Oppenheimer
Pennsylvania Municipal Fund
Prospectus dated November 17, 1997
Oppenheimer Pennsylvania Municipal 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 refer to
"Investment Risks" for a discussion of 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 November
17, 1997 Statement of Additional Information. For a free copy, call
OppenheimerFunds Services, the Fund's Transfer Agent, at 1-800-525-7048, or
write to the Transfer Agent at the address on the back cover. The Statement of
Additional Information has been filed with the Securities and Exchange
Commission ("SEC") and is incorporated into this Prospectus by reference (which
means that it is legally part of this Prospectus).
(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 NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS.ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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Contents
ABOUT THE FUND
Expenses
A Brief Overview of the Fund
Financial Highlights
Investment Objective and Policies
Investment Risks
Investment Techniques and Strategies
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
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ABOUT THE FUND
Expenses
The Fund pays a variety of expenses directly for management of its assets,
administration, distribution of its shares and other services, and those
expenses are subtracted from the Fund's assets to calculate the Fund's net asset
value per share. All shareholders therefore pay those expenses indirectly.
Shareholders pay other expenses directly, such as sales charges and account
transaction charges. The following tables are provided to help you understand
your direct expenses of investing in the Fund and your share of the Fund's
business operating expenses that you will bear indirectly. The numbers below are
based on the Fund's expenses during the fiscal year ended July 31, 1997.
o Shareholder Transaction Expenses are charges you pay when
you buy or sell shares of the Fund. Please refer to "About Your
Account," starting on page ___ 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
Maximum Deferred Sales
Charge (as a % of the
lower of the original
offering 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)
Maximum Sales Charge on
Reinvested Dividends None None None
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 12 calendar months (18
months for shares purchased prior to May 1, 1997) from the end of the calendar
month in which you purchased those shares. See "How to Buy Shares Buying Class A
Shares" below.
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(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.
o 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 advisor, OppenheimerFunds, Inc. (referred
to in this Prospectus as the "Manager"). The rates of the Manager's fees are set
forth in "How the Fund is Managed," below. The Fund has other regular expenses
for services, such as transfer agent fees, custodial fees paid to the bank that
holds the Fund's portfolio securities, audit fees and legal expenses. Those
expenses are detailed in the Fund's Financial Statements in the Statement of
Additional Information.
Annual Fund Operating Expenses as a Percentage of Average Net
Assets
Class A Class B Class C
Shares Shares Shares
Management Fees
with
management fee waiver) 0.58% 0.58% 0.58%
12b-1 Plan Fees 0.15% 0.90% 0.90%
Other Expenses 0.17% 0.17% 0.18%
----- ----- -----
Total Fund
Operating Expenses 0.90% 1.65% 1.66%
The numbers in the chart above are based upon the Fund's expenses in its
last fiscal year ended July 31, 1997. These amounts are shown as a percentage of
the average net assets of each class of the Fund's shares for that year.
Effective January 1, 1997, the Manager has voluntarily agreed to waive a portion
of the Fund's management fees. Therefore, the "Management Fees" and the "Total
Fund Operating Expenses" shown in the chart above reflect the voluntary waiver
of a portion of the Fund's management fees had the waiver
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been in effect for the Fund's fiscal year ended July 31, 1997. Had the waiver
not been in effect, the Fund's "Management Fees" would have been 0.60% for the
Fund's Class A, Class B and Class C shares and the "Total Fund Operating
Expenses" would have been 0.93%, 1.78% and 1.79%, respectively for Class A,
Class B and Class C shares. These amounts are shown as a percentage of the
average net assets of each class of the Fund's shares for that fiscal period.
The "12b-1 Plan Fees" for Class A shares are Service Plan Fees. For Class
B and Class C shares, the "12b-1 Plan Fees" are Service Plan 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 chart, depending on a number of factors,
including changes in the actual value of the Fund's assets represented by each
class of shares.
o 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 $56 $75 $95
$153
Class B Shares $67 $82 $110
$157
Class C Shares $27 $52 $90
$197
If you did not redeem your investment, it would incur the following
expenses:
1 year 3 years 5 years 10
years*
------ ------- -------
- --------
Class A Shares
$56 $75
$95 $153
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Class B Shares $17 $52 $90 $157
Class C Shares $17 $52 $90
$197
* In the first example, expenses include the Class A initial sales charge and
the applicable Class B or Class C contingent deferred sales charge. In the
second example, Class A expenses include the initial sales charge, but Class B
and Class C expenses do not include contingent deferred sales charges. The Class
B expenses in years 7 through 10 are based on the Class A expenses shown above,
because the Fund automatically converts your Class B shares into Class A shares
after 6 years. Because of the effect of the asset-based sales charge and the
contingent deferred sales charge imposed on Class B and Class C shares,
long-term holders of Class B and Class C shares could pay the economic
equivalent of more than the maximum front-end sales charge allowed under
applicable regulations. For Class B shareholders, the automatic conversion of
Class B shares to Class A shares is designed to minimize the likelihood that
this will occur. Please refer to "How to Buy Shares - Buying Class B Shares" for
more information.
These examples show the effect of expenses on an investment, but are not
meant to state or predict actual or expected costs or investment returns of the
Fund, all of which may be more or less
than those shown.
A Brief Overview of the Fund
Some of the important facts about the Fund are summarized below, with references
to the section of this Prospectus where more complete information can be found.
You should carefully read the entire Prospectus before making a decision about
investing in the Fund. Keep the Prospectus for reference after you invest,
particularly for information about your account, such as how to sell or exchange
shares.
o 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.
o 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
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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. Currently there is no limitation on investments in
securities which may be subject to an alternative minimum tax. 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 __.
o Who Manages the Fund? The Fund's investment adviseradvisor (the
"Manager") is OppenheimerFunds, Inc. The Manager (including subsidiaries)
advises investment company portfolios having over $75 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 advisor and the portfolio manager. Please
refer to "How the Fund is Managed," starting on page __ for more information
about the Manager and its fees.
o 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 Risks" starting on page
__ for a more complete discussion of the Fund's investment risks.
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<PAGE>
o How Can I Buy Shares? You can buy shares through your broker, 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.
o Will I Pay a Sales Charge to Buy Shares? The Fund has three classes of
shares. All three classes have the same investment portfolio but different
expenses. Class A shares are offered with a front-end sales charge, starting at
4.75%, and reduced for larger purchases. Class B shares and Class C shares are
offered without a front-end sales charge, but may be subject to a contingent
deferred sales charge if redeemed within 6 years or 12 months, respectively, of
purchase. There are also annual asset-based sales
charges on Class B and Class C shares. Please review "How To Buy Shares"
starting on page __ for more details, including a discussion about factors you
and your financial advisor should consider in determining which class may be
appropriate for you.
o How Can I Sell My Shares? Shares can be redeemed by mail, or 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 __.
o 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.
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
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independent auditors, whose report on the Fund's financial statements for the
fiscal year ended July 31, 1997 are included in the Statement of Additional
Information.
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
CLASS A
---------------------------------------------------
YEAR ENDED JULY 31, YEAR ENDED DECEMBER 31,
1997 1996(2) 1995 1994
=======================================================================================================
<S> <C> <C> <C> <C>
PER SHARE OPERATING DATA:
Net asset value, beginning of period $12.01 $12.36 $11.19 $12.85
- -------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .70 .40 .68 .67
Net realized and unrealized gain (loss) .43 (.35) 1.18 (1.64)
------ ------ ------ ------
Total income (loss) from investment operations 1.13 .05 1.86 (.97)
- -------------------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income (.69) (.40) (.67) (.69)
Dividends in excess of net investment
income -- -- (.02) --
Distributions from net realized gain -- -- -- --
------ ------ ------- ------
Total dividends and distributions to
shareholders (.69) (.40) (.69) (.69)
- -------------------------------------------------------------------------------------------------------
Net asset value, end of period $12.45 $12.01 $12.36 $11.19
====== ====== ====== ======
=======================================================================================================
TOTAL RETURN, AT NET ASSET VALUE(5) 9.68% 0.44% 16.94% (7.68)%
=======================================================================================================
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) $68,280 $64,391 $66,483 $60,857
- -------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $65,710 $64,997 $64,901 $62,786
- -------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income 5.79% 5.71%(6) 5.68% 5.65%
Expenses, before voluntary assumption by
the Manager or Distributor(7) 0.93% 1.03%(6) 1.02% 0.98%
Expenses, net of voluntary assumption by
the Manager or Distributor 0.90% N/A N/A N/A
- -------------------------------------------------------------------------------------------------------
Portfolio turnover rate(8) 22.3% 5.8% 31.1% 37.0%
</TABLE>
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<TABLE>
<CAPTION>
CLASS A (CONTINUED) CLASS B
- ------------------------------------------------------------- ------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED JULY 31,
1993 1992 1991 1990 1989(4) 1997 1996(2)
=========================================================================================
<S> <C> <C> <C> <C> <C> <C>
$12.05 $11.93 $11.43 $11.58 $11.43 $12.01 $12.36
- -----------------------------------------------------------------------------------------
.69 .76 .74 .81 .18 .61 .35
.85 .17 .53 (.15) .15 .42 (.35)
------ ------ ------- ------ ------ ------ ------
1.54 .93 1.27 .66 .33 1.03 --
- -----------------------------------------------------------------------------------------
(.70) (.73) (.73) (.81) (.18) (.59) (.35)
-- -- -- -- -- -- --
(.04) (.08) (.04) -- -- -- --
- ---------- ----- ------ ------- ------ ------ ------
(.74) (.81) (.77) (.81) (.18) (.59) (.35)
- -----------------------------------------------------------------------------------------
$12.85 $12.05 $11.93 $11.43 $11.58 $12.45 $12.01
====== ====== ====== ======= ====== ====== ======
=========================================================================================
13.12% 8.04% 11.49% 6.00% 3.25% 8.86% (0.01)%
=========================================================================================
$64,640 $33,290 $13,791 $8,406 $2,353 $19,339 $16,005
- -----------------------------------------------------------------------------------------
$50,974 $21,936 $10,717 $5,170 $1,231 $17,243 $15,085
- -----------------------------------------------------------------------------------------
5.52% 6.36% 6.30% 7.06% 6.12%(6) 5.02% 4.94%(6)
1.06% 1.39% 1.29% 1.77% 2.49%(6) 1.78% 1.89%(6)
0.99% 1.06% N/A 0.59% 0.91%(6) 1.65% 1.79%(6)
- -----------------------------------------------------------------------------------------
14.6% 29.9% 15.5% 5.3% 0.0% 22.3% 5.8%
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS (CONTINUED)
CLASS B CLASS C
----------------------------------- --------------------------------------
PERIOD ENDED
YEAR ENDED DECEMBER 31, YEAR ENDED JULY 31, DECEMBER 31,
1995 1994 1993(3) 1997 1996(2) 1995(1)
===============================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING DATA:
Net asset value, beginning of period $11.19 $12.84 $12.44 $12.00 $12.36 $11.91
- -------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .59 .59 .36 .60 .34 .21
Net realized and unrealized gain (loss) 1.17 (1.65) .45 .43 (.36) .45
------ ------ ------ ------ ------ ------
Total income (loss) from investment operations 1.76 (1.06) .81 1.03 (.02) .66
- -------------------------------------------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income (.57) (.59) (.37) (.59) (.34) (.21)
Dividends in excess of net investment
income (.02) -- -- -- -- --
Distributions from net realized gain -- -- (.04) -- -- --
------ ------ ------------ ------ ------ ------
Total dividends and distributions to
shareholders (.59) (.59) (.41) (.59) (.34) (.21)
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $12.36 $11.19 $12.84 $12.44 $12.00 $12.36
====== ====== ====== ====== ====== ======
===============================================================================================================================
TOTAL RETURN, AT NET ASSET VALUE(5) 16.06% (8.32)% 6.67% 8.84% (0.15)% 5.55%
===============================================================================================================================
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) $14,466 $9,484 $5,576 $2,611 $482 $264
- -------------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $12,183 $7,329 $2,770 $1,390 $296 $ 51
- -------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income 4.89% 4.88% 4.26%(6) 4.99% 4.83%(6) 4.40%(6)
Expenses, before voluntary assumption by
the Manager or Distributor(7) 1.89% 1.85% 1.88%(6) 1.79% 1.97%(6) 2.07%(6)
Expenses, net of voluntary assumption by
the Manager or Distributor 1.78% 1.75% 1.78%(6) 1.66% 1.87%(6) 1.96%(6)
- -------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(8) 31.1% 37.0% 14.6% 22.3% 5.8% 31.1%
</TABLE>
1. For the period from August 29, 1995 (inception of offering) to December 31,
1995. 2. For the seven months ended July 31, 1996. The fund changed its fiscal
year end from December 31 to July 31. 3. For the period from May 1, 1993
(inception of offering) to December 31, 1993. 4. For the period from September
18, 1989 (commencement of operations) to December 31, 1989. 5. Assumes a
hypothetical initial investment on the business day before the first day of the
fiscal period (or inception of offering), with all dividends and distributions
reinvested in additional shares on the reinvestment date, and redemption at the
net asset value calculated on the last business day of the fiscal period. Sales
charges are not reflected in the total returns. Total returns are not annualized
for periods of less than one full year. 6. Annualized. 7. Beginning in fiscal
1995, the expense ratio reflects the effect of gross expenses paid indirectly by
the Fund. Prior year expense ratios have not been adjusted. 8. The lesser of
purchases or sales of portfolio securities for a period, divided by the monthly
average of the market value of portfolio securities owned during the period.
Securities with a maturity or expiration date at the time of acquisition of one
year or less are excluded from the calculation. Purchases and sales of
investment securities (excluding short-term securities) for the period ended
July 31, 1997 were $24,156,172 and $18,551,508, respectively.
10
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. Although exempt-interest dividends will
not be subject to federal income tax for Fund shareholders, a portion of such
dividends which is derived from interest on certain "private activity" bonds may
be an item of tax preference if you are subject to the federal alternative
minimum tax. Any net interest income on taxable investments and repurchase
agreements will be taxable as ordinary income when distributed to shareholders.
o 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
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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.
o 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.
Investment Risks
All investments carry risks to some degree, whether they are risks that
market prices of the investment will fluctuate (this is known as "market risk")
or that the underlying issuer will experience financial difficulties and may
default on its obligation under a fixed-income investment to pay interest and
repay principal (this is referred to as "credit risk"). These general investment
risks, and the special risks of certain types of investments that the Fund may
hold are described below. They affect the value of the Fund's investments, its
investment performance, and the prices of its shares. These risks collectively
form the risk profile of the Fund.
Because of the types of securities the Fund invests in and the investment
techniques the Fund uses, the Fund is designed for investors who are investing
for the long term. It is not intended for investors seeking assured income.
While the Manager tries to reduce risks by diversifying investments, by
carefully researching securities before they are purchased, and in some cases by
using hedging techniques, changes in overall market prices can occur at
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any time, and because the income earned on securities is subject to change,
there is no assurance that the Fund will achieve its investment objective. When
you redeem your shares, they may be worth more or less than what you paid for
them.
o 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.
o 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.
o There are special risks in investing in derivative investments. 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 on
which the derivative is based, and the derivative itself, may 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.
o 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
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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.
o 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.
Investment Techniques and Strategies
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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 are designed to reduce some of the risks.
o 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.
o 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.
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
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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.
o 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.
o 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.
o 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).
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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.
o 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"), Fitch
Investors Service, Inc. ("Fitch"), Duff & Phelps, Inc. or any other nationally
recognized statistical rating organization. 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.
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<PAGE>
o 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.
o 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.
o 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 Board may increase that
limit to 15%). 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.
The Fund's percentage limitation on these investments does not apply to
certain restricted securities that are eligible for resale to qualified
institutional purchasers. The Manager monitors holdings of illiquid securities
on an ongoing basis to determine whether to sell any holdings to maintain
adequate liquidity. Illiquid securities include repurchase agreements maturing
in more than seven days, or certain participation interests other than those
with puts exercisable within seven days.
o 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
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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.
o 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.
o 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.
o 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
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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 ("NASDAQ") of the Nasdaq Stock Market, Inc., or traded in the
over-the-counter market; (3) each call the Fund writes must be "covered" while
it is outstanding (that means the Fund must own the investment on which the call
was written); (4) the Fund may write calls on Futures contracts it owns, but
these calls must be covered by securities or other liquid assets the Fund owns
and segregates to enable it to satisfy its obligations if the call is exercised;
(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.
o 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.
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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:
o 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.
o 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".
o 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).
o Pledge, mortgage or otherwise encumber, transfer or assign any of its assets
to secure a debt; collateral arrangements for premium and margin payments in
connection with hedging instruments are not
deemed to be a pledge of assets.
o 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.
o Buy or sell futures contracts other than interest rate futures or municipal
bond index futures.
Unless the prospectus states that a percentage restrictions applies on an
ongoing basis, it applies only at the time the Fund purchases an investment, and
the Fund need not sell securities to meet the percentage limits if the value of
the investment increases in proportion to the size of the Fund. Other investment
restrictions are listed in "Investment Restrictions" 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 Municipal Trust, and the Fund became a separate series of it. The
Trust is an open-end,
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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
provides more information about them and the officers of the Trust. 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. Please
refer to "How the Fund is Managed" in the Statement of Additional Information on
voting of shares.
The Manager and Its Affiliates. The Fund is managed by the Manager,
OppenheimerFunds, Inc., which is responsible for selecting the Fund's
investments and handles its day-to-day business. The Manager carries out its
duties, subject to the policies established by the Board of Trustees, under an
Investment Advisory Agreement which states the Manager's responsibilities. The
Agreement sets forth the fees paid by the Fund to the Manager, and describes the
expenses that the Fund is responsible to pay to conduct its business.
The Manager has operated as an investment advisor since 1959. The Manager
(including subsidiaries) currently manages investment companies, including other
Oppenheimer funds, with assets of more than $75 billion as of September 30,
1997, with more than 3 million shareholder accounts. The Manager is owned by
Oppenheimer Acquisition Corp., a holding
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company that is owned in part by senior officers of the Manager and controlled
by Massachusetts Mutual Life Insurance Company.
o 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.
o 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 average annual net assets;
0.55% of the next $100 million; 0.50% of the next $200 million; 0.45% of the
next $250 million; 0.40% of the next $250 million; and 0.35% of average annual
net assets over $1 billion. The Fund's management fee for its last fiscal year
was 0.60% of average annual net assets for Class A, Class B and Class C shares.
The Fund pays expenses related to its daily operations, such as custodian
fees, Trustees' fees, transfer agency fees, legal fees and auditing costs. Those
expenses are paid out of the Fund's assets and are not paid directly by
shareholders. However, those expenses reduce the net asset value of shares, and
therefore are indirectly borne by shareholders through their investment. More
information about the Investment Advisory Agreement and the other expenses paid
by the Fund is contained in the Statement of Additional Information.
There is also information about the Fund's brokerage policies and
practices in "Brokerage Policies of the Fund" in the Statement of Additional
Information. That section discusses how brokers and dealers are selected for the
Fund's portfolio transactions. Because the Fund purchases most of its portfolio
securities directly from the sellers and not through brokers, it therefore
incurs relatively little expense for brokerage. From time to time, however, it
may use brokers when buying portfolio securities. When deciding which brokers to
use, the Manager is permitted by the Investment Advisory Agreement to consider
whether brokers have sold shares of the Fund or any other funds for which the
Manager serves as investment advisor.
o The Distributor. The Fund's shares are sold through
dealers
, brokers and financial institutions that have a sales
agreement
with OppenheimerFunds Distributor, Inc., a subsidiary of the
Manager that acts as the Fund's Distributor. The Distributor
also
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distributes the shares of other "Oppenheimer funds" and is sub- distributor for
funds managed by a subsidiary of the Manager.
o The Transfer Agent. The Fund's transfer agent is OppenheimerFunds
Services, a division of the Manager, which acts as the shareholder servicing
agent for the Fund on an "at-cost" basis. It also acts as the shareholder
servicing agent for other Oppenheimer funds. Shareholders should direct
inquiries about their accounts to the Transfer Agent at the address and
toll-free number shown below in this Prospectus and on the back cover.
Performance of the Fund
Explanation of Performance Terminology. The Fund uses the terms "total return,"
"average annual total return," "standardized yield," "dividend yield," "yield"
and "tax-equivalent yield" to illustrate its performance. The performance of
each class of shares is shown separately, because the performance of each class
of shares will usually be different as a result of the different kinds of
expenses each class bears. These returns and yields measure the performance of a
hypothetical account in the Fund over various periods, and do not show the
performance of each shareholder's account (which will vary if dividends are
received in cash, or shares are sold or purchased). The Fund's performance may
help you see how well your Fund has done over time and to compare it to other
funds or to a market index.
It is important to understand that the Fund's yields and total returns
represent past performance and should not be considered to be predictions of
future returns or performance. This performance data is described below, but
more detailed information about how total returns and yields are calculated is
contained in the Statement of Additional Information, which also contains
information about indices and other ways to measure and compare the Fund's
performance. The Fund's investment performance will vary over time, depending on
market conditions, the composition of the portfolio, expenses and which class of
shares you purchase.
o 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
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cumulative total return over the entire period. However, average annual total
returns do not show the Fund's actual year-by-year performance.
When total returns are quoted for Class A shares, normally the current
maximum initial sales charge has been deducted. When total returns are shown for
Class B or Class C shares, normally the contingent deferred sales charge that
applies to the period for which total return is shown has been deducted.
However, total returns may also be quoted "at net asset value," without
considering the effect of the sales charge, and those returns would be less if
sales charges were deducted.
o Yield. Different types of yields may be quoted to show performance. Each
class of shares calculates its standardized yield by dividing the annualized net
investment income per share from the portfolio during a 30-day period by the
maximum offering price on the last day of the period. The 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 paid for a stated period by the
maximum offering price on the last day of the period and annualizing the result.
Yields for Class A shares normally reflect the deduction of the maximum initial
sales charge, but may also be shown without deducting sales charge. 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 July 31, 1997, followed by a
graphical comparison of the Fund's performance to an appropriate broad-based
market index.
o Management's Discussion of Performance. During the Fund's fiscal year
ended July 31, 1997, the Fund's performance was affected by several factors.
While Pennsylvania is participating in the bondsgeneral positive economic
environment that pervades most of the United States,
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it is not growing as robustly as some states outside the Northeast. The state is
making progress in its transition from a primary industrial economy to a
broader-based mix of manufacturing and service companies. The Fund's portfolio
holdings, allocations and strategies are subject to change.
o 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 July 31, 1997. 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 Municipal 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 7/31/97
1 Year 5 year Life
------ ------ -----
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Class A: 4.47% 5.36%
6.89%(1)
Class B: 3.86%
3.43%4.70%(2)
Class C: 7.84%
4.39%7.40%(3)
- -----------------
Total returns and the ending account values in the graph show change in share
value and include 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. The
average annual total returns reflect reinvestment of all dividends and capital
gains distributions and are shown net of the applicable 5% and 2% 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 2% sales charge. (3) Class C shares of the Fund were first publicly
offered on 8/29/95. The one year period is shown net of the applicable 1%
contingent deferred sales charge.
Past performance is not predictive of future performance. Graphs are not drawn
to same scale.
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.
o 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 12 months of buying them (18 months if the shares were purchased
prior to May 1, 1997), 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.
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<PAGE>
o Class B Shares. If you buy Class B shares, you pay no sales charge at
the time of purchase, but if you sell your shares within six years of buying
them, you will normally pay a contingent deferred sales charge. That sales
charge varies depending on how long you own your shares, as described in "Buying
Class B Shares" below.
o Class C Shares. If you buy Class C shares, you pay no sales charge at
the time of purchase, but if you sell your shares within 12 months of buying
them, you will normally pay a contingent deferred sales charge of 1%, as
described in "Buying Class C Shares" below.
Which Class of Shares Should You Choose? Once you decide that the Fund is an
appropriate investment for you, the decisions as to which class of shares is
best 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 to consider are how much you plan to invest and how long you plan to
hold your investment. If your goals and objectives change over time and you plan
to purchase additional shares, you should re-evaluate those factors to see if
you should consider another class of shares.
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 and considered 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 of shares 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.
o How Long Do You Expect to Hold Your Investment? While
future financial needs cannot be predicted with certainty,
knowing
-26-
<PAGE>
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.
o 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 within six years, as well as the effect of the Class B asset-based
sales charge on the investment return for that class in the short-term. Class C
shares might be the appropriate choice (especially for investments of less than
$100,000), because there is no initial sales charge on Class C shares, and the
contingent deferred sales charge does not apply to amounts you sell after
holding them one year.
However, if you plan to invest more than $100,000 for the shorter term,
then 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 shares might be more advantageous than Class C shares (as well as Class
B shares) 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 shares (and
Class B shares). If investing $500,000 or more, Class A shares 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.
-27-
<PAGE>
o 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 Class 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.
o 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) may
not be advisable (because of the effect of the contingent deferred sales charge)
for Class B or Class C shareholders, you should carefully review how you plan to
use your investment account before deciding which class of shares 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.
o 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 and Class C contingent deferred sales charge and
asset-based sales charges 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.
The Distributor may pay additional periodic compensation from its own resources
to securities dealers or financial institutions based upon the value of shares
of the Fund owned by the dealer or financial institution for its own account or
for its customers.
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<PAGE>
How Much Must You Invest? You can open a Fund account with a minimum initial
investment of $1,000 and make additional investments at any time with as little
as $25. There are reduced minimum investments under special investment plans.
With Asset Builder Plans, Automatic Exchange Plans and military
allotment plans, you can make initial and subsequent investments for as little
as $25; and subsequent purchases of at least $25 can be made by telephone
through AccountLink.
There is no minimum investment requirement if you are buying shares
by reinvesting dividends from the Fund or other Oppenheimer funds (a list of
them appears in the Statement of Additional Information, or you can ask your
dealer or call the Transfer Agent), or by reinvesting distributions from unit
investment trusts that have made arrangements with the Distributor.
o 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. The Distributor may appoint certain servicing agents as the
Distributor's agent to accept purchase (and redemption) orders. 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.
o Buying Shares Through Your Dealer. Your dealer will place
your order with the Distributor on your behalf.
o 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, it is recommended that you discuss your
investment first with a financial advisor, to be sure that it is appropriate for
you.
o Payment by Federal Funds Wire. Shares may be purchased
by
Federal Funds wire. The minimum investment is $2,500. You must
first call the Distributor's Wire Department at 1-800-525-7041
to
notify the Distributor of the wire, and to receive further
instructions.
o Buying Shares Through OppenheimerFunds AccountLink. You
can
use AccountLink to link your Fund account with an account at a
U.S.
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<PAGE>
bank or other financial institution that is an Automated Clearing House (ACH)
member to transmit funds electronically to purchase shares, to have the Transfer
Agent send redemption proceeds or to transmit dividends and distributions to
your bank account.
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.
o Asset Builder Plans. You may purchase shares of the Fund (and up to four
other Oppenheimer funds) automatically each month from your account at a bank or
other financial institution under an Asset Builder Plan with AccountLink.
Details are in the Statement of Additional Information.
o At What Price Are Shares Sold? Shares are sold at the public offering
price based on the net asset value (plus any initial sales charge that applies).
That price is 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 or its designated agent 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 referred to in this Prospectus as 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.
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<PAGE>
Special Sales Charge Arrangements for Certain Persons. Appendix A in this
Prospectus sets forth conditions for the waiver of, or exemption from, sales
charges or the special sales charge rates that apply to purchases of shares of
the Fund (including purchases by exchange) by a person who was a shareholder of
one of the Former Quest for Value Funds (as defined in that Appendix).
Buying Class A Shares. Class A shares are sold at their offering price, which is
normally net asset value plus an initial sales charge. However, in some cases,
described below, purchases are not subject to an initial sales charge, and the
offering price will be the net asset value. In some cases, reduced sales charges
may be available, as described below. Out of the amount you invest, the Fund
receives the net asset value to invest for your account. The sales charge varies
depending on the amount of your purchase. A portion of the sales charge may be
retained by the Distributor and allocated to your dealer as commission. The
current sales charge rates and commissions paid to dealers and brokers are as
follows:
- -------------------------------------------------------------------
Front-End Front-End
Commission
Sales Charge Sales Charge as
as a as a
Percentage
Percentage Percentage of
Offering
of Offering of Amount Price
Amount of Purchase 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.
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<PAGE>
o 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
non-retirement plan purchases in an amount equal to the sum of 1.0%. That
commission will be paid only on the amount of those purchases that were not
previously subject to a front-end sales
charge and dealer commission.
If you redeem any of those shares purchased prior to May 1, 1997, 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.A Class A contingent deferred sales
charge may be deducted from the redemption proceeds of any of those shares
purchased on or after May 1, 1997, that are redeemed within 12 months of the end
of the calendar month of their purchase. That sales charge will be equal to 1.0%
of the lesser of (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 offering price (which is the original net
asset value) of the redeemed shares. However, the Class A contingent deferred
sales charge will not exceed the aggregate amount of the commissions the
Distributor paid to your dealer on all 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 12 calendar months (18 months
for shares purchased prior to May 1, 1997) of the end of the calendar month of
the purchase of the exchanged shares, the sales charge will apply.
o 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.
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<PAGE>
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:
o 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 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 Distributor will add the value,
at current offering price, of the shares you previously purchased and currently
own to the value of current purchases to determine the sales charge rate that
applies. The 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.
o 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.
o 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.
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<PAGE>
In order to receive a
waiver of
the Class A contingent deferred sales
charge, you must notify the Transfer Agent which conditions apply.
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:
o the Manager or its affiliates;
o 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;
o registered management investment companies, or separate accounts of
insurance companies having an agreement with the Manager or the Distributor for
that purpose;
o 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;
o 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);
o dealers, brokers, banks or registered investment advisors that have
entered into an agreement with the Distributor providing specifically for the
use of shares of the Fund in particular investment products made available to
their clients (those clients may be charged a transaction fee by their dealer,
broker, bank or advisor for the purchase or sale of Fund shares);
o (1) investment advisors and financial planners who have entered into an
agreement for this purpose with the Distributor and who charge an advisory,
consulting or other fee for their services and buy shares for their own accounts
or the accounts of their clients, (2) "rabbi trusts" that buy shares for their
own accounts,
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<PAGE>
in each case if those purchases are made through a broker or agent or other
financial intermediary that has made special arrangements with the Distributor
for those purchases; and (3) clients of such investment advisors or financial
planners (that have entered into an agreement for this purpose with the
Distributor) who buy shares for their own accounts may also purchase shares
without sales charge but only if their accounts are linked to a master account
of their investment advisor or financial planner on the books and records of the
broker, agent or financial intermediary with which the Distributor has made such
special arrangements (each of these investors may be charged a fee by the
broker, agent or financial intermediary for purchasing shares);
o 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;
o accounts for which Oppenheimer Capital is the investment advisor (the
Distributor must be advised of this arrangement) and persons who are directors
or trustees of the company or trust which
is the beneficial owner of such accounts; or
o 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:
o shares issued in plans of reorganization, such as mergers, asset
acquisitions and exchange offers, to which the Fund is a party;
o 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;
o shares purchased and paid for with the proceeds of shares redeemed in
the prior 30 days from a mutual fund (other than a fund managed by the Manager
or any of its subsidiaries) on which an initial sales charge or contingent
deferred sales charge was paid (this waiver also applies to shares purchased by
exchange of shares of Oppenheimer Money Market Fund, Inc. that were purchased
and paid for in this manner); this waiver must be requested when the purchase
order is placed for your shares of the Fund, and the Distributor may require
evidence of your qualification for this waiver; or
o shares purchased with the proceeds of maturing principal of units of any
Qualified Unit Investment Liquid Trust Series.
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<PAGE>
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:
o to make Automatic Withdrawal Plan payments that are limited annually to
no more than 12% of the original account value;
o involuntary redemptions of shares by operation of law or involuntary
redemptions of small accounts (see "Shareholder Account Rules and Policies,"
below); or
o if, at the time of purchase of shares (prior to May 1, 1997) the dealer
agreed in writing to accept the dealer's portion of the sales commission in
installments of 1/18th of the commission per month (and no further commission
will be payable if the shares are redeemed within 18 months of purchase);
o if, at the time of purchase of shares (on or after May 1, 1997) the
dealer agrees in writing to accept the dealer's portion of the sales commission
in installments of 1/12th of the commission per month (and no further commission
will be payable if the shares are redeemed within 12 months of purchase);
o 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 service providers or
their 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.
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<PAGE>
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
contingent deferred sales charge will be based on the lesser of the net asset
value of the redeemed shares at the time of redemption or the original offering
price (which is the original net asset value). 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.
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<PAGE>
o 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.
o 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."
o 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 "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 the Class C shares are redeemed
within 12 months of their purchase, a contingent deferred sales charge of 1.0%
will be deducted from the redemption proceeds. That sales charge will not apply
to shares purchased by the reinvestment of dividends or capital gains
distributions. The contingent deferred sales charge will be based on the lesser
of the net asset value of the redeemed shares at the time of redemption or the
original offering price (which is the original net asset value). 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.
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<PAGE>
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.
o 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 Class C shares and
servicing accounts. Under the Plans, the Fund pays the Distributor an annual
"asset-based sales charge" of 0.75% per year on Class B shares 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 Class 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 Class 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
-39-
<PAGE>
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.
If a dealer has a special agreement with the Distributor, the Distributor
will pay the Class B service fee and the asset-based sales charge to the dealer
quarterly in lieu of paying the sales commission and service fee in advance at
the time of purchase.
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.
If a dealer has a special agreement with the Distributor, the Distributor
will pay the Class C service fee and the asset-based sales charge to the dealer
quarterly in lieu of paying the sales commission and service fee in advance at
the time of purchase.
The 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.
At July 31, 1997, the end of the Class B Plan year, the Distributor had
incurred unreimbursed expenses in connection with sales of Class B shares of
$535,790 (equal to 2.77% of the Fund's net assets represented by Class B shares
on that date). At July 31, 1997, the end of the Class C Plan
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<PAGE>
year, the Distributor had incurred unreimbursed expenses in connection with
sales of Class C shares of $28,807 (equal to 1.10% of the Fund's net assets
represented by Class C shares on that date).
o 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. In order to receive a waiver of the Class B and Class C contingent
deferred sales charge, you must notify the Transfer Agent which conditions
apply.
Waivers for Redemptions in Certain Cases. The Class B and Class C
contingent deferred sales charges will be waived for redemption of shares in the
following cases:
o redemptions from accounts following the death or disability of the last
surviving shareholder, including a trustee of a "grantor" trust or revocable
living trust for which the trustee is also the sole beneficiary (the death or
disability must have occurred after the account was established and for
disability you must provide evidence of a determination of disability by the
Social Security Administration); or
o shares redeemed involuntarily, as described in
"Shareholder
Account Rules and Policies," below.
Waivers for Shares Sold or Issued in Certain Transactions. The contingent
deferred sales charge is also waived on Class B and Class C shares sold or
issued in the following cases:
o shares sold to the Manager or its affiliates;
o 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
o 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
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<PAGE>
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 call the Transfer Agent for more information.
AccountLink privileges should be requested 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.
o 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.
o 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.
o 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.
o Exchanging Shares. With the OppenheimerFunds Exchange Privilege,
described below, you can exchange shares automatically by phone from your Fund
account to another Oppenheimer fund account you have already established by
calling the special PhoneLink number.
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<PAGE>
Please refer to "How to Exchange Shares," below, for
details.
o 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.
Shareholder Transactions by Fax. Beginning May 30, 1997, requests for certain
account transactions may be sent to the Transfer Agent by fax (telecopier).
Please call 1-800-525-7048 for information about which transactions are
included. Transaction requests submitted by fax are subject to the same rules
and restrictions as written and telephone requests described in this Prospectus.
Automatic Withdrawal and Exchange Plans. The Fund has several plans that enable
you to sell shares automatically or exchange them to another Oppenheimer fund
account on a regular basis:
o 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 Statement of Additional Information for more
details.
o Automatic Exchange Plans. You can authorize the Transfer Agent to
automatically exchange an amount you establish in advance for shares of up to
five other Oppenheimer funds on a monthly, quarterly, semi-annual or annual
basis under an Automatic Exchange Plan. The minimum purchase for each
Oppenheimer fund account is $25. These exchanges are subject to the terms of the
Exchange Privilege, described below.
Reinvestment Privilege. If you redeem some or all of your Class A or Class B
shares of the Fund, you have up to 6 months to reinvest all or part of the
redemption proceeds in Class A shares of the Fund or other Oppenheimer funds
without paying a sales charge. This privilege applies only to Class A shares
that you purchased subject to an initial sales charge and to Class A or Class B
shares on which you paid a contingent deferred sales charge when you redeemed
them. This privilege does not apply to Class C shares. You must be sure to ask
the Distributor for this privilege when you
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<PAGE>
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.
o 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):
o You wish to redeem more than $50,000 worth of shares and
receive a check
o The redemption check is not payable to all shareholders
listed on the account statement
o The redemption check is not sent to the address of record
on your account statement
o Shares are being transferred to a Fund account with a
different owner or name
o Shares are redeemed by someone other than the owners
(such
as an Executor)
o 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:
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o Your name
o The Fund's name
o Your Fund account number (from your account statement) o The dollar
amount or number of shares to be redeemed o Any special payment
instructions o Any share certificates for the shares you are selling, o
The signatures of all registered owners exactly as the account is
registered, and o Any special 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.
o To redeem shares through a service representative, call
1-
800-852-8457
o To redeem shares automatically on PhoneLink, call
1-800-533-3310
Whichever method you use, you may have a check sent to the address on the
account statement, or, if you have linked your Fund account to your bank account
on AccountLink, you may have the
proceeds wired to that bank account.
o 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.
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<PAGE>
o Telephone Redemptions Through AccountLink. There are no dollar limits on
telephone redemption proceeds sent to a bank account designated when you
establish AccountLink. Normally the ACH transfer to your bank is initiated on
the business day after the redemption. You do not receive dividends on the
proceeds of the shares you redeemed while they are waiting to be transferred.
Checkwriting. To be able to write checks against your Fund account, you may
request that privilege on your account Application or you can contact the
Transfer Agent for signature cards, which must be signed (with a signature
guarantee) by all owners of the account and returned to the Transfer Agent so
that checks can be sent to you to use. Shareholders with joint accounts can
elect in writing to have checks paid over the signature of one owner. If you
previously signed a signature card to establish Checkwriting in another
Oppenheimer fund, simply call 1-800-525-7048 to request Checkwriting for an
account in this Fund with the same registration as the previous checkwriting
account.
o Checks can be written to the order of whomever you wish, but may not be
cashed at the Fund's bank or custodian.
o 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.
o Checks must be written for at least $100.
o Checks cannot be paid if they are written for more than
your
account value. Remember: your shares fluctuate in value and you
should not write a check close to the total account value.
o You may not write a check that would require the Fund to redeem shares
that were purchased by check or Asset Builder Plan payments within the prior 15
days.
o Don't use your checks if you changed your Fund account
number.
Selling Shares Through Your Dealer. The Distributor has made arrangements to
repurchase Fund shares from dealers and brokers on behalf of their customers.
Brokers or dealers may charge for that service. Please refer to "Special
Arrangements for Repurchase of Shares from Dealers and Brokers" in the Statement
of Additional Information for more details.
How to Exchange Shares
Shares of the Fund may be exchanged for shares of certain Oppenheimer
funds at net asset value per share at the time of exchange, without sales
charge. To exchange shares, you must meet
several conditions:
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<PAGE>
o Shares of the fund selected for exchange must be
available
for sale in your state of residence.
o The prospectuses of this Fund and the fund whose shares
you
want to buy must offer the exchange privilege.
o You must hold the shares you buy when you establish your
account for at least 7 days before you can exchange them; after the account is
open 7 days, you can exchange shares every regular
business day.
o You must meet the minimum purchase requirements for the
fund
you purchase by exchange.
o 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:
o Written Exchange Requests. Submit an OppenheimerFunds
Exchange Request form, signed by all owners of the account.
Send
it to the Transfer Agent at the addresses listed in "How to Sell
Shares."
o Telephone Exchange Requests. Telephone exchange requests
may
be made either by calling a service representative at 1-800-852- 8457 or by
using PhoneLink for automated exchanges, by calling 1- 800-533-3310. Telephone
exchanges may be made only between accounts that are registered with the same
name(s) and address. Shares held under certificates may not be exchanged by
telephone.
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:
o Shares are normally redeemed from one fund and purchased from the other
fund in the exchange transaction on the same regular business day on which the
Transfer Agent receives an exchange request that is in proper form by the close
of The New York Stock
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<PAGE>
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.
o 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.
o The Fund may amend, suspend or terminate the exchange
privilege at any time. Although the Fund will attempt to
provide
you notice whenever it is reasonably able to do so, it may
impose
these changes at any time.
o 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.
o If the Transfer Agent cannot exchange all the shares you request because
of a restriction cited above, only the shares eligible for exchange will be
exchanged.
Shareholder Account Rules and Policies
o Net Asset Value Per Share is determined for each class of shares as of
the close of The New York Stock Exchange that day, 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.
o 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.
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<PAGE>
o 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.
o 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.
o 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.
o 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.
o 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.
o 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 seven days after the Transfer Agent receives
redemption instructions in proper form, except under unusual circumstances
determined by the Securities and Exchange Commission delaying or suspending such
payments. For accounts registered in the name of a broker-dealer, payment will
be forwarded within three business days. The Transfer Agent may delay forwarding
a check or
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<PAGE>
processing a payment via AccountLink for recently purchased shares, but only
until the purchase payment has cleared. That delay may be as much as 10 days
from the date the shares were purchased. That delay may be avoided if you
purchase shares by federal funds wire, certified check or arrange with your bank
to provide telephone or written assurance to the Transfer Agent that your
purchase payment has cleared.
o 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.
o 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.
o "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.
o 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.
o 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
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B and Class C shares because expenses allocable to Class B and Class C shares
will generally be higher.
For the fiscal year ended July 31, 1997, 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 July 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:
o 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.
o 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.
o 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.
o Reinvest your distributions in another Oppenheimer fund account. You can
reinvest all distributions in the same class of shares of another Oppenheimer
fund account you have established.
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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 for federal income tax
purposes. 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.
o "Buying a Dividend". When a fund goes ex-dividend, its share price is
reduced by the amount of the distribution. If you buy shares on or just before
the ex-dividend date, or just before the Fund declares a capital gains
distribution, you will pay the full price for the shares and then receive a
portion of the price back as a taxable dividend or a capital gain.
o 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
received when you sold them. Any capital gain is subject to capital gains tax.
o 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 advisor
about the effect of an investment in the Fund on your particular tax situation.
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APPENDIX TO PROSPECTUS OF
OPPENHEIMER PENNSYLVANIA MUNICIPAL FUND
Graphic material included in Prospectus of Oppenheimer
Pennsylvania Municipal Fund: "Comparison of Change in Value of
$10,000 Hypothetical Investments in Oppenheimer Pennsylvania
Municipal 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 Municipal Fund A Municipal Bond
Index
- -------------- ------------------------
- --------------------
9/18/89(1) $ 9,525 $10,000
12/31/89 $ 9,835 $10,384
12/31/90 $10,425 $11,140
12/31/91 $11,624 $12,493
12/31/92 $12,557 $13,594
12/31/93 $14,204 $15,264
12/31/94 $13,113 $14,474
12/31/95 $15,335 $17,003
7/31/96 $15,402 $17,080
7/31/97 $16,893 $18,834
Fiscal Year Oppenheimer Pennsylvania Lehman Brothers
(Period) Ended Municipal Fund B Municipal Bond
Index
- -------------- ------------------------
- --------------------
5/1/93(2) $10,000 $10,000
12/31/93 $10,667 $10,718
12/31/94 $ 9,779 $10,163
12/31/95 $11,351 $11,939
7/31/96 $11,351 $11,993
7/31/97 $12,155 $13,225
Fiscal Year Oppenheimer Pennsylvania Lehman Brothers
(Period) Ended Municipal Fund C Municipal Bond
Index
- -------------- ------------------------
- --------------------
8/29/95(3) $10,000 $10,000
12/31/95 $10,555 $10,478
7/31/96 $10,540 $10,525
7/31/97 $11,470 $11,606
<PAGE>
(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 deferred 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) Oppenheimer Quest
Value Fund, Inc., Oppenheimer Quest Growth & Income Fund, Oppenheimer Quest
Opportunity Value Fund, Oppenheimer Quest Small Cap Value Fund and Oppenheimer
Quest Global Value Fund, Inc. on November 24, 1995, when OppenheimerFunds, Inc.
became the investment advisor to those funds, and (ii) Quest for Value U.S.
Government Income Fund, Quest for Value Investment Quality Income Fund, Quest
for Value Global Income Fund, Quest for Value New York Tax-Exempt Fund, Quest
for Value National Tax-Exempt Fund and Quest for Value California Tax-Exempt
Fund when those funds merged into various Oppenheimer funds on November 24,
1995. The funds listed above are referred to in this Prospectus as the "Former
Quest for Value Funds." The waivers of initial and contingent deferred sales
charges described in this Appendix apply to shares of the Fund (i) acquired by
such shareholder pursuant to an exchange of shares of one of the Oppenheimer
funds that was one of the Former Quest for Value Funds or (ii) purchased by such
shareholder by exchange of shares of other Oppenheimer funds that were acquired
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
o Reduced Class A Initial Sales Charge Rates for Certain Former
Quest Shareholders
o 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.
A-2
<PAGE>
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.
o 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:
A-3
<PAGE>
o 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.
o 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.
o 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:
o 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
o Waivers for Redemptions of Shares Purchased Prior to March 6,
1995
In the following cases, the contingent deferred sales charge will be waived for
redemptions of Class A, Class B or Class C shares of the Fund acquired by the
merger of a Former Quest for Value Fund into the Fund or by exchange from an
Oppenheimer fund that was a Former Quest for Value Fund or into which such fund
merged, 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 Class 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.
o Waivers for Redemptions of Shares Purchased on or After March 6, 1995 but
Prior to November 24, 1995.
In the following cases, the contingent deferred sales charge will be waived for
redemptions of Class A, Class B or Class C shares of the Fund acquired by the
merger of a Former Quest for Value Fund into the Fund or by exchange from an
Oppenheimer fund that was a Former Quest For Value Fund or into which such fund
merged, 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
A-3
<PAGE>
of total disability by the U.S. Social Security Administration); (2) withdrawals
under an automatic withdrawal plan (but only for Class B or Class C shares)
where the annual withdrawals do not exceed 10% of the initial value of the
account; and (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, Class B
or Class 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.
A-4
<PAGE>
Oppenheimer Pennsylvania Municipal Fund
Two World Trade Center
New York, New York 10048-0203
1-800-525-7048
Investment Advisor
OppenheimerFunds, Inc.
Two World Trade Center
New York, New York 10048-0203
Distributor
OppenheimerFunds Distributor, Inc.
Two World Trade Center
New York, New York 10048-0203
Transfer and Shareholder Servicing Agent
OppenheimerFunds Services
P.O. Box 5270
Denver, Colorado 80217
1-800-525-7048
Custodian of Portfolio Securities
Citibank, N.A.
399 Park Avenue
New York, New York 10043
Independent Auditors
KPMG Peat Marwick LLP
707 Seventeenth Street
Denver, Colorado 80202
Legal Counsel
Gordon Altman Butowsky
Weitzen Shalov & Wein
114 West 47th Street
New York, New York 10036
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. PR0740.001.1197 * Printed on recycled paper
<PAGE>
Oppenheimer
Pennsylvania Municipal Fund
Prospectus dated November 17, 1997
Oppenheimer Pennsylvania Municipal 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 refer to
"Investment Risks" for a discussion of 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 November
17, 1997 Statement of Additional Information. For a free copy, call
OppenheimerFunds Services, the Fund's Transfer Agent, at 1-800-525-7048, or
write to the Transfer Agent at the address on the back cover. The Statement of
Additional Information has been filed with the Securities and Exchange
Commission ("SEC") and is incorporated into this Prospectus by reference (which
means that it is legally part of this Prospectus).
(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 NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS.ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
-1-
<PAGE>
Contents
ABOUT THE FUND
Expenses
A Brief Overview of the Fund
Financial Highlights
Investment Objective and Policies
Investment Risks
Investment Techniques and Strategies
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
-2-
<PAGE>
ABOUT THE FUND
Expenses
The Fund pays a variety of expenses directly for management of its assets,
administration, distribution of its shares and other services, and those
expenses are subtracted from the Fund's assets to calculate the Fund's net asset
value per share. All shareholders therefore pay those expenses indirectly.
Shareholders pay other expenses directly, such as sales charges and account
transaction charges. The following tables are provided to help you understand
your direct expenses of investing in the Fund and your share of the Fund's
business operating expenses that you will bear indirectly. The numbers below are
based on the Fund's expenses during the fiscal year ended July 31, 1997.
o Shareholder Transaction Expenses are charges you pay when
you buy or sell shares of the Fund. Please refer to "About Your
Account," starting on page ___ 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
Maximum Deferred Sales
Charge (as a % of the
lower of the original
offering 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)
Maximum Sales Charge on
Reinvested Dividends None None None
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 12 calendar months (18
months for shares purchased prior to May 1, 1997) from the end of the calendar
month in which you purchased those shares. See "How to Buy Shares Buying Class A
Shares" below.
-3-
<PAGE>
(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.
o 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 advisor, OppenheimerFunds, Inc. (referred
to in this Prospectus as the "Manager"). The rates of the Manager's fees are set
forth in "How the Fund is Managed," below. The Fund has other regular expenses
for services, such as transfer agent fees, custodial fees paid to the bank that
holds the Fund's portfolio securities, audit fees and legal expenses. Those
expenses are detailed in the Fund's Financial Statements in the Statement of
Additional Information.
Annual Fund Operating Expenses as a Percentage of Average Net
Assets
Class A Class B Class C
Shares Shares Shares
Management Fees
with
management fee waiver) 0.58% 0.58% 0.58%
12b-1 Plan Fees 0.15% 0.90% 0.90%
Other Expenses 0.17% 0.17% 0.18%
----- ----- -----
Total Fund
Operating Expenses 0.90% 1.65% 1.66%
The numbers in the chart above are based upon the Fund's expenses in its
last fiscal year ended July 31, 1997. These amounts are shown as a percentage of
the average net assets of each class of the Fund's shares for that year.
Effective January 1, 1997, the Manager has voluntarily agreed to waive a portion
of the Fund's management fees. Therefore, the "Management Fees" and the "Total
Fund Operating Expenses" shown in the chart above reflect the voluntary waiver
of a portion of the Fund's management fees had the waiver
-4-
<PAGE>
been in effect for the Fund's fiscal year ended July 31, 1997. Had the waiver
not been in effect, the Fund's "Management Fees" would have been 0.60% for the
Fund's Class A, Class B and Class C shares and the "Total Fund Operating
Expenses" would have been 0.93%, 1.78% and 1.79%, respectively for Class A,
Class B and Class C shares. These amounts are shown as a percentage of the
average net assets of each class of the Fund's shares for that fiscal period.
The "12b-1 Plan Fees" for Class A shares are Service Plan Fees. For Class
B and Class C shares, the "12b-1 Plan Fees" are Service Plan 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 chart, depending on a number of factors,
including changes in the actual value of the Fund's assets represented by each
class of shares.
o 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 $56 $75 $95
$153
Class B Shares $67 $82 $110
$157
Class C Shares $27 $52 $90
$197
If you did not redeem your investment, it would incur the following
expenses:
1 year 3 years 5 years 10
years*
------ ------- -------
- --------
Class A Shares
$56 $75
$95 $153
-5-
<PAGE>
Class B Shares $17 $52 $90 $157
Class C Shares $17 $52 $90
$197
* In the first example, expenses include the Class A initial sales charge and
the applicable Class B or Class C contingent deferred sales charge. In the
second example, Class A expenses include the initial sales charge, but Class B
and Class C expenses do not include contingent deferred sales charges. The Class
B expenses in years 7 through 10 are based on the Class A expenses shown above,
because the Fund automatically converts your Class B shares into Class A shares
after 6 years. Because of the effect of the asset-based sales charge and the
contingent deferred sales charge imposed on Class B and Class C shares,
long-term holders of Class B and Class C shares could pay the economic
equivalent of more than the maximum front-end sales charge allowed under
applicable regulations. For Class B shareholders, the automatic conversion of
Class B shares to Class A shares is designed to minimize the likelihood that
this will occur. Please refer to "How to Buy Shares - Buying Class B Shares" for
more information.
These examples show the effect of expenses on an investment, but are not
meant to state or predict actual or expected costs or investment returns of the
Fund, all of which may be more or less
than those shown.
A Brief Overview of the Fund
Some of the important facts about the Fund are summarized below, with references
to the section of this Prospectus where more complete information can be found.
You should carefully read the entire Prospectus before making a decision about
investing in the Fund. Keep the Prospectus for reference after you invest,
particularly for information about your account, such as how to sell or exchange
shares.
o 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.
o 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
-6-
<PAGE>
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. Currently there is no limitation on investments in
securities which may be subject to an alternative minimum tax. 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 __.
o Who Manages the Fund? The Fund's investment adviseradvisor (the
"Manager") is OppenheimerFunds, Inc. The Manager (including subsidiaries)
advises investment company portfolios having over $75 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 advisor and the portfolio manager. Please
refer to "How the Fund is Managed," starting on page __ for more information
about the Manager and its fees.
o 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 Risks" starting on page
__ for a more complete discussion of the Fund's investment risks.
-7-
<PAGE>
o How Can I Buy Shares? You can buy shares through your broker, 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.
o Will I Pay a Sales Charge to Buy Shares? The Fund has three classes of
shares. All three classes have the same investment portfolio but different
expenses. Class A shares are offered with a front-end sales charge, starting at
4.75%, and reduced for larger purchases. Class B shares and Class C shares are
offered without a front-end sales charge, but may be subject to a contingent
deferred sales charge if redeemed within 6 years or 12 months, respectively, of
purchase. There are also annual asset-based sales
charges on Class B and Class C shares. Please review "How To Buy Shares"
starting on page __ for more details, including a discussion about factors you
and your financial advisor should consider in determining which class may be
appropriate for you.
o How Can I Sell My Shares? Shares can be redeemed by mail, or 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 __.
o 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.
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
-8-
<PAGE>
independent auditors, whose report on the Fund's financial statements for the
fiscal year ended July 31, 1997 are included in the Statement of Additional
Information.
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. Although exempt-interest dividends will
not be subject to federal income tax for Fund shareholders, a portion of such
dividends which is derived from interest on certain "private activity" bonds may
be an item of tax preference if you are subject to the federal alternative
minimum tax. Any net interest income on taxable investments and repurchase
agreements will be taxable as ordinary income when distributed to shareholders.
o 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
-9-
<PAGE>
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.
o 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.
Investment Risks
All investments carry risks to some degree, whether they are risks that
market prices of the investment will fluctuate (this is known as "market risk")
or that the underlying issuer will experience financial difficulties and may
default on its obligation under a fixed-income investment to pay interest and
repay principal (this is referred to as "credit risk"). These general investment
risks, and the special risks of certain types of investments that the Fund may
hold are described below. They affect the value of the Fund's investments, its
investment performance, and the prices of its shares. These risks collectively
form the risk profile of the Fund.
Because of the types of securities the Fund invests in and the investment
techniques the Fund uses, the Fund is designed for investors who are investing
for the long term. It is not intended for investors seeking assured income.
While the Manager tries to reduce risks by diversifying investments, by
carefully researching securities before they are purchased, and in some cases by
using hedging techniques, changes in overall market prices can occur at
-10-
<PAGE>
any time, and because the income earned on securities is subject to change,
there is no assurance that the Fund will achieve its investment objective. When
you redeem your shares, they may be worth more or less than what you paid for
them.
o 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.
o 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.
o There are special risks in investing in derivative investments. 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 on
which the derivative is based, and the derivative itself, may 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.
o 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
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<PAGE>
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.
o 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.
Investment Techniques and Strategies
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<PAGE>
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 are designed to reduce some of the risks.
o 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.
o 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.
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
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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.
o 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.
o 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.
o 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).
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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.
o 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"), Fitch
Investors Service, Inc. ("Fitch"), Duff & Phelps, Inc. or any other nationally
recognized statistical rating organization. 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.
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<PAGE>
o 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.
o 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.
o 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 Board may increase that
limit to 15%). 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.
The Fund's percentage limitation on these investments does not apply to
certain restricted securities that are eligible for resale to qualified
institutional purchasers. The Manager monitors holdings of illiquid securities
on an ongoing basis to determine whether to sell any holdings to maintain
adequate liquidity. Illiquid securities include repurchase agreements maturing
in more than seven days, or certain participation interests other than those
with puts exercisable within seven days.
o 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
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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.
o 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.
o 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.
o 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
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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 ("NASDAQ") of the Nasdaq Stock Market, Inc., or traded in the
over-the-counter market; (3) each call the Fund writes must be "covered" while
it is outstanding (that means the Fund must own the investment on which the call
was written); (4) the Fund may write calls on Futures contracts it owns, but
these calls must be covered by securities or other liquid assets the Fund owns
and segregates to enable it to satisfy its obligations if the call is exercised;
(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.
o 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.
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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:
o 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.
o 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".
o 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).
o Pledge, mortgage or otherwise encumber, transfer or assign any of its assets
to secure a debt; collateral arrangements for premium and margin payments in
connection with hedging instruments are not
deemed to be a pledge of assets.
o 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.
o Buy or sell futures contracts other than interest rate futures or municipal
bond index futures.
Unless the prospectus states that a percentage restrictions applies on an
ongoing basis, it applies only at the time the Fund purchases an investment, and
the Fund need not sell securities to meet the percentage limits if the value of
the investment increases in proportion to the size of the Fund. Other investment
restrictions are listed in "Investment Restrictions" 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 Municipal Trust, and the Fund became a separate series of it. The
Trust is an open-end,
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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
provides more information about them and the officers of the Trust. 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. Please
refer to "How the Fund is Managed" in the Statement of Additional Information on
voting of shares.
The Manager and Its Affiliates. The Fund is managed by the Manager,
OppenheimerFunds, Inc., which is responsible for selecting the Fund's
investments and handles its day-to-day business. The Manager carries out its
duties, subject to the policies established by the Board of Trustees, under an
Investment Advisory Agreement which states the Manager's responsibilities. The
Agreement sets forth the fees paid by the Fund to the Manager, and describes the
expenses that the Fund is responsible to pay to conduct its business.
The Manager has operated as an investment advisor since 1959. The Manager
(including subsidiaries) currently manages investment companies, including other
Oppenheimer funds, with assets of more than $75 billion as of September 30,
1997, with more than 3 million shareholder accounts. The Manager is owned by
Oppenheimer Acquisition Corp., a holding
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company that is owned in part by senior officers of the Manager and controlled
by Massachusetts Mutual Life Insurance Company.
o 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.
o 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 average annual net assets;
0.55% of the next $100 million; 0.50% of the next $200 million; 0.45% of the
next $250 million; 0.40% of the next $250 million; and 0.35% of average annual
net assets over $1 billion. The Fund's management fee for its last fiscal year
was 0.60% of average annual net assets for Class A, Class B and Class C shares.
The Fund pays expenses related to its daily operations, such as custodian
fees, Trustees' fees, transfer agency fees, legal fees and auditing costs. Those
expenses are paid out of the Fund's assets and are not paid directly by
shareholders. However, those expenses reduce the net asset value of shares, and
therefore are indirectly borne by shareholders through their investment. More
information about the Investment Advisory Agreement and the other expenses paid
by the Fund is contained in the Statement of Additional Information.
There is also information about the Fund's brokerage policies and
practices in "Brokerage Policies of the Fund" in the Statement of Additional
Information. That section discusses how brokers and dealers are selected for the
Fund's portfolio transactions. Because the Fund purchases most of its portfolio
securities directly from the sellers and not through brokers, it therefore
incurs relatively little expense for brokerage. From time to time, however, it
may use brokers when buying portfolio securities. When deciding which brokers to
use, the Manager is permitted by the Investment Advisory Agreement to consider
whether brokers have sold shares of the Fund or any other funds for which the
Manager serves as investment advisor.
o The Distributor. The Fund's shares are sold through
dealers
, brokers and financial institutions that have a sales
agreement
with OppenheimerFunds Distributor, Inc., a subsidiary of the
Manager that acts as the Fund's Distributor. The Distributor
also
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distributes the shares of other "Oppenheimer funds" and is sub- distributor for
funds managed by a subsidiary of the Manager.
o The Transfer Agent. The Fund's transfer agent is OppenheimerFunds
Services, a division of the Manager, which acts as the shareholder servicing
agent for the Fund on an "at-cost" basis. It also acts as the shareholder
servicing agent for other Oppenheimer funds. Shareholders should direct
inquiries about their accounts to the Transfer Agent at the address and
toll-free number shown below in this Prospectus and on the back cover.
Performance of the Fund
Explanation of Performance Terminology. The Fund uses the terms "total return,"
"average annual total return," "standardized yield," "dividend yield," "yield"
and "tax-equivalent yield" to illustrate its performance. The performance of
each class of shares is shown separately, because the performance of each class
of shares will usually be different as a result of the different kinds of
expenses each class bears. These returns and yields measure the performance of a
hypothetical account in the Fund over various periods, and do not show the
performance of each shareholder's account (which will vary if dividends are
received in cash, or shares are sold or purchased). The Fund's performance may
help you see how well your Fund has done over time and to compare it to other
funds or to a market index.
It is important to understand that the Fund's yields and total returns
represent past performance and should not be considered to be predictions of
future returns or performance. This performance data is described below, but
more detailed information about how total returns and yields are calculated is
contained in the Statement of Additional Information, which also contains
information about indices and other ways to measure and compare the Fund's
performance. The Fund's investment performance will vary over time, depending on
market conditions, the composition of the portfolio, expenses and which class of
shares you purchase.
o 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
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cumulative total return over the entire period. However, average annual total
returns do not show the Fund's actual year-by-year performance.
When total returns are quoted for Class A shares, normally the current
maximum initial sales charge has been deducted. When total returns are shown for
Class B or Class C shares, normally the contingent deferred sales charge that
applies to the period for which total return is shown has been deducted.
However, total returns may also be quoted "at net asset value," without
considering the effect of the sales charge, and those returns would be less if
sales charges were deducted.
o Yield. Different types of yields may be quoted to show performance. Each
class of shares calculates its standardized yield by dividing the annualized net
investment income per share from the portfolio during a 30-day period by the
maximum offering price on the last day of the period. The 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 paid for a stated period by the
maximum offering price on the last day of the period and annualizing the result.
Yields for Class A shares normally reflect the deduction of the maximum initial
sales charge, but may also be shown without deducting sales charge. 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 July 31, 1997, followed by a
graphical comparison of the Fund's performance to an appropriate broad-based
market index.
o Management's Discussion of Performance. During the Fund's fiscal year
ended July 31, 1997, the Fund's performance was affected by several factors.
While Pennsylvania is participating in the bondsgeneral positive economic
environment that pervades most of the United States,
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it is not growing as robustly as some states outside the Northeast. The state is
making progress in its transition from a primary industrial economy to a
broader-based mix of manufacturing and service companies. The Fund's portfolio
holdings, allocations and strategies are subject to change.
o 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 July 31, 1997. 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 Municipal 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 7/31/97
1 Year 5 year Life
------ ------ -----
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Class A: 4.47% 5.36%
6.89%(1)
Class B: 3.86%
3.43%4.70%(2)
Class C: 7.84%
4.39%7.40%(3)
- -----------------
Total returns and the ending account values in the graph show change in share
value and include 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. The
average annual total returns reflect reinvestment of all dividends and capital
gains distributions and are shown net of the applicable 5% and 2% 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 2% sales charge. (3) Class C shares of the Fund were first publicly
offered on 8/29/95. The one year period is shown net of the applicable 1%
contingent deferred sales charge.
Past performance is not predictive of future performance. Graphs are not drawn
to same scale.
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.
o 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 12 months of buying them (18 months if the shares were purchased
prior to May 1, 1997), 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.
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<PAGE>
o Class B Shares. If you buy Class B shares, you pay no sales charge at
the time of purchase, but if you sell your shares within six years of buying
them, you will normally pay a contingent deferred sales charge. That sales
charge varies depending on how long you own your shares, as described in "Buying
Class B Shares" below.
o Class C Shares. If you buy Class C shares, you pay no sales charge at
the time of purchase, but if you sell your shares within 12 months of buying
them, you will normally pay a contingent deferred sales charge of 1%, as
described in "Buying Class C Shares" below.
Which Class of Shares Should You Choose? Once you decide that the Fund is an
appropriate investment for you, the decisions as to which class of shares is
best 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 to consider are how much you plan to invest and how long you plan to
hold your investment. If your goals and objectives change over time and you plan
to purchase additional shares, you should re-evaluate those factors to see if
you should consider another class of shares.
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 and considered 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 of shares 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.
o How Long Do You Expect to Hold Your Investment? While
future financial needs cannot be predicted with certainty,
knowing
-26-
<PAGE>
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.
o 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 within six years, as well as the effect of the Class B asset-based
sales charge on the investment return for that class in the short-term. Class C
shares might be the appropriate choice (especially for investments of less than
$100,000), because there is no initial sales charge on Class C shares, and the
contingent deferred sales charge does not apply to amounts you sell after
holding them one year.
However, if you plan to invest more than $100,000 for the shorter term,
then 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 shares might be more advantageous than Class C shares (as well as Class
B shares) 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 shares (and
Class B shares). If investing $500,000 or more, Class A shares 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.
-27-
<PAGE>
o 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 Class 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.
o 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) may
not be advisable (because of the effect of the contingent deferred sales charge)
for Class B or Class C shareholders, you should carefully review how you plan to
use your investment account before deciding which class of shares 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.
o 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 and Class C contingent deferred sales charge and
asset-based sales charges 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.
The Distributor may pay additional periodic compensation from its own resources
to securities dealers or financial institutions based upon the value of shares
of the Fund owned by the dealer or financial institution for its own account or
for its customers.
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<PAGE>
How Much Must You Invest? You can open a Fund account with a minimum initial
investment of $1,000 and make additional investments at any time with as little
as $25. There are reduced minimum investments under special investment plans.
With Asset Builder Plans, Automatic Exchange Plans and military
allotment plans, you can make initial and subsequent investments for as little
as $25; and subsequent purchases of at least $25 can be made by telephone
through AccountLink.
There is no minimum investment requirement if you are buying shares
by reinvesting dividends from the Fund or other Oppenheimer funds (a list of
them appears in the Statement of Additional Information, or you can ask your
dealer or call the Transfer Agent), or by reinvesting distributions from unit
investment trusts that have made arrangements with the Distributor.
o 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. The Distributor may appoint certain servicing agents as the
Distributor's agent to accept purchase (and redemption) orders. 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.
o Buying Shares Through Your Dealer. Your dealer will place
your order with the Distributor on your behalf.
o 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, it is recommended that you discuss your
investment first with a financial advisor, to be sure that it is appropriate for
you.
o Payment by Federal Funds Wire. Shares may be purchased
by
Federal Funds wire. The minimum investment is $2,500. You must
first call the Distributor's Wire Department at 1-800-525-7041
to
notify the Distributor of the wire, and to receive further
instructions.
o Buying Shares Through OppenheimerFunds AccountLink. You
can
use AccountLink to link your Fund account with an account at a
U.S.
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<PAGE>
bank or other financial institution that is an Automated Clearing House (ACH)
member to transmit funds electronically to purchase shares, to have the Transfer
Agent send redemption proceeds or to transmit dividends and distributions to
your bank account.
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.
o Asset Builder Plans. You may purchase shares of the Fund (and up to four
other Oppenheimer funds) automatically each month from your account at a bank or
other financial institution under an Asset Builder Plan with AccountLink.
Details are in the Statement of Additional Information.
o At What Price Are Shares Sold? Shares are sold at the public offering
price based on the net asset value (plus any initial sales charge that applies).
That price is 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 or its designated agent 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 referred to in this Prospectus as 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.
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<PAGE>
Special Sales Charge Arrangements for Certain Persons. Appendix A in this
Prospectus sets forth conditions for the waiver of, or exemption from, sales
charges or the special sales charge rates that apply to purchases of shares of
the Fund (including purchases by exchange) by a person who was a shareholder of
one of the Former Quest for Value Funds (as defined in that Appendix).
Buying Class A Shares. Class A shares are sold at their offering price, which is
normally net asset value plus an initial sales charge. However, in some cases,
described below, purchases are not subject to an initial sales charge, and the
offering price will be the net asset value. In some cases, reduced sales charges
may be available, as described below. Out of the amount you invest, the Fund
receives the net asset value to invest for your account. The sales charge varies
depending on the amount of your purchase. A portion of the sales charge may be
retained by the Distributor and allocated to your dealer as commission. The
current sales charge rates and commissions paid to dealers and brokers are as
follows:
- -------------------------------------------------------------------
Front-End Front-End
Commission
Sales Charge Sales Charge as
as a as a
Percentage
Percentage Percentage of
Offering
of Offering of Amount Price
Amount of Purchase 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.
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<PAGE>
o 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
non-retirement plan purchases in an amount equal to the sum of 1.0%. That
commission will be paid only on the amount of those purchases that were not
previously subject to a front-end sales
charge and dealer commission.
If you redeem any of those shares purchased prior to May 1, 1997, 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.A Class A contingent deferred sales
charge may be deducted from the redemption proceeds of any of those shares
purchased on or after May 1, 1997, that are redeemed within 12 months of the end
of the calendar month of their purchase. That sales charge will be equal to 1.0%
of the lesser of (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 offering price (which is the original net
asset value) of the redeemed shares. However, the Class A contingent deferred
sales charge will not exceed the aggregate amount of the commissions the
Distributor paid to your dealer on all 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 12 calendar months (18 months
for shares purchased prior to May 1, 1997) of the end of the calendar month of
the purchase of the exchanged shares, the sales charge will apply.
o 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.
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<PAGE>
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:
o 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 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 Distributor will add the value,
at current offering price, of the shares you previously purchased and currently
own to the value of current purchases to determine the sales charge rate that
applies. The 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.
o 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.
o 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.
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<PAGE>
In order to receive a
waiver of
the Class A contingent deferred sales
charge, you must notify the Transfer Agent which conditions apply.
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:
o the Manager or its affiliates;
o 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;
o registered management investment companies, or separate accounts of
insurance companies having an agreement with the Manager or the Distributor for
that purpose;
o 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;
o 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);
o dealers, brokers, banks or registered investment advisors that have
entered into an agreement with the Distributor providing specifically for the
use of shares of the Fund in particular investment products made available to
their clients (those clients may be charged a transaction fee by their dealer,
broker, bank or advisor for the purchase or sale of Fund shares);
o (1) investment advisors and financial planners who have entered into an
agreement for this purpose with the Distributor and who charge an advisory,
consulting or other fee for their services and buy shares for their own accounts
or the accounts of their clients, (2) "rabbi trusts" that buy shares for their
own accounts,
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<PAGE>
in each case if those purchases are made through a broker or agent or other
financial intermediary that has made special arrangements with the Distributor
for those purchases; and (3) clients of such investment advisors or financial
planners (that have entered into an agreement for this purpose with the
Distributor) who buy shares for their own accounts may also purchase shares
without sales charge but only if their accounts are linked to a master account
of their investment advisor or financial planner on the books and records of the
broker, agent or financial intermediary with which the Distributor has made such
special arrangements (each of these investors may be charged a fee by the
broker, agent or financial intermediary for purchasing shares);
o 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;
o accounts for which Oppenheimer Capital is the investment advisor (the
Distributor must be advised of this arrangement) and persons who are directors
or trustees of the company or trust which
is the beneficial owner of such accounts; or
o 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:
o shares issued in plans of reorganization, such as mergers, asset
acquisitions and exchange offers, to which the Fund is a party;
o 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;
o shares purchased and paid for with the proceeds of shares redeemed in
the prior 30 days from a mutual fund (other than a fund managed by the Manager
or any of its subsidiaries) on which an initial sales charge or contingent
deferred sales charge was paid (this waiver also applies to shares purchased by
exchange of shares of Oppenheimer Money Market Fund, Inc. that were purchased
and paid for in this manner); this waiver must be requested when the purchase
order is placed for your shares of the Fund, and the Distributor may require
evidence of your qualification for this waiver; or
o shares purchased with the proceeds of maturing principal of units of any
Qualified Unit Investment Liquid Trust Series.
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<PAGE>
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:
o to make Automatic Withdrawal Plan payments that are limited annually to
no more than 12% of the original account value;
o involuntary redemptions of shares by operation of law or involuntary
redemptions of small accounts (see "Shareholder Account Rules and Policies,"
below); or
o if, at the time of purchase of shares (prior to May 1, 1997) the dealer
agreed in writing to accept the dealer's portion of the sales commission in
installments of 1/18th of the commission per month (and no further commission
will be payable if the shares are redeemed within 18 months of purchase);
o if, at the time of purchase of shares (on or after May 1, 1997) the
dealer agrees in writing to accept the dealer's portion of the sales commission
in installments of 1/12th of the commission per month (and no further commission
will be payable if the shares are redeemed within 12 months of purchase);
o 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 service providers or
their 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.
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<PAGE>
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
contingent deferred sales charge will be based on the lesser of the net asset
value of the redeemed shares at the time of redemption or the original offering
price (which is the original net asset value). 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.
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<PAGE>
o 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.
o 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."
o 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 "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 the Class C shares are redeemed
within 12 months of their purchase, a contingent deferred sales charge of 1.0%
will be deducted from the redemption proceeds. That sales charge will not apply
to shares purchased by the reinvestment of dividends or capital gains
distributions. The contingent deferred sales charge will be based on the lesser
of the net asset value of the redeemed shares at the time of redemption or the
original offering price (which is the original net asset value). 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.
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<PAGE>
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.
o 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 Class C shares and
servicing accounts. Under the Plans, the Fund pays the Distributor an annual
"asset-based sales charge" of 0.75% per year on Class B shares 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 Class 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 Class 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
-39-
<PAGE>
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.
If a dealer has a special agreement with the Distributor, the Distributor
will pay the Class B service fee and the asset-based sales charge to the dealer
quarterly in lieu of paying the sales commission and service fee in advance at
the time of purchase.
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.
If a dealer has a special agreement with the Distributor, the Distributor
will pay the Class C service fee and the asset-based sales charge to the dealer
quarterly in lieu of paying the sales commission and service fee in advance at
the time of purchase.
The 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.
At July 31, 1997, the end of the Class B Plan year, the Distributor had
incurred unreimbursed expenses in connection with sales of Class B shares of
$535,790 (equal to 2.77% of the Fund's net assets represented by Class B shares
on that date). At July 31, 1997, the end of the Class C Plan
-40-
<PAGE>
year, the Distributor had incurred unreimbursed expenses in connection with
sales of Class C shares of $28,807 (equal to 1.10% of the Fund's net assets
represented by Class C shares on that date).
o 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. In order to receive a waiver of the Class B and Class C contingent
deferred sales charge, you must notify the Transfer Agent which conditions
apply.
Waivers for Redemptions in Certain Cases. The Class B and Class C
contingent deferred sales charges will be waived for redemption of shares in the
following cases:
o redemptions from accounts following the death or disability of the last
surviving shareholder, including a trustee of a "grantor" trust or revocable
living trust for which the trustee is also the sole beneficiary (the death or
disability must have occurred after the account was established and for
disability you must provide evidence of a determination of disability by the
Social Security Administration); or
o shares redeemed involuntarily, as described in
"Shareholder
Account Rules and Policies," below.
Waivers for Shares Sold or Issued in Certain Transactions. The contingent
deferred sales charge is also waived on Class B and Class C shares sold or
issued in the following cases:
o shares sold to the Manager or its affiliates;
o 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
o 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
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<PAGE>
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 call the Transfer Agent for more information.
AccountLink privileges should be requested 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.
o 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.
o 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.
o 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.
o Exchanging Shares. With the OppenheimerFunds Exchange Privilege,
described below, you can exchange shares automatically by phone from your Fund
account to another Oppenheimer fund account you have already established by
calling the special PhoneLink number.
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<PAGE>
Please refer to "How to Exchange Shares," below, for
details.
o 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.
Shareholder Transactions by Fax. Beginning May 30, 1997, requests for certain
account transactions may be sent to the Transfer Agent by fax (telecopier).
Please call 1-800-525-7048 for information about which transactions are
included. Transaction requests submitted by fax are subject to the same rules
and restrictions as written and telephone requests described in this Prospectus.
Automatic Withdrawal and Exchange Plans. The Fund has several plans that enable
you to sell shares automatically or exchange them to another Oppenheimer fund
account on a regular basis:
o 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 Statement of Additional Information for more
details.
o Automatic Exchange Plans. You can authorize the Transfer Agent to
automatically exchange an amount you establish in advance for shares of up to
five other Oppenheimer funds on a monthly, quarterly, semi-annual or annual
basis under an Automatic Exchange Plan. The minimum purchase for each
Oppenheimer fund account is $25. These exchanges are subject to the terms of the
Exchange Privilege, described below.
Reinvestment Privilege. If you redeem some or all of your Class A or Class B
shares of the Fund, you have up to 6 months to reinvest all or part of the
redemption proceeds in Class A shares of the Fund or other Oppenheimer funds
without paying a sales charge. This privilege applies only to Class A shares
that you purchased subject to an initial sales charge and to Class A or Class B
shares on which you paid a contingent deferred sales charge when you redeemed
them. This privilege does not apply to Class C shares. You must be sure to ask
the Distributor for this privilege when you
-43-
<PAGE>
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.
o 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):
o You wish to redeem more than $50,000 worth of shares and
receive a check
o The redemption check is not payable to all shareholders
listed on the account statement
o The redemption check is not sent to the address of record
on your account statement
o Shares are being transferred to a Fund account with a
different owner or name
o Shares are redeemed by someone other than the owners
(such
as an Executor)
o 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:
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<PAGE>
o Your name
o The Fund's name
o Your Fund account number (from your account statement) o The dollar
amount or number of shares to be redeemed o Any special payment
instructions o Any share certificates for the shares you are selling, o
The signatures of all registered owners exactly as the account is
registered, and o Any special 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.
o To redeem shares through a service representative, call
1-
800-852-8457
o To redeem shares automatically on PhoneLink, call
1-800-533-3310
Whichever method you use, you may have a check sent to the address on the
account statement, or, if you have linked your Fund account to your bank account
on AccountLink, you may have the
proceeds wired to that bank account.
o 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.
-45-
<PAGE>
o Telephone Redemptions Through AccountLink. There are no dollar limits on
telephone redemption proceeds sent to a bank account designated when you
establish AccountLink. Normally the ACH transfer to your bank is initiated on
the business day after the redemption. You do not receive dividends on the
proceeds of the shares you redeemed while they are waiting to be transferred.
Checkwriting. To be able to write checks against your Fund account, you may
request that privilege on your account Application or you can contact the
Transfer Agent for signature cards, which must be signed (with a signature
guarantee) by all owners of the account and returned to the Transfer Agent so
that checks can be sent to you to use. Shareholders with joint accounts can
elect in writing to have checks paid over the signature of one owner. If you
previously signed a signature card to establish Checkwriting in another
Oppenheimer fund, simply call 1-800-525-7048 to request Checkwriting for an
account in this Fund with the same registration as the previous checkwriting
account.
o Checks can be written to the order of whomever you wish, but may not be
cashed at the Fund's bank or custodian.
o 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.
o Checks must be written for at least $100.
o Checks cannot be paid if they are written for more than
your
account value. Remember: your shares fluctuate in value and you
should not write a check close to the total account value.
o You may not write a check that would require the Fund to redeem shares
that were purchased by check or Asset Builder Plan payments within the prior 15
days.
o Don't use your checks if you changed your Fund account
number.
Selling Shares Through Your Dealer. The Distributor has made arrangements to
repurchase Fund shares from dealers and brokers on behalf of their customers.
Brokers or dealers may charge for that service. Please refer to "Special
Arrangements for Repurchase of Shares from Dealers and Brokers" in the Statement
of Additional Information for more details.
How to Exchange Shares
Shares of the Fund may be exchanged for shares of certain Oppenheimer
funds at net asset value per share at the time of exchange, without sales
charge. To exchange shares, you must meet
several conditions:
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<PAGE>
o Shares of the fund selected for exchange must be
available
for sale in your state of residence.
o The prospectuses of this Fund and the fund whose shares
you
want to buy must offer the exchange privilege.
o You must hold the shares you buy when you establish your
account for at least 7 days before you can exchange them; after the account is
open 7 days, you can exchange shares every regular
business day.
o You must meet the minimum purchase requirements for the
fund
you purchase by exchange.
o 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:
o Written Exchange Requests. Submit an OppenheimerFunds
Exchange Request form, signed by all owners of the account.
Send
it to the Transfer Agent at the addresses listed in "How to Sell
Shares."
o Telephone Exchange Requests. Telephone exchange requests
may
be made either by calling a service representative at 1-800-852- 8457 or by
using PhoneLink for automated exchanges, by calling 1- 800-533-3310. Telephone
exchanges may be made only between accounts that are registered with the same
name(s) and address. Shares held under certificates may not be exchanged by
telephone.
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:
o Shares are normally redeemed from one fund and purchased from the other
fund in the exchange transaction on the same regular business day on which the
Transfer Agent receives an exchange request that is in proper form by the close
of The New York Stock
-47-
<PAGE>
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.
o 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.
o The Fund may amend, suspend or terminate the exchange
privilege at any time. Although the Fund will attempt to
provide
you notice whenever it is reasonably able to do so, it may
impose
these changes at any time.
o 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.
o If the Transfer Agent cannot exchange all the shares you request because
of a restriction cited above, only the shares eligible for exchange will be
exchanged.
Shareholder Account Rules and Policies
o Net Asset Value Per Share is determined for each class of shares as of
the close of The New York Stock Exchange that day, 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.
o 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.
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<PAGE>
o 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.
o 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.
o 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.
o 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.
o 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.
o 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 seven days after the Transfer Agent receives
redemption instructions in proper form, except under unusual circumstances
determined by the Securities and Exchange Commission delaying or suspending such
payments. For accounts registered in the name of a broker-dealer, payment will
be forwarded within three business days. The Transfer Agent may delay forwarding
a check or
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<PAGE>
processing a payment via AccountLink for recently purchased shares, but only
until the purchase payment has cleared. That delay may be as much as 10 days
from the date the shares were purchased. That delay may be avoided if you
purchase shares by federal funds wire, certified check or arrange with your bank
to provide telephone or written assurance to the Transfer Agent that your
purchase payment has cleared.
o 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.
o 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.
o "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.
o 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.
o 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
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<PAGE>
B and Class C shares because expenses allocable to Class B and Class C shares
will generally be higher.
For the fiscal year ended July 31, 1997, 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 July 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:
o 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.
o 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.
o 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.
o Reinvest your distributions in another Oppenheimer fund account. You can
reinvest all distributions in the same class of shares of another Oppenheimer
fund account you have established.
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<PAGE>
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 for federal income tax
purposes. 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.
o "Buying a Dividend". When a fund goes ex-dividend, its share price is
reduced by the amount of the distribution. If you buy shares on or just before
the ex-dividend date, or just before the Fund declares a capital gains
distribution, you will pay the full price for the shares and then receive a
portion of the price back as a taxable dividend or a capital gain.
o 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
received when you sold them. Any capital gain is subject to capital gains tax.
o 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 advisor
about the effect of an investment in the Fund on your particular tax situation.
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<PAGE>
APPENDIX TO PROSPECTUS OF
OPPENHEIMER PENNSYLVANIA MUNICIPAL FUND
Graphic material included in Prospectus of Oppenheimer
Pennsylvania Municipal Fund: "Comparison of Change in Value of
$10,000 Hypothetical Investments in Oppenheimer Pennsylvania
Municipal 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 Municipal Fund A Municipal Bond
Index
- -------------- ------------------------
- --------------------
9/18/89(1) $ 9,525 $10,000
12/31/89 $ 9,835 $10,384
12/31/90 $10,425 $11,140
12/31/91 $11,624 $12,493
12/31/92 $12,557 $13,594
12/31/93 $14,204 $15,264
12/31/94 $13,113 $14,474
12/31/95 $15,335 $17,003
7/31/96 $15,402 $17,080
7/31/97 $16,893 $18,834
Fiscal Year Oppenheimer Pennsylvania Lehman Brothers
(Period) Ended Municipal Fund B Municipal Bond
Index
- -------------- ------------------------
- --------------------
5/1/93(2) $10,000 $10,000
12/31/93 $10,667 $10,718
12/31/94 $ 9,779 $10,163
12/31/95 $11,351 $11,939
7/31/96 $11,351 $11,993
7/31/97 $12,155 $13,225
Fiscal Year Oppenheimer Pennsylvania Lehman Brothers
(Period) Ended Municipal Fund C Municipal Bond
Index
- -------------- ------------------------
- --------------------
8/29/95(3) $10,000 $10,000
12/31/95 $10,555 $10,478
7/31/96 $10,540 $10,525
7/31/97 $11,470 $11,606
<PAGE>
(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>
Independent Auditors' Report
- --------------------------------------------------------------------------------
The Board of Trustees and Shareholders of
Oppenheimer Pennsylvania Municipal Fund:
We have audited the accompanying statements of investments and assets and
liabilities of Oppenheimer Pennsylvania Municipal Fund (formerly Oppenheimer
Pennsylvania Tax-Exempt Fund) (a series of Oppenheimer Multi-State Municipal
Trust) as of July 31, 1997, the related statement of operations for the year
then ended, the statements of changes in net assets for the year then ended, the
seven-month period ended July 31, 1996 and the year ended December 31, 1995, and
the financial highlights for the year ended July 31, 1997, the seven-month
period ended July 31, 1996 and for each of the years in the four-year period
ended December 31, 1995. These financial statements and financial highlights are
the responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned as of July 31, 1997, 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 Municipal Fund as of July 31, 1997, the
results of its operations for the year then ended, the changes in its net assets
for the year then ended, the seven-month period ended July 31, 1996 and the year
ended December 31, 1995, and the financial highlights for the year ended July
31, 1997, the seven-month period ended July 31, 1996 and for each of the years
in the four-year period ended December 31, 1995, in conformity with generally
accepted accounting principles.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Denver, Colorado
August 21, 1997
<PAGE>
Financials
- --------------------------------------------------------------------------------
10 Oppenheimer Pennsylvania Municipal Fund
<PAGE>
Statement of Investments July 31, 1997
<TABLE>
<CAPTION>
Ratings:
Moody's/
S&P/Fitch Face Market Value
(Unaudited) Amount See Note 1
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Municipal Bonds and Notes -- 98.2%
- --------------------------------------------------------------------------------------------
Pennsylvania -- 88.8% Beaver Cnty., PA IDAU PC Collateral RRB, Toledo Edison
Project, Series A, 7.75%,
5/1/20 Ba2/BB $2,000,000 $2,268,360
- --------------------------------------------------------------------------------------------
Beaver Cnty., PA IDAU PC RRB, Ohio
Edison Project, Series A, FGIC Insured,
7.75%, 9/1/24 Aaa/AAA/AAA 1,000,000 1,092,400
- --------------------------------------------------------------------------------------------
Berks Cnty., PA GOB, Prerefunded, FGIC
Insured, Inverse Floater, 8.33%, 11/10/20(1) Aaa/AAA/AAA 1,000,000 1,221,250
- --------------------------------------------------------------------------------------------
Blair Cnty., PA HA RB, Altoona Hospital
Project, AMBAC Insured, Inverse Floater,
7.49%, 7/1/14(1) Aaa/AAA/AAA 700,000 806,141
- --------------------------------------------------------------------------------------------
Delaware River Port Authority RRB,
Delaware River Bridges, AMBAC Insured,
7.375%, 1/1/07 Aaa/AAA/AAA 770,000 820,412
- --------------------------------------------------------------------------------------------
Delaware Cnty., PA Authority Health Care
RB, Mercy Health Corp. Southeastern,
Series B, 6%, 11/15/07 NR/BBB+/BBB+ 2,830,000 2,988,423
- --------------------------------------------------------------------------------------------
Delaware Cnty., PA Authority University RB,
Villanova University, MBIA Insured, 6.90%,
8/1/16 Aaa/AAA 1,000,000 1,091,550
- --------------------------------------------------------------------------------------------
Erie, PA Higher Education Building
Authority College RB, Mercyhurst College
Project, Prerefunded, 7.85%, 9/15/19 NR/AAA 1,000,000 1,078,520
- --------------------------------------------------------------------------------------------
Langhorne Manor Boro, PA Health &
HEAU RB, Woods Schools Project,
Prerefunded, 8.75%, 11/15/14 NR/AAA 1,000,000 1,121,470
- --------------------------------------------------------------------------------------------
Lehigh Cnty., PA General Purpose
Authority RB, Lehigh Valley Hospital, Inc.,
Series A, MBIA Insured, 7%, 7/1/16 Aaa/AAA 1,250,000 1,534,250
- --------------------------------------------------------------------------------------------
Monroeville, PA HA RRB, Forbes Health
System, 6.25%, 10/1/15 A3/BBB+ 2,000,000 2,097,180
- --------------------------------------------------------------------------------------------
Northampton Cnty., PA HEAU RB,
Moravian College, Prerefunded, 8.20%,
6/1/11 NR/AAA 2,095,000 2,430,326
- --------------------------------------------------------------------------------------------
Northampton Cnty., PA HEAU RRB, Lehigh
University, 7.10%, 9/1/05(2) A1/A+ 2,140,000 2,188,492
- --------------------------------------------------------------------------------------------
PA Convention Center Authority RB,
Escrowed to Maturity, Series A, FGIC
Insured, 6.70%, 9/1/16 Aaa/AAA/AAA 1,850,000 2,177,709
- --------------------------------------------------------------------------------------------
PA EDFAU RR RB, Colver Project, Series D,
7.15%, 12/1/18 NR/BBB-/BBB- 2,000,000 2,201,660
- --------------------------------------------------------------------------------------------
</TABLE>
11 Oppenheimer Pennsylvania Municipal Fund
<PAGE>
Statement of Investments (Continued)
<TABLE>
<CAPTION>
Ratings:
Moody's/
S&P/Fitch Face Market Value
(Unaudited) Amount See Note 1
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Pennsylvania (continued)
PA EDFAU RR RB, Northampton
Generating, Series A, 6.50%, 1/1/13 NR/NR $1,450,000 $1,487,163
- -----------------------------------------------------------------------------------------
PA EDFAU Wastewater Treatment RB, Sun Co., Inc.-R & M Project, Series A, 7.60%
12/1/24 Baa1/BBB 2,000,000 2,316,560
- -----------------------------------------------------------------------------------------
PA GORB, First Series, 10%, 4/15/98 A1/AA-/AA- 1,880,000 1,960,201
- -----------------------------------------------------------------------------------------
PA HEAA Student Loan RB, Series B, AMBAC Insured, Inverse Floater, 8.158%,
3/1/22(1) Aaa/AAA/AAA 1,250,000 1,381,250
- -----------------------------------------------------------------------------------------
PA HEFAU College & University RB,
Thomas Jefferson University, Series A,
6.625%, 8/15/09 Aa/A+ 1,000,000 1,104,610
- -----------------------------------------------------------------------------------------
PA HFA RB, SFM, Inverse Floater, 9.712%,
10/3/23(1) Aa2/AA+ 1,000,000 1,167,500
- -----------------------------------------------------------------------------------------
PA HFA RB, SFM, Series 40, 6.80%, 10/1/15 Aa2/AA+ 2,000,000 2,168,800
- -----------------------------------------------------------------------------------------
PA HFA RB, SFM, Series 44C, 6.65%, 10/1/21 Aa2/AA+ 1,000,000 1,079,670
- -----------------------------------------------------------------------------------------
PA HFA RB, SFM, Series 54A, 6.15%, 10/1/22 Aa2/AA+ 1,000,000 1,037,540
- -----------------------------------------------------------------------------------------
PA IDAU ED RB, Prerefunded, Series A, 7%,
1/1/11 NR/A-/AAA 1,000,000 1,116,910
- -----------------------------------------------------------------------------------------
PA State University RRB, Series B,
5.50%, 8/15/16 A1/AA- 2,500,000 2,529,000
- -----------------------------------------------------------------------------------------
PA Turnpike Commission RB, Prerefunded,
Series E, MBIA Insured, 7.50%, 12/1/09 Aaa/AAA 1,000,000 1,096,450
- -----------------------------------------------------------------------------------------
PA Turnpike Commission RB, Prerefunded,
Series K, 7.50%, 12/1/19 Aaa/AAA 2,500,000 2,741,125
- -----------------------------------------------------------------------------------------
Philadelphia, PA Gas Works RB, 15th
Series, MBIA Insured, 5.25%, 8/1/15 Aaa/AAA/A- 1,000,000 1,007,130
- -----------------------------------------------------------------------------------------
Philadelphia, PA Hospitals & HEFAU RB,
Albert Einstein Medical Center, 7.625%
4/1/11 A3/BBB+ 3,500,000 3,725,575
- -----------------------------------------------------------------------------------------
Philadelphia, PA Hospitals & HEFAU RB,
Temple University Hospital, Series A,
6.625%, 11/15/23 Baa1/A- 3,800,000 4,120,834
- -----------------------------------------------------------------------------------------
Philadelphia, PA Hospitals & HEFAU RRB,
Jeanes Health System Project, 6.60%,
7/1/10 Baa3/BBB 3,560,000 3,823,903
- -----------------------------------------------------------------------------------------
Philadelphia, PA Hospitals & HEFAU RRB,
Jeanes Hospital Project, 5.875%, 7/1/17 Baa3/BBB 1,500,000 1,518,900
- -----------------------------------------------------------------------------------------
Philadelphia, PA Regional Port Authority
Lease RB, MBIA Insured, Inverse Floater
8.50%, 9/1/20(1) Aaa/AAA 2,100,000 2,420,250
- -----------------------------------------------------------------------------------------
Philadelphia, PA Water & Wastewater RB,
FGIC Insured, 10%, 6/15/05 Aaa/AAA/AAA 4,400,000 5,957,424
- -----------------------------------------------------------------------------------------
</TABLE>
12 Oppenheimer Pennsylvania Municipal Fund
<PAGE>
<TABLE>
<CAPTION>
Ratings:
Moody's/
S&P/Fitch Face Market Value
(Unaudited) Amount See Note 1
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Pennsylvania (continued)
Pittsburgh, PA Urban Redevelopment
Authority Mtg. RRB, Series A, 6.20%, 10/1/21 Aa2/AAA $ 565,000 $ 588,289
- -----------------------------------------------------------------------------------------------
Pittsburgh, PA Urban Redevelopment
Authority Mtg. RRB, Series A, 6.25%, 10/1/28 Aa2/AAA 1,400,000 1,463,616
- -----------------------------------------------------------------------------------------------
Pittsburgh, PA Water & Sewer Authority
RRB, Escrowed to Maturity, FGIC Insured,
7.25%, 9/1/14 Aaa/AAA/AAA 1,200,000 1,465,992
- -----------------------------------------------------------------------------------------------
Reading, PA Parking Authority CAP RB, MBIA
Insured, Zero Coupon, 5.70%, 11/15/15(3) Aaa/AAA 2,345,000 908,922
- -----------------------------------------------------------------------------------------------
Schuylkill Cnty., PA IDAU RR RRB,
Schuylkill Energy Resources, Inc., 6.50%,
1/1/10 NR/NR/BBB- 3,995,000 4,064,034
- -----------------------------------------------------------------------------------------------
St. Mary HA Langhorne, PA Hospital RRB,
Franciscan Health Project, Series B, BIG
Insured, 7%, 7/1/14 Aaa/AAA 500,000 534,735
- -----------------------------------------------------------------------------------------------
Washington Cnty., PA Municipal Facility
Lease Authority RB, Prerefunded, AMBAC
Insured, 7.45%, 12/15/12 Aaa/AAA/AAA 2,000,000 2,235,100
-----------
80,139,626
- -----------------------------------------------------------------------------------------------
U.S. Possessions--9.4%
PR Commonwealth GOB, 6.50%, 7/1/15 Baa1/A 1,200,000 1,397,268
- -----------------------------------------------------------------------------------------------
PR Commonwealth GOB, MBIA Insured,
Inverse Floater, 8%, 7/1/08(1) Aaa/AAA 1,000,000 1,123,750
- -----------------------------------------------------------------------------------------------
PR Commonwealth HTAU RB, Series Y, 5%,
7/1/36 Baa1/A 3,100,000 2,966,948
- -----------------------------------------------------------------------------------------------
PR EPAU CAP RRB, Series N, MBIA
Insured, Zero Coupon, 5.69%, 7/1/17(3) Aaa /AAA 3,300,000 1,200,969
- -----------------------------------------------------------------------------------------------
PR Industrial Tourist Educational Medical
& Environmental Control Facilities RB,
Polytechnic University Project, Series A,
6.50%, 8/1/24 NR/BBB- 1,000,000 1,087,580
- -----------------------------------------------------------------------------------------------
PR Port Authority RB, American Airlines
Special Facilities Project, Series A, 6.25%,
6/1/26 Baa3/BBB+ 675,000 724,113
-----------
8,500,628
- -----------------------------------------------------------------------------------------------
Total Investments, at Value (Cost $84,374,226) 98.2% 88,640,254
- -----------------------------------------------------------------------------------------------
Other Assets Net of Liabilities 1.8 1,589,552
----------- -----------
Net Assets 100.0% $90,229,806
=========== ===========
</TABLE>
13 Oppenheimer Pennsylvania Municipal Fund
<PAGE>
Statement of Investments (Continued)
- --------------------------------------------------------------------------------
To simplify the listings of securities abbreviations are used per the table
below:
<TABLE>
<S> <C>
CAP --Capital Appreciation HEFAU--Higher Educational Facilities Authority
ED --Economic Development HFA --Housing Finance Agency
EDFAU--Economic Development HTAU --Highway & Transportation Authority
Finance Authority IDAU --Industrial Development Authority
EPAU --Electric Power Authority PC --Pollution Control
GOB --General Obligation Bonds RB --Revenue Bonds
GORB --General Obligation Refunding Bonds RR --Resource Recovery
HA --Hospital Authority RRB --Revenue Refunding Bonds
HEAA --Higher Education Assistance Agency SFM --Single Family Mortgage
HEAU --Higher Education Authority
</TABLE>
1. Represents the current interest rate for a variable rate bond known as an
"inverse floater" which pays interest at a rate that varies inversely with
short-term interest rates. As interest rates rise, inverse floaters produce less
current income. Their price may be more volatile than the price of a comparable
fixed-rate security. Inverse floaters amount to $8,120,141 or 9% of the Fund's
net assets at July 31, 1997.
2. Securities with an aggregate market value of $1,022,660 are held in
collateralized accounts to cover initial margin requirements on open futures
sales contracts. See Note 5 of Notes to Financial Statements.
3. For zero coupon bonds, the interest rate shown is the effective yield on the
date of purchase.
14 Oppenheimer Pennsylvania Municipal Fund
<PAGE>
- --------------------------------------------------------------------------------
As of July 31, 1997, securities subject to the alternative minimum tax amount to
$17,628,290 or 19.54% of the Fund's net assets.
Distribution of investments by industry, as a percentage of total investments at
value, is as follows:
Industry Market Value Percent
- -----------------------------------------------------------
Hospital/Healthcare $21,149,941 23.8%
- -----------------------------------------------------------
Higher Education 11,510,078 13.0
- -----------------------------------------------------------
Highways 8,533,857 9.6
- -----------------------------------------------------------
Resource Recovery 7,752,857 8.7
- -----------------------------------------------------------
Single Family Housing 7,505,415 8.5
- -----------------------------------------------------------
Water Utilities 7,423,416 8.4
- -----------------------------------------------------------
General Obligation 5,702,469 6.4
- -----------------------------------------------------------
Lease Rental 4,412,809 5.0
- -----------------------------------------------------------
Corporate Backed 4,157,583 4.7
- -----------------------------------------------------------
Pollution Control 3,360,760 3.8
- -----------------------------------------------------------
Marine/Aviation Facilities 2,420,250 2.7
- -----------------------------------------------------------
Student Loans 1,381,250 1.6
- -----------------------------------------------------------
Electric Utilities 1,200,969 1.4
- -----------------------------------------------------------
Education 1,121,470 1.3
- -----------------------------------------------------------
Gas Utilities 1,007,130 1.1
----------- ------
$88,640,254 100.0%
============ ======
See accompanying Notes to Financial Statements.
15 Oppenheimer Pennsylvania Municipal Fund
<PAGE>
Statement of Assets and Liabilities July 31, 1997
<TABLE>
<S> <C>
Assets
Investments, at value (cost $84,374,226)--see accompanying statement $ 88,640,254
- --------------------------------------------------------------------------------------
Cash 523,779
- --------------------------------------------------------------------------------------
Receivables:
Interest 1,293,825
Shares of beneficial interest sold 193,622
- --------------------------------------------------------------------------------------
Other 5,002
------------
Total assets 90,656,482
- --------------------------------------------------------------------------------------
Liabilities Payables and other liabilities:
Dividends 269,127
Shareholder reports 49,551
Shares of beneficial interest redeemed 37,612
Trustees' fees --Note 1 29,649
Distribution and service plan fees 11,087
Daily variation on futures contracts --Note 5 9,375
Transfer and shareholder servicing agent fees 4,363
Other 15,912
------------
Total liabilities 426,676
- --------------------------------------------------------------------------------------
Net Assets $ 90,229,806
============
- --------------------------------------------------------------------------------------
Composition of Net Assets
Paid-in capital $ 87,707,489
- --------------------------------------------------------------------------------------
Overdistributed net investment income (167,336)
- --------------------------------------------------------------------------------------
Accumulated net realized loss on investment transactions (1,427,781)
- --------------------------------------------------------------------------------------
Net unrealized appreciation on investments --Notes 3 and 5 4,117,434
------------
Net assets $ 90,229,806
============
</TABLE>
16 Oppenheimer Pennsylvania Municipal Fund
<PAGE>
<TABLE>
<S> <C>
- -----------------------------------------------------------------------------------------
Net Asset Value Per Share
Class A Shares:
Net asset value and redemption price per share (based on net assets of
$68,279,964 and 5,485,676 shares of beneficial interest outstanding) $12.45
Maximum offering price per share (net asset value plus sales charge of 4.75%
of offering price) $13.07
- -----------------------------------------------------------------------------------------
Class B Shares:
Net asset value, redemption price (excludes applicable contingent deferred sales
charge) and offering price per share (based on net assets of $19,338,904 and
1,553,925 shares of beneficial interest outstanding) $12.45
- -----------------------------------------------------------------------------------------
Class C Shares:
Net asset value, redemption price (excludes applicable contingent deferred sales
charge) and offering price per share (based on net assets of $2,610,938 and
209,882 shares of beneficial interest outstanding) $12.44 </TABLE>
See accompanying Notes to Financial Statements.
17 Oppenheimer Pennsylvania Municipal Fund
<PAGE>
Statement of Operations For the Year Ended July 31, 1997
<TABLE>
<S> <C>
- -----------------------------------------------------------------------------------
Investment Income
Interest $5,636,842
- -----------------------------------------------------------------------------------
Expenses
Management fees -- Note 4 505,333
- -----------------------------------------------------------------------------------
Distribution and service plan fees -- Note 4:
Class A 95,484
Class B 172,166
Class C 13,881
- -----------------------------------------------------------------------------------
Transfer and shareholder servicing agent fees -- Note 4 73,337
- -----------------------------------------------------------------------------------
Shareholder reports 59,161
- -----------------------------------------------------------------------------------
Legal and auditing fees 10,324
- -----------------------------------------------------------------------------------
Custodian fees and expenses 9,874
- -----------------------------------------------------------------------------------
Registration and filing fees:
Class A 28
Class B 749
Class C 345
- -----------------------------------------------------------------------------------
Other 622
----------
Total expenses 941,304
----------
Less assumption of expenses by OppenheimerFunds, Inc.--Note 4 (33,555)
Less expenses paid indirectly--Note 4 (9,560)
----------
Net expenses 898,189
- -----------------------------------------------------------------------------------
Net Investment Income 4,738,653
- -----------------------------------------------------------------------------------
Realized and Unrealized Gain (Loss)
Net realized loss on:
Investments (178,404)
Closing of futures contracts (204,083)
----------
Net realized loss (382,487)
- -----------------------------------------------------------------------------------
Net change in unrealized appreciation or depreciation on investments 3,353,916
----------
Net realized and unrealized gain 2,971,429
- -----------------------------------------------------------------------------------
Net Increase in Net Assets Resulting from Operations $7,710,082
==========
</TABLE>
See accompanying Notes to Financial Statements.
18 Oppenheimer Pennsylvania Municipal Fund
<PAGE>
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Year Ended
Year Ended July 31, December 31,
1997 1996(1) 1995
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operations
Net investment income $ 4,738,653 $ 2,600,096 $ 4,284,425
- -----------------------------------------------------------------------------------------------
Net realized loss (382,487) (39,279) (149,202)
- -----------------------------------------------------------------------------------------------
Net change in unrealized appreciation
or depreciation 3,353,916 (2,305,381) 7,766,744
------------ ------------ -----------
Net increase in net assets resulting from
operations 7,710,082 255,436 11,901,967
- -----------------------------------------------------------------------------------------------
Dividends and Distributions to Shareholders Dividends from net investment
income:
Class A (3,716,343) (2,144,352) (3,637,885)
Class B (844,253) (430,663) (583,457)
Class C (67,628) (8,248) (803)
- -----------------------------------------------------------------------------------------------
Distributions from net realized gain:
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 1,518,657 (191,910) (796,475)
Class B 2,681,795 1,960,511 3,839,201
Class C 2,069,618 224,120 262,069
- -----------------------------------------------------------------------------------------------
Net Assets
Total increase (decrease) 9,351,928 (335,106) 10,871,871
- -----------------------------------------------------------------------------------------------
Beginning of period 80,877,878 81,212,984 70,341,113
------------ ------------ -----------
End of period (including overdistributed net
investment income of $167,336, $161,975
and $147,080, respectively) $ 90,229,806 $ 80,877,878 $81,212,984
============ ============ ===========
</TABLE>
1. For the seven months ended July 31, 1996. The Fund changed its fiscal year
end from December 31 to July 31.
See accompanying Notes to Financial Statements.
19 Oppenheimer Pennsylvania Municipal Fund
<PAGE>
Financial Highlights
<TABLE>
<CAPTION>
Class A
----------------------------------------------------------------------------------
Year Ended July 3 Year Ended December 31,
1997 1996(2) 1995 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating Data:
Net asset value, beginning of period $ 12.01 $ 12.36 $ 11.19 $ 12.85 $ 12.05 $ 11.93
- ------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .70 .40 .68 .67 .69 .76
Net realized and unrealized gain (loss) .43 (.35) 1.18 (1.64) .85 .17
-------- ----------- -------- --------- -------- --------
Total income (loss) from investment
operations 1.13 .05 1.86 (.97) 1.54 .93
- ------------------------------------------------------------------------------------------------------------------------------
Dividends and distributions to
shareholders:
Dividends from net investment income (.69) (.40) (.67) (.69) (.70) (.73)
Dividends in excess of net investment
income -- -- (.02) -- -- --
Distributions from net realized gain -- -- -- -- (.04) (.08)
-------- ----------- -------- ----------- -------- --------
Total dividends and distributions to
shareholders (.69) (.40) (.69) (.69) (.74) (.81)
- ------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 12.45 $ 12.01 $ 12.36 $ 11.19 $ 12.85 $ 12.05
======== =========== ======== ========= ======== ========
- ------------------------------------------------------------------------------------------------------------------------------
Total Return, at Net Asset Value(4) 9.68% 0.44% 16.94% (7.68)% 13.12% 8.04%
- ------------------------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data:
Net assets, end of period (in thousands) $ 68,280 $ 64,391 $66,483 $ 60,857 $64,640 $ 33,290
- ------------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $ 65,710 $ 64,997 $64,901 $ 62,786 $ 50,974 $ 21,936
- ------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income 5.79% 5.71%(5) 5.68% 5.65% 5.52% 6.36%
Expenses, before voluntary assumption by
the Manager or Distributor(6) 0.93% 1.03%(5) 1.02% 0.98% 1.06% 1.39%
Expenses, net of voluntary assumption by
the Manager or Distributor 0.90% N/ N/A N/A 0.99% 1.06%
- ------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(7) 22.3% 5.8% 31.1% 37.0% 14.6% 29.9%
</TABLE>
1. For the period from August 29, 1995 (inception of offering) to December 31,
1995.
2. For the seven months ended July 31, 1996. The Fund changed its fiscal year
end from December 31 to July 31.
3. For the period from May 1, 1993 (inception of offering) to December 31, 1993.
4. Assumes a hypothetical initial investment on the business day before the
first day of the fiscal period (or inception of offering), with all dividends
and distributions reinvested in additional shares on the reinvestment date, and
redemption at the net asset value calculated on the last business day of the
fiscal period. Sales charges are not reflected in the total returns. Total
returns are not annualized for periods of less than one full year.
5. Annualized.
20 Oppenheimer Pennsylvania Municipal Fund
<PAGE>
<TABLE>
<CAPTION>
Class B Class C
- --------------------------------------------------------------------- ------------------------------------------
Period
Ended
Year Ended July 31, Year Ended December 31, Year Ended July 31, Dec. 31,
1997 1996(2) 1995 1994 1993(3) 1997 1996(2) 1995(1)
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 12.01 $ 12.36 $ 11.19 $ 12.84 $ 12.44 $ 12.00 $ 12.36 $ 11.91
- ----------------------------------------------------------------------------------------------------------------
.61 .35 .59 .59 .36 .60 .34 .21
.42 (.35) 1.17 (1.65) .45 .43 (.36) .45
- --------- ----------- -------- ----------- ----------- -------- ----------- -----------
1.03 -- 1.76 (1.06) .81 1.03 (.02) .66
- ----------------------------------------------------------------------------------------------------------------
(.59) (.35) (.57) (.59) (.37) (.59) (.34) (.21)
-- -- (.02) -- -- -- -- --
-- -- -- -- (.04) -- -- --
- --------- ----------- -------- ----------- ----------- -------- ----------- -----------
(.59) (.35) (.59) (.59) (.41) (.59) (.34) (.21)
- ----------------------------------------------------------------------------------------------------------------
$ 12.45 $ 12.01 $ 12.36 $ 11.19 $ 12.84 $ 12.44 $ 12.00 $ 12.36
========= =========== ======== =========== =========== ======== =========== ===========
- ----------------------------------------------------------------------------------------------------------------
8.86% (0.01)% 16.06% (8.32)% 6.67% 8.84% (0.15)% 5.55%
- ----------------------------------------------------------------------------------------------------------------
$ 19,339 $ 16,005 $ 14,466 $ 9,484 $ 5,576 $ 2,611 $ 482 $ 264
- ----------------------------------------------------------------------------------------------------------------
$ 17,243 $ 15,085 $ 12,183 $ 7,329 $ 2,770 $ 1,390 $ 296 $ 51
- ----------------------------------------------------------------------------------------------------------------
5.02% 4.94%(5) 4.89% 4.88% 4.26(5) 4.99% 4.83%(5) 4.40%(5)
1.78% 1.89%(5) 1.89% 1.85% 1.88(5) 1.79% 1.97%(5) 2.07%(5)
1.65% 1.79%(5) 1.78% 1.75% 1.78%(5) 1.66% 1.87%(5) 1.96%(5)
- ----------------------------------------------------------------------------------------------------------------
22.3 % 5.8 % 31.1 % 37.0 % 14.6 % 22.3 % 5.8 % 31.1 %
</TABLE>
6. Beginning in fiscal 1995, the expense ratio reflects the effect of gross
expenses paid indirectly by the Fund. Prior year expense ratios have not been
adjusted.
7. The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities owned
during the period. Securities with a maturity or expiration date at the time of
acquisition of one year or less are excluded from the calculation. Purchases and
sales of investment securities (excluding short-term securities) for the period
ended July 31, 1997 were $24,156,172 and $18,551,508, respectively.
See accompanying Notes to Financial Statements.
21 Oppenheimer Pennsylvania Municipal Fund
<PAGE>
Notes to Financial Statements
- -------------------------------------------------------------------------------
1. Significant Accounting Policies
Oppenheimer Pennsylvania Municipal Fund (the Fund) is a separate series of
Oppenheimer Multi-State Municipal 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 as is available from municipal securities that is consistent with
preservation of capital. The Fund's investment adviser 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 that class and exclusive voting rights with respect to matters
affecting that 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
the last sale price on the prior trading day. Long-term and short-term
"non-money market" debt securities are valued by a portfolio pricing service
approved by the Board of Trustees. Such securities which cannot be valued by an
approved portfolio pricing service are valued using dealer-supplied valuations
provided the Manager is satisfied that the firm rendering the quotes is
reliable and that the quotes reflect current market value, or are valued under
consistently applied procedures established by the Board of Trustees to
determine fair value in good faith. Short-term "money market type" debt
securities having a remaining maturity of 60 days or less are valued at cost
(or last determined market value) adjusted for amortization to maturity of any
premium or discount.
- --------------------------------------------------------------------------------
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 July 31, 1997, the Fund
had available for federal income purposes an unused capital loss carryover of
$1,153,000, which expires between 2002 and 2004.
22 Oppenheimer Pennsylvania Municipal Fund
<PAGE>
- --------------------------------------------------------------------------------
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
July 31, 1997, a credit of $14,246 was made for the Fund's projected benefit
obligations, and payments of $1,509 were made to retired trustees, resulting in
an accumulated liability of $29,649 at July 31, 1997.
- --------------------------------------------------------------------------------
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 on long-term bonds for tax purposes.
The character of the distributions made during the year from net investment
income or net realized gains may differ from its ultimate characterization for
federal income tax purposes. Also, due to timing of dividend distributions, the
fiscal year in which amounts are distributed may differ from the fiscal year in
which the income or realized gain was recorded by the Fund.
During the year ended July 31, 1997, the Fund adjusted the
classification of distributions to shareholders to reflect the differences
between financial statement amounts and distributions determined in accordance
with income tax regulations. Accordingly, during the year ended July 31, 1997,
amounts have been reclassified to reflect an increase in overdistributed net
investment income of $115,790. 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 using the effective
yield method, 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.
23 Oppenheimer Pennsylvania Municipal Fund
<PAGE>
Notes to Financial Statements (Continued)
- --------------------------------------------------------------------------------
1. Significant Accounting Policies (continued)
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 July 31, 1997 Period Ended July 31, 1996(1) Year Ended Dec. 31, 1995(2)
---------------------------- ----------------------------- -----------------------------
Shares Amount Shares Amount Shares Amount
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Class A:
Sold 903,722 $ 10,967,827 444,071 $ 5,368,304 825,097 $ 9,802,254
Dividends
reinvested 191,572 2,323,665 113,937 1,371,426 199,971 2,384,211
Redeemed (971,739) (11,772,835) (572,992) (6,931,640) (1,088,358) (12,982,940)
--------- ------------- --------- ------------ ----------- -------------
Net increase
(decrease) 123,555 $ 1,518,657 (14,984) $ (191,910) (63,290) $ (796,475)
========= ============= ========= ============ =========== =============
- -----------------------------------------------------------------------------------------------------------------
Class B:
Sold 347,074 $ 4,208,953 224,245 $ 2,699,403 359,124 $ 4,282,282
Dividends
reinvested 39,450 478,556 21,125 254,088 30,661 366,174
Redeemed (165,514) (2,005,714) (82,510) (992,980) (67,574) (809,255)
--------- ------------- --------- ------------ ----------- -------------
Net increase 221,010 $ 2,681,795 162,860 $ 1,960,511 322,211 $ 3,839,201
========= ============= ========= ============ =========== =============
- -----------------------------------------------------------------------------------------------------------------
Class C:
Sold 184,614 $ 2,249,660 29,594 $ 355,700 21,431 $ 263,229
Dividends
reinvested 3,565 43,275 608 7,281 31 377
Redeemed (18,433) (223,317) (11,403) (138,861) (125) (1,537)
--------- ------------- --------- ------------ ----------- -------------
Net increase 169,746 $ 2,069,618 18,799 $ 224,120 21,337 $ 262,069
========= ============= ========= ============ =========== =============
</TABLE>
1. The Fund changed its fiscal year end from December 31 to July 31.
2. For the year ended December 31, 1995 for 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 July 31, 1997, net unrealized appreciation on investments of $4,266,028 was
composed of gross appreciation of $4,905,015, and gross depreciation of
$638,987.
24 Oppenheimer Pennsylvania Municipal Fund
<PAGE>
- --------------------------------------------------------------------------------
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 0.60% on the first
$200 million of average annual net assets, 0.55% on the next $100 million, 0.50%
on the next $200 million, 0.45% on the next $250 million, 0.40% on the next $250
million and 0.35% on net assets in excess of $1 billion. Effective January 1,
1997, the Manager has voluntarily undertaken to waive a portion of its
management fee, whereby the Fund pays a fee not to exceed 0.57% of average
annual net assets.
For the year ended July 31, 1997, commissions (sales charges paid
by investors) on sales of Class A shares totaled $229,396, of which $44,608 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 $162,068 and $20,610, respectively, of which $7,054 was
paid to an affiliated broker/dealer for Class B. During the year ended July 31,
1997, OFDI received contingent deferred sales charges of $45,781 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.
Expenses paid indirectly represent a reduction of custodian fees
for earnings on cash balances maintained at the custodian bank by the Fund.
The Fund has adopted a Service Plan for Class A shares to
reimburse OFDI for a portion of its costs incurred in connection with the
personal service and maintenance of shareholder 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. OFDI uses
the service fee to reimburse brokers, dealers, banks and other financial
institutions quarterly for providing personal service and maintaining accounts
of their customers that hold Class A shares. During the year ended July 31,
1997, OFDI paid $6,747 to an affiliated broker/ dealer as reimbursement for
Class A personal service and maintenance expenses.
25 Oppenheimer Pennsylvania Municipal Fund
<PAGE>
Notes to Financial Statements (Continued)
- --------------------------------------------------------------------------------
4. Management Fees and Other Transactions with Affiliates (continued)
The Fund has adopted Distribution and Service Plans for Class B and Class C
shares to compensate OFDI for its services and costs in distributing Class B
and Class C shares and servicing accounts. Under the Plans, the Fund pays OFDI
an annual asset-based sales charge of 0.75% per year on Class B and Class C
shares, as compensation for sales commissions paid from its own resources at
the time of sale and associated financing costs. OFDI also receives a service
fee of 0.25% (voluntarily reduced to 0.15% by the Fund's Board) per year as
compensation 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 financial institutions. Both fees are
computed for Class B and Class C shares on the average annual net assets of
each class, respectively, determined as of the close of each regular business
day. During the year ended July 31, 1997, OFDI paid $1,928 to an affiliated
broker/dealer as compensation for Class B personal service and maintenance
expenses and retained $134,557 and $11,004, respectively, as compensation for
Class B and Class C sales commissions and service fee advances, as well as
financing costs. 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 OFDI for distributing shares before the Plan was terminated. At July
31, 1997, OFDI had incurred unreimbursed expenses of $535,790 for Class B and
$28,807 for Class C.
- --------------------------------------------------------------------------------
5. Futures Contracts
The Fund may buy and sell interest rate futures contracts in order to gain
exposure to or protect against changes in interest rates. The Fund may also buy
or write put or call options on these futures contracts.
The Fund generally sells futures contracts to hedge against
increases in interest rates and the resulting negative effect on the value of
fixed rate portfolio securities. The Fund may also purchase futures contracts to
gain exposure to changes in interest rates as it may be more efficient or cost
effective than actually buying fixed income securities.
Upon entering into a futures contract, the Fund is required to
deposit either cash or securities (initial margin) in an amount equal to a
certain percentage of the contract value. Subsequent payments (variation margin)
are made or received by the Fund each day. The variation margin payments are
equal to the daily changes in the contract value and are recorded as unrealized
gains and losses. The Fund recognizes a realized gain or loss when the contract
is closed or expires.
26 Oppenheimer Pennsylvania Municipal Fund
<PAGE>
- --------------------------------------------------------------------------------
Securities held in collateralized accounts to cover initial margin requirements
on open futures contracts are noted in the Statement of Investments. The
Statement of Assets and Liabilities reflects a receivable or payable for the
daily mark to market for variation margin.
Risks of entering into futures contracts (and related options)
include the possibility that there may be an illiquid market and that a change
in the value of the contract or option may not correlate with changes in the
value of the underlying securities.
At July 31, 1997, the Fund had outstanding futures contracts to
sell debt securities as follows:
<TABLE>
<CAPTION>
Number of Valuation as of Unrealized
Expiration Date Futures Contracts July 31, 1997 Depreciation
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury Bonds 9/97 25 $2,918,750 $148,594
</TABLE>
<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 deferred 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) Oppenheimer Quest
Value Fund, Inc., Oppenheimer Quest Growth & Income Fund, Oppenheimer Quest
Opportunity Value Fund, Oppenheimer Quest Small Cap Value Fund and Oppenheimer
Quest Global Value Fund, Inc. on November 24, 1995, when OppenheimerFunds, Inc.
became the investment advisor to those funds, and (ii) Quest for Value U.S.
Government Income Fund, Quest for Value Investment Quality Income Fund, Quest
for Value Global Income Fund, Quest for Value New York Tax-Exempt Fund, Quest
for Value National Tax-Exempt Fund and Quest for Value California Tax-Exempt
Fund when those funds merged into various Oppenheimer funds on November 24,
1995. The funds listed above are referred to in this Prospectus as the "Former
Quest for Value Funds." The waivers of initial and contingent deferred sales
charges described in this Appendix apply to shares of the Fund (i) acquired by
such shareholder pursuant to an exchange of shares of one of the Oppenheimer
funds that was one of the Former Quest for Value Funds or (ii) purchased by such
shareholder by exchange of shares of other Oppenheimer funds that were acquired
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
o Reduced Class A Initial Sales Charge Rates for Certain Former
Quest Shareholders
o 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.
A-2
<PAGE>
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.
o 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:
A-3
<PAGE>
o 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.
o 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.
o 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:
o 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
o Waivers for Redemptions of Shares Purchased Prior to March 6,
1995
In the following cases, the contingent deferred sales charge will be waived for
redemptions of Class A, Class B or Class C shares of the Fund acquired by the
merger of a Former Quest for Value Fund into the Fund or by exchange from an
Oppenheimer fund that was a Former Quest for Value Fund or into which such fund
merged, 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 Class 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.
o Waivers for Redemptions of Shares Purchased on or After March 6, 1995 but
Prior to November 24, 1995.
In the following cases, the contingent deferred sales charge will be waived for
redemptions of Class A, Class B or Class C shares of the Fund acquired by the
merger of a Former Quest for Value Fund into the Fund or by exchange from an
Oppenheimer fund that was a Former Quest For Value Fund or into which such fund
merged, 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
A-3
<PAGE>
of total disability by the U.S. Social Security Administration); (2) withdrawals
under an automatic withdrawal plan (but only for Class B or Class C shares)
where the annual withdrawals do not exceed 10% of the initial value of the
account; and (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, Class B
or Class 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.
A-4
<PAGE>
Oppenheimer Pennsylvania Municipal Fund
Two World Trade Center
New York, New York 10048-0203
1-800-525-7048
Investment Advisor
OppenheimerFunds, Inc.
Two World Trade Center
New York, New York 10048-0203
Distributor
OppenheimerFunds Distributor, Inc.
Two World Trade Center
New York, New York 10048-0203
Transfer and Shareholder Servicing Agent
OppenheimerFunds Services
P.O. Box 5270
Denver, Colorado 80217
1-800-525-7048
Custodian of Portfolio Securities
Citibank, N.A.
399 Park Avenue
New York, New York 10043
Independent Auditors
KPMG Peat Marwick LLP
707 Seventeenth Street
Denver, Colorado 80202
Legal Counsel
Gordon Altman Butowsky
Weitzen Shalov & Wein
114 West 47th Street
New York, New York 10036
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. PR0740.001.1197 * Printed on recycled paper
<PAGE>
Oppenheimer
Florida Municipal Fund
Prospectus dated November 17, 1997
Oppenheimer Florida Municipal 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 refer to "Investment Risks" for a discussion
of 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 November
17, 1997 Statement of Additional Information. For a free copy, call
OppenheimerFunds Services, the Fund's Transfer Agent, at 1-800-525-7048, or
write to the Transfer Agent at the address on the back cover. The Statement of
Additional Information has been filed with the Securities and Exchange
Commission ("SEC") and is incorporated into this Prospectus by reference (which
means that it is legally part of this Prospectus).
(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 NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS.ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
-1-
<PAGE>
Contents
Page
ABOUT THE FUND
Expenses A Brief Overview of the Fund Financial Highlights Investment
Objective and Policies Investment Risks Investment Techniques and
Strategies 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
-2-
<PAGE>
ABOUT THE FUND
Expenses
The Fund pays a variety of expenses directly for management of its assets,
administration, distribution of its shares and other services and those expenses
are subtracted from the Fund's assets to calculate the Fund's net asset value
per share. All shareholders therefore pay those expenses indirectly.
Shareholders pay other expenses directly, such as sales charges and account
transaction charges. The following tables are provided to help you understand
your direct expenses of investing in the Fund and your share of the Fund's
business operating expenses that you will bear indirectly. The numbers below are
based on the Fund's expenses during the fiscal year ended July 31, 1997.
o Shareholder Transaction Expenses are charges you pay
when
you buy or sell shares of the Fund. Please refer to "About Your
Account" starting on page __ 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
Maximum Deferred Sales
Charge (as a % of the
lower of the original
offering price or
redemption proceeds) None(1) 5% in the first1% if shares
year, declining are redeemed
to 1% in the within 12
sixth year and months of
eliminated purchase(2)
thereafter(2)
Maximum Sales Charge on
Reinvested Dividends None None None
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 12 calendar months (18
months for shares purchased prior to May 1, 1997) 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.
-3-
<PAGE>
o 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 advisor,
OppenheimerFunds, Inc. (referred to in this Prospectus as the "Manager"). The
rates of the Manager's fees are set forth in "How the Fund is Managed," below.
The Fund has other regular expenses for services, such as transfer agent fees,
custodial fees paid to the bank that holds the Fund's portfolio securities,
audit fees and legal expenses. Those expenses are detailed in the Fund's
Financial Statements in the Statement of Additional Information.
Annual Fund Operating Expenses as a Percentage of Average Net
Assets
Class A Class B Class C
Shares Shares Shares
Management Fees
(after expense reimbursement) 0.54% 0.54%
0.54%
12b-1 Plan Fees 0.15% 0.90% 0.90%
Other Expenses (after expense
reimbursement)
----- -----
0.51%00.20% 0.16%
Total Fund Operating Expenses
(after expense reimbursement) 0.87% 1.64%
1.60%
The numbers in the chart above are based on the Fund's expenses in its
last fiscal year ended July 31, 1997. These amounts are shown as a percentage of
the average net assets of each class of the Fund's shares for that year.
Effective January 1, 1997, the Manager has voluntarily agreed to waive a portion
of the Fund's management fees. Therefore, the "Management Fees " and the "Total
Fund Operating Expenses" shown in the chart above reflect the voluntary waiver
of a portion of the Fund's management fees had the waiver been in effect for the
Fund's fiscal year ended July 31, 1997. Had the waiver not been in effect, the
Fund's "Management Fees" would have been 0.60% for the Fund's Class A, Class B
and Class C shares and the "Total Fund Operating Expenses" would have been
1.02%, 1.79% and 1.75%, respectively for Class A, Class B and Class C shares.
These amounts are shown as a percentage of the average net assets of each class
of the Fund's shares for that fiscal period.
The "12b-1 Plan Fees" for Class A shares are Service Plan Fees. For Class
B and Class C shares, the "12b-1 Plan Fees" are Service Plan 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.
-4-
<PAGE>
The actual expenses for each class of shares in future years may be more
or less than the numbers in the chart, depending on a number of factors,
including changes in the actual value of the Fund's assets represented by each
class of shares.
-5-
<PAGE>
o 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 years10 years*
------ ------- ---------------
Class A Shares $56 $74 $ 93
$150
Class B Shares $67 $82 $109
$178$155
Class C Shares $26 $51 $ 87
$190
If you did not redeem your investment, it would incur the following
expenses:
1 year 3 years 5 years10 years*
------ ------- ---------------
Class A Shares $56 $74 $93
$174$150
Class B Shares $17 $52 $89
$155
Class C Shares $16 $51 $87
$219$190
* In the first example, expenses include the Class A initial sales charge and
the applicable Class B or Class C contingent deferred sales charge. In the
second example, Class A expenses include the initial sales charge, but Class B
and Class C expenses do not include contingent deferred sales charges. The Class
B expenses in years 7 through 10 are based on the Class A expenses shown above,
because the Fund automatically converts your Class B shares into Class A shares
after 6 years. Because of the effect of the asset-based sales charge and the
contingent deferred sales charge imposed on Class B and Class C shares,
long-term holders of Class B and Class C shares could pay the economic
equivalent of more than the maximum front-end sales charge allowed under
applicable regulations. For Class B shareholders, the automatic conversion of
Class B shares to Class A shares is designed to minimize the likelihood that
this will occur. Please refer to "How to Buy Shares - Buying Class B Shares" for
more information.
These examples show the effect of expenses on an investment, but are not
meant to state or predict actual or expected costs or investment returns of the
Fund, all of which may be more or less
than those shown.
A Brief Overview of the Fund
Some of the important facts about the Fund are summarized below, with
references to the section of this Prospectus where more complete information can
be found. You should carefully read the entire Prospectus before making a
decision about investing in the Fund. Keep the Prospectus for reference after
you invest, particularly for information about your account, such as how to sell
or exchange shares.
-6-
<PAGE>
o 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.
o 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 __.
o Who Manages the Fund? The Fund's investment adviseradvisor (the
"Manager") is OppenheimerFunds, Inc. The Manager (including subsidiaries)
advises investment company portfolios having over $75 billion in assets at
September 30, 1997. 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 advisor and the
portfolio manager. Please refer to "How the Fund is Managed," starting on page
__ for more information about the Manager and its fees.
o 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 Risks" starting on page
__ for a more complete discussion of the Fund's investment risks.
o How Can I Buy Shares? You can buy shares through your
-7-
<PAGE>
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.
o 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 shares and Class C shares are offered
without a front-end sales charge, but may be subject to a contingent deferred
sales charge if redeemed within 6 years or 12 months, respectively, of purchase.
There 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 factors you and your financial advisor should
consider in determining which class may be appropriate for you.
o 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 ___.
o 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.
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 July 31, 1997 are included in the
Statement of Additional Information.
-8-
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
CLASS A
-----------------------------------------------------------------
YEAR ENDED JULY 31, YEAR ENDED DECEMBER 31,
1997 1996(2) 1995 1994 1993(3)
======================================================================================================================
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING DATA:
Net asset value, beginning of period $11.07 $11.40 $ 10.26 $11.79 $11.43
- ----------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .64 .36 .63 .64 .14
Net realized and unrealized gain (loss) .37 (.34) 1.14 (1.53) .36
------ ------ ------ ------ -------
Total income (loss) from investment operations 1.01 .02 1.77 (.89) .50
- ----------------------------------------------------------------------------------------------------------------------
Dividends to shareholders from net
investment income (.61) (.35) (.63) (.64) (.14)
- ----------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $11.47 $11.07 $11.40 $10.26 $11.79
====== ====== ====== ====== ======
======================================================================================================================
TOTAL RETURN, AT NET ASSET VALUE(4) 9.39% 0.25% 17.60% (7.66)% 4.39%
======================================================================================================================
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) $27,446 $19,366 $19,377 $11,992 $7,062
- ----------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $24,333 $18,415 $14,508 $ 9,741 $2,471
- ----------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income 5.70% 5.50%(5) 5.71% 5.90% 5.08%(5)
Expenses, before reimbursement and
voluntary assumption by the Manager or
Distributor(6) 1.02% 1.23%(5) 1.36% 1.25% 1.89%(5)
Expenses, net of reimbursement and
voluntary assumption by the Manager or
Distributor 0.87% 1.09%(5) 0.53% 0.29% --
- ----------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(7) 42.5% 21.2% 18.4% 30.4% --
</TABLE>
1. For the period from August 29, 1995 (inception of offering) to December 31,
1995. 2. For the seven months ended July 31, 1996. The Fund changed its fiscal
year end from December 31 to July 31. 3. For the period from October 1, 1993
(commencement of operations) to December 31, 1993. 4. Assumes a hypothetical
initial investment on the business day before the first day of the fiscal period
(or inception of offering), with all dividends and distributions reinvested in
additional shares on the reinvestment date, and redemption at the net asset
value calculated on the last business day of the fiscal period. Sales charges
are not reflected in the total returns. Total returns are not annualized for
periods of less than one full year.
8
<PAGE>
<TABLE>
<CAPTION>
CLASS B CLASS C
- --------------------------------------------------------------- ----------------------------------------
PERIOD ENDED
YEAR ENDED JULY 31, YEAR ENDED DECEMBER 31, YEAR ENDED JULY 31, DECEMBER 31,
1997 1996(2) 1995 1994 1993(3) 1997 1996(2) 1995(1)
===========================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C>
$11.09 $11.42 $10.27 $11.81 $11.43 $11.07 $11.40 $10.96
- -----------------------------------------------------------------------------------------------------------
.55 .31 .55 .56 .12 .53 .31 .20
.37 (.34) 1.15 (1.54) .38 .38 (.34) .44
------ ------ ------ ------ ------ ------ ------- ------
.92 (.03) 1.70 (.98) .50 .91 (.03) .64
- -----------------------------------------------------------------------------------------------------------
(.52) (.30) (.55) (.56) (.12) (.52) (.30) (.20)
- -----------------------------------------------------------------------------------------------------------
$11.49 $11.09 $11.42 $10.27 $11.81 $11.46 $11.07 $11.40
====== ====== ====== ====== ====== ====== ====== ======
===========================================================================================================
8.56% (0.19)% 16.81% (8.42)% 4.35% 8.41% (0.22)% 5.86%
===========================================================================================================
$15,348 $12,865 $12,658 $7,992 $4,874 $956 $72 $39
- -----------------------------------------------------------------------------------------------------------
$13,812 $12,843 $10,772 $6,987 $2,304 $380 $78 $ 5
- -----------------------------------------------------------------------------------------------------------
4.93% 4.75%(5) 4.92% 5.13% 4.20%(5) 4.87% 4.68%(5) 4.68%(5)
1.79% 1.97%(5) 2.11% 1.99% 2.20%(5) 1.75% 1.99%(5) 1.92%(5)
1.64% 1.83%(5) 1.29% 1.03% 0.38%(5) 1.60% 1.87%(5) 1.43%(5)
- -----------------------------------------------------------------------------------------------------------
42.5% 21.2% 18.4% 30.4% -- 42.5% 21.2% 18.4%
</TABLE>
5. Annualized.
6. Beginning in fiscal 1995, the expense ratio reflects the effect of gross
expenses paid indirectly by the Fund. Prior year expense ratios have not been
adjusted. 7. The lesser of purchases or sales of portfolio securities for a
period, divided by the monthly average of the market value of portfolio
securities owned during the period. Securities with a maturity or expiration
date at the time of acquisition of one year or less are excluded from the
calculation. Purchases and sales of investment securities (excluding short-term
securities) for the period ended July 31, 1997 were $25,027,486 and $15,867,676,
respectively.
9
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
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<PAGE>
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. Although exempt-interest dividends will not be subject
to Federal income tax for Fund shareholders, a portion of such dividends which
is derived from interest on certain "private activity" bonds may be an item of
tax preference if you are subject to the Federal alternative minimum tax.
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.
o 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.
o 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
-10-
<PAGE>
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.
Investment Risks
All investments carry risks to some degree, whether they are risks that
market prices of the investment will fluctuate (this is known as "market risk")
or that the underlying issuer will experience financial difficulties and may
default on its obligation under a fixed-income investment to pay interest and
repay principal (this is referred to as "credit risk"). These general investment
risks, and the special risks of certain types of investments that the Fund may
hold are described below. They affect the value of the Fund's investments, its
investment performance, and the prices of its shares. These risks collectively
form the risk profile of the Fund.
Because of the types of securities the Fund invests in and the investment
techniques the Fund uses, the Fund is designed for investors who are investing
for the long term. It is not intended for investors seeking assured income.
While the Manager tries to reduce risks by diversifying investments, by
carefully researching securities before they are purchased, and in some cases by
using hedging techniques, changes in overall market prices can occur at any
time, and because the income earned on securities is subject to change, there is
no assurance that the Fund will achieve its investment objective. When you
redeem your shares, they may be worth more or less than what you paid for them.
o 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 making
the Fund more susceptible to factors adversely affecting issuers of Florida
Municipal Securities than a tax-exempt mutual fund that is not concentrated in
Florida Municipal Securities .The risks and special considerations involved in
such investments vary with the types of instruments being acquired. The ability
of Florida and its agencies, authorities, instrumentalities and subdivisions to
meet their obligations will depend primarily on the availability of tax and
other revenues to those governments and on their fiscal conditions generally.
The financial condition of Florida and its agencies, authorities,
instrumentalities and subdivisions may be affected from time to time by
economic, political, geographic and demographic conditions. In addition,
constitutional amendments, legislative measures, executive orders,
administrative regulations and voter initiatives may limit a government's power
to raise revenues or increase taxes and thus could adversely affect an issuer's
ability to meet financial obligations. The market value and marketability of
Florida Municipal Securities and the interest
-11-
<PAGE>
income and repayment of principal to the Fund from them could be adversely
affected by a default or a financial crisis relating to Florida and its
agencies, authorities, instrumentalities and subdivisions. Investors should
consider these matters as well as economic trends in Florida, some of which are
briefly discussed in the Statement of Additional Information.
o 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.
o There are special risks in investing in derivative investments. 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 on
which the derivative is based, and the derivative itself, may 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.
o 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.
o Hedging instruments can be volatile investments and may
-12-
<PAGE>
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.
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 are designed to reduce some of the risks.
o 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
-13-
<PAGE>
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.
o Investments in Taxable Securities and Temporary Defensive Investment
Strategy. Under normal market conditions, the Fund may invest up to 20% of its
assets in taxable investments, including (i) certain "Temporary Investments"
(described immediately below); (ii) hedging instruments (described in "Hedging,"
below), and (iii) repurchase agreements (explained below).
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.
o 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.
o 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
-14-
<PAGE>
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.
o 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.
o 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"), Fitch
Investors Service, Inc. ("Fitch"), Duff & Phelps, Inc. or any other nationally
recognized statistical rating organization. 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
-15-
<PAGE>
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.
o 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.
o 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.
o 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.
o 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 Board may increase that
limit to 15%). 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. The Fund's percentage limitation on these investments does not
apply to certain unrestricted securities that are eligible for resale to
liquidityqualified institutional purchasers.
The Manager
monitors holdings of illiquid securities on an ongoing basis to
-16-
<PAGE>
determine whether to sell any holdings to maintain adequate liquidity. Illiquid
securities include repurchase agreements maturing in more than seven days, or
certain participation interests other than those with puts exercisable within
seven days.
o 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.
o 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.
o 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.
o 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
-17-
<PAGE>
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 ("NASDAQ") of the Nasdaq Stock Market, Inc., or traded in the
over-the-counter market; (3) each call the Fund writes must be "covered" while
it is outstanding (that means the Fund must own the investment on which the call
was written); (4) the Fund may write calls on Futures contracts it owns, but
these calls must be covered by securities or other liquid assets the Fund owns
and segregates to enable it to satisfy its obligations if the call is exercised;
(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.
o 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.
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;
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<PAGE>
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:
o 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.
o 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".
o 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).
o Pledge, mortgage or otherwise encumber, transfer or assign any of its assets
to secure a debt; collateral arrangements for premium and margin payments in
connection with hedging instruments are not
deemed to be a pledge of assets.
o Buy or sell futures contracts other than interest rate futures or municipal
bond index futures.
Unless the prospectus states that a percentage restrictions applies on an
ongoing basis, it applies only at the time the Fund purchases an investment, and
the Fund need not sell securities to meet the percentage limits if the value of
the investment increases in proportion to the size of the Fund. Other investment
restrictions are listed in "Investment Restrictions" 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 Municipal
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
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<PAGE>
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 this Fund into two or more classes. The Board has done
so, and the Fund currently has three classes of shares, Class A, Class B and
Class C. All 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. Please
refer to "How the Fund is Managed" in the Statement of Additional Information on
voting of shares.
The Manager and Its Affiliates. The Fund is managed by the Manager,
OppenheimerFunds, Inc., which is responsible for selecting the Fund's
investments and handles its day-to-day business. The Manager carries out its
duties, subject to the policies established by the Board of Trustees, under an
Investment Advisory Agreement which states the Manager's responsibilities. The
Agreement sets forth the fees paid by the Fund to the Manager and describes the
expenses that the Fund is responsible to pay to conduct its business.
The Manager has operated as an investment advisor since 1959. The Manager
(including subsidiaries) currently manages investment companies, including other
Oppenheimer funds, with assets of more than $75 billion as of September 30,
1997, and with more than 3 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.
o 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.
o 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 average annual net assets;
0.55% of the next $100 million; 0.50% of the next $200 million; 0.45% of the
next $250 million; 0.40% of the next $250 million and 0.35% of average annual
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<PAGE>
net assets in excess of $1 billion. The Fund's management fee for its last
fiscal year was 0.60% of average annual net assets (before expense
reimbursement) for Class A shares, Class B shares and Class C shares, 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 therefore
incurs relatively little expense for brokerage. From time to time, however, it
may use brokers when buying portfolio securities. When deciding which brokers to
use, the Manager is permitted by the Investment Advisory Agreement to consider
whether brokers have sold shares of the Fund or any other funds for which the
Manager serves as investment advisor.
o The Distributor. The Fund's shares are sold through dealers, brokers and
financial institutions that have a sales agreement with OppenheimerFunds
Distributor, Inc., a subsidiary of the Manager that acts as the Fund's
Distributor. The Distributor also distributes the shares of other "Oppenheimer
funds" and is sub-distributor for funds managed by a subsidiary of the Manager.
o 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
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<PAGE>
kinds of expenses each class bears. These returns and yields measure the
performance of a hypothetical account in the Fund over various periods, and do
not show the performance of each shareholder's account (which will vary if
dividends are received in cash, or shares are sold or purchased). The Fund's
performance may help you see how well your Fund has done over time and to
compare it to other funds or to a market index.
It is important to understand that the Fund's yields and total returns
represent past performance and should not be considered to be predictions of
future returns or performance. This performance data is described below, but
more detailed information about how total returns and yields are calculated is
contained in the Statement of Additional Information, which also contains
information about indices and other ways to measure and compare the Fund's
performance. The Fund's investment performance will vary over time, depending on
market conditions, the composition of the portfolio, expenses and which class of
shares you purchase.
o Total Returns. There are different types of "total returns" used to
measure the Fund's performance. Total return is the change in value of a
hypothetical investment in the Fund over a given period, assuming that all
dividends and capital gains distributions are reinvested in additional shares.
The cumulative total return measures the change in value over the entire period
(for example, ten years). An average annual total return shows the average rate
of return for each year in a period that would produce the cumulative total
return over the entire period. However, average annual total returns do not show
the Fund's actual year-by- year performance.
When total returns are quoted for Class A shares, normally the current
maximum initial sales charge has been deducted. When total returns are shown for
Class B or Class C shares, normally the contingent deferred sales charge that
applies to the period for which total return is shown has been deducted.
However, total returns may also be quoted "at net asset value," without
considering the effect of the sales charge, and those returns would be less if
sales charges were deducted.
o Yield. Different types of yields may be quoted to show performance. Each
class of shares calculates its standardized yield by dividing the annualized net
investment income per share from the portfolio during a 30-day period by the
maximum offering price on the last day of the period. The 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 paid for a stated period by the
maximum offering price on the last day of the period and annualizing the result.
Yields for Class A shares normally reflect the deduction of the maximum initial
sales charge, but may also be shown without deducting sales charge. Yields for
Class B and Class
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<PAGE>
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 July 31, 1997, followed by a
graphical comparison of the Fund's performance to an appropriate broad-based
market index.
o Management's Discussion of Performance. During the Fund's fiscal year
ended July 31, 1997, the Fund's performance was affected by several economic and
market factors. emphasisYields on municipal bonds generally followed the trends
established over the past twelve months by taxable bonds, such as Treasury
securities. However, during the twelve month period, taxable and tax exempt bond
markets experienced a relatively high level of volatility. Bond yields rose and
fell with investors changing outlook for economic growth, inflation and federal
monetary policy. The Fund's portfolio holdings, allocations and strategies are
subject to change.
o 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 July 31, 1997. 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.
Comparison of Change
In Value of $10,000
Hypothetical Investments in
Oppenheimer Florida Municipal Fund and the
Lehman Brothers Municipal Bond Index
[Graph]
Oppenheimer Florida Municipal Fund
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<PAGE>
Average Annual Total Returns of the Fund at
7/31/97
1 Year Life of Class
Class A: 4.19% (1)4.51%
Class B: 3.56% (2)4.40%
Class C: 7.41% (3)7.31%
- ---------------
Total returns and the ending account values in the graph show change in share
value and include reinvestment of all dividends and capital gains distributions.
(1) The inception of the Fund (Class A and B shares) was 10/1/93. Class A
returns are shown net of the current applicable 4.75% maximum initial sales
charge. (2) The average annual total returns reflect reinvestment of all
dividends and capital gains distributions and are shown net of the applicable 5%
and 3% contingent deferred sales charges, respectively, for the one year period
and life-of-the-class. The ending account value in the graph is net of the
applicable 3% sales charge. (3) Class C shares of the Fund were first publicly
offered on 8/29/95. The one year period is shown net of the applicable 1%
contingent deferred sales charge.
Past performance is not predictive of future performance. Graphs are not drawn
to same scale.
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.
o 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 12 months of buying them, (18 months if the shares were purchased
prior to May 1, 1997), 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.
o Class B Shares. If you buy Class B shares, you pay no sales charge at
the time of purchase, but if you sell your shares within six years of buying
them, you will normally pay a contingent deferred sales charge. That sales
charge varies depending on how long you own your shares, as described in "Buying
Class B Shares" below.
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<PAGE>
o Class C Shares. If you buy Class C shares, you pay no sales charge at
the time of purchase, but if you sell your shares within 12 months of buying
them, you will normally pay a contingent deferred sales charge of 1%, as
described in "Buying Class C Shares" below.
Which Class of Shares Should You Choose? Once you decide that the Fund is an
appropriate investment for you, the decisions as to which class of shares is
best 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 to consider are how much you plan to invest and how long you plan to
hold your investment. If your goals and objectives change over time and you plan
to purchase additional shares, you should re-evaluate those factors to see if
you should consider another class of shares.
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, and considered 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 of shares 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.
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<PAGE>
o 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.
o 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
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<PAGE>
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 within six years, as well
as the effect of the Class B asset-based sales charge on the investment return
for that class in the short-term. Class C shares might be the appropriate choice
(especially for investments of less than $100,000), because there is no initial
sales charge on Class C shares, and the contingent deferred sales charge does
not apply to amounts you sell after holding them one year.
However, if you plan to invest more than $100,000 for the shorter term,
then 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 shares might be more advantageous than Class C shares (as well as Class
B shares) 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 shares (and
Class B shares). If investing $500,000 or more, Class A shares may be more
advantageous as your investment horizon approaches 3 years or more.
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<PAGE>
And for investors who invest $1 million or more, in most cases Class A shares
will be the most advantageous choice, no matter how long you intend to hold your
shares. For that reason, the Distributor normally will not accept purchase
orders of $500,000 or more of Class B shares or $1 million or more of Class C
shares from a single investor.
o Investing for the Longer Term. If you are investing 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 Class 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.
o 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) may
not be advisable (because of the effect of the contingent deferred sales charge)
for Class B
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<PAGE>
or 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.
o 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 and Class C contingent deferred sales charge and
asset-based sales charges 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.
The Distributor may pay additional periodic compensation from its own resources
to securities dealers or financial institutions based upon the value of shares
of the Fund owned by the dealer or financial institutions for its own account or
for its customers.
How Much Must You Invest? You can open a Fund account with a minimum initial
investment of $1,000 and make additional investments at any time with as little
as $25. There are reduced minimum investments under special investment plans.
With Asset Builder Plans, Automatic Exchange Plans and military
allotment plans, you can make initial and subsequent investments for as little
as $25; and subsequent purchases of at least $25 can be made by telephone
through AccountLink.
There is no minimum investment requirement if you are buying shares
by reinvesting dividends from the Fund or other Oppenheimer funds (a list of
them appears in the Statement of Additional Information, or you can ask your
dealer or call the Transfer Agent), or by reinvesting distributions from unit
investment trusts that have made arrangements with the Distributor.
o 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. The Distributor may appoint certain servicing agents as the
Distributor's agent to accept purchase (and redemption) orders. 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.
o Buying Shares Through Your Dealer. Your dealer will place
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<PAGE>
your order with the Distributor on your behalf.
o 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, it is recommended that you discuss your
investment first with a financial advisor, to be sure that it is appropriate for
you.
o Payment by Federal Funds Wire. Shares may be purchased
by
Federal Funds wire. The minimum investment is $2,500. You must
first call the Distributor's Wire Department at 1-800-525-7041
to
notify the Distributor of the wire, and to receive further
instructions.
o 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 to
transmit funds electronically to purchase shares, to have the Transfer Agent
send redemption proceeds or to transmit dividends and distributions to your bank
account.
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.
o Asset Builder Plans. You may purchase shares of the Fund (and up to four
other Oppenheimer funds) automatically each month from your account at a bank or
other financial institution under an Asset Builder Plan with AccountLink.
Details are in the Statement of Additional Information.
o At What Price Are Shares Sold? Shares are sold at the public offering
price based on the net asset value (plus any initial sales charge that applies).
That price is 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 or its designated agent 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 referred to in this Prospectus as 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
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<PAGE>
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 in this
Prospectus sets forth conditions for the waiver of, or exemption from, sales
charges or the special sales charge rates that apply to purchases of shares of
the Fund (including purchases by exchange) by a person who was a shareholder of
one of the Former Quest for Value Funds (as defined in that Appendix).
Buying Class A Shares. Class A shares are sold at their offering price, which is
normally net asset value plus an initial sales charge. However, in some cases,
described below, purchases are not subject to an initial sales charge, and the
offering price will be the net asset value. In some cases, reduced sales charges
may be available, as described below. Out of the amount you invest, the Fund
receives the net asset value to invest for your account. The sales charge varies
depending on the amount of your purchase. A portion of the sales charge may be
retained by the Distributor and allocated to your dealer as commission. The
current sales charge rates and commissions paid to dealers and brokers are as
follows:
- -------------------------------------------------------------------
Front-End Front-End
Commission
Sales Charge Sales Charge as
as a as a
Percentage
Percentage Percentage of
Offering
of Offering of Amount Price
Amount of Purchase 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.
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<PAGE>
o 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 non-retirement
plan purchases in an amount equal to the sum of 1.0%. That commission will be
paid only on the amount of those purchases that were not previously subject to a
front-end sales charge and dealer commission.
If you redeem any of those shares purchased prior to May 1, 1997, 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. A Class A contingent deferred
sales charge may be deducted from the redemption proceeds of any of those shares
purchased on or after May 1, 1997, that are redeemed within 12 months of the end
of the calendar month of their purchase. That sales charge may be equal to 1.0%
of the lesser of (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 offering price (which is the original net
asset value) of the redeemed shares. However, the Class A contingent deferred
sales charge will not exceed the aggregate amount of the commissions the
Distributor paid to your dealer on all 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 12 calendar months (18 months
for shares purchased prior to May 1, 1997) of the end of the calendar month of
the purchase of the exchanged shares, the sales charge will apply.
o 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:
o 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
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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 Distributor will add the value
at current offering price, of the shares you previously purchased and currently
own to the value of current purchases to determine the sales charge rate that
applies. The 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.
o 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.
o 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. In
order to receive a waiver of the Class A contingent deferred sales charge, you
must notify the Transfer Agent which conditions apply.
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:
o the Manager or its affiliates;
o 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;
o registered management investment companies, or separate accounts of
insurance companies having an agreement with the Manager or the Distributor for
that purpose;
o dealers or brokers that have a sales agreement with the Distributor, if
they purchase shares for their own accounts or for
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<PAGE>
retirement plans for their employees;
o 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);
o dealers, brokers, banks or registered investment advisersadvisors that
have entered into an agreement with the Distributor providing specifically for
the use of shares of the Fund in particular investment products made available
to their clients (those clients may be charged a transaction fee by their
dealer, broker, bank or advisor for the purchase or sale of Fund shares);
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<PAGE>
o (1) investment advisors and financial planners who have entered into an
Distributor.agreement for this purpose with the Distributor and who charge an
advisory, consulting or other fee for their services and buy shares for their
own accounts or the accounts of their clients, (2) "rabbi trusts" that buy
shares for their own accounts, in each case if those purchases are made through
a broker or agent or other financial intermediary that has made special
arrangements with the Distributor for those purchases; and (3) clients of such
investment advisors or financial planners (that have entered into an agreement
for this purpose with the Distributor) who buy shares for their own accounts may
also purchase shares without sales charge but only if their accounts are linked
to a master account of their investment advisor or financial planner on the
books and records of the broker, agent or financial intermediary with which the
Distributor has made such special arrangements (each of these investors may be
charged a fee by the broker, agent or financial intermediary for purchasing
shares);
o 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;
o accounts for which Oppenheimer Capital is the investment advisor (the
Distributor must be advised of this arrangement) and persons who are directors
or trustees of the company or trust which
is the beneficial owner of such accounts; or
o 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:
o shares issued in plans of reorganization, such as mergers, asset
acquisitions and exchange offers, to which the Fund is a party;
o 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;
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<PAGE>
o shares purchased and paid for with the proceeds of shares redeemed in
the prior 30 days from a mutual fund (other than a fund managed by the Manager
or any of its subsidiaries) on which an initial sales charge or contingent
deferred sales charge was paid (this waiver also applies to shares purchased by
exchange of shares of Oppenheimer Money Market Fund, Inc. that were purchased
and paid for in this manner); this waiver must be requested when the purchase
order is placed for your shares of the Fund, and the Distributor may require
evidence of your qualification for this waiver; or
o 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:
o to make Automatic Withdrawal Plan payments that are limited annually to
no more than 12% of the original account value;
o involuntary redemptions of shares by operation of law or involuntary
redemptions of small accounts (see "Shareholder Account Rules and Policies,"
below); or
o if, at the time of purchase of shares (prior to May 1, 1997) the dealer
agreed in writing to accept the dealer's portion of the sales commission in
installments of 1/18th of the commission per month (and no further commission
will be payable if the shares are redeemed within 18 months of purchase);
o if, at the time of purchase of shares (on or after May 1, 1997) the
dealer agrees in writing to accept the dealer's portion of the sales commission
in installments of 1/12th of the commission per month (and no further commission
will be payable if the shares are redeemed within 12 months of purchase);
o 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 shareholder 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
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<PAGE>
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 service
providers or their 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
contingent deferred sales charge will be based on the lesser of the net asset
value of the redeemed shares at the time of redemption or the original offering
price (which is the original net asset value). 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
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<PAGE>
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.
o 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.
o 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".
o 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 " 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 the Class C shares are
redeemed within 12 months of their purchase, a contingent deferred sales charge
of 1.0% will be deducted from the redemption proceeds. That sales charge will
not apply to shares purchased by the reinvestment of dividends or capital gains
distributions. The contingent deferred sales charge will be based on the lesser
of the net asset value of the redeemed shares at the time of redemption or the
original offering price (which is the original net asset value). 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
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<PAGE>
Class C shares to compensate the Distributor for distributing Class B and Class
C shares and servicing accounts. Under the Plans, the Fund pays the Distributor
an annual "asset-based sales charge" of 0.75% per year on Class B shares that
are outstanding for six years or less and on Class C shares. The Distributor
also receives 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 Class 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 and retains
the service fee paid by the Fund in that year. 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 Class 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
charges 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 sales of Class B shares is 4.00% of the
purchase price.
The Distributor retains the Class B asset-based sales charge. If a dealer has a
special agreement with the Distributor, the Distributor will pay the Class B
service fee and the asset-based sales charge to the dealer quarterly in lieu of
paying the sales commission and service fee advance at the time of purchase.
The Distributor currently pays sales commissions of 0.75% of the purchase
price to dealers from its own resources at the time of sale of Class C shares.
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 0.90% of the
purchase price. The Distributor plans to pay the asset-based sales charge as an
ongoing
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<PAGE>
commission to the dealer on Class C shares that have been outstanding for a year
or more.
If a dealer has a special
agreement with the Distributor, the Distributor will pay the Class C service fee
and the asset-based sales charge to the dealer quarterly in lieu of paying the
sales commission and service fee
advance at the time of purchase.
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 Plans for Class B and Class C shares. At July 31, 1997, the end of the
Class B Plan year, the Distributor had incurred unreimbursed expenses in
connection with sales of Class B shares of $435,590 (equal to 2.84% of the
Fund's net assets represented by Class B shares on that date). At July 31, 1997,
the end of the Class C Plan year, the Distributor had incurred unreimbursed
expenses in connection with sales of Class C shares of $8,990 (equal to 0.94% of
the Fund's net assets represented by Class C shares on that date). If the Fund
terminates either Plan, 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.
o 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.
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<PAGE>
In order to receive a waiver of the Class B and Class C contingent
deferred sales charge, you must notify the Transfer Agent which conditions
apply.
Waivers for Redemptions in Certain Cases. The Class B and Class C
contingent deferred sales charges will be waived for redemption of shares in the
following cases:
o redemptions from accounts following the death or disability of the last
surviving shareholder, including a trustee of a "grantor" trust or revocable
living trust for which the trustee is also the sole beneficiary (the death or
disability must have occurred after the account was established, and for
disability you must provide evidence of a determination of disability by the
Social Security Administration); or
o shares redeemed involuntarily, as described in
"Shareholder
Account Rules and Policies," below.
Waivers for Shares Sold or Issued in Certain Transactions. The contingent
deferred sales charge is also waived on Class B and Class C shares sold or
issued in the following cases:
o shares sold to the Manager or its affiliates;
o shares sold to registered management investment companies
or separate accounts of insurance companies having an agreement
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<PAGE>
with the Manager or the Distributor for that purpose; or
o 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 call the Transfer
Agent for more information.
AccountLink privileges should be requested 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.
o 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.
o 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.
o 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.
o Exchanging Shares. With the OppenheimerFunds Exchange Privilege,
described below, you can exchange shares automatically by phone from your Fund
account to another Oppenheimer fund account you have already established by
calling the special PhoneLink number. Please refer to "How to Exchange Shares,"
below, for details.
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<PAGE>
o 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.
Shareholder Transactions by Fax. Beginning May 30, 1997, requests for certain
account transactions may be sent to the Transfer Agent by fax (telecopier).
Please call 1-800-525-7048 for information about which transactions are
included. Transaction requests submitted by fax are subject to the same rules
and restrictions as written and telephone requests described in this Prospectus.
Automatic Withdrawal and Exchange Plans. The Fund has several plans that enable
you to sell shares automatically or exchange them to another Oppenheimer fund
account on a regular basis:
o 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 Statement of Additional Information for more
details.
o Automatic Exchange Plans. You can authorize the Transfer Agent to
automatically exchange an amount you establish in advance for shares of up to
five other Oppenheimer funds on a monthly, quarterly, semi-annual or annual
basis under an Automatic Exchange Plan. The minimum purchase for each
Oppenheimer fund account is $25. These exchanges are subject to the terms of the
Exchange Privilege, described below.
Reinvestment Privilege. If you redeem some or all of your Class A or Class B
shares of the Fund, you have up to 6 months to reinvest all or part of the
redemption proceeds in Class A shares of the Fund or other Oppenheimer funds
without paying a sales charge. This privilege applies only to Class A shares
that you purchased subject to an initial sales charge and to Class A or Class B
shares on which you paid a contingent deferred sales charge when you redeemed
them. This privilege does not apply to Class C shares. You must be sure to ask
the Distributor for this privilege when you send your payment. 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
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<PAGE>
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.
o 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):
o You wish to redeem more than $50,000 worth of shares and
receive a check
o The redemption check is not payable to all shareholders
listed on the account statement
o The redemption check is not sent to the address of record
on your account statement
o Shares are being transferred to a Fund account with a
different owner or name
o Shares are redeemed by someone other than the owners
(such
as an Executor)
o 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:
o Your name
o The Fund's name
o Your Fund account number (from your account statement) o The dollar
amount or number of shares to be redeemed o Any special payment
instructions o Any share certificates for the shares you are selling,
o The signatures of all registered owners exactly as the account is
registered, and o Any special 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
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<PAGE>
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.
o To redeem shares through a service representative, call
1-
800-852-8457
o To redeem shares automatically on PhoneLink, call
1-800-533-
3310
Whichever method you use, you may have a check sent to the address on the
account statement, or, if you have linked your Fund account to your bank account
on AccountLink, you may have the
proceeds sent to that account.
o 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.
o Telephone Redemptions Through AccountLink. There are no dollar limits on
telephone redemption proceeds sent to a bank account designated when you
establish AccountLink. Normally the ACH transfer to your bank is initiated on
the business day after the redemption. You do not receive dividends on the
proceeds of the shares you redeemed while they are waiting to be transferred.
Checkwriting. To be able to write checks against your Fund account, you may
request that privilege on your account Application, or you can contact the
Transfer Agent for signature cards, which must be signed (with a signature
guarantee) by all owners of the account and returned to the Transfer Agent so
that checks can be sent to you to use. Shareholders with joint accounts can
elect in writing to have checks paid over the signature of one owner. If you
previously signed a signature card to establish Checkwriting in another
Oppenheimer fund, simply call 1-800-525- 7048 to request Checkwriting for an
account in this Fund with the same registration as the previous Checkwriting
account.
o Checks can be written to the order of whomever you wish, but may not be
cashed at the Fund's bank or custodian.
o 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.
o Checks must be written for at least $100.
o Checks cannot be paid if they are written for more than
your
account value. Remember: your shares fluctuate in value and you
should not write a check close to the total account value.
o You may not write a check that would require the Fund to
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<PAGE>
redeem shares that were purchased by check or Asset Builder Plan payments within
the prior 15 days.
o Don't use your checks if you changed your Fund account
number.
Selling Shares Through Your Dealer. The Distributor has made arrangements to
repurchase Fund shares from dealers and brokers on behalf of their customers.
Brokers or dealers may charge for that service. Please refer to "Special
Arrangements for Repurchase of Shares from Dealers and Brokers" in the Statement
of Additional Information for more details.
How to Exchange Shares
Shares of the Fund may be exchanged for shares of certain Oppenheimer
funds at net asset value per share at the time of exchange, without sales
charge. To exchange shares, you must meet
several conditions:
o Shares of the fund selected for exchange must be
available
for sale in your state of residence.
o The prospectuses of this Fund and the fund whose shares
you
want to buy must offer the exchange privilege.
o You must hold the shares you buy when you establish your
account for at least 7 days before you can exchange them; after the account is
open 7 days, you can exchange shares every regular
business day.
o You must meet the minimum purchase requirements for the
fund
you purchase by exchange.
o 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:
o Written Exchange Requests. Submit an OppenheimerFunds
Exchange Request form, signed by all owners of the account.
Send
it to the Transfer Agent at the addresses listed in "How to Sell
Shares."
o Telephone Exchange Requests. Telephone exchange requests
may
be made either by calling a service representative at 1-800-852- 8457 or by
using PhoneLink for automated exchanges, by calling 1- 800-533-3310. Telephone
exchanges may be made only between accounts that are registered with the same
name(s) and address. Shares held under certificates may not be exchanged by
telephone.
-46-
<PAGE>
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:
o Shares are normally redeemed from one fund and purchased from the other
fund in the exchange transaction on the same regular business day on which the
Transfer Agent receives an exchange request that 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.
o 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.
o The Fund may amend, suspend or terminate the exchange
privilege at any time. Although the Fund will attempt to
provide
you notice whenever it is reasonably able to do so, it may
impose
these changes at any time.
o 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.
o If the Transfer Agent cannot exchange all the shares you request because
of a restriction cited above, only the shares eligible for exchange will be
exchanged.
Shareholder Account Rules and Policies
o Net Asset Value Per Share is determined for each class of shares as of
the close of The New York Stock Exchange that day, 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.
-47-
<PAGE>
o 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.
o 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.
o 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.
o 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.
o 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.
o 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.
o 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 seven 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
-48-
<PAGE>
broker-dealer, payment will be forwarded within three 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 federal funds
wire, certified check or arrange with your bank to provide telephone or written
assurance to the Transfer Agent that your purchase payment has cleared.
o Involuntary redemptions of small accounts may be made by the Fund if the
account value has fallen below $500 for reasons other than the fact that the
market value of shares has dropped, and in some cases involuntary redemptions
may be made to repay the Distributor for losses from the cancellation of share
purchase orders.
o 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.
o "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.
o 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.
o 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
-49-
<PAGE>
Class C shares will generally be higher.
For the fiscal year ended July 31, 1997, 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 July 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:
o 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.
o 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.
o 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.
o Reinvest your distributions in another Oppenheimer Fundfund account. You
can reinvest all distributions in the same class of shares of another
Oppenheimer fund 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.
-50-
<PAGE>
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.
o "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.
o 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.
o 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.
o 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 advisor
about the effect of an investment in the Fund on your particular tax situation.
-51-
<PAGE>
APPENDIX TO PROSPECTUS OF
OPPENHEIMER FLORIDA MUNICIPAL FUND
Graphic material included in Prospectus of Oppenheimer
Florida
Municipal Fund: "Comparison of Change in Value of $10,000
Hypothetical Investments in Oppenheimer Florida Municipal Fund
and
the Lehman Brothers Municipal Bond Index."
A linear graph will be included in the Prospectus of Oppenheimer Florida
Municipal 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 July 31, 1997, 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 Lehman Brothers
Period Ended Municipal Fund A Municipal Bond Index
10/7/93(1) $9,525 $10,000
12/31/93 $9,944 $10,140
12/31/94 $9,182 $ 9,616
12/31/95 $10,798 $11,296
7/31/96 $10,825 $11,347
7/31/97 $11,841 $12,512
Oppenheimer
Fiscal/Year Florida Lehman Brothers
Period Ended Municipal Fund B Municipal Bond Index
10/7/93(1) $10,000 $10,000
12/31/93 $10,434 $10,140
12/31/94 $ 9,556 $ 9,616
12/31/95 $11,161 $11,296
7/31/96 $11,141 $11,347
7/31/97 $11,794 $12,512
Oppenheimer
Fiscal/Year Florida Lehman Brothers
Period Ended Municipal Fund C Municipal Bond Index
8/29/95(2) $10,000 $10,000
12/31/95 $10,586 $10,478
7/31/96 $10,563 $10,525
7/31/97 $11,451 $11,606
- ----------------------
(1) The Fund commenced operations on October 7, 1993.
(2) 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 deferred 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)
Oppenheimer Quest Value Fund, Inc., Oppenheimer Quest Growth & Income Fund,
Oppenheimer Quest Opportunity Value Fund, Oppenheimer Quest Small Cap Value Fund
and Oppenheimer Quest Global Value Fund, Inc. on November 24, 1995, when
OppenheimerFunds, Inc. became the investment adviseradvisor to those funds, and
(ii) Quest for Value U.S. Government Income Fund, Quest for Value Investment
Quality Income Fund, Quest for Value Global Income Fund, Quest for Value New
York Tax-Exempt Fund, Quest for Value National Tax-Exempt Fund and Quest for
Value California Tax- Exempt Fund when those funds merged into various
Oppenheimer funds on November 24, 1995. The funds listed above are referred to
in this Prospectus as the "Former Quest for Value Funds." The waivers of initial
and contingent deferred sales charges described in this Appendix apply to shares
of the Fund (i) acquired by such shareholder pursuant to an exchange of shares
of one of the Oppenheimer funds that was one of the Former Quest for Value Funds
or (ii) purchased by such shareholder by exchange of shares of other Oppenheimer
funds that were acquired 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
o Reduced Class A Initial Sales Charge Rates for Certain Former
Quest Shareholders
o 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.
A-1
<PAGE>
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%
A-2
<PAGE>
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.
A-3
<PAGE>
o 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:
o 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.
o 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.
o 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:
o 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.
A-4
<PAGE>
Class A, Class B and Class C Contingent Deferred Sales Charge
Waivers
o Waivers for Redemptions of Shares Purchased Prior to March 6,
1995.
In the following cases, the contingent deferred sales charge will be waived for
redemptions of Class A, Class B or Class C shares of the Fund acquired by the
merger of a Former Quest for Value Fund into the Fund or by exchange from an
Oppenheimer fund that was a Former Quest for Value Fund or into which such fund
merged, 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 Class 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.
o Waivers for Redemptions of Shares Purchased on or After March 6, 1995 but
Prior to November 24, 1995.
In the following cases, the contingent deferred sales charge will be waived for
redemptions of Class A, Class B or Class C shares of the Fund acquired by the
merger of a Former Quest for Value Fund into the Fund or by exchange from an
Oppenheimer fund that was a Former Quest For Value Fund or into which such fund
merged, 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 Class 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, Class B or Class 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.
A-5
<PAGE>
Oppenheimer Florida Municipal Fund
Two World Trade Center
New York, New York 10048-0203
1-800-525-7048
Investment Advisor
OppenheimerFunds, Inc.
Two World Trade Center
New York, New York 10048-0203
Distributor
OppenheimerFunds Distributor, Inc.
Two World Trade Center
New York, New York 10048-0203
Transfer and Shareholder Servicing Agent
OppenheimerFunds Services
P.O. Box 5270
Denver, Colorado 80217
1-800-525-7048
Custodian of Portfolio Securities
Citibank, N.A.
399 Park Avenue
New York, New York 10043
Independent Auditors
KPMG Peat Marwick LLP
707 Seventeenth Street
Denver, Colorado 80202
Legal Counsel
Gordon Altman Butowsky
Weitzen Shalov & Wein
114 West 47th Street
New York, New York 10036
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.
PR0795.001.1197 * Printed on recycled paper
<PAGE>
Oppenheimer Florida Municipal Fund
Two World Trade Center, New York, New York 10048-0203
1-800-525-7048
Statement of Additional Information dated November 17, 1997
This Statement of Additional Information of Oppenheimer Florida Municipal
Fund (the "Fund") is not a Prospectus. This document contains additional
information about the Fund and supplements information in the Prospectus dated
November 17, 1997.
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................................
Investment Policies and Strategies..........................
Special Investment Considerations - Florida Municipal
Securities.......................................................
Other Investment Techniques and Strategies..............
Other Investment Restrictions...............................
How the Fund is Managed .........................................
Organization and History....................................
Trustees and Officers of the Trust..........................
The Manager and Its Affiliates..............................
Brokerage Policies of the Fund...................................
Performance of the Fund..........................................
Distribution and Service Plans...................................
About Your Account
How To Buy Shares................................................
How To Sell Shares...............................................
How To Exchange Shares...........................................
Dividends, Capital Gains and Taxes...............................
Additional Information About the Fund............................
Financial Information About the Fund
Independent Auditors' Report ..................................
Financial Statements...........................................
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 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.
o 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.
o 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.
o 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
-2-
<PAGE>
housing or other public projects. Some
-3-
<PAGE>
authorities provide further security in the form of a state's ability (without
obligation) to make up deficiencies in the debt service reserve fund.
o 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.
o 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:
o 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.
o 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.
o 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.
o 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.
o 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.
o 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
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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 no limit on the amount of the Fund's assets that may be invested in floating
rate and variable rate obligations.
o 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.
o Private Activity Municipal Securities. The Tax Reform Act of 1986 (the
"Tax Reform Act") reorganized, as well as amended, the rules governing tax
exemption for interest on Municipal Securities. The Tax Reform Act generally
does not change the tax treatment of bonds issued in order to finance
governmental operations. Thus, interest on obligations issued by or on behalf of
state or local governments, the proceeds of which are used to finance the
operations of such governments (e.g., general obligation bonds), continues to be
tax-exempt. However, the Tax Reform Act further limited the use of tax-exempt
bonds for non-governmental (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.
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Interest on certain private activity bonds issued after August 7, 1986,
which continues to be tax-exempt, will be treated as a tax preference item
subject to the alternative minimum tax (discussed below) to which certain
taxpayers are subject. Furthermore, a private activity bond which would
otherwise be a qualified tax-exempt private activity bond will not, under
Internal Revenue Code Section 147(a), be a qualified bond for any period during
which it is held by a person who is a "substantial user" of the facilities or by
a "related person" of such a substantial user. This "substantial user" provision
is applicable primarily to exempt facility bonds, 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
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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.
o Ratings of Municipal Securities. Moody's, S&P's, Fitch's and Duff &
Phelps' 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. The following is intended to provide prospective investors with
a summary of certain elements of the State economy which are generally deemed
material in an analysis of the State's economic condition.
It is not intended to be a
comprehensive presentation of the aspects of the financial condition of the
State which a prospective investor may consider important or a complete
description of the aspects which are presented. The information set forth below
is based on information which is generally available to the public and official
statements relating to securities offerings of Florida issuers. Although the
Fund has not independently verified any of this information, it is not aware of
any inaccuracies.
From 1980 to 1989, the State's unemployment rate generally tracked below
that of the nation. From 1989 until recently, the State's jobless rate has
generally moved ahead of the national average. The State's unemployment rate was
7.0% for 1993, 6.6% for 1994 , 5.5% for 1995 and 5.1% for 1996. The 1997
unemployment rate is anticipated to be 5.9%approximately 4.9%. The national
unemployment rate was 6.8% for 1993, 6.1% for 1994, 5.6% for 1995 and 5.4% for
1996. The 1997 unemployment rate is anticipated to be approximately 5.7%.
Nevertheless, the average rate of unemployment for the State and for the nation
from 1986 through 1996 are both 6.2%approximately 6.1%.
Personal income in the State has been growing steadily the last several
years and has generally outperformed the nation as a whole. State personal
income growth was estimated at 5.4% for 1996 following an estimated increase of
7.5% in 1995. The rate of personal income growth in the State is expected to
continue to remain steady or decline, reaching an estimated 4.4% in 1997 and
4.5% in 1998.
The State's strong population growth is one reason why aspects of its
economy are performing better than the nation as a whole. In 1980, the State was
ranked seventh among the 50 states with a population
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of 9.7 million people. The State has experienced steady growth since then and,
as of 1994, ranked fourth with an estimated population of 13.9 million.
Population increased to 14.2 million in 1995 , then to 14.4 million in 1996.
Residents are expected to number 14.7 million in 1997, 14.9 million in 1998 and
15.2 million in 1999. The forecasted population growth rates of 1.9%, 1.7% and
2.0% for 1997, 1998 and 1999, respectively, almost double the national
population growth which is forecast at 0.9% for each of these years.
Tourism is one of the State's most important industries. An estimated 42.4
million tourists visited the State in 1995 and 43 million in 1996. 43.7 million
tourists are expected to visit the State in 1997.
Another important industry in the state, the construction industry,
accounted for 5.1% of the State's nonagricultural employment industry in 1994,
down from 5.2% in 1993, and is expected to continue to decline or remain steady.
Single-family construction starts dropped from an estimated 94,388 units in 1994
to an estimated 87,530 units in 1995 and an estimated 84,403 units in 1996.
Multi-family construction starts increased from an estimated 30,719 units in
1994 to an estimated 34,159 units in 1995 and an estimated 30,687 units in 1996.
Single-family construction starts are predicted to drop to an estimated 79,226
units in 1997 and 77,705 units in 1998. Multi-family construction starts are
also predicted to drop to an estimated 30,318 units in 1997, but then to
increase to an estimated 32,514 units in 1998.
Financial operations of the State are funded and maintained through the use
of three funds--the General Revenue Fund, Trust Funds, and the Working Capital
Trust Fund -- through which generally all revenues and expenditures of the state
flow. General Revenue plus Working Capital funds available to the State for
fiscal year 1994-95 totalled $11,231.1$14,538.2 million. Compared to effective
appropriations from the General Revenue Fund and the Working Capital Trust Fund
for fiscal year 1994-95 of $14,409.5 million, this results in unencumbered
reserves of $128.7 million at the end of fiscal year 1994- 95.
General Revenue plus Working Capital funds available to the State for fiscal
year 1995-96 total $15,442.3 million. Compared to effective appropriations from
the General Revenue Fund and the Working Capital Trust Fund for fiscal year
1995-96 of $15,155.7 million, this results in unencumbered reserves of $286.6
million at the end of fiscal year 1992-931995-96.
It is anticipated that General Revenue plus Working Capital funds available
to the State for fiscal year 1996-97 will total $16,339.4 million. Compared to
estimated appropriations from the General Revenue Fund and the Working Capital
Fund for fiscal year 1996-97 of $15,756.8 million, 1991-92this will result in
estimated reserves of $582.6 million.
The Sales and Use Tax is the greatest single source of tax revenues in the
State. Receipts from this source are expected to total $11,990 million for
fiscal year 1996-97, compared to $11,363 million for fiscal year 1995-96,
$10,551 million for fiscal year 1994-95 and $9,928 million for fiscal year
1993-94. The second largest source of State-tax revenues is the Motor Fuel Tax.
The collections from this source are expected to total $2,274 million for fiscal
year 1996-97, compared to $2,212 million for fiscal year 1995-96, $2,023 million
for fiscal year 1994-95, and $1,614 million for fiscal year 1993-94.
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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 $987.1 million for fiscal year
1994-95 and $1,000.3 million for fiscal year 1995-96, but are expected to
decline to $997.5 million for fiscal year 1996-97. Receipts of corporate income
tax totalled $1,143 million for fiscal year 1995-96 and are expected to total
$1,102 million for fiscal year 1996-97. Documentary stamp taxes were $723$712
million for fiscal year 1994-95, $772 million for fiscal year 1995-96, and are
expected to total $857 million for fiscal year 1996-97. In November, 1986, the
voters of the State approved a constitutional amendment to allow the State to
operate a lottery. It is anticipated that fiscal year 1996-97 will produce
ticket sales of $2.16 billion , compared to $2.12 billion and $2.30 billion for
fiscal years 1995-96 and 1994-95, respectively.
The State Constitution does not permit a state of local or 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 5, 1996 general election, requiring voter approval of
constitutionally imposed taxes. Although the impact of such constitutional
amendment has not been determined, it may have the effect of limiting the
state's ability to raise revenue.
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
o 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. Normally, the settlement date occurs
within six months of the purchase of municipal bonds and notes. However, the
Fund may, from time to time, purchase municipal securities whose settlement
extends beyond six months and possibly as long as two years or more beyond trade
date. 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
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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.
o 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.
o 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
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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.
o 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.
o 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
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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.
o 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.
o 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).
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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.
o 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.
o 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
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<PAGE>
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.
o 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."
o 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.
-14-
<PAGE>
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, unless the
option is subject to a buy- back agreement by the executing broker. 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.
o 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 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
-15-
<PAGE>
an amount equal to the market value of the investments underlying such Future,
less the margin deposit applicable to it.
o 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.
o 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
-16-
<PAGE>
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.
o 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.
o 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
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<PAGE>
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"
-18-
<PAGE>
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 and occupations 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 (except Ms. Macaskill, who is not a director
of Oppenheimer Money Market Fund, Inc.) are also trustees or directors of
Oppenheimer Enterprise Fund, Oppenheimer Global Fund, Oppenheimer Money Market
Fund, Inc., Oppenheimer Growth Fund, Oppenheimer International Growth Fund,
Oppenheimer Discovery Fund, Oppenheimer Global Growth & Income Fund, Oppenheimer
Gold & Special Minerals Fund, Oppenheimer Municipal Bond Fund, Oppenheimer New
York Municipal Fund, Oppenheimer California Municipal Fund, Oppenheimer Capital
Appreciation Fund, Oppenheimer Multiple Strategies Fund, Oppenheimer U.S.
Government Trust, Oppenheimer Multi-Sector Income Trust, Oppenheimer World Bond
Fund, Oppenheimer Series Fund, Inc. and Oppenheimer Developing Markets Fund
(collectively the "New York-based Oppenheimer funds"). Ms. Macaskill and Messrs.
Spiro, Donohue, Bishop, Bowen, Farrar and Zack, who are officers of the Fund,
respectively hold the same offices with the other New York-based Oppenheimer
funds as with the Trust. As of October 27, 1997, the Trustees and officers of
the Trust as a group owned of record or beneficially less than 1% of each class
of 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 one of the Trustees and an officer listed below, Ms
Macaskill and one of the officers, Mr. Donohue, are trustees) other than the
shares beneficially owned under that plan by the officers of the Fund listed
above.
LEON LEVY, Chairman of the Board of Trustees, Age
72
31 West 52nd Street, New York, NY 10019 General Partner of Odyssey Partners,
L.P. (investment partnership)(since 1982) and Chairman of Avatar Holdings,
Inc. (real estate development).
-19-
<PAGE>
ROBERT G. GALLI, Trustee*, Age
64
Vice Chairman of OppenheimerFunds, Inc. (the "Manager") (since
October 1995); formerly he held
the following positions: Vice President and Counsel of
Oppenheimer Acquisition Corp. ("OAC"), the
Manager's parent holding company; Executive Vice President,
General Counsel and a director of the
Manager and OppenheimerFunds Distributor, Inc. (the
"Distributor"), Vice President and a director of
HarbourView Asset Management Corporation ("HarbourView") and
Centennial Asset Management
Corporation ("Centennial"), investment adviser
subsidiaries of the Manager, a director of Shareholder
Financial Services, Inc. ("SFSI") and Shareholder Services, Inc.
("SSI"), transfer agent subsidiaries of
the Manager and an officer of other Oppenheimer funds.
_____________________________________
* A Trustee
who is an "interested person" of the Fund as defined in the Investment
Company Act.
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<PAGE>
BENJAMIN LIPSTEIN, Trustee, Age 74
591 Breezy Hill Road, Hillsdale, N.Y. 12529
Professor Emeritus of Marketing, Stern Graduate School of Business
Administration, New York
University; a director of Sussex Publishers, Inc (Publishers of
Psychology Today and Mother Earth
News) and of Spy Magazine, L.P.
BRIDGET A. MACASKILL, President and Trustee*,
Age
49 President (since June 1991), Chief Executive Officer (since September
1995) and a Director (since December 1994) of the Manager and Chief Executive
Officer (since September 1995); President and director (since June 1991) of
HarbourView; Chairman and a director of SSI (since August 1994), and SFSI
(September 1995); President (since September 1995) and a director (since October
1990) of OAC; President (since September 1995) and a director (since November
1989) of Oppenheimer Partnership Holdings, Inc., a holding company subsidiary of
the Manager; a director of Oppenheimer Real Asset Management, Inc. (since July
1996); President and a director (since October 1997) of OppenheimerFunds
International Ltd., an Presidentoffshore fund manager subsidiary of the Manager
("OFIL") and Oppenheimer Millennium Funds plc (since October 1997); President
and a director of other Oppenheimer funds; a director of the NASDAQ Stock
Market, Inc.
and of Hillsdown Holdings plc (a
U.K. food company); formerly an Executive Vice President of the
Manager.
ELIZABETH B.
MOYNIHAN, Trustee, Age
68
801 Pennsylvania Avenue, N.W., Washington,
D.C. 20004 Author and architectural historian; a trustee of the Freer
Gallery of Art (Smithsonian Institution), the Institute of Fine Arts (New York
University), National Building Museum; a member of the Trustees Council,
Preservation League of New York State, and of the Indo-U.S. Sub-Commission on
Education and Culture.
KENNETH A. RANDALL, Trustee, Age 70
6 Whittaker's Mill, Williamsburg, Virginia 23185
A director of Dominion Resources, Inc. (electric utility holding company),
Dominion Energy, Inc. (electric power and oil & gas producer) , Texan
Cogeneration Company (cogeneration company), Prime
Retail, Inc. (
real estate investment trust); formerly President and Chief Executive Officer of
The Conference Board, Inc. (international economic and business research) and a
director of Lumbermens Mutual Casualty Company, American Motorists Insurance
Company and American Manufacturers Mutual Insurance Company.
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<PAGE>
EDWARD V. REGAN, Trustee, Age 67
40 Park Avenue, New York, New York 10016
Chairman of Municipal Assistance Corporation for the City of New
York; Senior Fellow of Jerome Levy
Economics Institute, Bard College; a member of the U.S.
Competitiveness Policy Council; a director
of GranCare, Inc.
(health care provider); a director of River Bank America (real estate
manager); Trustee, Financial Accounting Foundation (FASB and GASB); formerly
New York State Comptroller and trustee, New York State and Local Retirement
Fund.
Retirement_____________________________________
* A Trustee who is an "interested person" of the Fund
as defined in the Investment Company Act.
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<PAGE>
RUSSELL S. REYNOLDS, JR., Trustee, Age
65
8 Sound Shore Drive,
Greenwich, Connecticut 06830
Founder Chairman of Russell Reynolds Associates, Inc. (executive
recruiting); Chairman of Directorship
Inc. (corporate governance consulting); a director
of Professional Staff Limited (U.K); a trustee of
Mystic Seaport Museum, International House and Greenwich
Historical Society.
DONALD W.
SPIRO, Vice Chairman and Trustee*, Age 71 Chairman Emeritus (since August
1991) and a director (since January 1969) of the Manager; formerly
Chairman of the Manager and the Distributor.
PAULINE TRIGERE, Trustee, Age 85
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
66
1325 Merrie Ridge Road, McLean, Virginia 22101
Of Counsel, Hogan & Hartson (a law firm); a director of
B.A.T. Industries, Ltd. (tobacco and financial
services), Caterpillar, Inc. (machinery), ConAgra, Inc. (food
and agricultural products), Farmers
Insurance Company (insurance), FMC Corp. (chemicals and
machinery) and Texas Instruments, Inc.
(
Instruments,electronics); formerly (in descending
chronological order) IMC Global Inc. (
chemicals and animal feed),
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.
-23-
<PAGE>
ANDREW J. DONOHUE, Secretary, Age 47
Executive Vice President (since January 1993), General Counsel (since October
1991) and a Director (since September 1995) of the Manager; Executive Vice
President (since September 1993), and a director (since January 1992) of the
Distributor; Executive Vice President, General Counsel and a director of
HarbourView, SSI, SFSI and Oppenheimer Partnership Holdings, Inc.
Multisourcesince (September 1995) and MultiSource Services, Inc. (a
broker-dealer) (since December 1995); President and a director of Centennial
(since September 1995); President and a director of Oppenheimer Real Asset
Management, Inc. since July 1996); General Counsel (since May 1996) and
Secretary (since April 1997) of OAC; Vice President of OFIL and Oppenheimer
Millennium Funds
plc (since October 1997); an officer of other Oppenheimer funds.
ROBERT E. PATTERSON, Vice President and Portfolio
Manager, Age
54
Senior Vice President of the Manager (since February 1993); an officer of other
Oppenheimer funds.
_____________________________________
* A Trustee who is an "interested person" of the Fund as defined in the
Investment Company Act.
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<PAGE>
GEORGE C.
BOWEN, Treasurer, Age 61
6803 South Tucson Way, Englewood, Colorado 80112
Senior Vice President (since September 1987) and Treasurer (since March 1985) of
the Manager; Vice President (since June 1983) and Treasurer (since March 1985)
of the Distributor; Vice President (since October 1989) and Treasurer (since
April 1986) of HarbourView; Senior Vice President (since February 1992),
Treasurer (since July 1991) and a director (since December 1991) of Centennial;
President, Treasurer and a director of Centennial Capital Corporation (since
June 1989); Vice President and Treasurer (since August 1978) and Secretary
(since April 1981) of SSI; Vice President, Treasurer and Secretary of SFSI
(since November 1989); Treasurer of OAC (since June 1990); Treasurer of
Oppenheimer Partnership Holdings, Inc. (since November 1989);Vice President and
Treasurer of Oppenheimer Real Asset Management, Inc. (since July 1996); Chief
Executive Officer,
Treasurer and a director of MultiSource Services, Inc., a broker-dealer
(since December 1995); an officer of other
Oppenheimer funds.
ROBERT G. ZACK, Assistant Secretary, Age 49
Senior Vice President (since May 1985) and Associate General Counsel (since May
1981) of the Manager, Assistant Secretary of SSI (since May 1985), and SFSI
(since November 1989); Assistant Secretary of Oppenheimer Millennium Funds plc
(since October 1997); an officer of other Oppenheimer funds.
ROBERT J. BISHOP, Assistant Treasurer, Age 39
6803 South Tucson Way, Englewood, Colorado 80112
Vice President of the Manager/Mutual Fund Accounting (since May 1996); an
officer of other Oppenheimer funds; formerly an Assistant Vice President of the
Manager/Mutual Fund Accounting (April 1994-May 1996), and a Fund Controller for
the Manager.
SCOTT T. FARRAR, Assistant Treasurer, Age 32
6803 South Tucson Way, Englewood, Colorado 80112
Vice President of the Manager/Mutual Fund Accounting (since May 1996); Assistant
Treasurer of Oppenheimer Millennium Funds plc (since October 1997); an officer
of other Oppenheimer funds; formerly an Assistant Vice President of the
Manager/Mutual Fund Accounting (April 1994-May 1996), and a Fund Controller for
the Manager.
o Remuneration of Trustees. The officers of the Fund
and certain Trustees of the Fund (Ms.
Macaskill and Messrs.
Galli and Spiro) who are affiliated with the
Manager receive no salary or fee from
the Fund. The remaining Trustees of the Fund received the
compensation shown below. The
compensation from the Fund was paid during its fiscal year ended July 31, 1997.
The compensation from all of the New York-based Oppenheimer funds includes the
Fund and is names:compensation received as a director, trustee or member of a
committee of the Board of those funds during the calendar year 1996.
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<PAGE>
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 $0
$(2,119) $152,750.00
and Trustee
Benjamin Lipst in, $0
$(1,267) $ 91,350.00
Study Committee Chairman,
Audit Committe Member
and Trustee
Elizabeth B.
Moynihan, $0
$(1,267) $ 91,350.00
Study Committ
Member2 and Trustee
Kenneth A.
Rand$0l, $(1,158)
$ 83,450.00
Audit Committee
Chairman
and Trustee
Edward V. Reg $0
$(1,084) $ 78,150.00
Proxy Committee
Chairman,
Audit Committee
Member2 and Trustee
Russell S. ReynolJr., $0
$( 816) $ 58,800.00
Proxy Committee
Member
and Trustee
Pauline Trigere, $0
$( 767) $ 55,300.00
Trustee
Clayton K. Yeutter $0
$( 816) $ 58,800.00
Proxy Committe Member
and Trustee(2)
- --------------------------
(1) For the 1996 calendar year.
(2) Committee position held during a portion of the period shown.
The Fund has adopted a retirement plan that provides for payment to a
retired Trustee of up to 80% of the average compensation paid during that
Trustee's five years of service in which the highest compensation was received.
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<PAGE>
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<PAGE>
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
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<PAGE>
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 July 31, 1997, a reduction of $9,294 was accrued for the
Fund's projected retirement benefit obligations.
o Deferred Compensation Plan. The Board of moreTrustees has adopted a
Deferred Compensation Plan for disinterested trustees that enables them to elect
to defer receipt of all or a portion of the annual fees they are entitled to
receive from the Fund. Under the plan,
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<PAGE>
the compensation deferred by a Trustee
is periodically adjusted as though an equivalent amount had been
invested in shares of
one or more
Oppenheimer funds selected by the Trustee.
The amount paid to the Trustee under the plan will be determined based upon the
performanc the selected funds. Deferral of Trustees' fees under the plan will
not materially affect the Fund's assets, liabilities and net income per share.
The plan will not
obligate the Fund to retain the services of any Trustee or to pay
any particular level of compensation to
any Trustee.
Pursuant to an Order issued by the Securities and Exchange
Commission,
the Fund may
invest in the funds selected by the Trustee under the plan without shareholder
approval for the limited purpose of determining the value of the Trustee's
deferred fee account.
o Major Shareholders. As of October 27, 1997, 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 as follows:
Percentage of
Outstanding
Shares
Name & Address Number of Shares of the Class
Class B
Merrill Lynch Pierce Fenner 128,290.589 9.27%
& Smith
For the Sole Benefit of its
Customers
Attn.: Fund Administration
4800 Deer Lake Dr. E Fl. 3
Jacksonville, FL 32246-6484
Class C
Merrill Lynch Pierce Fenner 128,290.589 28.86%
&
Smith
For the Sole Benefit of its
Customers
Attn.: Fund Administration
4800 Deer Lake Dr. E Fl. 3
Jacksonville, FL 32246-6484
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<PAGE>
Thomas R.
Worthy & 18,032.851 18.17%
Peggy D.
Worthy TTEES Thomas R. Trust 1740 SW Monarch Club Drive Palm City, FL 34990
Donaldson Lufkin Jenre11,714.024
11.80%
Securities Corporation Inc.
P.O. Box 2052
Jersey City, NJ 07303
NFSC FEBO 9,033.424 9.10%
Maurice Hattem & Kim Hattem
16197 Villa Vizcaya Plaza
Delray Beach, FL 33446
PaineWebber For the Benefit of 8,756.567 8.82%
Betty A. Winkel TTEE
Betty A. Winkel Rev. Trust
4501 N. Ocean Blvd. #3
Boca Raton, FL 33431
Peggy D. Worthy & 8,165.274 8.22%
Thomas R. Worthy TTEES
Peggy D. Worthy Trust
1740 SW Monarch Club Drive
Palm City, FL 34990
The Manager and Its Affiliates. The Manager is wholly owned by
Oppenheimer Acquisition Corp.
("OAC"), a holding company controlled by Massachusetts Mutual Life
Insurance Company. OAC is
also owned in part by certain of the Manager's directors and
officers, some of whom may also serve as
officers of the Fund, and three of whom (Ms. Macaskill and Messrs.
Galli and Spiro) serve as Trustees of the Fund.
The Manager and the Fund have a Code of Ethics. It is designed to detect
and prevent improper personal trading by certain employees, including portfolio
managers, that would compete with or take advantage of the Fund's portfolio
transactions. Compliance with the Code of Ethics is carefully monitored and
strictly enforced by the Manager.
o The Investment Advisory Agreement. The Investment Advisory Agreement
between the Manager and the Fund requires the Manager, at its expense, to
provide the Fund with adequate office space, facilities and equipment, and to
provide and supervise the activities of all administrative and clerical
personnel required to provide effective corporate administration for the Fund,
including the compilation and maintenance of records with respect to its
operations, the preparation and filing of
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<PAGE>
specified reports, and one composition of proxy materials and
registration statements for continuous
public sale of shares of the Fund.
Expenses not expressly assumed by the Manager under the advisory agreement
or by the Distributor under the General Distributor's Agreement are paid by the
Fund. The 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, 1995, July 31, 1996 and July 31, 1997, the management
fees paid by the Fund to the Manager were $151,497, $109,426 and $230,723,
respectively. These amounts do not reflect the expense assumption of $209,449,
$20,298 and $51,729 by the Manager for such periods.
The Investment Advisory Agreement contains no expense limitation. However,
because of state regulations limiting fund expenses that previously applied, the
Manager had voluntarily undertaken that the Fund's total expenses in any fiscal
year (including the investment advisory managementfee but exclusive of taxes,
interest, brokerage commissions, distribution plan assistancepayments and any
extraordinary non-recurring expenses, including litigation) would not exceed the
most stringent state regulatory limitation applicable to the Fund. Due to
changes in federal securities laws, such state regulations no longer apply and
the Manager's undertakingundertaking is therefore inapplicable and has been
withdrawn. During the Fund's last fiscal year, the Fund's expenses did not
exceed the most stringent state regulatory limit and the voluntary undertaking
was not invoked.
The 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.
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<PAGE>
The advisory agreement permits the Manager to act as investment adviser
for any other person, firm or corporation and to use the name "Oppenheimer" in
connection with other investment companies for which it may act as investment
adviser or general distributor. If the Manager shall no longer act as investment
adviser to the Fund, the right of the Fund to use the name "Oppenheimer" as part
of its name may be withdrawn.
o The Distributor. Under its General Distributor's
Agreement with the Fund, the Distributor
acts as the Fund's principal underwriter in the continuous public offering of
the Fund's Class A, Class B and Class C shares, but is not obligated to sell a
specific number of shares. Expenses normally attributable to sales, excluding
payments under the Distribution and Service Plan, but including advertising and
the cost of printing and mailing prospectuses (other than those furnished to
existing shareholders) are borne by the Distributor. During the Fund's fiscal
years ended December 31, 1995 , July 31, 1996 and July 31, 1997, the aggregate
sales charges on sales of the Fund's Class A shares was $131,060, $61,836 and
$177,923, respectively, of which the Distributor and an affiliated broker-dealer
retained in the aggregate $21,670, $21,269 and $25,575. During the same periods,
the contingent deferred sales charges on the redemption of the Fund's Class B
shares totaled $42,273, $26,038 and $57,947, all of which the Distributor
retained. During the Fund's fiscal period August 29, 1995 through December 31,
1995, the fiscal period ended July 31, 1996 and the fiscal year ended July 31,
1997, no contingent deferred sales charges were collected on Class C shares. For
additional information about
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<PAGE>
distribution of the Fund's shares and the expenses connected with such
activities, please refer to "Distribution and Service Plans," below.
o The Transfer Agent. The Fund's Transfer Agent,
OppenheimerFunds Services, a division
of the Manager, is responsible for maintaining the Fund's
shareholder registry and shareholder
accounting records, and for shareholder servicing and
administrative functions.
Brokerage Policies of the Fund
Brokerage Provisions of the Investment Advisory Agreement. One of the duties of
the Manager under the Investment Advisory Agreement is to arrange the portfolio
transactions for the Fund. The Investment Advisory Agreement contains provisions
relating to the employment of broker-dealers ("brokers") to effect the Fund's
portfolio transactions. In doing so, the Manager is authorized by the Investment
Advisory Agreement to employ such broker-dealers, including "affiliated"
brokers, as that term is defined in the Investment Company Act, as may, in its
best judgment based on all relevant factors, implement the policy of the Fund to
obtain, at reasonable expense, the "best execution" (prompt and reliable
execution at the most favorable price obtainable) of such transactions. The
Manager need not seek competitive commission bidding, but it is expected to
minimize the commissions paid to the extent consistent with the interest and
policies of the Fund as established by its Board of Trustees.
Under the advisory agreement, the Manager is authorized to select brokers
that provide brokerage and/or research services for the Fund and/or the other
accounts over which the Manager or its affiliates have investment discretion.
The commissions paid to such brokers may be higher than another qualified broker
would have charged if a good faith determination is made by the Manager that the
commission is fair and reasonable in relation to the services provided. Subject
to the foregoing considerations, the Manager may also consider sales of shares
of the Fund and other investment companies managed by the Manager or its
affiliates as a factor in the selection of brokers for the Fund's portfolio
transactions.
Description of Brokerage Practices Followed by the Manager. Subject to the
provisions of the advisory agreement and the procedures and rules described
above, allocations of brokerage are generally made by the Manager's portfolio
traders upon recommendations from the Manager's portfolio managers. In certain
instances, portfolio managers may directly place trades and allocate brokerage,
also subject to the provisions of the Investment Advisory Agreement and the
procedures and rules described above. In either case, brokerage is allocated
under the supervision of the Manager's executive officers. As most purchases
made by the Fund are principal transactions at net prices, the Fund does not
incur substantial 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 a 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 prices. 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.
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<PAGE>
The research services provided by a particular broker may be useful only
to one or more of the advisory accounts of the Manager and its affiliates, and
investment research received for the commissions of those other accounts may be
useful both to the Fund and one or more of such other accounts. Such research,
which may be supplied by a third party at the instance of a broker, includes
information and analyses on particular companies and industries as well as
market or economic trends and portfolio strategy, receipt of market quotations
for portfolio evaluations, information systems, computer hardware and similar
products and services. If a research service also assists the Manager in a
non-research capacity (such as bookkeeping or other administrative functions),
then only the percentage or component that provides assistance to the Manager in
the investment decision-making process may be paid in commission dollars. The
Board of Trustees has permitted the Manager to use concessions on fixed-price
offerings to obtain research, in the same manner as is permitted for agency
transactions. The Board has also permitted the Manager to use stated commissions
on secondary fixed-income agency trades to obtain research where the broker has
represented to 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 broadens the scope and
supplement the research activities of the Manager, by making available
additional views for consideration and comparisons, and by enabling the Manager
to obtain market information for the valuation of securities held in the Fund's
portfolio or being considered for purchase. The Manager provides information as
to the commissions paid to brokers furnishing such services, together with the
Manager's representation that the amount of such commissions was reasonably
related to the value or benefit of such services.
Other funds advised by the Manager have investment objectives and policies
similar to those of the Fund. Such other funds may purchase or sell the same
securities at the same time as the Fund, which could affect the supply and price
of such securities. If two or more of such funds purchase the same security on
the same day from the same dealer, the Manager may average the price of the
transactions and allocate the average among such funds.
Performance of the Fund
Yield and Total Return Information. As described in the Prospectus, from time to
time the "standardized yield," "tax-equivalent yield," "dividend yield,"
"average annual total return", "cumulative total return," and "average annual
total return at net asset value" and "total return at net asset value" of an
investment in a class of Fund shares may be advertised. An explanation of how
yields and total returns are calculated for each class and the components of
those calculations is set forth below.
The Fund's advertisements of its performance data must, under applicable
rules of the Securities and Exchange Commission, include the average annual
total returns for each advertised class of shares of the Fund for the 1, 5 and
10-year periods (or the life of the class, if less) ending as of the most
recently- ended calendar quarter prior to the publication of the advertisement.
This enables an investor to compare the Fund's performance to the performance of
other funds for the same periods. However, a number of factors should be
considered before using such information as a basis for comparison with other
investments. An investment in the Fund is not insured; its yield and total
returns are not guaranteed and normally will fluctuate on a daily basis. When
redeemed, an investor's shares may be worth more or less than their original
cost. Yield and total returns for any given past period are not a prediction or
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<PAGE>
representation by the Fund of future yields or rates of return. The yield and
total returns of the each class of shares of the Fund are affected by portfolio
quality, portfolio maturity, the type of investments the Fund holds and its
operating expenses allocated to the particular class.
o Yields.
o Standardized Yields. The "standardized yield" (referred to as "yield")
is shown for a class of shares for a stated 30-day period. It is calculated
using the following formula set forth in rules adopted by the Securities and
Exchange Commission todesigned to assure uniformity in the way that all funds
calculate their yields:
Standardized ~ Yield ~ = ~ 2~ [~ (~ {a-b} over cd ~ +~ 1~ ) SUP 6~ -~ 1~ ]
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 for a 30-day period may differ from the yield for
other periods.
The SEC
formula assumes that the standardized yield for a 30-day period occurs at a
constant rate for a six-month period and is annualized at the end of the
six-month period. Additionally, because each class of shares is subject to
different expenses, it is likely that the standardized yields of the Fund's
classes of shares will differ for any 30-day period. For the 30-day period ended
July 31, 1997, the standardized yield for the Fund's classes of shares were as
follows:
Without Deducting Sales Charge With Sales Charge
Deducted
Class A: 4.48% 4.70%
Class B: 3.91% N/A
Class C: 3.80% N/A
o 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
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<PAGE>
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 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 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 July 31, 1997, for a taxpayer in the 39.6%
tax bracket were 7.42%, 6.24%6.47%, and 6.29% respectively.
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<PAGE>
o Dividend Yield. The Fund may
quote a "dividend yield" for each class of its shares.
Dividend yield is based on the dividends paid on shares of a class during the
actual dividend period. To calculate dividend yield, the dividends of a class
declared during a stated period are added together and the sum is multiplied by
12 (to annualize the yield) and divided by the maximum offering price on the
last day of the dividend period. The formula is shown below:
Dividend Yield = dividends paid x 12/maximum offering price (payment
date)
The maximum offering price for Class A shares includes the maximum initial
sales charge. The maximum offering price for Class B and Class C shares is the
net asset value per share , without considering the effect of contingent
deferred sales charges. "The Class A dividend yield
may also be quoted without deducting the maximum initial sales charge.
The dividend yields for the 30-day period ended July 31, 1997 were as
follows:
Without Deducting Sales Charge With Sales Charge
Deducted
Class A: 5.09% 5.35%
Class B: 4.60% N/A
Class C: 4.59% N/A
o Total Returns Information
o 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:
LEFT ( {~ERV~} OVER P~ right) SUP
{1/n}~-1~=~Average~Annual~Total~ Return
o 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
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<PAGE>
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:
ALIGNC {ERV~-~ P~} over P~ =~Total~ Return
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, payment of contingent deferred sales
charge of (5.0% for the first year, 4.0% for the second year, 3.0% for the third
and fourth years, 2.0% in the fifth year, 1.0% in the sixth year and none
thereafter is applied, as described in the Prospectus. For Class C shares, the
payment of the 1.0% contingent deferred sales charge for the first 12 months is
applied as described in the Prospectus. Total returns also assume that all
dividends and capital gains distributions during the period are reinvested to
buy additional shares at net asset value per share, and that the investment is
redeemed at the end of the period.
For the one year period ended July 31, 1997 and for the period from
October 7, 1993 (commencement of offering) through July 31, 1997, the average
annual total returns on an investment in Class A shares of the Fund were 4.19%
and 4.51%, respectively, and in Class B shares of the Fund over those periods
were 3.56% and 4.40%, respectively.
The cumulative total returns for Class A and
Class B shares for the latter period were 18.41% and 8.50%17.95%, respectively.
The average annual total returns on an investment in Class C shares for the one
year period ended July 31, 1997 and for the period August 29, 1995 through July
31, 1997 were 7.41% and 7.31%, respectively.
For the period from August 29, 1995 through July 31, 1997, the
cumulative total return on an investment in Class C shares of the Fund was
14.52%.
o 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 return at the net asset value of the Fund's Class A shares
for the period from October 7, 1993 (commencement of offeringoperations) through
July 31, 1997, and for the one-year period ended July 31, 1997 were 5.84% and
9.39%, respectively. The average annual total return at net asset value on the
Fund's Class B shares for the fiscal period from October 1, 1993 (commencement
of offering) through July 31, 1997, and for the one-year period ended July 31,
1997, were 5.09% and 8.56%, respectively. The average annual total returns at
net asset value for the Fund's Class C shares for the period from August 29,
19931995 (commencement of offering) through July 31, 19951997, and the one year
period ended July 31, 1997 was 7.31% and 8.41%, 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 July 31, 1997 was
14.52%. Total return information may be useful to investors in reviewing the
(commencementperformance of the Fund's Class A, Class B or Class C shares.
However, when comparing total return of an investment in Class A, Class B or
Class C shares of the Fund, a number of factors should be considered before
using such information as a basis for comparison before using such information
with other investments.
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<PAGE>
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
publish the star ranking of the performance of its Class A, Class B or
Class C shares by Morningstar, Inc., an independent mutual fund monitoring
service. Morningstar ranks mutual funds in broad investment categories: domestic
stock funds, international stock funds, taxable bond funds and municipal bond
funds, based on risk-adjusted total investment return. The Fund is ranked among
the municipal bond funds. Investment return measures a fund's or class's one,
three, five and ten-year average annual total returns (depending on the
inception of the fund or class) in excess of 90-day U.S. Treasury bill returns
after considering the fund's sales charges and expenses. Risk measures a fund's
or class's performance below 90-day U.S. Treasury bill returns. Risk and
investment return are combined to produce star rankings reflecting performance
relative to the average fund in a fund's category. Five stars is the "highest"
ranking (top 10%), four stars is "above average" (next 22.5%), three stars is
"average" (next 35%), two stars is "below average" (next 22.5%) and one star is
"lowest" (bottom 10%). The current star ranking is the fund's or class's 3-year
ranking or its combined 3- and 5-year ranking (weighted 60%/40% respectively, or
its combined 3-.
5- and 10-year ranking
(weighted 40%, 30% and 30%, respectively), depending on the inception of the
fund or class. Rankings are subject to change monthly.
The Fund may also compare its performance to that of other funds in its
Morningstar Category. In addition to its star rankings, Morningstar also
categorizes and compares a fund's 3-year performance based on Morningstar's
classification of the fund's investments and investment style, rather than how a
fund defines its investment objective. Morningstar's four broad categories
(domestic equity, international equity, municipal bond and taxable bond) are
each further subdivided into categories based on types of investments and
investment styles. Those comparisons by Morningstar are based on the same risk
and return measurements as its star rankings but do not consider the effect of
sales charges.
From time to time the Fund may include in its advertisements and sales
literature performance information about the fund cited in newspapers and other
periodicals such as The New York Times, which may include performance quotations
from other sources, including Lipper and Morningstar. The performance of the
Fund's Class A, Class B or Class C shares may be compared in publications to (i)
the perfornmance of various market indices or to other investments for which
reliable performance data is available, and (ii) to averages, performance
rankings or other benchmarks prepared by recognized mutual fund statistical
services.
Total return information may be useful to investors in reviewing the
performance of the Fund's Class A, Class B or Class C shares. However, when
comparing total return of an investment in Class A, Class B or Class C shares of
the Fund, a number of factors should be considered before using such information
as a basis for comparison before using such information with other investments.
For example, 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
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<PAGE>
deposits, and various other instruments such as Treasury bills. However, the
Fund's returns and share price are not guaranteed or insured by the FDIC or any
other agency and will fluctuate daily, while bank depository obligations may be
insured by the FDIC and may provide fixed rates of return, and Treasury bills
are guaranteed as to principal and interest by the U.S. government.
From time to time, the Fund's Manager may publish rankings or ratings of
the Manager (or Transfer Agent), or 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 by a third party 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, based on its 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 makes 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 its 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. Each 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 by a Securities and
Exchange Commission rule 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 thatthe 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 Board and 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 for
its review, detailing the amount of all payments
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made pursuant to each Plan, the identity of each Recipient that received any
such payment and the purpose of the payment. The report for the Class B and
Class C Plans shall also include the Distributor's distribution costs for that
quarter, and such costs for previous fiscal periods that have been carried
forward, 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
as to 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 fees at the maximum rate allowed
under the Plans and set no minimum amount.
For the fiscal year ended July 31, 1997, payments under the Class A Plan
totaled $55,824, respectively, all of which was retained by the Distributor and
$0 was paid to an affiliate of the Distributor. Any unreimbursed expenses by the
Distributor incurred with respect to Class A shares for any fiscal year 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.
At July 31, 1997, the Distributor had incurred unreimbursed expenses of $435,590
(equal to 2.84% of the Fund's net assets
for Class B shares on that date). At July 31, 1997, the Distributor had
incurred unreimbursed expenses under the Plan of $8,990 (equal to 0.94% of the
Fund's net assets for Class C shares on that date).
The Class B Plan and the Class C Plan allow the service fee payment to be
paid by the Distributor to Recipients in advance for the first year such shares
are outstanding, and thereafter on a quarterly basis, as described in the
Prospectus. The advance payment is based on the net asset value of shares sold.
An exchange of shares does not entitle the Recipient to an advance service fee
payment. In the event Class B and Class C shares are redeemed during the first
year that such 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 rate 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 July 31, 1997, payments under the Class B
plan totaled $136,590, of which $107,699 was retained by the Distributor. For
the fiscal year ended July 31, 1997, payments under the Class C Plan totaled
$455$3,789, of which $2,130 was retained by the Distributor.
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 on such shares, or
to pay Recipients the service fee on a quarterly basis, without payment in
advance, the Distributor presently intends to pay the service fee to Recipients
in the manner described above. A minimum holding period may be established from
time to time under the Class B Plan and the Class C Plan by the Board.
Initially, the Board has set no minimum holding
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period. All payments under the Class B Plan are subject to the
limitations imposed by the
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<PAGE>
Conduct Rules
of the National Association of Securities Dealers, Inc. on
payments of asset based sales charges and
service fees.
The Class B and the Class C Plans provide for the Distributor to be
compensated at a flat rate, whether the Distributor's distribution expenses are
more or less than the amounts paid by the Fund during that period. The
Distributor retains the asset-based sales charge on Class B shares. As to Class
C shares, the Distributor retains the asset-based sales charge during the first
year shares are outstanding, and pays the asset-based sales charge as an ongoing
commission to the dealer on Class C shares outstanding for a year or more. Such
payments are made to the Distributor under the Plans in recognition that the
Distributor (i) pays sales commissions to authorized brokers and dealers at the
time of sale and pays service fees, as described in the Prospectus, (ii) may
finance such commissions and/or the advance of the service fee payment to
Recipients under those Plans, or may provide such financing from its own
resources, or from an affiliate, (iii) employs personnel to support distribution
of shares, and (iv) may bear the costs of sales literature, advertising and
prospectuses (other than those furnished to current shareholders) and state
"blue sky" registration fees and certain other distribution expenses.
ABOUT YOUR ACCOUNT
How To Buy Shares
Alternative Sales Arrangements - Class A, Class B and Class C Shares. The
availability of three classes of shares permits an investor to choose the method
of purchasing shares that is more beneficial to the investor depending on the
amount of the purchase, the
length of time the investor expects to hold
shares and other relevant circumstances. Investors should understand that the
purpose and function of the deferred sales charge and asset-based sales charge
with respect to Class B and Class C shares are the same as those of the initial
sales charge with respect to Class A shares. Any salesperson or other person
entitled to receive compensation for selling Fund shares may receive different
compensation with respect to one class of shares than the other. The Distributor
will not accept any order for $500,000 or more of Class B shares or $1 million
or more of Class C shares on behalf of a single investor (not including dealer
"street name" or omnibus accounts) because generally it will be more
advantageous for that investor to purchase Class A shares of the Fund instead.
The three classes of shares each represent an interest in the same
portfolio investments of the Fund. However, each class has different shareholder
privileges and features. The net income attributable to Class B and Class C
shares and the dividends payable on such 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.
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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 unaffiliated Trustees, (v) custodian expenses, (vi)
share issuance costs, (vii) organization and start-up costs, (viii) interest,
taxes and brokerage commissions, and (ix) non-recurring expenses, such as
litigation costs. Other expenses that are directly attributable to a class are
allocated equally to each outstanding share within that class. Such expenses
include (a) Distribution and/or Service Plan fees, (b) incremental transfer and
shareholder servicing agent fees and expenses, (c) registration fees and (d)
shareholder meeting expenses, to the extent that such expenses pertain to a
specific class rather than to the Fund as a whole.
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
that class by the 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 announcement (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 may be significantly
affected on such days 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 based on the mean
between the "bid" and "asked" prices determined by a portfolio pricing service
approved by the Fund's Board of Trustees or obtained by the Manager from two
active market makers in the security on the basis of reasonable inquiry; (ii)
debt instruments having a maturity of more than 397 days when issued, and
non-money market type instruments having a maturity of 397 days or less when
issued, which have a remaining maturity of 60 days or less are valued at the
mean between the "bid" and "asked" prices determined by a pricing service
approved by the Fund's Board of Trustees or obtained by the Manager from two
active market makers in the security on the basis of reasonable inquiry; (iii)
money market-type debt securities held by a non-money market fund that had a
maturity of less than 397 days when issued that have a remaining maturity of 60
days or less, and debt instruments held by a money market fund that have a
remaining maturity of 397 days or less, shall be valued at cost, adjusted for
amortization of premiums and accretion of discounts; and (iv) securities
(including restricted securities) not having readily-available market quotations
are valued at fair value determined under the Board's procedures. If the Manager
is unable to locate two market makers willing to give quotes (see (i) and (ii)
above), the security may be priced at the mean between the "bid" and "asked"
prices provided by a single active market maker (which in certain cases may be
the "bid" price if no "ask" price is available).
In the case of Municipal Securities, U.S. Government securities and
corporate bonds, when last sale information is not generally available, such
pricing procedures may include "matrix" comparisons
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to the prices for comparable instruments on the basis of quality, yield,
maturity and other special factors involved (such as the tax-exempt status of
the interest paid by Municipal Securities). The Manager may use pricing services
approved by the Board of Trustees to price any of the types of securities
described above. The Manager will monitor the accuracy of such pricing services,
which may include comparing prices used for portfolio evaluation to actual sales
prices of selected securities.
Puts, calls, Interest Rate Futures and Municipal Bond Index Futures are
valued at the last sales price on the principal exchange on which they are
traded or on NASDAQ, as applicable, as determined by a pricing service approved
by the Board of Trustees or by the Manager. If there were no sales that day,
value shall be the last sale price on the preceding trading day if it is within
the spread of the closing "bid" and "asked" prices on the principal exchange or
on NASDAQ on the valuation date, or, if not, the value shall be the closing
price on the principal exchange or on NASDAQ on the valuation date. If the put,
call or future is not traded on an exchange or on NASDAQ, it shall be valued at
the mean between "bid" and "asked" prices obtained by the Manager from two
active market makers (which in certain cases may be the "bid" price if no
"asked" price is available.
When the Fund writes an option, an amount equal to the premium received is
included in the Fund's Statement of Assets and Liabilities as an asset, and an
equivalent credit is included in the liability section. The credit is adjusted
("marked-to-market") to reflect the current market value of the call or put.
In determining the Fund's gain on investments, if a call or put written by the
Fund is exercised, the proceeds are increased by the premium received. If a call
or put written by the Fund expires, the Fund has a gain in the amount of the
premium; if the Fund enters into a closing purchase transaction, it will have a
gain or loss, depending on whether the premium received was more or less than
the cost of the closing transaction. If the Fund exercises a put it holds, the
amount the Fund receives on its sale of the underlying investment is reduced by
the amount of the premium paid by the Fund.
AccountLink. When shares are purchased through AccountLink, each purchase must
be at least $25. Shares will be purchased on the regular business day the
Distributor is instructed to initiate the Automated Clearing House transfer to
buy the shares. Dividends will begin to accrue on shares purchased by the
proceeds of ACH transfers on the business day the Fund receives Federal Funds
for the purchase through the ACH system before the close of The New York Stock
Exchange. The Exchange normally closes at 4:00 P.M., but may close earlier on
certain days. If Federal Funds are received on a business day after the close of
the Exchange, the shares will be purchased and dividends will begin to accrue on
the next regular business day. The proceeds of ACH transfers are normally
received by the Fund 3 days after the transfers are initiated.
The Distributor and the Fund are not
responsible for any delays in purchasing shares resulting from
delays in ACH transmissions.
Reduced Sales Charges. As discussed in the Prospectus, a reduced sales charge
rate may be obtained for Class A shares under Right of Accumulation and Letters
of Intent because of the economies of sales efforts and reduction in expenses
realized by the Distributor, dealers and brokers making such sales. No sales
charge is imposed in certain other circumstances described in the Prospectus
because the Distributor or dealer or broker 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, aunts,
uncles, nieces and nephews.
Relations by virtue of a remarriage (step-children, step-parents,
etc.) are included.
o 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:
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Oppenheimer Municipal Bond Fund
Oppenheimer New York Municipal Fund
Oppenheimer California Municipal Fund
Oppenheimer Intermediate Municipal Fund
Oppenheimer Insured Municipal Fund
Oppenheimer Main Street California Municipal Fund Oppenheimer Florida Municipal
Fund Oppenheimer Pennsylvania Municipal Fund Oppenheimer Discovery Fund
Oppenheimer Capital Appreciation Fund Oppenheimer Growth Fund Oppenheimer Equity
Income Fund Oppenheimer Multiple Strategies Fund Oppenheimer Total Return Fund,
Inc. Oppenheimer Main Street Income & Growth Fund Oppenheimer New Jersey
Municipal 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 Growth & Income Fund
Oppenheimer Gold & Special Minerals Fund Oppenheimer Strategic Income Fund
Oppenheimer International Bond Fund Oppenheimer Enterprise Fund Oppenheimer
International Growth Fund Oppenheimer Real Asset Fund Oppenheimer Developing
Markets 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 Quest Capital 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
Limited-Term New York Municipal
Fund*Fund
Rochester Fund Municipals*
and the following "Money Market Funds":
Oppenheimer Money Market Fund, Inc.
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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
these funds
There is an initial sales charge on the purchase of Class A shares of each
of the Oppenheimer funds except Money Market Funds (under certain circumstances
described herein, redemption proceeds of Money Market Fund shares may be subject
to a contingent deferred sales charge).
o Letters of Intent. A Letter of Intent (referred to as a "Letter") is an
investor's statement in writing to the Distributor of the intention to purchase
Class A shares or Class A and Class B shares of the Fund and (other Oppenheimer
funds) during a 13-month period (the "Letter of Intent period"), which may, at
the investor's request, include purchases made up to 90 days prior to the date
of the Letter. The Letter states the investor's intention to make the aggregate
amount of purchases of shares which, when added to the investor's holdings of
shares of those funds, will equal or exceed the amount specified in the Letter.
Purchases made by reinvestment of dividends or distributions of capital gains
and purchases made at net asset value without sales charge do not count toward
satisfying the amount of the Letter. A Letter enables an investor to count the
Class A and Class B shares purchased under the Letter to obtain the reduced
sales charge rate on purchases of Class A shares of the Fund (and other
Oppenheimer funds) that applies under the Right of Accumulation to current
purchases of Class A shares. Each purchase of Class A shares under the Letter
will be made at the public offering price (including sales charge) that applies
to a single lump-sum purchase of shares in the amount intended to be purchased
under the Letter.
In submitting a Letter, the investor makes no commitment to purchase
shares, 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
total purchases. If total eligible purchases during the Letter of Intent period
exceed the intended purchase amount and exceed the amount needed to qualify for
the next sales charge rate reduction set forth in the 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
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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.
o Terms of Escrow That Apply to Letters of Intent.
1. Out of the initial purchase (or subsequent purchases if necessary) made
pursuant to a Letter, shares of the Fund equal in value up to 5% of the intended
purchase amount specified in the Letter shall be held in escrow by the Transfer
Agent. For example, if the intended purchase amount is $50,000, the escrow shall
be shares valued in the amount of $2,500 (computed at the public offering price
adjusted for a $50,000 purchase). Any dividends and capital gains distributions
on the escrowed shares will be credited to the investor's account.
2. If the total minimum investment specified under the Letter is completed
within the thirteen- month Letter of Intent period, the escrowed shares will be
promptly released to the investor.
3. If, at the end of the thirteen-month Letter of Intent period the total
purchases pursuant to the Letter are less than the intended purchase amount
specified in the Letter, the investor must remit to the Distributor an amount
equal to the difference between the dollar amount of sales charges actually paid
and the amount of sales charges which would have been paid if the total amount
purchased had been made at a single time. 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 of other Oppenheimer funds acquired subject to
a contingent deferred sales charge, and (c) Class A or Class B shares acquired
in exchange for either (i) Class A shares sold with a front-end sales charge or
Class B shares of one of the other Oppenheimer funds that were acquired subject
to a contingent deferred sales charge or (ii) Class B shares of one of the other
Oppenheimer funds that were acquired subject to a contingent deferred sales
charge.
6. Shares held in escrow hereunder will automatically be exchanged for
shares of another fund to which an exchange is requested, as described in the
section of the Prospectus entitled "How to Exchange Shares," and the escrow will
be transferred to that other
fund.
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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 Oppenheimer funds.
If you make payments from your bank account to purchase shares of the
Fund, your bank account will be automatically debited normally four to five
business days prior to the investment dates selected in the Account Application.
Neither the Distributor, the Transfer Agent nor the Fund shall be responsible
for any delays in purchasing shares resulting from delays in ACH transmission.
There is a front-end sales charge on the purchase of certain Oppenheimer
funds, or a contingent deferred sales charge may apply to shares purchased by
Asset Builder payments. An application should be obtained from the Distributor,
completed and returned, and a prospectus of the selected fund(s) should be
obtained from the Distributor or your financial advisor 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.
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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.
By choosing the Checkwriting privilege, whether you do so by signing the
Account Application or by completing a Checkwriting card, the individuals
signing (1) represent that they are either the registered owner(s) of the shares
of the Fund, or are an officer, general partner, trustee or other fiduciary or
agent, as applicable, duly authorized to act on behalf of such registered
owner(s); (2) authorize the Fund, its Transfer Agent and any bank through which
the Fund's drafts ("checks") are payable (the "Bank"), to pay all checks drawn
on the Fund account of such person(s) and to effect a redemption of sufficient
shares in that account to cover payment of such checks; (3) specifically
acknowledge(s) that if you choose to permit a single signature on checks drawn
against joint accounts, or accounts for
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corporations, partnerships, trusts or other entities, the signature of any one
signatory on a check will be sufficient to authorize payment of that check and
redemption from an account even if that account is registered in the names of
more than one person or even if more than one authorized signature appears on
the Checkwriting card or the Application, as applicable; and (4) understand(s)
that the Checkwriting privilege may be terminated or amended at any time by the
Fund and/or the Bank and neither shall incur any liability for such amendment or
termination or for effecting redemptions to pay checks reasonably believed to be
genuine, or for returning or not paying checks which have not been accepted for
any reason.
o 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 those
shares is less than $200 or such lesser amount as the Board may fix. The Board
of Trustees will not cause the involuntary redemption of shares in an account if
the aggregate net asset value of the shares has fallen below the stated minimum
solely as a result of market fluctuations. Should the Board elect to exercise
this right, it may also fix, in accordance with the Investment Company Act, the
requirements for any notice to be given to the shareholders in question (not
less than 30 days), or the Board may set requirements for granting permission to
the shareholder to increase the investment, and set other terms and conditions
so that the shares would not be involuntarily redeemed.
o 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 its portfolio securities described above under
"Determination of Net Asset Values Per Share" and that valuation will be made as
of the time the redemption price is determined.
Reinvestment Privilege. Within six months of a redemption, a shareholder may
reinvest all or part of the redemption proceeds of (i) Class A shares that you
purchase subject to an initial sales charge or Class A contingent deferred sales
charge which was paid, 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 in
"How to Exchange Shares" 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
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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 any class at the time of transfer to the name of
another person or entity (whether the transfer occurs by absolute assignment,
gift or bequest, not involving, directly or indirectly, a public sale). The
transferred shares will remain subject to the contingent deferred sales charge,
calculated as if the transferee shareholder had acquired the transferred shares
in the same manner and at the same time as the transferring shareholder. If less
than all shares held in an account are transferred, and some but not all shares
in the account would be subject to a contingent deferred sales charge if
redeemed at the time of transfer, the priorities described in the Prospectus
under "How to Buy Shares" for the imposition of the Class B or Class C
contingent deferred sales charge will be followed in determining the order in
which shares are transferred.
Special Arrangements for Repurchase of Shares from Dealers and
Brokers. The Distributor is the
Fund's agent to repurchase its shares from authorized dealers or brokers on
behalf of their customers. The shareholder should contact the broker or dealer
to arrange this type of redemption. The repurchase price per share will be the
net asset value next computed after the Distributor receives an order placed by
the dealer or broker, except that if the Distributor receives a repurchase order
from a dealer or broker after the close of The New York Stock Exchange on a
regular business day, it will be processed at that day's net asset value if the
order was received by the dealer or broker from its customers prior to the time
the Exchange closes (normally, that is 4:00 P.M., but may be earlier on some
days) and the order was transmitted to and received by the Distributor prior to
its close of business that day (normally 5:00 P.M.). Ordinarily, for accounts
redeemed by a broker-dealer under this procedure, payment will be made within
three business days after the shares have been redeemed upon the Distributor's
receipt of the required redemption documents in proper form, with the
signature(s) of the registered owners guaranteed on the redemption document as
described in the Prospectus.
Automatic Withdrawal and Exchange Plans. Investors owning shares of the Fund
valued at $5,000 or more can authorize the Transfer Agent to redeem shares
(minimum $50) automatically on a monthly, quarterly, semi-annual or annual basis
under an Automatic Withdrawal Plan. Shares will be redeemed three business days
prior to the date requested by the shareholder for receipt of the payment.
Automatic withdrawals of up to $1,500 per month may be requested by telephone if
payments are to be made by check payable to all shareholders of record and sent
to the address of record for the account (and if the address has not been
changed within the prior 30 days). Required minimum distributions from
OppenheimerFunds-sponsored retirement plans may not be arranged on this basis.
Payments are normally made by check, but shareholders having AccountLink
privileges (see "How To Buy Shares") may arrange to have Automatic Withdrawal
Plan payments transferred to the bank account designated on the OppenheimerFunds
New Account Application or signature-guaranteed instructions. Shares are
normally redeemed pursuant to an Automatic Withdrawal Plan three business days
before the date you select in the Account Application. If a contingent deferred
sales charge applies to the redemption, the amount of the check or payment will
be reduced accordingly. The Fund cannot guarantee receipt of a payment on the
date requested 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 contingent deferred sales charge is
waived as described in the Prospectus under "Waivers of Class B and Class C
Sales Charges").
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<PAGE>
By requesting an Automatic Withdrawal or Exchange Plan, the shareholder
agrees to the terms and conditions applicable to such plans, as stated below ,
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.
o 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.
o 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 purchase
additional shares of Class A shares while maintaining 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. Neither the
Fund nor the Transfer Agent shall incur any 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
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<PAGE>
accordance with the Fund's usual redemption procedures and will mail a check for
the proceeds to the Planholder.
The Plan may be terminated at any time by the Planholder by writing to the
Transfer Agent. A Plan may also be terminated at any time by the Transfer Agent
upon receiving directions to that effect from the Fund. The Transfer Agent will
also terminate a Plan upon receipt of evidence satisfactory to it of the death
or legal incapacity of the Planholder. Upon termination of a Plan by the
Transfer Agent or the Fund, shares that have not been redeemed from the account
will be held in uncertificated form in the name of the Planholder, and the
account will continue as a dividend-reinvestment, uncertificated account unless
and until proper instructions are received from the Planholder or his or her
executor or guardian, or other authorized person.
To use shares held under the Plan as collateral for a debt, the Planholder
may request issuance of a portion of the shares in certificated form. Upon
written request from the Planholder, the Transfer Agent will determine the
number of shares for which a certificate may be issued without causing the
withdrawal checks to stop because of exhaustion of uncertificated shares needed
to continue payments. However, should such uncertificated shares become
exhausted, Plan withdrawals will terminate.
If the Transfer Agent ceases to act as transfer agent for the Fund, the
Planholder will be deemed to have appointed any successor transfer agent to act
as agent in administering the Plan.
How To Exchange Shares
As stated in the Prospectus, shares of a particular class of Oppenheimer
funds having more than one class of shares may be exchanged only for shares of
the same class of other Oppenheimer funds. Shares of the Oppenheimer funds that
have a single class 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 Municipal Fund which only offers Class A and
Class B shares, (Class B and Class C shares of Oppenheimer Cash Reserves are
generally available only by exchange from the same class of shares of other
Oppenheimer funds or through OppenheimerFunds sponsored 401(k) plans). A current
list showing which funds offer which classes can be obtained by calling the
Distributor at 1-800-525-7048.
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
.
-55-
<PAGE>
Exchanges to Class M shares of Oppenheimer Bond Fund for Growth are permitted
from Class A shares of Oppenheimer Money Market Fund, Inc. or Oppenheimer Cash
Reserves that were acquired by exchange from Class M shares. Otherwise no
exchanges of any class of any Oppenheimer fund into Class M shares are
permitted.
Class A shares of Oppenheimer funds may be exchanged 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
-56-
<PAGE>
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 the Fund acquired by reinvestment of dividends or distributions
from any of the other Oppenheimer funds or from any unit investment trust for
which reinvestment arrangements have been made with the Distributor may be
exchanged at net asset value for shares of any of the Oppenheimer funds. No
contingent deferred sales charge is imposed on exchanges of shares of any class
purchased subject to a contingent deferred sales charge. However, when Class A
shares acquired by exchange of Class A shares of other Oppenheimer funds
purchased subject to a Class A contingent deferred sales charge are redeemed
within 12 months of the end of the calendar month of the initial purchase of the
exchanged Class A shares (18 months if the shares were initially purchased prior
to May 1, 1997), 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, a shareholder must either have an
existing account in, or obtain and acknowledge receipt of a prospectus of, the
fund to which the exchange is to be made. For full or partial exchanges of an
account made by telephone, any special account features such as Asset Builder
Plans and Automatic Withdrawal Plans will be switched to the new account unless
the Transfer Agent is instructed otherwise. If all telephone lines are busy
(which might occur, for example, during periods of substantial market
fluctuations), shareholders might not be able to request exchanges by telephone
and would have to submit written exchange requests.
Shares to be exchanged are redeemed on the regular business day the
Transfer Agent receives an exchange request in proper form (the "Redemption
Date").
Normally, shares of the fund to be
acquired are purchased on the Redemption Date, but such purchases may be delayed
by either fund up to five business days if it determines that it would be
disadvantaged by an immediate transfer of the redemption proceeds. The Fund
reserves the right, in its discretion, to refuse any exchange request that
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<PAGE>
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
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<PAGE>
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
$538,000, 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 1995 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 1995
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. At July 31, 1997, the Fund had available for
federal income tax purposes an unused capital loss carryover of approximately
$371,000, which expires in 2002 and 2003.
Dividend Reinvestment in Another Fund. Shareholders of the Fund may elect to
reinvest all dividends and/or capital gains distributions in shares of the same
class of any of the other Oppenheimer funds listed in "Reduced Sales Charges"
above at net asset value without sales charge. To elect this option, the
shareholder must notify the Transfer Agent in writing and must either have an
existing account in the fund selected for reinvestment or must obtain a
prospectus for that fund and an application from the Transfer Agent to establish
an account. The investment will be made at the net asset value per share in
effect at the close of business on the payable date of the dividend or
distribution. Dividends and/or distributions from certain of the 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 has represented to the Fund that the banking relationships between the
Manager and the Custodian have been and will continue to be unrelated to and
unaffected by the relationship between the Fund and the Custodian. It will be
the practice of the Fund to deal with the Custodian in a manner uninfluenced by
any banking relationship the Custodian may have with the Manager 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.
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INDEPENDENT AUDITORS' REPORT
The Board of Trustees and Shareholders of Oppenheimer Florida Municipal Fund:
We have audited the accompanying statements of investments and assets and
liabilities of Oppenheimer Florida Municipal Fund (formerly Oppenheimer Florida
Tax-Exempt Fund) (a series of Oppenheimer Multi-State Municipal Trust) as of
July 31, 1997, the related statement of operations for the year then ended, the
statements of changes in net assets for the year then ended, the seven-month
period ended July 31, 1996 and for the year ended December 31, 1995, and the
financial highlights for the year ended July 31, 1997, the seven-month period
ended July 31, 1996, and each of the years in the two-year period ended December
31, 1995 and 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 July
31, 1997, 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 Municipal Fund as of July 31, 1997, the results of its
operations for the year then ended, the changes in its net assets for the year
ended July 31, 1997, the seven-month period ended July 31, 1996 and the year
ended December 31, 1995, and the financial highlights for the year ended July
31, 1997, the seven- month period ended July 31, 1996, each of the years in the
two-year period ended December 31, 1995 and the period from October 1, 1993
(commencement of operations) to December 31, 1993, in conformity with generally
accepted accounting principles.
/s/ KPMG Peat Marwick LLP
KPMG PEAT MARWICK LLP
Denver, Colorado
August 21, 1997
<PAGE>
======================================
STATEMENT OF INVESTMENTS JULY 31, 1997
<TABLE>
<CAPTION>
RATINGS: MOODY'S/
S&P/FITCH FACE MARKET VALUE
(UNAUDITED) AMOUNT SEE NOTE 1
=================================================================================================================================
MUNICIPAL BONDS AND NOTES - 97.7%
- ---------------------------------------------------------------------------------------------------------------------------------
FLORIDA - 89.8%
<S> <C> <C> <C>
Alachua Cnty., FL HFAU RRB, Santa Fe HCF Project,
Escrowed to Maturity, 6%, 11/15/09 Baa1/AAA $1,000,000 $1,087,930
- ---------------------------------------------------------------------------------------------------------------------------------
Bay Cnty., FL Hospital System RRB, Bay Medical Center
Project, Prerefunded, 8%, 10/1/19 Aaa/NR 1,000,000 1,234,830
- ---------------------------------------------------------------------------------------------------------------------------------
Brevard Cnty., FL Housing FAU MH RRB, Windover
Oaks Project, Series A, 6.90%, 2/1/27 NR/AAA 1,000,000 1,119,140
- ---------------------------------------------------------------------------------------------------------------------------------
Brevard Cnty., FL Housing FAU SFM RB, 6.70%, 9/1/27 Aaa/NR 1,000,000 1,065,700
- ---------------------------------------------------------------------------------------------------------------------------------
Broward Cnty., FL GORB, 12.50%, 1/1/06 Aa/AA 1,000,000 1,543,810
- ---------------------------------------------------------------------------------------------------------------------------------
Broward Cnty., FL RR RB:
Broward Waste Energy-LP North Project, 7.95%, 12/1/08 A/A- 1,760,000 1,931,811
Ses Broward Co.-LP South Project, 7.95%, 12/1/08 A/A- 1,370,000 1,502,452
- ---------------------------------------------------------------------------------------------------------------------------------
Clay Cnty., FL Housing FAU SFM RB, 6.55%, 3/1/28 Aaa/NR 830,000 880,862
- ---------------------------------------------------------------------------------------------------------------------------------
Collier Cnty., FL HFAU RRB, The Moorings, Inc. Project,
7%, 12/1/19 NR/BBB+/A- 1,000,000 1,095,920
- ---------------------------------------------------------------------------------------------------------------------------------
Dade Cnty., FL Aviation RB, Series B, MBIA Insured,
6.60%, 10/1/22 Aaa/AAA/AA- 1,000,000 1,094,660
- ---------------------------------------------------------------------------------------------------------------------------------
Dade Cnty., FL GORB, FGIC Insured, 12%, 10/1/04 Aaa/AAA/AAA 100,000 145,651
- ---------------------------------------------------------------------------------------------------------------------------------
Dade Cnty., FL IDAU RB, Miami Cerebral Palsy Services
Project, 8%, 6/1/22 NR/NR 1,190,000 1,257,164
- ---------------------------------------------------------------------------------------------------------------------------------
Dade Cnty., FL Professional Sports Franchise Facilities
Tax & CAP RB, MBIA Insured, Zero Coupon, 5.85%,
10/1/26(1) Aaa/AAA 3,200,000 686,080
- ---------------------------------------------------------------------------------------------------------------------------------
Dade Cnty., FL Special Obligation RRB, Series B,
AMBAC Insured, Zero Coupon, 6.25%, 10/1/14(1) Aaa/AAA/AAA 4,755,000 1,916,408
- ---------------------------------------------------------------------------------------------------------------------------------
Escambia Cnty., FL HFAU RB, Azalea Trace, Inc., 6%,
1/1/15 NR/NR/BBB- 1,500,000 1,526,340
- ---------------------------------------------------------------------------------------------------------------------------------
Escambia Cnty., FL HFAU RRB, Baptist Hospital, Inc.,
Partially Prerefunded, Series A, 8.70%, 10/1/14 NR/BBB+ 1,000,000 1,067,370
- ---------------------------------------------------------------------------------------------------------------------------------
Fishhawk, FL CDD Special Assessment RB, 7.625%, 5/1/18 NR/NR 1,000,000 1,035,050
- ---------------------------------------------------------------------------------------------------------------------------------
FL HFA RB:
Maitland Club Apts. Project, Series B-1, AMBAC
Insured, 6.75%, 8/1/14 Aaa/AAA/AAA 1,000,000 1,084,790
Riverfront Apartments, Series A, AMBAC Insured,
6.25%, 4/1/37 Aaa/AAA/AAA 1,400,000 1,466,052
- ---------------------------------------------------------------------------------------------------------------------------------
Grand Haven, FL CDD Special Assessment RB,
Series A, 6.30%, 5/1/02 NR/NR 2,000,000 2,040,780
- ---------------------------------------------------------------------------------------------------------------------------------
Hillsborough Cnty., FL IDAU PC RRB, Tampa Electric
Co. Project, Series 92, 8%, 5/1/22 Aa3/AA/AA- 1,000,000 1,170,950
- ---------------------------------------------------------------------------------------------------------------------------------
Hillsborough Cnty., FL Utility RRB, Series A, FSA
Insured, 7%, 8/1/14 Aaa/AAA 750,000 833,708
- ---------------------------------------------------------------------------------------------------------------------------------
Jacksonville, FL HFAU RB, Daughters Health Project,
Prerefunded, Series B, 7.50%, 11/1/15 Aaa/AAA 1,000,000 1,122,360
- ---------------------------------------------------------------------------------------------------------------------------------
Lee Cnty., FL School Board COP, Prerefunded, Series A,
7.75%, 8/1/05 Aaa/AAA 1,000,000 1,151,810
</TABLE>
6 Oppenheimer Florida Municipal Fund
<PAGE>
====================================
STATEMENT OF INVESTMENTS (CONTINUED)
<TABLE>
<CAPTION>
RATINGS: MOODY'S/
S&P/FITCH FACE MARKET VALUE
(UNAUDITED) AMOUNT SEE NOTE 1
- ---------------------------------------------------------------------------------------------------------------------------------
FLORIDA (CONTINUED)
<S> <C> <C> <C>
Martin Cnty., FL IDAU RRB, Indiantown Cogeneration
Project, Series A, 7.875%, 12/15/25 Baa3/BBB-/BBB $2,000,000 $ 2,327,520
- ---------------------------------------------------------------------------------------------------------------------------------
Miami Beach, FL RA Tax Increment RB, City Center
Historic Convention, Series B, 6.25%, 12/1/16 Baa2/BBB 500,000 526,525
- ---------------------------------------------------------------------------------------------------------------------------------
Miami Beach, FL RA Tax Increment RB, City Center
Historic Convention, Series B, 6.35%, 12/1/22 Baa2/BBB 500,000 526,810
- ---------------------------------------------------------------------------------------------------------------------------------
Miami, FL Sanitation & Sewer Systems GOB,
FGIC Insured, 6.50%, 1/1/14 Aaa/AAA 1,750,000 1,922,305
- ---------------------------------------------------------------------------------------------------------------------------------
Orlando, FL Utilities Commission Water & Electric RB,
Inverse Floater, 7.012%, 10/1/17(2) Aa/AA- 1,000,000 1,030,000
- ---------------------------------------------------------------------------------------------------------------------------------
Pinellas Cnty., FL HFAU RB, Sun Coast Health System,
Prerefunded, 8.50%, 3/1/20 NR/AAA 1,315,000 1,481,150
- ---------------------------------------------------------------------------------------------------------------------------------
Port St. Lucie, FL Utility RB, Series A, FGIC Insured,
Zero Coupon, 6.25%, 9/1/16(1) Aaa/AAA 1,045,000 363,576
- ---------------------------------------------------------------------------------------------------------------------------------
St. Petersburg, FL Public Improvement RRB, MBIA
Insured, 6.375%, 2/1/12 Aaa/AAA 750,000 820,275
- ---------------------------------------------------------------------------------------------------------------------------------
Tampa Palms, FL Open Space & Transition CDD Special
Assessment RB, Capital Improvement-Area 7 Phase Two
Project, 7.50%, 5/1/18 NR/NR 1,200,000 1,233,168
------------
39,292,957
- ---------------------------------------------------------------------------------------------------------------------------------
U.S. POSSESSIONS - 7.9%
- ---------------------------------------------------------------------------------------------------------------------------------
PR Commonwealth Aqueduct & Sewer Authority RB,
Escrowed to Maturity, 10.25%, 7/1/09 Aaa/AAA 540,000 762,896
- ---------------------------------------------------------------------------------------------------------------------------------
PR Commonwealth HTAU RB, Series W, Inverse Floater,
6.447%, 7/1/10(2) Baa1/A 1,000,000 1,053,750
- ---------------------------------------------------------------------------------------------------------------------------------
PR Commonwealth Infrastructure FAU Special RB,
Series A, 7.90%, 7/1/07 Baa1/BBB+ 575,000 607,930
- ---------------------------------------------------------------------------------------------------------------------------------
PR Telephone Authority RB, MBIA Insured, Inverse
Floater, 6.763%, 1/16/15(2) Aaa/AAA 1,000,000 1,041,250
------------
3,465,826
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS, AT VALUE (COST $41,189,138) 97.7% 42,758,783
- ---------------------------------------------------------------------------------------------------------------------------------
OTHER ASSETS NET OF LIABILITIES 2.3 991,247
----------- ------------
NET ASSETS 100.0% $43,750,030
=========== ============
</TABLE>
To simplify the listings of securities abbreviations are used per the table
below:
<TABLE>
<S> <C>
CAP - Capital Appreciation HTAU - Highway & Transportation Authority
CDD - Community Development District IDAU - Industrial Development Authority
COP - Certificates of Participation MH - Multifamily Housing
FAU - Finance Authority PC - Pollution Control
GOB - General Obligation Bonds RA - Redevelopment Agency
GORB - General Obligation Refunding Bonds RB - Revenue Bonds
HCF - Health Care Facilities RR - Resource Recovery
HFA - Housing Finance Agency RRB - Revenue Refunding Bonds
HFAU - Health Facilities Authority SFM - Single Family Mortgage
</TABLE>
7 Oppenheimer Florida Municipal Fund
<PAGE>
====================================
STATEMENT OF INVESTMENTS (CONTINUED)
1. For zero coupon bonds, the interest rate shown is the effective yield on the
date of purchase. 2. Represents the current interest rate for a variable rate
bond known as an "inverse floater" which pays interest at a rate that varies
inversely with short-term interest rates. As interest rates rise, inverse
floaters produce less current income. Their price may be more volatile than the
price of a comparable fixed-rate security. Inverse floaters amount to $3,125,000
or 7.14% of the Fund's net assets at July 31, 1997.
As of July 31, 1997, securities subject to the alternative minimum tax amount to
$6,453,532 or 14.75% 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>
Hospital/Healthcare $ 7,519,980 17.7%
Special Assessment 6,868,688 16.1
General Obligation 3,611,766 8.5
Resource Recovery 3,434,263 8.0
Single Family Housing 3,031,352 7.1
Multi-Family Housing 2,585,192 6.0
Sales Tax 2,524,338 5.9
Corporate Backed 2,327,520 5.4
Water Utilities 1,960,180 4.6
Non Profit Organization 1,257,164 2.9
Pollution Control 1,170,950 2.7
Lease Rental 1,151,810 2.7
Adult Living Facilities 1,095,920 2.6
Marine/Aviation Facilities 1,094,660 2.6
Highways 1,053,750 2.5
Telephone Utilities 1,041,250 2.4
Electric Utilities 1,030,000 2.4
----------- -----
$42,758,783 100.0%
=========== =====
</TABLE>
See accompanying Notes to Financial Statements.
8 Oppenheimer Florida Municipal Fund
<PAGE>
=================================================
STATEMENT OF ASSETS AND LIABILITIES JULY 31, 1997
<TABLE>
=================================================================================================================
ASSETS
<S> <C>
Investments, at value (cost $41,189,138) - see accompanying statement $42,758,783
- -----------------------------------------------------------------------------------------------------------------
Cash 364,940
- -----------------------------------------------------------------------------------------------------------------
Receivables:
Interest 656,900
Shares of beneficial interest sold 162,483
- -----------------------------------------------------------------------------------------------------------------
Other 3,071
------------
Total assets 43,946,177
=================================================================================================================
LIABILITIES Payables and other liabilities:
Dividends 122,283
Trustees' fees - Note 1 26,169
Shareholder reports 19,913
Shares of beneficial interest redeemed 9,406
Transfer and shareholder servicing agent fees 4,780
Distribution and service plan fees 4,613
Other 8,983
------------
Total liabilities 196,147
=================================================================================================================
NET ASSETS $43,750,030
============
=================================================================================================================
COMPOSITION OF NET ASSETS
Paid-in capital $42,896,845
- -----------------------------------------------------------------------------------------------------------------
Overdistributed net investment income (9,345)
- -----------------------------------------------------------------------------------------------------------------
Accumulated net realized loss on investment transactions (707,115)
- -----------------------------------------------------------------------------------------------------------------
Net unrealized appreciation on investments - Note 3 1,569,645
------------
Net assets $43,750,030
============
=================================================================================================================
NET ASSET VALUE PER SHARE
Class A Shares:
Net asset value and redemption price per share (based on net assets
of $27,445,639 and 2,392,925 shares of beneficial interest outstanding) $11.47
Maximum offering price per share (net asset value plus sales charge
of 4.75% of offering price) $12.04
- -----------------------------------------------------------------------------------------------------------------
Class B Shares:
Net asset value, redemption price (excludes applicable contingent deferred sales
charge) and offering price per share (based on net assets of $15,348,243 and
1,336,097 shares of beneficial interest outstanding) $11.49
- -----------------------------------------------------------------------------------------------------------------
Class C Shares:
Net asset value, redemption price (excludes applicable contingent deferred sales
charge) and offering price per share (based on net assets of $956,148 and 83,417
shares of beneficial interest outstanding) $11.46
</TABLE>
See accompanying Notes to Financial Statements.
9 Oppenheimer Florida Municipal Fund
<PAGE>
========================================================
STATEMENT OF OPERATIONS FOR THE YEAR ENDED JULY 31, 1997
<TABLE>
=================================================================================================================
INVESTMENT INCOME
<S> <C>
Interest $2,531,850
=================================================================================================================
EXPENSES
Management fees - Note 4 230,723
- -----------------------------------------------------------------------------------------------------------------
Distribution and service plan fees - Note 4:
Class A 55,824
Class B 136,590
Class C 3,789
- -----------------------------------------------------------------------------------------------------------------
Shareholder reports 25,154
- -----------------------------------------------------------------------------------------------------------------
Transfer and shareholder servicing agent fees - Note 4 20,489
- -----------------------------------------------------------------------------------------------------------------
Legal and auditing fees 15,999
- -----------------------------------------------------------------------------------------------------------------
Insurance expenses 5,024
- -----------------------------------------------------------------------------------------------------------------
Custodian fees and expenses 4,936
- -----------------------------------------------------------------------------------------------------------------
Registration and filing fees:
Class A 2,310
Class B 632
Class C 205
- -----------------------------------------------------------------------------------------------------------------
Other 445
-----------
Total expenses 502,120
-----------
Less expenses paid indirectly - Note 4 (5,921)
Less reimbursement and assumption of expenses by OppenheimerFunds, Inc. - Note 4 (51,729)
-----------
Net expenses 444,470
=================================================================================================================
NET INVESTMENT INCOME 2,087,380
=================================================================================================================
REALIZED AND UNREALIZED GAIN (LOSS) Net realized gain (loss) on:
Investments (542,302)
Closing of futures contracts 101,378
-----------
Net realized loss (440,924)
- -----------------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation or depreciation on investments 1,685,747
-----------
Net realized and unrealized gain 1,244,823
=================================================================================================================
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $3,332,203
===========
</TABLE>
See accompanying Notes to Financial Statements.
10 Oppenheimer Florida Municipal Fund
<PAGE>
===================================
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED
YEAR ENDED JULY 31, DECEMBER 31,
1997 1996(1) 1995
====================================================================================================================================
OPERATIONS
<S> <C> <C> <C>
Net investment income $ 2,087,380 $ 946,530 $ 1,358,473
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) (440,924) 179,624 (116,007)
- ------------------------------------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation or depreciation 1,685,747 (1,072,986) 2,622,466
-------------------------------------------------
Net increase in net assets resulting from operations 3,332,203 53,168 3,864,932
====================================================================================================================================
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS Dividends from net investment
income:
Class A (1,321,674) (584,598) (824,373)
Class B (645,872) (351,171) (528,564)
Class C (17,307) (2,112) (79)
====================================================================================================================================
BENEFICIAL INTEREST TRANSACTIONS Net increase in net assets resulting from
beneficial interest transactions - Note 2:
Class A 7,261,833 503,417 5,923,134
Class B 1,975,456 574,639 3,616,484
Class C 862,016 35,925 38,376
====================================================================================================================================
NET ASSETS
Total increase 11,446,655 229,268 12,089,910
- ------------------------------------------------------------------------------------------------------------------------------------
Beginning of period 32,303,375 32,074,107 19,984,197
-------------------------------------------------
End of period (including overdistributed net investment
income of $9,345, $2,852 and $7,891, respectively) $43,750,030 $32,303,375 $32,074,107
=================================================
</TABLE>
1. For the seven months ended July 31, 1996. The Fund changed its fiscal year
end from December 31 to July 31.
See accompanying Notes to Financial Statements.
11 Oppenheimer Florida Municipal Fund
<PAGE>
====================
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CLASS A CLASS B
--------------------------------------------------- --------------------------------------------------
YEAR ENDED JULY 31, YEAR ENDED DECEMBER 31, YEAR ENDED JULY 31, YEAR ENDED DECEMBER 31,
1997 1996(2) 1995 1994 1993(3) 1997 1996(2) 1995 1994 1993(3)
====================================================================================================================================
PER SHARE OPERATING DATA:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $11.07 $11.40 $10.26 $11.79 $11.43 $11.09 $11.42 $10.27 $11.81 $11.43
- ------------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .64 .36 .63 .64 .14 .55 .31 .55 .56 .12
Net realized and
unrealized gain (loss) .37 (.34) 1.14 (1.53) .36 .37 (.34) 1.15 (1.54) .38
- ------------------------------------------------------------------------------------------------------------------------------------
Total income (loss) from
investment operations 1.01 .02 1.77 (.89) .50 .92 (.03) 1.70 (.98) .50
- ------------------------------------------------------------------------------------------------------------------------------------
Dividends to shareholders
from net investment
income (.61) (.35) (.63) (.64) (.14) (.52) (.30) (.55) (.56) (.12)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $11.47 $11.07 $11.40 $10.26 $11.79 $11.49 $11.09 $11.42 $10.27 $11.81
=========================================================================================================
====================================================================================================================================
TOTAL RETURN, AT NET
ASSET VALUE(4) 9.39% 0.25% 17.60% (7.66)% 4.39% 8.56% (0.19)% 16.81% (8.42)% 4.35%
====================================================================================================================================
RATIOS/SUPPLEMENTAL
DATA:
Net assets, end of
period (in thousands) $27,446 $19,366 $19,377 $11,992 $7,062 $15,348 $12,865 $12,658 $7,992 $4,874
- ------------------------------------------------------------------------------------------------------------------------------------
Average net assets
(in thousands) $24,333 $18,415 $14,508 $ 9,741 $2,471 $13,812 $12,843 $10,772 $6,987 $2,304
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios to average
net assets:
Net investment income 5.70% 5.50%(5) 5.71% 5.90% 5.08%(5) 4.93% 4.75%(5) 4.92% 5.13% 4.20%(5)
Expenses, before
reimbursement and
voluntary assumption
by the Manager
or Distributor(6) 1.02% 1.23%(5) 1.36% 1.25% 1.89%(5) 1.79% 1.97%(5) 2.11% 1.99% 2.20%(5)
Expenses, net of
reimbursement and
voluntary assumption
by the Manager
or Distributor 0.87% 1.09%(5) 0.53% 0.29% -- 1.64% 1.83%(5) 1.29% 1.03% 0.38%(5)
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover
rate(7) 42.5% 21.2% 18.4% 30.4% -- 42.5% 21.2% 18.4% 30.4% --
</TABLE>
1. For the period from August 29, 1995 (inception of offering) to December 31,
1995. 2. For the seven months ended July 31, 1996. The Fund changed its fiscal
year end from December 31 to July 31. 3. For the period from October 1, 1993
(commencement of operations) to December 31, 1993. 4. Assumes a hypothetical
initial investment on the business day before the first day of the fiscal period
(or inception of offering), with all dividends and distributions reinvested in
additional shares on the reinvestment date, and redemption at the net asset
value calculated on the last business day of the fiscal period. Sales charges
are not reflected in the total returns. Total returns are not annualized for
periods of less than one full year. 5. Annualized.
12 Oppenheimer Florida Municipal Fund
<PAGE>
================================
FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
<CAPTION>
CLASS C
--------------------------------------
PERIOD ENDED
YEAR ENDED JULY 31, DECEMBER 31,
1997 1996(2) 1995(1)
======================================================================================
PER SHARE OPERATING DATA:
<S> <C> <C> <C>
Net asset value, beginning of period $11.07 $11.40 $10.96
- ---------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .53 .31 .20
Net realized and unrealized gain (loss) .38 (.34) .44
- ---------------------------------------------------------------------------------
Total income (loss) from investment
operations .91 (.03) .64
- ---------------------------------------------------------------------------------
Dividends to shareholders from net
investment income (.52) (.30) (.20)
- ---------------------------------------------------------------------------------
Net asset value, end of period $11.46 $11.07 $11.40
================================
- ---------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE(4) 8.41% (0.22)% 5.86%
- ---------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) $956 $72 $39
- ---------------------------------------------------------------------------------
Average net assets (in thousands) $380 $78 $ 5
- ---------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income 4.87% 4.68%(5) 4.68%(5)
Expenses, before reimbursement and
voluntary assumption by the Manager
or Distributor(6) 1.75% 1.99%(5) 1.92%(5)
Expenses, net of reimbursement and
voluntary assumption by the Manager
or Distributor 1.60% 1.87%(5) 1.43%(5)
- ----------------------------------------------------------------------------------
Portfolio turnover rate(7) 42.5% 21.2% 18.4%
</TABLE>
6. Beginning in fiscal 1995, the expense ratio reflects the effect of gross
expenses paid indirectly by the Fund. Prior year expense ratios have not been
adjusted. 7. The lesser of purchases or sales of portfolio securities for a
period, divided by the monthly average of the market value of portfolio
securities owned during the period. Securities with a maturity or expiration
date at the time of acquisition of one year or less are excluded from the
calculation. Purchases and sales of investment securities (excluding short-term
securities) for the period ended July 31, 1997 were $25,027,486 and $15,867,676,
respectively. See accompanying Notes to Financial Statements.
13 Oppenheimer Florida Municipal Fund
<PAGE>
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
Oppenheimer Florida Municipal Fund (the Fund) is a separate series of
Oppenheimer Multi-State Municipal 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 and Florida State taxes for
individual investors as is available from municipal securities that is
consistent with preservation of capital. The Fund's investment adviser 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 that class and exclusive voting rights with respect to
matters affecting that 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
the last sale price on the prior trading day. Long-term and short-term
"non-money market" debt securities are valued by a portfolio pricing service
approved by the Board of Trustees. Such securities which cannot be valued by an
approved portfolio pricing service are valued using dealer-supplied valuations
provided the Manager is satisfied that the firm rendering the quotes is reliable
and that the quotes reflect current market value, or are valued under
consistently applied procedures established by the Board of Trustees to
determine fair value in good faith. Short-term "money market type" debt
securities having a remaining maturity of 60 days or less are valued at cost (or
last determined market value) adjusted for amortization to maturity of any
premium or discount.
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 July 31, 1997, the Fund
had available for federal income tax purposes an unused capital loss carryover
of approximately $336,000, 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
July 31, 1997, a credit of $11,330 was made for the Fund's projected benefit
obligations, and payments of $1,509 were made to retired trustees, resulting in
an accumulated liability of $26,169 at July 31, 1997.
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 on long-term bonds for tax purposes.
The character of the distributions made during the year from net investment
income or net realized gains may differ from its ultimate characterization for
federal income tax purposes. Also, due to timing of dividend distributions, the
fiscal year in which amounts are distributed may differ from the fiscal year in
which the income or realized gain was recorded by the Fund.
During the year ended July 31, 1997, the Fund adjusted the classification of
distributions to shareholders to reflect the differences between financial
statement amounts and distributions determined in accordance with income tax
regulations. Accordingly, during the year ended July 31, 1997, amounts have been
reclassified to reflect a decrease in undistributed net investment income of
$109,020. Accumulated net realized loss on investments was decreased by the same
amount.
14 Oppenheimer Florida Municipal Fund
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Continued)
1. SIGNIFICANT ACCOUNTING POLICIES (continued)
OTHER. Investment transactions are accounted for on the date the investments are
purchased or sold (trade date). Original issue discount on securities purchased
is amortized over the life of the respective securities using the effective
yield method, 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.
2. SHARES OF BENEFICIAL INTEREST
The Fund has authorized an unlimited number of no par value shares of beneficial
interest of each class. Transactions in shares of beneficial interest were as
follows:
<TABLE>
<CAPTION>
YEAR ENDED JULY 31, SEVEN MONTHS ENDED JULY 31, YEAR ENDED DECEMBER 31,
1997 1996(2) 1995(1)
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
Class A:
<S> <C> <C> <C> <C> <C> <C>
Sold 1,262,441 $14,136,662 324,714 $ 3,615,201 828,453 $ 9,144,873
Dividends reinvested 50,145 560,600 21,248 235,271 29,020 318,951
Redeemed (668,800) (7,435,429) (296,530) (3,347,055) (327,025) (3,540,690)
---------- ------------ --------- ------------ ---------- ------------
Net increase 643,786 $ 7,261,833 49,432 $ 503,417 530,448 $ 5,923,134
========== ============ ========= ============ ========== ============
Class B:
Sold 403,666 $ 4,529,195 169,888 $ 1,894,958 419,746 $ 4,609,025
Dividends reinvested 19,283 215,875 10,448 115,841 15,141 166,726
Redeemed (247,008) (2,769,614) (128,987) (1,436,160) (104,153) (1,159,267)
---------- ------------ --------- ------------ --------- ------------
Net increase 175,941 $ 1,975,456 51,349 $ 574,639 330,734 $ 3,616,484
========== ============ ========= ============ ========= ============
Class C:
Sold 78,461 $ 879,529 6,447 $ 72,184 3,407 $ 38,376
Dividends reinvested 1,066 11,932 140 1,550 -- --
Redeemed (2,638) (29,445) (3,466) (37,809) -- --
--------- ------------- --------- ------------ -------- ------------
Net increase 76,889 $ 862,016 3,121 $ 35,925 3,407 $ 38,376
========= ============= ========= ============ ========= ============
</TABLE>
1. For the year ended December 31, 1995 for 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. 2. The Fund changed its fiscal year end from December 31 to July
31.
3. UNREALIZED GAINS AND LOSSES ON INVESTMENTS
At July 31, 1997, net unrealized appreciation on investments of $1,569,645 was
composed of gross appreciation of $1,701,356, and gross depreciation of
$131,711.
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 0.60% on the first $200 million of average
annual net assets, 0.55% on the next $100 million, 0.50% on the next $200
million, 0.45% on the next $250 million, 0.40% on the next $250 million and
0.35% on average annual net assets in excess of $1 billion. Effective January 1,
1997, the Manager has voluntarily undertaken to waive a portion of its
management fee, whereby the Fund pays a fee not to exceed 0.545% of average
annual net assets.
For the year ended July 31, 1997, commissions (sales charges paid by investors)
on sales of Class A shares totaled $177,923, of which $25,575 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 $146,616 and $5,852, respectively. During the year ended July 31, 1997,
OFDI received contingent deferred sales charges of $57,947 upon redemption of
Class B shares as reimbursement for sales commissions advanced by OFDI at the
time of sale of such shares.
15 Oppenheimer Florida Municipal Fund
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Continued)
4. MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES (continued)
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.
Expenses paid indirectly represent a reduction of custodian fees for earnings on
cash balances maintained by the Fund.
The Fund has adopted a Service Plan for Class A shares to reimburse OFDI for a
portion of its costs incurred in connection with the personal service and
maintenance of shareholder accounts that hold Class A shares. Reimbursement is
made quarterly at an annual rate that may not exceed 0.25% (voluntarily reduced
to 0.15% by the Fund's Board) of the average annual net assets of Class A shares
of the Fund. OFDI uses the service fee to reimburse brokers, dealers, banks and
other financial institutions quarterly for providing personal service and
maintaining accounts of their customers that hold Class A shares.
The Fund has adopted a Distribution and Service Plan for Class B shares to
reimburse OFDI for its services and costs in distributing Class B shares and
servicing accounts. Under the Plan, the Fund pays OFDI an annual asset-based
sales charge of 0.75% per year on Class B shares. OFDI also receives a service
fee that may not exceed 0.25% (voluntarily reduced to 0.15% by the Fund's Board)
per year to reimburse dealers for providing personal services for accounts that
hold Class B shares. Both fees are computed on the average annual net assets of
Class B shares, determined as of the close of each regular business day. During
the year ended July 31, 1997, OFDI retained $107,699 as reimbursement for Class
B sales commissions and service fee advances, as well as financing costs. 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 OFDI for distributing
shares before the Plan was terminated. As of July 31, 1997, OFDI had incurred
unreimbursed expenses of $435,590 for Class B.
The Fund has adopted a Distribution and Service Plan for Class C shares to
compensate OFDI for its services and costs in distributing Class C shares and
servicing accounts. Under the Plan, the Fund pays OFDI an annual asset-based
sales charge of 0.75% per year on Class C shares. OFDI also receives a service
fee that may not exceed 0.25% (voluntarily reduced to 15% by the Fund's Board)
per year to compensate dealers for providing personal services for accounts that
hold Class C shares. Both fees are computed on the average annual net assets of
Class C shares, determined as of the close of each regular business day. During
the year ended July 31, 1997, OFDI retained $2,130 as compensation for Class C
sales commissions and service fee advances, as well as financing costs. 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 OFDI for distributing
shares before the Plan was terminated. As of July 31, 1997, OFDI had incurred
unreimbursed expenses of $8,990 for Class C.
5. FUTURES CONTRACTS
The Fund may buy and sell interest rate futures contracts in order to gain
exposure to or protect against changes in interest rates or for purposes of
duration management. The Fund may also buy or write put or call options on these
futures contracts.
The Fund generally sells futures contracts to hedge against increases in
interest rates and the resulting negative effect on the value of fixed rate
portfolio securities. The Fund may also purchase futures contracts to gain
exposure to changes in interest rates as it may be more efficient or cost
effective than buying fixed income securities.
Upon entering into a futures contract, the Fund is required to deposit either
cash or securities (initial margin) in an amount equal to a certain percentage
of the contract value. Subsequent payments (variation margin) are made or
received by the Fund each day. The variation margin payments are equal to the
daily changes in the contract value and are recorded as unrealized gains and
losses. The Fund recognizes a realized gain or loss when the contract is closed
or expires.
Risks of entering into futures contracts (and related options) include the
possibility that there may be an illiquid market and that a change in the value
of the contract or option may not correlate with changes in the value of the
underlying securities.
<PAGE>
APPENDIX A
Descriptions of Ratings Categories
Municipal Bonds
|X| 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.
|X| 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
A-1
<PAGE>
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 ratingBonds 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.
|X| 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.
o Duff & Phelps. The ratings of Duff & Phelps are as follows: AAA which
are judged to be the "highest credit quality". The risk factors are negligible,
being only slightly more than for risk-free US Treasury debt. AA+, AA & AA- High
credit quality protection factors are strong. Risk is modest
A-2
<PAGE>
but may vary slightly from time to time because of economic conditions. A+, A &
A- Protection factors are average but adequate. However, risk factors are more
variable and greater in periods of economic stress. BBB+, BBB & BBB- Below
average protection factors but still considered sufficient for prudent
investment. Considerable variability in risk during economic cycles. BB+, BB &
BB- Below investment grade but deemed to meet obligations when due. Present or
prospective financial protection factors fluctuate according to industry
conditions or company fortunes. Overall quality may move up or down frequently
within the category. B+, B & B- Below investment grade and possessing risk that
obligations will not be met when due. Financial protection factors will
fluctuate widely according to economic cycles, industry conditions and/or
company fortunes. Potential exists for frequent changes in the rating within
this category or into a higher of lower rating grade. CCC Well below investment
grade securities. Considerable uncertainty exists as to timely payment of
principal interest or preferred dividends. Protection factors are narrow and
risk can be substantial with unfavorable economic industry conditions, and/or
with unfavorable company developments. DD Defaulted debt obligations issuer
failed to meet scheduled principal and/or interest payments. DP Preferred stock
with dividend arreages.
Municipal Notes
|X| 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.
|X| 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.
|X| 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.
A-3
<PAGE>
Commercial Paper
|X| 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.
|X| 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.
|X| Fitch The ratings of commercial paper by Fitch are similar to its
ratings of Municipal Notes, above.
A-4
<PAGE>
TAX-EQUIVALENT YIELDS
Appendix B
Federal EffectiveA tax-exempt yield of:
Taxable Tax 3.00% 3.50%
3.80% 3.91% 4.00% 4.48% 4.50% 5.00% Income Bracket Is Approximately Equivalent
To a Taxable Yield of:
JOINT RETURN
Over Not over
$ 0 $ 41,20015.00% 3.53% 4.12% 4.47% 4.60%4.71% 5.27% 5.29%5.88%
$ 41,200 $ 99,60028.00% 4.17% 4.86% 5.28% 5.43%5.56% 6.22% 6.25%6.94%
$ 99,600 $151,75031.00% 4.35% 5.07% 5.51% 5.67%5.80% 6.49% 6.52%
7.25%
$151,750 $271,05036.00% 4.69% 5.47% 5.94% 6.11%6.25% 7.00% 7.03%7.81%
$271,050
and above39.60% 4.97% 5.79%6.29% 6.47%
6.62% 7.42%
7.45% 8.28%
5.50% 6.00% 6.50% 7.00%7.50%
6.47% 7.06% 7.65 8.24% 8.82%
7.64% 8.33% 9.03 9.72%10.42%
7.97% 8.70% 9.4210.14%10.87%
8.59% 9.38%10.1610.94%11.72%
9.11% 9.93%10.7611.59%12.42%
SINGLE RETURN
Over Not over 3.00% 3.50% 3.80% 3.91%
- ---- --------
4.00% 4.48% 4.50% 5.00%
$ 0 $ 24,650 15.00% 3.53%4.12% 4.47%
4.60% 4.71%
5.27% 5.29% 5.88%
$ 24,650 $ 59,750 28.00% 4.17% 4.86%
5.28% 5.43%
5.56% 6.22% 6.25%6.94%
$
59,750$124,6531.00%4.35%5.07% 5.51% 5.67% 5.80%
6.49% 6.52% 7.25%
$124,650 $271,05036.00% 4.69% 5.47% 5.94% 6.11%6.25% 7.00% 7.03%7.81%
$271,050 and abov39.60% 4.97% 5.79% 6.29% 6.47%6.62% 7.42% 7.45%8.28%
5.50% 6.00% 6.50% 7.00%7.50%
6.47% 7.06% 7.65% 8.24 8.82% 7.64% 8.33% 9.03%
9.7210.42% 7.97% 8.70% 9.42%10.1410.87% 8.59% 9.38%
10.16%10.9411.72% 9.11% 9.93% 10.76%11.5912.42%
B-1
<PAGE>
Appendix C
Municipal Bond Industry Classifications
Electric Resource Recovery
Gas
Water Higher Education
Sewer Education
Telephone
Lease Rental
Adult Living Facilities
Hospital Non Profit Organization
General Obligation Highways
Special Assessment Marine/Aviation
Facilities
Sales Tax
Multi Family Housing
Manufacturing, Non Durables Single Family Housing
Manufacturing, Durables
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 Agent 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
C-2
<PAGE>
OPPENHEIMER
NEW JERSEY MUNICIPAL FUND
Prospectus Dated November 17, 1997
Oppenheimer New Jersey Municipal Fund is a mutual fund with the investment
objective of seeking as high a level of current interest income exempt from
Federal and New Jersey income taxes for individual investors as is consistent
with preservation of
capital.
The Fund seeks to achieve this objective by investing in municipal obligations,
the income from which is tax-exempt as described above. 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 refer to "Investment Risks" for a discussion
of 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 November
17, 1997 Statement of Additional Information. For a free copy, call
OppenheimerFunds Services, the Fund's Transfer Agent, at 1-800-525-7048, or
write to the Transfer Agent at the address on the back cover. The Statement of
Additional Information has been filed with the Securities and Exchange
Commission, ("SEC") and is incorporated into this Prospectus by reference (which
means that it is legally part of this Prospectus).
(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 PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
-1-
<PAGE>
Contents
ABOUT THE FUND
Expenses
A Brief Overview of the Fund
Financial Highlights
Investment Objective and Policies
Investment Risks
Investment Techniques and Strategies
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
-2-
<PAGE>
A B O U T T H E F U N D
Expenses
The Fund pays a variety of expenses directly for management of its assets,
administration, distribution of its shares and other services, and those
expenses are subtracted from the Fund's assets to calculate the Fund's net asset
value per share. All shareholders therefore pay those expenses indirectly.
Shareholders pay other expenses directly, such as sales charges and account
transaction charges. The following tables are provided to help you understand
your direct expenses of investing in the Fund and your share of the Fund's
operating expenses that you will bear indirectly. The numbers below are based on
the Fund's expenses during the fiscal year ended July 31, 1997.
o Shareholder Transaction Expenses are charges you pay when
you buy or sell shares of the Fund. Please refer to "About Your
Account," starting on page __, 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
Maximum Deferred Sales
Charge (as a % of the
lower of the original
offering 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)
Maximum Sales Charge on
Reinvested Dividends None None None
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 12 calendar months (18
months for shares purchased prior to May 1, 1997) 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.
-3-
<PAGE>
o 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 advisor, OppenheimerFunds, Inc. (referred
to in this Prospectus as the "Manager"). The rates of the Manager's fees are set
forth in "How the Fund is Managed," below. The Fund has other regular expenses
for services, such as transfer agent fees, custodial fees paid to the bank that
holds the Fund's portfolio securities, audit fees and legal expenses. Those
expenses are detailed in the Fund's Financial Statements in the Statement of
Additional Information.
Annual Fund Operating Expenses as a Percentage of Average Net
Assets
Class A Class B Class C
Shares Shares Shares
Management Fees
(after expense reimbursement) .50%
.50% .50%
12b-1 Plan Fees .15%
.90% .90%
Other Expenses
----- ----- -----
.23% .22% .20%
Total Fund Operating Expenses
(after expense reimbursement) .88%
1.62% 1.60%
The numbers in the table above are based upon the Fund's expenses in its
last fiscal year ended July 31, 1997. These amounts are shown as a percentage of
the average net assets of each class of the Fund's shares for that year. The
12b-1 Distribution Plan Fees for Class A shares are Service Plan Fees. For Class
B and Class C shares, the 12b-1 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."
The Total Fund Operating Expenses shown are net of a voluntary expense
assumption and reimbursement 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, and the "Total Fund Operating Expenses" for
the Fund's Class A, Class B and Class C shares would have been 1.64%1.08%, 1.83%
and 1.79%, 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 chart, depending on a number of factors,
including changes in the actual value of the Fund's assets represented by each
class of shares.
-4-
<PAGE>
o 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 $56 $74 $
94 $151
Class B Shares $66
$81 $108 $154
Class C Shares $26 $51 $
87 $190
If you did not redeem your investment, it would incur the following
expenses:
Class A Shares
$56 $74
$94$166$151
Class B Shares $16
$51 $88 $154
Class C Shares $16 $51 $87 $190
* In the first example, expenses include the Class A initial sales charge
and the applicable Class B or Class C contingent deferred sales charge. In the
second example, Class A expenses include the initial sales charge, but Class B
and Class C expenses do not include contingent deferred sales charges. The Class
B expenses in years 7 through 10 are based on the Class A expenses shown above,
because the Fund automatically converts your Class B shares into Class A shares
after 6 years. Because of the effect of the asset-based sales charge and the
contingent deferred sales charge imposed on Class B and Class C shares,
termlong-term holders of Class B and Class C shares could pay the economic
equivalent of more than the maximum front-end sales charge allowed under
applicable regulations. For Class B shareholders, the automatic conversion of
Class B shares to Class A shares is designed to minimize the likelihood that
this will occur. Please refer to "How to Buy Shares - Buying Class B Shares" for
more information.
These examples show the effect of expenses on an investment, but are not
meant to state or predict actual or expected costs or investment returns of the
Fund, all of which may be more or less
than those shown.
A Brief Overview of the Fund
Some of the important facts about the Fund are summarized below, with
references to the section of this Prospectus where more complete information can
be found. You should carefully read the entire Prospectus before making a
decision about investing in the
-5-
<PAGE>
Fund. Keep the Prospectus for reference after you invest,
particularly for information about your account, such as how to
sell or exchange shares.
o 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
New Jersey income taxes for individual investors as is consistent with
preservation of
capital.
o What Does the Fund Invest In? Under normal market conditions, the Fund
will invest at least 80% of its total assets in (1) municipal bonds, municipal
notes and other debt obligations issued by or on behalf of the State of New
Jersey or any political subdivision thereof, and its agencies or authorities,
the interest on which is not subject to Federal and New Jersey individual income
tax, and (2) municipal bonds, municipal notes and other debt obligations issued
by or on behalf of the State of New Jersey, or any political subdivision
thereof, and its agencies or authorities, other states and the District of
Columbia, or any political subdivisions thereof, the interest from which is not
subject to Federal individual 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. Currently there is no limitation on investments in
securities which may be subject to an alternative minimum tax. These investments
are more fully explained in "Investment Objective and Policies," starting on
page __.
o Who Manages the Fund? The Fund's investment adviseradvisor (the
"Manager") is OppenheimerFunds, Inc. The Manager (including subsidiaries)
advises investment company portfolios having over $75 billion in assets at
September 30, 1997. 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 Caryn Halbrecht. The Fund's Board of
Trustees, elected by shareholders, oversees the investment advisor and the
portfolio manager. Please refer to "How the Fund is Managed," starting on page
__ for more information about the Manager and its fees.
o 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 New Jersey Municipal Securities (described
below) and is able to invest its assets in a single issuer or limited number of
issuers entails greater risk
-6-
<PAGE>
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 Risks" starting on page
__ for a more complete discussion.
o 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" on page __ for more
details.
o Will I Pay a Sales Charge to Buy Shares? The Fund has three classes of
shares. All three classes have the same investment portfolio but different
expenses. Class A shares are offered with a front-end sales charge, starting at
4.75%, and reduced for larger purchases. Class B and Class C shares are offered
without a front-end sales charge, but may be subject to a contingent deferred
sales charge if redeemed within 6 years or 12 months, respectively, of purchase.
There are also annual asset-based sales charges on Class B and Class C shares.
Please review "How To Buy Shares" starting on page __ for more details,
including a discussion about factors you and your financial advisor should
consider in determining which class may be appropriate for you.
o How Can I Sell My Shares? Shares can be redeemed by mail, or by
telephone call to the Transfer Agent on any business day, or through your
dealer, or by writing a check against your Fund account (available for Class A
shares only). Please refer to "How To Sell Shares" on page __. The Fund also
offers exchange privileges to other Oppenheimer funds, described in "How to
Exchange Shares" on page __.
o 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.
-7-
<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 July 31, 1997, are included in
the Statement of Additional Information.
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
CLASS A
-----------------------------------------------------------
YEAR ENDED JULY 31, YEAR ENDED DECEMBER 31,
1997 1996(2) 1995 1994(3)
==================================================================================================================
<S> <C> <C> <C> <C>
PER SHARE OPERATING DATA:
Net asset value, beginning of period $11.10 $11.26 $10.41 $11.43
- ------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .62 .36 .61 .49
Net realized and unrealized gain (loss) .45 (.16) .86 (1.02)
------ ------ ------ ------
Total income (loss) from investment operations 1.07 .20 1.47 (.53)
- ------------------------------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income (.61) (.36) (.61) (.49)
Distributions from net realized gain (.02) -- (.01) --
------ ------ ------ ------
Total dividends and distributions to shareholders (.63) (.36) (.62) (.49)
- ------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $11.54 $11.10 $11.26 $10.41
====== ====== ====== ======
==================================================================================================================
TOTAL RETURN, AT NET ASSET VALUE(4) 9.99% 1.80% 14.42% (4.63)%
==================================================================================================================
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) $19,109 $11,354 $8,806 $3,877
- ------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $14,072 $10,036 $6,504 $2,506
- ------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income 5.45% 5.49%(6) 5.51% 5.57%(6)
Expenses, before reimbursement and voluntary
assumption by the Manager or Distributor(7) 1.08% 1.64%(6) 1.75% 1.46%(6)
Expenses, net of reimbursement and voluntary
assumption by the Manager or Distributor 0.88% 0.97%(6) 0.80% 0.31%(6)
- ------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(8) 11.9% 33.1% 7.4% 17.3%
</TABLE>
1. For the period from August 29, 1995 (inception of offering) to December 31,
1995. 2. For the seven months ended July 31, 1996. The Fund changed its fiscal
year end from December 31 to July 31. 3. For the period from March 1, 1994
(commencement of operations) to December 31, 1994. 4. Assumes a hypothetical
initial investment on the business day before the first day of the fiscal period
(or inception of offering), with all dividends and distributions reinvested in
additional shares on the reinvestment date, and redemption at the net asset
value calculated on the last business day of the fiscal period. Sales charges
are not reflected in the total returns. Total returns are not annualized for
periods of less than one full year.
8
<PAGE>
<TABLE>
<CAPTION>
CLASS B CLASS C
- ------------------------------------------------ --------------------------------------
PERIOD ENDED
YEAR ENDED JULY 31, YEAR ENDED DECEMBER 31, YEAR ENDED JULY 31, DECEMBER 31,
1997 1996(2) 1995 1994(3) 1997 1996(2) 1995(1)
==========================================================================================
<S> <C> <C> <C> <C> <C> <C>
$11.09 $11.25 $10.40 $11.43 $11.09 $11.25 $11.01
- ------------------------------------------------------------------------------------------
.53 .31 .53 .41 .53 .30 .19
.46 (.16) .86 (1.02) .45 (.16) .25
------ ------ ------ ------ ------ ------ ------
.99 .15 1.39 (.61) .98 .14 .44
- ------------------------------------------------------------------------------------------
(.53) (.31) (.53) (.42) (.52) (.30) (.19)
(.02) -- (.01) -- (.02) -- (.01)
------ ------ ------ ------ ------ ------ ------
(.55) (.31) (.54) (.42) (.54) (.30) (.20)
- ------------------------------------------------------------------------------------------
$11.53 $11.09 $11.25 $10.40 $11.53 $11.09 $11.25
====== ====== ====== ====== ====== ====== ======
==========================================================================================
9.18% 1.34% 13.59% (5.39)% 9.11% 1.29% 4.07%
==========================================================================================
$18,647 $9,740 $5,222 $2,986 $2,080 $132 $50
- ------------------------------------------------------------------------------------------
$13,278 $7,774 $4,080 $1,841 $ 747 $ 74 $ 3
- ------------------------------------------------------------------------------------------
4.70% 4.70% 4.79% 4.76%(6) 4.56% 4.66% --(5)
1.83% 2.40% 2.49% 2.29%(6) 1.79% 2.48% --(5)
1.62% 1.74% 1.53% 1.14%(6) 1.60% 1.81% --(5)
- ------------------------------------------------------------------------------------------
11.9% 33.1% 7.4% 17.3% 11.9% 33.1% 7.4%
</TABLE>
5. Ratios during this period would not be indicative of future results. 6.
Annualized. 7. Beginning in fiscal 1995, the expense ratio reflects the effect
of expenses paid indirectly by the Fund. Prior year expense ratios have not been
adjusted. 8. The lesser of purchases or sales of portfolio securities for a
period, divided by the monthly average of the market value of portfolio
securities owned during the period. Securities with a maturity or expiration
date at the time of acquisition of one year or less are excluded from the
calculation. Purchases and sales of investment securities (excluding short-term
securities) for the period ended July 31, 1997 were $20,800,606 and $3,300,275,
respectively.
9
Investment Objective and Policies
Objective. The Fund seeks as high a level of current interest income exempt from
Federal and New Jersey income taxes for individual investors as is consistent
with preservation of capital.
Investment Policies and Strategies. Under normal market conditions, the Fund
attempts to invest 100% of its assets, and as a matter of fundamental policy to
invest at least 80% of its assets, in Municipal Securities (as defined below).
In addition, under normal market conditions, the Fund will invest at least 80%
of its assets in New Jersey Municipal Securities.
Dividends paid by the Fund derived from interest attributable to New
Jersey Municipal Securities will be exempt from Federal and New Jersey
individual income taxes. Dividends derived from interest on Municipal Securities
of other than New Jersey issuers will be exempt from Federal income tax for
individuals, but will be subject to New Jersey individual income tax. Although
exempt- interest dividends will not be subject to federal income tax for Fund
shareholders, a portion of such dividends which is derived from interest on
certain "private activity" bonds may be an item of tax preference if you are
subject to the federal alternative minimum tax. Any net interest income on
taxable investments will be taxable as ordinary income when distributed to
shareholders (see "Dividends, Capital Gains, and Taxes" below).
o 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
-8-
<PAGE>
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.
o 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.
Investment Risks
All investments carry risks to some degree, whether they are risks that
market prices of the investment will fluctuate (this is known as "market risk")
or that the underlying issuer will experience financial difficulties and may
default on its obligation under a fixed-income investment to pay interest and
repay principal (this is referred to as "credit risk"). These general investment
risks, and the special risks of certain types of investments that the Fund may
hold are described below. They affect the value of the Fund's investments, its
investment performance, and the prices of its shares. These risks collectively
form the risk profile of the Fund.
Because of the types of securities the Fund invests in and the investment
techniques the Fund uses, the Fund is designed for investors who are investing
for the long term. It is not intended for investors seeking assured income.
While the Manager tries to reduce risks by diversifying investments, by
carefully researching securities before they are purchased, and in some cases by
using hedging techniques, changes in overall market prices can occur at any
time, and because the income earned on securities is subject to change, there is
no assurance that the Fund will achieve its investment objective. When you
redeem your shares, they may be worth more or less than what you paid for them.
o Special Considerations - New Jersey Municipal Securities. Because the
Fund concentrates its investments in New Jersey Municipal Securities, a default,
financial crisis or other material adverse event relating to any of such issuers
could adversely affect the market value and marketability of such Municipal
Securities and the interest income and repayment of principal to the Fund from
them. Investors should consider these matters as well as certain other general
information reflected in the
-9-
<PAGE>
Statement of Additional Information under "Special Investment
Considerations - New Jersey Municipal Securities."
o 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.
o There are Special Risks in Investing in Derivative
Investments.
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
on which the derivative is based, and the derivative itself, 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.
o 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.
-10-
<PAGE>
o 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.
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 are designed to reduce some of the risks.
o 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
notes), tax-exempt commercial paper, certificates of participation,
participation interests and other debt obligations issued by or on behalf of the
State of New Jersey, or any political subdivision thereof, and its agencies and
authorities, other states and the District of Columbia, their political
subdivisions or any commonwealths, territories or possessions of the United
States, or their respective agencies, instrumentalities or authorities, the
interest on which is, in the opinion of bond counsel to the respective issuer at
the time of issue, not subject to Federal individual income tax. New Jersey
Municipal Securities are obligations of the State of New Jersey and its
political subdivisions, and their respective agencies,
-11-
<PAGE>
authorities or instrumentalities, the interest from which is, in the opinion of
bond counsel to the respective issuer at the time of issue, not subject to New
Jersey individual income tax. No independent investigation has been made by the
Manager as to the users of proceeds of bond offerings or the application of such
proceeds.
"Municipal bonds" are Municipal Securities that have a maturity when
issued of one year or more and "municipal notes" are Municipal Securities that
have a maturity when issued of less than one year. The two principal
classifications of Municipal Securities are "general obligations" (secured by
the issuer's pledge of its full faith, credit and taxing power for the payment
of principal and interest) and "revenue obligations" (payable only from the
revenues derived from a particular facility or class of facilities, or specific
excise tax or other revenue source). The Fund may invest in Municipal Securities
of both classifications. See "Investment Objective and Policies" in the
Statement of Additional Information for further information about the Fund's
investment policies and about Municipal Securities.
o Investments in Taxable Securities and Temporary Defensive Investment
Strategy. Under normal market conditions, the Fund may invest up to 20% of its
assets in taxable investments, including (i) certain "Temporary Investments"
(described immediately below); (ii) hedging instruments (described in "Hedging,"
below); (iii) repurchase agreements (explained below).
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.
|X| 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
-12-
<PAGE>
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"); from time to time the Fund may invest
more than 5% of its net assets in municipal lease obligations that the Manager
has determined to be liquid under guidelines set by the Board of Trustees.
o 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.
o 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.
o 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"), Fitch
Investors
-13-
<PAGE>
Service, Inc. ("Fitch"), Duff & Phelps, Inc. ("Duff & Phelps")
or
another nationally recognized statistical rating organization.
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 of the rating of a
security after its purchase by the Fund will not require the
Fund
to dispose of such security.
Lower-grade Municipal Securities (sometimes called "municipal junk bonds")
may be subject to greater market fluctuations and are subject to greater risks
of loss of income and principal than higher-rated Municipal Securities, and may
be considered to have some speculative characteristics. Securities that are or
that have fallen below investment grade entail a greater risk that the ability
of the issuers of such securities to meet their debt obligations will be
impaired. There may be less of a market for lower-grade Municipal Securities and
therefore they may be harder to sell at an acceptable price. These risks mean
that the Fund may not achieve the expected income from lower-grade Municipal
Securities, and that the Fund's income and net asset value per share may be
affected by declines in value of these securities. However, the Fund's
limitations on investments in non-investment grade Municipal Securities may
reduce some of these risks.
o 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.
o 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.
o Illiquid and Restricted Securities. Under the policies
and
procedures established by the Fund's Board of Trustees, the
Manager
determines the liquidity of certain of the Fund's investments.
-14-
<PAGE>
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
securities (the Board may increase that limit to 15%). A restricted security is
one that has a contractual restriction on its resale or that cannot be sold
publicly until it is registered under the Securities Act of 1933. The Fund may
not invest in securities that have a restriction on their resale.
The Manager monitors holdings of illiquid securities on an ongoing basis
to determine whether to sell any holdings to maintain adequate liquidity.
Illiquid securities include repurchase agreements maturing in more than seven
days, or certain participation interests other than those with puts excercisable
within seven days.
o Loans of Portfolio Securities. To attempt to increase
its
income, and for liquidity purposes, the Fund may lend its
portfolio
securities to brokers, dealers and other financial
institutions.
The Fund must receive collateral for a loan. These loans are
limited to not more than 25% of the 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.
o 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
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the Fund for liquidity purposes, defensive reasons, or to raise
cash to distribute to shareholders.
o 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.
o 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
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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.
o 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 nor will it use interest rate swaps for leverage. 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.
Other Investment Restrictions. The Fund has other investment restrictions which
are fundamental policies. Pursuant to one such restriction, the Fund cannot
concentrate investments to the extent of more than 25% of its total assets in
any industry; however, there is no limitation as to investment in Municipal
Securities, New Jersey Municipal Securities or U.S. Government obligations.
As a matter of non-fundamental policy, changeable without a shareholder
vote, the Fund will not:
o Invest in securities or any other investment other than the Municipal
Securities, temporary investments, taxable investments and Hedging Instruments
described above in "Investment Objective and Policies," above.
o 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.
o 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 value of its total
assets; it may borrow only from banks as a temporary measure for extraordinary
or emergency purposes.
o Pledge, mortgage or otherwise encumber, transfer or assign any of its
assets to secure a debt; collateral arrangements for premium and margin payments
in connection with hedging instruments
are not deemed to be a pledge of assets; or
o Buy or sell futures contracts other than Interest Rate Futures or
Municipal Bond Index Futures.
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<PAGE>
Unless the prospectus states that a percentage restrictionsrestriction
applies on an ongoing basis, it applies only at the time the Fund makes an
investment, and the Fund need not sell securities to meet the percentage limits
if the value of the investment increases in proportion to the size of the Fund.
Other investment restrictions are listed in "Investment Restrictions" in the
Statement of Additional Information.
How the Fund is Managed
Organization and History. The Fund was organized in 1994 as a separate series of
Oppenheimer Multi-State Municipal Trust (the "Trust"), an open-end
non-diversified management investment company organized in 1989 as a
Massachusetts business trust. The Fund may issue 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 its shareholders, it may hold
shareholder meetings from time to time on important matters, and shareholders
have the right to call a meeting to remove a Trustee or to take other action
described in the Trust's Declaration of Trust.
The Board of Trustees has the power, without shareholder approval, to
divide unissued shares of this Fund into two or more classes. The Board has done
so, and the Fund currently has three classes of shares, Class A, Class B and
Class C. All 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. Please
refer to "How the Fund is Managed" in the Statement of Additional Information on
voting of shares.
The Manager and Its Affiliates. The Fund is managed by the Manager,
OppenheimerFunds, Inc., which is responsible for selecting the Fund's
investments and handles its day-to-day business. The Manager carries out its
duties, subject to the policies established by the Board of Trustees, under an
Investment Advisory Agreement
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<PAGE>
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 advisor since 1959. The Manager
(including subsidiaries) currently manages investment companies, including other
Oppenheimer funds, with assets of more than $75 billion as of September 30,
1997, and with more than 3 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.
o Portfolio Manager. The portfolio manager of the Fund
(who
is also a Vice President of the Fund and the Manager) is Caryn
Halbrecht. Ms. Halbrecht is the person principally responsible
for
the day-to-day management of the Fund's portfolio, effective
July
8, 1996. Ms. Halbrecht is also an officer and/or portfolio
manager
of certain other Oppenheimer funds. Previously Ms. Halbrecht
served as a Vice President of Fixed Income Portfolio Management
at
Bankers Trust Company.
o 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 average annual net assets;
0.55% of the next $100 million; 0.50% of the next $200 million; 0.45% of the
next $250 million; 0.40% of the next $250 million; and 0.35% of average annual
net assets in excess of $1 billion. The Fund's management fee for its fiscal
year ended July 31, 1997 was 0.60% of average annual net assets (before expense
reimbursement) for Class A shares, Class B shares 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, certain Trustees' fees, transfer agency fees, legal fees and auditing
costs. Those expenses are paid out of the Fund's assets and are not paid
directly by shareholders.
However,
those expenses reduce the net asset value of shares, and therefore are
indirectly borne by shareholders through their investment. More information
about the Investment Advisory Agreement and the other expenses paid by the Fund
is contained in the Statement of Additional Information.
There is also information about the Fund's brokerage policies and
practices in "Brokerage Policies of the Fund" in the Statement of Additional
Information. That section discusses how brokers and dealers are selected for the
Fund's portfolio transactions. Because the Fund purchases most of its portfolio
securities directly from the sellers and not through brokers, it therefore
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<PAGE>
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 advisor.
o The Distributor. The Fund's shares are sold through dealers , brokers
and other financial institutions that have a sales agreement with
OppenheimerFunds Distributor, Inc., a subsidiary of the Manager that acts as the
Fund's Distributor. The Distributor also distributes the shares of the other
Oppenheimer funds and is sub-distributor for funds managed by a subsidiary of
the Manager.
o The Transfer Agent. The Fund's transfer agent is OppenheimerFunds
Services, a division of the Manager, which acts as the shareholder servicing
agent for the Fund on an "at-cost" basis. It also acts as the shareholder
servicing agent for other Oppenheimer funds. Shareholders should direct
inquiries about their accounts to the Transfer Agent at the address and
toll-free number shown below in this Prospectus and on the back cover.
Performance of the Fund
Explanation of Performance Terminology. The Fund uses the terms "total return,"
"average annual total return," "standardized yield," "dividend yield," "yield"
and "tax-equivalent yield" to illustrate its performance. The performance of
each class of shares is shown separately, because the performance of each class
of shares will usually be different, as a result of the different kinds of
expenses each class bears. These returns and yields measure the performance of a
hypothetical account in the Fund over various periods, and do not show the
performance of each shareholder's account (which will vary if dividends are
received in cash, or shares are sold or purchased). The Fund's performance may
help you see how well your Fund has done over time and to compare it to other
funds or to a market index.
It is important to understand that the Fund's yields and total returns
represent past performance and should not be considered to be predictions of
future returns or performance. This performance data is described below, but
more detailed information about how total returns and yields are calculated is
contained in the Statement of Additional Information, which also contains
information about indices and other ways to measure and compare the Fund's
performance. The Fund's investment performance will vary over time, depending on
market conditions, the composition of the portfolio, expenses and which class of
shares you purchase.
o Total Returns. There are different types of "total
returns"
used to measure the Fund's performance. Total return is the
change
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<PAGE>
in value of a hypothetical investment in the Fund over a given period, assuming
that all dividends and capital gains distributions are reinvested in additional
shares. The cumulative total return measures the change in value over the entire
period (for example, ten years). An average annual total return shows the
average rate of return for each year in a period that would produce the
cumulative total return over the entire period. However, average annual total
returns do not show the Fund's actual year-by-year performance.
When total returns are quoted for Class A shares, normally the current
maximum initial sales charge has been deducted. When total returns are shown for
Class B or Class C shares, normally the contingent deferred sales charge that
applies to the period for which total return is shown has been deducted.
However, total returns may also be quoted "at net asset value", without
considering the effect of the sales charge, and those returns would be less if
sales charges were deducted.
|X| Yield. Different types of yields may be quoted to show performance.
Each class of shares calculates its standardized yield by dividing the
annualized net investment income per share from the portfolio during a 30-day
period by the maximum offering price on the last day of the period. The 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 paid for a
stated period by the maximum offering price on the last day of the period and
annualizing the result. Yields for Class A shares normally reflect the deduction
of the maximum initial sales charge, but may also be shown without deducting
sales charge. 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 fiscal year ended July 31,
1997,
followed by a graphical comparison of the Fund's performance to
an
appropriate broad-based market index.
o Management's Discussion of Performance. During the Fund's fiscal year
ended July 31, 1997 the Fund's performance was affected by several economic and
market factors. In March of this year the portfolio manager shortened the Fund's
durations in anticipation of a short-term interest rate tightening by the
Federal Reserve. This rate did occur resulting in some market setbacks. As the
Muni
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<PAGE>
Market stabilized in April and rallied in May the portfolio manager began
lengthening durations accordingly.
By shifting durations the
Fund was in a good position to take advantage of both the rise
and
fall in rates. The fund's portfolio holdings, allocations and
strategies are subject to change.
o 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 July 31, 1997. In the case of Class A and Class B shares,
performance is measured from the Fund's inception on March 1, 1994, 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 New Jersey Municipal Fund and The
Lehman Brothers Municipal Bond Index
[Graph]
Average Annual Total
Return of the Fund at 7/31/97
A Shares One Year Life of Class
%4.77 %4.54(1)
B Shares %4.18 %4.41(1)
C Shares %8.11 %7.55
- ---------------------
Total returns and the ending account values in the graphs show a change in share
value and include reinvestment of all dividends and capital gains distributions.
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<PAGE>
(1) The inception of the Fund (Class A and B shares) was 3/1/94. Class A returns
are shown net of the current applicable 4.75% maximum initial sales charge. The
Class B average annual total
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<PAGE>
returns reflect reinvestment of all dividends and capital gains distributions
and are shown net of the applicable 5% and 3% contingent deferred sales charges
respectively for the 1-year period and the life-of-class. The ending account
value in the graph is net of the applicable 3% contingent deferred sales charge.
(2) Class C shares of the Fund were first publicly offered on 8/29/95. The one
year period is shown net of the applicable 1% contingent deferred sales charge.
Past performance is not predictive of future performance. Graphs are not drawn
to same scale.
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.
o 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 12 months of buying them (18 months if the shares were purchased
prior to May 1, 1997), 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.
o Class B Shares. If you buy Class B shares, you pay no sales charge at
the time of purchase, but if you sell your shares within six years of buying
them, you will normally pay a contingent deferred sales charge that varies
depending on how long you own your shares, as described in "Buying Class B
Shares" below.
o Class C Shares. If you buy Class C shares, you pay no sales charge at
the time of purchase, but if you sell your shares within 12 months of buying
them, you will normally pay a contingent deferred sales charge of 1% as
described in "Buying Class C Shares" below.
Which Class of Shares Should You Choose? Once you decide that the Fund is an
appropriate investment for you, the decisions as to which class of shares is
best 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
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<PAGE>
your investment will vary your investment results over time. The most important
factors to consider are how much you plan to invest and how long you plan to
hold your investment. If your goals and objectives change over time and you plan
to purchase additional shares, you should re-evaluate those factors to see if
you should consider another class of shares.
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, and considered 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 of shares 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.
o 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.
o 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 within six years, as well as the effect of the Class B asset-based
sales charge on the investment return for that class in the short-term. Class C
shares might be the appropriate choice (especially for investments of less than
$100,000), because there is no initial sales charge on Class C shares, and the
contingent
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<PAGE>
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 shares might be more advantageous than Class C shares (as well as Class
B shares) 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 shares (and
B shares). If investing $500,000 or more, Class A shares 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.
o 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 Class 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.
o 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) may
not be advisable (because of the effect of the contingent deferred sales charge)
for Class B or Class C shareholders, you should carefully review how you plan to
use your investment account before deciding which class of shares to buy.
Additionally, dividends payable to Class B and
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<PAGE>
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.
o 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 and Class C contingent deferred sales charge and
asset-based sales charges 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.
The Distributor may pay additional periodic compensation from its own resources
to securities dealers or financial institutions based upon the value of shares
of the Fund owned by the dealer or financial institution for its own account or
for its customers.
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.
o With Asset Builder Plans, Automatic Exchange Plans and military
allotment plans, you can make initial and subsequent investments for as little
as $25; and subsequent purchases of at least $25 can be made by telephone
through AccountLink.
o There is no minimum investment requirement if you are buying shares by
reinvesting dividends or distributions 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.
o 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. The Distributor may appoint certain servicing agents as the
Distributor's agent to accept purchase (and redemption) orders. 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.
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<PAGE>
o Buying Shares Through Your Dealer. Your dealer will place
your order with the Distributor on your behalf.
o 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, it is recommended that you discuss your
investment first with a financial advisor, to be sure that it is appropriate for
you.
o
Payment by Federal Funds Wire. Shares may be purchased by
Federal Funds wire. The minimum investment is $2,500. You must
first call the Distributor's Wire Department at 1-800-525-7041
to
notify the Distributor of the wire, and to receive further
instructions.
o 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 to
your bank account.
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.
o Asset Builder Plans. You may purchase shares of the Fund (and up to four
other Oppenheimer funds) automatically each month from your account at a bank or
other financial institution under an Asset Builder Plan with AccountLink.
Details are in the Statement of Additional Information.
o 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 price is 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 or its designated agent 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
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<PAGE>
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 referred to in this Prospectus
as 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 in this
Prospectus sets forth conditions for the waiver of, or exemption from, sales
charges or the special sales charge rates that apply to purchases of shares of
the Fund (including purchases by exchange) by a person who was a shareholder of
one of the former Quest for Value Funds (as defined in that Appendix).
Buying Class A Shares. Class A shares are sold at their offering price, which is
normally net asset value plus an initial sales charge. However, in some cases,
described below, purchases are not subject to an initial sales charge, and the
offering price will be the net asset value. In some cases, reduced sales charges
may be available, as described below. Out of the amount you invest, the Fund
receives the net asset value to invest for your account. The sales charge varies
depending on the amount of your purchase. A portion of the sales charge may be
retained by the Distributor and allocated to your dealer as commission. The
current sales charge rates and commissions paid to dealers and brokers are as
follows:
- -------------------------------------------------------------------
Front-End Front-End
Commission
Sales Charge Sales Charge as
as a as a
Percentage
Percentage Percentage of
Offering
of Offering of Amount Price
Amount of Purchase 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%
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- -------------------------------------------------------------------
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.
o 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 non-retirement
purchases in an amount equal to the sum of 1.0%. That commission will be paid
only on the amount of those purchases that were not previously subject to a
front-end sales charge and
dealer commission.
If you redeem any of those shares purchased prior to May 1, 1997, 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. A Class A contingent deferred
sales charge may be deducted from the redemption proceeds of any of those shares
purchased on or after May 1, 1997, that are redeemed within 12 months of the end
of the calendar month on their purchase. That sales charge will be equal to 1.0%
of the lesser of (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 offering price (which is the original net
asset value) of the redeemed shares. However, the Class A contingent deferred
sales charge will not exceed the aggregate amount of the commissions the
Distributor paid to your dealer on all 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 12 calendar months (18 months
for shares purchased prior to May 1, 1997) of the end of the calendar month of
the purchase of the exchanged shares, the sales charge will apply.
o Special Arrangements With Dealers. The Distributor may
advance up to 13 months' commissions to dealers that have
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<PAGE>
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:
o 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 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 Distributor will add the value,
at current offering price, of the shares you previously purchased and currently
own to the value of current purchases to determine the sales charge rate that
applies. The 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.
o Letter of Intent. Under a Letter of Intent, if you purchase Class A
shares or Class A shares and Class B shares of the Fund and other Oppenheimer
funds during a 13-month period, you can reduce the sales charge rate that
applies to your purchases of Class A shares. The total amount of your intended
purchases of both Class A and Class B shares will determine the reduced sales
charge rate for the Class A shares purchased during that period. This can
include purchases made up to 90 days before the date of the Letter. More
information is contained in the Application and in "Reduced Sales Charges" in
the Statement of Additional Information.
o 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.
In order to receive a waiver of the Class A contingent deferred sales
charge, you must notify the Transfer Agent which conditions apply.
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<PAGE>
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:
o the Manager or its affiliates;
o 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;
o (1) investment advisors and financial planners who have entered into an
agreement for this purpose with the Distributor and who charge an advisory,
consulting or other fee for their services and buy shares for their own accounts
or the accounts of their clients, (2) "rabbi trusts" that buy shares for their
own accounts, in each case if those purchases are made through a broker or agent
or other financial intermediary that has made special arrangements with the
Distributor for those purchases; and (3) clients of such investment advisors or
financial planners (that have entered into an agreement for this purpose with
the Distributor) who buy shares for their own accounts may also purchase shares
without sales charge but only if their accounts are linked to a master account
of their investment advisor or financial planner on the books and records of the
broker, agent or financial intermediary with which the Distributor has made such
special arrangements (each of these investors may be charged a fee by the
broker, agent or financial intermediary for purchasing shares);
o registered management investment companies, or separate accounts of
insurance companies having an agreement with the Manager or the Distributor for
that purpose;
o 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;
o 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);
o dealers, brokers, banks or registered investment advisors that have
entered into an agreement with the Distributor providing specifically for the
use of shares of the Fund in particular investment products made available to
their clients (those clients may be charged a transaction fee by their dealer,
broker, bank or advisor for the purchase or sale of Fund shares).
o 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;
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<PAGE>
o accounts for which Oppenheimer Capital is the investment advisor (the
Distributor must be advised of this arrangement) and persons who are directors
or trustees of the company or trust which
is the beneficial owner of such accounts; or
o 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:
o shares issued in plans of reorganization, such as mergers, asset
acquisitions and exchange offers, to which the Fund is a party;
o 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;
o shares purchased and paid for with the proceeds of shares redeemed in
the prior 30 days from a mutual fund (other than a fund managed by the Manager
or any of its subsidiaries) on which an initial sales charge or contingent
deferred sales charge was paid (this waiver also applies to shares purchased by
exchange of shares of Oppenheimer Money Market Fund, Inc. that were purchased
and paid for in this manner); this waiver must be requested when the purchase
order is placed for your shares of the Fund, and the Distributor may require
evidence of your qualification for this waiver; or
o 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:
o to make Automatic Withdrawal Plan payments that are limited annually to
no more than 12% of the original account value;
o involuntary redemptions of shares by operation of law or involuntary
redemptions of small accounts (see "Shareholder Account Rules and Policies,"
below); or
o if, at the time of purchase of shares (prior to
May 1,
1997) the
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<PAGE>
dealer agreed in writing to accept the dealer's portion of the sales commission
in installments of 1/18th of the commission per month (and no further commission
will be payable if the shares are redeemed within 18 months of purchase);
o if, at the time of purchase of shares (on or after May 1, 1997) the
dealer agrees in writing to accept the dealer's portion of the sales commission
in installments of 1/12th of the commission
-34-
<PAGE>
per month (and no further commission will be payable if the
shares
are redeemed within 12 months of purchase);
o 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 shareholder 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 Fund's Board of
Trustees authorizes such reimbursements, which it has not yet done) for its
other expenditures under the Plan.
Services to be provided include, among others, answering customer
inquiries about the Fund, assisting in establishing and maintaining accounts in
the Fund, making the Fund's investment plans available and providing other
services at the request of the Fund or the Distributor. Payments are made by the
Distributor quarterly at an annual rate not to exceed 0.25% (currently set at
0.15% as described above) of the average annual net assets of Class A shares
held in accounts of the service providers or their 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
contingent deferred sales charge will be based on the lesser of the net asset
value of the redeemed shares at the time of redemption or the original offering
price (which is the original net asset value). 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 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
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<PAGE>
gains distributions, (2) shares held for over 6 years, and (3) shares held the
longest during the 6-year period. The contingent deferred sales charge is not
imposed in the circumstances described below in "Waivers of Class B and Class C
Sales Charges."
The amount of the contingent deferred sales charge will depend on the
number of years since you invested and the dollar amount being redeemed,
according to the following schedule:
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.
o 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.
o 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."
o Waivers of Class B Sales Charges. The Class B contingent
deferred sales charge will not apply to shares purchased in
certain
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<PAGE>
types of transactions, nor will it apply to shares redeemed in certain
circumstances, as described below under " 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 contingent deferred sales charge will be based on the lesser
of the net asset value of the redeemed shares at the time of redemption or the
original offering price (which is the original net asset value). 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 Class C shares and
servicing accounts. Under the Plans, the Fund pays the Distributor an annual
"asset-based sales charge" of 0.75% per year on Class B shares and on Class C
shares. The Distributor also receives a service fee of 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 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 Class C shares. Those
services are similar to those provided under the Class A Service Plan, described
above. The Distributor pays the 0.25% service fees to dealers in advance for the
first year after Class B or Class C shares have been sold by the dealer and
retains the service fee paid by the Fund in that year. After the
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<PAGE>
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 Class C
shares without a front-end sales charge while allowing the Distributor to
compensate dealers who sell those shares. The Fund pays the asset-based sales
charges 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 4.00% of the
purchase price. The Distributor retains the Class B asset-based sales charge.
If a dealer has a special agreement with the Distributor, the
Distributor will pay the Class B service fee and the asset-based sales charge to
the dealer quarterly in lieu of paying the sales commission and service fee
advance at the time of purchase.
The Distributor pays sales commissions of 0.75% of the purchase price to
dealers from its own resources when Class C shares are sold. Including the
advance of the service fee, the total amount paid by the Distributor to the
dealer when Class C shares are sold 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. If a dealer has a special agreement with the Distributor, the
Distributor shall pay the Class C service fee and asset-based sales charge to
the dealer quarterly in lieu of paying the sales commission and service fee in
advance at the time of purchase.
The 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 Plans for Class B and Class C shares. At July 31, 1997, the end of the
Class B Plan year, the Distributor had incurred unreimbursed expenses in
connection with sales of Class B shares of $673,463 (equal to 3.61% of the
Fund's net assets represented by Class B shares on that date). At July 31, 1997,
the end of the Class C Plan year, the Distributor had incurred unreimbursed
expenses in connection with sales of Class C shares of $28,927 (equal to 1.39%
of the Fund's net assets represented by Class C shares on that date). If either
plan is terminated by the Fund, the Board of Trustees may allow the Fund to
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<PAGE>
continue payments of the asset-based sales charge to the Distributor for
distributing shares before the Plan was terminated.
o 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. In order to receive a waiver of the Class B or Class C contingent
deferred sales charge, you must notify the Transfer Agent which conditions
apply.
Waivers for Redemptions in Certain Cases. The Class B and Class C
contingent deferred sales charges will be waived for redemption of shares in the
following cases:
o redemption from accounts following the death or disability of the last
surviving shareholder, including a trustee of a "grantor" trust or revocable
living trust for which the trustee is also the sole beneficiary (the death or
disability must have occurred after the account was established, and for
disability you must provide evidence of a determination of disability by the
Social Security Administration); or
o shares redeemed involuntarily, as described in
"Shareholder
Account Rules and Policies," below.
Waivers for Shares Sold or Issued in Certain Transactions. The contingent
deferred sales charge is also waived on Class B and Class C shares sold or
issued in the following cases:
o shares sold to the Manager or its affiliates;
o 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
o 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 call the Transfer
Agent for more information.
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<PAGE>
AccountLink privileges should be requested 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.
o 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.
o 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.
o 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.
o 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.
o 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.
Shareholder Transactions by Fax. Beginning May 30, 1997, requests for
certain account transactions may be sent to the Transfer Agent by fax
(telecopier). Please call 1-800-525-7048 for information about which
transactions are included. Transaction requests submitted by fax are subject to
the same rules and restrictions as written and telephone requests described in
this Prospectus.
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<PAGE>
Automatic Withdrawal and Exchange Plans. The Fund has several plans that enable
you to sell shares automatically or exchange them to another Oppenheimer fund
account on a regular basis:
o 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 Statement of Additional Information for more
details.
o Automatic Exchange Plans. You can authorize the Transfer Agent to
automatically exchange an amount you establish in advance for shares of up to
five other Oppenheimer funds on a monthly, quarterly, semi-annual or annual
basis under an Automatic Exchange Plan. The minimum purchase for each
Oppenheimer fund account is $25. These exchanges are subject to the terms of the
Exchange Privilege, described below.
Reinvestment Privilege. If you redeem some or all of your Class A or Class B
shares of the Fund, you have up to 6 months to reinvest all or part of the
redemption proceeds in Class A shares of the Fund or other Oppenheimer funds
without paying a sales charge. This privilege applies only to Class A shares
that you purchased subject to an initial sales charge and to Class A or Class B
shares on which you paid a contingent deferred sales charge when you redeemed
them. This privilege does not apply to Class C shares. You must be sure to ask
the Distributor for this privilege when you send your payment. 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.
o 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
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<PAGE>
situations (there may be other situations also requiring a
signature guarantee):
o You wish to redeem more than $50,000 worth of shares and
receive a check
o The redemption check is not payable to all shareholders
listed on the account statement
o The redemption check is not sent to the address of record
on your account statement
o Shares are being transferred to a Fund account with a
different owner or name
o Shares are redeemed by someone other than the owners
(such
as an Executor)
o 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:
o Your name
o The Fund's name
o Your Fund account number (from your account statement) o The dollar
amount or number of shares to be redeemed o Any special payment
instructions o Any share certificates for the shares you are selling, o
The signatures of all registered owners exactly as the
account is registered, and
o Any special 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
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<PAGE>
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.
o To redeem shares through a service representative, call
1-
800-852-8457
o To redeem shares automatically on PhoneLink, call
1-800-533-
3310
Whichever method you use, you may have a check sent to the address on the
account statement, or, if you have linked your Fund account to your bank account
on AccountLink, you may have the
proceeds sent to that bank account.
o 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.
o Telephone Redemptions Through AccountLink. There are no dollar limits on
telephone redemption proceeds sent to a bank account designated when you
establish AccountLink. Normally the ACH transfer to your bank is initiated on
the business day after the redemption. You do not receive dividends on the
proceeds of the shares you redeemed while they are waiting to be transferred.
Checkwriting. To be able to write checks against your Fund account, you may
request that privilege on your account Application, or you can contact the
Transfer Agent for signature cards which must be signed (with a signature
guarantee) by all owners of the account and returned to the Transfer Agent so
that checks can be sent to you to use. Shareholders with joint accounts can
elect in writing to have checks paid over the signature of one owner. If you
previously signed a signature card to establish Checkwriting in another
Oppenheimer fund, simply call 1-800-525- 7048 to request Checkwriting for an
account in this Fund with the same registration as the previous Checkwriting
account.
o Checks can be written to the order of whomever you wish, but may not be
cashed at the Fund's bank or custodian.
o 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.
o Checks must be written for at least $100.
o Checks cannot be paid if they are written for more than
your
account value. Remember: your shares fluctuate in value and you
should not write a check close to the total account value.
-43-
<PAGE>
o You may not write a check that would require the Fund to redeem shares
that were purchased by check or Asset Builder Plan payments within the prior 15
days.
o Don't use your checks if you changed your Fund account
number.
Selling Shares Through Your Dealer. The Distributor has made arrangements to
repurchase Fund shares from dealers and brokers on behalf of their customers.
Brokers or dealers may charge for that service. Please refer to "Special
Arrangements for Repurchase of Shares from Dealers and Brokers" in the Statement
of Additional Information for more details.
How to Exchange Shares
Shares of the Fund may be exchanged for shares of certain Oppenheimer
funds at net asset value per share at the time of exchange, without sales
charge. To exchange shares, you must meet
several conditions:
o Shares of the fund selected for exchange must be
available
for sale in your state of residence.
o The prospectuses of this Fund and the fund whose shares
you
want to buy must offer the exchange privilege.
o You must hold the shares you buy when you establish your
account for at least 7 days before you can exchange them; after the account is
open 7 days, you can exchange shares every regular
business day.
o You must meet the minimum purchase requirements for the
fund
you purchase by exchange.
o 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:
o Written Exchange Requests. Submit an OppenheimerFunds
Exchange Request form, signed by all owners of the account.
Send
it to the Transfer Agent at the addresses listed in "How to Sell
Shares."
-44-
<PAGE>
o Telephone Exchange Requests. Telephone exchange requests
may
be made either by calling a service representative at 1-800-852- 8457 or by
using PhoneLink for automated exchanges, by calling 1- 800-533-3310. Telephone
exchanges may be made only between accounts that are registered with the same
name(s) and address. Shares held under certificates may not be exchanged by
telephone.
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:
o Shares are normally redeemed from one fund and purchased from the other
fund in the exchange transaction on the same regular business day on which the
Transfer Agent receives an exchange request that 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.
o 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.
o The Fund may amend, suspend or terminate the exchange
privilege at any time. Although the Fund will attempt to
provide
you notice whenever it is reasonably able to do so, it may
impose
these changes at any time.
o 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.
o If the Transfer Agent cannot exchange all the shares you request because
of a restriction cited above, only the shares eligible for exchange will be
exchanged.
The Distributor has entered into agreements with certain dealers and
investment advisors permitting them to exchange their clients' shares by
telephone. These privileges are limited under
-45-
<PAGE>
those agreements and the Distributor has the right to reject or suspend those
privileges. As a result, those exchanges may be subject to notice requirements,
delays and other limitations that do not apply to shareholders who exchange
their shares directly by calling or writing to the Transfer Agent.
Shareholder Account Rules and Policies
o 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.
o 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.
o 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.
o 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.
o Redemption or transfer requests will not be honored until the Transfer
Agent receives all required documents in proper form.
-46-
<PAGE>
From time to time, the Transfer Agent in its discretion may waive certain of the
requirements for redemptions stated in this
Prospectus.
o 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.
o 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.
o 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 seven days after the Transfer Agent receives
redemption instructions in proper form, except under unusual circumstances
determined by the Securities and Exchange Commission delaying or suspending such
payments. For accounts registered in the name of a broker-dealer, payment will
be forwarded within three 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.
o 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.
o 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.
o "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
-47-
<PAGE>
Number when you sign your application, or if you violate Internal Revenue
Service regulations on tax reporting of income.
o 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.
o 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 July 31, 1997, 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
net capital gains.
-48-
<PAGE>
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 July 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:
o 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.
o 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.
o 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.
o Reinvest Your Distributions In Another Oppenheimer Fund
Account. You can reinvest all distributions in the same class of
shares of another Oppenheimer fund 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.
o "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.
-49-
<PAGE>
o 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.
o 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 advisor
about the effect of an investment in the Fund on your particular tax situation.
-50-
<PAGE>
APPENDIX TO PROSPECTUS OF
OPPENHEIMER NEW JERSEY MUNICIPAL FUND
Graphic material included in Prospectus of Oppenheimer New
Jersey Municipal Fund: "Comparison of Change in Value of $10,000
Hypothetical Investments in Oppenheimer New Jersey Municipal
Fund
and the Lehman Brothers Municipal Bond Index."
A linear graph will be included in the Prospectus of Oppenheimer New Jersey
Municipal 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 (March 1, 1994) 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 New Jersey Lehman Brothers
Period Ended Municipal Fund A Municipal Bond Index
3/1/94(1) $9,525 $10,000
12/31/94 $9,084 $ 9,625
12/31/95 $10,394 $11,307
7/31/96 $10,581 $11,358
7/31/97 $11,638 $12,524
Oppenheimer
Fiscal/Year New Jersey Lehman Brothers
Period Ended Municipal Fund B Municipal Bond Index
3/1/94(1) $10,000 $10,000
12/31/94 $ 9,461 $ 9,625
12/31/95 $10,746 $11,307
7/31/96 $10,890 $11,358
7/31/97 $11,589 $12,524
Oppenheimer
Fiscal/Year New Jersey Lehman Brothers
Period Ended Municipal Fund C Municipal Bond Index
8/29/95(2) $10,000 $10,000
12/31/95 $10,406 $10,478
7/31/96 $10,442 $10,525
7/31/97 $11,501 $11,606
(1) The Fund commenced operations on March 1, 1994.
(2) Class C shares of the Fund were first publicly offered on
August
29, 1995.
<PAGE>
A-1
<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 deferred 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)
Oppenheimer Quest Value Fund, Inc., Oppenheimer Quest Growth and Income Value
Fund, Oppenheimer Quest Opportunity Value Fund, Oppenheimer Quest Small Cap
Value Fund and Oppenheimer Quest Global Value Fund, Inc. on November 24, 1995,
when OppenheimerFunds, Inc. became the investment adviseradvisor to those funds,
and (ii) Quest for Value U.S. Government Income Fund, Quest for Value Investment
Quality Income Fund, Quest for Value Global Income Fund, Quest for Value New
York Tax-Exempt Fund, Quest for Value National Tax-Exempt Fund and Quest for
Value California Tax-Exempt Fund when those funds merged into various
Oppenheimer funds on November 24, 1995. The funds listed above are referred to
in this Prospectus as the "Former Quest for Value Funds." The waivers of initial
and contingent deferred sales charges described in this Appendix apply to shares
of the Fund (i) acquired by such shareholder pursuant to an exchange of shares
of one of the Oppenheimer funds that was one of the Former Quest for Value Funds
or (ii) purchased by such shareholder by exchange of shares of other Oppenheimer
funds that were acquired 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
o Reduced Class A Initial Sales Charge Rates for Certain Former
Quest Shareholders
o 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.
A-2
<PAGE>
Front-End Front-End
Sales Sales
Commission
Charge Charge as
as a as a
Percentage
Number of Percentage Percentage of
Eligible Employees of Offerinof 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.
A-3
<PAGE>
o 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:
o 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.
o 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.
o 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:
o 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
A-4
<PAGE>
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
o Waivers for Redemptions of Shares Purchased Prior to March 6,
1995.
In the following cases, the contingent deferred sales charge will be waived for
redemptions of Class A, Class B or Class C shares of the Fund acquired by the
merger of a Former Quest for Value Fund into the Fund or by exchange from an
Oppenheimer fund that was a Former Quest for Value Fund or into which such fund
merged, 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 Class 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.
o Waivers for Redemptions of Shares Purchased on or After March 6, 1995 but
Prior to November 24, 1995.
In the following cases, the contingent deferred sales charge will be waived for
redemptions of Class A, Class B or Class C shares of the Fund acquired by the
merger of a Former Quest for Value Fund into the Fund or by exchange from an
Oppenheimer fund that was a Former Quest For Value Fund or into which such fund
merged, 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 Class 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, Class B or Class 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 New Jersey Municipal Fund
Two World Trade Center
New York, New York 10048-0203
Investment Advisor
OppenheimerFunds, Inc.
Two World Trade Center
New York, New York 10048-0203
Distributor
OppenheimerFunds Distributor, Inc.
Two World Trade Center
New York, New York 10048-0203
Transfer Agent and Shareholder Servicing Agent
OppenheimerFunds Services
P.O. Box 5270
Denver, Colorado 80217
1-800-525-7048
Custodian of Portfolio Securities
Citibank, N.A.
399 Park Avenue
New York, New York 10043
Independent Auditors
KPMG Peat Marwick LLP
707 Seventeenth Street
Denver, Colorado 80202
Legal Counsel
Gordon Altman Butowsky
Weitzen Shalov & Wein
114 West 47th Street
New York, New York 10036
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.
PR0395.1196.N * Printed on recycled paper
<PAGE>
Oppenheimer New Jersey Municipal Fund
Two World Trade Center, New York, New York 10048-0203
1-800-525-7048
Statement of Additional Information dated November 17, 1997
This Statement of Additional Information is not a Prospectus. This
document contains additional information about Oppenheimer New Jersey Municipal
Fund (the "Fund") and supplements information in the Prospectus dated November
17, 1997. 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.................................
Investment Policies and Strategies...........................
Special Investment Considerations - New Jersey Municipal
Securities........................................................
Other Investment Techniques and Strategies...................
Other Investment Restrictions...............................
How the Fund is Managed .........................................
Organization and History....................................
Trustees and Officers of the Trust..........................
The Manager and Its Affiliates..............................
Brokerage Policies of the Fund...................................
Performance of the Fund..........................................
Distribution and Service Plans...................................
About Your Account
How To Buy Shares............................................
How To Sell Shares...........................................
How To Exchange Shares.......................................
Dividends, Capital Gains and Taxes...........................
Additional Information About the Fund........................
Financial Information About the Fund
Independent Auditors' Report.....................................
Financial Statements.............................................
Appendix A: Description of Ratings Categories..................A-1
Appendix B: Tax-Equivalent Yield Tables........................B-1
Appendix C: Industry Classifications...........................C-1
-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.
Municipal Securities
o 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.
o 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.
o 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.
o 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.
o 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:
o 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.
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o 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.
o 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.
o 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.
o 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.
o 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.
o 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
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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
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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.
o Ratings of Municipal Securities. Moody's, S&P's, Fitch's and Duff &
Phelps' 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 - New Jersey Municipal
Securities. As explained in the
Prospectus, the Fund is highly sensitive to the fiscal stability
of New Jersey and its subdivisions,
agencies, instrumentalities or authorities and the other issuers
which issue the New Jersey Municipal
Securities in which the Fund concentrates its investments. The
Fund has not limited its investments to
any particular New Jersey issuer. Investors should also consider the factors
discussed below under "Other Investment Techniques and Strategies".
The following information on risk factors in concentrating in New Jersey
Municipal Securities is only a summary, based on publicly available information
and official statements relating to information compiled annually by the State
of New Jersey (the "State") and other private sources, and no representation is
made as to the accuracy of such information. The information is provided as
general information regarding the State and the types of obligations the State
and its political obligations issue. It is not intended to describe or summarize
the financial or other positions of the State or of local governmental units
located in the State or to provide financial, economic or general information
regarding the State or any other issuer of New Jersey municipal securities or
the risk factors related to an investment in the same. The Fund has not
independently verified this information.
New Jersey is the ninth largest state in population and fifth smallest in
land area. With an average of 1,071 persons per square mile, it is the most
densely populated of all the states. New Jersey is located at the center of the
megalopolis which extends from Boston to Washington, and which includes over
one-fifth of the country's population. The extensive facilities of the Port
Authority of New York and New Jersey, the Delaware River Port Authority and the
South Jersey Port Corporation across the Delaware River from Philadelphia
augment the air, land and water transportation complex which has influenced much
of the State's economy. This central location in the northeastern corridor, the
transportation and port facilities and proximity to New York City make the State
an attractive location for corporate headquarters and international business
offices. A number of Fortune Magazine's top 500 companies maintain headquarters
or major facilities in New Jersey, and many foreign-owned firms have located
facilities in the State.
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The State finances capital projects primarily through the sale of the
general obligation bonds of the State. These bonds are backed by the full faith
and credit of the State. State tax revenues and certain other fees are pledged
to meet the principal and interest payments required to pay the debt fully. No
general obligation debt can be issued by the State without prior voter approval,
except that no voter
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approval is required for any law authorizing the creation of a debt for the
purpose of refinancing all or a portion of outstanding debt of the State, so
long as such law requires that the refinancing provide a debt service savings.
All appropriations for capital projects and all proposals for State bond
authorizations are subject to the review and recommendation of the New Jersey
Commission on Capital Budgeting and Planning.
The State may also enter into lease finance arrangements, through which
rental payments made by the State are sufficient to cover debt service on the
obligations issued to finance the project. Such rental payments are subject to
annual appropriation by the State Legislature. Also, various State entities have
issued obligations to which the State has a "moral obligation" to appropriate
funds to cover a deficiency in a debt service reserve fund maintained to meet
payments of principal of and interest on the obligations. The State Legislature,
however, is not legally bound to make such an appropriation.
The State has extensive control over school districts, cities, counties
and local financing authorities. Such local finance system is regulated by
various statutes designed to assure that these entities remain on a sound
financial basis. State laws impose specific limitations on local appropriations,
with exemptions subject to state approval. The State shares the proceeds of a
number of taxes, with funds going primarily for local education programs,
homestead rebates, medicaid and welfare programs. Certain bonds are issued by
localities but supported by direct state payments. In addition, the State
participates in local wastewater treatment programs.
Although counties, municipalities and school districts finance capital
projects through the sale of general obligation bonds, backed by their
respective taxing power, other entities, including local financing authorities,
typically finance their capital needs through the sale of bonds backed by a
particular pledge of revenues, which may or may not include revenues derived
from taxing powers.
Other Investment Techniques and Strategies
o When-Issued and Delayed Delivery Transactions.
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As stated in the Prospectus, the Fund may purchase Municipal Securities on
a "when-issued" basis, and may purchase or sell such securities on a "delayed
delivery" basis. 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. Normally the settlement date occurs within six months of the
purchase of municipal bonds and notes. However, the Fund may, from time to time,
purchase municipal securities whose settlement extends beyond six months and
possibly as long as two years or more beyond trade date. 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
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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.
o 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 U.S. branch of a foreign
bank with total domestic assets of a least $1 billion or 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.
o 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
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any important matter. Income from securities loans is not included in the
exempt-interest dividends paid by the Fund. The Fund will not enter into any
securities loans having a duration of more than one year.
o 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.
o 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.
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o 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.
o 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.
o 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
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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.
o 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.
o 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
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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.
o 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."
o 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
-13-
<PAGE>
OTC option held by it unless the option is subject to a buy-back agreement by
the executing broker. The Securities and Exchange Commission is evaluating 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.
o 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 also must use short futures and options on futures positions
solely for "bona fide hedging purposes" within the meaning and intent 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.
o 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. Due to this limitation, the Fund will limit the extent to which it
engages in the following activities, but will not be precluded from them: (i)
selling investments, including Interest Rate Futures and Municipal Bond Index
Futures, held for less than three months, whether or not they were purchased on
the exercise
-14-
<PAGE>
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.
o Possible Risk Factors in Hedging. In addition to the risks with respect
to Futures and options discussed in the Prospectus and above, there is a risk in
using short hedging by selling Interest Rate Futures and Municipal Bond Index
Futures that the prices of such Futures or the applicable index will correlate
imperfectly with the behavior of the cash (i.e., market value) prices of the
Fund's securities. The ordinary spreads between prices in the cash and futures
markets are subject to distortions due to differences in the natures of those
markets. First, all participants in the futures market are subject to margin
deposit and maintenance requirements. Rather than meeting additional margin
deposit requirements, investors may close out futures contracts through
offsetting transactions which could distort the normal relationship between the
cash and futures markets. Second, the liquidity of the futures market depends on
participants entering into offsetting transactions rather than making or taking
delivery. To the extent participants decide to make or take delivery, liquidity
in the futures market could be reduced, thus producing distortion. Third, from
the point of view of speculators, the deposit requirements in the futures market
are less onerous than margin requirements in the securities market. Therefore,
increased participation by speculators in the futures market may cause temporary
price distortions.
The risk of imperfect correlation increases as the composition of the
Fund's portfolio diverges from the securities included in the applicable index.
To compensate for the imperfect correlation of movements in the price of 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.
o 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
-15-
<PAGE>
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:
o Invest in real estate, but the Fund may invest in Municipal Securities
or other permitted securities secured by real estate or interests therein;
o 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;
o Make short sales of securities;
o Invest in or hold securities of any issuer if those officers and
Trustees or Directors of the Fund or its adviser beneficially owning
individually more than .5% of the securities of such issuer together own more
than 5% of the securities of such issuer; or
o Invest in securities of any other investment company, except in
connection with a merger with another investment company.
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
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<PAGE>
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 and occupations 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 (except Ms. Macaskill, who is not a director
of Oppenheimer Money Market Fund, Inc.) are also trustees or directors of
Oppenheimer Enterprise Fund, Oppenheimer Global Fund, Oppenheimer Money Market
Fund, Inc., Oppenheimer Growth Fund, Oppenheimer Discovery Fund, Oppenheimer
Global Growth & Income Fund, Oppenheimer Gold & Special Minerals Fund,
Oppenheimer Municipal Bond Fund, Oppenheimer New York Municipal Fund,
Oppenheimer California Municipal Fund, Oppenheimer Capital Appreciation Fund,
Oppenheimer Multiple Strategies Fund, Oppenheimer U.S. Government Trust,
Oppenheimer Multi-Sector Income Trust, Oppenheimer World Bond Fund, Oppenheimer
Series Fund, Inc., Oppenheimer International Growth Fund and Oppenheimer
Developing Markets Fund (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 October 27, 1997, the Trustees and officers of
the Trust as a group owned less than 1% of the outstanding Class A, 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
72
31 West 52nd Street, New York, NY 10019 General Partner of Odyssey Partners,
L.P. (investment partnership)(since 1982) and Chairman of Avatar Holdings, Inc.
(real estate development).
-17-
<PAGE>
ROBERT G. GALLI, Trustee*, Age
64
Vice Chairman of OppenheimerFunds, Inc. (the "Manager") (since
October 1995); formerly he held
the following positions: Vice President and Counsel of Oppenheimer
Acquisition Corp. ("OAC"), the
Manager's parent holding company; Executive Vice President,
General Counsel and a director of the
Manager and OppenheimerFunds Distributor, Inc. (the
"Distributor"), Vice President and a director of
HarbourView Asset Management Corporation ("HarbourView") and
Centennial Asset Management
Corporation ("Centennial"), investment adviser subsidiaries of the
Manager, a director of Shareholder
Financial Services, Inc. ("SFSI") and Shareholder Services, Inc.
("SSI"), transfer agent subsidiaries of
the Manager and an officer of other Oppenheimer funds.
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<PAGE>
BENJAMIN LIPSTEIN, Trustee, Age
74
591 Breezy Hill Road, Hillsdale, N.Y. 12529 Professor Emeritus of Marketing,
Stern Graduate School of Business Administration, New York University; a
director of Sussex Publishers, Inc (Publishers of Psychology Today and Mother
Earth News) and of Spy Magazine, L.P.
BRIDGET A. MACASKILL, President and Trustee*, Age
49
President (since June 1991), Chief Executive Officer (since September 1995) and
a Director (since December 1994) of the Manager and Chief Executive Officer
(since September 1995); President and director (since June 1991) of HarbourView;
Chairman and a director of SSI (since August 1994), and SFSI (September 1995);
President (since September 1995) and a director (since October 1990) of OAC;
President (since September 1995) and a director (since November 1989) of
Oppenheimer Partnership Holdings, Inc., a holding company subsidiary of the
Manager; a director of Oppenheimer Real Asset Management, Inc. (since July
1996); President and a director (since October 1997) of OppenheimerFunds
International Ltd., an Presidentoffshore fund manager subsidiary of the Manager
("OFIL")
and Oppenheimer Millennium Funds plc (since October 1997); President and a
director of other Oppenheimer funds; a director of the NASDAQ Stock Market, Inc.
and of Hillsdown Holdings plc (a U.K. food company); formerly an Executive
Vice President of the Manager.
.
ELIZABETH B.
MOYNIHAN, Trustee, Age
68
801 Pennsylvania Avenue, N.W., Washington,
D.C. 20004 Author and architectural historian; a trustee of the Freer
Gallery of Art (Smithsonian Institution), the Institute of Fine Arts (New York
University), National Building Museum; a member of the Trustees Council,
Preservation League of New York State, and of the Indo-U.S. Sub-Commission on
Education and Culture.
KENNETH A. RANDALL, Trustee, Age 70
6 Whittaker's Mill, Williamsburg, Virginia 23185
A director of Dominion Resources, Inc. (electric utility holding company),
Dominion Energy, Inc. (electric power and oil & gas producer), Texan
Cogeneration Company (cogeneration company), Prime Retail, Inc. ( real estate
investment trust); formerly President and Chief Executive Officer of The
Conference Board, Inc. (international economic and business research) and a
director of Lumbermens Mutual Casualty Company, American Motorists Insurance
Company and American Manufacturers Mutual Insurance Company.
____________________
* A Trustee who is an "interested person" of the Fund as defined
in the Investment Company Act
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<PAGE>
EDWARD V. REGAN, Trustee, Age
67
40 Park Avenue, New York, New York 10016
Chairman of Municipal Assistance Corporation for the City of New York; Senior
Fellow of Jerome Levy Economics Institute, Bard College; a member of the U.S.
Competitiveness Policy Council; a director of GranCare, Inc. (health care
provider); a director of River Bank America (real estate manager); Trustee,
Financial Accounting Foundation (FASB and GASB); formerly New York State
Comptroller and trustee, New York State and Local Retirement Fund.
RUSSELL S. REYNOLDS, JR., Trustee, Age
65
8 Sound Shore Drive,
Greenwich, Connecticut 06830
Founder Chairman of Russell Reynolds Associates, Inc. (executive
recruiting); Chairman of Directorship
Inc. (corporate governance consulting); a director
of Professional Staff Limited (U.K); a trustee of
Mystic Seaport Museum, International House and Greenwich
Historical Society.
DONALD W. SPIRO,
Vice Chairman and Trustee*, Age 71
Chairman Emeritus (since August 1991) and a
director (since January 1969) of the Manager; formerly Chairman of the Manager
and the Distributor.
PAULINE TRIGERE, Trustee, Age 85
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
66
1325 Merrie Ridge Road, McLean, Virginia 22101
Of Counsel, Hogan & Hartson (a law firm); a director of B.A.T.
Industries, Ltd. (tobacco and financial
services), Caterpillar, Inc. (machinery), ConAgra, Inc. (food and
agricultural products), Farmers
Insurance Company (insurance), FMC Corp. (chemicals and machinery)
and Texas Instruments, Inc.
(electronics);
formerly (in descending chronological order) IMC Global Inc.
chemicals and animal
feed),
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
47
Executive Vice President (since January 1993), General Counsel (since October
1991) and a Director (since September 1995) of the Manager; Executive Vice
President (since September 1993), and a director (since January 1992) of the
Distributor; Executive Vice President, General Counsel and a director of
HarbourView, SSI, SFSI and Oppenheimer Partnership Holdings, Inc. since
(September 1995) and MultiSource Services, Inc. (a broker-dealer ) (since
December 1995); President and a director of Centennial (since September 1995);
President and a director of Oppenheimer Real Asset Management, Inc.
(since July 1996); General Counsel (since May 1996) and Secretary (since
April 1997) of OAC; Vice President of OFIL and Oppenheimer Millennium
Funds plc (since October 1997); an officer of other Oppenheimer funds.
CARYN HALBRECHT, Vice President and Portfolio Manager, Age 40 Vice President of
the Manager (since March 1994); an officer of other Oppenheimer funds; formerly
Vice President of Fixed Income Portfolio Management at Bankers
Trust
.
- ----------------------
* A Trustee who is an "interested person" of the Fund as defined in the
Investment Company Act.
-20-
<PAGE>
GEORGE C.
BOWEN, Treasurer, Age 61
6803 South Tucson Way, Englewood, Colorado 80112
Senior Vice President (since September 1987) and Treasurer (since March 1985) of
the Manager; Vice President (since June 1983) and Treasurer (since March 1985)
of the Distributor; Vice President (since October 1989) and Treasurer (since
April 1986) of HarbourView; Senior Vice President (since February 1992),
Treasurer (since July 1991) and a director (since December 1991) of Centennial;
President, Treasurer and a director of Centennial Capital Corporation (since
June 1989); Vice President and Treasurer (since August 1978) and Secretary
(since April 1981) of SSI; Vice President, Treasurer and Secretary of SFSI
(since November 1989); Treasurer of OAC (since June 1990); Treasurer of
Oppenheimer Partnership Holdings, Inc. (since November 1989); Vice President and
Treasurer of Oppenheimer Real Asset Management, Inc. (since July 1996);
Chief Executive Officer, Treasurer and a director of MultiSource Services,
Inc., a broker-dealer (since December 1995); an officer of other
Oppenheimer funds.
ROBERT G.
ZACK, Assistant Secretary, Age 49
Senior Vice President (since May 1985) and Associate General Counsel (since May
1981) of the Manager, Assistant Secretary of SSI (since May 1985), and SFSI
(since November 1989); Assistant Secretary of Oppenheimer Millennium Funds plc
(since October 1997); an officer of other Oppenheimer funds.
ROBERT J. BISHOP, Assistant Treasurer, Age 39 6803 South Tucson Way,
Englewood, Colorado 80112 Vice President of the Manager/Mutual Fund Accounting
(since May 1996); an officer of other Oppenheimer funds; formerly an Assistant
Vice President of the Manager/Mutual Fund Accounting (April 1994-May 1996), and
a Fund Controller for the Manager.
SCOTT T.
FARRAR, Assistant Treasurer, Age 32 6803 South Tucson Way, Englewood, Colorado
80112 Vice President of the Manager/Mutual Fund Accounting (since May 1996);
Assistant Treasurer of Oppenheimer Millennium Funds plc (since October 1997); an
officer of other Oppenheimer funds; formerly an Assistant Vice President of the
Manager/Mutual Fund Accounting (April 1994-May 1996), and a Fund Controller for
the Manager.
o Remuneration of Trustees.
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<PAGE>
The officers of the Fund and certain Trustees of the
Fund (Ms.
Macaskill and Messrs.
Galli and
Spiro) who are affiliated with the Manager receive no
salary or fee from
the Fund.
The remaining Trustees of the Fund received the
compensation shown below.
The
compensation from the Fund was paid during its fiscal year ended
July 31, 1997.
The compensation from
all of the New York-based Oppenheimer funds includes the Fund and
is compensation received as a
director, trustee or member of a committee of the Board during the
calendar year 1996.
Aggregate Retirement BenefTotal
Compensation
Compensation Accrued as Part From All
Name and from of Fund New York-based
Position Fund Expenses Oppenheimer
funds1
Leon Levy 0 ($2,178) $152,750
Chairman and
Trustee
-22-
<PAGE>
Aggregate Retirement BenefTotal
Compensation
Compensation Accrued as Part From All
Name and from of Fund New York-based
Position Fund Expenses Oppenheimer
funds1
Benjamin Lipstein 0 ($1,302) $ 91,350
Study
Committee
Chairman, Audit
Committee Member
and Trustee2
Elizabeth B.
Moynihan 0 ($1,302) $ 91,350
Study
Committee
Member and
Trustee
Kenneth A.
shownRandall 0 ($1,190) $ 83,450
Audit
Committee
Chairman and
Trustee
Edward V.
Regan 0 ($1,114) $ 78,150
Proxy Committee
Chairman,
Audit
Committee
Member and
Trustee
Russell S.
-23-
<PAGE>
Reynolds, Jr. 0 ($ 838) $58,800
Proxy Committee
Member and
Trustee
Pauline Trigere 0 ($ 788) $ 55,300
Trustee
Clayton K.
Yeutter 0 ($ 838) $ 58,800
Proxy Committee
Member and
Trustee
______________________ 1 For the 1996 calendar year.
2 Committee position held during a portion of the period shown.
-24-
<PAGE>
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.
-25-
<PAGE>
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 July 31, 1997, a reduction of $9,550 was accrued
for the Fund's projected retirement obligations.
o Deferred Compensation Plan. The Board of
Trustees has adopted a Deferred Compensation
Plan for
disinterested trustees that enables them to elect to defer receipt of all or a
portion of the annual fees they are entitled to receive from the Fund.Under the
plan, the compensation deferred by a Trustee is periodically adjusted as though
an equivalent amount had been invested in shares of one or more Oppenheimer
funds selected by the Trustee.
The amount paid to the Trustee under the plan will be determined based upon the
performance of the selected funds.
Deferral of Trustees' fees under the plan
will not materially affect the Fund's assets, liabilities and net
income per share.
The plan will not
obligate the Fund
to retain the services of any Trustee or to pay any particular level of
compensation to any Trustee.Pursuant to an Order issued by the Securities and
Exchange Commission, the Fund may invest in the funds selected by the Trustee
under the plan without shareholder approval for the limited purpose of
determining the value of the Trustee's deferred fee account.
o Major Shareholders. As of October 27, 1997, the only persons who owned of
record or is known to the Fund to own beneficially 5% or more of the Fund's
outstanding Class A, Class B or Class C shares were as follows:
Percentage of
Outstanding Shares
Name & Address Number of Shares of the Class
Class A
John Laterra, Jr. 92,761.287 5.07%
308 Vernon Avenue
Patterson, NJ 07503
Class B
Merrill Lynch Pierce Fenne198,869.000 10.37%
& Smith
for the Sole Benefit of its
Customers
4800 Deer Lake Dr. E. Fl.
3
Jacksonville, FL 32246-6484
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<PAGE>
Percentage of
Outstanding Shares
Name & Address Number of Shares of the Class
Class C
Merrill Lynch Pierce Fenne23,704.000 11.30%
& Smith
For the Sole Benefit of its
Customers
4800 Deer Lake Dr. E.
Fl. 3
Jacksonville, FL 32246-6484
Walter O. Stinel & 22,765.379 10.85%
Joan Stinel
38 Pine Terrace
Demarest, NJ 07627
BHC Securities, Inc. 18,428.907 8.78%
One Commerce Square
2005 Market Street - Suite 1200
Philadelphia, PA 19103
PaineWebber For the
Benefit of ESDAEVLLC 13,825.051 6.59%
2280 Johnson Avenue #8
Hackensack, NJ 07601
Ann Adams 12,711.820 6.06%
157 Ridge Road
Nutley, NJ 07110
The Manager and Its Affiliates. The Manager is wholly-owned by
Oppenheimer Acquisition Corp.
("OAC"), a holding company controlled by Massachusetts Mutual Life
Insurance Company. OAC is
also owned in part by certain of the Manager's directors and
officers, some of whom may also serve as
officers of the Fund, and three of whom (Ms. Macaskill and Messrs.
Galli and Spiro) serve as Trustees of the Fund.
The Manager and the Fund have a Code of Ethics. It is designed to detect
and prevent improper personal trading by certain employees, including portfolio
managers, that would compete with or take advantage of the Fund's portfolio
transactions. Compliance with the Code of Ethics is carefully monitored and
strictly enforced by the Manager.
o The Investment Advisory Agreement. The Investment Advisory Agreement
between the Manager and the Fund requires the Manager, at its expense, to
provide the Fund with adequate office space, facilities and equipment, and to
provide and supervise the activities of all administrative and clerical
personnel required to provide effective corporate administration for the Fund,
including the compilation and maintenance of records with respect to its
operations, the preparation and filing of
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specified reports, and the composition of proxy materials and
registration statements for continuous
public sale of shares of the Fund.
Expenses not expressly assumed by the Manager under the advisory agreement
or by the Distributor under the General Distributor's Agreement are paid by the
Fund. The 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 Fund's
fiscal year ended December 31, 1995, the fiscal year ended July 31, 1996 and the
fiscal year ended July 31, 1997, the management fee payable by the Fund to the
Manager was $63,400, $62,334 and $168,116, respectively. These amounts do not
reflect the expense assumption of $102,282, $67,889 and $51,835 by the Manager
for such period.
The Investment Advisory Agreement contains no expense limitation.
However, because of state regulations limiting fund expenses that previously
applied, the Manager had voluntarily undertaken that the Fund's total expenses
in any fiscal year (including the investment advisory fee but excludingexclusive
of taxes, interest, brokerage commissions, distribution plan payments and any
extraordinary non-recurring expenses, including litigation) would not exceed the
most stringent state regulatory limitation applicable to the Fund. Due to
changes in federal securities laws, such state regulations no longer apply and
the Manager's undertakingundertaking is therefore inapplicable and has been
withdrawn. During the Fund's last fiscal year, the Fund's expenses did not
exceed the most stringent state regulatory limit and the voluntary undertaking
was not invoked.
The 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 investment 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 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 other
investment companies for which it may act as investment adviser or general
distributor. If the Manager shall no longer act as investment adviser to the
Fund, the right of the Fund to use the name "Oppenheimer" as part of its name
may be withdrawn.
o The Distributor. Under its General Distributor's
Agreement with the Fund, the Distributor
acts as the Fund's principal underwriter in the continuous public offering of
the Fund's Class A, Class B and Class C shares but is not obligated to sell a
specific number of shares. Expenses normally attributable to sales, excluding
payments under the Distribution and Service Plan, but including advertising and
the cost of printing and mailing prospectuses, other than those furnished to
existing shareholders, are borne by the Distributor. During the Fund's fiscal
year ended December 31,
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<PAGE>
1995, the fiscal period ended July 31, 1996 and the fiscal year ended July 31,
1997, sales charges paid by investors on purchases of Class A shares were
$146,598 , $104,007 and $229,892, respectively, of which $34,262, $19,481 and
$42,671 was retained by the Distributor. During the fiscal year ended December
31, 1995, the fiscal period ended July 31, 1996 and the fiscal year ended July
31, 1997, the contingent deferred sales charges collected on the Fund's Class B
shares totaled $27,816, $13,422 and $28,809, all of which the Distributor
retained. During the Fund's fiscal period August 29, 1995 through December 31,
1995, the fiscal period January 1, 1996 through July 31, 1996 and the fiscal
year ended July 31, 1997, no contingent deferred sales charges were collected
for the 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.
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<PAGE>
o The Transfer Agent. The Fund's Transfer Agent,
OppenheimerFunds Services, a division
of the Manager, is responsible for maintaining the Fund's
shareholder registry and shareholder
accounting records, and for shareholder servicing and
administrative functions.
Brokerage Policies of the Fund
Brokerage Provisions of the Investment Advisory Agreement. One of the duties of
the Manager under the Investment Advisory Agreement is to arrange the portfolio
transactions for the Fund. The Investment Advisory Agreement contains provisions
relating to the employment of broker-dealers ("brokers") to effect the Fund's
portfolio transactions. In doing so, the Manager is authorized by the Investment
Advisory Agreement to employ broker-dealers, including "affiliated" brokers, as
that term is defined in the Investment Company Act, as may, in its best judgment
based on all relevant factors, implement the policy of the Fund to obtain, at
reasonable expense, the "best execution" (prompt and reliable execution at the
most favorable price obtainable) of such transactions. The Manager need not seek
competitive commission bidding but is expected to minimize the commissions paid
to the extent consistent with the interest and policies of the Fund as
established by its Board of Trustees.
Under the advisory agreement, the Manager is authorized to select brokers
that provide brokerage and/or research services for the Fund and/or the other
accounts over which the Manager or its affiliates have investment discretion.
The commissions paid to such brokers may be higher than another qualified broker
would have charged if a good faith determination is made by the Manager that the
commission is fair and reasonable in relation to the services provided. Subject
to the foregoing considerations, the Manager may also consider sales of shares
of the Fund and other investment companies managed by the Manager or its
affiliates as a factor in the selection of brokers for the Fund's portfolio
transactions.
Description of Brokerage Practices Followed by the Manager. Subject to the
provisions of the advisory agreement and the procedures and rules described
above, allocations of brokerage are generally made by the Manager's portfolio
traders upon recommendations from the Manager's portfolio managers. In certain
instances, portfolio managers may directly place trades and allocate brokerage,
also subject to the provisions of the Investment Advisory Agreement and the
procedures and rules described above. In either case, brokerage is allocated
under the supervision of the Manager's executive officers. As most purchases
made by the Fund are principal transactions at net prices, the Fund does not
incur substantial 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 a 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 prices. When the Fund
engages in an option transaction, ordinarily the same broker will be used for
the purchase or sale of the option and any transaction in the securities to
which the option relates. When possible, concurrent orders to purchase or sell
the same security by more than one of the accounts managed by the Manager or its
affiliates are combined. The transactions effected pursuant to such combined
orders are averaged as to price and allocated in accordance with the purchase or
sale orders actually placed for each account.
The research services provided by a particular broker may be useful only
to one or more of the advisory accounts of the Manager and its affiliates, and
investment research received for the commissions of those other accounts may be
useful both to the Fund and one or more of such other accounts. Such research,
which may be supplied by a third party at the instance of a broker, includes
information and analyses on particular companies and industries as well as
market or economic trends and portfolio strategy, receipt of market quotations
for portfolio evaluations, information systems, computer hardware
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<PAGE>
and similar products and services. If a research service also assists the
Manager in a non-research capacity (such as bookkeeping or other administrative
functions), then only the percentage or component that provides assistance to
the Manager in the investment decision-making process may be paid in commission
dollars. The Board of Trustees has permitted the Manager to use concessions on
fixed-price offerings to obtain research, in the same manner as is permitted for
agency transactions. The Board has also permitted the Manager to use stated
commissions on secondary fixed-income agency trades to obtain research where the
broker has represented to 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 broadens the scope and
supplement the research activities of the Manager, by making available
additional views for consideration and comparisons, and by enabling the Manager
to obtain market information for the valuation of securities held in the Fund's
portfolio or being considered for purchase. The Manager provides information as
to the commissions paid to brokers furnishing such services, together with the
Manager's representation that the amount of such commissions was reasonably
related to the value or benefit of such services.
Other funds advised by the Manager have investment objectives and policies
similar to those of the Fund. Such other funds may purchase or sell the same
securities at the same time as the Fund, which could affect the supply and price
of such securities. If two or more of such funds purchase the same security on
the same day from the same dealer, the Manager may average the price of the
transactions and allocate the average among such funds.
Performance of the Fund
Yield and Total Return Information. As described in the Prospectus, from time to
time the "standardized yield," "dividend yield," "tax-equivalent yield" "average
annual total return", "cumulative total return," "average annual total return at
net asset value," and "total return at net asset value" of an investment in a
class of Fund shares may be advertised. An explanation of how yields and total
returns are calculated for each class and the components of those calculations
is set forth below.
The Fund's advertisements of its performance data must, under applicable
rules of the Securities and Exchange Commission, include the average annual
total returns for each advertised class of shares of the Fund for the 1, 5, and
10-year periods (or the life of the class, if less) ending as of the most
recently ended calendar quarter prior to the publication of the advertisement.
This enables an investor to compare the Fund's performance to the performance of
other funds for the same periods. However, a number of factors should be
considered before using such information as a basis for comparison with other
investments. An investment in the Fund is not insured; its yield and total
returns are not guaranteed and normally will fluctuate on a daily basis. When
redeemed, an investor's shares may be worth more or less than their original
cost. Yield and total returns for any given past period are not a prediction or
representation by the Fund of future yields or rates of return. The yield and
total returns of each class of shares of the Fund are affected by portfolio
quality, portfolio maturity, the type of investments the Fund holds and its
operating expenses allocated to the particular class.
o Yield
o Standardized
Yield. The "standardized yield" (referred to as "yield") is
shownfor a class of shares for a stated 30-day period. It is not based on
actual distributions paid by the Fund to
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shareholders in the 30-day period, but is a hypothetical yield based
upon the net investment income from the Fund's portfolio investments
for that period. It may therefore differ from the "dividend yield"
for the same class of shares, described below. It is calculated using
the following formula set forth in rules adopted by the Securities
and Exchange Commission, designed to assure uniformity in the way
that all funds calculate their yields:
(a-b) 6
Standardized Yield = 2 ((--- + 1) - 1)
( cd)
The symbols above represent the following factors:
a = dividends and interest earned during the 30-day period.
b = expenses accrued for the period (net of any expense
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 for a 30-day period may differ from the yield
for other periods.
The SEC
formula assumes that the standardized yield for a 30-day period occurs at a
constant rate for a six-month period and is annualized at the end of the
six-month period. Additionally, because each class of shares is subject to
different expenses, it is likely that the standardized yields of the Fund's
classes of shares will differ for any 30-day period. For the 30-day period ended
July 31, 1997, the standardized yields for the Fund's classes of shares were as
follows:
Without Deducting Sales Charge With Sales Charge
Deducted
Class A: 3.91% 4.11%
Class B: 3.37% N/A
Class C: 3.37% N/A
o Tax-Equivalent Yield.
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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 (after
expense assumptions by the Manager) for its Class A, Class B and Class C shares
for the 30-day period ended July 31, 1997, for an individual taxpayer in the
43.45% combined tax bracket were 6.91%, 5.96% and 5.96%, respectively.
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o Dividend Yield.
The Fund may quote a "dividend yield"
for each class of its shares.
Dividend yield is based on the dividends paid on shares of a class during the
actual dividend period. To calculate dividend yield, the dividends of a class
declared during a stated period are added together and the sum is multiplied by
12 (to annualize the yield) and divided by the maximum offering price on the
last day of the dividend period. The formula is shown below:
Dividend Yield 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 initial
sales charge. The maximum offering price for Class B and Class C shares is the
net asset value per share , without considering the effect of contingent
deferred sales charges. "The Class A dividend yield may also be quoted without
deducting the maximum initial sales charge.
The dividend yields for the 30-day period ended July 31, 1997 were as
follows:
Without Deducting Sales Charge With Sales Charge
Deducted
Class A: 5.12% 5.38%
Class B: 4.64% N/A
Class C: 4.62% N/A
o Total Return Information
o Average Annual Total Returns.
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The "average annual total return" of each class is an average annual
compounded rate of return for each year in a specified number of years. It is
the rate of return based on the change in value of a hypothetical initial
investment of $1,000 ("P" in the formula below) held for a number of years ("n")
to achieve an Ending Redeemable Value ("ERV") of that investment, according to
the following formula:
1/n
(ERV)
(---) -1 = Average Annual Total Return
( P )
o 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 , as described in the Prospectus. For Class
C shares, the payment of the 1% contingent deferred sales charge
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for the first twelve months is applied , as described in the Prospectus.
Total returns also assume that all
dividends and capital gains distributions during the period are reinvested to
buy additional shares at net asset value per share, and that the investment is
redeemed at the end of the period.
For the one year period ended July 31, 1997 and for the period from March
1, 1994 (commencement of offering) through July 31, 1997, the average annual
total returns on an investment in Class A shares of the Fund were 4.77% and
4.54%, respectively, and in Class B shares of the Fund over those periods were
4.18% and 4.41%, respectively. The cumulative total returns for Class A and
Class B shares for the latter period were 16.38% and 3.53%15.89%, respectively.
The average annual total returns on an investment in Class C shares for the one
year period ended July 31, 1997 and for the period August 29, 1995 through July
31, 1997 were 8.11% and 7.55%, respectively. For the period from August 29, 1995
through July 31, 1997, the cumulative total return on an investment in Class C
shares of the Fund was 15.01%.
o 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 for the Fund's Class A shares for the period from March 1, 1994
(commencement of offering) through July 31, 1997, and for the one year period
ended July 31, 1997 was 6.04% and 14.42%9.99%, respectively. The average annual
total returns at net asset value for the Fund's Class B shares for the period
from March 1, 1994 (commencement of offering) through July 31, 1997, and for the
one year period ended July 31, 4.00%1997 was 5.20% and 9.18%, respectively. The
average annual total returns at net asset value for the Fund's Class C shares
for the period from August 29, 1995 (commencement of offering) through July 31,
1997, and the one year period ended July 31, 1997 was 7.55% and 9.11%,
respectively.
The cumulative total return at net asset value on the Fund's Class C shares for
the period from 1August 29, 1995 through July 31, 1997 was
7.55%.
Total return information may be useful to investors in reviewing the
performance of the Fund's Class A, Class B or Class C shares.However, when
comparing total return of an investment in Class A, Class B or Class C shares of
the Fund, a number of factors should be considered before using such information
as a basis for comparison before using such information with other investments.
o 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, other than money market funds, and (ii) all other New
Jersey municipal bond funds. The Lipper performance rankings are based on total
returns that include the reinvestment of capital gain distributions and income
dividends but do not take sales charges or taxes into consideration.
From time to time the Fund may publish the star ranking of the
performance of its Class A, Class B or Class C shares by Morningstar, Inc., an
independent mutual fund monitoring service. Morningstar ranks mutual funds in
broad investment categories: domestic stock funds, international stock funds,
taxable bond funds and municipal bond hybrid)funds, based on risk-adjusted total
investment
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return. The Fund is ranked among the municipal bond funds. Investment return
measures a fund's or class's one, three, five and ten-year average annual total
returns (depending on the inception of the fund or class) in excess of 90-day
U.S. Treasury bill returns after considering the fund's sales charges and
expenses. Risk measures a fund's or class's performance below 90-day U.S.
Treasury bill returns. Risk and investment return are combined to produce star
rankings reflecting performance relative to the average fund in a fund's
category. Five stars is the "highest" ranking (top 10%), four stars is "above
average" (next 22.5%), three stars is "average" (next 35%), two stars is "below
average" (next 22.5%) and one star is "lowest" (bottom 10%). ranksThe current
star ranking is the fund's or class's 3-year ranking or its combined 3- and
5-year ranking (weighted 60%/40% respectively, or its combined 3-.
5- and 10-year ranking (weighted 40%, 30% and 30%, respectively),
depending on the inception of the fund or class. Rankings are subject to change
monthly.
The Fund may also compare its performance to that of other funds in its
Morningstar Category. In addition to its star rankings, Morningstar also
categorizes and compares a fund's 3-year performance based on Morningstar's
classification of the fund's investments and investment style, rather than how a
fund defines its investment objective. Morningstar's four broad categories
(domestic equity, international equity, municipal bond and taxable bond) are
each further subdivided into categories based on types of investments and
investment styles. Those comparisons by Morningstar are based on the same risk
and return measurements as its star rankings but do not consider the effect of
sales charges.
From time to time the Fund may include in its advertisements and sales
literature performance information about the Fund cited in newspapers and other
periodicals such as The New York Times, which may include performance quotations
from other sources, including Lipper and Morningstar. The performance of the
Fund's Class A, Class B or Class C shares may be compared in publications to (i)
the performance of various market indices or to other investments for which
reliable performance data is available, and (ii) to averages, performance
rankings or other benchmarks prepared by recognized mutual fund statistical
services.
Total return information may be useful to investors in reviewing the
performance of the Fund's Class A, Class B or Class C shares. However, when
comparing total return of an investment in Class A, Class B or Class C shares of
the Fund, a number of factors should be considered before using such information
as a basis for comparison before using such information with other investments.
For example, 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 or insured as to principal and interest by the U.S. government.
From time to time, the Fund's Manager may publish rankings or ratings of
the Manager (or the Transfer Agent), or 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 by a third party 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
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opinions of the rating or ranking service itself, based on its 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 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 its 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. Each 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 by a Securities and
Exchange Commission rule 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 Board and 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 for
its review, detailing 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 and the Class C Plan
shall also include the Distributor's distribution costs for that quarter, and
such costs for previous fiscal periods that have been carried forward, as
explained in the Prospectus and below. Those reports, including the allocations
on which they are based, will be subject to the review and approval of the
Independent Trustees in the exercise of their fiduciary duty. Each Plan further
provides that while it is in effect, the selection and nomination of those
Trustees of the Fund who are not "interested persons" of the Fund is committed
to the discretion of the Independent Trustees. This does not prevent the
involvement of others in such selection and nomination if the final decision as
to any such selection or nomination is approved by a majority of the Independent
Trustees.
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Under the Plans, no payment will be made to any Recipient in any quarter
if the aggregate net asset value of all Fund shares held by the Recipient for
itself and its customers did not exceed a minimum amount, if any, that may be
determined from time to time by a majority of the Fund's Independent Trustees.
Initially, the Board of Trustees has set the fees at the maximum rate allowed
under the Plans and set no minimum amount.
For the fiscal year ended July 31, 19961997, payments under the Class A
Plan totaled $32,884, all of which was retained by the Distributor . Any
unreimbursed expenses incurred with respect to
Class A
shares for any fiscal year by the Distributor may not be recovered in subsequent
years. Payments received by the Distributor under the Plan for Class A shares
will not be used to pay any interest expense, carrying charge, or other
financial costs, or allocation of overhead by the Distributor. At July 31, 1997,
the Distributor had incurred unreimbursed expenses under the Plan of $673,463
(equal to 3.61% of the Fund's net assets represented by Class B shares on that
date) . At July 31, 1997, the Distributor had incurred unreimbursed expenses
under the Plan of $28,927 (equal to 1.39% of the Fund's net assets represented
by Class C shares on that date) .
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 Class B shares are redeemed during the first year such
shares are outstanding, the Recipient will be obligated to repay a pro rata
portion of such advance payment to the Distributor. 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% 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 July 31, 1997, payments under the Class B
plan totaled $131,200, of which $0 was paid to an affiliate and $110,009, of
which was retained by the Distributor. For the fiscal year ended July 31, 1997,
payments under the Class C plan totaled $7,431, of which $6,322 was retained by
the Distributor.
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 on such shares, or
to pay Recipients the service fee on a quarterly basis, without payment in
advance, the Distributor presently intends to pay the service fee to Recipients
in the manner described above. A minimum holding period may be established from
time to time under the Class B 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 are subject to the limitations imposed by the Conduct Rules of the
National Association of Securities Dealers, Inc. on payments of asset-based
sales charges and service fees.
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. The
Distributor retains the asset-based sales charge on Class B shares. As to Class
C shares, the Distributor retains the asset-based sales charge during the first
year shares are outstanding, and pays the asset-based sales charge as an ongoing
commission to the dealer on Class C shares outstanding for a year or more. Such
payments are made to the Distributor under the Plans in recognition that the
Distributor (i) pays sales commissions to authorized brokers and dealers at the
time of sale and
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pays service fees, as described in the Prospectus, (ii) may finance such
commissions and/or the advance of the service fee payment to Recipients under
those Plans, or may provide such financing from its own resources, or from an
affiliate, (iii) employs personnel to support distribution of shares, and (iv)
may bear the costs of sales literature, advertising and prospectuses (other than
those furnished to current shareholders) and state "blue sky" registration fees
and certain other distribution expenses.
ABOUT YOUR ACCOUNT
How To Buy Shares
Alternative Sales Arrangements - Class A, Class B and Class C Shares. The
availability of three classes of shares permits an investor to choose the method
of purchasing shares that is more beneficial to the investor depending on the
amount of the purchase, the
length of time the investor expects to hold
shares and other relevant circumstances. Investors should understand that the
purpose and function of the deferred sales charge and asset-based sales charge
with respect to Class B and Class C shares are the same as those of the initial
sales charge with respect to Class A shares. Any salesperson or other person
entitled to receive compensation for selling Fund shares may receive different
compensation with respect to one class of shares than the other. The Distributor
will not accept any order for $500,000 or more of Class B shares or $1 million
or more of Class C shares on behalf of a single investor (not including dealer
"street name" or omnibus accounts) because generally it will be more
advantageous for that investor to purchase Class A shares of the Fund instead.
The three classes of shares each represent an interest in the same
portfolio investments of the Fund. However, each class has different shareholder
privileges and features. The net income attributable to Class B and Class C
shares and the dividends payable on such 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 unaffiliated Trustees, (v) custodian expenses, (vi)
share issuance costs, (vii) organization and start-up costs, (viii) interest,
taxes and brokerage commissions, and (ix) non-recurring expenses, such as
litigation costs. Other expenses that are directly attributable to a class are
allocated equally to each outstanding share within that class. Such
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expenses include (a) Distribution Plan and/or Service fees, (b) transfer and
shareholder servicing agent fees and expenses, (c) registration fees and (d)
shareholder meeting expenses, to the extent that such expenses pertain to a
specific class rather than to the Fund as a whole.
Determination of Net Asset Values Per Share. The net asset values per share of
Class A, Class B and Class C shares of the Fund are determined as of the close
of business of The New York Stock Exchange (the "Exchange") on each day that the
Exchange is open by dividing the value of the Fund's net assets attributable to
that class by the 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 other
days (for example, in case of weather emergencies or on days falling before a
holiday). The Exchange's most recent annual announcement (which is subject to
change) states that it will close on New Year's Day, Presidents' Day, 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 may be significantly
affected on such days 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 based on the mean
between the "bid" and "asked" prices determined by a portfolio pricing service
approved by the Fund's Board of Trustees or obtained by the Manager from two
active market makers in the security on the basis of reasonable inquiry; (ii)
debt instruments having a maturity of more than 397 days when issued, and
non-money market type instruments having a maturity of 397 days or less when
issued, which have a remaining maturity of 60 days or less are valued at the
mean between the "bid" and "asked" prices determined by a pricing service
approved by the Fund's Board of Trustees or obtained by the Manager from two
active market makers in the security on the basis of reasonable inquiry; (iii)
money market debt securities held by a non-money market fund that had a maturity
of less than 397 days when issued that have a remaining maturity of 60 days or
less, and debt instruments held by a money market fund that have a remaining
maturity of 397 days or less, shall be valued at cost, adjusted for amortization
of premiums and accretion of discounts; and (iv) securities (including
restricted securities) not having readily-available market quotations are valued
at fair value determined under the Board's procedures. If the Manager is unable
to locate two market makers willing to give quotes (see (i) and (ii) above), the
security may be priced by the mean between the "bid" and "asked" prices provided
by a single active market maker (which in certain cases may be the "bid" price
if no "asked" price is available.
In the case of Municipal Securities, U.S. Government securities and
corporate bonds, when last sale information is not generally available, such
pricing procedures may include "matrix" comparisons to the prices for comparable
instruments on the basis of quality, yield, maturity and other special factors
involved (such as the tax-exempt status of the interest paid by Municipal
Securities). The Manager may use pricing services approved by the Board of
Trustees to price any of the types of securities described above. The Manager
will monitor the accuracy of such pricing services, which may include comparing
prices used for portfolio evaluation to actual sales prices of selected
securities.
Puts, calls, Interest Rate Futures and Municipal Bond Index Futures are
valued at the last sales price on the principal exchange on which they are
traded or on NASDAQ, as applicable, as determined by a pricing service approved
by the Board of Trustees or by the Manager. If there were no sales that day,
value shall be the last sale price on the preceding trading day if it is within
the spread of the closing
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"bid" and "asked" prices on the principal exchange or on NASDAQ on the valuation
date, or, if not, the value shall be the closing "bid" price on the principal
exchange or on NASDAQ on the valuation date. If the put, call or future is not
traded on an exchange or on NASDAQ, it shall be valued by the mean between the
"bid" and "asked" prices obtained by the Manager from two active market makers
(which in certain cases may be the "bid" price if no "asked" price is
available).
When the Fund writes an option, an amount equal to the premium received is
included in the Fund's Statement of Assets and Liabilities as an asset, and an
equivalent credit is included in the liability section. The credit is adjusted
("marked-to-market") to reflect the current market value of the option. In
determining the Fund's gain on investments, if a call or put written by the Fund
is exercised, the proceeds are increased by the premium received. If a call or
put written by the Fund expires, the Fund has a gain in the amount of the
premium; if the Fund enters into a closing purchase transaction, it will have a
gain or loss depending on whether the premium received was more or less than the
cost of the closing transaction. If the Fund exercises a put it holds, the
amount the Fund receives on its sale of the underlying investment is reduced by
the amount of premium paid by the Fund.
AccountLink. When shares are purchased through AccountLink, each purchase must
be at least $25. Shares will be purchased on the regular business day the
Distributor is instructed to initiate the Automated Clearing House ("ACH")
transfer to buy the shares.
Dividends will begin to accrue on shares
purchased by the proceeds of ACH transfers on the business day the Fund receives
Federal Funds for the purchase through the ACH system before the close of The
New York Stock Exchange. The Exchange normally closes at 4:00 P.M., but may
close earlier on certain days. If Federal Funds are received on a business day
after the close of the Exchange, the shares will be purchased and dividends will
begin to accrue on the next regular business day. The proceeds of ACH transfers
are normally received by the Fund 3 days after the transfers are initiated.
The Distributor and the Fund are not
responsible for any delays in purchasing shares resulting from
delays in ACH transmissions.
Reduced Sales Charges. As discussed in the Prospectus, a reduced sales charge
rate may be obtained for Class A shares under Right of Accumulation and Letters
of Intent because of the economies of sales efforts and reduction in expenses
realized by the Distributor, dealers and brokers making such sales. No sales
charge is imposed in certain other circumstances described in the Prospectus
because the Distributor or dealer or broker 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, aunts,
uncles, nieces and nephews.
Relations by virtue of a remarriage
(step-children, step-parents, etc.) are included.
o 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 Municipal Bond Fund
Oppenheimer New York Municipal Fund
Oppenheimer California Municipal Fund
Oppenheimer Intermediate Municipal Fund
Oppenheimer Insured Municipal Fund
Oppenheimer Main Street California
Municipal Fund
Oppenheimer Florida Municipal Fund
Oppenheimer Pennsylvania Municipal Fund
Oppenheimer Discovery Fund
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<PAGE>
Oppenheimer Capital Appreciation Fund Oppenheimer Growth Fund Oppenheimer Equity
Income Fund Oppenheimer Multiple Strategies Fund Oppenheimer Total Return Fund,
Inc. Oppenheimer Main Street Income & Growth Fund Oppenheimer New Jersey
Municipal 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 Growth & Income Fund
Oppenheimer Gold & Special Minerals Fund Oppenheimer Strategic Income Fund
Oppenheimer International Bond Fund Oppenheimer Enterprise Fund Oppenheimer
International Growth Fund Oppenheimer Developing Markets Fund Oppenheimer Real
Asset 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 Quest Capital Value Fund
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<PAGE>
, 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
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
these funds.
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There is an initial sales charge on the purchase of Class A shares of each
of the Oppenheimer funds except Money Market Funds (under certain circumstances
described herein, redemption proceeds of Money Market Fund shares may be subject
to a contingent deferred sales charge).
o Letters of Intent. A Letter of Intent (referred to as a "Letter") is an
investor's statement in writing to the Distributor of the intention to purchase
Class A shares or Class A and Class B shares of the Fund (and other Oppenheimer
funds) during a 13-month period (the "Letter of Intent period"), which may, at
the investor's request, include purchases made up to 90 days prior to the date
of the Letter. The Letter states the investor's intention to make the aggregate
amount of purchases of shares which, when added to the investor's holdings of
shares of those funds, will equal or exceed the amount specified in the Letter.
Purchases made by reinvestment of dividends or distributions of capital gains
and purchases made at net asset value without sales charge do not count toward
satisfying the amount of the Letter. A Letter enables an investor to count the
Class A and Class B shares purchased under the Letter to obtain the reduced
sales charge rate on purchases of Class A shares of the Fund (and other
Oppenheimer funds) that applies under the Right of Accumulation to current
purchases of Class A shares. Each purchase of Class A shares under the Letter
will be made at the public offering price (including the sales charge) that
applies to a single lump-sum purchase of shares in the amount intended to be
purchased under the Letter.
In submitting a Letter, the investor makes no commitment to purchase
shares, 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
total purchases. If total eligible purchases during the Letter of Intent period
exceed the intended purchase amount and exceed the amount needed to qualify for
the next sales charge rate reduction set forth in the 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.
o Terms of Escrow That Apply to Letters of Intent.
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1. Out of the initial purchase (or subsequent purchases if necessary) made
pursuant to a Letter, shares of the Fund equal in value up to 5% of the intended
purchase amount specified in the Letter shall be held in escrow by the Transfer
Agent. For example, if the intended purchase amount is $50,000, the escrow shall
be shares valued in the amount of $2,500 (computed at the public offering price
adjusted for a $50,000 purchase). Any dividends and capital gains distributions
on the escrowed shares will be credited to the investor's account.
2. If the total minimum investment specified under the Letter is completed
within the thirteen- month Letter of Intent period, the escrowed shares will be
promptly released to the investor.
3. If, at the end of the thirteen-month Letter of Intent period the total
purchases pursuant to the Letter are less than the intended purchase amount
specified in the Letter, the investor must remit to the Distributor an amount
equal to the difference between the dollar amount of sales charges actually paid
and the amount of sales charges which would have been paid if the total amount
purchased had been made at a single time. 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 of other Oppenheimer funds acquired subject to
a contingent deferred sales charge, and (c) Class A or Class B shares acquired
in exchange for either (i) Class A shares sold with a front-end sales charge or
Class B shares of one of the other Oppenheimer funds that were acquired subject
to a Class A initial or contingent deferred sales charge or (ii) Class B shares
of one of the other OppenheimerFundsOppenheimer funds that were acquired subject
to a contingent deferred sales charge.
6. Shares held in escrow hereunder will automatically be exchanged for
shares of another fund to which an exchange is requested, as described in the
section of the Prospectus entitled "How to Exchange Shares," and the escrow will
be transferred to that other
fund.
Asset Builder Plans. To establish an Asset Builder Plan 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 Oppenheimer funds.
If you make payments from your bank account to purchase shares of the
Fund, your bank account will be automatically debited normally four to five
business days prior to the investment dates selected in the Account Application.
Neither the Distributor, the Transfer Agent nor the Fund shall be responsible
for any delays in purchasing shares resulting from delays in ACH transmission.
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There is a front-end sales charge on the purchase of certain Oppenheimer
funds, or a contingent deferred sales charge may apply to shares purchased by
Asset Builder payments. An application should be obtained from the Distributor,
completed and returned, and a prospectus of the selected fund(s) should be
obtained from the Distributor or your financial advisor 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
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.
By choosing the Checkwriting privilege, whether you do so by signing the
Account Application or by completing a Checkwriting card, the individuals
signing (1) represent that they are either the registered owner(s) of the shares
of the Fund, or are an officer, general partner, trustee or other fiduciary or
agent, as applicable, duly authorized to act on behalf of such registered
owner(s); (2) authorize the Fund, its Transfer Agent and any bank through which
the Fund's drafts ("checks") are payable (the "Bank"), to pay all checks drawn
on the Fund account of such person(s) and to effect a redemption of sufficient
shares in that account to cover payment of such checks; (3) specifically
acknowledge(s) that if you choose to permit a single signature on checks drawn
against joint accounts, or accounts for corporations, partnerships, trusts or
other entities, the signature of any one signatory on a check will be sufficient
to authorize payment of that check and redemption from an account even if that
account is registered in the names of more than one person or even if more than
one authorized signature appears on the Checkwriting card or the Application, as
applicable; and (4) understand(s) that the Checkwriting privilege may be
terminated or amended at any time by the Fund and/or the Bank and neither shall
incur any liability for such amendment or termination or for effecting
redemptions to pay checks reasonably believed to be genuine, or for returning or
not paying checks which have not been accepted for any reason.
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.
o 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 those
shares is less than $200 or such lesser amount as the Board may
fix. The Board of Trustees will not
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cause the involuntary redemption of shares in an account if the aggregate net
asset value of the shares has fallen below the stated minimum solely as a result
of market fluctuations. Should the Board elect to exercise this right, it may
also fix, in accordance with the Investment Company Act, the requirements for
any notice to be given to the shareholders in question (not less than 30 days),
or the Board may set requirements for the shareholder to increase the
investment, and set other terms and conditions so that the shares would not be
involuntarily redeemed.
o 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 its portfolio securities described above under
"Determination of Net Asset Values Per Share" and that valuation will be made as
of the time the redemption price is determined.
Reinvestment Privilege. Within six months of a redemption, a shareholder may
reinvest all or part of the redemption proceeds of (i) Class A shares that you
purchase subject to an initial sales charge or Class A contingent deferred sales
charge which was paid, 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 in
"How to Exchange Shares" below, at the net asset value next computed after the
Transfer Agent receives the reinvestment order. This reinvestment 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.
Transfers of Shares. Shares are not subject to the payment of a contingent
deferred sales charge of any class at the time of transfer to the name of
another person or entity (whether the transfer occurs by absolute assignment,
gift or bequest, not involving, directly or indirectly, a public sale). The
transferred shares will remain subject to the contingent deferred sales charge,
calculated as if the transferee shareholder had acquired the transferred shares
in the same manner and at the same time as the transferring shareholder. If less
than all shares held in an account are transferred, and some but not all shares
in the account would be subject to a contingent deferred sales charge if
redeemed at the time of transfer, the priorities described in the Prospectus
under "How to Buy Shares" for the imposition of the
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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 customers prior to the time
the Exchange closes (normally, that is 4:00 P.M. but may be earlier on some
days) and the order was transmitted to and received by the Distributor prior to
its close of business that day (normally 5:00 P.M.). Ordinarily, for accounts
redeemed by a broker-dealer under this procedure, payment will be made within
three business days after the shares have been redeemed upon the Distributor's
receipt of the required redemption documents in proper form, with the
signature(s) of the registered owners guaranteed on the redemption document as
described in the Prospectus.
Automatic Withdrawal and Exchange Plans. Investors owning shares of the Fund
valued at $5,000 or more can authorize the Transfer Agent to redeem shares
(minimum $50) automatically on a monthly, quarterly, semi-annual or annual basis
under an Automatic Withdrawal Plan. Shares will be redeemed three business days
prior to the date requested by the shareholder for receipt of the payment.
Automatic withdrawals of up to $1,500 per month may be requested by telephone if
payments are to be made by check payable to all shareholders of record and sent
to the address of record for the account (and if the address has not been
changed within the prior 30 days). Required minimum distributions from
OppenheimerFunds-sponsored retirement plans may not be arranged on this basis.
Payments are normally made by check, but shareholders having AccountLink
privileges (see "How To Buy Shares") may arrange to have Automatic Withdrawal
Plan payments transferred to the bank account designated on the OppenheimerFunds
New Account Application or signature-guaranteed instructions. Shares are
normally redeemed pursuant to an Automatic Withdrawal Plan three business days
before the date you select in the Account Application. If a contingent deferred
sales charge applies to the redemption, the amount of the check or payment will
be reduced accordingly. The Fund cannot guarantee receipt of a payment on the
date requested 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 contingent deferred sales charge is
waived as described in the Prospectus under "Waivers of Class B and Class C
Sales Charges").
By requesting an Automatic Withdrawal or Exchange Plan, the shareholder
agrees to the terms and conditions applicable to such plans, as stated below ,
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.
o 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
-49-
<PAGE>
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.
o 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.
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. Neither the
Fund nor the Transfer Agent shall incur any 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
-50-
<PAGE>
Agent will determine the number of shares for which a certificate may be issued
without causing the withdrawal checks to stop because of exhaustion of
uncertificated shares needed to continue payments. However, should such
uncertificated shares become exhausted, Plan withdrawals will terminate.
If the Transfer Agent ceases to act as transfer agent for the Fund, the
Planholder will be deemed to have appointed any successor transfer agent to act
as agent in administering the Plan.
How to Exchange Shares
As stated in the Prospectus, shares of a particular class of Oppenheimer
funds having more than one class of shares may be exchanged only for shares of
the same class of other Oppenheimer funds. Shares of the Oppenheimer funds that
have a single class 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 Municipal Fund which only offers Class A and
Class B shares, (Class B and Class C shares of Oppenheimer Cash Reserves are
generally available only by exchange from the same class of shares of other
Oppenheimer funds or through OppenheimerFunds sponsored 401(k) plans). A current
list showing which funds offer which classes can be obtained by calling the
Distributor at 1-800-525-7048.
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
.
Exchanges to Class M shares of Oppenheimer Bond Fund for Growth are permitted
from Class A shares of Oppenheimer Money Market Fund, Inc. or Oppenheimer Cash
Reserves that were acquired by exchange from Class M shares. Otherwise no
exchanges of any class of any Oppenheimer fund into Class M shares are
permitted.
Class A shares of Oppenheimer funds may be exchanged 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 the Fund acquired by reinvestment of dividends or distributions
from any of the other Oppenheimer funds or from any unit investment trust for
which reinvestment arrangements have been made with the Distributor may be
exchanged at net asset value for shares of any of the Oppenheimer funds. No
contingent deferred sales charge is imposed on exchanges of shares of any class
purchased subject to a contingent deferred sales charge. However, when Class A
shares acquired by exchange of Class A shares of other Oppenheimer funds
purchased subject to a Class A contingent deferred sales charge are redeemed
within 12 months of the end of the calendar month of the initial purchase of the
exchanged Class A shares (18 months if the shares were initially purchased prior
to May 1, 1997), the Class A contingent deferred sales charge is imposed on the
redeemed shares (see "Class A Contingent
-51-
<PAGE>
Deferred Sales Charge" in the Prospectus). The Class B contingent deferred sales
charge is imposed on Class B shares acquired by exchange if they are redeemed
within six years of the initial purchase of the exchanged Class B shares. The
Class C contingent deferred sales charge is imposed on Class C shares acquired
by exchange if they are redeemed within 12 months of the initial purchase of the
exchanged Class C shares.
The Fund reserves the right to reject telephone or written exchange
requests submitted in bulk by anyone on behalf of 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 Class B or Class C shares are redeemed to effect an exchange, the
priorities described in "How To Buy Shares" in the Prospectus for the imposition
of the Class B or Class C contingent deferred sales charge will be followed in
determining the order in which the shares are exchanged. Shareholders should
take into account the effect of any exchange on the applicability and rate of
any contingent deferred sales charge that might be imposed in the subsequent
redemption of remaining shares. Shareholders owning shares of more than one
Class must specify whether they intend to exchange Class A, Class B or Class C
shares.
When exchanging shares by telephone, a shareholder must either have an
existing account in, or obtain and acknowledge receipt of a prospectus of, the
fund to which the exchange is to be made. For full or partial exchanges of an
account made by telephone, any special account features such as Asset Builder
Plans and Automatic Withdrawal Plans will be switched to the new account unless
the Transfer Agent is instructed otherwise. If all telephone lines are busy
(which might occur, for example, during periods of substantial market
fluctuations), shareholders might not be able to request exchanges by telephone
and would have to submit written exchange requests.
Shares to be exchanged are redeemed on the regular business day the
Transfer Agent receives an exchange request in proper form (the "Redemption
Date").
Normally, shares of the fund to be
acquired are purchased on the Redemption Date, but such purchases may be delayed
by either fund up to five business days if it determines that it would be
disadvantaged by an immediate transfer of the redemption proceeds. The Fund
reserves the right, in its discretion, to refuse any exchange request that may
disadvantage it (for example, if the receipt of multiple exchange requests from
a dealer might require the disposition of portfolio securities at a time or at a
price that might be disadvantageous to the Fund).
The different Oppenheimer funds available for exchange have different
investment objectives, policies and risks, and a shareholder should assure that
the Fund selected is appropriate for his or her investment and should be aware
of the tax consequences of an exchange. For federal income tax purposes, an
exchange transaction is treated as a redemption of shares of one fund and a
purchase of shares of another. "Reinvestment Privilege," above, discusses some
of the tax consequences of reinvestment of redemption proceeds in such cases.
The Fund, the Distributor, and the Transfer Agent are unable to provide
investment, tax or legal advice to a shareholder in connection with an exchange
request or any other investment transaction.
Dividends, Capital Gains and Taxes
-52-
<PAGE>
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 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.
Distributions may be made annually in December out of any net short-term
or long-term capital gains realized from the sale of securities, premiums from
expired calls written by the Fund and net profits from hedging instruments and
closing purchase transactions realized in the twelve months ending on October 31
of the current year. Any difference between the net asset values of the classes
of shares will be reflected in such distributions. Distributions from net
short-term capital gains are taxable to shareholders as ordinary income and when
paid by the Fund are considered "dividends." The Fund may make a supplemental
distribution of capital gains and ordinary income following the end of its
fiscal year. Long-term capital gains distributions, if any are taxable as
long-term capital gains whether received in cash or reinvested and regardless of
how long Fund shares have been held. There is no fixed dividend rate (although
the Fund has a targeted dividend rate for Class A shares) and there can be no
assurance as to the payment of any dividends or the realization of any capital
gains.
Tax Status of the Fund's Dividends and Distributions. The Fund intends to
qualify under the Internal Revenue Code during each fiscal year to pay
"exempt-interest dividends" to its shareholders. Exempt- interest dividends
which are derived from net investment income earned by the Fund on Municipal
Securities will be excludable from gross income of shareholders for Federal
income tax purposes. Net investment income includes the allocation of amounts of
income from the Municipal Securities in the Fund's portfolio which are free from
Federal income taxes. This allocation will be made by the use of one designated
percentage applied uniformly to all income dividends made during the Fund's tax
year. Such designation will normally be made following the end of each fiscal
year as to income dividends paid in the prior year. The percentage of income
designated as tax-exempt may substantially differ from the percentage of the
Fund's income that was tax-exempt for a given period. All of the Fund's
dividends (excluding capital gains distributions) paid during 1997 were exempt
from Federal and New Jersey 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. The amount of any dividends attributable
to tax preference items for purposes of the alternative minimum tax will be
identified when
-53-
<PAGE>
tax information is distributed by the Fund. 12% of the Fund's
dividends (excluding distributions) paid
during 1997 were a tax preference item for shareholders
subject to the alternative minimum tax.
A shareholder receiving a dividend from income earned by the Fund from one
or more of: (1) certain taxable temporary investments (such as certificates of
deposit, repurchase agreements, commercial paper and obligations of the U.S.
government, its agencies and instrumentalities); (2) income from securities
loans; (3) income or gains from options or Futures; or (4) an excess of net
short-term capital gain over net long-term capital loss from the Fund, treats
the dividend as a receipt of either ordinary income or long-term capital gain in
the computation of gross income, regardless of whether the dividend is
reinvested. The Fund's dividends will not be eligible for the dividends-received
deduction for corporations. Shareholders receiving Social Security benefits
should be aware that exempt-interest dividends are a factor in determining
whether such benefits are subject to Federal income tax. Losses realized by
shareholders on the redemption of Fund shares within six months of purchase
(which period may be shortened by regulation) will be disallowed for Federal
income tax purposes to the extent of exempt-interest dividends received on such
shares.
If the Fund qualifies as a "regulated investment company" under the
Internal Revenue Code, it will not be liable for Federal income taxes on amounts
paid by it as dividends and distributions. The Fund qualified as a regulated
investment company in its last
fiscal year and intends to qualify in future
years, but reserves the right not to qualify. The Internal Revenue Code contains
a number of complex tests to determine whether the Fund will qualify, and the
Fund might not meet those tests in a particular year. For example, if the Fund
derives 30% or more of its gross income from the sale of securities held less
than three months, it may fail to qualify (see "Tax Aspects of Covered Calls and
Hedging Instruments," above). If it does not qualify, the Fund will be treated
for tax purposes as an ordinary corporation and will receive no tax deduction
for payments of dividends and distributions made to shareholders.
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 might 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.
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
-54-
<PAGE>
funds 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 certain of the
OppenheimerFunds 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 has represented to the Fund that the banking relationships between the
Manager and the Custodian have been and will continue to be unrelated to and
unaffected by the relationship between the Fund and the Custodian. It will be
the practice of the Fund to deal with the Custodian in a manner uninfluenced by
any banking relationship the Custodian may have with the Manager 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.
-55-
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Trustees and Shareholders of Oppenheimer New Jersey Municipal Fund:
We have audited the accompanying statements of investments and assets and
liabilities of Oppenheimer New Jersey Municipal Fund (formerly Oppenheimer New
Jersey Tax-Exempt Fund) (a series of Oppenheimer Multi-State Municipal Trust) as
of July 31, 1997, the related statement of operations for the year then ended,
the statements of changes in net assets for the year then ended, the seven-month
period ended July 31, 1996 and the year ended December 31, 1995, and the
financial highlights for the year ended July 31, 1997, the seven-month period
ended July 31, 1996, the year ended December 31, 1995 and the period from March
1, 1994 (commencement of operations) to December 31, 1994. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of July
31, 1997, by correspondence with the custodian and brokers; where replies were
not received from brokers, we performed other auditing procedures. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Oppenheimer New Jersey Municipal Fund as of July 31, 1997, the results of its
operations for the year then ended, the changes in its net assets for the year
ended July 31, 1997, the seven-month period ended July 31, 1996, and the year
ended December 31, 1995, and the financial highlights for the year ended July
31, 1997, the seven-month period ended July 31, 1996, the year ended December
31, 1995 and the period from March 1, 1994 (commencement of operations) to
December 31, 1994, in conformity with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Denver, Colorado
August 21, 1997
<PAGE>
======================================
STATEMENT OF INVESTMENTS JULY 31, 1997
<TABLE>
<CAPTION>
RATINGS: MOODY'S/
S&P/FITCH FACE MARKET
VALUE
(UNAUDITED) AMOUNT SEE
NOTE 1
===============================================================================================================================
MUNICIPAL BONDS AND NOTES - 99.1%
- -------------------------------------------------------------------------------------------------------------------------------
NEW JERSEY - 90.3%
<S> <C> <C> <C>
Bayonne, NJ GOB, FGIC Insured, 6%, 5/1/13 Aaa/AAA/AAA $
100,000 $ 106,803
- -------------------------------------------------------------------------------------------------------------------------------
Bergen Cnty., NJ MUAU Water PC RB, Prerefunded,
Series A, FGIC Insured, 6.50%, 12/15/12 Aaa/AAA/AAA 400,000
447,136
- -------------------------------------------------------------------------------------------------------------------------------
Camden Cnty., NJ MUAU Sewer RB, Unrefunded Balance,
FGIC Insured, 8.125%, 12/1/07 Aaa/AAA 245,000
253,759
- -------------------------------------------------------------------------------------------------------------------------------
DE River Joint Toll Bridge Commission RB, Interstate 78,
Prerefunded, FGIC Insured, 7.80%, 7/1/18 Aaa/AAA/AAA
175,000 184,732
- -------------------------------------------------------------------------------------------------------------------------------
DE River Port Authority RB, FGIC Insured, 5.50%, 1/1/26 Aaa/AAA/AAA
1,000,000 1,019,810
- -------------------------------------------------------------------------------------------------------------------------------
DE River Port Authority RRB, Delaware River Bridges,
AMBAC Insured, 7.375%, 1/1/07 Aaa/AAA/AAA 750,000
799,102
- -------------------------------------------------------------------------------------------------------------------------------
East Orange, NJ GOB, FSA Insured, 8.40%, 8/1/06 Aaa/AAA
1,000,000 1,281,400
- -------------------------------------------------------------------------------------------------------------------------------
Essex Cnty., NJ Improvement Authority Lease RB,
Prerefunded, AMBAC Insured, 7%, 12/1/20 Aaa/AAA/AAA
150,000 166,407
- -------------------------------------------------------------------------------------------------------------------------------
Essex Cnty., NJ Improvement Authority RB, Utility System-
Orange Franchise, Series A, MBIA Insured, 5.75%, 7/1/27 Aaa/AAA
1,000,000 1,044,480
- -------------------------------------------------------------------------------------------------------------------------------
Hoboken, Union City & Weehawken, NJ Sewer Authority
RB, Prerefunded, MBIA Insured, 7.25%, 8/1/19 Aaa/AAA 1,770,000
1,914,910
- -------------------------------------------------------------------------------------------------------------------------------
Hoboken, Union City & Weehawken, NJ Sewer Authority
RRB, MBIA Insured, 6.20%, 8/1/19 Aaa/AAA 85,000
92,090
- -------------------------------------------------------------------------------------------------------------------------------
Hudson Cnty., NJ COP, Correctional Facility
Improvements, Prerefunded, BIG Insured, 7.60%, 12/1/21 Aaa/AAA
900,000 960,516
- -------------------------------------------------------------------------------------------------------------------------------
Hudson Cnty., NJ MUAU System RB, Prerefunded,
11.875%, 7/1/06 Aaa/AAA 520,000
670,514
- -------------------------------------------------------------------------------------------------------------------------------
Lacey, NJ MUAU Water RB, Prerefunded, BIG Insured,
7%, 12/1/16 Aaa/AAA 500,000 542,940
- -------------------------------------------------------------------------------------------------------------------------------
Mercer Cnty., NJ Improvement Authority RB, Justice
Complex Project, 6.05%, 1/1/11 Aa/AA- 250,000
250,125
- -------------------------------------------------------------------------------------------------------------------------------
New Brunswick, NJ Parking Authority RRB, Series A,
FGIC Insured, 6.50%, 9/1/19 Aaa/AAA 150,000
166,243
- -------------------------------------------------------------------------------------------------------------------------------
Newark, NJ GOB, Additional State School Building
Aid, 10%, 6/1/03 A/AA 720,000 920,254
- -------------------------------------------------------------------------------------------------------------------------------
NJ EDAU PC RB, Public Service Electric & Gas Co.
Project, Series A, MBIA Insured, 6.40%, 5/1/32 Aaa/AAA 500,000
545,900
- -------------------------------------------------------------------------------------------------------------------------------
NJ EDAU RB, Market Transition Facility, Series A,
MBIA Insured, 7%, 7/1/03 Aaa/AAA 1,250,000
1,419,712
- -------------------------------------------------------------------------------------------------------------------------------
NJ EDAU Water Facilities RB, American Water Co., Inc.
Project, Series A, FGIC Insured, 6.875%, 11/1/34 Aaa/AAA/AAA
500,000 564,675
- -------------------------------------------------------------------------------------------------------------------------------
NJ Educational FA RRB, Monmouth University, Series C,
5.80%, 7/1/22 Baa2/BBB 1,000,000
1,020,660
- -------------------------------------------------------------------------------------------------------------------------------
NJ GOB, Series D, 8%, 2/15/07 Aa1/AA+/AA+ 400,000
507,600
</TABLE>
5 Oppenheimer New Jersey Municipal Fund
<PAGE>
<TABLE>
<CAPTION>
====================================
STATEMENT OF INVESTMENTS (CONTINUED)
RATINGS: MOODY'S/
S&P/FITCH FACE MARKET
VALUE
(UNAUDITED) AMOUNT SEE
NOTE 1
- -------------------------------------------------------------------------------------------------------------------------------
NEW JERSEY (CONTINUED)
NJ HCF FAU RB:
<S> <C> <C> <C>
Centrastate Medical Center, Series A, AMBAC Insured,
6%, 7/1/21 Aaa/AAA/AAA $ 100,000 $
103,118
Columbus Hospital, Series A, 7.50%, 7/1/21 Baa3/BBB- 1,000,000
1,077,380
Southern Ocean Cnty. Hospital, Series A, 6.25%, 7/1/23 Baa/NR/BBB
1,000,000 1,042,090
St. Elizabeth Hospital Obligation Group, 6%, 7/1/20 Baa3/BBB
1,000,000 1,033,510
St. Josephs Hospital & Medical Center, Series A,
Connie Lee Insured, 6%, 7/1/26 NR/AAA/A- 750,000
799,462
- -------------------------------------------------------------------------------------------------------------------------------
NJ HFAU RRB, Dover General Hospital & Medical Center,
MBIA Insured, 7%, 7/1/03 Aaa/AAA 1,000,000
1,138,560
- -------------------------------------------------------------------------------------------------------------------------------
NJ Mtg. & HFA MH RB, Series A, AMBAC Insured,
6.25%, 5/1/28 Aaa/AAA 1,000,000
1,042,010
- -------------------------------------------------------------------------------------------------------------------------------
NJ Mtg. & HFA RB:
Home Buyer, Series J, MBIA Insured, 6.20%, 10/1/25 Aaa/AAA
200,000 207,992
Series S, MBIA Insured, 6.05%, 10/1/28 Aaa/AAA 1,000,000
1,037,210
- -------------------------------------------------------------------------------------------------------------------------------
NJ Mtg. & HFA RRB, Series 1, 6.70%, 11/1/28 NR/A+ 150,000
159,502
- -------------------------------------------------------------------------------------------------------------------------------
NJ Sports & Exposition Authority RB, Convention Center
Luxury Tax, Series A, MBIA Insured, 6.25%, 7/1/20 Aaa/AAA
80,000 86,767
- -------------------------------------------------------------------------------------------------------------------------------
NJ Transportation Trust Fund Authority RB,
Transportation System, Series B, 5%, 6/15/17 Aa3/A+/AA 1,000,000
981,420
- -------------------------------------------------------------------------------------------------------------------------------
NJ Turnpike Authority RRB, Series C:
6.50%, 1/1/16 Baa1/BBB+/A- 950,000
1,095,170
MBIA Insured, 6.50%, 1/1/09 Aaa/AAA 1,000,000
1,171,130
- -------------------------------------------------------------------------------------------------------------------------------
NJ Wastewater Treatment Trust RRB, Series A,
MBIA Insured, 7%, 9/1/07(1) Aaa/AAA/AAA 810,000
972,656
- -------------------------------------------------------------------------------------------------------------------------------
North Brunswick Township, NJ GOB, 6.40%, 5/15/08 A1/A+
500,000 545,385
- -------------------------------------------------------------------------------------------------------------------------------
North Jersey District Water Supply RRB, Wanaque North
Project, Series A, MBIA Insured, 5.125%, 11/15/21 Aaa/AAA
1,000,000 986,930
- -------------------------------------------------------------------------------------------------------------------------------
Ocean Cnty., NJ GOB:
7.40%, 10/15/00 Aa2/AA-/AA 1,400,000
1,541,316
7.50%, 10/15/01 Aa2/AA-/AA 500,000
565,530
- -------------------------------------------------------------------------------------------------------------------------------
PAUNYNJ Consolidated RB:
69th Series, 7.125%, 6/1/25 A1/AA-/AA- 600,000
651,372
94th Series, 6%, 12/1/14 A1/AA-/AA- 200,000
214,038
- -------------------------------------------------------------------------------------------------------------------------------
PAUNYNJ RRB, Prerefunded, Seventy-Second Series,
7.35%, 10/1/27 A1/AA- 470,000 543,179
- -------------------------------------------------------------------------------------------------------------------------------
PAUNYNJ Special Obligation RB, JFK International Air
Terminal, Series 6, MBIA Insured, 7%, 12/1/12 Aaa/AAA 2,000,000
2,431,900
- -------------------------------------------------------------------------------------------------------------------------------
PAUNYNJ Special Obligation RRB, KIAC-4 Project, 5th
Installment, 6.75%, 10/1/19 NR/NR 900,000
977,184
- -------------------------------------------------------------------------------------------------------------------------------
Pennsauken Township, NJ BOE COP, BIG Insured,
Prerefunded, 7.70%, 7/15/09 Aaa/AAA 500,000
544,450
- -------------------------------------------------------------------------------------------------------------------------------
Sussex Cnty., NJ General Improvement GOB, AMBAC
Insured, 6%, 4/1/07 Aaa/AAA/AAA 135,000
145,800
------------
35,974,829
</TABLE>
6 Oppenheimer New Jersey Municipal Fund
<PAGE>
<TABLE>
<CAPTION>
====================================
STATEMENT OF INVESTMENTS (CONTINUED)
RATINGS: MOODY'S/
S&P/FITCH FACE MARKET
VALUE
(UNAUDITED) AMOUNT SEE
NOTE 1
- -------------------------------------------------------------------------------------------------------------------------------
U.S. POSSESSIONS - 8.8%
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Guam PAU RB, Series A, 6.30%, 10/1/22 NR/BBB $ 185,000
$ 193,096
- -------------------------------------------------------------------------------------------------------------------------------
PR Commonwealth Aqueduct & Sewer Authority RB,
Escrowed to Maturity, 10.25%, 7/1/09 Aaa/AAA 460,000
649,874
- -------------------------------------------------------------------------------------------------------------------------------
PR Commonwealth HTAU RB, Series Y, 5%, 7/1/36 Baa1/A
1,000,000 957,080
- -------------------------------------------------------------------------------------------------------------------------------
PR Commonwealth HTAU RRB, Series V, 6.625%, 7/1/12 Baa1/A
300,000 330,183
- -------------------------------------------------------------------------------------------------------------------------------
PR EPAU RB, Unrefunded Balance, Series O, 7.125%,
7/1/14 Baa1/BBB+ 540,000 579,674
- -------------------------------------------------------------------------------------------------------------------------------
PR Industrial Tourist Educational Medical &
Environmental Control Facilities RB, Polytechnic
University Project, Series A, 6.50%, 8/1/24 NR/BBB- 415,000
451,346
- -------------------------------------------------------------------------------------------------------------------------------
Virgin Islands Housing FAU Single Family RRB, Series A,
6.50%, 3/1/25 NR/AAA 350,000
368,323
------------
3,529,576
------------
Total Municipal Bonds and Notes (Cost $38,067,160)
39,504,405
</TABLE>
<TABLE>
DATE STRIKE CONTRACTS
===============================================================================================================================
CALL OPTIONS PURCHASED - 0.1%
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury Bonds, 30 yr. Futures, 12/97 Call Opt.
(Cost $21,044) 11/97 $120 36 31,500
- -------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS, AT VALUE (COST $38,088,205)
99.2% 39,535,905
- -------------------------------------------------------------------------------------------------------------------------------
OTHER ASSETS NET OF LIABILITIES 0.8
299,812
---------- ------------
NET ASSETS 100.0% $39,835,717
========== ============
</TABLE>
<TABLE>
To simplify the listings of securities abbreviations are used per the table
below:
<S> <C>
BOE - Board of Education HFAU - Health Facilities Authority
COP - Certificates of Participation HTAU - Highway & Transportation Authority
EDAU -Economic Development Authority MH - Multifamily Housing
EPAU - Electric Power Authority MUAU - Municipal Utilities Authority
FA - Facilities Authority PAUNYNJ - Port Authority of New York & New Jersey
FAU - Finance Authority PAU - Power Authority
GOB - General Obligation Bonds PC - Pollution Control
HCF - Health Care Facilities RB - Revenue Bonds
HFA - Housing Finance Agency RRB - Revenue Refunding Bonds
</TABLE>
1. Securities with an aggregate market value of $120,081 are held in
collateralized accounts to cover initial margin requirements on open futures
sales contracts. See Note 5 of Notes to Financial Statements.
As of July 31, 1997, securities subject to the alternative minimum tax amount to
$7,175,194 or 18.01% of the Fund's net assets.
7 Oppenheimer New Jersey Municipal Fund
<PAGE>
<TABLE>
<CAPTION>
====================================
STATEMENT OF INVESTMENTS (CONTINUED)
Distribution of investments by industry, as a percentage of total investments at
value, is as follows:
INDUSTRY MARKET VALUE
PERCENT
- -------- ------------ -------
<S> <C> <C>
Highways $ 6,704,870 17.0%
Hospital/Healthcare 5,194,121 13.0
Marine/Aviation Facilities 4,817,673 12.1
General Obligation 4,693,834 11.9
Sewer Utilities 3,233,415 8.2
Telephone Utilities 2,478,546 6.3
Lease Rental 1,921,498 4.9
Water Utilities 1,863,328 4.7
Single Family Housing 1,613,525 4.1
Special Assessment 1,419,712 3.6
Higher Education 1,371,599 3.5
Multi-Family Housing 1,201,513 3.0
Education 1,020,660 2.6
Electric Utilities 772,769 2.0
Corporate Backed 564,675 1.4
Pollution Control 545,900 1.4
Sales Tax 86,767 0.2
Options-Treasury 31,500 0.1
------------ -----
$39,535,905 100.0%
============ =====
</TABLE>
See accompanying Notes to Financial Statements.
8 Oppenheimer New Jersey Municipal Fund
<PAGE>
<TABLE>
<CAPTION>
=================================================
STATEMENT OF ASSETS AND LIABILITIES JULY 31, 1997
=================================================================================================================
ASSETS
<S> <C>
Investments, at value (cost $38,088,205) - see accompanying statement
$39,535,905
- -----------------------------------------------------------------------------------------------------------------
Cash 456,805
- -----------------------------------------------------------------------------------------------------------------
Receivables:
Interest 515,020
Shares of beneficial interest sold 442,768
Daily variation on futures contracts - Note 5 15,000
- -----------------------------------------------------------------------------------------------------------------
Other 4,523
------------
Total assets 40,970,021
=================================================================================================================
LIABILITIES Payables and other liabilities:
Investments purchased 967,221
Dividends 106,683
Trustees' fees - Note 1 25,682
Distribution and service plan fees 4,470
Transfer and shareholder servicing agent fees 1,492
Shares of beneficial interest redeemed 145
Other 28,611
------------
Total liabilities 1,134,304
=================================================================================================================
NET ASSETS $39,835,717
============
=================================================================================================================
COMPOSITION OF NET ASSETS
Paid-in capital $38,271,428
- -----------------------------------------------------------------------------------------------------------------
Overdistributed net investment income (33,116)
- -----------------------------------------------------------------------------------------------------------------
Accumulated net realized gain on investment transactions 113,767
- -----------------------------------------------------------------------------------------------------------------
Net unrealized appreciation on investments - Notes 3 and 5 1,483,638
------------
Net assets $39,835,717
============
=================================================================================================================
NET ASSET VALUE PER SHARE
Class A Shares:
Net asset value and redemption price per share (based on net assets of
$19,108,824 and 1,656,413 shares of beneficial interest outstanding)
$11.54
Maximum offering price per share (net asset value plus sales charge of 4.75% of
offering price) $12.12
- -----------------------------------------------------------------------------------------------------------------
Class B Shares:
Net asset value, redemption price (excludes applicable contingent deferred sales
charge) and offering price per share (based on net assets of $18,646,741 and
1,617,360 shares of beneficial interest outstanding) $11.53
- -----------------------------------------------------------------------------------------------------------------
Class C Shares:
Net asset value, redemption price (excludes applicable contingent deferred sales
charge) and offering price per share (based on net assets of $2,080,152 and
180,396 shares of beneficial interest outstanding) $11.53
</TABLE>
See accompanying Notes to Financial Statements.
9 Oppenheimer New Jersey Municipal Fund
<PAGE>
========================================================
STATEMENT OF OPERATIONS FOR THE YEAR ENDED JULY 31, 1997
<TABLE>
=================================================================================================================
INVESTMENT INCOME
<S> <C>
Interest $1,775,867
=================================================================================================================
EXPENSES
Management fees - Note 4 168,116
- -----------------------------------------------------------------------------------------------------------------
Distribution and service plan fees - Note 4:
Class A 32,884
Class B 131,200
Class C 7,431
- -----------------------------------------------------------------------------------------------------------------
Transfer and shareholder servicing agent fees - Note 4 25,142
- -----------------------------------------------------------------------------------------------------------------
Shareholder reports 17,245
- -----------------------------------------------------------------------------------------------------------------
Legal and auditing fees 10,117
- -----------------------------------------------------------------------------------------------------------------
Custodian fees and expenses 6,076
- -----------------------------------------------------------------------------------------------------------------
Registration and filing fees:
Class A 2,280
Class B 2,661
Class C 403
- -----------------------------------------------------------------------------------------------------------------
Insurance expenses 3,482
- -----------------------------------------------------------------------------------------------------------------
Other 1,059
-----------
Total expenses 408,096
-----------
Less expenses paid indirectly - Note 4 (6,097)
Less reimbursement of expenses by OppenheimerFunds, Inc. - Note 4
(51,835)
-----------
Net expenses 350,164
=================================================================================================================
NET INVESTMENT INCOME 1,425,703
=================================================================================================================
REALIZED AND UNREALIZED GAIN (LOSS) Net realized gain (loss) on:
Investments (70,226)
Closing of futures contracts 220,854
-----------
Net realized gain 150,628
- -----------------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation or depreciation on investments
1,262,319
-----------
Net realized and unrealized gain 1,412,947
=================================================================================================================
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS
$2,838,650
===========
</TABLE>
See accompanying Notes to Financial Statements.
10 Oppenheimer New Jersey Municipal Fund
<PAGE>
===================================
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED
YEAR ENDED JULY 31,
DECEMBER 31,
1997 1996(1) 1995
===================================================================================================================================
OPERATIONS
<S> <C> <C> <C>
Net investment income $ 1,425,703 $ 535,517 $
553,912
- -----------------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) 150,628 (22,035)
14,709
- -----------------------------------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation or depreciation 1,262,319
(185,048) 698,858
------------------------------------------------
Net increase in net assets resulting
from operations 2,838,650 328,434
1,267,479
===================================================================================================================================
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS Dividends from net investment
income:
Class A (767,546) (320,924)
(359,044)
Class B (624,119) (212,582)
(195,257)
Class C (34,038) (2,007) (18)
- -----------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gain:
Class A (22,656) -- (7,650)
Class B (21,623) -- (4,513)
Class C (684) -- (1)
===================================================================================================================================
BENEFICIAL INTEREST TRANSACTIONS
Net increase in net assets resulting from beneficial interest transactions -
Note 2:
Class A 7,082,671 2,672,488
4,506,035
Class B 8,269,186 4,601,865
1,958,383
Class C 1,889,520 81,113 49,978
===================================================================================================================================
NET ASSETS
Total increase 18,609,361 7,148,387
7,215,392
- -----------------------------------------------------------------------------------------------------------------------------------
Beginning of period 21,226,356 14,077,969
6,862,577
------------------------------------------------
End of period (including overdistributed net investment income of $33,116,
$17,852 and $4, respectively) $39,835,717 $21,226,356
$14,077,969
================================================
</TABLE>
1. For the seven months ended July 31, 1996. The Fund changed its fiscal year
end from December 31 to July 31.
See accompanying Notes to Financial Statements.
11 Oppenheimer New Jersey Municipal Fund
<PAGE>
====================
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CLASS A CLASS B
---------------------------------------
- ----------------------------------------
YEAR ENDED YEAR ENDED YEAR
ENDED
YEAR ENDED JULY 31, DECEMBER 31, JULY 31,
DECEMBER 31,
1997 1996(2) 1995 1994(3) 1997 1996(2) 1995
1994(3)
====================================================================================================================================
PER SHARE OPERATING DATA:
<S> <C> <C> <C> <C> <C> <C> <C>
<C>
Net asset value, beginning of period $11.10 $11.26 $10.41 $11.43 $11.09
$11.25 $10.40 $11.43
- ------------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .62 .36 .61 .49 .53 .31 .53
.41
Net realized and unrealized gain (loss) .45 (.16) .86 (1.02) .46 (.16)
.86 (1.02)
- ------------------------------------------------------------------------------------------------------------------------------------
Total income (loss) from investment
operations 1.07 .20 1.47 (.53) .99 .15 1.39
(.61)
- ------------------------------------------------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income (.61) (.36) (.61) (.49) (.53) (.31)
(.53) (.42)
Distributions from net realized gain (.02) -- (.01) -- (.02) -- (.01)
--
- ------------------------------------------------------------------------------------------------------------------------------------
Total dividends and distributions
to shareholders (.63) (.36) (.62) (.49) (.55) (.31) (.54)
(.42)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $11.54 $11.10 $11.26 $10.41 $11.53
$11.09 $11.25 $10.40
===================================================================================
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE(4) 9.99% 1.80% 14.42% (4.63)%
9.18% 1.34% 13.59% (5.39)%
- ------------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) $19,109 $11,354 $8,806 $3,877 $18,647
$9,740 $5,222 $2,986
- ------------------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $14,072 $10,036 $6,504 $2,506 $13,278
$7,774 $4,080 $1,841
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income 5.45% 5.49%(6) 5.51% 5.57%(6) 4.70%
4.70% 4.79% 4.76%(6)
Expenses, before reimbursement and voluntary
assumption by the Manager or Distributor(7) 1.08% 1.64%(6) 1.75% 1.46%(6) 1.83%
2.40% 2.49% 2.29%(6)
Expenses, net of reimbursement and voluntary
assumption by the Manager or Distributor 0.88% 0.97%(6) 0.80% 0.31%(6) 1.62%
1.74% 1.53% 1.14%(6)
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(8) 11.9% 33.1% 7.4% 17.3% 11.9% 33.1%
7.4% 17.3%
</TABLE>
1. For the period from August 29, 1995 (inception of offering) to December 31,
1995. 2. For the seven months ended July 31, 1996. The Fund changed its fiscal
year end from December 31 to July 31. 3. For the period from March 1, 1994
(commencement of operations) to December 31, 1994. 4. Assumes a hypothetical
initial investment on the business day before the first day of the fiscal period
(or inception of offering), with all dividends and distributions reinvested in
additional shares on the reinvestment date, and redemption at the net asset
value calculated on the last business day of the fiscal period. Sales charges
are not reflected in the total returns. Total returns are not annualized for
periods of less than one full year.
12 Oppenheimer New Jersey Municipal Fund
<PAGE>
================================
FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
<CAPTION>
CLASS C
---------------------------------------
PERIOD ENDED
YEAR ENDED JULY 31, DECEMBER 31,
1997 1996(2) 1995(1)
========================================================================================
PER SHARE OPERATING DATA:
<S> <C> <C> <C>
Net asset value, beginning of period $11.09 $11.25 $11.01
- ----------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .53 .30 .19
Net realized and unrealized gain (loss) .45 (.16) .25
- ----------------------------------------------------------------------------------------
Total income (loss) from investment
operations .98 .14 .44
- ----------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income (.52) (.30) (.19)
Distributions from net realized gain (.02) -- (.01)
- ----------------------------------------------------------------------------------------
Total dividends and distributions
to shareholders (.54) (.30) (.20)
- ----------------------------------------------------------------------------------------
Net asset value, end of period $11.53 $11.09 $11.25
=======================================
========================================================================================
TOTAL RETURN, AT NET ASSET VALUE(4) 9.11% 1.29% 4.07%
========================================================================================
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) $2,080 $132 $50
- --------------------------------------------------------------------------------------
Average net assets (in thousands) $ 747 $ 74 $3
- --------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income 4.56% 4.66% -- (5)
Expenses, before reimbursement and voluntary
assumption by the Manager or Distributor(7) 1.79% 2.48% -- (5)
Expenses, net of reimbursement and voluntary
assumption by the Manager or Distributor 1.60% 1.81% -- (5)
- ----------------------------------------------------------------------------------------
Portfolio turnover rate(8) 11.9% 33.1% 7.4%
</TABLE>
5. Ratios during this period would not be indicative of future results. 6.
Annualized. 7. Beginning in fiscal 1995, the expense ratio reflects the effect
of expenses paid indirectly by the Fund. Prior year expense ratios have not been
adjusted. 8. The lesser of purchases or sales of portfolio securities for a
period, divided by the monthly average of the market value of portfolio
securities owned during the period. Securities with a maturity or expiration
date at the time of acquisition of one year or less are excluded from the
calculation. Purchases and sales of investment securities (excluding short-term
securities) for the period ended July 31, 1997 were $20,800,606 and $3,300,275,
respectively.
See accompanying Notes to Financial Statements.
13 Oppenheimer New Jersey Municipal Fund
<PAGE>
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
Oppenheimer New Jersey Municipal Fund (the Fund) is a separate series of
Oppenheimer Multi-State Municipal 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
income exempt from federal and New Jersey income taxes for individual investors
as is available from municipal securities and that is consistent with
preservation of capital. The Fund's investment adviser 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 that class and exclusive voting rights with respect to matters
affecting that 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
the last sale price on the prior trading day. Long-term and short-term
"non-money market" debt securities are valued by a portfolio pricing service
approved by the Board of Trustees. Such securities which cannot be valued by an
approved portfolio pricing service are valued using dealer-supplied valuations
provided the Manager is satisfied that the firm rendering the quotes is reliable
and that the quotes reflect current market value, or are valued under
consistently applied procedures established by the Board of Trustees to
determine fair value in good faith. Short-term "money market type" debt
securities having a remaining maturity of 60 days or less are valued at cost (or
last determined market value) adjusted for amortization to maturity of any
premium or discount.
ALLOCATION OF INCOME, EXPENSES, AND GAINS AND LOSSES. Income, expenses (other
than those attributable to a specific class) and gains and losses are allocated
daily to each class of shares based upon the relative proportion of net assets
represented by such class. Operating expenses directly attributable to a
specific class are charged against the operations of that class.
FEDERAL TAXES. The Fund intends to continue to comply with provisions of the
Internal Revenue Code applicable to regulated investment companies and to
distribute all of its taxable income, including any net realized gain on
investments not offset by loss carryovers, to shareholders. Therefore, no
federal income or excise tax provision is required.
TRUSTEES' FEES AND EXPENSES. The Fund has adopted a nonfunded retirement plan
for the Fund's independent trustees. Benefits are based on years of service and
fees paid to each trustee during the years of service. During the year ended
July 31, 1997, a credit of $11,644 was made for the Fund's projected benefit
obligations, and payments of $1,509 were made to retired trustees, resulting in
an accumulated liability of $25,682 at July 31, 1997.
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 on long-term bonds for tax purposes.
The character of the distributions made during the year from net investment
income or net realized gains may differ from its ultimate characterization for
federal income tax purposes. Also, due to timing of dividend distributions, the
fiscal year in which amounts are distributed may differ from the fiscal year in
which the income or realized gain was recorded by the Fund.
During the year ended July 31, 1997, the Fund adjusted the classification of
distributions to shareholders to reflect the differences between financial
statement amounts and distributions determined in accordance with income tax
regulations. Accordingly, during the year ended July 31, 1997, amounts have been
reclassified to reflect an increase in overdistributed net investment income of
$15,264. Accumulated net realized gain on investments was increased by the same
amount.
14 Oppenheimer New Jersey Municipal Fund
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Continued)
1. SIGNIFICANT ACCOUNTING POLICIES (continued)
OTHER. Investment transactions are accounted for on the date the investments are
purchased or sold (trade date). Original issue discount on securities purchased
is amortized over the life of the respective securities using the effective
yield method, 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 New Jersey and, therefore,
may have more credit risks related to the economic conditions of New Jersey 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 JULY 31, PERIOD ENDED JULY 31, YEAR
ENDED DECEMBER 31,
1997 1996(2) 1995(1)
SHARES AMOUNT SHARES AMOUNT SHARES
AMOUNT
Class A:
<S> <C> <C> <C> <C> <C> <C>
Sold 837,412 $ 9,364,872 325,900 $3,619,573 491,477 $
5,411,078
Dividends reinvested 46,887 524,696 19,711 217,924 21,117
233,177
Redeemed (251,097) (2,806,897) (104,674) (1,165,009) (102,930)
(1,138,220)
--------- ------------ --------- ----------- --------- ------------
Net increase 633,202 $ 7,082,671 240,937 $2,672,488 409,664 $
4,506,035
========= ============ ========= ===========
========= ============
Class B:
Sold 837,497 $ 9,367,955 458,042 $5,089,081 257,922 $
2,845,886
Dividends reinvested 36,119 404,040 12,354 136,326 11,729
129,351
Redeemed (134,448) (1,502,809) (56,298) (623,542) (92,736)
(1,016,854)
--------- ------------ --------- ----------- --------- ------------
Net increase 739,168 $ 8,269,186 414,098 $4,601,865 176,915 $
1,958,383
========= ============ ========= ===========
========= ============
Class C:
Sold 185,940 $ 2,083,594 11,763 $ 130,464 4,551 $
51,000
Dividends reinvested 2,216 24,849 144 1,592 -- --
Redeemed (19,626) (218,923) (4,501) (50,943) (91)
(1,022)
--------- ------------ --------- ----------- --------- ------------
Net increase 168,530 $ 1,889,520 7,406 $ 81,113 4,460 $
49,978
========= ============ ========= ===========
========= ============
</TABLE>
1. For the year ended December 31, 1995 for 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. 2. The Fund changed its fiscal year end from
December 31 to July 31.
3. UNREALIZED GAINS AND LOSSES ON INVESTMENTS
At July 31, 1997, net unrealized appreciation on investments of $1,447,700 was
composed of gross appreciation of $1,579,868, and gross depreciation of
$132,168.
4. MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES Management fees paid
to the Manager were in accordance with the investment advisory agreement with
the Fund which provides for an annual fee of 0.60% on the first $200 million of
average annual net assets, 0.55% on the next $100 million, 0.50% on the next
$200 million, 0.45% on the next $250 million, 0.40% on the next $250 million and
0.35% on average annual net assets in excess of $1 billion. The Manager has
voluntarily undertaken to assume Fund expenses to the level needed to maintain a
stable dividend.
15 Oppenheimer New Jersey Municipal Fund
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Continued)
4. MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES (continued) For the
year ended July 31, 1997, commissions (sales charges paid by investors) on sales
of Class A shares totaled $229,892, of which $42,671 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 $359,680 and $16,662, respectively, of which $3,320 and $1,019 was paid
to an affiliated broker/dealer for Class B and Class C shares, respectively.
During the year ended July 31, 1997, OFDI received contingent deferred sales
charges of $28,809 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.
Expenses paid indirectly represent a reduction of custodian fees for earnings on
cash balances maintained by the Fund.
The Fund has adopted a Service Plan for Class A shares to reimburse OFDI for a
portion of its costs incurred in connection with the personal service and
maintenance of shareholder accounts that hold Class A shares. Reimbursement is
made quarterly at an annual rate that may not exceed 0.25% (voluntarily reduced
to 0.15% by the Fund's Board) of the average annual net assets of Class A shares
of the Fund. OFDI uses the service fee to reimburse brokers, dealers, banks and
other financial institutions quarterly for providing personal service and
maintaining accounts of their customers that hold Class A shares.
The Fund has adopted a Distribution and Service Plan for Class B shares to
reimburse OFDI for its services and costs in distributing Class B shares and
servicing accounts. Under the Plan, the Fund pays OFDI an annual asset-based
sales charge of 0.75% per year on Class B shares. OFDI also receives a service
fee that may not exceed 0.25% (voluntarily reduced to 0.15% by the Fund's Board)
per year to reimburse dealers for providing personal services for accounts that
hold Class B shares. Both fees are computed on the average annual net assets of
Class B shares, determined as of the close of each regular business day. During
the year ended July 31, 1997, OFDI retained $110,009 as reimbursement for Class
B sales commissions and service fee advances, as well as financing costs. 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 OFDI for distributing
shares before the Plan was terminated. As of July 31, 1997, OFDI had incurred
unreimbursed expenses of $673,463 for Class B.
The Fund has adopted a compensation type Distribution and Service Plan for Class
C shares to compensate OFDI for its services and costs in distributing Class C
shares and servicing accounts. Under the Plan, the Fund pays OFDI an annual
asset-based sales charge of 0.75% per year on Class C shares. OFDI also receives
a service fee that may not exceed 0.25% (voluntarily reduced to 0.15% by the
Fund's Board) per year to compensate dealers for providing personal services for
accounts that hold Class C shares. Both fees are computed on the average annual
net assets of Class C shares, determined as of the close of each regular
business day. During the year ended July 31, 1997, OFDI retained $6,322 as
reimbursement for Class C sales commissions and service fee advances, as well as
financing costs. 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 OFDI
for distributing shares before the Plan was terminated. As of July 31, 1997,
OFDI had incurred unreimbursed expenses of $28,927 for Class C.
5. FUTURES CONTRACTS
The Fund may buy and sell interest rate futures contracts in order to gain
exposure to or protect against changes in interest rates or for purposes of
duration management. The Fund may also buy or write put or call options on these
futures contracts.
The Fund generally sells futures contracts to hedge against increases in
interest rates and the resulting negative effect on the value of fixed rate
portfolio securities. The Fund may also purchase futures contracts to gain
exposure to changes in interest rates as it may be more efficient or cost
effective than buying fixed income securities.
16 Oppenheimer New Jersey Municipal Fund
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Continued)
5. FUTURES CONTRACTS (continued)
Upon entering into a futures contract, the Fund is required to deposit either
cash or securities (initial margin) in an amount equal to a certain percentage
of the contract value. Subsequent payments (variation margin) are made or
received by the Fund each day. The variation margin payments are equal to the
daily changes in the contract value and are recorded as unrealized gains and
losses. The Fund recognizes a realized gain or loss when the contract is closed
or expires.
Securities held in collateralized accounts to cover initial margin requirements
on open futures contracts are noted in the Statement of Investments. The
Statement of Assets and Liabilities reflects a receivable or payable for the
daily mark to market for variation margin.
Risk of entering into futures contracts (and related options) include the
possibility that there may be an illiquid market and that a change in the value
of the contract or option may not correlate with changes in the value of the
underlying securities.
At July 31, 1997, the Fund had outstanding futures contracts to purchase debt
securities as follows:
<TABLE>
<CAPTION>
Number of Valuation as of Unrealized
Expiration Date Futures Contracts July 31, 1997
Appreciation
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury Bonds 9/97 40 $4,670,000 $35,938
</TABLE>
17 Oppenheimer New Jersey Municipal Fund
<PAGE>
APPENDIX A
Descriptions of Ratings Categories
Municipal Bonds
o 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.
o 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
A-1
<PAGE>
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 ratingBonds 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.
o 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.
o Duff & Phelps. The ratings of Duff & Phelps are as follows: AAA which
are judged to be the "highest credit quality". The risk factors are negligible,
being only slightly more than for risk-free US Treasury debt. AA+, AA & AA- High
credit quality protection factors are strong. Risk is modest
A-2
<PAGE>
but may vary slightly from time to time because of economic conditions. A+, A &
A- Protection factors are average but adequate. However, risk factors are more
variable and greater in periods of economic stress. BBB+, BBB & BBB- Below
average protection factors but still considered sufficient for prudent
investment. Considerable variability in risk during economic cycles. BB+, BB &
BB- Below investment grade but deemed to meet obligations when due. Present or
prospective financial protection factors fluctuate according to industry
conditions or company fortunes. Overall quality may move up or down frequently
within the category. B+, B & B- Below investment grade and possessing risk that
obligations will not be met when due. Financial protection factors will
fluctuate widely according to economic cycles, industry conditions and/or
company fortunes. Potential exists for frequent changes in the rating within
this category or into a higher of lower rating grade. CCC Well below investment
grade securities. Considerable uncertainty exists as to timely payment of
principal interest or preferred dividends. Protection factors are narrow and
risk can be substantial with unfavorable economic industry conditions, and/or
with unfavorable company developments. DD Defaulted debt obligations issuer
failed to meet scheduled principal and/or interest payments. DP Preferred stock
with dividend arreages.
Municipal Notes
o 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.
o 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.
o 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.
A-3
<PAGE>
Commercial Paper
o 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.
o 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.
o Fitch The ratings of commercial paper by Fitch are similar to its
ratings of Municipal Notes, above.
A-4
<PAGE>
APPENDIX B
TAX EQUIVALENT YIELD TABLES
The equivalent yield tables below compare tax-free income with taxable income
under Federal individual income tax rates effective January 28, 1997 and New
Jersey state income tax rates effective January 28, 1997. Combined taxable
income refers to the net amount subject to Federal and New Jersey income taxes
after deductions and exemptions. The tables assume that an investor's highest
tax bracket applies to the change in taxable income resulting from a switch
between taxable and non-taxable investments, that the investor is not subject to
the Alternative Minimum Tax and that state income tax payments are fully
deductible for Federal income tax purposes. They do not reflect the phaseout of
itemized deductions and personal exemptions at higher income levels, resulting
in higher effective tax rates and tax equivalent yields.
Federal Effective A tax-exempt yield of:
Taxable Tax
Income Bracket Is Approximately Equivalent To a
Taxable Yield of:
JOINT RETURN
Over Not overFederal NJ Combine 4.00% 4.50%
5.00% 5.50% 5.96% 6.00%
$ 20,000 $ 41,200 15.00% 1.750% 16.49% 4.79% 5.39% 5.99% 6.59% 7.14% 7.18% $
41,200 $ 50,00028.00% 1.750% 29.26% 5.65% 6.36% 7.07% 7.77% 8.43% 8.48% $ 50,000
$ 70,00028.00%2.450% 29.76%5.70%6.41% 7.12% 7.83% 8.49% 8.54% $ 70,000 $
80,00028.00% 5.08%3.505.76%52%6.48% 7.20% 7.92% 8.58% 8.64% $ 80,000 $ 99,600
28.00% 5.530% 31.98% 5.88% 6.62% 7.35% 8.09% 8.76% 8.82% $ 99,600 $150,031.00%
5.530% 34.82% 6.14% 6.90% 7.67% 8.44% 9.14% 9.20% $150,000
$151,731.00%6.370%35.40% 6.19% 6.97% 7.74% 8.51% 9.23% 9.29% $151,750
$271,05036.00% 6.370% 40.08% 6.68% 7.51% 8.34% 9.18% 9.95%10.01% $271,050 and
abov39.60% 6.20%6.377.07%45%7.96% 8.84% 9.73% 10.54%10.61%
6.50% 6.91% 7.00% 7.50%
7.78% 8.27 8.38% 8.98%
9.19% 9.77 9.90%10.60%
9.25% 9.84 9.97%10.68%
9.36% 9.9510.07%10.79%
9.56%10.1610.29%11.03%
9.97%10.6010.74%11.51%
10.06%10.7010.84%11.61%
10.85%11.5311.68%12.52%
11.49%12.2212.38%13.26%
SINGLE RETURN
Over Not overFederal NJ Combine 4.00%
4.50% 5.00% 5.50% 5.96% 6.00%
$ 20,000 $ 24,650 15.00%
1.750% 16.49% 4.79% 5.39% 5.99% 6.59% 7.14% 7.18%
$ 24,650 $ 35,00028.00%
4.97%1.755.65%26%6.36% 7.07% 7.77% 8.43% 8.48%
B-1
<PAGE>
$ 35,000 $ 40,00028.00% 3.500% 30.52% 5.76% 6.48% 7.20% 7.92% 8.58% 8.64% $
40,000 $ 59,75028.00%5.530% 31.98%5.88%6.62% 7.35% 8.09% 8.76% 8.62% $ 59,750 $
75,00031.00% 5.40%5.536.14%82%6.90% 7.67% 8.44% 9.14% 9.20% $ 75,000
$124,65031.00% 6.370% 35.40% 6.19% 6.97% 7.74% 8.51% 9.23% 9.29% $124,650
$271,05036.00% 6.370%40.08% 6.68% 7.51%8.34% 9.18% 9.95%10.01% $271,050 and
abov39.60% 6.20%6.377.07%45%7.96% 8.84% 9.73% 10.54%10.61%
6.50% 6.91% 7.00% 7.50%
7.78% 8.27 8.38% 8.98%
9.19% 9.77 9.90%10.60%
9.36% 9.9510.07%10.79%
9.56%10.1610.29%11.03%
9.97%10.6010.74%11.51%
10.06%10.7010.84%11.61%
10.85%11.5311.68%12.52%
11.49%12.2212.38%13.26%
B-2
<PAGE>
Appendix C
Municipal Bond Industry Classifications
Electric Resource Recovery
Gas
Water Higher Education
Sewer Education
Telephone
Lease Rental
Adult Living Facilities
Hospital Non Profit Organization
General Obligation Highways
Special Assessment Marine/Aviation
Facilities
Sales Tax
Multi Family Housing
Manufacturing, Non Durables Single Family Housing
Manufacturing, Durables
Pollution Control
C-1
<PAGE>
Investment Adviser
OppenheimerFunds, Inc.
Two World Trade Center
New York, New York 10048
Distributor
OppenheimerFunds Distributor, Inc.
Two World Trade Center
New York, New York 10048
Transfer and Shareholder Servicing Agent
OppenheimerFunds Services
P.O. Box 5270
Denver, Colorado 80217
1-800-525-7048
Custodian of Portfolio Securities
Citibank, N.A.
399 Park Avenue
New York, New York 10043
Independent Auditors
KPMG Peat Marwick LLP
707 Seventeenth Street
Denver, Colorado 80202
Legal Counsel
Gordon Altman Butowsky Weitzen
Shalov & Wein
114 West 47th Street
New York, New York 10036
C-2
