
______________
Total returns and the ending account values in the graph reflect
reinvestment of all dividends and capital gains distributions. (1) The
inception of the Fund (Class A shares) was 9/18/89. Class A returns
are shown net of the current applicable 4.75% maximum initial sales
charge.
(2) Class B shares of the Fund were first publicly offered on 5/1/93.
Returns are shown net of the applicable 5% and 3% contingent deferred
sales charges, respectively, for the one year period and life-of-the-
class. The ending account value in the graph is net of the applicable
3% contingent deferred sales charge.
(3) Class C shares of the Fund were first publicly offered on 8/29/95.
The 1-year return is shown of the applicable 1% contingent deferred
sales charge.
A B O U T Y O U R A C C O U N T
How to Buy Shares
Classes of Shares. The Fund offers investors three different classes of
shares. The different classes of shares represent investments in the
same portfolio of securities but are subject to different expenses and
will likely have different share prices.
- Class A Shares. If you buy Class A shares, you pay an initial
sales charge on investments up to $1 million. If you purchase Class A
shares as part of an investment of at least $1 million in shares of one
or more Oppenheimer funds, you will not pay an initial sales charge,
but if you sell any of those shares within 18 months of buying them,
you may pay a contingent deferred sales charge. The amount of that
sales charge will vary depending on the amount you invested. Sales
charge rates are described in "Buying Class A Shares," below.
- Class B Shares. If you buy Class B shares, you pay no sales
charge at the time of purchase, but if you sell your shares within six
years, you will normally pay a contingent deferred sales charge that
varies depending on how long you own your shares, as described in
"Buying Class B Shares" below.
- Class C Shares. If you buy Class C shares, you pay no sales
charge at the time of purchase, but if you sell your shares within 12
months of buying them, you will normally pay a contingent deferred
sales charge of 1%, as discussed in "Buying Class C Shares" below.
Which Class of Shares Should You Choose? Once you decide that the Fund
is an appropriate investment for you, the decision as to which class of
shares is better suited to your needs depends on a number of factors
which you should discuss with your financial advisor. The Fund's
operating costs that apply to a class of shares and the effect of the
different types of sales charges on your investment will vary your
investment results over time. The most important factors are how much
you plan to invest and how long you plan to hold your investment. If
your goals and objectives change over time and you plan to purchase
additional shares, you should re-evaluate those factors to see if you
should consider another class of shares.
In the following discussion, to help provide you and your
financial advisor with a framework in which to choose a class, we have
made some assumptions using a hypothetical investment in the Fund. We
used the sales charge rates that apply to each class of shares,
considering the effect of the annual asset-based sales charge on Class
B and Class C expenses (which, like all expenses, will affect your
investment return). For the sake of comparison, we have assumed that
there is a 10% rate of appreciation in the investment each year. Of
course, the actual performance of your investment cannot be predicted
and will vary, based on the Fund's actual investment returns and the
operating expenses borne by each class of shares, and which class you
invest in.
The factors discussed below are not intended to be investment
advice or recommendations, because each investor's financial
considerations are different. The discussion below of the factors to
consider in purchasing a particular class of shares assumes that you
will purchase only one class of shares, and not a combination of shares
of different classes.
- How Long Do You Expect to Hold Your Investment? While
future financial needs cannot be predicted with certainty, knowing how
long you expect to hold your investment will assist you in selecting
the appropriate class of shares. Because of the effect of class-based
expenses, your choice will also depend on how much you plan to invest.
For example, the reduced sales charges available for larger purchases
of Class A shares may, over time, offset the effect of paying an
initial sales charge on your investment (which reduces the amount of
your investment dollars used to buy shares for your account), compared
to the effect over time of higher class-based expenses on Class B or
Class C shares for which no initial sales charge is paid.
- Investing for the Short Term. If you have a short-term
investment horizon (that is, you plan to hold your shares for not more
than six years), you should probably consider purchasing Class A or
Class C shares rather than Class B shares, because of the effect of the
Class B contingent deferred sales charge if you redeem in less than six
years, as well as the effect of the Class B asset-based sales charge on
the investment return for that class in the short-term. Class C shares
might be the appropriate choice (especially for investments of less
than $100,000), because there is no initial sales charge on Class C
shares, and the contingent deferred sales charge does not apply to
amounts you sell after holding them one year.
However, if you plan to invest more than $100,000 for the shorter
term, then the more you invest and the more your investment horizon
increases toward six years, Class C shares might not be as advantageous
as Class A shares. That is because the annual asset-based sales charge
on Class C shares will have a greater impact on your account over the
longer term than the reduced front-end sales charge available for
larger purchases of Class A shares. For example, Class A might be more
advantageous than Class C (as well as Class B) for investments of more
than $100,000 expected to be held for 5 or 6 years (or more). For
investments over $250,000 expected to be held 4 to 6 years (or more),
Class A shares may become more advantageous than Class C (and B). If
investing $500,000 or more, Class A may be more advantageous as your
investment horizon approaches 3 years or more.
And for investors who invest $1 million or more, in most cases
Class A shares will be the most advantageous choice, no matter how long
you intend to hold your shares. For that reason, the Distributor
normally will not accept purchase orders of $500,000 or more of Class B
shares or $1 million or more of Class C shares from a single investor.
- Investing for the Longer Term. If you are investing for the
longer term, for example, for retirement, and do not expect to need
access to your money for seven years or more, Class B shares may be an
appropriate consideration, if you plan to invest less than $100,000. If
you plan to invest more than $100,000 over the long term, Class A
shares will likely be more advantageous than Class B shares or C
shares, as discussed above, because of the effect of the expected lower
expenses for Class A shares and the reduced initial sales charges
available for larger investments in Class A shares under the Fund's
Right of Accumulation.
Of course, these examples are based on approximations of the
effect of current sales charges and expenses on a hypothetical
investment over time, using the assumed annual performance return
stated above, and therefore you should analyze your options
carefully.
- Are There Differences in Account Features That Matter to You?
Because some account features such as checkwriting may not be available
to Class B or Class C shareholders, or other features (such as
Automatic Withdrawal Plans) might not be advisable (because of the
effect of the contingent deferred sales charge) for Class B and Class C
shareholders, you should carefully review how you plan to use your
investment account before deciding which class of shares to buy.
Additionally, dividends payable to Class B and Class C shareholders
will be reduced by the additional expenses borne by those classes that
are not borne by Class A, such as the Class B and Class C asset-based
sales charges described below and in the Statement of Additional
Information. Share certificates are not available for Class B and
Class C shares, and if you are considering using your shares as
collateral for a loan, that may be a factor to consider.
- How Does It Affect Payments to My Broker? A salesperson, such
as a broker, or any other person who is entitled to receive
compensation for selling Fund shares may receive different compensation
for selling one class of shares than for selling another class. It is
important that investors understand that the purpose of the Class B or
Class C contingent deferred sales charge and asset-based sales charge
is the same as the purpose of the front-end sales charge on sales of
Class A shares, that is, to compensate the Distributor for commissions
it pays to dealers and financial institutions for selling shares.
How Much Must You Invest? You can open a Fund account with a minimum
initial investment of $1,000 and make additional investments at any
time with as little as $25. There are reduced minimum investments under
special investment plans.
With Asset Builder Plans, Automatic Exchange Plans and
military allotment plans, you can make initial and subsequent
investments of as little as $25; and subsequent purchases of at least
$25 can be made by telephone through AccountLink.
There is no minimum investment requirement if you are buying
shares by reinvesting dividends from the Fund or other Oppenheimer
funds (a list of them appears in the Statement of Additional
Information, or you can ask your dealer or call the Transfer Agent), or
by reinvesting distributions from unit investment trusts that have made
arrangements with the Distributor.
- How Are Shares Purchased? You can buy shares several ways --
through any dealer, broker or financial institution that has a sales
agreement with the Distributor, directly through the Distributor, or
automatically from your bank account through an Asset Builder Plan
under the OppenheimerFunds AccountLink service. When you buy shares,
be sure to specify Class A, Class B or Class C shares. If you do not
choose, your investment will be made in Class A shares.
- Buying Shares Through Your Dealer. Your dealer will place your
order with the Distributor on your behalf.
- Buying Shares Through the Distributor. Complete an
OppenheimerFunds New Account Application and return it with a check
payable to "OppenheimerFunds Distributor, Inc." Mail it to P.O. Box
5270, Denver, Colorado 80217. If you don't list a dealer on the
application, the Distributor will act as your agent in buying the
shares. However, we recommend that you discuss your investment first
with a financial advisor, to be sure that it is appropriate for you.
- Buying Shares Through OppenheimerFunds AccountLink. You can use
AccountLink to link your Fund account with an account at a U.S. bank or
other financial institution that is an Automated Clearing House (ACH)
member. You can then transmit funds electronically to purchase shares,
to have the Transfer Agent send redemption proceeds, or to transmit
dividends and distributions.
Shares are purchased for your account on AccountLink on the
regular business day the Distributor is instructed by you to initiate
the ACH transfer to buy shares. You can provide those instructions
automatically, under an Asset Builder Plan, described below, or by
telephone instructions using OppenheimerFunds PhoneLink, also described
below. You should request AccountLink privileges on the application or
dealer settlement instructions used to establish your account. Please
refer to "AccountLink" below for more details.
- Asset Builder Plans. You may purchase shares of the Fund (and up
to four other Oppenheimer funds) automatically each month from your
account at a bank or other financial institution under an Asset Builder
Plan with AccountLink. Details are on the Application and in the
Statement of Additional Information.
- At What Price Are Shares Sold? Shares are sold at the public
offering price based on the net asset value (and any initial sales
charge that applies) that is next determined after the Distributor
receives the purchase order in Denver, Colorado. In most cases, to
enable you to receive that day's offering price, the Distributor must
receive your order by the time of day The New York Stock Exchange
closes, which is normally 4:00 P.M., New York time, but may be earlier
on some days (all references to time in this Prospectus mean "New York
time"). The net asset value of each class of shares is determined as
of that time on each day The New York Stock Exchange is open (which is
a "regular business day").
If you buy shares through a dealer, the dealer must receive your
order by the close of The New York Stock Exchange on a regular business
day and transmit it to the Distributor so that it is received before
the Distributor's close of business that day, which is normally 5:00
P.M. The Distributor may reject any purchase order for the Fund's
shares, in its sole discretion.
Special Sales Charge Arrangements for Certain Persons. Appendix A
to this Prospectus sets forth conditions for the waiver of, or
exemption from, sales charges or the special sales charge rates that
apply to purchases of shares of the Fund (including purchases by
exchange) by a person who was a shareholder of one of the Former Quest
for Value Funds (as defined in that Appendix).
Buying Class A Shares. Class A shares are sold at their offering
price, which is normally net asset value plus an initial sales charge.
However, in some cases, described below, where purchases are not
subject to an initial sales charge, the offering price may be the net
asset value. In some cases, reduced sales charges may be available, as
described below. Out of the amount you invest, the Fund receives the
net asset value to invest for your account. The sales charge varies
depending on the amount of your purchase. A portion of the sales
charge may be retained by the Distributor and allocated to your dealer
as commission. The current sales charge rates and commissions paid to
dealers and brokers
are as follows:
- -------------------------------------------------------------------
Amount of Purchase Front-End Front-End Commission
Sales Charge Sales Charge as
as a as a Percentage
Percentage Percentage of Offering
of Offering of Amount Price
Price 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%
- -------------------------------------------------------------------
The Distributor reserves the right to reallow the entire
commission to dealers. If that occurs, the dealer may be considered an
"underwriter" under Federal securities laws.
- Class A Contingent Deferred Sales Charge. There is no initial
sales charge on purchases of Class A shares of any one or more of the
Oppenheimer funds aggregating $1 million or more.
The Distributor pays dealers of record commissions on those
purchases in an amount equal to the sum of 1.0% of the first $2.5
million, plus 0.50% of the next $2.5 million, plus 0.25% of purchases
over $5 million. That commission will be paid only on the amount of
those purchases in excess of $1 million that were not previously
subject to a front-end sales charge and dealer commission.
If you redeem any of those shares within 18 months of the end of
the calendar month of their purchase, a contingent deferred sales
charge (called the "Class A contingent deferred sales charge") may be
deducted from the redemption proceeds. That sales charge will be equal
to 1.0% of either (1) the aggregate net asset value of the redeemed
shares (not including shares purchased by reinvestment of dividends or
capital gain distributions) or (2) the original cost of the shares,
whichever is less. However, the Class A contingent deferred sales
charge will not exceed the aggregate amount of the commissions the
Distributor paid to your dealer on all Class A shares of all
Oppenheimer funds you purchased subject to the Class A contingent
deferred sales charge.
In determining whether a contingent deferred sales charge is
payable, the Fund will first redeem shares that are not subject to the
sales charge, including shares purchased by reinvestment of dividends
and capital gains, and then will redeem other shares in the order that
you purchased them. The Class A contingent deferred sales charge is
waived in certain cases described in "Waivers of Class A Sales Charges"
below.
No Class A contingent deferred sales charge is charged on
exchanges of shares under the Fund's exchange privilege (described
below). However, if the shares acquired by exchange are redeemed
within 18 months of the end of the calendar month of the purchase of
the exchanged shares, the sales charge will apply.
- Special Arrangements With Dealers. The Distributor may advance
up to 13 months' commissions to dealers that have established special
arrangements with the Distributor for Asset Builder Plans for their
clients.
Reduced Sales Charges for Class A Share Purchases. You may be eligible
to buy Class A shares at reduced sales charge rates in one or more of
the following ways:
- Right of Accumulation. To qualify for the lower sales charge
rates that apply to larger purchases of Class A shares, you and your
spouse can add together Class A and Class B shares you purchase for
your individual accounts, or jointly, or for trust or custodial
accounts, on behalf of your children who are minors. A fiduciary can
count all shares purchased for a trust, estate or other fiduciary
account (including one or more employee benefit plans of the same
employer) that has multiple accounts.
Additionally, you can add together current purchases of Class A
and Class B shares of the Fund and other Oppenheimerfunds to reduce the
sales charge rate that applies to current purchases of Class A shares.
You can also include Class A and Class B shares of Oppenheimer funds
you previously purchased subject to an initial or contingent deferred
sales charge to reduce the sales charge rate for current purchases of
Class A shares, provided that you still hold your investment in one of
the Oppenheimer funds. The value of those shares will be based on the
greater of the amount you paid for the shares or their current value
(at offering price). The Oppenheimer funds are listed in "Reduced
Sales Charges" in the Statement of Additional Information, or a list
can be obtained from the Distributor. The reduced sales charge will
apply only to current purchases and must be requested when you buy your
shares.
- Letter of Intent. Under a Letter of Intent, if you purchase
Class A Shares or Class A and Class B shares of the Fund and other
Oppenheimer funds during a 13-month period, you can reduce the sales
charge rate that applies to your purchases of Class A shares. The
total amount of your intended purchases of both Class A and Class B
shares will determine the reduced sales charge rate for the Class A
shares purchased during that period. This can include purchases made
up to 90 days before the date of the Letter. More information is
contained in the Application and in "Reduced Sales Charges" in the
Statement of Additional Information.
- Waivers of Class A Sales Charges. The Class A sales charges are
not imposed in the circumstances described below. There is an
explanation of this policy in "Reduced Sales Charges" in the Statement
of Additional Information.
Waivers of Initial and Contingent Deferred Sales Charges for
Certain Purchasers. Class A shares purchased by the following
investors are not subject to any Class A sales charges:
- the Manager or its affiliates;
- present or former officers, directors, trustees and employees
(and their "immediate families" as defined in "Reduced Sales Charges"
in the Statement of Additional Information) of the Fund, the Manager
and its affiliates, and retirement plans established by them for their
employees;
- registered management investment companies, or separate accounts
of insurance companies having an agreement with the Manager or the
Distributor for that purpose;
- dealers or brokers that have a sales agreement with the
Distributor, if they purchase shares for their own accounts or for
retirement plans for their employees;
- employees and registered representatives (and their spouses) of
dealers or brokers described above or financial institutions that have
entered into sales arrangements with such dealers or brokers (and are
identified to the Distributor) or with the Distributor; the purchaser
must certify to the Distributor at the time of purchase that the
purchase is for the purchaser's own account (or for the benefit of such
employee's spouse or minor children);
- dealers, brokers or registered investment advisers that have
entered into an agreement with the Distributor (1) providing
specifically for the use of shares of the Fund in particular investment
products made available to their clients (those clients may be charged
a transaction fee by their dealer, broker or advisor for the purchase
or sales of Fund shares) or (2) to sell shares of defined contribution
employee retirement plans for which the dealer, broker or investment
adviser provides administrative services;
- directors, trustees, officers or full-time employees of OpCap
Advisors or its affiliates, their relatives or any trust, pension,
profit sharing or other benefit plan which beneficially owns shares for
those persons;
- accounts for which Oppenheimer Capital is the investment adviser
(the Distributor must be advised of this arrangement) and persons who
are directors or trustees of the company or trust which is the
beneficial owner of such accounts; or
- any unit investment trust that has entered into an appropriate
agreement with the Distributor.
Waivers of Initial and Contingent Deferred Sales Charges in
Certain Transactions. Class A shares issued or purchased in the
following transactions are not subject to Class A sales charges:
- shares issued in plans of reorganization, such as mergers, asset
acquisitions and exchange offers, to which the Fund is a party;
- shares purchased by the reinvestment of dividends or other
distributions reinvested from the Fund or other Oppenheimer funds
(other than Oppenheimer Cash Reserves) or unit investment trusts for
which reinvestment arrangements have been made with the Distributor;
- shares purchased and paid for with the proceeds of shares
redeemed in the past 12 months from a mutual fund (other than a fund
managed by the Manager or any of its subsidiaries) on which an initial
sales charge or contingent deferred sales charge was paid (this waiver
also applies to shares purchased by exchange of shares of Oppenheimer
Money Market Fund, Inc. that were purchased and paid for in this
manner); this waiver must be requested when the purchase order is
placed for your shares of the Fund, and the Distributor may require
evidence of your qualification for this waiver; or
- shares purchased with the proceeds of maturing principal of
units of any Qualified Unit Investment Liquid Trust Series.
Waivers of the Class A Contingent Deferred Sales Charge for
Certain Redemptions. The Class A contingent deferred sales charge is
also waived if shares that would otherwise be subject to the contingent
deferred sales charge are redeemed in the following cases:
- to make Automatic Withdrawal Plan payments that are limited
annually to no more than 12% of the original account value;
- involuntary redemptions of shares by operation of law or
involuntary redemptions of small accounts (see "Shareholder Account
Rules and Policies," below); or
- if, at the time of a purchase an order is placed for Class A
shares that would otherwise be subject to the Class A contingent
deferred sales charge, the dealer agrees in writing to accept the
dealer's portion of the commission that will be payable on the sale in
installments of 1/18th of the commission per month (and no further
commission payable if the shares are redeemed within 18 months of
purchase).
- Service Plan for Class A Shares. The Fund has adopted a Service
Plan for Class A shares to reimburse the Distributor for a portion of
its costs incurred in connection with the personal service and
maintenance of accounts that hold Class A shares. Reimbursement is
made quarterly at an annual rate that may not exceed 0.15% of the
average annual net assets of Class A shares of the Fund. The
Distributor uses all of those fees to compensate dealers, brokers,
banks and other financial institutions quarterly for providing personal
service and maintenance of accounts of their customers that hold Class
A shares and to reimburse itself (if the Board of Trustees authorizes
such reimbursements, which it has not yet done) for its other
expenditures under the Plan.
Services to be provided include, among others, answering customer
inquiries about the Fund, assisting in establishing and maintaining
accounts in the Fund, making the Fund's investment plans available and
providing other services at the request of the Fund or the Distributor.
Payments are made by the Distributor quarterly at an annual rate not to
exceed 0.15% of the average annual net assets of Class A shares held in
accounts of the dealer or its customers. The payments under the Plan
increase the annual expenses of Class A shares. For more details,
please refer to "Distribution and Service Plans" in the Statement of
Additional Information.
Buying Class B Shares. Class B shares are sold at net asset value per
share without an initial sales charge. However, if Class B shares are
redeemed within 6 years of their purchase, a contingent deferred sales
charge will be deducted from the redemption proceeds. That sales
charge will not apply to shares purchased by the reinvestment of
dividends or capital gains distributions. The charge will be assessed
on the lesser of the net asset value of the shares at the time of
redemption or the original purchase price. The contingent deferred
sales charge is not imposed on the amount of your account value
represented by the increase in net asset value over the initial
purchase price. The Class B contingent deferred sales charge is paid
to compensate the Distributor for its expenses of providing
distribution-related services to the Fund in connection with the sale
of Class B shares.
To determine whether the contingent deferred sales charge applies
to a redemption, the Fund redeems shares in the following order: (1)
shares acquired by reinvestment of dividends and capital gains
distributions, (2) shares held for over 6 years, and (3) shares held
the longest during the 6-year period. The contingent deferred sales
charge is not imposed in the circumstances described in "Waivers of
Class B and Class C Sales Charges," below.
The amount of the contingent deferred sales charge will depend on
the number of years since you invested and the dollar amount being
redeemed, according to the following schedule:
Contingent Deferred Sales Charge
Years Since Beginning of Month in On Redemptions in That Year
which Purchase Order Was Accepted (As % of Amount Subject to Charge)
- -----------------------------------------------------------------------
0-1 5.0%
1-2 4.0%
2-3 3.0%
3-4 3.0%
4-5 2.0%
5-6 1.0%
6 and following None
In the table, a "year" is a 12-month period. All purchases are
considered to have been made on the first regular business day of the
month in which the purchase was made.
- Automatic Conversion of Class B Shares. 72 months after you
purchase Class B shares, those shares will automatically convert to
Class A shares. This conversion feature relieves Class B shareholders
of the asset-based sales charge that applies to Class B shares under
the Class B Distribution and Service Plan, described below. The
conversion is based on the relative net asset value of the two classes,
and no sales load or other charge is imposed. When Class B shares
convert, any other Class B shares that were acquired by the
reinvestment of dividends and distributions on the converted shares
will also convert to Class A shares. The conversion feature is subject
to the continued availability of a tax ruling described in "Alternative
Sales Arrangements - Class A, Class B and Class C Shares" in the
Statement of Additional Information.
- Distribution and Service Plan for Class B Shares. The Fund has
adopted a Distribution and Service Plan for Class B shares to
compensate the Distributor for distributing Class B shares and
servicing accounts. This Plan is described below under "Buying Class C
Shares - Distribution and Service Plans for Class B and Class C
Shares."
- Waivers of Class B Sales Charges. The Class B contingent
deferred sales charge will not apply to shares purchased in certain
types of transactions, nor will it apply to shares redeemed in certain
circumstances, as described below under "Buying Class C Shares -
Waivers of Class B and Class C Charges."
Buying Class C Shares. Class C shares are sold at net asset value per
share without an initial sales charge. However, if Class C shares are
redeemed within 12 months of their purchase, a contingent deferred
sales charge of 1.0% will be deducted from the redemption proceeds.
That sales charge will not apply to shares purchased by the
reinvestment of dividends or capital gains distributions. The charge
will be assessed on the lesser of the net asset value of the shares at
the time of redemption or the original purchase price. The contingent
deferred sales charge is not imposed on the amount of your account
value represented by the increase in net asset value over the initial
purchase price. The Class C contingent deferred sales charge is paid
to compensate the Distributor for its expenses of providing
distribution-related services to the Fund in connection with the sale
of Class C shares.
To determine whether the contingent deferred sales charge applies
to a redemption, the Fund redeems shares in the following order: (1)
shares acquired by reinvestment of dividends and capital gains
distributions, (2) shares held for over 12 months, and (3) shares held
the longest during the 12-month period.
- Distribution and Service Plans for Class B and Class C Shares.
The Fund has adopted Distribution and Service Plans for Class B and
Class C shares to compensate the Distributor for distributing Class B
and C shares and servicing accounts. Under the Plans, the Fund pays the
Distributor an annual "asset-based sales charge" of 0.75% per year on
Class B shares that are outstanding for 6 years or less and on Class C
shares. Under the Plans, the Distributor is entitled to receive a
service fee of up to 0.25% per year under each plan. The Board of
Trustees has currently set the service fee at 0.15% per year, which
amount may be increased by the Board from time to time up to the
maximum of 0.25%.
Under each Plan, both fees are computed on the average of the net
asset value of shares in the respective class, determined as of the
close of each regular business day during the period. The asset-based
sales charge and service fees increase Class B and Class C expenses by
up to 1.00% of the net assets per year of the respective class.
The Distributor uses the service fees to compensate dealers for
providing personal services for accounts that hold Class B or C shares.
Those services are similar to those provided under the Class A Service
Plan, described above. The Distributor pays the service fees to
dealers in advance for the first year after Class B or Class C shares
have been sold by the dealer. After the shares have been held for a
year, the Distributor pays the service fees to dealers on a quarterly
basis.
The asset-based sales charge allows investors to buy Class B or C
shares without a front-end sales charge while allowing the Distributor
to compensate dealers that sell those shares. The Fund pays the asset-
based sales charge to the Distributor for its services rendered in
distributing Class B and Class C shares. Those payments are at a fixed
rate that is not related to the Distributor's expenses. The services
rendered by the Distributor include paying and financing the payment of
sales commissions, service fees and other costs of distributing and
selling Class B and Class C shares.
The Distributor currently pays sales commissions of 3.85% of the
purchase price of Class B shares to dealers from its own resources at
the time of sale. Including the advance of the service fee, the total
amount paid by the Distributor to the dealer at the time of sale of
Class B shares is therefore 4.00% of the purchase price. The
Distributor retains the Class B asset-based sales charge.
The Distributor currently pays sales commissions of 0.75% of the
purchase price of Class C shares to dealers from its own resources at
the time of sale. Including the advance of the service fee, the total
amount paid by the Distributor to the dealer at the time of sale of
Class C shares is therefore 0.90% of the purchase price. The
Distributor plans to pay the asset-based sales charge as an ongoing
commission to the dealer on Class C shares that have been outstanding
for a year or more.
The Distributor's actual expenses in selling Class B and Class C
shares may be more than the payments it receives from contingent
deferred sales charges collected on redeemed shares and from the Fund
under the Distribution and Service Plan for Class B and Class C shares.
If either Plan is terminated by the Fund, the Board of Trustees may
allow the Fund to continue payments of the asset-based sales charge to
the Distributor for distributing shares before the Plan was
terminated.
- Waivers of Class B and Class C Sales Charges. The Class B and
Class C contingent deferred sales charges will not be applied to shares
purchased in certain types of transactions nor will it apply to Class B
and Class C shares redeemed in certain circumstances, as described
below. The reasons for this policy are in "Reduced Sales Charges" in
the Statement of Additional Information.
Waivers for Redemptions of Shares in Certain Cases. The Class B
and Class C contingent deferred sales charges will be waived for
redemptions of shares in the following cases:
- following the death or disability of the last surviving
shareholder, including a trustee of a "grantor" trust or revocable
living trust for which the trustee is also the sole beneficiary (the
disability must have occurred after the account was established and you
must provide evidence of a determination of disability by the Social
Security Administration);
- shares sold to the Manager or its affiliates;
- shares sold to registered management investment companies or
separate accounts of insurance companies having an agreement with the
Manager or the Distributor for that purpose; or
- shares issued in plans of reorganization to which the Fund is a
party
Special Investor Services
AccountLink. OppenheimerFunds AccountLink links your Fund account to
your account at your bank or other financial institution to enable you
to send money electronically between those accounts to perform a number
of types of account transactions. These include purchases of shares by
telephone (either through a service representative or by PhoneLink,
described below), automatic investments under Asset Builder Plans, and
sending dividends and distributions or Automatic Withdrawal Plan
payments directly to your bank account. Please refer to the Application
for details or call the Transfer Agent for more information.
AccountLink privileges should be requested on the Application you
use to buy shares, or on your dealer's settlement instructions if you
buy your shares through your dealer. After your account is established,
you can request AccountLink privileges by sending signature-guaranteed
instructions to the Transfer Agent. AccountLink privileges will apply
to each shareholder listed in the registration on your account as well
as to your dealer representative of record unless and until the
Transfer Agent receives written instructions terminating or changing
those privileges. After you establish AccountLink for your account, any
change of bank account information must be made by signature-guaranteed
instructions to the Transfer Agent signed by all shareholders who own
the account.
- Using AccountLink to Buy Shares. Purchases may be made by
telephone only after your account has been established. To purchase
shares in amounts up to $250,000 through a telephone representative,
call the
Distributor at 1-800-852-8457. The purchase payment will be debited
from your bank account.
- PhoneLink. PhoneLink is the OppenheimerFunds automated
telephone system that enables shareholders to perform a number of
account transactions automatically using a touch-tone phone. PhoneLink
may be used on already-established Fund accounts after you obtain a
Personal Identification Number (PIN), by calling the special PhoneLink
number: 1-800-533-3310.
- Purchasing Shares. You may purchase shares in amounts up to
$100,000 by phone, by calling 1-800-533-3310. You must have
established AccountLink privileges to link your bank account with the
Fund, to pay for these purchases.
- Exchanging Shares. With the OppenheimerFunds Exchange
Privilege, described below, you can exchange shares automatically by
phone from your Fund account to another Oppenheimer funds account you
have already established by calling the special PhoneLink number.
Please refer to "How to Exchange Shares," below, for details.
- Selling Shares. You can redeem shares by telephone
automatically by calling the PhoneLink number and the Fund will send
the proceeds directly to your AccountLink bank account. Please refer
to "How to Sell Shares," below, for details.
Automatic Withdrawal and Exchange Plans. The Fund has several plans
that enable you to sell shares automatically or exchange them to
another Oppenheimer funds account on a regular basis:
- Automatic Withdrawal Plans. If your Fund account is worth $5,000
or more, you can establish an Automatic Withdrawal Plan to receive
payments of at least $50 on a monthly, quarterly, semi-annual or annual
basis. The checks may be sent to you or sent automatically to your bank
account on AccountLink. You may even set up certain types of
withdrawals of up to $1,500 per month by telephone. You should consult
the Application and Statement of Additional Information for more
details.
- Automatic Exchange Plans. You can authorize the Transfer Agent
to automatically exchange an amount you establish in advance for shares
of up to five other Oppenheimer funds on a monthly, quarterly, semi-
annual or annual basis under an Automatic Exchange Plan. The minimum
purchase for each Oppenheimer funds account is $25. These exchanges
are subject to the terms of the Exchange Privilege, described below.
Reinvestment Privilege. If you redeem some or all of your Class A or
Class B shares of the Fund, you have up to 6 months to reinvest all or
part of the redemption proceeds in Class A shares of the Fund or other
Oppenheimer funds without paying a sales charge. This privilege
applies to Class A shares that you purchased with an initial sales
charge and to Class A and Class B shares on which you paid a contingent
deferred sales charge when you redeemed them. This privilege does not
apply to Class C shares. You must be sure to ask the Distributor for
this privilege when you send your payment. Please consult the Statement
of Additional Information for more details.
How to Sell Shares
You can arrange to take money out of your account by selling
(redeeming) some or all of your shares. Your shares will be sold at
the next net asset value calculated after your order is received and
accepted by the Transfer Agent. The Fund offers you a number of ways
to sell your shares: in writing, by using the Fund's checkwriting
privilege or by telephone. You can also set up Automatic Withdrawal
Plans to redeem shares on a regular basis, as described above. If you
have questions about any of these procedures, and especially if you are
redeeming shares in a special situation, such as due to the death of
the owner, please call the Transfer Agent first, at 1-800-525-7048, for
assistance.
- Certain Requests Require a Signature Guarantee. To protect you
and the Fund from fraud, certain redemption requests must be in writing
and must include a signature guarantee in the following situations
(there may be other situations also requiring a signature guarantee):
- You wish to redeem more than $50,000 worth of shares and receive
a check
- The redemption check is not payable to all shareholders listed
on the account statement
- The redemption check is not sent to the address of record on
your statement
- Shares are being transferred to a Fund account with a different
owner or name
- Shares are redeemed by someone other than the owners (such as an
Executor)
- Where Can I Have My Signature Guaranteed? The Transfer Agent
will accept a guarantee of your signature by a number of financial
institutions, including: a U.S. bank, trust company, credit union or
savings association, or by a foreign bank that has a U.S. correspondent
bank, or by a U.S. registered dealer or broker in securities, municipal
securities or government securities, or by a U.S. national securities
exchange, a registered securities association or a clearing agency. If
you are signing on behalf of a corporation, partnership or other
business, or as a fiduciary, you must also include your title in the
signature.
Selling Shares by Mail. Write a "letter of instructions" that
includes:
- Your name
- The Fund's name
- Your Fund account number (from your account statement)
- The dollar amount or number of shares to be redeemed
- Any special payment instructions
- Any share certificates for the shares you are selling,
- The signatures of all registered owners exactly as the account
is registered, and
- Any special requirements or documents requested by the Transfer
Agent to assure proper authorization of the person asking to sell
shares.
Use the following address for requests by mail:
OppenheimerFunds Services
P.O. Box 5270, Denver, Colorado 80217
Send courier or Express Mail requests to:
OppenheimerFunds Services
10200 E. Girard Avenue, Building D
Denver, Colorado 80231
Selling Shares by Telephone. You and your dealer representative of
record may also sell your shares by telephone. To receive the
redemption price on a regular business day, your call must be received
by the Transfer Agent by the close of The New York Stock Exchange that
day, which is normally 4:00 P.M., but which may be earlier on some
days. You may not redeem shares held under a share certificate by
telephone.
- To redeem shares through a service representative, call 1-800-
852-8457
- To redeem shares automatically on PhoneLink, call 1-800-533-3310
Whichever method you use, you may have a check sent to the address
on the account statement, or, if you have linked your Fund account to
your bank account on AccountLink, you may have the proceeds wired to
that bank account.
- Telephone Redemptions Paid by Check. Up to $50,000 may be
redeemed by telephone, in any 7-day period. The check must be payable
to all owners of record of the shares and must be sent to the address
on the account statement. This service is not available within 30 days
of changing the address on an account.
- Telephone Redemptions Through AccountLink. There are no dollar
limits on telephone redemption proceeds sent to a bank account
designated when you establish AccountLink. Normally the ACH transfer
to your bank is initiated on the business day after the redemption.
You do not receive dividends on the proceeds of the shares you redeemed
while they are waiting to be transferred.
Checkwriting. To be able to write checks against your Fund account,
you may request that privilege on your account Application or you can
contact the Transfer Agent for signature cards, which must be signed
(with a signature guarantee) by all owners of the account and returned
to the Transfer Agent so that checks can be sent to you to use.
Shareholders with joint accounts can elect in writing to have checks
paid over the signature of one owner. If you previously signed a
signature card to establish Checkwriting in one of the other
Oppenheimer funds, you may call 1-800-525-7048 to request Checkwriting
for an account in this Fund that has the same registration as that
other fund account.
- Checks can be written to the order of whomever you wish, but may
not be cashed at the Fund's bank or custodian.
- Checkwriting privileges are not available for accounts holding
Class B shares or Class C shares, or Class A shares that are subject to
a contingent deferred sales charge.
- Checks must be written for at least $100.
- Checks cannot be paid if they are written for more than your
account value. Remember: your shares fluctuate in value and you should
not write a check close to the total account value.
- You may not write a check that would require the Fund to redeem
shares that were purchased by check or Asset Builder Plan payments
within the prior 10 days.
- Don't use your checks if you changed your Fund account number.
Selling Shares Through Your Dealer. The Distributor has made
arrangements to repurchase Fund shares from dealers and brokers on
behalf of their customers. Brokers or dealers may charge for that
service. Please call your dealer for more information about this
procedure. Please refer to "Special Arrangements for Repurchase of
Shares from Dealers and Brokers" in the Statement of Additional
Information for more details.
How to Exchange Shares
Shares of the Fund may be exchanged for shares of certain Oppenheimer
funds at net asset value per share at the time of exchange, without
sales charge. To exchange shares, you must meet several conditions:
- Shares of the fund selected for exchange must be available for
sale in your state of residence
- The prospectuses of this Fund and the fund whose shares you want
to buy must offer the exchange privilege
- You must hold the shares you buy when you establish your account
for at least 7 days before you can exchange them; after the account is
open 7 days, you can exchange shares every regular business day
- You must meet the minimum purchase requirements for the fund you
purchase by exchange
- Before exchanging into a fund, you should obtain and read its
prospectus
Shares of a particular class of the Fund may be exchanged only for
shares of the same class in the other Oppenheimer funds. For example,
you can exchange Class A shares of this Fund only for Class A shares of
another fund. At present, Oppenheimer Money Market Fund, Inc. offers
only one class of shares which are considered to be "Class A Shares"
for this purpose. In some cases, sales charges may be imposed on
exchange transactions. Please refer to "How to Exchange Shares" in the
Statement of Additional Information for more details.
Exchanges may be requested in writing or by telephone:
- Written Exchange Requests. Submit an OppenheimerFunds Exchange
Request form, signed by all owners of the account. Send it to the
Transfer Agent at the addresses listed in "How to Sell Shares."
- Telephone Exchange Requests. Telephone exchange requests may be
made either by calling a service representative at 1-800-852-8457 or by
using PhoneLink for automated exchanges, by calling 1-800-533-3310.
Telephone exchanges may be made only between accounts that are
registered with the same name(s) and address. Shares held under
certificates may not be exchanged by telephone.
You can find a list of Oppenheimer funds currently available for
exchanges in the Statement of Additional Information or obtain one by
calling a service representative at 1-800-525-7048. That list can
change from time to time.
There are certain exchange policies you should be aware of:
- Shares are normally redeemed from one fund and purchased from
the other fund in the exchange transaction on the same regular business
day on which the Transfer Agent receives an exchange request that is in
proper form by the close of The New York Stock Exchange that day, which
is normally 4:00 P.M., but may be earlier on some days. However,
either fund may delay the purchase of shares of the fund you are
exchanging into up to seven days if it determines it would be
disadvantaged by a same-day transfer of the proceeds to buy shares. For
example, the receipt of multiple exchange requests from a dealer in a
"market-timing" strategy might require the sale of portfolio securities
at a time or price disadvantageous to the Fund.
- Because excessive trading can hurt fund performance and harm
shareholders, the Fund reserves the right to refuse any exchange
request that will disadvantage it, or to refuse multiple exchange
requests submitted by a shareholder or dealer.
- The Fund may amend, suspend or terminate the exchange privilege
at any time. Although the Fund will attempt to provide you notice
whenever it is reasonably able to do so, it may impose these changes at
any time.
- For tax purposes, exchanges of shares involve a redemption of
the shares of the fund you own and a purchase of the shares of the
other fund, which may result in a capital gain or loss. For more
information about taxes affecting exchanges, please refer to "How to
Exchange Shares" in the Statement of Additional Information.
- If the Transfer Agent cannot exchange all the shares you request
because of a restriction cited above, only the shares eligible for
exchange will be exchanged.
Shareholder Account Rules and Policies
- Net Asset Value Per Share is determined for each class of shares
as of the close of The New York Stock Exchange, which is normally 4:00
P.M. but may be earlier on some days, on each day the Exchange is open
by dividing the value of the Fund's net assets attributable to a class
by the number of shares of that class that are outstanding. The Fund's
Board of Trustees has established procedures to value the Fund's
securities to determine net asset value. In general, securities values
are based on market value. There are special procedures for valuing
illiquid and restricted securities, and obligations for which market
values cannot be readily obtained. These procedures are described more
completely in the Statement of Additional Information.
- The offering of shares may be suspended during any period in
which the determination of net asset value is suspended, and the
offering may be suspended by the Board of Trustees at any time the
Board believes it is in the Fund's best interest to do so.
- Telephone Transaction Privileges for purchases, redemptions or
exchanges may be modified, suspended or terminated by the Fund at any
time. If an account has more than one owner, the Fund and the Transfer
Agent may rely on the instructions of any one owner. Telephone
privileges apply to each owner of the account and the dealer
representative of record for the account unless and until the Transfer
Agent receives cancellation instructions from an owner of the account.
- The Transfer Agent will record any telephone calls to verify
data concerning transactions and has adopted other procedures to
confirm that telephone instructions are genuine, by requiring callers
to provide tax identification numbers and other account data or by
using PINs, and by confirming such transactions in writing. If the
Transfer Agent does not use reasonable procedures it may be liable for
losses due to unauthorized transactions, but otherwise neither the
Transfer Agent nor the Fund will be liable for losses or expenses
arising out of telephone instructions reasonably believed to be
genuine. If you are unable to reach the Transfer Agent during periods
of unusual market activity, you may not be able to complete a telephone
transaction and should consider placing your order by mail.
- Redemption or transfer requests will not be honored until the
Transfer Agent receives all required documents in proper form. From
time to time, the Transfer Agent in its discretion may waive certain of
the requirements for redemptions stated in this Prospectus.
- Dealers that can perform account transactions for their clients
by participating in NETWORKING through the National Securities
Clearing Corporation are responsible for obtaining their clients'
permission to perform those transactions, and are responsible to their
clients who are shareholders of the Fund if the dealer performs any
transaction erroneously or improperly.
- The redemption price for shares will vary from day to day
because the value of the securities in the Fund's portfolio fluctuates,
and the redemption price, which is the net asset value per share, will
normally be different for Class A, Class B and Class C shares.
Therefore, the redemption value of your shares may be more or less than
their original cost.
- Payment for redeemed shares is made ordinarily in cash and
forwarded by check or through AccountLink (as elected by the
shareholder under the redemption procedures described above) within 7
days after the Transfer Agent receives redemption instructions in
proper form, except under unusual circumstances determined by the
Securities and Exchange Commission delaying or suspending such
payments. For accounts registered in the name of a broker-dealer,
payments will be forwarded within 3 business days. The Transfer Agent
may delay forwarding a check or processing a payment via AccountLink
for recently purchased shares, but only until the purchase payment has
cleared. That delay may be as much as 10 days from the date the shares
were purchased. That delay may be avoided if you purchase shares by
certified check or arrange with your bank to provide telephone or
written assurance to the Transfer Agent that your purchase payment has
cleared.
- Involuntary redemptions of small accounts may be made by the
Fund if the account value has fallen below $200 for reasons other than
the fact that the market value of shares has dropped, and in some cases
involuntary redemptions may be made to repay the Distributor for losses
from the cancellation of share purchase orders.
- Under unusual circumstances, shares of the Fund may be redeemed
"in kind," which means that the redemption proceeds will be paid with
securities from the Fund's portfolio. Please refer to "How to Sell
Shares" in the Statement of Additional Information for more details.
- "Backup Withholding" of Federal income tax may be applied at the
rate of 31% from taxable dividends, distributions and redemption
proceeds (including exchanges) if you fail to furnish the Fund a
certified Social Security or Employer Identification Number when you
sign your application, or if you violate Internal Revenue Service
regulations on tax reporting of income.
- The Fund does not charge a redemption fee, but if your dealer or
broker handles your redemption, they may charge a fee. That fee can be
avoided by redeeming your Fund shares directly through the Transfer
Agent. Under the circumstances described in "How To Buy Shares," you
may be subject to a contingent deferred sales charge when redeeming
certain Class A, Class B and Class C shares.
- To avoid sending duplicate copies of materials to households,
the Fund will mail only one copy of each annual and semi-annual report
to shareholders having the same last name and address on the Fund's
records. However, each shareholder may call the Transfer Agent at 1-
800-525-7048 to ask that copies of those materials be sent personally
to that shareholder.
Dividends, Capital Gains and Taxes
Dividends. The Fund declares dividends separately for Class A, Class B
and Class C shares from net tax-exempt income and/or net investment
income each regular business day and pays such dividends to
shareholders monthly. Normally, dividends are paid on or about the
tenth business day of each month, but the Board of Trustees can change
that date. It is expected that distributions paid with respect to Class
A shares will generally be higher than for Class B and Class C shares
because expenses allocable to Class B and Class C shares will generally
be higher.
For the fiscal year ended December 31, 1995, the Fund maintained
the practice, to the extent consistent with the amount of the Fund's
net investment income and other distributable income, of attempting to
pay dividends on Class A shares at a constant level, although the
amount of such dividends was subject to change from time to time
depending on market conditions, the composition of the Fund's portfolio
and expenses borne by the Fund or borne separately by that Class. The
practice of attempting to pay dividends on Class A shares at a constant
level requires the Manager, consistent with the Fund's investment
objective and investment restrictions, to monitor the Fund's portfolio
and select higher yielding securities when deemed appropriate to
maintain necessary net investment income levels. The Fund anticipates
paying dividends at the targeted dividend level from net investment
income and other distributable income without any impact on the Fund's
net asset value per share. The Board of Trustees may change the Fund's
targeted dividend level at any time, without prior notice to
shareholders; the Fund does not otherwise have a fixed dividend rate
and there can be no assurance as to the payment of any dividends or the
realization of any capital gains.
Capital Gains. Although the Fund does not seek capital gains, it may
realize capital gains on the sale of portfolio securities. If it does,
it may make distributions out of any net short-term or long-term
capital gains in December. The Fund may make supplemental
distributions of dividends and capital gains following the end of its
fiscal year (which ends December 31st). Long-term capital gains will
be separately identified in the tax information the Fund sends you
after the end of the year. Short-term capital gains are treated as
dividends for tax purposes. There can be no assurance that the Fund
will pay any capital gains distributions in a particular year.
Distribution Options. When you open your account, specify on your
application how you want to receive your distributions. You have four
options:
- Reinvest all distributions in the Fund. You can elect to
reinvest all dividends and long-term capital gains distributions in
additional shares of the Fund.
- Reinvest long-term capital gains only. You can elect to
reinvest long-term capital gains in the Fund while receiving dividends
by check or sent to your bank account on AccountLink.
- Receive all distributions in cash. You can elect to receive a
check for all dividends and long-term capital gains distributions or
have them sent to your bank account on AccountLink.
- Reinvest your distributions in another Oppenheimer funds
account. You can reinvest all distributions in another Oppenheimer
funds account you have established.
Taxes. Long-term capital gains are taxable as long-term capital
gains when distributed to shareholders for Federal income tax purposes.
It does not matter how long you hold your shares. Dividends paid from
short-term capital gains and net investment income are taxable as
ordinary income. Dividends paid from net investment income earned by
the Fund on Municipal Securities will be excludable from your gross
income for Federal income tax purposes. A portion of the dividends
paid by the Fund may be an item of tax preference if you are subject to
the Federal alternative minimum tax. Certain distributions are subject
to Federal income tax and may be subject to state and/or local taxes.
Such distributions are taxable when paid, whether you reinvest them in
additional shares or take them in cash. Every year the Fund will send
you and the IRS a statement showing the amount of each taxable
distribution you received in the previous year.
- "Buying a Dividend". When a fund goes ex-dividend, its share
price is reduced by the amount of the distribution. If you buy shares
on or just before the ex-dividend date, or just before the Fund
declares a capital gains distribution, you will pay the full price for
the shares and then receive a portion of the price back as a taxable
dividend or capital gain.
- Taxes on Transactions. Even though the Fund seeks tax-exempt
income for distribution to shareholders, you may have a capital gain or
loss when you sell or exchange your shares. Share redemptions,
including redemptions for exchanges, are subject to capital gains tax.
Generally speaking, a capital gain or loss is the difference between
the price you paid for the shares and the price you receive when you
sell them.
- Returns of Capital. In certain cases distributions made by the
Fund may be considered a non-taxable return of capital to shareholders.
If that occurs, it will be identified in notices to shareholders. A
non-taxable return of capital may reduce your tax basis in your Fund
shares.
This information is only a summary of certain Federal tax
information about your investment. More information is contained in
the Statement of Additional Information, and in addition you should
consult with your tax adviser about the effect of an investment in the
Fund on your particular tax situation.
<PAGE>
APPENDIX TO PROSPECTUS OF
OPPENHEIMER PENNSYLVANIA TAX-EXEMPT FUND
Graphic material included in Prospectus of Oppenheimer
Pennsylvania Tax-Exempt Fund: "Comparison of Change in Value of $10,000
Hypothetical Investments in Oppenheimer Pennsylvania Tax-Exempt Fund
and the Lehman Brothers Municipal Bond Index
A linear graph will be included in the Prospectus of Oppenheimer
Pennsylvania Tax-Exempt Fund (the "Fund") depicting the initial account
value and subsequent account value of a hypothetical $10,000 investment
in the Fund during each of the Fund's fiscal years since the
commencement of the Fund's operations as to Class A shares (September
18, 1989), the initial public offering of Class B shares (May 1, 1993)
and the initial public offering of Class C shares (August 29, 1995) and
comparing such values with the same investments over the same time
periods with the Lehman Brothers Municipal Bond Index. Set forth below
are the relevant data points that will appear on the linear graph.
Additional information with respect to the foregoing, including a
description of the Lehman Brothers Municipal Bond Index, is set forth
in the Prospectus under "Performance of the Fund - How Has the Fund
Performed?"
Fiscal Year Oppenheimer Pennsylvania Lehman Brothers
(Period) Ended Tax-Exempt Fund A Municipal Bond Index
- -------------- ------------------------ --------------------
9/18/89(1) $9,525 $10,000
12/31/89 $9,805 $10,384
12/31/90 $10,392 $11,141
12/31/91 $11,583 $12,494
12/31/92 $12,509 $13,595
12/31/93 $14,162 $15,265
12/31/94 $13,069 $14,476
12/31/95 $15,335 $17,004
Fiscal Year Oppenheimer Pennsylvania Lehman Brothers
(Period) Ended Tax-Exempt Fund B Municipal Bond Index
- -------------- ------------------------ --------------------
5/1/93(2) $10,000 $10,000
12/31/93 $10,641 $10,718
12/31/94 $9,751 $10,164
12/31/95 $11,052 $11,939
Fiscal Year Oppenheimer Pennsylvania Lehman Brothers
(Period) Ended Tax-Exempt Fund C Municipal Bond Index
- -------------- ------------------------ --------------------
8/29/95(3) $10,000 $10,000
12/31/95 $10,455 $10,478
(1) The Fund commenced operations on September 18, 1989.
(2) Class B shares of the Fund were first publicly offered on May 1,
1993.
(3) Class C shares of the Fund were first publicly offered on August
29, 1995.
<PAGE>
APPENDIX A
Special Sales Charge Arrangements for Shareholders of the Fund
Who Were Shareholders of the Former Quest for Value Funds
The initial and contingent sales charge rates and waivers for
Class A, Class B and Class C shares of the Fund described elsewhere in
this Prospectus are modified as described below for those shareholders
of (i) Quest for Value Fund, Inc., Quest for Value Growth and Income
Fund, Quest for Value Opportunity Fund, Quest for Value Small
Capitalization Fund and Quest for Value Global Equity Fund, Inc. on
November 22, 1995, when OppenheimerFunds, Inc. became the investment
adviser to those funds, and (ii) Quest for Value U.S. Government Income
Fund, Quest for Value Investment Quality Income Fund, Quest for Value
Global Income Fund, Quest for Value New York Tax-Exempt Fund, Quest for
Value National Tax-Exempt Fund and Quest for Value California Tax-
Exempt Fund when those funds merged into various Oppenheimer funds on
November 24, 1995. The funds listed above are referred to in this
Prospectus as the "Former Quest for Value Funds." The waivers of
initial and contingent deferred sales charges described in this
Appendix apply to shares of the Fund acquired by such shareholder
pursuant to an exchange of shares of one of the Oppenheimer funds that
was (i) one of the Former Quest for Value Funds or (ii) received by
such shareholder pursuant to the merger of any of the Former Quest for
Value Funds into an Oppenheimer fund on November 24, 1995.
Class A Sales Charges
- - Reduced Class A Initial Sales Charge Rates for Certain Former Quest
Shareholders
- - Purchases by Groups and Associations. The following table sets forth
the initial sales charge rates for Class A shares purchased by members
of "Associations" formed for any purpose other than the purchase of
securities if that Association purchased shares of any of the Former
Quest for Value Funds or received a proposal to purchase such shares
from OCC Distributors prior to November 24, 1995.
Front-End Front-End
Sales Sales Commission
Charge Charge as
as a as a Percentage
Number of Percentage Percentage of
Eligible Employees of Offering of Amount Offering
or Members Price Invested Price
9 or fewer 2.50% 2.56% 2.00%
At least 10 but not
more than 49 2.00% 2.04% 1.60%
For purchases by Associations having 50 or more eligible employees
or members, there is no initial sales charge on purchases of Class A
shares, but those shares are subject to the Class A contingent deferred
sales charge described on pages __ to __ of this Prospectus.
Purchases made under this arrangement qualify for the lower of the
sales charge rate in the table based on the number of members of an
Association or the sales charge rate that applies under the Rights of
Accumulation described above in the Prospectus. Individuals who
qualify under this arrangement for reduced sales charge rates as
members of Associations also may purchase shares for their individual
or custodial accounts at these reduced sales charge rates, upon request
to the Fund's Distributor.
- - Special Class A Contingent Deferred Sales Charge Rates
Class A shares of the Fund purchased by exchange of shares of other
Oppenheimer funds that were acquired as a result of the merger of
Former Quest for Value Funds into those Oppenheimer Funds, and which
shares were subject to a Class A contingent deferred sales charge prior
to November 24, 1995, will be subject to a contingent deferred sales
charge at the following rates: if they are redeemed within 18 months
of the end of the calendar month in which they were purchased, at a
rate equal to 1.0% if the redemption occurs within 12 months of their
initial purchase and at a rate of 0.50 of 1.0% if the redemption occurs
in the subsequent six months. Class A shares of any of the Former
Quest Fund for Value Funds purchased without an initial sales charge on
or before November 22, 1995 will continue to be subject to the
applicable contingent deferred sales charge in effect as of that date
as set forth in the then-current prospectus for such fund.
- - Waiver of Class A Sales Charges for Certain Shareholders
Class A shares of the Fund purchased by the following investors are not
subject to any Class A initial or contingent deferred sales charges:
- Shareholders of the Fund who were shareholders of the AMA Family
of Funds on February 28, 1991 and who acquired shares of any of the
Former Quest for Value Funds by merger of a portfolio of the AMA Family
of Funds.
- Shareholders of the Fund who acquired shares of any Former Quest
for Value Fund by merger of any of the portfolios of the Unified Funds.
- - Waiver of Class A Contingent Deferred Sales Charge in Certain
Transactions
The Class A contingent deferred sales charge will not apply to
redemptions of Class A shares of the Fund purchased by the following
investors who were shareholders of any Former Quest for Value Fund:
- Investors who purchased Class A shares from a dealer that is or
was not permitted to receive a sales load or redemption fee imposed on
a shareholder with whom that dealer has a fiduciary relationship under
the Employee Retirement Income Security Act of 1974 and regulations
adopted under that law.
Class A, Class B and Class C Contingent Deferred Sales Charge Waivers
- - Waivers for Redemptions of Shares Purchased Prior to March 6, 1995
In the following cases, the contingent deferred sales charge will be
waived for redemptions of Class A, B or C shares of the Fund acquired
by exchange from an Oppenheimer fund that was a Former Quest for Value
Fund or into which such fund merged, if those shares were purchased
prior to March 6, 1995: in connection (i) withdrawals under an
automatic withdrawal plan holding only either Class B or C shares if
the annual withdrawal does not exceed 10% of the initial value of the
account, and (ii) liquidation of a shareholder's account if the
aggregate net asset value of shares held in the account is less than
the required minimum value of such accounts.
- - Waivers for Redemptions of Shares Purchased on or After March 6,
1995 but Prior to November 24, 1995.
In the following cases, the contingent deferred sales charge will be
waived for redemptions of Class A, B or C shares of the Fund acquired
by exchange from an Oppenheimer fund that was a Former Quest For Value
Fund or into which such fund merged, if those shares were purchased on
or after March 6, 1995, but prior to November 24, 1995: (1)
redemptions following the death or disability of the shareholder(s) (as
evidenced by a determination of total disability by the U.S. Social
Security Administration); (2) withdrawals under an automatic withdrawal
plan (but only for Class B or C shares) where the annual withdrawals do
not exceed 10% of the initial value of the account; and (3) liquidation
of a shareholder's account if the aggregate net asset value of shares
held in the account is less than the required minimum account value. A
shareholder's account will be credited with the amount of any
contingent deferred sales charge paid on the redemption of any Class A,
B or C shares of the Fund described in this section if within 90 days
after that redemption, the proceeds are invested in the same Class of
shares in this Fund or another Oppenheimer fund.
<PAGE>
Oppenheimer Pennsylvania Tax-Exempt Fund
Two World Trade Center
New York, New York 10048-0203
Telephone: 1-800-525-7048
Investment Adviser
OppenheimerFunds, Inc.
Two World Trade Center
New York, New York 10048-0203
Distributor
OppenheimerFunds Distributor, Inc.
Two World Trade Center
New York, New York 10048-0203
Transfer Agent
OppenheimerFunds Services
P.O. Box 5270
Denver, Colorado 80217
1-800-525-7048
Custodian of Portfolio Securities
Citibank, N.A.
399 Park Avenue
New York, New York 10043
Independent Auditors
KPMG Peat Marwick LLP
707 Seventeenth Street
Denver, Colorado 80202
Legal Counsel
Gordon Altman Butowsky
Weitzen Shalov & Wein
114 West 47th Street
New York, New York 10036
No dealer, broker, salesperson or any other person has been authorized
to give any information or to make any representations other than those
contained in this Prospectus or the Statement of Additional
Information, and if given or made, such information and representations
must not be relied upon as having been authorized by the Fund,
OppenheimerFunds, Inc. OppenheimerFunds Distributor, Inc., or any
affiliate thereof. This Prospectus does not constitute an offer to
sell or a solicitation of an offer to buy any of the securities offered
hereby in any state to any person to whom it is unlawful to make such
an offer in such state.
PR0740.001.0496 * Printed on recycled paper
<PAGE>
Oppenheimer Pennsylvania Tax-Exempt Fund
Two World Trade Center, New York, New York 10048-0203
1-800-525-7048
Statement of Additional Information dated April 15, 1996
This Statement of Additional Information is not a Prospectus.
This document contains additional information about the Fund and
supplements information in the Prospectus dated April 15, 1996. It
should be read together with the Prospectus, which may be obtained by
writing to the Fund's Transfer Agent, OppenheimerFunds Services, at
P.O. Box 5270, Denver, Colorado 80217 or by calling the Transfer Agent
at the toll-free number shown above.
Contents
Page
About the Fund
Investment Objective and Policies 2
Investment Policies and Strategies 2
Special Investment Considerations - Pennsylvania Municipal
Securities 6
Other Investment Techniques and Strategies 10
Other Investment Restrictions 20
How the Fund is Managed 21
Organization and History 21
Trustees and Officers of the Trust 21
The Manager and Its Affiliates 27
Brokerage Policies of the Fund 29
Performance of the Fund 31
Distribution and Service Plans 35
About Your Account
How To Buy Shares 38
How To Sell Shares 44
How To Exchange Shares 48
Dividends, Capital Gains and Taxes 50
Additional Information About the Fund 53
Financial Information About the Fund
Independent Auditors' Report 54
Financial Statements 55
Appendix A: Description of Ratings Categories A-1
Appendix B: Tax-Equivalent Yield Tables B-1
Appendix C: Industry Classifications C-1
<PAGE>
ABOUT THE FUND
Investment Objective and Policies
Investment Policies and Strategies. The investment objective and
policies of the Fund are described in the Prospectus. Set forth below
is supplemental information about those policies and the types of
securities in which the Fund invests, as well as the strategies the
Fund may use to try to achieve its objective. Certain capitalized
terms used in this Statement of Additional Information have the same
meaning as those terms used 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 and Pennsylvania Municipal Securities. The types
of Municipal Securities in which the Fund may invest are described in
the Prospectus under "Investment Objective and Policies." A discussion
of the general characteristics of types of Municipal Securities
follows.
-Municipal Bonds. The principal classifications of long-term
municipal bonds in which the Fund may invest are "general obligation"
and "revenue" or "industrial development" bonds.
-General Obligation Bonds. Issuers of general obligation bonds
include states, counties, cities, towns, and regional districts. The
proceeds of these obligations are used to fund a wide range of public
projects, including construction or improvement of schools, highways
and roads, and water and sewer systems. The basic security behind
general obligation bonds is the issuer's pledge of its full faith and
credit and taxing power for the payment of principal and interest. The
taxes that can be levied for the payment of debt service may be limited
or unlimited as to the rate or amount of special assessments.
-Revenue Bonds. The principal security for a revenue bond is
generally the net revenues derived from a particular facility group of
facilities, or, in some cases, the proceeds of a special excise or
other specific revenue source. Revenue bonds are issued to finance a
wide variety of capital projects including: electric, gas, water and
sewer systems; highways, bridges, and tunnels; port and airport
facilities; colleges and universities; and hospitals. Although the
principal security behind these bonds may vary, many provide additional
security in the form of a debt service reserve fund the money from
which may be used to make principal and interest payments on the
issuer's obligations. Housing finance authorities have a wide range of
security, including partially or fully insured mortgages, rent
subsidized and/or collateralized mortgages, and/or the net revenues
from housing or other public projects. Some authorities provide
further security in the form of a state's ability (without obligation)
to make up deficiencies in the debt service reserve fund.
-Industrial Development Bonds. Industrial development bonds,
which are considered municipal bonds if the interest paid is exempt
from federal income tax, are issued by or on behalf of public
authorities to raise money to finance various privately operated
facilities for business and manufacturing, housing, sports, and
pollution control. These bonds are also used to finance public
facilities such as airports, mass transit systems, ports, and parking.
The payment of the principal and interest on such bonds is dependent
solely on the ability of the facility's user to meet its financial
obligations and the pledge, if any, of real and personal property so
financed as security for such payment.
-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.
-Municipal Lease Obligations. From time to time the Fund may invest
in municipal lease obligations, some of which may be illiquid and
others which the Manager has determined to be liquid under guidelines
set by the Board of Trustees. Those guidelines require the Manager to
evaluate (1) the frequency of trades and price quotations for such
securities; (2) the number of dealers or other potential buyers willing
to purchase or sell such securities; (3) the availability of market-
makers; and (4) the nature of the trades for such securities. The
Manager will also evaluate the likelihood of a continuing market for
such securities throughout the time they are held by the Fund, and the
credit quality of the instrument. Municipal leases may take the form
of a lease or an installment purchase contract issued by a state or
local government authority to obtain funds to acquire a wide variety of
equipment and facilities. Although lease obligations do not constitute
general obligations of the municipality for which the municipality's
taxing power is pledged, a lease obligation is ordinarily backed by the
municipality's covenant to budget for, appropriate and make the
payments due under the lease obligation. However, certain lease
obligations contain "non-appropriation" clauses which provide that the
municipality has no obligation to make lease or installment purchase
payments in future years unless money is appropriated for such purpose
on a yearly basis. In addition to the risk of such "non-
appropriation," municipal lease securities do not yet have a highly
developed market to provide the same degree of liquidity as
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.
-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.
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 state of municipal governmental
unit.) Under the private loan restriction, the amount of bond proceeds
which may be used to make private loans is limited to the lesser of 5%
or $5.0 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.
- Ratings of Municipal Securities. Moody's, S&P's and Fitch's
ratings (see Appendix A) represent their respective opinions of the
quality of the Municipal Securities they undertake to rate. However,
such ratings are general and are not absolute standards of quality.
Consequently, Municipal Securities with the same maturity, coupon and
rating may have different yields, while Municipal Securities of the
same maturity and coupon with different ratings may have the same
yield. Investment in lower quality securities may produce a higher
yield than securities rated in the higher rating categories described
in the Prospectus (or judged by the Manager to be of comparable
quality). However, the added risk of lower quality securities might not
be consistent with a policy of preservation of capital.
Special Investment Considerations - Pennsylvania Municipal Securities.
As explained in the Prospectus, the Fund is highly sensitive to the
fiscal stability of Pennsylvania and its subdivisions, agencies,
instrumentalities or authorities which issue the Pennsylvania Municipal
Securities in which the Fund concentrates its investments. Investors
should also consider the factors discussed below under "Other
Investment Techniques and Strategies."
The following information as to the fiscal condition of the
Commonwealth of Pennsylvania (the "Commonwealth") is provided in view
of the Fund's policy of investing primarily in securities of
Pennsylvania issuers. Such information is derived from sources that
are generally available to investors. Although the Fund has not
independently verified any of this information, it is not aware of any
inaccuracies. Such information constitutes only a brief summary, does
not purport to be a complete description and is based on information
from official statements relating to securities offerings of
Pennsylvania issuers.
The Commonwealth and certain of its counties, cities and school
districts and public bodies have from time to time in the past
encountered financial difficulties which have adversely affected their
respective credit standings and borrowing abilities. The following are
highlights of certain factors bearing on the financial conditions of
such entities.
The General Fund, the Commonwealth's largest fund, receives all
tax revenue, non-tax revenues and Federal grants and entitlements that
are not specified by law to be deposited elsewhere. The majority of
the Commonwealth's operating and administrative expenses are payable
from the General Fund. Debt service on all bonded indebtedness of the
Commonwealth, except that issued for highway purposes or for the
benefit of other special revenue funds, is payable from the General
Fund.
Financial conditions during the fiscal years 1990 through 1994
were distinguished by slow economic growth and a rapid expansion of the
costs of certain governmental programs that together produced a
significant stress on the Commonwealth's budget. This period was
marked by public health and welfare costs growing at a rate double the
growth rate for all state expenditures. During this period, public
health and welfare costs rose by an average annual rate of 9.4% while
tax revenues were growing at an average annual rate of 5.8%.
Consequently, spending on other budget programs was restrained to a
growth rate of 4.7% and sources of revenues other than taxes (including
transfers from other Commonwealth funds and hospital and nursing home
pooling of contributions to use as federal matching funds) became
larger components of fund revenues.
Fiscal 1995 was the fourth consecutive fiscal year the
Commonwealth reported an increase in the fiscal year-end unappropriated
balance. The fiscal 1995 unappropriated surplus (prior to reserves for
transfer to the Tax Stabilization Fund) was $540 million, an increase
of $204.2 million over the fiscal 1994 unappropriated surplus (prior to
transfers). Commonwealth revenues totalled $16,224.6 million, $459,4
million (2.9%) above the estimate of revenues used at the time the
budget was enacted. The higher than estimated revenues from tax
sources were due to faster economic growth in the national and state
economy that had been projected when the budget was adopted.
Expenditures from Commonwealth revenues (excluding pooled financing
expenditures), including $65.5 million of supplemental appropriations
enacted at the close of the 1995 fiscal year, totaled $15,674 million,
representing an increase of 5% over spending during fiscal 1994.
The enacted fiscal 1996 budget provides for expenditures from
Commonwealth revenues of $16,161.7 million, a 2.7% increase over total
appropriations from Commonwealth revenues in fiscal 1995. The fiscal
1996 budget is based on anticipated Commonwealth revenues, net of
enacted tax changes but prior to tax refunds, of $16.27 billion, an
increase over actual fiscal 1995 Commonwealth revenues of .3%.
Excluding the estimated effects of the tax changes enacted in 1994 and
1995, Commonwealth revenues for fiscal 1996 are estimated to increase
by approximately 2.9%. Tax changes (reductions) enacted with the
fiscal 1996 budget totaled $282.9 million, representing an approximate
1.7% of base revenues. The largest dollar value changes were in the
corporate net income tax where the scheduled 1997 reduction of the tax
rate to 9.99% was accelerated to the 1995 tax year; a double weighing
was provided for the sales factor of the corporate net income tax
apportionment calculation; and the maximum allowance for the net
operating loss deduction was increased from $500,000 to $1 million.
The fiscal 1996 cost of these corporate net income tax changes is
estimated to be $210.8 million. Other major components of the tax
reduction include a $12.1 million decrease for the capital stock and
franchise tax form an increase in the exemption amount; $24.7 million
from the repeal of the tax on annuities; and $27.9 million from an
acceleration of the scheduled phase-out of the inheritance tax on
transfers of certain property to a surviving spouse. A 90 day amnesty
program was also authorized in the tax bill and was available to
taxpayers from mid-October 1995 through mid-January 1996.
In his budget address on February 6, 1996, Governor Ridge
proposed a budget for fiscal 1997 which is $30 million (.2%) less than
the fiscal 1996 amount. The proposed budget includes approximately
$60.2 million of tax reductions, including the creation of a jobs
creation tax credit (to be implemented over two years with an annual
cap of $30 million), an exemption from the sales and use tax for
certain computer services purchased for manufacturing, agricultural or
public utility operations (effective July 1, 1996) and a reduction in
the capital stock/foreign franchise tax rate of .25 mills to 12.5 mills
(effective January 1, 1996).
Pennsylvania has historically been identified as a heavy industry
state although that reputation has changed recently as the industrial
composition of the Commonwealth diversified when the coal, steel and
railroad industries began to decline. A more diversified economy was
necessary as the traditionally strong industries in the Commonwealth
declined due to a long-term shift in jobs, investment and workers away
from the northeast part of the nation. The major sources of growth in
Pennsylvania are in the service sector, including trade, medical and
the health services, education and financial institutions.
Nonagricultural employment in the Commonwealth declined by 5.1%
during the recessionary period from 1980 to 1983. In 1984, the
declining trend was reversed as employment grew by 2.9% over the 1983
levels. From 1983 to 1990, Commonwealth employment continued to grow
each year, increasing an additional 14.3%. For the last three years,
employment in the Commonwealth has increased 2.0%. The unemployment
rate in Pennsylvania as of October, 1995 stood at a seasonally adjusted
rate of 5.1%. The seasonally adjusted national unemployment rate for
October, 1995 was 5.5%.
The current Constitutional provisions pertaining to Commonwealth
debt permit the issuance of the following types of debt: (1) debt to
suppress insurrection or rehabilitate areas affected by disaster,
(ii)electorate-approved debt, (iii) debt for capital projects subject
to an aggregate debt limit of 1.75 times the annual average tax
revenues of the preceding five fiscal years and (iv) tax anticipation
notes payable in the fiscal year of issuance. All debt except tax
anticipation notes must be amortized in substantial and regular
amounts. As of June 30, 1995, the Commonwealth had $5,045 million of a
general obligation debt outstanding.
Pennsylvania cannot use tax anticipation notes or any other form of
debt to fund budget deficits between fiscal years. All year-end
deficits must be funded within the succeeding fiscal year's budget.
Moreover, the principal amount of tax anticipation notes issued and
outstanding for the account of a fund during a fiscal year may not
exceed 20% of the revenues estimated to accrue to such fund in that
fiscal year.
The debt of the Pennsylvania Housing Finance Agency ("PHFA"), a
state agency which provides financing for housing for lower and
moderate income families, and certain obligations of The Hospitals and
Higher Education Facilities Authority of Philadelphia (the "Hospitals
Authority") are the only debt bearing Pennsylvania's "moral
obligation." PHFA's bonds, but not its notes, are partially secured by
a capital reserve fund required to be maintained by PHFA in an amount
equal to the maximum annual debt service on its outstanding bonds in
any succeeding calendar year. If there is a potential deficiency in
the capital reserve fund or if funds are necessary to avoid default on
interest, principal or sinking fund payments on bonds or notes of PHFA,
the Governor must place in Pennsylvania's budget for the next
succeeding year an amount sufficient to make up any such deficiency or
to avoid any such default. The budget which the General Assembly
adopts may or may not include such amount. PHFA is not permitted to
borrow additional funds as long as any deficiency exists in the capital
reserve fund.
Other obligations of Pennsylvania include (i) long-term agreements
of certain Commonwealth departments and agencies, as lessees of
property and equipment, to make lease payments that are pledged as
security for debt obligations of certain public authorities or other
state-related entities and (ii) pension plans covering state public
school and other employees.
Certain Pennsylvania-created agencies have statutory authorization
to incur debt for which state appropriations to pay debt service
thereon is not required. The debt of these agencies is supported by
assets of, or revenues derived from, the various projects financed and
is not an obligation of Pennsylvania. Some of these agencies, however,
are indirectly dependent on Commonwealth appropriations. These
entities are as follows: the Delaware River Joint Toll Bridge
Commission, the Delaware River Port Authority, the Pennsylvania Energy
Development Authority, the Pennsylvania Higher Education Assistance
Agency, the Pennsylvania Higher Education Facilities Authority, the
Pennsylvania Industrial Development Authority, the Pennsylvania State
Public School Building Authority, the Pennsylvania Turnpike Commission,
the Pennsylvania Economic Development Financing Authority, the
Pennsylvania Infrastructure Investment Authority and the Philadelphia
Regional Port Authority.
The City of Philadelphia is the largest city in the Commonwealth
with an estimated population of 1,585,577 according to the 1990 census.
Legislation providing for the establishment of Pennsylvania
Intergovernmental Cooperation Authority ("PICA") to assist Philadelphia
in remedying fiscal emergencies was enacted by the Pennsylvania General
Assembly and approved by the Governor in June, 1991. PICA is designed
to provide assistance through the issuance of funding debt and to make
factual findings and recommendations to Philadelphia concerning its
budgetary and fiscal affairs. At this time, Philadelphia is operating
under a five year fiscal plan approved by PICA on April 17, 1995, as
modified in July 1995.
To date, PICA has issued $1.42 billion of its Special Tax
Revenue Bonds. This financial assistance has included the refunding of
certain general obligation bonds, funding of capital projects and the
liquidation of the cumulative General Fund balance deficit as of June
30, 1992 of $224.9 million. The audited General Fund balance of
Philadelphia as of June 30, 1994 reflects a surplus of approximately
$15.4 million, up from approximately $3 million as of June 30, 1993.
Preliminary unaudited financial statements as of June 30, 1995
projected a surplus approximating $59.6 million and published news
accounts indicate that the official surplus may be higher.
Many factors affect the financial condition of the Commonwealth and
its counties, cities and school districts and public bodies, certain of
which may not be within the control of such entities, such as social,
environmental and economic conditions. Various litigation is pending
against the Commonwealth, its officers and employees. An adverse
decision on one or more of these cases could materially affect the
Commonwealth's governmental operations. As is the case with many
states, the continuation of many of the Commonwealth's programs,
particularly its human services programs, is dependent to a significant
degree upon continuing federal reimbursements which have been steadily
declining. The loss of grants to the Commonwealth and its political
subdivisions could slow economic development. Also, changes to the
Internal Revenue Code, by limiting certain types of tax-exempt
financing, may interfere with the ability of the Commonwealth and its
political subdivisions to carry out their programs. To the extent that
such factors exist, they could have an adverse effect on economic
conditions in Pennsylvania, although the Fund is unable to predict what
effect, if any, such factors would have on the Fund's investments.
Other Investment Techniques and Strategies
- 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 "Investment Objective and Policies - 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.
- When-Issued and Delayed Delivery Transactions. As stated in the
Prospectus, the Fund may purchase securities on a "when-issued" basis,
and may purchase or sell such securities on a "delayed delivery" basis.
Although the Fund will enter into such transactions for the purpose of
acquiring securities for its portfolio or for delivery pursuant to
options contracts it has entered into, the Fund may dispose of a
commitment prior to settlement. "When-issued" or "delayed delivery"
refers to securities whose terms and indenture are available and for
which a market exists, but which are not available for immediate
delivery. When such transactions are negotiated the price (which is
generally expressed in yield terms) is fixed at the time the commitment
is made, but delivery and payment for the securities take place at a
later date. During the period between commitment by the Fund and
settlement (generally within two months but not to exceed 120 days), no
payment is made for the securities purchased by the purchaser, and no
interest accrues to the purchaser from the transaction. Such
securities are subject to market fluctuation; the value at delivery may
be less than the purchase price. The Fund will maintain a segregated
account with its Custodian, consisting of cash, U.S. Government
securities or other high grade debt obligations at least equal to the
value of purchase commitments until payment is made.
The Fund will engage in when-issued transactions in order to secure
what is considered to be an advantageous price and yield at the time of
entering into the obligation. When the Fund engages in when-issued or
delayed delivery transactions, it relies on the buyer or seller, as the
case may be, to consummate the transaction. Failure to do so may
result in the Fund losing the opportunity to obtain a price and yield
considered to be advantageous. If the Fund chooses to (i) dispose of
the right to acquire a when-issued security prior to its acquisition or
(ii) dispose of its right to deliver or receive against a forward
commitment, it may incur a gain or loss. At the time the Fund makes a
commitment to purchase or sell a security on a when-issued or forward
commitment basis, it records the transaction and reflects the value of
the security purchased, or if a sale, the proceeds to be received in
determining its net asset value.
To the extent the Fund engages in when-issued and delayed delivery
transactions, it will do so for the purpose of acquiring or selling
securities consistent with its investment objective and policies and
not for the purposes of investment leverage. The Fund enters into such
transactions only with the intention of actually receiving or
delivering the securities, although (as noted above), when-issued
securities and forward commitments may be sold prior to settlement
date. In addition, changes in interest rates in a direction other than
that expected by the Manager before settlement will affect the value of
such securities and may cause loss to the Fund.
When-issued transactions and forward commitments can be used by the
Fund as a defensive technique to use against anticipated changes in
interest rates and prices. For instance, in periods of rising interest
rates and falling prices, the Fund might sell securities in its
portfolio on a forward commitment basis to attempt to limit its
exposure to anticipated falling prices. In periods of falling interest
rates and rising prices, the Fund might sell portfolio securities and
purchase the same or similar securities on a when-issued or forward
commitment basis, thereby obtaining the benefit of currently higher
cash yields.
-Loans of Portfolio Securities. The Fund may lend its portfolio
securities subject to the restrictions stated in the Prospectus. Under
applicable regulatory requirements (which are subject to change), the
loan collateral must, on each business day, be at least equal to
the market value of the loaned securities and must consist of cash,
bank letters of credit, securities of the U.S. Government (or its
agencies or instrumentalities) or other cash equivalents in which the
Fund is permitted to invest. To be acceptable as collateral, letters
of credit must obligate a bank to pay amounts demanded by the Fund if
the demand meets the terms of the letter. Such terms and the issuing
bank must be satisfactory to the Fund. When it lends securities, the
Fund receives 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 must 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.
-Inverse Floaters and Other Derivative Securities. 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.
Investing in inverse floaters that have interest rate caps might be
a part of a portfolio strategy to try to maintain a high current yield
for the Fund when the Fund has invested in inverse floaters that expose
the Fund to the risk of short-term interest rate fluctuation. Embedded
caps may be used to hedge a portion of the Fund's exposure to rising
interest rates. When interest rates exceed the "strike" price the
"cap" generates additional cash flows that offset the decline in
interest rates on the inverse floater, and the hedge is successful.
However, the Fund bears the risk that if interest rates do not rise
above the strike price, the cap (which is purchased for additional
cost) will not provide additional cash flows and will expire worthless.
-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.
- Hedging. As described in the Prospectus, the Fund may employ one
or more types of hedging instruments. When hedging to attempt to
protect against declines in the market value of the Fund's portfolio,
to permit the Fund to retain unrealized gains in the value of portfolio
securities which have appreciated, or to facilitate selling securities
for investment reasons, the Fund may: (i) sell Interest Rate Futures or
Municipal Bond Index Futures, (ii) buy puts on such Futures or
securities, or (iii) write covered calls on securities, Interest Rate
Futures or Municipal Bond Index Futures (as described in the
Prospectus). Covered calls may also be written on debt securities to
attempt to increase the Fund's income. When hedging to permit the Fund
to establish a position in the debt securities market as a temporary
substitute for purchasing individual debt securities (which the Fund
will normally purchase, and then terminate that hedging position), the
Fund may: (i) buy Interest Rate Futures or Municipal Bond Index
Futures, or (ii) buy calls on such Futures or on securities.
The Fund's strategy of hedging with Futures and options on Futures
will be incidental to the Fund's investment activities in the
underlying cash market. In the future, the Fund may employ hedging
instruments and strategies that are not presently contemplated but
which may be developed, to the extent such investment methods are
consistent with the Fund's investment objective and are legally
permissible and disclosed in the Prospectus. Additional information
about the hedging instruments the Fund may use is provided below.
- Writing Covered Call Options. When the Fund writes a call on a
security, it receives a premium and agrees to sell the underlying
investment to a purchaser of a corresponding call on the same security
during the call period (usually not more than nine months) at a fixed
exercise price (which may differ from the market price of the
underlying investment) regardless of market price changes during the
call period. The Fund has retained the risk of loss should the price
of the underlying security decline during the call period, which may be
offset to some extent by the premium.
To terminate its obligation on a call it has written, the Fund may
purchase a corresponding call in a "closing purchase transaction." A
profit or loss will be realized, depending upon whether the net of the
amount of the option transaction costs and the premium received on the
call written was more or less than the price of the call subsequently
purchased. A profit may also be realized if the call lapses
unexercised, because the Fund retains the underlying investment and the
premium received. Any such profits are considered short-term capital
gains for Federal tax purposes, as are premiums on lapsed calls, and
when distributed by the Fund are taxable as ordinary income. An option
position may be closed out only on a market that provides secondary
trading for options of the same series, and there is no assurance that
a liquid secondary market will exist for a particular option. If the
Fund could not effect a closing purchase transaction due to a lack of a
market, it would have to hold the underlying investment until the call
lapsed or were 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.
The Fund may concurrently buy and sell Futures contracts in the
expectation that the Future purchased will outperform the Future sold.
For example, the Fund might simultaneously buy Municipal Bond Futures
and sell U.S. Treasury Bond Futures. This type of transaction would be
profitable to the Fund if municipal bonds, in general, outperform U.S.
Treasury bonds. Risks of this type of Futures strategy include the
possibility that the Manager does not correctly assess the relative
durations of the investments underlying the Futures, with the result
that the strategy changes the overall duration of the Fund's portfolio
in a manner that increases the volatility of the Fund's price per
share. Duration is a volatility measure that refers to the expected
percentage change in the value of a bond resulting from a change in
general interest rates (measured by each 1% change in the rates on U.S.
Treasury securities). For example, if a bond has an effective duration
of three years, a 1% increase in general interest rates would be
expected to cause the bond to decline about 3%.
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.
- Purchasing Calls and Puts. When the Fund purchases a call
(other than in a closing purchase transaction), it pays a premium and,
except as to calls on Municipal Bond Index Futures, has the right to
buy the underlying investment from a seller of a corresponding call on
the same investment during the call period at a fixed exercise price.
The Fund benefits only if the call is sold at a profit or if, during
the call period, the market price of the underlying investment is above
the sum of the exercise price plus the transaction costs and premium
paid for the call, and the call is exercised. If the call is not
exercised or sold (whether or not at a profit), it will become
worthless at its expiration date and the Fund will lose its premium
payment and the right to purchase the underlying investment.
When the Fund purchases a call or put on a municipal bond index,
Municipal Bond Index Future or Interest Rate Future, it pays a premium,
but settlement is in cash rather than by delivery of the underlying
investment to the Fund. Gain or loss depends on changes in the index
in question (and thus on price movements in the debt securities market
generally) rather than on price movements in individual futures
contracts.
When the Fund purchases a put, it pays a premium and, except as to
puts on municipal bond indices, has the right to sell the underlying
investment to a seller of a corresponding put on the same investment
during the put period at a fixed exercise price. Buying a put on a
debt security, Interest Rate Future or Municipal Bond Index Future the
Fund owns enables the Fund to protect itself during the put period
against a decline in the value of the underlying investment below the
exercise price by selling such underlying investment at the exercise
price to a seller of a corresponding put. If the market price of the
underlying investment is equal to or above the exercise price and as a
result the put is not exercised or resold, the put will become
worthless at its expiration date and the Fund will lose its premium
payment and the right to sell the underlying investment. The put may,
however, be sold prior to expiration (whether or not at a profit).
An option position may be closed out only on a market which
provides secondary trading for options of the same series, and there is
no assurance that a liquid secondary market will exist for any
particular option. The Fund's option activities may affect its
turnover rate and brokerage commissions. The exercise of calls written
by the Fund may cause it to sell underlying investments, thus
increasing its turnover rate in a manner beyond its control. The
exercise by the Fund of puts may also cause the sale of underlying
investments, also causing turnover, since the underlying investment
might be sold for reasons which would not exist in the absence of the
put. The Fund will pay a brokerage commission each time it buys a call
or a put or sells a call. Premiums paid for options are small in
relation to the market value of the related investments and,
consequently, put and call options offer large amounts of leverage.
The leverage offered by trading in options could cause the Fund's net
asset value to be more sensitive to changes in the value of the
underlying investments.
-Interest Rate Swap Transactions. Swap agreements entail both
interest rate risk and credit risk. There is a risk that, based on
movements of interest rates in the future, the payments made by the
Fund under a swap agreement will have been greater than those received
by it. Credit risk arises from the possibility that the counterparty
will default. If the counterparty to an interest rate swap defaults,
the Fund's loss will consist of the net amount of contractual interest
payments that the Fund has not yet received. The Manager will monitor
the creditworthiness of counterparties to the Fund's interest rate swap
transactions on an ongoing basis. The Fund will enter into swap
transactions with appropriate counterparties pursuant to master netting
agreements. A master netting agreement provides that all swaps done
between the Fund and that counterparty under the master agreement shall
be regarded as parts of an integral agreement. If on any date amounts
are payable in the same currency in respect of one or more swap
transactions, the net amount payable on that date in that currency
shall be paid. In addition, the master netting agreement may provide
that if one party defaults generally or on one swap, the counterparty
may terminate the swaps with that party. Under such agreements, if
there is a default resulting in a loss to one party, the measure of
that party's damages is calculated by reference to the average cost of
a replacement swap with respect to each swap (i.e., the mark-to-market
value at the time of the termination of each swap). The gains and
losses on all swaps are then netted, and the result is the
counterparty's gain or loss on termination. The termination of all
swaps and the netting of gains and losses on termination is generally
referred to as "aggregation."
- 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.
When the Fund writes an over-the-counter("OTC") option, it intends
to into an arrangement with a primary U.S. Government securities
dealer, which would establish a formula price at which the Fund would
have the absolute right to repurchase that OTC option. This formula
price would generally be based on a multiple of the premium received
for the option, plus the amount by which the option is exercisable
below the market price of the underlying security ("in-the-money").
For any OTC option the Fund writes, it will treat as illiquid (for
purposes of its restriction on illiquid securities, stated in the
Prospectus) the mark-to-market value of any OTC option held by it. The
Securities and Exchange Commission is evaluating the general issue of
whether or not OTC options should be considered as liquid securities,
and the procedure described above could be affected by the outcome of
that evaluation.
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 Fund is required
to operate within certain guidelines and restrictions with respect to
its use of futures and options on futures as established by the
Commodity Futures Trading Commission ("CFTC"). In particular, the Fund
is exempted from registration with the CFTC as a "commodity pool
operator" if the Fund complies with the requirements of Rule 4.5
adopted by the CFTC. Under the Rule the Fund will not, as to any
positions, whether long, short or a combination thereof, enter into
Futures transactions and options thereon for which the aggregate
initial margins and premiums exceed 5% of the fair market value of the
Fund's assets, with certain exclusions as defined in the Rule. Under
the Rule, the Fund also must use short futures and options on futures
positions solely for "bona fide hedging purposes" within the meaning
and intent of the applicable provisions of the Commodity Exchange Act.
Transactions in options by the Fund are subject to limitations
established by the Option Exchanges governing the maximum number of
options that may be written or held by a single investor or group of
investors acting in concert, regardless of whether the options were
written or purchased on the same or different exchanges or are held in
one or more accounts or through one or more different exchanges or
through one or more brokers. Thus, the number of options which the
Fund may write or hold may be affected by options written or held by
other entities, including other investment companies having the same
adviser as the Fund (or an adviser that is an affiliate of the Fund's
adviser). The exchanges also impose position limits on futures
transaction. An exchange may order the liquidation of positions found
to be in violation of those limits and may impose certain other
sanctions.
Due to requirements under the Investment Company Act, when the Fund
purchases an Interest Rate Future or Municipal Bond Index Future, the
Fund will maintain, in a segregated account or accounts with its
Custodian, cash or readily marketable short-term (maturing in one year
or less) debt instruments in an amount equal to the market value of the
investments underlying such Future, less the margin deposit applicable
to it.
- Tax Aspects of Hedging Instruments and Covered Calls. The Fund
intends to qualify as a "regulated investment company" under the
Internal Revenue Code (although it reserves the right not to qualify).
One of the tests for such qualification is that less than 30% of its
gross income (irrespective of losses) must be derived from gains
realized on the sale of securities held for less than three months. To
comply with this 30% cap, the Fund will limit the extent to which it
engages in the following activities, but will not be precluded from
them: (i) selling investments, including Interest Rate Futures and
Municipal Bond Index Futures, held for less than three months, whether
or not they were purchased on the exercise of a call held by the Fund;
(ii) writing calls on investments held less than three months; (iii)
purchasing calls or puts which expire in less than three months; (iv)
effecting closing transactions with respect to calls or puts purchased
less than three months previously; and (v) exercising puts or calls
held by the Fund for less than three months.
- 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
markets are subject to margin deposit and maintenance requirements.
Rather than meeting additional margin deposit requirements, investors
may close out futures contracts through offsetting transactions which
could distort the normal relationship between the cash and futures
markets. Second, the liquidity of the futures markets 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 markets could be reduced, thus
producing distortion. Third, from the point of view of speculators,
the deposit requirements in the futures markets are less onerous than
margin requirements in the securities markets. Therefore, increased
participation by speculators in the futures markets may cause temporary
price distortions.
The risk of imperfect correlation increases as the composition of
the Fund's portfolio diverges from the securities included in the
applicable index. To compensate for the imperfect correlation of
movements in the price of debt securities being hedged and movements in
the price of the Hedging Instruments, the Fund may use Hedging
Instruments in a greater dollar amount than the dollar amount of debt
securities being hedged if the historical volatility of the prices of
such debt securities being hedged is more than the historical
volatility of the applicable index. It is also possible that if the
Fund has used Hedging Instruments in a short hedge, the market may
advance and the value of debt securities held in the Fund's portfolio
may decline. If that occurred, the Fund would lose money on the
Hedging Instruments and also experience a decline in value of its debt
securities. However, while this could occur 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 by an amount that
reflects an agreed-upon interest rate effective for the period during
which the repurchase agreement is in effect. The majority of these
transactions run from day to day, and delivery pursuant to 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.
- Diversification. For purposes of the investment restrictions
set forth in the Prospectus and 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 would 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 of the Fund, 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 Statement of
Additional Information will be supplemented accordingly.
Other Investment Restrictions
The most significant investment restrictions that apply to the Fund
are described in the Prospectus. The following investment restrictions
are also fundamental policies of the Fund, and, together with the
Fund's fundamental policies and investment objective, described in the
Prospectus, can be changed only by the vote of a "majority" of the
Fund's outstanding voting securities. Under the Investment Company
Act, such a "majority" vote is defined as the vote of the holders of
the lesser of (i) 67% or more of the shares present or represented by
proxy at a shareholders' meeting, if the holders of more than 50% of
the outstanding shares are present or represented by a proxy, or (ii)
more than 50% of the outstanding shares.
Under these additional restrictions, the Fund cannot:
- invest in real estate, but the Fund may invest in Municipal
Securities or other permitted securities secured by real estate or
interests therein;
- purchase securities other than hedging instruments on margin;
however, the Fund may obtain such short-term credits as may be
necessary for the clearance of purchases and sales of securities;
- make short sales of securities;
- underwrite securities or invest in securities subject to
restrictions on resale;
- invest in or hold securities of any "issuer" if officers and
Trustees or Directors of the Trust and the Manager individually owning
more than 0.5% of the securities of such issuer together own more than
5% of the securities of such issuer; or
- invest in securities of any other investment company, except in
connection with a merger, consolidation, acquisition or reorganization.
For purposes of the Fund's policy not to concentrate its assets,
described in "Other Investment Restrictions" in the Prospectus, the
Fund has adopted the industry classifications set forth in Appendix C
to this Statement of Additional Information. This is not a fundamental
policy. In connection with the sale of its shares in the State of
Ohio, the Fund undertakes, as a non-fundamental policy, that with
respect to 75% of its total assets, it will purchase no more than 10%
of the outstanding voting securities of any one issuer.
How the Fund Is Managed
Organization and History. As a series of a Massachusetts business
trust, the Fund is not required to hold, and does not plan to hold,
regular annual meetings of shareholders. The Fund will hold meetings
when required to do so by the Investment Company Act or other
applicable law, or when a shareholder meeting is called by the Trustees
or upon proper request of the shareholders. Shareholders have the
right, upon the declaration in writing or vote of two-thirds of the
outstanding shares of the Trust, to remove a Trustee. The Trustees
will call a meeting of shareholders to vote on the removal of a Trustee
upon the written request of the record holders of 10% of its
outstanding shares. In addition, if the Trustees receive a request
from at least 10 shareholders (who have been shareholders for at least
six months) holding shares of the Trust valued at $25,000 or more or
holding at least 1% of the Trust's outstanding shares, whichever is
less, stating that they wish to communicate with other shareholders to
request a meeting to remove a Trustee, the Trustees will then either
make the shareholder list available to the applicants or mail their
communication to all other shareholders at the applicants' expense, or
the Trustees may take such other action as set forth under Section
16(c) of the Investment Company Act.
The Trust's Declaration of Trust contains an express disclaimer of
shareholder or Trustee liability for the Fund's obligations, and
provides for indemnification and reimbursement of expenses out of its
property for any shareholder held personally liable for its
obligations. The Declaration of Trust also provides that the Fund
shall, upon request, assume the defense of any claim made against any
shareholder for any act or obligation of the Fund and satisfy any
judgment thereon. Thus, while Massachusetts law permits a shareholder
of a business trust (such as the Fund) to be held personally liable as
a "partner" under certain circumstances, the risk of a Fund shareholder
incurring financial loss on account of shareholder liability is
limited to the relatively remote circumstances in which the Fund would
be unable to meet its obligations described above. Any person doing
business with the Trust, and any shareholder of the Trust, agrees under
the Trust's Declaration of Trust to look solely to the assets of the
Trust for satisfaction of any claim or demand which may arise out of
any dealings with the Trust, and the Trustees shall have no personal
liability to any such person, to the extent permitted by law.
Trustees and Officers of the Trust. The Trust's Trustees and
officers and their principal occupations and business affiliations
during the past five years are listed below. The address of each
Trustee and officer is Two World Trade Center, New York, New York
10048-0203, unless another address is listed below. All of the
Trustees are also trustees or directors of Oppenheimer Fund,
Oppenheimer Enterprise Fund, Oppenheimer Global Fund, Oppenheimer Money
Market Fund, Inc., Oppenheimer Growth Fund, Oppenheimer Discovery Fund,
Oppenheimer Global Growth & Income Fund, Oppenheimer Global Emerging
Growth Fund, Oppenheimer Gold & Special Minerals Fund, Oppenheimer Tax-
Free Bond Fund, Oppenheimer New York Tax-Exempt Fund, Oppenheimer
California Tax-Exempt Fund, Oppenheimer Target Fund, Oppenheimer Asset
Allocation Fund, Oppenheimer U.S. Government Trust, Oppenheimer Multi-
Sector Income Trust and Oppenheimer Multi-Government Trust
(collectively the "New York-based Oppenheimer funds"). Ms. Macaskill
and Messrs. Spiro, Donohue, Bishop, Bowen, Farrar and Zack respectively
hold the same offices with the other New York-based Oppenheimer funds
as with the Trust. As of March 15, 1996, the Trustees and officers of
the Trust as a group owned less than 1% of the outstanding Class A and
Class B and Class C shares of the Trust and the Fund. The foregoing
statement does not reflect ownership of shares held of record by an
employee benefit plan for employees of the Manager (for which plan two
of the officers listed above, Ms. Macaskill and Mr. Donohue, are
trustees) other than the shares beneficially owned under that plan by
the officers of the Fund listed above.
Leon Levy, Chairman of the Board of Trustees, Age: 70
General Partner of Odyssey Partners, L.P. (investment partnership)
and Chairman of Avatar Holdings, Inc. (real estate development).
Robert G. Galli, Trustee*, Age: 62
Vice Chairman of OppenheimerFunds, Inc. (the "Manager") and Vice
President and Counsel of Oppenheimer Acquisition Corp., the
Manager's parent holding company; formerly he held the following
positions: a director of the Manager and OppenheimerFunds
Distributor, Inc. (the "Distributor"), Vice President and a director
of HarbourView Asset Management Corporation ("HarbourView") and
Centennial Asset Management Corporation ("Centennial"), investment
advisory subsidiaries of the Manager, a director of Shareholder
Financial Services, Inc. ("SFSI") and Shareholder Services, Inc.
("SSI"), transfer agent subsidiaries of the Manager, an officer of
other Oppenheimer funds and Executive Vice President and General
Counsel of the Manager and the Distributor.
Benjamin Lipstein, Trustee, Age: 72
591 Breezy Hill Road, Hillsdale, New York 12529
Professor Emeritus of Marketing, Stern Graduate School of Business
Administration, New York University; Director of Sussex Publishers,
Inc. (publishers of Psychology Today and Mother Earth News) and of
Spy Magazine, L.P.
Bridget A. Macaskill*, President and Trustee; Age 47
President, Chief Executive Officer and a Director of the Manager;
Chairman and a Director of SSI. Vice President and a Director of
OAC; and HarbourView; and a Director of Oppenheimer Partnership
Holdings, Inc. a holding company subsidiary of the Manager; a
Trustee/Director and officer of other Oppenheimer funds; formerly an
Executive Vice President of the Manager.
__________________________
* A Trustee who is an "interested person" of the Fund as defined in
the Investment Company Act.
Elizabeth B. Moynihan, Trustee, Age: 66
801 Pennsylvania Avenue, N.W., Washington, DC 20004
Author and architectural historian; a trustee 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 the National Building Museum; a
member of the Trustees Council, Preservation League of New York
State.
Kenneth A. Randall, Trustee, Age: 68
6 Whittaker's Mill, Williamsburg, Virginia 23185
A director of Dominion Resources, Inc. (electric utility holding
company), Dominion Energy, Inc. (electric power and oil and gas
producer) Enron-Dominion Cogen Corp. (cogeneration company), Kemper
Corporation (insurance and financial services company) and Fidelity
Life Association (mutual life insurance company); formerly Chairman
of the Board of ICL, Inc. (information systems) and President and
Chief Executive Officer of The Conference Board, Inc. (international
economics and business research).
Edward V. Regan, Trustee, Age: 65
40 Park Avenue, New York, New York 10016
Chairman of Municipal Assistance Corporation for the City of New
York; President of Jerome Levy Economics Institute; a member of the
U.S. Competitiveness Policy Council; a director or GranCare, Inc.
(healthcare provider); formerly New York State Comptroller and
trustee, New York State and Local Retirement Fund.
Russell S. Reynolds, Jr., Trustee, Age: 64
200 Park Avenue, New York, New York 10166
Founder and 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 Hospital and the Greenwich Historical Society.
Sidney M. Robbins, Trustee, Age: 83
50 Overlook Road, Ossining, New York 10562
Chase Manhattan Professor Emeritus of Financial Institutions,
Graduate School of Business, Columbia University; Visiting Professor
of Finance, University of Hawaii; a director of The Korea Fund, Inc.
(a closed-end investment company); a member of the Board of
Advisors, Olympus Private Placement Fund, L.P.; Professor Emeritus
of Finance, Adelphi University.
Donald W. Spiro, Vice Chairman and Trustee*, Age: 70
Chairman Emeritus and a director of the Manager; formerly Chairman
of the Manager and the Distributor.
Pauline Trigere, Trustee, Age: 83
498 Seventh Avenue, New York, New York 10018
Chairman and Chief Executive Officer of Trigere, Inc. (design and
sale of women's fashions).
Clayton K. Yeutter, Trustee, Age: 65
1325 Merrie Ridge Road, McLean, Virginia 22101
Of Counsel to Hogan & Hartson (a law firm); a director of B.A.T.
Industries, Ltd. (tobacco and financial services), Caterpillar, Inc.
(machinery), ConAgra, Inc. (food and agricultural products), Farmers
Insurance Company (insurance), FMC Corp. (chemicals and machinery),
Lindsay Manufacturing Co. (irrigation equipment), Texas Instruments,
Inc. (electronics) and The Vigoro Corporation (fertilizer
manufacturer); formerly (in descending chronological order)
Counsellor to the President (Bush) for Domestic Policy, Chairman of
the Republican National Committee, Secretary of the U.S. Department
of Agriculture, and U.S. Trade Representative.
Andrew J. Donohue, Secretary, Age: 45
Executive Vice President and General Counsel of the Manager and the
Distributor; an officer of other Oppenheimer funds; President of
Centennial; formerly Senior Vice President and Associate General
Counsel of the Manager and the Distributor, prior to which he was a
partner in Kraft & McManimon (a law firm), an officer of First
Investors Corporation (a broker-dealer) and First Investors
Management Company, Inc. (broker-dealer and investment adviser), and
a director and an officer of First Investors Family of Funds and
First Investors Life Insurance Company.
Robert E. Patterson, Vice President and Portfolio Manager, Age: 52
Senior Vice President of the Manager; an officer of other
Oppenheimer funds.
George C. Bowen, Treasurer, Age: 59
3410 South Galena Street, Denver, Colorado 80231
Senior Vice President and Treasurer of the Manager; Vice President
and Treasurer of the Distributor and HarbourView; Senior Vice
President, Treasurer, Assistant Secretary and a director of
Centennial; Vice President, Treasurer and Secretary of SSI and SFSI;
an officer of other Oppenheimer funds.
__________________________
* A Trustee who is an "interested person" of the Fund as defined in
the Investment Company Act.
Robert G. Zack, Assistant Secretary, Age: 47
Senior Vice President and Associate General Counsel of the Manager;
Assistant Secretary of SSI and SFSI; an officer of other Oppenheimer
funds.
Robert Bishop, Assistant Treasurer, Age: 37
3410 South Galena Street, Denver, Colorado 80231
Assistant Vice President of the Manager/Mutual Fund Accounting;
an officer of other Oppenheimer funds; previously a Fund
Controller for the Manager, prior to which he was an Accountant
for Yale & Seffinger, P.C., an accounting firm, and an
Accountant and Commissions Supervisor for Stuart James Company
Inc., a broker-dealer.
Scott Farrar, Assistant Treasurer, Age: 30
3410 South Galena Street, Denver, Colorado 80231
Assistant Vice President of the Manager/Mutual Fund Accounting; an
officer of other Oppenheimer funds; formerly a Fund Controller for
the Manager, prior to which he was an International Mutual Fund
Supervisor for Brown Brothers Harriman & Co., a bank, and previously
a Senior Fund Accountant for State Street Bank & Trust Company.
- Remuneration of Trustees. The officers of the Fund are affiliated
with the Manager; they and the Trustees of the Fund who are affiliated
with the Manager (Ms. Macaskill and Messrs. Galli and Spiro; Ms.
Macaskill and Mr. Spiro are also officers) receive no salary or fee
from the Fund. The Trustees of the Fund (excluding Ms. Macaskill and
Messrs. Galli and Spiro) received the total amounts shown below (i)
from the Fund, during its fiscal year ended December 31, 1995 and (ii)
from all of the New York-based Oppenheimer funds (including the Fund)
listed in the first paragraph of this section (and from Oppenheimer
Time Fund and Oppenheimer Mortgage Income Fund, which ceased operation
following the acquisition of their assets by certain other Oppenheimer
fund).
<TABLE>
<CAPTION>
Retirement
Benefits Total Compensation
Aggregate Accrued From All
Compensation as Part of New York-based
Name and Position From Fund Fund Expenses Oppenheimer funds1
<S> <C> <C> <C>
Leon Levy, Chairman $3,732 $5,087 $141,000.00
and Trustee
Benjamin Lipstein, $2,281 $3,110 $ 86,200.00
Study Committee
Member and Trustee
Elizabeth B. Moynihan, $2,281 $3,110 $ 86,200.00
Study Committee
Member2 and Trustee
Kenneth A. Randall, $2,075 $2,828 $ 78,400.00
Audit Committee Member
and Trustee
Edward V. Regan, $1,821 $2,482 $ 68,800.00
Audit Committee
Member2 and Trustee
Russell S. Reynolds, Jr., $1,379 $1,879 $ 52,100.00
Trustee
Sidney M. Robbins, Study $3,231 $4,405 $122,100.00
Committee Chairman, Audit
Committee Vice-Chairman
and Trustee
Pauline Trigere, Trustee $1,379 $1,879 $ 52,100.00
Clayton K. Yeutter, $1,379 $1,879 $ 52,100.00
Trustee
______________________
1For the 1995 calendar year.
2Committee position held during a portion of the period shown. The
Study and Audit Committees meet for all of the New York-based
Oppenheimer funds and the fees are allocated among the funds by the
Board.
The Fund has adopted a retirement plan that provides for payment
to a retired Trustee of up to 80% of the average compensation paid
during that Trustee's five years of service in which the highest
compensation was received. A Trustee must serve in that capacity for
any of the New York-based Oppenheimer funds for at least 15 years to be
eligible for the maximum payment. Because each Trustee's retirement
benefits will depend on the amount of the Trustee's future compensation
and length of service, the amount of those benefits cannot be
determined at this time, nor can the Fund estimate the number of years
of credited service that will be used to determine those benefits.
During the fiscal year ended December 31, 1995, $16,971 was accrued for
the Fund's projected retirement obligations.
-Major Shareholders. As of March 15, 1996, the only person who
owned of record or was known by the Fund to own beneficially 5% or more
of the Fund's outstanding Class A, Class B or Class C shares were (i)
Evora K. Morgan, 410 Colebrook Lane, Bryn, PA 19010-2904 who owned as
of record 71,555.721 Class B shares (5.93% of the Class B shares then
outstanding); (ii) William C. and Margaret Copenhaver, 35 Keen Road,
Spring City, PA 19475-2724, who owned as of record 6,604.463 Class C
shares (28.37% of the Class C shares then outstanding); (iii) Carol J.
Blecker, RR 6 Box 690, Lebanon, PA 17046-9612, who owned as of record
6,131.407 Class C shares (26.33% of the Class C shares then
outstanding); (iv) James H. and Judith A. Glass, 168 Haldeman Road,
Schwenksville, PA 19473-1813, who owned as of record 2,623.359 Class C
shares (11.26% of the Class C shares then outstanding); (v) David A.
Bieber, 763 Covered Bridge Road, Oley, PA 19547-8885, who owned as of
record 2,077.027 Class C shares (8.92% of the Class C shares then
outstanding); and (vi) Margaret N. Sanbe, 310 Donnelly Avenue, Aston,
PA 19014-2714, who owned as of record 2,532.781 Class C shares (10.87%
of the Class C shares then outstanding).
The Manager and Its Affiliates. The Manager is owned by Oppenheimer
Acquisition Corp. ("OAC"), a holding company controlled by
Massachusetts Mutual Life Insurance Company. OAC is also owned in part
by certain of the Manager's directors and officers, some of whom may
also serve as officers of the Fund, and three of whom (Ms. Macaskill
and Messrs. Galli and Spiro) serve as Trustees of the Fund.
The Manager and the Fund have a Code of Ethics. It is designed to
detect and prevent improper personal trading by certain employees,
including portfolio managers, that would compete with or take advantage
of the Fund's portfolio transactions. Compliance with the Code of
Ethics is carefully monitored and strictly enforced by the Manager.
-The Investment Advisory Agreement. A management fee is payable
monthly to the Manager under the terms of the investment advisory
agreement between the Manager and the Fund, and is computed on the
aggregate net assets of the Fund as of the close of business each day.
The investment advisory 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
corporate administration for the Fund, including the compilation and
maintenance of records with respect to its operations, the preparation
and filing of specified reports, and composition of proxy materials and
registration statements for continuous public sale of shares of the
Fund.
Expenses not expressly assumed by the Manager under the investment
advisory agreement or by the Distributor under the Distribution
Agreement are paid by the Fund. The investment advisory agreement
lists examples of expenses paid by the Fund, the major categories of
which relate to interest, taxes, brokerage commissions, fees to certain
trustees, legal and audit expenses, custodian and transfer agent
expenses, share issuance costs, certain printing and registration costs
and non-recurring expenses, including litigation costs. For the fiscal
years ended December 31, 1993, 1994 and 1995, the management fees paid
by the Fund to the Manager were $316,801, $420,696 and $462,471,
respectively. These amounts do not reflect the expense assumption of
$39,417 by the Manager for the fiscal period ended December 31, 1993
(prior to May 26, 1993).
The investment advisory agreement contains no provision limiting
the Fund's expenses. However, independently of the investment advisory
agreement, the Manager has voluntarily undertaken that the total
expenses of the Fund in any fiscal year (including the management fee
but excluding taxes, interest, brokerage commissions, distribution plan
payments and extraordinary expenses such as litigation costs) shall not
exceed the most stringent expense limitation imposed under state law
applicable to the Fund. Currently, the most stringent state expense
limitation is imposed by California, and limits the Fund's expenses
(with specific exclusions) to 2.5% of the first $30 million of average
annual net assets, 2% of the next $70 million, and 1.5% of average
annual net assets in excess of $100 million. The Manager reserves the
right to modify or terminate a voluntary expense assumption undertaking
at any time. Any assumption of the Fund's expenses under a voluntary
undertaking would lower the Fund's overall expense ratio and increase
its total return during any period in which expenses are limited.
The investment advisory agreement provides that in the absence of
willful misfeasance, bad faith, gross negligence in the performance of
its duties or reckless disregard for its obligations and duties under
the advisory agreement, the Manager is not liable for any loss
sustained by reason of any investment of Fund assets made with due care
and in good faith. The investment advisory agreement permits the
Manager to act as investment adviser for any other person, firm or
corporation and to use the name "Oppenheimer" in connection with one or
more additional companies for which it may act as investment adviser or
general distributor. If the Manager or one of its affiliates shall no
longer act as investment adviser to the Fund, the right of the Fund to
use the name "Oppenheimer" as part of its name may be withdrawn.
-The Distributor. Under its General Distributor's Agreement with
the Fund, the Distributor acts as the Fund's principal underwriter in
the continuous public offering of the Fund's Class A, Class B and Class
C shares, but is not obligated to sell a specific number of shares.
Expenses normally attributable to sales (other than those paid under
the Class B or Class C Distribution and Service Plan), including
advertising and the cost of printing and mailing prospectuses, other
than those furnished to existing shareholders, are borne by the
Distributor. During the Fund's fiscal years ended December 31, 1993,
1994 and 1995, the aggregate amount of sales charges on sales of the
Fund's Class A shares was $939,991, $470,999 and $234,306,
respectively, of which the Distributor and an affiliated broker-dealer
retained in the aggregate $252,444, $125,278 and $62,669 in those
respective years. During the Fund's fiscal period May 1, 1993 through
December 31, 1993 and the fiscal years ended December 31, 1994 and
1995, the contingent deferred sales charge collected on redemption of
the Fund's Class B shares was $24,041, $63,420 and $22,836, all of
which the Distributor retained. During the Fund's fiscal period August
29, 1995 through December 31, 1995, no contingent deferred sales
charges were collected on Class C shares. For additional information
about distribution of the Fund's shares and the expenses connected with
such activities, please refer to "Distribution and Service Plans,"
below.
-The Transfer Agent. OppenheimerFunds Services, the Fund's
Transfer Agent, is responsible for maintaining the Fund's shareholder
registry and shareholder accounting records, and for shareholder
servicing and administrative functions.
Brokerage Policies of the Fund
Brokerage Provisions of the Investment Advisory Agreement. One of the
duties of the Manager under the advisory agreement is to arrange the
portfolio transactions for the Fund. The advisory agreement contains
provisions relating to the employment of broker-dealers ("brokers") to
effect the Fund's portfolio transactions. In doing so, the Manager is
authorized by the advisory agreement to employ broker-dealers,
including "affiliated" brokers, as that term is defined in the
Investment Company Act, as may, in its best judgment based on all
relevant factors, implement the policy of the Fund to obtain, at
reasonable expense, the "best execution" (prompt and reliable execution
at the most favorable price obtainable) of such transactions. The
Manager need not seek competitive commission bidding or base its
selection on "posted" rates, but is expected to be aware of the current
rates of eligible brokers and to minimize the commissions paid to the
extent consistent with the provisions of the investment advisory
agreement and the interests and policies of the Fund as established by
its Board of Trustees.
Under the advisory agreement, the Manager is authorized to select
brokers that provide brokerage and/or research services for the Fund
and/or the other accounts over which the Manager or its affiliates have
investment discretion. The commissions paid to such brokers may be
higher than another qualified broker would have charged if a good faith
determination is made by the Manager and the commission is fair and
reasonable in relation to the services provided. Subject to the
foregoing considerations, the Manager may also consider sales of shares
of the Fund and other investment companies managed by the Manager or
its affiliates as a factor in the selection of brokers for the Fund's
portfolio transactions.
Description of Brokerage Practices Followed by the Manager. Subject to
the provisions of the advisory agreement, the procedures and rules
described above, allocations of brokerage are generally made by the
Manager's portfolio traders based upon new recommendations from the
Manager's portfolio managers. In certain instances, portfolio managers
may directly place trades and allocate brokerage, also subject to the
provisions of the advisory agreement and the procedures and rules
described above. In each case, brokerage is allocated under the
supervision of the Manager's executive officers. As most purchases
made by the Fund are principal transactions at net prices, the Fund
incurs little or no brokerage costs. The Fund usually deals directly
with the selling or purchasing principal or market maker without
incurring charges for the services of a broker on its behalf unless it
is determined that better price or execution may be obtained by
utilizing the services of a broker. Purchases of portfolio securities
from underwriters include a commission or concession paid by the issuer
to the underwriter, and purchases from dealers include a spread between
the bid and asked price. The Fund seeks to obtain prompt execution of
orders at the most favorable net price. When the Fund engages in an
option transaction, ordinarily the same broker will be used for the
purchase or sale of the option and any transaction in the securities to
which the option relates. When possible, concurrent orders to purchase
or sell the same security by more than one of the accounts managed by
the Manager or its affiliates are combined. The transactions effected
pursuant to such combined orders are averaged as to price and allocated
in accordance with the purchase or sale orders actually placed for each
account. Option commissions may be relatively higher than those that
would apply to direct purchases and sales of portfolio securities.
The research services provided by a particular broker may be
useful only to one or more of the advisory accounts of the Manager and
its affiliates, and investment research received for the commissions of
those other accounts may be useful both to the Fund and one or more of
such other accounts. Such research, which may be supplied by a third
party at the instance of a broker, includes information and analyses on
particular companies and industries as well as market or economic
trends and portfolio strategy, receipt of market quotations for
portfolio evaluations, information systems, computer hardware and
similar products and services. If a research service also assists the
Manager in a non-research capacity (such as bookkeeping or other
administrative functions), then only the percentage or component that
provides assistance to the Manager in the investment decision-making
process may be paid in commission dollars. The Board has also
permitted the Manager to use stated commissions on secondary fixed-
income agency trades to obtain research where the broker has
represented to Manager that: (1) the trade is not from or for the
broker's own inventory, (ii) the trade was executed by the broker on an
agency basis at the stated commission, and (iii) the trade is not a
riskless principal transaction.
The research services provided by brokers broaden the scope and
supplement the research activities of the Manager, by making available
additional views for consideration and comparisons, and enabling the
Manager to obtain market information for the valuation of securities
held in the Fund's portfolio or being considered for purchase. The
Board of Trustees, including the "independent" Trustees of the Trust
(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 advisory agreement
or the Distribution Plans described below) annually reviews information
furnished by the Manager as to the commissions paid to brokers
furnishing such services so that the Board may ascertain whether the
amount of such commissions was reasonably related to the value or
benefit of such services.
Other funds advised by the Manager have investment objectives and
policies similar to those of the Fund. Such other funds may purchase
or sell the same securities at the same time as the Fund, which could
affect the supply 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.
<PAGE>
Performance of the Fund
Yield and Total Return Information. As described in the Prospectus,
from time to time the "standardized yield," "dividend yield," "tax-
equivalent yield," "average annual total return", "total return at net
asset value," and "total return" of an investment in each class of Fund
shares may be advertised. An explanation of how yields and total
returns are calculated for each class and the components of those
calculations is set forth below.
Yield and total return information may be useful to investors in
reviewing the Fund's performance. The Fund's advertisement of its
performance data must, under applicable SEC rules, include the average
annual total returns for each advertised class of shares of the Fund
for the 1, 5 and 10-year period (or the life of the class, if less) as
of the most recently ended calendar quarter. This enables an investor
to compare the Fund's performance to the performance of other funds for
the same periods. However, a number of factors should be considered
before using such information as a basis for comparison with other
investments. An investment in the Fund is not insured; its yield and
total return are not guaranteed and normally will fluctuate on a daily
basis. When redeemed, an investor's shares may be worth more or less
than their original cost. Yield and total return for any given past
period are not a prediction or representation by the Fund of future
yields or rates of return on its shares. The yield and total returns
of the Class A, Class B and Class C shares of the Fund are affected by
portfolio quality, portfolio maturity, the type of investments the Fund
holds and its operating expenses allocated to the particular class.
- Standardized Yields
- Yield. The Fund's "yield" (referred to as "standardized yield")
for a given 30-day period for a class of shares is calculated using the
following formula set forth in rules adopted by the Securities and
Exchange Commission that apply to all funds that quote yields:
a-b
Standardized Yield = 2[ _____ +1) 6 -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 standardized yield of a class of shares for a 30-day period
may differ from its yield for any other period. The SEC formula
assumes that the standardized yield for a 30-day period occurs at a
constant rate for a six-month period and is annualized at the end of
the six-month period. This standardized yield is not based on actual
distributions paid by the Fund to shareholders in the 30-day period,
but is a hypothetical yield based upon the net investment income from
the Fund's portfolio investments calculated for that period. The
standardized yield may differ from the "dividend yield" of that class,
described below. Additionally, because each class of shares is subject
to different expenses, it is likely that the standardized yields of the
Fund's classes of shares will differ. For the 30-day period ended
December 31, 1995, the standardized yields for the Fund's Class A,
Class B and Class C shares were 4.35%, 3.82% and 3.68%, respectively.
- Tax-Equivalent Yield. The "tax-equivalent yield" of a class of
shares adjusts the Fund's current yield, as calculated above, by a
stated combined Federal, state and city tax rate. The tax equivalent
yield is based on a 30-day period, and is computed by dividing the tax-
exempt portion of the Fund's current yield (as calculated above) by one
minus a stated income tax rate and adding the result to the portion (if
any) of the Fund's current yield that is not tax exempt. The tax
equivalent yield may be used to compare the tax effects of income
derived from the Fund with income from taxable investments at the tax
rates stated. Appendix B includes a tax equivalent yield table, based
on various effective tax brackets for individual taxpayers. Such tax
brackets are determined by a taxpayer's Federal, state and city taxable
income (the net amount subject to Federal and state income taxes after
deductions and exemptions). The tax equivalent yield table assumes
that the investor is taxed at the highest bracket, regardless of
whether a switch to non-taxable investments would cause a lower bracket
to apply and that state income tax payments are fully deductible for
income tax purposes. For taxpayers with income above certain levels,
otherwise allowable itemized deductions are limited. The Fund's tax-
equivalent yields for its Class A, Class B and Class C shares for the
30-day period ended December 31, 1995, for an individual Pennsylvania
resident in the 41.29% combined tax bracket were 7.41%, 6.51% and
6.27%, respectively.
- Dividend Yield and Distribution Return. From time to time the
Fund may quote a "dividend yield" or a "distribution return" for each
class. Dividend yield is based on the Class A, Class B or Class C
share dividends derived from net investment income during a stated
period. Distribution return includes dividends derived from net
investment income and from realized capital gains declared during a
stated period. Under those calculations, the dividends and/or
distributions for that class declared during a stated period of one
year or less (for example, 30 days) are added together, and the sum is
divided by the maximum offering price per share of that class on the
last day of the period. When the result is annualized for a period of
less than one year, the "dividend yield" is calculated as follows:
Dividend Yield of the Class =
Dividends of the Class
______________________________
Max. Offering Price of the Class (last day of period) +
Number of days (accrual period) x365
The maximum offering price for Class A shares includes the maximum
front-end sales charge. For Class B and Class C shares, the maximum
offering price is the net asset value per share, without considering
the effect of contingent deferred sales charges.
From time to time similar yield or distribution return
calculations may also be made using the Class A net asset value
(instead of its respective maximum offering price) at the end of the
period. The dividend yields on Class A shares for the 30-day period
ended December 31, 1995, were 5.35% and 5.61% when calculated at
maximum offering price and at net asset value, respectively. The
dividend yield on Class B and Class C shares for the 30-day period
ended December 31, 1995, was 4.86% and 4.74%, respectively.
Distribution returns for the 30-day period ended December 31, 1995 are
the same as the above-quoted dividend yields. No portions of the Class
A, Class B or Class C dividends for the three months ended December 31,
1995 were derived from realized capital gains.
- Total Return Information
- Average Annual Total Returns. The "average annual total return"
of each class is an average annual compounded rate of return for each
year in a specified number of years. It is the rate of return based on
the change in value of a hypothetical initial investment of $1,000 ("P"
in the formula below) held for a number of years ("n") to achieve an
Ending Redeemable Value ("ERV") of that investment, according to the
following formula:
(ERV) 1/n
(___) -1 = Average Annual Total Return
( P)
- Cumulative Total Returns. The cumulative "total return"
calculation measures the change in value of a hypothetical investment
of $1,000 over an entire period of years. Its calculation uses some of
the same factors as average annual total return, but it does not
average the rate of return on an annual basis. Cumulative total return
is determined as follows:
ERV - P
_______ = Total Return
P
In calculating total returns for Class A shares, the current
maximum sales charge of 4.75% (as a percentage of the offering price)
is deducted from the initial investment ("P") (unless the return is
shown at net asset value, as discussed below). For Class B shares, the
payment of the applicable 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% in the fifth year, 1.0% in the sixth year and none
thereafter) is applied to the investment result for the time period
shown (unless the total return is shown at net asset value, as
described below. For Class C shares, the payment of the 1.0%
contingent deferred sales charge is applied to the investment result
for the one-year period (or less). Total returns also assume that all
dividends and capital gains distributions during the period are
reinvested to buy additional shares at net asset value per share, and
that the investment is redeemed at the end of the period.
The "average annual total return" on an investment in Class A
shares of the Fund for the one and five year periods ended December 31,
1995 and for the period from September 18, 1989 (commencement of
operations) to December 31, 1995 were 11.39%, 6.98% and 7.04%,
respectively. The cumulative "total return" on Class A shares for the
latter period was 53.35%. The average annual total returns on an
investment in Class B shares for the fiscal year ended December 31,
1995 and for the period May 1, 1993 (the date Class B shares were first
publicly offered) through December 31, 1995 were 11.06% and 3.82%,
respectively. The cumulative total return on Class B shares for the
period May 1, 1993 through December 31, 1995 was 10.53%. For the
period from August 29, 1995 through December 31, 1995, the cumulative
total return as an investment in Class C shares of the Fund was
4.55%.
- Total Returns at Net Asset Value. From time to time the Fund
may also quote an average annual total return at net asset value or a
cumulative total return at net asset value for Class A, Class B or
Class C shares. Each is based on the difference in net asset value per
share at the beginning and the end of the period for a hypothetical
investment in that class of shares (without considering front-end or
contingent deferred sales charges) and takes into consideration the
reinvestment of dividends and capital gains distributions.
The average annual total returns at net asset value for Class A
shares for the one and five year periods ended December 31, 1995, and
for the period from September 18, 1989 (commencement of operations) to
December 31, 1995 were 16.94%, 8.02% and 7.87%, respectively.
The average annual total returns at net asset value for Class B
shares for the one year period ended December 31, 1995 and for the
period May 1, 1993 (the date Class B shares were first publicly
offered) through December 31, 1995 were 16.06% and 4.87%, respectively.
The cumulative total return at net asset value on the Fund's Class C
shares for the period from August 29, 1995 (commencement of operations)
through December 31, 1995 was 5.55%.
- Other Performance Comparisons. From time to time the Fund may
publish the ranking of the performance of its Class A, Class B or Class
C shares by Lipper Analytical Services, Inc. ("Lipper"), a widely-
recognized independent mutual fund monitoring service. Lipper monitors
the performance of regulated investment companies, including the Fund,
and ranks their performance for various periods based on categories
relating to investment objectives. The performance of the Fund is
ranked against (i) all other bond funds, excluding money market funds,
and (ii) all other Pennsylvania municipal bond funds. The Lipper
performance rankings are based on total returns that include the
reinvestment of capital gains distributions and income dividends but do
not take sales charges or taxes into consideration. From time to time
the Fund may include in its advertisement and sales literature
performance information about the Fund cited in other newspapers and
periodicals such as The New York Times, which may include performance
quotations from other sources, including Lipper and Morningstar.
From time to time the Fund may publish the ranking of the
performance of its Class A, Class B or Class C shares by Morningstar,
Inc., an independent mutual fund monitoring service that ranks mutual
funds, including the Fund, monthly in broad investment categories
(equity, taxable bond, municipal bond and hybrid) based upon risk-
adjusted investment returns. Investment return measures a fund's
three, five and ten-year average annual total returns (when available)
in excess of 90-day U.S. Treasury bill returns after considering sales
charges and expenses. Risk reflects fund performance below 90-day U.S.
Treasury bill returns. Risk and return are combined to produce star
rankings reflecting performance relative to the average fund in a given
fund's category. Five stars is the "highest" ranking (top 10%), four
stars is "above average" (next 22.5%), three stars is "average" (next
35%), two stars is "below average" (next 22.5%) and one star is
"lowest" (bottom 10%). Morningstar ranks the Fund in relation to other
rated municipal bond funds. Rankings are subject to change.
Investors may also wish to compare the Fund's Class A, Class B or
Class C return to the returns on fixed income investments available
from banks and thrift institutions, such as certificates of deposit,
ordinary interest-paying checking and savings accounts, and other forms
of fixed or variable time deposits, and various other instruments such
as Treasury bills. However, the Fund's returns and share price are not
guaranteed by the FDIC or any other agency and will fluctuate daily,
while bank depository obligations may be insured by the FDIC and may
provide fixed rates of return, and Treasury bills are guaranteed as to
principal and interest by the U.S. government. When redeemed, an
investor's shares may be worth more or less than their original cost.
Returns for any given past period are not a prediction or
representation by the Fund of future returns. The returns of Class A,
Class B or Class C shares of the Fund are affected by portfolio
quality, the type of investments the Fund holds and its operating
expenses allocated to a particular class.
From time to time, the Fund's Manager may publish rankings or
ratings of the Manager (or the Transfer Agent), by independent third-
parties, on the investor services provided by them to shareholders of
the Oppenheimer funds, other than the performance rankings of the
Oppenheimer funds themselves. Those ratings or rankings of
shareholder/investor services may compare the Oppenheimer funds'
services to those of other mutual fund families selected by the rating
or ranking services, and may be based upon the opinions of the rating
or ranking service itself, using its own research or judgment, or based
upon surveys of investors, brokers, shareholders or others.
Distribution and Service Plans
The Fund has adopted a Service Plan for Class A Shares and
Distribution and Service Plans for Class B and Class C shares of the
Fund under Rule 12b-1 of the Investment Company Act, pursuant to which
the Fund will make payments to the Distributor 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, cast in person at a meeting called for the purpose of voting
on that Plan, and (ii) the holders of a "majority" (as defined in the
Investment Company Act) of the shares of each class. For the
Distribution and Service Plan for Class C shares, that vote was cast by
the Manager as the sole initial holder of Class C shares.
In addition, under the Plans the Manager and the Distributor in
their sole discretion, from time to time, may use their own resources
(which, in the case of the Manager, may include profits from the
advisory fee it receives from the Fund) to make payments to brokers,
dealers, or other financial institutions (each is referred to as a
"Recipient" under the Plans) for distribution and administrative
services they perform at no cost to the Fund. The Distributor and the
Manager may, in their sole discretion, increase or decrease the amount
of payments they make from their own resources to Recipients.
Unless terminated as described below, each Plan continues in
effect from year to year but only as long as such continuance is
specifically approved at least annually by the Trust's Board of
Trustees and its Independent Trustees by a vote cast in person at a
meeting called for the purpose of voting on such continuance. Any Plan
may be terminated at any time by the vote of a majority of the
Independent Trustees or by the vote of the holders of a "majority" (as
defined in the Investment Company Act) of the outstanding shares of
that class. No Plan may be amended to increase materially the amount
of payments to be made unless such amendment is approved by
shareholders of the class affected by the amendment. In addition,
because Class B shares of the Fund automatically convert into Class A
shares after six years, the Fund is required to obtain the approval of
Class B as well as Class A shareholders for a proposed amendment to the
Class A Plan that would materially increase the amount to be paid by
Class A shareholders under the Class A Plan. Such approval must be by
a "majority" of the Class A and Class B shares (as defined in the
Investment Company Act), voting separately by class. All material
amendments must be approved by the Independent Trustees.
While the Plans are in effect, the Treasurer of the Fund shall
provide separate written reports to the Trust's Board of Trustees at
least quarterly on the amount of all payments made pursuant to each
Plan, the purpose for which the payment was made and the identity of
each Recipient that received any such payment. The report for the
Class B and Class C Plan shall also include the distribution costs for
that quarter, and such costs for previous fiscal periods that are
carried forward under the Class B Plan, as explained in the Prospectus
and below. Those reports, including the allocations on which they are
based, will be subject to the review and approval of the Independent
Trustees in the exercise of their fiduciary duty. Each Plan further
provides that while it is in effect, the selection and nomination of
those Trustees of the Fund who are not "interested persons" of the Fund
is committed to the discretion of the Independent Trustees. This does
not prevent the involvement of others in such selection and nomination
if the final decision on any such selection or nomination is approved
by a majority of such Independent Trustees.
Under the Plans, no payment will be made to any Recipient in any
quarter if the aggregate net asset value of all Fund shares held by the
Recipient for itself and its customers did not exceed a minimum
amount, if any, that may be determined from time to time by a majority
of the Fund's Independent Trustees. Initially, the Board of Trustees
has set the fee at the maximum rate allowed under the Plans and set no
minimum amount.
For the fiscal year ended December 31, 1995, payments under the
Class A Plan totaled $95,622, all of which was paid by the Distributor
to Recipients, including $7,550 paid to an affiliate of the
Distributor. Any unreimbursed expenses incurred with respect to Class
A shares for any fiscal quarter by the Distributor may not be recovered
in subsequent fiscal years. 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 and the Class C Plan allow the service fee
payments to be paid by the Distributor to Recipients in advance for the
first year such shares are outstanding, and thereafter on a quarterly
basis, as described in the Prospectus. The advance payment is based on
the net asset value of shares sold. An exchange of shares does not
entitle the Recipient to an advance service fee payment. In the event
such shares are redeemed during the first year that the shares are
outstanding, the Recipient will be obligated to repay a pro rata
portion of the advance of the service fee payment for those shares to
the Distributor. Pursuant to the Plans, 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% of the net asset value of the shares purchased
by the Recipient or its customers and (ii) thereafter, on a quarterly
basis, computed as of the close of business each day at an annual rate
of up to 0.25% of the average daily net asset value of Class B shares
held in accounts of the Recipient or its customers. (The Board has
currently set the service fee at 0.15% per year, which amount may be
increased by the Board from time to time up to the maximum of 0.25%).
For the fiscal year ended December 31, 1995 payments under the Class B
plan totaled $121,620, including $1,792 to an affiliate of the
broker/dealer, of which $98,080 was retained. For the fiscal period
from August 29, 1995 (commencement of operations) to December 31, 1995
payments under the Class C Plan totaled $165. At December 31, 1995,
the Distributor had incurred unreimbursed expenses of $473,840 for
Class B shares (representing 3.28% of Class B net assets of such date)
and $2,309 for Class C shares (representing 0.88% of Class C net assets
as of such date).
Although the Class B Plan and the Class C Plan permit the
Distributor to retain both the asset-based sales charges and the
service fee, or to pay Recipients the service fee on a quarterly basis,
without payment in advance, the Distributor presently intends to pay
the service fee to Recipients in the manner described above. A minimum
holding period may be established from time to time under the Class B
Plan and the Class C Plan by the Board. Initially, the Board has set
no minimum holding period. All payments under the Class B Plan and the
Class C Plan are subject to the limitations imposed by the Rules of
Fair Practice of the National Association of Securities Dealers, Inc.
on payments of asset based sales charges and service fees.
The Class B Plan and the Class C Plan provide for the Distributor
to be compensated at a flat rate, whether the Distributor's
distribution expenses are more or less than the amounts paid by the
Fund during that period. Such payments are made in recognition that
the Distributor (i) pays sales commissions to authorized brokers and
dealers at the time of sale and pays service fees, as described in the
Prospectus, (ii) may finance such commissions and/or the advance of the
service fee payment to Recipients under those Plans, or may provide
such financing from its own resources, or from an affiliate, (iii)
employs personnel to support distribution of shares, and (iv) may bear
the costs of sales literature, advertising and prospectuses (other than
those furnished to current shareholders) and state "blue sky"
registration fees and certain other distribution expenses.
ABOUT YOUR ACCOUNT
How To Buy Shares
Alternative Sales Arrangements - Class A, Class B and Class C Shares.
The availability of three classes of shares permits an investor to
choose the method of purchasing shares that is more beneficial to the
investor depending on the amount of the purchase, the length of time
the investor expects to hold shares and other relevant circumstances.
Investors should understand that the purpose and function of the
deferred sales charge and asset-based sales charge with respect to
Class B and Class C shares are the same as those of the initial sales
charge with respect to Class A shares. Any salesperson or other person
entitled to receive compensation for selling Fund shares may receive
different compensation with respect to one class of shares than the
other. The Distributor will not accept any order of $500,000 or more
of Class B shares or $1 million or more of Class C shares on behalf of
a single investor (not including dealer "street name" or omnibus
accounts) because generally it will be more advantageous for that
investor to purchase Class A shares of the Fund instead.
The three classes of shares each represent an interest in the same
portfolio investments of the Fund. However, each class has different
shareholder privileges and features. The net income attributable to
Class B and Class C shares and the dividends payable on Class B and
Class C shares will be reduced by incremental expenses borne solely by
that class, including the asset-based sales charge to which Class B and
Class C shares are subject.
The conversion of Class B shares to Class A shares after six years
is subject to the continuing availability of a private letter ruling
from the Internal Revenue Service, or an opinion of counsel or tax
adviser, to the effect that the conversion of Class B shares does not
constitute a taxable event for the holder under Federal income tax law.
If such a revenue ruling or opinion is no longer available, the
automatic conversion feature may be suspended, in which event no
further conversions of Class B shares would occur while such suspension
remained in effect. Although Class B shares could then be exchanged
for Class A shares on the basis of relative net asset value of the two
classes, without the imposition of a sales charge or fee, such exchange
could constitute a taxable event for the holder, and absent such
exchange, Class B shares might continue to be subject to the asset-
based sales charge for longer than six years.
The methodology for calculating the net asset value, dividends and
distributions of the Fund's Class A, Class B and Class C shares
recognizes two types of expenses. General expenses that do not pertain
specifically to any class are allocated pro rata to the shares of each
class, based on the percentage of the net assets of such class to the
Fund's total net assets, and then equally to each outstanding share
within a given class. Such general expenses include (i) management
fees, (ii) legal, bookkeeping and audit fees, (iii) printing and
mailing costs of shareholder reports, Prospectuses, Statements of
Additional Information and other materials for current shareholders,
(iv) fees to Independent Trustees, (v) custodian expenses, (vi) share
issuance costs, (vii) organization and start-up costs, (viii) interest,
taxes and brokerage commissions, and (ix) non-recurring expenses, such
as litigation costs. Other expenses that are directly attributable to
a class are allocated equally to each outstanding share within that
class. Such expenses include (i) Distribution Plan fees, (ii)
incremental transfer and shareholder servicing agent fees and expenses,
(iii) registration fees and (iv) shareholder meeting expenses, to the
extent that such expenses pertain to a specific class rather than to
the Fund as a whole.
Determination of Net Asset Values Per Share. The net asset values per
share of Class A, Class B and Class C shares of the Fund are determined
as of the close of business of The New York Stock Exchange (the
"Exchange") on each day that the Exchange is open by dividing the value
of the Fund's net assets attributable to a class by the total number of
shares of that class outstanding. The Exchange normally closes at 4:00
P.M., New York time, but may close earlier on some days (for example,
in case of weather emergencies or on days falling before a holiday).
The Exchange's most recent annual holiday schedule (which is subject to
change) states that it will close on New Year's Day, Presidents' Day,
Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving
Day and Christmas Day. It may also close on other days. Dealers other
than Exchange members may conduct trading in Municipal Securities on
certain days on which the Exchange is closed (including weekends and
holidays) or after 4:00 P.M. on a regular business day. Because the
Fund's net asset value will not be calculated on those days, the Fund's
net asset value per share of each class may be significantly affected
at times when shareholders may not purchase or redeem shares.
The Trust's Board of Trustees has established procedures for the
valuation of the Fund's securities, generally as follows: (i) long-term
debt securities having a remaining maturity in excess of 60 days are
valued at the mean between the "asked" and "bid" prices determined by a
portfolio pricing service approved by the Fund's Board of Trustees or
obtained from active market makers in the security on the basis of
reasonable inquiry; (ii) debt instruments having a maturity of more
than one year, and non-money market type instruments having a maturity
of one year or less when issued, which have a remaining maturity of 60
days or less are valued at the mean between the "bid" and asked prices
determined by a pricing service approved by the Fund's Board of
Trustees or obtained from active market makers in the security on the
basis of reasonably inquiry; (iii) money market type debt securities
having a maturity of less than one year when issued that having a
remaining maturity of 60 days or less are valued at cost, adjusted for
amortization of premiums and accretion of discounts; and (iv)
securities or assets not having readily-available market quotations are
valued at their fair value as 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 (such as the tax-exempt
status of the interest paid by Municipal Securities). With the
approval of the Trust's 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 sales price on the principal exchange or
on the NASDAQ on which they are traded. If there were no sales on the
principal exchange, the last sale or any exchange is used. In the
absence of any sales that day, value shall be the last reported sales
price on the prior trading day or closing bid or asked prices on the
principal exchange closets to the last reported sales price.
When the Fund writes an option, an amount equal to the premium
received by the Fund is included in the Fund's Statement of Assets and
Liabilities as an asset, and an equivalent deferred credit is included
in the liability section. The deferred credit is adjusted ("marked-to-
market") to reflect the current market value of the option. In
determining the Fund's gain on investments, if a call written by the
Fund is exercised, the proceeds are increased by the premium received.
If a call or put written by the Fund expires, the Fund has a gain in
the amount of the premium; if the Fund enters into a closing purchase
transaction, it will have a gain or loss depending on whether the
premium was more or less than the cost of the closing transaction. If
the Fund exercises a put it holds, the amount the Fund receives on its
sale of the underlying investment is reduced by the amount of the
premium paid by the Fund.
AccountLink. When shares are purchased through AccountLink, each
purchase must be at least $25.00. Shares will be purchased on the
regular business day the Distributor is instructed to initiate the
Automated Clearing House transfer to buy the shares. Dividends will
begin to accrue on shares purchased by the proceeds of ACH transfers on
the business day the Fund receives Federal Funds for such purchase
through the ACH system before the close of The New York Stock Exchange.
The Exchange normally closed at 4:00 P.M., but may close earlier on
certain days. If Federal Funds are received after the close of the
Exchange, the shares will be purchased and dividends will begin to
accrue dividends on the next regular business day. The proceeds of ACH
transfers are normally received by the Fund 3 days after the transfers
are initiated. The Distributor and the Fund are not responsible for
any delays in purchasing shares from delays in ACH transmissions.
Reduced Sales Charges. As discussed in the Prospectus, a reduced sales
charge rate may be obtained for Class A shares under Right of
Accumulation and Letters of Intent because of the economies of sales
efforts and reduction in expenses realized by the Distributor, dealers
and brokers making such sales. No sales charge is imposed in certain
other circumstances described in the Prospectus because the Distributor
incurs little or no selling expenses. The term "immediate family"
refers to one's spouse, children, grandchildren, grandparents, parents,
parents-in-law, brothers and sisters, sons- and daughters-in-law, a
sibling's spouse and a spouse's siblings.
- The Oppenheimer Funds. The Oppenheimer funds are those mutual
funds for which the Distributor acts as the distributor or the sub-
distributor and include the following:
Oppenheimer Tax-Free Bond Fund
Oppenheimer New York Tax-Exempt Fund
Oppenheimer California Tax-Exempt Fund
Oppenheimer Intermediate Tax-Exempt Fund
Oppenheimer Insured Tax-Exempt Fund
Oppenheimer Main Street California Tax-Exempt Fund
Oppenheimer Florida Tax-Exempt Fund
Oppenheimer Pennsylvania Tax-Exempt Fund
Oppenheimer New Jersey Tax-Exempt Fund
Oppenheimer Fund
Oppenheimer Discovery Fund
Oppenheimer Target Fund
Oppenheimer Growth Fund
Oppenheimer Equity Income Fund
Oppenheimer Value Stock Fund
Oppenheimer Asset Allocation Fund
Oppenheimer Total Return Fund, Inc.
Oppenheimer Main Street Income & Growth Fund
Oppenheimer High Yield Fund
Oppenheimer Champion Income Fund
Oppenheimer Bond Fund
Oppenheimer U.S. Government Trust
Oppenheimer Limited-Term Government Fund
Oppenheimer Global Fund
Oppenheimer Global Emerging Growth Fund
Oppenheimer Global Growth & Income Fund
Oppenheimer Gold & Special Minerals Fund
Oppenheimer Strategic Income Fund
Oppenheimer Strategic Income & Growth Fund
Oppenheimer International Bond Fund
Oppenheimer Enterprise Fund
Oppenheimer Quest Opportunity Value Fund
Oppenheimer Quest Growth & Income Value Fund
Oppenheimer Quest Small Cap Value Fund
Oppenheimer Quest Officers Value Fund
Oppenheimer Quest Global Value Fund, Inc.
Oppenheimer Quest Value Fund, Inc.
Oppenheimer Bond Fund for Growth
Oppenheimer Disciplined Value Fund
Oppenheimer Disciplined Allocation Fund
Oppenheimer LifeSpan Balanced Fund
Oppenheimer LifeSpan Income Fund
Oppenheimer Growth Fund
Rochester Portfolio Series - Limited-Term New York Municipal Fund*
Rochester Fund Municipals*
and the following "Money Market Funds":
Oppenheimer Money Market Fund, Inc.
Oppenheimer Cash Reserves
Centennial Money Market Trust
Centennial Tax Exempt Trust
Centennial Government Trust
Centennial New York Tax Exempt Trust
Centennial California Tax Exempt Trust
Centennial America Fund, L.P.
Daily Cash Accumulation Fund, Inc.
*Shares of the Fund are not presently exchangeable for shares of this
fund
There is an initial sales charge on the purchase of Class A shares
of each of the OppenheimerFunds except Money Market Funds (under
certain circumstances described herein, redemption proceeds of Money
Market Fund shares may be subject to a contingent deferred sales
charge).
- Letters of Intent. A Letter of Intent (referred to as a
"Letter") is an investor's statement in writing to the Distributor of
the intention to purchase Class A shares or Class A and Class B shares
of the Fund and other Oppenheimer funds during a 13-month period (the
"Letter of Intent period"), which may, at the investor's request,
include purchases made up to 90 days prior to the date of the Letter.
The Letter states the investor's intention to make the aggregate amount
of purchases of shares which, when added to the investor's holdings of
shares of those funds, will equal or exceed the amount specified in the
Letter. Purchases made at net asset value without sales charge do not
count toward satisfying the amount of the Letter. A letter enables an
investor to count the Class A and Class B shares purchased under the
Letter to obtain the reduced sales charge rate on purchases of Class A
shares of the Fund (and other Oppenheimer funds) that applies under the
Right of Accumulation to current purchases of Class A shares. Each
purchase of Class A shares under the Letter will be made at the public
offering price applicable to a single lump-sum purchase of shares in
the amount intended to be purchased under the Letter.
In submitting a Letter, the investor makes no commitment to
purchase shares, but if the investor's purchases of shares within the
Letter of Intent period, when added to the value (at offering price) of
the investor's holdings of shares on the last day of that period, do
not equal or exceed the intended purchase amount, the investor agrees
to pay the additional amount of sales charge applicable to such
purchases, as set forth in "Terms of Escrow," below (as those terms may
be amended from time to time). The investor agrees that shares equal
in value to 5% of the intended purchase amount will be held in escrow
by the Transfer Agent subject to the Terms of Escrow. Also, the
investor agrees to be bound by the terms of the Prospectus, this
Statement of Additional Information and the Application used for such
Letter of Intent, and if such terms are amended, as they may be from
time to time by the Fund, that those amendments will apply
automatically to existing Letters of Intent.
If the total eligible purchases made during the Letter of Intent
period do not equal or exceed the intended purchase amount, the
commissions previously paid to the dealer of record for the account and
the amount of sales charge retained by the Distributor will be adjusted
to the rates applicable to actual purchases. If total eligible
purchases during the Letter of Intent period exceed the intended
purchase amount and exceed the amount needed to qualify for the next
sales charge rate reduction set forth in the applicable prospectus, the
sales charges paid will be adjusted to the lower rate, but only if and
when the dealer returns to the Distributor the excess of the amount of
commissions allowed or paid to the dealer over the amount of
commissions that apply to the actual amount of purchases. The excess
commissions returned to the Distributor will be used to purchase
additional shares for the investor's account at the net asset value per
share in effect on the date of such purchase, promptly after the
Distributor's receipt thereof.
In determining the total amount of purchases made under a Letter,
shares redeemed by the investor prior to the termination of the Letter
of Intent period will be deducted. It is the responsibility of the
dealer of record and/or the investor to advise the Distributor about
the Letter in placing any purchase orders for the investor during the
Letter of Intent period. All of such purchases must be made through
the Distributor.
-Terms of Escrow That Apply to Letters of Intent.
1. Out of the initial purchase (or subsequent purchases if
necessary) made pursuant to a Letter, shares of the Fund equal in value
to 5% of the intended purchase amount specified in the Letter shall be
held in escrow by the Transfer Agent. For example, if the intended
purchase amount is $50,000, the escrow shall be shares valued in the
amount of $2,500 (computed at the public offering price adjusted for a
$50,000 purchase). Any dividends and capital gains distributions on
the escrowed shares will be credited to the investor's account.
2. If the intended purchase amount specified under the Letter is
completed within the thirteen-month Letter of Intent period, the
escrowed shares will be promptly released to the investor.
3. If, at the end of the thirteen-month Letter of Intent period
the total purchases pursuant to the Letter are less than the intended
purchase amount specified in the Letter, the investor must remit to the
Distributor an amount equal to the difference between the dollar amount
of sales charges actually paid and the amount of sales charges which
would have been paid if the total amount purchased had been made at a
single time. Such sales charge adjustment will apply to any shares
redeemed prior to the completion of the Letter. If such difference in
sales charges is not paid within twenty days after a request from the
Distributor or the dealer, the Distributor will, within sixty days of
the expiration of the Letter, redeem the number of escrowed shares
necessary to realize such difference in sales charges. Full and
fractional shares remaining after such redemption will be released from
escrow. If a request is received to redeem escrowed shares prior to
the payment of such additional sales charge, the sales charge will be
withheld from the redemption proceeds.
4. By signing the Letter, the investor irrevocably constitutes
and appoints the Transfer Agent as attorney-in-fact to surrender for
redemption any or all escrowed shares.
5. The shares eligible for purchase under the Letter (or the
holding of which may be counted toward completion of a Letter) include
(a) Class A shares sold with a front-end sales charge or subject to a
Class A contingent deferred sales charge, (b) Class B shares acquired
subject to a contingent deferred sales charge, and (c) Class A or B
shares acquired in exchange for either (i) Class A shares of one of the
other OppenheimerFunds that were acquired subject to a Class A initial
or contingent deferred sales charge or (ii) Class B shares of one of
the other OppenheimerFunds that were acquired subject to a contingent
deferred sales charge.
6. Shares held in escrow hereunder will automatically be
exchanged for shares of another fund to which an exchange is requested,
as described in the section of the Prospectus entitled "Exchange
Privilege," and the escrow will be transferred to that other fund.
Asset Builder Plans. To establish an Asset Builder Plan from a bank
account, a check (minimum $25) for the initial purchase must accompany
the application. Shares purchased by Asset Builder Plan payments from
bank accounts are subject to the redemption restrictions for recent
purchases described in "How To Sell Shares," in the Prospectus. Asset
Builder Plans also enable shareholders of Oppenheimer Cash Reserves to
use those accounts for monthly automatic purchases of shares of up to
four other Eligible Funds.
There is a sales charge on the purchase of certain Eligible Funds.
An application should be obtained from the Distributor, completed and
returned, and a prospectus of the selected fund(s) (available from the
Distributor) should be obtained before initiating Asset Builder
payments. The amount of the Asset Builder investment may be changed or
the automatic investments may be terminated at any time by writing to
the Transfer Agent. A reasonable period (approximately 15 days) is
required after the Transfer Agent's receipt of such instructions to
implement them. The Fund reserves the right to amend, suspend, or
discontinue offering such plans at any time without prior notice.
Cancellation of Purchase Orders. Cancellation of purchase orders for
the Fund's shares (for example, when a purchase check is returned to
the Fund unpaid) causes a loss to be incurred when the net asset value
of the Fund's shares on the cancellation date is less than on the
purchase date. That loss is equal to the amount of the decline in the
net asset value per share multiplied by the number of shares in the
purchase order. The investor is responsible for that loss. If the
investor fails to compensate the Fund for the loss, the Distributor
will do so. The Fund may reimburse the Distributor for that amount by
redeeming shares from any account registered in that investor's name,
or the Fund or the Distributor may seek other redress.
How to Sell Shares
Information on how to sell shares of the Fund is stated in the
Prospectus. The information below supplements the terms and conditions
for redemptions set forth in the Prospectus.
Checkwriting. When a check is presented to the Bank for clearance, the
Bank will ask the Fund to redeem a sufficient number of full and
fractional shares in the shareholder's account to cover the amount of
the check. This enables the shareholder to continue receiving
dividends on those shares until the check is presented to the Fund.
Checks may not be presented for payment at the offices of the Bank or
the Fund's Custodian. This limitation does not affect the use of
checks for the payment of bills or to obtain cash at other banks. The
Fund reserves the right to amend, suspend or discontinue offering
checkwriting privileges at any time without prior notice.
- Involuntary Redemptions. The Trust's Board of Trustees has the
right to cause the involuntary redemption of the Fund's 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 fix. The Board of
Trustees will not cause the involuntary redemption of shares in an
account if the aggregate net asset value of such shares has fallen
below the stated minimum solely as a result of market fluctuations.
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 granting permission to the
shareholder to increase the investment, and set other terms and
conditions so that the shares would not be involuntarily redeemed.
-Payments "In Kind". The Prospectus states that payment for shares
tendered for redemption is ordinarily made in cash. However, the Board
of Trustees of the Trust may determine that it would be detrimental to
the best interests of the remaining shareholders of the Fund to make
payment of a redemption order wholly or partly in cash. In that case,
the Fund may pay the redemption proceeds in whole or in part by a
distribution "in kind" of securities from the portfolio of the Fund, in
lieu of cash, in conformity with applicable rules of the Securities and
Exchange Commission. The Trust has elected to be governed by Rule 18f-
1 under the Investment Company Act, pursuant to which the Fund is
obligated to redeem shares solely in cash up to the lesser of $250,000
or 1% of the net assets of the Fund during any 90-day period for any
one shareholder. If shares are redeemed in kind, the redeeming
shareholder might incur brokerage or other costs in selling the
securities for cash. The method of valuing securities used to make
redemptions in kind will be the same as the method the Fund uses to
value it portfolio securities described above under "Determination of
Net Asset Value Per Share" and such valuation will be made as of the
time the redemption price is determined.
Reinvestment Privilege. Within six months of a redemption, a
shareholder may reinvest all or part of the redemption proceeds of (i)
Class A shares, or (ii) Class B shares that were subject to the Class B
contingent deferred sales charge when redeemed. The reinvestment may
be made without sales charge only in Class A shares of the Fund or any
of the other Oppenheimer funds into which shares of the Fund are
exchangeable as described below, at the net asset value next computed
after the Transfer Agent receives the reinvestment order. This
reinvestment privilege does not apply to Class C shares. The
shareholder must ask the Distributor for that privilege at the time of
reinvestment. Any capital gain that was realized when the shares were
redeemed is taxable, and reinvestment will not alter any capital gains
tax payable on that gain. If there has been a capital loss on the
redemption, some or all of the loss may not be tax deductible,
depending on the timing and amount of the reinvestment. Under the
Internal Revenue Code, if the redemption proceeds of Fund shares on
which a sales charge was paid are reinvested in shares of the Fund or
another of the Oppenheimer funds within 90 days of payment of the sales
charge, the shareholder's basis in the shares of the Fund that were
redeemed may not include the amount of the sales charge paid. That
would reduce the loss or increase the gain recognized from the
redemption. However, in that case the sales charge would be added to
the basis of the shares acquired by the reinvestment of the redemption
proceeds. The Fund may amend, suspend or cease offering this
reinvestment privilege at any time as to shares redeemed after the date
of such amendment, suspension or cessation.
Transfer of Shares. Shares are not subject to the payment of a
contingent deferred sales charge of either class at the time of
transfer to the name of another person or entity (whether the transfer
occurs by absolute assignment, gift or bequest, not involving, directly
or indirectly, a public sale). The transferred shares will remain
subject to the contingent deferred sales charge, calculated as if the
transferee shareholder had acquired the transferred shares in the same
manner and at the same time as the transferring shareholder. If less
than all shares held in an account are transferred, and some but not
all shares in the account would be subject to a contingent deferred
sales charge if redeemed at the time of transfer, the priorities
described in the Prospectus under "How to Buy Shares" for the
imposition of the Class B or the Class C contingent deferred sales
charge will be followed in determining the order in which shares are
transferred.
Special Arrangements for Repurchase of Shares from Dealers and Brokers.
The Distributor is the Fund's agent to repurchase its shares from
authorized dealers or brokers on behalf of their customers. The
shareholder should contact the broker or dealer to arrange this type of
redemption. The repurchase price per share will be the net asset value
next computed after the Distributor receives an order placed by the
dealer or broker, except that if the Distributor receives a repurchase
order from a dealer or broker after the close of The New York Stock
Exchange on a regular business day, it will be processed at that day's
net asset value if the order was received by the dealer or broker from
its customer prior to the time the Exchange closes (normally, that is
4:00 P.M. but may be earlier on some days) and the order was
transmitted to and received by the Distributor prior to its close of
business that day (normally 5:00 P.M.). Ordinarily, for accounts
redeemed by a broker-dealer under this procedure, payment will be made
within three business days after the shares have been redeemed upon the
Distributor's receipt of the required redemption documents in proper
form, with the signature(s) of the registered owners guaranteed on the
redemption document as described in the Prospectus.
Automatic Withdrawal and Exchange Plans. Investors owning shares of
the Fund valued at $5,000 or more can authorize the Transfer Agent to
redeem shares (minimum $50) automatically on a monthly, quarterly,
semi-annual or annual basis under an Automatic Withdrawal Plan. Shares
will be redeemed three business days prior to the date requested by the
shareholder for receipt of the payment. Automatic withdrawals of up to
$1,500 per month may be requested by telephone if payments are to be
made by check payable to all shareholders of record and sent to the
address of record for the account (and if the address has not been
changed within the prior 30 days). Required minimum distributions from
OppenheimerFunds-sponsored retirement plans may not be arranged on this
basis. Payments are normally made by check, but shareholders having
AccountLink privileges (see "How To Buy Shares") may arrange to have
Automatic Withdrawal Plan payments transferred to the bank account
designated on the OppenheimerFunds New Account Application or
signature-guaranteed instructions. The Fund cannot guarantee receipt
of 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 Class A share
purchases, shareholders should not make regular additional Class A
share purchases while participating in an Automatic Withdrawal Plan.
Class B and Class C shareholders should not establish withdrawal plans
because of the imposition of the contingent deferred sales charge on
such withdrawals (except where the Class B and Class C contingent
deferred sales charge is waived as described in the Prospectus in
"Waivers of Class B and Class C Sales Charge").
By requesting an Automatic Withdrawal or Exchange Plan, the
shareholder agrees to the terms and conditions applicable to such
plans, as stated below and in the provisions of the OppenheimerFunds
Application relating to such Plans, as well as the Prospectus. These
provisions may be amended from time to time by the Fund and/or the
Distributor. When adopted, such amendments will automatically apply to
existing Plans.
-Automatic Exchange Plans. Shareholders can authorize the
Transfer Agent (on the OppenheimerFunds Application or signature-
guaranteed instructions) to exchange a pre-determined amount of shares
of the Fund for shares (of the same class) of other Oppenheimer funds
automatically on a monthly, quarterly, semi-annual or annual basis
under an Automatic Exchange Plan. The minimum amount that may be
exchanged to each other fund account is $25. Exchanges made under
these plans are subject to the restrictions that apply to exchanges as
set forth in "How to Exchange Shares" in the Prospectus and below in
this Statement of Additional Information.
-Automatic Withdrawal Plans. Fund shares will be redeemed as
necessary to meet withdrawal payments. Shares acquired without a sales
charge will be redeemed first and thereafter shares acquired with
reinvested dividends and capital gains distributions will be redeemed
next, followed by shares acquired with a sales charge, to the extent
necessary to make withdrawal payments. Depending upon the amount
withdrawn, the investor's principal may be depleted. Payments made
under such plans should not be considered as a yield or income on your
investment. It may not be desirable to purchases additional Class A
shares while making automatic withdrawals because of the sales charges
that apply to purchases when made. Accordingly, a shareholder normally
may not maintain an Automatic Withdrawal Plan while simultaneously
making regular purchases of Class A shares.
The Transfer Agent will administer the investor's Automatic
Withdrawal Plan (the "Plan") as agent for the investor (the
"Planholder") who executed the Plan authorization and application
submitted to the Transfer Agent. The Transfer Agent shall incur no
liability to the Planholder for any action taken or omitted by the
Transfer Agent in good faith to administer the Plan. Certificates will
not be issued for shares of the Fund purchased for and held under the
Plan, but the Transfer Agent will credit all such shares to the account
of the Planholder on the records of the Fund. Any share certificates
held by a Planholder may be surrendered unendorsed to the Transfer
Agent with the Plan application so that the shares represented by the
certificate may be held under the Plan.
For accounts subject to Automatic Withdrawal Plans, distributions
of capital gains must be reinvested in shares of the Fund, which will
be done at net asset value without a sales charge. Dividends on shares
held in the account may be paid in cash or reinvested.
Redemptions of shares needed to make withdrawal payments will be
made at the net asset value per share determined on the redemption
date. Checks or AccountLink payments of the proceeds of Plan
withdrawals will normally be transmitted three business days prior to
the date selected for receipt of the payment (receipt of payment on the
date selected cannot be guaranteed), according to the choice specified
in writing by the Planholder.
The amount and the interval of disbursement payments and the
address to which checks are to be mailed or AccountLink payments are to
be sent may be changed at any time by the Planholder by writing to the
Transfer Agent. The Planholder should allow at least two weeks' time
in mailing such notification for the requested change to be put in
effect. The Planholder may, at any time, instruct the Transfer Agent
by written notice (in proper form in accordance with the requirements
of the then-current Prospectus of the Fund) to redeem all, or any part
of, the shares held under the Plan. In that case, the Transfer Agent
will redeem the number of shares requested at the net asset value per
share in effect in accordance with the Fund's usual redemption
procedures and will mail a check for the proceeds to the Planholder.
The Plan may be terminated at any time by the Planholder by
writing to the Transfer Agent. A Plan may also be terminated at any
time by the Transfer Agent upon receiving directions to that effect
from the Fund. The Transfer Agent will also terminate a Plan upon
receipt of evidence satisfactory to it of the death or legal incapacity
of the Planholder. Upon termination of a Plan by the Transfer Agent or
the Fund, shares that have not been redeemed from the account will be
held in uncertificated form in the name of the Planholder, and the
account will continue as a dividend-reinvestment, uncertificated
account unless and until proper instructions are received from the
Planholder or his or her executor or guardian, or other authorized
person.
To use shares held under the Plan as collateral for a debt, the
Planholder may request issuance of a portion of the shares in
certificated form. Upon written request from the Planholder, the
Transfer Agent will determine the number of shares for which a
certificate may be issued without causing the withdrawal checks to stop
because of exhaustion of uncertificated shares needed to continue
payments. However, should such uncertificated shares become exhausted,
Plan withdrawals will terminate.
If the Transfer Agent ceases to act as transfer agent for the
Fund, the Planholder will be deemed to have appointed any successor
transfer agent to act as agent in administering the Plan.
How to Exchange Shares
As stated in the Prospectus, shares of a particular class of
Oppenheimer funds having more than one class of shares may be exchanged
only for shares of the same class of other Oppenheimer funds. At
present Rochester Fund Municipals and Limited Term New York Municipal
Fund are not "Eligible Funds" for purposes of the exchange privilege in
the Prospectus. Shares of the Oppenheimer funds that have a single
class of shares without a class designation are deemed "Class A" shares
for this purpose. All of the Oppenheimer funds offer Class A, B and C
shares except Oppenheimer Money Market Fund, Inc., Centennial Money
Market Trust, Centennial Tax Exempt Trust, Centennial Government Trust,
Centennial New York Tax Exempt Trust, Centennial California Tax Exempt
Trust, Centennial America Fund, L.P., and Daily Cash Accumulation Fund,
Inc., which only offer Class A shares and Oppenheimer Main Street
California Tax-Exempt Fund which only offers Class A and Class B
shares, (Class B and Class C shares of Oppenheimer Cash Reserves are
generally available only by exchange from the same class of shares of
other Oppenheimer funds or through OppenheimerFunds sponsored 401(k)
plans). A current list showing which funds offer which class can be
obtained by calling the Distributor at 1-800-525-7048. Prior to May 1,
1996, Oppenheimer Disciplined Value Fund, Oppenheimer Disciplined
Allocation Fund, Oppenheimer LifeSpan Balanced Fund, Oppenheimer
LifeSpan Income Fund and Oppenheimer LifeSpan Growth Fund offer only
Class A and Class B shares and are not eligible for exchange to or from
other Oppenheimer funds.
For accounts established on or before March 8, 1996 holding Class
M shares of Oppenheimer Bond Fund for Growth, Class M shares can be
exchanged only for Class A shares of other Oppenheimer funds, including
Rochester Fund Municipals and Limited Term New York Municipal Fund.
Class A shares of Rochester Fund Municipals or Limited Term New York
Municipal Fund acquired on the exchange of Class M shares of
Oppenheimer Bond Fund for Growth may be exchanged for Class M shares of
that fund. For accounts of Oppenheimer Bond Fund for Growth
established after March 8, 1996, Class M shares may be exchanged for
Class A shares of other Oppenheimer funds shares except Rochester Fund
Municipals and Limited Term New York Municipals. Exchanges to Class M
shares of Oppenheimer Bond Fund for Growth are permitted from Class A
shares of Oppenheimer Money Market Fund, Inc. or Oppenheimer Cash
Reserves that were acquired by exchange from Class M shares. Otherwise
no exchanges of any class of any Oppenheimer fund into Class M shares
are permitted.
However, if the Distributor receives, at the time of purchase,
notice that shares of Oppenheimer Money Market Fund, Inc. are being
purchased with the redemption proceeds of shares of other mutual funds
(other than other money market funds) that are not part of the
OppenheimerFunds family, those shares of Oppenheimer Money Market Fund,
Inc. may be exchanged for shares of other Oppenheimer funds at net
asset value without paying a sales charge.
Class A shares of Oppenheimer funds may be exchanged at net asset
value for shares of any Money Market Fund. Shares of any Money Market
Fund purchased without a sales charge may be exchanged for shares of
Oppenheimer funds offered with a sales charge upon payment of the sales
charge (or, if applicable, may be used to purchase shares of
Oppenheimer funds subject to a contingent deferred sales charge).
However, shares of Oppenheimer Money Market Fund, Inc. purchased with
the redemption proceeds of shares of other mutual funds (other than
funds managed by the Manager or its subsidiaries) redeemed within the
12 months prior to that purchase may subsequently be exchanged for
shares of other Oppenheimer funds without being subject to an initial
or contingent deferred sales charge, whichever is applicable. To
qualify for that privilege, the investor or the investor's dealer must
notify the Distributor of eligibility for this privilege at the time
the shares of Oppenheimer Money Market Fund, Inc. are purchased, and,
if requested, must supply proof of entitlement to this privilege.
Shares of this Fund acquired by reinvestment of dividends or
distributions from any other of the Oppenheimer funds (except
Oppenheimer Cash Reserves) or from any unit investment trust for which
reinvestment arrangements have been made with the Distributor may be
exchanged at net asset value for shares of any of the Oppenheimer
funds. No contingent deferred sales charge is imposed on exchanges of
shares of either class purchased subject to a contingent deferred sales
charge. However, when Class A shares acquired by exchange of Class A
shares of other Oppenheimer funds purchased subject to a Class A
contingent deferred sales charge are redeemed within 18 months of the
end of the calendar month of the initial purchase of the exchanged
Class A shares, the Class A contingent deferred sales charge is imposed
on the redeemed shares (see "Class A Contingent Deferred Sales Charge"
in the Prospectus). The Class B contingent deferred sales charge is
imposed on Class B shares acquired by exchange if they are redeemed
within six years of the initial purchase of the exchanged Class B
shares. The Class C contingent deferred sales charge is imposed on
Class C shares acquired by exchange if they are redeemed within 12
months of the initial purchase of the exchanged Class C shares.
When Class B or Class C shares are redeemed to effect an exchange,
the priorities described in "How To Buy Shares" in the Prospectus for
the imposition of the Class B or Class C contingent deferred sales
charge will be followed in determining the order in which the shares
are exchanged. Shareholders should take into account the effect of any
exchange on the
applicability and rate of any contingent deferred sales charge that
might be imposed in the subsequent redemption of remaining shares.
Shareholders owning shares of more than one Class must specify whether
they intend to exchange Class A, Class B or Class C shares.
The Fund reserves the right to reject telephone or written
exchange requests submitted in bulk by anyone on behalf of more than
one account. The Fund may accept requests for exchanges of up to 50
accounts per day from representatives of authorized dealers that
qualify for this privilege. In connection with any exchange request,
the number of shares exchanged may be less than the number requested if
the exchange or the number requested would include shares subject to a
restriction cited in the Prospectus or this Statement of Additional
Information or would include shares covered by a share certificate that
is not tendered with the request. In those cases, only the shares
available for exchange without restriction will be exchanged.
When exchanging shares by telephone, the shareholder must either
have an existing account in, or acknowledge receipt of a prospectus of,
the fund to which the exchange is to be made. For full or partial
exchanges of an account made by telephone, any special account features
such as Asset Builder Plans, Automatic Withdrawal Plans and retirement
plan contributions will be switched to the new account unless the
Transfer Agent is instructed otherwise. If all telephone lines are
busy (which might occur, for example, during periods of substantial
market fluctuations), shareholders might not be able to request
exchanges by telephone and would have to submit written exchange
requests.
Shares to be exchanged are redeemed on the regular business day
the Transfer Agent receives an exchange request in proper form (the
"Redemption Date"). Normally, shares of the fund to be acquired are
purchased on the Redemption Date, but such purchases may be delayed by
either fund up to five business days if it determines that it would be
disadvantaged by an immediate transfer of the redemption proceeds. The
Fund reserves the right, in its discretion, to refuse any exchange
request that may disadvantage it (for example, if the receipt of
multiple exchange requests from a dealer might require the disposition
of portfolio securities at a time or at a price that might be
disadvantageous to the Fund).
The different Oppenheimer funds available for exchange have
different investment objectives, policies and risks, and a shareholder
should assure that the Fund selected is appropriate for his or her
investment and should be aware of the tax consequences of an exchange.
For federal income tax purposes, an exchange transaction is treated as
a redemption of shares of one fund and a purchase of shares of another.
"Reinvestment Privilege," above, discusses some of the tax consequences
of reinvestment of redemption proceeds in such cases. The Fund, the
Distributor, and the Transfer Agent are unable to provide investment,
tax or legal advice to a shareholder in connection with an exchange
request or any other investment transaction.
Dividends, Capital Gains and Taxes
Dividends and Distributions. Dividends will be payable on shares held
of record at the time of the previous determination of net asset value,
or as otherwise described in "How to Buy Shares." Daily dividends on
newly purchased shares will not be declared or paid until such time as
Federal Funds (funds credited to a member bank's account at the Federal
Reserve Bank) are available from the purchase payment for such shares.
Normally, purchase checks received from investors are converted to
Federal Funds on the next business day. Dividends will be declared on
shares repurchased by a dealer or broker for three business days
following the trade date (i.e., to and including the day prior to
settlement of the repurchase). If all shares in an account are
redeemed, all dividends accrued on shares of the same class in the
account will be paid together with the redemption proceeds.
Dividends, distributions and the proceeds of the redemption of
Fund shares represented by checks returned to the Transfer Agent by the
Postal Service as undeliverable will be invested in shares of
Oppenheimer Money Market Fund, Inc., as promptly as possible after the
return of such checks to the Transfer Agent, to enable the investor to
earn a return on otherwise idle funds.
The amount of a class's distributions may vary from time to time
depending on market conditions, the composition of the Fund's
portfolio, and expenses borne by the Fund or borne separately by a
class, as described in "Alternative Sales Arrangements -- Class A,
Class B and Class C Shares," above. Dividends are calculated in the
same manner, at the same time and on the same day for shares of each
class. However, dividends on Class B and Class C shares are expected
to be lower as a result of the asset-based sales charge on Class B
shares and Class C shares, and Class B and Class C dividends will also
differ in amount as a consequence of any difference in net asset value
between Class A, Class B shares and Class C shares.
Dividends will be declared from net investment income, if any.
Net investment income includes the allocation of amounts of income from
the Pennsylvania Municipal Securities in the Fund's portfolio which are
free from Federal and Pennsylvania personal 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.
If the Fund qualifies as a "regulated investment company" under
the Internal Revenue Code, it will not be liable for Federal income
taxes on amounts paid by it as dividends and distributions. The Fund
qualified as a regulated investment company in its last fiscal year and
intends to qualify in future years, but reserves the right not to
qualify. The Internal Revenue Code contains a number of complex tests
to determine whether the Fund will qualify, and the Fund might not meet
those tests in a particular year. For example, if the Fund derives 30%
or more of its gross income from the sale of securities held less than
three months, it may fail to qualify (see "Tax Aspects of Covered Calls
and Hedging Instruments," above). If it does not qualify, the Fund will
be treated for tax purposes as an ordinary corporation and will receive
no tax deduction for payments of dividends and distributions made to
shareholders.
Under the Internal Revenue Code, by December 31 each year the Fund
must distribute 98% of its taxable investment income earned from
January 1 through December 31 of that year and 98% of its capital gains
realized in the period from November 1 of the prior year through
October 31 of the current year, or else the Fund must pay an excise tax
on the amounts not distributed. The Manager might determine in a
particular year that it would be in the best interest of shareholders
for the Fund not to make distributions at the required levels and to
pay the excise tax on the undistributed amounts. That would reduce the
amount of income or capital gains available for distribution to
shareholders.
The Internal Revenue Code requires that a holder (such as the
Fund) of a zero coupon security accrue as income each year a portion of
the discount at which the security was purchased even though the Fund
receives no interest payment in cash on the security during the year.
As an investment company, the Fund must pay out substantially all of
its net investment income each year or be subject to excise taxes, as
described above. Accordingly, when the Fund holds zero coupon
securities, it may be required to pay out as an income distribution
each year an amount which is greater than the total amount of cash
interest the Fund actually received during that year. Such
distributions will be made from the cash assets of the Fund or by
liquidation of portfolio securities, if necessary. The Fund may
realize a gain or loss from such sales. In the event the Fund realizes
net capital gains from such transactions, its shareholders may receive
a larger capital gain distribution than they would have had in the
absence of such transactions. At December 31, 1995, the Fund had
available for federal income tax purposes an unused capital loss
carryover of approximately $1,133,000 which will expire in the years,
2002 and 2003.
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 the gross income
of shareholders for Federal income tax purposes. To the extent that
distributions are derived from interest on Pennsylvania Municipal
Securities, obligations of the U.S. Government and certain of its
territories, agencies and instrumentalities, such distributions will
also be exempt from Pennsylvania personal income tax and, in the case
of residents of the City of Philadelphia, the investment income tax of
the School District of Philadelphia. Dividends designated as capital
gain dividends for Federal income tax purposes will also be exempt from
the investment income tax of the School District of Philadelphia.
Dividends derived from interest on Municipal Securities other than
Pennsylvania Municipal Securities will be exempt from Federal income
tax for individuals, but will be subject to the Pennsylvania personal
income tax and, in the case of residents of Philadelphia, the
investment income tax of the City of Philadelphia. All of the Fund's
dividends (excluding distributions) paid during 1994 were exempt from
such Federal and Pennsylvania income taxes. 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. 15.6% of the
Fund's dividends (excluding distributions) paid during 1995 were a tax
preference item for such shareholders. Corporate shareholders and
"substantial users" of facilities financed by Private Activity
Municipal Securities should read "Investment Objective and Policies"
above 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 either a receipt of 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.
Shares of the Fund will be exempt from Pennsylvania county
personal property taxes to the extent that the Fund's portfolio
securities consist of Pennsylvania Municipal Securities and obligations
of the U.S. Government, and certain of its territories, agencies and
instrumentalities, and certain other obligations that are not subject
to such personal property taxes on the annual assessment date.
Dividend Reinvestment in Another Fund. Shareholders of the Fund may
elect to reinvest all dividends and/or capital gains distributions in
shares of the same class of any of the other Oppenheimer funds listed
in "Reduced Sales Charges" above at net asset value without sales
charge. Not all of the OppenheimerFunds offer Class B and Class C
shares. The names of the Funds that offer Class B shares can be
obtained by calling the Distributor at 1-800-525-7048. To elect this
option, the shareholder must notify the Transfer Agent in writing and
must either have an existing account in the fund selected for
reinvestment or must obtain a prospectus for that fund and an
application from the Distributor to establish an account. The
investment will be made at the net asset value per share in effect at
the close of business on the payable date of the dividend or
distribution. Dividends and/or distributions from shares of other
Oppenheimer funds may be invested in shares of this Fund on the same
basis.
<PAGE>
Additional Information About the Fund
The Custodian. The Custodian of the assets of the Fund is Citibank,
N.A. The Custodian's responsibilities include safeguarding and
controlling the Fund's portfolio securities, collecting income on the
portfolio securities and handling the delivery of such securities to
and from the Fund. The Manager and its affiliates currently have
banking relationships with the Custodian. The Manager has represented
to the Fund that its banking relationships with the Custodian have been
and will continue to be unrelated to and unaffected by the relationship
between the Fund and the Custodian. It will be the practice of the
Fund to deal with the Custodian in a manner uninfluenced by any banking
relationship the Custodian may have with the Manager and its
affiliates. The Fund's cash balances with the Custodian in excess of
$100,000 are not protected by Federal deposit insurance. Such
uninsured balances may at times be substantial.
Independent Auditors. The independent auditors of the Fund audit the
Fund's financial statements and perform other related audit services.
They also act as auditors for certain other funds advised by the
Manager
and its affiliates.
<PAGE>
INDEPENDENT AUDITORS' REPORT
=====================================================
The Board of Trustees and Shareholders of Oppenheimer Pennsylvania Tax-Exempt
Fund:
We have audited the accompanying statements of investments and assets and
liabilities of Oppenheimer Pennsylvania Tax-Exempt Fund as of December 31,
1995, and the related statement of operations for the year then ended, the
statements of changes in net assets for each of the years in the two-year
period then ended and the financial highlights for each of the years in the
six-year period then ended and the period from September 18, 1989 (commencement
of operations) to December 31, 1989. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1995, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
Oppenheimer Pennsylvania Tax-Exempt Fund as of December 31, 1995, the results
of its operations for the year then ended, the changes in its net assets for
each of the years in the two-year period then ended, and the financial
highlights for each of the years in the six-year period then ended and the
period from September 18, 1989 (commencement of operations) to December 31,
1989, in conformity with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
/s/ KPMG Peat Marwick LLP
Denver, Colorado
January 22, 1996
STATEMENT OF INVESTMENTS December 31, 1995
</TABLE>
<TABLE>
<CAPTION>
RATINGS: MOODY'S/
S&P'S/FITCH'S FACE MARKET
VALUE
(UNAUDITED) AMOUNT SEE
NOTE 1
=====================================================
=====================================================
==================
<S> <C> <C> <C>
MUNICIPAL BONDS AND NOTES--98.7%
=====================================================
=====================================================
==================
PENNSYLVANIA--94.9%
Allegheny County, Pennsylvania Hospital
Development Authority Revenue Bonds,
Magee Women's Hospital, FGIC Insured, 5.375%, 10/1/13 Aaa/AAA/AAA $2,000,000
$2,014,930
- ----------------------------------------------------------------------------------------------------------------------------
Allegheny County, Pennsylvania Hospital Development
Authority Revenue Bonds, Presbyterian University
Hospital, Prerefunded, Series A, MBIA Insured,
7.60%, 3/1/08 Aaa/AAA 600,000 654,947
- ----------------------------------------------------------------------------------------------------------------------------
Beaver County, Pennsylvania Industrial Development
Authority Pollution Control Revenue Refunding
Collateral Bonds, Toledo Edison Project,
Series A, 7.75%, 5/1/20 Ba2/BB 2,000,000 2,174,632
- ----------------------------------------------------------------------------------------------------------------------------
Berks County, Pennsylvania General Obligation
Bonds, FGIC Insured, Inverse Floater, 8.27%, 11/10/20(1) Aaa/AAA/AAA 1,000,000
1,150,336
- ----------------------------------------------------------------------------------------------------------------------------
Blair County, Pennsylvania Hospital Authority
Revenue Bonds, Altoona Hospital Project,
AMBAC Insured, Inverse Floater, 5.755%, 7/1/14(1) Aaa/AAA/AAA 700,000
775,344
- ----------------------------------------------------------------------------------------------------------------------------
Bucks County, Pennsylvania Water & Sewer
Authority Revenue Bonds, Neshaminy Interceptor
System, Prerefunded, FGIC Insured, 7.50%, 12/1/13 Aaa/AAA/AAA 1,500,000
1,641,634
- ----------------------------------------------------------------------------------------------------------------------------
Dauphin County, Pennsylvania General Authority
Hospital Revenue Bonds, Hapsco-Western
Pennsylvania Hospital Project, Series A-1,
MBIA Insured, 5.50%, 7/1/13 Aaa/AAA 1,000,000
1,017,021
- ----------------------------------------------------------------------------------------------------------------------------
Dauphin County, Pennsylvania Hospital Authority
Revenue Refunding Bonds: Harrisburg Hospital
Project, MBIA Insured, 8.25%, 7/1/14 Aaa/AAA 1,450,000
1,558,067
- ----------------------------------------------------------------------------------------------------------------------------
Dauphin County, Pennsylvania Hospital Authority
Revenue Refunding Bonds, Polyclinic Medical
Center Project, MBIA Insured, 5.40%, 8/15/13 Aaa/AAA 2,500,000
2,520,030
- ----------------------------------------------------------------------------------------------------------------------------
Delaware County, Pennsylvania Authority
University Revenue Bonds, Villanova University,
MBIA Insured, 6.90%, 8/1/16 Aaa/AAA 1,000,000
1,086,519
- ----------------------------------------------------------------------------------------------------------------------------
Delaware County, Pennsylvania Industrial
Development Authority Revenue Refunding Bonds,
Resource Recovery Project, Series A, 8.10%, 12/1/13 Aa3/AA-- 3,200,000
3,378,604
- ----------------------------------------------------------------------------------------------------------------------------
Delaware River Joint Toll Bridge Commission
Revenue Bonds, Interstate 78, Prerefunded,
FGIC Insured, 7.80%, 7/1/18 Aaa/AAA/AAA 1,275,000
1,411,217
- ----------------------------------------------------------------------------------------------------------------------------
Delaware River Port Authority, Delaware
River Bridges Revenue Refunding Bonds,
AMBAC Insured, 7.375%, 1/1/07 Aaa/AAA/AAA 770,000
849,535
- ----------------------------------------------------------------------------------------------------------------------------
Erie, Pennsylvania Higher Education Building
Authority College Revenue Bonds, Mercyhurst
College Project, Prerefunded, 7.85%, 9/15/19 NR/AAA 1,000,000
1,124,492
</TABLE>
7 Oppenheimer Pennsylvania Tax-Exempt Fund
<PAGE> 8
STATEMENT OF INVESTMENTS (Continued)
<TABLE>
<CAPTION>
RATINGS: MOODY'S/
S&P'S/FITCH'S FACE MARKET
VALUE
(UNAUDITED) AMOUNT SEE
NOTE 1
=====================================================
=====================================================
==================
<S> <C> <C> <C>
PENNSYLVANIA (CONTINUED)
Langhorne Manor Boro, Pennsylvania Higher
Education & Health Authority Revenue Bonds,
Woods Schools Project, Prerefunded, 8.75%, 11/15/14 NR/AAA $1,000,000
$1,178,600
- ----------------------------------------------------------------------------------------------------------------------------
Lehigh County, Pennsylvania General Purpose
Authority Revenue Bonds, Lehigh Valley
Hospital, Inc., Series A, MBIA Insured, 7%, 7/1/16 Aaa/AAA 1,250,000
1,506,695
- ----------------------------------------------------------------------------------------------------------------------------
Monroeville, Pennsylvania Hospital Authority
Revenue Refunding Bonds, Forbes Health
System, 6.25%, 10/1/15 Baa1/BBB+ 1,000,000
1,029,261
- ----------------------------------------------------------------------------------------------------------------------------
Northampton County, Pennsylvania Higher
Education Authority Revenue Refunding Bonds,
Lehigh University, 7.10%, 9/1/05 NR/A 2,140,000
2,280,041
- ----------------------------------------------------------------------------------------------------------------------------
Northumberland County, Pennsylvania Authority
Commonwealth Lease Revenue Bonds,
MBIA Insured, 6.25%, 10/15/09 Aaa/AAA 2,000,000
2,188,346
- ----------------------------------------------------------------------------------------------------------------------------
Pennsylvania Convention Center Authority
Revenue Bonds, Escrowed to Maturity,
Series A, FGIC Insured, 6.70%, 9/1/16 Aaa/AAA/AAA 1,850,000
2,196,188
- ----------------------------------------------------------------------------------------------------------------------------
Pennsylvania Economic Development Financing
Authority Resource Recovery Revenue Bonds,
Colver Project, Series D, 7.15%, 12/1/18 NR/BBB-- 2,000,000
2,180,594
- ----------------------------------------------------------------------------------------------------------------------------
Pennsylvania Economic Development Financing
Authority Wastewater Treatment Revenue Bonds,
Sun Co., Inc.-R & M Project, Series A, 7.60%, 12/1/24 Baa1/BBB+ 2,000,000
2,227,342
- ----------------------------------------------------------------------------------------------------------------------------
Pennsylvania Housing Finance Agency
Revenue Bonds, Single Family Mtg.:
Series 31C, Inverse Floater, 9.534%, 10/1/23(1) Aa/AA 1,000,000
1,098,710
Series 40, 6.80%, 10/1/15 Aa/AA 2,000,000
2,083,648
Series 44C, 6.65%, 10/1/21 Aa/AA 1,000,000
1,040,885
- ----------------------------------------------------------------------------------------------------------------------------
Pennsylvania State General Obligation Refunding
Bonds, First Series, 10%, 4/15/98 A1/AA--/AA-- 1,880,000
2,122,527
- ----------------------------------------------------------------------------------------------------------------------------
Pennsylvania State Higher Education Assistance
Agency Student Loan Revenue Bonds, AMBAC
Insured, Inverse Floater, 8.025%, 3/1/22(1) Aaa/AAA/AAA 1,250,000
1,301,424
- ----------------------------------------------------------------------------------------------------------------------------
Pennsylvania State Higher Educational Facilities
Authority College & University Revenue Bonds,
Hahnemann University Project,
MBIA Insured, 7.20%, 7/1/19 Aaa/AAA 1,500,000
1,657,720
- ----------------------------------------------------------------------------------------------------------------------------
Pennsylvania State Higher Educational
Facilities Authority College & University
Revenue Bonds, Thomas Jefferson University,
Series A, 6.625%, 8/15/09 Aa/A+ 750,000
826,795
- ----------------------------------------------------------------------------------------------------------------------------
Pennsylvania State Industrial Development
Authority Economic Development Revenue Bonds,
Prerefunded, Series A, 7%, 1/1/11 NR/A--/AAA 1,000,000
1,144,286
</TABLE>
8 Oppenheimer Pennsylvania Tax-Exempt Fund
<PAGE> 9
<TABLE>
<CAPTION>
RATINGS: MOODY'S/
S&P'S/FITCH'S FACE MARKET
VALUE
(UNAUDITED) AMOUNT SEE
NOTE 1
=====================================================
=====================================================
==================
<S> <C> <C> <C>
PENNSYLVANIA (CONTINUED)
Pennsylvania State Turnpike Commission
Turnpike Revenue Bonds, Prerefunded:
Series E, MBIA Insured, 7.50%, 12/1/09 Aaa/AAA $1,000,000
$1,135,527
Series K, 7.50%, 12/1/19 Aaa/AAA 2,500,000
2,838,817
- ----------------------------------------------------------------------------------------------------------------------------
Pennsylvania State University Revenue Refunding
Bonds, Series B, 5.50%, 8/15/16 A1/AA-- 2,500,000
2,532,367
- ----------------------------------------------------------------------------------------------------------------------------
Philadelphia, Pennsylvania Gas Works Revenue
Bonds, 15th Series, 5.25%, 8/1/15 Baa1/BBB/A-- 1,000,000
944,999
- ----------------------------------------------------------------------------------------------------------------------------
Philadelphia, Pennsylvania Hospitals & Higher
Educational Facilities Authority Revenue Bonds,
Albert Einstein Medical Center, 7.625%, 4/1/11 A/BBB+ 3,500,000
3,776,653
- ----------------------------------------------------------------------------------------------------------------------------
Philadelphia, Pennsylvania Hospitals & Higher
Educational Facilities Authority Revenue Bonds,
Temple University Hospital, Series A, 6.625%, 11/15/23 Baa1/A-- 3,800,000
3,958,965
- ----------------------------------------------------------------------------------------------------------------------------
Philadelphia, Pennsylvania Hospitals & Higher
Educational Facilities Authority Revenue Refunding
Bonds, Jeanes Health System Project, 6.60%, 7/1/10 NR/BBB 1,000,000
1,017,632
- ----------------------------------------------------------------------------------------------------------------------------
Philadelphia, Pennsylvania Municipal Authority
Justice Lease Revenue Refunding Bonds,
Series A, FGIC Insured, 5.625%, 11/15/14 Aaa/AAA/AAA 1,000,000
1,026,617
- ----------------------------------------------------------------------------------------------------------------------------
Philadelphia, Pennsylvania Regional Port
Authority Lease Revenue Bonds, MBIA Insured,
Inverse Floater, 8.02%, 9/1/20(1) Aaa/AAA 2,100,000
2,258,277
- ----------------------------------------------------------------------------------------------------------------------------
Philadelphia, Pennsylvania Water & Sewer
Revenue Refunding Bonds, Escrowed to
Maturity, Tenth Series, 7.35%, 9/1/04 Aaa/AAA 245,000
285,841
- ----------------------------------------------------------------------------------------------------------------------------
Philadelphia, Pennsylvania Water & Wastewater
Revenue Bonds, FGIC Insured, 10%, 6/15/05 Aaa/AAA/AAA 1,900,000
2,610,868
- ----------------------------------------------------------------------------------------------------------------------------
Pittsburgh, Pennsylvania Water & Sewer Authority
Revenue Refunding Bonds, Escrowed to
Maturity, FGIC Insured, 7.25%, 9/1/14 Aaa/AAA/AAA 1,200,000
1,432,049
- ----------------------------------------------------------------------------------------------------------------------------
Schuylkill County, Pennsylvania Industrial
Development Authority Resource Recovery
Revenue Refunding Bonds, Schuylkill Energy
Resources, Inc., 6.50%, 1/1/10 NR/NR 2,895,000
3,007,117
- ----------------------------------------------------------------------------------------------------------------------------
St. Mary Hospital Authority Langhorne,
Pennsylvania Hospital Revenue Refunding
Bonds, Franciscan Health Project,
Series B, BIG Insured, 7%, 7/1/14 Aaa/AAA 500,000
544,588
- ----------------------------------------------------------------------------------------------------------------------------
Washington County, Pennsylvania Municipal
Facility Lease Authority Revenue Bonds,
Prerefunded, AMBAC Insured, 7.45%, 12/15/12 Aaa/AAA/AAA 2,000,000
2,303,734
------------
77,094,421
</TABLE>
9 Oppenheimer Pennsylvania Tax-Exempt Fund
<PAGE> 10
STATEMENT OF INVESTMENTS (Continued)
<TABLE>
<CAPTION>
RATINGS: MOODY'S/
S&P'S/FITCH'S FACE MARKET
VALUE
(UNAUDITED) AMOUNT SEE
NOTE 1
=====================================================
=====================================================
==================
<S> <C> <C> <C>
U.S. POSSESSIONS--3.8%
Puerto Rico Commonwealth General Obligation
Bonds, MBIA Insured, Inverse Floater, 7.284%, 7/1/08(1) Aaa/AAA $1,000,000 $
1,086,833
- ----------------------------------------------------------------------------------------------------------------------------
Puerto Rico Electric Power Authority
Revenue Refunding Bonds, Series N, 5%, 7/1/12 Baa1/A-- 1,000,000
950,375
- ----------------------------------------------------------------------------------------------------------------------------
Puerto Rico Housing Bank & Finance
Agency Single Family Mtg. Revenue Bonds,
Affordable Housing Mtg.-Portfolio I, 6.25%, 4/1/29 Aaa/AAA 1,000,000
1,027,549
-----------
3,064,757
=====================================================
=====================================================
==================
TOTAL INVESTMENTS, AT VALUE (COST $77,090,279) 98.7%
80,159,178
=====================================================
=====================================================
==================
OTHER ASSETS NET OF LIABILITIES 1.3
1,053,806
--------- -----------
NET ASSETS 100.0% $81,212,984
=========
===========
</TABLE>
1. Represents the current interest rate for a variable rate bond. These
variable rate bonds known as ``inverse floaters'' pay interest at a rate that
varies inversely with short-term interest rates. As interest rates rise,
inverse floaters produce less current income. Their price may be more volatile
than the price of a comparable fixed-rate security. Inverse floaters amount to
$7,670,924 or 9.45% of the Fund's net assets at December 31, 1995.
As of December 31, 1995 , securities subject to the alternative minimum tax
amounted to $13,967,268 or 17.20% of the Fund's net assets.
Distribution of investments by industry, as a percentage of total investments
at value, is as follows:
<TABLE>
<CAPTION>
INDUSTRY MARKET VALUE
PERCENT
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Hospitals $20,374,132 25.4%
Utilities 16,432,081 20.5
Education 10,686,535 13.3
Transportation 8,493,373 10.6
General Obligation Bonds 6,555,885 8.2
Lease/Rental 5,518,697 6.9
Housing 5,250,791 6.6
Corporate-Backed Municipals 2,227,342 2.8
Pollution Control 2,174,632 2.7
Student Loans 1,301,424 1.6
Revenue Bonds 1,144,286 1.4
----------- ------
$80,159,178 100.0%
===========
======
</TABLE>
See accompanying Notes to Financial Statements.
10 Oppenheimer Pennsylvania Tax-Exempt Fund
<PAGE> 11
STATEMENT OF ASSETS AND LIABILITIES December 31, 1995
<TABLE>
<S> <C>
=====================================================
=====================================================
==================
ASSETS
Investments, at value (cost $77,090,279)--see accompanying statement
$80,159,178
- ----------------------------------------------------------------------------------------------------------------------------
Receivables:
Interest 1,328,948
Shares of beneficial interest sold 367,696
- ----------------------------------------------------------------------------------------------------------------------------
Other 9,443
----------
Total assets 81,865,265
=====================================================
=====================================================
==================
LIABILITIES
Bank overdraft 36,369
- ----------------------------------------------------------------------------------------------------------------------------
Payables and other liabilities:
Dividends 264,321
Shares of beneficial interest redeemed 217,241
Trustees' fees 38,717
Shareholder reports 36,743
Distribution and service plan fees 30,161
Transfer and shareholder servicing agent fees 4,119
Other 24,610
------------
Total liabilities 652,281
=====================================================
=====================================================
==================
NET ASSETS $81,212,984
============
=====================================================
=====================================================
==================
COMPOSITION OF
NET ASSETS
Paid-in capital $79,444,698
- ----------------------------------------------------------------------------------------------------------------------------
Overdistributed net investment income (147,080)
- ----------------------------------------------------------------------------------------------------------------------------
Accumulated net realized loss from investment transactions
(1,153,533)
- ----------------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation on investments--Note 3 3,068,899
-----------
Net assets $81,212,984
===========
=====================================================
=====================================================
==================
NET ASSET VALUE
PER SHARE
Class A Shares:
Net asset value and redemption price per share (based on net assets of $66,483,283
and 5,377,105 shares of beneficial interest outstanding) $12.36
Maximum offering price per share (net asset value plus sales charge of 4.75% of offering price)
$12.98
- ----------------------------------------------------------------------------------------------------------------------------
Class B Shares:
Net asset value, redemption price and offering price per share (based on net assets
of $14,465,990 and 1,170,055 shares of beneficial interest outstanding)
$12.36
- ----------------------------------------------------------------------------------------------------------------------------
Class C Shares:
Net asset value, redemption price and offering price per share (based on net assets
of $263,711 and 21,337 shares of beneficial interest outstanding) $12.36
</TABLE>
See accompanying Notes to Financial Statements.
11 Oppenheimer Pennsylvania Tax-Exempt Fund
<PAGE> 12
STATEMENT OF OPERATIONS For the Year Ended December 31, 1995
<TABLE>
<S> <C>
=====================================================
=====================================================
==================
INVESTMENT INCOME
Interest $5,156,837
=====================================================
=====================================================
==================
EXPENSES
Management fees--Note 4 462,471
- ----------------------------------------------------------------------------------------------------------------------------
Distribution and service plan fees--Note 4:
Class A 95,622
Class B 121,620
Class C 165
- ----------------------------------------------------------------------------------------------------------------------------
Shareholder reports 84,149
- ----------------------------------------------------------------------------------------------------------------------------
Transfer and shareholder servicing agent fees--Note 4 62,693
- ----------------------------------------------------------------------------------------------------------------------------
Legal and auditing fees 24,550
- ----------------------------------------------------------------------------------------------------------------------------
Trustees' fees and expenses 22,843
- ----------------------------------------------------------------------------------------------------------------------------
Insurance expenses 6,512
- ----------------------------------------------------------------------------------------------------------------------------
Registration and filing fees:
Class B 1,203
Class C 24
- ----------------------------------------------------------------------------------------------------------------------------
Other 2,628
-----------
Total expenses 884,480
Less reimbursement of expenses by OppenheimerFunds, Inc.--Note 4
(12,068)
-----------
Net expenses 872,412
=====================================================
=====================================================
==================
NET INVESTMENT INCOME
4,284,425
=====================================================
=====================================================
==================
REALIZED AND UNREALIZED
GAIN (LOSS)
Net realized loss on investments (149,202)
- ----------------------------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation or depreciation on investments
7,766,744
-----------
Net realized and unrealized gain 7,617,542
=====================================================
=====================================================
==================
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS
$11,901,967
===========
</TABLE>
See accompanying Notes to Financial Statements.
12 Oppenheimer Pennsylvania Tax-Exempt Fund
<PAGE> 13
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1995 1994
=====================================================
=====================================================
==================
<S> <C> <C>
OPERATIONS
Net investment income $4,284,425 $3,907,127
- ----------------------------------------------------------------------------------------------------------------------------
Net realized loss (149,202) (1,065,903)
- ----------------------------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation or depreciation on investments 7,766,744
(8,445,048)
---------- ----------
Net increase (decrease) in net assets resulting from operations 11,901,967
(5,603,824)
=====================================================
===
DIVIDENDS AND
DISTRIBUTIONS TO
SHAREHOLDERS
Dividends from net investment income:
Class A (3,637,885) (3,639,305)
Class B (583,457) (367,811)
Class C (803) --
- ----------------------------------------------------------------------------------------------------------------------------
Dividends in excess of net investment income:
Class A (92,297) --
Class B (20,449) --
=====================================================
===
BENEFICIAL INTEREST
TRANSACTIONS
Net increase (decrease) in net assets resulting from
beneficial interest transactions--Note 2:
Class A (796,475) 4,897,535
Class B 3,839,201 4,838,266
Class C 262,069 --
========================================================
========================================================
============
NET ASSETS
Total increase 10,871,871 124,861
- ----------------------------------------------------------------------------------------------------------------------------
Beginning of period 70,341,113 70,216,252
----------- -----------
End of period (including overdistributed net investment
income of $147,080 and $62,280, respectively) $81,212,984 $70,341,113
===========
===========
</TABLE>
See accompanying Notes to Financial Statements.
13 Oppenheimer Pennsylvania Tax-Exempt Fund
<PAGE> 14
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CLASS A
-----------------------------------------
YEAR ENDED DECEMBER 31,
1995 1994 1993
========================================================
=====================================
<S> <C> <C> <C>
PER SHARE OPERATING DATA:
Net asset value, beginning of period $11.19 $12.85 $12.05
- ---------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .68 .67 .69
Net realized and unrealized gain (loss) 1.18 (1.64) .85
------ ------- -------
Total income (loss) from investment operations 1.86 (.97) 1.54
- ---------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income (.67) (.69) (.70)
Dividends in excess of net investment income (.02) -- --
Distributions from net realized gain -- -- (.04)
------ ------- -------
Total dividends and distributions to shareholders (.69) (.69) (.74)
- ---------------------------------------------------------------------------------------------
Net asset value, end of period $12.36 $11.19 $12.85
====== ======= =======
========================================================
=====================================
TOTAL RETURN, AT NET ASSET VALUE(4) 16.94% (7.68)% 13.12%
========================================================
=====================================
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) $66,483 $60,857 $64,640
- ---------------------------------------------------------------------------------------------
Average net assets (in thousands) $64,901 $62,786 $50,974
- ---------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income 5.68% 5.65% 5.52%
Expenses, before voluntary assumption by the
Manager or Distributor 1.01% .98% 1.06%
Expenses, net of voluntary assumption by the
Manager or Distributor N/A N/A .99%
- ---------------------------------------------------------------------------------------------
Portfolio turnover rate(6) 31.1% 37.0% 14.6%
</TABLE>
1. For the period from August 29, 1995 (inception of offering) to December 31,
1995.
2. For the period from May 1, 1993 (inception of offering) to December 31,
1993.
3. For the period from September 18, 1989 (commencement of operations) to
December 31, 1989.
4. Assumes a hypothetical initial investment on the business day before the
first day of the fiscal period, with all dividends and distributions reinvested
in additional shares on the reinvestment date, and redemption at the net asset
value calculated on the last business day of the fiscal period. Sales charges
are not reflected in the total returns. Total returns are not annualized for
periods of less than one full year.
14 Oppenheimer Pennsylvania Tax-Exempt Fund
<PAGE> 15
<TABLE>
<CAPTION>
CLASS A
-------------------------------------------
1992 1991 1990 1989(3)
========================================================
==========================================
<S> <C> <C> <C> <C>
PER SHARE OPERATING DATA:
Net asset value, beginning of period $11.93 $11.43 $11.58 $11.43
- --------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .76 .74 .81 .18
Net realized and unrealized gain (loss) .17 .53 (.15) .15
------- ------- ------ -------
Total income (loss) from investment operations .93 1.27 .66 .33
- --------------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income (.73) (.73) (.81) (.18)
Dividends in excess of net investment income -- -- -- --
Distributions from net realized gain (.08) (.04) -- --
------- ------- ------ -------
Total dividends and distributions to shareholders (.81) (.77) (.81) (.18)
- --------------------------------------------------------------------------------------------------
Net asset value, end of period $12.05 $11.93 $11.43 $11.58
======= ======= ====== =======
========================================================
==========================================
TOTAL RETURN, AT NET ASSET VALUE(4) 8.04% 11.49% 6.00% 3.25%
========================================================
==========================================
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) $33,290 $13,791 $8,406 $2,353
- --------------------------------------------------------------------------------------------------
Average net assets (in thousands) $21,936 $10,717 $5,170 $1,231
- --------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income 6.36% 6.30% 7.06% 6.12%(5)
Expenses, before voluntary assumption by the
Manager or Distributor 1.39% 1.29% 1.77% 2.49%(5)
Expenses, net of voluntary assumption by the
Manager or Distributor 1.06% N/A .59% .91%(5)
- --------------------------------------------------------------------------------------------------
Portfolio turnover rate(6) 29.9% 15.5% 5.3% 0.0%
<CAPTION>
CLASS B CLASS C
--------------------------------------------
PERIOD ENDED
YEAR ENDED DECEMBER 31, DECEMBER 31,
1995 1994 1993(2) 1995(1)
========================================================
==========================================
<S> <C> <C> <C> <C>
PER SHARE OPERATING DATA:
Net asset value, beginning of period $11.19 $12.84 $12.44 $11.91
- --------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .59 .59 .36 .21
Net realized and unrealized gain (loss) 1.17 (1.65) .45 .45
------- ------ -------- -------
Total income (loss) from investment operations 1.76 (1.06) .81 .66
- --------------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income (.57) (.59) (.37) (.21)
Dividends in excess of net investment income (.02) -- -- --
Distributions from net realized gain -- -- (.04) --
------- ------ -------- -------
Total dividends and distributions to shareholders (.59) (.59) (.41) (.21)
- --------------------------------------------------------------------------------------------------
Net asset value, end of period $12.36 $11.19 $12.84 $12.36
======= ====== ======== =======
========================================================
==========================================
TOTAL RETURN, AT NET ASSET VALUE(4) 16.06% (8.32)% 6.67% 5.55%
========================================================
==========================================
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) $14,466 $9,484 $5,576 $264
- --------------------------------------------------------------------------------------------------
Average net assets (in thousands) $12,183 $7,329 $2,770 $ 51
- --------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income 4.89% 4.88% 4.26%(5) 4.40%(5)
Expenses, before voluntary assumption by the
Manager or Distributor 1.88% 1.85% 1.88%(5) 2.06%(5)
Expenses, net of voluntary assumption by the
Manager or Distributor 1.78% 1.75% 1.78%(5) 1.96%(5)
- --------------------------------------------------------------------------------------------------
Portfolio turnover rate(6) 31.1% 37.0% 14.6% 31.1%
</TABLE>
5. Annualized.
6. The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities
owned during the period. Securities with a maturity or expiration date at the
time of acquisition of one year or less are excluded from the calculation.
Purchases and sales of investment securities (excluding short-term securities)
for the period ended December 31, 1995 were $27,338,414 and $23,642,998,
respectively.
See accompanying Notes to Financial Statements.
15 Oppenheimer Pennsylvania Tax-Exempt Fund
<PAGE> 16
NOTES TO FINANCIAL STATEMENTS
========================================================
========================
1. SIGNIFICANT
ACCOUNTING POLICIES
Oppenheimer Pennsylvania Tax-Exempt Fund (the Fund) is a separate series of
Oppenheimer Multi-State Tax-Exempt Trust, a non-diversified, open-end
management investment company registered under the Investment Company Act of
1940, as amended. The Fund's investment objective is to seek the maximum
current income exempt from federal and Pennsylvania personal income taxes for
individual investors that is consistent with the preservation of capital. The
Fund's investment advisor is OppenheimerFunds, Inc. (the Manager). The Fund
offers Class A, Class B and Class C shares. Class A shares are sold with a
front-end sales charge. Class B and Class C shares may be subject to a
contingent deferred sales charge. All classes of shares have identical rights
to earnings, assets and voting privileges, except that each class has its own
distribution and/or service plan, expenses directly attributable to a
particular class and exclusive voting rights with respect to matters affecting
a single class. Class B shares will automatically convert to Class A shares six
years after the date of purchase. The following is a summary of significant
accounting policies consistently followed by the Fund.
- --------------------------------------------------------------------------------
INVESTMENT VALUATION. Portfolio securities are valued at the close of the New
York Stock Exchange on each trading day. Listed and unlisted securities for
which such information is regularly reported are valued at the last sale price
of the day or, in the absence of sales, at values based on the closing bid or
asked price or the last sale price on the prior trading day. Long-term and
short-term ``non-money market'' debt securities are valued by a portfolio
pricing service approved by the Board of Trustees. Such securities which cannot
be valued by the approved portfolio pricing service are valued using
dealer-supplied valuations provided the Manager is satisfied that the firm
rendering the quotes is reliable and that the quotes reflect current market
value, or are valued under consistently applied procedures established by the
Board of Trustees to determine fair value in good faith. Short-term ``money
market type'' debt securities having a remaining maturity of 60 days or less
are valued at cost (or last determined market value) adjusted for amortization
to maturity of any premium or discount.
- --------------------------------------------------------------------------------
ALLOCATION OF INCOME, EXPENSES, AND GAINS AND LOSSES. Income, expenses (other
than those attributable to a specific class) and gains and losses are allocated
daily to each class of shares based upon the relative proportion of net assets
represented by such class. Operating expenses directly attributable to a
specific class are charged against the operations of that class.
- --------------------------------------------------------------------------------
FEDERAL TAXES. The Fund intends to continue to comply with provisions of the
Internal Revenue Code applicable to regulated investment companies and to
distribute all of its taxable income, including any net realized gain on
investments not offset by loss carryovers, to shareholders. Therefore, no
federal income or excise tax provision is required. At December 31, 1995, the
Fund had available for federal income tax purposes an unused capital loss
carryover of $1,133,000, which expires in 2002 and 2003.
- --------------------------------------------------------------------------------
TRUSTEES' FEES AND EXPENSES. The Fund has adopted a nonfunded retirement plan
for the Fund's independent trustees. Benefits are based on years of service and
fees paid to each trustee during the years of service. During the year ended
December 31, 1995, a provision of $16,971 was made for the Fund's projected
benefit obligations, and a payment of $507 was made to a retired trustee,
resulting in an accumulated liability of $31,137 at December 31, 1995.
- --------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS. The Fund intends to declare dividends separately
for Class A, Class B and Class C shares from net investment income each day the
New York Stock Exchange is open for business and pay such dividends monthly.
Distributions from net realized gains on investments, if any, will be declared
at least once each year.
16 Oppenheimer Pennsylvania Tax-Exempt Fund
<PAGE> 17
========================================================
========================
1. SIGNIFICANT
ACCOUNTING POLICIES
(CONTINUED)
CLASSIFICATION OF DISTRIBUTIONS TO SHAREHOLDERS. Net investment income (loss)
and net realized gain (loss) may differ for financial statement and tax
purposes primarily because of premium amortization. The character of the
distributions made during the year from net investment income or net realized
gains may differ from their ultimate characterization for federal income tax
purposes. Also, due to timing of dividend distributions, the fiscal year in
which amounts are distributed may differ from the year that the income or
realized gain (loss) was recorded by the Fund.
During the year ended December 31, 1995, the Fund changed the
classification of distributions to shareholders to better disclose the
differences between financial statement amounts and distributions determined in
accordance with income tax regulations. Accordingly, during the year ended
December 31, 1995, amounts have been reclassified to reflect a decrease in
paid-in capital of $17, an increase in overdistributed net investment income of
$34,334, and a decrease in accumulated net realized loss on investments of
$34,351.
- --------------------------------------------------------------------------------
OTHER. Investment transactions are accounted for on the date the
investments are purchased or sold (trade date). Original issue discount on
securities purchased is amortized over the life of the respective securities,
in accordance with federal income tax requirements. For bonds acquired after
April 30, 1993, on disposition or maturity, taxable ordinary income is
recognized to the extent of the lesser of gain or market discount that would
have accrued over the holding period. Realized gains and losses on investments
and unrealized appreciation and depreciation are determined on an identified
cost basis, which is the same basis used for federal income tax purposes. The
Fund concentrates its investments in Pennsylvania and, therefore, may have more
credit risks related to the economic conditions of Pennsylvania than a
portfolio with a broader geographical diversification.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of income and expenses during the reporting
period. Actual results could differ from those estimates.
========================================================
========================
2. SHARES OF
BENEFICIAL INTEREST
The Fund has authorized an unlimited number of no par value shares of
beneficial interest of each class. Transactions in shares of beneficial
interest were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995(1) YEAR ENDED DECEMBER 31, 1994
-------------------------------- -----------------------------
SHARES AMOUNT SHARES AMOUNT
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A:
Sold 825,097 $9,802,254 1,479,731 $17,605,222
Dividends reinvested 199,971 2,384,211 200,372 2,359,317
Redeemed (1,088,358) (12,982,940) (1,270,347) (15,067,004)
---------- ----------- ---------- -----------
Net increase (decrease) (63,290) $ (796,475) 409,756 $ 4,897,535
========== =========== ==========
===========
- ---------------------------------------------------------------------------------------------
Class B:
Sold 359,124 $4,282,282 442,928 $ 5,204,609
Dividends reinvested 30,661 366,174 19,685 230,132
Redeemed (67,574) (809,255) (48,897) (596,475)
---------- ----------- ---------- -----------
Net increase 322,211 $3,839,201 413,716 $ 4,838,266
========== =========== ==========
===========
- ---------------------------------------------------------------------------------------------
Class C:
Sold 21,431 $ 263,229 -- $ --
Dividends reinvested 31 377 -- --
Redeemed (125) (1,537) -- --
---------- ----------- ---------- -----------
Net increase 21,337 $ 262,069 -- $ --
========== =========== ==========
===========
</TABLE>
1. For the year ended December 31, 1995 for both Class A and Class B shares and
for the period from August 29, 1995 (inception of offering) to December 31,
1995 for Class C shares.
17 Oppenheimer Pennsylvania Tax-Exempt Fund
<PAGE> 18
NOTES TO FINANCIAL STATEMENTS (Continued)
========================================================
========================
3. UNREALIZED GAINS AND
LOSSES ON INVESTMENTS
At December 31, 1995, net unrealized appreciation on investments of $3,068,899
was composed of gross appreciation of $3,200,658, and gross depreciation of
$131,759.
========================================================
========================
4. MANAGEMENT FEES
AND OTHER TRANSACTIONS
WITH AFFILIATES
Management fees paid to the Manager were in accordance with the investment
advisory agreement with the Fund which provides for a fee of .60% on the first
$200 million of average annual net assets, .55% on the next $100 million, .50%
on the next $200 million, .45% on the next $250 million, .40% on the next $250
million and .35% on net assets in excess of $1 billion. The Manager has agreed
to assume Fund expenses (with specified exceptions) in excess of the most
stringent applicable regulatory limit on Fund expenses.
For the year ended December 31, 1995, commissions (sales charges paid by
investors) on sales of Class A shares totaled $234,306, of which $62,669 was
retained by OppenheimerFunds Distributor, Inc. (OFDI), a subsidiary of the
Manager, as general distributor, and by an affiliated broker/dealer. Sales
charges advanced to broker/dealers by OFDI on sales of the Fund's Class B and
Class C shares totaled $112,289 and $1,306, of which $13,630 was paid to an
affiliated broker/dealer. During the year ended December 31, 1995, OFDI
received contingent deferred sales charges of $22,836 upon redemption of Class
B shares as reimbursement for sales commissions advanced by OFDI at the time of
sale of such shares.
OppenheimerFunds Services (OFS), a division of the Manager, is the
transfer and shareholder servicing agent for the Fund, and for other registered
investment companies. OFS's total costs of providing such services are
allocated ratably to these companies.
Under separate approved plans, Class A may expend up to .15% of its net
assets, and Class B and Class C may expend up to .25% (voluntarily reduced to
.15% by the Fund's Board) of their net assets annually to compensate OFDI for
costs incurred in connection with the personal service and maintenance of
accounts that hold shares of the Fund, including amounts paid to brokers,
dealers, banks and other institutions. In addition, Class B and Class C shares
are subject to an asset-based sales charge of .75% of net assets annually, to
compensate OFDI for sales commissions paid from its own resources at the time
of sale and associated financing costs. In the event of termination or
discontinuance of the Class B or Class C plan, the Board of Trustees may allow
the Fund to continue payment of the asset-based sales charge to OFDI for
distribution expenses incurred on Class B or Class C shares sold prior to
termination or discontinuance of the plan. At December 31, 1995, OFDI had
incurred unreimbursed expenses of $473,840 for Class B and $2,309 for Class C.
During the year ended December 31, 1995, OFDI paid $7,550 and $1,792,
respectively, to an affiliated broker/dealer as compensation for Class A and
Class B personal service and maintenance expenses, and retained $98,080 as
compensation for Class B sales commissions and service fee advances, as well as
financing costs.
<PAGE>
APPENDIX A
Descriptions of Ratings Categories
Municipal Bonds
- - Moody's Investor Services, Inc. The ratings of Moody's Investors
Service, Inc. ("Moody's") for Municipal Bonds are Aaa, Aa, A, Baa, Ba,
B, Caa, Ca and C. Municipal Bonds rated "Aaa" are judged to be of the
"best quality." The rating of Aa is assigned to bonds which are of
"high quality by all standards," but as to which margins of protection
or other elements make long-term risks appear somewhat larger than
"Aaa" rated Municipal Bonds. The "Aaa" and "Aa" rated bonds comprise
what are generally known as "high grade bonds." Municipal Bonds which
are rated "A"
by Moody's possess many favorable investment attributes and are
considered "upper medium grade obligations." Factors giving security
to principal and interest of A rated bonds are considered adequate, but
elements may be present which suggest a susceptibility to impairment at
some time in the future. Municipal Bonds rated "Baa" are considered
"medium grade" obligations. They are neither highly protected nor
poorly secured. Interest payments and principal security appear
adequate for the present but certain protective elements may be lacking
or may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well. Bonds which are rated "Ba" are
judged to have speculative elements; their future cannot be considered
as well assured. Often the protection of interest and principal
payments may be very moderate and thereby not well safeguarded during
both good and bad times over the future. Uncertainty of position
characterizes bonds in this class. Bonds which are rated "B" generally
lack characteristics of the desirable investment. Assurance of
interest and principal payments or of maintenance of other terms of the
contract over any long period of time may be small. Bonds which are
rated "Caa" are of poor standing. Such issues may be in default or
there may be present elements of danger with respect to principal or
interest. Bonds which are rated "Ca" represent obligations which are
speculative in a high degree. Such issues are often in default or
have other marked shortcomings. Bonds which are rated "C" are the
lowest rated class of bonds, and issues so rated can be regarded as
having extremely poor prospects of ever attaining any real investment
standing. Those bonds in the Aa, A, Baa, Ba and B groups which
Moody's believes possess the strongest investment attributes are
designated Aa1, A1, Baa1, Ba1 and B1 respectively.
In addition to the alphabetic rating system described above,
Municipal Bonds rated by Moody's which have a demand feature that
provides the holder with the ability to periodically tender ("put") the
portion of the debt covered by the demand feature, may also have a
short-term rating assigned to such demand feature. The short-term
rating uses the symbol VMIG to distinguish characteristics which
include payment upon periodic demand rather than fund or scheduled
maturity dates and potential reliance upon external liquidity, as well
as other factors. The highest investment quality is designated by the
VMIG 1 rating and the lowest by VMIG 4.
- - Standard & Poor's Corporation. The ratings of Standard & Poor's
Corporation ("S&P") for Municipal Bonds are AAA (Prime), AA (High
Grade), A (Good Grade), BBB (Medium Grade), BB, B, CCC, CC, and C
(speculative grade). Bonds rated in the top four categories (AAA, AA,
A, BBB) are commonly referred to as "investment grade." Municipal
Bonds rated AAA are "obligations of the highest quality." The rating
of AA is accorded issues with investment characteristics "only
slightly less marked than those of the prime quality issues." The
rating of A describes "the third strongest capacity for payment of debt
service." Principal and interest payments on bonds in this category
are regarded as safe. It differs from the two higher ratings because,
with respect to general obligations bonds, there is some weakness,
either in the local economic base, in debt burden, in the balance
between revenues and expenditures, or in quality of management. Under
certain adverse circumstances, any one such weakness might impair the
ability of the issuer to meet debt obligations at some future date.
With respect to revenue bonds, debt service coverage is good, but not
exceptional. Stability of the pledged revenues could show some
variations because of increased competition or economic influences on
revenues. Basic security provisions, while satisfactory, are less
stringent. Management performance appears adequate. The BBB rating is
the lowest "investment grade" security rating. The difference between
A and BBB ratings is that the latter shows more than one fundamental
weakness, or one very substantial fundamental weakness, whereas the
former shows only one deficiency among the factors considered. With
respect to revenue bonds, debt coverage is only fair. Stability of the
pledged revenues could show variations, with the revenue flow possibly
being subject to erosion over time. Basic security provisions are no
more than adequate. Management performance could be stronger. Bonds
rated "BB" have less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions which
would lead to inadequate capacity to meet timely interest and principal
payments. Bonds rated "B" have a greater vulnerability to default, but
currently has the capacity to meet interest payments and principal
repayments. Adverse business, financial, or economic conditions will
likely impair capacity or willingness to pay interest and repay
principal. Bonds rated "CCC" have a current identifiable vulnerability
to default, and is dependent upon favorable business, financial, and
economic conditions to meet timely payment of interest and repayment of
principal. In the event of adverse business, financial, or economic
conditions, it is not likely to have the capacity to pay interest and
repay principal. Bonds noted "CC" typically are debt subordinated to
senior debt which is assigned on actual or implied "CCC" debt rating.
Bonds rated "C" typically are debt subordinated to senior debt which is
assigned an actual or implied "CCC-" debt rating. The "C" rating may
be used to cover a situation where a bankruptcy petition has been
filed, but debt service payments are continued. Bonds rated "D" are in
payment default. The "D" rating category is used when interest
payments or principal payments are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such
payments will be made during the grace period. The "D" rating also
will be used upon the filing of a bankruptcy petition if debt service
payments are jeopardized.
The ratings from AA to CCC may be modified by the addition of a plus or
minus sign to show relative standing within the major rating
categories.
- - Fitch. The ratings of Fitch Investors Service, Inc. for Municipal
Bonds are AAA, AA, A, BBB, BB, B, CCC, CC, C, DDD, DD, and D.
Municipal Bonds rated AAA are judged to be of the "highest credit
quality." The rating of AA is assigned to bonds of "very high credit
quality." Municipal Bonds which are rated A by Fitch are considered to
be of "high credit quality." The rating of BBB is assigned to bonds of
"satisfactory credit quality." The A and BBB rated bonds are more
vulnerable to adverse changes in economic conditions than bonds with
higher ratings. Bonds rated AAA, AA, A and BBB are considered to be of
investment grade quality. Bonds rated below BBB are considered to be
of speculative quality. The ratings of "BB" is assigned to bonds
considered by Fitch to be "speculative." The rating of "B" is assigned
to bonds considered by Fitch to be "highly speculative." Bonds rated
"CCC" have certain identifiable characteristics which, if not remedied,
may lead to default. Bonds rated "CC" are minimally protected.
Default in payment of interest and/or principal seems probable over
time. Bonds rated "C" are in imminent default in payment of interest
or principal. Bonds rated "DDD", "DD" and "D" are in default on
interest and/or principal payments. DDD represents the highest
potential for recovery on these bonds, and D represents the lowest
potential for recovery.
Municipal Notes
- Moody's ratings for state and municipal notes and other short-
term loans are designated Moody's Investment Grade ("MIG"). Notes
bearing the designation MIG-1 are of the best quality, enjoying strong
protection from established cash flows of funds for their servicing or
from established and broad-based access to the market for financing.
Notes bearing the designation "MIG-2" are of high quality with ample
margins of protection, although not as large as notes rated "MIG."
Such short-term notes which have demand features may also carry a
rating using the symbol VMIG as described above, with the designation
MIG-1/VMIG 1 denoting best quality, with superior liquidity support in
addition to those characteristics attributable to the designation MIG-
1.
- S&P's rating for Municipal Notes due in three years or less are
SP-1, SP-2, and SP-3. SP-1 describes issues with a very strong
capacity to pay principal and interest and compares with bonds rated A
by S&P; if modified by a plus sign, it compares with bonds rated AA or
AAA by S&P. SP-2 describes issues with a satisfactory capacity to pay
principal and interest, and compares with bonds rated BBB by S&P. SP-3
describes issues that have a speculative capacity to pay principal and
interest.
- Fitch's rating for Municipal Notes due in three years or less
are F-1+, F-1, F-2, F-3, F-S and D. F-1+ describes notes with an
exceptionally strong credit quality and the strongest degree of
assurance for timely payment. F-1 describes notes with a very strong
credit quality and assurance of timely payment is only slightly less in
degree than issues rated F-1+. F-2 describes notes with a good credit
quality and a satisfactory assurance of timely payment, but the margin
of safety is not as great for issues assigned F-1+ or F-1 ratings. F-3
describes notes with a fair credit quality and an adequate assurance of
timely payment, but near-term adverse changes could cause such
securities to be rated below investment grade. F-S describes notes
with weak credit quality. Issues rated D are in actual or imminent
payment default.
Corporate Debt
The "other debt securities" included in the definition of
temporary investments are corporate (as opposed to municipal) debt
obligations. The Moody's, S&P and Fitch corporate debt ratings shown
do not differ materially from those set forth above for Municipal
Bonds.
Commercial Paper
- Moody's The ratings of commercial paper by Moody's are Prime-1,
Prime-2, Prime-3 and Not Prime. Issuers rated Prime-1 have a superior
capacity for repayment of short-term promissory obligations. Issuers
rated Prime-2 have a strong capacity for repayment of short-term
promissory obligations. Issuers rated Prime-3 have an acceptable
capacity for repayment of short-term promissory obligations. Issuers
rated Not Prime do not fall within any of the Prime rating categories.
- S&P The ratings of commercial paper by S&P are A-1, A-2, A-3,
B, C, and D. A-1 indicates that the degree of safety regarding timely
payment is strong.A-2 indicates capacity for timely payment is
satisfactory. However, the relative degree of safety is not as high as
for issues designated A-1. A-3 indicates an adequate capacity for
timely payments. They are, however, more vulnerable to the adverse
effects of changes in circumstances than obligations carrying the
higher designations. B indicates only speculative capacity for timely
payment. C indicates a doubtful capacity for payment.
D is assigned to issues in default.
- Fitch The ratings of commercial paper by Fitch are similar to
its ratings of Municipal Notes, above.
<PAGE>
<TABLE>
<CAPTION>
TAX-EQUIVALENT YIELDS
Appendix B
Combined
Federal Effective
Taxable Tax A Pennsylvania Tax-Exempt Bond Fund yield of:
Income of: Bracket 3.50% 4.00% 4.50% 5.00% 5.50% 6.00% 6.50% 7.00%
Joint return:
But Not
Over Over Is Equivalent to a Taxable Yield of:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$0 $40,100 17.38% 4.24% 4.84% 5.45% 6.05% 6.66% 7.26% 7.87% 8.47%
$40,100 $96,900 30.02% 5.00% 5.72% 6.43% 7.14% 7.86% 8.57% 9.29% 10.00%
$96,900 $147,700 32.93% 5.22% 5.96% 6.71% 7.46% 8.20% 8.95% 9.69% 10.44%
$147,700 $263,750 37.79% 5.63% 6.43% 7.23% 8.04% 8.84% 9.65% 10.45% 11.25%
$263,750 and above 41.29% 5.96% 6.81% 7.66% 8.52% 9.37% 10.22% 11.07% 11.92%
Single return:
But Not
Over Over
$0 $24,000 17.38% 4.24% 4.84% 5.45% 6.05% 6.66% 7.26% 7.87% 8.47%
$24,000 $58,150 30.02% 5.00% 5.72% 6.43% 7.14% 7.86% 8.57% 9.29% 10.00%
$58,150 $121,300 32.93% 5.22% 5.96% 6.71% 7.46% 8.20% 8.95% 9.69% 10.44%
$121,300 $263,750 37.79% 5.63% 6.43% 7.23% 8.04% 8.84% 9.65% 10.45% 11.25%
$263,750 and above 41.29% 5.96% 6.81% 7.66% 8.52% 9.37% 10.22% 11.07% 11.92%
</TABLE>
The equivalent yield table above compares tax-free income with taxable
income under Federal tax rates effective January 1, 1996 and
Commonwealth of Pennsylvania personal income tax rates effective
January 1, 1996. Combined taxable income refers to the net amount
subject to Federal and Pennsylvania personal income tax after
deductions and exemptions. The table assumes 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 investment
is not subject to the Alternative Minimum Tax and that Pennsylvania
personal 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.
The income tax brackets are subject to indexing in future years to
reflect changes in the Consumer Price Index. The table does
not include the effect of exemption from Pennsylvania personal
property taxes or school district taxes.
<PAGE>
Appendix C
Industry Classifications
General Obligation Bonds
Special Tax Bonds
Lease/Rental
Revenue
Education
Hospitals
Housing
Transportation
Utilities
Student Loans
Corporate Backed Municipals
Industrial Development
Pollution Control
C-1
<PAGE>
Investment Adviser
OppenheimerFunds, Inc.
Two World Trade Center
New York, New York 10048-0203
Distributor
OppenheimerFunds Distributor, Inc.
Two World Trade Center
New York, New York 10048-0203
Transfer and Shareholder Servicing Agent
OppenheimerFunds 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 LLP
707 Seventeenth Street
Denver, Colorado 80202
Legal Counsel
Gordon Altman Butowsky Weitzen
Shalov & Wein
114 West 47th Street
New York, New York 10036
Oppenheimer
Florida Tax-Exempt Fund
Prospectus dated April 15, 1996
Oppenheimer Florida Tax-Exempt Fund is a mutual fund that seeks as
high a level of current interest income exempt from Federal income tax
for individual investors as is available from municipal securities and
consistent with preservation of capital. The Fund also seeks to offer
investors the opportunity to own securities exempt from Florida
intangible personal property taxes. The Fund will invest primarily in
securities issued by the State of Florida and local governments and
governmental agencies, but may also invest in securities of other
issuers. The Fund may use certain hedging instruments to try to reduce
the risks of market fluctuations that affect the value of the
securities the Fund holds. The Fund is not intended to be a complete
investment program and there is no assurance that it will achieve its
objective. Please refer to "Investment Objective and Policies" for
more information about the types of securities the Fund invests in and
the risks of investing in the Fund.
This Prospectus explains concisely what you should know
before investing in the Fund. Please read this Prospectus carefully and
keep it for future reference. You can find more detailed information
about the Fund in the April 15, 1996 Statement of Additional
Information. For a free copy, call OppenheimerFunds Services, the
Fund's Transfer Agent, at 1-800-525-7048, or write to the Transfer
Agent at the address on the back cover. The Statement of Additional
Information has been filed with the Securities and Exchange Commission
and is incorporated into this Prospectus by reference (which means that
it is legally part of this Prospectus).
(OppenheimerFunds logo)
Shares of the Fund are not deposits or obligations of any bank, are not
guaranteed by any bank, are not insured by the F.D.I.C. or any other
agency, and involve investment risks, including the possible loss of
the principal amount invested.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
Contents
Page
ABOUT THE FUND
Expenses
A Brief Overview of the Fund
Financial Highlights
Investment Objective and Policies
How the Fund is Managed
Performance of the Fund
ABOUT YOUR ACCOUNT
How to Buy Shares
Class A Shares
Class B Shares
Class C Shares
Special Investor Services
AccountLink
Automatic Withdrawal and Exchange Plans
Reinvestment Privilege
How to Sell Shares
By Mail
By Telephone
By Checkwriting
How to Exchange Shares
Shareholder Account Rules and Policies
Dividends, Capital Gains and Taxes
Appendix A:
Special Sales Charge Arrangements for Shareholders
of the Fund who were Shareholders of the Former
Quest for Value Funds
<PAGE>
ABOUT THE FUND
Expenses
The Fund pays a variety of expenses directly for
management of its assets, administration, distribution of its shares
and other services and those expenses are subtracted from the Fund's
assets to calculate the Fund's net asset value per share. All
shareholders therefore pay those expenses indirectly. Shareholders pay
other expenses directly, such as sales charges. The following tables
are provided to help you understand your direct expenses of investing
in the Fund and your share of the Fund's business operating expenses
that you will expect to bear indirectly. The numbers below are based on
the Fund's expenses during its last fiscal year ended December 31,
1995.
- Shareholder Transaction Expenses are charges you pay
when you buy or sell shares of the Fund. Please refer to "About Your
Account" from pages __ through __ for an explanation of how and when
these charges apply.
Class A Class B Class C
Shares Shares Shares
Maximum Sales Charge
on Purchases (as a %
of offering price) 4.75% None None
Sales Charge on Reinvested
Dividends None None None
Deferred Sales Charge
(as a % of the lower of
the original purchase
price or redemption
proceeds) None (1) 5% in the first 1% if shares
year, declining are redeemed
to 1% in the within 12
sixth year and months of
eliminated purchase(2)
thereafter(2)
Exchange Fee None None None
(1) If you invest $1 million or more in Class A shares, you may have to
pay a sales charge of up to 1% if you sell your shares within 18
calendar months from the end of the calendar month during which you
purchased those shares. See "How to Buy Shares - Buying Class A
Shares", below.
(2) See "How to Buy Shares - Buying Class B Shares" and "How to Buy
Shares - Buying Class C Shares" below for more information on the
contingent deferred sales charges.
<PAGE>
- Annual Fund Operating Expenses are paid out of the Fund's
assets and represent the Fund's expenses in operating its business.
For example, the Fund pays management fees to its investment adviser,
OppenheimerFunds, Inc. (referred to in this Prospectus as the
"Manager"). The rates of the Manager's fees are set forth in "How the
Fund is Managed," below. The Fund has other regular expenses for
services, such as transfer agent fees, custodial fees paid to the bank
that holds its portfolio securities, audit fees and legal expenses.
Those expenses are detailed in the Fund's Financial Statements in the
Statement of Additional Information.
Annual Fund Operating Expenses as a Percentage of Average Net Assets
Class A Class B Class C
Shares Shares Shares
Management Fees
(after expense reimbursement) 0.00% 0.00% 0.00%
12b-1 Distribution
Plan Fees 0.15% 0.90% 0.90%
Other Expenses (after expense
reimbursement) 0.38% 0.39% 0.39%
Total Fund Operating Expenses
(after expense reimbursement) 0.53% 1.29% 1.29%
The numbers in the table above are based on the Fund's expenses in
its last fiscal year ended December 31, 1995. These amounts are shown
as a percentage of the average net assets of each class of the Fund's
shares for that year. The 12b-1 Distribution Plan Fees for Class A
shares are service fees. For Class B and Class C shares, the 12b-1
Distribution Plan Fees are service fees and asset-based sales charges.
The service fee for each class is a maximum of 0.25% (currently set at
0.15%) of average annual net assets of the class and the asset-based
sales charge for Class B and Class C shares is 0.75%. These plans are
described in greater detail in "How to Buy Shares," below.
The Total Fund Operating Expenses shown are net of a voluntary
expense assumption by the Manager. The expense assumption lowered the
Fund's overall expense ratio. Without such expense assumption by the
Manager, the "Management Fees" for each class of the Fund's shares
would have been 0.60% of the Fund's average net assets, "Other
Expenses" for the Fund's Class A, Class B and Class C shares would have
been 0.51%, 0.51% and 0.51% respectively, and the "Total Fund Operating
Expenses" for the Fund's Class A, Class B and Class C shares would have
been 1.26%, 2.01% and 2.01%, respectively. The expense assumption is
described in the Statement of Additional Information and may be
modified or withdrawn by the Manager at any time.
The actual expenses for each class of shares in future years may
be more or less than the numbers in the table, depending on a number of
factors, including changes in the actual value of the Fund's assets
represented by each class of shares. Class C shares were not publicly
offered before August 29, 1995. Therefore, the Annual Fund Operating
Expenses for Class C shares are estimates based on expenses that would
have been payable if Class C shares had been outstanding during the
entire fiscal year.
- Examples. To try to show the effect of these expenses on an
investment over time, we have created the hypothetical examples shown
below. Assume that you make a $1,000 investment in each class of
shares of the Fund, and that the Fund's annual return is 5%, and that
its operating expenses for each class are the ones shown in the Annual
Fund Operating Expenses table above. If you were to redeem your shares
at the end of each period shown below, your investment would incur the
following expenses by the end of 1, 3, 5 and 10 years:
1 year 3 years 5 years 10 years*
Class A Shares $53 $64 $76 $111
Class B Shares $63 $71 $91 $115
Class C Shares $23 $41 $71 $156
If you did not redeem your investment, it would incur the
following expenses:
1 year 3 years 5 years 10 years*
Class A Shares $53 $64 $76 $111
Class B Shares $13 $41 $71 $115
Class C Shares $13 $41 $71 $156
* The Class B expenses in years 7 through 10 are based on the Class A
expenses shown above, because the Fund automatically converts your
Class B shares into Class A shares after 6 years. Because of the
asset-based sales charge and the contingent deferred sales charge,
long-term Class B and Class C shareholders could pay the economic
equivalent of more than the maximum front-end sales charge allowed
under applicable regulations. For Class B shareholders, the automatic
conversion of Class B shares to Class A shares is designed to minimize
the likelihood that this will occur. Please refer to "How to Buy
Shares" on page ___ for more information.
These examples show the effect of expenses on an investment, but
are not meant to state or predict actual or expected costs or
investment returns of the Fund, all of which may be more or less than
those shown.
<PAGE>
A Brief Overview of the Fund
Some of the important facts about the Fund are summarized below, with
references to the section of this Prospectus where more complete
information can be found. You should carefully read the entire
Prospectus before making a decision about investing in the Fund. Keep
the Prospectus for reference after you invest, particularly for
information about your account, such as how to sell or exchange shares.
- What Is The Fund's Investment Objective? The Fund's investment
objective is to seek as high a level of current interest income exempt
from Federal income taxes for individual investors as is available from
Municipal Securities (as described in "Investment Objective and
Policies") and consistent with preservation of capital. Investment in
securities exempt from Florida's intangible personal property taxes is
also sought.
- What Does the Fund Invest In? Under normal market conditions,
the Fund will invest at least 80% (and will attempt to invest 100%) of
its total assets in Municipal Securities, and invest at least 65% of
its total assets in Florida Municipal Securities (described below), the
interest on which is exempt from Federal income tax. The Fund may
invest up to 20% of its assets in investments the income from which may
be taxable. The Fund may also use hedging instruments and some
derivative investments in an effort to protect against market risks.
These investments are more fully explained in "Investment Objective and
Policies," starting on page __.
- Who Manages the Fund? The Fund's investment adviser (the
"Manager") is OppenheimerFunds, Inc. The Manager (including a
subsidiary) advises investment company portfolios having over $50
billion in assets. The Manager is paid an advisory fee by the Fund,
based on its assets. The Fund's portfolio manager who is primarily
responsible for the selection of the Fund's securities is Robert E.
Patterson. The Board of Trustees, elected by shareholders, oversees
the investment adviser and the portfolio manager. Please refer to "How
the Fund is Managed," starting on page __ for more information about
the Manager and its fees.
- How Risky is the Fund? All investments carry risks to some
degree. The Fund's bond investments are subject to changes in their
value from a number of factors such as changes in general bond market
movements, the change in value of particular bonds because of an event
affecting the issuer, or changes in interest rates that can affect bond
prices. These changes affect the value of the Fund's investments and
its price per share. The fact that the Fund concentrates its
investments in Florida Municipal Securities or is able to invest its
assets in a single issuer or limited number of issuers entails greater
risk than an investment in a diversified investment company. The
Fund's investment in certain derivative investments may add a degree of
risk not present in a fund that does not invest in such securities.
While the Manager tries to reduce risks by carefully researching
securities before they are purchased for the portfolio, and in some
cases by using hedging techniques, there is no guarantee of success in
achieving the Fund's objective and your shares may be worth more or
less than their original cost when you redeem them. Please refer to
"Investment Objective and Policies" starting on page __ for a more
complete discussion of the Fund's investment risks.
- How Can I Buy Shares? You can buy shares through your dealer or
financial institution, or you can purchase shares directly through the
Fund's Distributor by completing an Application or by using an
Automatic Investment Plan under AccountLink. Please refer to "How To
Buy Shares" starting on page _ for more details.
- Will I Pay a Sales Charge to Buy Shares? The Fund has three
classes of shares. All classes have the same investment portfolio but
different expenses. Class A shares are offered with a front-end sales
charge, starting at 4.75%, and reduced for larger purchases. Class B
and Class C shares are offered without a front-end sales charge, but
may be subject to a contingent deferred sales charge if redeemed within
6 years or 12 months, respectively, of purchase. There is also an
annual asset-based sales charge on Class B and Class C shares. Please
review "How To Buy Shares" starting on page __ for more details,
including a discussion about which class may be appropriate for you.
- How Can I Sell My Shares? Shares can be redeemed by mail, by
telephone call to the Transfer Agent on any business day, or through
your dealer, by writing a check against your Fund account (available
for Class A shares only). Please refer to "How To Sell Shares" on page
__. The Fund also offers exchange privileges to other Oppenheimer
funds, described in "How to Exchange Shares" on page ___.
- How Has the Fund Performed? The Fund measures its performance
by quoting its yield, tax equivalent yield, average annual total return
and cumulative total return, which measure historical performance.
Those yields and returns can be compared to the yields and returns
(over similar periods) of other funds. Of course, other funds may have
different objectives, investments, and levels of risk. The Fund's
performance can also be compared to a broad market index, which we have
done on page __. Please remember that past performance does not
guarantee future results.
Financial Highlights
The table on the following page presents selected financial
information about the Fund, including per share data and expense ratios
and other data based on the Fund's average net assets. This information
has been audited by KPMG Peat Marwick LLP, the Fund's independent
auditors, whose report on the Fund's financial statements for the
fiscal year ended December 31, 1995 is included in the Statement of
Additional Information. Class C shares were publicly offered only
during a portion of the fiscal year ended December 31, 1995, commencing
on August 29, 1995.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
CLASS A CLASS B CLASS C
------------------------------- ------------------------------ --------------
PERIOD ENDED
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
DECEMBER 31,
1995 1994 1993(2) 1995 1994 1993(2) 1995(1)
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING DATA:
<S> <C> <C> <C> <C> <C> <C>
<C>
Net asset value, beginning of period $10.26 $11.79 $11.43 $10.27 $11.81 $11.43
$10.96
- -----------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .63 .64 .14 .55 .56 .12 .20
Net realized and unrealized gain (loss) 1.14 (1.53) .36 1.15 (1.54) .38 .44
- -----------------------------------------------------------------------------------------------------------------------------
Total income (loss) from investment
operations 1.77 (.89) .50 1.70 (.98) .50 .64
- -----------------------------------------------------------------------------------------------------------------------------
Dividends to shareholders from net
investment income (.63) (.64) (.14) (.55) (.56) (.12) (.20)
- ------------------------------------------------===================================
==========================================
Net asset value, end of period $11.40 $10.26 $11.79 $11.42 $10.27 $11.81 $11.40
=====================================================
========================
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE(3) 17.60% (7.66)% 4.39% 16.81% (8.42)%
4.35% 5.86%
- -----------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) $19,377 $11,992 $7,062 $12,658 $7,992 $4,874 $39
- -----------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $14,508 $9,741 $2,471 $10,772 $6,987 $2,304 $5
- -----------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income 5.71% 5.90% 5.08%(4) 4.92% 5.13% 4.20%(4)
4.68%(4)
Expenses, before voluntary assumption by
the Manager or Distributor 1.36% 1.25% 1.89%(4) 2.11% 1.99% 2.20%(4)
1.92%(4)
Expenses, net of voluntary assumption by
the Manager or Distributor 0.53% 0.29% --%(4) 1.29% 1.03% 0.38%(4)
1.43%(4)
- -----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(5) 18.4% 30.4% --% 18.4% 30.4% --% 18.4%
1. For the period from August 29, 1995 (inception of offering) to December 31,
1995.
2. For the period from October 1, 1993 (commencement of operations) to December
31, 1993.
3. Assumes a hypothetical initial investment on the business day before the
first day of the fiscal period, with all dividends and distributions reinvested
in additional shares on the reinvestment date, and redemption at the net asset
value calculated on the last business day of the fiscal period. Sales charges
are not reflected in the total returns.
Total returns are not annualized for periods of less than one full year.
4. Annualized.
5. The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities owned
during the period. Securities with a maturity or expiration date at the time of
acquisition of one year or less are excluded from the calculation. Purchases and
sales of investment securities (excluding short-term securities) for the period
ended December 31, 1995 were $13,939,320 and $4,541,471, respectively.
</TABLE>
<PAGE>
Investment Objective and Policies
Objective. The Fund seeks as high a level of current interest income
exempt from Federal income tax for individual investors as is available
from Municipal Securities (which are described below) and consistent
with preservation of capital. The Fund also seeks to offer investors
the opportunity to own securities exempt from Florida intangible
personal property taxes.
Investment Policies and Strategies. The Fund seeks its objective by
following the fundamental policy of investing, under normal market
conditions, at least 80% (and attempting to invest, as a non-
fundamental policy, 100%) of its total assets in Municipal Securities
and investing at least 65% of its total assets in Florida Municipal
Securities (which are described below).
Dividends paid by the Fund derived from interest attributable to
Municipal Securities, including Florida Municipal Securities, will be
exempt from Federal individual income taxes. Dividends and
distributions paid by the Fund to individuals who are residents of
Florida are not taxable by Florida, because Florida does not impose a
personal income tax. Florida does, however, impose an intangible
personal property tax. Shares of the Fund will be exempt from the
Florida intangible personal property tax to the extent that the Fund's
assets consist of Florida Municipal Securities and obligations of the
U.S. Government, its agencies, instrumentalities and territories on the
last business day of each calendar year. The Fund will attempt not to
hold any investments on the last business day of each calendar year to
the extent such investments may result in shares of the Fund being
subject to the Florida intangible personal property tax. Any net
interest income on taxable investments and repurchase agreements will
be taxable as ordinary income when distributed to shareholders.
- Municipal Securities and Florida Municipal Securities.
Municipal Securities consist of 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 and other debt obligations issued
by or on behalf of the State of Florida or its political subdivisions,
other states and the District of Columbia, their political
subdivisions, or any commonwealth or territory of the United States, or
their respective agencies, instrumentalities or authorities, the
interest from which is not subject to Federal income tax, in the
opinion of bond counsel to the respective issuer, at the time of issue.
Florida Municipal Securities are Municipal Securities that would enable
shares of the Fund to be exempt from Florida intangible personal
property taxes. No independent investigation has been made by the
Manager as to the users of proceeds of bond offerings or the
application of such proceeds.
"Municipal bonds" are Municipal Securities that have a maturity
when issued of one year or more and "municipal notes" are Municipal
Securities that have a maturity when issued of less than one year. The
two principal classifications of Municipal Securities are "general
obligations" (secured by the issuer's pledge of its full faith, credit
and taxing power for the payment of principal and interest) and
"revenue obligations" (payable only from the revenues derived from a
particular facility or class of facilities, or specific excise tax or
other revenue source). The Fund may invest in Municipal Securities of
both classifications. See "Investment Objective and Policies" in the
Statement of Additional Information for further information about the
Fund's investment policies and Municipal Securities.
- Special Considerations - Florida Municipal Securities. The
Fund concentrates its investments in Municipal Securities issued by the
State of Florida and its agencies, authorities, instrumentalities and
subdivisions. The market value and marketability of Florida Municipal
Securities and the interest income and repayment of principal to the
Fund from them could be adversely affected by a default or a financial
crisis relating to any of such issuers. Investors should consider
these matters as well as economic trends in Florida, which are
discussed in the Statement of Additional Information.
- Can the Fund's Investment Objective and Policies Change? The
Fund has an investment objective, which is described above, as well as
investment policies it follows to try to achieve its objective.
Additionally, the Fund uses certain investment techniques and
strategies in carrying out those investment policies. The Fund's
investment policies and techniques are not "fundamental" unless this
Prospectus or the Statement of Additional Information says that a
particular policy is "fundamental." The Fund's investment objective
is a fundamental policy.
Fundamental policies are those that cannot be changed without the
approval of a "majority" of the Fund's outstanding voting shares. The
term "majority" is defined in the Investment Company Act to be a
particular percentage of outstanding voting shares (and this term is
explained in the Statement of Additional Information). The Board of
Trustees of the Trust (as defined below) (the Board of Trustees") may
change non-fundamental policies without shareholder approval, although
significant changes will be described in amendments to this Prospectus.
- Interest Rate Risk. The values of Municipal Securities change
in response to changes in prevailing interest rates. Should interest
rates rise, the values of outstanding Municipal Securities will
probably decline and (if purchased at principal amount) would sell at a
discount. If interest rates fall, the values of outstanding Municipal
Securities will probably increase and (if purchased at principal
amount) would sell at a premium. Changes in the values of Municipal
Securities owned by the Fund from these or other factors will not
affect interest income derived from these securities but will affect
the Fund's net asset value per share.
- Investments in Taxable Securities and Temporary Defensive
Investment Strategy. Under normal market conditions, the Fund may
invest up to 20% of its assets in taxable investments, including (i)
certain "Temporary Investments" (described in the next paragraph); (ii)
hedging instruments (described in "Hedging," below), (iii) repurchase
agreements; and (iv) Municipal Securities issued to benefit a private
user ("Private Activity Municipal Securities"), the interest from which
may be subject to Federal alternative minimum tax (see "Taxes," below,
and "Private Activity Municipal Securities" in the Statement of
Additional Information).
In times of unstable economic or market conditions, the Manager
may determine that it is appropriate for the Fund to assume a temporary
"defensive" position by investing some or all of its assets (there is
no limit on the amount) in short-term money market instruments. These
include the taxable obligations described above, U.S. Government
Securities, bank obligations, commercial paper, corporate obligations
and other instruments approved by the Board of Trustees. This strategy
would be implemented to attempt to reduce fluctuations in the value of
the Fund's assets. 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. To the extent the Fund assumes a
temporary defensive position, a portion of the Fund's distributions may
be subject to Federal and state income taxes and the Fund may not
achieve its objective.
- Municipal Lease Obligations. Municipal leases may take the form
of a lease or an installment purchase contract issued by state and
local government authorities to obtain funds to acquire a wide variety
of equipment and facilities. The Fund may invest in certificates of
participation that represent a proportionate interest in, or right to,
the lease-purchase payments made under municipal lease obligations.
Certain of these securities may be deemed to be "illiquid" securities
and their purchase would be limited as described below in "Illiquid and
Restricted Securities". Investment in certificates of participation
that the Manager has determined to be liquid (under guidelines set by
the Board of Trustees) will not be subject to such limitations.
- 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.
- Inverse Floaters and Other Derivative Investments. The Fund may
invest in certain municipal "derivative investments". The Fund may use
some derivative investments for hedging purposes, and may invest in
others because they offer the potential for increased income and
principal value. In general, a "derivative investment" is a specially-
designed investment. It's performance is linked to the performance of
another investment or security, such as an option, future or index. In
the broadest sense, derivative investments include exchange-traded
options and futures contracts (please refer to "Hedging," below).
The Fund may invest in "inverse floater" variable rate bonds, a
type of derivative investment whose yields move in the opposite
direction from changes in short-term interest rates. As interest rates
rise, inverse floaters produce less current income. Their price may be
more volatile than the price of a comparable fixed-rate security. Some
inverse floaters have a "cap" whereby if interest rates rise above the
"cap," the security pays additional interest income. If rates do not
rise above the "cap," the Fund will have paid an additional amount for
a feature that proves worthless. The Fund may also invest in municipal
securities that pay interest that depends on an external pricing
mechanism, also a type of derivative investment. Examples of external
pricing mechanisms are interest rate swaps or caps and municipal bond
or swap indices. The Fund anticipates that under normal circumstances
it will invest no more than 10% of its net assets in inverse floaters.
The risks of investing in derivative investments include not only
the ability of the issuer of the derivative investment to pay the
amount due on the maturity of the investment, but also the risk that
the underlying security or investment might not perform the way the
Manager expected it to perform. That can mean that the Fund will
realize less income than expected. Another risk of investing in
derivative investments is that their market value could be expected to
vary to a much greater extent than the market value of municipal
securities that are not derivative investments but have similar credit
quality, redemption provisions and maturities.
- Ratings of Municipal Securities; Special Risks of Lower Rated
Municipal Securities. No more than 25% of the Fund's total assets will
be invested in Municipal Securities that at the time of purchase are
not "investment grade," that is, rated below the four highest rating
categories of Moody's Investors Service, Inc. ("Moody's"), Standard &
Poor's Corporation ("S&P"), and Fitch Investors Service, Inc.
("Fitch"). If the securities are not rated, the Manager will determine
the equivalent rating category for purposes of this limitation. (See
Appendix A to the Statement of Additional Information for a description
of those ratings). A reduction in the rating of a security after its
purchase by the Fund will not require the Fund to dispose of such
security.
Lower-grade Municipal Securities (sometimes called "municipal junk
bonds") may be subject to greater market fluctuations and are subject
to greater risks of loss of income and principal than higher-rated
Municipal Securities, and may be considered to have some speculative
characteristics. Securities that are or that have fallen below
investment grade entail a greater risk that the ability of the issuers
of such securities to meet their debt obligations will be impaired.
There may be less of a market for lower-grade Municipal Securities and
therefore they may be harder to sell at an acceptable price. These
risks mean that the Fund may not achieve the expected income from
lower-grade Municipal Securities, and that the Fund's income and net
asset value per share may be affected by declines in value of these
securities. However, the Fund's limitations on investments in non-
investment grade Municipal Securities may reduce some of these risks.
- Portfolio Turnover. A change in the securities held by the
Fund is known as "portfolio turnover." The Fund generally will not
engage in the trading of securities for the purpose of realizing short-
term gains, but the Fund may sell securities as the Manager deems
advisable to take advantage of differentials in yield. The "Financial
Highlights" table above, shows the Fund's portfolio turnover rate
during past fiscal years. Portfolio turnover affects brokerage costs,
dealer markups and other transaction costs, and results in the Fund's
realization of capital gains or losses for tax purposes.
- Non-diversification. The Trust is a "non-diversified"
investment company under the Investment Company Act. As a result, the
Fund may invest its assets in a single issuer or limited number of
issuers without limitation by the Investment Company Act. However, the
Fund intends to qualify as a "regulated investment company" under the
Internal Revenue Code of 1986, as amended (the "Internal Revenue
Code"), pursuant to which (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.
An investment in the Fund 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.
Other Investment Techniques and Strategies. The Fund may also use the
investment techniques and strategies described below. These techniques
involve certain risks. The Statement of Additional Information
contains more information about these practices, including limitations
on their use that may help to reduce some of the risks.
- When-Issued and Delayed Delivery Transactions. The Fund may
purchase Municipal Securities on a "when-issued" basis and may purchase
or sell such securities on a "delayed delivery" basis. These terms
refer to securities that have been created and for which a market
exists, but which are not available for immediate delivery. There may
be a risk of loss to the Fund if the value of the security declines
prior to the settlement date.
- Puts and Stand-By Commitments. The Fund may acquire "stand-by
commitments" or "puts" with respect to municipal obligations held in
its portfolio. Under a stand-by commitment or put option, the Fund
would have the right to sell specified securities at a specific price
on demand to the issuing broker-dealer or bank. The Fund will acquire
stand-by commitments or puts solely to facilitate portfolio liquidity
and does not intend to exercise its rights thereunder for trading
purposes.
- Repurchase Agreements. The Fund may enter into repurchase
agreements. In a repurchase transaction, the Fund buys a security and
simultaneously sells it to the vendor for delivery at a future date.
They are used primarily for cash liquidity purposes.
Repurchase agreements must be fully collateralized. However, if
the vendor fails to pay the resale price on the delivery date, the Fund
may incur costs in disposing of the collateral and may experience
losses if there is any delay in its ability to do so. The Fund will
not enter into a repurchase agreement that causes more than 10% of its
net assets to be subject to repurchase agreements having a maturity
beyond seven days. There is no limit on the amount of the Fund's net
assets that may be subject to repurchase agreements of seven days or
less.
- Illiquid and Restricted Securities. Under the policies and
procedures established by the Board of Trustees, the Manager determines
the liquidity of certain of the Fund's investments. Investments may be
illiquid because of the absence of an active trading market, making it
difficult to value them or dispose of them promptly at an acceptable
price. The Fund will not invest more than 10% of its net assets in
illiquid investments. The Fund may not invest any portion of its
assets in restricted securities. A restricted security is one that has
a contractual restriction on its resale or that cannot be sold publicly
until registered under the Securities Act of 1933, as amended.
- Loans of Portfolio Securities. To attempt to increase its
income, the Fund may lend its portfolio securities to brokers, dealers
and other financial institutions. The Fund must receive collateral for
a loan. These loans are limited to not more than 25% of the Fund's net
assets, and are subject to other conditions described in the Statement
of Additional Information. The Fund presently does not intend to lend
its portfolio securities, but if it does, the value of securities
loaned is not expected to exceed 5% of the value of its total assets in
the coming year.
- Hedging. As described below, the Fund may purchase and sell
certain kinds of futures contracts, put and call options, and options
on futures and broadly-based municipal bond indices, or enter into
interest rate swap agreements. These are all referred to as "hedging
instruments." The Fund does not use hedging instruments for
speculative purposes, and has limits on the use of them, described
below. The hedging instruments the Fund may use are described below
and in greater detail in "Other Investment Techniques and Strategies"
in the Statement of Additional Information.
The Fund may buy and sell options and futures for a number of
purposes. It may do so to try to manage its exposure to the
possibility that the prices of its portfolio securities may decline, or
to establish a position in the securities market as a temporary
substitute for purchasing individual securities. It may do so to try
to manage its exposure to changing interest rates. Some of these
strategies, such as selling futures, buying puts and writing covered
calls, hedge the Fund's portfolio against price fluctuations.
Other hedging strategies, such as buying futures and call options,
tend to increase the Fund's exposure to the securities market. Writing
covered call options may also provide income to the Fund for liquidity
purposes, defensive reasons, or to raise cash to distribute to
shareholders.
- Futures. The Fund may buy and sell futures contracts that
relate to (1) broadly-based municipal bond indices (these are referred
to as Municipal Bond Index Futures) and (2) interest rates (these are
referred to as Interest Rate Futures). These types of Futures are
described in "Hedging" in the Statement of Additional Information.
- Put and Call Options. The Fund may buy and sell certain kinds
of put options (puts) and call options (calls).
The Fund may buy calls only on securities, broadly-based municipal
bond indices, Municipal Bond Index Futures or Interest Rate Futures, or
to terminate its obligation on a call the Fund previously wrote. The
Fund may write (that is, sell) covered call options. When the Fund
writes a call, it receives cash (called a premium). The call gives the
buyer the ability to buy the investment on which the call was written
from the Fund at the call price during the period in which the call may
be exercised. If the value of the investment does not rise above the
call price, it is likely that the call will lapse without being
exercised, while the Fund keeps the cash premium (and the investment).
The Fund may purchase puts. Buying a put on an investment gives
the Fund the right to sell the investment at a set price to a seller of
a put on that investment. The Fund can buy only those puts that relate
to (1) securities that the Fund owns, (2) broadly-based municipal bond
indices, (3) Municipal Bond Index Futures or (4) Interest Rate Futures.
The Fund can buy a put on a Municipal Bond Index Future or Interest
Rate Future whether or not the Fund owns the particular Future in its
portfolio. The Fund may not sell a put other than a put that it
previously purchased.
The Fund may buy and sell puts and calls only if certain
conditions are met: (1) after the Fund writes a call, not more than 25%
of the Fund's total assets may be subject to calls; (2) calls the Fund
buys or sells must be listed on a securities or commodities exchange,
or quoted on the Automated Quotation System of the National Association
of Securities Dealers, Inc. (NASDAQ), or traded in the over-the-counter
market; (3) each call the Fund writes must be "covered" while it is
outstanding (that means the Fund must own the investment on which the
call was written); (4) the Fund may write calls on Futures contracts it
owns, but these calls must be covered by securities or other liquid
assets the Fund owns and segregates to enable it to satisfy its
obligations if the call is exercised; (5) a call or put option may not
be purchased if the value of all of the Fund's put and call options
would exceed 5% of the Fund's total assets; and (6) 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.
- Interest Rate Swaps. In an interest rate swap, the Fund and
another party exchange their right to receive or their obligation to
pay interest on a security. For example, they may swap a right to
receive floating rate payments for fixed rate payments. The Fund
enters into swaps only on securities it owns. The Fund may not enter
into swaps with respect to more than 25% of its total assets. Also,
the Fund will segregate liquid assets (such as cash or U.S. Government
securities) to cover any amounts it could owe under swaps that exceed
the amounts it is entitled to receive, and it will adjust that amount
daily, as needed. Income from interest rate swaps may be taxable.
- Hedging instruments can be volatile investments and may involve
special risks. The use of hedging instruments requires special skills
and knowledge of investment techniques that are different from what is
required for normal portfolio management. If the Manager uses a
hedging instrument at the wrong time or judges market conditions
incorrectly, hedging strategies may reduce the Fund's return. The Fund
could also experience losses if the prices of its futures and options
positions were not correlated with its other investments or if it could
not close out a position because of an illiquid market for the future
or option. Such losses might cause previously distributed short-term
capital gains to be re-characterized as a non-taxable return of capital
to shareholders.
Options trading involves the payment of premiums and has special
tax effects on the Fund. There are also special risks in particular
hedging strategies. If a covered call written by the Fund is exercised
on an investment that has increased in value, the Fund will be required
to sell the investment at the call price and will not be able to
realize any profit if the investment has increased in value above the
call price. Interest rate swaps are subject to credit risks (if the
other party fails to meet its obligations) and also to interest rate
risks. The Fund could be obligated to pay more under its swap
agreements than it receives under them, as a result of interest rate
changes. These risks are described in greater detail in the Statement
of Additional Information.
Other Investment Restrictions. The Fund has other investment
restrictions which are fundamental policies. Under these fundamental
policies, 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, Florida Municipal
Securities or U.S. Government obligations.
As a matter of non-fundamental policy, changeable without a
shareholder vote, the Fund will not:
- - Invest in securities or any other investment other than the Municipal
Securities, temporary investments, taxable investments and hedging
instruments described in "Investment Objective and Policies" above.
- - Make loans, except through the purchase of portfolio securities
subject to repurchase agreements or through loans of portfolio
securities as described under "Loans of Portfolio Securities".
- - Borrow money in excess of 10% of the value of its total assets, or
make any 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).
- - 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
- - Buy or sell futures contracts other than interest rate futures or
municipal bond index futures.
All of the percentage restrictions described above and elsewhere
in this Prospectus apply only at the time the Fund purchases a
security, and the Fund need not dispose of a security merely because
the Fund's assets have changed or the security has increased in value
relative to the size of the Fund. There are other fundamental policies
discussed in the Statement of Additional Information.
How the Fund is Managed
Organization and History. The Fund was organized on June 10, 1993 and
is one of three investment portfolios or "series" of Oppenheimer Multi-
State Tax-Exempt Trust (the "Trust"). The Trust is an open-end, non-
diversified management investment company organized in 1989 as a
Massachusetts business trust, with an unlimited number of authorized
shares of beneficial interest. Each of the three series of the Trust is
a fund that issues its own shares, has its own investment portfolio,
and its own assets and liabilities.
The Fund is governed by a Board of Trustees, which is responsible
for protecting the interests of shareholders under Massachusetts law.
The Trustees meet periodically throughout the year to oversee the
Fund's activities, review its performance, and review the actions of
the Manager. "Trustees and Officers of the Trust" in the Statement of
Additional Information names the Trustees and officers of the Trust and
provides more information about them. Although the Trust will not
normally hold annual meetings of Fund shareholders, it may hold
shareholder meetings from time to time on important matters, and
shareholders have the right to call a meeting to remove a Trustee or to
take other action described in the Trust's Declaration of Trust.
The Board of Trustees has the power, without shareholder approval,
to divide unissued shares of the Fund into two or more classes. The
Board has done so, and the Fund currently has three classes of shares,
Class A, Class B and Class C. All three classes invest in the same
investment portfolio. Each class has its own dividends and
distributions and pays certain expenses which may be different for the
different classes. Each class may have a different net asset value.
Each share has one vote at shareholder meetings, with fractional shares
voting proportionally. Only shares of a particular class vote as a
class on matters that affect that class alone. Shares are freely
transferrable.
The Manager and Its Affiliates. The Fund is managed by the Manager,
OppenheimerFunds, Inc. (formerly known as Oppenheimer Management
Corporation) which is responsible for selecting the Fund's investments
and handles its day-to-day business. The Manager carries out its
duties, subject to the policies established by the Board of Trustees,
under an Investment Advisory Agreement which states the Manager's
responsibilities. The Agreement sets forth the fees paid by the Fund to
the Manager and describes the expenses that the Fund is responsible to
pay to conduct its business.
The Manager has operated as an investment adviser since 1959. The
Manager (including a subsidiary) manages investment companies,
including other Oppenheimer funds, with assets in excess of $50 billion
as of March 1, 1996, held in more than 2.8 million shareholder
accounts. The Manager is owned by Oppenheimer Acquisition Corp., a
holding company that is owned in part by senior officers of the Manager
and controlled by Massachusetts Mutual Life Insurance Company.
- Portfolio Manager. The portfolio manager of the Fund (who is
also a Vice President of the Fund) is Robert E. Patterson who is also a
Senior Vice President of the Manager. He has been the person
principally responsible for the day-to-day management of the Fund's
portfolio since October 7, 1993, the commencement of the Fund's
operations. Mr. Patterson has also served as an officer and portfolio
manager for other Oppenheimer funds.
- Fees and Expenses. Under the Investment Advisory Agreement,
the Fund pays the Manager the following annual fees, which decline on
additional assets as the Fund grows: 0.60% of the first $200 million of
aggregate net assets; 0.55% of the next $100 million; 0.50% of the next
$200 million; 0.45% of the next $250 million; 0.40% of the next $250
million and 0.35% of net assets over $1 billion. The Fund's management
fee for its fiscal year ended December 31, 1995 was 0.60% of average
annual net assets (before expense reimbursement) for Class A shares,
Class B shares and Class C which may be higher than the rate paid by
some other mutual funds. After taking the voluntary expense assumption
(which is described in the Statement of Additional Information under
"The Investment Advisory Agreement" into effect, no management fees
were due and payable by the Fund for its last fiscal year.
The Fund pays expenses related to its daily operations, such as
custodian fees, Trustees' fees, transfer agency fees, legal fees and
auditing costs. Those expenses are paid out of the Fund's assets and
are not paid directly by shareholders. However, those expenses reduce
the net asset value of shares, and therefore are indirectly borne by
shareholders through their investment. More information about the
Investment Advisory Agreement and the other expenses paid by the Fund
is contained in the Statement of Additional Information.
There is also information about the Fund's brokerage policies and
practices in "Brokerage Policies of the Fund" in the Statement of
Additional Information. That section discusses how brokers and dealers
are selected for the Fund's portfolio transactions. Because the Fund
purchases most of its portfolio securities directly from the sellers
and not through brokers, it incurs relatively little expense for
brokerage. From time to time, however, it may use brokers when buying
portfolio securities. When deciding which brokers to use, the Manager
is permitted by the Investment Advisory Agreement to consider whether
brokers have sold shares of the Fund or any other funds for which the
Manager serves as investment adviser.
- The Distributor. The Fund's shares are sold through dealers
and brokers that have a sales agreement with OppenheimerFunds
Distributor, Inc., a subsidiary of the Manager that acts as the Fund's
Distributor. The Distributor also distributes the shares of the other
"Oppenheimer funds and is sub-distributor for funds managed by a
subsidiary of the Manager.
- The Transfer Agent. The Fund's transfer agent is
OppenheimerFunds Services, a division of the Manager, which acts as the
shareholder servicing agent for the Fund on an "at-cost" basis. It also
acts as the shareholder servicing agent for the other Oppenheimer
funds. Shareholders should direct inquiries about their accounts to
the Transfer Agent at the address and toll-free number shown below in
this Prospectus and on the back cover.
Performance of the Fund
Explanation of Performance Terminology. The Fund uses the terms "total
return," "average annual total return," "standardized yield," "dividend
yield," "yield" and "tax-equivalent yield" to illustrate its
performance. The performance of each class of shares is shown
separately, because the performance of each class of shares will
usually be different as a result of the different kinds of expenses
each class bears. These returns and yields measure the performance of
a hypothetical account in the Fund over various periods, and do not
show the performance of each shareholder's account (which will vary if
dividends are received in cash, or shares are sold or purchased). The
Fund's performance information may help you see how well your Fund has
done over time and to compare it to other funds or to a market index as
we have done below.
It is important to understand that the Fund's yields and total
returns represent past performance and should not be considered to be
predictions of future returns or performance. This performance data is
described below, but more detailed information about how total returns
and yields are calculated is contained in the Statement of Additional
Information, which also contains information about other ways to
measure and compare the Fund's performance. The Fund's investment
performance will vary over time, depending on market conditions, the
composition of the portfolio, expenses and which class of shares you
purchase.
- Total Returns. There are different types of "total returns"
used to measure the Fund's performance. Total return is the change in
value of a hypothetical investment in the Fund over a given period,
assuming that all dividends and capital gains distributions are
reinvested in additional shares. The cumulative total return measures
the change in value over the entire period (for example, ten years).
An average annual total return shows the average rate of return for
each year in a period that would produce the cumulative total return
over the entire period. However, average annual total returns do not
show the Fund's actual year-by-year performance.
When total returns are quoted for Class A shares, normally the
current maximum initial sales charge has been deducted. When total
returns are shown for Class B or Class C shares, normally the
contingent deferred sales charge that applies to the period for which
total return is shown has been deducted. However, total returns may
also be quoted "at net asset value," without including the effect of
either the front-end or the appropriate contingent deferred sales
charge as applicable, and those returns would be less if sales charges
were deducted.
- Yield. Each class of shares calculates its yield by dividing
the annualized net investment income per share on the portfolio during
a 30-day period by the maximum offering price on the last day of the
period. The yield of each class will differ because of the different
expenses of each class of shares. The yield data represents a
hypothetical investment return on the portfolio, and does not measure
an investment return based on dividends actually paid to shareholders.
To show that return, a dividend yield may be calculated. Dividend
yield is calculated by dividing the dividends of a class derived from
net investment income during a stated period by the maximum offering
price on the last day of the period. Yields and dividend yields for
Class A shares reflect the deduction of the maximum initial sales
charge, but may also be shown based on the Fund's net asset value per
share. Yields for Class B and Class C shares do not reflect the
deduction of the contingent deferred sales charge. The tax-equivalent
yield is the equivalent yield that would be earned in the absence of
Federal income tax and Florida intangible tax. It is calculated by
dividing that portion of the yield that is tax exempt by a factor equal
to one minus the applicable tax rate.
How Has the Fund Performed? Below is a discussion by the Manager of
the Fund's performance during its last fiscal year ended December 31,
1995, followed by a graphical comparison of the Fund's performance to
an appropriate broad-based market index.
- Management's Discussion of Performance. During the Fund's
fiscal year ended December 31, 1995, the Fund's performance benefited
from the decline in long-term interest rates and the increased demand
for municipal securities resulting from fewer new issuances, both of
which contributed to the appreciation in value during such period of
outstanding municipal bonds. However, the municipal bond market
reacted to the Congressional discussions held during the year with
respect to tax reform, and the potential for a "flat tax", which
limited the rally in bond prices. In response, the Manager focused on
purchasing municipal securities with shorter maturities and prerefunded
components. The Manager also took advantage of buying opportunities
during this period by purchasing municipal securities that would be
affected to a greater extent by tax reform, such as bonds with
maturities of 15-20 years, and purchasing municipal securities that
fell out of favor in recent months, such as lower-rated, high-coupon
issues, including hospital bonds.
- Comparing the Fund's Performance to the Market. The graphs
below show the performance of a hypothetical $10,000 investment in each
class of shares of the Fund held until December 31, 1995. In the case
of Class A and Class B shares, performance is measured from the Fund's
inception on October 1, 1993, and in the case of Class C shares, from
the inception of the Class on August 29, 1995.
The Fund's performance is compared to that of the Lehman Brothers
Municipal Bond Index, an unmanaged index of a broad range of investment
grade municipal bonds that is widely regarded as a measure of the
performance of the general municipal bond market. Index performance
reflects the reinvestment of income but does not consider the effect of
capital gains or transaction costs, and none of the data below shows
the effect of taxes. Also, the Fund's performance data reflects the
effect of Fund business and operating expenses. While index
comparisons may be useful to provide a benchmark for the Fund's
performance, it must be noted that the Fund's investments are not
limited to the securities in any one index. Moreover, the index
performance data does not reflect any assessment of the risk of the
investments included in the index.
<PAGE>
A B O U T Y O U R A C O U N T
How to Buy Shares
Classes of Shares. The Fund offers investors three different classes of
shares. The different classes of shares represent investments in the
same portfolio of securities but are subject to different expenses and
will likely have different share prices.
- Class A Shares. If you buy Class A shares, you pay an initial
sales charge on investments up to $1 million. If you purchase Class A
shares as part of an investment of at least $1 million in shares of one
or more Oppenheimer funds, you will not pay an initial sales charge,
but if you sell any of those shares within 18 months of buying them,
you may pay a contingent deferred sales charge. The amount of that
sales charge will vary depending on the amount you invested. Sales
charge rates are described in "Buying Class A Shares," below.
- Class B Shares. If you buy Class B shares, you pay no sales
charge at the time of purchase, but if you sell your shares within six
years, you will normally pay a contingent deferred sales charge that
varies depending on how long you own your shares, as described in
"Buying Class B Shares" below.
- Class C Shares. If you buy Class C shares, you pay no sales
charge at the time of purchase, but if you sell your shares within 12
months of buying them, you will normally pay a contingent deferred
sales charge of 1%, as discussed in "Buying Class C Shares" below.
Which Class of Shares Should You Choose? Once you decide that the Fund
is an appropriate investment for you, the decision as to which class of
shares is better suited to your needs depends on a number of factors
which you should discuss with your financial advisor. The Fund's
operating costs that apply to a class of shares and the effect of the
different types of sales charges on your investment will vary your
investment results over time. The most important factors are how much
you plan to invest and how long you plan to hold your investment. If
your goals and objectives change over time and you plan to purchase
additional shares, you should re-evaluate those factors to see if you
should consider another class of shares.
In the following discussion, to help provide you and your
financial advisor with a framework in which to choose a class, we have
made some assumptions using a hypothetical investment in the Fund. We
used the sales charge rates that apply to each class of shares,
considering the effect of the annual asset-based sales charge on Class
B and Class C expenses (which, like all expenses, will affect your
investment return). For the sake of comparison, we have assumed that
there is a 10% rate of appreciation in the investment each year. Of
course, the actual performance of your investment cannot be predicted
and will vary, based on the Fund's actual investment returns and the
operating expenses borne by each class of shares, and which class you
invest in.
The factors discussed below are not intended to be investment
advice or recommendations, because each investor's financial
considerations are different. The discussion below of the factors to
consider in purchasing a particular class of shares assumes that you
will purchase only one class of shares, and not a combination of shares
of different classes.
- How Long Do You Expect to Hold Your Investment? While
future financial needs cannot be predicted with certainty, knowing how
long you expect to hold your investment will assist you in selecting
the appropriate class of shares. Because of the effect of class-based
expenses, your choice will also depend on how much you plan to invest.
For example, the reduced sales charges available for larger purchases
of Class A shares may, over time, offset the effect of paying an
initial sales charge on your investment (which reduces the amount of
your investment dollars used to buy shares for your account), compared
to the effect over time of higher class-based expenses on Class B or
Class C shares for which no initial sales charge is paid.
- Investing for the Short Term. If you have a short-term
investment horizon (that is, you plan to hold your shares for not more
than six years), you should probably consider purchasing Class A or
Class C shares rather than Class B shares, because of the effect of the
Class B contingent deferred sales charge if you redeem in less than six
years, as well as the effect of the Class B asset-based sales charge on
the investment return for that class in the short-term. Class C shares
might be the appropriate choice (especially for investments of less
than $100,000), because there is no initial sales charge on Class C
shares, and the contingent deferred sales charge does not apply to
amounts you sell after holding them one year.
However, if you plan to invest more than $100,000 for the shorter
term, then the more you invest and the more your investment horizon
increases toward six years, Class C shares might not be as advantageous
as Class A shares. That is because the annual asset-based sales charge
on Class C shares will have a greater impact on your account over the
longer term than the reduced front-end sales charge available for
larger purchases of Class A shares. For example, Class A might be more
advantageous than Class C (as well as Class B) for investments of more
than $100,000 expected to be held for 5 or 6 years (or more). For
investments over $250,000 expected to be held 4 to 6 years (or more),
Class A shares may become more advantageous than Class C (and B). If
investing $500,000 or more, Class A may be more advantageous as your
investment horizon approaches 3 years or more.
And for investors who invest $1 million or more, in most cases
Class A shares will be the most advantageous choice, no matter how long
you intend to hold your shares. For that reason, the Distributor
normally will not accept purchase orders of $500,000 or more of Class B
shares or $1 million or more of Class C shares from a single investor.
- Investing for the Longer Term. If you are investing for the
longer term, for example, for retirement, and do not expect to need
access to your money for seven years or more, Class B shares may be an
appropriate consideration, if you plan to invest less than $100,000. If
you plan to invest more than $100,000 over the long term, Class A
shares will likely be more advantageous than Class B shares or C
shares, as discussed above, because of the effect of the expected lower
expenses for Class A shares and the reduced initial sales charges
available for larger investments in Class A shares under the Fund's
Right of Accumulation.
Of course, these examples are based on approximations of the
effect of current sales charges and expenses on a hypothetical
investment over time, using the assumed annual performance return
stated above, and therefore you should analyze your options carefully.
- Are There Differences in Account Features That Matter to You?
Because some account features such as checkwriting may not be available
to Class B or Class C shareholders, or other features (such as
Automatic Withdrawal Plans) might not be advisable (because of the
effect of the contingent deferred sales charge) for Class B and Class C
shareholders, you should carefully review how you plan to use your
investment account before deciding which class of shares to buy.
Additionally, dividends payable to Class B and Class C shareholders
will be reduced by the additional expenses borne by those classes that
are not borne by Class A, such as the Class B and Class C asset-based
sales charges described below and in the Statement of Additional
Information. Share certificates are not available for Class B and
Class C shares, and if you are considering using your shares as
collateral for a loan, that may be a factor to consider.
- How Does It Affect Payments to My Broker? A salesperson, such
as a broker, or any other person who is entitled to receive
compensation for selling Fund shares may receive different compensation
for selling one class of shares than for selling another class. It is
important that investors understand that the purpose of the Class B or
Class C contingent deferred sales charge and asset-based sales charge
is the same as the purpose of the front-end sales charge on sales of
Class A shares, that is, to compensate the Distributor for commissions
it pays to dealers and financial institutions for selling shares.
How Much Must You Invest? You can open a Fund account with a minimum
initial investment of $1,000 and make additional investments at any
time with as little as $25. There are reduced minimum investments under
special investment plans.
With Asset Builder Plans, Automatic Exchange Plans and
military allotment plans, you can make initial and subsequent
investments of as little as $25; and subsequent purchases of at least
$25 can be made by telephone through AccountLink.
There is no minimum investment requirement if you are buying
shares by reinvesting dividends from the Fund or other Oppenheimer
funds (a list of them appears in the Statement of Additional
Information, or you can ask your dealer or call the Transfer Agent), or
by reinvesting distributions from unit investment trusts that have made
arrangements with the Distributor.
- How Are Shares Purchased? You can buy shares several ways --
through any dealer, broker or financial institution that has a sales
agreement with the Distributor, directly through the Distributor, or
automatically from your bank account through an Asset Builder Plan
under the OppenheimerFunds AccountLink service. When you buy shares,
be sure to specify Class A, Class B or Class C shares. If you do not
choose, your investment will be made in Class A shares.
- Buying Shares Through Your Dealer. Your dealer will place your
order with the Distributor on your behalf.
- Buying Shares Through the Distributor. Complete an
OppenheimerFunds New Account Application and return it with a check
payable to "OppenheimerFunds Distributor, Inc." Mail it to P.O. Box
5270, Denver, Colorado 80217. If you don't list a dealer on the
application, the Distributor will act as your agent in buying the
shares. However, we recommend that you discuss your investment first
with a financial advisor, to be sure that it is appropriate for you.
- Buying Shares Through OppenheimerFunds AccountLink. You can use
AccountLink to link your Fund account with an account at a U.S. bank or
other financial institution that is an Automated Clearing House (ACH)
member. You can then transmit funds electronically to purchase shares,
to have the Transfer Agent send redemption proceeds, or to transmit
dividends and distributions.
Shares are purchased for your account on AccountLink on the
regular business day the Distributor is instructed by you to initiate
the ACH transfer to buy shares. You can provide those instructions
automatically, under an Asset Builder Plan, described below, or by
telephone instructions using OppenheimerFunds PhoneLink, also described
below. You should request AccountLink privileges on the application or
dealer settlement instructions used to establish your account. Please
refer to "AccountLink" below for more details.
- Asset Builder Plans. You may purchase shares of the Fund (and up
to four other Oppenheimer funds) automatically each month from your
account at a bank or other financial institution under an Asset Builder
Plan with AccountLink. Details are on the Application and in the
Statement of Additional Information.
- At What Price Are Shares Sold? Shares are sold at the public
offering price based on the net asset value (and any initial sales
charge that applies) that is next determined after the Distributor
receives the purchase order in Denver, Colorado. In most cases, to
enable you to receive that day's offering price, the Distributor must
receive your order by the time of day The New York Stock Exchange
closes, which is normally 4:00 P.M., New York time, but may be earlier
on some days (all references to time in this Prospectus mean "New York
time"). The net asset value of each class of shares is determined as
of that time on each day The New York Stock Exchange is open (which is
a "regular business day").
If you buy shares through a dealer, the dealer must receive your
order by the close of The New York Stock Exchange on a regular business
day and transmit it to the Distributor so that it is received before
the Distributor's close of business that day, which is normally 5:00
P.M. The Distributor may reject any purchase order for the Fund's
shares, in its sole discretion.
Special Sales Charge Arrangements for Certain Persons. Appendix A to
this Prospectus sets forth conditions for the waiver of, or exemption
from, sales charges or the special sales charge rates that apply to
purchases of shares of the Fund (including purchases by exchange) by a
person who was a shareholder of one of the Former Quest for Value Funds
(as defined in that Appendix).
Buying Class A Shares. Class A shares are sold at their offering
price, which is normally net asset value plus an initial sales charge.
However, in some cases, described below, where purchases are not
subject to an initial sales charge, and the offering price may be the
net asset value. In some cases, reduced sales charges may be available,
as described below. Out of the amount you invest, the Fund receives
the net asset value to invest for your account. The sales charge
varies depending on the amount of your purchase. A portion of the
sales charge may be retained by the Distributor and allocated to your
dealer as commission. The current sales charge rates and commissions
paid to dealers and brokers are as follows:
- -------------------------------------------------------------------
<TABLE>
<CAPTION>
Amount of Purchase Front-End Front-End Commission
Sales Charge Sales Charge as
as a as a Percentage
Percentage Percentage of Offering
of Offering of Amount Price
Price Invested
- -------------------------------------------------------------------
<S> <C> <C> <C>
Less than $50,000 4.75% 4.98% 4.00%
- -------------------------------------------------------------------
$50,000 or more
but less than
$100,000 4.50% 4.71% 4.00%
- -------------------------------------------------------------------
$100,000 or more
but less than
$250,000 3.50% 3.63% 3.00%
- -------------------------------------------------------------------
$250,000 or more
but less than
$500,000 2.50% 2.56% 2.25%
- -------------------------------------------------------------------
$500,000 or more
but less than
$1 million 2.00% 2.04% 1.80%
</TABLE>
The Distributor reserves the right to reallow the entire
commission to dealers. If that occurs, the dealer may be considered an
"underwriter" under Federal securities laws.
- Class A Contingent Deferred Sales Charge. There is no initial
sales charge on purchases of Class A shares of any one or more of the
Oppenheimer funds aggregating $1 million or more.
The Distributor pays dealers of record commissions on those
purchases in an amount equal to the sum of 1.0% of the first $2.5
million, plus 0.50% of the next $2.5 million, plus 0.25% of purchases
over $5 million. That commission will be paid only on the amount of
those purchases in excess of $1 million that were not previously
subject to a front-end sales charge and dealer commission.
If you redeem any of those shares within 18 months of the end of
the calendar month of their purchase, a contingent deferred sales
charge (called the "Class A contingent deferred sales charge") may be
deducted from the redemption proceeds. That sales charge will be equal
to 1.0% of either (1)the aggregate net asset value of the redeemed
shares (not including shares purchased by reinvestment of dividends or
capital gain distributions) or (2) the original cost of the shares,
whichever is less. However, the Class A contingent deferred sales
charge will not exceed the aggregate amount of the commissions the
Distributor paid to your dealer on all Class A shares of all
Oppenheimer funds you purchased subject to the Class A contingent
deferred sales charge.
In determining whether a contingent deferred sales charge is
payable, the Fund will first redeem shares that are not subject to the
sales charge, including shares purchased by reinvestment of dividends
and capital gains, and then will redeem other shares in the order that
you purchased them. The Class A contingent deferred sales charge is
waived in certain cases described in "Waivers of Class A Sales Charges"
below.
No Class A contingent deferred sales charge is charged on
exchanges of shares under the Fund's exchange privilege (described
below). However, if the shares acquired by exchange are redeemed
within 18 months of the end of the calendar month of the purchase of
the exchanged shares, the sales charge will apply.
- Special Arrangements With Dealers. The Distributor may advance
up to 13 months' commissions to dealers that have established special
arrangements with the Distributor for Asset Builder Plans for their
clients.
Reduced Sales Charges for Class A Share Purchases. You may be eligible
to buy Class A shares at reduced sales charge rates in one or more of
the following ways:
- Right of Accumulation. To qualify for the lower sales charge
rates that apply to larger purchases of Class A shares, you and your
spouse can add together Class A and Class B shares you purchase for
your individual accounts, or jointly, or for trust or custodial
accounts on behalf of your children who are minors. A fiduciary can
count all shares purchased for a trust, estate or other fiduciary
account (including one or more employee benefit plans of the same
employer) that has multiple accounts.
Additionally, you can add together current purchases of Class A
and Class B shares of the Fund and other Oppenheimer funds to reduce
the sales charge rate that applies to current purchases of Class A
shares. You can also include Class A and Class B shares of Oppenheimer
funds you previously purchased subject to an initial contingent
deferred sales charge to reduce the sales charge rate for current
purchases of Class A shares, provided that you still hold your
investment in one of the Oppenheimer funds. The value of those shares
will be based on the greater of the amount you paid for the shares or
their current value (at offering price). The Oppenheimer funds are
listed in "Reduced Sales Charges" in the Statement of Additional
Information, or a list can be obtained from the Distributor. The
reduced sales charge will apply only to current purchases and must be
requested when you buy your shares.
- Letter of Intent. Under a Letter of Intent, if you purchase
Class A Shares or Class A and Class B shares of the Fund and other
Oppenheimer funds during a 13-month period, you can reduce the sales
charge rate that applies to your purchases of Class A shares. The
total amount of your intended purchases of both Class A and Class B
shares will determine the reduced sales charge rate for the Class A
shares purchased during that period. This can include purchases made
up to 90 days before the date of the Letter. More information is
contained in the Application and in "Reduced Sales Charges" in the
Statement of Additional Information.
- Waivers of Class A Sales Charges. The Class A sales charges are
not imposed in the circumstances described below. There is an
explanation of this policy in "Reduced Sales Charges" in the Statement
of Additional Information.
Waivers of Initial and Contingent Deferred Sales Charges for
Certain Purchasers. Class A shares purchased by the following
investors are not subject to any Class A sales charges:
- the Manager or its affiliates;
- present or former officers, directors, trustees and employees
(and their "immediate families" as defined in "Reduced Sales Charges"
in the Statement of Additional Information) of the Fund, the Manager
and its affiliates, and retirement plans established by them for their
employees;
- registered management investment companies, or separate accounts
of insurance companies having an agreement with the Manager or the
Distributor for that purpose;
- dealers or brokers that have a sales agreement with the
Distributor, if they purchase shares for their own accounts or for
retirement plans for their employees;
- employees and registered representatives (and their spouses) of
dealers or brokers described above or financial institutions that have
entered into sales arrangements with such dealers or brokers (and are
identified to the Distributor) or with the Distributor; the purchaser
must certify to the Distributor at the time of purchase that the
purchase is for the purchaser's own account (or for the benefit of such
employee's spouse or minor children);
- dealers, brokers or registered investment advisers that have
entered into an agreement with the Distributor (1) providing
specifically for the use of shares of the Fund in particular investment
products made available to their clients (those clients may be charged
a transaction fee by their dealer, broker or adviser for the purchase
or sale of Fund shares); or (2) to sell shares of defined contribution
employee retirement plans for which the dealer, broker or investment
adviser provides administrative services.
- directors, trustees, officers or full-time employees of OpCap
Advisors or its affiliates, their relatives or any trust, pension,
profit sharing or other benefit plan which beneficially owns shares for
those persons;
- accounts for which Oppenheimer Capital is the investment adviser
(the Distributor must be advised of this arrangement) and persons who
are directors or trustees of the company or trust which is the
beneficial owner of such accounts; or
- any unit investment trust that has entered into an appropriate
agreement with the Distributor.
Waivers of Initial and Contingent Deferred Sales Charges in
Certain Transactions. Class A shares issued or purchased in the
following transactions are not subject to Class A sales charges:
- shares issued in plans of reorganization, such as mergers, asset
acquisitions and exchange offers, to which the Fund is a party,
- shares purchased by the reinvestment of dividends or other
distributions reinvested from the Fund or other Oppenheimer funds
(other than Oppenheimer Cash Reserves) or unit investment trusts for
which reinvestment arrangements have been made with the Distributor;
- shares purchased and paid for with the proceeds of shares
redeemed in the past 12 months from a mutual fund (other than a fund
managed by the Manager or any of its subsidiaries) on which an initial
sales charge or contingent deferred sales charge was paid (this waiver
also applies to shares purchased by exchange of shares of Oppenheimer
Money Market Fund, Inc. that were purchased and paid for in this
manner); this waiver must be requested when the purchase order is
placed for your shares of the Fund, and the Distributor may require
evidence of your qualification for this waiver; or
- shares purchased with the proceeds of maturing principal of
units of any Qualified Unit Investment Liquid Trust series.
Waivers of the Class A Contingent Deferred Sales Charge for
Certain Redemptions. The Class A contingent deferred sales charge is
also waived if shares that would otherwise be subject to the contingent
deferred sales charge are redeemed in the following cases:
- to make Automatic Withdrawal Plan payments that are limited
annually to no more than 12% of the original account value,
- involuntary redemptions of shares by operation of law or
involuntary redemptions of small accounts (see "Shareholder Account
Rules and Policies," below); or
- if, at the time of a purchase an order is placed for Class A
shares that would otherwise be subject to the Class A contingent
deferred sales charge, the dealer agrees in writing to accept the
dealer's portion of the commission that will be payable on the sale in
installments of 1/18th of the commission per month (and no further
commission payable if the shares are redeemed within 18 months of
purchase).
- Service Plan for Class A Shares. The Fund has adopted a Service
Plan for Class A shares to reimburse the Distributor for a portion of
its costs incurred in connection with the personal service and
maintenance of accounts that hold Class A shares. Under the Plan,
reimbursement is to be made quarterly at an annual rate that may not
exceed 0.25% of the average annual net assets of Class A shares of the
Fund. The Board of Trustees has currently set the service fee rate at
0.15% per year, which amount may be increased by the Board from time to
time up to the maximum of 0.25%. The Distributor uses all of those
fees to compensate dealers, brokers, banks and other financial
institutions quarterly for providing personal service and maintenance
of accounts of their customers that hold Class A shares and to
reimburse itself (if the Board of Trustees authorizes such
reimbursements, which it has not yet done) for its other expenditures
under the Plan.
Services to be provided include, among others, answering customer
inquiries about the Fund, assisting in establishing and maintaining
accounts in the Fund, making the Fund's investment plans available and
providing other services at the request of the Fund or the Distributor.
Payments are made by the Distributor quarterly at an annual rate not to
exceed 0.25% (currently set at 0.15% as described above) of the average
annual net assets of Class A shares held in accounts of the dealer or
its customers. The payments under the Plan increase the annual
expenses of Class A shares. For more details, please refer to
"Distribution and Service Plans" in the Statement of Additional
Information.
Buying Class B Shares. Class B shares are sold at net asset value per
share without an initial sales charge. However, if Class B shares are
redeemed within 6 years of their purchase, a contingent deferred sales
charge will be deducted from the redemption proceeds. That sales
charge will not apply to shares purchased by the reinvestment of
dividends or capital gains distributions. The charge will be assessed
on the lesser of the net asset value of the shares at the time of
redemption or the original purchase price. The contingent deferred
sales charge is not imposed on the amount of your account value
represented by the increase in net asset value over the initial
purchase price. The Class B contingent deferred sales charge is paid
to compensate the Distributor to reimburse its expenses of providing
distribution-related services to the Fund in connection with the sale
of Class B shares.
To determine whether the contingent deferred sales charge applies
to a redemption, the Fund redeems shares in the following order: (1)
shares acquired by reinvestment of dividends and capital gains
distributions, (2) shares held for over 6 years, and (3) shares held
the longest during the 6-year period. The contingent deferred sales
charge is not imposed in the circumstances described in "Waivers of
Class B and Class C Sales Charges," below.
The amount of the contingent deferred sales charge will depend on
the number of years since you invested and the dollar amount being
redeemed, according to the following schedule:
Contingent Deferred Sales Charge
Years Since Beginning of Month in On Redemptions in That Year
which Purchase Order Was Accepted (As % of Amount Subject to Charge)
- -----------------------------------------------------------------------
0-1 5.0%
1-2 4.0%
2-3 3.0%
3-4 3.0%
4-5 2.0%
5-6 1.0%
6 and following None
In the table, a "year" is a 12-month period. All purchases are
considered to have been made on the first regular business day of the
month in which the purchase was made.
- Automatic Conversion of Class B Shares. 72 months after you
purchase Class B shares, those shares will automatically convert to
Class A shares. This conversion feature relieves Class B shareholders
of the asset-based sales charge that applies to Class B shares under
the Class B Distribution and Service Plan, described below. The
conversion is based on the relative net asset value of the two classes,
and no sales load or other charge is imposed. When Class B shares
convert, any other Class B shares that were acquired by the
reinvestment of dividends and distributions on the converted shares
will also convert to Class A shares. The conversion feature is subject
to the continued availability of a tax ruling described in "Alternative
Sales Arrangements - Class A, Class B and Class C Shares" in the
Statement of Additional Information.
- Distribution and Service Plan for Class B Shares. The Fund has
adopted a Distribution and Service Plan for Class B shares to reimburse
the Distributor for its services and costs in distributing Class B
shares and servicing accounts. Under the Plan, the Fund pays the
Distributor an annual "asset-based sales charge" of 0.75% per year on
Class B shares that are outstanding for 6 years or less. The
Distributor also receives a service fee of up to 0.25% per year. The
Board of Trustees has currently set the service fee at 0.15% per year,
which amount may be increased by the Board from time to time up to the
maximum of 0.25%.
Both fees are computed on the average annual net assets of Class B
shares, determined as of the close of each regular business day. The
asset-based sales charge allows investors to buy Class B shares without
a front-end sales charge while allowing the Distributor to compensate
dealers that sell Class B shares.
The Distributor uses the service fee to compensate dealers for
providing personal services for accounts that hold Class B shares.
Those services are similar to those provided under the Class A Service
Plan, described above. The asset-based sales charge and service fee
increase Class B expenses by up to 1.00% of average net assets per
year.
The Distributor pays the service fee to dealers in advance for the
first year after Class B shares have been sold by the dealer. After the
shares have been held for a year, the Distributor pays the fee on a
quarterly basis. The Distributor pays sales commissions of 3.85% of the
purchase price to dealers from its own resources at the time of sale.
The Distributor retains the asset-based sales charge to recoup the
sales commissions it pays, the advances of service fee payments it
makes, and its financing costs.
The Distributor's actual expenses in selling Class B shares may be
more than the payments it receives from contingent deferred sales
charges collected on redeemed shares and from the Fund under the
Distribution and Service Plan for Class B shares. Therefore, those
expenses may be carried over and paid in future years. At December 31,
1995, the end of the Plan year, the Distributor had incurred
unreimbursed expenses under the Plan of $438,657 (equal to 3.47% of the
Fund's net assets represented by Class B shares on that date), which
have been carried over into the present Plan year. If the Plan is
terminated by the Fund, the Board of Trustees may allow the Fund to
continue payments of the asset-based sales charge to the Distributor
for expenses it incurred before the Plan was terminated.
- Waivers of Class B Sales Charges. The Class B contingent
deferred sales charge will not apply to shares purchased in certain
types of transactions, nor will it apply to shares redeemed in certain
circumstances, as described below under "Buying Class C Shares -
Waivers of Class B and Class C Sales Charges."
Buying Class C Shares. Class C shares are sold at net asset value
per share without an initial sales charge. However, if Class C shares
are redeemed within 12 months of their purchase, a contingent deferred
sales charge of 1.0% will be deducted from the redemption proceeds.
That sales charge will not apply to shares purchased by the
reinvestment of dividends or capital gains distributions. The charge
will be assessed on the lesser of the net asset value of the shares at
the time of redemption or the original purchase price. The contingent
deferred sales charge is not imposed on the amount of your account
value represented by the increase in net asset value over the initial
purchase price. The Class C contingent deferred sales charge is paid
to the Distributor for its expenses of providing distribution-related
services to the Fund in connection with the sale of Class C shares.
To determine whether the contingent deferred sales charge applies
to a redemption, the Fund redeems shares in the following order: (1)
shares acquired by reinvestment of dividends and capital gains
distributions, (2) shares held for over 12 months, and (3) shares held
the longest during the 12-month period.
- Distribution and Service Plan for Class C Shares. The Fund has
adopted a Distribution and Service Plan for Class C shares to
compensate the Distributor for distributing Class C shares and
servicing accounts. Under the Plan, the Fund pays the Distributor an
annual "asset-based sales charge" of 0.75% per year on Class C shares.
The Distributor also receives a service fee of up to 0.25% per year.
The Board of Trustees has currently set the service fee at 0.15% per
year, which amount may be increased by the Board from time to time up
to the maximum of 0.25%. Both fees are computed on the average annual
net assets of Class C shares, determined as of the close of each
regular business day. The asset-based sales charge allows investors to
buy Class C shares without a front-end sales charge while allowing the
Distributor to compensate dealers that sell Class C shares.
The Distributor uses the service fee to compensate dealers for
providing personal services for accounts that hold Class C shares.
Those services are similar to those provided under the Class A Service
Plan, described above. The asset-based sales charge and service fees
increase Class C expenses by up to 1.00% of average net assets per
year.
The Distributor pays the service fee to dealers in advance for the
first year after Class C shares have been sold by the dealer. After
the shares have been held for a year, the Distributor pays the service
fee on a quarterly basis. The Distributor pays sales commissions of
0.75% of the purchase price to dealers from its own resources at the
time of sale. The total up-front commission paid by the Distributor to
the dealer at the time of sale of Class C shares is 0.90% of the
purchase price. The Distributor plans to pay the asset-based sales
charge as an ongoing commission to the dealer on Class C shares that
have been outstanding for a year or more.
The Fund pays the asset-based sales charge to the Distributor for
its services rendered in connection with the distribution of Class C
shares. Those payments are at a fixed rate which is not related to the
Distributor's expenses. The services rendered by the Distributor
include paying and financing the payment of sales commissions, service
fees, and other costs of distributing and selling Class C shares,
including compensating personnel of the Distributor who support
distribution of Class C shares. If the Plan is terminated by the Fund,
the Board of Trustees may allow the Fund to continue payments of the
asset-based sales charge to the Distributor for distributing Class C
shares before the Plan was terminated.
- Waivers of Class B and Class C Sales Charges. The Class B and
Class C contingent deferred sales charges will not be applied to shares
purchased in certain types of transactions nor will it apply to Class B
and Class C shares redeemed in certain circumstances, as described
below. The reasons for this policy are in "Reduced Sales Charges" in
the Statement of Additional Information.
Waivers for Redemptions of Shares in Certain Cases. The Class B
and Class C contingent deferred sales charges will be waived for
redemptions of shares in the following cases:
- following the death or disability of the last surviving
shareholder, including a trustee of a "grantor" trust or revocable
living trust for which the trustee is also the sole beneficiary (the
disability must have occurred after the account was established and you
must provide evidence of a determination of disability by the Social
Security Administration);
- shares sold to the Manager or its affiliates;
- shares sold to registered management investment companies or
separate accounts of insurance companies having an agreement with the
Manager or the Distributor for that purpose; or
- shares issued in plans of reorganization to which the Fund is a
party
Special Investor Services
AccountLink. OppenheimerFunds AccountLink links your Fund account to
your account at your bank or other financial institution to enable you
to send money electronically between those accounts to perform a number
of types of account transactions. These include purchases of shares by
telephone (either through a service representative or by PhoneLink,
described below), automatic investments under Asset Builder Plans, and
sending dividends and distributions or Automatic Withdrawal Plan
payments directly to your bank account. Please refer to the Application
for details or call the Transfer Agent for more information.
AccountLink privileges should be requested on the Application you
use to buy shares, or on your dealer's settlement instructions if you
buy your shares through your dealer. After your account is established,
you can request AccountLink privileges by sending signature-guaranteed
instructions to the Transfer Agent. AccountLink privileges will apply
to each shareholder listed in the registration on your account as well
as to your dealer representative of record unless and until the
Transfer Agent receives written instructions terminating or changing
those privileges. After you establish AccountLink for your account, any
change of bank account information must be made by signature-guaranteed
instructions to the Transfer Agent signed by all shareholders who own
the account.
- Using AccountLink to Buy Shares. Purchases may be made by
telephone only after your account has been established. To purchase
shares in amounts up to $250,000 through a telephone representative,
call the Distributor at 1-800-852-8457. The purchase payment will be
debited from your bank account.
- PhoneLink. PhoneLink is the OppenheimerFunds automated
telephone system that enables shareholders to perform a number of
account transactions automatically using a touch-tone phone. PhoneLink
may be used on already-established Fund accounts after you obtain a
Personal Identification Number (PIN), by calling the special PhoneLink
number: 1-800-533-3310.
- Purchasing Shares. You may purchase shares in amounts up to
$100,000 by phone, by calling 1-800-533-3310. You must have
established AccountLink privileges to link your bank account with the
Fund, to pay for these purchases.
- Exchanging Shares. With the OppenheimerFunds Exchange
Privilege, described below, you can exchange shares automatically by
phone from your Fund account to another Oppenheimer funds account you
have already established by calling the special PhoneLink number.
Please refer to "How to Exchange Shares," below, for details.
- Selling Shares. You can redeem shares by telephone
automatically by calling the PhoneLink number and the Fund will send
the proceeds directly to your AccountLink bank account. Please refer
to "How to Sell Shares," below, for details.
Automatic Withdrawal and Exchange Plans. The Fund has several plans
that enable you to sell shares automatically or exchange them to
another Oppenheimer funds account on a regular basis:
- Automatic Withdrawal Plans. If your Fund account is worth $5,000
or more, you can establish an Automatic Withdrawal Plan to receive
payments of at least $50 on a monthly, quarterly, semi-annual or annual
basis. The checks may be sent to you or sent automatically to your bank
account on AccountLink. You may even set up certain types of
withdrawals of up to $1,500 per month by telephone. You should consult
the Application and Statement of Additional Information for more
details.
- Automatic Exchange Plans. You can authorize the Transfer Agent
to automatically exchange an amount you establish in advance for shares
of up to five other Oppenheimer funds on a monthly, quarterly, semi-
annual or annual basis under an Automatic Exchange Plan. The minimum
purchase for each Oppenheimer funds account is $25. These exchanges
are subject to the terms of the Exchange Privilege, described below.
Reinvestment Privilege. If you redeem some or all of your Class A or
Class B shares of the Fund, you have up to 6 months to reinvest all or
part of the redemption proceeds in Class A shares of the Fund or other
Oppenheimer funds without paying a sales charge. This privilege
applies to Class A shares that you purchased with an initial sales
charge and to Class A and Class B shares on which you paid a contingent
deferred sales charge when you redeemed them. This privilege does not
apply to Class C shares. You must be sure to ask the Distributor for
this privilege when you send your payment. Please consult the Statement
of Additional Information for more details.
How to Sell Shares
You can arrange to take money out of your account by selling
(redeeming) some or all of your shares on any regular business day.
Your shares will be sold at the next net asset value calculated after
your order is received and accepted by the Transfer Agent. The Fund
offers you a number of ways to sell your shares: in writing, by using
the Fund's checkwriting privilege or by telephone. You can also set up
Automatic Withdrawal Plans to redeem shares on a regular basis, as
described above. If you have questions about any of these procedures,
and especially if you are redeeming shares in a special situation, such
as due to the death of the owner, please call the Transfer Agent first,
at 1-800-525-7048, for assistance.
- Certain Requests Require a Signature Guarantee. To protect you
and the Fund from fraud, certain redemption requests must be in writing
and must include a signature guarantee in the following situations
(there may be other situations also requiring a signature guarantee):
- You wish to redeem more than $50,000 worth of shares and receive
a check
- The redemption check is not payable to all shareholders listed
on the account statement
- The redemption check is not sent to the address of record on
your statement
- Shares are being transferred to a Fund account with a different
owner or name
- Shares are redeemed by someone other than the owners (such as an
Executor)
- Where Can I Have My Signature Guaranteed? The Transfer Agent
will accept a guarantee of your signature by a number of financial
institutions, including: a U.S. bank, trust company, credit union or
savings association, or by a foreign bank that has a U.S. correspondent
bank, or by a U.S. registered dealer or broker in securities, municipal
securities or government securities, or by a U.S. national securities
exchange, a registered securities association or a clearing agency. If
you are signing on behalf of a corporation, partnership or other
business, or as a fiduciary, you must also include your title in the
signature.
Selling Shares by Mail. Write a "letter of instructions" that
includes:
- Your name
- The Fund's name
- Your Fund account number (from your account statement)
- The dollar amount or number of shares to be redeemed
- Any special payment instructions
- Any share certificates for the shares you are selling,
- The signatures of all registered owners exactly as the account
is registered, and
- Any special requirements or documents requested by the Transfer
Agent to assure proper authorization of the person asking to sell
shares.
Use the following address for requests by mail:
OppenheimerFunds Services
P.O. Box 5270, Denver, Colorado 80217
Send courier or Express Mail requests to:
OppenheimerFunds Services
10200 E. Girard Avenue, Building D
Denver, Colorado 80231
Selling Shares by Telephone. You and your dealer representative of
record may also sell your shares by telephone. To receive the
redemption price on a regular business day, your call must be received
by the Transfer Agent by the close of The New York Stock Exchange that
day, which is normally 4:00 P.M., but which may be earlier on some
days. You may not redeem shares held under a share certificate by
telephone.
- To redeem shares through a service representative, call 1-800-
852-8457
- To redeem shares automatically on PhoneLink, call 1-800-533-3310
Whichever method you use, you may have a check sent to the address
on the account statement, or, if you have linked your Fund account to
your bank account on AccountLink, you may have the proceeds wired to
that bank account.
- Telephone Redemptions Paid by Check. Up to $50,000 may be
redeemed by telephone, in any 7-day period. The check must be payable
to all owners of record of the shares and must be sent to the address
on the account statement. This service is not available within 30 days
of changing the address on an account.
- Telephone Redemptions Through AccountLink. There are no dollar
limits on telephone redemption proceeds sent to a bank account
designated when you establish AccountLink. Normally the ACH transfer
to your bank is initiated on the business day after the redemption.
You do not receive dividends on the proceeds of the shares you redeemed
while they are waiting to be transferred.
Checkwriting. To be able to write checks against your Fund account,
you may request that privilege on your account Application or you can
contact the Transfer Agent for signature cards, which must be signed
(with a signature guarantee) by all owners of the account and returned
to the Transfer Agent so that checks can be sent to you to use.
Shareholders with joint accounts can elect in writing to have checks
paid over the signature of one owner. If you previously signed a
signature card to establish Checkwriting in one of the other
Oppenheimer funds, you may call 1-800-525-7048 to request Checkwriting
for an account in this Fund that has the same registration as that
other fund account.
- Checks can be written to the order of whomever you wish, but may
not be cashed at the Fund's bank or custodian.
- Checkwriting privileges are not available for accounts holding
Class B shares or Class C shares, or Class A shares that are subject to
a contingent deferred sales charge.
- Checks must be written for at least $100.
- Checks cannot be paid if they are written for more than your
account value. Remember: your shares fluctuate in value and you should
not write a check close to the total account value.
- You may not write a check that would require the Fund to redeem
shares that were purchased by check or Asset Builder Plan payments
within the prior 10 days.
- Don't use your checks if you changed your Fund account number.
Selling Shares Through Your Dealer. The Distributor has made
arrangements to repurchase Fund shares from dealers and brokers on
behalf of their customers. Brokers or dealers may charge for that
service. Please call your dealer for more information about this
procedure. Please refer to "Special Arrangements for Repurchase of
Shares from Dealers and Brokers" in the Statement of Additional
Information for more details.
How to Exchange Shares
Shares of the Fund may be exchanged for shares of certain Oppenheimer
funds at net asset value per share at the time of exchange, without
sales charge. To exchange shares, you must meet several conditions:
- Shares of the fund selected for exchange must be available for
sale in your state of residence
- The prospectuses of this Fund and the fund whose shares you want
to buy must offer the exchange privilege
- You must hold the shares you buy when you establish your account
for at least 7 days before you can exchange them; after the account is
open 7 days, you can exchange shares every regular business day
- You must meet the minimum purchase requirements for the fund you
purchase by exchange
- Before exchanging into a fund, you should obtain and read its
prospectus
Shares of a particular class of the Fund may be exchanged only for
shares of the same class in the other Oppenheimer funds. For example,
you can exchange Class A shares of this Fund only for Class A shares of
another fund. At present Money Market Fund, Inc. offers only one class
of shares, which are considered to be "Class A Shares" for this
purpose. In some cases, sales charges may be imposed on exchange
transactions. Please refer to "How to Exchange Shares" in the
Statement of Additional Information for more details.
Exchanges may be requested in writing or by telephone:
- Written Exchange Requests. Submit an OppenheimerFunds Exchange
Request form, signed by all owners of the account. Send it to the
Transfer Agent at the addresses listed in "How to Sell Shares."
- Telephone Exchange Requests. Telephone exchange requests may be
made either by calling a service representative at 1-800-852-8457 or by
using PhoneLink for automated exchanges, by calling 1-800-533-3310.
Telephone exchanges may be made only between accounts that are
registered with the same name(s) and address. Shares held under
certificates may not be exchanged by telephone.
You can find a list of Oppenheimer funds currently available for
exchanges in the Statement of Additional Information or you can obtain
one by calling a service representative at 1-800-525-7048. That list
can change from time to time.
There are certain exchange policies you should be aware of:
- Shares are normally redeemed from one fund and purchased from
the other fund in the exchange transaction on the same regular business
day on which the Transfer Agent receives an exchange request that is in
proper form by the close of The New York Stock Exchange that day, which
is normally 4:00 P.M., but may be earlier on some days. However,
either fund may delay the purchase of shares of the fund you are
exchanging into up to seven days if it determines it would be
disadvantaged by a same-day transfer of the proceeds to buy shares. For
example, the receipt of multiple exchange requests from a dealer in a
"market-timing" strategy might require the sale of portfolio securities
at a time or price disadvantageous to the Fund.
- Because excessive trading can hurt fund performance and harm
shareholders, the Fund reserves the right to refuse any exchange
request that will disadvantage it, or to refuse multiple exchange
requests submitted by a shareholder or dealer.
- The Fund may amend, suspend or terminate the exchange privilege
at any time. Although the Fund will attempt to provide you notice
whenever it is reasonably able to do so, it may impose these changes at
any time.
- For tax purposes, exchanges of shares involve a redemption of
the shares of the fund you own and a purchase of the shares of the
other fund, which may result in a capital gain or loss. For more
information about taxes affecting exchanges, please refer to "How to
Exchange Shares" in the Statement of Additional Information.
- If the Transfer Agent cannot exchange all the shares you request
because of a restriction cited above, only the shares eligible for
exchange will be exchanged.
Shareholder Account Rules and Policies
- Net Asset Value Per Share is determined for each class of shares
as of the close of The New York Stock Exchange, which is normally 4:00
P.M. but may be earlier on some days, on each day the Exchange is open
by dividing the value of the Fund's net assets attributable to a class
by the number of shares of that class that are outstanding. The Fund's
Board of Trustees has established procedures to value the Fund's
securities to determine net asset value. In general, securities values
are based on market value. There are special procedures for valuing
illiquid and restricted securities and obligations for which market
values cannot be readily obtained. These procedures are described more
completely in the Statement of Additional Information.
- The offering of shares may be suspended during any period in
which the determination of net asset value is suspended, and the
offering may be suspended by the Board of Trustees at any time the
Board believes it is in the Fund's best interest to do so.
- Telephone Transaction Privileges for purchases, redemptions or
exchanges may be modified, suspended or terminated by the Fund at any
time. If an account has more than one owner, the Fund and the Transfer
Agent may rely on the instructions of any one owner. Telephone
privileges apply to each owner of the account and the dealer
representative of record for the account unless and until the Transfer
Agent receives cancellation instructions from an owner of the account.
- The Transfer Agent will record any telephone calls to verify
data concerning transactions and has adopted other procedures to
confirm that telephone instructions are genuine, by requiring callers
to provide tax identification numbers and other account data or by
using PINs, and by confirming such transactions in writing. If the
Transfer Agent does not use reasonable procedures it may be liable for
losses due to unauthorized transactions, but otherwise neither the
Transfer Agent nor the Fund will be liable for losses or expenses
arising out of telephone instructions reasonably believed to be
genuine. If you are unable to reach the Transfer Agent during periods
of unusual market activity, you may not be able to complete a telephone
transaction and should consider placing your order by mail.
- Redemption or transfer requests will not be honored until the
Transfer Agent receives all required documents in proper form. From
time to time, the Transfer Agent in its discretion may waive certain of
the requirements for redemptions stated in this Prospectus.
- Dealers that can perform account transactions for their clients
by participating in NETWORKING through the National Securities
Clearing Corporation are responsible for obtaining their clients'
permission to perform those transactions, and are responsible to their
clients who are shareholders of the Fund if the dealer performs any
transaction erroneously or improperly.
- The redemption price for shares will vary from day to day
because the value of the securities in the Fund's portfolio fluctuates,
and the redemption price, which is the net asset value per share, will
normally be different for Class A, Class B and Class C shares.
Therefore, the redemption value of your shares may be more or less than
their original cost.
- Payment for redeemed shares is made ordinarily in cash and
forwarded by check or through AccountLink (as elected by the
shareholder under the redemption procedures described above) within 7
days after the Transfer Agent receives redemption instructions in
proper form, except under unusual circumstances determined by the
Securities and Exchange Commission delaying or suspending such
payments. For accounts registered in the name of a broker-dealer,
payments will be forwarded within 3 business days. The Transfer Agent
may delay forwarding a check or processing a payment via AccountLink
for recently purchased shares, but only until the purchase payment has
cleared. That delay may be as much as 10 days from the date the shares
were purchased. That delay may be avoided if you purchase shares by
certified check or arrange with your bank to provide telephone or
written assurance to the Transfer Agent that your purchase payment has
cleared.
- Involuntary redemptions of small accounts may be made by the
Fund if the account value has fallen below $200 for reasons other than
the fact that the market value of shares has dropped, and in some cases
involuntary redemptions may be made to repay the Distributor for losses
from the cancellation of share purchase orders.
- Under unusual circumstances, shares of the Fund may be redeemed
"in kind," which means that the redemption proceeds will be paid with
securities from the Fund's portfolio. Please refer to "How to Sell
Shares" in the Statement of Additional Information for more details.
- "Backup Withholding" of Federal income tax may be applied at the
rate of 31% from taxable dividends, distributions and redemption
proceeds (including exchanges) if you fail to furnish the Fund a
certified Social Security or Employer Identification Number when you
sign your application, or if you violate Internal Revenue Service
regulations on tax reporting of income.
- The Fund does not charge a redemption fee, but if your dealer or
broker handles your redemption, they may charge a fee. That fee can be
avoided by redeeming your Fund shares directly through the Transfer
Agent. Under the circumstances described in "How To Buy Shares," you
may be subject to a contingent deferred sales charge when redeeming
certain Class A, Class B and Class C shares.
- To avoid sending duplicate copies of materials to households,
the Fund will mail only one copy of each annual and semi-annual report
to shareholders having the same last name and address on the Fund's
records. However, each shareholder may call the Transfer Agent at 1-
800-525-7048 to ask that copies of those materials be sent personally
to that shareholder.
Dividends, Capital Gains and Taxes
Dividends. The Fund declares dividends separately for Class A, Class B
and Class C shares from net tax-exempt income and/or net investment
income each regular business day and pays such dividends to
shareholders monthly. Normally, dividends are paid on or about the
tenth business day of each month, but the Board of Trustees can change
that date. It is expected that distributions paid with respect to Class
A shares will generally be higher than for Class B and Class C shares
because expenses allocable to Class B and Class C shares will generally
be higher.
For the fiscal year ended December 31, 1995, the Fund maintained
the practice, to the extent consistent with the amount of the Fund's
net investment income and other distributable income, of attempting to
pay dividends on Class A shares at a constant level, although the
amount of such dividends was subject to change from time to time
depending on market conditions, the composition of the Fund's portfolio
and expenses borne by the Fund or borne separately by that Class. The
practice of attempting to pay dividends on Class A shares at a constant
level requires the Manager, consistent with the Fund's investment
objective and investment restrictions, to monitor the Fund's portfolio
and select higher yielding securities when deemed appropriate to
maintain necessary net investment income levels. The Fund anticipates
paying dividends at the targeted dividend level from net investment
income and other distributable income without any impact on the Fund's
net asset value per share. The Board of Trustees may change the Fund's
targeted dividend level at any time, without prior notice to
shareholders; the Fund does not otherwise have a fixed dividend rate
and there can be no assurance as to the payment of any dividends or the
realization of any capital gains.
Capital Gains. Although the Fund does not seek capital gains, it may
realize capital gains on the sale of portfolio securities. If it does,
it may make distributions out of any net short-term or long-term
capital gains in December. The Fund may make supplemental
distributions of dividends and capital gains following the end of its
fiscal year (which ends December 31st). Long-term capital gains will
be separately identified in the tax information the Fund sends you
after the end of the year. Short-term capital gains are treated as
dividends for tax purposes. There can be no assurance that the Fund
will pay any capital gains distributions in a particular year.
Distribution Options. When you open your account, specify on your
application how you want to receive your distributions. You have four
options:
- Reinvest all distributions in the Fund. You can elect to
reinvest all dividends and long-term capital gains distributions in
additional shares of the Fund.
- Reinvest long-term capital gains only. You can elect to
reinvest long-term capital gains in the Fund while receiving dividends
by check or sent to your bank account on AccountLink.
- Receive all distributions in cash. You can elect to receive a
check for all dividends and long-term capital gains distributions or
have them sent to your bank account on AccountLink.
- Reinvest your distributions in another Oppenheimer Fund account.
You can reinvest all distributions in another Oppenheimer funds account
you have established.
Taxes. Long-term capital gains are taxable as long-term capital gains
when distributed to shareholders for Federal income tax purposes. It
does not matter how long you hold your shares. Dividends paid from
short-term capital gains and net investment income are taxable as
ordinary income. Dividends paid from net investment income earned by
the Fund on Municipal Securities will be excludable from your gross
income for Federal income tax purposes. A portion of the dividends
paid by the Fund may be an item of tax preference if you are subject to
the alternative minimum tax. Certain distributions are subject to
Federal income tax and may be subject to state and/or local taxes.
Such distributions are taxable when paid, whether you reinvest them in
additional shares or take them in cash. Every year the Fund will send
you and the IRS a statement showing the amount of each taxable
distribution you received in the previous year.
- "Buying a Dividend". When a fund goes ex-dividend, its share
price is reduced by the amount of the distribution. If you buy shares
on or just before the ex-dividend date, or just before the Fund
declares a capital gains distribution, you will pay the full price for
the shares and then receive a portion of the price back as a taxable
dividend or capital gain.
- Taxes on Transactions. Even though the Fund seeks tax-exempt
income for distribution to shareholders, you may have a capital gain or
loss when you sell or exchange your shares. Share redemptions,
including redemptions for exchanges, are subject to capital gains tax.
Generally speaking, a capital gain or loss is the difference between
the price you paid for the shares and the price you receive when you
sell them.
- Florida Intangible Taxes. Florida currently imposes an
"intangible tax" on certain securities and other tangible assets owned
by Florida residents on the first day of each calendar year. The Fund
anticipates that on the close of the last business day of each calendar
year, the Fund's assets will consist solely of assets exempt from
Florida's intangible personal property tax, but there is no guarantee
that in a given year no taxable assets of the Fund shall be held.
Please see the Statement of Additional Information for further
information regarding these issues.
- Returns of Capital. In certain cases distributions made by the
Fund may be considered a non-taxable return of capital to shareholders.
If that occurs, it will be identified in notices to shareholders. A
non-taxable return of capital may reduce your tax basis in your Fund
shares.
This information is only a summary of certain Federal tax
information about your investment. More information is contained in
the Statement of Additional Information, and in addition you should
consult with your tax adviser about the effect of an investment in the
Fund on your particular tax situation.
<PAGE>
APPENDIX TO PROSPECTUS OF
OPPENHEIMER FLORIDA TAX-EXEMPT FUND
Graphic material included in Prospectus of Oppenheimer Florida
Tax-Exempt Fund: "Comparison of Change in Value of $10,000 Hypothetical
Investments in Oppenheimer Florida Tax-Exempt Fund and the Lehman
Brothers Municipal Bond Index."
A linear graph will be included in the Prospectus of Oppenheimer
Florida Tax-Exempt Fund (the "Fund") depicting the initial account
value and subsequent account value of a hypothetical $10,000 investment
in the Fund since the commencement of the Fund's operations (October 7,
1993) as to Class A and Class B shares and since August 29, 1995
(inception of Class C shares) as to Class C shares of the Fund through
to December 31, 1995, and comparing such values with the same
investments over the same time periods with The Lehman Brothers
Municipal Bond Index. Set forth below are the relevant data points
that will appear on the linear graph. Additional information with
respect to the foregoing, including a description of The Lehman
Brothers Municipal Bond Index, is set forth in the Prospectus under
"Performance of the Fund - How Has the Fund Performed?"
Oppenheimer
Fiscal/Year Florida Tax- Lehman Brothers
Period Ended Exempt Fund A Municipal Bond Index
10/7/93(1) $9,525 $10,000
12/31/93 $9,914 $10,121
12/31/94 $9,151 $ 9,598
12/31/95 $10,798 $11,274
Oppenheimer
Fiscal/Year Florida Tax- Lehman Brothers
Period Ended Exempt Fund B Municipal Bond Index
10/7/93(1) $10,000 $10,000
12/31/93 $10,407 $10,121
12/31/94 $ 9,19$9,527 $ 9,598
12/31/95 $10,863 $11,274
Oppenheimer
Fiscal/Year Florida Tax- Lehman Brothers
Period Ended Exempt Fund C Municipal Bond Index
8/29/95(2) $10,000 $10,000
12/31/95 $10,486 $10,478
(1) The Fund commenced operations on October 7, 1993.
(2) Class C shares of the Fund were first publicly offered on August
29, 1995.
APPENDIX A
Special Sales Charge Arrangements for Shareholders of the Fund
Who Were Shareholders of the Former Quest for Value Funds
The initial and contingent sales charge rates and waivers for
Class A, Class B and Class C shares of the Fund described elsewhere in
this Prospectus are modified as described below for those shareholders
of (i) Quest for Value Fund, Inc., Quest for Value Growth and Income
Fund, Quest for Value Opportunity Fund, Quest for Value Small
Capitalization Fund and Quest for Value Global Equity Fund, Inc. on
November 22, 1995, when OppenheimerFunds, Inc. became the investment
adviser to those funds, and (ii) Quest for Value U.S. Government Income
Fund, Quest for Value Investment Quality Income Fund, Quest for Value
Global Income Fund, Quest for Value New York Tax-Exempt Fund, Quest for
Value National Tax-Exempt Fund and Quest for Value California Tax-
Exempt Fund when those funds merged into various Oppenheimer funds on
November 24, 1995. The funds listed above are referred to in this
Prospectus as the "Former Quest for Value Funds." The waivers of
initial and contingent deferred sales charges described in this
Appendix apply to shares of the Fund acquired by such shareholder
pursuant to an exchange of shares of one of the Oppenheimer funds that
was (i) one of the Former Quest for Value Funds or (ii) received by
such shareholder pursuant to the merger of any of the Former Quest for
Value Funds into an Oppenheimer fund on November 24, 1995.
Class A Sales Charges
- - Reduced Class A Initial Sales Charge Rates for Certain Former Quest
Shareholders
- Purchases by Groups and Associations. The following table sets
forth the initial sales charge rates for Class A shares purchased by
members of "Associations" formed for any purpose other than the
purchase of securities if that Association purchased shares of any of
the Former Quest for Value Funds or received a proposal to purchase
such shares from OCC Distributors prior to November 24, 1995.
Front-End Front-End
Sales Sales Commission
Charge Charge as
as a as a Percentage
Number of Percentage Percentage of
Eligible Employees of Offering of Amount Offering
or Members Price Invested Price
9 or fewer 2.50% 2.56% 2.00%
At least 10 but not
more than 49 2.00% 2.04% 1.60%
For purchases by Associations having 50 or more eligible employees
or members, there is no initial sales charge on purchases of Class A
shares, but those shares are subject to the Class A contingent deferred
sales charge described on pages __ to __ of this Prospectus.
Purchases made under this arrangement qualify for the lower of the
sales charge rate in the table based on the number of members of an
Association or the sales charge rate that applies under the Rights of
Accumulation described above in the Prospectus. Individuals who
qualify under this arrangement for reduced sales charge rates as
members of Associations also may purchase shares for their individual
or custodial accounts at these reduced sales charge rates, upon request
to the Fund's Distributor.
- - Special Class A Contingent Deferred Sales Charge Rates
Class A shares of the Fund purchased by exchange of shares of other
Oppenheimer funds that were acquired as a result of the merger of
Former Quest for Value Funds into those Oppenheimer Funds, and which
shares were subject to a Class A contingent deferred sales charge prior
to November 24, 1995 will be subject to a contingent deferred sales
charge at the following rates: if they are redeemed within 18 months
of the end of the calendar month in which they were purchased, at a
rate equal to 1.0% if the redemption occurs within 12 months of their
initial purchase and at a rate of 0.50 of 1.0% if the redemption occurs
in the subsequent six months. Class A shares of any of the Former
Quest Fund for Value Funds purchased without an initial sales charge on
or before November 22, 1995 will continue to be subject to the
applicable contingent deferred sales charge in effect as of that date
as set forth in the then-current prospectus for such fund.
- Waiver of Class A Sales Charges for Certain Shareholders.
Class A shares of the Fund purchased by the following investors are not
subject to any Class A initial or contingent deferred sales charges:
- Shareholders of the Fund who were shareholders of the AMA Family
of Funds on February 28, 1991 and who acquired shares of any of the
Former Quest for Value Funds by merger of a portfolio of the AMA Family
of Funds.
- Shareholders of the Fund who acquired shares of any Former Quest
for Value Fund by merger of any of the portfolios of the Unified Funds.
- - Waiver of Class A Contingent Deferred Sales Charge in Certain
Transactions.
The Class A contingent deferred sales charge will not apply to
redemptions of Class A shares of the Fund purchased by the following
investors who were shareholders of any Former Quest for Value Fund:
- Investors who purchased Class A shares from a dealer that is or
was not permitted to receive a sales load or redemption fee imposed on
a shareholder with whom that dealer has a fiduciary relationship under
the Employee Retirement Income Security Act of 1974 and regulations
adopted under that law.
Class A, Class B and Class C Contingent Deferred Sales Charge Waivers
- - Waivers for Redemptions of Shares Purchased Prior to March 6, 1995.
In the following cases, the contingent deferred sales charge will be
waived for redemptions of Class A, B or C shares of the Fund acquired
by exchange from an Oppenheimer fund that was a Former Quest for Value
Fund or into which such fund merged, if those shares were purchased
prior to March 6, 1995: in connection with (i) withdrawals under an
automatic withdrawal plan holding only either Class B or C shares if
the annual withdrawal does not exceed 10% of the initial value of the
account, and (ii) liquidation of a shareholder's account if the
aggregate net asset value of shares held in the account is less than
the required minimum value of such accounts.
- - Waivers for Redemptions of Shares Purchased on or After March 6,
1995 but Prior to November 24, 1995.
In the following cases, the contingent deferred sales charge will be
waived for redemptions of Class A, B or C shares of the Fund acquired
by exchange from an Oppenheimer fund that was a Former Quest For Value
Fund or into which such fund merged, if those shares were purchased on
or after March 6, 1995, but prior to November 24, 1995:
(1) redemptions following the death or disability of the shareholder(s)
(as evidenced by a determination of total disability by the U.S. Social
Security
Administration); (2) withdrawals under an automatic withdrawal plan
(but) only for Class B or C shares) where the annual withdrawals do not
exceed 10% of the initial value of the account; and (3) liquidation of
a shareholder's account if the aggregate net asset value of shares held
in the account is less than the required minimum account value. A
shareholder's account will be credited with the amount of any
contingent deferred sales charge paid on the redemption of any Class A,
B or C shares of the Fund described in this section if within 90 days
after that redemption, the proceeds are invested in the same Class of
shares in this Fund or another Oppenheimer fund.
<PAGE>
Oppenheimer Florida Tax-Exempt Fund
Two World Trade Center
New York, New York 10048-0203
Telephone: 1-800-525-7048
Investment Adviser
OppenheimerFunds, Inc.
Two World Trade Center
New York, New York 10048-0203
Distributor
OppenheimerFunds Distributor, Inc.
Two World Trade Center
New York, New York 10048-0203
Transfer Agent
OppenheimerFunds Services
P.O. Box 5270
Denver, Colorado 80217
1-800-525-7048
Custodian of Portfolio Securities
Citibank, N.A.
399 Park Avenue
New York, New York 10043
Independent Auditors
KPMG Peat Marwick LLP
707 Seventeenth Street
Denver, Colorado 80202
Legal Counsel
Gordon Altman Butowsky
Weitzen Shalov & Wein
114 West 47th Street
New York, New York 10036
No dealer, broker, salesperson or any other person has been authorized
to give any information or to make any representations other than those
contained in this Prospectus or the Statement of Additional
Information, and if given or made, such information and representations
must not be relied upon as having been authorized by the Fund,
OppenheimerFunds, Inc., OppenheimerFunds Distributor, Inc., or any
affiliate thereof. This Prospectus does not constitute an offer to
sell or a solicitation of an offer to buy any of the securities offered
hereby in any state to any person to whom it is unlawful to make such
an offer in such state.
PR0795.001.0895 * Printed on recycled paper
<PAGE>
Oppenheimer Florida Tax-Exempt Fund
Two World Trade Center, New York, New York 10048-0203
1-800-525-7048
Statement of Additional Information dated April 15, 1996
This Statement of Additional Information of Oppenheimer Florida
Tax-Exempt Fund (the "Fund") is not a Prospectus. This document
contains additional information about the Fund and supplements
information in the Prospectus dated April 15, 1996. It should be read
together with the Prospectus, which may be obtained by writing to the
Fund's Transfer Agent, OppenheimerFunds Services, at P.O. Box 5270,
Denver, Colorado 80217 or by calling the Transfer Agent at the toll-
free number shown above.
Contents
Page
About the Fund
Investment Objective and Policies 2
Investment Policies and Strategies 2
Special Investment Considerations - Florida Municipal Securities 6
Other Investment Techniques and Strategies 8
Other Investment Restrictions 17
How the Fund is Managed 18
Organization and History 18
Trustees and Officers of the Trust 18
The Manager and Its Affiliates 23
Brokerage Policies of the Fund 25
Performance of the Fund 27
Distribution and Service Plans 31
About Your Account
How To Buy Shares 33
How To Sell Shares 40
How To Exchange Shares 44
Dividends, Capital Gains and Taxes 46
Additional Information About the Fund 49
Financial Information About the Fund
Independent Auditors' Report 50
Financial Statements 51
Appendix A: Description of Ratings Categories A-1
Appendix B: Tax-Equivalent Yield Tables. B-1
Appendix C: Industry Classifications . C-1
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ABOUT THE FUND
Investment Objective and Policies
Investment Policies and Strategies. The investment objective and
policies of the Fund are described in the Prospectus. Set forth below
is supplemental information about those policies and the types of
securities in which the Fund invests, as well as the strategies the
Fund may use to try to achieve its objective. Certain capitalized
terms used in this Statement of Additional Information have the same
meaning as those terms used 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 and Florida Municipal Securities. The types of
Municipal Securities in which the Fund may invest are described in the
Prospectus under "Investment Objective and Policies." A discussion of
the general characteristics of types of Municipal Securities follows.
-Municipal Bonds. The principal classifications of long-term
municipal bonds in which the Fund may invest are "general obligation"
and "revenue" or "industrial development" bonds.
-General Obligation Bonds. Issuers of general obligation bonds
include states, counties, cities, towns, and regional districts. The
proceeds of these obligations are used to fund a wide range of public
projects, including construction or improvement of schools, highways
and roads, and water and sewer systems. The basic security behind
general obligation bonds is the issuer's pledge of its full faith and
credit and taxing power for the payment of principal and interest. The
taxes that can be levied for the payment of debt service may be limited
or unlimited as to the rate or amount of special assessments.
-Revenue Bonds. The principal security for a revenue bond is
generally the net revenues derived from a particular facility group of
facilities, or, in some cases, the proceeds of a special excise or
other specific revenue source. Revenue bonds are issued to finance a
wide variety of capital projects including: electric, gas, water and
sewer systems; highways, bridges, and tunnels; port and airport
facilities; colleges and universities; and hospitals. Although the
principal security behind these bonds may vary, many provide additional
security in the form of a debt service reserve fund the money from
which may be used to make principal and interest payments on the
issuer's obligations. Housing finance authorities have a wide range of
security, including partially or fully insured mortgages, rent
subsidized and/or collateralized mortgages, and/or the net revenues
from
housing or other public projects. Some authorities provide further
security in the form of a state's ability (without obligation) to make
up deficiencies in the debt service reserve fund.
-Industrial Development Bonds. Industrial development bonds,
which are considered municipal bonds if the interest paid is exempt
from federal income tax, are issued by or on behalf of public
authorities to raise money to finance various privately operated
facilities for business and manufacturing, housing, sports, and
pollution control. These bonds are also used to finance public
facilities such as airports, mass transit systems, ports, and parking.
The payment of the principal and interest on such bonds is dependent
solely on the ability of the facility's user to meet its financial
obligations and the pledge, if any, of real and personal property so
financed as security for such payment.
-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 "Investment Objective and Policies - Illiquid
Securities" in the Prospectus. Otherwise there is on the amount of the
Fund's assets that may be invested in floating rate and variable rate
obligations.
-Municipal Lease Obligations. From time to time the Fund may invest
in municipal lease obligations, some of which may be illiquid and
others which the Manager has determined to be liquid under guidelines
set by the Board of Trustees. Those guidelines require the Manager to
evaluate (1) the frequency of trades and price quotations for such
securities; (2) the number of dealers or other potential buyers willing
to purchase or sell such securities; (3) the availability of market-
makers; and (4) the nature of the trades for such securities. The
Manager will also evaluate the likelihood of a continuing market for
such securities throughout the time they are held by the Fund, and the
credit quality of the instrument. Municipal leases may take the form
of a lease or an installment purchase contract issued by a state or
local government authority to obtain funds to acquire a wide variety of
equipment and facilities. Although lease obligations do not constitute
general obligations of the municipality for which the municipality's
taxing power is pledged, a lease obligation is ordinarily backed by the
municipality's covenant to budget for, appropriate and make the
payments due under the lease obligation. However, certain lease
obligations contain "non-appropriation" clauses which provide that the
municipality has no obligation to make lease or installment purchase
payments in future years unless money is appropriated for such purpose
on a yearly basis. In addition to the risk of such "non-
appropriation," municipal lease securities do not yet have a highly
developed market to provide the same degree of liquidity as
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.
-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 (i.e., private) purposes. More
stringent restrictions were placed on the use of proceeds of such
bonds. Interest on certain private activity bonds (other than those
specified as "qualified" tax-exempt private activity bonds, e.g.,
exempt facility bonds including certain industrial development bonds,
qualified mortgage bonds, qualified Section 501(c)(3) bonds, qualified
student loan bonds, etc.) is taxable under the revised rules.
Interest on certain private activity bonds issued after August 7,
1986, which continues to be tax-exempt, will be treated as a tax
preference item subject to the alternative minimum tax (discussed
below) to which certain taxpayers are subject. 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 state of municipal governmental
unit.) Under the private loan restriction, the amount of bond proceeds
which may be used to make private loans is limited to the lesser of 5%
or $5.0 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, be required to include exempt-interest dividends in
calculating their alternative minimum taxable income in situations
where the amount of "adjusted current earnings" of the corporation
exceeds its alternative minimum taxable income. The Fund may hold
Municipal Securities the interest on which (and thus a proportionate
share of the exempt-interest dividends paid by the Fund) will be
subject to the Federal alternative minimum tax on individuals and
corporations. The Fund anticipates that under normal circumstances it
will not purchase any such securities in an amount greater than 20% of
its total assets.
- Ratings of Municipal Securities. Moody's, S&P's and Fitch's
ratings (see Appendix A) represent their respective opinions of the
quality of the Municipal Securities they undertake to rate. However,
such ratings are general and are not absolute standards of quality.
Consequently, Municipal Securities with the same maturity, coupon and
rating may have different yields, while Municipal Securities of the
same maturity and coupon with different ratings may have the same
yield. Investment in lower quality securities may produce a higher
yield than securities rated in the higher rating categories described
in the Prospectus (or judged by the Manager to be of comparable
quality). However, the added risk of lower quality securities might not
be consistent with a policy of preservation of capital.
Special Investment Considerations - Florida Municipal Securities.
As explained in the Prospectus, the Fund is highly sensitive to the
fiscal stability of the State of Florida (the "State") and its
subdivisions, agencies, instrumentalities or authorities which issue
the Florida Municipal Securities in which the Fund concentrates its
investments. Investors should also consider the factors discussed
below under "Hedging With Options and Futures Contracts."
The following information as to the fiscal condition of the State is
provided in view of the Fund's policy to invest primarily in securities
of Florida issuers. Such information is derived from sources that are
generally available to investors. Although the Fund has not
independently verified any of this information, it is not aware of any
inaccuracies. Such information constitutes only a brief summary, does
not purport to be a complete description and is based on information
from official statements relating to securities offerings of Florida
issuers.
From 1980 to 1989, the State's unemployment rate generally tracked
below that of the nation. Only since 1989 has the State's jobless rate
moved ahead of the national average. The State's unemployment rate was
7.0% for 1993, 6.6% for 1994 and 5.5% for 1995. The 1996 unemployment
rate is anticipated to be 5.9%. The national unemployment rate was
6.8% for 1993, 6.1% for 1994 and 5.6% for 1995. The 1996 unemployment
rate is anticipated to remain at 5.6%. Nevertheless, the average rate
of unemployment for the State and for the nation from 1986 through 1995
are both 6.2%.
Personal income in the State has been growing strongly the last
several years and has generally outperformed the nation as a whole.
State personal income growth is forecast at 5.9% for 1996 following an
increase of 7.5% in 1995. The rate of personal income growth in the
State is expected to continue to decline, reaching 5.5% in 1998.
The State's strong population growth is one reason why its economy
is performing better than the nation as a whole. In 1980, the State
was ranked seventh among the 50 states with a population of 9.7 million
people. The State has continued to grow since then and, as of 1994,
ranked fourth with an estimated population of 13.9 million. Population
increased to 14.2 million in 1995 and residents are expected to number
almost 14.4 million in 1996, 14.7 million in 1997 and 15.0 million in
1998. The forecasted population growth rates of 1.9%, 1.8% and 1.7%
for 1996, 1997 and 1998, respectively, almost double the national
population growth forecast.
Tourism is one of the State's most important industries. An
estimated 42.4 million tourists visited the State in 1995. 43.5
million are expected to visit the State in 1996.
The construction industry accounted for 5.1% of the State's
nonagricultural employment industry in 1994, down from 5.2% in 1993.
Single-family construction starts dropped from 94,403 units in 1994 to
86,337 units in 1995. Multi-family construction starts, however,
increased from 30,677 units in 1994 to 32,477 units in 1995. Single-
family construction starts are predicted to drop to 83,266 units in
1996 and 80,202 units in 1997, but then to increase slightly to 80,402
units in 1998. Multi-family construction starts are also predicted to
drop to 30,746 units in 1996, but then to increase to 31,176 units in
1997 and 33,517 units in 1998.
Nonresidential and infrastructural building is expected to
generate jobs in the short run. There are more Florida streets and
bridges in State and federal budgets for the current year. Some parts
of the State are experiencing labor shortages because of workers who
left the industry after the 1990-91 recession. The labor shortage
should allow for more future jobs by reducing average job loads per
worker to more normal levels.
Financial operations of the State covering all receipts and
expenditures are maintained through the use of three funds--the General
Revenue Fund, Trust Funds, and the Working Capital Trust Fund. General
Revenue plus Working Capital funds available to the State for fiscal
year 1991-92 totalled $11,231.1 million. Compared to effective
appropriations from General Revenues for fiscal year 1991-92 of
$11,046.5 million, this results in unencumbered reserves of $184.6
million at the end of fiscal year 1991-92.
Estimated General Revenue plus Working Capital funds available to
the State for fiscal year 1992-93 total $12,100.0 million. Compared to
estimated effective appropriations from General Revenues for fiscal
year 1992-93 of $11,913.7 million, this results in unencumbered
reserves of $186.3 million at the end of fiscal year 1992-93.
Estimated fiscal year 1993-94 General Revenue plus Working Capital
funds available are expected to total $13,108.4 million, an 8.3%
increase over fiscal year 1991-92.
The Sales and Use Tax is the greatest single source of tax
receipts in the State. Receipts from this source were $9,928 million
for fiscal year 1993-94, $9,295 million for fiscal year 1992-1993 and
$8,250 million for fiscal year 1991-92. The second largest source of
State-tax receipts is the Motor Fuel Tax. The estimated collections
from this source were $1,186 million for fiscal year 1992-1993 and
$1,085 million for fiscal year 1991-1992.
Some of the other sources of revenue for the State include alcoholic
beverages and tobacco products tax revenues, corporate income tax
revenues, documentary stamp tax collections and lottery ticket sales.
Revenues from alcoholic beverages and tobacco products totalled $987
million for fiscal year 1992-1993 up from $962 million for fiscal year
1991-1992. Receipts of corporate income tax increased from $695
million for fiscal year 1991-1992 to $756 million for fiscal year 1992-
1993. Documentary stamp taxes were $723 million for fiscal year 1993-
1994, $589 million for fiscal year 1992-1993 and $466 million for
fiscal year 1991-1992. In November, 1986, the voters of the State
approved a constitutional amendment to allow the State to operate a
lottery. Fiscal year 1992-1993 produced ticket sales of $2.17 billion,
1993-94 produced ticket sales of $2.21 billion and fiscal year 1994-
1995 produced ticket sales of $2.30 billion.
The State Constitution does not permit a state of local personal
income tax. An amendment to the State Constitution by electors of the
State is required to impose a personal income tax in the State.
An amendment to the Florida Constitution was approved by statewide
ballot in the November 3, 1992 general election, limiting changes in
the assessed value of homestead properties for ad valorem tax purposes
to the lesser of (a) 3% of the assessed value for the preceding
calendar year or (b) the percentage change in the Consumer Price Index
for all urban consumers for the preceding calendar year and providing
for reassessment of market values upon changes in ownership. Although
the impact of such constitutional amendment cannot be determined, it
may have the effect of causing local government units in the State to
rely more on non-ad valorem revenues to meet operating and other
requirements normally funded with ad valorem tax revenues. However,
total ad valorem taxes levied in the State were $10.6 billion in 1993,
a 5.76% increase over 1992.
According to the Division of Bond Finance of the Department of
General Services of the State the State maintains a high bond rating
from both Moody's Investors Service, Inc. (AA) and Standard & Poor's
Corporation (AA) on the majority of its general bonds.
Other Investment Techniques and Strategies
-When-Issued and Delayed Delivery Securities. As stated in the
Prospectus, the Fund may purchase securities on a "when-issued" basis,
and may purchase or sell such securities on a "delayed delivery" basis.
Although the Fund will enter into such transactions for the purpose of
acquiring securities for its portfolio or for delivery pursuant to
options contracts it has entered into, the Fund may dispose of a
commitment prior to settlement. "When-issued" or "delayed delivery"
refers to securities whose terms and indenture are available and for
which a market exists, but which are not available for immediate
delivery. When such transactions are negotiated the price (which is
generally expressed in yield terms) is fixed at the time the commitment
is made, but delivery and payment for the securities take place at a
later date. During the period between commitment by the Fund and
settlement (generally within two months but not to exceed 120 days), no
payment is made for the securities purchased by the purchaser, and no
interest accrues to the purchaser from the transaction. Such
securities are subject to market fluctuation; the value at delivery may
be less than the purchase price. The Fund will maintain a segregated
account with its Custodian, consisting of cash, U.S. Government
securities or other high grade debt obligations at least equal to the
value of purchase commitments until payment is made.
The Fund will engage in when-issued transactions in order to secure
what is considered to be an advantageous price and yield at the time of
entering into the obligation. When the Fund engages in when-issued or
delayed delivery transactions, it relies on the buyer or seller, as the
case may be, to consummate the transaction. Failure to do so may
result in the Fund losing the opportunity to obtain a price and yield
considered to be advantageous. If the Fund chooses to (i) dispose of
the right to acquire a when-issued security prior to its acquisition or
(ii) dispose of its right to deliver or receive against a forward
commitment, it may incur a gain or loss. At the time the Fund makes a
commitment to purchase or sell a security on a when-issued or forward
commitment basis, it records the transaction and reflects the value of
the security purchased, or if a sale, the proceeds to be received in
determining its net asset value.
To the extent the Fund engages in when-issued and delayed delivery
transactions, it will do so for the purpose of acquiring or selling
securities consistent with its investment objective and policies and
not for the purposes of investment leverage. The Fund enters into such
transactions only with the intention of actually receiving or
delivering the securities, although (as noted above), when-issued
securities and forward commitments may be sold prior to settlement
date. In addition, changes in interest rates in a direction other than
that expected by the Manager before settlement will affect the value of
such securities and may cause loss to the Fund.
When-issued transactions and forward commitments can be used by the
Fund as a defensive technique to use against anticipated changes in
interest rates and prices. For instance, in periods of rising interest
rates and falling prices, the Fund might sell securities in its
portfolio on a forward commitment basis to attempt to limit its
exposure to anticipated falling prices. In periods of falling interest
rates and rising prices, the Fund might sell portfolio securities and
purchase the same or similar securities on a when-issued or forward
commitment basis, thereby obtaining the benefit of currently higher
cash yields.
-Loans of Portfolio Securities. The Fund may lend its portfolio
securities subject to the restrictions stated in the Prospectus. Under
applicable regulatory requirements (which are subject to change), the
loan collateral must, on each business day, be at least equal to the
market value of the loaned securities and must consist of cash, bank
letters of credit, securities of the U.S. Government (or its agencies
or instrumentalities) or other cash equivalents in which the Fund is
permitted to invest. To be acceptable as collateral, letters of credit
must obligate a bank to pay amounts demanded by the Fund if the demand
meets the terms of the letter. Such terms and the issuing bank must be
satisfactory to the Fund. When it lends securities, the Fund receives
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 must 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.
-Inverse Floaters and Other Derivative Securities. 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.
Investing in inverse floaters that have interest rate caps might be
a part of a portfolio strategy to try to maintain a high current yield
for the Fund when the Fund has invested in inverse floaters that expose
the Fund to the risk of short-term interest rate fluctuation. Embedded
caps may be used to hedge a portion of the Fund's exposure to rising
interest rates. When interest rates exceed the "strike" price the
"cap" generates additional cash flows that offset the decline in
interest rates on the inverse floater, and the hedge is successful.
However, the Fund bears the risk that if interest rates do not rise
above the strike price, the cap (which is purchased for additional
cost) will not provide additional cash flows and will expire worthless.
-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.
- Hedging. As described in the Prospectus, the Fund may employ one
or more types of hedging instruments. When hedging to attempt to
protect against declines in the market value of the Fund's portfolio,
to permit the Fund to retain unrealized gains in the value of portfolio
securities which have appreciated, or to facilitate selling securities
for investment reasons, the Fund may: (i) sell Interest Rate Futures or
Municipal Bond Index Futures, (ii) buy puts on such Futures or
securities, or (iii) write covered calls on securities, Interest Rate
Futures or Municipal Bond Index Futures (as described in the
Prospectus). Covered calls may also be written on debt securities to
attempt to increase the Fund's income. When hedging to permit the Fund
to establish a position in the debt securities market as a temporary
substitute for purchasing individual debt securities (which the Fund
will normally purchase, and then terminate that hedging position), the
Fund may: (i) buy Interest Rate Futures or Municipal Bond Index
Futures, or (ii) buy calls on such Futures or on securities.
The Fund's strategy of hedging with Futures and options on Futures
will be incidental to the Fund's investment activities in the
underlying cash market. In the future, the Fund may employ hedging
instruments and strategies that are not presently contemplated but
which may be developed, to the extent such investment methods are
consistent with the Fund's investment objective and are legally
permissible and disclosed in the Prospectus. Additional information
about the hedging instruments the Fund may use is provided below.
- Writing Covered Call Options. When the Fund writes a call on a
security, it receives a premium and agrees to sell the underlying
investment to a purchaser of a corresponding call on the same security
during the call period (usually not more than nine months) at a fixed
exercise price (which may differ from the market price of the
underlying investment) regardless of market price changes during the
call period. The Fund has retained the risk of loss should the price
of the underlying security decline during the call period, which may be
offset to some extent by the premium.
To terminate its obligation on a call it has written, the Fund may
purchase a corresponding call in a "closing purchase transaction." A
profit or loss will be realized, depending upon whether the net of the
amount of the option transaction costs and the premium received on the
call written was more or less than the price of the call subsequently
purchased. A profit may also be realized if the call lapses
unexercised, because the Fund retains the underlying investment and the
premium received. Any such profits are considered short-term capital
gains for Federal tax purposes, as are premiums on lapsed calls, and
when distributed by the Fund are taxable as ordinary income. An option
position may be closed out only on a market that provides secondary
trading for options of the same series, and there is no assurance that
a liquid secondary market will exist for a particular option. If the
Fund could not effect a closing purchase transaction due to a lack of a
market, it would have to hold the underlying investment until the call
lapsed or were 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.
The Fund may concurrently buy and sell Futures contracts in the
expectation that the Future purchased will outperform the Future sold.
For example, the Fund might simultaneously buy Municipal Bond Futures
and sell U.S. Treasury Bond Futures. This type of transaction would be
profitable to the Fund if municipal bonds, in general, outperform U.S.
Treasury bonds. Risks of this type of Futures strategy include the
possibility that the Manager does not correctly assess the relative
durations of the investments underlying the Futures, with the result
that the strategy changes the overall duration of the Fund's portfolio
in a manner that increases the volatility of the Fund's price per
share. Duration is a volatility measure that refers to the expected
percentage change in the value of a bond resulting from a change in
general interest rates (measured by each 1% change in the rates on U.S.
Treasury securities). For example, if a bond has an effective duration
of three years, a 1% increase in general interest rates would be
expected to cause the bond to decline about 3%.
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.
- Purchasing Calls and Puts. When the Fund purchases a call
(other than in a closing purchase transaction), it pays a premium and,
except as to calls on Municipal Bond Index Futures, has the right to
buy the underlying investment from a seller of a corresponding call on
the same investment during the call period at a fixed exercise price.
The Fund benefits only if the call is sold at a profit or if, during
the call period, the market price of the underlying investment is above
the sum of the exercise price plus the transaction costs and premium
paid for the call, and the call is exercised. If the call is not
exercised or sold (whether or not at a profit), it will become
worthless at its expiration date and the Fund will lose its premium
payment and the right to purchase the underlying investment.
When the Fund purchases a call or put on a municipal bond index,
Municipal Bond Index Future or Interest Rate Future, it pays a premium,
but settlement is in cash rather than by delivery of the underlying
investment to the Fund. Gain or loss depends on changes in the index
in question (and thus on price movements in the debt securities market
generally) rather than on price movements in individual futures
contracts.
When the Fund purchases a put, it pays a premium and, except as to
puts on municipal bond indices, has the right to sell the underlying
investment to a seller of a corresponding put on the same investment
during the put period at a fixed exercise price. Buying a put on a
debt security, Interest Rate Future or Municipal Bond Index Future the
Fund owns enables the Fund to protect itself during the put period
against a decline in the value of the underlying investment below the
exercise price by selling such underlying investment at the exercise
price to a seller of a corresponding put. If the market price of the
underlying investment is equal to or above the exercise price and as a
result the put is not exercised or resold, the put will become
worthless at its expiration date and the Fund will lose its premium
payment and the right to sell the underlying investment. The put may,
however, be sold prior to expiration (whether or not at a profit).
An option position may be closed out only on a market which
provides secondary trading for options of the same series, and there is
no assurance that a liquid secondary market will exist for any
particular option. The Fund's option activities may affect its
turnover rate and brokerage commissions. The exercise of calls written
by the Fund may cause it to sell underlying investments, thus
increasing its turnover rate in a manner beyond its control. The
exercise by the Fund of puts may also cause the sale of underlying
investments, also causing turnover, since the underlying investment
might be sold for reasons which would not exist in the absence of the
put. The Fund will pay a brokerage commission each time it buys a call
or a put or sells a call. Premiums paid for options are small in
relation to the market value of the related investments and,
consequently, put and call options offer large amounts of leverage.
The leverage offered by trading in options could cause the Fund's net
asset value to be more sensitive to changes in the value of the
underlying investments.
-Interest Rate Swap Transactions. Swap agreements entail both
interest rate risk and credit risk. There is a risk that, based on
movements of interest rates in the future, the payments made by the
Fund under a swap agreement will have been greater than those received
by it. Credit risk arises from the possibility that the counterparty
will default. If the counterparty to an interest rate swap defaults,
the Fund's loss will consist of the net amount of contractual interest
payments that the Fund has not yet received. The Manager will monitor
the creditworthiness of counterparties to the Fund's interest rate swap
transactions on an ongoing basis. The Fund will enter into swap
transactions with appropriate counterparties pursuant to master netting
agreements. A master netting agreement provides that all swaps done
between the Fund and that counterparty under the master agreement shall
be regarded as parts of an integral agreement. If on any date amounts
are payable in the same currency in respect of one or more swap
transactions, the net amount payable on that date in that currency
shall be paid. In addition, the master netting agreement may provide
that if one party defaults generally or on one swap, the counterparty
may terminate the swaps with that party. Under such agreements, if
there is a default resulting in a loss to one party, the measure of
that party's damages is calculated by reference to the average cost of
a replacement swap with respect to each swap (i.e., the mark-to-market
value at the time of the termination of each swap). The gains and
losses on all swaps are then netted, and the result is the
counterparty's gain or loss on termination. The termination of all
swaps and the netting of gains and losses on termination is generally
referred to as "aggregation."
- 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.
When the Fund writes an over-the-counter("OTC") option, it intends
to enter into an arrangement with a primary U.S. Government securities
dealer, which would establish a formula price at which the Fund would
have the absolute right to repurchase that OTC option. This formula
price would generally be based on a multiple of the premium received
for the option, plus the amount by which the option is exercisable
below the market price of the underlying security ("in-the-money").
For any OTC option the Fund writes, it will treat as illiquid (for
purposes of its restriction on illiquid securities, stated in the
Prospectus) the mark-to-market value of any OTC option held by it. The
Securities and Exchange Commission is evaluating the general issue of
whether or not OTC options should be considered as liquid securities,
and the procedure described above could be affected by the outcome of
that evaluation.
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 Fund is required
to operate within certain guidelines and restrictions with respect to
its use of futures and options on futures as established by the
Commodity Futures Trading Commission ("CFTC"). In particular, the Fund
is exempted from registration with the CFTC as a "commodity pool
operator" if the Fund complies with the requirements of Rule 4.5
adopted by the CFTC. Under the Rule the Fund will not, as to any
positions, whether long, short or a combination thereof, enter into
Futures transactions and options thereon for which the aggregate
initial margins and premiums exceed 5% of the fair market value of the
Fund's assets, with certain exclusions as defined in the Rule. Under
the Rule, the Fund also must use short futures and options on futures
positions solely for "bona fide hedging purposes" within the meaning
and intent of the applicable provisions of the Commodity Exchange Act.
Transactions in options by the Fund are subject to limitations
established by the Option Exchanges governing the maximum number of
options that may be written or held by a single investor or group of
investors acting in concert, regardless of whether the options were
written or purchased on the same or different exchanges or are held in
one or more accounts or through one or more different exchanges or
through one or more brokers. Thus, the number of options which the
Fund may write or hold may be affected by options written or held by
other entities, including other investment companies having the same
adviser as the Fund (or an adviser that is an affiliate of the Fund's
adviser). The exchanges also impose position limits on futures
transaction. An exchange may order the liquidation of positions found
to be in violation of those limits and may impose certain other
sanctions.
Due to requirements under the Investment Company Act, when the Fund
purchases an Interest Rate Future or Municipal Bond Index Future, the
Fund will maintain, in a segregated account or accounts with its
Custodian, cash or readily marketable short-term (maturing in one year
or less) debt instruments in an amount equal to the market value of the
investments underlying such Future, less the margin deposit applicable
to it.
- Tax Aspects of Hedging Instruments and Covered Calls. The Fund
intends to qualify as a "regulated investment company" under the
Internal Revenue Code (although it reserves the right not to qualify).
One of the tests for such qualification is that less than 30% of its
gross income (irrespective of losses) must be derived from gains
realized on the sale of securities held for less than three months. To
comply with this 30% cap, the Fund will limit the extent to which it
engages in the following activities, but will not be precluded from
them: (i) selling investments, including Interest Rate Futures and
Municipal Bond Index Futures, held for less than three months, whether
or not they were purchased on the exercise of a call held by the Fund;
(ii) writing calls on investments held less than three months; (iii)
purchasing calls or puts which expire in less than three months; (iv)
effecting closing transactions with respect to calls or puts purchased
less than three months previously; and (v) exercising puts or calls
held by the Fund for less than three months.
- 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
markets are subject to margin deposit and maintenance requirements.
Rather than meeting additional margin deposit requirements, investors
may close out futures contracts through offsetting transactions which
could distort the normal relationship between the cash and futures
markets. Second, the liquidity of the futures markets 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 markets could be reduced, thus
producing distortion. Third, from the point of view of speculators,
the deposit requirements in the futures markets are less onerous than
margin requirements in the securities markets. Therefore, increased
participation by speculators in the futures markets may cause temporary
price distortions.
The risk of imperfect correlation increases as the composition of
the Fund's portfolio diverges from the securities included in the
applicable index. To compensate for the imperfect correlation of
movements in the price of debt securities being hedged and movements in
the price of the Hedging Instruments, the Fund may use Hedging
Instruments in a greater dollar amount than the dollar amount of debt
securities being hedged if the historical volatility of the prices of
such debt securities being hedged is more than the historical
volatility of the applicable index. It is also possible that if the
Fund has used Hedging Instruments in a short hedge, the market may
advance and the value of debt securities held in the Fund's portfolio
may decline. If that occurred, the Fund would lose money on the
Hedging Instruments and also experience a decline in value of its debt
securities. However, while this could occur 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 by an amount that
reflects an agreed-upon interest rate effective for the period during
which the repurchase agreement is in effect. The majority of these
transactions run from day to day, and delivery pursuant to 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.
- Diversification For purposes of the investment restrictions set
forth in the Prospectus and 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 would 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 of the Fund, 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 Statement of
Additional Information will be supplemented accordingly.
Other Investment Restrictions
The most significant investment restrictions that apply to the Fund
are described in the Prospectus. The following investment restrictions
are also fundamental policies of the Fund, and, together with the
Fund's fundamental policies and investment objective, described in the
Prospectus, can be changed only by the vote of a "majority" of the
Fund's outstanding voting securities. Under the Investment Company
Act, such a "majority" vote is defined as the vote of the holders of
the lesser of (i) 67% or more of the shares present or represented by
proxy at a shareholders' meeting, if the holders of more than 50% of
the outstanding shares are present or represented by a proxy, or (ii)
more than 50% of the outstanding shares.
Under these additional restrictions, the Fund cannot:
(1) invest in real estate, the Fund may invest 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" if officers and
Trustees or Directors of the Trust and the Manager individually owning
more than 0.5% 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.
For purposes of the Fund's policy not to concentrate its assets,
described in the "Other Investment Restrictions" in the Prospectus, the
Fund has adopted the industry classifications set forth in Appendix C
to this Statement of Additional Information. This is not a fundamental
policy. In connection with the sale of its shares in the State of
Ohio, the Fund undertakes, as a non-fundamental policy, that with
respect to 75% of its total assets, it will purchase no more than 10%
of the outstanding voting securities of any one issuer.
How the Fund Is Managed
Organization and History. As a series of a Massachusetts business
trust, the Fund is not required to hold, and does not plan to hold,
regular annual meetings of shareholders. The Fund will hold meetings
when required to do so by the Investment Company Act or other
applicable law, or when a shareholder meeting is called by the Trustees
or upon proper request of the shareholders. Shareholders have the
right, upon the declaration in writing or vote of two-thirds of the
outstanding shares of the Trust, to remove a Trustee. The Trustees
will call a meeting of shareholders to vote on the removal of a Trustee
upon the written request of the record holders of 10% of its
outstanding shares. In addition, if the Trustees receive a request
from at least 10 shareholders (who have been shareholders for at least
six months) holding shares of the Trust valued at $25,000 or more or
holding at least 1% of the Trust's outstanding shares, whichever is
less, stating that they wish to communicate with other shareholders to
request a meeting to remove a Trustee, the Trustees will then either
make the shareholder list available to the applicants or mail their
communication to all other shareholders at the applicants' expense, or
the Trustees may take such other action as set forth under Section
16(c) of the Investment Company Act.
The Trust's Declaration of Trust contains an express disclaimer of
shareholder or Trustee liability for the Fund's obligations, and
provides for indemnification and reimbursement of expenses out of its
property for any shareholder held personally liable for its
obligations. The Declaration of Trust also provides that the Fund
shall, upon request, assume the defense of any claim made against any
shareholder for any act or obligation of the Fund and satisfy any
judgment thereon. Thus, while Massachusetts law permits a shareholder
of a business trust (such as the Fund) to be held personally liable as
a "partner" under certain circumstances, the risk of a Fund shareholder
incurring financial loss on account of shareholder liability is
limited to the relatively remote circumstances in which the Fund would
be unable to meet its obligations described above. Any person doing
business with the Trust, and any shareholder of the Trust, agrees under
the Trust's Declaration of Trust to look solely to the assets of the
Trust for satisfaction of any claim or demand which may arise out of
any dealings with the Trust, and the Trustees shall have no personal
liability to any such person, to the extent permitted by law.
Trustees and Officers of the Trust. The Trust's Trustees and
officers and their principal occupations and business affiliations
during the past five years are listed below. The address of each
Trustee and officer is Two World Trade Center, New York, New York
10048-0203, unless another address is listed below. All of the
Trustees are also trustees or directors of Oppenheimer Fund,
Oppenheimer Enterprise Fund, Oppenheimer Global Fund, Oppenheimer Money
Market Fund, Inc., Oppenheimer Growth Fund, Oppenheimer Discovery Fund,
Oppenheimer Global Growth & Income Fund, Oppenheimer Global Emerging
Growth Fund, Oppenheimer Gold & Special Minerals Fund, Oppenheimer Tax-
Free Bond Fund, Oppenheimer New York Tax-Exempt Fund, Oppenheimer
California Tax-Exempt Fund, Oppenheimer Target Fund, Oppenheimer Asset
Allocation Fund, Oppenheimer U.S. Government Trust, Oppenheimer Multi-
Sector Income Trust and Oppenheimer Multi-Government Trust
(collectively the "New York-based Oppenheimer funds"). Ms. Macaskill
and Messrs. Spiro, Donohue, Bishop, Bowen, Farrar and Zack respectively
hold the same offices with the other New York-based Oppenheimer funds
as with the Trust. As of March 15, 1996, the Trustees and officers of
the Trust as a group owned less than 1% of the outstanding Class A and
Class B and Class C shares of the Trust and the Fund. The foregoing
statement does not reflect ownership of shares held of record by an
employee benefit plan for employees of the Manager (for which plan two
of the officers listed above, Ms Macaskill and Mr. Donohue, are
trustees) other than the shares beneficially owned under that plan by
the officers of the Fund listed above.
Leon Levy, Chairman of the Board of Trustees, Age: 70
General Partner of Odyssey Partners, L.P. (investment partnership)
and Chairman of Avatar Holdings, Inc. (real estate development).
Robert G. Galli, Trustee*, Age: 62
Vice Chairman of OppenheimerFunds, Inc. (the "Manager") and Vice
President and Counsel of Oppenheimer Acquisition Corp., the
Manager's parent holding company; formerly he held the following
positions: a director of the Manager and OppenheimerFunds
Distributor, Inc. (the "Distributor"), Vice President and a director
of HarbourView Asset Management Corporation ("HarbourView") and
Centennial Asset Management Corporation ("Centennial"), investment
advisory subsidiaries of the Manager, a director of Shareholder
Financial Services, Inc. ("SFSI") and Shareholder Services, Inc.
("SSI"), transfer agent subsidiaries of the Manager, an officer of
other Oppenheimer funds and Executive Vice President and General
Counsel of the Manager and the Distributor.
Benjamin Lipstein, Trustee, Age: 72
591 Breezy Hill Road, Hillsdale, New York 12529
Professor Emeritus of Marketing, Stern Graduate School of Business
Administration, New York University; Director of Sussex Publishers,
Inc. (publishers of Psychology Today and Mother Earth News) and a
Director of Spy Magazine, L.P.
Bridget A. Macaskill*, President and Trustee; Age 47
President, Chief Executive Officer and a Director of the Manager;
Chairman and a Director of SSI. Vice President and a Director of
OAC; and HarbourView; and a Director of Oppenheimer Partnership
Holdings, Inc. a holding company subsidiary of the Manager; a
Trustee/Director and officer of other Oppenheimer funds; formerly an
Executive Vice President of the Manager.
Elizabeth B. Moynihan, Trustee, Age: 66
801 Pennsylvania Avenue, N.W., Washington, DC 20004
Author and architectural historian; a trustee 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 the National Building Museum; a
member of the Trustees Council, Preservation League of New York
State.
Kenneth A. Randall, Trustee, Age: 68
6 Whittaker's Mill, Williamsburg, Virginia 23185
A director of Dominion Resources, Inc. (electric utility holding
company), Dominion Energy, Inc. (electric power and oil and gas
producer) Enron-Dominion Cogen Corp. (cogeneration company), Kemper
Corporation (insurance and financial services company) and Fidelity
Life Association (mutual life insurance company); formerly Chairman
of the Board of ICL, Inc. (information systems) and President and
Chief Executive Officer of The Conference Board, Inc. (international
economics and business research).
_____________________________________
* A Trustee who is an "interested person" of the Fund as defined in
the Investment Company Act.
Edward V. Regan, Trustee, Age: 65
40 Park Avenue, New York, New York 10016
Chairman of Municipal Assistance Corporation for the City of New
York; President of Jerome Levy Economics Institute; a member of the
U.S. Competitiveness Policy Council; a director or GranCare, Inc.
(healthcare provider); formerly New York State Comptroller and
trustee, New York State and Local Retirement Fund.
Russell S. Reynolds, Jr., Trustee, Age: 64
200 Park Avenue, New York, New York 10166
Founder and 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 Hospital and the Greenwich Historical Society.
Sidney M. Robbins, Trustee, Age: 83
50 Overlook Road, Ossining, New York 10562
Chase Manhattan Professor Emeritus of Financial Institutions,
Graduate School of Business, Columbia University; Visiting Professor
of Finance, University of Hawaii; a director of The Korea Fund, Inc.
(a closed-end investment company); a member of the Board of
Advisors, Olympus Private Placement Fund, L.P.; Professor Emeritus
of Finance, Adelphi University.
Donald W. Spiro, Vice Chairman and Trustee*, Age: 70
Chairman Emeritus and a director of the Manager; formerly Chairman
of the Manager and the Distributor.
Pauline Trigere, Trustee, Age: 83
498 Seventh Avenue, New York, New York 10018
Chairman and Chief Executive Officer of Trigere, Inc. (design and
sale of women's fashions).
Clayton K. Yeutter, Trustee, Age: 65
1325 Merrie Ridge Road, McLean, Virginia 22101
Of Counsel to Hogan & Hartson (a law firm); a director of B.A.T.
Industries, Ltd. (tobacco and financial services), Caterpillar, Inc.
(machinery), ConAgra, Inc. (food and agricultural products), Farmers
Insurance Company (insurance), FMC Corp. (chemicals and machinery),
Lindsay Manufacturing Co. (irrigation equipment), Texas Instruments,
Inc. (electronics) and The Vigoro Corporation (fertilizer
manufacturer); formerly (in descending chronological order)
Counsellor to the President (Bush) for Domestic Policy, Chairman of
the Republican National Committee, Secretary of the U.S. Department
of Agriculture, and U.S. Trade Representative.
_____________________________________
* A Trustee who is an "interested person" of the Fund as defined in
the Investment Company Act.
Andrew J. Donohue, Secretary, Age: 45
Executive Vice President and General Counsel of the Manager and the
Distributor; an officer of other Oppenheimer funds; President of
Centennial; formerly Senior Vice President and Associate General
Counsel of the Manager and the Distributor, prior to which he was a
partner in Kraft & McManimon (a law firm), an officer of First
Investors Corporation (a broker-dealer) and First Investors
Management Company, Inc. (broker-dealer and investment adviser), and
a director and an officer of First Investors Family of Funds and
First Investors Life Insurance Company.
Robert E. Patterson, Vice President and Portfolio Manager, Age: 52
Senior Vice President of the Manager; an officer of other
Oppenheimer funds.
George C. Bowen, Treasurer, Age: 59
3410 South Galena Street, Denver, Colorado 80231
Senior Vice President and Treasurer of the Manager; Vice President
and Treasurer of the Distributor and HarbourView; Senior Vice
President, Treasurer, Assistant Secretary and a director of
Centennial; Vice President, Treasurer and Secretary of SSI and SFSI;
an officer of other Oppenheimer funds.
Robert G. Zack, Assistant Secretary, Age: 47
Senior Vice President and Associate General Counsel of the Manager;
Assistant Secretary of SSI and SFSI; an officer of other Oppenheimer
funds.
Robert Bishop, Assistant Treasurer, Age: 37
3410 South Galena Street, Denver, Colorado 80231
Assistant Vice President of the Manager/Mutual Fund Accounting; an
officer of other Oppenheimer funds; previously a Fund Controller for
the Manager, prior to which he was an Accountant for Yale &
Seffinger, P.C., an accounting firm, and an Accountant and
Commissions Supervisor for Stuart James Company Inc., a broker-
dealer.
<PAGE>
Scott Farrar, Assistant Treasurer, Age: 30
3410 South Galena Street, Denver, Colorado 80231
Assistant Vice President of the Manager/Mutual Fund Accounting; an
officer of other Oppenheimer funds; formerly a Fund Controller for
the Manager, prior to which he was an International Mutual Fund
Supervisor for Brown Brothers Harriman Co., a bank, and previously a
Senior Fund Accountant for State Street Bank & Trust Company.
- Remuneration of Trustees. The officers of the Fund are affiliated
with the Manager; they and the Trustees of the Fund who are affiliated
with the Manager (Ms. Macaskill and Messrs. Galli and Spiro; Ms.
Macaskill and Mr. Spiro are also officers) receive no salary or fee
from the Fund. The Trustees of the Fund (excluding Ms. Macaskill and
Messrs. Galli and Spiro) received the total amounts shown below (i)
from the Fund, during its fiscal year ended December 31, 1995 and (ii)
from all of the New York-based Oppenheimer funds (including the Fund)
listed in the first paragraph of this section (and from Oppenheimer
Time Fund and Oppenheimer Mortgage Income Fund, which ceased operation
following the acquisition of their assets by certain other Oppenheimer
funds).
Retirement
Benefits Total Compensation
Aggregate Accrued From All
Compensation as Part of New York-based
Name and Position From Fund Fund Expenses OppenheimerFunds1
Leon Levy, Chairman $6,757 $4,137 $141,000.00
and Trustee
Benjamin Lipstein, $4,131 $2,530 $ 86,200.00
Study Committee
Member and Trustee
Elizabeth B. Moynihan, $4,131 $2,530 $86,200.00
Study Committee
Member2 and Trustee
Kenneth A. Randall, $3,757 $2,301 $ 78,400.00
Audit Committee Member
and Trustee
Edward V. Regan, $3,297 $2,019 $ 68,800.00
Audit Committee
Member2 and Trustee
Russell S. Reynolds, Jr., $2,497 $1,529 $ 52,100.00
Trustee
Sidney M. Robbins, $5,852 $3,583 $122,100.00
Study Committee Chairman,
Audit Committee Vice-
Chairman and Trustee
Pauline Trigere, $2,497 $1,529 $ 52,100.00
Trustee
Clayton K. Yeutter, $2,497 $1,529 $ 52,100.00
Trustee
______________________
1For the 1995 calendar year.
2Committee position held during a portion of the period shown. The
Study and Audit Committees meet for all of the New York-based
Oppenheimer funds and the fees are allocated among the funds by the
Board.
The Fund has adopted a retirement plan that provides for payment
to a retired Trustee of up to 80% of the average compensation paid
during that Trustee's five years of service in which the highest
compensation was received. A Trustee must serve in that capacity for
any of the New York-based Oppenheimer funds for at least 15 years to be
eligible for the maximum payment. Because each Trustee's retirement
benefits will depend on the amount of the Trustee's future compensation
and length of service, the amount of those benefits cannot be
determined at this time, nor can the Fund estimate the number of years
of credited service that will be used to determine those benefits.
During the fiscal year ended December 31, 1995, $25,751 was accrued for
the Fund's projected retirement obligations.
-Major Shareholders. As of March 15, 1996, the only person who
owned of record or was known by the Trust or the Fund to own
beneficially 5% or more of the outstanding Class A shares, Class B or
Class C shares of the Fund, was (i) Merrill Lynch Pierce Fenner &
Smith, 4800 Deer Lake Drive, East, Jacksonville, Florida 32246-6484,
who owned of record 104,801.000 Class B shares (9.16% of the Class B
shares then outstanding); (ii) Joan M. Clark, 560 Pine Street, Apt. I7,
Royersford, PA 19468-2056, who owned of record 3,260.451 Class C shares
(42.59% of the Class C shares then outstanding); (iii) PaineWebber for
the Benefit of Gladys Jean Kotler, 700 S Ocean Blvd., Apt. 701, who
owned of record 1,772.011 Class C shares (23.15% of the Class C shares
then outstanding); (iv) Jacqueline Sherman, Hedy First and Richard
Sherman, 8415 SW 107th Avenue, Apt. 109-W, Miami, FL 33173-4393 who
owned of record 1,376.554 Class C shares (17.98% of the Class C shares
then outstanding); and (v) Samuel P. and Vera M. Palermo Trust, 1984 E
Chapel Drive, Deltona, FL 32738, who owned of record 976.517 Class C
shares (12.75%) of the Class C shares then outstanding.
The Manager and Its Affiliates. The Manager is owned by Oppenheimer
Acquisition Corp. ("OAC"), a holding company controlled by
Massachusetts Mutual Life Insurance Company. OAC is also owned in part
by certain of the Manager's directors and officers, some of whom may
also serve as officers of the Fund, and three of whom (Ms. Macaskill
and Messrs. Galli and Spiro) serve as Trustees of the Fund.
The Manager and the Fund have a Code of Ethics. It is designed to
detect and prevent improper personal trading by certain employees,
including portfolio managers, that would compete with or take advantage
of the Fund's portfolio transactions. Compliance with the Code of
Ethics is carefully monitored and strictly enforced by the Manager.
-The Investment Advisory Agreement. A management fee is payable
monthly to the Manager under the terms of the investment advisory
agreement between the Manager and the Fund, and is computed on the
aggregate net assets of the Fund as of the close of business each day.
The investment advisory 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
corporate administration for the Fund, including the compilation and
maintenance of records with respect to its operations, the preparation
and filing of specified reports, and composition of proxy materials and
registration statements for continuous public sale of shares of the
Fund.
Expenses not expressly assumed by the Manager under the
investment advisory agreement or by the Distributor under the
Distribution Agreement are paid by the Fund. The investment advisory
agreement lists examples of expenses paid by the Fund, the major
categories of which relate to interest, taxes, brokerage commissions,
fees to certain trustees, legal and audit expenses, custodian and
transfer agent expenses, share issuance costs, certain printing and
registration costs and non-recurring expenses, including litigation
costs. For the fiscal period from October 1, 1993 to December 31, 1993
and the fiscal years ended December 31, 1994 and 1995, the management
fees paid by the Fund to the Manager were $19,305, $100,261 and
$151,497, respectively. These amounts do not reflect the expense
assumption of $6,015, $144,023 and $209,449 by the Manager for such
periods.
The investment advisory agreement contains no provision limiting
the Fund's expenses. However, independently of the investment advisory
agreement, the Manager has voluntarily undertaken that the total
expenses of the Fund in any fiscal year (including the management fee
but excluding taxes, interest, brokerage commissions, distribution plan
payments and extraordinary expenses such as litigation costs) shall not
exceed the most stringent expense limitation imposed under state law
applicable to the Fund. Currently, the most stringent state expense
limitation is imposed by California, and limits the Fund's expenses
(with specific exclusions) to 2.5% of the first $30 million of average
annual net assets, 2% of the next $70 million, and 1.5% of average
annual net assets in excess of $100 million. In addition, effective
September 11, 1995, 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 $.607 per fiscal year.
Prior to September 11, 995, the Manager voluntarily agreed to assume
expenses of the Fund to the extent required to enable the Fund to pay
dividends per Class A share at the rate of $.636 per fiscal year. The
payment of the management fee and other expenses will be reduced
monthly to the extent necessary so that there will not be any accrued
but unpaid liability under this expense assumption undertaking. To
enable the Fund to pay dividends per Class A share at a set rate, the
Manager will assume certain Fund level expenses as well as Class A
expenses. Therefore, Class B and Class C shareholders will benefit
from the expense assumption. The Manager reserves the right to modify
or terminate a voluntary expense assumption undertaking at any time.
Any assumption of the Fund's expenses under a voluntary undertaking
would lower the Fund's overall expense ratio and increase its total
return during any period in which expenses are limited.
The investment advisory agreement provides that in the absence of
willful misfeasance, bad faith, gross negligence in the performance of
its duties or reckless disregard for its obligations and duties under
the advisory agreement, the Manager is not liable for any loss
sustained by reason of any investment of Fund assets made with due care
and in good faith. The investment advisory agreement permits the
Manager to act as investment adviser for any other person, firm or
corporation and to use the name "Oppenheimer" in connection with one or
more additional companies for which it may act as investment adviser or
general distributor. If the Manager or one of its affiliates shall no
longer act as investment adviser to the Fund, the right of the Fund to
use the name "Oppenheimer" as part of its name may be withdrawn.
-The Distributor. Under its General Distributor's Agreement with
the Fund, the Distributor acts as the Fund's principal underwriter in
the continuous public offering of the Fund's Class A, Class B and Class
C shares but is not obligated to sell a specific number of shares.
Expenses normally attributable to sales (other than those paid under
the Class B or Class C Distribution and Service Plan), including
advertising and the cost of printing and mailing prospectuses, other
than those furnished to existing shareholders, are borne by the
Distributor. During the fiscal period from October 1, 1993 to December
31, 1993 and the fiscal years ended December 31, 1994 and 1995, the
aggregate amount of sales charges on sales of the Fund's Class A shares
was $159,560, $145,115 and $131,060, respectively, of which the
Distributor and an affiliated broker-dealer retained in the aggregate
$43, $24,662 and $21,670. During the same periods, the contingent
deferred sales charges on the redemption of the Fund's Class B shares
totaled $2,411, $39,328 and $42,273, all of which the Distributor
retained. During the Fund's fiscal period August 29, 1995 through
December 31, 1995, no contingent deferred sales charges were collected
on Class C shares. For additional information about distribution of
the Fund's shares and the expenses connected with such activities,
please refer to "Distribution and Service Plans," below.
-The Transfer Agent. OppenheimerFunds Services, the Fund's
Transfer Agent, is responsible for maintaining the Fund's shareholder
registry and shareholder accounting records, and for shareholder
servicing and administrative functions.
Brokerage Policies of the Fund
Brokerage Provisions of the Investment Advisory Agreement. One of the
duties of the Manager under the investment advisory agreement is to
arrange the portfolio transactions for the Fund. The investment
advisory agreement contains provisions relating to the employment of
broker-dealers ("brokers") to effect the Fund's portfolio transactions.
In doing so, the Manager is authorized by the investment advisory
agreement to employ broker-dealers, including "affiliated" brokers, as
that term is defined in the Investment Company Act, as may, in its best
judgment based on all relevant factors, implement the policy of the
Fund to obtain, at reasonable expense, the "best execution" (prompt and
reliable execution at the most favorable price obtainable) of such
transactions. The Manager need not seek competitive commission bidding
or base its selection on "posted" rates, but is expected to be aware of
the current rates of eligible brokers and to minimize the commissions
paid to the extent consistent with the provisions of the investment
advisory agreement and the interests and policies of the Fund as
established by its Board of Trustees.
Under the investment advisory agreement, the Manager is authorized
to select brokers that provide brokerage and/or research services for
the Fund and/or the other accounts over which the Manager or its
affiliates have investment discretion. The commissions paid to such
brokers may be higher than another qualified broker would have charged
if a good faith determination is made by the Manager and the commission
is fair and reasonable in relation to the services provided. Subject
to the foregoing considerations, the Manager may also consider sales of
shares of the Fund and other investment companies managed by the
Manager or its affiliates as a factor in the selection of brokers for
the Fund's portfolio transactions.
Description of Brokerage Practices Followed by the Manager. Subject to
the provisions of the advisory agreement, the procedures and rules
described above, allocations of brokerage are generally made by the
Manager's portfolio traders based upon new recommendations from the
Manager's portfolio managers. In certain instances, portfolio managers
may directly place trades and allocate brokerage, also subject to the
provisions of the advisory agreement and the procedures and rules
described above. In each case, brokerage is allocated under the
supervision of the Manager's executive officers. As most purchases
made by the Fund are principal transactions at net prices, the Fund
incurs little or no brokerage costs. The Fund usually deals directly
with the selling or purchasing principal or market maker without
incurring charges for the services of a broker on its behalf unless it
is determined that better price or execution may be obtained by
utilizing the services of a broker. Purchases of portfolio securities
from underwriters include a commission or concession paid by the issuer
to the underwriter, and purchases from dealers include a spread between
the bid and asked price. The Fund seeks to obtain prompt execution of
orders at the most favorable net price. When the Fund engages in an
option transaction, ordinarily the same broker will be used for the
purchase or sale of the option and any transaction in the securities to
which the option relates. When possible, concurrent orders to purchase
or sell the same security by more than one of the accounts managed by
the Manager or its affiliates are combined. The transactions effected
pursuant to such combined orders are averaged as to price and allocated
in accordance with the purchase or sale orders actually placed for each
account. Option commissions may be relatively higher than those that
would apply to direct purchases and sales of portfolio securities.
The research services provided by a particular broker may be
useful only to one or more of the advisory accounts of the Manager and
its affiliates, and investment research received for the commissions of
those other accounts may be useful both to the Fund and one or more of
such other accounts. Such research, which may be supplied by a third
party at the instance of a broker, includes information and analyses on
particular companies and industries as well as market or economic
trends and portfolio strategy, receipt of market quotations for
portfolio evaluations, information systems, computer hardware and
similar products and services. If a research service also assists the
Manager in a non-research capacity (such as bookkeeping or other
administrative functions), then only the percentage or component that
provides assistance to the Manager in the investment decision-making
process may be paid in commission dollars. The Board of Trustees has
also permitted the Manager to use stated commissions on secondary
fixed-income agency trades to obtain research where the broker has
represented to the Manager that: (i) the trade is not from or for the
broker's own inventory, (ii) the trade was executed by the broker on an
agency basis at the stated commission, and (iii) the trade is not a
riskless principal transaction.
The research services provided by brokers broaden the scope and
supplement the research activities of the Manager, by making available
additional views for consideration and comparisons, and enabling the
Manager to obtain market information for the valuation of securities
held in the Fund's portfolio or being considered for purchase. The
Board of Trustees, including the "independent" Trustees of the Trust
(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 advisory agreement
or the Distribution Plans described below) annually reviews information
furnished by the Manager as to the commissions paid to brokers
furnishing such services so that the Board may ascertain whether the
amount of such commissions was reasonably related to the value or
benefit of such services.
Other funds advised by the Manager have investment objectives and
policies similar to those of the Fund. Such other funds may purchase
or sell the same securities at the same time as the Fund, which could
affect the supply 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.
Performance of the Fund
Yield and Total Return Information. As described in the Prospectus,
from time to time the "standardized yield," "tax-equivalent yield,"
"dividend yield," "average annual total return", "total return," and
"total return at net asset value" of an investment in each class of
Fund shares may be advertised. An explanation of how yields and total
returns are calculated for each class and the components of those
calculations is set forth below.
Yield and total return information may be useful to investors in
reviewing the Fund's performance. The Fund's advertisement of its
performance data must, under applicable SEC rules, include the average
annual total returns for each advertised class of shares of the Fund
for the 1, 5 and 10-year period (or the life of the class, if less) as
of the most recently ended calendar quarter. This enables an investor
to compare the Fund's performance to the performance of other funds for
the same periods. However, a number of factors should be considered
before using such information as a basis for comparison with other
investments. An investment in the Fund is not insured; its yield and
total return are not guaranteed and normally will fluctuate on a daily
basis. When redeemed, an investor's shares may be worth more or less
than their original cost. Yield and total return for any given past
period are not a prediction or representation by the Fund of future
yields or rates of return on its shares. The yield and total returns
of the Class A, Class B and Class C shares of the Fund are affected by
portfolio quality, portfolio maturity, the type of investments the Fund
holds and its operating expenses allocated to the particular class.
Standardized Yields.
- Yield. The Fund's "yield" (referred to as "standardized yield")
for a given 30-day period for a class of shares is calculated using the
following formula set forth in rules adopted by the Securities and
Exchange Commission that apply to all funds that quote yields:
a-b 6
Standardized Yield = 2 ((------ + 1) - 1)
cd
The symbols above represent the following factors:
a = dividends and interest earned during the 30-day period.
b = expenses accrued for the period (net of any expense
reimbursements).
c = the average daily number of shares of that class
outstanding during the 30-day period that were entitled
to receive dividends.
d = the maximum offering price per share of the class on the
last day of the period, adjusted for undistributed net
investment income.
The standardized yield of a class of shares for a 30-day period
may differ from its yield for any other period. The SEC formula
assumes that the standardized yield for a 30-day period occurs at a
constant rate for a six-month period and is annualized at the end of
the six-month period. This standardized yield is not based on actual
distributions paid by the Fund to shareholders in the 30-day period,
but is a hypothetical yield based upon the net investment income from
the Fund's portfolio investments calculated for that period. The
standardized yield may differ from the "dividend yield" of that class,
described below. Additionally, because each class of shares is subject
to different expenses, it is likely that the standardized yields of the
Fund's classes of shares will differ. For the 30-day period ended
December 31, 1995, the standardized yields for the Fund's Class A,
Class B and Class C shares were 4.25%, 3.77% and 3.75%, respectively.
- Tax-Equivalent Yield. The "tax-equivalent yield" of a class of
shares adjusts the Fund's current yield, as calculated above, by a
stated combined Federal, state and city tax rate. The tax-equivalent
yield is based on a 30-day period, and is computed by dividing the tax-
exempt portion of the Fund's current yield (as calculated above) by one
minus a stated income tax rate and adding the result to the portion (if
any) of the Fund's current yield that is not tax exempt. The tax
equivalent yield may be used to compare the tax effects of income
derived from the Fund with income from taxable investments at the tax
rates stated. Appendix B includes a tax-equivalent yield table, based
on various effective Federal 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 and state income tax
after deductions and exemptions). The tax-equivalent yield table
assumes that the investor is taxed at the highest bracket, regardless
of whether a switch to non-taxable investments would cause a lower
bracket to apply, and that state income tax payments are fully
deductible for income tax purposes. For taxpayers with income above
certain levels, otherwise allowable itemized deductions are limited.
The Fund's tax-equivalent yields for its Class A, Class B and Class C
shares for the 30-day period ended December 31, 1995, for a taxpayer in
the 39.6% tax bracket were 7.04%, 6.24%, and 6.21% respectively.
- Dividend Yield and Distribution Return. From time to time the
Fund may quote a "dividend yield" or a "distribution return" for each
class. Dividend yield is based on the Class A, Class B or Class C
share dividends derived from net investment income during a stated
period. Distribution return includes dividends derived from net
investment income and from realized capital gains declared during a
stated period. Under those calculations, the dividends and/or
distributions for that class declared during a stated period of one
year or less (for example, 30 days) are added together, and the sum is
divided by the maximum offering price per share of that class) on the
last day of the period. When the result is annualized for a period of
less than one year, the "dividend yield" is calculated as follows:
Dividend Yield of the Class =
Dividends of the Class
- ----------------------------------------------------
Max Offering Price of the Class (last day of period)
Divided by number of days (accrual period) x 365
The maximum offering price for Class A shares includes the maximum
front-end sales charge. For Class B and Class C shares, the maximum
offering price is the net asset value per share, without considering
the effect of contingent deferred sales charges.
From time to time similar yield or distribution return
calculations may also be made using the Class A net asset value
(instead of its respective maximum offering price) at the end of the
period. The dividend yields on Class A shares for the 30-day period
ended December 31, 1995 were 5.14% and 5.39% when calculated at maximum
offering price and at net asset value, respectively. The dividend
yield on Class B shares for the 30-day period ended December 31, 1995
was 4.70% when calculated at net asset value. The dividend yield on
Class C shares for the 30-day period ended December 31, 1995 was 5.01%
when calculated at net asset value.
- Total Returns Information
- Average Annual Total Returns. The "average annual total return"
of each class is an average annual compounded rate of return for each
year in a specified number of years. It is the rate of return based on
the change in value of a hypothetical initial investment of $1,000 ("P"
in the formula below) held for a number of years ("n") to achieve an
Ending Redeemable Value ("ERV") of that investment, according to the
following formula:
Dividend Yield of the Class =
Dividends of the Class
- ----------------------------------------------------
Max Offering Price of the Class (last day of period)
Divided by number of days (accrual period) x 365
- Cumulative Total Returns. The cumulative "total return"
calculation measures the change in value of a hypothetical investment
of $1,000 over an entire period of years. Its calculation uses some of
the same factors as average annual total return, but it does not
average the rate of return on an annual basis. Cumulative total return
is determined as follows:
ERV - P
- ------- = Total Return
P
In calculating total returns for Class A shares, the current
maximum sales charge of 4.75% (as a percentage of the offering price)
is deducted from the initial investment ("P") (unless the return is
shown at net asset value, as discussed below). For Class B shares, the
payment of the applicable 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% in the fifth year, 1.0% in the sixth year and none
thereafter) is applied to the investment result for the time period
shown (unless the total return is shown at net asset value, as
described below. For Class C shares, the payment of the 1.0%
contingent deferred sales charge is applied to the investment result
for the one-year period (or less). Total returns also assume that all
dividends and capital gains distributions during the period are
reinvested to buy additional shares at net asset value per share, and
that the investment is redeemed at the end of the period.
For the one year period ended December 31, 1995 and for the period
from October 7, 1993 (commencement of offering) through December 31,
1995, the average annual total returns on an investment in Class A
shares of the Fund were 12.01% and 3.47%, respectively, and in Class B
shares of the Fund over those periods were 11.81% and 3.74%
respectively. The cumulative total returns for Class A and Class B
shares for the latter period were 7.98% and 8.62%, respectively. For
the period from August 29, 1995 through December 31, 1995, the
cumulative total return on an investment in Class C shares of the Fund
was 4.86%.
- Total Returns at Net Asset Value. From time to time the Fund may
also quote an "average annual total return at net asset value" or a
cumulative "total return at net asset value" for Class A, Class B or
Class C shares. It is based on the difference in net asset value per
share at the beginning and the end of the period for a hypothetical
investment in that class of shares (without considering front-end or
contingent deferred sales charges) and takes into consideration the
reinvestment of dividends and capital gains distributions. The average
annual total returns at net asset value on the Fund's Class A shares
for the period from October 7, 1993 (commencement of offering) through
December 31, 1995, and for the one-year period ended December 31, 1995,
were 5.73% and 17.60% respectively. The average annual total returns
at net asset value on the Fund's Class B shares for the fiscal period
from October 1, 1993 (commencement of offering) through December 31,
1995, and for the one-year period ended December 31, 1995, were 5.01%
and 16.81%, respectively. The cumulative total return at the net asset
value on the Fund's Class C shares for the period from August 29, 1995
(commencement of operations) through December 31, 1995 was 5.86%.
Other Performance Comparisons. From time to time the Fund may publish
the ranking of the performance of its Class A, Class B or Class C
shares by Lipper Analytical Services, Inc. ("Lipper"), a widely-
recognized independent mutual fund monitoring service. Lipper monitors
the performance of regulated investment companies, including the Fund,
and ranks their performance for various periods based on categories
relating to investment objectives. The performance of the Fund's
classes is ranked against (i) all bond funds excluding money market
funds and (ii) Florida municipal bond funds. The Lipper performance
rankings are based on total returns that include the reinvestment of
capital gains distributions and income dividends but not take sales
charges or taxes into consideration. From time to time the Fund may
include in its advertisement and sales literature performance
information about the Fund cited in other newspapers and periodicals
such as The New York Times, which may include performance quotations
from other sources, including Lipper and Morningstar.
From time to time the Fund may publish the ranking of the
performance of its Class A, Class B or Class C shares by Morningstar,
Inc., an independent mutual fund monitoring service that ranks mutual
funds, including the Fund, monthly in broad investment categories
(equity, taxable bond, municipal bond and hybrid) based upon risk-
adjusted investment returns. Investment return measures a fund's
three, five and ten-year average annual total returns (when available)
in excess of 90-day U.S. Treasury bill returns after considering sales
charges and expenses. Risk reflects fund performance below 90-day U.S.
Treasury bill returns. Risk and return are combined to produce star
rankings reflecting performance relative to the average fund in a given
fund's category. Five stars is the "highest" ranking (top 10%), four
stars is "above average" (next 22.5%), three stars is "average" (next
35%), two stars is "below average" (next 22.5%) and one star is
"lowest" (bottom 10%). Morningstar ranks the Fund in relation to other
rated municipal bond funds. Rankings are subject to change.
Investors may also wish to compare the Fund's Class A, Class B or
Class C return to the returns on fixed income investments available
from banks and thrift institutions, such as certificates of deposit,
ordinary interest-paying checking and savings accounts, and other forms
of fixed or variable time deposits, and various other instruments such
as Treasury bills. However, the Fund's returns and share price are not
guaranteed by the FDIC or any other agency and will fluctuate daily,
while bank depository obligations may be insured by the FDIC and may
provide fixed rates of return, and Treasury bills are guaranteed as to
principal and interest by the U.S. government. When redeemed, an
investor's shares may be worth more or less than their original cost.
Returns for any given past period are not a prediction or
representation by the Fund of future returns. The returns of Class A,
Class B or Class C shares of the Fund are affected by portfolio
quality, the type of investments the Fund holds and its operating
expenses allocated to a particular class.
From time to time, the Fund's Manager may publish rankings or
ratings of the Manager (or the Transfer Agent), by independent third-
parties, on the investor services provided by them to shareholders of
the OppenheimerFunds, other than the performance rankings of the
OppenheimerFunds themselves. Those ratings or rankings of
shareholder/investor services may compare the OppenheimerFunds'
services to those of other mutual fund families selected by the rating
or ranking services, and may be based upon the opinions of the rating
or ranking service itself, using its own research or judgment, or based
upon surveys of investors, brokers, shareholders or others.
Distribution and Service Plans
The Fund has adopted a Service Plan for Class A Shares and a
Distribution and Service Plans for Class B and Class C shares of the
Fund under Rule 12b-1 of the Investment Company Act, pursuant to which
the Fund will make payments to the Distributor 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, cast in person at a meeting called for the purpose of voting
on that Plan, and (ii) the holders of a "majority" (as defined in the
Investment Company Act) of the shares of each class. For the
Distribution and Service Plan for Class C shares that vote was cast by
the Manager as the sole initial holder of Class C shares.
In addition, under the Plans the Manager and the Distributor, in
their sole discretion, from time to time may use their own resources
(which, in the case of the Manager, may include profits from the
advisory fee it receives from the Fund) to make payments to brokers,
dealers or other financial institutions (each is referred to as a
"Recipient" under the Plans) for distribution and administrative
services they perform at no cost to the Fund. The Distributor and the
Manager may, in their sole discretion, increase or decrease the amount
of payments they make from their own resources to Recipients.
Unless terminated as described below, each Plan continues in
effect from year to year but only as long as such continuance is
specifically approved at least annually by the Trust's Board of
Trustees and its Independent Trustees by a vote cast in person at a
meeting called for the purpose of voting on such continuance. Any Plan
may be terminated at any time by the vote of a majority of the
Independent Trustees or by the vote of the holders of a "majority" (as
defined in the Investment Company Act) of the outstanding shares of
that class. No Plan may be amended to increase materially the amount
of payments to be made unless such amendment is approved by
shareholders of the class affected by the amendment. In addition,
because Class B shares of the Fund automatically convert into Class A
shares after six years, the Fund is required to obtain the approval of
Class B as well as Class A shareholders for a proposed amendment to the
Class A Plan that would materially increase the amount to be paid by
Class A shareholders under the Class A Plan. Such approval must be by
a "majority" of the Class A and Class B shares (as defined in the
Investment Company Act), voting separately by class. All material
amendments must be approved by the Independent Trustees.
While the Plans are in effect, the Treasurer of the Fund shall
provide separate written reports to the Trust's Board of Trustees at
least quarterly on the amount of all payments made pursuant to each
Plan, the purpose for which the payment was made and the identity of
each Recipient that received any such payment. The report for the
Class B Plan shall also include the distribution costs for that
quarter, and such costs for previous fiscal periods that are carried
forward under the Class B Plan, as explained in the Prospectus and
below. Those reports, including the allocations on which they are
based, will be subject to the review and approval of the Independent
Trustees in the exercise of their fiduciary duty. Each Plan further
provides that while it is in effect, the selection and nomination of
those Trustees of the Fund who are not "interested persons" of the Fund
is committed to the discretion of the Independent Trustees. This does
not prevent the involvement of others in such selection and nomination
if the final decision on 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
Fund's Independent Trustees. Initially, the Board of Trustees has set
the fee at the maximum rate allowed under the Plans and set no minimum
amount.
For the fiscal year ended December 31, 1995, payments under the
Class A Plan totaled $36,538, of which $301 was paid to an affiliate
of the Distributor. 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. At December 31,
1995 the Distributor had incurred unreimbursed expenses of $438,657
(equal to 3.47% of the Fund's net assets) for Class B shares.
The Class B Plan and the Class C Plan allow the service fee
payments to be paid by the Distributor to Recipients in advance for the
first year such shares are outstanding, and thereafter on a quarterly
basis, as described in the Prospectus. The advance payment is based on
the net asset value of shares sold. An exchange of shares does not
entitle the Recipient to an advance service fee payment. In the event
such shares are redeemed during the first year that the shares are
outstanding, the Recipient will be obligated to repay a pro rata
portion of the advance of the service fee payment for those shares to
the Distributor. 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%
of the net asset value of the shares purchased by the Recipient or its
customers (the Board has currently set the service fee at 0.15% per
year, which amount may be increased by the Board from time to time up
to the maximum of 0.25%) and (ii) thereafter, on a quarterly basis,
computed as of the close of business each day at an annual rate of up
to 0.25% (currently set at 0.15% as described above) of the average
daily net asset value of Class B shares held in accounts of the
Recipient or its customers. For the fiscal year ended December 31,
1995, payments under the Class B plan totaled $107,478, of which $275
was paid to an affiliate of the Distributor and $86,852 was retained by
the Distributor. For the fiscal year ended December 31, 1995 payments
under the Class C Plan totaled $13.
Although the Class B Plan and the Class C Plan permit the
Distributor to retain both the asset-based sales charges and the
service fee, or to pay Recipients the service fee on a quarterly basis,
without payment in advance, the Distributor presently intends to pay
the service fee to Recipients in the manner described above. A minimum
holding period may be established from time to time under the Class B
Plan and the Class C Plan by the Board. Initially, the Board has set
no minimum holding period. All payments under the Class B Plan and the
Class C Plan are subject to the limitations imposed by the Rules of
Fair Practice of the National Association of Securities Dealers, Inc.
on payments of asset based sales charges and service fees.
The Class B Plan and the Class C Plan provide for the Distributor
to be compensated at a flat rate, whether the Distributor's
distribution expenses are more or less than the amounts paid by the
Fund during that period. Such payments are made in recognition that
the Distributor (i) pays sales commissions to authorized brokers and
dealers at the time of sale and pays service fees, as described in the
Prospectus, (ii) may finance such commissions and/or the advance of the
service fee payment to Recipients under those Plans, or may provide
such financing from its own resources, or from an affiliate, (iii)
employs personnel to support distribution of shares, and (iv) may bear
the costs of sales literature, advertising and prospectuses (other than
those furnished to current shareholders) and state "blue sky"
registration fees and certain other distribution expenses.
ABOUT YOUR ACCOUNT
How To Buy Shares
Alternative Sales Arrangements - Class A, Class B and Class C Shares.
The availability of three classes of shares permits an investor to
choose the method of purchasing shares that is more beneficial to the
investor depending on the amount of the purchase, the length of time
the investor expects to hold shares and other relevant circumstances.
Investors should understand that the purpose and function of the
deferred sales charge and asset-based sales charge with respect to
Class B and Class C shares are the same as those of the initial sales
charge with respect to Class A shares. Any salesperson or other person
entitled to receive compensation for selling Fund shares may receive
different compensation with respect to one class of shares than the
other. The Distributor will not accept any order of $500,000 or more
of Class B shares of $1 million or more of Class C shares on behalf of
a single investor (not including dealer "street name" or omnibus
accounts) because generally it will be more advantageous for that
investor to purchase Class A shares of the Fund instead.
The three classes of shares each represent an interest in the same
portfolio investments of the Fund. However, each class has different
shareholder privileges and features. The net income attributable to
Class B and Class C shares and the dividends payable on Class B and
Class C shares will be reduced by incremental expenses borne solely by
that class, including the asset-based sales charge to which Class B and
Class C shares are subject.
The conversion of Class B shares to Class A shares after six years
is subject to the continuing availability of a private letter ruling
from the Internal Revenue Service, or an opinion of counsel or tax
adviser, to the effect that the conversion of Class B shares does not
constitute a taxable event for the holder under Federal income tax law.
If such a revenue ruling or opinion is no longer available, the
automatic conversion feature may be suspended, in which event no
further conversions of Class B shares would occur while such suspension
remained in effect. Although Class B shares could then be exchanged
for Class A shares on the basis of relative net asset value of the two
classes, without the imposition of a sales charge or fee, such exchange
could constitute a taxable event for the holder, and absent such
exchange, Class B shares might continue to be subject to the asset-
based sales charge for longer than six years.
The methodology for calculating the net asset value, dividends and
distributions of the Fund's Class A, Class B and Class C shares
recognizes two types of expenses. General expenses that do not pertain
specifically to any class are allocated pro rata to the shares of each
class, based on the percentage of the net assets of such class to the
Fund's total net assets, and then equally to each outstanding share
within a given class. Such general expenses include (i) management
fees, (ii) legal, bookkeeping and audit fees, (iii) printing and
mailing costs of shareholder reports, Prospectuses, Statements of
Additional Information and other materials for current shareholders,
(iv) fees to Independent Trustees, (v) custodian expenses, (vi) share
issuance costs, (vii) organization and start-up costs, (viii) interest,
taxes and brokerage commissions, and (ix) non-recurring expenses, such
as litigation costs. Other expenses that are directly attributable to
a class are allocated equally to each outstanding share within that
class. Such expenses include (i) Distribution Plan fees, (ii)
incremental transfer and shareholder servicing agent fees and expenses,
(iii) registration fees and (iv) shareholder meeting expenses, to the
extent that such expenses pertain to a specific class rather than to
the Fund as a whole.
Determination of Net Asset Value Per Share. The net asset values per
share of Class A, Class B and Class C shares of the Fund are determined
as of the close of business of The New York Stock Exchange (the
"Exchange") on each day that the Exchange is open by dividing the value
of the Fund's net assets attributable to a class by the total number of
shares of that class outstanding. The Exchange normally closes at 4:00
P.M., New York time, but may close earlier on some days (for example,
in case of weather emergencies or on days falling before a holiday).
The Exchange's most recent annual holiday schedule (which is subject to
change) states that it will close on New Year's Day, Presidents' Day,
Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving
Day and Christmas Day. It may also close on other days. Dealers other
than Exchange members may conduct trading in Municipal Securities on
certain days on which the Exchange is closed (including weekends and
holidays) or after 4:00 P.M. on a regular business day. Because the
Fund's net asset value will not be calculated on those days, the Fund's
net asset value per share of each class may be significantly affected
at times when shareholders may not purchase or redeem shares.
The Trust's Board of Trustees has established procedures for the
valuation of the Fund's securities, generally as follows: (i) long-term
debt securities having a remaining maturity in excess of 60 days are
valued at the mean between the "asked" and "bid" prices determined by a
portfolio pricing service approved by the Fund's Board of Trustees or
obtained from active market makers in the security on the basis of
reasonable inquiry; (ii) debt instruments having a maturity of more
than one year, and non-money market type instruments having a maturity
of one year or less when issued, which have a remaining maturity of 60
days or less are valued at the mean between the "bid" and asked prices
determined by a pricing service approved by the Fund's Board of
Trustees or obtained from active market makers in the security on the
basis of reasonably inquiry; (iii) money market type debt securities
having a maturity of less than one year when issued that having a
remaining maturity of 60 days or less are valued at cost, adjusted for
amortization of premiums and accretion of discounts; and (iv)
securities or assets not having readily-available market quotations are
valued at their fair value as 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 (such as the tax-exempt
status of the interest paid by Municipal Securities). With the
approval of the Trust's 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 sales price on the principal exchange or
on the NASDAQ on which they are traded. If there were no sales on the
principal exchange, the last sale or any exchange is used. In the
absence of any sales that day, value shall be the last reported sales
price on the prior trading day or closing bid or asked prices on the
principal exchange closets to the last reported sales price.
When the Fund writes an option, an amount equal to the premium
received by the Fund is included in the Fund's Statement of Assets and
Liabilities as an asset, and an equivalent deferred credit is included
in the liability section. The deferred credit is adjusted ("marked-to-
market") to reflect the current market value of the option. In
determining the Fund's gain on investments, if a call written by the
Fund is exercised, the proceeds are increased by the premium received.
If a call or put written by the Fund expires, the Fund has a gain in
the amount of the premium; if the Fund enters into a closing purchase
transaction, it will have a gain or loss depending on whether the
premium was more or less than the cost of the closing transaction. If
the Fund exercises a put it holds, the amount the Fund receives on its
sale of the underlying investment is reduced by the amount of the
premium paid by the Fund.
AccountLink. When shares are purchased through AccountLink, each
purchase must be at least $25.00. Shares will be purchased on the
regular business day the Distributor is instructed to initiate the
Automated Clearing House transfer to buy the shares. Dividends will
begin to accrue on shares purchased by the proceeds of ACH transfers on
the business day the Fund receives Federal Funds for such purchase
through the ACH system before the close of The New York Stock Exchange.
The Exchange normally closes at 4:00 P.M., but may close earlier on
certain days. If Federal Funds are received on a business day after
the close of the Exchange, the shares will be purchased and dividends
will begin to accrue dividends on the next regular business day. The
proceeds of ACH transfers are normally received by the Fund 3 days
after the transfers are initiated. The Distributor and the Fund are
not responsible for any delays in purchasing shares from delays in ACH
transmissions.
Reduced Sales Charges. As discussed in the Prospectus, a reduced sales
charge rate may be obtained for Class A shares under Right of
Accumulation and Letters of Intent because of the economies of sales
efforts and reduction in expenses realized by the Distributor, dealers
and brokers making such sales. No sales charge is imposed in certain
other circumstances described in the Prospectus because the Distributor
incurs little or no selling expenses. The term "immediate family"
refers to one's spouse, children, grandchildren, grandparents, parents,
parents-in-law, brothers and sisters, sons-and daughters-in-law, a
sibling's spouse and a spouse's siblings.
- The Oppenheimer Funds. The Oppenheimer funds are those mutual
funds for which the Distributor acts as the distributor or the sub-
distributor and include the following:
Oppenheimer Tax-Free Bond Fund
Oppenheimer New York Tax-Exempt Fund
Oppenheimer California Tax-Exempt Fund
Oppenheimer Intermediate Tax-Exempt Fund
Oppenheimer Insured Tax-Exempt Fund
Oppenheimer Main Street California Tax-Exempt Fund
Oppenheimer Florida Tax-Exempt Fund
Oppenheimer Pennsylvania Tax-Exempt Fund
Oppenheimer Fund
Oppenheimer Discovery Fund
Oppenheimer Target Fund
Oppenheimer Growth Fund
Oppenheimer Equity Income Fund
Oppenheimer Value Stock Fund
Oppenheimer Asset Allocation Fund
Oppenheimer Total Return Fund, Inc.
Oppenheimer Main Street Income & Growth Fund
Oppenheimer New Jersey Tax-Exempt Fund
<PAGE>
Oppenheimer High Yield Fund
Oppenheimer Champion Income Fund
Oppenheimer Bond Fund
Oppenheimer U.S. Government Trust
Oppenheimer Limited-Term Government Fund
Oppenheimer Global Fund
Oppenheimer Global Emerging Growth Fund
Oppenheimer Global Growth & Income Fund
Oppenheimer Gold & Special Minerals Fund
Oppenheimer Strategic Income Fund
Oppenheimer International Bond Fund
Oppenheimer Enterprise Fund
Oppenheimer Quest Opportunity Value Fund
Oppenheimer Quest Growth & Income Value Fund
Oppenheimer Quest Small Cap Value Fund
Oppenheimer Quest Officers Value Fund
Oppenheimer Quest Global Value Fund, Inc.
Oppenheimer Quest Value Fund, Inc.
Oppenheimer Bond Fund for Growth
Oppenheimer Disciplined Value Fund
Oppenheimer Disciplined Allocation Fund
Oppenheimer LifeSpan Balanced Fund
Oppenheimer LifeSpan Income Fund
Oppenheimer LifeSpan Growth Fund
Rochester Portfolio Series - Limited-Term New York Municipal Fund*
Rochester Fund Municipals*
<PAGE>
and the following "Money Market Funds":
Oppenheimer Money Market Fund, Inc.
Oppenheimer Cash Reserves
Centennial Money Market Trust
Centennial Tax Exempt Trust
Centennial Government Trust
Centennial New York Tax Exempt Trust
Centennial California Tax Exempt Trust
Centennial America Fund, L.P.
Daily Cash Accumulation Fund, Inc.
* Shares of the Fund are not presently exchangeable for shares of this
fund
There is an initial sales charge on the purchase of Class A shares
of each of the OppenheimerFunds except Money Market Funds (under
certain circumstances described herein, redemption proceeds of Money
Market Fund shares may be subject to a contingent deferred sales
charge).
- Letters of Intent. A Letter of Intent (referred to as a
"Letter") is an investor's statement in writing to the Distributor of
the intention to purchase Class A shares or Class A and Class B shares
of the Fund and other Oppenheimer funds during a 13-month period (the
"Letter of Intent period"), which may, at the investor's request,
include purchases made up to 90 days prior to the date of the Letter.
The Letter states the investor's intention to make the aggregate amount
of purchases of shares which, when added to the investor's holdings of
shares of those funds, will equal or exceed the amount specified in the
Letter. Purchases made at net asset value without sales charge do not
count toward satisfying the amount of the Letter. A letter enables an
investor to count the Class A and Class B shares purchased under the
Letter to obtain the reduced sales charge rate on purchases of Class A
shares of the Fund (and other Oppenheimer funds) that applies under the
Right of Accumulation to current purchases of Class A shares. Each
purchase of Class A shares under the Letter will be made at the public
offering price applicable to a single lump-sum purchase of shares in
the amount intended to be purchased under the Letter.
In submitting a Letter, the investor makes no commitment to
purchase shares, but if the investor's purchases of shares within the
Letter of Intent period, when added to the value (at offering price) of
the investor's holdings of shares on the last day of that period, do
not equal or exceed the intended purchase amount, the investor agrees
to pay the additional amount of sales charge applicable to such
purchases, as set forth in "Terms of Escrow," below (as those terms may
be amended from time to time). The investor agrees that shares equal
in value to 5% of the intended purchase amount will be held in escrow
by the Transfer Agent subject to the Terms of Escrow. Also, the
investor agrees to be bound by the terms of the Prospectus, this
Statement of Additional Information and the Application used for such
Letter of Intent, and if such terms are amended, as they may be from
time to time by the Fund, that those amendments will apply
automatically to existing Letters of Intent.
If the total eligible purchases made during the Letter of Intent
period do not equal or exceed the intended purchase amount, the
commissions previously paid to the dealer of record for the account and
the amount of sales charge retained by the Distributor will be adjusted
to the rates applicable to actual purchases. If total eligible
purchases during the Letter of Intent period exceed the intended
purchase amount and exceed the amount needed to qualify for the next
sales charge rate reduction set forth in the applicable prospectus, the
sales charges paid will be adjusted to the lower rate, but only if and
when the dealer returns to the Distributor the excess of the amount of
commissions allowed or paid to the dealer over the amount of
commissions that apply to the actual amount of purchases. The excess
commissions returned to the Distributor will be used to purchase
additional shares for the investor's account at the net asset value per
share in effect on the date of such purchase, promptly after the
Distributor's receipt thereof.
In determining the total amount of purchases made under a Letter,
shares redeemed by the investor prior to the termination of the Letter
of Intent period will be deducted. It is the responsibility of the
dealer of record and/or the investor to advise the Distributor about
the Letter in placing any purchase orders for the investor during the
Letter of Intent period. All of such purchases must be made through
the Distributor.
-Terms of Escrow That Apply to Letters of Intent.
1. Out of the initial purchase (or subsequent purchases if
necessary) made pursuant to a Letter, shares of the Fund equal in value
to 5% of the intended purchase amount specified in the Letter shall be
held in escrow by the Transfer Agent. For example, if the intended
purchase amount is $50,000, the escrow shall be shares valued in the
amount of $2,500 (computed at the public offering price adjusted for a
$50,000 purchase). Any dividends and capital gains distributions on
the escrowed shares will be credited to the investor's account.
2. If the intended purchase amount specified under the Letter is
completed within the thirteen-month Letter of Intent period, the
escrowed shares will be promptly released to the investor.
3. If, at the end of the thirteen-month Letter of Intent period
the total purchases pursuant to the Letter are less than the intended
purchase amount specified in the Letter, the investor must remit to the
Distributor an amount equal to the difference between the dollar amount
of sales charges actually paid and the amount of sales charges which
would have been paid if the total amount purchased had been made at a
single time. Such sales charge adjustment will apply to any shares
redeemed prior to the completion of the Letter. If such difference in
sales charges is not paid within twenty days after a request from the
Distributor or the dealer, the Distributor will, within sixty days of
the expiration of the Letter, redeem the number of escrowed shares
necessary to realize such difference in sales charges. Full and
fractional shares remaining after such redemption will be released from
escrow. If a request is received to redeem escrowed shares prior to
the payment of such additional sales charge, the sales charge will be
withheld from the redemption proceeds.
4. By signing the Letter, the investor irrevocably constitutes
and appoints the Transfer Agent as attorney-in-fact to surrender for
redemption any or all escrowed shares.
5. The shares eligible for purchase under the Letter (or the
holding of which may be counted toward completion of a Letter) include
(a) Class A shares sold with a front-end sales charge or subject to a
Class A contingent deferred sales charge, (b) Class B shares acquired
subject to a contingent deferred sales charge, and (c) Class A or B
shares acquired in exchange for either (i) Class A shares of one of the
other OppenheimerFunds that were acquired subject to a Class A initial
or contingent deferred sales charge or (ii) Class B shares of one of
the other OppenheimerFunds that were acquired subject to a contingent
deferred sales charge.
6. Shares held in escrow hereunder will automatically be
exchanged for shares of another fund to which an exchange is requested,
as described in the section of the Prospectus entitled "Exchange
Privilege," and the escrow will be transferred to that other fund.
Asset Builder Plans. To establish an Asset Builder Plan from a bank
account, a check (minimum $25) for the initial purchase must accompany
the application. Shares purchased by Asset Builder Plan payments from
bank accounts are subject to the redemption restrictions for recent
purchases described in "How To Sell Shares," in the Prospectus. Asset
Builder Plans also enable shareholders of Oppenheimer Cash Reserves to
use those accounts for monthly automatic purchases of shares of up to
four other Eligible Funds.
There is a sales charge on the purchase of certain Eligible Funds.
An application should be obtained from the Distributor, completed and
returned, and a prospectus of the selected fund(s) (available from the
Distributor) should be obtained before initiating Asset Builder
payments. The amount of the Asset Builder investment may be changed or
the automatic investments may be terminated at any time by writing to
the Transfer Agent. A reasonable period (approximately 15 days) is
required after the Transfer Agent's receipt of such instructions to
implement them. The Fund reserves the right to amend, suspend, or
discontinue offering such plans at any time without prior notice.
Cancellation of Purchase Orders. Cancellation of purchase orders for
the Fund's shares (for example, when a purchase check is returned to
the Fund unpaid) causes a loss to be incurred when the net asset value
of the Fund's shares on the cancellation date is less than on the
purchase date. That loss is equal to the amount of the decline in the
net asset value per share multiplied by the number of shares in the
purchase order. The investor is responsible for that loss. If the
investor fails to compensate the Fund for the loss, the Distributor
will do so. The Fund may reimburse the Distributor for that amount by
redeeming shares from any account registered in that investor's name,
or the Fund or the Distributor may seek other redress.
How to Sell Shares
Information on how to sell shares of the Fund is stated in the
Prospectus. The information below supplements the terms and conditions
for redemptions set forth in the Prospectus.
Checkwriting. When a check is presented to the Bank for clearance, the
Bank will ask the Fund to redeem a sufficient number of full and
fractional shares in the shareholder's account to cover the amount of
the check. This enables the shareholder to continue receiving
dividends on those shares until the check is presented to the Fund.
Checks may not be presented for payment at the offices of the Bank or
the Fund's Custodian. This limitation does not affect the use of
checks for the payment of bills or to obtain cash at other banks. The
Fund reserves the right to amend, suspend or discontinue offering
checkwriting privileges at any time without prior notice.
- Involuntary Redemptions. The Trust's Board of Trustees has the
right to cause the involuntary redemption of the Fund's 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 fix. The Board of
Trustees will not cause the involuntary redemption of shares in an
account if the aggregate net asset value of such shares has fallen
below the stated minimum solely as a result of market fluctuations.
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 granting permission to the
shareholder to increase the investment, and set other terms and
conditions so that the shares would not be involuntarily redeemed.
-Payments "In Kind". The Prospectus states that payment for shares
tendered for redemption is ordinarily made in cash. However, the Board
of Trustees of the Trust may determine that it would be detrimental to
the best interests of the remaining shareholders of the Fund to make
payment of a redemption order wholly or partly in cash. In that case,
the Fund may pay the redemption proceeds in whole or in part by a
distribution "in kind" of securities from the portfolio of the Fund, in
lieu of cash, in conformity with applicable rules of the Securities and
Exchange Commission. The Trust has elected to be governed by Rule 18f-1
under the Investment Company Act, pursuant to which the Fund is
obligated to redeem shares solely in cash up to the lesser of $250,000
or 1% of the net assets of the Fund during any 90-day period for any
one shareholder. If shares are redeemed in kind, the redeeming
shareholder might incur brokerage or other costs in selling the
securities for cash. The method of valuing securities used to make
redemptions in kind will be the same as the method the Fund uses to
value it portfolio securities described above under "Determination of
Net Asset Value Per Share" and such valuation will be made as of the
time the redemption price is determined.
Reinvestment Privilege. Within six months of a redemption, a
shareholder may reinvest all or part of the redemption proceeds of (i)
Class A shares, or (ii) Class B shares that were subject to the Class B
contingent deferred sales charge when redeemed. The reinvestment may
be made without sales charge only in Class A shares of the Fund or any
of the other Oppenheimer funds into which shares of the Fund are
exchangeable as described below, at the net asset value next computed
after the Transfer Agent receives the reinvestment order. This
reinvestment privilege does not apply to Class C shares. The
shareholder must ask the Distributor for that privilege at the time of
reinvestment. Any capital gain that was realized when the shares were
redeemed is taxable, and reinvestment will not alter any capital gains
tax payable on that gain. If there has been a capital loss on the
redemption, some or all of the loss may not be tax deductible,
depending on the timing and amount of the reinvestment. Under the
Internal Revenue Code, if the redemption proceeds of Fund shares on
which a sales charge was paid are reinvested in shares of the Fund or
another of the Oppenheimer funds within 90 days of payment of the sales
charge, the shareholder's basis in the shares of the Fund that were
redeemed may not include the amount of the sales charge paid. That
would reduce the loss or increase the gain recognized from the
redemption. However, in that case the sales charge would be added to
the basis of the shares acquired by the reinvestment of the redemption
proceeds. The Fund may amend, suspend or cease offering this
reinvestment privilege at any time as to shares redeemed after the date
of such amendment, suspension or cessation.
Transfer of Shares. Shares are not subject to the payment of a
contingent deferred sales charge of either class at the time of
transfer to the name of another person or entity (whether the transfer
occurs by absolute assignment, gift or bequest, not involving, directly
or indirectly, a public sale). The transferred shares will remain
subject to the contingent deferred sales charge, calculated as if the
transferee shareholder had acquired the transferred shares in the same
manner and at the same time as the transferring shareholder. If less
than all shares held in an account are transferred, and some but not
all shares in the account would be subject to a contingent deferred
sales charge if redeemed at the time of transfer, the priorities
described in the Prospectus under "How to Buy Shares" for the
imposition of the Class B or the Class C contingent deferred sales
charge will be followed in determining the order in which shares are
transferred.
Special Arrangements for Repurchase of Shares from Dealers and Brokers.
The Distributor is the Fund's agent to repurchase its shares from
authorized dealers or brokers on behalf of their customers. The
shareholder should contact the broker or dealer to arrange this type of
redemption. The repurchase price per share will be the net asset value
next computed after the Distributor receives an order placed by the
dealer or broker, except that if the Distributor receives a repurchase
order from a dealer or broker after the close of The New York Stock
Exchange on a regular business day, it will be processed at that day's
net asset value if the order was received by the dealer or broker from
its customer prior to the time the Exchange closes (normally, that is
4:00 P.M. but may be earlier on some days) and the order was
transmitted to and received by the Distributor prior to its close of
business that day (normally 5:00 P.M.). Ordinarily, for accounts
redeemed by a broker-dealer under this procedure, payment will be made
within three business days after the shares have been redeemed upon the
Distributor's receipt of the required redemption documents in proper
form, with the signature(s) of the registered owners guaranteed on the
redemption document as described in the Prospectus.
Automatic Withdrawal and Exchange Plans. Investors owning shares of
the Fund valued at $5,000 or more can authorize the Transfer Agent to
redeem shares (minimum $50) automatically on a monthly, quarterly,
semi-annual or annual basis under an Automatic Withdrawal Plan. Shares
will be redeemed three business days prior to the date requested by the
shareholder for receipt of the payment. Automatic withdrawals of up to
$1,500 per month may be requested by telephone if payments are to be
made by check payable to all shareholders of record and sent to the
address of record for the account (and if the address has not been
changed within the prior 30 days). Required minimum distributions from
OppenheimerFunds-sponsored retirement plans may not be arranged on this
basis. Payments are normally made by check, but shareholders having
AccountLink privileges (see "How To Buy Shares") may arrange to have
Automatic Withdrawal Plan payments transferred to the bank account
designated on the OppenheimerFunds New Account Application or
signature-guaranteed instructions. The Fund cannot guarantee receipt
of 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 Class A share
purchases, shareholders should not make regular additional Class A
share purchases while participating in an Automatic Withdrawal Plan.
Class B and Class C shareholders should not establish withdrawal plans
because of the imposition of the contingent deferred sales charge on
such withdrawals (except where the Class B and Class C contingent
deferred sales charge is waived as described in the Prospectus in
"Waivers of Class B and Class C Sales Charge").
By requesting an Automatic Withdrawal or Exchange Plan, the
shareholder agrees to the terms and conditions applicable to such
plans, as stated below and in the provisions of the OppenheimerFunds
Application relating to such Plans, as well as the Prospectus. These
provisions may be amended from time to time by the Fund and/or the
Distributor. When adopted, such amendments will automatically apply to
existing Plans.
-Automatic Exchange Plans. Shareholders can authorize the
Transfer Agent (on the OppenheimerFunds Application or signature-
guaranteed instructions) to exchange a pre-determined amount of shares
of the Fund for shares (of the same class) of other Oppenheimer funds
automatically on a monthly, quarterly, semi-annual or annual basis
under an Automatic Exchange Plan. The minimum amount that may be
exchanged to each other fund account is $25. Exchanges made under
these plans are subject to the restrictions that apply to exchanges as
set forth in "How to Exchange Shares" in the Prospectus and below in
this Statement of Additional Information.
-Automatic Withdrawal Plans. Fund shares will be redeemed as
necessary to meet withdrawal payments. Shares acquired without a sales
charge will be redeemed first and thereafter shares acquired with
reinvested dividends and capital gains distributions will be redeemed
next, followed by shares acquired with a sales charge, to the extent
necessary to make withdrawal payments. Depending upon the amount
withdrawn, the investor's principal may be depleted. Payments made
under such plans should not be considered as a yield or income on your
investment. It may not be desirable to purchases additional Class A
shares while making automatic withdrawals because of the sales charges
that apply to purchases when made. Accordingly, a shareholder normally
may not maintain an Automatic Withdrawal Plan while simultaneously
making regular purchases of Class A shares.
The Transfer Agent will administer the investor's Automatic
Withdrawal Plan (the "Plan") as agent for the investor (the
"Planholder") who executed the Plan authorization and application
submitted to the Transfer Agent. The Transfer Agent shall incur no
liability to the Planholder for any action taken or omitted by the
Transfer Agent in good faith to administer the Plan. Certificates will
not be issued for shares of the Fund purchased for and held under the
Plan, but the Transfer Agent will credit all such shares to the account
of the Planholder on the records of the Fund. Any share certificates
held by a Planholder may be surrendered unendorsed to the Transfer
Agent with the Plan application so that the shares represented by the
certificate may be held under the Plan.
For accounts subject to Automatic Withdrawal Plans, distributions
of capital gains must be reinvested in shares of the Fund, which will
be done at net asset value without a sales charge. Dividends on shares
held in the account may be paid in cash or reinvested.
Redemptions of shares needed to make withdrawal payments will be
made at the net asset value per share determined on the redemption
date. Checks or AccountLink payments of the proceeds of Plan
withdrawals will normally be transmitted three business days prior to
the date selected for receipt of the payment (receipt of payment on the
date selected cannot be guaranteed), according to the choice specified
in writing by the Planholder.
The amount and the interval of disbursement payments and the
address to which checks are to be mailed or AccountLink payments are to
be sent may be changed at any time by the Planholder by writing to the
Transfer Agent. The Planholder should allow at least two weeks' time
in mailing such notification for the requested change to be put in
effect. The Planholder may, at any time, instruct the Transfer Agent
by written notice (in proper form in accordance with the requirements
of the then-current Prospectus of the Fund) to redeem all, or any part
of, the shares held under the Plan. In that case, the Transfer Agent
will redeem the number of shares requested at the net asset value per
share in effect in accordance with the Fund's usual redemption
procedures and will mail a check for the proceeds to the Planholder.
The Plan may be terminated at any time by the Planholder by
writing to the Transfer Agent. A Plan may also be terminated at any
time by the Transfer Agent upon receiving directions to that effect
from the Fund. The Transfer Agent will also terminate a Plan upon
receipt of evidence satisfactory to it of the death or legal incapacity
of the Planholder. Upon termination of a Plan by the Transfer Agent or
the Fund, shares that have not been redeemed from the account will be
held in uncertificated form in the name of the Planholder, and the
account will continue as a dividend-reinvestment, uncertificated
account unless and until proper instructions are received from the
Planholder or his or her executor or guardian, or other authorized
person.
To use shares held under the Plan as collateral for a debt, the
Planholder may request issuance of a portion of the shares in
certificated form. Upon written request from the Planholder, the
Transfer Agent will determine the number of shares for which a
certificate may be issued without causing the withdrawal checks to stop
because of exhaustion of uncertificated shares needed to continue
payments. However, should such uncertificated shares become exhausted,
Plan withdrawals will terminate.
If the Transfer Agent ceases to act as transfer agent for the
Fund, the Planholder will be deemed to have appointed any successor
transfer agent to act as agent in administering the Plan.
How to Exchange Shares
As stated in the Prospectus, shares of a particular class of
Oppenheimer funds having more than one class of shares may be exchanged
only for shares of the same class of other Oppenheimer funds. At
present Rochester Fund Municipals and Limited Term New York Municipal
Fund are not "Eligible Funds" for purposes of the exchange privilege in
the Prospectus. Shares of the Oppenheimer funds that have a single
class of shares without a class designation are deemed "Class A" shares
for this purpose. All of the Oppenheimer funds offer Class A, B and C
shares except Oppenheimer Money Market Fund, Inc., Centennial Money
Market Trust, Centennial Tax Exempt Trust, Centennial Government Trust,
Centennial New York Tax Exempt Trust, Centennial California Tax Exempt
Trust, Centennial America Fund, L.P., and Daily Cash Accumulation Fund,
Inc., which only offer Class A shares and Oppenheimer Main Street
California Tax-Exempt Fund which only offers Class A and Class B
shares, (Class B and Class C shares of Oppenheimer Cash Reserves are
generally available only by exchange from the same class of shares of
other Oppenheimer funds or through OppenheimerFunds sponsored 401(k)
plans). A current list showing which funds offer which class can be
obtained by calling the Distributor at 1-800-525-7048. Prior to May 1,
1996, Oppenheimer Disciplined Value Fund, Oppenheimer Disciplined
Allocation Fund, Oppenheimer LifeSpan Balanced Fund, Oppenheimer
LifeSpan Income Fund and Oppenheimer LifeSpan Growth Fund offer only
Class A and Class B shares and are not eligible for exchange to or from
other Oppenheimer funds.
For accounts established on or before March 8, 1996 holding Class
M shares of Oppenheimer Bond Fund for Growth, Class M shares can be
exchanged only for Class A shares of other Oppenheimer funds, including
Rochester Fund Municipals and Limited Term New York Municipal Fund.
Class A shares of Rochester Fund Municipals or Limited Term New York
Municipal Fund acquired on the exchange of Class M shares of
Oppenheimer Bond Fund for Growth may be exchanged for Class M shares of
that fund. For accounts of Oppenheimer Bond Fund for Growth
established after March 8, 1996, Class M shares may be exchanged for
Class A shares of other Oppenheimer funds except Rochester Fund
Municipals and Limited Term New York Municipals. Exchanges to Class M
shares of Oppenheimer Bond Fund for Growth are permitted from Class A
shares of Oppenheimer Money Market Fund, Inc. or Oppenheimer Cash
Reserves that were acquired by exchange from Class M shares. Otherwise
no exchanges of any class of any Oppenheimer fund into Class M shares
are permitted.
However, if the Distributor receives, at the time of purchase,
notice that shares of Oppenheimer Money Market Fund, Inc. are being
purchased with the redemption proceeds of shares of other mutual funds
(other than other money market funds) that are not part of the
Oppenheimer funds family, those shares of Oppenheimer Money Market
Fund, Inc. may be exchanged for shares of other Oppenheimer funds at
net asset value without paying a sales charge.
Class A shares of Oppenheimer funds may be exchanged at net asset
value for shares of any Money Market Fund. Shares of any Money Market
Fund purchased without a sales charge may be exchanged for shares of
Oppenheimer funds offered with a sales charge upon payment of the sales
charge (or, if applicable, may be used to purchase shares of
Oppenheimer funds subject to a contingent deferred sales charge).
However, shares of Oppenheimer Money Market Fund, Inc. purchased with
the redemption proceeds of shares of other mutual funds (other than
funds managed by the Manager or its subsidiaries) redeemed within the
12 months prior to that purchase may subsequently be exchanged for
shares of other Oppenheimer funds without being subject to an initial
or contingent deferred sales charge, whichever is applicable. To
qualify for that privilege, the investor or the investor's dealer must
notify the Distributor of eligibility for this privilege at the time
the shares of Oppenheimer Money Market Fund, Inc. are purchased, and,
if requested, must supply proof of entitlement to this privilege.
Shares of this Fund acquired by reinvestment of dividends or
distributions from any other of the Oppenheimer funds (except
Oppenheimer Cash Reserves) or from any unit investment trust for which
reinvestment arrangements have been made with the Distributor may be
exchanged at net asset value for shares of any of the Oppenheimer
funds. No contingent deferred sales charge is imposed on exchanges of
shares of either class purchased subject to a contingent deferred sales
charge. However, when Class A shares acquired by exchange of Class A
shares of other Oppenheimer funds purchased subject to a Class A
contingent deferred sales charge are redeemed within 18 months of the
end of the calendar month of the initial purchase of the exchanged
Class A shares, the Class A contingent deferred sales charge is imposed
on the redeemed shares (see "Class A Contingent Deferred Sales Charge"
in the Prospectus). The Class B contingent deferred sales charge is
imposed on Class B shares acquired by exchange if they are redeemed
within six years of the initial purchase of the exchanged Class B
shares. The Class C contingent deferred sales charge is imposed on
Class C shares acquired by exchange if they are redeemed within 12
months of the initial purchase of the exchanged Class C shares.
When Class B or Class C shares are redeemed to effect an exchange,
the priorities described in "How To Buy Shares" in the Prospectus for
the imposition of the Class B or Class C contingent deferred sales
charge will be followed in determining the order in which the shares
are exchanged. Shareholders should take into account the effect of any
exchange on the applicability and rate of any contingent deferred sales
charge that might be imposed in the subsequent redemption of remaining
shares. Shareholders owning shares of more than one Class must specify
whether they intend to exchange Class A, Class B or Class C shares.
The Fund reserves the right to reject telephone or written
exchange requests submitted in bulk by anyone on behalf of more than
one account. The Fund may accept requests for exchanges of up to 50
accounts per day from representatives of authorized dealers that
qualify for this privilege. In connection with any exchange request,
the number of shares exchanged may be less than the number requested if
the exchange or the number requested would include shares subject to a
restriction cited in the Prospectus or this Statement of Additional
Information or would include shares covered by a share certificate that
is not tendered with the request. In those cases, only the shares
available for exchange without restriction will be exchanged.
When exchanging shares by telephone, the shareholder must either
have an existing account in, or obtain and acknowledge receipt of a
prospectus of, the fund to which the exchange is to be made. For full
or partial exchanges of an account made by telephone, any special
account features such as Asset Builder Plans, Automatic Withdrawal
Plans and retirement plan contributions will be switched to the new
account unless the Transfer Agent is instructed otherwise. If all
telephone lines are busy (which might occur, for example, during
periods of substantial market fluctuations), shareholders might not be
able to request exchanges by telephone and would have to submit written
exchange requests.
Shares to be exchanged are redeemed on the regular business day
the Transfer Agent receives an exchange request in proper form (the
"Redemption Date"). Normally, shares of the fund to be acquired are
purchased on the Redemption Date, but such purchases may be delayed by
either fund up to five business days if it determines that it would be
disadvantaged by an immediate transfer of the redemption proceeds. The
Fund reserves the right, in its discretion, to refuse any exchange
request that may disadvantage it (for example, if the receipt of
multiple exchange requests from a dealer might require the disposition
of portfolio securities at a time or at a price that might be
disadvantageous to the Fund).
The different Oppenheimer funds available for exchange have
different investment objectives, policies and risks, and a shareholder
should assure that the Fund selected is appropriate for his or her
investment and should be aware of the tax consequences of an exchange.
For federal income tax purposes, an exchange transaction is treated as
a redemption of shares of one fund and a purchase of shares of another.
"Reinvestment Privilege," above, discusses some of the tax consequences
of reinvestment of redemption proceeds in such cases. The Fund, the
Distributor, and the Transfer Agent are unable to provide investment,
tax or legal advice to a shareholder in connection with an exchange
request or any other investment transaction.
Dividends, Capital Gains and Taxes
Dividends and Distributions. Dividends will be payable on shares held
of record at the time of the previous determination of net asset value,
or as otherwise described in "How to Buy Shares." Daily dividends on
newly purchased shares will not be declared or paid until such time as
Federal Funds (funds credited to a member bank's account at the Federal
Reserve Bank) are available from the purchase payment for such shares.
Normally, purchase checks received from investors are converted to
Federal Funds on the next business day. Dividends will be declared on
shares repurchased by a dealer or broker for three business days
following the trade date (i.e., to and including the day prior to
settlement of the repurchase). If all shares in an account are
redeemed, all dividends accrued on shares of the same class in the
account will be paid together with the redemption proceeds.
Dividends, distributions and the proceeds of the redemption of
Fund shares represented by checks returned to the Transfer Agent by the
Postal Service as undeliverable will be invested in shares of
Oppenheimer Money Market Fund, Inc., as promptly as possible after the
return of such checks to the Transfer Agent, to enable the investor to
earn a return on otherwise idle funds.
The amount of a class's distributions may vary from time to time
depending on market conditions, the composition of the Fund's
portfolio, and expenses borne by the Fund or borne separately by a
class, as described in "Alternative Sales Arrangements -- Class A,
Class B and Class C Shares," above. Dividends are calculated in the
same manner, at the same time and on the same day for shares of each
class. However, dividends on Class B and Class C shares are expected
to be lower as a result of the asset-based sales charge on Class B
shares and Class C shares, and Class B and Class C dividends will also
differ in amount as a consequence of any difference in net asset value
between Class A, Class B and Class C shares.
Dividends will be declared from net investment income, if any.
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.
If the Fund qualifies as a "regulated investment company" under
the Internal Revenue Code, it will not be liable for Federal income
taxes on amounts paid by it as dividends and distributions. The Fund
qualified as a regulated investment company in its last fiscal year and
intends to qualify in future years, but reserves the right not to
qualify. The Internal Revenue Code contains a number of complex tests
to determine whether the Fund will qualify, and the Fund might not meet
those tests in a particular year. For example, if the Fund derives 30%
or more of its gross income from the sale of securities held less than
three months, it may fail to qualify (see "Tax Aspects of Covered Calls
and Hedging Instruments," above). If it does not qualify, the Fund will
be treated for tax purposes as an ordinary corporation and will receive
no tax deduction for payments of dividends and distributions made to
shareholders.
Under the Internal Revenue Code, by December 31 each year the Fund
must distribute 98% of its taxable investment income earned from
January 1 through December 31 of that year and 98% of its capital gains
realized in the period from November 1 of the prior year through
October 31 of the current year, or else the Fund must pay an excise tax
on the amounts not distributed. The Manager might determine in a
particular year that it would be in the best interest of shareholders
for the Fund not to make such distributions at the required levels and
to pay the excise tax on the undistributed amounts. That would reduce
the amount of income or capital gains available for distribution to
shareholders.
The Internal Revenue Code requires that a holder (such as the
Fund) of a zero coupon security accrue as income each year a portion of
the discount at which the security was purchased even though the Fund
receives no interest payment in cash on the security during the year.
As an investment company, the Fund must pay out substantially all of
its net investment income each year or be subject to excise taxes, as
described above. Accordingly, when the Fund holds zero coupon
securities, it may be required to pay out as an income distribution
each year an amount which is greater than the total amount of cash
interest the Fund actually received during that year. Such
distributions will be made from the cash assets of the Fund or by
liquidation of portfolio securities, if necessary. The Fund may
realize a gain or loss from such sales. In the event the Fund realizes
net capital gains from such transactions, its shareholders may receive
a larger capital gain distribution than they would have had in the
absence of such transactions. At December 31, 1995 the Fund had
available for federal income tax purposes an unused capital loss
carryover of approximately $538,00, which will expire in the year 2002
and 2003.
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 the gross income
of shareholders for Federal income tax purposes. All of the Fund's
dividends (excluding distributions) paid during 1994 were exempt from
such Federal income taxes. 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. 17.1% of the Fund's dividends
(excluding distributions) paid during 1995 were a tax preference item
for such shareholders. 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. Corporate
shareholders and "substantial users" of facilities financed by Private
Activity Municipal Securities should read "Investment Objective and
Policies", above 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 either a receipt of ordinary income or long-term
capital gains 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.
Florida does not currently impose a personal income tax on
individuals. Accordingly, dividends or distributions paid by the Fund
to individuals who are Florida residents are not subject to any Florida
state income tax. Investment company taxable income and capital gains
of the Fund will be subject to Florida corporate income taxes. Florida
currently imposes an "intangible tax" at the annual rate of 0.2% on
certain securities and other intangible assets owned by Florida
residents on the first day of each calendar year. The Fund has
received a ruling from the Florida Department of Revenue that, if on
the close of business on the last business day of the calendar year the
Fund's portfolio assets consist entirely of securities that are exempt
from the Florida intangible personal property tax, including
obligations of the U.S. government, its agencies, instrumentalities and
territories (including Puerto Rico, Guam and the U.S. Virgin Islands)
and Florida Municipal Securities, shares of the Fund will be exempt
from Florida's intangible tax in the following year. On the last
business day of the 1994 calendar year the Fund's assets consisted
solely of assets exempt from Florida's intangible personal property
tax. The Fund anticipates that on the last business day of each
calendar year the Fund's assets will consist solely of assets exempt
from Florida's intangible personal property tax. Transaction costs
involved in restructuring the Fund's portfolio to take advantage of the
exemption from the intangibles tax in any year could reduce the Fund's
investment return and might exceed any increased investment return the
Fund achieved by investing in non-exempt assets during the year.
Dividend Reinvestment in Another Fund. Shareholders of the Fund may
elect to reinvest all dividends and/or capital gains distributions in
shares of the same class of any of the other Oppenheimer funds listed
in "Reduced Sales Charges" above at net asset value without sales
charge. Not all of the Oppenheimer funds offer Class B and Class C
shares. The names of Funds that offer Class B and Class C shares can
be obtained by calling the Distributor at 1-800-525-7048. To elect
this option, the shareholder must notify the Transfer Agent in writing
and must either have an existing account in the fund selected for
reinvestment or must obtain a prospectus for that fund and an
application from the Distributor to establish an account. The
investment will be made at the net asset value per share in effect at
the close of business on the payable date of the dividend or
distribution. Dividends and/or distributions from shares of other
Oppenheimer funds may be invested in shares of this Fund on the same
basis.
Additional Information About the Fund
The Custodian. The Custodian of the assets of the Fund is Citibank,
N.A. The Custodian's responsibilities include safeguarding and
controlling the Fund's portfolio securities, collecting income on the
portfolio securities and handling the delivery of such securities to
and from the Fund. The Manager and its affiliates currently have
banking relationships with the Custodian. The Manager has represented
to the Fund that its banking relationships with the Custodian have been
and will continue to be unrelated to and unaffected by the relationship
between the Fund and the Custodian. It will be the practice of the
Fund to deal with the Custodian in a manner uninfluenced by any banking
relationship the Custodian may have with the Manager and its
affiliates. The Fund's cash balances with the Custodian in excess of
$100,000 are not protected by Federal deposit insurance. Such
uninsured balances may at times be substantial.
Independent Auditors. The independent auditors of the Fund audit the
Fund's financial statements and perform other related audit services.
They also act as auditors for certain other funds advised by the
Manager and its affiliates.
<PAGE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Trustees and Shareholders of Oppenheimer
Multi-State Tax-Exempt Trust:
We have audited the accompanying statements of
investments and assets and liabilities of Oppenheimer
Florida Tax-Exempt Fund (a series of Oppenheimer
Multi-State Tax-Exempt Trust) as of December 31,
1995, and the related statement of operations for the
year then ended, the statements of changes in net
assets for each of the years in the two-year period
then ended, and the financial highlights for each of
the years in the two-period then ended and for the
period from October 1, 1993 (commencement of
operations) to December 31, 1993. These financial
statements and financial highlights are the
responsibility of the Fund's management. Our
responsibility is to express an opinion on these
financial statements and financial highlights based
on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require
that we plan and perform the audit to obtain
reasonable assurance about whether the financial
statements and financial highlights are free of
material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our
procedures included confirmation of securities owned
as of December 31, 1995, by correspondence with the
custodian. An audit also includes assessing the
accounting principles used and significant estimates
made by management, as well as evaluating the overall
financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and
financial highlights referred to above present
fairly, in all material respects, the financial
position of Oppenheimer Florida Tax-Exempt Fund as of
December 31, 1995, the results of its operations for
the year then ended, the changes in its net assets
for each of the years in the two-year period then
ended, and the financial highlights for each of the
years in the two-year period then ended and for the
period from October 1, 1993 (commencement of
operations) to December 31, 1993, in conformity with
generally accepted accounting principles.
KPMG PEAT MARWICK LLP
/s/ KPMG Peat Marwick
Denver, Colorado
January 22, 1996
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------
STATEMENT OF INVESTMENTS December 31, 1995
RATINGS: MOODY'S/
S&P'S/FITCH'S FACE MARKET
VALUE
(UNAUDITED) AMOUNT SEE
NOTE 1
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------------
MUNICIPAL BONDS AND NOTES - 96.9%
- -------------------------------------------------------------------------------------------------------------------------------
FLORIDA - 81.0%
-----------------------------------------------------------------------------------------------------------------------
Alachua County, Florida Health Facilities Authority Health
Facilities Revenue Refunding Bonds, Santa Fe Healthcare
Facilities Project, 6%, 11/15/09 Baa1/BBB+ $1,000,000
$1,005,786
-----------------------------------------------------------------------------------------------------------------------
Brevard County, Florida Housing Finance Authority Single
Family Mtg. Revenue Bonds, 6.70%, 9/1/27 Aaa/NR 1,000,000
1,041,669
-----------------------------------------------------------------------------------------------------------------------
Broward County, Florida Resource Recovery Revenue Bonds,
Broward Waste Energy-LP North Project, 7.95%, 12/1/08 A/A 1,175,000
1,333,280
-----------------------------------------------------------------------------------------------------------------------
Broward County, Florida Resource Recovery Revenue
Bonds, Ses Broward Co.-LP South Project, 7.95%, 12/1/08 A/A- 400,000
453,882
-----------------------------------------------------------------------------------------------------------------------
Broward County, Florida School District General Obligation
Bonds, Prerefunded, 7.125%, 2/15/08 Aaa/AAA 500,000
552,835
-----------------------------------------------------------------------------------------------------------------------
Clay County, Florida Housing Finance Authority Revenue
Bonds, Single Family Mtg., 6.55%, 3/1/28 Aaa/NR 1,100,000
1,142,266
-----------------------------------------------------------------------------------------------------------------------
Collier County, Florida Health Facilities Authority Health
Facility Revenue Refunding Bonds, The Moorings, Inc.
Project, 7%, 12/1/19 NR/BBB+/A- 1,000,000
1,066,821
-----------------------------------------------------------------------------------------------------------------------
Dade County, Florida General Obligation Refunding
Bonds, FGIC Insured, 12%, 10/1/04 Aaa/AAA/AAA 100,000
153,105
-----------------------------------------------------------------------------------------------------------------------
Dade County, Florida Industrial Development Authority
Revenue Bonds, Miami Cerebral Palsy Services Project,
8%, 6/1/22 NR/NR 1,000,000 1,059,288
-----------------------------------------------------------------------------------------------------------------------
Florida Housing Finance Agency Revenue Bonds,
Maitland Club Apts. Project, Series B-1, AMBAC Insured,
6.75%, 8/1/14 Aaa/AAA/AAA 1,000,000
1,047,648
-----------------------------------------------------------------------------------------------------------------------
Florida State Board of Education Capital Outlay Public
Education General Obligation Bonds, Prerefunded, Series A,
6.75%, 6/1/21 Aa/AAA 300,000 337,891
-----------------------------------------------------------------------------------------------------------------------
Florida State Board of Education Capital Outlay Public
Education General Obligation Bonds, Prerefunded, Series
A, 7.25%, 6/1/23 Aaa/AAA 2,210,000
2,517,101
-----------------------------------------------------------------------------------------------------------------------
Florida State Board of Education Capital Outlay Public
Education General Obligation Refunding Bonds, Series D,
5.125%, 6/1/22 Aa/AA/AA 700,000
680,226
-----------------------------------------------------------------------------------------------------------------------
Florida State Division of Bond Department General
Services Revenue Bonds, Sunshine Skyway Project,
Prerefunded, 10.25%, 6/1/08 Aaa/AAA 1,000,000
1,106,784
-----------------------------------------------------------------------------------------------------------------------
Florida State Division of Bond Finance General Service
Revenue Bonds, Consolidated & Recreation Lands-
Department of Natural Resources, Prerefunded, Series A,
MBIA Insured, 7.25%, 7/1/06 Aaa/AAA 1,000,000
1,096,374
-----------------------------------------------------------------------------------------------------------------------
Florida State Division of Bond Finance General Service
Revenue Bonds, Department of Natural Resources and
Preservation, Series 2000-A, 5.80%, 7/1/13 Aaa/AAA/A 750,000
785,863
-----------------------------------------------------------------------------------------------------------------------
Florida State Turnpike Authority Revenue Bonds,
Prerefunded, 7.50%, 7/1/19 Aaa/NR/AAA 700,000
789,368
-----------------------------------------------------------------------------------------------------------------------
Hillsborough County, Florida Aviation Authority Revenue
Refunding Bonds, Tampa International Airport, Series B,
FGIC Insured, 5.50%, 10/1/13 Aaa/AAA/AAA 900,000
921,760
</TABLE>
5 Oppenheimer Florida Tax-Exempt Fund
<PAGE>
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------
STATEMENT OF INVESTMENTS (Continued)
RATINGS: MOODY'S/
S&P'S/FITCH'S FACE MARKET
VALUE
(UNAUDITED) AMOUNT SEE
NOTE 1
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------------
MUNICIPAL BONDS AND NOTES (CONTINUED)
- -------------------------------------------------------------------------------------------------------------------------------
FLORIDA (CONTINUED)
-----------------------------------------------------------------------------------------------------------------------
Hillsborough County, Florida Industrial Development
Authority Pollution Control Revenue Refunding Bonds,
Tampa Electric Co. Project, 8%, 5/1/22 Aa3/AA/AA- $1,000,000 $
1,226,212
-----------------------------------------------------------------------------------------------------------------------
Jacksonville, Florida Electric Authority Revenue Bonds,
Electric Systems Project, Series 3B, 5.25%, 10/1/19 Aa1/AA/AA+ 650,000
651,176
-----------------------------------------------------------------------------------------------------------------------
Martin County Florida Industrial Development Authority
Revenue Refunding Bonds, Indiantown Cogeneration
Project, Series A, 7.875%, 12/15/25 Baa3/BBB-/BBB 1,000,000
1,151,223
-----------------------------------------------------------------------------------------------------------------------
Orange County, Florida Housing Finance Authority Single
Family Mtg. Revenue Bonds, 6.85%, 10/1/27 Aaa/AAA 1,000,000
1,053,556
-----------------------------------------------------------------------------------------------------------------------
Orlando & Orange County, Florida Expressway Authority
Revenue Refunding Bonds, Sr. Lien, FGIC Insured, 5.50%,
7/1/18 Aaa/AAA/AAA 720,000
738,752
-----------------------------------------------------------------------------------------------------------------------
Orlando, Florida Utilities Commission Water & Electric
Revenue Bonds, Prerefunded, Series C, 7%, 10/1/23 Aaa/AA- 600,000
670,471
-----------------------------------------------------------------------------------------------------------------------
Pinellas County, Florida Health Facilities Authority
Hospital Revenue Bonds, Bayfront Obligation Group,
Series A, MBIA Insured, 5.60%, 7/1/23 Aaa/AAA 500,000
507,728
-----------------------------------------------------------------------------------------------------------------------
South Florida Water Management District Revenue
Refunding Bonds, Special Obligation Land Acquisition,
AMBAC Insured, 5.25%, 10/1/15 Aaa/AAA/AAA 720,000
720,819
-----------------------------------------------------------------------------------------------------------------------
St. Petersburg, Florida Public Improvement Revenue
Refunding Bonds, MBIA Insured, 6.375%, 2/1/12 Aaa/AAA 750,000
813,193
-----------------------------------------------------------------------------------------------------------------------
Vero Beach, Florida Electric Revenue Refunding Bonds,
Series A, MBIA Insured, 5.375%, 12/1/21 Aaa/AAA 500,000
503,418
-----------------------------------------------------------------------------------------------------------------------
West Palm Beach, Florida Utility System Revenue Bonds,
Series B, FGIC Insured, 5.40%, 10/1/23 Aaa/AAA/AAA 850,000
856,348
------------
25,984,843
- -------------------------------------------------------------------------------------------------------------------------------
U.S. POSSESSIONS - 15.9%
-----------------------------------------------------------------------------------------------------------------------
Puerto Rico Commonwealth Aqueduct & Sewer Authority
Revenue Bonds, Escrowed to Maturity, 10.25%, 7/1/09 Aaa/AAA 400,000
567,976
-----------------------------------------------------------------------------------------------------------------------
Puerto Rico Commonwealth Highway & Transportation
Authority Revenue Bonds, Prerefunded, Series T, 6.625%,
7/1/18 NR/AAA 500,000 569,684
-----------------------------------------------------------------------------------------------------------------------
Puerto Rico Commonwealth Highway & Transportation
Authority Revenue Bonds, Series W, Inverse Floater,
6.32%, 7/1/10(1) Baa1/A 1,000,000 1,002,650
-----------------------------------------------------------------------------------------------------------------------
Puerto Rico Commonwealth Highway & Transportation
Authority Revenue Refunding Bonds, Series X, 5.25%,
7/1/21 Baa1/A 700,000 673,370
-----------------------------------------------------------------------------------------------------------------------
Puerto Rico Electric Power Authority Revenue Refunding
Bonds, Series U, 6%, 7/1/14 Baa1/A- 700,000
725,384
-----------------------------------------------------------------------------------------------------------------------
Puerto Rico Public Buildings Authority Guaranteed Public
Education & Health Facilities Revenue Bonds,
Prerefunded, Series L, 6.875%, 7/1/21 Aaa/AAA 600,000
692,044
-----------------------------------------------------------------------------------------------------------------------
Puerto Rico Public Buildings Authority Guaranteed Public
Education & Health Facilities Revenue Refunding Bonds,
Series M, 5.50%, 7/1/21 Baa1/A 300,000
297,965
</TABLE>
6 Oppenheimer Florida Tax-Exempt Fund
<PAGE>
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------
STATEMENT OF INVESTMENTS (Continued)
RATINGS: MOODY'S/
S&P'S/FITCH'S FACE MARKET
VALUE
(UNAUDITED) AMOUNT SEE
NOTE 1
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------------
MUNICIPAL BONDS AND NOTES (CONTINUED)
- -------------------------------------------------------------------------------------------------------------------------------
U.S. POSSESSIONS - (CONTINUED)
-----------------------------------------------------------------------------------------------------------------------
Puerto Rico Public Buildings Authority Revenue
Guaranteed Bonds, Prerefunded, Series K, 6.875%, 7/1/21 Aaa/AAA $ 500,000
$ 576,703
------------
5,105,776
------------
Total Municipal Bonds and Notes (Cost $30,133,735)
31,090,619
- -------------------------------------------------------------------------------------------------------------------------------
SHORT-TERM TAX-EXEMPT OBLIGATIONS - 1.6%
- -------------------------------------------------------------------------------------------------------------------------------
Hillsborough County, Florida Industrial Development
Authority Pollution Control Revenue Bonds, Tampa
Electric Co. Project, 4%(2) (Cost $500,000) 500,000
500,000
-----------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS, AT VALUE (COST $30,633,735) 98.5%
31,590,619
-----------------------------------------------------------------------------------------------------------------------
OTHER ASSETS NET OF LIABILITIES 1.5
483,488
------ ------------
NET ASSETS 100.0% $32,074,107
======
============
</TABLE>
1. Represents the current interest rate for a variable rate bond.
Variable rate bonds known as "inverse floaters" pay interest at a rate
that varies inversely with short-term interest rates. As interest rates
rise, inverse floaters produce less current income. Their price may be
more volatile than the price of a comparable fixed-rate security.
Inverse floaters amount to $1,002,650 or 3.13% of the Fund's net assets
at December 31, 1995. 2. Floating or variable rate obligation maturing
in more than one year. The interest rate, which is based on specific, or
an index of, market interest rates, is subject to change periodically
and is the effective rate on December 31, 1995. This instrument may also
have a demand feature which allows the recovery of principal at any
time, or at specified intervals not exceeding one year, on up to 30
days' notice. Maturity date shown represents effective maturity based on
variable rate and, if applicable, demand feature.
As of December 31, 1995, securities subject to the alternative minimum
tax amounted to $5,436,362 or 16.95% of the Fund's net assets.
Distribution of investments by industry, as a percentage of total
investments at value, is as follows:
<TABLE>
<CAPTION>
INDUSTRY MARKET VALUE
PERCENT
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Utilities $ 7,633,975 24.1%
Transportation 6,615,561 20.9
General Obligation Bonds 5,807,872 18.4
Housing 4,285,139 13.6
Hospitals 3,639,623 11.5
Special Tax Bonds 1,882,237 6.0
Revenue Bonds 1,226,212 3.9
Pollution Control 500,000 1.6
----------- ------
$31,590,619 100.0%
===========
======
</TABLE>
See accompanying Notes to Financial Statements.
7 Oppenheimer Florida Tax-Exempt Fund
<PAGE>
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES December 31, 1995
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
ASSETS Investments, at value (cost $30,633,735) - see accompanying statement
$31,590,619
----------------------------------------------------------------------------------------------------
Cash 156,018
----------------------------------------------------------------------------------------------------
Receivables:
Interest 533,569
Shares of beneficial interest sold 61,336
Deferred organization costs 1,431
----------------------------------------------------------------------------------------------------
Other 6,548
------------
Total assets 32,349,521
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
LIABILITIES Payables and other liabilities:
Shares of beneficial interest redeemed
112,784
Dividends 92,715
Trustees' fees 28,903
Legal and auditing fees 11,538
Distribution and service plan fees 10,732
Shareholder reports 4,684
Transfer and shareholder servicing agent fees
441
Other 13,617
-------------
Total liabilities 275,414
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSETS
$32,074,107
------------
------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
COMPOSITION OF Paid-in capital
$31,683,559
----------------------------------------------------------------------------------------------------
NET ASSETS Overdistributed net investment income
(7,891)
----------------------------------------------------------------------------------------------------
Accumulated net realized loss on investment transactions
(558,445)
----------------------------------------------------------------------------------------------------
Net unrealized appreciation on investments - Note 3
956,884
------------
Net assets $32,074,107
------------
------------
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE Class A Shares:
PER SHARE Net asset value and redemption price per share (based on
net assets of $19,377,188 and 1,699,707 shares of beneficial interest outstanding)
$11.40
Maximum offering price per share (net asset value plus sales charge
of 4.75% of offering price) $11.97
----------------------------------------------------------------------------------------------------
Class B Shares:
Net asset value, redemption price and offering price per share (based on
net assets of $12,658,081 and 1,108,807 shares of beneficial interest outstanding)
$11.42
----------------------------------------------------------------------------------------------------
Class C Shares:
Net asset value, redemption price and offering price per share (based on
net assets of $38,838 and 3,407 shares of beneficial interest outstanding)
$11.40
</TABLE>
See accompanying Notes to Financial Statements.
8 Oppenheimer Florida Tax-Exempt Fund
<PAGE>
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------
STATEMENT OF OPERATIONS For the Year Ended December 31, 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME Interest
$1,574,194
- ------------------------------------------------------------------------------------------------------------------------------------
EXPENSES Management fees - Note 4
151,497
----------------------------------------------------------------------------------------------------
Distribution and service plan fees - Note 4:
Class A 36,538
Class B 107,478
Class C 13
----------------------------------------------------------------------------------------------------
Trustees' fees and expenses 41,364
----------------------------------------------------------------------------------------------------
Legal and auditing fees 27,955
----------------------------------------------------------------------------------------------------
Shareholder reports 24,543
----------------------------------------------------------------------------------------------------
Transfer and shareholder servicing agent fees - Note 4
21,996
----------------------------------------------------------------------------------------------------
Insurance expenses 5,091
----------------------------------------------------------------------------------------------------
Registration and filing fees:
Class A 2,419
Class B 1,287
----------------------------------------------------------------------------------------------------
Custodian fees and expenses 457
----------------------------------------------------------------------------------------------------
Other 4,532
-----------
Total expenses 425,170
-----------
Less reimbursement of expenses by OppenheimerFunds,
Inc. - Note 4 (209,449)
-----------
Net expenses 215,721
- ------------------------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME
1,358,473
- ------------------------------------------------------------------------------------------------------------------------------------
REALIZED AND Net realized loss on investments
(116,007)
----------------------------------------------------------------------------------------------------
UNREALIZED GAIN (LOSS) Net change in unrealized appreciation or depreciation on investments
2,622,466
-----------
Net realized and unrealized gain 2,506,459
- ------------------------------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS
$3,864,932
-----------
-----------
</TABLE>
See accompanying Notes to Financial Statements.
9 Oppenheimer Florida Tax-Exempt Fund
<PAGE>
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
YEAR ENDED DECEMBER
31,
1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATIONS Net investment income $ 1,358,473 $
932,745
----------------------------------------------------------------------------------------------------
Net realized loss (116,007) (455,786)
-------------------------------
Net change in unrealized appreciation or depreciation 2,622,466
(1,795,681)
-------------------------------
Net increase (decrease) in net assets resulting
from operations 3,864,932
(1,318,722)
- ------------------------------------------------------------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS Dividends from net investment income:
TO SHAREHOLDERS Class A (824,373)
(574,828)
Class B (528,564) (357,917)
Class C (79) --
- ------------------------------------------------------------------------------------------------------------------------------------
BENEFICIAL INTEREST Net increase in net assets resulting from
TRANSACTIONS beneficial interest transactions - Note 2:
Class A 5,923,134 6,272,842
Class B 3,616,484 4,026,577
Class C 38,376 --
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSETS Total increase 12,089,910
8,047,952
----------------------------------------------------------------------------------------------------
Beginning of period 19,984,197
11,936,245
-------------------------------
End of period (including overdistributed
net investment income of $7,891 and
$5,485, respectively) $32,074,107
$19,984,197
-------------------------------
-------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
10 Oppenheimer Florida Tax-Exempt Fund
<PAGE>
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
CLASS A CLASS B CLASS C
------------------------------- ------------------------------ --------------
PERIOD ENDED
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
DECEMBER 31,
1995 1994 1993(2) 1995 1994 1993(2) 1995(1)
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING DATA:
<S> <C> <C> <C> <C> <C> <C>
<C>
Net asset value, beginning of period $10.26 $11.79 $11.43 $10.27 $11.81 $11.43
$10.96
- -----------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .63 .64 .14 .55 .56 .12 .20
Net realized and unrealized gain (loss) 1.14 (1.53) .36 1.15 (1.54) .38 .44
- -----------------------------------------------------------------------------------------------------------------------------
Total income (loss) from investment
operations 1.77 (.89) .50 1.70 (.98) .50 .64
- -----------------------------------------------------------------------------------------------------------------------------
Dividends to shareholders from net
investment income (.63) (.64) (.14) (.55) (.56) (.12) (.20)
- ------------------------------------------------===================================
==========================================
Net asset value, end of period $11.40 $10.26 $11.79 $11.42 $10.27 $11.81 $11.40
=====================================================
========================
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE(3) 17.60% (7.66)% 4.39% 16.81% (8.42)%
4.35% 5.86%
- -----------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) $19,377 $11,992 $7,062 $12,658 $7,992 $4,874 $39
- -----------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $14,508 $9,741 $2,471 $10,772 $6,987 $2,304 $5
- -----------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income 5.71% 5.90% 5.08%(4) 4.92% 5.13% 4.20%(4)
4.68%(4)
Expenses, before voluntary assumption by
the Manager or Distributor 1.36% 1.25% 1.89%(4) 2.11% 1.99% 2.20%(4)
1.92%(4)
Expenses, net of voluntary assumption by
the Manager or Distributor 0.53% 0.29% --%(4) 1.29% 1.03% 0.38%(4)
1.43%(4)
- -----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(5) 18.4% 30.4% --% 18.4% 30.4% --% 18.4%
</TABLE>
1. For the period from August 29, 1995 (inception of offering) to December 31,
1995.
2. For the period from October 1, 1993 (commencement of operations) to December
31, 1993.
3. Assumes a hypothetical initial investment on the business day before the
first day of the fiscal period, with all dividends and distributions reinvested
in additional shares on the reinvestment date, and redemption at the net asset
value calculated on the last business day of the fiscal period. Sales charges
are not reflected in the total returns.
Total returns are not annualized for periods of less than one full year.
4. Annualized.
5. The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities owned
during the period. Securities with a maturity or expiration date at the time of
acquisition of one year or less are excluded from the calculation. Purchases and
sales of investment securities (excluding short-term securities) for the period
ended December 31, 1995 were $13,939,320 and $4,541,471, respectively. See
accompanying Notes to Financial Statements.
11 Oppenheimer Florida Tax-Exempt Fund
<PAGE>
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
Oppenheimer Florida Tax-Exempt Fund (the Fund) is a
separate series of Oppenheimer Multi-State Tax-Exempt
Trust, a non-diversified, open-end management
investment company registered under the Investment
Company Act of 1940, as amended. The Fund's
investment objective is to seek as high a level of
current interest income exempt from federal income
tax for individual investors as is available from
municipal securities and consistent with preservation
of capital. The Fund's investment advisor is
OppenheimerFunds, Inc. (the Manager). The Fund offers
Class A, Class B and Class C shares. Class A shares
are sold with a front-end sales charge. Class B and
Class C shares may be subject to a contingent
deferred sales charge. All classes of shares have
identical rights to earnings, assets and voting
privileges, except that each class has its own
distribution and/or service plan, expenses directly
attributable to a particular class and exclusive
voting rights with respect to matters affecting a
single class. Class B shares will automatically
convert to Class A shares six years after the date of
purchase. The following is a summary of significant
accounting policies consistently followed by the
Fund.
INVESTMENT VALUATION. Portfolio securities are valued
at the close of the New York Stock Exchange on each
trading day. Listed and unlisted securities for which
such information is regularly reported are valued at
the last sale price of the day or, in the absence of
sales, at values based on the closing bid or asked
price or the last sale price on the prior trading
day. Long-term and short-term "non-money market" debt
securities are valued by a portfolio pricing service
approved by the Board of Trustees. Such securities
which cannot be valued by the approved portfolio
pricing service are valued using dealer-supplied
valuations provided the Manager is satisfied that the
firm rendering the quotes is reliable and that the
quotes reflect current market value, or are valued
under consistently applied procedures established by
the Board of Trustees to determine fair value in good
faith. Short-term "money market type" debt securities
having a remaining maturity of 60 days or less are
valued at cost (or last determined market value)
adjusted for amortization to maturity of any premium
or discount.
ALLOCATION OF INCOME, EXPENSES, AND GAINS AND LOSSES.
Income, expenses (other than those attributable to a
specific class) and gains and losses are allocated
daily to each class of shares based upon the relative
proportion of net assets represented by such class.
Operating expenses directly attributable to a
specific class are charged against the operations of
that class.
FEDERAL TAXES. The Fund intends to continue to comply
with provisions of the Internal Revenue Code
applicable to regulated investment companies and to
distribute all of its taxable income, including any
net realized gain on investments not offset by loss
carryovers, to shareholders. Therefore, no federal
income or excise tax provision is required. At
December 31, 1995, the Fund had available for federal
income tax purposes an unused capital loss carryover
of approximately $538,000, which expires in 2002 and
2003.
TRUSTEES' FEES AND EXPENSES. The Fund has adopted a
nonfunded retirement plan for the Fund's independent
trustees. Benefits are based on years of service and
fees paid to each trustee during the years of
service. During the year ended December 31, 1995, a
provision of $25,751 was made for the Fund's
projected benefit obligations, and a payment of $422
was made to a retired trustee, resulting in an
accumulated liability of $25,329 at December 31,
1995.
12 Oppenheimer Florida Tax-Exempt Fund
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Continued)
1. SIGNIFICANT ACCOUNTING POLICIES (Continued)
ORGANIZATION COSTS. The Manager advanced $1,480 for
organization and start-up costs of the Fund. Such
expenses are being amortized over a five-year period
from the effective date operations commenced. In the
event that all or part of the Manager's initial
investment in shares of the Fund is withdrawn during
the amortization period, the redemption proceeds will
be reduced to reimburse the Fund for any unamortized
expenses, in the same ratio as the number of shares
redeemed bears to the number of initial shares
outstanding at the time of such redemption.
DISTRIBUTIONS TO SHAREHOLDERS. The Fund intends to
declare dividends separately for Class A, Class B and
Class C shares from net investment income each day
the New York Stock Exchange is open for business and
pay such dividends monthly. Distributions from net
realized gains on investments, if any, will be
declared at least once each year.
CLASSIFICATION OF DISTRIBUTIONS TO SHAREHOLDERS. Net
investment income (loss) and net realized gain (loss)
may differ for financial statement and tax purposes
primarily because of premium amortization for tax
purposes. The character of the distributions made
during the year from net investment income or net
realized gains may differ from their ultimate
characterization for federal income tax purposes.
Also, due to timing of dividend distributions, the
fiscal year in which amounts are distributed may
differ from the year that the income or realized gain
(loss) was recorded by the Fund.
During the year ended December 31, 1995, the Fund
changed the classification of distributions to
shareholders to better disclose the differences
between financial statement amounts and distributions
determined in accordance with income tax regulations.
Accordingly, during the year ended December 31, 1995,
amounts have been reclassified to reflect an increase
in overdistributed net investment income of $7,863.
Accumulated net realized loss on investments was
decreased by the same amount.
OTHER. Investment transactions are accounted for on
the date the investments are purchased or sold (trade
date). Original issue discount on securities
purchased is amortized over the life of the
respective securities, in accordance with federal
income tax requirements. For bonds acquired after
April 30, 1993, on disposition or maturity, taxable
ordinary income is recognized to the extent of the
lesser of gain or market discount that would have
accrued over the holding period. Realized gains and
losses on investments and unrealized appreciation and
depreciation are determined on an identified cost
basis, which is the same basis used for federal
income tax purposes. The Fund concentrates its
investments in Florida and, therefore, may have more
credit risks related to the economic conditions of
Florida than a portfolio with a broader geographical
diversification.
The preparation of financial statements in conformity
with generally accepted accounting principles
requires management to make estimates and assumptions
that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements
and the reported amounts of income and expenses
during the reporting period. Actual results could
differ from those estimates.
13 Oppenheimer Florida Tax-Exempt Fund
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Continued)
2. SHARES OF BENEFICIAL INTEREST
The Fund has authorized an unlimited number of no par
value shares of beneficial interest of each class.
Transactions in shares of beneficial interest were as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, YEAR ENDED
DECEMBER 31,
1995(1) 1994
------------------------ ----
SHARES AMOUNT SHARES AMOUNT
Class A:
<S> <C> <C> <C> <C>
Sold 828,453 $ 9,144,873 1,094,994 $11,835,206
Dividends reinvested 29,020 318,951 23,730 253,862
Redeemed (327,025) (3,540,690) (548,471) (5,816,226)
--------- ----------- ---------- ------------
Net increase 530,448 $5,923,134 570,253 $ 6,272,842
========= ===========
========== ===========
Class B:
Sold 419,746 $4,609,025 481,494 $ 5,234,804
Dividends reinvested 15,141 166,726 10,745 114,966
Redeemed (104,153) (1,159,267) (126,967) (1,323,193)
--------- ----------- ---------- ------------
Net increase 330,734 $3,616,484 365,272 $ 4,026,577
========= ===========
========== ===========
Class C:
Sold 3,407 $ 38,376 -- $ --
Dividends reinvested -- -- -- --
Redeemed -- -- -- --
--------- ----------- ---------- -----------
Net increase 3,407 $ 38,376 -- $ --
========= ===========
========== ===========
</TABLE>
1. For the year ended December 31, 1995 for both
Class A and Class B shares and for the period from
August 29, 1995 (inception of offering) to December
31, 1995 for Class C shares.
3. UNREALIZED GAINS AND LOSSES ON INVESTMENTS
At December 31, 1995, net unrealized appreciation on
investments of $956,884 was composed of gross
appreciation of $1,111,506, and gross depreciation of
$154,622.
4. MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES
Management fees paid to the Manager were in
accordance with the investment advisory agreement
with the Fund which provides for a fee of .60% on the
first $200 million of average annual net assets, .55%
on the next $100 million, .50% on the next $200
million, .45% on the next $250 million, .40% on the
next $250 million and .35% on net assets in excess of
$1 billion. The Manager has agreed to assume Fund
expenses (with specified exceptions) in excess of the
most stringent applicable regulatory limit on Fund
expenses. In addition, the Manager has voluntarily
undertaken to assume Fund expenses to the level
needed to maintain a stable dividend.
For the year ended December 31, 1995, commissions
(sales charges paid by investors) on sales of Class A
shares totaled $131,060, of which $21,670 was
retained by OppenheimerFunds Distributor, Inc.
(OFDI), a subsidiary of the Manager, as general
distributor, and by an affiliated broker/dealer.
Sales charges advanced to broker/dealers by OFDI on
sales of the Fund's Class B shares totaled $116,695,
of which $324 was paid to an affiliated
broker/dealer. During the year ended December 31,
1995, OFDI received contingent deferred sales charges
of $42,273 upon redemption of Class B shares as
reimbursement for sales commissions advanced by OFDI
at the time of sale of such shares.
OppenheimerFunds Services (OFS), a division of the
Manager, is the transfer and shareholder servicing
agent for the Fund, and for other registered
investment companies. OFS's total costs of providing
such services are allocated ratably to these
companies.
14 Oppenheimer Florida Tax-Exempt Fund
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Continued)
4. MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES (Continued)
Under separate approved plans, each class may expend
up to .25% (voluntarily reduced to .15% by the Fund's
Board) of its net assets annually to compensate OFDI
for costs incurred in connection with the personal
service and maintenance of accounts that hold shares
of the Fund, including amounts paid to brokers,
dealers, banks and other institutions. In addition,
Class B and Class C shares are subject to an
asset-based sales charge of .75% of net assets
annually, to compensate OFDI for sales commissions
paid from its own resources at the time of sale and
associated financing costs. In the event of
termination or discontinuance of the Class B or Class
C plan, the Board of Trustees may allow the Fund to
continue payment of the asset-based sales charge to
OFDI for distribution expenses incurred on Class B or
Class C shares sold prior to termination or
discontinuance of the plan. At December 31, 1995,
OFDI had incurred unreimbursed expenses of $438,657
for Class B. During the year ended December 31, 1995,
OFDI paid $301 and $275, respectively, to an
affiliated broker/dealer as compensation for Class A
and Class B personal service and maintenance
expenses, and retained $86,852 as compensation for
Class B sales commissions and service fee advances,
as well as financing costs.
17 Oppenheimer Florida Tax-Exempt Fund
<PAGE>
OPPENHEIMER FLORIDA TAX-EXEMPT FUND
A Series of Oppenheimer Multi-State Tax-Exempt Trust
OFFICERS AND TRUSTEES Leon Levy, Chairman of the Board of Trustees
Robert G. Galli, Trustee
Benjamin Lipstein, Trustee
Bridget A. Macaskill, Trustee and President
Elizabeth B. Moynihan, Trustee
Kenneth A. Randall, Trustee
Edward V. Regan, Trustee
Russell S. Reynolds, Jr., Trustee
Sidney M. Robbins, Trustee
Donald W. Spiro, Trustee
Pauline Trigere, Trustee
Clayton K. Yeutter, Trustee
Robert E. Patterson, Vice President
George C. Bowen, Treasurer
Robert J. Bishop, Assistant Treasurer
Scott Farrar, Assistant Treasurer
Andrew J. Donohue, Secretary
Robert G. Zack, Assistant Secretary
INVESTMENT ADVISOR OppenheimerFunds, Inc.
DISTRIBUTOR OppenheimerFunds Distributor, Inc.
TRANSFER AND OppenheimerFunds Services
SHAREHOLDER SERVICING
AGENT
CUSTODIAN OF Citibank, N.A.
PORTFOLIO SECURITIES
INDEPENDENT AUDITORS KPMG Peat Marwick LLP
LEGAL COUNSEL Gordon Altman Butowsky Weitzen Shalov & Wein
This is a copy of a report to shareholders of Oppenheimer Florida Tax-Exempt
Fund. This report must be preceded or accompanied by a Prospectus of
Oppenheimer Florida Tax-Exempt Fund. For material information concerning the
Fund, see the Prospectus.
Shares of Oppenheimer funds are not deposits or obligations of any bank, are not
guaranteed by any bank, and are not insured by the FDIC or any other agency, and
involve investment risks, including possible loss of the principal amount
invested.
18 Oppenheimer Florida Tax-Exempt Fund
